SCHEDULE 14A INFORMATION

                  Proxy Statement Pursuant to Section 14(a) of
            the Securities Exchange Act of 1934 (Amendment No.    )

    Filed by the Registrant /X/
    Filed by a party other than the Registrant / /

    Check the appropriate box:
    /X/  Preliminary Proxy Statement
    / /  Confidential, for Use of the Commission Only (as permitted by Rule
         14a-6(e)(2))
    / /  Definitive Proxy Statement
    / /  Definitive Additional Materials
    / /  Soliciting Material Pursuant to Section 240.14a-11(c) or Section 
         240.14a-12

                           IDS Bond Fund, Inc.
                     IDS California Tax-Exempt Trust
                        IDS Discovery Fund, Inc.
                      IDS Equity Select Fund, Inc.
                       IDS Extra Income Fund, Inc.
                      IDS Federal Income Fund, Inc.
                         IDS Global Series, Inc.
                         IDS Growth Fund, Inc.
                   IDS High Yield Tax-Exempt Fund, Inc.
                       IDS International Fund, Inc.
                       IDS Investment Series, Inc.
                    IDS Managed Retirement Fund, Inc.
                   IDS Market Advantage Series, Inc.
                     IDS Money Market Series, Inc.
                     IDS New Dimensions Fund, Inc.
                     IDS Precious Metals Fund, Inc.
                       IDS Progressive Fund, Inc.
                        IDS Selective Fund, Inc.
                  IDS Special Tax-Exempt Series Trust
                         IDS Stock Fund, Inc.
                       IDS Strategy Fund, Inc.
                     IDS Tax-Exempt Bond Fund, Inc.
                      IDS Tax-Free Money Fund, Inc.
                     IDS Utilities Income Fund, Inc.
                   IDS Life Investment Series, Inc.
                     IDS Life Managed Fund, Inc.
                     IDS Life Moneyshare Fund, Inc.
                   IDS Life Special Income Fund, Inc.
- --------------------------------------------------------------------------------
                (Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
    (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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     and 0-11

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                             IDS MUTUAL FUND GROUP
                           Principal Executive Office
                     901 Marquette Avenue South, Suite 2810
                           Minneapolis, MN 55402-3268
 
                   NOTICE OF REGULAR MEETING OF SHAREHOLDERS
 
                            TO BE HELD JUNE 16, 1999
 
RETAIL FUNDS:
IDS Bond Fund, Inc.
IDS California Tax-Exempt Trust
  - IDS California Tax-Exempt Fund
IDS Discovery Fund, Inc.
IDS Equity Select Fund, Inc.
IDS Extra Income Fund, Inc.
IDS Federal Income Fund, Inc.
IDS Global Series, Inc.
  - IDS Emerging Markets Fund
  - IDS Global Balanced Fund
  - IDS Global Bond Fund
  - IDS Global Growth Fund
IDS Growth Fund, Inc.
  - IDS Growth Fund
  - IDS Research Opportunities Fund
IDS High Yield Tax-Exempt Fund, Inc.
IDS International Fund, Inc.
IDS Investment Series, Inc.
  - IDS Diversified Equity Income Fund
  - IDS Mutual
IDS Managed Retirement Fund, Inc.
  - IDS Managed Allocation Fund
IDS Market Advantage Series, Inc.
  - IDS Blue Chip Advantage Fund
  - IDS Small Company Index Fund
IDS Money Market Series, Inc.
  - IDS Cash Management Fund
IDS New Dimensions Fund, Inc.
IDS Precious Metals Fund, Inc.
IDS Progressive Fund, Inc.
IDS Selective Fund, Inc.
IDS Special Tax-Exempt Series Trust
  - IDS Insured Tax-Exempt Fund
  - IDS Massachusetts Tax-Exempt Fund
  - IDS Michigan Tax-Exempt Fund
  - IDS Minnesota Tax-Exempt Fund
  - IDS New York Tax-Exempt Fund
  - IDS Ohio Tax-Exempt Fund
IDS Stock Fund, Inc.
IDS Strategy Fund, Inc.
  - IDS Equity Value Fund
  - IDS Strategy Aggressive Fund
IDS Tax-Exempt Bond Fund, Inc.
  - IDS Intermediate Tax-Exempt Fund
  - IDS Tax-Exempt Bond Fund
IDS Tax-Free Money Fund, Inc.
IDS Utilities Income Fund, Inc.
 
ANNUITY FUNDS:
IDS Life Investment Series, Inc.
  - IDS Life Aggressive Growth Fund
  - IDS Life Capital Resource Fund
  - IDS Life Growth Dimensions Fund
  - IDS Life International Equity Fund
IDS Life Managed Fund, Inc.
IDS Life Moneyshare Fund, Inc.
IDS Life Special Income Fund, Inc.
  - IDS Life Global Yield Fund
  - IDS Life Income Advantage Fund
  - IDS Life Special Income Fund
 
Your Fund will hold a shareholders' meeting at 3:00 p.m. on June 16, 1999, at
the IDS Tower, 80 S. Eighth Street, Minneapolis, MN on the 50th floor. This will
be a joint meeting with all of the Funds listed above. You were a shareholder on
April 18, 1999 and should vote on each proposal. Please read the proxy
statement. Board members recommend that you vote FOR each proposal.
 
Please vote immediately by mail, telephone or internet, even if you plan to
attend the meeting. Just follow the instructions on the enclosed proxy card or
cards. You must vote separately for each Fund you own.
 
                                                              April 18, 1999

                                PROXY STATEMENT
 
This is a combined proxy statement for all of the Funds listed on the first
page. There are five sections to this proxy statement:
 


SECTION                                                                          PAGE
- ----------------------------------------------------------------------------     -----
                                                                           
A - Overview................................................................           3
 
B - Fund Proposals..........................................................           5
 
C - Proxy Voting and Shareholder Meeting Information........................          26
 
D - Fund Information........................................................          29
 
E - Board Member Information................................................          49

 
Please be sure to read the proxy statement before you vote. You will receive a
separate card for each Fund you own. It is important that you return your vote
for each Fund. This proxy statement was first mailed to shareholders the week of
April 18, 1999.
 
                            PLEASE VOTE IMMEDIATELY.
   YOUR PROMPT RESPONSE WILL SAVE YOUR FUND THE COST OF ADDITIONAL MAILINGS.
           YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN.
 
                                 ANNUITY FUNDS
 
If your investments include any of the Annuity Funds listed on the first page,
you have the right to instruct IDS Life Insurance Company ("IDS Life") or IDS
Life Insurance Company of New York ("IDS Life of New York") how to vote the
Annuity Fund shares held under your annuity contract. You can do so by mail,
telephone or internet. Just follow the instructions on the enclosed card. IDS
Life and IDS Life of New York will vote any Fund shares for which they do not
receive voting instructions in proportionately the same manner - either For,
Against or Abstain - as shares for which they do receive instructions.
 
                                       2

                              SECTION A - OVERVIEW
 
The Boards of Directors/Trustees (the "Board") of the Funds in the IDS MUTUAL
FUND GROUP (the "Group") are asking you to vote on the following proposals. The
proposals are described in detail in Section B.
 


  ------------------------------------------------------------------
                 
      PROPOSAL                        FUNDS AFFECTED
- ----------------------------------------------------------------------
(1) Elect Board                         All Funds
    members
- ----------------------------------------------------------------------
 
(2) Ratify the                          All Funds
    selection of
    independent
    auditors
- ----------------------------------------------------------------------
 
(3) Change the Fund                     All Funds
    name from "IDS"
    to "AXP"
- ----------------------------------------------------------------------
 
(4) Approve a new   All Funds except Cash Management and Tax-Free
    shareholder     Money (Does not apply to Class Y shares)
    service and
    distribution
    plan
- ----------------------------------------------------------------------
 
(5) Approve changes Blue Chip, Cash Management, Diversified Equity
    to the          Income, Emerging Markets, Equity Select, Equity
    Investment      Value, Global Balanced, Global Growth, Research
    Management      Opportunities, Small Company Index, Strategy
    Services        Aggressive, Tax-Free Money, Utilities Income
    Agreement
- ----------------------------------------------------------------------
 
(6) Change
    investment
    policies
    regarding:
 
  A: Borrowing or   A: All Funds
     lending money
     to other funds
 
  B: Prohibited     B: Bond, Cash Management, Discovery, Equity
     conflict of       Select, Equity Value, Federal Income, Global
   interest            Bond, Global Growth, Growth, Insured,
                       International, Mutual, Managed Allocation, New
                       Dimensions, Precious Metals, Selective, Small
                       Company Index, State Tax-Exempts (CA, MA, MI,
                       MN, NY, OH), Stock, Strategy Aggressive,
                       Tax-Exempt Bond, Life Aggressive Growth, Life
                       Capital Resource, Life Global Yield, Life
                       Growth Dimensions, Life International Equity,
                       Life Managed, Life Moneyshare, Life Special
                       Income
- ----------------------------------------------------------------------

 
                                       3



  ------------------------------------------------------------------
      PROPOSAL                        FUNDS AFFECTED
                 
- ----------------------------------------------------------------------
  C: Senior         C: Emerging Markets, Equity Value, Extra Income,
     securities        Federal Income, Global Balanced, Global Bond,
                       Global Growth, International, Managed
                       Allocation, Precious Metals, Selective,
                       Strategy Aggressive, Life Global Yield, Life
                       Income Advantage, Life Managed, Life Moneyshare
 
  D: Transactions   D: Equity Select, Federal Income
     with affiliates
 
  E: Other          E: Cash Management, International, Stock, Life
     investment        Moneyshare
   companies
 
  F: Pledging or    F: Cash Management, Tax-Free Money
   mortgaging
 
  G: Three years    G: Cash Management, Tax-Free Money
   operating history
 
  H: Exploration    H: Cash Management, Tax-Free Money, Life
   programs            Moneyshare
 
  I: Control or     I: Cash Management, Life Moneyshare
     manage
 
  J: Concentration  J: Global Bond
- ----------------------------------------------------------------------
 
(7) Approve a            Managed Allocation, Strategy Aggressive
    Subadvisory
    Agreement
- ----------------------------------------------------------------------
 
(8) Change the                        Equity Select
    investment
    objective
- ----------------------------------------------------------------------
 
(9) Transact other                      All Funds
    business
- ----------------------------------------------------------------------

 
                                       4

                           SECTION B - FUND PROPOSALS
 
                     PROPOSAL 1: ELECTION OF BOARD MEMBERS
                            (Applies to: ALL FUNDS)
 
WHO ARE THE NOMINEES FOR THE BOARD?  Nominees are listed below. Each person is a
nominee for each of the 47 funds within the Group. Each nominee was elected a
member of the Board at the last shareholders' meeting except for Mr. Atwater,
Mr. Carlson and Mr. Simpson.
 
Each Board member will serve until the next regular shareholders' meeting or
until he or she reaches the mandatory retirement age established by the Board.
Under the current Board policy, members may serve until the meeting following
their 72(nd) birthday. This policy does not apply to Ms. Jones or Mr. Pearce who
may serve until the end of the Board meeting following their 75(th) birthday.
 
All nominees have agreed to serve. If an unforeseen event prevents a nominee
from serving, your votes will be cast for the election of a substitute selected
by the Board. Information on each nominee follows. Election requires a vote by a
majority of the Fund's shares voted at the meeting.
 
                                                
H. BREWSTER ATWATER, JR.   Board member since 1996    Born in 1931
 
Retired chairman and chief executive officer, General Mills, Inc.
Director: Merck & Co., Inc. and Darden Restaurants, Inc.
Committee assignments: Audit, Contracts, Investment Review
 
ARNE H. CARLSON*           Board member since 1999    Born in 1934
 
Chairman and Chief Executive Officer of the Funds. Governor of
Minnesota, 1991 to 1999. Chair: Board Services Corporation
(provides administrative services to boards).
Committee assignments: Audit, Contracts, Executive, Investment
Review, Nominating
 
LYNNE V. CHENEY            Board member since 1994    Born in 1941
 
Distinguished Fellow, American Enterprise Institute for Public
Policy
Research. Former Chair of National Endowment of the Humanities.
Director: The Reader's Digest Association Inc., Lockheed-Martin
and Union Pacific Resources.
Committee assignments: Audit, Nominating


 
                                       5

                                                
WILLIAM H. DUDLEY**        Board member since 1991    Born in 1932
 
Senior adviser to the chief executive officer of American Express
Financial Corporation ("AEFC").
Committee assignment: Investment Review
 
DAVID R. HUBERS**          Board member since 1993    Born in 1943
 
President, chief executive officer and director of AEFC.
 
HEINZ F. HUTTER            Board member since 1994    Born in 1929
 
Retired president and chief operating officer, Cargill,
Incorporated (commodity merchants and processors).
Committee assignments: Executive, Investment Review
 
ANNE P. JONES              Board member since 1985    Born in 1935
 
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director: Motorola, Inc.
(electronics), C-Cor Electronics, Inc. and Amnex, Inc.
(communications).
Committee assignments: Audit, Contracts, Executive
 
WILLIAM R. PEARCE          Board member since 1980    Born in 1927
 
RII Weyerhaeuser World Timberfund, L.P. (develops timber
resources) - management committee. Retired vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
Former chairman of Board Services Corporation.
Committee assignments: Contracts, Investment Review, Nominating
 
ALAN K. SIMPSON            Board member since 1997    Born in 1931
 
Director of The Institute of Politics, Harvard University. Former
three-term United States Senator for Wyoming. Director: PacifiCorp
(electric power) and Biogen (bio-pharmaceuticals).
Committee assignments: Audit, Executive, Nominating
 
JOHN R. THOMAS**           Board member since 1987    Born in 1937
 
President of all Funds in the Group. Senior vice president of
AEFC.
Committee assignments: Audit, Executive, Investment Review,
Nominating


 
                                       6

                                                
C. ANGUS WURTELE           Board member since 1994    Born in 1934
 
Retired chairman of the board and chief executive officer, The
Valspar Corporation (paints). Director: Valspar, Bemis Corporation
(packaging) and General Mills, Inc. (consumer foods).
Committee assignments: Contracts, Executive, Investment Review,
Nominating


 
 *Interested person by reason of being an officer of the Fund.
 
**Interested person by reason of being an officer, director, securityholder
  and/or employee of AEFC or American Express Company ("American Express").
 
DOES THE BOARD HAVE COMMITTEES?  The Board has several committees that
facilitate the work of the Board. The Executive Committee has authority to act
for the full Board between meetings. The Joint Audit Committee considers the
scope of annual audits, reviews the results of those audits, receives reports
from American Express Corporate Audit about the Fund's operations, and addresses
areas of special concern. The Contracts Committee negotiates contracts under the
full Board's direction and monitors the performance under those contracts. The
Investment Review Committee addresses investment issues and receives reports on
the structure and processes used by AEFC to make investment decisions and assure
compliance with applicable requirements. The Nominating Committee makes
recommendations about Board composition and compensation. Shareholders who want
to suggest Board candidates should write to Nominating Committee, IDS MUTUAL
FUND GROUP, 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268.
Candidates must have a background that gives promise of making a significant
contribution to furthering the interests of all shareholders.
 
During 1998, the Board met six times, Joint Audit three times, Contracts six
times, Investment Review four times and Nominating three times. The Executive
Committee did not meet during that period. Average attendance at the Board was
91% and no nominee attended less than 75% of the meetings.
 
HOW MUCH ARE BOARD MEMBERS PAID?  The following table shows the total
compensation received by each Board member from all of the Funds in the Group
for the year ended Dec. 31, 1998. The Funds do not pay retirement benefits to
Board members. Information on compensation paid to Board members by individual
Funds is shown in Section E.
 
                                       7

                 BOARD MEMBER COMPENSATION FROM ALL IDS FUNDS*
 


NOMINEE                                            AGGREGATE COMPENSATION
- -------------------------------------------------  ----------------------
                                                
Atwater..........................................        $  108,900
Cheney...........................................            95,400
Hutter...........................................           101,400
Jones............................................           111,400
Simpson..........................................            92,400
Wurtele..........................................           121,900

 
*Directors affiliated with AEFC or Board Services Corporation, a company
 providing administrative services to the Funds, are not paid by the Funds.
 
The number of Fund shares beneficially owned by each Board member is shown in
Section E.
 
WHO ARE THE FUND OFFICERS?  Besides Mr. Carlson and Mr. Thomas, the Fund's other
officers are:
 
LESLIE L. OGG, born in 1938. Vice president and general counsel since 1978.
President of Board Services Corporation.
 
PETER J. ANDERSON, born in 1942. Vice president-investments since 1995. Director
and senior vice president-investments of AEFC.
 
FREDERICK C. QUIRSFELD, born in 1947. Vice president-fixed income investments
since 1998. Vice president-taxable mutual fund investments of AEFC.
 
JOHN M. KNIGHT, born in 1952. Treasurer since 1999. Vice President-Investment
Accounting of AEFC.
 
Officers serve at the pleasure of the Board. Officers are paid by AEFC or Board
Services Corporation. During the last fiscal year, no officer earned more than
$60,000 from any Fund.
 
                 PROPOSAL 2: RATIFY OR REJECT THE SELECTION OF
                 KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS
                            (Applies to: ALL FUNDS)
 
KPMG Peat Marwick LLP is the independent auditor for the Fund. KPMG has provided
audit, tax and consulting services to the Fund for many years. It meets at least
twice each year with the Joint Audit Committee. Based on that Committee's
recommendation, the independent members of the Board selected KPMG to provide
these services again this year. A representative of KPMG will be at the meeting
to answer questions or
 
                                       8

make a statement. The independent members of the Board recommend that you vote
to ratify their action. This requires an affirmative vote by a majority of the
shares voting at the meeting. If the selection is not ratified, the independent
members will decide what further action must be taken.
 
                        PROPOSAL 3: APPROVE OR REJECT AN
                  AMENDMENT TO THE ARTICLES OF INCORPORATION/
              DECLARATION OF TRUST TO CHANGE THE NAME OF THE FUND
                            (Applies to: ALL FUNDS)
 
WHY SHOULD THE NAME OF THE FUND BE CHANGED?  Historically the name of the Fund
has reflected the name of the investment manager. For many years, the Fund name
has been IDS. In 1995, the investment manager changed its name from IDS
Financial Corporation to American Express Financial Corporation to reflect that
it is wholly owned by American Express and because American Express has high
name recognition and a strong reputation for quality. This is the first
shareholder meeting since AEFC changed its name and the first opportunity for
shareholders to consider this name change. Consistent with a common industry
practice, AEFC recommends that the Fund use AXP, an abbreviated form of the
investment manager's name. The family of funds will be referred to as the
American Express Funds.
 
WHAT STEPS ARE REQUIRED?  Shareholders of each corporation or trust will vote to
change the name of the legal entity and the Board will change the name of the
underlying series of shares that are separate Funds. Retail Funds will replace
"IDS" with "AXP" in their name. Annuity Funds will add "Variable Portfolio" to
their name in addition to changing to AXP. This designation is commonly used in
the industry for funds sold only through variable annuities. In addition, the
Board will change the names of some Annuity Funds to parallel the names of the
Retail Funds with the same investment objectives, as shown in the following
table.
 
For the Funds listed in the following table there is one further change.
Originally the corporation issued only one series and had the same name as the
Fund. The corporation now issues more than one series and there is confusion
between the name of the corporation and the name of the original Fund. The name
of the corporation will be changed as shown in the following table.
 
                                       9

                         TABLE 3-1. PROPOSED FUND NAMES
       (for Funds with a change in addition to substituting AXP for IDS)
 


- ------------------------------------------------------------------
                               
          CURRENT NAME                     PROPOSED NAME
- ------------------------------------------------------------------
IDS Growth Fund, Inc.             AXP Growth Series, Inc.
  -IDS Growth Fund                  - AXP Growth Fund
  -IDS Research Opportunities       - AXP Research Opportunities
    Fund                             Fund
- ------------------------------------------------------------------
 
IDS Managed Retirement Fund,      AXP Managed Series, Inc.
 Inc.
  -IDS Managed Allocation Fund      - AXP Managed Allocation Fund
- ------------------------------------------------------------------
 
IDS Strategy Fund, Inc.           AXP Strategy Series, Inc.
  -IDS Equity Value Fund            - AXP Equity Value Fund
  -IDS Strategy Aggressive Fund     - AXP Strategy Aggressive Fund
- ------------------------------------------------------------------
 
IDS Tax-Exempt Bond Fund, Inc.    AXP Tax-Exempt Series, Inc.
  -IDS Intermediate Tax-Exempt      - AXP Intermediate Tax-Exempt
    Bond Fund                        Bond Fund
  -IDS Tax-Exempt Bond Fund         - AXP Tax-Exempt Bond Fund
- ------------------------------------------------------------------
 
IDS Life Investment Series, Inc.  AXP Variable Portfolio -
                                  Investment Series, Inc.
  -IDS Life Aggressive Growth       - AXP Variable Portfolio -
    Fund                            Strategy Aggressive Fund
  -IDS Life Capital Resource        - AXP Variable Portfolio -
    Fund                            Capital Resource Fund
  -IDS Life Growth Dimensions       - AXP Variable Portfolio - New
    Fund                             Dimensions Fund
  -IDS Life International Equity    - AXP Variable Portfolio -
    Fund                             International Fund
- ------------------------------------------------------------------
 
IDS Life Managed Fund, Inc.       AXP Variable Portfolio - Managed
                                  Series, Inc.
  -IDS Life Managed Fund            - AXP Variable Portfolio -
                                     Managed Fund
- ------------------------------------------------------------------
 
IDS Life Moneyshare Fund, Inc.    AXP Variable Portfolio - Money
                                  Market Series, Inc.
  -IDS Life Moneyshare Fund         - AXP Variable Portfolio -
                                    Cash Management Fund
- ------------------------------------------------------------------

 
                                       10



- ------------------------------------------------------------------
          CURRENT NAME                     PROPOSED NAME
                               
- ------------------------------------------------------------------
IDS Life Special Income Fund,     AXP Variable Portfolio - Income
 Inc.                             Series, Inc.
  -IDS Life Global Yield Fund       - AXP Variable Portfolio -
                                    Global Bond Fund
  -IDS Life Income Advantage        - AXP Variable Portfolio -
    Fund                            Extra Income Fund
  -IDS Life Special Income Fund     - AXP Variable Portfolio -
                                    Bond Fund
- ------------------------------------------------------------------

 
WHAT DOES THE BOARD RECOMMEND AND HOW MANY VOTES ARE NEEDED? The Board
recommends that you vote to approve the necessary amendments to the Articles of
Incorporation or Declaration of Trust to change the name of the Fund. The name
change requires the approval of a majority of the Fund's shares voted at the
meeting. The change will be effective when the amendments are filed with the
appropriate state office. This filing is expected to occur shortly after the
shareholder meeting.
 
                         PROPOSAL 4: APPROVE OR REJECT
                  A SHAREHOLDER SERVICE AND DISTRIBUTION PLAN
       (Applies to: ALL FUNDS EXCEPT CASH MANAGEMENT AND TAX-FREE MONEY)
 
American Express Financial Advisors Inc. ("AEFA") is the distributor for the
Retail Funds. IDS Life is the distributor for the Annuity Funds. For purposes of
this discussion "AEFA" includes both AEFA and IDS Life. The Retail Funds
currently pay AEFA for providing ongoing services to shareholders but AEFA
legally may not use any of this money to pay for distribution costs. AEFA met
with the Board on several occasions to discuss changes in the financial services
industry. It recommends that the Fund pay some of its distribution costs in
addition to paying for ongoing shareholder services. A Fund is permitted to pay
distribution costs by Securities and Exchange Commission ("SEC") Rule 12b-1.
 
In support of its recommendation, AEFA made the following observations:
 
- -  growth of the Fund's assets is crucial to long term success
 
- -  the industry has evolved over the years toward a fee-based means of
   compensating financial advisors and other financial intermediaries
 
- -  the Fund's current pricing structure leaves it at a competitive disadvantage
   to other funds that generally have distribution/shareholder service fees of
   0.25% or more
 
- -  while AEFA has been very successful selling shares through its financial
   advisors and institutional retirement plans, in order to gain market share
   the Fund must be sold in other ways as well
 
                                       11

In light of these observations, AEFA recommended:
 
A. RETAIL FUNDS - CLASS A.  (Applies to: CLASS A AND CLASS B SHAREHOLDERS FOR
ALL RETAIL FUNDS EXCEPT CASH MANAGEMENT AND TAX-FREE MONEY) That Class A
shareholders of the Retail Funds convert existing Shareholder Service Agreements
to distribution plans (also known as 12b-1 plans) and increase fees from 0.175%
to 0.25% of average daily net assets. Because Class B shares convert to Class A
shares in the ninth year of ownership, Class B shareholders also will vote on
the Class A distribution plan. For Class B shareholders, a vote in favor of this
proposal is a vote in favor of both the Class A and Class B plans.
 
B. RETAIL FUNDS - CLASS B.  (Applies to: CLASS B SHAREHOLDERS FOR ALL RETAIL
FUNDS EXCEPT CASH MANAGEMENT AND TAX-FREE MONEY) That Class B shareholders of
the Retail Funds combine existing Shareholder Service Agreements with existing
distribution plans and increase combined fees from 0.925% to 1.0% of average
daily net assets.
 
C. ANNUITY FUNDS.  (Applies to: ALL ANNUITY FUNDS) That the Annuity Funds adopt
distribution plans with a fee of 0.125% of average daily net assets. Currently,
the Annuity Funds do not have a distribution plan or a shareholder service
agreement.
 
SHAREHOLDER SERVICE.  Services provided under the existing Shareholder Service
Agreement for the Retail Funds are intended to help shareholders thoughtfully
consider their investment goals and monitor the progress they are making in
achieving those goals. Shareholder service-related activities include, among
other things, ongoing interactions between financial advisors and shareholders,
shareholder communications and shareholder seminars.
 
DISTRIBUTION PLAN.  Under the distribution plan, AEFA will distribute Fund
shares and service shareholder accounts either directly through its financial
advisors or through broker-dealers and other financial intermediaries. AEFA will
use distribution plan fees to pay for distribution activities. Distribution
activities are primarily intended to result in sales of Fund shares and include
advertising, compensation and expenses of financial advisors or other sales and
marketing personnel, printing and mailing of prospectuses to prospective
investors, and printing and mailing of sales literature. In addition, AEFA will
provide the shareholder services described in the previous paragraph.
 
                                       12

HOW WILL THE PROPOSED CHANGE AFFECT FUND EXPENSES?  Fees and expenses the Fund
actually paid as well as fees and expenses the Fund would have paid if the
proposed Plan had been in effect for the last fiscal year are shown in Section
D.
 
THE PROPOSED DISTRIBUTION PLAN.  Under the proposed plan, the Fund will pay AEFA
each month for distribution and shareholder servicing activities. AEFA will pay
financial advisors, broker-dealers and other financial intermediaries who
provide distribution or shareholder services to the Fund's shareholders. AEFA
will provide the Board with quarterly reports specifying how the money was
spent.
 
WHAT FACTORS DID THE BOARD CONSIDER?  In considering the adoption of the
distribution plan, the Board considered the potential costs and benefits of the
plan, including:
 
- -  the increase in expenses
 
- -  the competitive situation in the industry involving the adoption of
   distribution plans by an increasing number of funds
 
- -  AEFA's need to compensate financial advisors, broker-dealers and other
   financial intermediaries for distribution and service-related activities at
   competitive levels to assure the scope and quality of services expected by
   shareholders
 
- -  the impact on investment management of positive cash flow and increased asset
   size
 
The Board also recognized and considered that possible benefits may be realized
by AEFC as a result of the adoption of the plan. If Fund assets grow more
rapidly as a result of the implementation of the plan, the investment management
and administrative services fees payable to AEFC by the Fund (which are
calculated as a percent of net assets) will increase.
 
The Board reviewed the Fund's expense ratios, the level to which the expense
ratios will increase as a result of adopting the plan, the relationship of the
fee to the overall expense ratio of the Fund and how the overall expense ratio
compares to expense ratios of comparable funds with which the Fund competes. The
Board concluded that the proposed plan and fees are consistent with those in the
industry.
 
If approved, the plan will continue in effect for one year from the date of
approval, and then from year to year so long as it is approved by a majority of
the Board, including a majority of the independent members. The plan may be
terminated at any time by the Board or the shareholders and will terminate
automatically if it is assigned. The plan may not be
 
                                       13

amended to materially increase the amount of the fee unless the change is
approved by the shareholders.
 
WHAT DOES THE BOARD RECOMMEND AND HOW MANY VOTES ARE NEEDED? The Board
recommends that shareholders approve the proposed plan. The Plan must be
approved by the lesser of (a) a majority of the Fund's outstanding shares or (b)
67% of the shares voted at the meeting, so long as more than 50% of the shares
actually vote. If the proposed plan is not approved, the Fund will continue to
operate under its current arrangements.
 
                    PROPOSAL 5: APPROVE OR REJECT CHANGES TO
                  THE INVESTMENT MANAGEMENT SERVICES AGREEMENT
  (Applies to: BLUE CHIP, CASH MANAGEMENT, DIVERSIFIED EQUITY INCOME, EMERGING
 MARKETS, EQUITY SELECT, EQUITY VALUE, GLOBAL BALANCED, GLOBAL GROWTH, RESEARCH
    OPPORTUNITIES, SMALL COMPANY INDEX, STRATEGY AGGRESSIVE, TAX-FREE MONEY,
                               UTILITIES INCOME)
 
The Fund pays fees to AEFC under an Investment Management Services Agreement
(the "Agreement") for conducting day-to-day investment management services for
the Fund. The services performed by AEFC include providing the personnel,
equipment and office facilities necessary for the management of the Fund's
investment portfolio. Subject to the direction of the Board and consistent with
the Fund's investment policies, AEFC decides what securities to buy, hold or
sell. AEFC also executes buy and sell orders and provides research and
statistical data to support investment management activities. Some of the Retail
Funds are part of a master/ feeder structure. In this structure, the Fund
invests all of its assets in a master fund (the "Portfolio") with the same
policies as the Fund. For purposes of this discussion, a Portfolio is referred
to as a "Fund".
 
AEFC recommended to the Board that the fee schedule under the Agreement be
changed to help ensure that AEFC receives fees for its services that will allow
it to:
 
- -  attract and retain high quality investment management and research personnel
 
- -  continue to provide technology and other systems necessary to keep the Fund
   operating at a high level of service
 
- -  continue efforts to improve investment performance for the benefit of
   shareholders in the future
 
                                       14

AEFC believes that maintaining competitive management fees will, over the long
term, enable it to continue to provide high-quality management services to the
Fund.
 
The proposed management fee reflects one or more of the following changes:
 
- -  An increase in the fee
 
- -  The addition of breakpoints that reduce fee rates as the Fund's assets grow
 
- -  The addition of a performance incentive adjustment ("PIA")
 
Please check the following table to see what changes apply to your Fund.
 
                   TABLE 5-1. PROPOSED MANAGEMENT FEE CHANGES
 


- ------------------------------------------------------------------
                               
                          TYPE OF             PROPOSED FEE
         FUND             CHANGE       (ANNUAL RATE; IN BILLIONS)
- -------------------------------------------------------------------
Blue Chip               Increase,    First $.25 - .54%; next $.25 -
                        breakpoint   .515%; next $.25 - .49%; next
                        and PIA      $.25 - .465%; next $1 - .44%;
                                     next $1 - .41%; next $3 -
                                     .38%; over $6 - .35%
- -------------------------------------------------------------------
 
Cash Management         Increase     First $1 - .36%; next $.5 -
Tax-Free Money          and          .343%; next $.5 - .325%; next
                        breakpoint   $.5 - .308%; next $1 - .29%;
                                     next $3 - .27%; over $6.5 -
                                     .25%
- -------------------------------------------------------------------
 
Diversified Equity      PIA                        *
Income
- -------------------------------------------------------------------
 
Emerging Markets        PIA                        *
- -------------------------------------------------------------------
 
Equity Select           Increase,    First $1 - .60%; next $1 -
                        breakpoint   .575%; next $1 - .55%; next $3
                        and change   - .525%; next $6 - .50%; next
                        in PIA       $12 - .49%; over $24 - .48%
- -------------------------------------------------------------------
 
Equity Value            PIA                        *
- -------------------------------------------------------------------
 
Global Balanced         PIA                        *
- -------------------------------------------------------------------
 
Global Growth           PIA                        *
- -------------------------------------------------------------------
 
Research Opportunities  PIA                        *
- -------------------------------------------------------------------

 
                                       15



- ------------------------------------------------------------------
                          TYPE OF             PROPOSED FEE
         FUND             CHANGE       (ANNUAL RATE; IN BILLIONS)
                               
- -------------------------------------------------------------------
Small Company Index     PIA                        *
- -------------------------------------------------------------------
 
Strategy Aggressive     PIA                        *
- -------------------------------------------------------------------
 
Utilities Income        Increase     First $0.5 - .61%; next $0.5 -
                        and PIA      .585%; next $1 - .56%; next $1
                                     - .535%; next $3 - .51%; over
                                     $6 - .48%
- -----------------------------------

 
*The fee schedule will not change. The performance incentive adjustment is
 discussed in detail in the following paragraphs.
 
WHAT ARE THE TERMS OF THE CURRENT AGREEMENT?  The fee the Fund pays to AEFC for
its services under the Agreement is based on the net assets of the Fund and
decreases as the size of the Fund increases. The complete fee schedule for the
Fund and other Funds managed by AEFC is found in Section D. The Fund also pays
its taxes, brokerage commission and nonadvisory expenses, which include
custodian fees; audit and certain legal fees; fidelity bond premiums;
registration fees for shares; consultant fees; Board compensation; corporate
filing fees; organizational expenses; a portion of the Investment Company
Institute dues; expenses incurred in connection with lending portfolio
securities; and other expenses properly payable by the Fund, approved by the
Board. Section D includes information on the date of the current Agreement, the
date it was last approved by shareholders and the reason why it was submitted to
shareholders at that time.
 
                                       16

HOW DOES THE PROPOSED AGREEMENT DIFFER FROM THE CURRENT AGREEMENT? The terms of
the proposed Agreement are the same as the current Agreement except for the
change described in Table 5-1.
 
WHAT IS A PERFORMANCE INCENTIVE ADJUSTMENT?  (Applies to: BLUE CHIP, DIVERSIFIED
EQUITY INCOME, EMERGING MARKETS, EQUITY SELECT, EQUITY VALUE, GLOBAL BALANCED,
GLOBAL GROWTH, RESEARCH OPPORTUNITIES, SMALL COMPANY INDEX, STRATEGY AGGRESSIVE,
UTILITIES INCOME) Under the proposed performance incentive adjustment, the fee
will be adjusted based on the Fund's performance compared to an index of similar
funds. The performance incentive adjustment is calculated by measuring the
percentage difference over a rolling 12-month period between:
 
- -  the performance of one Class A share of the Fund and
 
- -  the change in a designated Lipper Index (the "Index") of funds with similar
   investment objectives.
 
As described in more detail below, if the Fund's performance is better than the
Index, the fee paid to AEFC will increase. If the Fund's performance is worse
than the Index, the fee paid to AEFC will decrease. The following table shows
the proposed Index for each Fund and the maximum adjustment.
 
                          TABLE 5-2. PROPOSED INDEXES
 


  ------------------------------------------------------------------
                                                             MAXIMUM
         FUND                        INDEX                 ADJUSTMENT
                                                    
- -----------------------------------------------------------------------
Blue Chip               Lipper Growth and Income Fund
                        Index                                    .08%
Diversified Equity      Lipper Equity Income Fund Index
  Income                                                         .08%
Emerging Markets        Lipper Emerging Markets Fund
                        Index                                    .12%
Equity Select           Lipper Growth Fund Index                 .12%
Equity Value            Lipper Growth and Income Fund
                        Index                                    .08%
Global Balanced         Lipper Global Fund Index                 .12%
Global Growth           Lipper Global Fund Index                 .12%
Research Opportunities  Lipper Growth Fund Index                 .12%
Small Company Index     Lipper Small Cap Fund Index              .12%
Strategy Aggressive     Lipper Capital Appreciation Fund
                        Index                                    .12%
Utilities Income        Lipper Utility Fund Index                .08%
- --------------------------------------------------------

 
For Equity Select, shareholders are being asked to approve a change from Lipper
Growth and Income Fund Index to Lipper Growth Fund Index and from a maximum
adjustment of .08% to .12%. These changes will be made only if shareholders
approve Proposal 8 to change the Fund's investment
 
                                       17

objective. If shareholders do not approve Proposal 8, the Fund will continue to
operate under its current Index and maximum adjustment.
 
- -  HOW IS THE ADJUSTMENT CALCULATED?  One percentage point is subtracted from
the calculation to help assure that incentive adjustments are attributable to
AEFC's investment decisions rather than random fluctuations and the result is
multiplied by .01. For example, if the difference between the change in the
Fund's net asset value and the change in the Index for a comparison period is
2.55 percent, the adjustment would be .000155 (.0255 - .01 = .0155 X .01 =
 .000155) times the Fund's average net assets for the comparison period divided
by 12. The first adjustment will be made on January 1, 2000 and will cover the
six-month period beginning July 1, 1999. The comparison period will increase by
one month each month until it reaches 12 months.
 
- -  WHAT ARE LIPPER INDEXES?  Lipper, Inc. is an unaffiliated company that
collects data from company reports, financial reporting services, periodicals
and other sources deemed to be reliable. It then analyzes the data and publishes
a number of indexes based on the performance of the largest mutual funds in
various categories. Categories are based on investment objectives. Lipper
indexes are published by newspapers and periodicals throughout the country and
are generally recognized by the mutual fund industry as being an accurate and
reliable source of comparative information. If an Index ceases to be published
for a period of more than 90 days, changes in any material respect or otherwise
becomes impracticable to use for purposes of a performance incentive adjustment,
the Fund will pay the advisory fee without any adjustment for performance until
the Board approves a substitute index. Lipper is currently in the process of
modifying and expanding its indexes. After those changes are completed, some of
the current indexes may no longer exist. As a result, the Board may need to
approve a different Index for the Fund in the near future. Using a different
Index for the performance incentive adjustment would most likely result in
different pro forma information.
 
HOW WILL THE PROPOSED CHANGE IN FEE STRUCTURE AFFECT FUND EXPENSES? Fees and
expenses the Fund actually paid as well as fees and expenses the Fund would have
paid if the proposed Agreement had been in effect for the last fiscal year are
shown in Section D.
 
WHAT INFORMATION WAS REVIEWED AND CONSIDERED?  The Contracts Committee, as well
as the full Board, received information on:
 
- -  current trends in the financial services industry, including market share
   data for both mutual funds and annuity funds
 
                                       18

- -  information on investment performance over various time periods for the Fund,
   a group of comparable funds and an appropriate comparative index
 
- -  the proposed management fee compared to management fees of comparable funds
 
- -  the impact of the proposed change on the Fund's expense ratio
 
- -  the Fund's expense ratio compared to a group of comparable funds
 
- -  the impact of performance incentive adjustments
 
- -  AEFC's overall profitability from its mutual fund operations in light of
   available industry data, both including and excluding distribution costs
 
- -  the benefits to AEFC as assets increase in size and the extent economies of
   scale are shared with the Fund
 
- -  the character and amount of fees paid by the Fund for the other services
   provided by AEFC and its affiliates, and the revenues it generates from
   retirement custodial accounts, fees paid for custodial services to an
   affiliate of AEFC and the allocation of brokerage to an affiliate of AEFC
 
As part of the process of reviewing the information, the Board retained
PricewaterhouseCoopers to assist in its review.
 
WHAT WERE THE CONCLUSIONS?  The Board and the Contracts Committee for each Fund
acted separately in considering the information provided to assure that the
Fund's fees as compared to AEFC's costs in providing services to the Fund are
equitable and appropriate in relation to that of each of the other Funds. The
Board concluded that a competitive fee:
 
- -  will help AEFC remain competitive in attracting, retaining and motivating the
   high quality investment personnel necessary to manage the Fund
 
- -  will help to address the expectations regarding the performance of the Fund
 
- -  will allow AEFC to continue to improve the technology and other systems
   necessary to keep the Fund operating at a high level of service
 
At a meeting held on January 13-14, 1999, called for the purpose of considering
the proposed Agreement, the independent members first and then the Board as a
whole, by vote, cast in person, approved the terms of the proposed Agreement. If
approved, the proposed Agreement will continue from year to year after the
second year, so long as it is approved at least annually by a majority of the
Board, including a majority of the independent members. The proposed Agreement
may be terminated at any time
 
                                       19

by the Board, AEFC or the shareholders and will terminate automatically if it is
assigned.
 
WHAT DOES THE BOARD RECOMMEND AND HOW MANY VOTES ARE NEEDED? The Board
recommends that shareholders approve the proposed Agreement. The Agreement must
be approved by the lesser of (a) a majority of the Fund's outstanding shares or
(b) 67% of the shares voted at the meeting, so long as more than 50% of the
shares actually vote. If the proposed Agreement is not approved, the Fund will
continue to operate under the current Agreement.
 
                         PROPOSAL 6: APPROVE OR REJECT
                         CHANGES IN INVESTMENT POLICIES
                            (Applies to: ALL FUNDS)
 
The Fund has some investment policies that are fundamental. This means the
policies can be changed only with the approval of shareholders. A few of these
policies are no longer required to be fundamental, some need changes and others
are no longer required at all. The Board recommends making the following changes
to the Fund's fundamental investment policies:
 
A. CHANGE THE POLICY SO THAT THE FUND MAY BORROW OR LEND MONEY TO OTHER FUNDS
ADVISED BY AEFC.  (Applies to: ALL FUNDS) If approved by shareholders, the Fund
and all other Funds advised by AEFC or its affiliates intend to file a request
for an exemptive order with the SEC that will permit them to participate in a
borrowing and lending program. The Fund's existing policies do not allow these
arrangements. If shareholders approve this proposal, the Board will adopt a new
investment policy so that the Fund may borrow from and lend money to the other
Funds.
 
- -  WHY WOULD THE FUND WANT TO BORROW OR LEND MONEY?  Normally, the Fund has
enough cash on hand to satisfy all requests from shareholders who want to sell
shares. However, sometimes the Fund may be short on cash while waiting for
security trades to settle (typically a three business-day process). The Fund has
a bank line of credit to meet such an unusual event but it may be less costly to
borrow from another Fund. It also benefits the Fund to lend money to an
associated Fund on a short-term basis if it has cash available. The only
circumstance under which the Fund would borrow or lend money is short-term cash
needs to meet redemption requests.
 
                                       20

B. ELIMINATE THE POLICY ADDRESSING A POTENTIAL CONFLICT OF INTEREST. (Applies
to: BOND, CASH MANAGEMENT, DISCOVERY, EQUITY SELECT, EQUITY VALUE, FEDERAL
INCOME, GLOBAL BOND, GLOBAL GROWTH, GROWTH, INSURED, INTERNATIONAL, MUTUAL,
MANAGED ALLOCATION, NEW DIMENSIONS, PRECIOUS METALS, SELECTIVE, SMALL COMPANY
INDEX, STATE TAX-EXEMPTS, STOCK, STRATEGY AGGRESSIVE, TAX-EXEMPT BOND, LIFE
AGGRESSIVE GROWTH, LIFE CAPITAL RESOURCE, LIFE GLOBAL YIELD, LIFE GROWTH
DIMENSIONS, LIFE INTERNATIONAL EQUITY, LIFE MANAGED, LIFE MONEYSHARE, LIFE
SPECIAL INCOME) The Fund has a fundamental policy that prohibits it from buying
securities of any company if an officer or board member of the Fund or of the
Fund's investment adviser individually owns more than 1/2 of 1% of the
securities of that company and together they own more than 5% of those
securities. This policy originated with state securities laws designed to avoid
conflicts of interest. These laws no longer apply to the Fund. Both the Fund and
AEFC have Codes of Ethics that address conflicts of interest. Under these Codes,
procedures are in place to keep individuals who would stand to gain from the
Fund's investments in an inappropriate way from doing so. The Board believes
that Codes of Ethics are a better way to address these types of conflicts of
interest because they can be tailored to the specific operating structures of an
organization and to provide appropriate flexibility. The elimination of this
policy will not change the way the Fund's assets are invested.
 
C. MODIFY THE POLICY PROHIBITING ISSUANCE OF SENIOR SECURITIES.  (Applies to:
EMERGING MARKETS, EQUITY VALUE, EXTRA INCOME, FEDERAL INCOME, GLOBAL BALANCED,
GLOBAL BOND, GLOBAL GROWTH, INTERNATIONAL, MANAGED ALLOCATION, PRECIOUS METALS,
SELECTIVE, STRATEGY AGGRESSIVE, LIFE GLOBAL YIELD, LIFE INCOME ADVANTAGE, LIFE
MANAGED, LIFE MONEYSHARE) The Fund has a fundamental policy that prohibits it
from issuing any senior security. The Board recommends that shareholders vote to
replace the current policy with the following limitation: "THE FUND WILL NOT
ISSUE SENIOR SECURITIES, EXCEPT AS PERMITTED UNDER THE INVESTMENT COMPANY ACT OF
1940." The purpose of this change is to develop a standardized policy for all
Funds in the Group. Generally a senior security is an obligation of the Fund
that takes priority over the claims of the Fund's shareholders. The law
prohibits the Fund from issuing most types of senior securities, but permits
doing so if certain conditions are met. For example, the Fund may enter into a
transaction that obligates it to pay money at a future date if cash is set aside
to cover the obligation. This type of transaction may be considered a senior
security. It is desirable in this situation for the Group to have a standardized
policy and the revised policy will not change the way the Fund's assets are
invested.
 
                                       21

D. ELIMINATE THE POLICY PROHIBITING TRANSACTIONS WITH AFFILIATES.  (Applies to:
EQUITY SELECT, FEDERAL INCOME) This is a proposal to standardize policies. The
Fund is one of only two funds in the Group that has a fundamental policy
limiting its ability to purchase securities from, or sell securities to, the
Fund's advisor or any officer or board member of the Fund or the advisor. These
transactions are prohibited by law and therefore the policy is not necessary.
 
E. RECLASSIFY AS NONFUNDAMENTAL THE FUND'S POLICY ON INVESTING IN OTHER
INVESTMENT COMPANIES.  (Applies to: CASH MANAGEMENT, INTERNATIONAL, STOCK, LIFE
MONEYSHARE) The Fund has a fundamental policy prohibiting it from investing in
other investment companies, such as country-specific funds, except by purchases
in the open market where the dealer's or sponsor's profit is the regular
commission. The Board recommends that this policy be changed to non-fundamental
to conform with the standard policy used by the other Funds in the Group.
Changing this policy to non-fundamental will not have any impact on the Fund's
investment practices.
 
F. ELIMINATE THE POLICY PROHIBITING THE FUND FROM PLEDGING OR
MORTGAGING.  (Applies to: CASH MANAGEMENT, TAX-FREE MONEY) The Fund has a
fundamental policy that it may not pledge or mortgage more than 15% of its
assets as collateral for loans or for other purposes. This requirement is based
on a state law that no longer applies. While the Board recommends elimination of
the policy on pledging or mortgaging assets, the Fund continues to have a
fundamental policy limiting its ability to borrow. The elimination of this
policy will not change the way the Fund's assets are invested.
 
G. ELIMINATE THE POLICY ON INVESTMENTS IN ISSUERS WITH LESS THAN THREE YEARS OF
OPERATING HISTORY.  (Applies to: CASH MANAGEMENT, TAX-FREE MONEY) The Fund has a
fundamental policy that it may not invest more than 5% of its assets in
companies with less than three years of operating history. This requirement is
based on a state law that no longer applies. The elimination of this policy will
not change the way the Fund's assets are invested.
 
H. ELIMINATE THE POLICY PROHIBITING INVESTMENT IN EXPLORATION AND DEVELOPMENT
PROGRAMS.  (Applies to: CASH MANAGEMENT, TAX-FREE MONEY, LIFE MONEYSHARE) The
Fund has a fundamental policy that it may not invest in any oil, gas or other
mineral exploration or development programs. This requirement is based on a
state law that no longer applies. The elimination of this policy will not change
the way the Fund's assets are invested.
 
                                       22

I. ELIMINATE THE POLICY PROHIBITING INVESTMENTS FOR THE PURPOSE OF EXERCISING
CONTROL OR MANAGING THE COMPANY.  (Applies to: CASH MANAGEMENT, LIFE MONEYSHARE)
The Fund has a fundamental policy that it may not invest in any company for
purposes of exercising control or management. This requirement is based on a
state law that no longer applies. The elimination of this policy will not change
the way the Fund's assets are invested.
 
J. CHANGE THE POLICY REGARDING CONCENTRATION.  (Applies to: GLOBAL BOND) The
Fund is a non-diversified investment company that may invest significant amounts
of its assets in securities of certain governments. The fundamental policy
states it may not concentrate in any one industry but says nothing about
governments. The policy will be clarified to read as follows: "THE FUND WILL NOT
CONCENTRATE IN ANY ONE INDUSTRY, EXCEPT THAT THE FUND MAY INVEST MORE THAN 25%
OF ITS ASSETS IN GOVERNMENT SECURITIES OF A SINGLE COUNTRY."
 
WHAT DOES THE BOARD RECOMMEND AND HOW MANY VOTES ARE NEEDED? The Board
recommends that shareholders approve the proposed changes in the fundamental
policies. The changes must be approved by the lesser of (a) a majority of the
Fund's outstanding shares or (b) 67% of the shares voted at the meeting, so long
as more than 50% of the shares actually vote. If the changes are not approved,
the Fund will continue to operate in accordance with its current investment
policies.
 
                PROPOSAL 7: APPROVE OR REJECT A NEW SUBADVISORY
                 AGREEMENT WITH KENWOOD CAPITAL MANAGEMENT LLC
             (Applies to: MANAGED ALLOCATION, STRATEGY AGGRESSIVE)
 
Kenwood Capital Management LLC ("Kenwood") is a registered investment adviser
with particular expertise on investments in small capitalization companies.
Kenwood is a subsidiary of AEFC. AEFC plans to enter into a Subadvisory
Agreement with Kenwood. Under the proposed Subadvisory Agreement, AEFC will
grant investment management authority to Kenwood with respect to all or a part
of the Fund's assets. Kenwood will be authorized to buy or sell stocks, bonds
and other securities for the Fund, subject to the overall supervision of AEFC.
 
WILL THE PROPOSED SUBADVISORY AGREEMENT CHANGE THE FEES PAID BY THE FUND?  There
will be no change in the fees paid by the Fund. If the proposed Subadvisory
Agreement is approved, the fees paid by the Fund to AEFC will remain the same.
AEFC, not the Fund, will pay Kenwood. Compensation will be based on the assets
allocated to Kenwood by AEFC and will be paid at a rate of 0.35% of average
daily net assets.
 
                                       23

PRINCIPALS AND MANAGEMENT BOARD OF KENWOOD.  Jacob E. Hurwitz and Kent A. Kelley
are the principals of Kenwood. The following individuals are directors of
Kenwood: Peter J. Anderson, Jacob E. Hurwitz, Kent A. Kelley, Gabrielle F.
Parish, Stephen W. Roszell. Mr. Anderson and Mr. Roszell are officers of AEFC.
Ms. Parish is an officer of American Express Asset Management Group ("AEAMG"), a
wholly-owned subsidiary of AEFC. All of the directors are located at IDS Tower,
Minneapolis, MN 55440-0010. AEAMG owns 50.1% of Kenwood. Mr. Hurwitz and Mr.
Kelley each owns a minority interest. Kenwood's address is IDS Tower 10,
Minneapolis, MN 55440-0010.
 
WHEN WILL THE PROPOSED SUBADVISORY AGREEMENT START?  If approved by
shareholders, the proposed Subadvisory Agreement will take effect shortly after
the shareholder meeting. The proposed Subadvisory Agreement will continue from
year to year, provided continuance is approved at least annually. The proposed
Subadvisory Agreement may be terminated without penalty either by the Board, by
AEFC or by a vote of a majority of the outstanding shares of the Fund.
 
WHAT FACTORS DID THE BOARD CONSIDER?  Subadvisory agreements must be approved by
shareholders when the subadvisor is partially owned by the investment manager.
The Subadvisory Agreement meets appropriate operational objectives of AEFC and
Kenwood. AEFC has committed to be fully accountable for the investment
performance of the Fund and for all duties and responsibilities under the
Investment Management Services Agreement. AEFC will manage the arrangement with
Kenwood in the same way it oversees portfolio managers directly employed by
AEFC.
 
WHAT DOES THE BOARD RECOMMEND AND HOW MANY VOTES ARE NEEDED? The Board
recommends that shareholders approve the proposed Subadvisory Agreement. The
Subadvisory Agreement must be approved by the lesser of (a) a majority of the
Fund's outstanding shares or (b) 67% of the shares voted at the meeting, so long
as more than 50% of the shares actually vote. If the proposed Subadvisory
Agreement is not approved, the Fund will continue to operate under its current
investment management agreement with AEFC.
 
                                       24

                         PROPOSAL 8: APPROVE OR REJECT
                      A CHANGE IN THE INVESTMENT OBJECTIVE
                          (Applies to: EQUITY SELECT)
 
Currently the Fund's investment objective is "growth of capital and income". The
Fund invests primarily in mid-capitalization securities. AEFC has advised the
Board that it is becoming increasingly difficult for the portfolio manager to
find mid-cap securities that pay dividends. Most mid-cap companies are run as
growth companies. This means that they are more likely to reinvest all of their
income into the business and less likely to distribute income to their
shareholders. As a result, AEFC recommended to the Board that the Fund's
investment objective be changed to eliminate income as an objective. If
shareholders approve, the Fund's objective will be "growth of capital". While
the Fund may still purchase securities that pay dividends, it will no longer
have income as an objective in making investment decisions.
 
WHAT DOES THE BOARD RECOMMEND AND HOW MANY VOTES ARE NEEDED? The Board
recommends that shareholders approve the change in investment objective. The
change must be approved by the lesser of (a) a majority of the Fund's
outstanding shares or (b) 67% of the shares voted at the meeting, so long as
more than 50% of the shares actually vote. If the change is not approved, the
Fund will continue to operate under its current investment objective.
 
                                       25

                          SECTION C - PROXY VOTING AND
                        SHAREHOLDER MEETING INFORMATION
 
This section includes information about proxy voting and the shareholder
meetings.
 
VOTING.  Each share is entitled to one vote. For those of you who cannot come to
the meeting, the Board is asking permission to vote for you. The shares will be
voted as you instruct either by mail, telephone or internet. Signed proxy cards
returned without instructions will be voted in favor of all proposals.
 
Each corporation or trust issues one or more series of common stock. Each series
is a separate Fund. On the election of board members, ratification of
independent auditors and the change of name, you vote together with the owners
of shares of all the other Funds that are part of the same corporation or trust.
On the investment management agreement, changes of fundamental investment
policies, subadvisory agreement and change in investment objective, you vote
together with the owners of the other shares in your Fund. On the distribution
plan, you vote together with the owners of shares of the same class owned in
your Fund. All votes count toward a quorum, regardless of how they are voted
(For, Against or Abstain). Abstentions are treated as a vote against a proposal.
Broker non-votes (shares for which the underlying owner has not voted and the
broker holding the shares does not have authority to vote) will be counted
toward a quorum. In determining whether a proposal received the affirmative vote
of 67% of the shares voted at the meeting, broker non-votes will be disregarded
in the calculation. In determining whether a proposal received the affirmative
vote of 50% of the outstanding shares, broker non-votes will be treated as a
vote against the proposal.
 
In voting for Board members, you may vote all of your shares cumulatively. This
means that you have the right to give each nominee an equal number of votes or
divide the votes among the nominees as you wish. You have as many votes as the
number of shares you own, including fractional shares, multiplied by the number
of members to be elected. If you elect to withhold authority for any individual
nominee or nominees, you may do so by marking the box labeled "Exception," and
by striking the name of any excepted nominee, as is further explained on the
card itself. If you do withhold authority, the proxies will not vote shares
equivalent to the proportionate number applicable to the names for which
authority is withheld.
 
MASTER/FEEDER FUNDS.  Some Funds are part of a master/feeder structure. The
feeder funds seek their investment objectives by investing their assets
 
                                       26

in master funds with the same policies. Master funds invest in and manage the
securities. Proposals 5 through 8 affect the master funds. Feeder funds, as the
sole shareholders of the master fund, will vote for or against each of those
proposals in proportion to the vote received from feeder fund shareholders.
 
REVOKING YOUR PROXY.  If your plans change and you can attend the meeting,
simply inform the Secretary at the meeting that you will be voting your shares
in person. Also, if you change your mind after you vote, you may change your
vote or revoke it by mail, telephone or internet.
 
JOINT PROXY STATEMENT/SIMULTANEOUS MEETINGS.  This joint proxy statement reduces
the preparation, printing and mailing costs of sending separate proxy statements
for each Fund. The meetings will be held simultaneously with each proposal being
voted on separately by shareholders of a corporation or by shareholders of a
Fund or by a class of shares of the Fund where appropriate. If any shareholder
objects to the holding of simultaneous meetings, the shareholder may move for an
adjournment of his or her Fund's meeting to a time immediately after the
simultaneous meetings so that a meeting of that Fund may be held separately. If
a shareholder makes this motion, the persons named as proxies will consider the
reasons for the objection in deciding whether to vote in favor of the
adjournment.
 
SOLICITATION OF PROXIES.  The Board is asking for your vote as promptly as
possible. The Fund will pay the expenses for the proxy material and the postage.
Supplementary solicitations may be made by mail, telephone, electronic means or
personal contact by financial advisors. The expenses of supplementary
solicitation will be paid by the Fund and AEFC.
 
SHAREHOLDER PROPOSALS.  No proposals were received from shareholders. The Fund
does not hold regular meetings of shareholders on an annual basis. Therefore, no
anticipated date of the next regular meeting can be provided. If you have a
proposal you believe should be presented to all shareholders, send the proposal
to the Chairman. The proposal will be considered at a meeting of the Board as
soon as practicable.
 
OTHER BUSINESS.  The Board does not know at this time of any other business to
come before the meetings. If something does come up, the proxies will use their
best judgment to vote for you on the matter.
 
ADJOURNMENT.  In the event that not enough votes in favor of any of the
proposals are received by the time scheduled for the meeting, the persons named
as proxies may move for one or more adjournments of the meeting
 
                                       27

for a period of not more than 60 days in the aggregate to allow further
solicitation of shareholders on the proposals. Any adjournment requires the
affirmative vote of a majority of the shares present at the meeting. The persons
named as proxies will vote in favor of adjournment those shares they are
entitled to vote that have voted in favor of the proposals. They will vote
against any adjournment those shares that have voted against any of the
proposals. The Fund will pay the costs of any additional solicitation and of any
adjourned meeting.
 
ANNUAL REPORT.  The latest annual report was previously mailed to you. If you
would like another copy of the annual report and any subsequent semi-annual
report, without charge, please write Bob Severson at American Express
Shareholder Service, P.O. Box 534, Minneapolis, MN 55440-0534 or call
1-800-862-7919.
 
                                       28

                          SECTION D - FUND INFORMATION
 
This section contains the following information about your Fund and its adviser:
 


                                            CONTENT
  TABLE    (all information is shown for the last fiscal year unless noted otherwise)
- ---------  --------------------------------------------------------------------------
        
D-1A       Actual and pro forma expenses for Class A assuming all of the fee changes
           had been in effect during the year
D-1B       Actual and pro forma expenses for Class B
D-1Y       Actual and pro forma expenses for Class Y
D-2        The Fund's pro forma expenses compared to a group of similar funds
D-3        The Fund's fee schedule under its management agreement
D-4        The Fund's size, number of outstanding shares and 5% owners
D-5        Fees paid under the Shareholder Service and Distribution Plan Agreements
D-6        Actual and pro forma Investment Management Services Agreement fees
D-7        Payments the Fund made to AEFC and its affiliates
D-8        Brokerage commissions the Fund paid to an AEFC affiliate
D-9        Information about shareholder approval of current agreements

 
THE FUND'S ADVISER AND DISTRIBUTOR.  AEFC is the adviser or subadviser for each
of the Funds. IDS Life, a wholly-owned subsidiary of AEFC, is the investment
manager and distributor for each of the Annuity Funds. AEFA, a wholly-owned
subsidiary of AEFC, is the distributor for each of the Retail Funds. The address
for AEFC, IDS Life and AEFA is IDS Tower 10, Minneapolis, MN 55440-0010. AEFC is
a wholly-owned subsidiary of American Express, World Financial Center, New York,
NY 10285.
 
PRESIDENT AND BOARD OF DIRECTORS OF AEFC.  David R. Hubers is President and
Chief Executive Officer of AEFC. The following individuals are directors of
AEFC. Except as otherwise noted, each director is an officer of AEFC located at
IDS Tower 10, Minneapolis, MN 55440-0010. Directors: Peter J. Anderson, Karl J.
Breyer, James E. Choat, Gordon L. Eid, Harvey Golub (Chairman, American Express,
New York, NY), David R. Hubers, Marietta L. Johns, Susan D. Kinder, Richard W.
Kling, Steven C. Kumagai, Peter A. Lefferts, Douglas A. Lennick, Jonathan S.
Linen (Vice Chairman, American Express, New York, NY), Barry J. Murphy, Erven A.
Samsel, Norman Weaver, Jr., Michael R. Woodward.
 
PRESIDENT AND BOARD OF DIRECTORS OF IDS LIFE.  Richard W. Kling is President of
IDS Life. The following individuals are directors of IDS Life. Each director is
an officer of AEFC located at IDS Tower 10, Minneapolis, MN 55440-0010.
Directors: David R. Hubers, Richard W. Kling, Paul F. Kolkman, Paula R. Meyer,
James A. Mitchell, Barry J. Murphy, Stuart A. Sedlacek.
 
                                       29

            TABLE D-1A. ACTUAL AND PRO FORMA FUND EXPENSES - CLASS A
                      (as a % of average daily net assets)
 
This table shows how expenses appear in the prospectus fee table. If
shareholders approve Proposal 4, the Fund will discontinue the Shareholder
Service Agreement and enter into a distribution plan. As a result, expenses will
move from one heading to another. Expenses for the last fiscal year paid under
the Shareholder Service Agreement are shown in the Actual column under the
heading "Other Expenses". If that agreement is discontinued, those expenses will
decrease as shown in the Pro Forma column under "Other Expenses". On the other
hand, fees under the distribution plan will increase as shown under the heading
"Distribution".
 


                                                                                                                   TOTAL FUND
                                                                                           OTHER                   OPERATING
                                     MANAGEMENT               DISTRIBUTION               EXPENSES*                  EXPENSES
                                     AGREEMENT          ------------------------  ------------------------  ------------------------
                              ------------------------                   Pro                       Pro                       Pro
ANNUAL OPERATING EXPENSES       Actual                    Actual        Forma       Actual        Forma       Actual        Forma
- ----------------------------  -----------               -----------  -----------  -----------  -----------  -----------  -----------
                                               Pro
                                              Forma
                                           -----------
                                                                                                 
RETAIL FUNDS:
Blue Chip Advantage                 0.38%        0.48%        0.00%        0.25%        0.40%        0.27%        0.78%        1.00%
Bond                                0.48         0.48         0.00         0.25         0.35         0.21         0.83         0.94
California Tax-Exempt               0.47         0.47         0.00         0.25         0.28         0.12         0.75         0.84
Cash Management                     0.27         0.32         0.00         0.00         0.29         0.33         0.56         0.65
Discovery                           0.64         0.64         0.00         0.25         0.39         0.26         1.03         1.15
Diversified Equity Income           0.49         0.45         0.00         0.25         0.37         0.23         0.86         0.93
Emerging Markets                    1.09         1.15         0.00         0.25         0.84         0.75         1.93         2.15
Equity Select                       0.52         0.60         0.00         0.25         0.30         0.15         0.82         1.00
Equity Value                        0.49         0.48         0.00         0.25         0.36         0.22         0.85         0.95
Extra Income                        0.56         0.56         0.00         0.25         0.33         0.18         0.89         0.99
Federal Income                      0.50         0.50         0.00         0.25         0.36         0.21         0.86         0.96
Global Balanced                     0.79         0.80         0.00         0.25         0.74         0.62         1.53         1.67
Global Bond                         0.74         0.74         0.00         0.25         0.42         0.29         1.16         1.28
Global Growth                       0.75         0.75         0.00         0.25         0.47         0.35         1.22         1.35
Growth                              0.53         0.53         0.00         0.25         0.34         0.20         0.87         0.98
High Yield Tax-Exempt               0.44         0.44         0.00         0.25         0.26         0.10         0.70         0.79
Insured Tax-Exempt                  0.45         0.45         0.00         0.25         0.28         0.12         0.73         0.82
Intermediate Tax-Exempt             0.45         0.45         0.00         0.25         0.51         0.35         0.96         1.05
International                       0.74         0.74         0.00         0.25         0.52         0.40         1.26         1.39
Managed Allocation                  0.44         0.44         0.00         0.25         0.36         0.22         0.80         0.91
Massachusetts Tax-Exempt            0.47         0.47         0.00         0.25         0.35         0.19         0.82         0.91
Michigan Tax-Exempt                 0.47         0.47         0.00         0.25         0.35         0.19         0.82         0.91
Minnesota Tax-Exempt                0.46         0.46         0.00         0.25         0.29         0.13         0.75         0.84
Mutual                              0.47         0.47         0.00         0.25         0.33         0.19         0.80         0.91
New Dimensions                      0.50         0.50         0.00         0.25         0.32         0.17         0.82         0.92
New York Tax-Exempt                 0.47         0.47         0.00         0.25         0.32         0.16         0.79         0.88

 
                                       30



                                                                                                                   TOTAL FUND
                                                                                           OTHER                   OPERATING
                                     MANAGEMENT               DISTRIBUTION               EXPENSES*                  EXPENSES
                                     AGREEMENT          ------------------------  ------------------------  ------------------------
                              ------------------------                   Pro                       Pro                       Pro
ANNUAL OPERATING EXPENSES       Actual                    Actual        Forma       Actual        Forma       Actual        Forma
- ----------------------------  -----------               -----------  -----------  -----------  -----------  -----------  -----------
                                               Pro
                                              Forma
                                           -----------
                                                                                                 
Ohio Tax-Exempt                     0.47%        0.47%        0.00%        0.25%        0.36%        0.20%        0.83%        0.92%
Precious Metals                     0.76         0.76         0.00         0.25         0.75         0.66         1.51         1.67
Progressive                         0.61         0.61         0.00         0.25         0.41         0.27         1.02         1.13
Research Opportunities              0.64         0.61         0.00         0.25         0.48         0.36         1.12         1.22
Selective                           0.51         0.51         0.00         0.25         0.35         0.21         0.86         0.97
Small Company Index                 0.33         0.37         0.00         0.25         0.67         0.56         1.00         1.18
Stock                               0.46         0.46         0.00         0.25         0.31         0.16         0.77         0.87
Strategy Aggressive                 0.60         0.55         0.00         0.25         0.41         0.28         1.01         1.08
Tax-Exempt Bond                     0.45         0.45         0.00         0.25         0.28         0.12         0.73         0.82
Tax-Free Money                      0.31         0.36         0.00         0.00         0.23         0.25         0.54         0.61
Utilities Income                    0.52         0.61         0.00         0.25         0.34         0.20         0.86         1.06
 
ANNUITY FUNDS:
Life Aggressive Growth              0.60         0.60         0.00         0.13         0.06         0.06         0.66         0.79
Life Capital Resource               0.61         0.61         0.00         0.13         0.05         0.05         0.66         0.79
Life Global Yield                   0.85         0.85         0.00         0.13         0.10         0.10         0.95         1.08
Life Growth Dimensions              0.63         0.63         0.00         0.13         0.06         0.06         0.69         0.82
Life Income Advantage               0.63         0.63         0.00         0.13         0.06         0.06         0.69         0.82
Life International Equity           0.83         0.83         0.00         0.13         0.11         0.11         0.94         1.07
Life Managed                        0.59         0.59         0.00         0.13         0.05         0.05         0.64         0.77
Life Moneyshare                     0.52         0.52         0.00         0.13         0.05         0.05         0.57         0.70
Life Special Income                 0.61         0.61         0.00         0.13         0.06         0.06         0.67         0.80

 
*For the Retail Funds, other expenses include an administrative services fee, a
 shareholder services fee, a transfer agency fee and other nonadvisory expenses.
 Pro forma numbers reflect a $4 per account increase in the transfer agency fee
 effective Feb. 1, 1999.
 
 For the Annuity Funds, other expenses include an administrative services fee
 and other nonadvisory expenses.
 
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost investing in other mutual funds. Assume you invest
$10,000 and the Fund earns a 5% return. The operating expenses remain the same
each year. The following table shows your costs under the current arrangements
and your costs if the proposed changes had been in effect:
 


                                     1 YEAR                 3 YEARS               5 YEARS               10 YEARS
                            ------------------------  --------------------  --------------------  --------------------
                                             Pro                    Pro                   Pro                   Pro
                              Actual        Forma      Actual      Forma     Actual      Forma     Actual      Forma
                            -----------  -----------  ---------  ---------  ---------  ---------  ---------  ---------
                                                                                     
RETAIL FUNDS:
Blue Chip Advantage          $     576    $     597   $     737  $     803  $     912  $   1,026  $   1,422  $   1,668
Bond                               580          591         752        785        938        995      1,478      1,601

 
                                       31



                                     1 YEAR                 3 YEARS               5 YEARS               10 YEARS
                            ------------------------  --------------------  --------------------  --------------------
                                             Pro                    Pro                   Pro                   Pro
                              Actual        Forma      Actual      Forma     Actual      Forma     Actual      Forma
                            -----------  -----------  ---------  ---------  ---------  ---------  ---------  ---------
                                                                                     
California Tax-Exempt        $     573    $     581   $     728  $     755  $     897  $     943  $   1,388  $   1,489
Cash Management                     57           66         180        208        313        363        705        814
Discovery                          600          611         812        847      1,041      1,102      1,701      1,832
Diversified Equity Income          583          590         761        782        954        990      1,512      1,590
Emerging Markets                   686          707       1,076      1,140      1,491      1,597      2,646      2,863
Equity Select                      580          597         750        803        933      1,026      1,467      1,668
Equity Value                       582          592         758        788        949      1,000      1,501      1,612
Extra Income                       586          596         770        800        969      1,021      1,545      1,657
Federal Income                     583          593         761        791        954      1,005      1,512      1,623
Global Balanced                    648          661         959      1,000      1,293      1,363      2,237      2,382
Global Bond                        612          624         850        886      1,107      1,168      1,843      1,973
Global Growth                      618          631         868        907      1,138      1,203      1,908      2,047
Growth                             584          595         764        797        959      1,015      1,523      1,646
High Yield Tax-Exempt              568          577         713        740        871        918      1,331      1,433
Insured Tax-Exempt                 571          580         722        749        886        933      1,365      1,467
Intermediate Tax-Exempt            593          602         791        818      1,005      1,051      1,623      1,723
International                      622          634         880        918      1,158      1,223      1,951      2,090
Managed Allocation                 578          588         743        776        923        979      1,444      1,568
Massachusetts Tax-Exempt           580          588         749        776        933        979      1,467      1,568
Michigan Tax-Exempt                580          588         749        776        933        979      1,467      1,568
Minnesota Tax-Exempt               573          581         728        755        897        943      1,388      1,489
Mutual                             578          588         743        776        923        979      1,444      1,568
New Dimensions                     580          589         749        779        933        985      1,467      1,579
New York Tax-Exempt                577          585         740        767        918        964      1,433      1,534
Ohio Tax-Exempt                    580          589         752        779        938        985      1,478      1,579
Precious Metals                    646          661         954      1,000      1,283      1,363      2,216      2,382
Progressive                        599          609         809        841      1,036      1,092      1,690      1,810
Research Opportunities             608          618         838        868      1,087      1,138      1,800      1,908
Selective                          583          594         761        794        954      1,010      1,512      1,634
Small Company Index                597          614         803        856      1,026      1,117      1,668      1,865
Stock                              575          584         734        764        907        959      1,410      1,523
Strategy Aggressive                598          605         806        827      1,031      1,067      1,679      1,756
Tax-Exempt Bond                    571          580         722        749        886        933      1,365      1,467
Tax-Free Money                      55           62         173        196        302        341        680        766
Utilities Income                   583          603         761        821        954      1,056      1,512      1,734
 
ANNUITY FUNDS:
Life Aggressive Growth              67           81         211        253        368        440        826        982
Life Capital Resource               67           81         211        253        368        440        826        982
Life Global Yield                   97          110         303        344        526        596      1,171      1,322

 
                                       32



                                     1 YEAR                 3 YEARS               5 YEARS               10 YEARS
                            ------------------------  --------------------  --------------------  --------------------
                                             Pro                    Pro                   Pro                   Pro
                              Actual        Forma      Actual      Forma     Actual      Forma     Actual      Forma
                            -----------  -----------  ---------  ---------  ---------  ---------  ---------  ---------
                                                                                     
Life Growth Dimensions       $      70    $      84   $     221  $     262  $     385  $     456  $     862  $   1,018
Life Income Advantage               70           84         221        262        385        456        862      1,018
Life International Equity           96          109         300        341        521        591      1,159      1,310
Life Managed                        65           79         205        246        357        429        802        958
Life Moneyshare                     58           72         183        224        319        390        717        874
Life Special Income                 68           82         215        256        374        445        838        994

 
                                       33

            TABLE D-1B. ACTUAL AND PRO FORMA FUND EXPENSES - CLASS B
                      (as a % of average daily net assets)
 
This table shows how expenses appear in the prospectus fee table. If
shareholders approve Proposal 4, the Fund will discontinue the Shareholder
Service Agreement and enter into a distribution plan. As a result, expenses will
move from one heading to another. Expenses for the last fiscal year paid under
the Shareholder Service Agreement are shown in the Actual column under the
heading "Other Expenses". If that agreement is discontinued, those expenses will
decrease as shown in the Pro Forma column under "Other Expenses". On the other
hand, fees under the distribution plan will increase as shown under the heading
"Distribution".


                                                                                                                 TOTAL FUND
                                                                                                OTHER             OPERATING
                                          MANAGEMENT               DISTRIBUTION               EXPENSES*           EXPENSES
                                          AGREEMENT          ------------------------  ------------------------  -----------
                                   ------------------------                   Pro                       Pro
ANNUAL OPERATING EXPENSES            Actual                    Actual        Forma       Actual        Forma       Actual
- ---------------------------------  -----------               -----------  -----------  -----------  -----------  -----------
                                                    Pro
                                                   Forma
                                                -----------
                                                                                            
Blue Chip Advantage                      0.38%        0.48%        0.75%        1.00%        0.41%        0.28%        1.54%
Bond                                     0.48         0.48         0.75         1.00         0.36         0.22         1.59
California Tax-Exempt                    0.47         0.47         0.75         1.00         0.28         0.12         1.50
Cash Management                          0.27         0.32         0.75         0.75         0.30         0.34         1.32
Discovery                                0.64         0.64         0.75         1.00         0.40         0.27         1.79
Diversified Equity Income                0.49         0.45         0.75         1.00         0.38         0.24         1.62
Emerging Markets                         1.09         1.15         0.75         1.00         0.87         0.78         2.71
Equity Select                            0.52         0.60         0.75         1.00         0.31         0.16         1.58
Equity Value                             0.49         0.48         0.75         1.00         0.37         0.23         1.61
Extra Income                             0.56         0.56         0.75         1.00         0.34         0.19         1.65
Federal Income                           0.50         0.50         0.75         1.00         0.36         0.21         1.61
Global Balanced                          0.79         0.80         0.75         1.00         0.75         0.63         2.29
Global Bond                              0.74         0.74         0.75         1.00         0.43         0.30         1.92
Global Growth                            0.75         0.75         0.75         1.00         0.49         0.37         1.99
Growth                                   0.53         0.53         0.75         1.00         0.35         0.21         1.63
High Yield Tax-Exempt                    0.44         0.44         0.75         1.00         0.26         0.10         1.45
Insured Tax-Exempt                       0.45         0.45         0.75         1.00         0.29         0.13         1.49
Intermediate Tax-Exempt                  0.45         0.45         0.75         1.00         0.51         0.35         1.71
International                            0.74         0.74         0.75         1.00         0.53         0.41         2.02
Managed Allocation                       0.44         0.44         0.75         1.00         0.37         0.23         1.56
Massachusetts Tax-Exempt                 0.47         0.47         0.75         1.00         0.35         0.19         1.57
Michigan Tax-Exempt                      0.47         0.47         0.75         1.00         0.35         0.19         1.57
Minnesota Tax-Exempt                     0.46         0.46         0.75         1.00         0.29         0.13         1.50
Mutual                                   0.47         0.47         0.75         1.00         0.34         0.20         1.56
New Dimensions                           0.50         0.50         0.75         1.00         0.33         0.19         1.58
New York Tax-Exempt                      0.47         0.47         0.75         1.00         0.33         0.17         1.55
Ohio Tax-Exempt                          0.47         0.47         0.75         1.00         0.37         0.21         1.59
Precious Metals                          0.76         0.76         0.75         1.00         0.77         0.68         2.28
Progressive                              0.61         0.61         0.75         1.00         0.42         0.29         1.78
Research Opportunities                   0.64         0.61         0.75         1.00         0.49         0.37         1.88
Selective                                0.51         0.51         0.75         1.00         0.36         0.22         1.62
Small Company Index                      0.33         0.37         0.75         1.00         0.68         0.57         1.76
Stock                                    0.46         0.46         0.75         1.00         0.32         0.18         1.53
Strategy Aggressive                      0.60         0.55         0.75         1.00         0.42         0.29         1.77
Tax-Exempt Bond                          0.45         0.45         0.75         1.00         0.28         0.12         1.48
Utilities Income                         0.52         0.61         0.75         1.00         0.35         0.21         1.62
 

 
                                       Pro
ANNUAL OPERATING EXPENSES             Forma
- ---------------------------------  -----------
 
                                
Blue Chip Advantage                      1.76%
Bond                                     1.70
California Tax-Exempt                    1.59
Cash Management                          1.41
Discovery                                1.91
Diversified Equity Income                1.69
Emerging Markets                         2.93
Equity Select                            1.76
Equity Value                             1.71
Extra Income                             1.75
Federal Income                           1.71
Global Balanced                          2.43
Global Bond                              2.04
Global Growth                            2.12
Growth                                   1.74
High Yield Tax-Exempt                    1.54
Insured Tax-Exempt                       1.58
Intermediate Tax-Exempt                  1.80
International                            2.15
Managed Allocation                       1.67
Massachusetts Tax-Exempt                 1.66
Michigan Tax-Exempt                      1.66
Minnesota Tax-Exempt                     1.59
Mutual                                   1.67
New Dimensions                           1.69
New York Tax-Exempt                      1.64
Ohio Tax-Exempt                          1.68
Precious Metals                          2.44
Progressive                              1.90
Research Opportunities                   1.98
Selective                                1.73
Small Company Index                      1.94
Stock                                    1.64
Strategy Aggressive                      1.84
Tax-Exempt Bond                          1.57
Utilities Income                         1.82

 
*Other expenses include an administrative services fee, a shareholder services
 fee, a transfer agency fee and other nonadvisory expenses. Pro forma numbers
 reflect a $4 per account increase in the transfer agency fee effective Feb. 1,
 1999.
 
                                       34

EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost investing in other mutual funds. Assume you invest
$10,000 and the Fund earns a 5% return. The operating expenses remain the same
each year. The following table shows your costs under the current Agreements and
your costs if the proposed changes had been in effect:
 


                                        1 YEAR                  3 YEARS                 5 YEARS                 10 YEARS
                               ------------------------  ----------------------  ----------------------  ----------------------
                                                Pro                     Pro                     Pro                     Pro
                                 Actual        Forma      Actual       Forma      Actual       Forma      Actual       Forma
                               -----------  -----------  ---------  -----------  ---------  -----------  ---------  -----------
                                                                                            
Blue Chip Advantage             $     657    $     679   $     887   $     954   $   1,040   $   1,155   $   1,634   $   1,877
Bond                                  662          673         902         936       1,067       1,124       1,689       1,811
California Tax-Exempt                 653          662         874         902       1,019       1,067       1,592       1,692
Cash Management                       634          644         819         847         924         972       1,385       1,487
Discovery                             682          694         964       1,000       1,171       1,233       1,635       2,039
Diversified Equity Income             665          672         911         933       1,082       1,119       1,723       1,800
Emerging Markets                      774          796       1,242       1,307       1,635       1,743       2,857       3,071
Equity Select                         661          679         899         954       1,061       1,155       1,678       1,877
Equity Value                          664          674         908         939       1,077       1,129       1,712       1,822
Extra Income                          668          678         921         951       1,098       1,150       1,756       1,866
Federal Income                        664          674         908         939       1,077       1,129       1,712       1,825
Global Balanced                       732          746       1,116       1,158       1,426       1,496       2,439       2,582
Global Bond                           695          707       1,003       1,040       1,238       1,299       2,050       2,178
Global Growth                         702          715       1,025       1,064       1,274       1,340       2,122       2,260
Growth                                666          677         914         948       1,088       1,145       1,734       1,855
High Yield Tax-Exempt                 648          657         859         887         993       1,040       1,535       1,636
Insured Tax-Exempt                    652          661         871         899       1,014       1,061       1,578       1,678
Intermediate Tax-Exempt               674          683         939         967       1,129       1,176       1,825       1,923
International                         705          718       1,034       1,073       1,289       1,355       2,157       2,294
Managed Allocation                    659          670         893         927       1,051       1,108       1,656       1,778
Massachusetts Tax-Exempt              660          669         896         924       1,056       1,103       1,670       1,770
Michigan Tax-Exempt                   660          669         896         924       1,056       1,103       1,670       1,770
Minnesota Tax-Exempt                  653          662         874         902       1,019       1,067       1,592       1,692
Mutual                                659          670         893         927       1,051       1,108       1,656       1,778
New Dimensions                        661          672         899         933       1,061       1,019       1,678       1,797
New York Tax-Exempt                   658          667         890         918       1,046       1,093       1,645       1,745
Ohio Tax-Exempt                       662          671         902         930       1,067       1,114       1,689       1,789
Precious Metals                       731          747       1,113       1,161       1,421       1,501       2,426       2,590
Progressive                           681          693         961         997       1,165       1,227       1,898       2,026
Research Opportunities                691          701         991       1,022       1,217       1,268       2,007       2,114
Selective                             665          676         911         945       1,082       1,140       1,723       1,844
Small Company Index                   679          697         954       1,009       1,155       1,248       1,877       2,071
Stock                                 656          667         884         918       1,035       1,093       1,622       1,742
Strategy Aggressive                   680          687         957         979       1,160       1,196       1,888       1,964
Tax-Exempt Bond                       651          660         868         896       1,009       1,056       1,569       1,670
Utilities Income                      665          685         911         973       1,082       1,186       1,723       1,942

 
                                       35

            TABLE D-1Y. ACTUAL AND PRO FORMA FUND EXPENSES - CLASS Y
                      (as a % of average daily net assets)


                                                                                                                 TOTAL FUND
                                                                                                OTHER             OPERATING
                                          MANAGEMENT               DISTRIBUTION               EXPENSES*           EXPENSES
                                          AGREEMENT          ------------------------  ------------------------  -----------
                                   ------------------------                   Pro                       Pro
ANNUAL OPERATING EXPENSES            Actual                    Actual        Forma       Actual        Forma       Actual
- ---------------------------------  -----------               -----------  -----------  -----------  -----------  -----------
                                                    Pro
                                                   Forma
                                                -----------
                                                                                            
Blue Chip Advantage                      0.38%        0.48%        0.00%        0.00%        0.33%        0.35%        0.71%
Bond                                     0.48         0.48         0.00         0.00         0.28         0.29         0.76
Cash Management                          0.27         0.32         0.00         0.00         0.29         0.31         0.56
Discovery                                0.64         0.64         0.00         0.00         0.32         0.34         0.96
Diversified Equity Income                0.49         0.45         0.00         0.00         0.29         0.31         0.78
Emerging Markets                         1.09         1.15         0.00         0.00         0.77         0.81         1.86
Equity Select                            0.52         0.60         0.00         0.00         0.23         0.24         0.75
Equity Value                             0.49         0.48         0.00         0.00         0.27         0.29         0.76
Extra Income                             0.56         0.56         0.00         0.00         0.26         0.27         0.82
Federal Income                           0.50         0.50         0.00         0.00         0.28         0.29         0.78
Global Balanced                          0.79         0.80         0.00         0.00         0.67         0.70         1.46
Global Bond                              0.74         0.74         0.00         0.00         0.35         0.37         1.09
Global Growth                            0.75         0.75         0.00         0.00         0.40         0.42         1.15
Growth                                   0.53         0.53         0.00         0.00         0.27         0.28         0.80
High Yield Tax-Exempt                    0.44         0.44         0.00         0.00         0.18         0.19         0.62
Insured Tax-Exempt                       0.45         0.45         0.00         0.00         0.20         0.21         0.65
Intermediate Tax-Exempt                  0.45         0.45         0.00         0.00         0.43         0.44         0.88
International                            0.74         0.74         0.00         0.00         0.44         0.47         1.18
Managed Allocation                       0.44         0.44         0.00         0.00         0.28         0.29         0.72
Mutual                                   0.47         0.47         0.00         0.00         0.26         0.27         0.73
New Dimensions                           0.50         0.50         0.00         0.00         0.25         0.26         0.75
Precious Metals                          0.76         0.76         0.00         0.00         0.67         0.71         1.43
Progressive                              0.61         0.61         0.00         0.00         0.34         0.36         0.95
Research Opportunities                   0.64         0.61         0.00         0.00         0.41         0.43         1.05
Selective                                0.51         0.51         0.00         0.00         0.28         0.29         0.79
Small Company Index                      0.33         0.37         0.00         0.00         0.59         0.62         0.92
Stock                                    0.46         0.46         0.00         0.00         0.24         0.25         0.70
Strategy Aggressive                      0.60         0.55         0.00         0.00         0.33         0.35         0.93
Tax-Exempt Bond                          0.45         0.45         0.00         0.00         0.18         0.19         0.63
Utilities Income                         0.52         0.61         0.00         0.00         0.27         0.28         0.79
 

 
                                       Pro
ANNUAL OPERATING EXPENSES             Forma
- ---------------------------------  -----------
 
                                
Blue Chip Advantage                      0.83%
Bond                                     0.77
Cash Management                          0.63
Discovery                                0.98
Diversified Equity Income                0.76
Emerging Markets                         1.96
Equity Select                            0.84
Equity Value                             0.77
Extra Income                             0.83
Federal Income                           0.79
Global Balanced                          1.50
Global Bond                              1.11
Global Growth                            1.17
Growth                                   0.81
High Yield Tax-Exempt                    0.63
Insured Tax-Exempt                       0.66
Intermediate Tax-Exempt                  0.89
International                            1.21
Managed Allocation                       0.73
Mutual                                   0.74
New Dimensions                           0.76
Precious Metals                          1.47
Progressive                              0.97
Research Opportunities                   1.04
Selective                                0.80
Small Company Index                      0.99
Stock                                    0.71
Strategy Aggressive                      0.90
Tax-Exempt Bond                          0.64
Utilities Income                         0.89

 
*Other expenses include an administrative services fee, a shareholder services
 fee, a transfer agency fee and other nonadvisory expenses. Pro forma numbers
 reflect a $2 per account increase in the transfer agency fee effective April 1,
 1999.
 
                                       36

EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost investing in other mutual funds. Assume you invest
$10,000 and the Fund earns a 5% return. The operating expenses remain the same
each year. The following table shows your costs under the current Agreements and
your costs if the proposed changes had been in effect:
 


                                         1 YEAR                   3 YEARS                  5 YEARS                10 YEARS
                                ------------------------  ------------------------  ----------------------  --------------------
                                                 Pro                       Pro                     Pro                    Pro
                                  Actual        Forma       Actual        Forma      Actual       Forma      Actual      Forma
                                -----------  -----------  -----------  -----------  ---------  -----------  ---------  ---------
                                                                                               
Blue Chip Advantage              $      73    $      85    $     227    $     265   $     396   $     461   $     886  $   1,029
Bond                                    78           79          243          247         423         429         946        958
Cash Management                         57           64          180          202         313         352         704        790
Discovery                               98          100          306          312         532         543       1,183      1,206
Diversified Equity Income               80           78          249          243         434         423         970        946
Emerging Markets                       189          199          585          616       1,007       1,058       2,185      2,290
Equity Select                           77           86          240          268         418         467         934      1,041
Equity Value                            78           79          243          246         423         429         946        958
Extra Income                            84           85          262          265         456         461       1,018      1,029
Federal Income                          80           81          249          253         434         440         970        982
Global Balanced                        149          153          462          474         798         819       1,751      1,796
Global Bond                            111          113          347          353         602         612       1,333      1,356
Global Growth                          117          119          366          372         634         645       1,402      1,425
Growth                                  82           83          255          259         445         450         994      1,006
High Yield Tax-Exempt                   63           64          199          202         346         352         778        790
Insured Tax-Exempt                      66           67          208          211         363         368         814        826
Intermediate Tax-Exempt                 90           91          281          284         488         494       1,089      1,100
International                          120          123          375          384         650         666       1,437      1,471
Managed Allocation                      74           75          230          234         401         407         898        910
Mutual                                  75           76          234          237         407         412         910        922
New Dimensions                          77           78          240          243         418         423         934        946
Precious Metals                        146          150          453          465         783         804       1,718      1,762
Progressive                             97           99          303          309         526         537       1,171      1,194
Research Opportunities                 107          106          334          331         580         575       1,287      1,276
Selective                               81           82          253          256         440         445         982        994
Small Company Index                     94          101          294          316         510         548       1,136      1,218
Stock                                   72           73          224          227         390         396         874        886
Strategy Aggressive                     95           92          297          287         516         499       1,147      1,112
Tax-Exempt Bond                         64           65          202          205         352         357         790        802
Utilities Income                        81           91          253          284         440         494         982      1,100

 
                                       37

         TABLE D-2. PRO FORMA EXPENSE RATIO COMPARED TO SIMILAR FUNDS*
                    (lower number indicates lower expenses)
 
This table shows how the Fund's expenses rank compared to a group of similar
funds. A higher number indicates lower expenses. For example, Managed Allocation
would rank 19 out of 20 similar funds -- only one fund in the group has lower
expenses.


             FUND                  RANKING
- -------------------------------  -----------
                              
Blue Chip Advantage............       19/34
Bond...........................       33/51
California Tax-Exempt..........       13/32
Cash Management................       31/54
Discovery......................       23/48
Diversified Equity Income......       21/27
Emerging Markets...............       13/57
Equity Select..................       46/59
Equity Value...................       48/61
Extra Income...................       14/27
Federal Income.................       13/25
Global Balanced................       30/37
Global Bond....................       16/35
Global Growth..................       26/38
Growth.........................       17/32
High Yield Tax-Exempt..........       29/52
Insured Tax-Exempt.............       12/17
Intermediate Tax-Exempt........        9/43
International..................       19/24
 

             FUND                  RANKING
- -------------------------------  -----------
                              
Managed Allocation.............       19/20
Massachusetts Tax-Exempt.......       10/20
Michigan Tax-Exempt............        9/18
Minnesota Tax-Exempt...........       12/17
Mutual.........................       30/32
New Dimensions.................       27/40
New York Tax-Exempt............       12/22
Ohio Tax-Exempt................        6/17
Precious Metals................        8/14
Progressive....................       29/32
Research Opportunities.........       35/94
Selective......................       18/38
Small Company Index............        1/15
Stock..........................       25/31
Strategy Aggressive............       56/73
Tax-Exempt Bond................      62/110
Tax-Free Money.................       69/78
Utilities Income...............       20/26

 
*The rankings are based on expenses of Class A. Shareholders of Class B and
 Class Y should refer to the Class A ranking for comparison purposes. The
 ranking is based on the Fund's total expenses assuming that shareholders
 approve the proposed distribution plan, transfer agency fees are increased and
 management fees are changed as described in this proxy statement. The ranking
 information was supplied by Lipper, a company not affiliated with the Fund or
 AEFC. Lipper is the leading provider of data and analyses on the investment
 company business. Lipper developed the comparison group (the "universe") by
 selecting funds with similar investment objectives, as categorized by Lipper,
 and similar asset size.
 
                                       38

 


                                                       PRO FORMA       CATEGORY AVERAGE
                  ANNUITY FUND                       EXPENSE RATIO      EXPENSE RATIO*
- -------------------------------------------------  -----------------  -------------------
                                                                
Life Aggressive Growth...........................           0.79%               0.91%
Life Capital Resource............................           0.79                0.86
Life Global Yield................................           1.08                1.03
Life Growth Dimensions...........................           0.82                0.86
Life Income Advantage............................           0.82                0.82
Life International Equity........................           1.07                1.19
Life Managed.....................................           0.77                0.84
Life Moneyshare..................................           0.70                0.52
Life Special Income..............................           0.80                0.75

 
*Category average expense ratio information was supplied by Variable Annuity
 Research and Development Service ("VARDS"), a company not affiliated with the
 Fund or AEFC. VARDS developed the category average by selecting subaccounts
 with similar investment objectives, as described in the funds' prospectuses.
 Categories contain between 10 and 573 subaccounts. The average category size is
 232 subaccounts.
 
                                       39

                        TABLE D-3. FUND MANAGEMENT FEES
 


- ------------------------------------------------------------------
                   
    RETAIL FUNDS       MANAGEMENT FEE (annual rate; in billions)
- ------------------------------------------------------------------
Blue Chip Advantage   First $.25 - .44%; next $.25 - .415%; next
                      $.25 - .39%; next $.25 - .365%; over $1 -
                      .34%
- ------------------------------------------------------------------
 
Bond                  First $1 - .52%; next $1 - .495%; next $1 -
Federal Income(1)     .47%; next $3 - .445%; next $3 - .42%; over
Selective(1)          $9 - .395%
- ------------------------------------------------------------------
 
California            First $.25 - .47%; next $.25 - .445%; next
Tax-Exempt            $.25 - .42%; next $.25 - .405%; over $1 -
Massachusetts Tax-    .38%
Exempt
Michigan Tax-Exempt
Minnesota Tax-Exempt
Ohio Tax-Exempt
New York Tax-Exempt
- ------------------------------------------------------------------
 
Cash Management       First $1 - .31%; next $.5 - .293%; next $.5
Tax-Free Money        - .275%; next $.5 - .258%; over $2.5 - .24%
- ------------------------------------------------------------------
 
Discovery(2)          First $.25 - .64%; next $.25 - .615%; next
Progressive(2)        $.25 - .59%; next $.25 - .565%; next $1 -
                      .54%; over $2 - .515%
- ------------------------------------------------------------------
 
Diversified Equity    First $.5 - .53%; next $.5 - .505%; next $1
Income(1)             - .48%; next $1 - .455%; next $3 - .43%;
Equity Select(2)      over $6 - .40%
Equity Value
Managed
Allocation(1,2,3)
Stock(1,2)
Utilities Income
- ------------------------------------------------------------------
 
Extra Income(1)       First $1 - .59%; next $1 - .565%; next $1 -
                      .54%; next $3 - .515%; next $3 - .49%; over
                      $9 - .465%
- ------------------------------------------------------------------
 
Emerging              First $.25 - 1.10%; next $.25 - 1.08%; next
Markets(1,5)          $.25 - 1.06%; next $.25 - 1.04%; next $1
                      -1.02%; over $2 - 1.0%
- ------------------------------------------------------------------
 
Global Balanced(4,6 ) First $.25 - .79%; next $.25 - .765%; next
                      $.25 - .74%; next $.25 - .715%; next $1 -
                      .69%; over $2 - .665%
- ------------------------------------------------------------------
 
Global Bond(1)        First $.25 - .77%; next $.25 - .745%; next
                      $.25 - .72%; next $.25 - .695%; over $1 -
                      .67%
- ------------------------------------------------------------------

 
                                       40



- ------------------------------------------------------------------
    RETAIL FUNDS       MANAGEMENT FEE (annual rate; in billions)
                   
- ------------------------------------------------------------------
Global Growth(1,4)    First $.25 - .80%; next $.25 - .775%; next
Internationa1(2,4)    $.25 - .75%; next $.25 - .725%; next $1 -
Precious Metals(2)    .70%; over $2 - .675%
- ------------------------------------------------------------------
 
Growth(1,2)           First $1 - .60%; next $1 - .575%; next $1 -
Strategy              .55%; next $3 - .525%; over $6 - .50%
Aggressive(3)
- ------------------------------------------------------------------
 
High Yield            First $1 - .49%; next $1 - .465%; next $1 -
Tax-Exempt(1)         .44%; next $3 - .415%; next $3 - .39%; over
                      $9 - .36%
- ------------------------------------------------------------------
 
Insured Tax-Exempt    First $1 - .45%; next $1 - .425%; next $1 -
Intermediate Tax-     .40%; next $3 - .375%; over $6 - .35%
Exempt(7)
Tax-Exempt Bond
- ------------------------------------------------------------------
 
Mutua1(1,2)           First $1 - .53%; next $1 - .505%; next $1 -
                      .48%; next $3 - .455%; over $6 - .43%
- ------------------------------------------------------------------
 
New Dimensions(1,2)   First $1 - .60%; next $1 - .575%; next $1 -
                      .55%; next $3 - .525%; next $6 - .50%; over
                      $12 - .49%
- ------------------------------------------------------------------
 
Research              First $.25 - .65%; next $.25 - .625%; next
Opportunities(1)      $.50 - .60%; next $1 - .575%; next $1 -
                      .55%; next $3 - .525%; over $6 - .50%
- ------------------------------------------------------------------
 
Small Company         First $.25 - .38%; next $.25 - .37%; next
Index(8)              $.25 - .36%; next $.25 - .35%; over $1 -
                      .34%
 
- ------------------------------------------------------------------

 
(1)The Fund is part of the master/feeder structure. Management fees are paid by
   the Portfolio on behalf of the Fund.
 
(2)The Fund has a performance incentive adjustment based on its performance
   compared to a Lipper index of comparable funds over a rolling 12-month
   period.
 
(3)Under a subadvisory agreement with American Express Asset Management Group
   ("AEAMG"), AEFC pays AEAMG a fee equal on an annual basis to 0.35% of average
   daily net assets.
 
(4)Under a subadvisory agreement with American Express Asset Management
   International Inc. ("AEAMI"), AEFC pays AEAMI a fee equal on an annual basis
   to 0.35% of average daily net assets.
 
(5)Under a subadvisory agreement with AEAMI, AEFC pays AEAMI a fee equal on an
   annual basis to 0.50% of average daily net assets.
 
(6)Total fees and expenses have been capped at 1.5% through 10/31/99.
 
(7)Total fees and expenses have been capped at 0.9% through 11/30/99.
 
(8)Total fees and expenses have been capped at 1.0% through 1/31/00.
 
                                       41

 


- ----------------------------------------------------------------------------------
                         
      ANNUITY FUNDS                MANAGEMENT FEE (annual rate; in billions)
- ----------------------------------------------------------------------------------
Life Aggressive Growth(1  ) First $.25 - .65%; next $.25 - .635%; next $.25 - .62%;
                            next $.25 - .605%; next $1 - .59%; over $2 - .575%
- -------------------------------------------------------------------------
 
Life Capital Resource(1   ) First $1 - .63%; next $1 - .615%; next $1 - .60%; next
Life Growth Dimensions(1  ) $3 - .585%; over $6 - .57%
- -------------------------------------------------------------------------
 
Life Global Yield(1       ) First $.25 - .84%; next $.25 - .825%; next $.25 - .81%;
                            next $.25 - .795%; over $1 - .78%
- -------------------------------------------------------------------------
 
Life Income Advantage(1   ) First $1 - .62%; next $1 - .605%; next $1 - .59%; next
                            $3 - .575%; next $3 - .56%; over $9 - .545%
- -------------------------------------------------------------------------
 
Life International        ) First $.25 - .87%; next $.25 - .855%; next $.25 - .84%;
Equity(2                    next $.25 - .825%; next $1 - .81%; over $2 - .795%
- -------------------------------------------------------------------------
 
Life Managed(1            ) First $.5 - .63%; next $.5 - .615%; next $1 - .60%;
                            next $1 - .585%; next $3 - .57%; over $6 - .55%
- -------------------------------------------------------------------------
 
Life Moneyshare(1         ) First $1 - .51%; next $.5 - .493%; next $.5 - .475%;
                            next $.5 - .458%; over $2.5 - .44%
- -------------------------------------------------------------------------
 
Life Special Income(1     ) First $1 - .61%; next $1 - .595%; next $1 - .58%; next
                            $3 - .565%; next $3 - .55%; over $9 - .535%
 
- -------------------------------------------------------------------------

 
(1)Under an investment advisory agreement with AEFC, IDS Life pays AEFC a fee
   equal on an annual basis to 0.25% of average daily net assets.
 
(2)Under an investment advisory agreement with AEFC, IDS Life pays AEFC a fee
   equal on an annual basis to 0.35% of average daily net assets. Under a
   subadvisory agreement with AEAMI, AEFC pays AEAMI a fee equal on an annual
   basis to 0.35% of average daily net assets.
 
                                       42

                       TABLE D-4. FUND SIZE AND 5% OWNERS
                              as of Jan. 31, 1999
 


           FUND                NET ASSETS     OUTSTANDING SHARES  5% OWNERS
- ---------------------------  ---------------  ------------------  ----------
                                                         
RETAIL FUNDS:
Blue Chip Advantage:
      Class A                $ 1,862,701,271       156,768,832       None
      Class B                  1,108,899,093        94,082,982       None
      Class Y                    322,959,683        27,142,532       None
Bond:
      Class A                  2,781,631,067       542,284,888       None
      Class B                  1,151,316,616       224,449,238       None
      Class Y                    258,251,812        52,227,936       (1)
California Tax-Exempt:
      Class A                    256,785,314        47,314,217       None
      Class B                     18,913,413         3,486,783       None
Cash Management:
      Class A                  4,466,119,648     4,466,133,321       None
      Class B                    157,500,160       157,551,713       None
      Class Y                    118,536,357       118,572,637       (2)
Discovery:
      Class A                    850,331,336        78,894,093       None
      Class B                    158,872,177        15,213,145       None
      Class Y                     83,098,780         7,715,175       None
Diversified Equity Income:
      Class A                  2,053,425,109       218,870,893       None
      Class B                    595,174,308        63,422,115       None
      Class Y                     47,799,104         7,313,996       None
Emerging Markets:
      Class A                    187,956,322        51,493,865       None
      Class B                    100,559,466        27,968,575       None
      Class Y                         27,338             7,498       None
Equity Select:
      Class A                  1,164,755,900        78,564,594       None
      Class B                     92,695,779         6,377,509       None
      Class Y                        295,900            19,941       (3)
Equity Value:
      Class A                    922,746,116        82,673,244       None
      Class B                  1,695,022,337       151,883,445       None
      Class Y                      1,001,113            89,528       None
Extra Income:
      Class A                  2,790,359,571       701,126,770       None
      Class B                  1,020,523,380       256,445,028       None
      Class Y                      1,208,667           303,614       None

 
                                       43



           FUND                NET ASSETS     OUTSTANDING SHARES  5% OWNERS
- ---------------------------  ---------------  ------------------  ----------
                                                         
Federal Income:
      Class A                $ 1,653,889,353       326,458,955       None
      Class B                  1,363,715,724       269,188,861       None
      Class Y                    185,121,366        36,568,316       None
Global Balanced:
      Class A                     79,145,648        12,375,853       None
      Class B                     53,293,496         8,371,910       None
      Class Y                          1,338               209       None
Global Bond:
      Class A                    724,632,383       116,260,271       None
      Class B                    271,580,617        43,573,706       None
      Class Y                          5,384               864       None
Global Growth:
      Class A                  1,139,520,915       131,197,169       None
      Class B                    365,750,182        42,672,855       None
      Class Y                     24,617,049         2,831,212       (4)
Growth:
      Class A                  4,328,556,812       106,246,536       None
      Class B                  1,286,149,459        32,594,951       None
      Class Y                    769,890,318        19,361,441       (5)
High Yield Tax-Exempt:
      Class A                  5,795,966,759     1,235,042,959       None
      Class B                    290,045,219        61,807,892       None
      Class Y                         12,080             2,791       (6)
Insured Tax-Exempt:
      Class A                    462,804,316        81,501,573       None
      Class B                     55,931,561         9,850,592       None
      Class Y                          1,289               227       None
Intermediate Tax-Exempt:
      Class A                     24,097,450         4,637,972       None
      Class B                      7,679,704         1,473,391       None
      Class Y                          1,119               217       None
International:
      Class A                    865,320,322        73,379,029       None
      Class B                    413,506,014        35,207,796       None
      Class Y                     81,631,533         6,924,507       None
Managed Allocation:
      Class A                  2,378,268,978       222,254,104       None
      Class B                    275,550,528        25,928,798       None
      Class Y                    104,587,825         9,768,617       None
Massachusetts Tax-Exempt:
      Class A                     71,686,526        12,771,833       None
      Class B                     16,073,739         2,857,489       None

 
                                       44



           FUND                NET ASSETS     OUTSTANDING SHARES  5% OWNERS
- ---------------------------  ---------------  ------------------  ----------
                                                         
Michigan Tax-Exempt:
      Class A                $    78,370,271        14,005,593       None
      Class B                      6,107,195         1,091,420       None
Minnesota Tax-Exempt:
      Class A                    401,456,595        73,522,311       None
      Class B                     39,785,690         7,298,091       None
Mutual:
      Class A                  3,279,797,958       248,954,646       None
      Class B                    419,285,100        32,055,012       None
      Class Y                  1,382,091,585       104,852,543       None
New Dimensions:
      Class A                 12,485,497,384       415,786,808       None
      Class B                  3,347,326,341       113,457,420       None
      Class Y                  5,269,545,011       175,209,854       None
New York Tax-Exempt:
      Class A                    104,801,766        19,553,590       None
      Class B                     12,076,885         2,252,904       None
Ohio Tax-Exempt:
      Class A                     70,812,151        12,825,135       None
      Class B                      6,839,654         1,230,535       (7)
Precious Metals:
      Class A                     51,449,502         9,187,741       None
      Class B                      7,513,453         1,357,413       None
      Class Y                            761               136       None
Progressive:
      Class A                    474,400,512        64,164,826       None
      Class B                     96,590,477        13,287,294       None
      Class Y                      9,827,076         1,330,235       None
Research Opportunities:
      Class A                    405,322,578        52,287,661       None
      Class B                    230,289,545        30,299,714       None
      Class Y                        372,264            47,923       None
Selective:
      Class A                  1,236,203,998       132,719,516       None
      Class B                    194,783,235        20,912,796       None
      Class Y                    244,247,645        26,118,292       None
Small Company Index:
      Class A                    596,296,138        97,570,741       None
      Class B                    370,805,760        61,783,355       None
      Class Y                      1,843,411           301,133       None
Stock:
      Class A                  3,328,250,933       121,741,050       None
      Class B                    331,023,787        12,187,562       None
      Class Y                  1,159,002,597        42,486,070       None

 
                                       45



           FUND                NET ASSETS     OUTSTANDING SHARES  5% OWNERS
- ---------------------------  ---------------  ------------------  ----------
                                                         
Strategy Aggressive:
      Class A                $   631,222,993        26,539,190       None
      Class B                    851,799,903        37,126,050       None
      Class Y                          2,277                95       None
Tax-Exempt Bond:
      Class A                    990,918,962       236,146,978       None
      Class B                     38,661,778         9,211,920       None
      Class Y                         11,260             2,684       (8)
 
Tax-Free Money:                  169,351,838       169,834,948       None
Utilities Income:
      Class A                  1,201,059,615       127,147,819       None
      Class B                    337,168,356        35,699,113       None
      Class Y                        395,947            41,933       (9)
 
ANNUITY FUNDS:
Life Aggressive Growth         2,493,945,569       155,923,936       None
Life Capital Resource          5,872,130,686       172,912,003       None
Life Global Yield                208,970,117        19,690,493       None
Life Growth Dimensions         2,939,443,914       161,014,083       None
Life Income Advantage            598,767,561        66,233,206       None
Life International Equity      2,201,315,272       138,007,624       None
Life Managed                   5,289,615,521       275,100,401       None
Life Moneyshare                  528,383,277       528,428,088       None
Life Special Income            1,917,701,912       171,707,850       None

 
(1)Phifer Wire Products, American Express Trust Company 733 Marquette Ave.,
   Minneapolis MN 55402, owns 2,846,918 shares (5.45%) of Class Y.
 
(2)PNC Bank, PNC Bank Two Oliver Plaza, 620 Liberty Ave., Pittsburgh PA 15222,
   owns 7,509,849 shares (6.33%) of Class Y.
 
(3)WMC & Co., 1900 Foshay Tower, 821 Marquette Ave., Minneapolis MN 55402, owns
   13,792 shares (69.16%) of Class Y.
 
(4)Jet Aviation Holdings Inc., American Express Trust Company P.O. Box 534,
   Minneapolis MN 55440, owns 291,105 shares (10.28%) of Class Y.
 
(5)Kimberly-Clark Corporation, US Bank P.O. Box 64010, St. Paul MN 55164, owns
   2,076,198 shares (10.74%) of Class Y.
 
(6)WMC & Co., 1900 Foshay Tower, 821 Marquette Ave., Minneapolis MN 55402, owns
   2,791 shares (100.00%) of Class Y.
 
(7)George J. Barder Trust, 3695 Center Road, Brunswick OH 44212, owns 66,427
   shares (5.40%) of Class B.
 
(8)WMC & Co., 1900 Foshay Tower, 821 Marquette Ave., Minneapolis MN 55402, owns
   2,684 shares (100.00%) of Class Y.
 
(9)WMC & Co., 1900 Foshay Tower, 821 Marquette Ave., Minneapolis MN 55402, owns
   4,376 shares (10.44%) of Class Y.
 
                                       46

                 TABLE D-5. PLAN AND SHAREHOLDER SERVICE FEES*
 


                                          CLASS A                      CLASS B
                                ---------------------------  ---------------------------
                                                AGGREGATE                    AGGREGATE
                                                   FEE                          FEE
                                 AGGREGATE     (as a % of     AGGREGATE     (as a % of
                                    FEE          average         FEE          average
             FUND               (in dollars)   net assets)   (in dollars)   net assets)
- ------------------------------  ------------  -------------  ------------  -------------
                                                               
Blue Chip Advantage             $  1,662,550        0.173%   $  4,368,530        0.922%
Bond                               4,686,759        0.173       9,286,159        0.925
California Tax-Exempt                410,510        0.173         114,455        0.922
Discovery                          1,649,649        0.173       1,205,018        0.924
Diversified Equity Income          3,349,345        0.173       4,308,604        0.924
Emerging Markets                     425,703        0.174       1,151,958        0.922
Equity Select                      1,766,901        0.172         562,310        0.925
Equity Value                       1,113,607        0.173      15,584,436        0.923
Extra Income                       4,999,691        0.173       7,678,938        0.922
Federal Income                     2,317,759        0.173       8,606,272        0.921
Global Balanced                       84,602        0.174         295,896        0.922
Global Bond                        1,269,000        0.173       2,285,572        0.922
Global Growth                      1,660,146        0.173       2,459,902        0.921
Growth                             5,770,742        0.173       7,807,201        0.924
High Yield Tax-Exempt              9,974,466        0.174       2,125,768        0.925
Insured Tax-Exempt                   797,021        0.173         349,150        0.923
Intermediate Tax-Exempt               33,631        0.175          59,162        0.925
International                      1,474,727        0.172       3,743,430        0.921
Managed Allocation                 4,420,478        0.173       2,427,724        0.924
Massachusetts Tax-Exempt             114,879        0.174          94,863        0.924
Michigan Tax-Exempt                  132,861        0.174          40,221        0.922
Minnesota Tax-Exempt                 662,340        0.174         242,780        0.924
Mutual                             5,588,730        0.171       3,015,696        0.924
New Dimensions                    16,191,476        0.173      18,258,044        0.924
New York Tax-Exempt                  185,919        0.173          80,926        0.924
Ohio Tax-Exempt                      117,144        0.174          39,650        0.925
Precious Metals                      116,374        0.170          74,784        0.923
Progressive                          888,778        0.172         738,479        0.924
Research Opportunities               478,985        0.174       1,317,622        0.925
Selective                          2,166,433        0.171       1,273,406        0.921
Small Company Index                  392,799        0.173       1,119,917        0.922
Stock                              5,115,762        0.170       2,269,419        0.924
Strategy Aggressive                  816,876        0.172       7,388,115        0.923
Tax-Exempt Bond                    1,712,601        0.173         272,356        0.925
Utilities Income                   1,467,758        0.173       1,256,722        0.924

 
*Class A paid fees under a shareholder service agreement. Class B paid fees
 under a distribution plan and a shareholder service agreement.
 
                                       47

                        TABLE D-6. ACTUAL AND PRO FORMA
                 INVESTMENT MANAGEMENT SERVICES AGREEMENT FEES
 


           FUND              ACTUAL FEE   PRO FORMA FEE     % CHANGE
- --------------------------  ------------  --------------  -------------
                                                 
Blue Chip                   $  5,953,408   $  7,521,171          26.3%
Cash Management                9,928,579     11,715,041          18.0
Diversified Equity Income     12,209,566     11,287,366          (7.6)
Emerging Markets               4,040,624      4,250,985           5.2
Equity Select                  5,640,461      6,140,318           8.9
Equity Value                  11,485,241     11,265,045          (1.9)
Global Balanced                  636,029        647,338           1.8
Global Growth                  9,353,092      9,345,711          (0.1)
Research Opportunities         2,718,858      2,586,595          (4.9)
Small Company Index            1,463,843      1,614,584          10.3
Strategy Aggressive            7,578,435      6,877,446          (9.2)
Tax-Free Money                   496,592        576,673          16.1
Utilities Income               5,074,299      6,001,874          18.3

 
              TABLE D-7. FUND PAYMENTS TO AEFC AND ITS AFFILIATES*
 


        FUND            ADMIN        PLAN        SERVICE        TA        CUSTODY
- --------------------  ---------  ------------  -----------  -----------  ---------
                                                          
Blue Chip             $ 450,673  $  3,544,614  $ 2,600,732  $ 2,203,371  $ 127,504
Cash Management         942,396       863,705          N/A    7,089,268    253,421
Diversified Equity
  Income                805,208     3,496,529    4,246,227    3,046,414    253,255
Emerging Markets        359,269       934,695      642,997    1,161,894    736,885
Equity Select           415,721       456,295    1,873,372      779,586    100,821
Equity Value            786,903    12,659,839    4,038,512    3,115,731    242,477
Global Balanced          48,915       240,003      140,495      157,293     70,307
Global Growth           627,858     1,996,877    2,745,372    2,207,944    621,414
Research
  Opportunities         243,876     1,068,895      727,712      786,849     45,064
Small Company Index     324,356       908,232      692,276      779,605    299,901
Strategy Aggressive     642,964     6,004,726    2,200,265    2,290,176    124,680
Tax-Free Money           50,968           N/A          N/A      159,134     **
Utilities Income        379,141     1,019,619    1,704,929    1,004,792    131,975

 
 *The Administrative Services Agreement ("Admin") is between the Fund and AEFC.
  The Plan and Service agreements are between the Fund and AEFA. The TA
  Agreement is between the Fund and AECSC. The Custodian Agreement ("Custody")
  is between the Fund and American Express Trust Company. Services under these
  agreements will continue to be provided after the Agreement is approved,
  although if shareholders approve the new distribution plan, the services
  currently provided under the Shareholder Service Agreement ("Service") will be
  provided under the Plan and Agreement of Distribution ("Plan").
 
**For this fund, the Custodian Agreement is with U.S. Bank, N.A., a company that
  is not affiliated with AEFC.
 
                                       48

                    TABLE D-8. BROKERAGE COMMISSIONS PAID TO
                 AMERICAN ENTERPRISE INVESTMENT SERVICES INC.*
 


                             AMOUNT OF       % OF ALL
           FUND             COMMISSIONS     COMMISSIONS
- --------------------------  ------------  ---------------
                                    
Blue Chip                    $  332,604           7.35%
Cash Management                       0           0.00
Diversified Equity Income        49,994           0.99
Emerging Markets                      0           0.00
Equity Select                   158,346           9.43
Equity Value                      5,643           0.12
Global Balanced                       0           0.00
Global Growth                         0           0.00
Research Opportunities           81,111           7.05
Small Company Index                   0           0.00
Strategy Aggressive               7,404           0.36
Tax-Free Money                        0           0.00
Utilities Income                 22,259           1.04

 
*A wholly-owned subsidiary of AEFC. These transactions were executed at rates
 determined to be reasonable and fair as compared to the rates another broker
 would charge.
 
              TABLE D-9. DATES RELATING TO APPROVAL OF AGREEMENTS
 


                              CLASS B
                            DISTRIBUTION           MANAGEMENT AGREEMENT
                               PLAN      ----------------------------------------
                            -----------   DATE LAST      DATE         REASON
                               DATE      APPROVED BY    ENTERED    SUBMITTED TO
           FUND               ADOPTED    SHAREHOLDERS    INTO      SHAREHOLDERS
- --------------------------  -----------  ------------  ---------  ---------------
                                                      
                                                                          Initial
Emerging Markets              11/13/96      11/13/96    11/13/96         approval
                                                                          Initial
Global Balanced               11/13/96      11/13/96    11/13/96         approval
                                                                          Initial
Intermediate Tax-Exempt       11/13/96      11/13/96    11/13/96         approval
                                                                          Initial
Research Opportunities         8/19/96       8/19/96     8/19/96         approval
                                                                          Initial
Small Company Index            8/19/96       8/19/96     8/19/96         approval
All other Retail Funds        3/20/95*        9/9/94     3/20/95        **

 
 *Excluding Tax-Free Money that does not have a Class B Plan.
 
**Shareholders approved (1) basing the fee solely on the assets of the Fund, not
  on the assets of all of the funds in the Group and (2) eliminating provisions
  regarding administration and accounting services. The Fund and AEFC then
  entered into a separate Administrative Services Agreement.
 
                                       49

                      SECTION E - BOARD MEMBER INFORMATION
 
This section includes the following information:
 
- -  TABLE E-1 shows the compensation paid to Board members by each Fund in its
   last fiscal year
 
- -  TABLE E-2 shows the total number of shares of all the Funds owned by the
   Board members and the number of shares owned in each individual Fund
 
                      TABLE E-1. BOARD MEMBER COMPENSATION


BOARD MEMBER:                                                            ATWATER      CHENEY       HUTTER       JONES      SIMPSON
- ---------------------------------------------------------------------  -----------  -----------  -----------  ---------  -----------
                                                                                                          
RETAIL FUNDS:
Blue Chip Advantage..................................................   $    1304    $    1184    $    1404   $    1338   $    1080
Bond.................................................................        3133         3123         3183        3194        2972
California Tax-Exempt................................................         900          756          950         806         630
Cash Management......................................................        2800         2770         2850        2845        2625
Discovery............................................................        1400         1286         1450        1361        1155
Diversified Equity Income............................................        1150         1020         1200        1097         893
Emerging Markets.....................................................         975          781          950         856         630
Equity Select........................................................        1525         1336         1450        1542        1286
Equity Value.........................................................        2162         2038         2212        2202        1926
Extra Income.........................................................        1492         1331         1492        1382        1200
Federal Income.......................................................        1233         1057         1233        1109         929
Global Balanced......................................................         975          781          950         856         630
Global Bond..........................................................        1075          887         1050         962         735
Global Growth........................................................        1075          887         1050         962         735
Growth...............................................................        1358         1242         1408        1318        1112
 

BOARD MEMBER:                                                            WURTELE
- ---------------------------------------------------------------------  -----------
                                                                    
RETAIL FUNDS:
Blue Chip Advantage..................................................   $    1429
Bond.................................................................        3283
California Tax-Exempt................................................        1050
Cash Management......................................................        2950
Discovery............................................................        1550
Diversified Equity Income............................................        1300
Emerging Markets.....................................................        1025
Equity Select........................................................        1700
Equity Value.........................................................        2412
Extra Income.........................................................        1642
Federal Income.......................................................        1383
Global Balanced......................................................        1025
Global Bond..........................................................        1125
Global Growth........................................................        1125
Growth...............................................................        1508

 
                                       50



BOARD MEMBER:                                                            ATWATER      CHENEY       HUTTER       JONES      SIMPSON
- ---------------------------------------------------------------------  -----------  -----------  -----------  ---------  -----------
                                                                                                          
High Yield Tax-Exempt................................................   $    2017    $    1858    $    1942   $    2069   $    1808
Insured Tax-Exempt...................................................        1000          862         1050         914         736
Intermediate Tax-Exempt..............................................        1025          806          950        1007         756
International........................................................        1625         1470         1600        1542        1310
Managed Allocation...................................................        1350         1232         1400        1309        1103
Massachusetts Tax-Exempt.............................................         900          756          950         806         630
Michigan Tax-Exempt..................................................         900          756          950         806         630
Minnesota Tax-Exempt.................................................         950          809         1000         860         683
Mutual...............................................................        1675         1577         1725        1853        1444
New Dimensions.......................................................        3150         3140         3200        3220        2995
New York Tax-Exempt..................................................         900          756          950         806         630
Ohio Tax-Exempt......................................................         900          756          950         806         630
Precious Metals......................................................        1001          807         1051         958         706
Progressive..........................................................        1100          968         1150        1043         840
Research Opportunities...............................................         900          756          950         831         630
Selective............................................................        1150          968         1150        1018         840
Small Company Index..................................................         968          826         1068         977         725
Stock................................................................        1400         1286         1450        1361        1155
Strategy Aggressive..................................................        1759         1609         1809        1766        1500
 

BOARD MEMBER:                                                            WURTELE
- ---------------------------------------------------------------------  -----------
                                                                    
High Yield Tax-Exempt................................................   $    2192
Insured Tax-Exempt...................................................        1150
Intermediate Tax-Exempt..............................................        1200
International........................................................        1675
Managed Allocation...................................................        1500
Massachusetts Tax-Exempt.............................................        1050
Michigan Tax-Exempt..................................................        1050
Minnesota Tax-Exempt.................................................        1100
Mutual...............................................................        1825
New Dimensions.......................................................        3300
New York Tax-Exempt..................................................        1050
Ohio Tax-Exempt......................................................        1050
Precious Metals......................................................        1251
Progressive..........................................................        1250
Research Opportunities...............................................        1050
Selective............................................................        1300
Small Company Index..................................................        1093
Stock................................................................        1550
Strategy Aggressive..................................................        2009

 
                                       51



BOARD MEMBER:                                                            ATWATER      CHENEY       HUTTER       JONES      SIMPSON
- ---------------------------------------------------------------------  -----------  -----------  -----------  ---------  -----------
                                                                                                          
Tax-Exempt Bond......................................................   $    1542    $    1353    $    1467   $    1559   $    1303
Tax-Free Money.......................................................        1075          806          950        1058         756
Utilities Income.....................................................        1300         1180         1350        1230        1050
 
ANNUITY FUNDS:
Life Aggressive Growth...............................................        2233         2169         2283        2243        2029
Life Capital Resource................................................        3700         3720         3750        3791        3564
Life Global Yield....................................................         900          756          950         831         630
Life Growth Dimensions...............................................        1367         1251         1417        1333        1125
Life Income Advantage................................................         967          827         1017         903         701
Life International Equity............................................        2100         2028         2150        2100        1888
Life Managed.........................................................        3333         3331         3383        3407        3182
Life Moneyshare......................................................        1000          862         1050         937         735
Life Special Income..................................................        2000         1922         2050        1994        1783
 

BOARD MEMBER:                                                            WURTELE
- ---------------------------------------------------------------------  -----------
                                                                    
Tax-Exempt Bond......................................................   $    1717
Tax-Free Money.......................................................        1292
Utilities Income.....................................................        1450
ANNUITY FUNDS:
Life Aggressive Growth...............................................        2383
Life Capital Resource................................................        3850
Life Global Yield....................................................        1050
Life Growth Dimensions...............................................        1517
Life Income Advantage................................................        1117
Life International Equity............................................        2250
Life Managed.........................................................        3483
Life Moneyshare......................................................        1150
Life Special Income..................................................        2150

 
                                       52

                    TABLE E-2. BOARD MEMBER SHARE OWNERSHIP*
                              as of March 1, 1999
 
ATWATER: All IDS Funds-       shares;        Fund-        shares.
 
CARLSON: All IDS Funds-       shares;        Fund-        shares.
 
CHENEY: All IDS Funds-       shares;        Fund-        shares.
 
DUDLEY: All IDS Funds-       shares;        Fund-        shares.
 
HUBERS: All IDS Funds-       shares;        Fund-        shares.
 
HUTTER: All IDS Funds-       shares;        Fund-        shares.
 
JONES: All IDS Funds-       shares;        Fund-        shares.
 
PEARCE: All IDS Funds-       shares;        Fund-        shares.
 
SIMPSON: All IDS Funds-       shares;        Fund-        shares.
 
THOMAS: All IDS Funds-       shares;        Fund-        shares.
 
WURTELE: All IDS Funds-       shares;        Fund-        shares.
 
*Board members and officers as a group owned less than 1% of each Fund's
 outstanding shares.
 
Bracketed amounts represent shares owned by family members in which the nominee
disclaims ownership, control or voting power.
 
                                       53

                             IDS MUTUAL FUND GROUP
                            PROXY STATEMENT SUMMARY
                                 April 18, 1999
 
Here's a brief overview of some of the changes being recommended for your IDS
mutual fund or variable annuity fund. We encourage you to read the full text of
the enclosed proxy statement.
 
              WHY AM I BEING ASKED TO VOTE?
 
 [GRAPHIC]
              Funds are required to get shareholders' votes for certain kinds of
              changes, like the ones included in this proxy statement. You have
              a right to vote on these changes either by
              mailing your proxy card, calling a toll-free number, or responding
              by internet.
 
IS MY VOTE IMPORTANT?
 
Absolutely! While the Board has reviewed these changes and recommends you
approve them, you have the right to voice your opinion. And, your Fund pays for
most of the cost of holding a shareholder meeting. Until the Fund is sure that
at least half of the shares will vote at the meeting, it will continue to
contact shareholders asking them to vote. These efforts cost your Fund money -
so please, vote immediately.
 
WHAT IS BEING VOTED ON?
 
At all regular meetings, shareholders elect Board members and ratify the
selection of independent auditors. In addition, shareholders at this meeting
will vote on proposals to:
 
    -  Change the name of the Fund from IDS to AXP
 
    -  Add a distribution agreement
 
    -  Change the Investment Management Services Agreement
 
    -  Change some of the investment policies
 
Some of these changes affect all Funds, while others affect only certain Funds.
Please refer to page 3 of the proxy statement to see what proposals apply to
your Fund.
 
WHAT DO BOARD MEMBERS AND INDEPENDENT AUDITORS DO?
 
Board members represent the interests of the shareholders and oversee the
management of the Fund. Independent auditors review the financial statements
prepared for the Fund and give an opinion on whether they present fairly the
financial position of the Fund.
 
WHY CHANGE THE FUND'S NAME FROM IDS TO AXP?
 
The proposal is to change the name of the Fund to AXP, an abbreviated form of
the name of the investment manager, American Express Financial Corporation. For
example, IDS New Dimensions Fund will be changed to AXP New Dimensions Fund.

WHAT CHANGES ARE PROPOSED TO DISTRIBUTION ARRANGEMENTS?
 
The proposal is to change the existing shareholder service agreement to a
distribution plan (also known as a 12b-1 plan). Amounts paid under the
distribution plan will be used for service and education as well as for
advertising materials and programs designed to increase Fund sales. These
efforts are anticipated to increase the Fund's assets. If you are an annuity
fund shareholder, you are being asked to approve a new distribution plan that
will provide additional services and education.
 
WHAT CHANGES ARE PROPOSED TO THE INVESTMENT MANAGEMENT SERVICES AGREEMENT?
 
Shareholders of some funds are being asked to vote on changes to the management
agreement. These changes reflect the research and portfolio management resources
required to manage your Fund and are in line with management fee levels for
other mutual funds.
 
WHAT CHANGES ARE PROPOSED TO FUND POLICIES?
 
Some policies no longer apply because of changes in the law. Others are being
standardized to match the other Funds in the Group. One policy is being added to
permit borrowing and lending between Funds. You are being asked to eliminate,
modify or add these policies. This will not change the way the Fund is managed.
 
HOW DOES THE BOARD RECOMMEND THAT I VOTE?
 
After careful consideration, the Board recommends that you vote FOR each
proposal.
 
HOW DO I VOTE?
 
You can vote in one of four ways:
 
    -  By mail with the enclosed proxy card
 
                                                                  [GRAPHIC]
    -  By telephone
 
    -  Through the internet
 
    -  In person at the meeting
 
Please refer to the enclosed voting instruction card for the telephone number
and internet address. If you own more than one Fund, it is important that you
vote for each Fund.
 
WHO SHOULD I CALL IF I HAVE QUESTIONS?
 
If you have questions about any of the issues described in the proxy statement
or about voting procedures, please call your financial advisor or call client
services at 1-800-xxx-xxxx.

                             IDS MUTUAL FUND GROUP
                            PROXY STATEMENT SUMMARY
                              CLASS Y SHAREHOLDERS
                                 April 18, 1999
 
Here's a brief overview of some of the changes being recommended for your IDS
mutual fund. We encourage you to read the full text of the enclosed proxy
statement.
 
              WHY AM I BEING ASKED TO VOTE?
 
              Funds are required to get shareholders' votes for certain
 
 [GRAPHIC]
              kinds of changes, like the ones included in this proxy statement.
              You have a right to vote on these changes either by mailing your
              proxy card, calling a toll-free number, or responding by internet.
IS MY VOTE IMPORTANT?
 
Absolutely! While the Board has reviewed these changes and recommends you
approve them, you have the right to voice your opinion. And, your Fund pays for
most of the cost of holding a shareholder meeting. Until the Fund is sure that
at least half of the shares will vote at the meeting, it will continue to
contact shareholders asking them to vote. These efforts cost your Fund money -
so please, vote immediately.
 
WHAT IS BEING VOTED ON?
 
At all regular meetings, shareholders elect Board members and ratify the
selection of independent auditors. In addition, shareholders at this meeting
will vote on proposals to:
 
    -  Change the name of the Fund from IDS to AXP
 
    -  Change the Investment Management Services Agreement
 
    -  Change some of the investment policies
 
Some of these changes affect all Funds, while others affect only certain Funds.
Please refer to page 3 of the proxy statement to see what proposals apply to
your Fund.
 
WHAT DO BOARD MEMBERS AND INDEPENDENT AUDITORS DO?
 
Board members represent the interests of the shareholders and oversee the
management of the Fund. Independent auditors review the financial statements
prepared for the Fund and give an opinion on whether they present fairly the
financial position of the Fund.

WHY CHANGE THE FUND'S NAME FROM IDS TO AXP?
 
The proposal is to change the name of the Fund to AXP, an abbreviated form of
the name of the investment manager, American Express Financial Corporation. For
example, IDS New Dimensions Fund will be changed to AXP New Dimensions Fund.
 
WHAT CHANGES ARE PROPOSED TO THE INVESTMENT MANAGEMENT SERVICES AGREEMENT?
 
Shareholders of some funds are being asked to vote on changes to the management
agreement. The changes reflect the research and portfolio management resources
required to manage your Fund, and are in line with management fee levels for
other mutual funds.
 
WHAT CHANGES ARE PROPOSED TO FUND POLICIES?
 
Some policies no longer apply because of changes in the law. Others are being
standardized to match the other Funds in the Group. One policy is being added to
permit borrowing and lending between Funds. You are being asked to eliminate,
modify or add these policies. This will not change the way the Fund is managed.
 
HOW DOES THE BOARD RECOMMEND THAT I VOTE?
 
After careful consideration, the Board recommends that you vote FOR each
proposal.
 
HOW DO I VOTE?
 
You can vote in one of four ways:
 
    -  By mail with the enclosed proxy card
 
                                                                  [GRAPHIC]
    -  By telephone
 
    -  Through the internet
 
    -  In person at the meeting
 
Please refer to the enclosed voting instruction card for the telephone number
and internet address. If you own more than one Fund, it is important that you
vote for each Fund.
 
WHO SHOULD I CALL IF I HAVE QUESTIONS?
 
If you have questions about any of the issues described in the proxy statement
or about voting procedures, please call 1-800-xxx-xxxx.
 
If you are a Plan Sponsor voting on behalf of your retirement plan, please
contact your Regional Director.

                             IDS MUTUAL FUND GROUP
                            PROXY STATEMENT SUMMARY
                AMERICAN ENTERPRISE LIFE/AMERICAN CENTURION LIFE
                                 APRIL 18, 1999
 
Here's a brief overview of some of the changes being recommended for the IDS
mutual fund in which your variable annuity subaccount invests. We encourage you
to read the full text of the enclosed proxy statement.
 
WHY AM I BEING ASKED TO VOTE?
 
Funds are required to get shareholders' votes for certain kinds of changes, like
the ones included in this proxy statement. You have a right to vote on these
changes either by mailing your proxy card, calling a toll-free number, or
responding by internet.
 
IS MY VOTE IMPORTANT?
 
Absolutely! While the Board has reviewed these changes and recommends you
approve them, you have the right to voice your opinion. And, your Fund pays for
most of the cost of holding a shareholder meeting. Until the Fund is sure that
at least half of the shares will vote at the meeting, it will continue to
contact shareholders asking them to vote. These efforts cost your Fund money -
so please, vote immediately.
 
WHAT IS BEING VOTED ON?
 
At all regular meetings, shareholders elect Board members and ratify the
selection of independent auditors. In addition, shareholders at this meeting
will vote on proposals to:
 
    -  Change the name of the Fund from IDS to AXP
 
    -  Add a distribution agreement
 
    -  Change some of the investment policies
 
Some of these changes affect all Funds, while others affect only certain Funds.
Please refer to page 3 of the proxy statement to see what proposals apply to
your Fund.
 
WHAT DO BOARD MEMBERS AND INDEPENDENT AUDITORS DO?
 
Board members represent the interests of the shareholders and oversee the
management of the Fund. Independent auditors review the financial statements
prepared for the Fund and give an opinion on whether they present fairly the
financial position of the Fund.

WHY CHANGE THE FUND'S NAME FROM IDS TO AXP?
 
The proposal is to change the name of the Fund to AXP, an abbreviated form of
the name of the investment manager, American Express Financial Corporation. For
example, IDS New Dimensions Fund will be changed to AXP New Dimensions Fund.
 
WHY ADD A DISTRIBUTION AGREEMENT?
 
You are being asked to approve a new distribution plan (also known as a 12b-1
plan). Amounts paid under the distribution plan will be used for shareholder
service and education, as well as for advertising materials and programs
designed to increase Fund sales. These efforts are anticipated to increase the
Fund's assets.
 
WHAT CHANGES ARE PROPOSED TO FUND POLICIES?
 
Some policies no longer apply because of changes in the law. Others are being
standardized to match the other Funds in the Group. One policy is being added to
permit borrowing and lending between Funds. You are being asked to eliminate,
modify or add these policies. This will not change the way the Fund is managed.
 
HOW DOES THE BOARD RECOMMEND THAT I VOTE?
 
After careful consideration, the Board recommends that you vote FOR each
proposal.
 
HOW DO I VOTE?
 
You can vote in one of four ways:
 
    -  By mail with the enclosed proxy card
 
    -  By telephone
 
    -  Through the internet
 
    -  In person at the meeting
 
Please refer to the enclosed voting instruction card for the telephone number
and internet address. If you own more than one Fund, it is important that you
vote for each Fund.
 
WHO SHOULD I CALL IF I HAVE QUESTIONS?
 
If you have questions about any of the issues described in the proxy statement
or about voting procedures, and your contract was issued by American Enterprise
Life, please call at 1-800-333-3437. If your contract was issued by American
Centurion Life, please call 1-800-504-0469. Or you can contact your annuity
representative.

- --------------------------------------------------------------------------------
                VOTE TODAY BY MAIL, TOUCH-TONE PHONE,  OR THE INTERNET

           CALL TOLL-FREE: 1-888-221-0697 OR BY ACCESSING WWW.PROXYWEB.COM
- --------------------------------------------------------------------------------

SEE THE ENCLOSED INSERT FOR FURTHER INSTRUCTIONS ON VOTING BY PHONE OR INTERNET

***  CONTROL NUMBER:  999 999 999 999 99 ***  V Please fold and detach card at 
                                                 perforation before mailing V

FUND NAME
PRINTS HERE                                     PROXY/VOTING INSTRUCTION CARD

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS/TRUSTEES.

The undersigned hereby appoints Arne H. Carlson, Leslie L. Ogg and William R.
Pearce, or any one of them, as proxies, with full power of substitution, to
represent and to vote all of the shares of the undersigned at the regular
meeting to be held on June 16, 1999, and any adjournment thereof.

TO HAVE YOUR VOTE COUNTED, YOU MUST SIGN, DATE AND RETURN THIS PROXY.  IT WILL
BE VOTED AS MARKED, OR IF NOT MARKED, WILL BE VOTED "FOR" EACH PROPOSAL.

                                                    ----------------------------
                                                    THE BOARD RECOMMENDS A VOTE
                                                        "FOR" ALL PROPOSALS.
                                                    ----------------------------


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


                                                 -------------------------------
                                                            Signature(s)

                                                 Date_____________, 1999
                                                 Owners please sign as names
                                                 appear at left.  Executors,
                                                 administrators, trustees, etc.,
                                                 should indicate position when
                                                 signing.


- --------------------------------------------------------------------------------
     PLEASE REFER TO SECTION A - OVERVIEW (PAGES 3 & 4) OF THE PROXY STATEMENT
              TO DETERMINE WHICH PROPOSALS ARE APPLICABLE TO YOUR FUND.
- --------------------------------------------------------------------------------

                PLEASE VOTE BY FILLING IN THE APPROPRIATE BOXES BELOW.
            V PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING V




1. Election of Board members.  (ALL FUNDS)                                      FOR       WITHHOLD       EXCEPTION
   (01) H. Brewster Atwater, Jr. (02) Arne H. Carlson   (03) Lynne V. Cheney    ALL          ALL
   (04) William H. Dudley        (05) David R. Hubers   (06) Heinz F. Hutter    / /          / /           / /  1.
   (07) Anne P. Jones            (08) William R. Pearce (09) Alan K. Simpson 
   (10) John R. Thomas           (11) C. Angus Wurtele
   TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE 
   "EXCEPTION" BOX AND PRINT THE NOMINEE'S NAME ON THIS LINE.________________
                                                                                FOR       AGAINST        ABSTAIN
2. Ratify the selection of independent auditors  (ALL FUNDS)                    / /          / /           / /  2.

3. Change the Fund name from "IDS" to "AXP" (ALL FUNDS)                         / /          / /           / /  3.

4. Approve a new shareholder service and distribution plan                      / /          / /           / /  4.
   (SEE OVERVIEW-PAGES 3 & 4)

5. Approve changes to the Investment Management Services Agreement              / /          / /           / /  5.
   (SEE OVERVIEW-PAGES 3 & 4)

6. Changes to investment policies (SEE OVERVIEW-PAGES 3 & 4)                    FOR       AGAINST        ABSTAIN
   6.1  Borrow or lend to other funds     6.6  Pledging or mortgaging           ALL         ALL            ALL
   6.2  Prohibited conflict of interest   6.7  Three years operating history    / /          / /           / /  6.
   6.3  Senior securities                 6.8  Exploration programs
   6.4  Transactions with affiliates      6.9  Control or manage
   6.5  Other investment companies        6.10 Concentration
   IF YOU DO NOT WISH TO APPROVE A PARTICULAR INVESTMENT POLICY CHANGE,
   APPLICABLE TO YOUR FUND, WRITE THE NUMBER OF THE SUB-PROPOSAL ON THE LINE
   BELOW.

   --------------------------------------------------------------------------
                                                                                FOR       AGAINST        ABSTAIN
7. Approve a Subadvisory Agreement (MANAGED ALLOCATION FUND AND STRATEGY        / /          / /           / /  7.
   AGGRESSIVE FUND ONLY)

8. Change the investment objective  (EQUITY SELECT FUND ONLY)                   / /          / /           / /  8.




- --------------------------------------------------------------------------------
     PLEASE REFER TO SECTION A - OVERVIEW (PAGES 3 & 4) OF THE PROXY STATEMENT
              TO DETERMINE WHICH PROPOSALS ARE APPLICABLE TO YOUR FUND.
- --------------------------------------------------------------------------------

                PLEASE VOTE BY FILLING IN THE APPROPRIATE BOXES BELOW.
            V PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING V




1. Election of Board members.  (ALL FUNDS)                                      FOR       WITHHOLD       EXCEPTION
   (01) H. Brewster Atwater, Jr. (02) Arne H. Carlson   (03) Lynne V. Cheney    ALL          ALL
   (04) William H. Dudley        (05) David R. Hubers   (06) Heinz F. Hutter    / /          / /           / /  1.
   (07) Anne P. Jones            (08) William R. Pearce (09) Alan K. Simpson 
   (10) John R. Thomas           (11) C. Angus Wurtele
   TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE 
   "EXCEPTION" BOX AND PRINT THE NOMINEE'S NAME ON THIS LINE.________________
                                                                                FOR       AGAINST        ABSTAIN
2. Ratify the selection of independent auditors  (ALL FUNDS)                    / /          / /           / /  2.

3. Change the Fund name from "IDS" to "AXP" (ALL FUNDS)                         / /          / /           / /  3.

4. NOT APPLICABLE                                                               / /          / /           / /  4.

5. Approve changes to the Investment Management Services Agreement              / /          / /           / /  5.
   (SEE OVERVIEW-PAGES 3 & 4)

6. Changes to investment policies (SEE OVERVIEW-PAGES 3 & 4)                    FOR       AGAINST        ABSTAIN
   6.1  Borrow or lend to other funds     6.6  Pledging or mortgaging           ALL         ALL            ALL
   6.2  Prohibited conflict of interest   6.7  Three years operating history    / /          / /           / /  6.
   6.3  Senior securities                 6.8  Exploration programs
   6.4  Transactions with affiliates      6.9  Control or manage
   6.5  Other investment companies        6.10 Concentration
   IF YOU DO NOT WISH TO APPROVE A PARTICULAR INVESTMENT POLICY CHANGE,
   APPLICABLE TO YOUR FUND, WRITE THE NUMBER OF THE SUB-PROPOSAL ON THE LINE
   BELOW.

   --------------------------------------------------------------------------
                                                                                FOR       AGAINST        ABSTAIN
7. Approve a Subadvisory Agreement (MANAGED ALLOCATION FUND AND STRATEGY        / /          / /           / /  7.
   AGGRESSIVE FUND ONLY)

8. Change the investment objective  (EQUITY SELECT FUND ONLY)                   / /          / /           / /  8.




- --------------------------------------------------------------------------------
     PLEASE REFER TO SECTION A - OVERVIEW (PAGES 3 & 4) OF THE PROXY STATEMENT
              TO DETERMINE WHICH PROPOSALS ARE APPLICABLE TO YOUR FUND.
- --------------------------------------------------------------------------------

                PLEASE VOTE BY FILLING IN THE APPROPRIATE BOXES BELOW.
            V PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING V




1. Election of Board members.  (ALL FUNDS)                                      FOR       WITHHOLD       EXCEPTION
   (01) H. Brewster Atwater, Jr. (02) Arne H. Carlson   (03) Lynne V. Cheney    ALL          ALL
   (04) William H. Dudley        (05) David R. Hubers   (06) Heinz F. Hutter    / /          / /           / /  1.
   (07) Anne P. Jones            (08) William R. Pearce (09) Alan K. Simpson 
   (10) John R. Thomas           (11) C. Angus Wurtele
   TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE 
   "EXCEPTION" BOX AND PRINT THE NOMINEE'S NAME ON THIS LINE.________________
                                                                                FOR       AGAINST        ABSTAIN
2. Ratify the selection of independent auditors  (ALL FUNDS)                    / /          / /           / /  2.

3. Change the Fund name from "IDS" to "AXP" (ALL FUNDS)                         / /          / /           / /  3.

4. Approve a new shareholder service and distribution plan                      / /          / /           / /  4.
   (SEE OVERVIEW-PAGES 3 & 4)

5. NOT APPLICABLE                                                               / /          / /           / /  5.

6. Changes to investment policies (SEE OVERVIEW-PAGES 3 & 4)                    FOR       AGAINST        ABSTAIN
   6.1  Borrow or lend to other funds     6.6  Pledging or mortgaging           ALL         ALL            ALL
   6.2  Prohibited conflict of interest   6.7  Three years operating history    / /          / /           / /  6.
   6.3  Senior securities                 6.8  Exploration programs
   6.4  Transactions with affiliates      6.9  Control or manage
   6.5  Other investment companies        6.10 Concentration
   IF YOU DO NOT WISH TO APPROVE A PARTICULAR INVESTMENT POLICY CHANGE,
   APPLICABLE TO YOUR FUND, WRITE THE NUMBER OF THE SUB-PROPOSAL ON THE LINE
   BELOW.

   --------------------------------------------------------------------------
                                                                                FOR       AGAINST        ABSTAIN
7. NOT APPLICABLE                                                               / /          / /           / /  7.

8. NOT APPLICABLE                                                               / /          / /           / /  8.







                          PLEASE VOTE YOUR PROXY TODAY

       PROMPT RESPONSE WILL SAVE THE EXPENSE OF ADDITIONAL SOLICITATIONS.

            CHOOSE THE VOTING METHOD THAT'S MOST CONVENIENT FOR YOU.

1.   VOTE BY MAIL:  Sign and date your proxy card(s) and return them in the
     enclosed postage-paid envelope.  NOTE:  YOUR PROXY IS NOT VALID UNLESS IT
     IS SIGNED.
     
2.   VOTE BY PHONE:  Dial 1-888-221-0697, enter the CONTROL NUMBER printed on
     the upper portion of your proxy card and follow the simple instructions. 
     Telephone voting is available 24 hours a day, 7 days a week.  THE CALL IS
     TOLL-FREE.  If you have received more than one proxy card, you can vote
     each card during the call. Each card has a different control number.

3.   VOTE VIA THE INTERNET:  Log on to www.proxyweb.com, enter your CONTROL
     NUMBER and follow the instructions on the screen.  If you received more
     than one proxy card, you may vote them all during the same session. Each
     card has a different control number.

                        IF YOU VOTE BY PHONE OR THE INTERNET,
                       PLEASE DO NOT RETURN YOUR PROXY CARD(S).