IDS GLOBAL SERIES INC, 485BPOS, 1998-12-28

IDS GLOBAL SERIES INC
485BPOS, 1998-12-28

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<PAGE>
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 31 (File No. 33-25824) [X]
---------

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 33 (File No. 811-5696) [X]
---------

IDS GLOBAL SERIES, INC.
IDS Tower 10
Minneapolis, Minnesota 55440-0010

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)
[X] on Dec. 30, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on Dec. 30, 1998 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.

If appropriate, check the following box:
[ ] This Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.

IDS Emerging Markets Fund, IDS Global Bond Fund, IDS Global Growth Fund and IDS
Innovations Fund, series of the Registrant, have adopted a master/feeder
operating structure. This Post-Effective Amendment includes a signature page for
World Trust, the master fund.

<PAGE>

IDS Emerging Markets Fund

Prospectus
Dec. 30, 1998

IDS Emerging Markets 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
Sales Charges
Exchanging/Selling Shares

Distributions and Taxes

Personalized Shareholder Information

Master/Feeder Structure

About the Company

Quick Telephone Reference

Financial Highlights

FUND INFORMATION KEY

[icon of magnifying glass] Goal and Investment Strategy
The Fund's particular investment goal and
the strategies it intends to use in pursuing
its goal.

[icon of die] Risks
The major risk factors associated with the
Fund.

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

[icon of folder] Management
The individual or group designated by the
investment manager to handle the Fund's
day-to-day management.

[icon of umbrella] Master / Feeder Structure
Describes the Fund's investment structure.

[icon of stack of dollar bills] Financial Highlights
Tables showing the Fund's financial
performance.

<PAGE>

The Fund

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

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

American Express Financial Corporation (AEFC), the Fund's investment manager,
chooses investments by:

o Considering opportunities and risks within emerging market countries.
o Determining the percentage of assets to invest in a particular country
based upon its economic outlook, political environment, and growth rate
(the Fund may invest a significant portion of its assets in a particular
country or region).
o Identifying companies with:
- effective management,
- financial strength,
- prospects for growth and development, and - high demand for their
products or services.
o Identifying securities with sufficient liquidity in trading volume(however,
AEFC may invest up to 10% of the Fund's net assets in illiquid Securities).
o Buying securities of those companies AEFC considers to be industry market
leaders offering the best opportunity for long-term growth.

In evaluating whether to sell a security, AEFC considers, among other factors,
whether: - the security is overvalued, and - the company or the security
continues to meet the standards described above.

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

AEFC closely monitors the Fund's exposure to foreign currency fluctuations. From
time to time, AEFC may purchase derivative instruments to hedge against currency
fluctuations.

The Fund also may invest in money market securities, debt securities, and other
instruments. During weak or declining markets, the Fund may invest more of its
assets in these securities. Although the Fund will invest in these securities
primarily to avoid losses, this type of investing also could reduce the benefit
from any improvement in the market.

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

<PAGE>

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

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

Market Risk

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

Foreign/Emerging Markets Risk

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

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

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

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

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

Liquidity Risk

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

<PAGE>

Style Risk

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

Sector/Concentration Risk

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

Past Performance

The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:

o how the Fund's performance has varied for each full calendar year that the
Fund has existed, and

o how the Fund's average annual total returns compare to other recognized
indexes.

How the Fund has performed in the past does not indicate how the Fund will
perform in the future.

Class A Performance (based on calendar years)
- --------------------------------------------------------------------------------

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

- --------------------------------------------------------------------------------
+6.26%
- --------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------

During the period shown in the bar chart, the highest return for a calendar
quarter was +15.17% (quarter ending June 1997) and the lowest return for a
calendar quarter was -12.78% (quarter ending December 1997).

The 5% sales charge applicable to Class A shares of the Fund is not reflected in
the bar chart; if reflected, returns would be lower than those shown. The
performance of Class B and Class Y may vary from that shown above because of
differences in sales charges and fees.

The Fund's year to date return as of Sept. 30, 1998 was -40.13%.

<PAGE>

Average Annual Total Returns (as of Dec. 31, 1997)

1 year Since inception

Emerging Markets:

Class A +.94% +3.05%a

Class B +1.46% +3.52%a

Class Y +6.25% +7.83%a

MSCI Emerging Markets -13.40% -12.20%b
Free Index

Lipper Emerging -10.24% -8.77%b
Markets Fund Index

a Inception date was Nov. 13, 1996.
b Measurement period started Dec. 1, 1996.

For purposes of this calculation we assumed:
o a sales charge of 5% for Class A shares,
o sales at the end of the period and deduction of the applicable contingent
deferred sales charge (CDSC) for Class B shares, o no sales charge for Class Y
shares, o conversion of Class B shares into Class A shares in the ninth calendar
year of ownership, and o no adjustments for taxes paid by an investor on the
reinvested income and capital gains.

Morgan Stanley Capital International (MSCI) Emerging Markets Free Index is an
unmanaged market capitalization-weighted index compiled from a composite of
securities markets of 26 emerging market countries. The index reflects
reinvestment of all distributions and changes in market prices, but excludes
brokerage commissions or other fees.

Lipper Emerging Markets Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 31 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives.

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.

Shareholder Fees (fees paid directly from your investment)
<S> <C> <C> <C>

Class A Class B Class Y
Maximum sales charge
(load) imposed on purchasesa
(as a percentage
of offering price) 5% none none
............................................... .................... .................... ...................
Maximum deferred sales
charge (load) imposed on
sales (as a percentage
of offering price at time of purchase) none 5% none
............................................... .................... .................... ...................

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

As a percentage of average daily net assets: Class A Class B Class Y
- ----------------------------------------------- -------------------- -------------------- -------------------
Management fees 1.09% 1.09% 1.09%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Distribution (12b-1) fees 0.00% 0.75% 0.00%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Other expensesc 0.84% 0.87% 0.77%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Total 1.93% 2.71% 1.86%
- ----------------------------------------------- -------------------- -------------------- -------------------

a This charge may be reduced depending on your total investments in IDS funds. See "Sales Charges."
b Both in this table and the following example, fund operating expenses
include expenses charged by both the Fund and its Master Portfolio as
described under "Management".
c Other expenses include an administrative services fee, a shareholder
services fee, a transfer agency fee and other nonadvisory expenses.
</TABLE>

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 Aa $686 $1,076 $1,491 $2,646
Class Bb $774 $1,242 $1,635 $2,857d
Class Bc $274 $842 $1,435 $2,857d
Class Y $189 $585 $1,007 $2,185

a Includes a 5% 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.

Management
The Fund's assets are invested in Emerging Markets Portfolio (the Portfolio),
which is managed by AEFC and its London based subsidiary, American Express Asset
Management International Inc. Ian King, portfolio manager, joined AEFC in 1995.
He has managed the assets of the Portfolio since November 1996. He also is a
member of the portfolio management team for Total Return Portfolio. Prior to
joining AEFC he was director of Lehman Brothers Global Asset Management Ltd.
from 1992 to 1995.

<PAGE>

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

The Fund's investments are valued based on market value, or where market
quotations are not readily available, based on methods selected in good faith by
the board. Because the Fund invests 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.

2. Class B shares are sold to the public with a CDSC and an annual distribution
(12b-1) fee.

3. 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:

Class A

Maximum sales charge of 5%

Initial sales charge waived or reduced for certain purchases

No annual distribution fee

Service fee of 0.175% of average daily net assets

Lower annual expenses than Class B shares

Class B

No initial sales charge

CDSC on shares sold in the first six years (maximum of 5% in first year, reduced
to 0% after year six)

CDSC waived in certain circumstances

Shares convert to Class A in ninth year of ownership

Annual distribution fee of 0.75% of average daily net assets*

Service fee of 0.175% of average daily net assets

<PAGE>

Higher annual expenses than Class A shares

Class Y

No initial sales charge

No annual distribution fee

Service fee of 0.10% of average daily net assets

Available only to certain qualifying institutional investors

* The Fund has adopted a plan under Rule 12b-1 of the Investment Company Act
of 1940 that allows it to pay distribution fees for the sale of Class B
shares. Because these fees are paid out of the Fund's assets on an on-going
basis, long-term shareholders of Class B shares may end up paying more than
the 6.25% sales charge permitted by the National Association of Securities
Dealers.

Should you purchase Class A or Class B shares?

If your investments in IDS funds total $250,000 or more, Class A shares may be
the better option. 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 an additional annual distribution fee of 0.75% and a
CDSC for six years. To help you determine what is best for you, consult your
financial advisor.

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.

Purchasing Shares

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.

<PAGE>

You also could be subject to backup withholding because you failed to report
required interest or dividends on your tax return.
<TABLE>
<CAPTION>

How to determine the correct TIN

<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 individuals listed on
the joint account
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------

Custodian account of a minor The minor
(Uniform Gifts/Transfers to Minors Act)
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------

A living trust The grantor-trustee
(the person who puts the money into the trust)
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------

An irrevocable trust, The legal entity
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, ask your financial advisor or contact your
local American Express Financial Advisors office for federal Form W-9, "Request
for Taxpayer Identification Number and Certification."

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 Financial Advisors Inc.
P.O. Box 74
Minneapolis, MN 55440-0074

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

<PAGE>

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.

(2) By scheduled investment plan:

Contact your financial advisor to set 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/mo. for qualified accounts; $100/mo.for
nonqualified accounts
Account balances: none (on active plans of monthly payments)

If your account falls 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:

Norwest Bank Minnesota
Routing Transit No. 091000019

Give these instructions:
Credit American Express Financial Advisors Account #0000030015 for personal
account # (your account number) for (your name).

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

If you are in a wrap fee program sponsored by AEFA and your balance falls below
the required program minimum or your program is terminated, your shares will be
sold and the proceeds will be mailed to you.

<PAGE>

- -------------------------------------------------------------------------------
Sales Charges

Class A -- initial sales charge alternative

When you purchase Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:

Total investment Sales charge as percentage of:a
Public offering Net amount
priceb invested
Up to $50,000 5.0% 5.26%
- -------------------------------------------------------------------------------
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
- -------------------------------------------------------------------------------

a To calculate the actual sales charge on an investment greater than $50,000
and less than $1,000,000, you must total the amounts of all increments that
apply.

b Offering price includes a 5% sales charge.

The sales charge on Class A shares may be lower than 5%, depending on the total
amount:

o you now are investing in this Fund,
o you have previously invested in this Fund, or
o you and your primary household group are investing or have invested in
other funds in the IDS MUTUAL FUND GROUP 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. Domestic
partners are individuals who maintain a shared primary residence and have
joint property or other insurable interests.) IDS Tax-Free Money Fund and
Class A shares of IDS 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 $1 million over a period of 13 months, you can
reduce the sales charges in Class A by filing a letter of intent.
For more details, please see the SAI.

<PAGE>

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

o current or retired board members, officers or employees of the Fund or AEFC
or its subsidiaries, their spouses, and unmarried children under 21.

o current or retired American Express financial advisors, their spouses, and
unmarried children under 21.

o investors who have a business relationship with a newly associated
financial advisor who joined AEFA from another investment firm provided
that (1) the purchase is made within six months of the advisor's
appointment date with AEFA, (2) the purchase is made with proceeds of
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 using a daily transfer recordkeeping
system offering participants daily access to funds of the IDS MUTUAL FUND
GROUP. Eligibility must be determined in advance by AEFA. For assistance,
please contact your financial advisor. (Participants in certain qualified
plans for where 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 funds of the IDS
MUTUAL FUND GROUP. If the investment is sold in the first year after
purchase, a CDSC of 1% will be charged. The CDSC will be waived only in the
circumstances described for waivers for Class B shares.

o purchases made within 30 days after a sale of shares (up to the amount sold):

- of a product distributed by AEFA 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 fund in the IDS MUTUAL FUND GROUP that has a sales
charge,

- through or under a wrap fee product sponsored by AEFA,

- 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,

- with the proceeds from IDS Life Real Estate Variable Annuity surrenders,
or

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

<PAGE>

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

A 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%

If the amount you are selling causes the value of your investment in Class B
shares to fall below the cost of the shares you have purchased during the last
six years including the current year, the CDSC is based on the lower of the cost
of those shares purchased or market value.

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.

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 rate on your sale will be based on your
oldest purchase payment. The CDSC on the next amount sold will be based on the
next oldest purchase payment.

The CDSC on Class B shares 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
1/2 years old and - taking a retirement distribution (if the sale is part
of a transfer to an IRA or qualified plan in a product distributed by
AEFA, or a custodian-to-custodian transfer to a product not distributed
by AEFA, the CDSC will not be waived) or - 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 fund in the IDS MUTUAL FUND GROUP. Exchanges into IDS
Tax-Free Money Fund may only be made from Class A shares. For complete
information on the other funds, 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 within any 30-day period, with each limited
to $300,000. These limits do not apply to scheduled exchange programs and
certain employee benefit plans or other arrangements through which one
shareholder represents the interests of several. Exceptions may be allowed with
pre-approval of the Fund.

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. AECSC will mail payment 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, any
CDSC you paid on the amount you are reinvesting also will be reinvested. To take
advantage of this option, send a request within 30 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.

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

The Fund reserves the right to redeem in kind.

<PAGE>

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.)

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

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 TIN, 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 mail:
American Express Client Service Corporation
Attn: Transactions
P.O. Box 534
Minneapolis, MN 55440-0534

Express mail:
American Express Client Service Corporation
Attn: Transactions
733 Marquette Ave.
Minneapolis, MN 55402

(2) By telephone:
American Express Financial Advisors
Telephone Transaction Service
800-437-3133 or
612-671-3800

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: $50,000

<PAGE>

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.

(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 IDS 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. Short-term capital gains are included in net investment income. Long-term
capital gains are realized when a security is held for more than one year. The
Fund offsets any net realized capital gains by any available capital loss
carryovers. 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 fund in the IDS MUTUAL FUND GROUP 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.

<PAGE>

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.

Income received by the Fund may be subject to foreign tax and withholding. Tax
conventions between certain countries and the U.S. may reduce or eliminate these
taxes. You may be entitled to claim foreign tax credits or deductions subject to
provisions and limitations of the Internal Revenue Code. If so, the Fund will
notify you.

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

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 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 sell shares for less than their cost, the difference is a
capital loss. If you buy Class A shares of another fund in the IDS Mutual Fund
Group and within 91 days exchange into this 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 this Fund.

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.

Personalized Shareholder Information

To help you track and evaluate the performance of your investments, AECSC
provides these individualized reports:

Quarterly statements
List your holdings and transactions during the previous three months, as well as
individualized return information.

Yearly tax statements
Feature average-cost-basis reporting of capital gains or losses if you sell your
shares, along with distribution information to simplify tax calculations.

Personalized mutual fund progress reports
Detail returns on your initial investment and cash-flow activity in your
account. This report calculates a total return reflecting your individual
history in owning Fund shares and is available from your financial advisor.

<PAGE>

Master/Feeder Structure
This Fund uses a master/feeder structure. This means that the Fund (a feeder
fund) invests all of its assets in the Portfolio, (the master fund). Other
feeder funds also invest in the Portfolio. The master/feeder structure offers
the potential for reduced costs because it spreads fixed costs of portfolio
management over a larger pool of assets. The Fund may withdraw its assets from
the Portfolio at any time if the Fund's board determines that it is best. In
that event, the board would consider what action should be taken, including
whether to hire an investment advisor to manage the Fund's assets directly or to
invest all of the Fund's assets in another pooled investment entity. Here is an
illustration of the structure:

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

Investors buy shares in the Fund
- ---------------------------------------------

~/
- ---------------------------------------------

The Fund buys units in the Portfolio
- ---------------------------------------------

~/
- ---------------------------------------------

The Portfolio invests in securities, such
as stocks or bonds
- ---------------------------------------------

Other feeders may include mutual funds and institutional accounts. These feeders
buy the Portfolio's securities on the same terms and conditions as the Fund and
pay their proportionate share of the Portfolio's expenses. However, their
operating costs and sales charges are different from those of the Fund.
Therefore, the investment returns for other feeders are different from the
returns of the Fund. Information about other feeders may be obtained by calling
American Express Financial Advisors at 800-AXP-SERV.

<PAGE>

About the Company

Business Structure
<TABLE>
<CAPTION>
<S> <C> <C> <C>
---------------------
Shareholders
---------------------

---------------------
Your American
Express financial
advisor and other
servicing agents

May receive a fee
for their sales
efforts and ongoing
service.
---------------------

- ----------------------- --------------------- --------------------- ---------------------
Transfer Agent: Administrative Distributor and
American Express Services Agent: Shareholder
Client Service American Express Services Agent:
Corporation Financial American Express
Corporation Financial Advisors
Maintains shareholder
accounts and records Provides The Fund Markets and
for the Fund; administrative and distributes shares;
receives a fee based accounting services The Fund receives portion of
on the number of for the Fund; invests sales charge or
accounts it services. receives a fee its CDSC and
based on assets. assets in distribution fee.
the Also provides a
Portfolio. variety of ongoing
The Fund shareholder
and/or services.
Portfolio
have
- ----------------------- --------------------- --------------------- ---------------------
contracts
- ----------------------- --------------------- --------------------- ---------------------
Subadviser: Investment Manager: with Custodian:
American Express American Express certain American Express
Asset Management Financial service Trust Company
International Inc. Corporation providers.
Provides
Subadvises the Fund's Manages the The Portfolio safekeeping of
assets.** Portfolio's assets; receives a
investments and fee that varies
receives a fee based on the number
based on average of securities held.
daily net assets.*
- ----------------------- --------------------- --------------------- ---------------------
</TABLE>

* The Portfolio pays AEFC a fee for managing its assets. The Fund pays its
proportionate share of the fee. Under the Investment Management Services
Agreement, the fee for the most recent fiscal year was 1.09% of its average
daily net assets. Under the Agreement, the Portfolio also pays taxes,
brokerage commissions and nonadvisory expenses.

** AEFC pays the Subadviser for managing the Fund's assets. The fee for the most
recent fiscal year was 0.50% of the Portfolio's average daily net assets.

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 $77 billion for all funds in the IDS
MUTUAL FUND GROUP, AEFC manages investments for itself and its subsidiaries, IDS
Certificate Company and IDS Life Insurance Company. Total assets under
management as of the end of the most recent fiscal year were more than $196
billion.

<PAGE>

AEFA serves individuals and businesses through its nationwide network of more
than 180 offices and more than 8,500 advisors.

AEFC, located at IDS Tower 10, Minneapolis, MN 55440-0010, is a wholly-owned
subsidiary of American Express Company, a financial services company with
headquarters at American Express Tower, World Financial Center, New York, NY
10285.

Year 2000

The Fund could be adversely affected if the computer systems used by AEFC and
the Fund's other service providers do not properly process and calculate
date-related information from and after Jan. 1, 2000.

While Year 2000-related computer problems could have a negative effect on the
Fund, AEFC is working to avoid such problems and to obtain assurances from
service providers that they are taking similar steps. The companies or
governments in which the Fund invests also may be adversely affected by Year
2000 issues.

Quick Telephone Reference

American Express Financial Advisors
Telephone Transaction Service
Sales and exchanges, dividend payments or reinvestments and automatic payment
arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 612-671-3800

American Express Client Service Corporation
Fund performance, objectives and account inquiries: 800-862-7919

TTY Service
For the hearing impaired: 800-846-4852

American Express Financial Advisors
Automated account information (TouchTone(R) telephones only), including current
Fund prices and performance, account values and recent account transactions:
800-862-7919

<PAGE>

IDS Emerging Markets

Performance
Financial Highlights

Fiscal period ended Oct. 31,
Per share income and capital changes(a)

Class A Class B Class Y
1998 1997b 1998 1997b 1998 1997b

<S> <C> <C> <C> <C> <C> <C>
Net asset value, $5.33 $5.00 $5.29 $5.00 $5.33 $5.00
beginning of period

Income from investment operations:

Net investment income (loss) .04 .01 -- (.04) .04 .01

Net gains (losses) (both realized (1.79) .33 (1.76) .33 (1.78) .33
and unrealized)

Total from investment operations (1.75) .34 (1.76) .29 (1.74) .34

Less distributions:

Distributions from net -- (.01) -- -- -- (.01)
investment income

Distributions from
realized gains (.14) -- (.14) -- (.14) --

Total distibutions (.14) (.01) (.14) -- (.14) (.01)

Net asset value, $3.44 $5.33 $3.39 $5.29 $3.45 $5.33
end of period

Ratios/supplemental data
Class A Class B Class Y
1998 1997b 1998 1997b 1998 1997b

Net assets, end of period $187 $243 $97 $114 $-- $--
(in millions)

Ratio of expenses to 1.93% 1.90%d,e 2.71% 2.67%d,e 1.86% 1.75%d,e
Average daily net assets(c)

Ratio of net investment income (loss) .82% .28%d .07% (.50%)d 1.03% .33%d
to average daily net assets

Portfolio turnover rate 108% 87% 108% 87% 108% 87%
(excluding short-term securities)

Total return(f) (33.74%) 6.84% (34.24%) 6.07% (33.66%) 6.86%

a For a share outstanding throughout the period. Rounded to the nearest cent.
b Period from Nov. 13, 1996 (inception date) to Oct. 31, 1997.
c Expense ratio is based on total expense of the Fund before reduction of
earning credits on cash balances.
d Adjusted to an annual basis.
e During the period from Nov. 13, 1996 to Oct. 31, 1997, AEFC reimbursed the
Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses
would have been 1.92%, 2.69% and 1.77% for Class A, B and Y, respectively.
f Total return does not reflect payment of a sales charge.

The information in these tables has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the Fund's annual
report which, if not included with this prospectus, may be obtained without
charge.

</TABLE>

<PAGE>

AMERICAN
EXPRESS
Financial
Advisors

This Fund, along with the other funds in the IDS MUTUAL FUND GROUP, is
distributed by American Express Financial Advisors Inc. and 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 SAI, annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of market conditions and investment
strategies that significantly affected the Fund during its last fiscal year. The
SAI is incorporated by reference in this prospectus. For a free copy of the SAI,
annual report or the semi-annual report contact American Express Client Service
Corporation.

American Express Client Service Corporation
P.O. Box 534, Minneapolis, MN 55440-0534
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
1-800-SEC-0330). Reports and other information about the Fund are available on
the Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained by writing and paying a duplicating fee to the Public Reference
Section of the Commission, Washington, D.C. 20549-6009.

Investment Company Act File #811-5696

Ticker Symbol
Class A: IDEAX Class B: IEMBX Class Y: Y:N/A

<PAGE>

IDS GLOBAL SERIES, INC.

STATEMENT OF ADDITIONAL INFORMATION

FOR

IDS EMERGING MARKETS FUND (the Fund)

Dec. 30, 1998

This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
most recent Annual Report to shareholders (Annual Report) that may be obtained
from your American Express financial advisor or by writing to American Express
Shareholder Service, P.O. Box 534, Minneapolis, MN 55440-0534 or by calling
800-862-7919.

The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the Annual Report are incorporated in this SAI by reference. No
other portion of the Annual Report, however, is incorporated by reference. The
prospectus for the Fund, dated the same date as this SAI, also is 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.7

Information Regarding Risks and Investment Strategies.....................p.9

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

Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation...................................p.33

Performance Information..................................................p.33

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

Investing in the Fund....................................................p.36

Selling Shares...........................................................p.39

Pay-out Plans............................................................p.39

Capital Loss Carryover...................................................p.40

Taxes....................................................................p.41

Agreements...............................................................p.42

Organizational Information...............................................p.45

Board Members and Officers...............................................p.47

Compensation for Board Members...........................................p.50

Independent Auditors.....................................................p.50

Appendix: Description of Ratings........................................p.51

<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
- -------------------------------------------------------------------------------

The Fund pursues its investment objective by investing all of its assets in
Emerging Markets Portfolio (the Portfolio) of World Trust (the Trust), a
separate investment company, rather than by directly investing in and managing
its own portfolio of securities. The Portfolio has the same investment
objectives, policies, and restrictions as the Fund. References to "Fund" in this
SAI, where applicable, refer to the Fund and Portfolio, collectively, to the
Fund, singularly, or to the Portfolio, singularly.

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 Make a loan of any part of its assets to American Express Financial
Corporation (AEFC), to the board members and officers of AEFC or to its own
board members and officers.

<PAGE>

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

o Issue senior securities, except to the extent that borrowing from banks and
using options, foreign currency forward contracts or future contracts (as
discussed elsewhere in the SAI) may be deemed to constitute issuing a
senior security.

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 also lists certain percentage
guidelines that are generally followed by the Fund's investment manager. This
table 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: IDS Emerging Markets

Allowable for the Fund?

Agency and Government Securities yes
Borrowing yes
Cash/Money Market Instruments yes
Collateralized Bond Obligations yes
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) yes
Illiquid and Restricted Securities yes
Indexed Securities yes
Inverse Floaters no
Investment Companies yes
Lending of Portfolio Securities yes
Loan Participations yes
Mortgage- and Asset-Backed Securities yes
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 yes
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 Under normal market conditions, at least 65% of the Fund's total assets
will be invested in emerging market equity securities of
at least three different countries.

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

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

o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.

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

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

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

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

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

o Under normal market conditions, the Fund does not intend to commit more
than 5% of its total assets to when-issued securities or forward
commitments.

<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. Some of these investments are speculative and involve a high
degree of risk. 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."

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. They have greater price fluctuations and are more
likely to experience a default.

Event Risk

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

Foreign Risk/Emerging Markets Risk

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

<PAGE>

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

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, but not limited to, bond prices (when interest rates
rise, bond prices fall).

Issuer Risk

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

Legal/Legislative Risk

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

Leverage Risk

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

Liquidity Risk

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

Management Risk

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

Market Risk

Reinvestment Risk

The risk that an investor will not be able to reinvest their income or principal
at the same rate as 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.

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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 instruments.

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

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

Convertible Securities

Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common stock of the same or a different
issuer within a particular period of time at a specified price. Some convertible
securities, such as preferred equity-redemption cumulative stock (PERCs), have
mandatory conversion features. Others are voluntary. A convertible security
entitles the holder to receive interest normally paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted, or exchanged. Convertible securities have unique investment
characteristics in that they generally (i) have higher yields than common stocks
but lower yields

<PAGE>

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 $1000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield (High-Risk) Securities.)

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

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

Debt Obligations

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

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

<PAGE>

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.)

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. (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 on (or "derive" from) the value of one or more other assets,
such as securities, currencies, or commodities.

A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Such instruments may be
used to maintain cash reserves while remaining fully invested, to offset
anticipated declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns. Derivative
instruments are characterized by requiring little or no initial payment. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable 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.

<PAGE>

Options. An option is a contract. A person who buys a call option for a
security has the right to buy the security at a set price for the length of the
contract. A person who sells a call option is called a writer. The writer of a
call option agrees to sell the security at the set price when the buyer wants to
exercise the option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a security at a set
price for the length of the contract. A person who writes a put option agrees to
buy the security at the set price if the purchaser wants to exercise the option,
no matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash or securities of equivalent value (in the case of a put) that would be
required upon exercise.

The price paid by the buyer for an option is called a premium. In addition 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. The risk of the writer is
potentially unlimited, unless the option is covered.

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 purchase of the underlying security is the combination of the exercise
price, the premium, and both commissions.

One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, the price of the underlying security
must change within the time set by the option contract. Furthermore, the change
must be sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then, the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.

Options on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, CBOE, or NASDAQ will be valued at the last quoted sales price
or, if such a price is not readily available, at the mean of the last bid and
ask prices.

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

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

<PAGE>

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.

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, 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.
Such an election may result in the Fund being required to defer recognizing
losses incurred by entering into futures contracts and losses on underlying
securities identified as being hedged against.

Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether 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. Certain provisions of the Internal Revenue Code also may limit the
Fund's ability to engage in futures contracts and related options transactions.
For example, at the close of each quarter of the Fund's taxable year, at least
50% of the value of its assets must consist of cash, government securities and
other securities, subject to certain diversification requirements.

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

<PAGE>

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. Derivatives are risky investments.

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.)

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

<PAGE>

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.

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.

<PAGE>

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 the
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 options, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the diminution in value of securities will be fully or
partially offset by the amount of the premium received.

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

<PAGE>

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.

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.)

<PAGE>

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

Investors should recognize that investing in foreign securities involves 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 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 expected introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the Economic and Monetary Union ("EU")
presents unique uncertainties, including whether the payment and operational
systems of banks and other financial institutions will be ready by the scheduled
launch date; the creation of suitable clearing and settlement payment systems
for the new currency; the legal treatment of certain outstanding financial
contracts after January 1, 1999 that refer to existing currencies rather than
the euro; the establishment and maintenance of exchange rates; the fluctuation
of the euro relative to non-euro currencies during the transaction period from
January 1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax
or labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other EU countries
such as the United Kingdom, Denmark, and Greece into the euro and the admission
of other non-EU countries such as Poland, Latvia, and Lithuania as members of
the EU may have an impact on the euro.

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

<PAGE>

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

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

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

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

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

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

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

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

<PAGE>

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.

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

Indexed Securities

The value of indexed securities is linked to currencies, interest rates,
commodities, indexes, or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile than the
underlying instrument itself and they may be less liquid than the securities
represented by the index. (See also Derivative Instruments.)

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

Inverse Floaters

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

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

Investment Companies

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

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

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, an investor 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

<PAGE>

and may pay a negotiated portion of the interest earned on the cash or money
market instruments held as collateral to the borrower or placing broker. The
Fund will receive reasonable interest on the loan or a flat fee from the
borrower and amounts equivalent to any dividends, interest, or other
distributions on the securities loaned.

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

Loan Participations

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

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

Mortgage- and Asset-Backed Securities

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

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

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

<PAGE>

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

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

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

Mortgage Dollar Rolls

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

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

Municipal Obligations

Municipal obligations include debt obligations issued by or on behalf of states,
territories, or possessions of the United States (including the District of
Columbia). 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.

<PAGE>

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.)

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

Preferred Stock

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

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

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

Real Estate Investment Trusts

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

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

Repurchase Agreements

<PAGE>

possible delays or restrictions upon the Fund's ability to dispose of the
underlying securities. A specific risk of a repurchase agreement is that if the
seller seeks the protection of bankruptcy laws, the Fund's ability to liquidate
the security involved could be impaired.

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 on the replacement date. 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
or to defer an unrealized gain. If the value of the securities sold short
increased prior to the scheduled delivery date, the investor loses the
opportunity to participate in the gain.

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.

<PAGE>

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.

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.

<PAGE>

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.

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

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

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

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

<PAGE>

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

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

AEFC has a strict Code of Ethics that prohibits its affiliated personnel from
engaging in personal investment activities that compete with or attempt to take
advantage of planned portfolio transactions for any fund or trust for which it
acts as investment manager.

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 funds and trusts in the
IDS MUTUAL FUND GROUP 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

<PAGE>

security, and the specialized handling of a particular group of securities that
only certain brokers may be able to offer. As a result of this arrangement, some
portfolio transactions may not be effected at the lowest commission, but AEFC
believes it may obtain better overall execution. AEFC has represented that under
all three procedures the amount of commission paid will be reasonable and
competitive in relation to the value of the brokerage services performed or
research provided.

All other transactions 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 the funds
in the IDS MUTUAL FUND GROUP 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.

The Fund paid total brokerage commissions of $9,338,172 for fiscal year ended
1998, and $1,458,233 for fiscal period from Nov. 13, 1996 (commencement of
operations) to Oct. 31, 1997. Substantially all firms through whom transactions
were executed provide research services.

No transactions were directed to brokers because of research services they
provided to the Fund.

As of the end of the most recent fiscal year, the Fund held securities of its
regular brokers or dealers or of the parent of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities as
presented below:

Value of Securities
Name of Issuer owned at End of Fiscal Year
Chase Manhattan Bank $1,096,731

The portfolio turnover rate was 108% in the most recent fiscal year, and 87% in
the fiscal period before. Higher turnover rates may result in higher brokerage
expenses.

<PAGE>

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.

No brokerage commissions were paid to brokers affiliated with AEFC for the two
most recent fiscal years.

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.

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)

<PAGE>

Investor, Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Morningstar, Mutual Fund Forecaster,
Newsweek, The New York Times, Personal Investor, 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.

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

The value of an individual share for each class is determined by using the net
asset value (NAV) before shareholder transactions for the day. On the first
business day following the end of the fiscal year, the computation looked like
this:
<TABLE>
<CAPTION>

Net assets Shares
before outstanding at Net asset value
shareholder the end of of one share
transactions previous day
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Class A $192,222,959 divided by 54,346,327 equals $3.537
Class B 100,035,162 28,704,494 3.485
Class Y 53,016 14,972 3.541
</TABLE>

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.

<PAGE>

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

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 and Class Y, there is no initial sales charge so the public offering
price is the same as the NAV. For Class A, the public offering price for an
investment of less than $50,000, made on the first business day following the
end of the fiscal year, was determined by dividing the NAV of one share, $3.537,
by 0.95 (1.00-0.05 for a maximum 5% sales charge) for a public offering price of
$3.72. The sales charge is paid to American Express Financial Advisors Inc.
(AEFA) by the person buying the shares.

Class A - Calculation of the Sales Charge
<TABLE>
<CAPTION>

Sales charges are determined as follows:
Within each
increment, sales
charge as a
percentage of:
------------------------------------------------------------
Public Net
Amount of Investment Offering Price Amount Invested
- -------------------- -------------- ---------------
<S> <C> <C> <C>
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
</TABLE>

Sales charges on an investment greater than $50,000 and less than $1,000,000 are
calculated for each increment separately and then totaled. The resulting total
sales charge, expressed as a percentage of the public offering price and of the
net amount invested, will vary depending on the proportion of the investment at
different sales charge levels.

For example, compare an investment of $60,000 with an investment of $85,000. The
$60,000 investment is composed of $50,000 that incurs a sales charge of $2,500
(5.0% x $50,000) and $10,000 that incurs a sales charge of $450 (4.5% x
$10,000). The total sales charge of $2,950 is 4.92% of the public offering price
and 5.17% of the net amount invested.

In the case of the $85,000 investment, the first $50,000 also incurs a sales
charge of $2,500 (5.0% x $50,000) and $35,000 incurs a sales charge of $1,575
(4.5% x $35,000). The total sales charge of $4,075 is 4.79% of the public
offering price and 5.04% of the net amount invested.

The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
<TABLE>
<CAPTION>

On total
investment, sales
charge as a
percentage of:
------------------------------------------------------------
Public Net
Offering Price Amount Invested
Amount of investment ranges from:
- ----------------------------------------------
<S> <C> <C> <C>
First $ 50,000 5.00% 5.26%
Next 50,000 to 100,000 5.00-4.50 5.26-4.71
Next 100,000 to 500,000 4.50-3.80 4.71-3.95
Next 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
</TABLE>

<PAGE>

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

Your total investments in the Fund determine your sales charges. The amount of
all prior investments plus any new purchase is referred to as your "total amount
invested." For example, suppose you have made an investment of $20,000 and later
decide to invest $40,000 more. Your total amount invested would be $60,000. As a
result, $10,000 of your $40,000 investment qualifies for the lower 4.5% sales
charge that applies to investments of more than $50,000 and up to $100,000.

Class A - Letter of Intent (LOI)

If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a LOI. The agreement can start at any
time and will remain in effect for 13 months. Your investment will be charged
normal sales charges until you have invested $1 million. At that time, your
account will be credited with the sales charges previously paid. Class A
investments made prior to signing a LOI may be used to reach the $1 million
total, excluding IDS Cash Management Fund and IDS Tax-Free Money Fund. However,
we will not adjust for sales charges on investments made prior to the signing of
the LOI. If you do not invest $1 million by the end of 13 months, there is no
penalty, you will just miss out on the sales charge adjustment. 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 IDS funds and has

- - at least $10 million in plan assets or

- - 500 or more participants; or

- - does not use daily transfer recordkeeping and has

- - at least $3 million invested in funds of the IDS MUTUAL FUND GROUP or

- - 500 or more participants.

<PAGE>

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 funds of the IDS
MUTUAL FUND GROUP.

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

* Eligibility must be determined in advance by AEFA. 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.

AUTOMATIC DIRECTED DIVIDENDS

Dividends, including capital gain distributions, paid by another fund in the IDS
MUTUAL FUND GROUP subject to a sales charge, may be used to automatically
purchase shares in the same class of this Fund without paying a sales charge.
Dividends may be directed to existing accounts only. Dividends declared by a
fund are exchanged to this Fund the following day. Dividends can be exchanged
into the same class of another fund in the IDS MUTUAL FUND GROUP but cannot be
split to make purchases in two or more funds. Automatic directed dividends are
available between accounts of any ownership except:

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

Shares of the Fund may not be held by persons who are residents of, or domiciled
in, Brazil. The Fund reserves the right to redeem accounts of shareholders who
establish residence or domicile in Brazil.

<PAGE>

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.

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

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

<PAGE>

be received in the Minneapolis headquarters at least five days before the date
you want your payments to begin. The initial payment must be at least $50.
Payments will be made on a monthly, bimonthly, quarterly, semiannual, or annual
basis. Your choice is effective until you change or cancel it.

The following pay-out plans are designed to take care of the needs of most
shareholders in a way AEFC can handle efficiently and at a reasonable cost. If
you need a more irregular schedule of payments, it may be necessary for you to
make a series of individual redemptions, in which case you 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.

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.

- -------------------------------------------------------------------------------
CAPITAL LOSS CARRYOVER

For federal income tax purposes, the Fund had a total capital loss carryover of
$138,453,248 at the end of the most recent fiscal year, that if not offset by
subsequent capital gains will expire in 2006.

It is unlikely that the board will authorize a distribution of any net realized
capital gains until the available capital loss carryover has been offset or has
expired except as required by Internal Revenue Service rules.

<PAGE>

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

If you buy shares in the Fund and then exchange into another fund, it is
considered a redemption and subsequent purchase of shares. Under the tax laws,
if this exchange is done within 91 days, any sales charge waived on Class A
shares on a subsequent purchase of shares applies to the new shares acquired in
the exchange. Therefore, you cannot create a tax loss or reduce a tax gain
attributable to the sales charge when exchanging shares within 91 days.

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%, you pay $50.00 in sales load. With a NAV of
$9.50 per share, the value of your investment is $950.00. 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 $9.50, 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 $50.00 paid as a sales load
when calculating your tax gain or loss in the sale of the first fund shares. So
instead of having $100.00 gain ($1,100.00 - $1,000.00), you have a $150.00 gain
($1,100.00 - $950.00). You can include the $50.00 sales load in the calculation
of your tax gain or loss when you sell 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% ($100) initial sales charge applicable to that $2,000, you
may be deemed to have exceeded current IRA annual contribution limitations. You
should consult your tax advisor for further details about this complex subject.

Net investment income dividends received should be treated as dividend income
for federal income tax purposes. Corporate shareholders are generally entitled
to a deduction equal to 70% of that portion of the Fund's dividend that is
attributable to dividends the Fund received from domestic (U.S.) securities. For
the most recent fiscal year, none of the Fund's net investment income dividends
qualified for the corporate deduction.

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 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 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.

<PAGE>

Capital gain distributions, if any, received by corporate shareholders should be
treated as long-term capital gains regardless of how long they owned their
shares. Capital gain distributions, if any, received by individuals should be
treated as long-term if held for more than one year. 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 applies to sales
of precious metals 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. If the Fund incurs a
loss, a portion of the dividends distributed to shareholders may be considered a
return of capital.

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.

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.

<PAGE>

Assets Annual rate at
(billions) each asset level
- --------- ----------------
First $0.25 1.10%
Next 0.25 1.08
Next 0.25 1.06
Next 0.25 1.04
Next 1.00 1.02
Over 2.00 1.00

On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 1.10% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made.

The management fee is paid monthly. Under the agreement, the total amount paid
was $4,047,093 for fiscal year 1998, and $1,970,475 for fiscal period 1997.

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.
Under the agreement, nonadvisory expenses, net of earnings credits, paid by the
Fund were $943,891 for fiscal year 1998, and $506,224 for fiscal period 1997.

Sub-Investment Adviser:

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

Under the agreement, the Sub-Adviser receives an annual fee of 0.50% of daily
net assets.

Under the agreement, the total amount paid was $1,849,238 for fiscal year 1998,
and $898,399 for fiscal period 1997.

Administrative Services Agreement

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

Assets Annual rate
(billions) each asset level
- --------- ----------------
First $0.25 0.10%
Next 0.25 0.09
Next 0.25 0.08
Next 0.25 0.07
Next 1.00 0.06
Over 2.00 0.05

<PAGE>

On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.10% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made. Under the
agreement, the Fund paid fees of $359,269 for fiscal year 1998, and $177,211 for
fiscal period 1997.

Transfer Agency Agreement

The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC's responsibility for
administering and/or performing transfer agent functions, for acting as service
agent in connection with dividend and distribution functions and for performing
shareholder account administration agent functions in connection with the
issuance, exchange and redemption or repurchase of the Fund's shares. Under the
agreement, AECSC will earn a fee from the Fund determined by multiplying the
number of shareholder accounts at the end of the day by a rate determined for
each class per year and dividing by the number of days in the year. The rate for
Class A and Class Y is $15 per year and for Class B is $16 per year. The fees
paid to AECSC may be changed by the board without shareholder approval.

DISTRIBUTION AGREEMENT

AEFA 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 AEFA daily. These charges amounted to $1,986,802 for fiscal
year 1998. After paying commissions to personal financial advisors, and other
expenses, the amount retained was $289,161. The amounts were $3,345,200 and
$(430,117) for fiscal period 1997.

SHAREHOLDER SERVICE AGREEMENT

The Fund pays a fee for service provided to shareholders by financial advisors
and other servicing agents. The fee is calculated at a rate of 0.175% of average
daily net assets for Class A and Class B and 0.10% for Class Y.

PLAN AND AGREEMENT OF DISTRIBUTION

For Class B shares, to help AEFA defray the cost of distribution and servicing,
not covered by the sales charges received under the Distribution Agreement, the
Fund and AEFA entered into a Plan and Agreement of Distribution (Plan). These
costs cover almost all aspects of distributing the Fund's shares.

These costs do not include compensation to the sales force. A substantial
portion of the costs are not specifically identified to any one fund in the IDS
MUTUAL FUND GROUP. Under the Plan, AEFA is paid a fee up to actual expenses
incurred at an annual rate of 0.75% of the Fund's average daily net assets
attributable to Class B shares.

<PAGE>

board members who are not interested persons of the Fund and who do not have a
financial interest in the operation of the Plan or any agreement related to it.
The selection and nomination of disinterested board members is the
responsibility of the other disinterested board members. No board member who is
not an interested person, has any direct or indirect financial interest in the
operation of the Plan or any related agreement. For the most recent fiscal year,
under the agreement, the Fund paid fees of $934,695. The fee is not allocated to
any one service (such as advertising, payments to underwriters, or other uses).
However, a significant portion of the fee is generally used for sales and
promotional expenses.

Custodian Agreement

The Fund's securities and cash are held by American Express Trust Company, 1200
Northstar Center West, 625 Marquette Ave., Minneapolis, MN 55402-2307, through a
custodian agreement. The custodian is permitted to deposit some or all of its
securities in central depository systems as allowed by federal law. For its
services, the Fund pays the custodian a maintenance charge and a charge per
transaction in addition to reimbursing the custodian's out-of-pocket expenses.

The custodian has entered into a sub-custodian arrangement with the Morgan
Stanley Trust Company (Morgan Stanley), One Pierrepont Plaza, Eighth Floor,
Brooklyn, NY 11201-2775. As part of this arrangement, securities purchased
outside the United States are maintained in the custody of various foreign
branches of Morgan Stanley 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.

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.

<PAGE>

IDS Bond Fund, Inc. 6/27/74, Corporation NV/MN 8/31 Yes
6/13/86*

- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Discovery Fund, Inc. 4/29/81, Corporation NV/MN 7/31 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Equity Select Fund, Inc. 3/18/57, Corporation NV/MN 11/30 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Extra Income Fund, Inc. 8/17/83 Corporation MN 5/31 Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Federal Income Fund, Inc. 3/12/85 Corporation MN 5/31 Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Global Series, Inc. 10/28/88 Corporation MN 10/31
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Emerging Markets Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Global Balanced Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Global Bond Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Global Growth Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Innovations Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Growth Fund, Inc. 5/21/70, Corporation NV/MN 7/31
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Growth Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Research Opportunities Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS High Yield Tax-Exempt Fund, Inc. 12/21/78, Corporation NV/MN 11/30 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS International Fund, Inc. 7/18/84 Corporation MN 10/31 Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Investment Series, Inc. 1/18/40, Corporation NV/MN 9/30
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Diversified Equity Income Yes
Fund
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Mutual Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Managed Retirement Fund, Inc. 10/9/84 Corporation MN 9/30
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Managed Allocation Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Market Advantage Series, Inc. 8/25/89 Corporation MN 1/31
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Blue Chip Advantage Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Small Company Index Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Money Market Series, Inc. 8/22/75, Corporation NV/MN 7/31
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Cash Management Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS New Dimensions Fund, Inc. 2/20/68, Corporation NV/MN 7/31 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Precious Metals Fund, Inc. 10/5/84 Corporation MN 3/31 No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Progressive Fund, Inc. 4/23/68, Corporation NV/MN 9/30 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Selective Fund, Inc. 2/10/45, Corporation NV/MN 5/31 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Stock Fund, Inc. 2/10/45, Corporation NV/MN 9/30 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Strategy Fund, Inc. 1/24/84 Corporation MN 3/31
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Strategy Aggressive Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Equity Value Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Tax-Exempt Bond Fund, Inc. 9/30/76, Corporation NV/MN 11/31
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Tax-Exempt Bond Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Intermediate Tax-Exempt Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Tax-Free Money Fund, Inc. 2/29/80, Corporation NV/MN 12/31 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Utilities Income Fund, Inc. 3/25/88 Corporation MN 6/30 Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS California Tax-Exempt Trust 4/7/86 Business MA 6/30
Trust**
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS California Tax-Exempt Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Special Tax-Exempt Series Trust 4/7/86 Business MA 6/30
Trust**
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Insured Tax-Exempt Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Massachusetts Tax-Exempt Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Michigan Tax-Exempt Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Minnesota Tax-Exempt Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS New York Tax-Exempt Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Ohio Tax-Exempt Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------

* 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.
</TABLE>

<PAGE>

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

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

The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 47 IDS and IDS Life funds (except for William H. Dudley, who does
not serve on the nine IDS Life fund boards).

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

Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.

Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W. Washington, D.C.

Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, and Union
Pacific Resources.

William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN

Senior advisor to the chief executive officer of AEFC.

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

President, chief executive officer and director of AEFC.

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

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

<PAGE>

Anne P. Jones'
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD

Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. (electronics), C-Cor
Electronics, Inc., and Amnex, Inc. (communications).

William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN

Chairman of the board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Retired vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).

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

Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, PacifiCorp (electric power) and Biogen
(pharmaceuticals).

Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN

President, Spencer Associates Inc. (consulting). Retired chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise Cascade Corporation
(forest products). Member of International Advisory Council of NEC (Japan).

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

Senior vice president of AEFC.

Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN

Chairman, Whitney Management Company (manages family assets).

<PAGE>

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

Chairman of the board and retired chief executive officer, The Valspar
Corporation (paints). Director, Bemis Corporation (packaging), Donaldson Company
(air cleaners & mufflers), and General Mills, Inc. (consumer foods).

+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.

The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.

In addition to Mr. Pearce, who is chairman of the board and Mr. Thomas, who is
president, the Fund's other officers are:

Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN

President of Board Services Corporation. Vice president, general counsel and
secretary for the Fund.

Officers who also are officers and employees of AEFC:

Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN

Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.

Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN

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

Stuart A. Sedlacek
Born in 1957
IDS Tower 10
Minneapolis, MN

Senior vice president and chief financial officer of AEFC since January 1998.
Vice president - assured assets of AEFC from 1994 to 1997. Treasurer for the
Trust.

<PAGE>

COMPENSATION FOR BOARD MEMBERS
- -------------------------------------------------------------------------------

During the most recent fiscal year, the independent members of the Fund and
Portfolio boards, for attending up to 26 meetings, received the following
compensation:
<TABLE>
<CAPTION>

Compensation Table

H. Brewster Atwater, Jr. $975 $975 $102,900
- -----------------------------
Lynne V. Cheney 781 781 93,900
- -----------------------------
Robert F. Froehlke 108 108 10,200
- -----------------------------
Heinz F. Hutter 950 950 101,400
- -----------------------------
Anne P. Jones 856 856 98,400
- -----------------------------
Alan K. Simpson 630 630 84,400
- -----------------------------
Edson W. Spencer 967 967 102,400
- -----------------------------
Wheelock Whitney 975 975 102,900
- -----------------------------
C. Angus Wurtele 1,025 1,025 105,900
</TABLE>

As of 30 days prior to the date of this SAI, the Fund's board members and
officers as a group owned less than 1% of the outstanding shares of any class.

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

The financial statements contained in the Annual Report were audited by
independent auditors, KPMG Peat Marwick LLP, 4200 Norwest Center, 90 S. Seventh
St., Minneapolis, MN 55402-3900. The independent auditors also provide other
accounting and tax-related services as requested by the Fund.

<PAGE>

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 uncertainies or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.

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

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

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

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

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

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

Moody's Long-Term Debt Ratings

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

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

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

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

<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.

Fitch lnvestors Service, lnc. Bond Ratings

Fitch investment grade bond and preferred stock ratings provide a guide to
investors in determining the credit risk associated with a particular security.
The ratings represent Fitch's assessment of the issuer's ability to meet the
obligations of a specific debt or preferred issue in a timely manner.

The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.

Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.

Bonds and preferred stock carrying the same rating are of similar but not
necessarily identical credit quality since the rating categories do not fully
reflect small differences in the degrees of credit risk.

Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.

Fitch ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information.
Ratings may be changed, suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.

AAA Bonds and preferred stock considered to be investment grade
and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and/or dividends
and repay principal, which is unlikely to be affected by
reasonably foreseeable events.

AA Bonds and preferred stock considered to be investment grade
and of very high credit quality. The obligor's ability to pay
interest and/or dividends and repay principal is very strong,
although not quite as strong as bonds rated AAA.

<PAGE>

A Bonds and preferred stock considered to be investment grade
and of high credit quality. The obligor's ability to pay
interest and/or dividends and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than debt or preferred
securities with higher ratings.

BBB Bonds and preferred stock considered to be investment grade
and of satisfactory credit quality. The obligor's ability to
pay interest or dividends and repay principal is considered to
be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact
on these securities and, therefore, impair timely payment. The
likelihood that the ratings of these bonds or preferred stock
will fall below investment grade is higher than for securities
with higher ratings.

Fitch speculative grade bond or preferred stock ratings provide a guide to
investors in determining the credit risk associated with a particular security.
The ratings (BB to C) represent Fitch's assessment of the likelihood of timely
payment of principal and interest or dividends in accordance with the terms of
obligation for issues not in default. For defaulted bonds or preferred stock,
the rating (DDD to D) is an assessment of the ultimate recovery value through
reorganization or liquidation.

The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer or possible recovery value in
bankruptcy, the current and prospective financial condition and operating
performance of the issuer and any guarantor, as well as the economic and
political environment that might affect the issuer's future financial strength.

Bonds or preferred stock that have the same rating are of similar but not
necessarily identical credit quality since the rating categories cannot fully
reflect the differences in the degrees of credit risk.

BB Bonds or preferred stock are considered speculative. The
obligor's ability to pay interest or dividends and repay
principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its
debt service requirements.

B Bonds or preferred stock are considered highly speculative.
While bonds in this class are currently meeting debt service
requirements or paying dividends, the probability of continued
timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable
business and economic activity throughout the life of the
issue.

CCC Bonds or preferred stock have certain identifiable
characteristics that if not remedied, may lead to default. The
ability to meet obligations requires an advantageous business
and economic environment.

CC Bonds or preferred stock are minimally protected. Default in
payment of interest and/or principal seems probable over time.

C Bonds are in imminent default in payment of interest or
principal or suspension of preferred stock dividends is
imminent.

DDD,
DD,
and D Bonds are in default on interest and/or principal payments
or preferred stock dividends are suspended. Such securities
are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization
of the obligor. DDD represents the highest potential for
recovery of these securities and D represents the lowest
potential for recovery.

<PAGE>

Duff & Phelps, Inc. Long-Term Debt Ratings

These ratings represent a summary opinion of the issuer's long-term fundamental
quality. Rating determination is based on qualitative and quantitative factors
that may vary according to the basic economic and financial characteristics of
each industry and each issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such factors as competition,
government action, regulation, technological obsolescence, demand shifts, cost
structure, and management depth and expertise. The projected viability of the
obligor at the trough of the cycle is a critical determination.

Each rating also takes into account the legal form of the security (e.g. first
mortgage bonds, subordinated debt, preferred stock, etc.). The extent of rating
dispersion among the various classes of securities is determined by several
factors including relative weightings of the different security classes in the
capital structure, the overall credit strength of the issuer, and the nature of
covenant protection. Review of indenture restrictions is important to the
analysis of a company's operating and financial constraints.

The Credit Rating Committee formally reviews all ratings once per quarter (more
frequently, if necessary). Ratings of BBB- and higher fall within the definition
of investment grade securities, as defined by bank and insurance supervisory
authorities. Structured finance issues, including real estate, asset-backed and
mortgage-backed financings, use this same rating scale with minor modification
in the definitions. Thus, an investor can compare the credit quality of
investment alternatives across industries and structural types. A "Cash Flow
Rating" (as noted for specific ratings) addresses the likelihood that aggregate
principal and interest will equal or exceed the rated amount under appropriate
stress conditions.

Rating Scale Definition
-------------------------- ---------------------------------------------------

AAA Highest credit quality. The risk factors are
negligible, being only slightly more than for
risk-free U.S. Treasury debt.
-------------------------- ---------------------------------------------------

AA+ High credit quality. Protection factors are strong. Risk is modest, but may
AA vary slightly from time to time because of economic conditions.
AA-
-------------------------- ---------------------------------------------------

A+ Protection factors are average but adequate. However, risk factors are more
A variable and greater in periods of economic stress.
A-
-------------------------- ---------------------------------------------------

BBB+ Below-average protection factors but still considered sufficient for
prudent BBB investment. Considerable variability in risk during economic
cycles.
BBB-
-------------------------- ---------------------------------------------------

BB+ Below investment grade but deemed likely to meet obligations when due.
Present BB or prospective financial protection factors fluctuate according
to industry BB- conditions or company fortunes. Overall quality may move up or
down frequently within this category.
-------------------------- ---------------------------------------------------

<PAGE>

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

CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of
principal, interest, or preferred dividends.
Protection factors are narrow and risk can be
substantial with unfavorable economic/industry
conditions, and or with unfavorable company
developments.
-------------------------- ---------------------------------------------------

DD Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.

DP Preferred stock with dividend arrearages.
-------------------------- ---------------------------------------------------

IBCA Long-Term Debt Ratings

AAA Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic, or
financial conditions are unlikely to increase investment risk
substantially.

AA Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic, or financial
conditions may increase investment risk, albeit not very significantly.

A Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic, or financial conditions
may lead to increased investment risk.

BBB Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic,
or financial conditions are more likely to lead to increased investment
risk than for obligations in other categories.

BB Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest
exists, but is susceptible over time to adverse changes in business,
economic, or financial conditions.

B Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse
changes in business, economic, or financial conditions.

CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic, or financial conditions.

CC Obligations that are highly speculative or that have a high risk of default.

C Obligations that are currently in default.

Notes: "+" or "-" may be appended to a rating below AAA to denote relative
status within major rating categories. Ratings of BB and below are assigned
where it is considered that speculative characteristics are present.

<PAGE>

Thomson Bank Watch Long-Term Debt Ratings

Investment Grade

AAA (LC-AAA) Indicates that the ability to repay principal and interest
on a timely basis is extremely high.

AA (LC-AA) Indicates a very strong ability to repay principal
and interest on a timely basis, with limited incremental
risk compared to issues rated in the highest category.

A (LC-A) Indicates the ability to repay principal and
interest is strong. Issues rated A could be more
vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.

BBB (LC-BBB) The lowest investment-grade category: indicates
an acceptable capacity to repay principal and interest.
BBB issues are more vulnerable to adverse developments
(both internal and external) than obligations with higher
ratings.

Non-Investment Grade - may be speculative in the likelihood of timely repayment
of principal and interest.

BB (LC-BB) While not investment grade, the BB rating suggests
that the likelihood of default is considerably less than
for lower-rated issues. However, there are significant
uncertainties that could affect the ability to adequately
service debt obligations.

B (LC-B) Issues rated B show higher degree of uncertainty
and therefore greater likelihood of default than
higher-rated issues. Adverse developments could negatively
affect the payment of interest and principal on a timely
basis.

CCC (LC-CCC) Issues rated CCC clearly have a high likelihood
of default, with little capacity to address further
adverse changes in financial circumstances.

CC (LC-CC) CC is applied to issues that are subordinate to other
obligations rated CCC and are afforded less protection in
the event of bankruptcy or reorganization.

D (LC-D) Default.

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.

<PAGE>

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.

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.

<PAGE>

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.

Fitch Investors Service, Inc. Short-Term Ratings

Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.

F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.

F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F.

F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the
margin of safety is not as great as for issues assigned F-1+
and F-1 ratings.

F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment
grade.

F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes
in financial and economic conditions.

D Default Issues assigned this rating are in actual or imminent
payment default.

LOC The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.

<PAGE>

Duff & Phelps, Inc. Short-Term Debt Ratings

Duff & Phelps' short-term ratings are consistent with the rating criteria used
by money market participants. The ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, banker's
acceptances, irrevocable letters of credit, and current maturities of long-term
debt.
Asset-backed commercial paper also is rated according to this scale.

Emphasis is placed on liquidity, which is defined as not only cash from
operations but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.

Rating Scale: Definition

High Grade

D-1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and
or access to alternative sources of funds, is
outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.

D-1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good
fundamental protection factors. Risk factors are
minor.

D-1- High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental
protection factors. Risk factors are very small.

Good Grade

D-2 Good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing
requirements, access to capital markets is good.
Risk factors are small.

Satisfactory Grade

D-3 Satisfactory liquidity and other protection factors
qualify issues as to investment grade. Risk factors
are larger and subject to more variation.
Nevertheless, timely payment is expected.

Non-Investment Grade

D-4 Speculative investment characteristics. Liquidity
is not sufficient to insure against disruption in
debt service. Operating factors and market access
may be subject to a high degree of variation.

Default

D-5 Issuer failed to meet scheduled principal and/or interest payments.

<PAGE>

Thomson BankWatch (TBW) Short-Term Ratings

The TBW Short-Term Ratings apply, unless otherwise noted, to specific debt
instruments of the rated entities with a maturity of one year or less. TBW
Short-Term Ratings are intended to assess the likelihood of untimely or
incomplete payments of principal or interest.

TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.

TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated TBW- I.

TBW-3 The lowest investment-grade category; indicates that while
the obligation is more susceptible to adverse developments
(both internal and external) than those with higher
ratings, the capacity to service principal and interest in
a timely fashion is considered adequate.

TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

IBCA Short-Term Ratings

IBCA Short-Term Ratings assess the borrowing characteristics of banks and
corporations, and the capacity for timely repayment of debt obligations. The
Short-Term Ratings relate to debt that has a maturity of less than one year.

A1 Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit
feature, a rating of A1+ is assigned.

A2 Obligations supported by a good capacity for timely repayment.

A3 Obligations supported by a satisfactory capacity for timely
repayment.

B Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.

C Obligations for which there is a high risk of default or which are
currently in default.

<PAGE>

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

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

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

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

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

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

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

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

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

<PAGE>
IDS Global Balanced Fund

Prospectus
Dec. 30, 1998

IDS Global Balanced Fund seeks to provide shareholders with a balance of growth
of capital and current income.

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 fund shares, 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

Buy and Selling Shares
Valuing Fund Shares
Investment Options
Purchasing Shares
Sales Charges
Exchanging/Selling Shares

Distributions and Taxes

Personalized Shareholder Information

About the Company

Quick Telephone Reference

Financial Highlights

FUND INFORMATION KEY

[icon of magnifying glass] Goal and Investment Strategy
The Fund's particular investment goal and
the strategies it intends to use in pursuing
its goal.

[icon of die] Risks
The major risk factors associated with the
Fund.

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

[icon of folder] Management
The individual or group designated by the
investment manager to handle the Fund's
day-to-day management.

[icon of stack of dollar bills] Financial Highlights
Tables showing the Fund's financial
performance.

<PAGE>

The Fund

Goal
IDS Global Balanced Fund (the Fund) seeks to provide shareholders with a balance
of growth of capital and current income. Because any investment involves risk,
achieving this goal can not be guaranteed.

Investment Strategy
The Fund's assets primarily are invested in a combination of equity and debt
securities of issuers throughout the world. Under normal market conditions, at
least 65% of the Fund's total assets will be invested in securities of companies
located in at least three different countries. No less than 25% of the Fund's
total assets will be invested in debt securities or debt convertible securities.
No more than 20% of the Fund's net assets will be invested in bonds below
investment grade.

The selection of geographic regions and investment-grade bonds are the primary
decisions in building the investment portfolio.

American Express Financial Corporation (AEFC), the Fund's investment manager,
chooses equity investments by:

o Considering opportunities and risks within international regions or
countries (The Fund may invest a significant portion of its assets in a
particular country or region).
o Identifying sectors with strong potential.
o Identifying securities with sufficient liquidity in trading volume(however,
AEFC may invest up to 10% of the Fund's net assets
in illiquid securities).
o Identifying companies with:
-effective management,
-financial strength, and
-high demand for their products or services.

AEFC chooses debt obligations by:

o Considering opportunities and risks by credit rating and currency.
o Identifying investment-grade U.S. and foreign bonds.
o Identifying below investment-grade U.S. and foreign bonds (junk bonds).
o Focusing on bonds that contribute to portfolio diversification.
o Identifying bonds that can take advantage of currency movements and
interest rate differences among nations.

AEFC then decides how much to invest in various countries and local currencies,
and buys securities that offer the best opportunity for long-term growth or
current income.

In evaluating whether to sell a security, AEFC considers, among other factors,
whether: -the security is overvalued, -the security has reached AEFC's
price objective, and -the company or the security continues to meet the
standards described above.

AEFC closely monitors the Fund's exposure to foreign currency fluctuations. From
time to time, AEFC may purchase derivative instruments to hedge against currency
fluctuations.

<PAGE>

The Fund also may invest in money market securities and other instruments.
During weak or declining markets, the Fund may invest more of its assets in
these securities. Although the Fund will invest in these securities primarily to
avoid losses, this type of investing also could reduce the benefit from any
improvement in the market. 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
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:
Market Risk
Interest Rate Risk
Foreign Risk
Sector/Concentration Risk
Liquidity Risk
Credit Risk

Market Risk

Interest Rate Risk

The risk of losses attributable to changes in interest rates. This term is
generally associated with, but not limited to, bond prices (when interest rates
rise, bond prices fall).

Foreign Risk

The following are all components of foreign risk:

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).

<PAGE>

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.

Credit Risk

Past Performance

The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:

o how the Fund's performance has varied for each full calendar year that the
Fund has existed, and

o how the Fund's average annual total returns compare to other recognized
indexes.

How the Fund has performed in the past does not indicate how the Fund will
perform in the future.

Class A Performance (based on calendar years)
- -------------------------------------------------------------------------------

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

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

+10.09%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- -------------------------------------------------------------------------------

During the period shown in the bar chart, the highest return for a calendar
quarter was +9.05% (quarter ending June 1997) and the lowest return for a
calendar quarter was -1.70% (quarter ending December 1997).

The Fund's year to date return as of Sept. 30, 1998 was +4.03%.

<PAGE>

Average Annual Total Returns (as of Dec. 31, 1997)

1 year Since inception

Global Balanced:

Class A +4.59% +3.60%a

Class B +5.26% +4.09%a

Class Y +10.25% +8.54%a

MSCI World Index +14.17% +11.13%b

Salomon Brothers
World Government
Bond Index
+0.23% -0.53%b

a Inception date was Nov. 13, 1996.
b Measurement period started Dec. 1, 1996.

For purposes of this calculation, we assumed:

o a sales charge of 5% for Class A shares,
o sales at the end of the period and deduction of the applicable contingent
deferred sales charge (CDSC) for Class B shares, o no sales charge for Class Y
shares, o conversion of Class B shares into Class A shares in the ninth calendar
year of ownership, and o no adjustments for taxes paid by an investor on the
reinvested income and capital gains.

Morgan Stanley Capital International (MSCI) World Index is an unmanaged index
compiled from a composite of over 1500 companies listed on the stock exchanges
of North America, Europe, New Zealand and the Far East.

Salomon Brothers World Government Bond Index is an unmanaged
market-capitalization weighted benchmark that tracks the performance of the 17
government bond markets around the world.

The indexes reflect reinvestment of all distributions and changes in market
prices, but exclude brokerage commissions or other fees.

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.

<PAGE>

Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>

Class A Class B Class Y
<S> <C> <C> <C>
Maximum sales charge
(load) imposed on purchasesa
(as a percentage
of offering price) 5% none none
............................................... .................... .................... ...................
Maximum deferred sales
charge (load) imposed on
sales (as a percentage
of offering price at time of purchase) none 5% none
............................................... .................... .................... ...................

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

As a percentage of average daily net assets: Class A Class B Class Y
- ----------------------------------------------- -------------------- -------------------- -------------------

Management fees 0.79% 0.79% 0.79%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Distribution (12b-1) fees 0.00% 0.75% 0.00%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Other expensesb 0.74% 0.75% 0.67%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Totalc 1.53% 2.29% 1.46%
- ----------------------------------------------- -------------------- -------------------- -------------------
</TABLE>

a This charge may be reduced depending on your total investments in IDS
funds. See "Sales Charges."
b Other expenses include an administrative services fee, a shareholder
services fee, a transfer agency fee and other nonadvisory expenses.
c AEFC and American Express Financial Advisors Inc. agreed to waive certain
fees and reimburse expenses, with the exception of 12b-1 fees, to the
extent that total expenses for Class A shares exceed 1.50% for a minimum
period ending Oct. 31, 1999. Any waiver or reimbursement applies to each
class on a pro rata basis. For the most recent fiscal year, actual total
expenses with fee waivers and expense reimbursements were 1.49% for Class
A, 2.25% for Class B and 1.42% for Class Y.

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 Aa $ 648 $ 959 $ 1,293 $ 2,237
Class Bb $ 732 $ 1,116 $ 1,426 $ 2,439d
Class Bc $ 232 $ 716 $ 1,226 $ 2,439d
Class Y $ 149 $ 462 $ 798 $ 1,751

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

<PAGE>

Management
Peter Lamaison joined AEFC in 1981 and has since served as president, chief
executive officer and chief investment officer of American Express Asset
Management International Inc. He has managed the equity portfolio of this Fund
since September 1997. He also serves as portfolio manager of IDS International
Fund and IDS Life International Equity Fund.

Mike Ng joined AEFC in 1994 and began managing the bond portion of the Fund in
July 1998. He also serves as portfolio manager of IDS Life Global Yield Fund.
Prior to joining AEFC, he was a fixed income analyst for the St. Paul Companies.

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 and Class Y, it is the NAV.

The Fund's investments are valued based on market value, or where market
quotations are not readily available, based on methods selected in good faith by
the board. Because the Fund invests in securities that are listed on foreign
stock exchanges that trade on weekends or other days when the Fund does not
price its shares, value of 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.

2. Class B shares are sold to the public with a CDSC and an annual distribution
(12b-1) fee.

3. 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:

Class A

Maximum sales charge of 5%

Initial sales charge waived or reduced for certain purchases

No annual distribution fee

Service fee of 0.175% of average daily net assets

Lower annual expenses than Class B shares

<PAGE>

Class B

No initial sales charge

CDSC on shares sold in the first six years (maximum of 5% in first year, reduced
to 0% after year six)

CDSC waived in certain circumstances

Shares convert to Class A in ninth year of ownership

Annual distribution fee of 0.75% of average daily net assets*

Service fee of 0.175% of average daily net assets

Higher annual expenses than Class A shares

Class Y

No initial sales charge

No annual distribution fee

Service fee of 0.10% of average daily net assets

Available only to certain qualifying institutional investors

Should you purchase Class A or Class B shares?

If your investments in IDS funds total $250,000 or more, Class A shares may be
the better option. If you qualify for a waiver of the sales charge, Class A
shares will be the best option.

Purchasing Shares

<PAGE>

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.

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 because you failed to report
required interest or dividends on your tax return.
<TABLE>
<CAPTION>

How to determine the correct TIN

Association, club or The organization
tax-exempt organization
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>

<PAGE>

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 Financial Advisors Inc.
P.O. Box 74
Minneapolis, MN 55440-0074

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

(2) By scheduled investment plan:

Minimum amounts
Initial investment: $100
Additional investments: $50/mo. for qualified accounts; $100/mo.
for nonqualified accounts
Account balances: none (on active plans of monthly payments)

If your account falls 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:

Norwest Bank Minnesota
Routing Transit No. 091000019

Give these instructions:
Credit American Express Financial Advisors Account #0000030015 for personal
account # (your account number) for (your name).

<PAGE>

Minimum amounts
Each wire investment: $1,000

Sales Charges

Class A -- initial sales charge alternative

When you purchase Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:

a To calculate the actual sales charge on an investment greater than $50,000
and less than $1,000,000, you must total the amounts of all increments that
apply.

b Offering price includes a 5% sales charge.

The sales charge on Class A shares may be lower than 5%, depending on the total
amount:

o you now are investing in this Fund,
o you have previously invested in this Fund, or
o you and your primary household group are investing or have invested in
other funds in the IDS MUTUAL FUND GROUP 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. Domestic
partners are individuals who maintain a shared primary residence and have
joint property or other insurable interests). IDS Tax-Free Money Fund and
Class A shares of IDS Cash Management Fund do not have sales charges.

Other Class A sales charge policies:

o if you intend to invest $1 million over a period of 13 months, you can
reduce the sales charges in Class A by filing a letter of intent. For more
details, please see the SAI.

<PAGE>

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

o current or retired board members, officers or employees of the Fund or AEFC
or its subsidiaries, their spouses, and unmarried children under 21.

o current or retired American Express financial advisors, their spouses,
and unmarried children under 21.

o qualified employee benefit plans using a daily transfer recordkeeping
system offering participants daily access to funds of the IDS MUTUAL FUND
GROUP. Eligibility must be determined in advance by AEFA. 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 purchases made within 30 days after a sale of shares (up to the amount
sold):

- of a product distributed by AEFA 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 fund in the IDS MUTUAL FUND GROUP that has a sales
charge,

- through or under a wrap fee product sponsored by AEFA,

- 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,

- with the proceeds from IDS Life Real Estate Variable Annuity surrenders,
or

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

<PAGE>

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

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%

The CDSC on Class B shares 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 for which 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 1/2 years old and - taking a retirement distribution (if the sale
is part of a transfer to an IRA or qualified plan in a product distributed
by
AEFA, or a custodian-to-custodian transfer to a product not distributed
by AEFA, the CDSC will not be waived) or - selling under an approved
substantially equal periodic payment arrangement.

<PAGE>

Exchanging/Selling Shares

Exchanges

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.

Selling Shares

You can sell your shares at any time. AECSC will mail payment within seven days
after accepting your request.

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

The Fund reserves the right to redeem in kind.

<PAGE>

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

Two ways to request an exchange or sale of shares

Regular mail:
American Express Client Service Corporation
Attn: Transactions
P.O. Box 534
Minneapolis, MN 55440-0534

Express mail:
American Express Client Service Corporation
Attn: Transactions
733 Marquette Ave.
Minneapolis, MN 55402

(2) By telephone:
American Express Financial Advisors
Telephone Transaction Service
800-437-3133 or
612-671-3800

Minimum sale amount: $100

Maximum sale amount: $50,000

<PAGE>

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.

(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 IDS fund account.

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

Distributions and Taxes

Dividends and capital gain distributions

Reinvestments

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

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.

<PAGE>

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 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 sell shares for less than their cost, the difference is a
capital loss.

If you buy Class A shares of another fund in the IDS Mutual Fund Group and
within 91 days exchange into this 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 this Fund.

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.

Personalized Shareholder Information

To help you track and evaluate the performance of your investments, AECSC
provides these individualized reports:

Quarterly statements
List your holdings and transactions during the previous three months, as well as
individualized return information.

Yearly tax statements
Feature average-cost-basis reporting of capital gains or losses if you sell your
shares, along with distribution information to simplify tax calculations.

<PAGE>

About the Company

Business Structure
<TABLE>
<CAPTION>
<S> <C> <C> <C>
---------------------
Shareholders
---------------------

---------------------
Your American
Express financial
advisor and other
servicing agents

May receive a fee
for their sales
efforts and ongoing
service.
---------------------

--------------------- ---------------------
Investment Manager: Custodian:
American Express American Express
Financial Trust Company
Corporation
Provides
Manages the Fund's safekeeping of
investments and assets; receives a
receives a fee fee that varies
based on average based on the number
daily net assets.* of securities held.
--------------------- --------------------- ---------------------
</TABLE>

* The Fund pays AEFC a fee for managing its assets. Under the Investment
Management Services Agreement, the fee for the most recent fiscal year was
0.79% of its average daily net assets. Under the Agreement, the Fund also
pays taxes, brokerage commissions and nonadvisory expenses.

American Express Financial Corporation

AEFA serves individuals and businesses through its nationwide network of more
than 180 offices and more than 8,500 advisors.

<PAGE>

Year 2000

Quick Telephone reference

American Express Client Service Corporation
Fund performance, objectives and account inquiries: 800-862-7919

TTY Service
For the hearing impaired: 800-846-4852

financial highlights

IDS Global Balanced

Performance
Financial Highlights
<TABLE>
<CAPTION>

Fiscal period ended Oct. 31,
Per share income and capital changes(a)

Class A Class B Class Y

1998 1997 b 1998 1997 b 1998 1997 b

<S> <C> <C> <C> <C> <C> <C>
Net asset value, $5.33 $5.00 $5.31 $5.00 $5.33 $5.00
beginning of period

Income from investment operations:

Net investment income (loss) .10 .09 .06 .06 .12 .10

Net gains (losses) (both .48 .31 .48 .30 .47 .31
realized and unrealized)

Total from investment operations .58 .40 .54 .36 .59 .41
Less distributions:

Dividends from net investment income (.11) (.07) (.07) (.05) (.12) (.08)

Distributions from
realized gains (.01) -- (.01) -- (.01) --

Total distributions (.12) (.07) (.08) (.05) (.13) (.08)

Net asset value, $5.79 $5.33 $5.77 $5.31 $5.79 $5.33
end of period

Ratios/supplemental data
Class A Class B Class Y

1998 1997 b 1998 1997b 1998 1997 b

Net assets, end of period $63 $31 $44 $19 $-- $--
(in millions)

Ratio of expenses to 1.49% e 1.45%d,e 2.25% e 2.22% d,e 1.42%e 1.30% d,e
average daily net assets(c)

Ratio of net investment income (loss) 1.86% 2.18%d 1.10% 1.41%d 2.02% 2.46%d
to average daily net assets

Portfolio turnover rate 74% 44% 74% 44% 74% 44%
(excluding short-term securities)

Total return(f) 11.01% 8.10% 10.18% 7.31% 11.17% 8.24%

a For a share outstanding throughout the period. Rounded to the nearest
cent.
b Inception date period from Nov. 13, 1996 to Oct. 31, 1997.
c Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
d Adjusted to an annual basis.
e AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 1.53% and 2.29% for Class A, 2.29% and
2.96% for Class B, and 1.46% and 2.14% for Class Y for the periods ended Oct.
31, 1998 and 1997, respectively.
f Total return does not reflect payment of a sales charge.
</TABLE>

<PAGE>

AMERICAN
EXPRESS
Financial
Advisors

Additional information about the Fund and its investments is available in the
Fund's SAI, annual and semiannual reports to shareholders. In the Fund's annual
report, you will find a discussion of market conditions and investment
strategies that significantly affected the Fund during its last fiscal year. The
SAI is incorporated by reference in this prospectus. For a free copy of the SAI,
the annual report or the semiannual report contact American Express Client
Service Corporation.

American Express Client Service Corporation
P.O. Box 534, Minneapolis, MN 55440-0534
800-862-7919 TTY: 800-846-4852
Web site address:
http://www.americanexpress.com/advisors

Investment Company Act File #811-5696

Ticker Symbol

Class A: IDGAX Class B: IGBBX Class Y:

<PAGE>

IDS GLOBAL SERIES, INC.

STATEMENT OF ADDITIONAL INFORMATION

FOR

IDS GLOBAL BALANCED FUND (the Fund)

Dec. 30, 1998

<PAGE>

IDS Global Balanced Fund
TABLE OF CONTENTS

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

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

Investment Strategies and Types of Investments..........................p.7

Information Regarding Risks and Investment Strategies...................p.9

Security Transactions...................................................p.32

Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation.................................p.33

Performance Information................................................p.34

Valuing Fund Shares....................................................p.35

Investing in the Fund..................................................p.36

Selling Shares.........................................................p.39

Pay-out Plans..........................................................p.40

Taxes..................................................................p.41

Agreements.............................................................p.43

Organizational Information.............................................p.45

Board Members and Officers.............................................p.47

Compensation for Board Members.........................................p.50

Independent Auditors...................................................p.50

Appendix: Description of Ratings......................................p.51

<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

<PAGE>

Dollar-cost averaging:

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

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

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

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

o Make a loan of any part of its assets to American Express Financial
Corporation (AEFC), to the board members and officers of AEFC or to its own
board members and officers.

<PAGE>

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

- -------------------------------------------------------------------------------
Investment strategies & types of investments: IDS Global Balanced

Allowable for the Fund?

Agency and Government Securities yes
Borrowing yes
Cash/Money Market Instruments yes
Collateralized Bond Obligations yes
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) yes
Illiquid and Restricted Securities yes
Indexed Securities yes
Inverse Floaters yes
Investment Companies yes
Lending of Portfolio Securities yes
Loan Participations yes
Mortgage- and Asset-Backed Securities yes
Mortgage Dollar Rolls yes
Municipal Obligations yes
Preferred Stock yes
Real Estate Investment Trusts yes
Repurchase Agreements yes
Reverse Repurchase Agreements yes
Short Sales no
Sovereign Debt yes
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 Under normal market condition at least 65% of the Fund's total assets will
be invested in securities of companies in at least three different
countries.

o No less than 25% of the Fund's total assets will be invested in debt
securities and debt convertible securities.

o The Fund will not invest more than 20% of its net assets in bonds below
investment grade, including Brady bonds.

o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.

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

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

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

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

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

o Under normal market conditions, the Fund does not intend to commit more
than 5% of its total assets to when-issued securities or forward
commitments.

<PAGE>

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

RISKS

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."

Credit Risk

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:

<PAGE>

Inflation Risk

Interest Rate Risk

The risk of losses attributable to changes in interest rates. This term is
generally associated with, but not limited to, bond prices (when interest rates
rise, bond prices fall).

Issuer Risk

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

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

Market Risk

Reinvestment Risk

The risk that an investor will not be able to reinvest their income or principal
at the same rate as 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

<PAGE>

INVESTMENT STRATEGIES

Agency and Government Securities

Borrowing

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

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

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

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

Convertible Securities

<PAGE>

Corporate Bonds

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.

Debt Obligations

<PAGE>

See the appendix for a discussion of securities ratings.

Depositary Receipts

Derivative Instruments

<PAGE>

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 an
investor 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.

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 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.

<PAGE>

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.

Derivatives are risky investments.

(See also Foreign Currency Transactions.)

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

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

(See also Derivative Instruments and Foreign Securities.)

Foreign Securities

<PAGE>

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)

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

<PAGE>

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

Illiquid and Restricted Securities

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

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

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

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

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

<PAGE>

Mortgage Dollar Rolls

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

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

Municipal Obligations

Municipal 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 are generally
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 maybe
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 difference 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 any 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.)

Preferred Stock

<PAGE>

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

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. A specific risk of a repurchase agreement is that if the
seller seeks the protection of bankruptcy laws, the Fund's ability to liquidate
the security involved could be impaired.

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

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

<PAGE>

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 or to defer an unrealized
gain. If the value of the securities sold short increased prior to the scheduled
delivery date, the investor loses the opportunity to participate in the gain.

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

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.

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

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

<PAGE>

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

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

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

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

<PAGE>

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

<PAGE>

commission, but AEFC believes it may obtain better overall execution. AEFC has
represented that under all three procedures the amount of commission paid will
be reasonable and competitive in relation to the value of the brokerage services
performed or research provided.

The Fund paid total brokerage commissions of $193,188 for fiscal year ended 1998
and $75,141 for fiscal period from Nov. 13, 1996 (commencement of operations) to
Oct. 31, 1997. Substantially all firms through whom transactions were executed
provide research services.

No transactions were directed to brokers because of research services they
provided to the Fund.

Value of Securities
Name of Issuer owned at End of Fiscal Year
Bank of America $674,661
Morgan (JP) 94,176

The portfolio turnover rate was 74% in the most recent fiscal year, and 44% in
the year before.

BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS FINANCIAL
CORPORATION
- -------------------------------------------------------------------------------

No brokerage commissions were paid to brokers affiliated with AEFC for the two
most recent fiscal years.

<PAGE>

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

AVERAGE ANNUAL TOTAL RETURN

P(1+T)n = ERV

AGGREGATE TOTAL RETURN

ERV - P
P

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 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.

<PAGE>

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

Class A $64,124,341 divided by 10,967,050 equals $5.847
Class B 44,382,552 7,616,707 5.827
Class Y 1,217 208 5.850

</TABLE>

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

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

<PAGE>

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

SALES CHARGE

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 and Class Y, there is no initial sales charge so the public offering
price is the same as the NAV. For Class A, the public offering price for an
investment of less than $50,000, made on the first business day following the
end of the fiscal year, was determined by dividing the NAV of one share, $5.847,
by 0.95 (1.00-0.05 for a maximum 5% sales charge) for a public offering price of
$6.15. The sales charge is paid to American Express Financial Advisors Inc.
(AEFA) by the person buying the shares.

Class A - Calculation of the Sales Charge

Sales charges are determined as follows:
<TABLE>
<CAPTION>
Within each
increment, sales
charge as a
percentage of:
------------------------------------------------------------
<S> <C> <C>
Public Net
Amount of Investment Offering Price Amount Invested
- -------------------- -------------- ---------------
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
</TABLE>

<PAGE>

The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
<TABLE>
<CAPTION>

<S> <C> <C> <C>
First $ 50,000 5.00% 5.26%
Next 50,000 to 100,000 5.00-4.50 5.26-4.71
Next 100,000 to 500,000 4.50-3.80 4.71-3.95
Next 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
</TABLE>

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

Class A - Letter of Intent (LOI)

<PAGE>

Class Y Shares

o Qualified employee benefit plans* if the plan:

- uses a daily transfer recordkeeping service offering
participants daily access to IDS funds and has

- at least $10 million in plan assets or

- 500 or more participants; or

- does not use daily transfer recordkeeping and has

- at least $3 million invested in funds of the IDS MUTUAL
FUND GROUP or

- 500 or more participants.

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

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

SYSTEMATIC INVESTMENT PROGRAMS

AUTOMATIC DIRECTED DIVIDENDS

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

<PAGE>

REJECTION OF BUSINESS

The Fund 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.

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.

<PAGE>

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

To start any of these plans, please write American Express Shareholder Service,
P.O. Box 534, Minneapolis, MN 55440-0534, or call American Express Financial
Advisors Telephone Transaction Service at 800-437-3133 (National/Minnesota) or
612-671-3800 (Mpls./St. Paul). Your authorization must be received in the
Minneapolis headquarters at least five days before the date you want your
payments to begin. The initial payment must be at least $50. Payments will be
made on a monthly, bimonthly, quarterly, semiannual, or annual basis. Your
choice is effective until you change or cancel it.

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

Plan #2: Redemption of a fixed number of shares

Plan #3: Redemption of a fixed dollar amount

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

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

<PAGE>

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

For example:

Net investment income dividends received should be treated as dividend income
for federal income tax purposes. Corporate shareholders are generally entitled
to a deduction equal to 70% of that portion of the Fund's dividend that is
attributable to dividends the Fund received from domestic (U.S.) securities. For
the most recent fiscal year, 14.41% of the Fund's net investment income
dividends qualified for the corporate deduction.

<PAGE>

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

INVESTMENT MANAGEMENT SERVICES AGREEMENT

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 0.790%
Next 0.25 0.765
Next 0.25 0.740
Next 0.25 0.715
Next 1.00 0.690
Over 2.00 0.665

On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.790% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made.

The management fee is paid monthly. Under the agreement, the total amount paid
was $636,039 for fiscal year 1998 and $188,994 for fiscal period 1997.

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.
Under the agreement, nonadvisory expenses, net of earnings credits, paid by the
Fund were $246,804 for fiscal year 1998 and $25,971 for fiscal period 1997.

Administrative Services Agreement

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

Assets Annual rate
(billions) each asset level
- --------- ----------------
First $0.25 0.060%
Next 0.25 0.055
Next 0.25 0.050
Next 0.25 0.045
Next 1.00 0.040
Over 2.00 0.035

<PAGE>

On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.060% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made. Under the
agreement, the Fund paid fees of $48,915 for fiscal year ended Oct. 31, 1998 and
$19,884 for fiscal period 1997.

Transfer Agency Agreement

DISTRIBUTION AGREEMENT

AEFA 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 AEFA daily. These charges amounted to $564,691 for fiscal
year 1998. After paying commissions to personal financial advisors, and other
expenses, the amount retained was $(45,709). The amounts were $465,906 and
$(83,177) for fiscal period 1997.

SHAREHOLDER SERVICE AGREEMENT

PLAN AND AGREEMENT OF DISTRIBUTION

<PAGE>

securities of the Fund's Class B shares or by AEFA. The Plan (or any agreement
related to it) will terminate in the event of its assignment, as that term is
defined in the 1940 Act. The Plan may not be amended to increase the amount to
be spent for distribution without shareholder approval, and all material
amendments to the Plan must be approved by a majority of the board members,
including a majority of the board members who are not interested persons of the
Fund and who do not have a financial interest in the operation of the Plan or
any agreement related to it. The selection and nomination of disinterested board
members is the responsibility of the other disinterested board members. No board
member who is not an interested person, has any direct or indirect financial
interest in the operation of the Plan or any related agreement. For the most
recent fiscal year, under the agreement, the Fund paid fees of $240,003. The fee
is not allocated to any one service (such as advertising, payments to
underwriters, or other uses). However, a significant portion of the fee is
generally used for sales and promotional expenses.

Custodian Agreement

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.

VOTING RIGHTS

Dividend Rights

<PAGE>

FUND HISTORY TABLE FOR ALL PUBLICLY OFFERED FUNDS IN THE IDS MUTUAL FUND GROUP

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

<PAGE>

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

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

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

Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.

Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W. Washington, D.C.

Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, and Union
Pacific Resources.

William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN

Senior advisor to the chief executive officer of AEFC.

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

President, chief executive officer and director of AEFC.

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

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

<PAGE>

Anne P. Jones'
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD

William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN

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

Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, PacifiCorp (electric power) and Biogen
(pharmaceuticals).

Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN

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

Senior vice president of AEFC.

Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN

Chairman, Whitney Management Company (manages family assets).

<PAGE>

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

The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.

In addition to Mr. Pearce, who is chairman of the board and Mr. Thomas, who is
president, the Fund's other officers are:

Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN

President of Board Services Corporation. Vice president, general counsel and
secretary for the Fund.

Officers who also are officers and employees of AEFC:

Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN

Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.

Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN

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

Stuart A. Sedlacek
Born in 1957
IDS Tower 10
Minneapolis, MN

Senior vice president and chief financial officer of AEFC since January 1998.
Vice president-assured assets of AEFC from 1994 to 1997. Treasurer for the Fund.

<PAGE>

COMPENSATION FOR BOARD MEMBERS
- -------------------------------------------------------------------------------

During the most recent fiscal year, the independent members of the Fund board,
for attending up to 26 meetings, received the following compensation:
<TABLE>
<CAPTION>

Compensation Table

Total cash compensation from the
---------------------------- ------------------------------------
<S> <C> <C>
Board member Aggregate IDS MUTUAL FUND GROUP and Preferred
compensation from the Fund Master Trust Group

H. Brewster Atwater, Jr. $975 $102,900
- --------------------------------------
Lynne V. Cheney 781
93,900
- --------------------------------------
Robert F. Froehlke 108 10,200
- --------------------------------------
Heinz F. Hutter 950 101,400
- --------------------------------------
Anne P. Jones 856 98,400
- --------------------------------------
Melvin R. Laird 630 84,400
- --------------------------------------
Alan K. Simpson 967 102,400
- --------------------------------------
Edson W. Spencer 975 102,900
- --------------------------------------
Wheelock Whitney 1,025 105,900
- --------------------------------------
C. Angus Wurtele
</TABLE>

As of 30 days prior to the date of this SAI, the Fund's board members and
officers as a group owned less than 1% of the outstanding shares of any class.

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

<PAGE>

APPENDIX

DESCRIPTION OF RATINGS

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, 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.

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.

Speculative grade

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

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

<PAGE>

Moody's Long-Term Debt Ratings

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.

<PAGE>

Fitch lnvestors Service, lnc. Bond Ratings

Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.

CC Bonds or preferred stock are minimally protected. Default in
payment of interest and/or principal seems probable over time.

C Bonds are in imminent default in payment of interest or
principal or suspension of preferred stock dividends is
imminent.

<PAGE>

Duff & Phelps, Inc. Long-Term Debt Ratings

Rating Scale Definition
-------------------------- ---------------------------------------------------

BB+ Below investment grade but deemed likely to meet obligations when due.
Present BB or prospective financial protection factors fluctuate according
to industry BB-conditions or company fortunes. Overall quality may move up
or down frequently within this category.
-------------------------- ---------------------------------------------------

B+ Below investment grade and possessing risk that obligations will not be met
B when due. Financial protection factors will fluctuate widely according to
B- economic cycles, industry conditions, and/or company fortunes. Potential
exists for frequent changes in the rating within this category or
into a higher or lower rating grade.
-------------------------- ---------------------------------------------------
CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of
principal, interest, or preferred dividends.
Protection factors are narrow and risk can be
substantial with unfavorable economic/industry
conditions, and or with unfavorable company
developments.
-------------------------- ---------------------------------------------------

DD Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.

DP Preferred stock with dividend arrearages.
-------------------------- ---------------------------------------------------
IBCA Long-Term Debt Ratings

B Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse
changes in business, economic, or financial conditions.

CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic, or financial conditions.

CC Obligations that are highly speculative or that have a high risk of default.

C Obligations that are currently in default.

<PAGE>

Thomson Bank Watch Long-Term Debt Ratings

Investment Grade

AAA (LC-AAA) Indicates that the ability to repay principal and interest
on a timely basis is extremely high.

AA (LC-AA) Indicates a very strong ability to repay principal
and interest on a timely basis, with limited incremental
risk compared to issues rated in the highest category.

Non-Investment Grade - may be speculative in the likelihood of timely repayment
of principal and interest.

CCC (LC-CCC) Issues rated CCC clearly have a high likelihood
of default, with little capacity to address further
adverse changes in financial circumstances.

CC (LC-CC) CC is applied to issues that are subordinate to other
obligations rated CCC and are afforded less protection in
the event of bankruptcy or reorganization.

D (LC-D) Default.

<PAGE>

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-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.

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.

Standard & Poor's Note Ratings

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

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

<PAGE>

Fitch Investors Service, Inc. Short-Term Ratings

The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.

F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.

F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F.

F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the
margin of safety is not as great as for issues assigned F-1+
and F-1 ratings.

D Default Issues assigned this rating are in actual or imminent
payment default.

LOC The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.

Duff & Phelps, Inc. Short-Term Debt Ratings

Rating Scale: Definition

High Grade

D-1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good
fundamental protection factors. Risk factors are
minor.

D-1- High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental
protection factors. Risk factors are very small.

Good Grade

Satisfactory Grade

D-3 Satisfactory liquidity and other protection factors
qualify issues as to investment grade. Risk factors
are larger and subject to more variation.
Nevertheless, timely payment is expected.

Non-Investment Grade

D-4 Speculative investment characteristics. Liquidity
is not sufficient to insure against disruption in
debt service. Operating factors and market access
may be subject to a high degree of variation.

Default

D-5 Issuer failed to meet scheduled principal and/or interest payments.

<PAGE>

Thomson BankWatch (TBW) Short-Term Ratings

TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.

TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated TBW- I.

TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

IBCA Short-Term Ratings

A1 Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit
feature, a rating of A1+ is assigned.

A2 Obligations supported by a good capacity for timely repayment.

A3 Obligations supported by a satisfactory capacity for timely
repayment.

B Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.

C Obligations for which there is a high risk of default or which are
currently in default.

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

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>

IDS Global Bond Fund

Prospectus
Dec. 30, 1998

IDS Global Bond Fund seeks to provide shareholders with high total return
through income and growth of capital.

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

<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
Sales Charges
Exchanging/Selling Shares

Distributions and Taxes

Personalized Shareholder Information

Master/Feeder Structure

About the Company

Quick Telephone Reference

Financial Highlights

FUND INFORMATION KEY

[icon of magnifying glass] Goal and Investment Strategy
The Fund's particular investment goal and
the strategies it intends to use in pursuing
its goal.

[icon of die] Risks
The major risk factors associated with the
Fund.

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

[icon of folder] Management
The individual or group designated by the
investment manager to handle the Fund's
day-to-day management.

[icon of umbrella] Master / Feeder Structure
Describes the Fund's investment structure.

[icon of stack of dollar bills] Financial Highlights
Tables showing the Fund's financial
performance.

<PAGE>

The Fund

Goal
IDS Global Bond Fund (the Fund) seeks to provide shareholders with high total
return through income and growth of capital. Because any investment involves
risk, achieving this goal cannot be guaranteed.

Investment Strategy
The Fund is a non-diversified mutual fund that invests primarily in debt
obligations of U.S. and foreign issuers. Under normal market conditions, at
least 80% of the Fund's net assets will be invested in investment-grade
corporate or government debt obligations including money market instruments of
issuers located in at least three different countries. Although the Fund
emphasized high and medium-quality debt securities, it will assume some credit
risk to achieve higher dividends and /or capital appreciation (by buying junk
bonds).

The selection of investment-grade government and corporate debt obligations is
the primary decision in building the portfolio.

American Express Financial Corporation (AEFC), the Fund's investment manager,
chooses investments by:

o Considering opportunities and risks by credit rating and currency.
o Identifying investment-grade U.S. and foreign bonds.
o Identifying below investment-grade U.S. and foreign bonds (junk bonds).
o Identifying bonds that can take advantage of currency movements and
interest rate differences among nations.

In evaluating whether to sell a security, AEFC considers, among other factors,
whether: -the security is overvalued, and -the security continues to meet the
standards described above.

AEFC closely monitors the Fund's exposure to foreign currency fluctuations. From
time to time, AEFC may purchase derivative instruments (such as options and
forward contracts) to hedge against currency fluctuations.

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

Risks
Please remember that with any mutual fund investment you may lose money. In
addition, since the Fund is a non-diversified mutual fund, it may concentrate
its investments in securities of fewer issuers than would a diversified fund.
Accordingly, the Fund may have more risk than mutual funds that have broader
diversification. Principal risks associated with an investment in the Fund
include:
Interest Rate Risk
Foreign Risk
Credit Risk

<PAGE>

Interest Rate Risk

The risk of losses attributable to changes in interest rates. This term is
generally associated with, but not limited to, bond prices (when interest rates
rise, bond prices fall).

Foreign Risk

The following are all components of foreign risk:

Credit Risk

Past Performance
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:

o how the Fund's performance has varied for each full calendar year that the
Fund has existed, and

o how the Fund's average annual total returns compare to other recognized
indexes.

How the Fund has performed in the past does not indicate how the Fund will
perform in the future.

Class A Performance (based on calendar years)
- ---------- ------- ----------- ----------- ---------- ----------- --------- ----

+12.91% +15.39% +8.14% +16.43% -4.92% +19.44% +7.78% +2.98%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- ---------- ------- ----------- ----------- ---------- ----------- --------- ----

<PAGE>

During the period shown in the bar chart, the highest return for a calendar
quarter was +7.96% (quarter ending December 1991) and the lowest return for a
calendar quarter was -4.49 % (quarter ending March 1994).

The 5% sales charge applicable to Class A shares of the Fund is not reflected in
the bar chart; if reflected, returns would be lower than those shown. The
performance for Class B and Class Y may vary from that shown above because of
differences in sales charges and fees.

The Fund's year to date return as of Sept. 30, 1998 was +4.57%.

*Inception date was May 20, 1989 (partial year).

Average Annual Total Returns (as of Dec. 31, 1997)
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C>
1 year Since inception 5 years Since inception (A)
(B&Y)

Global Bond:

Class A -2.17% - +6.87% +9.37%a

Class B -1.65% +7.51%b - -

Class Y +3.13% +9.08%b - -

Salomon Brothers
World Govt. Bond
Index
+.23% +4.01%C +7.46% +8.86%

Salomon Brothers
Global Govt. Bond
Composite Index
+9.65% +9.15%C +7.37% +9.23% d

Lipper Global Income +3.62% +16.42%c +7.57% +8.41%d
Fund Index

a Inception date was March 20, 1989.
b Inception date was March 20, 1995.
c Measurement period started April 1, 1995.
d Measurement period started April 1, 1989.
</TABLE>

This table shows total returns from hypothetical investments in Class A, Class B
and Class Y shares of the Fund. These returns are compared to the indexes shown
for the same periods. The performance of Classes A, B and Y vary because of
differences in sales charges and fees. Past performance for Class Y for the
periods prior to March 20, 1995 may be calculated based on the performance of
Class A, adjusted to reflect differences in sales charges, although not for
other differences in expenses.

For purposes of this calculation, we assumed:
o a sales charge of 5% for Class A shares,
o sales at the end of the period and deduction of the applicable contingent
deferred sales charge (CDSC) for Class B shares, o no sales charge for Class Y
shares, o conversion of Class B shares into Class A shares in the ninth calendar
year of ownership, and o no adjustments for taxes paid by an investor on the
reinvested income and capital gains.

<PAGE>

Salomon Brothers Global World Government Bond Index is an unmanaged
market-capitalization weighted benchmark that tracks the performance of the 17
government bond markets around the world. It is widely recognized by investors
as a measurement index for portfolios of world government bond securities. The
index reflects reinvestment of all distributions and changes in market prices,
but excludes brokerage commissions and other fees.

Salomon Brothers Global Government Bond Composite Index is an unmanaged index
that includes all government bond markets tracked by Salomon Brothers. The index
is a general measure of government bond performance. The bonds included in the
index may not be the same as those in the Fund. The index reflects reinvestment
of all distributions and changes in market prices, but excludes brokerage
commissions or other fees.

Lipper Global Income Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives.

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.

Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
<S> <C> <C> <C>

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

As a percentage of average daily net assets: Class A Class B Class Y
- ----------------------------------------------- -------------------- -------------------- -------------------
Management fees 0.74% 0.74% 0.74%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Distribution (12b-1) fees 0.00% 0.75% 0.00%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Other expensesc 0.42% 0.43% 0.35%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Total 1.16% 1.92% 1.09%
- ----------------------------------------------- -------------------- -------------------- -------------------

<PAGE>

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 Aa $612 $850 $1,107 $1,843
Class Bb $695 $1,003 $1,238 $2,050d
Class Bc $195 $603 $1,038 $2,050d
Class Y $111 $347 $602 $1,333

a Includes a 5% 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.

Management
The Fund's assets are invested in World Income Portfolio (the Portfolio), which
is managed by AEFC. Ray Goodner, vice president and senior portfolio manager,
joined AEFC in 1977. He has managed the assets of the Fund since 1989. He also
serves as portfolio manager of Quality Income Portfolio.

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 and Class Y, it is the NAV.

<PAGE>

Investment Options
1. Class A shares are sold to the public with a sales charge at the time of
purchase.

2. Class B shares are sold to the public with a CDSC and an annual distribution
(12b-1) fee.

3. 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:

Class A

Maximum sales charge of 5%

Initial sales charge waived or reduced for certain purchases

No annual distribution fee

Service fee of 0.175% of average daily net assets

Lower annual expenses than Class B shares

Class B

No initial sales charge

CDSC on shares sold in the first six years (maximum of 5% in first year, reduced
to 0% after year six)

CDSC waived in certain circumstances

Shares convert to Class A in ninth year of ownership

Annual distribution fee of 0.75% of average daily net assets*

Service fee of 0.175% of average daily net assets

Higher annual expenses than Class A shares

Class Y

No initial sales charge

No annual distribution fee

Service fee of 0.10% of average daily net assets

Available only to certain qualifying institutional investors

<PAGE>

Should you purchase Class A or Class B shares?

If your investments in IDS funds total $250,000 or more, Class A shares may be
the better option. If you qualify for a waiver of the sales charge, Class A
shares will be the best option.

Purchasing Shares
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.

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.

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 because you failed to report
required interest or dividends on your tax return.

<PAGE>

How to determine the correct TIN

Association, club or The organization
tax-exempt organization
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>

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 Financial Advisors Inc.
P.O. Box 74
Minneapolis, MN 55440-0074

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

<PAGE>

(2) By scheduled investment plan:

Minimum amounts
Initial investment: $100
Additional investments: $50/mo. for qualified accounts; $100/mo. for
nonqualified accounts
Account balances: none (on active plans of monthly payments)

If your account falls 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:

Norwest Bank Minnesota
Routing Transit No. 091000019

Give these instructions:
Credit American Express Financial Advisors Account #0000030015 for personal
account # (your account number) for (your name).

Minimum amounts
Each wire investment: $1,000

<PAGE>

- -------------------------------------------------------------------------------
Sales Charges

Class A -- initial sales charge alternative
When you purchase Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:

a To calculate the actual sales charge on an investment greater than $50,000
and less than $1,000,000, you must total the amounts of all increments that
apply.

b Offering price includes a 5% sales charge.

The sales charge on Class A shares may be lower than 5%, depending on the total
amount:

Other Class A sales charge policies:

o if you intend to invest $1 million over a period of 13 months, you can
reduce the sales charges in Class A by filing a letter of intent.
For more details, please see the SAI.

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

o current or retired board members, officers or employees of the Fund or AEFC
or its subsidiaries, their spouses, and unmarried children under 21.

o current or retired American Express financial advisors, their spouses, and
unmarried children under 21.

<PAGE>

o qualified employee benefit plans using a daily transfer recordkeeping
system offering participants daily access to funds of the IDS MUTUAL FUND
GROUP. Eligibility must be determined in advance by AEFA. 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 purchases made within 30 days after a sale of shares (up to the amount
sold):

- of a product distributed by AEFA 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 fund in the IDS MUTUAL FUND GROUP that has a sales
charge,

- through or under a wrap fee product sponsored by AEFA,

- 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,

- with the proceeds from IDS Life Real Estate Variable Annuity surrenders,
or

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

<PAGE>

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

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%

The CDSC on Class B shares will be waived on sales of shares:

<PAGE>

Exchanging/Selling Shares
Exchanges

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.

Selling Shares

You can sell your shares at any time. AECSC will mail payment within seven days
after accepting your request.

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

The Fund reserves the right to redeem in kind.

<PAGE>

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

Two ways to request an exchange or sale of shares

Regular mail:
American Express Client Service Corporation
Attn: Transactions
P.O. Box 534
Minneapolis, MN 55440-0534

Express mail:
American Express Client Service Corporation
Attn: Transactions
733 Marquette Ave.
Minneapolis, MN 55402

(2) By telephone:
American Express Financial Advisors
Telephone Transaction Service
800-437-3133 or
612-671-3800

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: $50,000

<PAGE>

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.

(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 IDS fund account.

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

Distributions and 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. Short-term capital gains are included in net investment income. Long-term
capital gains are realized when a security is held for more than one year. The
Fund offsets any net realized capital gains by any available capital loss
carryovers. 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:

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.

<PAGE>

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.

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.

Personalized Shareholder Information

To help you track and evaluate the performance of your investments, AECSC
provides these individualized reports:

Quarterly statements
List your holdings and transactions during the previous three months, as well as
individualized return information.

Yearly tax statements
Feature average-cost-basis reporting of capital gains or losses if you sell your
shares, along with distribution information to simplify tax calculations.

<PAGE>

Master/Feeder Structure
This Fund uses a master/feeder structure. This means that the Fund (a feeder
fund) invests all of its assets in the Portfolio (the master fund). Other feeder
funds also invest in the Portfolio. The master/feeder structure offers the
potential for reduced costs because it spreads fixed costs of portfolio
management over a larger pool of assets. The Fund may withdraw its assets from
the Portfolio at any time if the Fund's board determines that it is best. In
that event, the board would consider what action should be taken, including
whether to hire an investment advisor to manage the Fund's assets directly or to
invest all of the Fund's assets in another pooled investment entity. Here is an
illustration of the structure:

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

Investors buy shares in the Fund
- ---------------------------------------------

~/
- ---------------------------------------------

The Fund buys units in the Portfolio
- ---------------------------------------------

~/
- ---------------------------------------------

The Portfolio invests in securities, such
as stocks or bonds
- ---------------------------------------------

<PAGE>

About the Company
<TABLE>
<CAPTION>

Business Structure
<S> <C> <C> <C>
---------------------
Shareholders
---------------------

---------------------
Your American
Express financial
advisor and other
servicing agents

May receive a fee
for their sales
efforts and ongoing
service.
---------------------

- ----------------------- --------------------- --------------------- ---------------------
Transfer Agent: Administrative Distributor and
American Express Services Agent: Shareholder
Client Service American Express Services Agent:
Corporation Financial American Express
Corporation Financial Advisors
Maintains shareholder
accounts and records Provides The Fund Markets and
for the Fund; administrative and distributes shares;
receives a fee based accounting services The Fund receives portion of
on the number of for the Fund; invests sales charge or
accounts it services. receives a fee its CDSC and
based on assets. assets in distribution fee.
the Also provides a
Portfolio. variety of ongoing
The Fund shareholder
and/or services.
Portfolio
have
- ----------------------- --------------------- --------------------- ---------------------
Contracts
--------------------- --------------------- ---------------------
Investment Manager: with Custodian:
American Express certain American Express
Financial service Trust Company
Corporation providers.
Provides
Manages the The Portfolio safekeeping of
Portfolio's assets; receives a
investments and fee that varies
receives a fee based on the number
based on average of securities held.
daily net assets.*
--------------------- --------------------- ---------------------
</TABLE>

* The Portfolio pays AEFC a fee for managing its assets. The Fund pays its
proportionate share of the fee. Under the Investment Management Services
Agreement, the fee for the most recent fiscal year was 0.74% of its average
daily net assets. Under the Agreement, the Portfolio also pays taxes,
brokerage commissions and nonadvisory expenses.

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.

<PAGE>

AEFA serves individuals and businesses through its nationwide network of more
than 180 offices and more than 8,500 advisors.

<PAGE>

Year 2000
The Fund could be adversely affected if the computer systems used by AEFC and
the Fund's other service providers do not properly process and calculate
date-related information from and after Jan. 1, 2000.

Quick Telephone reference

American Express Client Service Corporation
Fund performance, objectives and account inquiries: 800-862-7919

TTY Service
For the hearing impaired: 800-846-4852

<PAGE>

financial highlights

IDS Global Bond

Performance
Financial Highlights

Fiscal period ended Oct. 31,
Per share income and capital changes(a)

Class A

1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, $6.26 $6.28 $6.11 $5.76 $6.27
beginning of period

Income from investment operations:

Net investment income (loss) .39 .35 .38 .35 .36

Net gains (losses) (both (.05) (.05) .18 .41 (.45)
realized and unrealized)

Total from investment operations .34 .30 .56 .76 (.09)
Less distributions:

Dividends from net (.29) (.28) (.39) (.33) (.35)
investment income

Distributions from (.14) (.04) -- (.02) (.07)
realized gains

Excess distributions of -- -- -- (.06) --
realized gains

Total distributions (.43) (.32) (.39) (.41) (.42)

Net asset value, end of period $6.17 $6.26 $6.28 $6.11 $5.76

Ratios/supplemental data
Class A

1998 1997 1996 1995 1994
Net assets, end of period $724 $748 $689 $548 $466
(in millions)

Ratio of expenses to 1.16% 1.16% 1.20% 1.25% 1.26%
average daily net assets(b)

Ratio of net investment income (loss) to 5.86% 5.74% 5.72% 6.15% 5.56%
to average daily net assets

Portfolio turnover rate 27% 55% 49% 92% 64%
(excluding short-term securities)

Total return(c) 5.52% 4.91% 8.96% 13.58% (1.46%)

a For a share outstanding throughout the period. Rounded to the nearest cent.
b Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
c Total return does not reflect payment of a sales charge.

</TABLE>

IDS Global Bond

Fiscal period ended Oct. 31,
Per share income and capital changes(a)
Class B Class Y

1998 1997 1996 1995b 1998 1997 1996f 1995b
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $6.26 $6.28 $6.11 $5.74 $6.26 $6.30 $6.11 $5.74
beginning of period

Income from investment operations:

Net investment income (loss) .33 .31 .33 .24 .40 .35 .29 .27

Net gains (losses) (.04) (.05) .18 .41 (.06) (.06) .20 .41
(both realized and unrealized)

Total from investment operations .29 .26 .51 .65 .34 .29 .49 .68
Less distributions:

Dividends from net investment income (.24) (.24) (.34) (.24) (.29) (.29) (.30) (.27)

Distributions from (.14) -- -- -- (.14) -- -- --
realized gains

Excess distributions of -- (.04) -- (.04) -- (.04) -- (.04)
realized gains

Total distributions (.38) (.28) (.34) (.28) (.43) (.33) (.30) (.31)

Net asset value, end of period $6.17 $6.26 $6.28 $6.11 $6.17 $6.26 $6.30 $6.11

Ratios/supplemental data
Class B Class Y

1998 1997 1996 1995b 1998 1997 1996f 1995b
Net assets, end of period $263 $231 $141 $37 $-- $-- $-- $2
(in millions)

Ratio of expenses to 1.92% 1.92% 1.96% 2.05%d 1.09% 1.01% 1.01% 1.10%d
average daily net assets(c)

Ratio of net investment income (loss) to 5.11% 5.00% 4.96% 5.88%d 6.10% 5.89% 6.06% 6.68%d
average daily net assets

Portfolio turnover rate 27% 55% 49% 92% 27%55% 49% 92%
(excluding short-term securities)

Total return(e) 4.73% 4.12% 8.15% 11.67% 5.62% 5.06% 7.35% 12.18%

a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was March 20, 1995.
c Effective fiscal year 1996, expense ratio is based on total expenses
of the Fund before reduction of earnings credits on cash balances .
d Adjusted to an annual basis.
e Total return does not reflect payment of a sales charge.
f Periods from Nov. 1, 1995 to Nov. 20, 1995 and from
Dec. 4, 1995 to Oct. 31, 1996. From Nov. 20, 1995 to Dec. 4, 1995 there
were no Class Y shares outstanding.

</TABLE>

<PAGE>

AMERICAN
EXPRESS
Financial
Advisors

Additional information about the Fund and its investments is available in the
Fund's SAI, annual and semiannual reports to shareholders. In the Fund's annual
report, you will find a discussion of market conditions and investment
strategies that significantly affected the Fund during its last fiscal year. The
SAI is incorporated by reference in this prospectus. For a free copy of the SAI,
the annual report or semiannual report contact American Express Client Service
Corporation.

American Express Client Service Corporation
P.O. Box 534, Minneapolis, MN 55440-0534
800-862-7919 TTY: 800-846-4852
Web site address:
http://www.americanexpress.com/advisors

Investment Company Act File #811-5696

Ticker Symbol
Class A: IGBFX Class B: IGLOX Class Y: n/a

<PAGE>

IDS GLOBAL SERIES, INC.

STATEMENT OF ADDITIONAL INFORMATION

FOR

IDS GLOBAL BOND FUND (the Fund)

Dec. 30, 1998

<PAGE>

TABLE OF CONTENTS

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

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

Investment Strategies and Types of Investments..........................p. 7

Information Regarding Risks and Investment Strategies...................p. 9

Security Transactions..................................... .............p. 32

Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation.................................p. 34

Performance Information................................................p. 34

Valuing Fund Shares....................................................p. 36

Investing in the Fund..................................................p. 37

Selling Shares.........................................................p. 40

Pay-out Plans..........................................................p. 41

Taxes..................................................................p. 42

Agreements.............................................................p. 44

Organizational Information.............................................p. 46

Board Members and Officers.............................................p. 48

Compensation for Board Members.........................................p. 51

Independent Auditors...................................................p. 51

Appendix: Description of Ratings......................................p. 52

<PAGE>

MUTUAL FUND CHECKLIST
- -------------------------------------------------------------------------------

|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

<PAGE>

Dollar-cost averaging:

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

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

The Fund pursues its investment objective by investing all of its assets in
World Income Portfolio (the Portfolio) of World Trust (the Trust), a separate
investment company, rather than by directly investing in and managing its own
portfolio of securities. The Portfolio has the same investment objectives,
policies, and restrictions as the Fund. References to "Fund" in this SAI, where
applicable, refer to the Fund and Portfolio, collectively, to the Fund,
singularly, or to the Portfolio, singularly.

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

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

o Make a loan of any part of its assets to American Express Financial
Corporation (AEFC), to the board members and officers of AEFC or to its own
board members and officers.

o Purchase securities of an issuer if the board members and officers of the
Fund and of AEFC hold more than a certain percentage of the issuer's
outstanding securities. If the holdings of all board members and officers
of the Fund and AEFC who own more than 0.5% of an issuer's securities are
added together, and if in total they own more than 5%, the Fund will not
purchase securities of that issuer.

<PAGE>

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

- -------------------------------------------------------------------------------
Investment strategies & types of investments: IDS Global Bond

Allowable for the Fund?

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Agency and Government Securities yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Borrowing yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cash/Money Market Instruments yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Collateralized Bond Obligations yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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) yes

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Illiquid and Restricted Securities yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Indexed Securities yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Inverse Floaters yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Investment Companies yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Lending of Portfolio Securities yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Loan Participations yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Mortgage- and Asset-Backed Securities yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Mortgage Dollar Rolls yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Municipal Obligations yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Preferred Stock yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Real Estate Investment Trusts yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Repurchase Agreements yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Reverse Repurchase Agreements yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Short Sales no
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Sovereign Debt yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 Under normal market conditions, at least 80% of the Fund's net assets will
be invested in investment-grade corporate or government debt securities
including money market instruments of issuers located in at least three
different countries.

o The Fund may not purchase debt securities rated lower than B by Moody's
Investors Service Inc. or the equivalent.

o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.

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

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

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

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

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

o Under normal market conditions, the Fund does not intend to commit more
than 5% of its total assets to when-issued securities or forward
commitments.

<PAGE>

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

RISKS

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."

Credit Risk

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:

<PAGE>

Inflation Risk

Interest Rate Risk

The risk of losses attributable to changes in interest rates. This term is
generally associated with, but not limited to, bond prices (when interest rates
rise, bond prices fall).

Issuer Risk

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

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

Market Risk

Reinvestment Risk

The risk that an investor will not be able to reinvest their income or principal
at the same rate as 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

<PAGE>

INVESTMENT STRATEGIES

Agency and Government Securities

Borrowing

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

<PAGE>

See the appendix for a discussion of securities ratings.

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

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; a 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

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

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.

Corporate Bonds

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.

<PAGE>

Debt Obligations

See the appendix for a discussion of securities ratings.

Depositary Receipts

Derivative Instruments

<PAGE>

Other Risks of Derivatives.

Derivatives are risky investments.

<PAGE>

(See also Foreign Currency Transactions.)

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

Foreign Currency Transactions

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.

<PAGE>

(See also Derivative Instruments and Foreign Securities.)

Foreign Securities

<PAGE>

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 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).

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)

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

<PAGE>

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.

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

Illiquid and Restricted Securities

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

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.

<PAGE>

Inverse Floaters

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

Investment Companies

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

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

Lending of Portfolio Securities

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

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.

<PAGE>

Mortgage- and Asset-Backed Securities

<PAGE>

Mortgage Dollar Rolls

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

Municipal Obligations

Municipal 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 in
frequently, 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.)

<PAGE>

Preferred Stock

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

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

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

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.

<PAGE>

Short Sales

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

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.

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

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.

<PAGE>

Variable- or Floating-Rate Securities

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

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

<PAGE>

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

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

<PAGE>

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

<PAGE>

The Fund paid total brokerage commissions of $4,200 for fiscal year ended Oct.
31, 1998, $1,457,733 for fiscal year 1997, and $1,884 for fiscal year 1996.
Substantially all firms through whom transactions were executed provide research
services.

No transactions were directed to brokers because of research services they
provided to the Fund.

Value of Securities
Name of Issuer owned at End of Fiscal Year
Salomon Smith Barney Holdings $10,454,130

The portfolio turnover rate was 27% in the most recent fiscal year, and 55% in
the year before.

<PAGE>

BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS FINANCIAL
CORPORATION
- -------------------------------------------------------------------------------

No brokerage commissions were paid to brokers affiliated with AEFC for the three
most recent fiscal years.

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

AVERAGE ANNUAL TOTAL RETURN

P(1+T)n = ERV

AGGREGATE TOTAL RETURN

ERV - P
P

<PAGE>

Annualized yield

The Fund may calculate an annualized yield for a class by dividing the net
investment income per share deemed earned during a 30-day period by the net
asset value per share on the last day of the period and annualizing the results.

Yield is calculated according to the following formula:

Yield = 2[(a-b + 1)6 - 1]
cd

where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period

The Fund's annualized yield was 5.84% for Class A, 5.36% for Class B and 6.22%
for Class Y for the 30-day period ended Oct. 30, 1998.

The Fund's yield, calculated as described above according to the formula
prescribed by the SEC, is a hypothetical return based on market value yield to
maturity for the Fund's securities. It is not necessarily indicative of the
amount which was or may be paid to the Fund's shareholders. Actual amounts paid
to Fund shareholders are reflected in the distribution yield.

Distribution yield

Distribution yield is calculated according to the following formula:

D divided by POPF equals DY
30 30

where: D = sum of dividends for 30-day period
POP = sum of public offering price for 30-day period
F = annualizing factor DY = distribution yield

The Fund's distribution yield was 1.10% for Class A, 0.39% for Class B and 1.26%
for Class Y for the 30-day period ended Oct. 30, 1998.

<PAGE>

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

<S> <C> <C> <C>
Class A $723,842,725 divided by 117,316,487 equals $6.17
Class B 263,143,867 42,648,925 6.17
Class Y 5,269 854 6.17
</TABLE>

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

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

<PAGE>

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

SALES CHARGE

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 and Class Y, there is no initial sales charge so the public offering
price is the same as the NAV. For Class A, the public offering price for an
investment of less than $50,000, made on the first business day following the
end of the fiscal year, was determined by dividing the NAV of one share, $6.17,
by 0.95 (1.00-0.05 for a maximum 5% sales charge) for a public offering price of
$6.49. The sales charge is paid to American Express Financial Advisors Inc.
(AEFA) by the person buying the shares.

Class A - Calculation of the Sales Charge

Sales charges are determined as follows:
<TABLE>
<CAPTION>

Within each
increment, sales
charge as a
percentage of:
------------------------------------------------------------
Public Net
Amount of Investment Offering Price Amount Invested
- -------------------- -------------- ---------------

<S> <C> <C> <C>
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
</TABLE>

<PAGE>

The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
<TABLE>
<CAPTION>

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

Class A - Letter of Intent (LOI)

<PAGE>

Class Y Shares

o Qualified employee benefit plans* if the plan:

- uses a daily transfer recordkeeping service offering participants
daily access to IDS funds and has

- at least $10 million in plan assets or

- 500 or more participants; or

- does not use daily transfer recordkeeping and has

- at least $3 million invested in funds of the IDS MUTUAL FUND GROUP or

- 500 or more participants.

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

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

SYSTEMATIC INVESTMENT PROGRAMS

AUTOMATIC DIRECTED DIVIDENDS

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

<PAGE>

REJECTION OF BUSINESS

The Fund 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.

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.

<PAGE>

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

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

Plan #2: Redemption of a fixed number of shares

Plan #3: Redemption of a fixed dollar amount

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

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

<PAGE>

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

For example:

<PAGE>

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

INVESTMENT MANAGEMENT SERVICES AGREEMENT

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 0.770%
Next 0.25 0.745
Next 0.25 0.720
Next 0.25 0.695
Over 1.00 0.670

On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.733% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made.

The management fee is paid monthly. Under the agreement, the total amount paid
was $7,213,154 for fiscal year 1998, $6,721,234 for fiscal year 1997, and
$5,290,110 for fiscal year 1996.

Under the agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for shares; office expenses;
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.
Under the agreement, nonadvisory expenses, net of earnings credits, paid by the
Fund were $473,653 for fiscal year 1998, $472,484 for fiscal year 1997, and
$619,623 for fiscal year 1996.

Administrative Services Agreement

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

Assets Annual rate
(billions) each asset level
- --------- ----------------
First $0.25 0.060%
Next 0.25 0.055
Next 0.25 0.050
Next 0.25 0.045
Over 1.00 0.040

On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.053% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made. Under the
agreement, the Fund paid fees of $518,656 for fiscal year 1998, $486,782 for
fiscal year 1997, and $390,216 for fiscal year 1996.

<PAGE>

Transfer Agency Agreement

The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC's responsibility for
administering and/or performing transfer agent functions, for acting as service
agent in connection with dividend and distribution functions and for performing
shareholder account administration agent functions in connection with the
issuance, exchange and redemption or repurchase of the Fund's shares. Under the
agreement, AECSC will earn a fee from the Fund determined by multiplying the
number of shareholder accounts at the end of the day by a rate determined for
each class per year and dividing by the number of days in the year. The rate for
Class A and Class Y is $15.50 per year and for Class B is $16.50 per year. The
fees paid to AECSC may be changed by the board without shareholder approval.

DISTRIBUTION AGREEMENT

AEFA 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 AEFA daily. These charges amounted to $2,365,200 for fiscal
year 1998. After paying commissions to personal financial advisors, and other
expenses, the amount retained was $111,991. The amounts were $2,918,500 and
$(281,383) for fiscal year 1997, and $3,361,422 and $(221,637) for fiscal year
1996.

SHAREHOLDER SERVICE AGREEMENT

PLAN AND AGREEMENT OF DISTRIBUTION

The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of board members who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting securities of the Fund's Class B shares or by AEFA. The Plan (or any
agreement related to it) will terminate in the event of its assignment, as that
term is defined in the 1940 Act. The Plan may not be amended to increase the
amount to be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of the board
members, including a majority of the board members who are not interested
persons of the Fund and who do not have a financial interest in the operation of
the Plan or any agreement related to it. The selection and nomination of
disinterested board members is the responsibility of the other disinterested
board members. No board member who is not an interested person, has any direct
or indirect financial interest in the operation of the Plan or any related

<PAGE>

agreement. For the most recent fiscal year, under the agreement, the Fund paid
fees of $1,855,094. The fee is not allocated to any one service (such as
advertising, payments to underwriters, or other uses). However, a significant
portion of the fee is generally used for sales and promotional expenses.

Custodian Agreement

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.

VOTING RIGHTS

Dividend Rights

<PAGE>

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

<PAGE>

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

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

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

Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.

Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W. Washington, D.C.

Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, and Union
Pacific Resources.

William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN

Senior advisor to the chief executive officer of AEFC.

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

President, chief executive officer and director of AEFC.

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

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

<PAGE>

Anne P. Jones'
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD

William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN

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

Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, PacifiCorp (electric power) and Biogen
(pharmaceuticals).

Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN

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

Senior vice president of AEFC.

Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN

Chairman, Whitney Management Company (manages family assets).

<PAGE>

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

The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.

In addition to Mr. Pearce, who is chairman of the board and Mr. Thomas, who is
president, the Fund's other officers are:

Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN

President of Board Services Corporation. Vice president, general counsel and
secretary for the Fund.

Officers who also are officers and employees of AEFC:

Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN

Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.

Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN

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

Stuart A. Sedlacek
Born in 1957
IDS Tower 10
Minneapolis, MN

Senior vice president and chief financial officer of AEFC since January 1998.
Vice president-assured assets of AEFC from 1994 to 1997. Treasurer for the Fund.

<PAGE>

COMPENSATION FOR BOARD MEMBERS
- -------------------------------------------------------------------------------

During the most recent fiscal year, the independent members of the Fund and
Portfolio boards, for attending up to 26 meetings, received the following
compensation:
<TABLE>
<CAPTION>

Compensation Table

Total cash compensation
------------------------ ------------------------- from the IDS MUTUAL
FUND GROUP and
Board member Aggregate compensation Aggregate compensation Preferred Master Trust
from the Fund from the Portfolio Group
<S> <C> <C> <C>
H. Brewster Atwater, Jr. $1,075 $1,275 $102,900
- -----------------------------
Lynne V. Cheney 887 1,099 93,900
- -----------------------------
Robert F. Froehlke 117 133 10,200
- -----------------------------
Heinz F. Hutter 1,050 1,250 101,400
- -----------------------------
Anne P. Jones 962 1,174 98,400
- -----------------------------
Alan K. Simpson 735 945 84,400
- -----------------------------
Edson W. Spencer 1,067 1,267 102,400
- -----------------------------
Wheelock Whitney 1,075 1,275 102,900
- -----------------------------
C. Angus Wurtele 1,125 1,325 105,900
</TABLE>

As of 30 days prior to the date of this SAI, the Fund's board members and
officers as a group owned less than 1% of the outstanding shares of any class.

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

<PAGE>

APPENDIX

DESCRIPTION OF RATINGS

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, 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.

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.

Speculative grade

<PAGE>

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

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

Moody's Long-Term Debt Ratings

<PAGE>

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.

Fitch Investors Service, Inc. Bond Ratings

Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.

<PAGE>

CC Bonds or preferred stock are minimally protected. Default in
payment of interest and/or principal seems probable over time.

<PAGE>

C Bonds are in imminent default in payment of interest or
principal or suspension of preferred stock dividends is
imminent.

Duff & Phelps, Inc. Long-Term Debt Ratings

Rating Scale Definition
-------------------------- ---------------------------------------------------

<PAGE>

BB+ Below investment grade but deemed likely to meet obligations when due.
Present BB or prospective financial protection factors fluctuate according to
industry BB- conditions or company fortunes. Overall quality may move up or down
frequently within this category.
- -----------------------------------------------------------------------------

CCC Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest, or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and or with unfavorable company developments.
- -------------------------- ---------------------------------------------------

DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.

DP Preferred stock with dividend arrearages.
-----------------------------------------------------------------------------

IBCA Long-Term Debt Ratings

<PAGE>

B Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse
changes in business, economic, or financial conditions.

CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic, or financial conditions.

CC Obligations that are highly speculative or that have a high risk of default.

C Obligations that are currently in default.

Thomson Bank Watch Long-Term Debt Ratings

Investment Grade

AAA (LC-AAA) Indicates that the ability to repay principal and interest
on a timely basis is extremely high.

AA (LC-AA) Indicates a very strong ability to repay principal
and interest on a timely basis, with limited incremental
risk compared to issues rated in the highest category.

Non-Investment Grade - may be speculative in the likelihood of timely repayment
of principal and interest.

CCC (LC-CCC) Issues rated CCC clearly have a high likelihood
of default, with little capacity to address further
adverse changes in financial circumstances.

CC (LC-CC) CC is applied to issues that are subordinate to other
obligations rated CCC and are afforded less protection in
the event of bankruptcy or reorganization.

D (LC-D) Default.

<PAGE>

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-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.

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.

Standard & Poor's Note Ratings

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.

<PAGE>

Moody's Short-Term Ratings

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

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

Fitch Investors Service, Inc. Short-Term Ratings

The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.

F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.

F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F.

F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the
margin of safety is not as great as for issues assigned F-1+
and F-1 ratings.

<PAGE>

D Default Issues assigned this rating are in actual or imminent
payment default.

LOC The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.

Duff & Phelps, Inc. Short-Term Debt Ratings

Rating Scale: Definition

High Grade

D-1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good
fundamental protection factors. Risk factors are
minor.

D-1- High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental
protection factors. Risk factors are very small.

Good Grade

Satisfactory Grade

D-3 Satisfactory liquidity and other protection factors
qualify issues as to investment grade. Risk factors
are larger and subject to more variation.
Nevertheless, timely payment is expected.

Non-Investment Grade

D-4 Speculative investment characteristics. Liquidity
is not sufficient to insure against disruption in
debt service. Operating factors and market access
may be subject to a high degree of variation.

Default

D-5 Issuer failed to meet scheduled principal and/or interest payments.

Thomson BankWatch (TBW) Short-Term Ratings

TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.

TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated TBW- I.

TBW-4 The lowest rating category; this rating is
regarded as non-investment grade and therefore
speculative.

IBCA Short-Term Ratings

A1 Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit
feature, a rating of A1+ is assigned.

A2 Obligations supported by a good capacity for timely repayment.

A3 Obligations supported by a satisfactory capacity for timely
repayment.
<PAGE>

B Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.

C Obligations for which there is a high risk of default or which
are currently in default.

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

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>

IDS Global Growth Fund

Prospectus
Dec. 30, 1998

IDS Global 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

<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
Sales Charges
Exchanging/Selling Shares

DISTRIBUTIONS AND TAXES

PERSONALIZED SHAREHOLDER INFORMATION

MASTER/FEEDER STRUCTURE

ABOUT THE COMPANY

QUICK TELEPHONE REFERENCE

FINANCIAL HIGHLIGHTS

FUND INFORMATION KEY

[icon of magnifying glass] Goal and Investment Strategy
The Fund's particular investment goal and
the strategies it intends to use in pursuing
its goal.

[icon of die] Risks
The major risk factors associated with the
Fund.

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

[icon of folder] Management
The individual or group designated by the
investment manager to handle the Fund's
day-to-day management.

[icon of umbrella] Master / Feeder Structure
Describes the Fund's investment structure.

[icon of stack of dollar bills] Financial Highlights
Tables showing the Fund's financial
performance.

<PAGE>

THE FUND

Goal
IDS Global 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 of companies
around the world that are positioned to meet market needs in a changing world
economy. These companies are located in developed and in emerging countries.
Under normal market conditions, at least 65% of the Fund's total assets are
invested in common stocks and convertible securities of companies located in at
least three different countries.

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

American Express Financial Corporation (AEFC), the Fund's investment manager,
chooses investments by:

o Identifying large companies around the world.
o Identifying companies with:
-financial strength,
-high demand for their products or services,
-competitive market position, and
-effective management.
o Considering opportunities and risks by country and currency.

AEFC decides how much to invest in various countries and then buys those
securities that offer the best opportunity for long-term growth.

In evaluating whether to sell a security, AEFC considers, among other factors,
whether: -the company has met growth expectations, and -the company or the
security continues to meet the standards described above.

AEFC closely monitors the Fund's exposure to foreign currency fluctuations. From
time to time, AEFC may purchase derivative instruments to hedge against currency
fluctuations.

The Fund also may invest in money market securities, debt securities, and other
instruments. During weak or declining markets or when growth opportunities are
unavailable, the Fund may invest more of its assets in these securities.
Although the Fund will invest in these securities primarily to avoid losses,
this type of investment also could reduce the benefit from any improvement in
the market. 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.

<PAGE>

Market Risk
Foreign/Emerging Markets Risk
Style Risk

Market Risk

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.

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

Style Risk

Past Performance
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:

o how the Fund's performance has varied for each full calendar year that the
Fund has existed, and

o how the Fund's average annual total returns compare to other recognized
indexes.

How the Fund has performed in the past does not indicate how the Fund will
perform in the future.

<PAGE>

Class A Performance (based on calendar years)
- -------------------------------------------------------------------------------

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

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

- -------------------------------------------------------------------------------
+13.85% -2.22% +39.13% -7.39% +6.36% +14.89% +7.18%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- -------------------------------------------------------------------------------

During the period shown in the bar chart, the highest return for a calendar
quarter was +12.82% (quarter ending December 1993) and the lowest return for a
calendar quarter was -9.69% (quarter ending December 1994).

The Fund's year to date return as of Sept. 30, 1998 was +4.09%.

Average Annual Total Returns (as of Dec. 31, 1997)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>

1 year Since inception 5 years Since inception (A)
(B&Y)

IDS Global Growth:

Class A +1.82% - +9.89% +6.76%a

Class B +2.36% +10.39%b - -

Class Y +7.29% +12.61%b - -

MSCI All Country +12.93% +13.58%c +12.96% +7.75%d
World Free Index

Lipper International +7.25% +10.00%c +13.28% +7.75%d
Fund Index

a Inception date was May 29, 1990.
b Inception date was March 20, 1995.
c Measurement period started April 1, 1995.
d Measurement period started June 1, 1990.
</TABLE>

<PAGE>

Morgan Stanley Capital International (MSCI) All Country World Free Index is an
unmanaged index compiled from a composite of securities markets of 47 countries,
including Canada, the United States and 26 emerging market countries. The index
reflects reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees.

Lipper International Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives.

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.

Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class A Class B Class Y

Maximum sales charge
(load) imposed on purchasesa
(as a percentage
of offering price) 5% none none
............................................... .................... .................... ...................
Maximum deferred sales
charge (load) imposed on
sales (as a percentage
of offering price at time of purchase) none 5% none
............................................... .................... .................... ...................

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

As a percentage of average daily net assets: Class A Class B Class Y
- ----------------------------------------------- -------------------- -------------------- -------------------
Management fees 0.75% 0.75% 0.75%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Distribution (12b-1) fees 0.00% 0.75% 0.00%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Other expensesc 0.47% 0.49% 0.40%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Total 1.22% 1.99% 1.15%
- ----------------------------------------------- -------------------- -------------------- -------------------

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 Aa $ 618 $ 868 $ 1,138 $ 1,908
Class Bb $ 702 $ 1,025 $ 1,274 $ 2,122d
Class Bc $ 202 $ 625 $ 1,074 $ 2,122d
Class Y $ 117 $ 366 $ 634 $ 1,402

<PAGE>

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

Management
The Fund's assets are invested in World Growth Portfolio (the Portfolio), which
is managed by AEFC and its London based subsidiary, American Express Asset
Management International Inc. John O'Brien, vice president and portfolio
manager, joined AEFC in 1988. He became portfolio manager of World Growth
Portfolio and IDS Life Series Fund, International Equity Portfolio in September
1997. He also is a member of the portfolio management team for Total Return
Portfolio.

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 and Class Y, it is the NAV.

Investment Options
1. Class A shares are sold to the public with a sales charge at the time of
purchase.

2. Class B shares are sold to the public with a CDSC and an annual distribution
(12b-1) fee.

3. 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:

Class A

Maximum sales charge of 5%

Initial sales charge waived or reduced for certain purchases

No annual distribution fee

Service fee of 0.175% of average daily net assets

Lower annual expenses than Class B shares

<PAGE>

Class B

No initial sales charge

CDSC on shares sold in the first six years (maximum of 5% in first year, reduced
to 0% after year six)

CDSC waived in certain circumstances

Shares convert to Class A in ninth year of ownership

Annual distribution fee of 0.75% of average daily net assets*

Service fee of 0.175% of average daily net assets

Higher annual expenses than Class A shares

Class Y

No initial sales charge

No annual distribution fee

Service fee of 0.10% of average daily net assets

Available only to certain qualifying institutional investors

Should you purchase Class A or Class B shares?

If your investments in IDS funds total $250,000 or more, Class A shares may be
the better option. If you qualify for a waiver of the sales charge, Class A
shares will be the best option.

<PAGE>

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.

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 because you failed to report
required interest or dividends on your tax return.

How to determine the correct TIN
<S> <C>

For this type of account: Use the Social Security or Employer Identification
number of:
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------

Association, club or The organization
tax-exempt organization
- ------------------------------------------------------- -----------------------------------------------------

<PAGE>

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 Financial Advisors Inc.
P.O. Box 74
Minneapolis, MN 55440-0074

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

(2) By scheduled investment plan:

Minimum amounts
Initial investment: $100
Additional investments: $50/mo. for qualified accounts; $100/mo. for
nonqualified accounts
Account balances: none (on active plans of monthly payments)

If your account falls 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:

Norwest Bank Minnesota
Routing Transit No. 091000019

Give these instructions:
Credit American Express Financial Advisors Account #0000030015 for personal
account # (your account number) for (your name).

<PAGE>

Minimum amounts
Each wire investment: $1,000

- -------------------------------------------------------------------------------
Sales Charges
Class A -- initial sales charge alternative

When you purchase Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:

a To calculate the actual sales charge on an investment greater than $50,000
and less than $1,000,000, you must total the amounts of all increments that
apply.

b Offering price includes a 5% sales charge.

The sales charge on Class A shares may be lower than 5%, depending on the total
amount:

Other Class A sales charge policies:

o if you intend to invest $1 million over a period of 13 months, you can
reduce the sales charges in Class A by filing a letter of intent.
For more details, please see the SAI.

<PAGE>

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

o current or retired board members, officers or employees of the Fund or AEFC
or its subsidiaries, their spouses, and unmarried children under 21.

o current or retired American Express financial advisors, their spouses,
and unmarried children under 21.

o qualified employee benefit plans using a daily transfer recordkeeping
system offering participants daily access to funds of the IDS MUTUAL FUND
GROUP. Eligibility must be determined in advance by AEFA. 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 purchases made within 30 days after a sale of shares (up to the amount
sold):

- of a product distributed by AEFA 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 fund in the IDS MUTUAL FUND GROUP that has a sales
charge,

- through or under a wrap fee product sponsored by AEFA,

- 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,

- with the proceeds from IDS Life Real Estate Variable Annuity surrenders,
or

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

<PAGE>

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

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%

The CDSC on Class B shares will be waived on sales of shares:

Exchanging/Selling Shares
Exchanges

<PAGE>

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.

Selling Shares

You can sell your shares at any time. AECSC will mail payment within seven days
after accepting your request.

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

The Fund reserves the right to redeem in kind.

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

<PAGE>

Two ways to request an exchange or sale of shares

Regular mail:
American Express Client Service Corporation
Attn: Transactions
P.O. Box 534
Minneapolis, MN 55440-0534

Express mail:
American Express Client Service Corporation
Attn: Transactions
733 Marquette Ave.
Minneapolis, MN 55402

(2) By telephone:
American Express Financial Advisors
Telephone Transaction Service
800-437-3133 or
612-671-3800

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, yourfinancial 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: $50,000

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 IDS 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

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

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.

<PAGE>

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.

PERSONALIZED SHAREHOLDER INFORMATION

To help you track and evaluate the performance of your investments, AECSC
provides these individualized reports:

Quarterly statements
List your holdings and transactions during the previous three months, as well as
individualized return information.

Yearly tax statements
Feature average-cost-basis reporting of capital gains or losses if you sell your
shares, along with distribution information to simplify tax calculations.

<PAGE>

MASTER/FEEDER STRUCTURE

This Fund uses a master/feeder structure. This means that the Fund (a feeder
fund) invests all of its assets in the Portfolio (the master fund). Other feeder
funds also invest in the Portfolio. The master/feeder structure offers the
potential for reduced costs because it spreads fixed costs of portfolio
management over a larger pool of assets. The Fund may withdraw its assets from
the Portfolio at any time if the Fund's board determines that it is best. In
that event, the board would consider what action should be taken, including
whether to hire an investment advisor to manage the Fund's assets directly or to
invest all of the Fund's assets in another pooled investment entity. Here is an
illustration of the structure:

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

Investors buy shares in the Fund
- ---------------------------------------------

~/
- ---------------------------------------------

The Fund buys units in the Portfolio
- ---------------------------------------------

~/
- ---------------------------------------------

The Portfolio invests in securities, such
as stocks or bonds
- ---------------------------------------------

<PAGE>

ABOUT THE COMPANY
<TABLE>
<CAPTION>
Business Structure
<S> <C> <C> <C>
---------------------
Shareholders
---------------------

---------------------
Your American
Express financial
advisor and other
servicing agents

May receive a fee
for their sales
efforts and ongoing
service.
---------------------

- ----------------------- --------------------- --------------------- ---------------------
Transfer Agent: Administrative Distributor and
American Express Services Agent: Shareholder
Client Service American Express Services Agent:
Corporation Financial American Express
Corporation Financial Advisors
Maintains shareholder
accounts and records Provides The Fund Markets and
for the Fund; administrative and distributes shares;
receives a fee based accounting services The Fund receives portion of
on the number of for the Fund; invests sales charge or
accounts it services. receives a fee its CDSC and
based on assets. assets in distribution fee.
the Also provides a
Portfolio. variety of ongoing
shareholder
services.
- ----------------------- --------------------- --------------------- ---------------------
The Fund
- ----------------------- --------------------- --------------------- ---------------------
Subadviser: Investment Manager: and/or Custodian:
American Express American Express the American Express
Asset Management Financial Portfolio Trust Company
International Inc. Corporation have
contracts Provides
Subadvises the Fund's Manages the with The Portfolio safekeeping of
assets.** Portfolio's certain assets; receives a
investments and service fee that varies
receives a fee providers. based on the number
based on average of securities held.
daily net assets.*
- ----------------------- --------------------- --------------------- ---------------------
</TABLE>

* The Portfolio pays AEFC a fee for managing its assets. The Fund pays its
proportionate share of the fee. Under the Investment Management Services
Agreement, the fee for the most recent fiscal year was 0.75% of its average
daily net assets. Under the Agreement, the Portfolio also pays taxes,
brokerage commissions and nonadvisory expenses.

** AEFC pays the Subadviser for managing the Fund's assets. The fee for the
most recent fiscal year was 0.35% of the Portfolio's average daily net
assets.

<PAGE>

AEFA serves individuals and businesses through its nationwide network of more
than 180 offices and more than 8,500 advisors.

QUICK TELEPHONE REFERENCE

American Express Client Service Corporation
Fund performance, objectives and account inquiries: 800-862-7919

TTY Service
For the hearing impaired: 800-846-4852

<PAGE>

FINANCIAL HIGHLIGHTS

IDS Global Growth

Performance
Financial highlights

Fiscal period ended October 31,
Per share income and capital changes(a)

Class A

1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, $6.90 $7.12 $6.37 $6.96 $6.30
beginning of period

Income from investment operations:

Net investment income (loss) .02 .03 .08 .10 .04

Net gains (losses) (both 1.12 .39 .83 (.59) .73
realized and unrealized)

Total from investment operations 1.14 .42 .91 (.49) .77

Less distributions:

Dividends from net investment (.06) (.22) (.13) (.05) (.02)
income

Distributions from realized gains (.18) (.42) (.03) (.05) (.09)

Total distributions (.24) (.64) (.16) (.10) (.11)

Net asset value, $7.80 $6.90 $7.12 $6.37 $6.96
end of period

Ratios/supplemental data
Class A

1998 1997 1996 1995 1994
Net assets, end of $962 $889 $908 $659 $670
period (in millions)

Ratio of expenses to 1.22% 1.27% 1.37% 1.39% 1.38%
average daily net assets(b)

Ratio of net income (loss) to .35% .60% 1.45% 1.59% .85%
average daily net assets

Portfolio turnover rate (excluding 80% 199% 134% 90% 26%
short-term securities)

Total return(c) 17.00% 6.22% 14.51% (6.99%) 12.11%

</TABLE>

IDS Global Growth

Performance
Financial highlights

Fiscal period ended October 31,
Per share income and capital changes(a)

Class B Class Y

1998 1997 1996 1995b 1998 1997 1996 1995b
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $6.79 $7.05 $6.34 $5.82 $6.91 $7.13 $6.38 $5.82
beginning of period

Income from investment operations:

Net investment income (loss) .01 -- .05 .02 .02 .03 .09 .06

Net gains (losses) on securities 1.07 .35 .81 .50 1.13 .40 .83 .50
(both realized and unrealized)

Total from investment operations 1.08 .35 .86 .52 1.15 .43 .92 .56

Less distributions:

Dividends from net (.01) (.19) (.12) -- (.07) (.23) (.14) --
investment income

Distributions from realized gains (.18) (.42) (.03) -- (.18) (.42) (.03) --

Total distributions (.19) (.61) (.15) -- (.25) (.65) (.17) --

Net asset value, $7.68 $6.79 $7.05 $6.34 $7.81 $6.91 $7.13 $6.38
end of period

Ratios/supplemental data

Class B Class Y

1998 1997 1996 1995b 1998 1997 1996 1995b
Net assets, end of $295 $222 $146 $21 $23 $21 $19 $24
period (in millions)

Ratio of expenses to 1.99% 2.03% 2.14% 2.16%d 1.15% 1.15% 1.19% 1.20%d
average daily net assets(c)

Ratio of net income (loss) to (.40%) (.18%) 1.05% .85% d .41% .72% 1.60% 2.37%d
average daily net assets

Portfolio turnover rate (excluding 80% 199% 134% 90% 80% 199% 134% 90%
short-term securities)

Total return(e) 16.1% 5.5% 13.6% 8.9% 17.1% 6.3% 14.7% 9.6%

</TABLE>

<PAGE>

AMERICAN
EXPRESS
Financial
Advisors

American Express Client Service Corporation
P.O. Box 534, Minneapolis, MN 55440-0534
800-862-7919 TTY: 800-846-4852
Web site address:
http://www.americanexpress.com/advisors

Investment Company Act File #811-5696

Ticker Symbol
Class A: IGLGX Class B: IDGBX Class Y: IDGYX

<PAGE>

IDS GLOBAL SERIES, INC.

STATEMENT OF ADDITIONAL INFORMATION

FOR

IDS GLOBAL GROWTH FUND (the Fund)

Dec. 30, 1998

<PAGE>

TABLE OF CONTENTS

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

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

Investment Strategies and Types of Investments.....................p. 7

Information Regarding Risks and Investment Strategies..............p. 9

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

Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation............................p. 33

Performance Information...........................................p. 33

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

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

Selling Shares....................................................p. 38

Pay-out Plans.....................................................p. 39

Taxes.............................................................p. 40

Agreements........................................................p. 42

Organizational Information........................................p. 45

Board Members and Officers........................................p. 47

Compensation for Board Members....................................p. 50

Independent Auditors..............................................p. 50

Appendix: Description of Ratings.................................p. 51

<PAGE>

MUTUAL FUND CHECKLIST
- -------------------------------------------------------------------------------

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

|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

<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

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

The Fund pursues its investment objective by investing all of its assets in
World Growth Portfolio (the Portfolio) of World Trust (the Trust), a separate
investment company, rather than by directly investing in and managing its own
portfolio of securities. The Portfolio has the same investment objectives,
policies, and restrictions as the Fund. References to "Fund" in this SAI, where
applicable, refer to the Fund and Portfolio, collectively, to the Fund,
singularly, or to the Portfolio, singularly.

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

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

o Make a loan of any part of its assets to American Express Financial
Corporation (AEFC), to the board members and officers of AEFC or to its own
board members and officers.

<PAGE>

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

- -------------------------------------------------------------------------------
Investment strategies & types of investments: IDS Global Growth

allowable for the Fund?

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Agency and Government Securities yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Borrowing yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cash/Money Market Instruments yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Collateralized Bond Obligations yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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) yes

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Illiquid and Restricted Securities yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Indexed Securities yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Inverse Floaters no
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Investment Companies yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Lending of Portfolio Securities yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Loan Participations yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Mortgage- and Asset-Backed Securities yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 yes
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 Under normal market conditions, at least 65% of the Fund's total assets
will be invested in common stocks and convertible securities of companies
in at least three different countries.

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

o The Fund will not invest more than 5% of its net assets in bonds below
investment grade, including Brady bonds.

o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.

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

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

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

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

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

o Under normal market conditions, the Fund does not intend to commit more
than 5% of its total assets to when-issued securities or forward
commitments.

<PAGE>

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

RISKS

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."

Credit Risk

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:

<PAGE>

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

Inflation Risk

Interest Rate Risk

The risk of losses attributable to changes in interest rates. This term is
generally associated with, but not limited to, bond prices (when interest rates
rise, bond prices fall).

Issuer Risk

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

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

Market Risk

Reinvestment Risk

The risk that an investor will not be able to reinvest their income or principal
at the same rate as 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

<PAGE>

INVESTMENT STRATEGIES

Agency and Government Securities

Borrowing

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

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

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

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

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

Convertible Securities

<PAGE>

Corporate Bonds

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.

Debt Obligations

<PAGE>

See the appendix for a discussion of securities ratings.

Depositary Receipts

Derivative Instruments

<PAGE>

contract is closed out, a nominal commission is paid, which is generally lower
than the commission on a comparable transaction in the cash market.

<PAGE>

Other Risks of Derivatives.

Derivatives are risky investments.

(See also Foreign Currency Transactions.)

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

<PAGE>

Foreign Currency Transactions

<PAGE>

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.

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.

<PAGE>

(See also Derivative Instruments and Foreign Securities.)

Foreign Securities

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.

<PAGE>

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

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

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

<PAGE>

Illiquid and Restricted Securities

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

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

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

Investment Companies

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

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

Lending of Portfolio Securities

<PAGE>

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

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

<PAGE>

Mortgage Dollar Rolls

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

Municipal Obligations

<PAGE>

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.

Preferred Stock

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

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.

<PAGE>

Repurchase Agreements

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

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

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

<PAGE>

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.

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

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

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.

<PAGE>

Warrants

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

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

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

<PAGE>

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

<PAGE>

able to offer. As a result of this arrangement, some portfolio transactions may
not be effected at the lowest commission, but AEFC believes it may obtain better
overall execution. AEFC has represented that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.

The Fund paid total brokerage commissions of $3,420,465 for fiscal year ended
Oct. 31, 1998, $8,099,200 for fiscal year 1997, and $9,806 for fiscal year 1996.
Substantially all firms through whom transactions were executed provide research
services.

No transactions were directed to brokers because of research services they
provided to the Fund] [except for the affiliates as noted below.

Value of Securities
Name of Issuer owned at End of Fiscal Year
Bank of America $17,914,827
BankBoston 5,845,825

The portfolio turnover rate was 80% in the most recent fiscal year, and 199% in
the year before. Higher turnover rates may result in higher brokerage expenses.

<PAGE>

BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS FINANCIAL
CORPORATION
- -------------------------------------------------------------------------------

Information about brokerage commissions paid by the Fund for the last three
fiscal years to brokers affiliated with AEFC is contained in the following
table:
<TABLE>
<CAPTION>

As of the end of Fiscal Year,

1998 1997 1996

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

Percent of
--------------- --------------- -------------- Aggregate --------------- --------------
Dollar Amount
of
Aggregate Percent of Transactions Aggregate Aggregate
Dollar amount Aggregate Involving Dollar Amount Dollar Amount
Broker Nature of of Commissions Brokerage Payment of of Commissions of
Affiliation Paid to Broker Commissions Commissions Paid to Broker Commissions
Paid to Broker
<S> <C> <C> <C> <C> <C> <C>

American Wholly-owned None None None $61,457 $9,806
Enterprise subsidiary of
Investment AEFC
Services Inc.
- ------------------
</TABLE>

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

AVERAGE ANNUAL TOTAL RETURN

P(1+T)n = ERV

<PAGE>

AGGREGATE TOTAL RETURN

ERV - P
P

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

Class A $981,437,871 divided by 123,296,215 equals $7.96
Class B 300,768,841 38,412,368 7.83
Class Y 23,045,991 2,895,225 7.96
</TABLE>

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

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

<PAGE>

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

SALES CHARGE

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 and Class Y, there is no initial sales charge so the public offering
price is the same as the NAV. For Class A, the public offering price for an
investment of less than $50,000, made on the first business day following the
end of the fiscal year, was determined by dividing the NAV of one share, $7.96,
by 0.95 (1.00-0.05 for a maximum 5% sales charge) for a public offering price of
$8.38. The sales charge is paid to American Express Financial Advisors Inc.
(AEFA) by the person buying the shares.

Class A - Calculation of the Sales Charge

<S> <C> <C> <C>
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
</TABLE>

<PAGE>

The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
<TABLE>
<CAPTION>

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

<PAGE>

Class A - Letter of Intent (LOI)

Class Y Shares

o Qualified employee benefit plans* if the plan:

- uses a daily transfer recordkeeping service offering participants
daily access to IDS funds and has

- at least $10 million in plan assets or

- 500 or more participants; or

- does not use daily transfer recordkeeping and has

- at least $3 million invested in funds of the IDS MUTUAL FUND GROUP or

- 500 or more participants.

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

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

SYSTEMATIC INVESTMENT PROGRAMS

<PAGE>

AUTOMATIC DIRECTED DIVIDENDS

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

REJECTION OF BUSINESS

The Fund 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.

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.

<PAGE>

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

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

Plan #2: Redemption of a fixed number of shares

Plan #3: Redemption of a fixed dollar amount

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

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

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

For example:

<PAGE>

Net investment income dividends received should be treated as dividend income
for federal income tax purposes. Corporate shareholders are generally entitled
to a deduction equal to 70% of that portion of the Fund's dividend that is
attributable to dividends the Fund received from domestic (U.S.) securities. For
the most recent fiscal year, 59.46% of the Fund's net investment income
dividends qualified for the corporate deduction.

<PAGE>

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

INVESTMENT MANAGEMENT SERVICES AGREEMENT

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 0.800%
Next 0.25 0.775
Next 0.25 0.750
Next 0.25 0.725
Next 1.00 0.700
Over 2.00 0.675

On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.749% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made.

The management fee is paid monthly. Under the agreement, the total amount paid
was $9,358,529 for fiscal year 1998, $8,978,698 for fiscal year 1997, and
$6,884,604 for fiscal year 1996.

Under the agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for shares; office expenses;
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.
Under the agreement, nonadvisory expenses, net of earnings credits, paid by the
Fund were $792,525 for fiscal year 1998, $1,108,312 for fiscal year 1997, and
$1,533,786 for fiscal year 1996.

<PAGE>

Sub-Investment Adviser:

Under the agreement, the Sub-Adviser receives an annual fee of 0.35% of daily
net assets.

Under the agreement, the total amount paid was $4,376,746 for fiscal year 1998,
and $737,407 for fiscal year 1997.

Administrative Services Agreement

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

Assets Annual rate
(billions) each asset level
- --------- ----------------
First $0.25 0.060%
Next 0.25 0.055
Next 0.25 0.050
Next 0.25 0.045
Next 1.00 0.040
Over 2.00 0.035

On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.050% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made. Under the
agreement, the Fund paid fees of $627,858 for fiscal year 1998, $605,640 for
fiscal year 1997, and $478,154 for fiscal year 1996.

Transfer Agency Agreement

<PAGE>

DISTRIBUTION AGREEMENT

AEFA 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 AEFA daily. These charges amounted to $2,918,485 for fiscal
year 1998. After paying commissions to personal financial advisors, and other
expenses, the amount retained was $256,693. The amounts were $3,122,730 and
$215,192 for fiscal year 1997, and $4,775,013 and $63,372 for fiscal year 1996.

SHAREHOLDER SERVICE AGREEMENT

PLAN AND AGREEMENT OF DISTRIBUTION

Custodian Agreement

<PAGE>

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.

VOTING RIGHTS

Dividend Rights

<PAGE>

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

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

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

Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.

Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W. Washington, D.C.

Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, and Union
Pacific Resources.

William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN

Senior advisor to the chief executive officer of AEFC.

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

President, chief executive officer and director of AEFC.

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

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

<PAGE>

Anne P. Jones'
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD

William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN

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

Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, PacifiCorp (electric power) and Biogen
(pharmaceuticals).

Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN

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

Senior vice president of AEFC.

Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN

Chairman, Whitney Management Company (manages family assets).

<PAGE>

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

The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.

In addition to Mr. Pearce, who is chairman of the board and Mr. Thomas, who is
president, the Fund's other officers are:

Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN

President of Board Services Corporation. Vice president, general counsel and
secretary for the Fund.

Officers who also are officers and employees of AEFC:

Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN

Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.

Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN

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

Stuart A. Sedlacek
Born in 1957
IDS Tower 10
Minneapolis, MN

Senior vice president and chief financial officer of AEFC since January 1998.
Vice president - assured assets of AEFC from 1994 to 1997. Treasurer for the
Fund.

COMPENSATION FOR BOARD MEMBERS
- -------------------------------------------------------------------------------

During the most recent fiscal year, the independent members of the Fund and
Portfolio boards, for attending up to 26 meetings, received the following
compensation:

Compensation Table

H. Brewster Atwater, Jr. $1,075 $1,308 $102,900
- -----------------------------
Lynne V. Cheney 887 1,134 93,900
- -----------------------------
Robert F. Froehlke 117 150 10,200
- -----------------------------
Heinz F. Hutter 1,050 1,283 101,400
- -----------------------------
Anne P. Jones 962 1,207 98,400
- -----------------------------
Alan K. Simpson 735 978 84,400
- -----------------------------
Edson W. Spencer 1,067 1,300 102,400
- -----------------------------
Wheelock Whitney 1,075 1,308 102,900
- -----------------------------
C. Angus Wurtele 1,125 1,358 105,900
</TABLE>

As of 30 days prior to the date of this SAI, the Fund's board members and
officers as a group owned less than 1% of the outstanding shares of any class.

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

<PAGE>

APPENDIX

DESCRIPTION OF RATINGS

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, 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.

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.

Speculative grade

<PAGE>

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

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

Moody's Long-Term Debt Ratings

<PAGE>

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.

Fitch lnvestors Service, lnc. Bond Ratings

Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.

<PAGE>

CC Bonds or preferred stock are minimally protected. Default in
payment of interest and/or principal seems probable over time.

C Bonds are in imminent default in payment of interest or
principal or suspension of preferred stock dividends is
imminent.

<PAGE>

Duff & Phelps, Inc. Long-Term Debt Ratings

Rating Scale Definition
-------------------------- ---------------------------------------------------

BB+ Below investment grade but deemed likely to meet obligations when due.
Present BB or prospective financial protection factors fluctuate according to
industry BB- conditions or company fortunes. Overall quality may move up or down
frequently within this category. --------------------------
- ---------------------------------------------------

CCC Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest, or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and or with unfavorable company developments.
- --------------------------
- --------------------------------------------------------------------------------

DD Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.

DP Preferred stock with dividend arrearages.
-------------------------- ---------------------------------------------------

IBCA Long-Term Debt Ratings

B Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse
changes in business, economic, or financial conditions.

CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic, or financial conditions.

CC Obligations that are highly speculative or that have a high risk of default.

C Obligations that are currently in default.

<PAGE>

Thomson Bank Watch Long-Term Debt Ratings

Investment Grade

AAA (LC-AAA) Indicates that the ability to repay principal and interest
on a timely basis is extremely high.

AA (LC-AA) Indicates a very strong ability to repay principal
and interest on a timely basis, with limited incremental
risk compared to issues rated in the highest category.

Non-Investment Grade - may be speculative in the likelihood of timely repayment
of principal and interest.

CCC (LC-CCC) Issues rated CCC clearly have a high likelihood
of default, with little capacity to address further
adverse changes in financial circumstances.

CC (LC-CC) CC is applied to issues that are subordinate to other
obligations rated CCC and are afforded less protection in
the event of bankruptcy or reorganization.

D (LC-D) Default.

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:

<PAGE>

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.

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.

Standard & Poor's Note Ratings

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

<PAGE>
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 Not Prime do not fall within any of the Prime rating
categories.

Fitch Investors Service, Inc. Short-Term Ratings

The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.

F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.

F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F.

F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the
margin of safety is not as great as for issues assigned F-1+
and F-1 ratings.

D Default Issues assigned this rating are in actual or imminent
payment default.

LOC The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.

<PAGE>

Duff & Phelps, Inc. Short-Term Debt Ratings

Rating Scale: Definition

High Grade

D-1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good
fundamental protection factors. Risk factors are
minor.

D-1- High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental
protection factors. Risk factors are very small.

Good Grade

Satisfactory Grade

D-3 Satisfactory liquidity and other protection factors
qualify issues as to investment grade. Risk factors
are larger and subject to more variation.
Nevertheless, timely payment is expected.

Non-Investment Grade

D-4 Speculative investment characteristics. Liquidity
is not sufficient to insure against disruption in
debt service. Operating factors and market access
may be subject to a high degree of variation.

Default

D-5 Issuer failed to meet scheduled principal and/or interest payments.

<PAGE>

Thomson BankWatch (TBW) Short-Term Ratings

TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.

TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated TBW- I.

TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

IBCA Short-Term Ratings

A1 Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit
feature, a rating of A1+ is assigned.

A2 Obligations supported by a good capacity for timely repayment.

A3 Obligations supported by a satisfactory capacity for timely
repayment.

B Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.

C Obligations for which there is a high risk of default or which are
currently in default.

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

<PAGE>

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>

IDS Innovations Fund

Prospectus
Dec. 30, 1998

IDS Innovations 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

<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
Sales Charges
Exchanging/Selling Shares

Distributions and Taxes

Personalized Shareholder Information

Master/Feeder Structure

About the Company

Quick Telephone Reference

Financial Highlights

FUND INFORMATION KEY

[icon of magnifying glass] Goal and Investment Strategy
The Fund's particular investment goal and
the strategies it intends to use in pursuing
its goal.

[icon of die] Risks
The major risk factors associated with the
Fund.

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

[icon of folder] Management
The individual or group designated by the
investment manager to handle the Fund's
day-to-day management.

[icon of umbrella] Master / Feeder Structure
Describes the Fund's investment structure.

[icon of stack of dollar bills] Financial Highlights
Tables showing the Fund's financial
performance.

<PAGE>

The Fund

Goal
IDS Innovations 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 of companies in
the information technology sector. Under normal market conditions, at least 65%
of the Fund's total assets are invested in companies in this sector. Investments
will be in at least three different countries.

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

American Express Financial Corporation (AEFC), the Fund's investment manager,
chooses investments by:

o Identifying companies that AEFC believes to be principally engaged in the
development, advancement, production, and/or use of products or services
related to information processing, data processing, and/or information
presentation.
o Identifying companies with:
-high demand for their products and/or services, -competitive market
position, and -effective management.
o Considering opportunities and risks within the technology,
telecommunications, and media sectors.

In evaluating whether to sell a security, AEFC considers, among other factors,
whether: -the security is overvalued, -the company or the security
continues to meet the standards described above, -the company meets
earnings expectations, and -the company's industry experiences a broad
down-turn.

The Fund also may invest in money market securities, debt securities, and other
instruments. During weak or declining markets or when growth opportunities are
unavailable, the Fund may invest more of its assets in these securities.
Although the Fund will invest in these securities primarily to avoid losses,
this type of investing also could reduce the benefit from any improvement in the
market. 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
Sector/Concentration Risk
Style Risk

<PAGE>

Market Risk

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).

Style Risk

Past Performance
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:

o how the Fund's performance has varied for each full calendar year that the
Fund has existed,

o how the Fund's average annual total returns compare to other recognized
indexes.

How the Fund has performed in the past does not indicate how the Fund will
perform in the future.
<TABLE>
<CAPTION>

Performance (based on calendar years)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
+7.56%
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

During the period shown in the bar chart, the highest return for a calendar
quarter was 22.97% (quarter ending June 1997) and the lowest return for a
calendar quarter was -21.19% (quarter ending March 1997).

The 5% sales charge applicable to Class A shares of the Fund is not reflected in
the bar chart; if reflected, returns would be lower than those shown.

The Fund's year to date return as of Sept. 30, 1998 was -4.13%.

<PAGE>

Average Annual Total Returns (as of Dec. 31, 1997)

1 year Since inception

Innovations:

Class A +2.22% +.76a

Class B +2.76% +1.06a

Class Y +7.56% +5.36a

S&P 500 +33.36% +27.71b

Lipper Science and +7.84% +5.54b
Technology Funds
Index

a Inception date was Nov. 13, 1990.
b Measurement period started Dec. 1, 1996.

Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of common stocks,
is frequently used as a general measure of market performance. This index
reflects reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees.

Lipper Science and Technology Funds Index, an unmanaged index published by
Lipper Analytical Services, Inc., includes 10 funds that are generally similar
to the Fund, although some funds in the index may have somewhat different
investment policies or objectives.

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.

Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>

Class A Class B Class Y
<S> <C> <C> <C>
Maximum sales charge
(load) imposed on purchasesa
(as percentage
of offering price) 5% none none
............................................... .................... .................... ...................
Maximum deferred sales
charge (load) imposed on
sales (as percentage
of offering price at time of purchase) none 5% none
............................................... .................... .................... ...................
</TABLE>

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

As a percentage of average daily net assets: Class A Class B Class Y
- ----------------------------------------------- -------------------- -------------------- -------------------

<S> <C> <C> <C>
Management fees 0.72% 0.72% 0.72%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Distribution (12b-1) fees 0.00% 0.75% 0.00%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Other expensesc 0.91% 0.91% 0.91%
- ----------------------------------------------- -------------------- -------------------- -------------------
- ----------------------------------------------- -------------------- -------------------- -------------------
Totald 1.63% 2.38% 1.63%
- ----------------------------------------------- -------------------- -------------------- -------------------
</TABLE>

a This charge may be reduced depending on your total investments in IDS
funds. See "Sales Charges."
b Both in this table and the following example fund operating expenses
include expenses charged by both the Fund and its Master Portfolio as
described under "Management".
c Other expenses include an administrative services fee, a shareholder
services fee, a transfer agency fee and other nonadvisory expenses.
d AEFC and American Express Financial Advisors Inc. agreed to waive certain
fees and reimburse expenses, with the exception of 12b-1 fees, to the
extent that total expenses for Class A shares exceed 1.35% for a minimum
period ending Oct. 31, 1999. Any waiver or reimbursement applies to each
class on a pro rata basis. For the most recent fiscal year, actual total
expenses with fee waivers and expense reimbursements were 1.33% for Class
A, 2.08% for Class B and 1.33% for Class Y.

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 Aa $657 $989 $1,343 $2,341
Class Bb $741 $1,143 $1,471 $2,534d
Class Bc $241 $743 $1,271 $2,534d
Class Y $166 $514 $888 $1,938

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

Portfolio manager
The Fund's assets are invested in World Technologies Portfolio (the Portfolio),
which is managed by AEFC. Louis Giglio, portfolio manager, joined AEFC in
January 1994 as a senior equity analyst. He has managed the assets of the
Portfolio since November 1996. He also serves as portfolio manager of IDS
Strategy Aggressive Fund and IDS Life Series Fund, Equity Portfolio. Prior to
joining AEFC he had eight years of experience as a financial analyst with Bear,
Stearns & Co. Inc. covering the microcomputer software and computer services
industries.

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 and Class Y, it is the NAV.

<PAGE>

The Fund's investments are valued based on market value, or where market
quotations are not readily available on methods selected in good faith by the
board. Because the Fund invests 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.