PROSPECTUS SUPPLEMENT -- July 10, 2003*

AXP(R) Diversified Bond Fund (formerly AXP Bond Fund) (Oct. 30, 2002)
S-6495-99 V

The "Principal Investment Strategies" and "Principal Risks" sections are revised
to state:

PRINCIPAL INVESTMENT STRATEGIES

Under normal market conditions, at least 80% of the Fund's net assets will be
invested in bonds. Of that 80%, at least 50% will be invested in
intermediate-term investment grade securities that comprise the Lehman Brothers
Aggregate Bond Index. The Index includes securities issued by the U.S.
government, corporate bonds, and mortgage- and asset-backed securities. Although
the Fund emphasizes high- and medium-quality debt securities, it will assume
some credit risk to achieve higher yield and/or capital appreciation by buying
lower-quality (junk) bonds. The Fund may invest up to 15% in foreign
investments, which may include investments in emerging markets. The Fund will
provide shareholders with at least 60 days' notice of any change in the 80%
policy.

The selection of debt obligations is the primary decision in building the
investment portfolio. In pursuit of the Fund's goal, American Express Financial
Corporation (AEFC), the Fund's investment manager, chooses investments by:

o    Evaluating the portfolio's total exposure to the sector, industry and
     security relative to the Index.

o    Analyzing factors such as credit quality, interest rate outlook and price
     to select securities within each sector.

o    Investing in lower-quality (junk) bonds and foreign investments as
     opportunities permit.

o    Targeting an average portfolio duration of 4-6 years. Duration measures the
     sensitivity of bond prices to changes in interest rates. The longer the
     duration of a bond, the longer it will take to repay the principal and
     interest obligations and the more sensitive it will be to changes in
     interest rates. For example, a 5 year duration means a bond is expected to
     decrease in value by 5% if interest rates rise 1% and increase in value by
     5% if interest rates fall 1%.

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

o    The portfolio's total exposure to the sector, industry and security
     relative to the Index.

o    A security's rating has changed or is vulnerable to a change.

o    A sector or industry is experiencing change.

o    The interest rate or economic outlook changes.

o    AEFC identifies a more attractive opportunity.

During unusual market conditions, the Fund may invest more of its assets in
money market securities. Although the Fund primarily will invest in these
securities to avoid losses, this type of investing also could cause the Fund to
lose the opportunity to participate in market improvement. During these times,
AEFC may make frequent securities trades that could result in increased fees,
expenses, and taxes.


PRINCIPAL RISKS

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

   Credit Risk

   Interest Rate Risk

   Call/Prepayment Risk

   Market 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. Junk bonds have greater price fluctuations and are
more likely to experience a default than investment grade bonds.

Interest Rate Risk

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

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

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.

As a result of a reclassification by Lipper, the Fund's performance is now
compared to:

Lipper Intermediate Investment Grade Index

The Lipper Intermediate Investment Grade Index, published by Lipper Inc.,
includes the 30 largest funds that are generally similar to the Fund, although
some funds in the index may have somewhat different investment policies or
objectives.



S-6495-3 A (7/03)

*Valid until next prospectus update.
Destroy Oct. 30, 2003