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 Materials Under Section 240.14a-12

                              AXP Bond Fund, Inc.
                        AXP California Tax-Exempt Trust
                            AXP Discovery Fund, Inc.
                          AXP Equity Select Fund, Inc.
                          AXP Extra Income Fund, Inc.
                         AXP Federal Income Fund, Inc.
                            AXP Global Series, Inc.
                            AXP Growth Series, Inc.
                      AXP High Yield Tax-Exempt Fund, Inc.
                          AXP International Fund, Inc.
                          AXP Investment Series, Inc.
                            AXP Managed Series, Inc.
                       AXP Market Advantage Series, Inc.
                         AXP Money Market Series, Inc.
                         AXP New Dimensions Fund, Inc.
                           AXP Partners Series, Inc.
                    AXP Partners International Series, Inc.
                         AXP Precious Metals Fund, Inc.
                           AXP Progressive Fund, Inc.
                            AXP Selective Fund, Inc.
                      AXP Special Tax-Exempt Series Trust
                              AXP Stock Fund, Inc.
                           AXP Strategy Series, Inc.
                          AXP Tax-Exempt Series, Inc.
                         AXP Tax-Free Money Fund, Inc.
                        AXP Utilities Income Fund, Inc.
                  AXP Variable Portfolio - Income Series, Inc.
                AXP Variable Portfolio - Investment Series, Inc.
                 AXP Variable Portfolio - Managed Series, Inc.
               AXP Variable Portfolio - Money Market Series, Inc.
                 AXP Variable Portfolio - Partners Series, Inc.

- --------------------------------------------------------------------------------
                (Name of Registrant as Specified In Its Charter)


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

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[X]   No fee required

[ ]   Fee computed on table below per Exchange Act Rules
      14a-6(i)(4) and 0-11

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      (3) Per unit  price  or other  underlying  value of  transaction  computed
          pursuant to Exchange  Act Rule 0-11 (set forth the amount on which the
          filing fee is calculated and state how it was determined);

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                           AMERICAN EXPRESS(R)FUNDS
                          Principal Executive Office
                    901 Marquette Avenue South, Suite 2810
                          Minneapolis, MN 55402-3268
                  NOTICE OF REGULAR MEETING OF SHAREHOLDERS

                         To be held November 13, 2002

Retail Funds
AXP(R) Bond Fund, Inc.
AXP California Tax-Exempt Trust
  - AXP California Tax-Exempt Fund
AXP Discovery Fund, Inc.
AXP Equity Select Fund, Inc.
AXP Extra Income Fund, Inc.
AXP Federal Income Fund, Inc.
  - AXP Federal Income Fund
  - AXP U.S. Government Mortgage Fund
AXP Global Series, Inc.
  - AXP Emerging Markets Fund
  - AXP Global Balanced Fund
  - AXP Global Bond Fund
  - AXP Global Growth Fund
  - AXP Global Technology Fund
AXP Growth Series, Inc.
  - AXP Growth Fund
  - AXP Large Cap Equity Fund
  - AXP Large Cap Value Fund
  - AXP Research Opportunities Fund
AXP High Yield Tax-Exempt Fund, Inc.
AXP International Fund, Inc.
  - AXP European Equity Fund
  - AXP International Fund
AXP Investment Series, Inc.
  - AXP Diversified Equity Income Fund
  - AXP Mid Cap Value Fund
  - AXP Mutual
AXP Managed Series, Inc.
  - AXP Managed Allocation Fund
AXP Market Advantage Series, Inc.
  - AXP Blue Chip Advantage Fund
  - AXP International Equity Index Fund
  - AXP Mid Cap Index Fund
  - AXP S&P 500 Index Fund
  - AXP Small Company Index Fund
AXP Money Market Series, Inc.
  - AXP Cash Management Fund
AXP New Dimensions Fund, Inc.
  - AXP Growth Dimensions Fund
  - AXP New Dimensions Fund(R)
AXP Partners Series, Inc.
  - AXP Partners Fundamental Value Fund
  - AXP Partners Select Value Fund
  - AXP Partners Small Cap Core Fund
  - AXP Partners Small Cap Value Fund
  - AXP Partners Value Fund
AXP Partners  International Series, Inc.
  - AXP Partners International Aggressive Growth Fund
  - AXP Partners International Select Value Fund
AXP Precious Metals Fund, Inc.
AXP Progressive Fund, Inc.
AXP Selective Fund, Inc.

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1    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT



NOTICE OF REGULAR MEETING OF SHAREHOLDERS (CONTINUED)

Retail Funds (continued)
AXP Special Tax-Exempt Series Trust
  - AXP Insured Tax-Exempt Fund
  - AXP Massachusetts Tax-Exempt Fund
  - AXP Michigan Tax-Exempt Fund
  - AXP Minnesota Tax-Exempt Fund
  - AXP New York Tax-Exempt Fund
  - AXP Ohio Tax-Exempt Fund
AXP Stock Fund, Inc.
AXP Strategy Series, Inc.
  - AXP Equity Value Fund
  - AXP Focused Growth Fund
  - AXP Partners Small Cap Growth Fund
  - AXP Small Cap Advantage Fund
  - AXP Strategy Aggressive Fund
AXP Tax-Exempt Series, Inc.
  - AXP Intermediate Tax-Exempt Fund
  - AXP Tax-Exempt Bond Fund
AXP Tax-Free Money Fund, Inc.
AXP Utilities Income Fund, Inc.
  - AXP Utilities Fund

Variable Portfolio Funds
AXP Variable Portfolio-Income Series, Inc.
  - AXP Variable Portfolio-Bond Fund
  - AXP Variable Portfolio-Extra Income Fund
  - AXP Variable Portfolio-Federal Income Fund
  - AXP Variable Portfolio-Global Bond Fund
AXP Variable Portfolio-Investment Series, Inc.
  - AXP Variable Portfolio-Blue Chip Advantage Fund
  - AXP Variable Portfolio-Capital Resource Fund
  - AXP Variable Portfolio-Emerging Markets Fund
  - AXP Variable Portfolio-Equity Select Fund
  - AXP Variable Portfolio-Growth Fund
  - AXP Variable Portfolio-International Fund
  - AXP Variable Portfolio-New Dimensions Fund(R)
  - AXP Variable Portfolio-S&P 500 Index Fund
  - AXP Variable Portfolio-Small Cap Advantage Fund
  - AXP Variable Portfolio-Stock Fund
  - AXP Variable Portfolio-Strategy Aggressive Fund
AXP Variable Portfolio-Managed Series, Inc.
  - AXP Variable Portfolio-Diversified Equity Income Fund
  - AXP Variable Portfolio-Managed Fund
AXP Variable Portfolio-Money Market Series, Inc.
  - AXP Variable Portfolio-Cash Management Fund
AXP Variable Portfolio-Partners Series, Inc.
  - AXP Variable Portfolio-Partners Small Cap Value Fund


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2    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






Your fund will hold a shareholders' meeting at 11:00 a.m. on November 13, 2002,
at ______________________ Minneapolis, MN. This will be a joint meeting of the
funds listed above. The purpose of the meeting is to consider the issues
described in the following pages. You are entitled to vote at the meeting if you
were a shareholder on September 14, 2002. Please read the proxy statement and
vote immediately by mail, telephone or internet, even if you plan to attend the
meeting. Just follow the instructions on the enclosed proxy card. You must vote
separately for each fund you own. The Board recommends that you vote FOR each
proposal.

By Order of the Board of Directors/Trustees


Leslie L. Ogg, Secretary
September 14, 2002


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3    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT








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                                                                5

B -- Fund Proposals                                                          8

C -- Proxy Voting and Shareholder Meeting Information                       39

D -- Fund Information                                                       42

E -- Board Member Information                                               90

Please be sure to read the proxy statement before you vote. Enclosed is a proxy
voting card for each of the funds you own covering all of the issues described
in this proxy statement. It is important that you vote for each fund. If you
have questions, please call your advisor or (866) 208-5310. This proxy statement
was first mailed to shareholders the week of September 15, 2002.


                           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.




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4    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT







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




PROPOSAL                                FUNDS AFFECTED
- --------------------------------------- -------------------------------------------------------------------
                                     
1. Elect Board members                  All Funds
- --------------------------------------- -------------------------------------------------------------------
2. Amend the Articles of
   Incorporation/ Declaration of Trust
   to:

  A. Allow one vote/dollar instead of   A. All Funds
     one vote/share

  B. Change the name of the             B. Bond, Discovery, Equity Select, Extra Income, Federal Income,
     corporation                           High Yield Tax-Exempt, International, New Dimensions, Precious
                                           Metals, Progressive, Selective, Stock,  Tax-Free Money, Utilities
- --------------------------------------- -------------------------------------------------------------------
3. Approve a policy authorizing         Blue Chip Advantage, Diversified Equity Income,
   American Express Financial           Emerging Markets, Equity Select, Equity Value,
   Corporation ("AEFC"), subject to     European Equity, Focused Growth, Global Balanced,
   Board approval, to retain            Global Growth, Global Technology, Growth, Growth Dimensions,
   and replace subadvisers,             International, Managed Allocation, Mid Cap Index,
   or to modify subadvisory             Mutual, New Dimensions, Precious Metals, Research  Opportunities,
   agreements, without shareholder      S&P 500 Index, Small Cap Advantage, Small Company Index,
   approval                             Stock, Strategy Aggressive, Utilities and all Variable
                                        Portfolio Funds except  VP-Partners Small Cap Value
- --------------------------------------- -------------------------------------------------------------------



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5    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT







PROPOSAL                               FUNDS AFFECTED
- -------------------------------------- --------------------------------------------------------------------
                                    
4. Approve changes to the Investment
   Management Services Agreement:

   A. Add a performance incentive      A. Global Technology, VP-Capital Resource, VP-International,  VP-
      adjustment ("PIA")                  Managed, VP-New Dimensions,  VP-Strategy Aggressive

   B. Modify the PIA calculation       B. Blue Chip Advantage, Discovery, Diversified Equity Income,
                                          Emerging Markets, Equity Select,  Equity Value, European Equity,
                                          Focused Growth, Global Balanced, Global Growth, Growth,  Growth
                                          Dimensions, International, Large Cap Equity, Large Cap Value,
                                          Managed Allocation, Mid Cap Value, Mutual, New Dimensions,
                                          Partners Fundamental Value,  Partners International Aggressive
                                          Growth, Partners International Select Value, Partners Select
                                          Value,  Partners Small Cap Core,  Partners Small Cap Growth,
                                          Partners Small Cap Value,  Partners Value, Precious Metals,
                                          Progressive, Research Opportunities, Small Cap Advantage, Stock,
                                          Strategy Aggressive, Utilities,  VP-Blue Chip Advantage,  VP-
                                          Diversified Equity Income,  VP-Emerging Markets, VP-Equity Select,
                                          VP-Growth, VP-Partners Small Cap Value, VP-Small Cap Advantage, VP-
                                          Stock

   C. Eliminate the PIA                C. Small Company Index

   D. Change the investment manager    D. All Variable Portfolio Funds
      from IDS Life Insurance Company
      ("IDS Life") to AEFC
- -------------------------------------- --------------------------------------------------------------------


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6    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT








PROPOSAL                               FUNDS AFFECTED
- -------------------------------------- --------------------------------------------------------------------
                                    
5. Change the fund's classification    Global Technology
   from diversified to non-diversified
- -------------------------------------- --------------------------------------------------------------------
6. Add a Plan and Agreement  of        Cash Management (Class A and Class B), Tax-Free Money
   Distribution
- -------------------------------------- --------------------------------------------------------------------
7. Approve a Plan of Liquidation       International Equity Index
- -------------------------------------- --------------------------------------------------------------------
8. Transact other business             All Funds
- -------------------------------------- --------------------------------------------------------------------


- --------------------------------------------------------------------------------
7    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT







SECTION B -- FUND PROPOSALS

PROPOSAL 1:     ELECTION OF BOARD MEMBERS
                (Applies to: All Funds)

Nominees for the Board.  Nominees are listed below. Each person is a nominee for
each of the 78 American Express Funds.  Each nominee was elected a member of the
Board at the last  shareholders'  meeting except for Mr. Carroll,  Mr. DeSimone,
Ms. Fraser, Mr. Hall, Mr. Lewis, Mr. Quasha, Mr. Roszell,  Ms. Taunton-Rigby and
Mr. Truscott.

Each Board member is elected to serve until the next regular shareholders'
meeting or until he or she reaches mandatory retirement. Under the current Board
policy, a member must retire at the end of the first Board meeting after his or
her 72nd birthday or after 15 years from the date of his or her first Board
meeting. This policy does not apply to Mr. Hutter or Ms. Jones who must retire
after his or her 75th birthday and Mr. Hall who must retire after August 2016.

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.



Independent Nominees
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
                                                                                           
Name,                            Position held   Principal occupation         Other directorships      Committee memberships
address,                         with fund and   during past five years
age                              length of
                                 service
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
Arne H. Carlson                  Board member    Chair, Board Services                                 Joint Audit,
901 S. Marquette Ave.            since 1999      Corporation (provides                                 Contracts, Executive,
Minneapolis, MN 55402                            administrative services to                            Investment Review,
Born in 1934                                     boards). Former Governor                              Board Effectiveness
                                                 of Minnesota
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------



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8    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT







Independent Nominees (continued)
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
                                                                                           
Name,                            Position held   Principal occupation         Other directorships      Committee memberships
address,                         with fund and   during past five years
age                              length of
                                 service
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
Philip J. Carroll, Jr.                           Retired Chairman and CEO,    Boise Cascade
901 S. Marquette Ave.                            Fluor Corporation            Corporation (forest
Minneapolis, MN 55402                            (engineering and             products), Scottish
Born in 1937                                     construction) since 1998.    Power PLC, Vulcan
                                                 Former President and CEO,    Materials Company,
                                                 Shell Oil Company            Inc. (construction
                                                                              materials/ chemicals)
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
Livio D. DeSimone                Board member    Retired Chair of the Board   Cargill, Incorporated    Joint Audit, Contracts
30 Seventh Street East           since 2001      and Chief Executive          (commodity merchants
Suite 3050                                       Officer, Minnesota Mining    and processors),
St. Paul, MN 55101-4901                          and Manufacturing (3M)       Target Corporation
Born in 1936                                                                  (department stores),
                                                                              General Mills, Inc.
                                                                              (consumer foods),
                                                                              Vulcan Materials
                                                                              Company (construction
                                                                              materials/chemicals),
                                                                              and Milliken & Company
                                                                              (textiles and
                                                                              chemicals), Nexia
                                                                              Biotechnologies, Inc.
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
Ira D. Hall                      Board member    Private investor; formerly   Imagistics               Contracts,  Investment
Texaco, Inc.                     since 2001      with Texaco Inc.,            International, Inc.      Review
2000 Westchester Avenue                          Treasurer, 1999-2001 and     (office equipment),
White Plains, NY 10650                           General Manager, Alliance    Reynolds & Reynolds
Born in 1944                                     Management Operations,       Company (information
                                                 1998-1999. Prior to that,    services), TECO
                                                 Director, International      Energy, Inc. (energy
                                                 Operations IBM Corp.         holding company),  The
                                                                              Williams Companies,
                                                                              Inc. (energy
                                                                              distribution company)
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------



- --------------------------------------------------------------------------------
9    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT







Independent Nominees (continued)
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
                                                                                           
Name,                            Position held   Principal occupation         Other directorships      Committee memberships
address,                         with fund and   during past five years
age                              length of
                                 service
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
Heinz F. Hutter                  Board member    Retired President and                                 Board Effectiveness,
P.O. Box 2187                    since 1994      Chief Operating Officer,                              Executive,  Investment
Minneapolis, MN 55402                            Cargill, Incorporated                                 Review
Born in 1929                                     (commodity merchants and
                                                 processors)
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
Anne P. Jones                    Board member    Attorney and consultant      Motorola, Inc.           Joint Audit,  Board
5716 Bent Branch Rd              since 1985                                   (electronics)            Effectiveness,
Bethesda, MD 20816                                                                                     Executive
Born in 1935
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
Stephen R. Lewis, Jr.*           Board member    Retired President and                                 Contracts, Investment
901 S. Marquette Ave.            since 2002      professor economics,                                  Review
Minneapolis, MN 55402                            Carleton College
Born in 1939
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
Alan G. Quasha                   Board member    President, Quadrant                                   Joint Audit,
720 Fifth Avenue                 since 2002      Management, Inc.                                      Investment Review
New York, NY 10019                               (management of  private
Born in 1949                                     equities)
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
Alan K. Simpson                  Board member    Former three-term United     Biogen, Inc.             Joint Audit, Contracts
1201 Sunshine Ave.               since 1997      States Senator for Wyoming   (biopharmaceuticals)
Cody, WY 82414
Born in 1931
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------


- --------------------------------------------------------------------------------
10   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT







Independent Nominees (continued)
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
                                                                                           
Name,                            Position held   Principal occupation         Other directorships      Committee memberships
address,                         with fund and   during past five years
age                              length of
                                 service
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
Alison Taunton-Rigby                             President and CEO,           Synaptic
8 Farrar Road                                    Forester Biotech since       Pharmaceuticals
Lincoln, MA 01773                                ____. Former President and   Corporation, Catharsis
Born in 19__                                     CEO, Aquila                  Medical Technology
                                                 Biopharmaceuticals, Inc.     Inc., Addiction
                                                                              Therapies Inc., Abt
                                                                              Associates Inc.,
                                                                              Children's Hospital
                                                                              Boston
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------


* Interested person of Partners International  Aggressive Growth by reason of
  being a securityholder  of the FleetBoston  Financial  Corporation,  parent
  company  of  Liberty  Wanger  Asset  Management,  L.P.,  one of the  fund's
  subadvisers.

- --------------------------------------------------------------------------------
11   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT







Nominees Affiliated with AEFC*
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
                                                                                           
Name,                            Position held   Principal occupation         Other directorships      Committee memberships
address,                         with fund and   during past five years
age                              length of
                                 service
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------

Barbara H. Fraser                                Executive Vice President
200 AXP Financial Center                         of AEFA Products and
Minneapolis, MN 55474                            Corporate Marketing since
Born in 1949                                     2002.  President -
                                                 Travelers Check Group,
                                                 American Express Company,
                                                 2001-2002. Management
                                                 Consultant, Reuters,
                                                 2000-2001.  Managing
                                                 Director - International
                                                 Investments, Citibank
                                                 Global, 1999-2000.
                                                 Chairman and CEO, Citicorp
                                                 Investment Services and
                                                 Citigroup Insurance Group,
                                                 U.S., 1998-1999. Head of
                                                 Marketing and Strategic
                                                 Planning - Investment
                                                 Products and Distribution,
                                                 Citibank Global, 1995-1998
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------


- --------------------------------------------------------------------------------
12   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT







Nominees Affiliated with AEFC* (continued)
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
                                                                                           
Name,                            Position held   Principal occupation         Other directorships      Committee memberships
address,                         with fund and   during past five years
age                              length of
                                 service
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
Stephen W. Roszell               Vice            Senior Vice President -
50238 AXP Financial Center       President       Institutional Group of AEFC
Minneapolis, MN 55474            since 2002
Born in 1949
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------
William F. Truscott              Board member    Senior Vice President -
53600 AXP Financial Center       since 2001,     Chief Investment Officer
Minneapolis, MN 55474            Vice            of AEFC since 2001. Former
Born in 1960                     President       Chief Investment Officer
                                 since 2002      and Managing Director,
                                                 Zurich Scudder Investments
- -------------------------------- --------------- ---------------------------- ------------------------ ------------------------


* Interested person by reason of being an officer,  director,  securityholder
  and/or employee of AEFC.

- --------------------------------------------------------------------------------
13   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT





Board 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 meets with the independent public
accountant, internal auditors and corporate officers to review financial
statements, reports and compliance matters. This Committee reports significant
issues to the Board and makes recommendations to the independent Board members
regarding the selection of the independent public accountant. The Contracts
Committee receives and analyzes reports covering the level and quality of
services provided under contracts with the fund and advises the Board regarding
actions taken on these contracts during the annual review process. The
Investment Review Committee considers investment management policies and
strategies; investment performance; risk management techniques; and securities
trading practices and reports areas of concern to the Board. The Board
Effectiveness Committee recommends to the Board the size, structure and
composition for the Board; the compensation to be paid to members of the Board;
and a process for evaluating the Board's performance. The committee also reviews
candidates for Board membership including candidates recommended by
shareholders. To be considered, recommendations must include a curriculum vita
and be mailed to the Chairman of the Board, American Express Funds, 901
Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268.

During the year ended June 30, 2002, the Board met _____ times, Joint Audit four
times,  Contracts three times,  Executive one time, Investment Review four times
and Board  Effectiveness  four times.  Average  attendance at Board meetings was
_____ % and no nominee attended less than 75% of the meetings,  except for -----
(--%).

Board Member Compensation. The following table shows the total compensation
received by each Board member from all of the American Express Funds. 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.



- --------------------------------------------------------------------------------
14   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






Board Member Compensation from all American Express Funds*
(for the year ended June 30, 2002)
                 Aggregate Compensation from all
Nominee            American Express Funds
DeSimone                  $118,025
Hall                       129,625
Hutter                     138,525
Jones                      146,475
Lewis                       56,350
Quasha                      34,750
Simpson                    117,775

*  Board members affiliated with AEFC or Board Services Corporation, a company
   providing administrative services to the funds, are not paid by the funds.

The dollar range of equity securities beneficially owned by each Board member is
shown in Section E.

Fund Officers. In addition to Mr. Roszell and Mr. Truscott, the fund's other
officers are:

     Leslie L. Ogg, born in 1938. Vice President and General Counsel since 1978.
     President of Board Services Corporation.

     Jeffrey P. Fox, born in 1955. Treasurer since 2002. Vice President -
     Investment Accounting of AEFC since 2002. Vice President - Finance of
     American Express Company, 2000-2002. Vice President - Corporate Controller
     of AEFC, 1996-2000.

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.



- --------------------------------------------------------------------------------
15   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT








PROPOSAL 2: APPROVE OR REJECT AN AMENDMENT TO THE ARTICLES OF
            INCORPORATION/DECLARATION  OF TRUST
            (Applies to: All Funds)

Every fund is subject to comprehensive federal laws and regulations. In
addition, every fund is also subject to state law. AXP California Tax-Exempt
Trust and AXP Special Tax-Exempt Series Trust are Massachusetts business trusts
and are subject to Massachusetts law. Each of the other funds is part of a
Minnesota corporation and is subject to Minnesota law.

Under Massachusetts law, a business trust generally operates under an
organizational document called a declaration of trust. Under Minnesota law, a
corporation generally operates under an organizational document called the
articles of incorporation. The declaration of trust or articles of incorporation
("organizational document") set forth various provisions relating to the
authority of the fund to conduct business and the governance of the fund.

The Board has approved, and recommends that shareholders approve, a proposal to
amend the fund's organizational document (the "Amendment"). The fund's
investments and investment policies will not change by virtue of the adoption of
the Amendment.

A. Dollar Based Voting
   (Applies to All Funds)

The Amendment would provide voting rights based on a shareholder's total dollar
interest in the fund ("dollar-based voting"), rather than on a number of shares
owned, for all shareholder votes for the fund. As a result, voting power would
be allocated in proportion to the value of each shareholder's investment.

Dollar-based voting is important when a fund is part of a corporation or trust
(an "entity") that has more than one series and when a fund has more than one
class of shares. Shareholders of each class vote separately on matters
concerning only that class. Shareholders of a fund vote separately on matters
concerning only that fund. Shareholders vote on an entity-wide basis on matters
that affect the entity as a whole, such as electing the Board or amending the
organizational document. Currently, under the organizational document, each
share is entitled to one vote, regardless of the relative value of the shares of
each fund in the entity.

The original intent of the one-share, one-vote provision was to provide
equitable voting rights to all shareholders. In the case where an entity has
several series or funds, voting rights may have become disproportionate since
the net asset value ("NAV") per share of the separate funds generally diverge
over time. In the case where a fund has more than one class, voting rights may



- --------------------------------------------------------------------------------
16   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






have become disproportionate because the NAV of the separate classes of the fund
may also diverge over time.

For example, if the fund's shares are selling for $5 per share, a $1,000
investment will purchase 200 shares of the fund. If another fund has shares that
are selling for $10 per share, that same $1,000 investment will purchase only
100 shares of that fund. The organizational document allows one vote for each
share owned. Therefore, under the organizational document, when the shareholders
of the entity vote together on an issue affecting the entity, a shareholder of
the first fund has twice the votes of a shareholder of the second fund, even
though the economic interest of each shareholder is the same. The proposed
change would match a shareholder's economic interest with the shareholder's
voting power, and conversely would prevent a shareholder who holds many shares
with a relatively low price per share from having disproportionately large
voting power.

If the change is approved, the organizational document will be amended as
follows (additions are underlined, deletions are lined through):

For funds organized under Massachusetts law, Article VII, Section 7.2 of the
Declaration of Trust will be amended to read:

     Section 7.2. Number of Votes and Manner of Voting; Proxies. On each matter
     submitted to a vote of the Shareholders, other than the election of any
     Trustee, each holder of Shares of any Series shall be entitled to ONE VOTE
     FOR EACH DOLLAR OF NET ASSET VALUE (NUMBER OF SHARES OWNED TIMES NET ASSET
     VALUE PER SHARE) AND EACH FRACTIONAL DOLLAR AMOUNT SHALL BE ENTITLED TO A
     PROPORTIONATE FRACTIONAL VOTE. [a number of votes equal to the number of
     Shares of such Series standing in his name on the books of the Trust.] At
     all elections of Trustees, each holder of shares of any Series shall be
     entitled to AS MANY VOTES AS SHALL EQUAL THE DOLLARS OF NET ASSET VALUE [as
     many votes as shall equal the number of shares of such Series standing in
     his name on the hooks of the Trust] multiplied by the number of Trustees to
     be elected and may cast all of such votes for a single Trustee or may
     distribute them among the number to be voted for, or any two or more of
     them. Shares may be voted in person or by proxy. A proxy with respect to
     Shares held in the name of two (2) or more Persons shall be valid if
     executed by any one of them unless at or prior to exercise of the proxy the
     Trust receives a specific written notice to the contrary from any one of
     them. A proxy purporting to be executed by or on behalf of a Shareholder
     shall be deemed valid unless challenged at or prior to its exercise and the
     burden of proving invalidity shall rest on the challenger. Until Shares are
     issued, the Trustees may exercise all rights of Shareholders and may take
     any action required by law, this Declaration of Trust or the Bylaws to be
     taken by Shareholders.


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17   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






For funds organized under Minnesota law, Article III, Section 2 of the
Articles of Incorporation will be amended to read:
     Section 2. At all meetings of the shareholders, each shareholder of record
     entitled to vote thereat shall be entitled to one vote [(and a fractional
     vote for and equal to each fractional share)] for each DOLLAR OF NET ASSET
     VALUE (NUMBER OF SHARES OWNED TIMES NET ASSET VALUE PER SHARE) [share (or
     fractional share)] AND EACH FRACTIONAL DOLLAR AMOUNT SHALL BE ENTITLED TO
     A PROPORTIONATE FRACTIONAL VOTE [of stock standing in her or his name and
     entitled to vote at such meeting]. At all elections of directors, each
     shareholder shall be entitled to as many votes as shall equal the DOLLARS
     OF NET ASSET VALUE [number of shares owned] multiplied by the number of
     directors to be elected and may cast all of such votes for a single
     director or may distribute them among the number to be voted for, or any
     two or more of them.

B. Name Change
For certain funds, shown in Table 2-1, originally the corporation issued only
one series of capital stock (a single fund) and had the same name as the fund.
The corporation now may issue more than one series (more than one fund), which
could lead to confusion between the name of the corporation and the name of the
original fund. If approved by shareholders, the name of the corporation will be
changed as shown in the following table. The name of the fund will not change.


Table 2-1. Proposed Names of Corporation
Current Name of Corporation            Proposed Name of Corporation
                                       (name of underlying fund will not change)
AXP Bond Fund, Inc.                    AXP Fixed Income Series, Inc.
                                           - AXP Bond Fund

AXP Discovery Fund, Inc.               AXP Discovery Series, Inc.
                                           - AXP Discovery Fund

AXP Equity Select Fund, Inc.           AXP Equity Series, Inc.
                                           - AXP Equity Select Fund

AXP Extra Income Fund, Inc.            AXP High Yield Income Series, Inc.
                                           - AXP Extra Income Fund

AXP Federal Income Fund, Inc.          AXP Government Income Series, Inc.
                                           - AXP Federal Income Fund
                                           - AXP U.S. Government Mortgage Fund

AXP High Yield Tax-Exempt Fund, Inc.   AXP High Yield Tax-Exempt Series, Inc.
                                           - AXP High Yield Tax-Exempt Fund


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18   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






Table 2-1. Proposed Names of Corporation (continued)
Current Name of Corporation         Proposed Name of Corporation
                                    (name of underlying fund will not change)

AXP International Fund, Inc.        AXP International Series, Inc.
                                        - AXP European Equity Fund
                                        - AXP International Fund

AXP New Dimensions Fund, Inc.       AXP Dimensions Series, Inc.
                                        - AXP Growth Dimensions Fund
                                        - AXP New Dimensions Fund

AXP Precious Metals Fund, Inc.      AXP Selected Series, Inc.
                                        - AXP Precious Metals Fund

AXP Progressive Fund, Inc.          AXP Progressive Series, Inc.
                                        - AXP Progressive Fund

AXP Selective Fund, Inc.            AXP Income Series, Inc.
                                        - AXP Selective Fund

AXP Stock Fund, Inc.                AXP Stock Series, Inc.
                                        - AXP Stock Fund

AXP Tax-Free Money Fund, Inc.       AXP Tax-Free Money Series, Inc.
                                        - AXP Tax-Free Money Fund

AXP Utilities Income Fund, Inc.     AXP Sector Series, Inc.
                                        - AXP Utilities Fund

Board Recommendation and Vote Required. The Board recommends that you vote to
approve the necessary amendments to the Articles of Incorporation or Declaration
of Trust. The changes require the approval of a majority of the fund's shares
voted at the meeting. The changes will be effective when the amendments are
filed with the appropriate state office. This filing is expected to occur
shortly after the shareholder meeting.



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19   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






PROPOSAL 3: APPROVE OR REJECT A POLICY  AUTHORIZING  AEFC,  WITH APPROVAL OF THE
            BOARD, TO RETAIN AND REPLACE SUBADVISERS, OR MODIFY SUBADVISORY
            AGREEMENTS, WITHOUT OBTAINING SHAREHOLDER APPROVAL

            (Applies  to: Blue Chip  Advantage,  Diversified  Equity  Income,
            Emerging Markets,  Equity Select,  Equity Value, European Equity,
            Focused   Growth,   Global   Balanced,   Global  Growth,   Global
            Technology,  Growth,  Growth Dimensions,  International,  Managed
            Allocation,  Mid Cap  Index,  Mutual,  New  Dimensions,  Precious
            Metals,  Research   Opportunities,   S&P  500  Index,  Small  Cap
            Advantage,  Small  Company  Index,  Stock,  Strategy  Aggressive,
            Utilities  and all Variable  Portfolio  Funds except  VP-Partners
            Small Cap Value)


AEFC serves as the investment adviser and administrator of the fund. For certain
funds, AEFC makes the day-to-day investment decisions for the fund. For other
funds, it does not. Instead, AEFC administers the fund, establishes an
investment program for the fund and selects, compensates and evaluates the
fund's subadviser. The subadviser, in turn, makes the day-to-day investment
decisions for the fund. For each of the funds, in the future, AEFC, with the
approval of the Board, may wish to hire, add or change a subadviser to handle
the day-to-day investment decisions.

Shareholder Approval of Subadvisory Agreements. Federal securities laws
generally require that shareholders approve agreements with a fund's subadviser,
as well as with the investment manager. Shareholder action also is required if
the terms of existing agreements are materially changed or if there is a change
in control of the subadviser. In order to obtain shareholder approval, the fund
must call and conduct a shareholder meeting, prepare and distribute proxy
materials, and solicit votes from shareholders. The process is costly and
time-consuming. The Board believes that it is in shareholders' best interests if
the Board represents their interests in approving or rejecting recommendations
made by AEFC regarding subadvisers. This approach will avoid the cost and time
delay associated with holding shareholder meetings to obtain approval for the
changes.

SEC Exemptive Order. On July 16, 2002, the Securities and Exchange Commission
(the "SEC") granted the fund an order exempting it from the federal securities
law requirements to obtain shareholder approval regarding subadvisers (the "SEC
Order"). The SEC Order permits the fund to hire new subadvisers, to rehire
existing subadvisers that have experienced a change in control and to modify
subadvisory agreements, without the approval of shareholders.



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20   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






Under the SEC Order, the fund and AEFC are subject to several conditions imposed
by the SEC to ensure that the interests of the fund's shareholders are
adequately protected. In addition, within 90 days of a change to your fund's
subadvisory arrangements, the fund will provide you with an information
statement that contains substantially the same information about the subadviser,
the subadvisory agreement and the subadvisory fee that the fund would be
required to send to you in a proxy statement.

Shareholder approval of this proposal will not result in an increase or decrease
in the total amount of investment advisory fees paid by the fund to AEFC. AEFC,
directly or through subadvisers, will continue to provide the same level of
management and administrative services to the fund as it has always provided.

The SEC Order applies to at least the following situations:

o    AEFC recommends  that a fund's  management be diversified by adding another
     subadviser

o    AEFC recommends  that a subadviser be removed for  substandard  performance
     and replaced with a different subadviser

o    There is a change of control of the subadviser

Comparison of Present and Proposed Selection Process for Subadvisers. Under both
the current process for approval of subadvisory agreements and under the
proposed process, any change in a subadvisory agreement requires approval by the
Board. In considering whether to appoint a subadviser, the Board will analyze
the factors it considers relevant, including:

o    The  nature,  quality and scope of services  provided  by a  subadviser  to
     investment companies comparable to the fund.

o    The ability of the  subadviser to provide its services to the fund, as well
     as its personnel,  operations, financial condition or any other factor that
     would affect the provision of those services.

o    The subadviser's  investment  performance with respect to accounts that are
     comparable.

o    Other  factors  that  the  Board  considers  relevant  to the  subadviser's
     performance as an investment adviser.

Under the current process for approval of subadvisory agreements, in addition to
Board approval, shareholders must approve any change in subadvisory agreements.
This shareholder approval would be eliminated under the proposed process for
approval of subadvisory agreements.

If the policy is approved, all subadvisory agreements will be for a period of
one year and will be renewable from year to year, if approved by the Board. The
agreements may be terminated without penalty by the Board, AEFC, a vote of
shareholders, or the subadviser on 60 days notice.



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21   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






Board Recommendation and Vote Required. The Board recommends that shareholders
approve the policy. 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 require shareholder approval of changes in
subadvisory relationships.



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22   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT







PROPOSAL 4: APPROVE OR REJECT CHANGES TO THE INVESTMENT
            MANAGEMENT SERVICES AGREEMENT

The fund pays fees to AEFC under an Investment Management Services Agreement
(the "Agreement") for conducting 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. For some of the funds, AEFC hires and
pays a subadviser to perform the day-to-day management functions, as described
in Proposal 3. 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, the portfolio is referred to as a "fund."

AEFC recommended to the Boards of the equity funds that changes be made to the
Agreement with respect to the performance incentive adjustment ("PIA") component
of the fee schedule. Specifically, AEFC recommended that:

A.   A PIA be added to certain equity funds.

B.   The PIA  calculation  currently part of the Agreement for most equity funds
     be modified.

C.   The PIA be eliminated for Small Company Index.

In addition, for the variable portfolio funds, IDS Life and AEFC
recommended that:

D.   The  Agreement be between the fund and AEFC instead of between the fund and
     IDS Life.

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 your fund and other
funds managed by AEFC is found in Section D. The fund also pays its taxes,
brokerage commissions and nonadvisory expenses, which include custodian fees;
audit and certain legal fees; fidelity bond premiums; registration fees for
shares; office expenses; postage of confirmations except purchase confirmations;
consultant fees; compensation of Board members, officers and employees;
corporate filing fees; organizational expenses; expenses incurred in connection
with lending 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.



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23   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






Proposed Agreement Compared to the Current Agreement. For Proposals 4A, 4B and
4C, the terms of the proposed Agreement are the same as the current Agreement
except for the change in the PIA described in the following paragraphs. For
Proposal 4D, the terms of the proposed Agreement are the same as the current
Agreement except that the agreement is between the fund and AEFC rather than
between the fund and IDS Life.

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.

A. Add a Performance Incentive Adjustment

   (Applies to:  Global  Technology,  VP-Capital  Resource,  VP-International,
   VP-Managed, VP-New Dimensions, VP-Strategy Aggressive)

Under the proposed Agreement, the fee will be adjusted based on the fund's
performance compared to an index of similar funds. The PIA is determined by
measuring the percentage difference over a rolling 12-month period between the
performance of one share of the fund (one Class A share for a fund with multiple
classes) and the change in a designated Lipper Index (the "Index") of funds with
similar investment objectives (the "Performance Difference"). The Performance
Difference is then used to determine the Adjustment Rate, described in Table
4-2. 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.


Table 4-1. Proposed Indexes
Fund                             Index
Global Technology                Lipper Science and Technology Funds
VP - Capital Resource            Lipper Large-Cap Core Funds
VP - International               Lipper International Funds
VP - Managed                     Lipper Balanced Funds
VP - New Dimensions              Lipper Large-Cap Growth Funds
VP - Strategy Aggressive         Lipper Mid-Cap Growth Funds




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24   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






o Adjustment Calculation. The Adjustment Rate, computed to five decimal places,
is determined in accordance with the following table:


Table 4-2. Calculation of Adjustment Rate
Performance
 Difference      Adjustment Rate

 0.00%- 0.50%    0

 0.50%- 1.00%    6 basis points times the Performance Difference over 0.50%
                 (maximum of 3 basis points if a 1% Performance Difference)

 1.00%- 2.00%    3 basis points, plus 3 basis points times the Performance
                 Difference over 1.00% (maximum 6 basis points if a 2%
                 Performance Difference)

 2.00%- 4.00%    6 basis points, plus 2 basis points times the Performance
                 Difference over 2.00% (maximum 10 basis points if a 4%
                 Performance Difference)

 4.00%- 6.00%    10 basis points, plus 1 basis point times the Performance
                 Difference over 4.00% (maximum 12 basis points if a 6%
                 Performance Difference)

 6.00% or more   12 basis points

     For example, if the Performance Difference is 2.38%, the Adjustment Rate is
     0.000676 (0.0006 [6 basis points] plus 0.0038 [the 0.38% Performance
     Difference over 2.00%] x 0.0002 [2 basis points] x 100 (0.000076)). Rounded
     to five decimal places, the Adjustment Rate is 0.00068. The maximum
     Adjustment Rate is 0.00120 per year, except that for VP-Managed the maximum
     Adjustment Rate is 0.00080 per year.

The first adjustment will be made on June 1, 2003 and will cover the six-month
period beginning December 1, 2002. The comparison period will increase by one
month each month until it reaches 12 months.

o    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.


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25   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT





B. Modify the PIA Calculation
   (Applies to: Blue Chip  Advantage,  Discovery,  Diversified  Equity Income,
   Emerging Markets,  Equity Select,  Equity Value,  European Equity,  Focused
   Growth,  Global  Balanced,   Global  Growth,   Growth,  Growth  Dimensions,
   International,  Large Cap Equity, Large Cap Value, Managed Allocation,  Mid
   Cap Value,  Mutual, New Dimensions,  Partners  Fundamental Value,  Partners
   International  Aggressive  Growth,  Partners  International  Select  Value,
   Partners Select Value,  Partners Small Cap Core, Partners Small Cap Growth,
   Partners Small Cap Value,  Partners Value,  Precious  Metals,  Progressive,
   Research  Opportunities,  Small Cap Advantage,  Stock, Strategy Aggressive,
   Utilities,   VP-Blue  Chip   Advantage,   VP-Diversified   Equity   Income,
   VP-Emerging  Markets,  VP-Equity Select,  VP-Growth,  VP-Partners Small Cap
   Value, VP-Small Cap Advantage, VP-Stock)

Under the current Agreement, the fee paid to AEFC by the fund includes a PIA as
an element of the fee. AEFC has recommended that the manner of calculating the
PIA be modified to match the proposed calculation described in paragraph 4A.

The current calculation is made by measuring the percentage difference over a
rolling 12-month period between the performance of one share of the fund (one
Class A share for a fund with multiple classes) and the change in a designated
Lipper index of funds with similar investment objectives. One percentage point
is subtracted from the calculation and the result is multiplied by 0.01. 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 2.38 percent, the adjustment
would be 0.000138 (0.0238 - 0.01 = 0.0138 x 0.01 = 0.000138) times the fund's
average net assets for the comparison period divided by 12.

The proposed calculation is described in Table 4-2. Table 4-3 shows the
difference between the current PIA and the proposed PIA at various levels of
Performance Difference.



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26   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






Table 4-3. Difference Between Current PIA and Proposed PIA

Performance                              Current PIA          Proposed PIA
Difference                             (basis points)        (basis points)
  0.0%                                       0.0                   0.0
  0.5%                                       0.0                   0.0
  0.75%                                      0.0                   1.5
  1.0%                                       0.0                   3.0
  1.5%                                       0.5                   4.5
  2.0%                                       1.0                   6.0
  2.5%                                       1.5                   7.0
  3.0%                                       2.0                   8.0
  3.5%                                       2.5                   9.0
  4.0%                                       3.0                  10.0
  4.5%                                       3.5                  10.5
  5.0%                                       4.0                  11.0
  5.5%                                       4.5                  11.5
  6.0%                                       5.0                  12.0
  7.0%                                       6.0                  12.0
  8.0%                                       7.0                  12.0
  9.0%                                       8.0                  12.0
 10.0%                                       9.0                  12.0
 11.0%                                      10.0                  12.0
 12.0%                                      11.0                  12.0
 13.0% and higher                           12.0                  12.0

AEFC believes that the modified calculation will provide a better alignment
between the interests of the fund shareholders and AEFC. AEFC seeks to achieve
sustained performance above the median, which it believes will lead to a fund
with a strong competitive performance record. The proposed PIA provides
meaningful additional compensation to AEFC for performance that is at least
0.50% above the median of the peer group. The proposal not to adjust the fee if
the performance difference is above or below the index by 0.50% differs from the
current null zone which deducts 1% from performance before the PIA is
calculated. Thus, if sustained performance above the median is achieved,
shareholders will benefit from consistent strong performance and AEFC will
benefit from additional compensation. The maximum Adjustment Rate is 0.00120 per
year, except that for Global Balanced, Managed Allocation and Mutual, the
maximum Adjustment Rate is 0.00080 per year. If the





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27   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






proposed Agreement is approved by shareholders, for a period of six months from
the date of implementation of the proposed Agreement, the PIA will be calculated
based on the lesser of the amount due under the current Agreement or the amount
due under the proposed Agreement. 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.

C. Eliminate the PIA
   (Applies to: Small Company Index)

The Agreement for the fund currently includes a PIA. The fund invests in common
stocks of small-capitalization companies that are expected to provide investment
results that correspond to the performance of the S&P SmallCap 600 Index. The
fund is an index fund and is unlike an actively managed fund, where the decision
about what stocks to purchase is made by the portfolio manager. In an actively
managed fund, the pool of possible investments is not limited to those stocks
that are part of a particular index. Generally, an actively managed fund seeks
to perform better than a benchmark index. An index fund, on the other hand,
generally purchases only securities found in its benchmark index. AEFC believes
that an index fund that seeks to match the performance of an index, should be
evaluated based on its performance relative to that index, not based on its
performance relative to competitor funds. For that reason, AEFC has recommended
that the PIA be eliminated from the Agreement.

If the proposed Agreement is approved by shareholders, for a period of six
months from the date of implementation of the proposed Agreement, the fee under
the Agreement will be calculated based on the lesser of the amount due under the
current Agreement or the amount due under the proposed Agreement. 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.

D. Change the Investment Manager from IDS Life to AEFC
   (Applies to: all Variable Portfolio Funds)

Historically, the investment manager for the variable portfolio funds has been
IDS Life. Under an Investment Advisory Agreement between IDS Life and AEFC, AEFC
has served as investment adviser to the variable portfolio funds. IDS Life and
AEFC now recommend that AEFC assume both the role of investment manager,
currently held by IDS Life, and the role of investment adviser, currently held
by AEFC. This will combine all investment roles within one entity and one
contract. The change will not affect the management of the funds and will not
change the fees paid by the fund.


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28   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






Review of Agreements. Each year the Board reviews the Agreement and each of the
other agreements between the fund and AEFC or one of AEFC's affiliates by
receiving four reports prepared by AEFC. These reports cover investment
performance, transfer agent operations, distribution and AEFC's profitability
from its mutual fund operations. In addition, members of the Board, individually
and with the assistance of the Contracts Committee for the fund, consider:

o    The fund's investment performance over various time periods compared to its
     peer group  Lipper  index and a  security  market  index that most  closely
     represents the investment style of the fund

o    The fund's expense ratio and the expense ratios of comparable funds

o    The quality and level of services provided by AEFC or its affiliates to the
     fund and its shareholders

o    The commitments made by AEFC regarding its management of the fund

Board Conclusions. Based on its work throughout the year and detailed analysis
by the Contracts Committee of the reports provided by AEFC, the independent
Board members determined to renew the Agreement based on:

o    tangible  steps  AEFC has taken to  improve  the  competitive  ranking  and
     consistency of the investment performance of the Fund, including changes in
     leadership,   portfolio   managers,   compensation   structures,   and  the
     implementation of management practices,

o    continued  commitment  to expand the range of  investment  options  that it
     offers  investors,  through  repositioning  existing funds and creating new
     funds,

o    consistent   effort  to  provide  a  management   structure   that  imposes
     disciplines that ensure  adherence to stated  management style and expected
     risk characteristics,

o    additional  time needed to evaluate the efficacy of the new AEFC management
     structure that has produced improved performance results in the short-term,

o    benefit of economy of scale that result from the  graduated  fee  structure
     and  reasonableness  of fees in light of the fees paid by similar  funds in
     the industry,

o    competitive  total  expenses that are either at or only slightly  above the
     median expenses of comparable funds, and

o    reasonable level of AEFC's profitability from its mutual fund operations.


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29   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






AEFC's  Proposal  to Change  the PIA.  In  addition  to  reviewing  the  current
Agreement,  the Boards of the equity funds considered  AEFC's proposal to change
the PIA. The Board  determined to recommend the change to shareholders  based on
the following:

o    Performance  compensation  is a desirable  method to reward good investment
     performance

o    Lipper indexes are meaningful because they measure  investment  performance
     against funds within the same investment category. Relative  performance
     within a category is  significant  to AEFC clients  when making  investment
     decisions

o    The proposed fee structure  encourages and rewards  investment  performance
     that AEFC  represents is sustainable  and, if sustained,  will provide good
     long-term performance for shareholders

At a meeting held on July 10-11, 2002, 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 by the Board, AEFC or the shareholders and will
terminate automatically if it is assigned.

Board Recommendation and Vote Required. 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.




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30   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT







PROPOSAL  5:  APPROVE  OR  REJECT A CHANGE  IN THE  FUND'S  CLASSIFICATION  FROM
              DIVERSIFIED TO NON-DIVERSIFIED
              (Applies to: Global Technology)

Currently, the fund is a diversified fund, which means that the fund may not
invest more than 5% of its total assets in the securities of any one company,
government or political subdivision, although up to 25% of the fund's total
assets may be invested without regard to the 5% limitation. In addition, the
fund may not purchase more than 10% of the outstanding voting securities of any
one issuer. There are a limited number of issuers in the technologies industry.
Because of the limited number of issuers whose securities meet the fund's
investment objective, it has become increasingly difficult to manage the fund as
it increases in size.

In order to provide the portfolio manager with more flexibility in investing the
fund's assets, AEFC has proposed that the fund's classification be changed from
diversified to non-diversified. This means the fund would not be subject to the
limitations described above, although it still would be subject to
diversification requirements under federal tax law. The fund would be able to
concentrate its investments in the securities of only a few companies. As a
result, the fund would have more risk than funds with broader diversification.
This is because the fund may have a higher percentage of its assets invested in
the securities of a single issuer. If that investment does not perform as well
as expected, the consequences to the fund would be more pronounced than if the
fund had limited its investment to 5% of its assets.

Recommendation and Vote Required. The Board recommends that shareholders approve
the proposed change in the fund's classification. 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 as a
diversified fund.




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31    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT







PROPOSAL 6: APPROVE OR REJECT ADDING A PLAN AND AGREEMENT OF DISTRIBUTION
            (Applies to: Cash Management (Classes A and B),  Tax-Free Money)

American Express Financial Advisors Inc. ("AEFA") is the distributor for the
fund and sells fund shares primarily through personal financial advisors. Each
AEFA advisor receives compensation from the sales charges for the services he or
she provides you. The sales charges include both front-end or contingent
deferred sales charges paid by you as well as fees paid by the fund. The fees
paid by the fund are called 12b-1 fees, named for SEC Rule 12b-1 that permits a
fund to pay distribution costs.

Currently shares of all American Express Funds except Cash Management and
Tax-Free Money have a 25 basis point 12b-1 fee, most of which is paid directly
to your AEFA advisor. A basis point is 1/100 of a percent, so 25 basis points is
0.0025. Your AEFA advisor does not receive any compensation if you invest or
hold money in Cash Management and Tax-Free Money even though he or she has
provided services. Accordingly, AEFA recommended to the Board that a 10 basis
point 12b-1 fee be added to those funds. For the same reasons, AEFA recommended
that Class B shares of Cash Management adopt a 10 basis point shareholder
service fee. Class B shares of Cash Management are only available to
shareholders who exchange Class B shares from other AXP funds. Class B investors
do not pay a sales charge at the time shares are purchased so AEFA must use its
own money to pay for distribution costs. For that reason, Class B shares have a
75 basis point 12b-1 fee to help AEFA recover its distribution costs.

In support of its recommendation, AEFA made the following observations:

o    AEFA has begun  offering  several cash options and AEFA advisors  should be
     compensated similarly for each option

o    the  fund's  current   pricing   structure   leaves  it  at  a  competitive
     disadvantage  to similar  products  that  generally  have  distribution  or
     shareholder service fees

o    growth of the fund's assets is crucial to long-term success



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32   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






In light of these observations,  AEFA recommended that the fund adopt a plan and
agreement of distribution or shareholder  service fee (the "Distribution  Plan")
as follows.

Table 6-1. Proposed Distribution Plan
(as a percent of average daily net assets)

Fund               Current Distribution Plan      Proposed Distribution Plan
Cash Management
   - Class A                  None                           0.10%
   - Class B                  0.75%                          0.85%*
 Tax-Free Money               None                           0.10%

* The 0.85% fee will be composed of the current  12b-1 fee of 0.75% and a new
  shareholder service fee of 0.10%.

Under the proposed 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. Fees paid to AEFA
under the Distribution Plan may be used for distribution activities and for
shareholder service related 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. Services provided under this Distribution Plan 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.

Class B shares convert to Class A shares in the ninth year of ownership, and
therefore Class B shareholders of Cash Management are also entitled to vote on
the proposal for Class A. 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.

How Will the Proposed Distribution Plan Affect Fund Expenses? Fees and expenses
the fund actually paid as well as fees and expenses the fund would have paid if
the proposed Distribution Plan had been in effect for the last fiscal year are
shown in Section D.

The Proposed Distribution Plan. Under the proposed Distribution 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.


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33    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






What Factors Did the Board Consider? In considering the adoption of the
Distribution Plan, the Board considered the potential costs and benefits of the
Distribution Plan, including:

o the increase in expenses

o AEFA's  statement  that  it  needs  the  revenue  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 Board reviewed the fund's expense ratios, the level to which the expense
ratios will increase as a result of adopting the Distribution 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 there is a reasonable likelihood
that the Distribution Plan will benefit the fund and its shareholders.

If approved, the Distribution 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
Distribution Plan may be terminated at any time by the Board or the shareholders
and will terminate automatically if it is assigned. The Distribution Plan may
not be 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 Distribution Plan. The
Distribution 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 Distribution Plan is
not approved, the fund will continue to operate under its current arrangements.




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34   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT





PROPOSAL 7: APPROVE OR REJECT A PLAN OF LIQUIDATION
            (Applies to: International Equity Index)

Summary. The fund began operations on Oct. 25, 1999 as a separate series of AXP
Market Advantage Series, Inc. (the "Corporation"). The fund invests primarily in
the equity securities included in its benchmark index. Notwithstanding the
marketing of the fund's shares, the fund has been unable to attract sufficient
assets to operate effectively without significant expense subsidization. During
the period from commencement of operations through June 30, 2002, assets reached
a level of only $ 20.2 million. The Board therefore is recommending that
shareholders vote to approve a Plan of Liquidation to dissolve the fund.

How the Plan of  Liquidation  Will  Work.  The  Board has  approved  the Plan of
Liquidation summarized in this section.

1.   Effective Date of the Plan of Liquidation and End of the Fund's Operations.
     The Plan of Liquidation will become effective on the date it is approved by
     shareholders.  Following this  approval,  the fund (i) will cease to invest
     its assets in accordance  with its  investment  objective and will sell the
     portfolio securities it owns in order to convert the fund's assets to cash;
     and (ii) will not engage in any business activities except for the purposes
     of winding up its business and affairs,  preserving the value of its assets
     and  distributing  its  assets to  shareholders  after the  payment  to (or
     reservation of assets for payment to) all creditors of the fund.

2.   Restriction of Transfer of Shares. Following the effective date, the shares
     of the fund will not be transferable.

3.   Liquidating  Distribution.  As soon as possible  after the  approval of the
     Plan of Liquidation, and in any event within fourteen days, the Corporation
     on behalf of the fund will provide to the applicable  service agent of each
     shareholder of record on the effective date of the Plan of Liquidation: (i)
     a liquidating cash distribution  equal to the  shareholder's  proportionate
     interest in the net assets of the fund based on the number of shares of the
     class of shares of the fund held by the  shareholder  and  recorded  on the
     books  of the  Corporation,  determined  immediately  after  the  close  of
     business on the date of the liquidating distribution;  and (ii) information
     concerning the sources of the liquidating distribution.

4.   Expenses.  Any expenses and solicitation costs will be borne by AEFC. It is
     expected  that other  liabilities  of the fund  incurred  or expected to be
     incurred prior to the date of the liquidating  distribution will be paid by
     the fund, or set aside for payment, prior to the payment of the liquidating
     distribution.



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35    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






5.   Continued  Operation of the Fund.  Following the  liquidating  distribution
     referred to in paragraph 3 above,  the fund will be dissolved.  The Plan of
     Liquidation  provides  that  the  Board  has  the  authority  to  authorize
     variations  from or amendments to the provisions of the Plan of Liquidation
     as may be necessary or appropriate to marshal the assets of the fund and to
     effect the complete liquidation of the fund.

6.   Variations. The Plan of Liquidation authorizes the Board to make variations
     from or amendments to the  provisions  of the Plan of  Liquidation  that it
     deems necessary or appropriate to carry out its purposes.

7.   Dissenters'  Rights.  No  shareholder  will be  entitled  to  exercise  any
     dissenter's   rights  or  appraisal  rights  with  respect  to  the  fund's
     liquidation under either the Plan of Liquidation or relevant  provisions of
     Minnesota law.

Reasons for the Liquidation and Board Deliberations. The Board believes that
liquidation of the fund is in the best interest of shareholders for several
reasons. The Board considered the following matters, among others, in approving
the Plan of Liquidation.

o    Terms and Conditions of the Plan of Liquidation.  The Board  considered the
     terms and  conditions of the Plan of  Liquidation  as described in previous
     paragraphs.

o    Fund Expenses.  Since commencement of operations,  AEFC has waived all or a
     portion of its fees and assumed a  significant  portion of the  expenses of
     the fund.  AEFC has  committed  to continue  capping  fees through Jan. 31,
     2003,  although the waiver can be discontinued at any time after that. AEFC
     does not expect to waive  fees  indefinitely  and,  without  continued  fee
     waivers or growth in assets,  the fund's  expense ratio would likely exceed
     those of many other funds with similar  investment  objectives.  This could
     have an  adverse  impact on the  fund's  performance.  As a  result,  it is
     possible  that the fund's  asset base will  decline and the fund's  expense
     ratio  will rise even  higher as fixed  costs are spread  over a  shrinking
     asset base.  For the most recent  fiscal year,  the fund's  total  expenses
     were:


Table 7-1. Fund Total Expenses

(as of Jan. 31, 2002)
                                            Class D               Class E
Management fees                              0.50%                 0.50%
12b-1 fees                                   0.25%                 0.00%
Other expenses                               0.74%                 0.70%
Total annual fund operating expenses         1.49%                 1.20%
Fee waiver and expense reimbursement         0.60%                 0.56%
Net annual operating expenses                0.89%                 0.64%




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36   AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






o    Alternative  Solutions.  The Board  investigated  what, if any,  additional
     steps  or   alternative   courses   would  best  serve  the   interests  of
     shareholders. The Board considered whether a merger or a transfer of assets
     would  be  possible,  and if those  transactions  would  produce  desirable
     results for shareholders.  After reviewing current market  conditions,  the
     relatively  small  size of the  fund  and the  time  required  to  effect a
     transaction,  management  of the fund believes that the expense of a merger
     with or  transfer of assets to another  mutual  fund are  greater  than the
     benefits  shareholders  of the fund  could  expect to  realize  from such a
     transaction.

o    Shareholder  Options.  The Board noted that  shareholders  may  continue to
     exchange  their  shares for shares of the same class of any other  American
     Express  fund  with  Class D or  Class E  shares  prior  to the date of the
     liquidating  distribution.  The applicable  redemption fee for the fund has
     been waived.  However,  the Board also noted that shareholders who exchange
     will recognize  taxable gain or loss for federal income tax purposes in the
     same way as if they had received a liquidating distribution.

o    Tax  Implications  for  Shareholders.   Each  shareholder  who  receives  a
     liquidating  distribution will recognize a taxable gain or loss for federal
     income  tax  purposes  equal to any  difference  between  the amount of the
     distribution over the shareholder's tax basis in fund shares. Assuming that
     the shareholder  holds the shares as capital assets,  the gain or loss will
     be a capital  gain or loss and will be a long-term  or  short-term  capital
     gain or loss depending on the shareholder's holding period for the shares.

     The  tax  consequences   discussed  may  affect  shareholders   differently
     depending upon their particular tax situations unrelated to the liquidating
     distribution, and accordingly, this summary is not a substitute for careful
     tax planning on an individual basis. Shareholders may wish to consult their
     personal tax advisers  concerning  their  particular tax situations and the
     impact of  receiving  the  liquidating  distribution  as  discussed  above,
     including any state or local tax consequences.

     The  Corporation  anticipates  that it will retain its  qualification  as a
     regulated  investment  company under the Internal Revenue Code, as amended,
     during the liquidation period and,  therefore,  will not be taxed on any of
     its net income from the sale of its assets.



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37    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






Board's Determination. At a meeting held on July 10-11, 2002 the Board reviewed
the expenses that had been assumed by AEFC during the life of the fund, the
efforts and expenses of AEFA to distribute shares of the fund, and the effect of
the operating expenses on the historic and anticipated returns of shareholders.
The Board considered that AEFC had not been able to collect or retain any
significant fees during the life of the fund, that there would be no prospect
that this would change in the near future, and that in the absence of
compensation over long periods, the ability of AEFC to service the needs of the
fund would be impaired.

The Board concluded that an increase in fund expenses attributable to the likely
discontinuance of the fee waiver and assumption of the expenses in the future,
especially when added to the expenses of the fund presently paid directly by the
fund, would significantly reduce the fund's returns. Moreover, the presence of
larger funds with similar objectives better able to operate on an efficient
basis and provide higher returns to shareholders, make it unlikely that the fund
could achieve a significant increase in asset size and achieve economies of
scale. The Board therefore concluded that it would be in the best interest of
the shareholders of the fund to liquidate the fund promptly.

Accordingly, the Board approved the liquidation of the fund and approved the
Plan of Liquidation.

Board Recommendation and Vote Required. The Board recommends that shareholders
approve the proposed Plan of Liquidation. The Plan of Liquidation must be
approved by a majority of the fund's shares voted at the meeting. If the Plan of
Liquidation is not approved, the fund will continue to exist as a series of the
Corporation and will operate in accordance with its stated objective and
policies. The Board will consider what further action should be taken.



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38    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






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 and the amendments to the
organizational document, you vote together with the owners of shares of all the
other funds that are part of the same corporation or trust. On the subadvisory
agreement policy, investment management agreement, change in diversification
status, and liquidation, 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.

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 "For All Except,"
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.

All votes count toward a quorum, regardless of how they are voted (For, Against
or Abstain). Broker non-votes will be counted toward a quorum but not toward the
approval of any proposals. (Broker non-votes are shares for which the underlying
owner has not voted and the broker holding the shares does not have authority to
vote.) If your shares are held in an IRA account, you have the right to instruct
the IRA Custodian how to vote those shares. The IRA Custodian will vote any
shares for which it has not received voting instructions in proportionately the
same manner -- either For, Against or Abstain -- as other fund shareholders have
voted. If your investments include any of the variable portfolio funds, you have
the right to instruct IDS Life, IDS Life Insurance Company of New York ("IDS
Life of New York"), American Centurion Life Assurance Company ("ACL"), American
Enterprise Life Insurance Company ("AEL"), or American Partners Life Insurance
Company ("APL") how to vote



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39    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






the variable portfolio fund shares held under your annuity contract or life
insurance policy. IDS Life, IDS Life of New York, ACL, AEL and APL 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.

Master/Feeder Funds. Some funds are part of a master/feeder structure. The
feeder funds seek their investment objectives by investing their assets in
master funds with the same policies. Master funds invest in and manage the
securities. Proposals 1 through 5 affect certain 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 take into
consideration 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 and for you to 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. The expenses of supplementary solicitation
will be paid by the fund and AEFC.

Shareholder Proposals. No proposals were received from shareholders. The funds
are not required to hold regular meetings of shareholders each year. However,
meetings of shareholders are held from time to time and proposals of
shareholders that are intended to be presented at future shareholder meetings
must be submitted in writing to the funds in reasonable time prior to the
solicitation of proxies for the meeting.



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40    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT






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 for a period of not more
than 120 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.

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 American Express Funds, 70100 AXP Financial
Center, Minneapolis, MN 55474 or call (800) 862-7919.



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41    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT








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


Table      Content (all  information  is shown for the last fiscal year unless
           noted otherwise)

D-1A       Actual  and pro forma  expenses  for Class A shares  of the
           retail  funds, Tax-Free Money and the Variable  Portfolio  Funds,
           assuming all of the fee changes had been in effect during the year

D-1B       Actual and pro forma expenses for Class B

D-1C       Actual and pro forma expenses for Class C

D-1Y       Actual and pro forma expenses for Class Y

D-2        The fund's fee schedule under its management agreement

D-3        The fund's size, number of outstanding shares and 5% owners

D-4        Actual and pro forma Investment Management Services Agreement fees

D-5        Payments the fund made to AEFC and its affiliates

D-6        Brokerage commissions the fund paid to an AEFC affiliate

D-7        Information about shareholder approval of current agreements

D-8        Audit fees

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 variable portfolio 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 200 AXP Financial Center, Minneapolis, MN
55474. AEFC is a wholly owned subsidiary of American Express Company, World
Financial Center, New York, New York 10285.

President  and Board of Directors of AEFC.  James  Cracchiolo  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
200 AXP Financial Center,  Minneapolis,  MN 55474.  Directors:  Kenneth Chenault
(President and Chief Executive Officer,  American Express Company,  New York, NY
10285), James Cracchiolo and Walter S. Berman.

President  and Board of Directors of IDS Life.  Timothy V. Bechtold is President
of IDS Life. The following  individuals are directors of IDS Life. Each director
is an  officer of AEFC  located at 200 AXP  Financial  Center,  Minneapolis,  MN
55474. Directors: Gumer C. Alvero, Timothy V. Bechtold, Barry J. Murphy, Stephen
W. Roszell and John T. Sweeney.



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42    AMERICAN EXPRESS FUNDS -- PROXY STATEMENT



Table D-1A. Actual and Pro Forma Fund Expenses -- Class A
                                                                                                                Total Fund
                                         Management Agreement      Distribution       Other Expenses*       Operating Expenses
(as a % of average daily net assets)      Actual   Pro Forma   Actual    Pro Forma   Actual  Pro Forma       Actual   Pro Forma

Retail Funds
                                                                                                
   Blue Chip Advantage                    0.40%      0.32%     0.25%        0.25%     0.24%     0.24%         0.89%     0.81%
   Cash Management                        0.30       0.30      0.00         0.10      0.29      0.29          0.59      0.69
   Discovery                              0.44       0.44      0.25         0.25      0.37      0.37          1.06      1.06
   Diversified Equity Income              0.49       0.48      0.25         0.25      0.21      0.21          0.95      0.94
   Emerging Markets                       1.08       1.02      0.25         0.25      0.69      0.69          2.02      1.96
   Equity Select                          0.68       0.72      0.25         0.25      0.23      0.23          1.16      1.20
   Equity Value                           0.54       0.59      0.25         0.25      0.24      0.24          1.03      1.08
   European Equity                        0.78       0.74      0.25         0.25      0.50      0.50          1.53      1.49
   Focused Growth                         0.53       0.53      0.25         0.25      0.62      0.62          1.40      1.40
   Global Balanced                        0.78       0.66      0.25         0.25      0.42      0.42          1.45      1.33
   Global Growth                          0.59       0.58      0.25         0.25      0.34      0.34          1.18      1.17
   Global Technology                      0.71       0.71      0.25         0.25      0.67      0.67          1.63      1.63
   Growth                                 0.54       0.53      0.25         0.25      0.20      0.20          0.99      0.98
   Growth Dimensions                      0.47       0.44      0.25         0.25      0.44      0.44          1.16      1.13
   International                          0.62       0.60      0.25         0.25      0.41      0.41          1.28      1.26
   Large Cap Equity**                      N/A        N/A       N/A          N/A       N/A       N/A           N/A       N/A
   Large Cap Value**                       N/A        N/A       N/A          N/A       N/A       N/A           N/A       N/A
   Managed Allocation                     0.49       0.45      0.25         0.25      0.23      0.23          0.97      0.93
   Mid Cap Value**                         N/A        N/A       N/A          N/A       N/A       N/A           N/A       N/A
   Mutual                                 0.40       0.35      0.25         0.25      0.22      0.22          0.87      0.82


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43  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
 



Table D-1A. Actual and Pro Forma Fund Expenses -- Class A  (continued)
                                                                                                                Total Fund
                                         Management Agreement      Distribution       Other Expenses*       Operating Expenses
(as a % of average daily net assets)      Actual   Pro Forma   Actual    Pro Forma   Actual  Pro Forma       Actual   Pro Forma

Retail Funds (continued)
                                                                                               
   New Dimensions                         0.58%      0.60%     0.25%        0.25%     0.17%     0.17%         1.00%     1.02%
   Partners Fundamental Value             0.73       0.72      0.25         0.25      0.57      0.57          1.55      1.54
   Partners International
      Aggressive Growth                   1.00       1.00      0.25         0.25      8.09      8.09          9.34      9.34
   Partners International Select Value    0.90       0.90      0.25         0.25      9.00      9.00         10.15     10.15
   Partners Select Value                  0.78       0.79      0.25         0.25      2.03      2.03          3.06      3.07
   Partners Small Cap Core                0.97       0.94      0.25         0.25      3.83      3.83          5.05      5.02
   Partners Small Cap Growth              0.93       0.96      0.25         0.25      0.71      0.71          1.89      1.92
   Partners Small Cap Value               0.97       0.99      0.25         0.25      0.56      0.56          1.78      1.80
   Partners Value                         0.74       0.76      0.25         0.25      0.68      0.68          1.67      1.69
   Precious Metals                        0.76       0.77      0.25         0.25      0.77      0.77          1.78      1.79
   Progressive                            0.53       0.50      0.25         0.25      0.30      0.30          1.08      1.05
   Research Opportunities                 0.60       0.53      0.25         0.25      0.31      0.31          1.16      1.09
   Small Cap Advantage                    0.63       0.60      0.25         0.25      0.37      0.37          1.25      1.22
   Small Company Index                    0.38       0.42      0.25         0.25      0.33      0.33          0.96      1.00
   Stock                                  0.47       0.48      0.25         0.25      0.15      0.15          0.87      0.88
   Strategy Aggressive                    0.46       0.43      0.25         0.25      0.38      0.38          1.09      1.06
   Tax-Free Money                         0.36       0.36      0.00         0.10      0.23      0.23          0.59      0.69
   Utilities                              0.61       0.64      0.25         0.25      0.17      0.17          1.03      1.06



- --------------------------------------------------------------------------------
44  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-1A. Actual and Pro Forma Fund Expenses -- Class A  (continued)
                                                                                                                Total Fund
                                         Management Agreement      Distribution       Other Expenses*       Operating Expenses
(as a % of average daily net assets)      Actual   Pro Forma   Actual    Pro Forma   Actual  Pro Forma       Actual   Pro Forma

Variable Portfolio Funds
                                                                                               
   VP-Blue Chip Advantage                 0.54%      0.49%     0.12%        0.12%     0.12%     0.12%         0.78%     0.73%
   VP-Bond                                0.60       0.60      0.12         0.12      0.08      0.08          0.80      0.80
   VP-Capital Resource                    0.61       0.61      0.12         0.12      0.05      0.05          0.78      0.78
   VP-Cash Management                     0.51       0.51      0.12         0.12      0.05      0.05          0.68      0.68
   VP-Diversified Equity Income           0.55       0.54      0.12         0.12      0.50      0.50          1.17      1.16
   VP-Emerging Markets                    1.16       1.12      0.12         0.12      2.21      2.21          3.49      3.45
   VP-Equity Select                       0.64       0.67      0.12         0.12      2.23      2.23          2.99      3.02
   VP-Extra Income                        0.62       0.62      0.12         0.12      0.08      0.08          0.82      0.82
   VP-Federal Income                      0.61       0.61      0.12         0.12      0.14      0.14          0.87      0.87
   VP-Global Bond                         0.84       0.84      0.12         0.12      0.11      0.11          1.07      1.07
   VP-Growth                              0.62       0.60      0.12         0.12      0.17      0.17          0.91      0.89
   VP-International                       0.83       0.83      0.12         0.12      0.09      0.09          1.04      1.04
   VP-Managed                             0.59       0.59      0.12         0.12      0.05      0.05          0.76      0.76
   VP-New Dimensions                      0.60       0.60      0.12         0.12      0.07      0.07          0.79      0.79
   VP-Partners Small Cap Value            1.02       1.02      0.12         0.12      5.72      5.72          6.86      6.86
   VP-S&P 500 Index                       0.29       0.29      0.12         0.12      0.90      0.90          1.31      1.31
   VP-Small Cap Advantage                 0.73       0.71      0.12         0.12      0.41      0.41          1.26      1.24
   VP-Stock                               0.56       0.56      0.12         0.12     10.68     10.68         11.36     11.36
   VP-Strategy Aggressive                 0.60       0.60      0.12         0.12      0.06      0.06          0.78      0.78


 *   Other  expenses  include an  administrative  services  fee,  a  shareholder
     services fee, a transfer agency fee and other nonadvisory  expenses.
**   The fund began  operations  in 2002 and has not yet had a  fiscal  year end
     reporting period.

- --------------------------------------------------------------------------------
45  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


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
                                Actual   Pro Forma     Actual    Pro Forma     Actual   Pro Forma     Actual   Pro Forma
Retail Funds
                                                                                       
   Blue Chip Advantage          $661       $653       $  843    $  819       $1,040    $1,000        $1,612    $1,523
   Cash Management                60         70          189       221          330       385           741       862
   Discovery                     677        677          893       893        1,127     1,127         1,799     1,799
   Diversified Equity Income     666        655          861       858        1,071     1,066         1,679     1,667
   Emerging Markets              768        763        1,172     1,155        1,601     1,572         2,793     2,733
   Equity Select                 686        690          923       934        1,178     1,198         1,907     1,951
   Equity Value                  674        679          884       899        1,112     1,137         1,766     1,821
   European Equity               722        718        1,031     1,019        1,362     1,342         2,298     2,557
   Focused Growth                702        702          986       986        1,291     1,291         2,156     2,156
   Global Balanced               714        703        1,008       972        1,323     1,263         2,215     2,089
   Global Growth                 688        687          928       925        1,188     1,183         1,929     1,918
   Global Technology             731        731        1,060     1,060        1,411     1,411         2,401     2,401
   Growth                        670        669          872       869        1,091     1,086         1,723     1,712
   Growth Dimensions             685        684          922       914        1,177     1,162         1,907     1,875
   International                 698        696          958       952        1,238     1,228         2,036     2,015
   Large Cap Equity*             N/A        N/A          N/A       N/A          N/A       N/A           N/A       N/A
   Large Cap Value*              N/A        N/A          N/A       N/A          N/A       N/A           N/A       N/A
   Managed Allocation            668        664          866       855        1,081     1,061         1,701     1,656
   Mid Cap Value*                N/A        N/A          N/A       N/A          N/A       N/A           N/A       N/A


- --------------------------------------------------------------------------------
46  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Example: (continued)
                                             1 year                  3 years                5 years               10 years
                                       Actual   Pro Forma     Actual    Pro Forma     Actual   Pro Forma     Actual   Pro Forma
Retail Funds (continued)
                                                                                              
   Mutual                              $659       $654      $   837   $   822       $1,030    $1,005        $1,590    $1,534
   New Dimensions                       671        673          875       881        1,097     1,107         1,734     1,755
   Partners Fundamental Value           705        705        1,018     1,016        1,354     1,350         2,303     2,294
   Partners International
      Aggressive Growth                 743        743        2,484     2,484          N/A       N/A           N/A       N/A
   Partners International Select Value  733        733        2,612     2,612          N/A       N/A           N/A       N/A
   Partners Select Value                719        719        1,328     1,330        1,961     1,965         3,656     3,664
   Partners Small Cap Core              728        728        1,713     1,707        2,696     2,686         5,150     5,130
   Partners Small Cap Growth            724        724        1,104     1,110        1,509     1,521         2,638     2,666
   Partners Small Cap Value             728        728        1,087     1,091        1,469     1,477         2,540     2,559
   Partners Value                       705        705        1,042     1,046        1,403     1,411         2,417     2,436
   Precious Metals                      745        746        1,103     1,106        1,485     1,490         2,554     2,564
   Progressive                          679        676          899       890        1,137     1,122         1,821     1,788
   Research Opportunities               686        680          923       902        1,178     1,142         1,907     1,832
   Small Cap Advantage                  695        692          949       940        1,123     1,208         2,004     1,972
   Small Company Index                  667        671          863       875        1,076     1,097         1,690     1,734
   Stock                                659        660          837       840        1,030     1,035         1,590     1,601
   Strategy Aggressive                  680        677          902       893        1,142     1,127         1,832     1,799
   Tax-Free Money                        60         70          189       221          330       385           741       862
   Utilities                            674        677          884       893        1,112     1,127         1,766     1,799


- --------------------------------------------------------------------------------
47  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Example: (continued)
                                      1 year                  3 years                5 years               10 years
                                Actual   Pro Forma     Actual    Pro Forma     Actual   Pro Forma     Actual   Pro Forma
Variable Portfolio Funds
                                                                                       
   VP-Blue Chip Advantage       $ 80       $ 75       $  249    $  234       $  434    $  407        $  970    $  910
   VP-Bond                        82         82          256       256          445       445           994       994
   VP-Capital Resource            80         80          249       249          434       434           970       970
   VP-Cash Management             69         69          218       218          379       379           850       850
   VP-Diversified Equity Income  119        118          372       369          645       639         1,425     1,414
   VP-Emerging Markets           178        178          910       902        1,664     1,648         3,653     3,620
   VP-Equity Select              112        112          747       753        1,407     1,419         3,179     3,205
   VP-Extra Income                84         84          262       262          456       456         1,018     1,018
   VP-Federal Income              89         89          278       278          483       483         1,077     1,077
   VP-Global Bond                109        109          341       341          591       591         1,310     1,310
   VP-Growth                      93         91          290       284          505       494         1,124     1,100
   VP-International              106        106          331       331          575       575         1,276     1,276
   VP-Managed                     78         78          243       243          423       423           946       946
   VP-New Dimensions              81         81          253       253          440       440           982       982
   VP-Partners Small Cap Value   153        153        1,547     1,547        2,891     2,891         6,040     6,040
   VP-S&P 500 Index               50         50          334       334          641       641         1,513     1,513
   VP-Small Cap Advantage        128        126          400       394          693       682         1,528     1,505
   VP-Stock                      112        112        2,329     2,329        4,281     4,281         8,202     8,202
   VP-Strategy Aggressive         80         80          249       249          434       434           970       970


*    The fund  began  operations  in 2002 and has not yet had a fiscal  year end
     reporting period.

- --------------------------------------------------------------------------------
48  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-1B. Actual and Pro Forma Fund Expenses -- Class B
                                                                                                                Total Fund
                                         Management Agreement      Distribution       Other Expenses*       Operating Expenses
(as a % of average daily net assets)      Actual   Pro Forma   Actual    Pro Forma   Actual  Pro Forma       Actual   Pro Forma
Retail Funds
                                                                                                
   Blue Chip Advantage                    0.40%      0.32%      1.00%       1.00%     0.25%     0.25%         1.65%     1.57%
   Cash Management                        0.30       0.30       0.75        0.85      0.29      0.29          1.34      1.44
   Discovery                              0.44       0.44       1.00        1.00      0.39      0.39          1.83      1.83
   Diversified Equity Income              0.49       0.48       1.00        1.00      0.22      0.22          1.71      1.70
   Emerging Markets                       1.08       1.02       1.00        1.00      0.71      0.71          2.79      2.73
   Equity Select                          0.68       0.72       1.00        1.00      0.25      0.25          1.93      1.97
   Equity Value                           0.54       0.59       1.00        1.00      0.24      0.24          1.78      1.83
   European Equity                        0.78       0.74       1.00        1.00      0.52      0.52          2.30      2.26
   Focused Growth                         0.53       0.53       1.00        1.00      0.63      0.63          2.16      2.16
   Global Balanced                        0.78       0.66       1.00        1.00      0.43      0.43          2.21      2.09
   Global Growth                          0.59       0.58       1.00        1.00      0.36      0.36          1.95      1.94
   Global Technology                      0.71       0.71       1.00        1.00      0.71      0.71          2.42      2.42
   Growth                                 0.54       0.53       1.00        1.00      0.21      0.21          1.75      1.74
   Growth Dimensions                      0.47       0.44       1.00        1.00      0.45      0.45          1.92      1.89
   International                          0.62       0.60       1.00        1.00      0.43      0.43          2.05      2.03
   Large Cap Equity**                      N/A        N/A        N/A         N/A       N/A       N/A           N/A       N/A
   Large Cap Value**                       N/A        N/A        N/A         N/A       N/A       N/A           N/A       N/A
   Managed Allocation                     0.49       0.45       1.00        1.00      0.25      0.25          1.74      1.70
   Mid Cap Value**                         N/A        N/A        N/A         N/A       N/A       N/A           N/A       N/A
   Mutual                                 0.40       0.35       1.00        1.00      0.24      0.24          1.64      1.59


- --------------------------------------------------------------------------------
49  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-1B. Actual and Pro Forma Fund Expenses -- Class B (continued)
                                                                                                                Total Fund
                                         Management Agreement      Distribution       Other Expenses*       Operating Expenses
(as a % of average daily net assets)      Actual   Pro Forma   Actual    Pro Forma   Actual  Pro Forma       Actual   Pro Forma

Retail Funds (continued)
                                                                                               
   New Dimensions                         0.58%      0.60%     1.00%        1.00%     0.18%     0.18%         1.76%     1.78%
   Partners Fundamental Value             0.73       0.72      1.00         1.00      0.58      0.58          2.31      2.30
   Partners International
      Aggressive Growth                   1.00       1.00      1.00         1.00      8.11      8.11         10.11     10.11
   Partners International Select Value    0.90       0.90      1.00         1.00      9.02      9.02         10.92     10.92
   Partners Select Value                  0.78       0.79      1.00         1.00      2.04      2.04          3.82      3.83
   Partners Small Cap Core                0.97       0.94      1.00         1.00      3.84      3.84          5.81      5.78
   Partners Small Cap Growth              0.93       0.96      1.00         1.00      0.72      0.72          2.65      2.68
   Partners Small Cap Value               0.97       0.99      1.00         1.00      0.57      0.57          2.54      2.56
   Partners Value                         0.74       0.76      1.00         1.00      0.69      0.69          2.43      2.45
   Precious Metals                        0.76       0.77      1.00         1.00      0.78      0.78          2.54      2.55
   Progressive                            0.53       0.50      1.00         1.00      0.33      0.33          1.86      1.83
   Research Opportunities                 0.60       0.53      1.00         1.00      0.32      0.32          1.92      1.85
   Small Cap Advantage                    0.63       0.60      1.00         1.00      0.39      0.39          2.02      1.99
   Small Company Index                    0.38       0.42      1.00         1.00      0.34      0.34          1.72      1.76
   Stock                                  0.47       0.48      1.00         1.00      0.17      0.17          1.64      1.65
   Strategy Aggressive                    0.46       0.43      1.00         1.00      0.40      0.40          1.86      1.83
   Utilities                              0.61       0.64      1.00         1.00      0.19      0.19          1.80      1.83


 *   Other  expenses  include an  administrative  services  fee,  a  shareholder
     services fee, a transfer agency fee and other nonadvisory expenses.
**   The fund  began  operations  in 2002 and has not yet had a fiscal  year end
     reporting period.

- --------------------------------------------------------------------------------
50  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


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
                                Actual   Pro Forma     Actual    Pro Forma     Actual   Pro Forma     Actual   Pro Forma
Retail Funds
                                                                                       
   Blue Chip Advantage          $568       $560       $  821    $  796       $  998    $  956        $1,756    $1,667
   Cash Management               536        547          725       756          835       888         1,410     1,524
   Discovery                     586        586          876       876        1,091     1,091         1,950     1,950
   Diversified Equity Income     574        572          839       836        1,029     1,024         1,822     1,811
   Emerging Markets              682        676        1,165     1,146        1,575     1,545         2,938     2,879
   Equity Select                 596        600          906       919        1,143     1,163         2,058     2,101
   Equity Value                  581        586          861       876        1,065     1,091         1,901     1,956
   European Equity               633        629        1,019     1,007        1,331     1,311         2,447     2,405
   Focused Growth                611        611          969       969        1,253     1,253         2,298     2,298
   Global Balanced               624        612          991       955        1,286     1,225         2,356     2,231
   Global Growth                 598        597          913       909        1,153     1,148         2,079     2,069
   Global Technology             645        645        1,055     1,055        1,391     1,391         2,564     2,564
   Growth                        578        576          851       848        1,050     1,045         1,866     1,855
   Growth Dimensions             594        592          902       894        1,137     1,122         2,049     2,018
   International                 608        606          943       937        1,204     1,194         2,186     2,165
   Large Cap Equity*             N/A        N/A          N/A       N/A          N/A       N/A           N/A       N/A
   Large Cap Value*              N/A        N/A          N/A       N/A          N/A       N/A           N/A       N/A
   Managed Allocation            577        573          848       836        1,045     1,024         1,852     1,808
   Mid Cap Value*                N/A        N/A          N/A       N/A          N/A       N/A           N/A       N/A


- --------------------------------------------------------------------------------
51  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Example: (continued)
                                                 1 year                  3 years                5 years               10 years
                                           Actual   Pro Forma     Actual    Pro Forma     Actual   Pro Forma     Actual   Pro Forma
Retail Funds (continued)
                                                                                                  
   Mutual                                  $567       $562      $   818   $   802      $   993   $   967        $1,742    $1,687
   New Dimensions                           579        581          854       861        1,055     1,065         1,877     1,899
   Partners Fundamental Value               614        614        1,003     1,000        1,318     1,314         2,444     2,434
   Partners International
   Aggressive Growth                        655        655        2,525     2,525          N/A       N/A           N/A       N/A
   Partners International Select Value      645        645        2,657     2,657          N/A       N/A           N/A       N/A
   Partners Select Value                    629        629        1,324     1,326        1,937     1,941         3,791     3,799
   Partners Small Cap Core                  639        639        1,723     1,717        2,687     2,676         5,278     5,258
   Partners Small Cap Growth                634        634        1,092     1,098        1,476     1,488         2,777     2,805
   Partners Small Cap Value                 639        639        1,074     1,078        1,435     1,443         2,679     2,698
   Partners Value                           614        614        1,027     1,031        1,368     1,376         2,558     2,576
   Precious Metals                          657        658        1,091     1,094        1,451     1,456         2,693     2,703
   Progressive                              589        586          885       876        1,107     1,091         1,980     1,948
   Research Opportunities                   595        588          903       882        1,138     1,102         2,050     1,975
   Small Cap Advantage                      605        602          934       925        1,189     1,174         2,154     2,122
   Small Company Index                      575        579          842       854        1,034     1,055         1,833     1,877
   Stock                                    567        568          818       821          993       998         1,742     1,753
   Strategy Aggressive                      589        586          885       876        1,107     1,091         1,983     1,950
   Utilities                                583        586          867       876        1,076     1,091         1,918     1,950


* The fund began operations in 2002 and has not yet had a fiscal year end
  reporting period.

- --------------------------------------------------------------------------------
52  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-1C. Actual and Pro Forma Fund Expenses -- Class C
                                                                                                                Total Fund
                                         Management Agreement      Distribution       Other Expenses*       Operating Expenses
(as a % of average daily net assets)      Actual   Pro Forma   Actual    Pro Forma   Actual  Pro Forma       Actual   Pro Forma

Retail Funds
                                                                                                
   Blue Chip Advantage                    0.40%      0.32%     1.00%        1.00%     0.27%     0.27%         1.67%     1.59%
   Cash Management                        0.30       0.30      0.75         0.75      0.29      0.29          1.34      1.34
   Discovery                              0.44       0.44      1.00         1.00      0.39      0.39          1.83      1.83
   Diversified Equity Income              0.49       0.48      1.00         1.00      0.22      0.22          1.71      1.70
   Emerging Markets                       1.08       1.02      1.00         1.00      0.71      0.71          2.79      2.73
   Equity Select                          0.68       0.72      1.00         1.00      0.29      0.29          1.97      2.01
   Equity Value                           0.54       0.59      1.00         1.00      0.27      0.27          1.81      1.86
   European Equity                        0.78       0.74      1.00         1.00      0.52      0.52          2.30      2.26
   Focused Growth                         0.53       0.53      1.00         1.00      0.63      0.63          2.16      2.16
   Global Balanced                        0.78       0.66      1.00         1.00      0.43      0.43          2.21      2.09
   Global Growth                          0.59       0.58      1.00         1.00      0.36      0.36          1.95      1.94
   Global Technology                      0.71       0.71      1.00         1.00      0.71      0.71          2.42      2.42
   Growth                                 0.54       0.53      1.00         1.00      0.21      0.21          1.75      1.74
   Growth Dimensions                      0.47       0.44      1.00         1.00      0.45      0.45          1.92      1.89
   International                          0.62       0.60      1.00         1.00      0.43      0.43          2.05      2.03
   Large Cap Equity**                      N/A        N/A       N/A          N/A       N/A       N/A           N/A       N/A
   Large Cap Value**                       N/A        N/A       N/A          N/A       N/A       N/A           N/A       N/A
   Managed Allocation                     0.49       0.45      1.00         1.00      0.25      0.25          1.74      1.70
   Mid Cap Value**                         N/A        N/A       N/A          N/A       N/A       N/A           N/A       N/A
   Mutual                                 0.40       0.35      1.00         1.00      0.24      0.24          1.64      1.59


- --------------------------------------------------------------------------------
53  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-1C. Actual and Pro Forma Fund Expenses -- Class C (continued)
                                                                                                                Total Fund
                                         Management Agreement      Distribution       Other Expenses*       Operating Expenses
(as a % of average daily net assets)      Actual   Pro Forma   Actual    Pro Forma   Actual  Pro Forma       Actual   Pro Forma

Retail Funds (continued)
                                                                                               
   New Dimensions                         0.58%      0.60%     1.00%        1.00%     0.18%     0.18%         1.76%     1.78%
   Partners Fundamental Value             0.73       0.72      1.00         1.00      0.58      0.58          2.31      2.30
   Partners International
      Aggressive Growth                   1.00       1.00      1.00         1.00      8.11      8.11         10.11     10.11
   Partners International Select Value    0.90       0.90      1.00         1.00      9.02      9.02         10.92     10.92
   Partners Select Value                  0.78       0.79      1.00         1.00      2.04      2.04          3.82      3.83
   Partners Small Cap Core                0.97       0.94      1.00         1.00      3.84      3.84          5.81      5.78
   Partners Small Cap Growth              0.93       0.96      1.00         1.00      0.72      0.72          2.65      2.68
   Partners Small Cap Value               0.97       0.99      1.00         1.00      0.57      0.57          2.54      2.56
   Partners Value                         0.74       0.76      1.00         1.00      0.69      0.69          2.43      2.45
   Precious Metals                        0.76       0.77      1.00         1.00      0.75      0.75          2.51      2.52
   Progressive                            0.53       0.50      1.00         1.00      0.33      0.33          1.86      1.83
   Research Opportunities                 0.60       0.53      1.00         1.00      0.32      0.32          1.92      1.85
   Small Cap Advantage                    0.63       0.60      1.00         1.00      0.41      0.41          2.04      2.01
   Stock                                  0.47       0.48      1.00         1.00      0.17      0.17          1.64      1.65
   Strategy Aggressive                    0.46       0.43      1.00         1.00      0.43      0.43          1.89      1.86
   Utilities                              0.61       0.64      1.00         1.00      0.19      0.19          1.80      1.83


 *   Other  expenses  include an  administrative  services  fee,  a  shareholder
     services fee, a transfer agency fee and other nonadvisory expenses.
**   The fund  began  operations  in 2002 and has not yet had a fiscal  year end
     reporting period.

- --------------------------------------------------------------------------------
54  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


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
                                Actual   Pro Forma     Actual    Pro Forma     Actual   Pro Forma     Actual   Pro Forma
Retail Funds
                                                                                       
   Blue Chip Advantage          $170       $162         $527      $502       $  908    $  867        $1,981    $1,894
   Cash Management               136        136          425       425          735       735         1,618     1,618
   Discovery                     186        186          576       576          991       991         2,153     2,153
   Diversified Equity Income     174        173          539       536          929       924         2,024     2,014
   Emerging Markets              282        276          865       847        1,475     1,445         3,122     3,064
   Equity Select                 200        204          619       631        1,063     1,084         2,301     2,342
   Equity Value                  184        189          570       585          981     1,007         2,132     2,185
   European Equity               233        229          719       707        1,231     1,211         2,640     2,600
   Focused Growth                211        211          669       669        1,153     1,153         2,491     2,491
   Global Balanced               224        212          691       655        1,186     1,125         2,549     2,425
   Global Growth                 198        197          613       609        1,053     1,048         2,280     2,269
   Global Technology             245        245          755       755        1,291     1,291         2,761     2,761
   Growth                        178        177          551       548          950       945         2,067     2,057
   Growth Dimensions             194        192          602       594        1,037     1,022         2,247     2,216
   International                 208        206          643       637        1,104     1,094         2,384     2,363
   Large Cap Equity*             N/A        N/A          N/A       N/A          N/A       N/A           N/A       N/A
   Large Cap Value*              N/A        N/A          N/A       N/A          N/A       N/A           N/A       N/A
   Managed Allocation            177        173          548       536          945       924         2,057     2,014
   Mid Cap Value*                N/A        N/A          N/A       N/A          N/A       N/A           N/A       N/A


- --------------------------------------------------------------------------------
55  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Example: (continued)
                                              1 year                  3 years                5 years               10 years
                                        Actual   Pro Forma     Actual    Pro Forma     Actual   Pro Forma     Actual   Pro Forma
Retail Funds (continued)
                                                                                               
   Mutual                               $167       $162       $  518    $  502       $  893    $  867        $1,949    $1,894
   New Dimensions                        179        181          554       561          955       965         2,078     2,100
   Partners Fundamental Value            214        214          703       700        1,218     1,214         2,635     2,626
   Partners International
      Aggressive Growth                  255        255        2,225     2,225          N/A       N/A           N/A       N/A
   Partners International Select Value   245        245        2,357     2,357          N/A       N/A           N/A       N/A
   Partners Select Value                 229        229        1,024     1,026        1,837     1,841         3,957     3,965
   Partners Small Cap Core               239        239        1,423     1,417        2,587     2,576         5,417     5,397
   Partners Small Cap Growth             234        234          792       798        1,376     1,388         2,962     2,989
   Partners Small Cap Value              239        239          774       778        1,335     1,343         2,866     2,884
   Partners Value                        214        214          727       731        1,268     1,276         2,746     2,765
   Precious Metals                       254        255          782       785        1,336     1,341         2,850     2,860
   Progressive                           189        186          585       576        1,107       991         2,185     2,153
   Research Opportunities                195        188          603       582        1,038     1,002         2,248     2,174
   Small Cap Advantage                   207        204          640       631        1,099     1,084         2,374     2,342
   Stock                                 167        168          518       521          893       898         1,949     1,960
   Strategy Aggressive                   192        189          594       585        1,022     1,007         2,216     2,185
   Utilities                             183        186          567       576          976       991         2,121     2,153


*    The fund  began  operations  in 2002 and has not yet had a fiscal  year end
     reporting period.

- --------------------------------------------------------------------------------
56 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-1Y. Actual and Pro Forma Fund Expenses -- Class Y
                                                                                                                Total Fund
                                         Management Agreement      Distribution       Other Expenses*       Operating Expenses
(as a % of average daily net assets)      Actual   Pro Forma   Actual    Pro Forma   Actual  Pro Forma       Actual   Pro Forma

Retail Funds
                                                                                                
   Blue Chip Advantage                    0.40%      0.32%     0.00%        0.00%     0.32%     0.32%         0.72%     0.64%
   Cash Management                        0.30       0.30      0.00         0.00      0.27      0.27          0.57      0.57
   Discovery                              0.44       0.44      0.00         0.00      0.42      0.42          0.86      0.86
   Diversified Equity Income              0.49       0.48      0.00         0.00      0.29      0.29          0.78      0.77
   Emerging Markets                       1.08       1.02      0.00         0.00      0.76      0.76          1.84      1.78
   Equity Select                          0.68       0.72      0.00         0.00      0.32      0.32          1.00      1.04
   Equity Value                           0.54       0.59      0.00         0.00      0.32      0.32          0.86      0.91
   European Equity                        0.78       0.74      0.00         0.00      0.57      0.57          1.35      1.31
   Focused Growth                         0.53       0.53      0.00         0.00      0.71      0.71          1.24      1.24
   Global Balanced                        0.78       0.66      0.00         0.00      0.53      0.53          1.31      1.19
   Global Growth                          0.59       0.58      0.00         0.00      0.42      0.42          1.01      1.00
   Global Technology                      0.71       0.71      0.00         0.00      0.78      0.78          1.49      1.49
   Growth                                 0.54       0.53      0.00         0.00      0.29      0.29          0.83      0.82
   Growth Dimensions                      0.47       0.44      0.00         0.00      0.53      0.53          1.00      0.97
   International                          0.62       0.60      0.00         0.00      0.49      0.49          1.11      1.09
   Large Cap Equity**                      N/A        N/A       N/A          N/A       N/A       N/A           N/A       N/A
   Large Cap Value**                       N/A        N/A       N/A          N/A       N/A       N/A           N/A       N/A
   Managed Allocation                     0.49       0.45      0.00         0.00      0.31      0.31          0.80      0.76
   Mid Cap Value**                         N/A        N/A       N/A          N/A       N/A       N/A           N/A       N/A
   Mutual                                 0.40       0.35      0.00         0.00      0.31      0.31          0.71      0.66


- --------------------------------------------------------------------------------
57  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-1Y. Actual and Pro Forma Fund Expenses -- Class Y (continued)
                                                                                                                Total Fund
                                         Management Agreement      Distribution       Other Expenses*       Operating Expenses
(as a % of average daily net assets)      Actual   Pro Forma   Actual    Pro Forma   Actual  Pro Forma       Actual   Pro Forma

Retail Funds (continued)
                                                                                                
   New Dimensions                         0.58%      0.60%     0.00%        0.00%     0.26%     0.26%         0.84%     0.86%
   Partners Fundamental Value             0.73       0.72      0.00         0.00      0.64      0.64          1.37      1.36
   Partners International
      Aggressive Growth                   1.00       1.00      0.00         0.00      8.17      8.17          9.17      9.17
   Partners International Select Value    0.90       0.90      0.00         0.00      9.08      9.08          9.98      9.98
   Partners Select Value                  0.78       0.79      0.00         0.00      2.10      2.10          2.88      2.89
   Partners Small Cap Core                0.97       0.94      0.00         0.00      3.90      3.90          4.87      4.84
   Partners Small Cap Growth              0.93       0.96      0.00         0.00      0.78      0.78          1.71      1.74
   Partners Small Cap Value               0.97       0.99      0.00         0.00      0.63      0.63          1.60      1.62
   Partners Value                         0.74       0.76      0.00         0.00      0.75      0.75          1.49      1.51
   Precious Metals                        0.76       0.77      0.00         0.00      0.82      0.82          1.58      1.59
   Progressive                            0.53       0.50      0.00         0.00      0.42      0.42          0.95      0.92
   Research Opportunities                 0.60       0.53      0.00         0.00      0.40      0.40          1.00      0.93
   Small Cap Advantage                    0.63       0.60      0.00         0.00      0.45      0.45          1.08      1.05
   Small Company Index                    0.38       0.42      0.00         0.00      0.41      0.41          0.79      0.83
   Stock                                  0.47       0.48      0.00         0.00      0.24      0.24          0.71      0.72
   Strategy Aggressive                    0.46       0.43      0.00         0.00      0.45      0.45          0.91      0.88
   Utilities                              0.61       0.64      0.00         0.00      0.27      0.27          0.88      0.91


 *   Other  expenses  include an  administrative  services  fee,  a  shareholder
     services fee, a transfer agency fee and other nonadvisory expenses.
**   The fund  began  operations  in 2002 and has not yet had a fiscal  year end
     reporting period.

- --------------------------------------------------------------------------------
58  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


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
                                Actual   Pro Forma     Actual    Pro Forma     Actual   Pro Forma     Actual   Pro Forma
Retail Funds
                                                                                       
   Blue Chip Advantage          $ 74       $ 65         $230      $205         $401     $ 357        $  898    $  802
   Cash Management                58         58          183       183          319       319           717       717
   Discovery                      88         88          275       275          478       478         1,065     1,065
   Diversified Equity Income      80         79          249       246          434       429           970       958
   Emerging Markets              187        181          579       561          996       965         2,164     2,100
   Equity Select                 102        106          319       331          553       575         1,229     1,276
   Equity Value                   88         93          275       290          478       505         1,065     1,124
   European Equity               137        133          428       415          740       719         1,629     1,584
   Focused Growth                118        118          386       386          674       674         1,498     1,498
   Global Balanced               133        121          415       378          719       655         1,584     1,448
   Global Growth                 103        162          322       319          559       553         1,241     1,229
   Global Technology             152        152          471       471          814       814         1,785     1,785
   Growth                         85         84          265       262          461       456         1,029     1,018
   Growth Dimensions             101         99          318       309          552       537         1,228     1,194
   International                 113        111          353       347          612       602         1,356     1,333
   Large Cap Equity*             N/A        N/A          N/A       N/A          N/A       N/A           N/A       N/A
   Large Cap Value*              N/A        N/A          N/A       N/A          N/A       N/A           N/A       N/A
   Managed Allocation             82         78          256       243          445       423           994       946
   Mid Cap Value*                N/A        N/A          N/A       N/A          N/A       N/A           N/A       N/A


- --------------------------------------------------------------------------------
59  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Example: (continued)
                                                1 year                  3 years                5 years               10 years
                                          Actual   Pro Forma     Actual    Pro Forma     Actual   Pro Forma     Actual   Pro Forma
Retail Funds (continued)
                                                                                                   
   Mutual                                 $ 73       $ 67       $  227     $  211        $  396    $  368        $  886    $  826
   New Dimensions                           86         88          268        275           467       478         1,041     1,065
   Partners Fundamental Value              119        119          414        412           732       728         1,634     1,624
   Partners International
      Aggressive Growth                    161        161        1,981      1,981           N/A       N/A           N/A       N/A
   Partners International Select Value     151        151        2,118      2,118           N/A       N/A           N/A       N/A
   Partners Select Value                   134        134          745        747         1,382     1,386         3,097     3,106
   Partners Small Cap Core                 145        145        1,155      1,149         2,169     2,158         4,714     4,692
   Partners Small Cap Growth               139        139          506        512           897       910         1,996     2,026
   Partners Small Cap Value                145        145          488        492           855       864         1,890     1,910
   Partners Value                          119        119          440        444           784       793         1,757     1,778
   Precious Metals                         161        162          499        502           861       867         1,883     1,894
   Progressive                              97         94          303        294           526       510         1,171     1,136
   Research Opportunities                  102         95          319        297           553       516         1,229     1,147
   Small Cap Advantage                     110        107          344        334           596       580         1,322     1,287
   Small Company Index                      81         85          253        265           440       461           982     1,029
   Stock                                    73         74          227        230           396       401           886       898
   Strategy Aggressive                      93         90          290        281           505       488         1,124     1,089
   Utilities                                90         93          281        290           488       505         1,089     1,124


*    The fund  began  operations  in 2002 and has not yet had a fiscal  year end
     reporting period.

- --------------------------------------------------------------------------------
60  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-2. Fund Management Fees

Retail Funds(1)                 Management Fee (annual        Fee Cap(2) (if applicable)
                                rate; in billions)
- ------------------------------- ----------------------------- ---------------------------------------
                                                        
Blue Chip Advantage             First $.25-.54%; next
                                $.25-.515%;  next
                                $.25-.49%; next $.25-.465%;
                                 next $1-.44%; next
                                $1-.41%;  next $3-.38%;
                                over $6-.35%
- ------------------------------- ----------------------------- ---------------------------------------
Discovery(4)                    First $.25-.64%; next
Progressive (5)                 $.25-.615%;  next
                                $.25-.59%; next $.25-.565%;
                                 next $1-.54%; over $2-.515%
- ------------------------------- ----------------------------- ---------------------------------------
Diversified Equity Income(3)    First $.5-.53%; next
Equity Value                    $.5-.505%; next $1-.48%;
Managed Allocation (3)          next $1-.455%; next
Stock(3)                        $3-.43%; over $6-.40%
- ------------------------------- ----------------------------- ---------------------------------------
Emerging Markets(3),(6)         First $.25-1.10%; next
                                $.25-1.08%;  next
                                $.25-1.06%; next
                                $.25-1.04%;  next $1-1.02%;
                                over $2-1.0%
- ------------------------------- ----------------------------- ---------------------------------------
Equity Select Growth(3)         First $1-.60%; next           Growth Dimensions:
Growth Dimensions               $1-.575%;  next $1-.55%;      1.15% until 7/31/03
Large Cap Equity                next $3-.525%;  next          Large Cap Equity and
Large Cap Value                 $6-.50%; next $12-.49%;       Large Cap Value:
New Dimensions(3)               over $24-.48%                 1.25% until 7/31/03
- ------------------------------- ----------------------------- ---------------------------------------
Focused Growth(3)               First $.25-.65%; next         Focused Growth:
Research Opportunities(3)       $.25-.625%;  next             1.32% until 3/31/03
                                $.50-.60%; next $1-.575%;
                                next $1-.55%; next
                                $3-.525%;  over $6-.50%
- ------------------------------- ----------------------------- ---------------------------------------
Global Balanced(6)              First $.25-.79%; next
                                $.25-.765%;  next
                                $.25-.74%; next $.25-.715%;
                                 next $1-.69%; over $2-.665%
- ------------------------------- ----------------------------- ---------------------------------------
European Equity(6)              First $.25-.80%; next
Global Growth(3),(6)            $.25-.775%;  next
International(6)                $.25-.75%; next $.25-.725%;
Precious Metals                  next $1-.70%; over $2-.675%
- ------------------------------- ----------------------------- ---------------------------------------
Global Technology               First $.25-.72%; next
                                $.25-.695%;  next
                                $.25-.67%; next $.25-.645%;
                                 next $1-.62%; over $2-.595%
- ------------------------------- ----------------------------- ---------------------------------------


- --------------------------------------------------------------------------------
61  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-2. Fund Management Fees (continued)

Retail Funds(1)                 Management Fee (annual        Fee Cap(2) (if applicable)
                                rate; in billions)
- ------------------------------- ----------------------------- ---------------------------------------
                                                        
Mid Cap Value                   First $1-.70%; next           1.40% until 9/30/02
                                $1-.675%;  next $1-.65%;
                                next $3-.625%;  next
                                $6-.60%; next $12-.59%;
                                over $24-.58%
- ------------------------------- ----------------------------- ---------------------------------------
Mutual(3)                       First $1-.53%; next
                                $1-.505%;  next $1-.48%;
                                next $3-.455%;  over $6-.43%
- ------------------------------- ----------------------------- ---------------------------------------
Partners  Fundamental           First $.5-.73%; next          1.35% until 5/31/03
Value(7) Partners Value(12)     $.5-.705%;  next $1-.68%;
                                next $1-.655%;  next
                                $3-.63%; over $6-.60%
- ------------------------------- ----------------------------- ---------------------------------------
Partners International          First $.25-1%; next           1.75% until 10/31/02
Aggressive Growth(8)            $.25-.975%;  next
                                $.25-.95%; next $.25-.925%;
                                 next $1-.90%; over $2-.875%
- ------------------------------- ----------------------------- ---------------------------------------
Partners International Select   First $.25-.90%; next         1.65% until 10/31/02
Value(9)                        $.25-.875%;  next
                                $.25-.85%; next $.25-.825%;
                                 next $1-.80%; over $2-.775%
- ------------------------------- ----------------------------- ---------------------------------------
Partners Select Value(5)        First $.5-.78%; next          1.5% until 5/31/03
                                $.5-.755%;  next $1-.73%;
                                next $1-.705%;  next
                                $3-.68%; over $6-.65%
- ------------------------------- ----------------------------- ---------------------------------------
Partners Small Cap Core(4)      First $.25-.97%; next         Partners Small Cap Core and
Partners Small Cap Value(11)    $.25-.945%; next              Partners Small Cap Value:
                                $.25-.92%; next $.25-.895%;   1.6% until 5/31/03
                                over $1-.87%
- ------------------------------- ----------------------------- ---------------------------------------
Partners Small Cap Growth(10)   First $.25-.92%;              next 1.55% until 3/31/03
                                $.25-.895%;
                                next $.25-.87%; next
                                $.25-.845%;
                                next $1-.82%; over $2-.795%
- ------------------------------- ----------------------------- ---------------------------------------
Small Cap Advantage(13)         First $.25-.74%; next
                                $.25-.715%;  next
                                $.25-.69%; next $.25-.665%;
                                next $1-.64%; over $2-.615%
- ------------------------------- ----------------------------- ---------------------------------------
Small Company Index             First $.25-.38%; next
                                $.25-.37%;  next $.25-.36%;
                                next $.25-.35%;  over
                                $1-.34%
- ------------------------------- ----------------------------- ---------------------------------------
Strategy Aggressive             First $1-.60%; next
                                $1-.575%;  next $1-.55%;
                                next $3-.525%;  over $6-.50%
- ------------------------------- ----------------------------- ---------------------------------------


- --------------------------------------------------------------------------------
62  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-2. Fund Management Fees (continued)

Retail Funds(1)                 Management Fee (annual       Fee Cap(2) (if applicable)
                                rate; in billions)
- ------------------------------- ---------------------------- ----------------------------------------
                                                       
Utilities                       First $.5-.61%; next
                                $.5-.585%;  next $1-.56%;
                                next $1-.535%;  next
                                $3-.51%; over $6-.48%
- ------------------------------- ---------------------------- ----------------------------------------


(1)  Except  for  Global  Technology,  each  fund  has a  performance  incentive
     adjustment  based  on  its  performance  compared  to  a  Lipper  index  of
     comparable funds over a rolling 12-month period.
(2)  For Class A shares,  total fees and expenses in excess of this percent will
     be  waived.  Fee caps for  Classes  B, C and Y vary  slightly  based on the
     expenses of those classes.
(3)  The fund is part of the master/feeder  structure.  Management fees are paid
     by the portfolio on behalf of the fund.
(4)  The fund has subadvisory agreements  with Pilgrim Baxter & Associates, Ltd.
     Inc. and Wellington Management Company, LLP.
(5)  The fund has a subadvisory agreement with Gabelli Asset Management Company.
(6)  The fund has a subadvisory agreement with American Express Asset Management
     International Inc.
(7)  The fund has a subadvisory agreement with Davis Advisors.
(8)  The  fund has  subadvisory  agreements  with  American  Century  Investment
     Management, Inc. and Liberty Wanger Asset Management, L.P.
(9)  The fund has a subadvisory agreement with Alliance Capital Management L.P.
(10) The fund has  subadvisory  agreements  with  INVESCO  Funds Group Inc.,  RS
     Investment Management, L.P. and Neuberger Berman Management Inc.
(11) The fund has subadvisory  agreements with Third Avenue Management LLC,
     and Royce & Associates, Inc.
(12) The fund has a subadvisory agreement with Lord, Abbett & Co.
(13) The fund has a subadvisory agreement with Kenwood Capital Management LLC.

- --------------------------------------------------------------------------------
63  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-2. Fund Management Fees (continued)

Variable Portfolio Funds        Management Fee (annual       Fee Cap* (if applicable)
                                rate; in billions)
- ------------------------------- ---------------------------- ----------------------------------------
                                                       
VP-Blue Chip Advantage          First $.5-.56%; next         VP-Stock: 1.10% until 4/30/03
VP-Diversified Equity Income    $.5-.545%;  next $1-.53%;
VP-Stock                        next $1-.515%;  next
                                $3-.50%; over $6-.47%
- ------------------------------- ---------------------------- ----------------------------------------
VP-Bond                         First $1-.61%; next
                                $1-.595%;  next $1-.58%;
                                next $3-.565%;  next
                                $3-.55%; over $9-.535%
- ------------------------------- ---------------------------- ----------------------------------------
VP-Cash Management              First $1-.51%; next
                                $.5-.493%;  next
                                $.5-.475%; next $.5-.458%;
                                over $2.5-.44%
- ------------------------------- ---------------------------- ----------------------------------------
VP-Capital Resource             First $1-.63%; next
VP-Growth                       $1-.615%;  next $1-.60%;
VP-New Dimensions               next $3-.585%;  over
                                $6-.57%
- ------------------------------- ---------------------------- ----------------------------------------
VP-Emerging Markets(1)          First $.25-1.17%; next       1.75% until 4/30/03
                                $.25-1.155%;  next
                                $.25-1.14%; next $.25
                                -1.125%;  next $1-1.11%;
                                over $2-1.095%
- ------------------------------- ---------------------------- ----------------------------------------
VP-Equity Select                First $.25-.65%; next        1.10% until 4/30/03
                                $.25-.635%;  next
                                $.25-.62%; next
                                $.25-.605%;  next $1-.59%;
                                next $1-.575%;  over
                                $3-.56%
- ------------------------------- ---------------------------- ----------------------------------------
VP-Extra Income                 First $1-.62%; next
                                $1-.605%;  next $1-.59%;
                                next $3-.575%;  next
                                $3-.56%; over $9-.545%
- ------------------------------- ---------------------------- ----------------------------------------
VP-Federal Income               First $1-.61%; next
                                $1-.595%;  next $1-.58%;
                                next $3-.565%;  next
                                $3-.55%; over $6-.535%
- ------------------------------- ---------------------------- ----------------------------------------
VP-Global Bond                  First $.25-.84%; next
                                $.25-.825%;  next
                                $.25-.81%; next
                                $.25-.795%;  over $1-.78%
- ------------------------------- ---------------------------- ----------------------------------------
VP-International(1)             First $.25-.87%; next
                                $.25-.855%;  next
                                $.25-.84%; next
                                $.25-.825%;  next $1-.81%;
                                over $2-.795%
- ------------------------------- ---------------------------- ----------------------------------------
VP-Managed                      First $.5-.63%; next
                                $.5-.615%;  next $1-.60%;
                                next $1-.585%;  next
                                $3-.57%; over $6-.55%
- ------------------------------- ---------------------------- ----------------------------------------



- --------------------------------------------------------------------------------
64  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-2. Fund Management Fees (continued)

Variable Portfolio Funds        Management Fee (annual       Fee Cap* (if applicable)
                                rate; in billions)
- ------------------------------- ---------------------------- ----------------------------------------
                                                       
VP-Partners Small Cap Value(2)  First $.25-1.02; next
                                $.25-1.00; next $.25-.98%;
                                next $.25-.96%;
                                next $1-.94%; over $2-.92%
- ------------------------------- ---------------------------- ----------------------------------------
VP-S&P 500 Index                First $1-.29%; next          .495% until 4/30/03
                                $1-.28%;  next $3-.27%;
                                over $5-.26%
- ------------------------------- ---------------------------- ----------------------------------------
VP-Small Cap Advantage(3)       First $.25-.79%; next
                                $.25-.77%;  next
                                $.25-.75%; next $.25-.73%;
                                next $1-.71%; over $2-.65%
- ------------------------------- ---------------------------- ----------------------------------------
VP-Strategy Aggressive          First $.25-.65%; next
                                $.25-.635%;  next
                                $.25-.62%; next
                                $.25-.605%;  next $1-.59%;
                                over $2-.575%
- ------------------------------- ---------------------------- ----------------------------------------


(1)  The fund has a subadvisory agreement with AEAMI.
(2)  The fund has subadvisory  agreements with Third Avenue Management LLC,
     and Royce & Associates, Inc.
(3)  The fund has a subadvisory agreement with Kenwood Capital Management LLC.

- --------------------------------------------------------------------------------
65 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-3. Fund Size and 5% Owners
(as of June 30, 2002)

Fund                         Net Assets    Outstanding Shares    5% Owners

Retail Funds
   Blue Chip Advantage:
      Class A             $1,197,999,655      171,054,822         None
      Class B                818,670,275      119,871,357         None
      Class C                  4,858,996          713,413         None
      Class Y                200,620,018       28,581,298         None
   Bond:
      Class A              2,351,799,678      499,101,849         None
      Class B              1,051,698,684      223,165,131         None
      Class C                 22,094,177        4,683,166         None
      Class Y                292,655,321       62,094,715         None
   California Tax-Exempt:
      Class A                233,535,249       44,613,090         None
      Class B                 27,291,593        5,215,616         None
      Class C                  3,479,415          663,882           (1)
   Cash Management:
      Class A              5,689,467,033    5,689,284,268         None
      Class B                309,943,754      310,104,215         None
      Class C                  2,721,165        2,721,289           (2)
      Class Y                201,836,061      201,925,057         None
   Discovery:
      Class A                156,929,088       27,581,942         None
      Class B                 26,711,113        5,063,200         None
      Class C                     20,047            3,807           (3)
      Class Y                  1,038,259          180,716         None
   Diversified Equity Income:
      Class A              1,624,873,043      203,991,203         None
      Class B                698,383,881       87,880,229         None
      Class C                 13,835,581        1,741,182         None
      Class Y                 30,633,009        3,843,885         None

- --------------------------------------------------------------------------------
66  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-3. Fund Size and 5% Owners (continued)
(as of June 30, 2002)

Fund                         Net Assets    Outstanding Shares    5% Owners

Retail Funds (continued)
   Emerging Markets:
      Class A             $  154,856,192       35,363,017         None
      Class B                 79,158,581       18,841,732         None
      Class C                    320,172           76,067           (4)
      Class Y                  1,799,485          408,407         None
   Equity Select:
      Class A              1,208,445,344      116,958,845         None
      Class B                325,288,235       33,441,064         None
      Class C                  6,608,707          679,378         None
      Class Y                116,388,767       11,187,817         None
   Equity Value:
      Class A                931,399,647      113,695,370         None
      Class B                638,004,873       77,800,731         None
      Class C                  3,944,897          484,028         None
      Class Y                  2,763,596          336,934         None
   European Equity:
      Class A                130,923,996       38,499,424         None
      Class B                 61,386,612       18,306,037         None
      Class C                  2,364,489          705,684         None
      Class Y                     42,824           12,572         None
   Extra Income:
      Class A              1,538,791,362      626,598,140         None
      Class B                682,920,691      278,226,122         None
      Class C                 19,605,617        8,030,683         None
      Class Y                    775,881          315,613         None
   Federal Income:
      Class A              1,220,338,132      250,876,238         None
      Class B              1,159,262,989      238,343,351         None
      Class C                 30,996,724        6,372,173         None
      Class Y                191,357,299       39,341,113         None

- --------------------------------------------------------------------------------
67  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-3. Fund Size and 5% Owners (continued)
(as of June 30, 2002)

Fund                         Net Assets    Outstanding Shares    5% Owners

Retail Funds (continued)
   Focused Growth:
      Class A             $   41,528,017       23,597,032         None
      Class B                 22,013,548       12,667,241         None
      Class C                  1,453,170          838,260         None
      Class Y                     15,458            8,748         None
   Global Balanced:
      Class A                 65,877,761       14,939,911         None
      Class B                 44,023,957       10,135,253         None
      Class C                    740,467          171,042           (5)
      Class Y                  3,380,204          762,557         None
   Global Bond:
      Class A                341,236,316       58,285,077         None
      Class B                143,285,683       24,455,391         None
      Class C                  1,962,942          335,635           (6)
      Class Y                     68,201           11,636         None
   Global Growth:
      Class A                537,012,166      119,805,637         None
      Class B                235,593,795       54,643,476         None
      Class C                  1,147,400          266,936         None
      Class Y                  9,360,535        2,079,519         None
   Global Technology:
      Class A                103,007,090       84,444,967         None
      Class B                 49,674,216       45,495,958         None
      Class C                  3,368,552        3,084,478         None
      Class Y                     57,271           47,073         None
   Growth:
      Class A              2,478,023,641      110,205,921         None
      Class B                971,051,420       45,933,147         None
      Class C                  8,083,023          382,290         None
      Class Y                630,364,224       27,729,054         None

- --------------------------------------------------------------------------------
68  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-3. Fund Size and 5% Owners (continued)
(as of June 30, 2002)

Fund                         Net Assets    Outstanding Shares    5% Owners

Retail Funds (continued)
   Growth Dimensions:
      Class A             $  159,253,684       72,745,777         None
      Class B                 78,863,921       36,579,456         None
      Class C                  4,853,295        2,250,647         None
      Class Y                     26,990           12,296         None
   High Yield Tax-Exempt:
      Class A              4,529,831,875    1,025,537,530         None
      Class B                345,916,025       78,337,385         None
      Class C                 22,444,075        5,079,853         None
      Class Y                      1,992              450         None
   Insured Tax-Exempt:
      Class A                396,862,618       71,630,027         None
      Class B                 65,110,910       11,751,800         None
      Class C                  5,857,956        1,055,602           (7)
      Class Y                      1,452              263         None
   Intermediate Tax-Exempt:
      Class A                 64,665,104       12,251,074         None
      Class B                 15,747,142        2,983,759         None
      Class C                  3,574,583          677,724           (8)
      Class Y                      1,273              243         None
   International:
      Class A                382,924,813       63,316,776         None
      Class B                154,335,355       25,948,564         None
      Class C                  1,243,959          210,203           (9)
      Class Y                 82,028,936       13,523,183         None
   International Equity Index:
      Class D                  8,328,424        2,255,470          (10)
      Class E                 11,869,993        3,221,113          (11)
   Large Cap Equity:
      Class A                 10,036,226        2,293,737         None
      Class B                  4,407,286        1,010,177         None
      Class C                    159,466           36,492          (12)
      Class Y                     28,342            6,471         None

- --------------------------------------------------------------------------------
69  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-3. Fund Size and 5% Owners (continued)
(as of June 30, 2002)

Fund                         Net Assets    Outstanding Shares    5% Owners

Retail Funds (continued)
   Large Cap Value:
      Class A           $      2,096,130          426,122         None
      Class B                     39,405            8,011          (13)
      Class C                      9,837            2,000          (14)
      Class Y                      9,838            2,000         None
   Managed Allocation:
      Class A              1,039,918,060      132,904,838         None
      Class B                142,491,691       18,340,066         None
      Class C                  1,245,035          160,248         None
      Class Y                  8,013,717        1,024,214         None
   Massachusetts Tax-Exempt:
      Class A                 66,064,388       12,295,169         None
      Class B                 24,090,858        4,483,711         None
      Class C                  2,251,695          418,975          (15)
   Michigan Tax-Exempt:
      Class A                 69,995,877       13,136,620         None
      Class B                  8,236,860        1,545,661         None
      Class C                  1,412,273          265,016          (16)
   Mid Cap Index:
      Class D                 15,267,016        2,745,197          (17)
      Class E                 14,952,145        2,681,735          (18)
   Mid Cap Value:
      Class A                 49,863,889        9,971,989         None
      Class B                 28,574,512        5,731,617         None
      Class C                  1,257,500          252,084         None
      Class Y                     28,105            5,615         None
   Minnesota Tax-Exempt
      Class A                374,526,702       72,060,911         None
      Class B                 64,344,285       12,378,473         None
      Class C                  4,891,395          940,739          (19)

- --------------------------------------------------------------------------------
70  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-3. Fund Size and 5% Owners (continued)
(as of June 30, 2002)

Fund                         Net Assets    Outstanding Shares    5% Owners

Retail Funds (continued)
   Mutual:
      Class A            $ 1,340,654,681      159,546,734         None
      Class B                191,168,415       22,902,411         None
      Class C                  1,111,645          132,982         None
      Class Y                382,681,406       45,548,035         None
   New Dimensions :
      Class A             10,857,921,433      506,115,486         None
      Class B              4,211,791,119      205,691,905         None
      Class C                 46,778,106        2,286,740         None
      Class Y              3,506,181,474      162,698,292         None
   New York Tax-Exempt:
      Class A                 92,407,788       17,914,912          (20)
      Class B                 18,221,052        3,532,642         None
      Class C                  1,274,622          247,124          (21)
   Ohio Tax-Exempt:
      Class A                 69,429,655       12,989,135         None
      Class B                 11,811,168        2,209,981         None
      Class C                  1,271,370          237,807          (22)
   Partners Fundamental Value:
      Class A                150,660,872       36,421,108         None
      Class B                103,019,829       25,067,669         None
      Class C                  5,161,235        1,251,227         None
      Class Y                     14,505            3,503         None
   Partners International
   Aggressive Growth:
      Class A                 72,853,708       13,311,247         None
      Class B                 22,854,095        4,197,752         None
      Class C                  1,120,872          205,935          (23)
      Class Y                     25,446            4,643         None

- -------------------------------------------------------------------------------
71  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-3. Fund Size and 5% Owners (continued)
(as of June 30, 2002)

Fund                         Net Assets    Outstanding Shares    5% Owners

Retail Funds (continued)
   Partners International Select Value:
      Class A               $138,821,160       24,641,422         None
      Class B                 62,270,241       11,106,924         None
      Class C                  2,617,090          467,056         None
      Class Y                     37,429            6,634         None
   Partners Select Value:
      Class A                 47,569,374       10,066,789         None
      Class B                 32,579,675        6,907,141         None
      Class C                  1,942,688          411,888          (24)
      Class Y                      9,455            2,000         None
   Partners Small Cap Core:
      Class A                 16,450,931        3,645,030         None
      Class B                  8,292,290        1,840,459         None
      Class C                    690,276          153,363          (25)
      Class Y                     16,004            3,545         None
   Partners Small Cap Growth:
      Class A                146,702,444       39,864,451         None
      Class B                 72,140,998       19,809,547         None
      Class C                  5,485,245        1,506,381         None
      Class Y                     55,375           15,037         None
   Partners Small Cap Value:
      Class A                393,890,164       71,411,460         None
      Class B                237,943,352       43,463,246         None
      Class C                 11,910,231        2,170,402         None
      Class Y                    256,631           46,482         None
   Partners Value:
      Class A                150,290,967       35,039,689         None
      Class B                103,908,600       24,362,786         None
      Class C                  6,705,717        1,568,134         None
      Class Y                     11,715            2,728         None

- --------------------------------------------------------------------------------
72  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-3. Fund Size and 5% Owners (continued)
(as of June 30, 2002)

Fund                         Net Assets    Outstanding Shares    5% Owners

Retail Funds (continued)
   Precious Metals:
      Class A             $   47,038,761        5,737,787         None
      Class B                140,924,398        1,890,751         None
      Class C                    207,821           26,390          (26)
      Class Y                     41,688            5,063         None
   Progressive:
      Class A                 14,997,233       25,714,521         None
      Class B                 24,769,588        4,672,795         None
      Class C                     87,013           16,501          (27)
      Class Y                      1,756              318         None
   Research Opportunities:
      Class A                214,319,274       50,717,577         None
      Class B                139,402,624       34,806,392         None
      Class C                    301,771           75,279          (28)
      Class Y                    222,221           52,148         None
   S&P 500 Index:
      Class D                 40,797,696       10,640,901         None
      Class E                195,310,752       50,777,313         None
   Selective:
      Class A              1,025,396,845      119,257,397         None
      Class B                342,188,791       39,798,974         None
      Class C                  9,675,812        1,125,548         None
      Class Y                182,325,606       21,205,127         None
   Small Cap Advantage:
      Class A                378,002,770       74,827,144         None
      Class B                201,137,568       40,801,452         None
      Class C                  5,144,106        1,043,303         None
      Class Y                    149,663           29,465         None
   Small Company Index:
      Class A                736,507,667      117,497,908         None
      Class B                481,545,401       81,000,761         None
      Class Y                 11,122,217        1,758,852         None

- --------------------------------------------------------------------------------
73  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-3. Fund Size and 5% Owners (continued)
(as of June 30, 2002)

Fund                              Net Assets     Outstanding Shares   5% Owners

Retail Funds (continued)
   Stock:
      Class A                   $1,992,131,691      116,402,257         None
      Class B                      275,149,364       16,227,081         None
      Class C                        2,421,249          143,189         None
      Class Y                      600,418,512       35,084,431         None
   Strategy Aggressive:
      Class A                      696,881,850       71,817,494         None
      Class B                      407,586,319       46,216,413         None
      Class C                        3,002,956          340,431         None
      Class Y                        1,662,342          168,779         None
   Tax-Exempt Bond:
      Class A                      837,401,772      205,967,486         None
      Class B                       58,560,503       14,401,136         None
      Class C                        5,235,591        1,287,593         None
      Class Y                            1,980              487         None
   Tax-Free Money                  196,029,973      196,037,728         None
   U.S. Government Mortgage:
      Class A                       71,760,220       14,131,764         None
      Class B                       43,026,414        8,470,009         None
      Class C                        6,298,959        1,239,770          (29)
      Class Y                           11,679            2,300         None
   Utilities:
      Class A                    1,085,639,985      164,841,673         None
      Class B                      531,370,505       81,216,388         None
      Class C                       12,217,990        1,866,785         None
      Class Y                        1,463,598          221,986         None
Variable Portfolio Funds
   VP-Blue Chip Advantage           72,663,450       10,201,331          (30)
   VP-Bond                       1,730,572,501      167,767,969          (30)
   VP-Capital Resource           2,497,370,320      144,947,054          (30)
   VP-Cash Management            1,058,408,243    1,058,788,319          (30)
   VP-Diversified Equity Income    276,147,539       29,478,938          (30)
   VP-Emerging Markets               9,831,673        1,309,110          (30)

- --------------------------------------------------------------------------------
74  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-3. Fund Size and 5% Owners (continued)
(as of June 30, 2002)

Fund                               Net Assets    Outstanding Shares    5% Owners

Variable Portfolio Funds (continued)
   VP-Equity Select              $   67,625,080        7,251,638          (30)
   VP-Extra Income                  587,098,561      102,856,021          (30)
   VP-Federal Income                204,621,578       19,614,114          (30)
   VP-Global Bond                   213,295,358       21,379,957          (30)
   VP-Growth                        157,731,851       29,603,829          (30)
   VP-International               1,049,938,729      132,651,668          (30)
   VP-Managed                     3,060,946,948      234,766,320          (30)
   VP-New Dimensions              3,409,602,064      245,235,106          (30)
   VP-Partners Small Cap Value       60,561,423        5,466,411          (30)
   VP-S&P 500 Index                  99,888,011       14,812,448          (30)
   VP-Small Cap Advantage            66,818,043        6,549,688          (30)
   VP-Stock                           4,473,258          523,398          (30)
   VP-Strategy Aggressive         1,197,713,169      186,574,684          (30)

(1)  Miriam Thias Carr Trust,  Sacramento CA, owns 35,354 shares (6.37%).  Tommy
     E. and  Sally J.  Sims 1991 Fam  Trust,  Salinas  CA,  owns  34,386  shares
     (6.20%).  Dorothy M. Mendel Rev Trust,  Richmond  CA,  owns  32,899  shares
     (5.93%). Jessica R. Rothenberg and Michael E. Dodson, San Francisco CA, own
     29,062 shares (5.24%).
(2)  John W. Slagle,  Irvine CA, owns 204,426 shares (8.71%).  Joan A. Vesco Rev
     Trust, Sierra Vista AZ, owns 147,514 shares (6.29%).
(3)  Antonia B.  Palazzolo,  Rocky Hill CT,  owns 791  shares  (27.26%).  Hal C.
     Beckley,  Branford CT, owns 695 shares (23.94%). Thai Duc Bui, Redwood City
     CA, owns 644 shares (22.19%).
(4)  Raymond T.  Snapp,  Bedford  IN, owns  11,553  shares  (19.55%).  Sandra L.
     Kubena,  San Antonio TX, owns 4,556  shares  (7.71%).  Mark Carrol  Nelson,
     Vacaville  CA, owns 4,073 shares  (6.89%).  Frank Paul  Sincaglia,  Chagrin
     Falls OH, owns 3,070 shares (5.19%).
(5)  Phillip L.  Jones,  Hanford  CA,  owns  8,830  shares  (6.08%).  Michael R.
     McCormick and Carla Z. McCormick, Louisville KY, own 8,117 shares (5.59%).
(6)  Patricia Rose Reynolds, Plymouth MN, owns 9,781 shares (6.17%).
(7)  Mary M. Stephens Irrev Trust, Calhoun GA, owns 66,061 shares (6.62%).
(8)  Frank A. Maggio and Dianne K.  Maggio,  C/O Texaco  Italiana  Pouch,  White
     Plains NY, own 37,351 shares (7.66%). Mary M. Stephens Irrev Trust, Calhoun
     GA, owns 29,488 shares (6.05%).
(9)  Roger J.  Thompson  and Sylvia Ann  Thompson,  Boise ID, own 15,999  shares
     (8.92%).  Sandra L.  Kubena,  San Antonio TX, owns 13,462  shares  (7.51%).
     David T.  Rouleau  and Joann E.  Rouleau,  Cloquet  MN, own  10,235  shares
     (5.71%).
(10) AEFC, Minneapolis MN, owns 1,226,935 shares (54.40%).
(11) AEFC, Minneapolis MN, owns 2,869,362 shares (89.08%).
(12) Bonnie P. Foslien and Leroy D.  Foslien,  Minneapolis  MN, own 6,845 shares
     (28.07%).  Daniel F. Pagano, Yonkers NY, owns 2,189 shares (8.98%). Eric T.
     Fiedler and Laurie Fiedler, Lakeville MN, own 2,037 shares (8.35%). Derrick
     M. Cone, Phoenix AZ, owns 1,264 shares (5.18%).

- --------------------------------------------------------------------------------
75  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


(13) Richard J.  Schmaltz  and Lois M.  Schmaltz,  Penn Yan NY, own 2,559 shares
     (24.05%).  Lawrence A. Minor,  Beavercreek OR, owns 1,698 shares  (15.96%).
     Donavon  Lee Krey,  Waite Park MN,  owns 1,598  shares  (15.02%).  Julia G.
     Haggerty,  Seattle  WA,  owns 1,154  shares  (10.84%).  Dorothy A.  Snyder,
     Lebanon OR, owns 676 shares (6.36%).
(14) Judith S. Chapman Trust, Santa Monica CA, owns 384 shares (16.10%).
(15) Rivelo C. Campagna and Joyce M.  Campagna,  Lunenburg MA, own 94,298 shares
     (25.68%).  Paul J. Cormier,  Leominster  MA, owns 63,549  shares  (17.31%).
     Glenlevit Trust, Leominster MA, owns 59,184 shares (16.12%). Linda Di Nardo
     and Alphonse A. Di Nardo,  Leominster MA, own 24,398 shares (6.65%). Carole
     J. Bigney, Boston MA, owns 18,867 shares (5.14%).
(16) Marian A.  Beaver  Trust,  Riga MI, owns 14,426  shares  (12.38%).  Jean M.
     Abramson,  Laurium MI, owns 10,433 shares  (8.95%).  Ray W. and Gertrude E.
     Butler Rev Liv Trust,  Clarkston  MI,  owns  10,148  shares  (8.71%).  Alan
     Pawlow,  Grosse Pointe MI, owns 8,556 shares  (7.34%).  Ronald P. White and
     Susan L. White,  Grand Rapids MI, own 8,398 shares  (7.20%).  Michael Wayne
     Miller and Sheryl Ann Miller, Mattawan MI, own 7,026 shares (6.03%).
(17) AEFC, Minneapolis MN, owns 679,093 shares (24.74%).
(18) AEFC, Minneapolis MN, owns 1,588,274 shares (59.23%).
(19) Jane Nelson and James P. Nelson, Duluth MN, own 49,143 shares (5.91%).
(20) Frank L. Skillern Jr., New York NY, owns 958,990 shares (5.37%).
(21) Bruce C. Bernhard,  Fairport NY, owns 16,576 shares (7.73%).  Bernadette M.
     Johannes,  C/O  Denise W. Jose  AIF,  Keuka  Park NY,  owns  11,679  shares
     (5.44%).
(22) Sears Family Rev Liv Trust, Parma OH, owns 78,377 shares (34.12%).  Gary N.
     Nebinger and Maureen L.  Nebinger,  Dublin OH, own 19,820  shares  (8.63%).
     Richard Joseph Shenal Jr,  Twinsburg OH, owns 14,375 shares (6.26%).  Bunny
     Kay Cowan Clark and Thomas J. Clark, Powell OH, own 12,714 shares (5.53%).
(23) Jeffrey D. Cooper, Tampa FL, owns 4,965 shares (5.01%).
(24) Victor O.  Lawson,  C/O Terry or C.  Lawson  POA,  Portage  MI, owns 17,760
     shares (8.55%).
(25) Jeffrey D.  Cooper,  Tampa FL, owns 5,706 shares  (7.73%).  Gary L. Kaiser,
     West Chicago IL, owns 4,873 shares  (6.60%).  Mary Jo Langhorne,  Iowa City
     IA, owns 3,859 shares (5.23%).
(26) Richard L.  Venable and Susan Angela  Venable,  Argyle TX, own 4,815 shares
     (27.05%).  Greg Leroy Anderson,  Gainsville GA, owns 3,317 shares (18.63%).
     Richard C. Anderson Jr., Reading MA, owns 1,765 shares (9.92%).  Mildred L.
     Thiem,  Eastpointe  MI, owns 1,684  shares  (9.46%).  David Alan Briden and
     Laurine Briden, W Des Moines IA, own 1,208 shares (6.78%).
(27) Willis P. Beverly Jr., Birmingham AL, owns 2,273 shares (14.76%). Dianna L.
     Padovini  and Joseph A.  Padovini  Jr.,  Morgantown  WV,  own 2,122  shares
     (13.78%).  Gerald W. Rowe and Linda P. Rowe,  Ulster  PA, own 1,894  shares
     (12.30%). Vicki Jean Haun Trust, Ventura CA, owns 1,210 shares (7.85%). Kay
     Eleanor Slade,  Birmingham AL, owns 1,085 shares  (7.05%).  Guy Ciaccio and
     Joan M. Ciaccio, Gloversville NY, own 795 shares (5.16%).
(28) Shirley Ann  Balliett,  San Diego CA,  owns 9,422  shares  (12.48%).  Kelly
     Family Trust, El Cajon CA, owns 7,655 shares  (10.14%).  James R. Glenn and
     Marcia E. Glenn, Crete NE, own 4,929 shares (6.53%). Michael C. Farah Trust
     and Katrina L. Farah Trust, Bloomfield MI, own 4,836 shares (6.41%).
(29) Husted Ranches In, Jackson MT, owns 82,828 shares (8.75%).
(30) 100% of the fund's  assets are owned by the separate  accounts of IDS Life,
     IDS Life of New York, ACL, AEL and APL.

- --------------------------------------------------------------------------------
76  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-4.
Actual and Pro Forma Investment Management Services Agreement Fees

Fund                                  Actual Fee     Pro Forma Fee   % Change

Retail Funds
   Blue Chip Advantage             $  13,295,269   $  10,519,357       (21%)
   Discovery                           1,657,144       1,641,903        (1)
   Diversified Equity Income          10,388,708      10,150,467        (2)
   Emerging Markets                    3,038,817       2,870,655        (6)
   Equity Select                      11,264,762      11,952,474         6
   Equity Value                       10,337,896      11,337,535        10
   European Equity                     1,749,863       1,665,840        (5)
   Focused Growth                        463,382         460,228        (1)
   Global Balanced                     1,247,975       1,050,268       (16)
   Global Growth                       8,625,128       8,528,881        (1)
   Global Technology                   2,346,933       2,346,933         0
   Growth                             46,332,234      45,901,875        (1)
   Growth Dimensions                   1,354,637       1,281,363        (5)
   International                       6,238,651       6,051,762        (3)
   Large Cap Equity*                         N/A             N/A       N/A
   Large Cap Value*                          N/A             N/A       N/A
   Managed Allocation                  8,045,640       7,315,052        (9)
   Mid Cap Value*                            N/A             N/A       N/A
   Mutual                             12,630,281      11,014,126       (13)
   New Dimensions                    156,837,446     162,659,468         4
   Partners Fundamental Value            861,709         852,654        (1)
   Partners International Aggressive
   Growth                                 11,981          11,981         0
   Partners International Select Value     9,434           9,434         0
   Partners Select Value                  51,468          52,411         2
   Partners Small Cap Core                28,743          27,894        (3)
   Partners Small Cap Growth           1,074,990       1,113,257         4
   Partners Small Cap Value            2,111,899       2,160,137         2
   Partners Value                        778,039         799,049         3
   Precious Metals                       309,868         314,325         1
   Progressive                         1,337,549       1,252,850        (6)
   Research Opportunities              4,445,123       3,937,124       (11)
   Small Cap Advantage                 3,737,351       3,585,372        (4)
   Small Company Index                 4,135,567       4,556,651        10
   Stock                              19,192,649      19,651,969         2
   Strategy Aggressive                 7,962,141       7,358,197        (8)
   Utilities                          15,139,721      15,806,461         4

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77  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT

Table D-4.
Actual and Pro Forma Investment Management Services Agreement Fees (cont.)

Fund                                  Actual Fee     Pro Forma Fee   % Change

Variable Portfolio Funds
   VP-Blue Chip Advantage          $     432,774   $     395,926        (9%)
   VP-Bond                             9,066,435       9,066,435         0
   VP-Capital Resource                26,165,265      26,165,265         0
   VP-Cash Management                  4,588,071       4,588,071         0
   VP-Diversified Equity Income          226,096         221,970        (2)
   VP-Emerging Markets                    63,655          61,433        (3)
   VP-Equity Select                       14,536          15,315         5
   VP-Extra Income                     3,654,071       3,654,071         0
   VP-Federal Income                     380,941         380,941         0
   VP-Global Bond                      1,528,297       1,528,297         0
   VP-Growth                           1,231,521       1,192,995        (3)
   VP-International                   14,728,134      14,728,134         0
   VP-Managed                         26,202,635      26,202,635         0
   VP-New Dimensions                  27,613,749      27,613,749         0
   VP-Partners Small Cap Value             2,014           2,014         0
   VP-S&P 500 Index                      109,395         109,395         0
   VP-Small Cap Advantage                289,538         282,717        (2)
   VP-Stock                                  540             540         0
   VP-Strategy Aggressive             16,018,758      16,018,758         0

* The fund began operations in 2002 and has not yet had a fiscal year end
  reporting period.

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78  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-5. Fund Payments to AEFC and Its Affiliates*

Fund                                           Admin           Plan             Service            TA              Custody
Retail Funds
                                                                                                  
   Blue Chip Advantage                     $  839,722       $16,627,617       $  304,770       $ 6,210,943       $  217,720
   Discovery                                  223,384         1,360,017            3,935           862,691           89,788
   Diversified Equity Income                  719,533         9,423,250           21,145         3,195,016          132,395
   Emerging Markets                           278,576         1,423,491               89         1,115,949          307,916
   Equity Select                              822,210         6,053,929           81,837         2,338,505          141,154
   Equity Value                               680,433        11,095,728            2,510         3,468,272           98,626
   European Equity                            136,777         1,094,908               55           614,473          136,483
   Focused Growth                              53,298           446,170               20           342,945           11,342
   Global Balanced                             98,158           890,146            1,788           361,902           80,005
   Global Growth                              710,917         6,843,748           14,782         3,509,859          254,289
   Global Technology                          194,084         1,607,956               85         1,464,738           73,489
   Growth                                   3,193,208        33,358,014        1,259,734        11,049,320          563,372
   Growth Dimensions                           85,654         1,428,268               47           619,982           70,140
   International                              541,114         4,492,578           84,402         2,880,564          323,622
   Large Cap Equity**                             N/A               N/A              N/A               N/A              N/A
   Large Cap Value**                              N/A               N/A              N/A               N/A              N/A
   Managed Allocation                         571,810         5,432,910           20,425         2,313,883          270,466
   Mid Cap Value**                                N/A               N/A              N/A               N/A              N/A
   Mutual                                   1,091,114         8,458,912          705,705         4,703,810          251,341
   New Dimensions                           7,911,702        96,991,703        5,501,233        31,406,714        1,490,795
   Partners Fundamental Value                  71,365           649,317               11           281,986           58,829
   Partners International Aggressive Growth       959             3,436               --               987            9,570


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79  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-5. Fund Payments to AEFC and Its Affiliates* (continued)

Fund                                           Admin             Plan             Service            TA              Custody
Retail Funds (continued)
                                                                                                   
   Partners International Select Value     $      838       $     3,838         $      1        $    1,948        $   9,570
   Partners Select Value                        3,959            35,827                2            21,172           13,860
   Partners Small Cap Core                      2,371            13,644                4             8,345           24,954
   Partners Small Cap Growth                   92,972           552,582               23           323,427          176,447
   Partners Small Cap Value                   171,697         1,148,413               82           610,630           66,103
   Partners Value                              63,396           577,320               10           234,444          153,315
   Precious Metals                             24,611           163,925                9           149,255           29,454
   Progressive                                157,294           933,519                3           489,277           37,895
   Research Opportunities                     412,205         4,016,790              315         1,478,718           78,465
   Small Cap Advantage                        341,955         3,034,591              145         1,456,171           76,216
   Small Company Index                        730,484         5,824,337            7,960         2,240,968          147,836
   Stock                                    1,156,491        10,914,974          843,430         4,113,941          251,882
   Strategy Aggressive                        858,122         9,374,449            4,045         5,079,727          185,968
   Utilities                                  804,152        12,095,597            1,414         2,822,848          158,225
Variable Portfolio Funds
   VP-Blue Chip Advantage                      33,432            99,620              N/A               N/A           23,061
   VP-Bond                                    848,035         1,873,229              N/A               N/A           95,885
   VP-Capital Resource                      1,875,677         5,398,734              N/A               N/A          323,925
   VP-Cash Management                         281,249         1,124,716              N/A               N/A           85,059
   VP-Diversified Equity Income                15,460            51,207              N/A               N/A          150,326
   VP-Emerging Markets                          5,471             6,839              N/A               N/A           57,962
   VP-Equity Select                             1,342             2,795              N/A               N/A           27,970


- --------------------------------------------------------------------------------
80  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-5. Fund Payments to AEFC and Its Affiliates* (continued)

Fund                                           Admin             Plan             Service            TA              Custody
Variable Portfolio Funds (continued)
                                                                                                    
   VP-Extra Income                         $  312,497        $  736,708            $N/A            $N/A            $ 50,135
   VP-Federal Income                           32,461            78,061             N/A             N/A              20,896
   VP-Global Bond                             112,061           227,425             N/A             N/A              40,542
   VP-Growth                                  102,800           249,203             N/A             N/A             187,494
   VP-International                           859,062         2,216,073             N/A             N/A             449,183
   VP-Managed                               1,309,591         5,532,568             N/A             N/A             304,550
   VP-New Dimensions                        1,967,593         5,708,239             N/A             N/A             283,557
   VP-Partners Small Cap Value                    158               247             N/A             N/A               1,700
   VP-S&P 500 Index                            31,399            47,153             N/A             N/A             265,820
   VP-Small Cap Advantage                      22,991            49,728             N/A             N/A             106,376
   VP-Stock                                        39               120             N/A             N/A               1,800
   VP-Strategy Aggressive                   1,192,060         3,341,490             N/A             N/A             283,424


 *   The  Administrative  Services  Agreement  ("Admin") is between the fund and
     AEFC.  The Plan and  Agreement of  Distribution  ("Plan")  and  Shareholder
     Service  Agreement  ("Service") are between the fund and AEFA. The Transfer
     Agent  ("TA")  Agreement is between the fund and  American  Express  Client
     Service  Corporation.  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.  The Variable
     Portolio Funds do not have separate Service or TA Agreements.
**   The fund began  operations  in 2002 and has not yet had a  fiscal  year end
     reporting period.

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81  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-6. Brokerage Commissions Paid to Affiliates
                                                                       Amount of       % of All
Fund                                                  Broker/Dealer   Commissions    Commissions

Retail Funds
                                                                                
    Blue Chip Advantage                                   AEIS(1)      $23,611            0.34%
    Discovery                                             AEIS(1)       11,649            1.30
    Diversified Equity Income                             AEIS(1)       20,283            0.30
    Emerging Markets                                       N/A             N/A             N/A
    Equity Select                                         AEIS(1)       85,611            8.42
    Equity Value                                          AEIS(1)        1,701            0.05
    European Equity                                        N/A             N/A             N/A
    Focused Growth                                         N/A             N/A             N/A
    Global Balanced                                        N/A             N/A             N/A
    Global Growth                                          N/A             N/A             N/A
    Global Technology                                     AEIS(1)       77,423           10.25
    Growth                                                AEIS(1)      147,507            3.02
    Growth Dimensions                                     AEIS(1)       18,750            3.44
    International                                          N/A             N/A             N/A
    Large Cap Equity(2)                                    N/A             N/A             N/A
    Large Cap Value(2)                                     N/A             N/A             N/A
    Managed Allocation                                    AEIS(1)       78,453            1.94
    Mid Cap Value(2)                                       N/A             N/A             N/A
    Mutual                                                AEIS(1)      243,507            4.97
    New Dimensions                                        AEIS(1)    1,480,185            9.93
    Partners Fundamental Value                             N/A             N/A             N/A
    Partners International Aggressive Growth               N/A             N/A             N/A
    Partners International Select Value                    N/A             N/A             N/A
    Partners Select Value                        Gabelli & Co.(3)       73,135           98.17
    Partners Small Cap Core                                N/A             N/A             N/A
    Partners Small Cap Growth                              N/A             N/A             N/A
    Partners Small Cap Value                M.J. Whitman, Inc.(4)      262,142           84.03
    Partners Value                                         N/A             N/A             N/A
    Precious Metals                                       AEIS(1)       14,448            1.30
    Progressive                                           AEIS(1)       28,767            7.77
    Research Opportunities                                AEIS(1)       40,815            1.66
    Small Cap Advantage                                   AEIS(1)        3,567            0.16
    Small Company Index                                    N/A             N/A             N/A
    Stock                                                 AEIS(1)      548,179            7.91
    Strategy Aggressive                                   AEIS(1)       47,232            0.69
    Utilities                                             AEIS(1)       71,428            1.20


- --------------------------------------------------------------------------------
82  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-6. Brokerage Commissions Paid to Affiliates (continued)
                                                       Amount of    % of All
Fund                                   Broker/Dealer  Commissions Commissions
Variable Portfolio Funds
   VP-Blue Chip Advantage                     N/A           N/A         N/A
   VP-Bond                                    N/A           N/A         N/A
   VP-Capital Resource                       AEIS(1)   $603,162        10.79%
   VP-Cash Management                         N/A           N/A         N/A
   VP-Diversified Equity Income               N/A           N/A         N/A
   VP-Emerging Markets                        N/A           N/A         N/A
   VP-Equity Select                           N/A           N/A         N/A
   VP-Extra Income                            N/A           N/A         N/A
   VP-Federal Income                          N/A           N/A         N/A
   VP-Global Bond                             N/A           N/A         N/A
   VP-Growth                                 AEIS(1)        441         0.33
   VP-International                           N/A           N/A         N/A
   VP-Managed                                AEIS(1)    186,633         4.96
   VP-New Dimensions                         AEIS(1)     29,262         1.13
   VP-Partners Small Cap Value                N/A           N/A         N/A
   VP-Small Cap Advantage                     N/A           N/A         N/A
   VP-S&P 500 Index                           N/A           N/A         N/A
   VP-Stock                                   N/A           N/A         N/A
   VP-Strategy Aggressive                    AEIS(1)    146,170         2.71

(1)  American  Enterprise  Investment Services Inc. is 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.
(2)  The fund  began  operations  in 2002 and has not yet had a fiscal  year end
     reporting period.
(3)  Gabelli & Co. is an affiliate of the fund's subadviser.
(4)  M.J. Whitman, Inc. is an affiliate of the fund's subadviser.

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83  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-7. Dates Relating to Approval of Management Agreements

Fund                             Date Last         Date Entered    Reason Submitted
                                 Approved by       Into            to Shareholders
                                 Shareholders
- -------------------------------- ----------------- --------------- -------------------
Retail Funds
- -------------------------------- ----------------- --------------- -------------------
                                                          
Discovery, Growth,               9/9/94            3/20/95         *
International, Managed
Allocation, Mutual,
New Dimensions,
Precious Metals, Progressive,
Stock
- -------------------------------- ----------------- --------------- -------------------
Small Cap Advantage              4/18/99           4/18/99         Initial approval
- -------------------------------- ----------------- --------------- -------------------
Blue Chip Advantage,             6/16/99           7/1/99          **
Diversified Equity Income,
Emerging Markets,
Equity Select, Equity Value,
Global Balanced,
Global Growth,
Research Opportunities,
Small Company Index,
Strategy Aggressive, Utilities
- -------------------------------- ----------------- --------------- -------------------
Global Technology                7/1/99            7/1/99          Initial approval
- -------------------------------- ----------------- --------------- -------------------
European Equity,                 3/9/00            3/9/00          Initial approval
Focused Growth,
Growth Dimensions
- -------------------------------- ----------------- --------------- -------------------
Partners Small Cap Growth        11/9/00           11/9/00         Initial approval
- -------------------------------- ----------------- --------------- -------------------
Partners Fundamental Value,      5/10/01           5/10/01         Initial approval
Partners International
Aggressive Growth,
Partners International
Select Value,
Partners Small Cap Value,
Partners Value
- -------------------------------- ----------------- --------------- -------------------
Large Cap Equity,                1/10/02           1/10/02         Initial approval
Mid Cap Value,
Partners Select Value,
Partners Small Cap Core
- -------------------------------- ----------------- --------------- -------------------
Large Cap Value                  4/11/02           4/11/02         Initial approval
- -------------------------------- ----------------- --------------- -------------------


- --------------------------------------------------------------------------------
84  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table D-7. Dates Relating to Approval of Management Agreements (continued)

Fund                             Date Last         Date Entered    Reason Submitted
                                 Approved by       Into            to Shareholders
                                 Shareholders
- -------------------------------- ----------------- --------------- -------------------
Variable Portfolio Funds
- -------------------------------- ----------------- --------------- -------------------
                                                          
VP-Capital Resource,             9/9/94            3/20/95         *
VP-International,
VP-Strategy Aggressive,
VP-Bond, VP-Managed,
VP-Cash Management
- -------------------------------- ----------------- --------------- -------------------
VP-Extra Income,                 4/11/96           4/11/96         Initial approval
VP-Global Bond,
VP-New Dimensions
- -------------------------------- ----------------- --------------- -------------------
VP-Blue Chip Advantage,          9/13/99           9/13/99         Initial approval
VP-Diversified Equity Income,
VP-Federal Income, VP-Growth,
VP-Small Cap Advantage
- -------------------------------- ----------------- --------------- -------------------
VP-Emerging Markets,             5/1/00            5/1/00          Initial approval
VP-S&P 500 Index
- -------------------------------- ----------------- --------------- -------------------
VP-Equity Select                 4/11/01           4/11/01         Initial approval
- -------------------------------- ----------------- --------------- -------------------
VP-Partners Small Cap Value,     5/9/01            5/9/01          Initial approval
VP-Stock
- -------------------------------- ----------------- --------------- -------------------


 *   Shareholders  approved (1) basing the fee solely on the assets of the fund,
     not on the assets of all of the American  Express Funds and (2) eliminating
     provisions regarding  administration and accounting services.  The fund and
     AEFC then entered into a separate Administrative Services Agreement.
**   Shareholders  approved a change in the management fee involving an increase
     in  the  fee,  the  addition  of  breakpoints  and/or  the  addition  of  a
     performance incentive adjustment.

- --------------------------------------------------------------------------------
85  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


The Fund's Independent Public Accountant. The Investment Company Act of 1940
(the "1940 Act") provides that every registered investment company must be
audited at least once each year by independent public accountants selected by a
majority of the independent Board members. The fund's Board has selected KPMG
LLP to be the fund's independent public accountant for the current fiscal year.
KPMG LLP, in accordance with Independence Standards Board Standard No. 1 ("ISB
No. 1"), has confirmed to the Board's Joint Audit Committee that they are
independent accountants with respect to the fund.

The independent accountants examine annual financial statements for the fund and
provide other  requested  non-audit and  tax-related  services to the fund.  The
Board's  Joint  Audit  Committee  does not  consider  other  non-audit  services
provided by KPMG LLP to be incompatible  with  maintaining  the  independence of
KPMG LLP in its audits of the fund,  taking into  account  representations  from
KPMG LLP, in accordance with ISB No. 1, regarding its independence from the fund
and its related entities.

Representatives of KPMG LLP are expected to be present at the meeting. They will
be given the opportunity to make a statement to shareholders and are expected to
be available to respond to any questions that may be raised at the meeting.

Fund-Related Fees
o Audit Fees. During the year ended June 30, 2002, the fee paid to KPMG LLP for
professional services rendered for the audits of the annual financial statements
for the fund was as follows:

Table D-8. Audit Fees

Fund                                                              Audit Fees
Retail Funds
   Blue Chip Advantage                                             $25,000
   Bond                                                             42,000
   California Tax-Exempt                                            17,500
   Cash Management                                                  36,000
   Discovery                                                        26,250
   Diversified Equity Income                                        34,000
   Emerging Markets                                                 24,750
   Equity Select                                                    28,000
   Equity Value                                                     23,750
   European Equity                                                  14,250
   Extra Income                                                     48,000

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86  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-8. Audit Fees (continued)

Fund                                                              Audit Fees
Retail Funds (continued)
   Federal Income                                                  $47,250
   Focused Growth                                                   14,000
   Global Balanced                                                  18,250
   Global Bond                                                      32,750
   Global Growth                                                    32,750
   Global Technology                                                21,250
   Growth                                                           38,000
   Growth Dimensions                                                14,250
   High Yield Tax-Exempt                                            50,000
   Insured Tax-Exempt                                               19,000
   Intermediate Tax-Exempt                                          15,500
   International                                                    39,000
   International Equity Index                                       15,500
   Large Cap Equity*                                                   N/A
   Large Cap Value*                                                    N/A
   Managed Allocation                                               42,250
   Massachusetts Tax-Exempt                                         16,000
   Michigan Tax-Exempt                                              16,000
   Mid Cap Index                                                    13,750
   Mid Cap Value*                                                      N/A
   Minnesota Tax-Exempt                                             19,000
   Mutual                                                           43,250
   Nasdaq 100 Index                                                 13,750
   New Dimensions                                                   46,000
   New York Tax-Exempt                                              17,500
   Ohio Tax-Exempt                                                  16,000
   Partners Fundamental Value                                       13,750
   Partners International Aggressive Growth                         14,000
   Partners International Select Value                              14,000
   Partners Select Value                                            13,750
   Partners Small Cap Core                                          13,750
   Partners Small Cap Growth                                        14,000
   Partners Small Cap Value                                         13,750
   Partners Value                                                   13,750
   Precious Metals                                                  20,250
   Progressive                                                      26,000

- --------------------------------------------------------------------------------
87  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Table D-8. Audit Fees (continued)

Fund                                                              Audit Fees
Retail Funds (continued)
   Research Opportunities                                          $24,000
   S&P 500 Index                                                    13,750
   Selective                                                        43,250
   Small Cap Advantage                                              16,250
   Small Company Index                                              21,500
   Stock                                                            43,250
   Strategy Aggressive                                              23,500
   Tax-Exempt Bond                                                  36,750
   Tax-Free Money                                                   22,000
   Total Stock Market Index                                         15,000
   U.S. Government Mortgage                                         14,500
   Utilities                                                        28,000
Variable Portfolio Funds
   VP-Blue Chip Advantage                                           14,000
   VP-Bond                                                          24,250
   VP-Capital Resource                                              23,500
   VP-Cash Management                                               18,250
   VP-Diversified Equity Income                                     14,000
   VP-Emerging Markets                                              14,500
   VP-Equity Select                                                 13,750
   VP-Extra Income                                                  19,750
   VP-Federal Income                                                14,500
   VP-Global Bond                                                   17,750
   VP-Growth                                                        14,250
   VP-International                                                 21,250
   VP-Managed                                                       22,000
   VP-New Dimensions                                                23,250
   VP-Partners Small Cap Value                                       9,000
   VP-Small Cap Advantage                                           14,000
   VP-S&P 500 Index                                                 14,000
   VP-Stock                                                          8,000
   VP-Strategy Aggressive                                           18,500

*    The fund  began  operations  in 2002 and has not yet had a fiscal  year end
     reporting period.

- --------------------------------------------------------------------------------
88  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


o    All Other  Fees.  During the year ended  June 30,  2002,  KPMG LLP was paid
     $193,150  for  tax-related  services  rendered to the funds and $46,000 for
     other procedures requested by the Board or required by the 1940 Act.

AEFC Related Fees

o    Audit Fees. For the year ended June 30, 2002,  KPMG LLP was paid $15,000 by
     AEFC for additional  professional  services rendered in connection with the
     audit of the funds' financial statements.
o    Financial Information Systems Design and Implementation Fees. For the year
     ended June 30, 2002, no financial information systems design and
     implementation fees were paid to KPMG LLP by the American Express Funds,
     American Express Company, AEFC or affiliates.
o    All Other Fees. For the year ended June 30, 2002, KPMG LLP was paid
     $112,200 for all other non-audit services rendered to AEFC and $115,989 for
     all other non-audit services rendered to American Express Company or
     affiliates.


- --------------------------------------------------------------------------------
89  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT



Section E -- Board Member Information

This section contains the following information:

o    Table E-1 shows the compensation  paid to Board members by each fund in its
     last fiscal year
o    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

                             DeSimone    Hall     Hutter     Jones   Lewis*      Quasha*   Simpson
Fund
                                                                      
Blue Chip Advantage           $2,450    $2,700    $2,915    $3,015     $233       $--      $2,550
Bond                           1,550     2,133     2,490     2,440       --        --       2,325
California Tax-Exempt            900     1,050     1,165     1,265      400       275         900
Cash Management                2,125     2,875     3,475     3,475       --        --       3,425
Discovery                        583       967     1,033     1,033       --        --         983
Diversified Equity Income        825     1,225     1,315     1,265       --        --       1,050
Emerging Markets                 550     1,067     1,232     1,182       --        --         817
Equity Select                  1,433     1,800     1,965     2,015       --        --       1,600
Equity Value                   1,675     1,975     2,140     2,140      350        --       1,775
European Equity                  633     1,150     1,315     1,265       --        --         900
Extra Income                   1,192     1,392     1,557     1,557      458       233       1,192
Federal Income                 1,108     1,308     1,473     1,473      433       233       1,108
Focused Growth                   800     1,100     1,265     1,265      125        --         900
Global Balanced                  633     1,150     1,315     1,265       --        --         900
Global Bond                      633     1,150     1,315     1,265       --        --         900
Global Growth                    742     1,292     1,457     1,407       --        --       1,042
Global Technology                600     1,100     1,265     1,215       --        --         850
Growth                         1,242     1,825     2,158     2,158       --        --       2,108
Growth Dimensions                583       950       958       858       --        --         808
High Yield Tax-Exempt          1,383     1,742     1,907     1,957       --        --       1,542
Insured Tax-Exempt             1,000     1,150     1,265     1,365      450       300       1,000
Intermediate Tax-Exempt          792     1,100     1,265     1,315       --        --         900
International                    983     1,583     1,748     1,698       --        --       1,333
International Equity Index       800     1,050     1,265     1,365      108        --         900
Large Cap Equity**                --        --        --        --       --        --          --
Large Cap Value**                 --        --        --        --       --        --          --
Managed Allocation               750     1,150     1,240     1,190       --        --         975
Massachusetts Tax-Exempt         900     1,050     1,165     1,265      400       275         900
Michigan Tax-Exempt              900     1,050     1,165     1,265      400       275         900


- --------------------------------------------------------------------------------
90  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table E-1. Board Member Compensation (continued)

                             DeSimone    Hall     Hutter     Jones   Lewis*      Quasha*   Simpson
Fund
                                                                      
Mid Cap Index                 $  283    $  433    $  633    $  583     $108       $--      $  383
Mid Cap Value**                   --        --        --        --       --        --          --
Minnesota Tax-Exempt           1,000     1,150     1,265     1,365      450       300       1,000
Mutual                           925     1,375     1,490     1,440       --        --       1,225
New Dimensions                 2,858     3,892     4,900     4,900       --        --       4,850
New York Tax-Exempt              900     1,050     1,165     1,265      400       275         900
Ohio Tax-Exempt                  900     1,050     1,165     1,265      400       275         900
Partners Fundamental Value       392       392       392       392      292       167         342
Partners International
Aggressive Growth**               --        --        --        --       --        --          --
Partners International
Select Value**                    --        --        --        --       --        --          --
Partners Select Value**           --        --        --        --       --        --          --
Partners Small Cap Core**         --        --        --        --       --        --          --
Partners Small Cap Growth        800     1,100     1,265     1,265      125        --         900
Partners Small Cap Value         392       392       392       392      292       167         342
Partners Value                   392       392       392       392      292       167         342
Precious Metals                  800     1,100     1,265     1,265      125        --         900
Progressive                      625       992     1,065     1,015       --        --         800
Research Opportunities           558       925       950       950       --        --         900
S&P 500 Index                    800     1,050     1,265     1,365      108        --         900
Selective                        942     1,142     1,307     1,307      375       200         942
Small Cap Advantage              925     1,225     1,390     1,390      175        --       1,025
Small Company Index            1,183     1,433     1,648     1,748      142        --       1,283
Stock                          1,075     1,542     1,665     1,615       --        --       1,400
Strategy Aggressive            1,675     1,975     2,140     2,140      300        --       1,775
Tax-Exempt Bond                1,042     1,367     1,532     1,582       --        --       1,167
Tax-Free Money                   800     1,050     1,215     1,315       --        --         900
U.S. Government Mortgage         217       167       167       217      167       167         217
Utilities                      1,950     2,100     2,215     2,315      875       500       1,950
VP-Blue Chip Advantage           567       933     1,015     1,015       --        --         900
VP-Bond                          917     1,367     1,582     1,532       --        --       1,417
VP-Capital Resource            1,858     2,592     3,040     3,040       --        --       2,925
VP-Cash Management               758     1,158     1,273     1,273       --        --       1,158
VP-Diversified Equity Income     567     1,200     1,332     1,032       --        --         967
VP-Emerging Markets**             --        --        --        --       --        --          --


- --------------------------------------------------------------------------------
91  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table E-1. Board Member Compensation (continued)

                             DeSimone    Hall     Hutter     Jones    Lewis*     Quasha*   Simpson
Fund
                                                                      
VP-Equity Select**            $   --    $   --    $   --    $   --      $--       $--      $   --
VP-Extra Income                  650     1,033     1,132     1,132       --        --       1,017
VP-Federal Income                567       933     1,015     1,015       --        --         900
VP-Global Bond                   567       933     1,015     1,015       --        --         900
VP-Growth                        567       933     1,015     1,015       --        --         900
VP-International               1,058     1,558     1,782     1,782       --        --       1,667
VP-Managed                     1,858     2,558     3,023     2,973       --        --       2,858
VP-New Dimensions              1,900     2,600     3,007     3,007       --        --       2,892
VP-Partners
Small Cap Value**                 --        --        --        --       --        --          --
VP-Small Cap Advantage           567     1,200     1,332     1,032       --        --         967
VP-S&P 500 Index                 567       667       682       782       --        --         617
VP-Stock**                        --        --        --        --       --        --          --
VP-Strategy Aggressive         1,317     1,900     2,190     2,190       --        --       2,075


 *   Mr. Lewis and Mr. Quasha have been Board members for less than a year.
**   No compensation is paid to Board members until the fund reaches $20 million
     in assets.

- --------------------------------------------------------------------------------
92  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table E-2. Board Member Holdings

Dollar range of equity securities beneficially owned on June 30, 2002
                                                                                              Aggregate
                                                                                             dollar range
                                                                                              of equity
                                                                                            securities of
                                                                                             all American
                                                                                            Express Funds
                                                                                             overseen by
                             Dollar range of equity securities in the fund                   Board Member
Board Member                 Fund                                      Range                    Range
- ---------------------------- -------------------------------------------------------------- ---------------
                                                                                   
Carlson                      Blue Chip Advantage                     $1-$10,000             Over $100,000
                             New Dimensions                        $50,001-$100,000
                             Partners Select Value                    $1-$10,000
                             VP - Diversified Equity Income        $10,001- $50,000
                             VP - Extra Income                        $1-$10,000
                             VP - Managed                          $10,001- $50,000
- ---------------------------- -------------------------------------------------------------- ---------------
DeSimone                     Extra Income                           Over $100,000           Over $100,000
                             High Yield Tax-Exempt                  Over $100,000
                             Partners Small Cap Value             $50,001 -$100,000
                             Small Cap Advantage                  $50,001 -$100,000
- ---------------------------- -------------------------------------------------------------- ---------------
Hall                         Cash Management                         Over $100,000          Over $100,000
- ---------------------------- -------------------------------------------------------------- ---------------
Hutter                       Cash Management                           $1-$10,000           Over $100,000
                             Growth                                   Over $100,000
                             Growth Dimensions                      $50,001-$100,000
                             New Dimensions                           Over $100,000
- ---------------------------- -------------------------------------------------------------- ---------------
Jones                        Blue Chip Advantage                     $10,001-$50,000        Over $100,000
                             Bond                                   $50,001-$100,000
                             Cash Management                         $10,001-$50,000
                             Emerging Markets                        $10,001-$50,000
                             Extra Income                             Over $100,000
                             Federal Income                           Over $100,000
                             Global Bond                            $50,001-$100,000
                             Growth                                  $10,001-$50,000
                             New Dimensions                           Over $100,000
                             Small Cap Advantage                     $10,001-$50,000
                             Small Company Index                     $10,001-$50,000
                             Tax-Exempt Bond                         $10,001-$50,000
- ---------------------------- -------------------------------------------------------------- ---------------
Lewis                        Diversified Equity Income              $50,001-$100,000        $50,001-$100,000
                             Equity Select                           $10,001-$50,000
- ---------------------------- -------------------------------------------------------------- ---------------
Quasha                       None                                                                None
- ---------------------------- -------------------------------------------------------------- ---------------
Simpson                      Bond                                    $10,001-$50,000        Over $100,000
                             Extra Income                            $10,001-$50,000
                             New Dimensions                          $10,001-$50,000
                             Utilities                               $10,001-$50,000
- ---------------------------- -------------------------------------------------------------- ---------------


- --------------------------------------------------------------------------------
93  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT




Table E-2. Board Member Holdings (continued)
Dollar range of equity securities beneficially owned on June 30, 2002

                                                                                              Aggregate
                                                                                             dollar range
                                                                                              of equity
                                                                                            securities of
                                                                                             all American
                                                                                            Express Funds
                                                                                             overseen by
                             Dollar range of equity securities in the fund                   Board Member
Board Member                 Fund                                      Range                    Range
- ---------------------------- -------------------------------------------------------------- ---------------
                                                                                   
Truscott                     Bond                                   $1-$10,000              Over $100,000
                             Emerging Markets                       $1-$10,000
                             Equity Select                       $50,001-$100,000
                             Extra Income                        $50,001-$100,000
                             Growth                              $50,001-$100,000
                             International                       $10,001-$50,000
                             Large Cap Equity                    $10,001-$50,000
                             Mid Cap Value                       $10,001-$50,000
                             Mutual                              $50,001-$100,000
                             Research Opportunities                  $1-$10,000
- ---------------------------- -------------------------------------------------------------- ---------------


- --------------------------------------------------------------------------------
94  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Exhibit A

ADDITIONAL INFORMATION FOR SHAREHOLDERS OF PARTNERS SMALL CAP VALUE AND
VP-PARTNERS SMALL CAP VALUE REGARDING NEW SUBADVISORY AGREEMENTS
Pursuant to an exemptive order granted by the SEC on July 16, 2002, the fund may
enter into and  materially  amend  subadvisory  agreements  without  shareholder
approval. The exemptive order permits AEFC, subject to board approval, to select
the  subadviser  best suited to achieve  the fund's  investment  objective.  For
example,  the fund may exercise  this  authority in order to hire an  additional
subadviser,  to  replace a  subadviser  or if there is a change in  control of a
subadviser.

A. Subadvisory Agreement with Third Avenue. On May 23, 2002, EQSF Advisers, Inc.
("Third Avenue"), one of the fund's current Subadvisers, announced that it had
reached an agreement with Affiliated Managers Group, Inc. ("AMG") for AMG to
acquire a majority equity interest in Third Avenue. Upon completion of the
transaction, Third Avenue's business will remain unchanged. The firm's senior
principals have entered into long-term employment agreements.

Under the 1940 Act, completion of the transaction will result in the automatic
termination of the current subadvisory agreement between Third Avenue and AEFC
on behalf of the funds (the "Current Subadvisory Agreement"). The Board of the
fund has approved a new subadvisory contract with Third Avenue to take effect on
the completion of the transaction. The new Subadvisory Agreement is
substantially identical to the Current Subadvisory Agreement. The services
provided to the fund by Third Avenue after the transaction are expected to be
substantially similar to the services currently provided to the fund by Third
Avenue.

There will be no change in the fee paid by the fund.  AEFC will  continue to pay
Third Avenue at a rate of 0.50% of average daily net assets  gradually  reducing
to 0.40%.

Third Avenue is located at 767 Third Avenue, Fifth Floor, New York, NY. The
following table provides information on the principal executive officers and
directors of Third Avenue. AMG, a Delaware corporation with a principal place of
business at #600 Hale Street, Prides Crossing, MA 01965, is an asset management
holding company that holds equity interests in investment management firms.

- --------------------------------------------------------------------------------
95  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Name                     Title and Principal Occupation
Martin J. Whitman        Chairman, CEO
David M. Barse           President, COO
Michael T. Carney        Treasurer, CFO
W. James Hall            General Counsel, Secretary
Richard V. Barry         Co-Controller
Julie A. Smith           Co-Controller

Other Funds with Similar Investment Objectives Managed by Third Avenue

                                        Assets (in millions)
Name                                    as of June 30, 2002     Management Fee*
Third Avenue Small-Cap Value Fund             $463                 0.90%

* Annual rate based on average daily net assets; in billions.

B. Subadvisory Agreement with National City Investment Management Company. As a
result of very strong sales in the fund, AEFC recommended to the Board that an
additional subadviser be hired. The criteria for choosing a subadviser were
incremental performance and reduced risk through diversification of investment
style. Based on the recommendation of AEFC, the Board appointed National City
Investment Management Company ("National City") as an additional subadviser to
the fund. National City will make investment decisions for a portion of the
fund's assets allocated to it by AEFC. National City is a highly focused,
multi-style registered investment adviser, focused on the investment and service
requirements of institutional clients, including corporate, public,
Taft-Hartley, foundation, endowment and mutual funds. As of March 31, 2002,
National City had approximately $29.6 billion in assets under management. AEFC
will pay National City at a rate of 0.50% of average daily net assets gradually
reducing to 0.40%.

National City, with principal offices at 1900 East Ninth Street, Cleveland, OH,
44114, is a wholly owned subsidiary of National City Corporation, a publicly
traded financial holding company. The following table provides information on
the principal executive officers and directors of National City.

Name                     Title and Principal Occupation
Paul G. Clark            Director and Chairman
Donald L. Ross           Director/President/Managing Director/Chief
                         Investment Officer
Kathleen T. Barr         Director/Managing Director
Sandra I. Kiely          Managing Director/Chief Administrative Officer
Timothy F. McDonough     Managing Director, Client Services
Daniel G. Bandi          Managing Director, Equities

- --------------------------------------------------------------------------------
96  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT


Other Funds with Similar Investment Objectives Managed by National City

                                                            Assets (in millions)
Name                                  as of June 30, 2002     Management Fee*
Armada Small Cap Value Fund                     $                     %

* Annual rate based on average daily net assets; in billions.

In evaluating the recommendation to hire a subadviser for the fund, the Board
considered, among other factors:

o    The favorable  history,  reputation,  qualification  and  background of the
     subadviser,  as  well  as the  qualifications  of  its  personnel  and  its
     financial condition.
o    The expertise that the subadviser offers in providing portfolio management
     services to other similar portfolios and the performance history of those
     portfolios.
o    The subadviser's proposed investment strategy for the fund.
o    The  fund's  long-  and  short-term  investment   performance  relative  to
     comparable mutual funds and unmanaged indexes.
o    The investment management fee will not change.
o    The terms of the subadvisory agreement are consistent with the language of
     the registration statement of the fund and the Investment Management
     Services Agreement between the fund and AEFC.

At a meeting held on July 10-11, 2002, called for the purpose of considering the
proposals, the Board determined that it would be in the best interests of the
fund and its shareholders to retain Third Avenue and National City as
subadvisers for the fund. By vote cast in person, the independent members first
and then the Board as a whole unanimously approved the Subadvisers and approved
the subadvisory agreements between AEFC and each Subadviser.

There will be no change in the fees paid by the fund. The fees paid by the fund
to AEFC will remain the same. AEFC, not the fund, will pay the Subadvisers.

- --------------------------------------------------------------------------------
97  AMERICAN EXPRESS FUNDS -- PROXY STATEMENT



- --------------------------------------------------------------------------------
American                                                                 (logo)
  Express(R)                                                            AMERICAN
 Funds                                                                   EXPRESS
- --------------------------------------------------------------------------------


                                                                 S-6420 A (9/02)

American
 Express(R)
Funds



Proxy Statement Summary

Here's a brief overview of some of the changes being recommended for your
American Express mutual fund or variable annuity fund. We encourage you to read
the full text of the enclosed proxy statement.

Q: 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.

Q: What am I being asked to vote on?

At all regular meetings, shareholders elect Board members. In addition,
shareholders at this meeting will vote on other proposals. These include:

|X|  Changing voting procedures from a share-based to a dollar-based system,

|X|  Authorizing  American Express Financial  Corporation (the funds' investment
     adviser), subject to Board approval, to retain and replace subadvisers,  or
     to modify subadvisory agreements, without shareholder approval,

|X|  Changing the method of calculating  the  Performance  Incentive  Adjustment
     (PIA) to the investment management fee (the PIA enhances manager reward for
     strong performance and reduces manager payout for underperformance),

|X|  Changing the  classification of AXP Global Technology Fund from diversified
     to non-diversified,

|X|  Adding a 10 basis  points  distribution  plan to AXP Cash  Management  Fund
     (Class A and B shares) and AXP Tax-Free Money Fund, and

|X|  Approving a plan of liquidation for AXP International Equity Index Fund.

Again, we encourage you to read the full text of the proxy statement to obtain a
more detailed understanding of these issues.

Q: 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 a
quorum has been reached (in most cases, 50% of existing shares), it will
continue to contact shareholders asking them to vote. These efforts cost your
Fund money - so please, vote immediately.

Q: What do Board members do?

Board members represent the interests of the shareholders and oversee the
management of the Fund.

Q: How does the Board recommend that I vote?

After careful consideration, the Board recommends that you vote FOR each
proposal.


Q: How do I vote?

You can vote in one of four ways:

1.   By mail with the enclosed proxy card
2.   By telephone
3.   By Web site
4.   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.

Q: Whom 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 toll free at (866) 208-5310.



American                                                                   PROXY
  Express(R)
 Funds
                             AMERICAN EXPRESS FUNDS
                           Principal Executive Office
                     901 Marquette Avenue South, Suite 2810
                           Minneapolis, MN 55402-3268
                    NOTICE OF REGULAR MEETING OF SHAREHOLDERS
                          To be held November 13, 2002

Your fund(s) will hold a regular shareholders' meeting at 11:00 a.m. on November
13, 2002, at ___________________________, Minneapolis, MN. This will be a joint
meeting of the funds listed below. You are entitled to vote at the meeting if
you were a shareholder on September 14, 2002. Please read the proxy statement.
The Board recommends 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 this proxy card.

                               VOTE VIA THE INTERNET:
                               VOTE VIA THE TELEPHONE:
                               CONTROL NUMBER: 999 9999 999


                               Note: Please sign this proxy exactly as your name
                               or names appears on this card. Joint owners
                               should each sign personally. Trustees and other
                               fiduciaries should indicate the capacity in which
                               they sign, and where more than one name appears,
                               a majority must sign. If a corporation, this
                               signature should be that of an authorized officer
                               who should state his or her title.



                               ------------------------------------------------
                               Signature

                               ------------------------------------------------
                               Signature of joint owner, if any

                               ------------------------------------------------
                               Date                                   12606_AEP



FUND                                   FUND                                   FUND
                                                                                          
Fund Name Drop-In 1     2652.8576      Fund Name Drop-In 2       1026.8572    Fund Name Drop-In 3         1026.8572
Fund Name Drop-In 4    57858.6497      Fund Name Drop-In 5       3365.9812    Fund Name Drop-In 6         3365.9812
Fund Name Drop-In 7      103.0851      Fund Name Drop-In 8       9658.0602    Fund Name Drop-In 9         9658.0602
Fund Name Drop-In 10    7023.0960      Fund Name Drop-In 11     85269.9172    Fund Name Drop-In 12       85269.9172


Please vote by filling in the appropriate box below. If you do not mark one or
more proposals, your Proxy will be voted FOR each such proposal.
PLEASE MARK VOTES AS IN THIS EXAMPLE:  [X]


[X]  To vote FOR all Funds on all  Proposals  mark this box.  (No other  vote is
     necessary.)



1.    To elect Board members.
                                                                                                
                                                                                        FOR    WITHHOLD  FOR ALL
     01 Arne H. Carlson      02 Philip J. Carroll, Jr.  03 Livio D. DeSimone            ALL      ALL     EXCEPT
     04 Barbara H Fraser     05 Ira D. Hall             06 Heinz F. Hutter
     07 Anne P. Jones        08 Stephen R. Lewis, Jr.   09 Alan G. Quasha               [ ]      [ ]       [ ]
     10 Stephen W. Roszell   11 Alan K. Simpson         12 Alison Taunton-Rigby
     13 William F. Truscott


If you do not wish your shares to be voted "FOR" a particular nominee,  mark the
"FOR ALL EXCEPT" box and write the nominee's number on the line provided below:

________________________________________________________________________________




2.    Amend the Articles of Incorporation/Declaration of Trust:

2(a). To allow one vote/dollar instead of one vote/share.

                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN
                                                                                              
Fund Name Drop-In 1    [ ]    [ ]      [ ]   Fund Name Drop-In 2   [ ]    [ ]      [ ]   Fund Name Drop-In 3   [ ]    [ ]      [ ]
Fund Name Drop-In 4    [ ]    [ ]      [ ]   Fund Name Drop-In 5   [ ]    [ ]      [ ]   Fund Name Drop-In 6   [ ]    [ ]      [ ]
Fund Name Drop-In 7    [ ]    [ ]      [ ]   Fund Name Drop-In 8   [ ]    [ ]      [ ]   Fund Name Drop-In 9   [ ]    [ ]      [ ]
Fund Name Drop-In 10   [ ]    [ ]      [ ]   Fund Name Drop-In 11  [ ]    [ ]      [ ]   Fund Name Drop-In 12  [ ]    [ ]      [ ]





2(b).  To change the name of the corporation.

                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN
                                                                                              
Fund Name Drop-In 1    [ ]    [ ]      [ ]   Fund Name Drop-In 2   [ ]    [ ]      [ ]   Fund Name Drop-In 3   [ ]    [ ]      [ ]
Fund Name Drop-In 4    [ ]    [ ]      [ ]   Fund Name Drop-In 5   [ ]    [ ]      [ ]   Fund Name Drop-In 6   [ ]    [ ]      [ ]
Fund Name Drop-In 7    [ ]    [ ]      [ ]   Fund Name Drop-In 8   [ ]    [ ]      [ ]   Fund Name Drop-In 9   [ ]    [ ]      [ ]
Fund Name Drop-In 10   [ ]    [ ]      [ ]   Fund Name Drop-In 11  [ ]    [ ]      [ ]   Fund Name Drop-In 12  [ ]    [ ]      [ ]

3.     Approve a policy authorizing American Express Financial Corporation,
       subject to Board approval, to retain and replace subadvisers, or to
       modify subadvisory agreements, without shareholder approval.

                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN
Fund Name Drop-In 1    [ ]    [ ]      [ ]   Fund Name Drop-In 2   [ ]    [ ]      [ ]   Fund Name Drop-In 3   [ ]    [ ]      [ ]
Fund Name Drop-In 4    [ ]    [ ]      [ ]   Fund Name Drop-In 5   [ ]    [ ]      [ ]   Fund Name Drop-In 6   [ ]    [ ]      [ ]
Fund Name Drop-In 7    [ ]    [ ]      [ ]   Fund Name Drop-In 8   [ ]    [ ]      [ ]   Fund Name Drop-In 9   [ ]    [ ]      [ ]
Fund Name Drop-In 10   [ ]    [ ]      [ ]   Fund Name Drop-In 11  [ ]    [ ]      [ ]   Fund Name Drop-In 12  [ ]    [ ]      [ ]

4.     Approve changes to the Investment Management Services Agreement:

4(a).  Add a performance incentive adjustment.

                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN
Fund Name Drop-In 1    [ ]    [ ]      [ ]   Fund Name Drop-In 2   [ ]    [ ]      [ ]   Fund Name Drop-In 3   [ ]    [ ]      [ ]
Fund Name Drop-In 4    [ ]    [ ]      [ ]   Fund Name Drop-In 5   [ ]    [ ]      [ ]   Fund Name Drop-In 6   [ ]    [ ]      [ ]

4(b).  Modify the performance incentive adjustment calculation.

                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN
Fund Name Drop-In 1    [ ]    [ ]      [ ]   Fund Name Drop-In 2   [ ]    [ ]      [ ]   Fund Name Drop-In 3   [ ]    [ ]      [ ]
Fund Name Drop-In 4    [ ]    [ ]      [ ]   Fund Name Drop-In 5   [ ]    [ ]      [ ]   Fund Name Drop-In 6   [ ]    [ ]      [ ]
Fund Name Drop-In 7    [ ]    [ ]      [ ]   Fund Name Drop-In 8   [ ]    [ ]      [ ]   Fund Name Drop-In 9   [ ]    [ ]      [ ]
Fund Name Drop-In 10   [ ]    [ ]      [ ]   Fund Name Drop-In 11  [ ]    [ ]      [ ]   Fund Name Drop-In 12  [ ]    [ ]      [ ]

4(c).  Eliminate the performance incentive adjustment.

                       FOR  AGAINST  ABSTAIN
Fund Name Drop-In 1    [ ]    [ ]      [ ]

4(d).  Change the investment manager from IDS Life Insurance Company to American
       Express Financial Corporation.

                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN
Fund Name Drop-In 1    [ ]    [ ]      [ ]   Fund Name Drop-In 2   [ ]    [ ]      [ ]   Fund Name Drop-In 3   [ ]    [ ]      [ ]
Fund Name Drop-In 4    [ ]    [ ]      [ ]   Fund Name Drop-In 5   [ ]    [ ]      [ ]   Fund Name Drop-In 6   [ ]    [ ]      [ ]
Fund Name Drop-In 7    [ ]    [ ]      [ ]   Fund Name Drop-In 8   [ ]    [ ]      [ ]   Fund Name Drop-In 9   [ ]    [ ]      [ ]

5.     Change the fund's classification from diversified to non-diversified.

                       FOR  AGAINST  ABSTAIN
Fund Name Drop-In 1    [ ]    [ ]      [ ]

6.     Add a Plan and Agreement of Distribution.

                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN                       FOR  AGAINST  ABSTAIN
Fund Name Drop-In 1    [ ]    [ ]      [ ]   Fund Name Drop-In 2   [ ]    [ ]      [ ]   Fund Name Drop-In 3   [ ]    [ ]      [ ]

7.     Approve a Plan of Liquidation.

                       FOR  AGAINST  ABSTAIN
Fund Name Drop-In 1    [ ]    [ ]      [ ]


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