AXP STRATEGY SERIES INC
485APOS, 2001-01-05
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                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933                [X]

Pre-Effective Amendment No.                                            [ ]
                            ----------

Post-Effective Amendment No.   41   (File No. 2-89288)                 [X]
                             ------

                                     and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No.       43     (File No. 811-3956)                         [X]
                  -------

AXP STRATEGY SERIES, INC.
200 AXP Financial Center
Minneapolis, Minnesota  55474

Leslie L. Ogg - 901 S. Marquette Avenue, 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) [ ] 75 days after  filing  pursuant to
   paragraph (a)(2) [ X] on Jan. 19, 2001,  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>

--------------------------------------------------------------------------------
Information   contained  herein  is  subject  to  completion  or  amendment.   A
registration  statement  relating  to these  securities  has been filed with the
Securities  and  Exchange  Commision,  but has not yet become  effective.  These
securities  may not be sold nor may offers to buy be accepted  prior to the time
the  registration  statement  becomes  effective.   This  prospectus  shall  not
constitute  an offer  to sell or the  soliciation  of an offer to buy nor  shall
there  be any sale of  these  securities  in any  state  in  which  such  offer,
solicitation or sale would be unlawful prior to  registration  or  qualification
under the securities laws of any such state.
--------------------------------------------------------------------------------

AXP(R) Small Cap Growth Fund

PROSPECTUS
Jan. 19, 2001

American Express(R) Funds

AXP Small Cap Growth Fund seeks to provide  shareholders  with long-term capital
growth.

Please note that this 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 of this prospectus.
Any representation to the contrary is a criminal offense.

<PAGE>

Table of Contents

TAKE A CLOSER LOOK AT:

The Fund
Goal
Investment Strategy
Risks
Past Performance
Fees and Expenses
Management

Buying and Selling Shares
Valuing Fund Shares
Investment Options
Purchasing Shares
Transactions through Third Parties
Sales Charges
Exchanging/Selling Shares

Distributions and Taxes

Other Information

FUND INFORMATION KEY

Goal and Investment Strategy
The Fund's  particular  investment  goal and the strategies it intends to use in
pursuing its goal.

Risks
The major risk factors associated with the Fund.

Fees and Expenses
The overall costs incurred by an investor in the Fund,  including  sales charges
and annual expenses.

Financial Highlights
Tables showing the Fund's financial performance.

Management
The  individual  or group  designated  by the  investment  manager to handle the
Fund's day-to-day management.

<PAGE>

The Fund

GOAL
AXP  Small Cap  Growth  Fund  (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.  Under normal
market  conditions,  at least 65% of the  Fund's  net  assets  are  invested  in
companies  with market  capitalization  of up to $2 billion at the time the fund
first  invests in them.  These  companies  will often be those  included  in the
Russell 2000(R) Index.

American Express Financial  Corporation (AEFC), serves as the investment manager
to the  Fund  and is  responsible  for the  Fund's  overall  administration  and
distribution. AEFC has selected three asset managers to manage the Fund, INVESCO
Funds  Group,  Inc.  (INVESCO),  Neuberger  Berman  Management  Inc.  (Neuberger
Berman),  and RS Investment  Management,  L.P.  (RSIM).  Each of the three asset
managers  acts  independently  of the  others and uses its own  methodology  for
selecting  investments.  All three asset  managers  employ an active  investment
strategy that focuses  primarily on stocks of small companies  whose  businesses
are  expanding.  New  investments  in the  fund,  net of  any  redemptions,  are
allocated to the sub-advisors in equal portions.

In selecting  investments  for the Fund,  each of the asset  managers  looks for
companies that have the potential to increase in value over time.  This strategy
seeks to identify  companies with either  earnings and revenues that are growing
at   an   accelerating    pace,   or   the   demonstrated    potential   for   a
greater-than-average increase in value.

INVESCO's  methodology looks primarily for companies in the developing stages of
their  life  cycles  with one or more of the  following  characteristics:

o    the  companies  are  currently  priced below  INVESCO's  estimates of their
     potential;
o    the companies  have earnings  which may be expected to grow faster than the
     domestic economy; or
o    the companies  offer the potential for  accelerated  earnings growth due to
     rapid growth of sales,  new  products,  management  changes,  or structural
     changes in the economy.

Neuberger Berman looks for new companies that are in the developmental  stage as
well as older  companies  that appear  poised to grow  because of new  products,
markets, or management. Factors used to identify these companies may include:

o    financial strength,
o    a strong position relative to competitors, and
o    a stock price that is reasonable in light of its growth rate.

Neuberger  Berman  follows a disciplined  selling  strategy and may drop a stock
from its portion of the Fund's  portfolio when it reaches a target price,  fails
to perform as expected,  or appears  substantially  less  desirable than another
stock.

RSIM  typically  considers  a  number  of  factors  in  evaluating  a  potential
investment,  including whether:

o    the company has a superior management team;
o    the company has experienced or has the potential for superior  earnings per
     share momentum; and
o    there is a possible catalyst, such as new management or a new product, that
     has the potential to drive earnings and valuations higher.

RSIM may consider selling a security from its portion of the Fund's portfolio if
the stock price declines substantially below the purchase price, if the price of
the security attains a target price or otherwise appears relatively high, if the
company's  business   fundamentals  appear  to  turn  negative,  or  if  another
investment appears to offer a better opportunity.

<PAGE>

Although not a primary  investment  strategy,  the Fund also may invest in other
instruments, such as money market securities,  investment grade debt securities,
and foreign securities.  Additionally,  the Fund may use derivative  instruments
(such as options and futures  contracts)  to produce  incremental  earnings,  to
hedge existing positions, and to increase flexibility.

During  weak or  declining  markets,  the Fund may invest  more of its assets in
money market  securities.  Although  the Fund would  invest in these  securities
primarily to hedge risk,  this type of  investment  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 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
         Small Company Risk
         Style 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.

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  are  substantially  less  than is  typical  of larger
companies.

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.

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

The following table provides information  concerning the historical  performance
of three registered  investment company accounts managed by INVESCO Funds Group,
Inc.,  Neuberger  Berman  Management Inc., and RS Investment  Management,  L.P.,
respectively,  the three  subadvisors  ("Subadvisors")  of the Fund. Each of the
three  registered   investment  company  accounts  has  investment   objectives,
policies, strategies, and risks substantially similar to those of the Fund. This
information  is  provided  to  illustrate  the  past  performance  of the  three
Subadvisors in managing a substantially  similar  investment vehicle as measured
against the Russell 2000(R) Index. This information  represents neither the past
performance of the Fund, or any portion of the Fund, nor the future  performance
of the Fund,  or any  portion  of the Fund.

<PAGE>

Performance  data shown for each of the registered  investment  company accounts
was  calculated  in  accordance  with  standards  prescribed  by the SEC for the
calculation of average annual total return information for registered investment
companies.  All  performance  information  has been  provided by the  respective
Subadvisors  and has not been audited by AEFC or the Fund.  Average annual total
return  reflects  changes in share  prices and  reinvestment  of  dividends  and
distributions and is net of fund expenses.  Share prices and investment  returns
will  fluctuate,  reflecting  market  conditions  as  well  as  changes  in  the
fundamentals of portfolio securities. The performance results for the registered
investment  company accounts  presented below are generally  subject to fees and
expenses  ( 1.24%,  2.13%,  and  1.89%,  respectively)  that  differ  from those
estimated for the Fund. The performance data presented below is unaudited.

The past performance of the three registered investment company accounts and the
Index should not be viewed as representative  of the Fund's future  performance.
Each of the subadvisors manages only a portion of the Fund's assets.  Therefore,
the future  performance of each  Subadvisor  will affect the  performance of the
Fund only for the portion of the assets that the Subadvisor manages.

Average annual total returns (as of Dec. 31, 1999)*
<TABLE>
<CAPTION>

                                            Cummulative
                                            Return Year           Average annual total returns (as of Dec. 31, 1999)*
                                              to Date                                                                 Since
                                              through       1 year   2 years    3 years    5 years    10 years    Inception
                                            Nov.30, 2000
<S>                                           <C>            <C>        <C>        <C>        <C>        <C>         <C>
INVESCO Small Company Growth Fund             -18.77%        81.64%     44.46%     35.16%     29.08%       -- %       23.91%
(Investor Class)(a)(12/91)**
Neuberger Berman Millennium Fund(b)(10/98)    -36.08%       130.49%       -- %       -- %       -- %       -- %      184.90%
RS Diversified Growth Fund(c)(8/96)           -33.95%       150.21%     70.57%     55.58%       -- %       -- %       57.08%
Russell 2000(R)Index(d)                       -10.69%        21.26%      8.70%     13.08%     16.69%     13.40%         -- %
Russell 2000(R)Growth Index(e)                -26.90%        43.09%     20.35%     17.83%     18.99%     13.51%         -- %
Lipper Small Cap growth Funds Index(f)        -15.71%        61.17%     27.56%     21.87%     23.66%     17.60%         -- %
</TABLE>

*Double and triple  digit  returns are highly  unusual and cannot be  sustained.
Recent returns were achieved  primarily  during unusual  market  conditions,  in
large part due to the  technology  sector.  The  performance of any of the funds
shown during the period  subsequent to September 30, 2000, may be less than that
shown.
**(Inception date of the fund)

a)   During the periods  shown,  certain  expenses of the INVESCO  Small Company
     Growth Fund were reduced or were absorbed by INVESCO,  resulting in greater
     total returns than would otherwise have been achieved.

b)   The start up of the Neuberger Berman Millennium Fund roughly coincided with
     a period of accelerated  growth in the small cap growth sector of the stock
     market,  and its investment in initial  public  offerings had a significant
     impact on  performance.  There can be no assurance  that these factors will
     continue  to have a  positive  effect  on the  fund.  Since  the  fund  was
     relatively  small during much of the period shown,  it may have been easier
     to achieve  higher  returns  that in a larger  fund.  Because of the fund's
     aggressive  investment  approach,  its share  price is  subject  to greater
     volatility than may be found in a more conservative fund.  Neuberger Berman
     currently  absorbs  certain  operating  expenses  of the fund.  Absent such
     arrangements,  which are subject to change,  the returns for periods  shown
     would have been less.

c)   During the periods shown,  expenses of the RS Diversified  Growth Fund, and
     therefore  its  total   returns,   were  affected  by  expense   limitation
     reimbursements and a one-time accounting adjustment in 1999.

d)   The Russell 2000(R) Index, an unmanaged index,  measures the performance of
     the 2,000 smallest  companies in the Russell 3000 Index,  which  represents
     approximately  8% of the total  market  capitalization  of the Russell 3000
     Index.

e)   Russell  2000(R)  Growth Index  measures the  performance  of those Russell
     2000(R)  Index  companies  with  higher  price-to-book  ratios  and  higher
     forecasted growth values.

f)   Lipper Small-Cap Growth Index, an unmanaged index published by Lipper Inc.,
     includes  the 30  largest  funds  that are  generally  similar to the Fund,
     although  some funds in the index may have  somewhat  different  investment
     policies or objectives.

<PAGE>

FEES AND EXPENSES
Fund  investors  pay various  expenses.  The table below  describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
<TABLE>
<CAPTION>

Shareholder Fees (fees paid directly from your investment)
<S>                                               <C>            <C>            <C>            <C>
                                                  Class A        Class B        Class C        Class Y
Maximum sales charge
(load) imposed on purchases(a)
(as a percentage
of offering price)                                 5.75%(b)       none            none           none
Maximum deferred sales
charge (load) imposed on
sales (as a percentage
of offering price at time of purchase)              none           5%             1%(c)          none

Annual Fund operating expenses(d) (expenses that are deducted from Fund assets)

As a percentage of average daily net assets:      Class A        Class B        Class C        Class Y
----------------------------------------------- ------------- -------------- --------------- -------------
Management fees(e)                                   .92%          .92%           .92%            .92%
----------------------------------------------- ------------- -------------- --------------- -------------
Distribution (12b-1) fees                            .25%         1.00%          1.00%            .00%
----------------------------------------------- ------------- -------------- --------------- -------------
Other expenses(f)                                    .54%          .55%           .55%            .61%
----------------------------------------------- ------------- -------------- --------------- -------------
Total                                               1.71%         2.47%          2.47%           1.53%
----------------------------------------------- ------------- -------------- --------------- -------------
Fee waiver/expense reimbursement                     .16%          .16%           .16%            .16%
----------------------------------------------- ------------- -------------- --------------- -------------
Net expenses                                        1.55%         2.31%          2.31%           1.37%
----------------------------------------------- ------------- -------------- --------------- -------------
</TABLE>

a    This charge may be reduced depending on the value of your total investments
     in American Express mutual funds. See "Sales Charges."
b    For Class A purchases over $500,000 on which the sales charge is waived,  a
     1% sales  charge  applies if you sell your  shares less than one year after
     purchase.
c    For Class C purchases,  a 1% sales  charge  applies if you sell your shares
     less than one year after purchase.
d    Expenses are based on estimated  amounts for the current fiscal year.  AEFC
     has  contractually  agreed  to waive  certain  fees and to  absorb  certain
     expenses until March 31, 2002.  Under this  agreement,  total expenses will
     not  exceed  1.55%  for Class A;  2.31% for Class B;  2.31% for Class C and
     1.37% for Class Y.
e    The Fund's  management fee may be increased or decreased due ot the effects
     of a performance incentive adjustment.
f    Other  expenses  include an  administrative  services  fee,  a  shareholder
     services  fee for Class Y, a  transfer  agency  fee and  other  nonadvisory
     expenses.

Example

This  example is intended to help you compare the cost of  investing in the Fund
with the cost of investing in other mutual funds.

Assume you invest $10,000 and the Fund earns a 5% annual  return.  The operating
expenses remain the same each year. If you hold your shares until the end of the
years shown, your costs would be:

                  1 year           3 years          5 years          10 years
Class A(a)         $ 724           $ 1,068          $ 1,437         $ 2,471
Class B(b)         $ 634           $ 1,055          $ 1,402         $ 2,610(d)
Class B(c)         $ 234           $   755          $ 1,302         $ 2,610(d)
Class C            $ 234           $   755          $ 1,302         $ 2,798
Class Y            $ 139           $   468          $   820         $ 1,815

a    Includes a 5.75% sales charge.
b    Assumes you sold your Class B shares at the end of the period and  incurred
     the applicable CDSC.
c    Assumes you did not sell your Class B shares at the end of the period.
d    Based on  conversion  of Class B shares to Class A shares in the ninth year
     of ownership.

This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown.

<PAGE>

MANAGEMENT

Three  sub-advisors,  INVESCO  Funds Group,  Inc.  (INVESCO),  Neuberger  Berman
Management Inc. (Neuberger Berman),  and RS Investment  Management,  L.P. (RSIM)
each  manage  a  portion  of the  Fund's  assets  based  upon  their  respective
experience  in  managing a small cap  growth  fund  whose  investment  goals and
strategies are  substantially  similar to those of the Fund. New  investments in
the Fund, net of any  redemptions,  are allocated to the  sub-advisors  in equal
portions.  AEFC reserves the right to modify this  allocation no more often than
semiannually.

INVESCO
Stacie Cowell, CFA
Stacie  Cowell,  a vice president of INVESCO,  is the lead portfolio  manager of
Small Company  Growth Fund.  Before joining  INVESCO in 1997,  Stacie was senior
equity  analyst with Founders Asset  Management  from 1993 to 1996 and a capital
markets and trading  analyst  with Chase  Manhattan  Bank in New York.

Neuberger Berman
Michael Malouf
Vice President of Neuberger Berman Management and Managing Director of Neuberger
Berman,  LLC. He joined  Neuberger Berman in 1998. He has been co-manager of the
Neuberger Berman Millennium  Portfolio since its inception in 1998. From 1991 to
1998, he was a portfolio manager at Dresdner RCM Global Investors, LLC.

Jennifer Silver
Vice  President  of  Neuberger  Berman  Management  and a Managing  Director  of
Neuberger  Berman,  LLC.  She  joined  Neuberger  Berman  in 1997.  She has been
co-manager of the Neuberger Berman  Millennium  Portfolio since its inception in
1998.  From 1981 to 1997,  she was an analyst and a portfolio  manager at Putnam
Investments..

RSIM
John H. Seabern, CFA
John is a vice president and co-portfolio  manager of the RS Diversified  Growth
Fund. He has served on the  management  team of the RS  Diversified  Growth Fund
since its inception.  He joined the RSIM research team in September 1993.  Prior
to joining RSIM, John worked at Duncan-Hurst Capital Management as a performance
analyst for two years.

John L. Wallace
John is a Managing Director and portfolio manager of the RS MidCap Opportunities
Fund (formerly  Growth & Income Fund),  RS  Diversified  Growth Fund and related
separate accounts.  He joined RSIM in July 1995. Prior to joining RSIM, John was
vice president and portfolio  manager of the Oppenheimer  Main Street Income and
Growth and Total Return Funds, where he managed more than $4 billion in assets.

Buying and Selling Shares

VALUING FUND SHARES
The public  offering price for Class A is the net asset value (NAV) adjusted for
the sales charge. For Class B, Class C and Class Y, it is the NAV.

The 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 Time (CT), each business day (any day the New York Stock Exchange
is open).

Fund  shares  may  be  purchased  through  various  third-party   organizations,
including 401(k) plans, banks, brokers and investment advisers. Where authorized
by the Fund, orders will be priced at the NAV next computed after receipt by the
organization or their selected agent.

<PAGE>

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.

INVESTMENT OPTIONS
1.   Class A shares  are sold to the public  with a sales  charge at the time of
     purchase and an annual distribution (12b-1) fee of 0.25%.

2.   Class B shares  are sold to the public  with a  contingent  deferred  sales
     charge (CDSC) and an annual distribution fee of 1.00%.

3.   Class C shares are sold to the public without a sales charge at the time of
     purchase and with an annual distribution fee of 1.00%.

4.   Class Y shares are sold to  qualifying  institutional  investors  without a
     sales charge or  distribution  fee.  Please see the SAI for  information on
     eligibility to purchase Class Y shares.

Investment options summary:

The Fund offers four different  classes of shares.  There are differences  among
the fees and  expenses  for each  class.  Not  everyone is eligible to buy every
class.  After  determining  which classes you are eligible to buy,  decide which
class best suits  your  needs.  Your  financial  advisor  can help you with this
decision.
<TABLE>
<CAPTION>

The following table shows the key features of each class:

                              Class A               Class B              Class C               Class Y
<S>                     <C>                   <C>                  <C>                   <C>
----------------------- --------------------- -------------------- --------------------- --------------------
Availability            Available to all      Available to all     Available to all      Limited to
                        investors.            investors.           investors.            qualifying
                                                                                         institutional
                                                                                         investors.
----------------------- --------------------- -------------------- --------------------- --------------------
Initial Sales Charge    Yes.                  No.                  No.                   No.
                        Payable at time of    Entire purchase      Entire purchase       Entire purchase
                        purchase. Lower       price is invested    price is invested     price is invested
                        sales charge for      in shares of the     in shares of the      in shares of the
                        larger investments.   Fund.                Fund.                 Fund.
----------------------- --------------------- -------------------- --------------------- --------------------
Deferred Sales Charge   On purchases over     Maximum 5% CDSC      1% CDSC applies if    None.
                        $500,000, 1% CDSC     during the first     you sell your
                        applies if you sell   year decreasing to   shares less than
                        your shares less      0% after six years.  one year after
                        than one year after                        purchase.
                        purchase.
----------------------- --------------------- -------------------- --------------------- --------------------
Distribution and/or     Yes.*                 Yes.*                Yes.*                 Yes.
Shareholder Service     0.25%                 1.00%                1.00%                 0.10%
Fee
----------------------- --------------------- -------------------- --------------------- --------------------
Conversion to Class A   N/A                   Yes, automatically   No.                   No.
                                              in ninth calendar
                                              year of ownership.
----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>

*    The Fund has adopted a plan under Rule 12b-1 of the Investment  Company Act
     of 1940 that allows it to pay distribution and  servicing-related  expenses
     for the sale of Class A, Class B and Class C shares. Because these fees are
     paid out of the  Fund's  assets  on an  on-going  basis,  the fees may cost
     long-term  shareholders  more  than  paying  other  types of sales  charges
     imposed by some mutual funds.

<PAGE>

Should you purchase Class A, Class B or Class C shares?

If your  investments  in American  Express  mutual funds total $250,000 or more,
Class A shares may be the better option  because the sales charge is reduced for
larger  purchases.  If you  qualify  for a waiver of the sales  charge,  Class A
shares will be the best option.

If you  invest  less  than  $250,000,  consider  how long you plan to hold  your
shares. Class B shares have a higher annual distribution fee than Class A shares
and a CDSC for six years.  Class B shares convert to Class A shares in the ninth
calendar  year  of  ownership.  Class  B  shares  purchased  through  reinvested
dividends  and  distributions  also will  convert  to Class A shares in the same
proportion as the other Class B shares.

Class C shares also have a higher annual  distribution  fee than Class A shares.
Class C shares  have no sales  charge  if you  hold the  shares  for one year or
longer.  Unlike  Class B shares,  Class C shares do not convert to Class A. As a
result,  you will  pay a 1%  distribution  fee for as long as you  hold  Class C
shares.  If you  choose a deferred  sales  charge  option  (Class B or Class C),
generally you should  consider  Class B shares if you intend to hold your shares
for more than six  years.  Consider  Class C shares  if you  intend to hold your
shares less than six years.  To help you determine  what  investment is best for
you, consult your financial advisor.

PURCHASING SHARES
To purchase  shares  through a  brokerage  account or from  entities  other than
American Express Financial Advisors Inc., please consult your selling agent. The
following  section  explains how you can purchase  shares from American  Express
Financial Advisors (the Distributor).

If you do not have a  mutual  fund  account,  you need to  establish  one.  Your
financial  advisor will help you fill out and submit an  application.  Once your
account is set up, you can choose among several convenient ways to invest.

When you  purchase  shares  for a new or  existing  account,  your order will be
priced at the next NAV  calculated  after your order is accepted by the Fund. If
your application  does not specify which class of shares you are purchasing,  we
will assume you are investing in Class A shares.

Important:  When you open an account,  you must provide  your  correct  Taxpayer
Identification  Number (TIN),  which is either your Social  Security or Employer
Identification number.

If you  do not  provide  the  correct  TIN,  you  could  be  subject  to  backup
withholding of 31% of taxable  distributions and proceeds from certain sales and
exchanges. You also could be subject to further penalties, such as:

o    a $50 penalty for each failure to supply your correct TIN,

o    a civil  penalty of $500 if you make a false  statement  that results in no
     backup withholding, and

o    criminal penalties for falsifying information.

You also could be subject to backup  withholding,  if the IRS  notifies us to do
so,  because you failed to report  required  interest or  dividends  on your tax
return.

<PAGE>

How to determine the correct TIN

<TABLE>
<S>                                                     <C>
For this type of account:                               Use the Social Security or Employer Identification
                                                        number of:
------------------------------------------------------- -----------------------------------------------------
Individual or joint account                             The individual or one of the owners listed on the
                                                        joint account
------------------------------------------------------- -----------------------------------------------------
Custodian account of a minor                            The minor
(Uniform Gifts/Transfers to Minors Act)
------------------------------------------------------- -----------------------------------------------------
A revocable living trust                                The grantor-trustee
                                                        (the person who puts the money into the trust)
------------------------------------------------------- -----------------------------------------------------
An irrevocable trust,                                   The legal entity
pension trust or estate                                 (not the personal representative or trustee, unless
                                                        no legal entity is designated in the account title)
------------------------------------------------------- -----------------------------------------------------
Sole proprietorship                                     The owner
------------------------------------------------------- -----------------------------------------------------
Partnership                                             The partnership
------------------------------------------------------- -----------------------------------------------------
Corporate                                               The corporation
------------------------------------------------------- -----------------------------------------------------
Association, club or                                    The organization
tax-exempt organization
------------------------------------------------------- -----------------------------------------------------
</TABLE>

For details on TIN requirements, contact your financial advisor to obtain a copy
of  federal  Form  W-9,   "Request  for  Taxpayer   Identification   Number  and
Certification."   You   also  may   obtain   the   form  on  the   Internet   at
(http://www.irs.gov/prod/forms_pubs/).


Three ways to invest

(1) By mail:

Once your account has been established,  send your check with the account number
on it to:

American Express Funds
70200 AXP Financial Center
Minneapolis, MN 55474

Minimum amounts
Initial investment:                 $2,000
Additional investments:             $100
Account balances:                   $300
Qualified accounts:                 none

If your account  balance  falls below $300,  you will be asked to increase it to
$300 or  establish a scheduled  investment  plan.  If you do not do so within 30
days, your shares can be sold and the proceeds mailed to you.

<PAGE>

(2) By scheduled investment plan:

Contact your financial advisor for assistance in setting up one of the following
scheduled plans:

o    automatic payroll deduction,
o    bank authorization,
o    direct deposit of Social Security check, or
o    other plan approved by the Fund.

Minimum amounts
Initial investment:                 $100
Additional investments:             $50 per payment  for qualified accounts;
                                    $100 per payment for nonqualified accounts
Account balances:                   none (on a scheduled investment plan with
                                          monthly payments)

If your  account  balance  is below  $2,000,  you must  make  payments  at least
monthly.

(3) By wire or electronic funds transfer:

If you have an established account, you may wire money to:

Wells Fargo Bank Minnesota, N.A.
Minneapolis, MN 55479
Routing Transit No. 091000019

Give these instructions:
Credit American  Express  Financial  Advisors  Account  #0000030015 for personal
account # (your account  number) for (your name).  Please remember that you need
to provide all 10 digits.

If this  information is not included,  the order may be rejected,  and all money
received by the Fund, less any costs the Fund or American Express Client Service
Corporation (AECSC) incurs, will be returned promptly.

Minimum amounts
Each wire investment: $1,000

Transactions Through Third Parties
You may buy or sell shares through certain 401(k) plans, banks,  broker-dealers,
financial advisors or other investment  professionals.  These  organizations may
charge you a fee for this service and may have different  policies.  Some policy
differences  may  include  different  minimum   investment   amounts,   exchange
privileges,  fund  choices and cutoff  times for  investments.  The Fund and the
Distributor are not responsible for the failure of one of these organizations to
carry out its  obligations  to its  customers.  Some  organizations  may receive
compensation   from  the   Distributor  or  its   affiliates   for   shareholder
recordkeeping  and  similar  services.   Where  authorized  by  the  Fund,  some
organizations may designate selected agents to accept purchase or sale orders on
the Fund's  behalf.  To buy or sell shares through third parties or determine if
there are policy  differences,  please  consult  your selling  agent.  For other
pertinent  information related to buying or selling shares,  please refer to the
appropriate section in the prospectus.

<PAGE>

SALES CHARGES
Class A -- initial sales charge alternative

When  you  purchase  Class A  shares,  you pay a sales  charge  as  shown in the
following table:

Total investment                      Sales charge as percentage of:
                            Public offering price*           Net amount invested

Up to $49,999                        5.75%                          6.10%
$50,000 - $99,999                    4.75                           4.99
$100,000 - $249,999                  3.75                           3.90
$250,000 - $499,999                  2.50                           2.56
$500,000 - $999,999                  2.00**                         2.04**
$1,000,000 or more                   0.00                           0.00

*    Offering price includes the sales charge.
**   The sales charge will be waived until Dec. 31, 2001.

The  sales  charge  on Class A  shares  may be lower  than  5.75%,  based on the
combined market value of:

o    your current investment in this Fund,
o    your previous investment in this Fund, and
o    investments  you and  your  primary  household  group  have  made in  other
     American  Express  mutual  funds  that have a sales  charge.  (The  primary
     household  group  consists  of  accounts  in any  ownership  for spouses or
     domestic  partners and their  unmarried  children under 21. For purposes of
     this  policy,  domestic  partners  are  individuals  who  maintain a shared
     primary  residence and have joint property or other  insurable  interests.)
     AXP Tax-Free Money Fund and Class A shares of AXP Cash  Management  Fund do
     not have sales charges.

Other Class A sales charge policies:

o    IRA  purchases  or other  employee  benefit plan  purchases  made through a
     payroll  deduction  plan  or  through  a  plan  sponsored  by an  employer,
     association of employers, employee organization or other similar group, may
     be added together to reduce sales charges for all shares purchased  through
     that plan, and

o    if you intend to invest more than $50,000  over a period of 13 months,  you
     can reduce the sales  charges in Class A by filing a letter of intent.  For
     more details, please contact your financial advisor or see the SAI.

Waivers of the sales charge for Class A shares Sales charges do not apply to:

o    current or retired board members, officers or employees of the Fund or AEFC
     or its  subsidiaries,  their  spouses or domestic  partners,  children  and
     parents.

o    current  or retired  American  Express  financial  advisors,  employees  of
     financial  advisors,  their  spouses or  domestic  partners,  children  and
     parents.

o    registered representatives and other employees of brokers, dealers or other
     financial  institutions  having a sales  agreement  with  the  Distributor,
     including their spouses, domestic partners, children and parents.

<PAGE>

o    investors  who  have  a  business  relationship  with  a  newly  associated
     financial  advisor who joined the Distributor from another  investment firm
     provided  that (1) the purchase is made within six months of the  advisor's
     appointment  date  with the  Distributor,  (2) the  purchase  is made  with
     proceeds  of shares sold that were  sponsored  by the  financial  advisor's
     previous broker-dealer, and (3) the proceeds are the result of a sale of an
     equal or greater value where a sales load was assessed.

o    qualified  employee  benefit plans  offering  participants  daily access to
     American  Express mutual funds.  Eligibility must be determined in advance.
     For assistance,  please contact your financial  advisor.  (Participants  in
     certain  qualified  plans where the initial  sales  charge is waived may be
     subject to a deferred sales charge of up to 4%.)

o    shareholders  who have at least $1 million  invested  in  American  Express
     mutual  funds.  Until Dec.  31,  2001,  the sales  charge does not apply to
     shareholders who have at least $500,000 invested in American Express mutual
     funds. If the investment is sold less than one year after purchase,  a CDSC
     of 1% will be charged.  During  that year,  the CDSC will be waived only in
     the circumstances described for waivers for Class B and Class C shares.

o    purchases  made  within 90 days  after a sale of shares  (up to the  amount
     sold):

     - of American  Express  mutual  funds in a qualified  plan  subject to a
       deferred sales charge, or

     - in a qualified plan or account where American Express Trust Company has a
       recordkeeping,  trustee,  investment management,  or investment servicing
       relationship.

     Send the Fund a written  request  along with your payment,  indicating  the
     date and the amount of the sale.

o    purchases made:

     - with  dividend or capital gain  distributions  from this Fund or from the
       same class of another American Express mutual fund,

     - through or under a wrap fee product or other investment product sponsored
       by  the  Distributor  or  another  authorized  broker-dealer,  investment
       advisor, bank or investment professional,

     - within the University of Texas System ORP,

     - within a segregated separate account offered by Nationwide Life Insurance
       Company or Nationwide Life and Annuity Insurance Company,

     - within the University of Massachusetts After-Tax Savings Program, or

     - through or under a subsidiary of AEFC offering  Personal Trust  Services'
       Asset-Based pricing alternative.

o      shareholders whose original purchase was in a Strategist fund merged into
       an American Express fund in 2000.

<PAGE>

Class B and Class C-- contingent deferred sales charge (CDSC) alternative

For Class B, the CDSC is based on the sale  amount  and the  number of  calendar
years --  including  the year of  purchase  -- between  purchase  and sale.  The
following table shows how CDSC percentages on sales decline after a purchase:

If the sale is                         The CDSC
made during the:                  percentage rate is:
First year                                5%
Second year                               4%
Third year                                4%
Fourth year                               3%
Fifth year                                2%
Sixth year                                1%
Seventh year                              0%

For Class C, a 1% CDSC is  charged  if you sell your  shares  less than one year
after purchase.

For both Class B and Class C, if the amount you are selling  causes the value of
your  investment  to fall below the cost of the shares you have  purchased,  the
CDSC is based on the  lower of the cost of  those  shares  purchased  or  market
value. Because the CDSC is imposed only on sales that reduce your total purchase
payments,  you  never  have  to  pay  a  CDSC  on  any  amount  that  represents
appreciation  in the value of your  shares,  income  earned by your  shares,  or
capital gains.

In  addition,  the CDSC on your  sale,  if any,  will be  based  on your  oldest
purchase  payment.  The CDSC on the next  amount  sold will be based on the next
oldest purchase payment.

Example:
Assume you had invested  $10,000 in Class B shares and that your  investment had
appreciated in value to $12,000 after 15 months,  including reinvested dividends
and  capital  gain  distributions.  You could sell up to $2,000  worth of shares
without paying a CDSC ($12,000 current value less $10,000 purchase  amount).  If
you sold $2,500 worth of shares,  the CDSC would apply to the $500  representing
part of your original purchase price. The CDSC rate would be 4% because the sale
was made during the second year after the purchase.

Waivers of the sales charge for Class B and Class C shares

The CDSC will be waived on sales of shares:

o    in the event of the shareholder's death,
o    held in trust for an employee benefit plan, or
o    held in IRAs or certain  qualified plans if American  Express Trust Company
     is the custodian, such as Keogh plans,  tax-sheltered custodial accounts or
     corporate pension plans, provided that the shareholder is:

     -   at least 59 1/2years old AND
     -   taking a retirement  distribution (if the sale is part of a transfer to
         an IRA or qualified  plan, or a  custodian-to-custodian  transfer,  the
         CDSC will not be waived) OR
     -   selling  under  an  approved   substantially  equal  periodic  payment
         arrangement.

<PAGE>

EXCHANGING/SELLING SHARES
Exchanges

You can  exchange  your Fund shares at no charge for shares of the same class of
any other publicly  offered  American  Express  mutual fund.  Exchanges into AXP
Tax-Free  Money  Fund  may  only  be made  from  Class A  shares.  For  complete
information  on the other fund,  including  fees and expenses,  read that fund's
prospectus  carefully.  Your exchange will be priced at the next NAV  calculated
after it is accepted by that fund.

You may make up to three exchanges (1 1/2 round trips) within any 30-day period.
These limits do not apply to scheduled  exchange  programs and certain  employee
benefit plans. Exceptions may be allowed with pre-approval of the Fund.

Other exchange policies:

o    Exchanges must be made into the same class of shares of the new fund.

o    If your  exchange  creates  a new  account,  it must  satisfy  the  minimum
     investment amount for new purchases.

o    Once we receive your exchange request, you cannot cancel it.

o    Shares  of the  new  fund  may  not be used  on the  same  day for  another
     exchange.

o    If your  shares are pledged as  collateral,  the  exchange  will be delayed
     until AECSC receives written approval from the secured party.

AECSC and the Fund reserve the right to reject any  exchange,  limit the amount,
or modify or  discontinue  the exchange  privilege,  to prevent abuse or adverse
effects on the Fund and its  shareholders.  For example,  if  exchanges  are too
numerous  or too large,  they may disrupt the Fund's  investment  strategies  or
increase its costs.

Selling Shares

You can sell your shares at any time.  The payment  will be mailed  within seven
days after accepting your request.

When you sell shares, 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 accepted by the Fund, minus any applicable CDSC.

You can  change  your mind  after  requesting  a sale and use all or part of the
proceeds to purchase new shares in the same account from which you sold.  If you
reinvest  in Class A, you will  purchase  the new shares at NAV rather  than the
offering  price on the date of a new  purchase.  If you  reinvest  in Class B or
Class  C,  any CDSC you paid on the  amount  you are  reinvesting  also  will be
reinvested.  To take advantage of this option,  send a request within 90 days of
the date your sale request was received  and include your account  number.  This
privilege may be limited or withdrawn at any time and may have tax consequences.

The Fund reserves the right to redeem in kind.

For more details and a description of other sales policies, please see the SAI.

To sell or exchange  shares held  through a brokerage  account or with  entities
other than American  Express  Financial  Advisors,  please  consult your selling
agent.  The following  section explains how you can exchange or sell shares held
with American Express Financial Advisors.

<PAGE>

Requests  to sell  shares  of the  Fund  are  not  allowed  within  30 days of a
telephoned-in address change.

Important:  If you request a sale of shares you recently purchased by a check or
money order that is not guaranteed,  the Fund will wait for your check to clear.
It may take up to 10 days  from the date of  purchase  before  payment  is made.
(Payment may be made earlier if your bank provides evidence  satisfactory to the
Fund and AECSC that your check has cleared.)

Two ways to request an exchange or sale of shares

(1) By letter:
Include in your letter:

o    the name of the fund(s),
o    the class of shares to be exchanged or sold,
o    your mutual  fund  account  number(s)  (for  exchanges,  both funds must be
     registered in the same ownership),
o    your Social Security number or Employer Identification number,
o    the dollar amount or number of shares you want to exchange or sell,
o    signature(s) of all registered account owners,
o    for sales, indicate how you want your money delivered to you, and
o    any paper certificates of shares you hold.

Regular or express mail:
American Express Funds
70100 AXP Financial Center
Minneapolis, MN 55474

(2) By telephone:
American Express Client Service Corporation
Telephone Transaction Service
800-437-3133

o    The Fund and AECSC will use reasonable  procedures to confirm  authenticity
     of telephone exchange or sale requests.
o    Telephone exchange and sale privileges  automatically apply to all accounts
     except  custodial,  corporate or  qualified  retirement  accounts.  You may
     request that these  privileges NOT apply by writing AECSC.  Each registered
     owner must sign the request.
o    Acting on your  instructions,  your financial advisor may conduct telephone
     transactions on your behalf.
o    Telephone privileges may be modified or discontinued at any time.

Minimum sale amount: $100

Maximum sale amount: $100,000

Three ways to receive payment when you sell shares

(1) By regular or express mail:
o    Mailed to the address on record.
o    Payable to names listed on the account.

NOTE:  The express  mail  delivery  charges you pay will vary  depending  on the
courier you select.

<PAGE>

(2) By wire or electronic funds transfer:
o    Minimum wire: $1,000.
o    Request that money be wired to your bank.
o    Bank account must be in the same  ownership as the American  Express mutual
     fund account.

NOTE:  Pre-authorization  required.  For  instructions,  contact your  financial
advisor or AECSC.

(3) By scheduled payout plan:
o    Minimum payment: $50.
o    Contact  your  financial  advisor or AECSC to set up regular  payments on a
     monthly, bimonthly, quarterly, semiannual or annual basis.
o    Purchasing  new shares  while  under a payout  plan may be  disadvantageous
     because of the sales charges.

Distributions and Taxes

As a shareholder you are entitled to your share of the Fund's net income and net
gains.  The  Fund  distributes  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 you 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 long-term or short-term  depending on
the length of time the Fund held the security. Realized capital gains and 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.

REINVESTMENTS
Dividends  and  capital  gain  distributions  are  automatically  reinvested  in
additional shares in the same class of the Fund, unless:

o    you request distributions in cash, or
o    you direct the Fund to invest your  distributions  in the same class of any
     publicly offered American Express mutual fund for which you have previously
     opened an account.

We  reinvest  the  distributions  for you at the next  calculated  NAV after the
distribution is paid.

If you choose cash  distributions,  you will receive cash only for distributions
declared after your request has been processed.

TAXES
Distributions  are subject to federal income tax and may be subject to state and
local taxes in the year they are declared. You must report distributions on your
tax returns, even if they are reinvested in additional shares.

If you buy shares shortly  before the record date of a distribution  you may pay
taxes on money  earned by the Fund before you were a  shareholder.  You will pay
the full  pre-distribution  price for the shares, then receive a portion of your
investment back as a distribution, which may be taxable.

<PAGE>

For tax purposes, an exchange is considered a sale and purchase,  and may result
in a gain or loss. A sale is a taxable transaction.  If you sell shares for less
than their cost,  the  difference is a capital loss. If you sell shares for more
than their cost, the  difference is a capital gain.  Your gain may be short term
(for  shares  held for one year or less) or long term (for  shares held for more
than one year).

If you buy Class A shares and within 91 days exchange into another fund, you may
not include the sales charge in your calculation of tax gain or loss on the sale
of the  first  fund you  purchased.  The sales  charge  may be  included  in the
calculation of your tax gain or loss on a subsequent sale of the second fund you
purchased.

Selling shares held in an IRA or qualified retirement account may subject you to
federal  taxes,  penalties and reporting  requirements.  Please consult your tax
advisor.

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.

Other Information

INVESTMENT MANAGER
The  investment  manager  of  the  Fund  is  AEFC,  200  AXP  Financial  Center,
Minneapolis,  MN 55474. The Fund pays AEFC a fee for managing its assets.  AEFC,
in turn,  pays a  portion  of this fee to each of the  Sub-Advisors.  Under  the
Investment Management Services Agreement, the fee will be equal to 0.920% on the
first $250 million,  gradually reducing to 0.795% as assets increase.  Under the
agreement,  the Fund also pays  taxes,  brokerage  commissions  and  nonadvisory
expenses.  AEFC or an affiliate may make payments from its own resources,  which
include management fees paid by the Fund, to compensate  broker-dealers or other
persons for providing distribution assistance. 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.

AEFC also selects,  contracts with and  compensates  sub-advisers  to manage the
investment  of  the  Fund's   assets.   AEFC  monitors  the  compliance  of  the
sub-advisers  with the investment  objectives and related  policies of the Fund,
reviews the  performance of the  sub-advisers,  and reports  periodically to the
Board of Directors.

The  Fund  intends  to apply  for an order  from  the  Securities  and  Exchange
Commission to permit AEFC, subject to the approval of the Board of Directors, to
appoint a sub-adviser  or change the terms of a  sub-advisory  agreement for the
Fund without first obtaining shareholder approval. If the order is received, the
Fund will be able to change  sub-advisers or the fees paid to sub-advisers  from
time  to  time  without  the  expense  and  delays   associated  with  obtaining
shareholder  approval of the change. The order is expected to prohibit AEFC from
entering  into   sub-advisory   agreements   with  affiliates  of  AEFC  without
shareholder approval,  unless those affiliates are wholly-owned  subsidiaries of
AEFC.  There is no assurance  the order will be granted,  and no changes will be
made until that time.

Sub-Advisors:

INVESCO Funds Group, Inc. (INVESCO),  located at 7800 East Union Avenue, Denver,
Colorado, sub-advises the Fund's assets. INVESCO, subject to the supervision and
approval  of  AEFC,  provides  investment  advisory  assistance  and  day-to-day
management of a portion of the Fund's portfolio,  as well as investment research
and  statistical  information,  under an Investment  Subadvisory  Agreement with
AEFC.

Neuberger Berman Management Inc., (Neuberger Berman) located at 605 Third Avenue
Second Floor,  New York,  New York,  sub-advises  the Fund's  assets.  Neuberger
Berman,  subject to the  supervision and approval of AEFC,  provides  investment
advisory  assistance  and  day-to-day  management  of a  portion  of the  Fund's
portfolio, as well as investment research and statistical information,  under an
Investment Subadvisory Agreement with AEFC.

<PAGE>

RS Investment Management,  L.P. (RSIM), located at 388 Market Street, Suite 200,
San Francisco,  California,  sub-advises the Fund's assets. RSIM, subject to the
supervision and approval of AEFC,  provides  investment  advisory assistance and
day-to-day  management  of a  portion  of  the  Fund's  portfolio,  as  well  as
investment research and statistical information, under an Investment Subadvisory
Agreement with AEFC.

<PAGE>

AMERICAN
 EXPRESS(R)
FUNDS

This Fund, along with the other American Express mutual funds, is distributed by
American Express  Financial  Advisors Inc. and can be purchased from an American
Express  financial  advisor or from  other  authorized  broker-dealers  or third
parties.  The Funds can be found under the "Amer Express"  banner in most mutual
fund quotations.

Additional  information  about the Fund and its  investments is available in the
Fund's  Statement of Additional  Information  (SAI).  The SAI is incorporated by
reference in this  prospectus.  For a free copy of the SAI, contact your selling
agent or American Express Client Service Corporation.

American Express Funds
70100 AXP Financial Center, Minneapolis, MN 55474
800-862-7919  TTY: 800-846-4852
Web site address:
http://www.americanexpress.com/advisors

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
1-202-942-8090).  Reports and other  information about the Fund are available on
the EDGAR Database on the  Commission's  Internet site at  (http://www.sec.gov).
Copies of this  information may be obtained,  after paying a duplicating fee, by
electronic  request at the following E-mail address:  [email protected],  or by
writing to the Public  Reference  Section of the  Commission,  Washington,  D.C.
20549-0102.



AMERICAN
  EXPRESS
(R)
Investment Company Act File #811-3956

TICKER SYMBOL

Class A: N/A         Class B: N/A         Class C: N/A           Class Y:N/A

<PAGE>

--------------------------------------------------------------------------------
Information   contained  herein  is  subject  to  completion  or  amendment.   A
registration  statement  relating  to these  securities  has been filed with the
Securities  and  Exchange  Commision,  but has not yet become  effective.  These
securities  may not be sold nor may offers to buy be accepted  prior to the time
the  registration  statement  becomes  effective.  This  Statement of Additional
Information shall not constitute an offer to sell or the soliciation of an offer
to buy nor  shall  there be any sale of these  securities  in any state in which
such offer,  solicitation  or sale would be unlawful  prior to  registration  or
qualification under the securities laws of any such state.
--------------------------------------------------------------------------------

                           AXP(R)STRATEGY SERIES, INC.

                       STATEMENT OF ADDITIONAL INFORMATION

                                       FOR

                     AXP(R)SMALL CAP GROWTH FUND (the Fund)

                                  Jan. 19, 2001

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 Client Service Corporation,  70100 AXP
Financial  Center,  Minneapolis,  MN  55474  or  by  calling  800-862-7919.  The
prospectus for the Fund,  dated the same date as this SAI, is also  incorporated
in this SAI by reference.

<PAGE>

                                TABLE OF CONTENTS


Mutual Fund Checklist....................................................p.   3

Fundamental Investment Policies..........................................p.   5

Investment Strategies and Types of Investments...........................p.   6

Information Regarding Risks and Investment Strategies....................p.   8

Security Transactions.....................................................p. 31

Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation....................................p. 32

Performance Information...................................................p. 32

Valuing Fund Shares.......................................................p. 34

Investing in the Fund.....................................................p. 35

Selling Shares............................................................p. 37

Pay-out Plans.............................................................p. 38

Taxes.....................................................................p. 39

Agreements................................................................p. 40

Organizational Information................................................p. 44

Board Members and Officers................................................p. 46

Independent Auditors......................................................p. 49

Appendix:  Description of Ratings.........................................p. 50

<PAGE>

MUTUAL FUND CHECKLIST

                    |X|  Mutual funds are NOT  guaranteed or insured by any bank
                         or government agency. You can lose money.

                    |X|  Mutual funds ALWAYS carry investment  risks. Some types
                         carry more risk than others.

                    |X|  A higher  rate of return  typically  involves  a higher
                         risk of loss.

                    |X|  Past performance is not a reliable  indicator of future
                         performance.

                    |X|  ALL mutual  funds  have  costs  that  lower  investment
                         return.

                    |X|  You  can buy  some  mutual  funds  by  contacting  them
                         directly.  Others,  like  this  one,  are  sold  mainly
                         through  brokers,   banks,   financial   planners,   or
                         insurance  agents.  If you buy through these  financial
                         professionals, you generally will pay a sales charge.

                    |X|  Shop  around.  Compare a mutual fund with others of the
                         same type before you buy.

OTHER IDEAS FOR SUCCESSFUL MUTUAL FUND INVESTING:

Develop a Financial Plan

Have a plan - even a simple  plan can help you take  control  of your  financial
future.  Review  your  plan  with  your  advisor  at  least  once a year or more
frequently if your circumstances change.

Dollar-Cost Averaging

An  investment  technique  that  works  well  for  many  investors  is one  that
eliminates  random  buy and sell  decisions.  One  such  system  is  dollar-cost
averaging.  Dollar-cost  averaging  involves  building a  portfolio  through the
investment of fixed amounts of money on a regular basis  regardless of the price
or market  condition.  This may enable an  investor to smooth out the effects of
the volatility of the financial  markets.  By using this  strategy,  more shares
will be purchased  when the price is low and less when the price is high. As the
accompanying chart illustrates,  dollar-cost averaging tends to keep the average
price  paid  for the  shares  lower  than the  average  market  price of  shares
purchased, although there is no guarantee.

While this does not ensure a profit and does not  protect  against a loss if the
market declines,  it is an effective way for many  shareholders who can continue
investing  through  changing  market  conditions  to  accumulate  shares to meet
long-term goals.

<PAGE>

Dollar-cost averaging:

-------------------------------------------------------------
Regular           Market Price        Shares
Investment        of a Share          Acquired
-------------------------------------------------------------
    $100               $6.00            16.7
     100                4.00            25.0
     100                4.00            25.0
     100                6.00            16.7
     100                5.00            20.0
   -----            --------          ------
    $500              $25.00           103.4

Average market price of a share over 5 periods:    $5.00 ($25.00 divided by 5)
The average price you paid for each share:         $4.84 ($500 divided by 103.4)

Diversify

Diversify your portfolio.  By investing in different asset classes and different
economic  environments  you help protect against poor performance in one type of
investment  while  including  investments  most likely to help you achieve  your
important goals.

Understand Your Investment

Know what you are buying. Make sure you understand the potential risks, rewards,
costs, and expenses associated with each of your investments.

<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:

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

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

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

<PAGE>

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

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.

<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

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.

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.

<PAGE>

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.

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.

<PAGE>

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 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.

<PAGE>

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
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.

<PAGE>

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.

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.

<PAGE>

         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 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 short futures contracts for hedging purposes,  the Fund may
be required to defer recognizing  losses incurred on short futures contracts and
on underlying securities.

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.

<PAGE>

The IRS has ruled publicly that an exchange-traded call option is a security for
purposes  of the  50%-of-assets  test and that its  issuer is the  issuer of the
underlying  security,  not  the  writer  of  the  option,  for  purposes  of the
diversification requirements.

Accounting  for  futures  contracts  will be  according  to  generally  accepted
accounting principles.  Initial margin deposits will be recognized as assets due
from a broker (the Fund's agent in acquiring the futures  position).  During the
period the futures  contract is open,  changes in value of the contract  will be
recognized as  unrealized  gains or losses by marking to market on a daily basis
to reflect the market  value of the  contract at the end of each day's  trading.
Variation margin payments will be made or received  depending upon whether gains
or  losses  are  incurred.  All  contracts  and  options  will be  valued at the
last-quoted sales price on their primary exchange.

         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 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.)

<PAGE>

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.  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.

<PAGE>

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 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.

<PAGE>

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.

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.

<PAGE>

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.

<PAGE>

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  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 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.

<PAGE>

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.

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.

<PAGE>

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.

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.

<PAGE>

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  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.

<PAGE>

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 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.

<PAGE>

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 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,

<PAGE>

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.

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.

<PAGE>

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 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.

<PAGE>

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,  AEFC  is  authorized  to  determine,
consistent with the Fund's  investment goal and policies,  which securities will
be purchased, held, or sold. In determining where the buy and sell orders are to
be placed,  AEFC has been  directed  to use its best  efforts to obtain the best
available  price  and  the  most  favorable  execution  except  where  otherwise
authorized by the board. In selecting  broker-dealers  to execute  transactions,
AEFC may consider the price of the  security,  including  commission or mark-up,
the size and  difficulty of the order,  the  reliability,  integrity,  financial
soundness,  and general operation and execution  capabilities of the broker, the
broker's expertise in particular markets,  and research services provided by the
broker.

The Fund, AEFC and American Express  Financial  Advisors Inc. (the  Distributor)
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 AEFC to do so to the extent authorized by
law, if AEFC  determines,  in good faith,  that such commission is reasonable in
relation to the value of the brokerage or research services provided by a broker
or dealer,  viewed  either in the light of that  transaction  or AEFC's  overall
responsibilities  with respect to the Fund and the other American Express mutual
funds for which it acts as investment manager.

Research provided by brokers  supplements AEFC's own research  activities.  Such
services include economic data on, and analysis of, U.S. and foreign  economies;
information  on  specific  industries;  information  about  specific  companies,
including earnings  estimates;  purchase  recommendations  for stocks and bonds;
portfolio strategy services;  political,  economic, business, and industry trend
assessments;  historical statistical information; market data services providing
information  on specific  issues and prices;  and technical  analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports,  computer software, or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may  obtain,  computer  hardware  from  brokers,  including  but not  limited to
personal computers that will be used exclusively for investment  decision-making
purposes,  which  include  the  research,   portfolio  management,  and  trading
functions and other services to the extent permitted under an  interpretation by
the SEC.

When paying a commission  that might not otherwise be charged or a commission in
excess of the amount  another broker might charge,  AEFC must follow  procedures
authorized by the board. To date,  three  procedures have been  authorized.  One
procedure  permits AEFC to direct an order to buy or sell a security traded on a
national  securities  exchange to a specific broker for research services it has
provided.  The second procedure  permits AEFC, in order to obtain  research,  to
direct  an order on an  agency  basis to buy or sell a  security  traded  in the
over-the-counter  market to a firm that does not make a market in that security.
The commission paid generally includes  compensation for research services.  The
third  procedure  permits  AEFC,  in  order to  obtain  research  and  brokerage
services,  to cause the Fund to pay a commission in excess of the amount another
broker might have charged.  AEFC has advised the Fund that it is necessary to do
business with a number of brokerage  firms on a continuing  basis to obtain such
services as the handling of large orders,  the  willingness  of a broker to risk
its own money by taking a position in a security,  and the specialized  handling
of a particular  group of  securities  that only certain  brokers may be able to
offer. As a result of this arrangement,  some portfolio  transactions may not be
effected  at the lowest  commission,  but AEFC  believes  it may  obtain  better
overall execution. AEFC has represented that under all three

<PAGE>

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 AEFC in providing advice to all American
Express  mutual  funds 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 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.

BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS FINANCIAL
CORPORATION

Affiliates  of  American  Express  Company  (of  which  AEFC  is a  wholly-owned
subsidiary) may engage in brokerage and other securities  transactions on behalf
of the Fund  according  to  procedures  adopted  by the board and to the  extent
consistent with applicable  provisions of the federal securities laws. AEFC will
use an American Express affiliate only if (i) AEFC determines that the Fund will
receive  prices  and  executions  at least as  favorable  as  those  offered  by
qualified  independent  brokers  performing similar brokerage and other services
for the Fund and (ii) the affiliate charges the Fund commission rates consistent
with those the affiliate charges  comparable  unaffiliated  customers in similar
transactions  and if  such  use  is  consistent  with  terms  of the  Investment
Management Services Agreement.

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 a class for  certain
periods by finding the average annual compounded rates of return over the period
that would equate the initial amount  invested to the ending  redeemable  value,
according to the following formula:

                                  P(1+T)(n) = ERV

where:         P =  a hypothetical initial payment of $1,000
               T =  average annual total return
               n =  number of years
             ERV =  ending redeemable value of a hypothetical  $1,000 payment,
                    made at the beginning of a period,  at the end of the period
                    (or fractional portion thereof)

AGGREGATE TOTAL RETURN

The Fund may calculate  aggregate  total return for a class for certain  periods
representing  the  cumulative  change in the value of an  investment in the Fund
over a specified period of time according to the following formula:

                                     ERV - P
                                     -------
                                        P

where:         P =  a hypothetical initial payment of $1,000
             ERV =  ending redeemable value of a hypothetical  $1,000 payment,
                    made at the beginning of a period,  at the end of the period
                    (or fractional portion thereof)

In its sales material and other  communications,  the Fund may quote, compare or
refer to rankings,  yields,  or returns as published by independent  statistical
services or publishers and  publications  such as The Bank Rate Monitor National
Index, Barron's,  Business Week, 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.

Ibbotson  Associates  provides  historical returns of the capital markets in the
United States,  including common stocks, small capitalization stocks,  long-term
corporate bonds, intermediate-term government bonds, long-term government bonds,
Treasury bills,  the U.S. rate of inflation  (based on the CPI) and combinations
of various capital markets. The performance of these capital markets is based on
the returns of  different  indexes.  The Fund may use the  performance  of these
capital markets in order to demonstrate  general  risk-versus-reward  investment
scenarios.

<PAGE>

The Fund may quote various  measures of volatility in  advertising.  Measures of
volatility  seek to compare a fund's  historical  share  price  fluctuations  or
returns to those of a benchmark.

The Distributor may provide information designed to help individuals  understand
their investment goals and explore various financial  strategies.  Materials may
include  discussions  of  asset  allocation,   retirement  investing,  brokerage
products and services, model portfolios,  saving for college or other goals, and
charitable giving.

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  exist,  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.

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.

<PAGE>

INVESTING IN THE FUND
--------------------------------------------------------------------------------

SALES CHARGE

Investors  should  understand that the purpose and function of the initial sales
charge and  distribution  fee for Class A shares is the same as the  purpose and
function of the CDSC and  distribution  fee for Class B and Class C shares.  The
sales  charges  and  distribution  fees  applicable  to each  class  pay for the
distribution of shares of the Fund.

Shares of the Fund are sold at the public  offering  price.  The public offering
price is the NAV of one share  adjusted  for the sales  charge  for Class A. For
Class B,  Class C and Class Y, there is no  initial  sales  charge so the public
offering  price  is the  same  as the  NAV.  The  sales  charge  is  paid to the
Distributor by the person buying the shares.

Class A - Calculation of the Sales Charge

Sales charges are determined as follows:

                                  Sales charge as a percentage of:
                          -----------------------------------------------------
                                Public                          Net
Amount of Investment        Offering Price                Amount Invested
--------------------        --------------                ---------------
Up to $49,999                    5.75%                        6.10%
$50,000 - $99,999                4.75                         4.99
$100,000 - $249,999              3.75                         3.90
$250,000 - $499,999              2.50                         2.56
$500,000 - $999,999              2.00**                       2.04**
$1,000,000 or more               0.00                         0.00

** The sales charge will be waived until Dec. 31, 2001.

The initial sales charge is waived for certain qualified plans.  Participants in
these  qualified  plans may be  subject to a  deferred  sales  charge on certain
redemptions.   The  Fund  will  waive  the  deferred  sales  charge  on  certain
redemptions if the redemption is a result of a participant's death,  disability,
retirement,  attaining age 59 1/2, loans, or hardship withdrawals.  The deferred
sales charge  varies  depending on the number of  participants  in the qualified
plan and total plan assets as follows:

Deferred Sales Charge

                             Number of Participants

Total Plan Assets                        1-99          100 or more
-----------------                        ----          -----------
Less than $1 million                         4%                0%
$1 million or more                           0%                0%

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

Class A - Reducing the Sales Charge

The market value of your  investments in the Fund  determines your sales charge.
For example, suppose you have made an investment that now has a value of $20,000
and you later decide to invest $40,000 more. The value of your investments would
be $60,000. As a result,  your $40,000 investment  qualifies for the lower 4.75%
sales  charge  that  applies  to  investments  of more  than  $50,000  and up to
$100,000.

<PAGE>

Class A - Letter of Intent (LOI)

If you intend to invest more than $50,000 over a period of time,  you can reduce
the sales charge in Class A by filing a LOI and  committing  to invest a certain
amount.  The  agreement  can start at any time and will  remain in effect for 13
months. The LOI start date can be backdated by 90 days. Your investments will be
charged  the sales  charge  that  applies to the amount  you have  committed  to
invest.  Five percent of the commitment amount will be placed in escrow. If your
commitment  amount is reached  within the  13-month  period,  the shares will be
released from escrow.  If you do not invest the commitment  amount by the end of
the 13 months,  the  remaining  unpaid  sales  charge will be redeemed  from the
escrowed shares and the remaining  balance released from escrow.  The commitment
amount does not include  purchases in any class of American  Express funds other
than Class A;  purchases in American  Express  funds held within a wrap product;
and  purchases of AXP Cash  Management  Fund and AXP Tax-Free  Money Fund unless
they are subsequently  exchanged to Class A shares of an American Express mutual
fund within the 13 month period.  A LOI is not an option (absolute right) to buy
shares.

Class Y Shares

Class Y shares are offered to certain  institutional  investors.  Class Y shares
are sold  without a  front-end  sales  charge or a CDSC and are not subject to a
distribution  fee. The  following  investors  are  eligible to purchase  Class Y
shares:

o Qualified employee benefit plans* if the plan:

         -uses a daily  transfer  recordkeeping  service  offering  participants
          daily access to American Express mutual funds and has

                  - at least $10 million in plan assets or

                  - 500 or more participants; or

         - does not use daily transfer recordkeeping and has

                  - at least $3 million  invested  in  American  Express  mutual
                    funds or

                  - 500 or more participants.

o    Trust companies or similar institutions,  and charitable organizations that
     meet the  definition in Section  501(c)(3) of the Internal  Revenue  Code.*
     These  institutions  must have at least $10  million  in  American  Express
     mutual funds.

o    Nonqualified  deferred  compensation plans* whose participants are included
     in a qualified employee benefit described above.

* Eligibility  must be determined in advance.  To do so,  contact your financial
advisor.

SYSTEMATIC INVESTMENT PROGRAMS

After you make your initial investment of $100 or more, you must make additional
payments of $100 or more on at least a monthly basis until your balance  reaches
$2,000. These minimums do not apply to all systematic  investment programs.  You
decide how often to make payments - monthly, quarterly, or semiannually. You are
not obligated to make any payments.  You can omit  payments or  discontinue  the
investment program altogether. The Fund also can change the program or end it at
any time.

<PAGE>

AUTOMATIC DIRECTED DIVIDENDS

Dividends,  including  capital  gain  distributions,  paid by  another  American
Express  mutual fund may be used to  automatically  purchase  shares in the same
class of this  Fund.  Dividends  may be  directed  to  existing  accounts  only.
Dividends  declared  by a fund are  exchanged  to this Fund the  following  day.
Dividends  can be  exchanged  into the same  class of another  American  Express
mutual  fund  but  cannot  be  split  to make  purchases  in two or more  funds.
Automatic  directed  dividends are available  between  accounts of any ownership
except:

o    Between a non-custodial account and an IRA, or 401(k) plan account or other
     qualified  retirement  account of which American Express Trust Company acts
     as custodian;

o    Between  two  American  Express  Trust  Company  custodial   accounts  with
     different owners (for example, you may not exchange dividends from your IRA
     to the IRA of your spouse); and

o    Between different kinds of custodial  accounts with the same ownership (for
     example,  you may not exchange  dividends from your IRA to your 401(k) plan
     account, although you may exchange dividends from one IRA to another IRA).

Dividends may be directed from accounts  established  under the Uniform Gifts to
Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) only into other UGMA
or UTMA accounts with identical ownership.

The Fund's  investment  goal is  described  in its  prospectus  along with other
information, including fees and expense ratios. Before exchanging dividends into
another  fund,  you  should  read that  fund's  prospectus.  You will  receive a
confirmation  that the automatic  directed  dividend service has been set up for
your account.

REJECTION OF BUSINESS

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

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

You have a right to sell your shares at any time.  For an  explanation  of sales
procedures, please see the prospectus.

During  an  emergency,  the board  can  suspend  the  computation  of NAV,  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 shareholders.

<PAGE>

The Fund has  elected to be  governed  by Rule 18f-1  under the 1940 Act,  which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day  period,  up to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of the period.  Although  redemptions  in excess of
this  limitation  would normally be paid in cash, the Fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency,  or if the payment of a redemption in cash would be detrimental to
the  existing  shareholders  of the Fund as  determined  by the board.  In these
circumstances,  the securities  distributed would be valued as set forth in this
SAI.  Should the Fund distribute  securities,  a shareholder may incur brokerage
fees or other transaction costs in converting the securities to cash.

PAY-OUT PLANS
--------------------------------------------------------------------------------

You can use any of several  pay-out  plans to redeem your  investment in regular
installments.  If you redeem shares you may be subject to a contingent  deferred
sales charge as discussed in the  prospectus.  While the plans differ on how the
pay-out is figured, they all are based on the redemption of your investment. Net
investment   income   dividends   and  any  capital  gain   distributions   will
automatically  be  reinvested,  unless you elect to receive them in cash. If you
are  redeeming a  tax-qualified  plan account for which  American  Express Trust
Company acts as  custodian,  you can elect to receive your  dividends  and other
distributions in cash when permitted by law. If you redeem an IRA or a qualified
retirement account,  certain  restrictions,  federal tax penalties,  and special
federal income tax reporting requirements may apply. You should consult your tax
advisor about this complex area of the tax law.

Applications  for a  systematic  investment  in a class of the Fund subject to a
sales charge normally will not be accepted while a pay-out plan for any of those
funds is in effect. Occasional investments, however, may be accepted.

To start any of these plans, please consult your selling agent or write American
Express Client Service Corporation,  70100 AXP Financial Center, Minneapolis, MN
55474, or call  800-437-3133.  Your authorization must be received at least five
days before the date you want your payments to begin.  The initial  payment must
be at least  $50.  Payments  will be made on a  monthly,  bimonthly,  quarterly,
semiannual, or annual basis. Your choice is effective until you change or cancel
it.

The  following  pay-out  plans  are  designed  to take care of the needs of most
shareholders in a way AEFC can handle  efficiently and at a reasonable  cost. If
you need a more irregular  schedule of payments,  it may be necessary for you to
make a series of individual redemptions,  in which case you will have to send in
a separate  redemption request for each pay-out.  The Fund reserves the right to
change or stop any pay-out plan and to stop making such plans available.

Plan #1: Pay-out for a fixed period of time

If you choose this plan, a varying  number of shares will be redeemed at regular
intervals  during the time  period you  choose.  This plan is designed to end in
complete  redemption  of all  shares  in your  account  by the end of the  fixed
period.

Plan #2: Redemption of a fixed number of shares

If you choose this plan,  a fixed  number of shares  will be  redeemed  for each
payment and that amount will be sent to you.  The length of time these  payments
continue is based on the number of shares in your account.

Plan #3: Redemption of a fixed dollar amount

If you decide on a fixed dollar amount,  whatever  number of shares is necessary
to make the payment will be redeemed in regular  installments  until the account
is closed.

<PAGE>

Plan #4: Redemption of a percentage of net asset value

Payments  are made  based on a fixed  percentage  of the net asset  value of the
shares in the account  computed on the day of each  payment.  Percentages  range
from 0.25% to 0.75%.  For  example,  if you are on this plan and arrange to take
0.5% each month, you will get $50 if the value of your account is $10,000 on the
payment date.

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

For tax purposes, an exchange is considered a sale and purchase,  and may result
in a gain or loss. A sale is a taxable transaction.  If you sell shares for less
than their cost,  the  difference is a capital loss. If you sell shares for more
than their cost, the  difference is a capital gain.  Your gain may be short term
(for  shares  held for one year or less) or long term (for shares held more than
one year).

If you buy Class A shares and within 91 days exchange into another fund, you may
not include the sales charge in your calculation of tax gain or loss on the sale
of the  first  fund you  purchased.  The sales  charge  may be  included  in the
calculation of your tax gain or loss on a subsequent sale of the second fund you
purchased.

For example:

You purchase 100 shares of one fund having a public offering price of $10.00 per
share.  With a sales load of 5.75%,  you pay $57.50 in sales load. With a NAV of
$9.425 per share,  the value of your  investment  is $942.50.  Within 91 days of
purchasing  that fund,  you decide to exchange out of that fund, now at a NAV of
$11.00 per share, up from the original NAV of $9.425, and purchase into a second
fund,  at a NAV of  $15.00  per  share.  The  value  of your  investment  is now
$1,100.00 ($11.00 x 100 shares).  You cannot use the $57.50 paid as a sales load
when calculating your tax gain or loss in the sale of the first fund shares.  So
instead of having a $100.00  gain  ($1,100.00 -  $1,000.00),  you have a $157.50
gain  ($1,100.00 - $942.50).  You can include the $57.50 sales load in the basis
of your shares in the second fund.

If you have a  nonqualified  investment in the Fund and you wish to move part or
all of those shares to an IRA or qualified  retirement  account in the Fund, you
can do so without  paying a sales  charge.  However,  this type of  exchange  is
considered  a  redemption  of  shares  and may  result in a gain or loss for tax
purposes.  In  addition,   this  type  of  exchange  may  result  in  an  excess
contribution  under IRA or qualified plan  regulations  if the amount  exchanged
plus the amount of the  initial  sales  charge  applied to the amount  exchanged
exceeds annual  contribution  limitations.  For example: If you were to exchange
$2,000  in  Class  A  shares  from a  nonqualified  account  to an  IRA  without
considering the 5.75% ($115) initial sales charge applicable to that $2,000, you
may be deemed to have exceeded current IRA annual contribution limitations.  You
should consult your tax advisor for further details about this complex subject.

Net investment  income  dividends  received should be treated as dividend income
for federal income tax purposes.  Corporate  shareholders are generally entitled
to a  deduction  equal to 70% of that  portion  of the Fund's  dividend  that is
attributable to dividends the Fund received from domestic (U.S.) securities.

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.

Income  earned by the Fund may have had foreign taxes imposed and withheld on it
in foreign countries. Tax conventions between certain countries and the U.S. may
reduce or eliminate  such taxes.  If more than 50% of the Fund's total assets at
the close of its fiscal year consists of securities of foreign corporations, the
Fund will be eligible  to file an election  with the  Internal  Revenue  Service
under which shareholders of the

<PAGE>

Fund would be  required  to include  their pro rata  portions  of foreign  taxes
withheld  by  foreign  countries  as gross  income in their  federal  income tax
returns.  These pro rata  portions of foreign  taxes  withheld may be taken as a
credit or deduction in computing the shareholders'  federal income taxes. If the
election is filed, the Fund will report to its shareholders the per share amount
of such foreign taxes withheld and the amount of foreign tax credit or deduction
available for federal income tax purposes.

Capital gain  distributions,  if any, received by shareholders should be treated
as  long-term  capital  gains  regardless  of how long they owned their  shares.
Short-term  capital gains earned by the Fund are paid to shareholders as part of
their ordinary  income  dividend and are taxable.  A special 28% rate on capital
gains may apply to sales of precious metals, if any, owned directly by the Fund.
A special 25% rate on capital gains may apply to investments in REITs.

Under the Internal Revenue Code of 1986 (the Code), gains or losses attributable
to  fluctuations  in exchange rates that occur between the time the Fund accrues
interest  or  other  receivables,  or  accrues  expenses  or  other  liabilities
denominated in a foreign  currency and the time the Fund actually  collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss.  Similarly,  gains or losses on  disposition  of debt  securities
denominated in a foreign  currency  attributable to fluctuations in the value of
the foreign  currency  between the date of  acquisition  of the security and the
date of disposition also are treated as ordinary gains or losses. These gains or
losses,  referred  to under  the Code as  "section  988"  gains or  losses,  may
increase or decrease the amount of the Fund's investment  company taxable income
to be distributed to its shareholders as ordinary income.

Under  federal tax law, by the end of a calendar  year the Fund must declare and
pay dividends representing 98% of ordinary income for that calendar year and 98%
of net capital gains (both  long-term and  short-term)  for the 12-month  period
ending Oct. 31 of that calendar year. The Fund is subject to an excise tax equal
to 4% of the excess,  if any, of the amount required to be distributed  over the
amount actually distributed. The Fund intends to comply with federal tax law and
avoid any excise tax.

For purposes of the excise tax  distributions,  "section 988" ordinary gains and
losses are  distributable  based on an Oct. 31 year end. This is an exception to
the general rule that ordinary income is paid based on a calendar year end.

If a mutual  fund is the  holder of  record of any share of stock on the  record
date for any dividend payable with respect to such stock, such dividend shall be
included in gross  income by the Fund as of the later of (1) the date such share
became  ex-dividend  or (2) the date the Fund acquired  such share.  Because the
dividends on some foreign equity investments may be received some time after the
stock goes  ex-dividend,  and in certain rare cases may never be received by the
Fund,  this rule may cause the Fund to take into income  dividend income that it
has not received and pay such income to its shareholders. To the extent that the
dividend  is never  received,  the  Fund  will  take a loss at the  time  that a
determination is made that the dividend will not be received.

This  is  a  brief  summary  that  relates  to  federal  income  taxation  only.
Shareholders  should consult their tax advisor as to the application of federal,
state, and local income tax laws to Fund distributions.

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

INVESTMENT MANAGEMENT SERVICES AGREEMENT

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

<PAGE>

For its services, AEFC is paid a fee based on the following schedule. Each class
of the Fund pays its proportionate share of the fee.

Assets                       Annual rate at
(billions)                   each asset level
---------                    ----------------
First       $0.25                  0.920%
Next        0.25                   0.895
Next        0.25                   0.870
Next        0.25                   0.845
Next        1.00                   0.820
Over       2.00                    0.795

The fee is calculated for each calendar day on the basis of net assets as of the
close of business two business  days prior to the day for which the  calculation
is made. The management fee is paid monthly.

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
Class A share of the Fund and the  change in the Lipper  Small Cap Growth  Index
(Index).  The  performance  of one  Class A share  of the  Fund is  measured  by
computing the  percentage  difference  between the opening and closing net asset
value of one  Class A 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 Class A 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 Class A 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 first  adjustment will be made on Aug. 1, 2001, and will cover the six-month
period beginning Jan. 31, 2001. The comparison period will increase by one month
each month until it reaches 12 months. The 12-month comparison period rolls over
with each succeeding month, so that it always equals 12 months,  ending with the
month for which the performance adjustment is being computed. The management fee
is paid monthly.

Under the  agreement,  the Fund  also  pays  taxes,  brokerage  commissions  and
nonadvisory  expenses,  which include  custodian  fees;  audit and certain legal
fees;  fidelity bond premiums;  registration  fees for shares;  office expenses;
postage of  confirmations  except  purchase  confirmations;  consultants'  fees;
compensation of board members,  officers and employees;  corporate  filing fees;
organizational   expenses;   expenses   incurred  in  connection   with  lending
securities; and expenses properly payable by the Fund, approved by the board.

Investment Subadvisory Agreements:

The assets of the Fund are  managed by three  sub-advisors  (Sub-Advisors)  that
have been  selected  by AEFC,  subject to the review and  approval of the board.
AEFC has recommended the  Sub-advisors  for the Fund to the board based upon its
assessment of the skills of the Sub-Advisors in managing other assets with

<PAGE>

goals and  investment  strategies  substantially  similar  to those of the Fund.
Short-term  investment  performance  is not the  only  factor  in  selecting  or
terminating a Sub-Advisor,  and AEFC does not expect to make frequent changes of
Sub-Advisors.

AEFC allocates the assets of the Fund among the  Sub-Advisors.  Each Sub-Advisor
has discretion, subject to oversight by the board and AEFC, to purchase and sell
portfolio assets,  consistent with the Fund's investment  objectives,  policies,
and restriction.  Generally,  the services that the Sub-Advisor  provides to the
Fund are limited to asset management and related recordkeeping services.

A Sub-Advisor may also serve as a discretionary or non-discretionary  investment
advisor to management  or advisory  accounts that are unrelated in any manner to
AEFC or its  affiliates.  AEFC  enters  into an  advisory  agreement  with  each
Sub-Advisor known as an "Investment Subadvisory Agreement."

The  Sub-Advisors  to the Fund are set forth  below.  The  information  has been
supplied by the respective Sub-Advisor.

Sub-Advisors:

INVESCO Funds Group, Inc. (INVESCO),  located at 7800 East Union Avenue, Denver,
Colorado, sub-advises the Fund's assets. INVESCO, subject to the supervision and
approval  of  AEFC,  provides  investment  advisory  assistance  and  day-to-day
management of a portion of the Fund's portfolio,  as well as investment research
and  statistical  information,  under an Investment  Subadvisory  Agreement with
AEFC.

Neuberger Berman Management Inc., (Neuberger Berman) located at 605 Third Avenue
Second Floor,  New York,  New York,  sub-advises  the Fund's  assets.  Neuberger
Berman,  subject to the  supervision and approval of AEFC,  provides  investment
advisory  assistance  and  day-to-day  management  of a  portion  of the  Fund's
portfolio, as well as investment research and statistical information,  under an
Investment Subadvisory Agreement with AEFC.

RS Investment Management,  L.P. (RSIM), located at 388 Market Street, Suite 200,
San Francisco,  California,  sub-advises the Fund's assets. RSIM, subject to the
supervision and approval of AEFC,  provides  investment  advisory assistance and
day-to-day  management  of a  portion  of  the  Fund's  portfolio,  as  well  as
investment research and statistical information, under an Investment Subadvisory
Agreement with AEFC.

Administrative Services Agreement

The  Fund  has an  Administrative  Services  Agreement  with  AEFC.  Under  this
agreement,  the Fund  pays  AEFC for  providing  administration  and  accounting
services. The fee is calculated as follows:

Assets                       Annual rate at
(billions)                   each asset level
---------                    ----------------
First     $0.25                    0.080%
Next      0.25                     0.075
Next      0.25                     0.070
Next      0.25                     0.065
Next      1.00                     0.060
Over      2.00                     0.055

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.

Transfer Agency Agreement

The Fund has a Transfer  Agency  Agreement with American  Express Client Service
Corporation   (AECSC).   This  agreement  governs  AECSC's   responsibility  for
administering and/or performing transfer agent

<PAGE>

functions,  for  acting  as  service  agent  in  connection  with  dividend  and
distribution  functions and for performing  shareholder  account  administration
agent  functions in  connection  with the issuance,  exchange and  redemption or
repurchase of the Fund's shares. Under the agreement, AECSC will earn a fee from
the Fund determined by multiplying the number of shareholder accounts at the end
of the day by a rate  determined  for each  class per year and  dividing  by the
number of days in the year. The rate for Class A is $19 per year, for Class B is
$20 per year,  for  Class C is $19.50  per year and for Class Y is $17 per year.
The fees paid to AECSC may be changed by the board without shareholder approval.

DISTRIBUTION AGREEMENT

American Express  Financial  Advisors Inc. is the Fund's  principal  underwriter
(distributor). The Fund's shares are offered on a continuous basis.

Under a Distribution  Agreement,  sales charges deducted for  distributing  Fund
shares are paid to the Distributor  daily.  Part of the sales charge may be paid
to selling  dealers who have agreements  with the  Distributor.  The Distributor
will retain the balance of the sales  charge.  At times the entire  sales charge
may be paid to selling dealers.

SHAREHOLDER SERVICE AGREEMENT

With  respect to Class Y shares,  the Fund pays a fee for  service  provided  to
shareholders  by  financial  advisors  and other  servicing  agents.  The fee is
calculated at a rate, of 0.10% of daily net assets.

PLAN AND AGREEMENT OF DISTRIBUTION

For Class A, Class B and Class C shares, to help defray the cost of distribution
and servicing not covered by the sales charges  received under the  Distribution
Agreement,  the Fund and the  Distributor  entered into a Plan and  Agreement of
Distribution  (Plan)  pursuant to Rule 12b-1 under the 1940 Act. Under the Plan,
the Fund pays a fee up to actual  expenses  incurred  at an annual rate of up to
0.25% of the Fund's average daily net assets  attributable to Class A shares and
up to 1.00%  for Class B and Class C shares.  Each  class has  exclusive  voting
rights on the Plan as it applies to that class.  In  addition,  because  Class B
shares convert to Class A shares, Class B shareholders have the right to vote on
any material change to expenses charged under the Class A plan.

Expenses covered under this Plan include sales commissions;  business,  employee
and financial  advisor  expenses charged to distribution of Class A, Class B and
Class C shares;  and  overhead  appropriately  allocated to the sale of Class A,
Class B and Class C 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 mutual 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 relevant  class of shares or by the  Distributor.  The
Plan  (or any  agreement  related  to it)  will  terminate  in the  event of its
assignment, as that term is defined in the 1940 Act. The Plan may not be amended
to  increase  the  amount  to be  spent  for  distribution  without  shareholder
approval, and all material amendments to the Plan must be approved by a majority
of the board  members,  including  a majority  of the board  members who are not
interested  persons of the Fund and who do not have a financial  interest in the
operation  of the  Plan  or any  agreement  related  to it.  The  selection  and
nomination of  disinterested  board members is the  responsibility  of the other
disinterested  board members.  No board member who is not an interested  person,
has any direct or indirect  financial  interest in the  operation of the Plan or
any related  agreement.  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.

<PAGE>

Custodian Agreement

The Fund's  securities and cash are held by American Express Trust Company,  200
AXP Financial Center,  Minneapolis, MN 55474, 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 the Bank of New
York, 90 Washington  Street,  New York, NY 10286.  As part of this  arrangement,
securities  purchased outside the United States 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 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268.

SHARES

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

As a shareholder in the Fund, you have voting rights over the Fund's  management
and fundamental  policies.  You are entitled to one vote for each share you own.
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  you have as many  votes  as the  number  of  shares  you own,
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.

AMERICAN EXPRESS FINANCIAL CORPORATION

AEFC has been a  provider  of  financial  services  since  1894.  Its  family of
companies offers not only mutual funds but also insurance, annuities, investment
certificates and a broad range of financial management services.

In addition to managing assets of more than $98 billion for the American Express
Funds, AEFC manages investments for itself and its subsidiaries, IDS Certificate
Company and IDS Life Insurance Company. Total assets owned and managed as of the
end of the most recent fiscal year were more than $249 billion.

The Distributor serves individuals and businesses through its nationwide network
of more than 600  supervisory  offices,  more than 3,800 branch offices and more
than 10,450 financial advisors.

<PAGE>
<TABLE>
<CAPTION>
FUND HISTORY TABLE FOR ALL PUBLICLY OFFERED AMERICAN EXPRESS FUNDS*

                                              Date of            Form of        State of     Fiscal
  Fund                                     Organization        Organization    Organization Year End   Diversified
<S>                                     <C>                  <C>               <C>          <C>        <C>
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Bond Fund, Inc.                   6/27/74, 6/31/86***    Corporation        NV/MN       8/31        Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Discovery Fund, Inc.              4/29/81, 6/13/86***    Corporation        NV/MN       7/31        Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Equity Select Fund, Inc.**        3/18/57, 6/13/86***    Corporation        NV/MN       11/30       Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Extra Income Fund, Inc.                 8/17/83          Corporation         MN         5/31        Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Federal Income Fund, Inc.               3/12/85          Corporation         MN         5/31        Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Global Series, Inc.                    10/28/88          Corporation         MN         10/31
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Emerging Markets Fund                                                                            Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Global Balanced Fund                                                                             Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Global Bond Fund                                                                                 No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Global Growth Fund                                                                               Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Innovations Fund                                                                                 Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Growth Series, Inc.               5/21/70, 6/13/86***    Corporation        NV/MN       7/31
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Growth Fund                                                                                      Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Research Opportunities Fund                                                                      Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP High Yield Tax-Exempt Fund, Inc.  12/21/78, 6/13/86**    Corporation        NV/MN       11/30       Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP International Fund, Inc.                7/18/84          Corporation         MN         10/31
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
      AXP European Equity Fund                                                                            No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
      AXP International Fund                                                                              Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Investment Series, Inc.           1/18/40, 6/13/86***    Corporation        NV/MN       9/30
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Diversified Equity Income                                                                        Yes
     Fund
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Mutual                                                                                           Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Managed Series, Inc.                    10/9/84          Corporation         MN         9/30
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Managed Allocation Fund                                                                          Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Market Advantage Series, Inc.           8/25/89          Corporation         MN         1/31
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Blue Chip Advantage Fund                                                                         Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP International Equity Index                                                                       No
     Fund
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Mid Cap Index Fund                                                                               No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Nasdaq 100 Index Fund                                                                            No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP S&P 500 Index Fund                                                                               No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Small Company Index Fund                                                                         Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Total Stock Market Index Fund                                                                    No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Money Market Series, Inc.         8/22/75, 6/13/86***    Corporation        NV/MN       7/31
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Cash Management Fund                                                                             Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP New Dimensions Fund, Inc.         2/20/68, 6/13/86***    Corporation        NV/MN       7/31
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Growth Dimensions Fund                                                                           Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP New Dimensions Fund                                                                              Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Precious Metals Fund, Inc.              10/5/84          Corporation         MN         3/31        No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Progressive Fund, Inc.            4/23/68, 6/13/86***    Corporation        NV/MN       9/30        Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Selective Fund, Inc.              2/10/45, 6/13/86***    Corporation        NV/MN       5/31        Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Stock Fund, Inc.                  2/10/45, 6/13/86***    Corporation        NV/MN       9/30        Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Strategy Series, Inc.                   1/24/84          Corporation         MN         3/31
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Equity Value Fund**                                                                              Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Focus 20 Fund                                                                                    No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Small Cap Advantage Fund                                                                         Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Small Cap Growth Fund                                                                            Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Strategy Aggressive Fund**                                                                       Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
      AXP Small Cap Growth Fund                                                                           Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Tax-Exempt Series, Inc.           9/30/76, 6/13/86***    Corporation        NV/MN       11/31
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Intermediate Tax-Exempt Fund                                                                     Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Tax-Exempt Bond Fund                                                                             Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Tax-Free Money Fund, Inc.         2/29/80, 6/13/86***    Corporation        NV/MN       12/31       Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Utilities Income Fund, Inc.             3/25/88          Corporation         MN         6/30        Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP California Tax-Exempt Trust             4/7/86             Business          MA         6/30
                                                                Trust****
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP California Tax-Exempt Fund                                                                       No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
  AXP Special Tax-Exempt Series Trust         4/7/86             Business          MA         6/30
                                                                Trust****
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Insured Tax-Exempt Fund                                                                          Yes
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Massachusetts Tax-Exempt Fund                                                                    No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Michigan Tax-Exempt Fund                                                                         No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Minnesota Tax-Exempt Fund                                                                        No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP New York Tax-Exempt Fund                                                                         No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
     AXP Ohio Tax-Exempt Fund                                                                             No
  ------------------------------------- -------------------- ----------------- ------------ ---------- ----------
</TABLE>
<PAGE>

*    At the  shareholders  meeting  held on June 16, 1999,  shareholders  of the
     existing funds (except for AXP Small Cap Advantage  Fund) approved the name
     change  from IDS to AXP.  In  addition  to  substituting  AXP for IDS,  the
     following  series changed their names:  IDS Growth Fund, Inc. to AXP Growth
     Series,  Inc., IDS Managed  Retirement  Fund,  Inc. to AXP Managed  Series,
     Inc.,  IDS  Strategy  Fund,  Inc. to AXP  Strategy  Series,  Inc.,  and IDS
     Tax-Exempt Bond Fund, Inc. to AXP Tax-Exempt Series, Inc.

**   At the  shareholders  meeting  held on Nov. 9, 1994,  IDS Equity Plus Fund,
     Inc. changed its name to IDS Equity Select Fund, Inc. At that same time IDS
     Strategy Aggressive Equity Fund changed its name to IDS Strategy Aggressive
     Fund,  and IDS  Strategy  Equity Fund  changed its name to IDS Equity Value
     Fund.

***  Date merged into a Minnesota corporation incorporated on 4/7/86.

**** Under  Massachusetts  law,  shareholders  of a business  trust  may,  under
     certain  circumstances,  be held  personally  liable  as  partners  for its
     obligations. However, the risk of a shareholder incurring financial loss on
     account of shareholder  liability is limited to  circumstances in which the
     trust itself is unable to meet its obligations.

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 64 American Express mutual funds.

Peter J. Anderson**
Born in 1942
200 AXP Financial Center
Minneapolis, MN

Senior vice  president -  investments  and  director of AEFC.  Vice  president -
investments of the Fund.

H. Brewster Atwater, Jr.'
Born in 1931
4900 IDS Tower
Minneapolis, MN

Retired  chairman and chief executive  officer,  General Mills,  Inc.  (consumer
foods and restaurants). Director, Merck & Co., Inc. (pharmaceuticals).

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 EXIDE
Corporation (auto parts and batteries).

<PAGE>

David R. Hubers**
Born in 1943
200 AXP Financial Center
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).

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), 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
200 AXP Financial Center
Minneapolis, MN

Senior vice president of AEFC. President of the Fund.

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 and restaurants).

<PAGE>

+ 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.

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,  Mr. Thomas,  who is president and Mr. Anderson who is
vice 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:

Frederick C. Quirsfeld
Born in 1947
200 AXP Financial Center
Minneapolis, MN

Vice president - taxable mutual fund investments of AEFC. Vice president - fixed
income investments for the Fund.

John M. Knight
Born in 1952
200 AXP Financial Center
Minneapolis, MN

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

<PAGE>

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

The  financial  statements  contained  in the Annual  Report  will be audited by
independent  auditors,  KPMG LLP,  4200 Wells Fargo  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

                             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.

<PAGE>

Debt rated BB has less near-term vulnerability to default than other speculative
issues.  However,  it faces major ongoing  uncertainties  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.

<PAGE>

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.

                         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.

<PAGE>

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.

                                 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.

<PAGE>

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>

PART C. OTHER INFORMATION
------

Item 23. Exhibits

(a)      Articles of Incorporation as amended Nov. 14, 1991, filed as Exhibit 1
         to  Registrant's  Post-Effective  Amendment  No.  18  to  Registration
         Statement No. 2-89288 are incorporated by reference.

(b)      By-laws as amended January 12, 1989, filed electronically as Exhibit 2
         to  Registrant's  Post-Effective  Amendment  No.  11  to  Registration
         Statement No. 2-89288 are incorporated by reference.

(c)      Stock Certificate filed as Exhibit 4 to Post-Effective Amendment No. 3
         to Registration Statement No. 2-89288 is incorporated by reference.

(d)(1)   Investment  Management  Services  Agreement  dated July 1, 1999 between
         Registrant  on  behalf  of AXP  Equity  Value  Fund  and  AXP  Strategy
         Aggressive  Fund  and  American   Express   Financial   Corporation  is
         incorporated   by   reference   to  Exhibit   (d)(1)  to   Registrant's
         Post-Effective Amendment No. 38 filed on or about June 16, 2000.

(d)(2)   Investment  Management Services Agreement between Registrant on behalf
         of AXP  Small  Cap  Advantage  Fund  and  American  Express  Financial
         Corporation,  dated  April 8, 1999,  filed  electronically  as Exhibit
         (d)(2) to Registrant's Post-Effective Amendment No. 36 to Registration
         Statement No. 2-89288 is incorporated by reference.

(d)(3)   Investment  Sub-Advisory  Agreement between American Express Financial
         Corporation and Kenwood  Capital  Management LLC, dated April 7, 1999,
         filed electronically as Exhibit (d)(3) to Registrant's  Post-Effective
         Amendment No. 33 to Registration Statement No. 2-89288 is incorporated
         by reference.

(d)(4)   Investment  Management Services Agreement between Registrant on behalf
         of AXP Focus 20 Fund,  and  American  Express  Financial  Corporation,
         dated March 9, 2000, is incorporated by reference to Exhibit (d)(4) to
         Registrant's  Post-Effective  Amendment No. 36 filed on or about April
         4, 2000.

(d)(5)   Form of Investment  Management  Services Agreement between Registrant,
         on behalf of AXP Small Cap Growth Fund, and American Express Financial
         Corporation,  dated November 9, 2000, filed  electronically as Exhibit
         (d)(5) to Registrant's Post-Effective Amendment No. 40 to Registration
         Statement No. 2-89288 is incorporated by reference.

(d)(6)   Form of Investment  Sub-advisory  Agreement  between  American Express
         Financial  Corporation and Sub-Advisor,  dated November 9, 2000, filed
         electronically  as  Exhibit  (d)(6)  to  Registrant's   Post-Effective
         Amendment No. 40 to Registration Statement No. 2-89288 is incorporated
         by reference.

(e)(1)   Distribution  Agreement,  dated July 8, 1999,  between  AXP  Utilities
         Income Fund,  Inc. and American  Express  Financial  Advisors  Inc. is
         incorporated by reference to Exhibit (e) to AXP Utilities Income Fund,
         Inc.  Post-Effective  Amendment No. 22, to Registration Statement File
         No.  33-20872  filed  on  or  about  August  27,  1999.   Registrant's
         Distribution  Agreement differs from the one incorporated by reference
         only by the fact that Registrant is one executing party.

(e)(2)   Distribution  Agreement  between  Registrant on behalf of AXP Focus 20
         Fund, and American  Express  Financial  Advisors Inc.,  dated March 9,
         2000, is  incorporated  by reference to Exhibit (e)(2) to Registrant's
         Post-Effective Amendment No. 36 filed on or about April 4, 2000.

<PAGE>

(e)(3)   Form of Distribution  Agreement between  Registrant,  on behalf of AXP
         Small Cap Growth Fund, and American Express  Financial  Advisors Inc.,
         dated  November 9, 2000,  filed  electronically  as Exhibit  (e)(3) to
         Registrant's Post-Effective Amendment No. 40 to Registration Statement
         No. 2-89288 is incorporated by reference.

(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  between  Registrant on behalf of AXP Equity Value
         Fund and AXP  Strategy  Aggressive  Fund,  and American  Express  Trust
         Company,  dated March 20, 1995, filed electronically as Exhibit 8(a) to
         Registrant's  Post-Effective Amendment No. 25 to Registration Statement
         No. 2-89288 is incorporated by reference.

(g)(2)   Custodian  Agreement Amendment between IDS International Fund, Inc. and
         American   Express  Trust  Company,   dated  October  9,  1997,   filed
         electronically  on or about  December  23, 1997 as Exhibit  8(c) to IDS
         International   Fund,  Inc.'s   Post-Effective   Amendment  No.  26  to
         Registration  Statement  No.  2-92309,  is  incorporated  by reference.
         Registrant's  Custodian  Agreement  for AXP  Equity  Value Fund and AXP
         Strategy Aggressive Fund differs from the one incorporated by reference
         only by the fact that Registrant is one executing party.

(g)(3)   Custodian Agreement dated May 13, 1999, between American Express Trust
         Company and The Bank of New York is  incorporated  by reference to IDS
         Precious Metals Fund, Inc.  Post-Effective  Amendment No. 33, File No.
         2-93745 filed on or about May 21, 1999.

(g)(4)   Custodian  Agreement between Registrant on behalf of AXP Focus 20 Fund,
         and  American   Express  Trust   Company,   dated  March  9,  2000,  is
         incorporated   by   reference   to  Exhibit   (g)(5)  to   Registrant's
         Post-Effective Amendment No. 36 filed on or about April 4, 2000.

(g)(5)   Form of Custodian Agreement between Registrant, on behalf of AXP Small
         Cap Growth Fund, and American Express Trust Company, dated November 9,
         2000,   filed   electronically   as  Exhibit  (g)(5)  to  Registrant's
         Post-Effective  Amendment No. 40 to Registration Statement No. 2-89288
         is incorporated by reference.

(h)(1)   Administrative  Services Agreement between Registrant on behalf of IDS
         Strategy  Aggressive  Fund and IDS  Equity  Value  Fund  and  American
         Express   Financial   Corporation,   dated  March  20,   1995,   filed
         electronically   as  Exhibit  9(d)  to   Registrant's   Post-Effective
         Amendment No. 25 to Registration Statement No. 2-89288 is incorporated
         by reference.

(h)(2)   Administrative  Services Agreement between Registrant on behalf of AXP
         Small Cap Advantage Fund and American  Express  Financial  Corporation
         dated  April 7,  1999,  filed  electronically  as  Exhibit  (h)(2)  to
         Registrant's Post-Effective Amendment No. 33 to Registration Statement
         No. 2-89288 is incorporated by reference.

(h)(3)   License Agreement between the Registrant and IDS Financial Corporation
         dated  January  25,  1988,  filed  electronically  as Exhibit  9(b) to
         Registrant's Post-Effective Amendment No. 11 to Registration Statement
         No. 2-89288 is incorporated by reference.

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

<PAGE>

(h)(5)   Class Y  Shareholder  Service  Agreement  between IDS Precious  Metals
         Fund, Inc. and American Express Financial  Advisors Inc., dated May 9,
         1997, filed electronically on or about May 27, 1997 as Exhibit 9(e) to
         IDS Precious Metals Fund,  Inc.'s  Post-Effective  Amendment No. 30 to
         Registration  Statement No.  2-93745,  is  incorporated  by reference.
         Registrant's  Class Y  Shareholder  Service  Agreement  for AXP Equity
         Value  Fund and AXP  Strategy  Aggressive  Fund  differs  from the one
         incorporated  by  reference  only by the fact that  Registrant  is one
         executing party.

(h)(6)   Transfer  Agency  Agreement  between  Registrant  and American  Express
         Client Service  Corporation,  dated March 9, 2000, is  incorporated  by
         reference to Exhibit (h)(9) to  Registrant's  Post-Effective  Amendment
         No. 36 filed on or about April 4, 2000.

(h)(7)   Administrative  Services  Agreement between Registrant on behalf of AXP
         Focus 20 Fund,  dated March 9, 2000,  is  incorporated  by reference to
         Exhibit (h)(7) to Registrant's Post-Effective Amendment No. 36 filed on
         or about April 4, 2000.

(h)(8)   Form of  Administrative  Services  Agreement  between  Registrant,  on
         behalf of AXP Small Cap Growth Fund,  and American  Express  Financial
         Corporation,  dated November 9, 2000, filed  electronically as Exhibit
         (h)(8) to Registrant's Post-Effective Amendment No. 40 to Registration
         Statement No. 2-89288 is incorporated by reference.

(h)(9)   Form of Class Y Shareholder Service Agreement between  Registrant,  on
         behalf of AXP Small Cap Growth Fund,  and American  Express  Financial
         Advisors,  Inc.,  dated  November  9, 2000,  filed  electronically  as
         Exhibit  (h)(9) to  Registrant's  Post-Effective  Amendment  No. 40 to
         Registration Statement No. 2-89288 is incorporated by reference.

(h)(10)  Form of Transfer Agreement between Registrant,  on behalf of AXP Small
         Cap Growth Fund,  and American  Express  Client  Service  Corporation,
         dated November 9, 2000,  filed  electronically  as Exhibit  (h)(10) to
         Registrant's Post-Effective Amendment No. 40 to Registration Statement
         No. 2-89288 is incorporated by reference.

(i)      Opinion and Consent of Counsel to be filed by Amendment.

(j)      Independent Auditors' Consent: not applicable.

(k)      Omitted Financial Statements:      None.

(l)      Initial Capital Agreements:        Not Applicable.

(m)(1)   Plan and  Agreement  of  Distribution  dated July 1, 1999  between AXP
         Discovery Fund, Inc. and American Express  Financial  Advisors Inc. is
         incorporated  by reference to Exhibit (m) to AXP Discovery  Fund, Inc.
         Post-Effective  Amendment No. 36 to  Registration  Statement  File No.
         2-72174  filed  on or  about  July  30,  1999.  Registrant's  Plan and
         Agreement  of  Distribution  differs  from  the  one  incorporated  by
         reference only by the fact that Registrant is one executing party.

(m)(2)   Plan and Agreement of Distribution between Registrant on behalf of AXP
         Small Cap Advantage Fund and American Express Financial  Advisors Inc.
         dated  April 7,  1999,  filed  electronically  as  Exhibit  (m)(2)  to
         Registrant's Post-Effective Amendment No. 33 to Registration Statement
         No. 2-89288 is incorporated by reference.

(m)(3)   Plan and Agreement of Distribution between Registrant on behalf of AXP
         Focus 20 Fund and American  Express  Financial  Advisors  Inc.,  dated
         March 9, 2000,  is  incorporated  by  reference  to Exhibit  (m)(3) to
         Registrant's  Post-Effective  Amendment No. 36 filed on or about April
         4, 2000.

<PAGE>

(m)(4)   Plan and Agreement of  Distribution  For Class C Shares dated March 9,
         2000  between  AXP Bond Fund,  Inc.  and  American  Express  Financial
         Advisors Inc. is  incorporated  by reference to Exhibit  (m)(2) to AXP
         Bond Fund,  Inc.'s  Post-Effective  Amendment  No. 51 to  Registration
         Statement   File  No.  2-51586  filed  on  or  about  June  26,  2000.
         Registrant's  Plan and  Agreement of  Distribution  for Class C Shares
         differs from the one  incorporated  by reference only by the fact that
         Registrant is one executing party.

(m)(5)   Form of Plan and  Agreement of  Distribution  between  Registrant,  on
         behalf of AXP Small Cap Growth Fund,  and American  Express  Financial
         Advisors Inc., dated November 9, 2000, filed electronically as Exhibit
         (m)(5) to Registrant's Post-Effective Amendment No. 40 to Registration
         Statement No. 2-89288 is incorporated by reference.

(m)(6)   Form of Plan and Agreement of Distribution  for Class C Shares between
         Registrant,  on  behalf of AXP Small Cap  Growth  Fund,  and  American
         Express  Financial  Advisors  Inc.,  dated  November  9,  2000,  filed
         electronically   as  Exhibit(m)(6)   to  Registrant's   Post-Effective
         Amendment No. 40 to Registration Statement No. 2-89288 is incorporated
         by reference.

(n)      Rule 18f-3 Plan,  dated March 2000,  is  incorporated  by reference to
         Exhibit (n) to AXP Bond Fund Inc.'s Post-Effective Amendment No. 51 to
         Registration  Statement  File No.  2-51586  filed on or about June 26,
         2000.

(o)      Reserved.

(p)(1)   Code  of  Ethics  adopted  under  Rule  17j-1  for  Registrant   filed
         electronically  on or about  March 30,  2000 as Exhibit  (p)(1) to AXP
         Market Advantage  Series,  Inc.'s  Post-Effective  Amendment No. 24 to
         Registration Statement No. 33-30770, is incorporated by reference.

(p)(2)   Code of Ethics  adopted under Rule 17j-1 for  Registrant's  investment
         advisor and principal  underwriter  filed  electronically  on or about
         March 30,  2000 as  Exhibit  (p)(2) by AXP  Market  Advantage  Series,
         Inc.'s Post-Effective  Amendment No. 24 to Registration  Statement No.
         33-30770, is incorporated by reference.

(p)(3)   Code of Ethics adopted under Rule 17j-1 by AXP Small Cap Growth Fund's
         subadvisor INVESCO Funds Group Inc., is filed electronically herewith.

(p)(4)   Code of Ethics adopted under Rule 17j-1 by AXP Small Cap Growth Fund's
         subadvisor  Neuberger Berman Management Inc., is filed  electronically
         herewith.

(p)(5)   Code of Ethics  adopted under Rule 17j-1 by AXP Small Cap Growth Fund's
         subadvisor RS  Investment  Management,  L.P.,  is filed  electronically
         herewith.

(q)(1)   Directors'  Power of Attorney to sign amendments to this  Registration
         Statement, dated Jan. 13, 2000 is incorporated by reference to Exhibit
         (q)(1) to  Registrant's  Post-Effective  Amendment  No. 36 filed on or
         about April 4, 2000.

(q)(2)   Officers'  Power of Attorney to sign  amendments to this  Registration
         Statement, dated Jan. 13, 2000 is incorporated by reference to Exhibit
         (q)(2) to  Registrant's  Post-Effective  Amendment  No. 36 filed on or
         about April 4, 2000.

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

                  None.

<PAGE>

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.



<PAGE>

<TABLE>
<CAPTION>

Item 26.          Business and Other Connections of Investment Adviser (American Express Financial Corporation)

Directors and officers of American Express Financial Corporation who are directors and/or officers of one or more
other companies:

<S>                           <C>                         <C>                          <C>
Name and Title                  Other company(s)             Address                      Title within other
                                                                                          company(s)

Ronald G. Abrahamson,           American Express Client      IDS Tower 10                 Director and Vice President
Vice President                  Service Corporation          Minneapolis, MN 55440

                                American Express Financial                                Vice President
                                Advisors Inc.

                                Public Employee Payment                                   Director and Vice President
                                Company

Douglas A. Alger,               American Express Financial   IDS Tower 10                 Senior Vice President
Director and Senior Vice        Advisors Inc.                Minneapolis, MN 55440
President

Peter J. Anderson,              Advisory Capital             IDS Tower 10                 Director
Director and Senior Vice        Strategies Group Inc.        Minneapolis, MN 55440
President

                                American Express Asset                                    Director and Chairman of
                                Management Group Inc.                                     the Board

                                American Express Asset                                    Director, Chairman of the
                                Management International,                                 Board and Executive Vice
                                Inc.                                                      President

                                American Express Financial                                Senior Vice President
                                Advisors Inc.

                                IDS Capital Holdings Inc.                                 Director and President

                                IDS Futures Corporation                                   Director

                                NCM Capital Management       2 Mutual Plaza               Director
                                Group, Inc.                  501 Willard Street
                                                             Durham, NC  27701

Ward D. Armstrong,              American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

                                American Express Service                                  Vice President
                                Corporation

                                American Express Trust                                    Director and Chairman of
                                Company                                                   the Board

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

                                American Express Trust                                    Senior Vice President
                                Company

Joseph M. Barsky III,           American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

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

                                American Express Financial                                Vice President
                                Advisors Inc.

                                IDS Life Insurance Company                                Executive Vice President

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

                                IDS Life Series Fund, Inc.                                Director

John C. Boeder,                 American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

                                IDS Futures Corporation                                   Director and President

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

Douglas W. Brewers,             American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Karl J. Breyer,                 American Express Financial   IDS Tower 10                 Senior Vice President
Director, Corporate Senior      Advisors Inc.                Minneapolis, MN 55440
Vice President

                                American Express Financial                                Director
                                Advisors Japan Inc.

                                American Express Minnesota                                Director
                                Foundation

Cynthia M. Carlson,             American Enterprise          IDS Tower 10                 Director, President and
Vice President                  Investment Services Inc.     Minneapolis, MN 55440        Chief Executive Officer

                                American Express Financial                                Vice President
                                Advisors Inc.

                                American Express Service                                  Vice President
                                Corporation

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

                                IDS Life Insurance Company                                Executive Vice President

Kenneth I. Chenaut              American Express Company     American Express Tower       President and Chief
Director                                                     World Financial Center       Operating Officer
                                                             New York, NY  10285

James E. Choat,                 American Centurion Life      IDS Tower 10                 Executive Vice President
Director and Senior Vice        Assurance Company            Minneapolis, MN 55440
President

                                American Enterprise Life                                  Director, President and
                                Insurance Company                                         Chief Executive Officer

                                American Express Financial                                Senior Vice President
                                Advisors Inc.

                                American Express Insurance                                Vice President
                                Agency of Idaho Inc.

                                American Express Insurance                                Vice President
                                Agency of Nevada Inc.

                                American Express Insurance                                Vice President
                                Agency of Oregon Inc.

                                American Express Property                                 Vice President
                                Casualty Insurance Agency
                                of Kentucky Inc.

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

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

                                IDS Insurance Agency of                                   Vice President
                                Alabama Inc.

                                IDS Insurance Agency of                                   Vice President
                                Arkansas Inc.

                                IDS Insurance Agency of                                   Vice President
                                Massachusetts Inc.

                                IDS Insurance Agency of                                   Vice President
                                New Mexico Inc.

                                IDS Insurance Agency of                                   Vice President
                                North Carolina Inc.

                                IDS Insurance Agency of                                   Vice President
                                Ohio Inc.

                                IDS Insurance Agency of                                   Vice President
                                Wyoming Inc.

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

Kenneth J. Ciak,                AMEX Assurance Company       IDS Tower 10                 Director and President
Vice President and General                                   Minneapolis, MN 55440
Manager

                                American Express Financial                                Vice President and General
                                Advisors Inc.                                             Manager

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

Paul A. Connolly,               American Express Financial   IDS Tower 10                 Vice President - Retail
Vice President - Retail         Advisors Inc.                Minneapolis, MN 55440        Distribution Services
Distribution Services

Colleen Curran,                 American Express Financial   IDS Tower 10                 Vice President and
Vice President and Assistant    Advisors Inc.                Minneapolis, MN 55440        Assistant General Counsel
General Counsel

                                American Express Service                                  Vice President and Chief
                                Corporation                                               Legal Counsel

Luz Maria Davis                 American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Douglas K. Dunning,             American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Gordon L. Eid,                  American Express Financial   IDS Tower 10                 Senior Vice President,
Director, Senior Vice           Advisors Inc.                Minneapolis, MN 55440        General Counsel and Chief
President, General Counsel                                                                Compliance Officer
and Chief Compliance Officer

                                American Express Financial                                Vice President and Chief
                                Advisors Japan Inc.                                       Compliance Officer

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

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

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

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

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

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

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

                                IDS Insurance Agency of                                   Director and Vice President
                                Alabama Inc.

                                IDS Insurance Agency of                                   Director and Vice President
                                Arkansas Inc.

                                IDS Insurance Agency of                                   Director and Vice President
                                Massachusetts Inc.

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

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

                                IDS Insurance Agency of                                   Director and Vice President
                                Ohio Inc.

                                IDS Insurance Agency of                                   Director and Vice President
                                Wyoming Inc.

                                IDS Real Estate Services,                                 Vice President
                                Inc.

                                Investors Syndicate                                       Director
                                Development Corp.

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

                                IDS Life Insurance Company                                Vice President

Gordon M. Fines,                American Express Asset       IDS Tower 10                 Senior Vice President and
Vice President                  Management Group Inc.        Minneapolis, MN 55440        Chief Investment Officer

                                American Express Financial                                Vice President
                                Advisors Inc.

Douglas L. Forsberg,            American Centurion Life      IDS Tower 10                 Director
Vice President                  Assurance Company            Minneapolis, MN 55440

                                American Express Financial                                Vice President
                                Advisors Inc.

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

Jeffrey P. Fox,                 American Enterprise Life     IDS Tower 10                 Vice President and
Vice President and Corporate    Insurance Company            Minneapolis, MN 55440        Controller
Controller

                                American Express Financial                                Vice President and
                                Advisors Inc.                                             Corporate Controller

Peter A. Gallus                 American Express Financial   IDS Tower 10                 Vice President-Investment
Vice President-Investment       Advisors Inc.                Minneapolis, MN 55440        Administration
Administration

Harvey Golub,                   American Express Company     American Express Tower       Chairman and Chief
Director                                                     World Financial Center       Executive Officer
                                                             New York, NY  10285

                                American Express Travel                                   Chairman and Chief
                                Related Services Company,                                 Executive Officer
                                Inc.

David A. Hammer,                American Express Financial   IDS Tower 10                 Vice President and
Vice President and Marketing    Advisors Inc.                Minneapolis, MN 55440        Marketing Controller
Controller

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

Teresa A. Hanratty              American Express Financial   IDS Tower 10                 Senior Vice
Director and Senior Vice        Advisors Inc.                Minneapolis, MN 55440        President-Field Management
President-Field Management

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 Partners Life                                    Director and Vice
                                Insurance Company                                         President

                                IDS Certificate Company                                   Vice President

                                IDS Life Insurance 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

                                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

Scott A. Hawkinson,             American Express Financial   IDS Tower 10                 Vice President and
Vice President and Controller   Advisors Inc.                Minneapolis, MN 55440        Controller

Janis K. Heaney,                American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Brian M. Heath                  American Express Financial   IDS Tower 10                 Senior Vice President and
Director, Senior Vice           Advisors Inc.                Minneapolis, MN 55440        General Sales Manager
President and General Sales
Manager

Darryl G. Horsman,              American Express Trust       IDS Tower 10                 Director and President
Vice President                  Company                      Minneapolis, MN 55440

                                American Express Asset                                    Vice President
                                Management International
                                Inc.

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

                                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
                                Advisors Japan Inc.                                       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.

                                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                                Vice President, Treasurer
                                                                                          and Assistant Secretary

                                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

                                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

                                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, President and Chief                                Minneapolis, MN 55440
Executive Officer

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

                                American Express Service                                  Director and President
                                Corporation

                                IDS Certificate Company                                   Director

                                IDS Life Insurance Company                                Director

                                IDS Plan Services of                                      Director and President
                                California, Inc.

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

Debra A. Hutchinson             American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN  55440

James M. Jensen,                American Express Financial   IDS Tower 10                 Vice President and
Vice President and              Advisors Inc.                Minneapolis, MN 55440        Controller-Advice and
Controller-Advice and Retail                                                              Retail Distribution Group
Distribution Group

                                IDS Life Insurance Company                                Vice President

Marietta L. Johns,              American Express Financial   IDS Tower 10                 Senior Vice President
Director and Senior Vice        Advisors Inc.                Minneapolis, MN 55440
President

Nancy E. Jones,                 American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

                                American Express Service                                  Vice President
                                Corporation

Ora J. Kaine,                   American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Linda B. Keene,                 American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Richard W. Kling,               AMEX Assurance Company       IDS Tower 10                 Director
Director and Senior Vice                                     Minneapolis, MN 55440
President - Insurance Products

                                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.                                             Insurance Products

                                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.

                                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 Insurance Company                                Director, Chief Executive
                                                                                          Officer and President

                                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

John M. Knight                  American Express Financial   IDS Tower 10                 Vice President
                                Advisors                     Minneapolis, MN  55440

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

                                IDS Life Insurance Company                                Director and Executive
                                                                                          Vice President

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

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

Claire Kolmodin,                American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Steve C. Kumagai,               American Express Financial   IDS Tower 10                 Director and Senior Vice
Director and Senior Vice        Advisors Inc.                Minneapolis, MN 55440        President-Direct and
President-Direct and                                                                      Interactive Group
Interactive Group

Kurt A Larson,                  American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Lori J. Larson,                 American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Daniel E. Laufenberg,           American Express Financial   IDS Tower 10                 Vice President and Chief
Vice President and Chief U.S.   Advisors Inc.                Minneapolis, MN 55440        U.S. Economist
Economist

Peter A. Lefferts,              American Express Financial   IDS Tower 10                 Senior Vice President
Director and Senior Vice        Advisors Inc.                Minneapolis, MN 55440
President

                                American Express Trust                                    Director
                                Company

                                IDS Plan Services of                                      Director
                                California, Inc.

Douglas A. Lennick,             American Express Financial   IDS Tower 10                 Director and Executive
Director and Executive Vice     Advisors Inc.                Minneapolis, MN 55440        Vice President
President

Mary J. Malevich,               American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Fred A. Mandell,                American Express Financial   IDS Tower 10                 Vice President -
Vice President - Distribution   Advisors Inc.                Minneapolis, MN 55440        Distribution Channel
Channel Marketing                                                                         Marketing

Timothy J. Masek                American Express Financial   IDS Tower 10                 Vice President and
Vice President and Director     Advisors Inc.                Minneapolis, MN 55440        Director of Global Research
of Global Research

Sarah A. Mealey,                American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

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

                                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

                                IDS Life Insurance Company                                Director and Executive
                                                                                          Vice President

                                Investors Syndicate                                       Director, Chairman of the
                                Development Corporation                                   Board and President

Shashank B. Modak               American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Pamela J. Moret,                American Express Financial   IDS Tower 10                 Senior Vice President -
Director and Senior Vice        Advisors Inc.                Minneapolis, MN 55440        Investment Products
President - Investment
Products

                                American Express Trust                                    Vice President
                                Company

                                IDS Certificate Company                                   Director

                                IDS Life Insurance Company                                Executive Vice President

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

                                American Enterprise                                       Director
                                Investment Services, Inc.

                                American Express Financial                                Senior Vice President
                                Advisors Inc.

                                IDS Life Insurance Company                                Director and Executive
                                                                                          Vice President

Mary Owens Neal,                American Express Financial   IDS Tower 10                 Vice President-Consumer
Vice President-Consumer         Advisors Inc.                Minneapolis, MN 55440        Marketing
Marketing

Michael J. O'Keefe,             American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

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

                                IDS Life Insurance Company                                Vice President

Carla P. Pavone,                American Express Financial   IDS Tower 10                 Vice
Vice President-Compensation     Advisors Inc.                Minneapolis, MN 55440        President-Compensation
Services and ARD Product                                                                  Services and ARD Product
Distribution                                                                              Distribution

                                Public Employee Payment                                   Director and President
                                Company

Thomas P. Perrine,              American Express Financial   IDS Tower 10                 Senior Vice President
Director and Senior Vice        Advisors Inc.                Minneapolis, MN 55440
President

Susan B. Plimpton,              American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Ronald W. Powell,               American Express Financial   IDS Tower 10                 Vice President and
Vice President and Assistant    Advisors Inc.                Minneapolis, MN 55440        Assistant General Counsel
General Counsel

                                IDS Cable Corporation                                     Vice President and
                                                                                          Assistant Secretary

                                IDS Cable II Corporation                                  Vice President and
                                                                                          Assistant Secretary

                                IDS Management Corporation                                Vice President and
                                                                                          Assistant Secretary

                                IDS Partnership Services                                  Vice President and
                                Corporation                                               Assistant Secretary

                                IDS Plan Services of                                      Vice President and
                                California, Inc.                                          Assistant Secretary

                                IDS Realty Corporation                                    Vice President and
                                                                                          Assistant Secretary

James M. Punch,                 American Express Financial   IDS Tower 10                 Vice President - Branded
Vice President - Branded        Advisors Inc.                Minneapolis, MN 55440        Platform Project
Platform Project

Frederick C. Quirsfeld,         American Express Asset       IDS Tower 10                 Senior Vice President and
Director and Senior Vice        Management Group Inc.        Minneapolis, MN 55440        Senior Portfolio Manager
President

                                American Express Financial                                Senior Vice President
                                Advisors Inc.

Rollyn C. Renstrom,             American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Rebecca K. Roloff,              American Express Financial   IDS Tower 10                 Senior Vice President
Director and Senior Vice        Advisors Inc.                Minneapolis, MN 55440
President

Stephen W. Roszell,             Advisory Capital             IDS Tower 10                 Director
Director and Senior Vice        Strategies Group Inc.        Minneapolis, MN 55440
President

                                American Express Asset                                    Director, President and
                                Management Group Inc.                                     Chief Executive Officer

                                American Express Asset                                    Director
                                Management International,
                                Inc.

                                American Express Asset                                    Director
                                Management Ltd.

                                American Express Financial                                Senior Vice President
                                Advisors Inc.

                                American Express Trust                                    Director
                                Company

Erven A. Samsel,                American Express Financial   IDS Tower 10                 Senior Vice President
Director and Senior Vice        Advisors Inc.                Minneapolis, MN 55440
President

                                American Express Insurance                                Vice President
                                Agency of Idaho Inc.

                                American Express Insurance                                Vice President
                                Agency of Nevada Inc.

                                American Express Insurance                                Vice President
                                Agency of Oregon Inc.

                                American Express Property                                 Vice President
                                Casualty Insurance Agency
                                of Kentucky Inc.

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

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

                                IDS Insurance Agency of                                   Vice President
                                Alabama Inc.

                                IDS Insurance Agency of                                   Vice President
                                Arkansas Inc.

                                IDS Insurance Agency of                                   Vice President
                                Massachusetts Inc.

                                IDS Insurance Agency of                                   Vice President
                                New Mexico Inc.

                                IDS Insurance Agency of                                   Vice President
                                North Carolina Inc.

                                IDS Insurance Agency of                                   Vice President
                                Ohio Inc.

                                IDS Insurance Agency of                                   Vice President
                                Wyoming Inc.

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

Stuart A. Sedlacek,             AMEX Assurance Company       IDS Tower 10                 Director
Director, Senior Vice                                        Minneapolis, MN 55440
President and Chief Financial
Officer

                                American Enterprise Life                                  Executive Vice President
                                Insurance Company

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

                                American Express Trust                                    Director
                                Company

                                American Partners Life                                    Director and Vice President
                                Insurance Agency

                                IDS Certificate Company                                   Director and President

                                IDS Life Insurance Company                                Executive Vice President
                                                                                          and Controller

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

Donald K. Shanks,               AMEX Assurance Company       IDS Tower 10                 Senior Vice President
Vice President                                               Minneapolis, MN 55440

                                American Express Financial                                Vice President
                                Advisors Inc.

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

Judy P. Skoglund,               American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Bridget Sperl,                  American Express Client      IDS Tower 10                 Vice President
Vice President                  Service Corporation          Minneapolis, MN 55440

                                American Express Financial                                Vice President
                                Advisors Inc.

                                Public Employee Payment                                   Director and President
                                Company

Lisa A. Steffes,                American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

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

                                American Express                                          Director, Vice President
                                Corporation                                               and Secretary

                                American Express Financial                                Vice President and
                                Advisors Inc.                                             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

James J. Strauss,               American Express Financial   IDS Tower 10                 Vice President
Vice President and General      Advisors Inc.                Minneapolis, MN 55440
Auditor

Jeffrey J. Stremcha,            American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Barbara Stroup Stewart,         American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Keith N. Tufte                  American Express Financial   IDS Tower 10                 Vice President and
Vice President and Director     Advisors Inc.                Minneapolis, MN 55440        Director of Equity Research
of Equity Research

Norman Weaver Jr.,              American Express Financial   IDS Tower 10                 Senior Vice President
Director and Senior Vice        Advisors Inc.                Minneapolis, MN 55440
President

                                American Express Insurance                                Vice President
                                Agency of Arizona Inc.

                                American Express Insurance                                Vice President
                                Agency of Idaho Inc.

                                American Express Insurance                                Vice President
                                Agency of Nevada Inc.

                                American Express Insurance                                Vice President
                                Agency of Oregon Inc.

                                American Express Property                                 Vice President
                                Casualty Insurance Agency
                                of Kentucky Inc.

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

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

                                IDS Insurance Agency of                                   Vice President
                                Alabama Inc.

                                IDS Insurance Agency of                                   Vice President
                                Arkansas Inc.

                                IDS Insurance Agency of                                   Vice President
                                Massachusetts Inc.

                                IDS Insurance Agency of                                   Vice President
                                New Mexico Inc.

                                IDS Insurance Agency of                                   Vice President
                                North Carolina Inc.

                                IDS Insurance Agency of                                   Vice President
                                Ohio Inc.

                                IDS Insurance Agency of                                   Vice President
                                Wyoming Inc.

Michael L. Weiner,              American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

                                IDS Capital Holdings Inc.                                 Vice President

                                IDS Futures Brokerage Group                               Vice President

                                IDS Futures Corporation                                   Vice President, Treasurer
                                                                                          and Secretary

                                IDS Sales Support Inc.                                    Director, Vice President
                                                                                          and Assistant Treasurer

Jeffry F. Welter,               American Express Financial   IDS Tower 10                 Vice President
Vice President                  Advisors Inc.                Minneapolis, MN 55440

Edwin M. Wistrand,              American Express Financial   IDS Tower 10                 Vice President and
Vice President and Assistant    Advisors Inc.                Minneapolis, MN 55440        Assistant General Counsel
General Counsel

                                American Express Financial                                Vice President and Chief
                                Advisors Japan Inc.                                       Legal Officer

Michael D. Wolf,                American Express Asset       IDS Tower 10                 Executive Vice President
Vice President                  Management Group Inc.        Minneapolis, MN 55440        and Senior Portfolio
                                                                                          Manager

                                American Express Financial                                Vice President
                                Advisors Inc.

Michael R. Woodward,            American Express Financial   IDS Tower 10                 Senior Vice President
Director and Senior Vice        Advisors Inc.                Minneapolis, MN 55440
President

                                American Express Insurance                                Vice President
                                Agency of Idaho Inc.

                                American Express Insurance                                Vice President
                                Agency of Nevada Inc.

                                American Express Insurance                                Vice President
                                Agency of Oregon Inc.

                                American Express Property                                 Vice President
                                Casualty Insurance Agency
                                of Kentucky Inc.

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

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

                                IDS Insurance Agency of                                   Vice President
                                Alabama Inc.

                                IDS Insurance Agency of                                   Vice President
                                Arkansas Inc.

                                IDS Insurance Agency of                                   Vice President
                                Massachusetts Inc.

                                IDS Insurance Agency of                                   Vice President
                                New Mexico Inc.

                                IDS Insurance Agency of                                   Vice President
                                North Carolina Inc.

                                IDS Insurance Agency of                                   Vice President
                                Ohio Inc.

                                IDS Insurance Agency of                                   Vice President
                                Wyoming Inc.

                                IDS Life Insurance Company   P.O. Box 5144                Director
                                of New York                  Albany, NY 12205
</TABLE>

Item 27. Principal Underwriters.

(a)      American Express Financial  Advisors acts as principal  underwriter for
         the following investment companies:

         AXP Bond Fund,  Inc.; AXP California  Tax-Exempt  Trust;  AXP Discovery
         Fund,  Inc.; AXP Equity Select Fund, Inc.; AXP Extra Income Fund, Inc.;
         AXP Federal  Income Fund,  Inc.;  AXP Global  Series,  Inc.; AXP Growth
         Series,  Inc.; AXP High Yield Tax-Exempt Fund, Inc.; AXP  International
         Fund, Inc.; AXP Investment Series,  Inc.; AXP Managed Series, Inc.; AXP
         Market Advantage Series,  Inc.; AXP Money Market Series,  Inc.; AXP New
         Dimensions  Fund, Inc.; AXP Precious Metals Fund, Inc.; AXP Progressive
         Fund,  Inc.; AXP Selective Fund,  Inc.; AXP Special  Tax-Exempt  Series
         Trust; AXP Stock Fund, Inc.; AXP Strategy Series,  Inc.; AXP Tax-Exempt
         Series, Inc.; AXP Tax-Free Money Fund, Inc.; AXP Utilities Income Fund,
         Inc.,  Growth Trust;  Growth and Income Trust;  Income Trust;  Tax-Free
         Income Trust; World Trust; IDS Certificate  Company;  Strategist Income
         Fund, Inc.;  Strategist Growth Fund, Inc.; Strategist Growth and Income
         Fund, Inc.;  Strategist World Fund, Inc. and Strategist Tax-Free Income
         Fund, Inc.

(b) As to each director, officer or partner of the principal underwriter:
<TABLE>
<CAPTION>
<S>                                  <C>                                <C>

Name and Principal Business Address    Position and Offices with           Offices with Registrant
                                       Underwriter

Ronald G. Abrahamson                   Vice President-Service Quality      None
IDS Tower 10                           and Reengineering
Minneapolis, MN  55440

Douglas A. Alger                       Senior Vice President-Human         None
IDS Tower 10                           Resources
Minneapolis, MN  55440

Peter J. Anderson                      Senior Vice President-Investment    Vice President-Investments
IDS Tower 10                           Operations
Minneapolis, MN  55440

Ward D. Armstrong                      Vice President-American Express     None
IDS Tower 10                           Retirement Services
Minneapolis, MN  55440

John M. Baker                          Vice President-Plan Sponsor         None
IDS Tower 10                           Services
Minneapolis, MN  55440

Joseph M. Barsky III                   Vice President - Mutual Fund        None
IDS Tower 10                           Equities
Minneapolis, MN  55440

Timothy V. Bechtold                    Vice President-Risk Management      None
IDS Tower 10                           Products
Minneapolis, MN  55440

John D. Begley                         Group Vice President-Ohio/Indiana   None
Suite 100
7760 Olentangy River Rd.
Columbus, OH  43235

Brent L. Bisson                        Group Vice President-Los Angeles    None
Suite 900, E. Westside Twr             Metro
11835 West Olympic Blvd.
Los Angeles, CA  90064

John C. Boeder                         Vice President-Nonproprietary       None
IDS Tower 10                           Products
Minneapolis, MN  55440

Walter K. Booker                       Group Vice President-New Jersey     None
Suite 200, 3500 Market Street
Camp Hill, NJ  17011

Bruce J. Bordelon                      Group Vice President - San          None
1333 N. California Blvd., Suite 200    Francisco Area
Walnut Creek, CA  94596

Charles R. Branch                      Group Vice President-Northwest      None
Suite 200
West 111 North River Dr.
Spokane, WA  99201

Douglas W. Brewers                     Vice President-Sales Support        None
IDS Tower 10
Minneapolis, MN  55440

Karl J. Breyer                         Corporate Senior Vice President     None
IDS Tower 10
Minneapolis, MN  55440

Cynthia M. Carlson                     Vice President-American Express     None
IDS Tower 10                           Securities Services
Minneapolis, MN  55440

Mark W. Carter                         Senior Vice President and Chief     None
IDS Tower 10                           Marketing Officer
Minneapolis, MN  55440

James E. Choat                         Senior Vice President - Third       None
IDS Tower 10                           Party Distribution
Minneapolis, MN  55440

Kenneth J. Ciak                        Vice President and General          None
IDS Property Casualty                  Manager-IDS Property Casualty
1400 Lombardi Avenue
Green Bay, WI  54304

Paul A. Connolly                       Vice President-Retail - Retail      None
IDS Tower 10                           Distribution Services
Minneapolis, MN 55440

Henry J. Cormier                       Group Vice President-Connecticut    None
Commerce Center One
333 East River Drive
East Hartford, CT  06108

John M. Crawford                       Group Vice President-Arkansas/      None
Suite 200                              Springfield/Memphis
10800 Financial Ctr Pkwy
Little Rock, AR  72211

Kevin F. Crowe                         Group Vice                          None
Suite 312                              President-Carolinas/Eastern
7300 Carmel Executive Pk               Georgia
Charlotte, NC  28226

Colleen Curran                         Vice President and Assistant        None
IDS Tower 10                           General Counsel
Minneapolis, MN  55440

Luz Maria Davis                        Vice President-Communications       None
IDS Tower 10
Minneapolis, MN  55440

Arthur E. Delorenzo                    Group Vice President - Upstate      None
4 Atrium Drive, #100                   New York
Albany, NY  12205

Scott M. DiGiammarino                  Group Vice                          None
Suite 500, 8045 Leesburg Pike          President-Washington/Baltimore
Vienna, VA  22182

Bradford L. Drew                       Group Vice President-Eastern        None
Two Datran Center                      Florida
Penthouse One B
9130 S. Dadeland Blvd.
Miami, FL  33156

Douglas K. Dunning                     Vice President-Assured Assets       None
IDS Tower 10                           Product Development and Management
Minneapolis, MN  55440

James P. Egge                          Group Vice President-Western        None
4305 South Louise, Suite 202           Iowa, Nebraska, Dakotas
Sioux Falls, SD  57103

Gordon L. Eid                          Senior Vice President, General      None
IDS Tower 10                           Counsel and Chief Compliance
Minneapolis, MN  55440                 Officer

Robert M. Elconin                      Vice President-Government           None
IDS Tower 10                           Relations
Minneapolis, MN  55440

Phillip W. Evans                       Group Vice President-Rocky          None
Suite 600                              Mountain
6985 Union Park Center
Midvale, UT  84047-4177

Gordon M. Fines                        Vice President-Mutual Fund Equity   None
IDS Tower 10                           Investments
Minneapolis, MN  55440

Douglas L. Forsberg                    Vice President - International      None
IDS Tower 10
Minneapolis, MN  55440

Jeffrey P. Fox                         Vice President and Corporate        None
IDS Tower 10                           Controller
Minneapolis, MN  55440

William P. Fritz                       Group Vice President-Gateway        None
Suite 160
12855 Flushing Meadows Dr
St. Louis, MO  63131

Carl W. Gans                           Group Vice President-Twin City      None
8500 Tower Suite 1770                  Metro
8500 Normandale Lake Blvd.
Bloomington, MN  55437

Peter A. Gallus                        Vice President-Investment           None
IDS Tower 10                           Administration
Minneapolis, MN  55440

David A. Hammer                        Vice President and Marketing        None
IDS Tower 10                           Controller
Minneapolis, MN  55440

Teresa A. Hanratty                     Senior Vice President-Field         None
Suites 6&7                             Management
169 South River Road
Bedford, NH  03110

Robert L. Harden                       Group Vice President-Boston Metro   None
Two Constitution Plaza
Boston, MA  02129

Lorraine R. Hart                       Vice President-Insurance            None
IDS Tower 10                           Investments
Minneapolis, MN  55440

Scott A. Hawkinson                     Vice President and                  None
IDS Tower 10                           Controller-Private Client Group
Minneapolis, MN  55440

Brian M. Heath                         Senior Vice President and General   None
Suite 150                              Sales Manager
801 E. Campbell Road
Richardson, TX  75081

Janis K. Heaney                        Vice President-Incentive            None
IDS Tower 10                           Management
Minneapolis, MN  55440

Jon E. Hjelm                           Group Vice President-Rhode          None
319 Southbridge Street                 Island/Central-Western
Auburn, MA  01501                      Massachusetts

David J. Hockenberry                   Group Vice President-Tennessee      None
30 Burton Hills Blvd.                  Valley
Suite 175
Nashville, TN  37215

Jeffrey S. Horton                      Vice President and Treasurer        None
IDS Tower 10
Minneapolis, MN  55440

David R. Hubers                        Chairman, President and Chief       Board member
IDS Tower 10                           Executive Officer
Minneapolis, MN  55440

Debra A. Hutchinson                    Vice President - Relationship       None
IDS Tower 10                           Leader
Minneapolis, MN  55440

James M. Jensen                        Vice President and                  None
IDS Tower 10                           Controller-Advice and Retail
Minneapolis, MN  55440                 Distribution Group

Marietta L. Johns                      Senior Vice President-Field         None
IDS Tower 10                           Management
Minneapolis, MN  55440

Nancy E. Jones                         Vice President-Business             None
IDS Tower 10                           Development
Minneapolis, MN  55440

Ora J. Kaine                           Vice President-Financial Advisory   None
IDS Tower 10                           Services
Minneapolis, MN  55440

Linda B. Keene                         Vice President-Market Development   None
IDS Tower 10
Minneapolis, MN  55440

Raymond G. Kelly                       Group Vice President-North Texas    None
Suite 250
801 East Campbell Road
Richardson, TX  75081

Richard W. Kling                       Senior Vice President-Insurance     None
IDS Tower 10                           Products
Minneapolis, MN  55440

John M. Knight                         Vice President-Investment           Treasurer
IDS Tower 10                           Accounting
Minneapolis, MN  55440

Paul F. Kolkman                        Vice President-Actuarial Finance    None
IDS Tower 10
Minneapolis, MN  55440

Claire Kolmodin                        Vice President-Service Quality      None
IDS Tower 10
Minneapolis, MN  55440

David S. Kreager                       Group Vice President-Greater        None
Suite 108                              Michigan
Trestle Bridge V
5136 Lovers Lane
Kalamazoo, MI  49002

Steven C. Kumagai                      Director and Senior Vice            None
IDS Tower 10                           President-Direct and Interactive
Minneapolis, MN  55440                 Group

Mitre Kutanovski                       Group Vice President-Chicago Metro  None
Suite 680
8585 Broadway
Merrillville, IN  48410

Kurt A. Larson                         Vice President-Senior Portfolio     None
IDS Tower 10                           Manager
Minneapolis, MN  55440

Lori J. Larson                         Vice President-Brokerage and        None
IDS Tower 10                           Direct Services
Minneapolis, MN  55440

Daniel E. Laufenberg                   Vice President and Chief U.S.       None
IDS Tower 10                           Economist
Minneapolis, MN  55440

Peter A. Lefferts                      Senior Vice President-Corporate     None
IDS Tower 10                           Strategy and Development
Minneapolis, MN  55440

Douglas A. Lennick                     Director and Executive Vice         None
IDS Tower 10                           President-Private Client Group
Minneapolis, MN  55440

Mary J. Malevich                       Vice President-Senior Portfolio     None
IDS Tower 10                           Manager
Minneapolis, MN  55440



<PAGE>



Fred A. Mandell                        Vice President-Distribution         None
IDS Tower 10                           Channel Marketing
Minneapolis, MN  55440

Daniel E. Martin                       Group Vice President-Pittsburgh     None
Suite 650                              Metro
5700 Corporate Drive
Pittsburgh, PA  15237

Timothy J. Masek                       Vice President and Director of      None
IDS Tower 10                           Global Research
Minnapolis, MN  55440

Sarah A. Mealey                        Vice President-Mutual Funds         None
IDS Tower 10
Minneapolis, MN  55440

Paula R. Meyer                         Vice President-Assured Assets       None
IDS Tower 10
Minneapolis, MN  55440

Shashank B. Modak                      Vice President - Technology Leader  None
IDS Tower 10
Minneapolis, MN  55440

Pamela J. Moret                        Senior Vice President-Investment    None
IDS Tower 10                           Products and Vice
Minneapolis, MN  55440                 President-Variable Assets

Barry J. Murphy                        Senior Vice President-Client        None
IDS Tower 10                           Service
Minneapolis, MN  55440

Mary Owens Neal                        Vice President-Consumer Marketing   None
IDS Tower 10
Minneapolis, MN  55440

Thomas V. Nicolosi                     Group Vice President-New York       None
Suite 220                              Metro Area
500 Mamaroneck Avenue
Harrison, NY  10528

Michael J. O'Keefe                     Vice President-Advisory Business    None
IDS Tower 10                           Systems
Minneapolis, MN 55440

James R. Palmer                        Vice President-Taxes                None
IDS Tower 10
Minneapolis, MN  55440

Marc A. Parker                         Group Vice                          None
10200 SW Greenburg Road                President-Portland/Eugene
Suite 110
Portland, OR 97223

Carla P. Pavone                        Vice President-Compensation         None
IDS Tower 10                           Services and ARD Product
Minneapolis, MN  55440                 Distribution

Thomas P. Perrine                      Senior Vice President-Group         None
IDS Tower 10                           Relationship Leader/American
Minneapolis, MN  55440                 Express Technologies Financial
                                       Services

Susan B. Plimpton                      Vice President-Marketing Services   None
IDS Tower 10
Minneapolis, MN  55440

Larry M. Post                          Group Vice President-Philadelphia   None
One Tower Bridge                       Metro
100 Front Street 8th Fl
West Conshohocken, PA  19428

Ronald W. Powell                       Vice President and Assistant        None
IDS Tower 10                           General Counsel
Minneapolis, MN  55440

Diana R. Prost                         Group Vice                          None
3030 N.W. Expressway                   President-Kansas/Oklahoma
Suite 900
Oklahoma City, OK  73112

James M. Punch                         Vice President Branded Platform     None
IDS Tower 10                           Project
Minneapolis, MN  55440

Frederick C. Quirsfeld                 Senior Vice President-Fixed Income  Vice President - Fixed Income
IDS Tower 10                                                               Investments
Minneapolis, MN  55440

Rollyn C. Renstrom                     Vice President-Corporate Planning   None
IDS Tower 10                           and Analysis
Minneapolis, MN  55440

R. Daniel Richardson III               Group Vice President-Southern       None
Suite 800                              Texas
Arboretum Plaza One
9442 Capital of Texas Hwy N.
Austin, TX  78759

ReBecca K. Roloff                      Senior Vice President-Field         None
IDS Tower 10                           Management and Financial Advisory
Minneapolis, MN  55440                 Service

Stephen W. Roszell                     Senior Vice                         None
IDS Tower 10                           President-Institutional
Minneapolis, MN  55440

Max G. Roth                            Group Vice                          None
Suite 201 S IDS Ctr                    President-Wisconsin/Upper Michigan
1400 Lombardi Avenue
Green Bay, WI  54304

Diane M. Ruebling                      Group Vice President-Central        None
Suite 200, Bldg. B                     California/Western Nevada
2200 Douglas Blvd.
Roseville, CA  95661

Erven A. Samsel                        Senior Vice President-Field         None
45 Braintree Hill Park                 Management
Suite 402
Braintree, MA  02184

Theresa M. Sapp                        Vice President - Relationship       None
IDS Tower 10                           Leader
Minneapolis, MN  55440

Russell L. Scalfano                    Group Vice                          None
Suite 201                              President-Illinois/Indiana/Kentucky
101 Plaza East Blvd.
Evansville, IN  47715

William G. Scholz                      Group Vice President-Arizona/Las    None
Suite 205                              Vegas
7333 E Doubletree Ranch Rd
Scottsdale, AZ  85258

Stuart A. Sedlacek                     Senior Vice President and Chief     None
IDS Tower 10                           Financial Officer
Minneapolis, MN  55440

Donald K. Shanks                       Vice President-Property Casualty    None
IDS Tower 10
Minneapolis, MN  55440

F. Dale Simmons                        Vice President-Senior Portfolio     None
IDS Tower 10                           Manager, Insurance Investments
Minneapolis, MN  55440

Judy P. Skoglund                       Vice President-Quality and          None
IDS Tower 10                           Service Support
Minneapolis, MN  55440

James B. Solberg                       Group Vice President-Eastern Iowa   None
466 Westdale Mall                      Area
Cedar RapIDS, IA  52404

Bridget Sperl                          Vice President-Geographic Service   None
IDS Tower 10                           Teams
Minneapolis, MN  55440

Paul J. Stanislaw                      Group Vice President-Southern       None
Suite 1100                             California
Two Park Plaza
Irvine, CA  92714

Lisa A. Steffes                        Vice President - Marketing Offer    None
IDS Tower 10                           Development
Minneapolis, MN  55440

Lois A. Stilwell                       Group Vice President-Outstate       None
Suite 433                              Minnesota Area/ North
9900 East Bren Road                    Dakota/Western Wisconsin
Minnetonka, MN  55343

William A. Stoltzmann                  Vice President and Assistant        None
IDS Tower 10                           General Counsel
Minneapolis, MN  55440

James J. Strauss                       Vice President and General Auditor  None
IDS Tower 10
Minneapolis, MN  55440

Jeffrey J. Stremcha                    Vice President-Information          None
IDS Tower 10                           Resource Management/ISD
Minneapolis, MN  55440

Barbara Stroup Stewart                 Vice President-Channel Development  None
IDS Tower 10
Minneapolis, MN  55440

Craig P. Taucher                       Group Vice                          None
Suite 150                              President-Orlando/Jacksonville
4190 Belfort Road
Jacksonville,  FL  32216

Neil G. Taylor                         Group Vice                          None
Suite 425                              President-Seattle/Tacoma/Hawaii
101 Elliott Avenue West
Seattle, WA  98119

John R. Thomas                         Senior Vice President               Board Member
IDS Tower 10
Minneapolis, MN  55440

Keith N. Tufte                         Vice President and Director of      None
IDS Tower 10                           Equity Research
Minneapolis, MN  55440

Peter S. Velardi                       Group Vice                          None
Suite 180                              President-Atlanta/Birmingham
1200 Ashwood Parkway
Atlanta, GA  30338

Charles F. Wachendorfer                Group Vice President-Detroit Metro  None
8115 East Jefferson Avenue
Detroit, MI  48214

Donald F. Weaver                       Group Vice President-Greater        None
3500 Market Street, Suite 200          Pennsylvania
Camp Hill, PA  17011

Norman Weaver Jr.                      Senior Vice President - Alliance    None
1010 Main St. Suite 2B                 Group
Huntington Beach, CA  92648

Michael L. Weiner                      Vice President-Tax Research and     None
IDS Tower 10                           Audit
Minneapolis, MN  55440

Jeffry M. Welter                       Vice President-Equity and Fixed     None
IDS Tower 10                           Income Trading
Minneapolis, MN  55440

Thomas L. White                        Group Vice President-Cleveland      None
Suite 200                              Metro
28601 Chagrin Blvd.
Woodmere, OH  44122

Eric S. Williams                       Group Vice President-Virginia       None
Suite 250
3951 Westerre Parkway
Richmond, VA  23233

William J. Williams                    Group Vice President-Western        None
Two North Tamiami Trail                Florida
Suite 702
Sarasota, FL  34236

Edwin M. Wistrand                      Vice President and Assistant        None
IDS Tower 10                           General Counsel
Minneapolis, MN  55440

Michael D. Wolf                        Vice President-Senior Portfolio     None
IDS Tower 10                           Manager
Minneapolis, MN  55440

Michael R. Woodward                    Senior Vice President-Field         None
32 Ellicott St                         Management
Suite 100
Batavia, NY  14020

Rande L. Zellers                       Group Vice President-Gulf States    None
1 Galleria Blvd., Suite 1900
Metairie, LA  70001

</TABLE>

Item 27 (c).        Not Applicable

Item 28.            Location of Accounts and Records

                    American Express Financial Corporation
                    IDS Tower 10
                    Minneapolis, MN  55440

Item 29.            Management Services

                    Not Applicable.

Item 30.            Undertakings

                    Not Applicable.



<PAGE>

                                   SIGNATURES

Pursuant to the  requirements  of the Securities Act and the Investment  Company
Act, the Registrant,  AXP Strategy Series,  Inc., has duly caused this Amendment
to the  Registration  Statement  to be signed on its behalf by the  undersigned,
thereunto duly authorized, in the City of Minneapolis and the State of Minnesota
on the 4th day of January, 2001.


AXP STRATEGY SERIES, INC.

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



By /s/   John M. Knight
   -----------------------------------------
         John M. Knight, Treasurer

Pursuant to the  requirements  of the  Securities  Act,  this  Amendment  to the
Registration  Statement  has been signed below by the  following  persons in the
capacities indicated on the 4th day of January, 2001.

Signature                                            Capacity


                                                     Director
     Peter J. Anderson

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

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

/s/                                                  Director
------------------------------------
     Lynne V. Cheney

/s/  David R. Hubers*                                Director
------------------------------------
     David R. Hubers

/s/  Heinz F. Hutter*                                Director
------------------------------------
     Heinz F. Hutter

/s/  Anne P. Jones*                                  Director
------------------------------------
     Anne P. Jones

<PAGE>

/s/  William R. Pearce*                              Director
------------------------------------
     William R. Pearce

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

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

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

*Signed  pursuant  to  Directors'  Power of Attorney  dated Jan.  13, 2000 filed
electronically  as Exhibit (q)(1) is  incorporated  by reference to Registrant's
Post-Effective Amendment No. 36 to Registration Statement No. 2-89288, by:




/s/ Leslie L. Ogg
Leslie L. Ogg

**Signed  pursuant to Officers'  Power of Attorney  dated Jan.  13, 2000,  filed
electronically  as Exhibit (q)(2) is  incorporated  by reference to Registrant's
Post-Effective Amendment No. 36 to Registration Statement No. 2-89288, by:




/s/ Leslie L. Ogg
Leslie L. Ogg

<PAGE>

CONTENTS OF THIS POST-EFFECTIVE  AMENDMENT NO. 41 TO REGISTRATION  STATEMENT NO.
2-89288


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

The facing sheet.

Part A.

     The prospectus for:
         AXP Small Cap Growth Fund

Part B.

     Statement of Additional Information for:
         AXP Small Cap Growth Fund

Part C.

Other information.

Exhibits.

The signatures.





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