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FINANCIAL PLANNING
IDS Discovery Fund
1994 annual report
(prospectus enclosed)
(Icon of) Ship
The goal of IDS Discovery Fund, Inc. is long-term growth of
capital. The fund invests primarily in common stocks.
(This annual report includes a prospectus that describes in detail
the fund's objective, investment policies, risks, sales charges,
fees and other matters of interest. Please read the prospectus
carefully before you invest or sent money.)
IDS
An American Express company
AMERICAN
EXPRESS
Distributed by IDS Financial Services Inc.
<PAGE>
PAGE 2
(Icon of) Ship
Your piece of the future
Glance through current business magazine and newspaper articles on
the fastest-growing companies in America -- and you'll find many of
the stocks that Discovery Fund owns. The fund seeks small to
medium-size firms at the forefront of rapidly growing markets or
industries. Form high-tech companies in computer networking or
biotechnology to firms that have found new ways to make, manage or
market traditional products and services, these are the companies
that are creating jobs and reshaping U.S. industry today.
<PAGE>
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Contents
(Icon of) One open book inside of another.
The purpose of this annual report is to tell investors how the fund
performed.
The prospectus, which is bound into the middle of this annual
report, describes the fund in detail.
1994 annual report
From the president 4
From the portfolio manager 4
Ten largest holdings 6
Making the most of your fund 7
Long-term performance 8
Independent auditors' report 9
Financial statements 10
Notes to financial statements 13
Investments in securities 20
IDS mutual funds 24
Federal income tax information 27
1994 prospectus
The fund in brief
Goal 3p
Types of fund investments 3p
Manager and distributor 3p
Portfolio manager 3p
Sales charge and fund expenses
Sales charge 4p
Operating expenses 4p
Performance
Financial highlights 5p
Total returns 6p
Key terms 7p
Investment policies and risks
Facts about investments and their risks 8p
Valuing assets 11p
How to buy, exchange or sell shares
How to buy shares 12p
How to exchange shares 14p
How to sell shares 14p
Reductions of the sales charge 18p
Waivers of the sales charge 19p
Special shareholder services
Services 20p
Quick telephone reference 20p
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PAGE 4
Distributions and taxes
Dividend and capital gain distributions 21p
Reinvestments 22p
Taxes 23p
How the fund is organized
Shares 26p
Voting rights 26p
Shareholder meetings 27p
Directors and officers 27p
Investment manager and transfer agent 29p
Distributor 30p
About IDS
General information 31p
(This annual report is not part of the prospectus)<PAGE>
PAGE 5
To our shareholders
(Photo of) William R. Pearce, President of the fund
(Photo of) Ray Hirsch, Portfolio manager
From the president
Your fund, like all the funds in the IDS MUTUAL FUND GROUP, is
preparing for an important meeting of the shareholders on Nov. 9,
1994. If you have not already received the proxy statement by the
time you receive this annual report and prospectus, you will
receive it shortly.
The proxy statement presents the agenda for the shareholder meeting
as briefly and simply as possible, and in compliance with all the
applicable requirements. While it is long, and sometimes complex,
the issues it presents are important -- as is your response.
Unless the holders of at least 50% of the outstanding shares vote
their shares promptly, we cannot consider all of the issues. If
enough votes are not returned, we will have to make an effort to
obtain additional votes, which will be costly for the fund. So, we
encourage you to study the proxy statement carefully and vote the
shares you own promptly.
By way of an update, the new design of this report has received
favorable reviews and some constructive recommendations. We will
continue to try different ways to present information so you will
have what you need to understand your investment.
William R. Pearce
From the portfolio manager
Small-capitalization growth stocks ("small-caps") clearly lived up
to their reputation for volatility during the past fiscal year.
After gaining substantial ground for several months, small-caps
lost their footing in the second half of the fiscal year. The
fund's performance closely tracked this up-and-down trend,
ultimately resulting in a loss for the 12-month period ended July
31, 1994.
But when things were good, they were very good. Small-caps --
stocks of smaller companies tat show promise of rapid growth -- got
off to a strong start in August 1993, the beginning of the fiscal
year. The positive momentum carried over into September and the
first part of October.
Although the next several weeks proved to be a stumbling block, as
a temporary rise in long-term interest rates precipitated a drop in
the stock market, the market and the fund got back on track
quickly, advancing persistently in December and January. By the
end of the first six months, the fund's return, including net asset
value increase and capital gain payout, had already reached double-
digits.
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PAGE 6
Health care, technology lead
The initial spark for the fund was provided by health care stocks.
Early last summer, we decided that this sector was due for a rally
and began selectively adding to the portfolio's health care
holdings. Our timing proved to be good, as most of those stocks
performed well for several months.
Technology stocks (mainly those of telecommunications, electronics
and computer hardware and software companies) also made a good
comeback during that time. To the fund's benefit, we maintained a
substantial exposure (approaching 40% of the portfolio) to that
group, which has long been the largest component of the portfolio.
Rate rise shakes market
The investment environment was to change dramatically, however, in
early February as the Federal Reserve began raising interest rates
to temper a rapidly growing economy and head off a potential
upswing in the inflation rate. The stock market reacted very
negatively to the Fed's action, and, fostered by additional rate
increases in the ensuing months, went into a rapid and sustained
retreat.
Stocks of small companies took the brunt of the blow. This is
because rising interest rates traditionally are most detrimental to
the profit-making potential of such businesses. However, in this
case, the great majority of companies that we invested in continued
to enjoy good business. But that was overlooked by professional
investors', who worried about the possibility of an earnings
downturn, which spawned considerable stock-selling.
Of course, the positive side of a stock slump is that it creates
good buying opportunities. In recent months, we've added many
stocks whose prices offered excellent value and which we expect to
generate gains for us in the months ahead. Equally important, the
overall performance pattern of small-caps appears to be getting
ready to work in the fund's favor. Historically, a sharp small-cap
downturn is followed by an upturn. In fact, we think the outlook
for a sustained rally by small-caps is better now than at any time
in the past few years. While we must always be prepared for
volatility in the marketplace, we've taken an aggressive position
with the portfolio, and we look forward to our patience being
rewarded.
Ray Hirsch
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PAGE 7
12 month performance
(All figures per share)
Net Asset Value (NAV)
July 31, 1994 $10.33
July 31, 1993 $11.37
Decrease $(1.04)
Distributions
Aug. 1, 1993-July 31, 1994
From income $ --
From capital gains $ 0.48
Total distributions $ 0.48
Total return* (5.5%)
*If you purchased shares in the fund during this period, your
return also would have been affected by the sales charge, as
described in the prospectus.
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PAGE 8
<TABLE>
IDS Discovery Fund, Inc.
<CAPTION>
Your fund's ten largest holdings
(Pie chart) The ten holdings listed here make up 16.22% of the fund's net assets
_____________________________________________________________________________________________________________
Percent Value
(of fund's net assets)(as of July 31, 1994)
____________________________________________________________________________________
<S> <C> <C>
HBO & Co 2.45% $12,825,000
A health-care information service company that
provides a variety of computer-based information
systems and services to hospitals and their
affiliates.
Oracle Systems 2.38 12,431,250
One of the largest independent vendors of database-
management software, offering a variety of new
products, enhancements and applications software.
Parametric Technology 2.01 10,518,750
A producer of software products for the automation
of complex engineering tasks that are essential to
the development of virtually all manufactured
products.
Brinker International 1.54 8,055,000
An operator of several restaurant chains,
including Chili's Grady's Grill, Spageddi's
Italian Food and Macaroni Grill, across
40 states.
Tellabs 1.47 7,672,500
Tellabs designs, manufactures and markets a broad
range of products and equipment for use by telephone
companies, the Bell System, specialized common
carrier and other providers of telecommunication
services.
Cisco Systems 1.37 7,140,000
The designer and builder of devices that
link personal computers in powerful networks,
Cisco is a leader in the fast-growing business
network market.
Applied Materials 1.28 6,712,500
A leading independent producer of wafer-fabrication systems
for the semiconductor industry, including manufacturers of
advanced microprocessors, logic and memory devices.
<PAGE>
PAGE 9
IDS Discovery Fund, Inc.
Your fund's ten largest holdings
_____________________________________________________________________________________________________________
Percent Value
(of fund's net assets)(as of July 31, 1994)
____________________________________________________________________________________
IDEXX Laboratories 1.28% $ 6,665,625
IDEXX develops, manuafactures and distributes biotechnology-
based detection systems. The company's products are currently
used for animal health, food quality assurance and biomedical
research applications.
Cardinal Distribution 1.24 6,504,785
A wholesale distributor of pharmaceutical surgical &
hospital supplies and health and beauty aids.
Forest Laboratories 1.20 6,262,875
A worldwide pharmaceutical company that produces and
markets prescription and over-the-counter drugs
through independent distribution and under exclusive
marketing contracts with leading pharmaceutical
companies.
</TABLE>
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PAGE 10
Making the most of your fund
Average annual total return
(as of July 31, 1994)
1 year 5 years 10 years
- -10.24% +9.52% +10.56%
Your investment and return value fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
This was a period of widely fluctuating security prices. Past
performance is no guarantee of future results.
Build your assets systematically
To keep your assets growing steadily, one of the best ways to use
the fund is by dollar-cost averaging -- a time-tested strategy that
can make market fluctuations work for you. To dollar-cost average,
simply invest a fixed amount of money regularly. You'll
automatically buy more shares when the fund's share price is low,
fewer shares when it is high.
This does not ensure a profit or avoid a loss if the market
declines. But, if you can continue to invest regularly through
changing market conditions, it can be an effective way to
accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Month Amount Per-share Number of shares purchased
invested market price
Jan $100 $20 5.00
Feb 100 18 5.56
Mar 100 17 5.88
Apr 100 15 6.67
May 100 16 6.25
June 100 18 5.56
July 100 17 5.88
Aug 100 19 5.26
Sept 100 21 4.76
Oct 100 20 5.00
(footnotes to table) By investing an equal number of dollars each
month...
(arrow in table pointing to April) you automatically buy more
shares when the per share market price is low
(arrow in table pointing to September) and fewer shares when the
per share market price is high.
You have paid an average price of only $17.91 per share over the 10
months, while the average market price actually was $18.10.
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PAGE 11
Your fund's long-term performance
Three ways to benefit from a mutual fund:
o your shares increase in value when the fund's investments do
well
o you receive capital gains when the gains on investments sold by
the fund exceed losses
o you receive income when the fund's stock dividends, interest and
short-term gains exceed its expenses.
All three make up your total return. And you potentially can
increase your investment if, like most investors, you reinvest
your dividends and capital gain distributions to buy additional
shares of the fund or another fund.
How your $10,000 has grown in IDS Discovery Fund
Average annual total return
(as of July 31, 1994) S&P 500
Stock Index
1 year 5 years 10 years x
- -10/24% +9.52% +10.56%
x
$27,282
x Discovery
Lipper Small Co. Fund
Growth Fund Index
x$9,500
`84 `85 `86 `87 `88 `89 `90 `91 `92 `93 `94
Assumes: Holding period from 7/31/84. Returns do not reflect taxes
payable on distributions. Also see "Performance" in the fund's
current prospectus. Reinvestment of all income and capital gain
distributions for the fund, with a value of $10,803.
The Standard & Poor's 500 Stock Index, an unmanaged list of larger
stocks, is frequently used as a general measure of market
performance. However, the S&P 500 companies are generally larger
than those in which Discovery Fund invests.
The Lipper Small Company Growth Fund Index includes 30 funds that
are generally similar to Discovery Fund, although some funds in the
index may have somewhat different investment policies or
objectives.
On the chart above you can see how the fund's total return compared
to two widely cited performance indexes, the S&P 500 and the Lipper
Small Company Growth Fund Index. In comparing Discovery Fund to
the two indexes, you should take into account the fact that the
fund's performance reflects the maximum sales charge of 5%, while
such charges are not reflected in the performance of the indexes.
If you were actually to buy either individual stocks or growth
mutual funds, any sales charges that you pay would reduce your
total return as well.<PAGE>
PAGE 12
Your investment and return values fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
This was a period of widely fluctuating security prices. Past
performance is no guarantee of future results.
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PAGE 13
Independent auditors' report
___________________________________________________________________
The board of directors and shareholders
IDS Discovery Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in securities,
of IDS Discovery Fund, Inc. as of July 31, 1994, and the related
statement of operations for the year then ended and the statements
of changes in net assets for each of the years in the two-year
period ended July 31, 1994, and the financial highlights for each
of the years in the ten-year period ended July 31, 1994. These
financial statements and the financial highlights are the
responsibility of fund management. Our responsibility is to express
an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Investment securities held in custody are
confirmed to us by the custodian. As to securities purchased and
sold but not received or delivered, and securities on loan, we
request confirmations from brokers, and where replies are not
received, we carry out other appropriate auditing procedures. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IDS
Discovery Fund, Inc. at July 31, 1994, and the results of its
operations for the year then ended and the changes in its net
assets for each of the years in the two-year period ended July 31,
1994, and the financial highlights for the periods stated in the
first paragraph above, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 2, 1994
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PAGE 14
<TABLE>
Financial statements
<CAPTION>
Statement of assets and liabilities
IDS Discovery Fund, Inc.
July 31, 1994
__________________________________________________________________________________________________________
Assets
_________________________________________________________________________________________________________
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $469,173,230) $522,471,862
Cash in bank on demand deposit 1,945,673
Receivable for investment securities sold 15,094,450
Dividends and accrued interest receivable 205,317
Receivable for foreign currency contracts held, at value (Notes 1 and 6) 52,929
__________________________________________________________________________________________________________
Total assets 539,770,231
__________________________________________________________________________________________________________
Liabilities
__________________________________________________________________________________________________________
Payable for investment securities purchased 12,385,543
Payable upon return of securities loaned (Note 5) 4,094,000
Payable for foreign currency contracts held, at value (Notes 1 and 6) 52,933
Accrued investment management and services fee 202,991
Accrued distribution fee 38,831
Accrued transfer agency fee 96,962
Other accrued expenses 292,257
__________________________________________________________________________________________________________
Total liabilities 17,163,517
__________________________________________________________________________________________________________
Net assets applicable to outstanding capital stock $522,606,714
__________________________________________________________________________________________________________
Represented by
__________________________________________________________________________________________________________
Capital stock -- authorized 10,000,000,000 shares of $.01 par value;
outstanding 50,569,283 shares $ 505,693
Additional paid-in capital 467,682,957
Accumulated net realized gain (Note 1) 1,119,436
Unrealized appreciation (Note 6) 53,298,628
__________________________________________________________________________________________________________
Total -- representing net assets applicable to outstanding capital stock $522,606,714
__________________________________________________________________________________________________________
Net asset value per share of outstanding capital stock $ 10.33
__________________________________________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
PAGE 15
Financial statements
Statement of operations
IDS Discovery Fund, Inc.
Year ended July 31, 1994
__________________________________________________________________________________________________________
Investment income
__________________________________________________________________________________________________________
Income:
Interest $ 1,571,643
Dividends (net of foreign taxes withheld of $18,638) 1,380,306
__________________________________________________________________________________________________________
Total income 2,951,949
__________________________________________________________________________________________________________
Expenses (Note 2):
Investment management and services fee 2,909,548
Distribution fee 439,675
Transfer agency fee 1,095,455
Compensation of directors 10,883
Compensation of officers 4,141
Custodian fees 104,235
Postage 143,557
Registration fees 117,139
Reports to shareholders 55,710
Audit fees 21,500
Administrative 9,535
Other 10,699
_________________________________________________________________________________________________________
Total expenses 4,922,077
__________________________________________________________________________________________________________
Investment loss -- net (1,970,128)
__________________________________________________________________________________________________________
Realized and unrealized gain (loss) -- net
__________________________________________________________________________________________________________
Net realized gain on investments and foreign currency transactions (including loss
of $4,095 from foreign currency transactions) (Note 3) 7,625,666
Net realized gain on closed option contracts written (Note 4) 156,549
__________________________________________________________________________________________________________
Net realized gain on investments and foreign currency 7,782,215
Net change in unrealized appreciation or depreciation (38,905,761)
__________________________________________________________________________________________________________
Net loss on investments and foreign currency (31,123,546)
__________________________________________________________________________________________________________
Net decrease in net assets resulting from operations $(33,093,674)
__________________________________________________________________________________________________________
See accompanying notes to financial statements.
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PAGE 16
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Discovery Fund, Inc.
Year ended July 31,
_________________________________________________________________________________________________________
Operations and distributions 1994 1993
__________________________________________________________________________________________________________
<S> <C> <C>
Investment loss -- net $ (1,970,128) $ (638,737)
Net realized gain on investments and foreign currency 7,782,215 21,245,988
Net change in unrealized appreciation or depreciation (38,905,761) 35,065,405
__________________________________________________________________________________________________________
Net increase (decrease) in net assets resulting from operations (33,093,674) 55,672,656
__________________________________________________________________________________________________________
Distributions to shareholders from:
Net realized gain on investments (19,913,775) (7,803,311)
__________________________________________________________________________________________________________
Capital share transactions
__________________________________________________________________________________________________________
Proceeds from sales of
20,596,481 and 18,957,346 shares (Note 2) 238,713,182 206,523,903
Net asset value of 1,654,348 and 685,001 shares
issued in reinvestment of distributions 19,774,404 7,746,704
Payments for redemptions of
10,838,537 and 10,179,672 shares (127,923,797) (110,097,573)
__________________________________________________________________________________________________________
Increase in net assets from capital share transactions
representing net addition of
11,412,292 and 9,462,675 shares 130,563,789 104,173,034
__________________________________________________________________________________________________________
Total increase in net assets 77,556,340 152,042,379
Net assets at beginning of year 445,050,374 293,007,995
__________________________________________________________________________________________________________
Net assets at end of year $522,606,714 $445,050,374
__________________________________________________________________________________________________________
See accompanying notes to financial statements.
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PAGE 17
Notes to financial statements
IDS Discovery Fund, Inc.
___________________________________________________________________
1. Summary of significant accounting policies
The fund is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company.
Significant accounting policies followed by the fund are summarized
below:
Valuation of securities
All securities are valued at the close of each business day.
Securities traded on national securities exchanges or included in
national market systems are valued at the last quoted sales price;
securities for which market quotations are not readily available
are valued at fair value according to methods selected in good
faith by the board of directors. Determination of fair value
involves, among other things, reference to market indexes, matrixes
and data from independent brokers. Short-term securities maturing
in more than 60 days from the valuation date are valued at the
market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized
cost.
Options transactions
In order to produce incremental earnings, protect gains, and
facilitate buying and selling of securities for investment
purposes, the fund may buy or write options traded on any U.S. or
foreign exchange or in the over-the-counter market where the
completion of the obligation is dependent upon the credit standing
of the other party. The fund also may buy and sell put and call
options and write covered call options on portfolio securities and
may write cash-secured put options. The risk in writing a call
option is that the fund gives up the opportunity of profit if the
market price of the security increases. The risk in writing a put
option is that the fund may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying
an option is that the fund pays a premium whether or not the option
is exercised. The fund also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary
market does not exist.
Option contracts are valued daily at the closing prices on their
primary exchanges and unrealized appreciation or depreciation is
recorded. The fund will realize a gain or loss upon expiration or
closing of the option transaction. When an option is exercised, the
proceeds on sales for a written call option, the purchase cost for
a written put option or the cost of a security for a purchased put
or call option is adjusted by the amount of premium received or
paid.
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PAGE 18
Notes to financial statements
IDS Discovery Fund, Inc.
___________________________________________________________________
Foreign currency translations and
foreign currency contracts
Securities and other assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the closing
rate of exchange. Foreign currency amounts related to the purchase
or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in
foreign exchange rates on realized and unrealized security gains or
losses is reflected as a component of such gains or losses. In the
statement of operations, net realized gains or losses from foreign
currency transactions may arise from sales of foreign currency,
closed forward contracts, exchange gains or losses realized between
the trade date and settlement dates on securities transactions, and
other translation gains or losses on dividends, interest income and
foreign withholding taxes.
The fund may enter into forward foreign currency exchange contracts
for operational purposes and to protect against adverse exchange
rate fluctuation. The net U.S. dollar value of foreign currency
underlying all contractual commitments held by the fund and the
resulting unrealized appreciation or depreciation are determined
using foreign currency exchange rates from an independent pricing
service. The fund is subject to the credit risk that the other
party will not complete the obligations of the contract.
Federal taxes
Since the fund's policy is to comply with all sections of the
Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income to shareholders, no
provision for income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) may
differ for financial statement and tax purposes primarily because
of the deferral of losses on certain futures contracts, the
recognition of certain foreign currency gains (losses) as ordinary
income (loss) for tax purposes, and losses deferred due to "wash
sale" transactions. The character of distributions made during the
year from net investment income or net realized gains may differ
from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the
year that the income or realized gains (losses) were recorded by
the fund.
On the statement of assets and liabilities, as a result of
permanent book-to-tax differences, undistributed net investment
income has been increased by $1,970,128 and accumulated net
realized gain has been increased by $755 resulting in a net
reclassification adjustment to decrease paid-in-capital by
$1,970,883.<PAGE>
PAGE 19
Notes to financial statements
IDS Discovery Fund, Inc.
___________________________________________________________________
Dividends to shareholders
An annual dividend declared and paid at the end of the calendar
year from net investment income is reinvested in additional shares
of the fund at net asset value or payable in cash. Capital gains,
when available, are distributed along with the income dividend.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Dividend income is recognized on the ex-dividend
date and interest income, including level-yield amortization of
premium and discount, is accrued daily.
2. Expenses and sales charges
Under terms of an agreement dated Nov. 14, 1991, the fund pays IDS
Financial Corporation (IDS) a fee for managing its investments,
recordkeeping and other specified services. The fee is a percentage
of the fund's average daily net assets consisting of a group asset
charge in reducing percentages from 0.46% to 0.32% annually on the
combined net assets of all non-money market funds in the IDS MUTUAL
FUND GROUP and an individual annual asset charge of 0.23% of
average daily net assets. The fee is adjusted upward or downward by
a performance incentive adjustment based on the fund's average
daily net assets over a rolling 12-month period as measured against
the change in the Lipper Small Company Growth Fund Index. The
maximum adjustment is 0.12% of the fund's average daily net assets
after deducting 1% from the performance difference. If the
performance difference is less than 1%, the adjustment will be
zero. The adjustment decreased the fee by $267,998 for the year
ended July 31, 1994.
The fund also pays IDS a distribution fee at an annual rate of $6
per shareholder account and a transfer agency fee at an annual rate
of $15 per shareholder account. The transfer agency fee is reduced
by earnings on monies pending shareholder redemptions.
IDS will assume and pay any expenses (except taxes and brokerage
commissions) that exceed the most restrictive applicable state
expense limitation.
Sales charges by IDS Financial Services Inc. for distributing fund
shares were $3,173,756 for the year ended July 31, 1994. The fund
also pays custodian fees to IDS Trust Company, an affiliate of IDS.
The fund has a retirement plan for its independent directors. Upon
retirement, directors receive monthly payments equal to one-half of
the retainer fee for as many months as they served as directors up
to 120 months. There are no death benefits. The plan is not funded
but the fund recognizes the cost of payments during the time the
directors serve on the board. The retirement plan expense amounted
to $2,334 for the year ended July 31, 1994.<PAGE>
PAGE 20
Notes to financial statements
IDS Discovery Fund, Inc.
__________________________________________________________________
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $485,181,445 and $315,124,245,
respectively, for the year ended July 31, 1994. Realized gains and
losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with IDS were
$42,790 for the year ended July 31, 1994.
___________________________________________________________________
4. Option contracts written
The number of contracts and premium amounts associated with call
options written is as follow:
Year ended July 31, 1994
Contracts Premium
____________________________________________________
Balance July 31, 1993 550 $160,815
Opened 550 87,722
Closed (1,100) (248,537)
_____________________________________________________
Balance July 31, 1994 -- $ --
_____________________________________________________
___________________________________________________________________
5. Lending of portfolio securities
At July 31, 1994, securities valued at $4,071,475 were on loan to
brokers. For collateral, the fund received $4,094,000 in cash.
Income from securities lending amounted to $63,056 for the year
ended July 31, 1994. The risks to the fund of securities lending
are that the borrower may not provide additional collateral when
required or return the securities when due.
<PAGE>
PAGE 21
Notes to financial statements
IDS Discovery Fund, Inc.
___________________________________________________________________
6. Foreign currency contracts
At July 31, 1994, the fund had entered into two foreign currency
exchange contracts that obligate the fund to deliver currencies at
specified future dates. The unrealized depreciation of $4 on these
contracts is included in the accompanying financial statements. The
terms of the open contracts are as follows:
</TABLE>
<TABLE>
<CAPTION>
U.S. Dollar value U.S. Dollar value
Currency to be as of Currency to be as of
Exchange date delivered July 31, 1994 received July 31, 1994
____________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Aug. 1, 1994 26,318 $26,318 203,293 $26,315
U.S. Dollar Hong Kong Dollar
Aug. 2, 1994 26,615 26,615 205,595 26,614
U.S. Dollar Hong Kong Dollar
_______ _______
$52,933 $52,929
</TABLE>
___________________________________________________________________
7. Financial highlights
"Financial highlights" showing per share data and selected
information is presented on page 5 of the prospectus.
<PAGE>
PAGE 22
<TABLE>
Investments in securities
<CAPTION>
IDS Discovery Fund, Inc. (Percentages represent value of
July 31, 1994 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Common stocks (94.5%)
_____________________________________________________________________________________________________________________________
Issuer Shares Value(a)
_____________________________________________________________________________________________________________________________
<S> <C> <C>
Airlines (1.0%)
Mesa Airlines 125,000 (b) $ 1,328,125
Southwest Airlines 140,000 3,797,500
____________
Total 5,125,625
_____________________________________________________________________________________________________________________________
Automotive & related (0.7%)
APS Holding Cl C 115,000 (b) 2,530,000
Gentex 50,000 (b) 1,012,500
____________
Total 3,542,500
_____________________________________________________________________________________________________________________________
Banks and savings & loans (7.7%)
AmSouth Bancorp 75,000 2,343,750
BB&T Financial 85,000 2,635,000
First Fidelity Bancorp 110,000 5,142,500
First Tennessee Natl 30,000 1,357,500
Firstar 150,000 5,193,750
Mercantile Bancorp 145,000 5,292,500
Meridian Bancorp 45,000 1,434,375
PNC Financial 175,000 5,031,250
Premier Bancorp 170,700 (b) 2,965,913
Roosevelt Financial 225,800 3,838,600
Signet Banking 125,000 5,046,875
____________
Total 40,282,013
_____________________________________________________________________________________________________________________________
Beverages & tobacco (0.4%)
Celestial Seasonings 125,000 (b) 1,968,750
_____________________________________________________________________________________________________________________________
Communications equipment (4.5%)
ADC Telecom 50,000 (b) 2,325,000
Cascade Comunications 11,200 (b) 168,000
Cisco Systems 340,000 (b) 7,140,000
CommNet Cellular 160,000 (b) 3,320,000
ECI Telecom 150,000 2,737,500
Octus 65,000 (b) 284,375
Tellabs 220,000 (b) 7,672,500
____________
Total 23,647,375
_____________________________________________________________________________________________________________________________
See accompanying notes to investments in securities.
<PAGE>
PAGE 23
Investments in securities
IDS Discovery Fund, Inc. (Percentages represent value of
July 31, 1994 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Common stocks (continued)
_____________________________________________________________________________________________________________________________
Issuer Shares Value(a)
_____________________________________________________________________________________________________________________________
Computers & office equipment (15.6%)
Adobe Systems 170,000 $ 5,270,000
Amer Management Systems 145,100 (b) 3,627,500
Broderbund Software 40,000 (b) 1,940,000
BMC Software 102,000 (b) 4,934,250
Cabletron Systems 29,200 (b) 2,941,900
Compuware 80,200 (b) 3,157,875
FORE Systems 25,000 (b) 781,250
Informix 155,000 (b) 3,119,375
Intuit 50,000 (b) 1,800,000
Lotus Development 86,000 (b) 2,795,000
Microsoft 50,000 (b) 2,575,000
NetFRAME Systems 170,000 (b) 1,572,500
Oracle Systems 325,000 (b) 12,431,250
Parametric Technology 425,000 (b) 10,518,750
Powersoft 82,000 (b,c) 3,526,000
Read-Rite 210,000 (b) 2,887,500
Robotic Vision System 160,000 (b) 860,000
Silicon Graphics 200,000 (b) 4,725,000
Storage Technology 70,000 (b) 2,590,000
Sybase Software 120,000 (b) 4,725,000
Synopsys 130,000 (b) 5,005,000
____________
Total 81,783,150
_____________________________________________________________________________________________________________________________
Electronics (5.9%)
Amtech 105,000 1,076,250
Applied Materials 150,000 (b) 6,712,500
Atmel 145,000 (b) 3,552,500
Lam Research 50,000 (b) 1,412,500
Linear Technology 125,000 5,000,000
Maxim Integrated Products 50,000 (b) 2,412,500
Medar 80,000 (b) 930,000
Micro-chip 90,000 (b) 2,880,000
Sensormatic Electric 120,000 3,600,000
Valence Technology 280,000 (b) 910,000
Zilog 80,000 (b) 2,240,000
____________
Total 30,726,250
_____________________________________________________________________________________________________________________________
See accompanying notes to investments in securities.
<PAGE>
PAGE 24
Investments in securities
IDS Discovery Fund, Inc. (Percentages represent value of
July 31, 1994 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Common stocks (continued)
_____________________________________________________________________________________________________________________________
Issuer Shares Value(a)
_____________________________________________________________________________________________________________________________
Energy (0.6%)
Enron Oil & Gas 49,600 $ 985,800
HS Resources 101,900 (b) 2,101,687
____________
Total 3,087,487
_____________________________________________________________________________________________________________________________
Energy equipment & services (0.4%)
Corrpro 140,200 (b) 1,962,800
_____________________________________________________________________________________________________________________________
Financial services (5.1%)
ADVANTA Cl B 160,000 4,800,000
Felcor Hotel 60,900 (b) 1,370,250
First Financial Management 95,000 5,296,250
MBNA 105,000 2,415,000
Paychex 180,000 6,030,000
Regional Acceptance 128,800 (b) 2,028,600
RFS Hotel Investors 80,000 1,380,000
Tanger Factory Outlet Centers 50,000 1,325,000
Winston Hotels 200,000 2,150,000
____________
Total 26,795,100
_____________________________________________________________________________________________________________________________
Food (0.4%)
Performance Food Group 90,000 (b) 2,002,500
_____________________________________________________________________________________________________________________________
Health care (9.0%)
Amgen 60,000 (b) 2,981,250
Amylin Pharmaceuticals 100,000 (b) 650,000
Biogen 30,000 (b) 1,305,000
Cephalon 50,000 (b) 487,500
Chiron 60,000 (b) 3,225,000
Diametrics 200,000 (b) 1,350,000
Forest Laboratories 146,500 (b) 6,262,875
Genentech 108,100 (b) 5,432,025
Haemonetics 100,000 (b) 1,500,000
Heart Technology 185,000 (b) 3,653,750
IDEXX Laboratories 225,000 (b) 6,665,625
I-STAT 100,000 (b,c) 1,475,000
See accompanying notes to investments in securities.
<PAGE>
PAGE 25
Investments in securities
IDS Discovery Fund, Inc. (Percentages represent value of
July 31, 1994 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Common stocks (continued)
_____________________________________________________________________________________________________________________________
Issuer Shares Value(a)
_____________________________________________________________________________________________________________________________
Medisense 225,000 (b) $ 3,290,625
Molecular Dynamics 100,000 (b) 625,000
PLC Systems Unit 320,000 (b) 1,280,000
ProCyte 46,700 (b) 437,813
STERIS 135,000 (b) 2,463,750
Stryker 26,200 (c) 818,750
Ventritex 140,000 (b) 2,730,000
Viagene 54,600 (b) 225,225
____________
Total 46,859,188
_____________________________________________________________________________________________________________________________
Health care services (10.1%)
Advocat 185,200 (b) 1,689,950
Amer Medical Response 125,000 (b) 3,031,250
Anesta 95,000 (b) 724,375
Beverly Enterprises 120,000 (b) 1,470,000
Cardinal Distribution 168,750 6,504,785
Coastal Healthcare Group 46,000 (b) 1,587,000
HBO 450,000 12,825,000
Healthsource 92,000 (b) 2,599,000
HEALTHSOUTH Rehabilitation 18,100 (b) 549,787
Horizon Healthcare 100,000 (b) 2,337,500
Medaphis 55,000 (b) 1,615,625
Medicus Systems 95,000 1,045,000
Mid Atlantic Medical Services 95,000 (b,c) 3,942,500
PhyCor 170,000 (b) 5,227,500
Quantum Health Resources 75,000 (b) 2,475,000
Sun Healthcare Group 79,920 (b) 1,458,540
United Healthcare 80,000 3,640,000
____________
Total 52,722,812
_____________________________________________________________________________________________________________________________
Industrial equipment & services (2.1%)
Airgas 109,100 (b) 2,972,975
Calgon Carbon 150,000 1,762,500
Energy Bio 84,000 (b) 756,000
Ensys Environmental 65,000 (b) 211,250
Sanifill 210,000 (b) 5,118,750
____________
Total 10,821,475
_____________________________________________________________________________________________________________________________
See accompanying notes to investments in securities.
<PAGE>
PAGE 26
Investments in securities
IDS Discovery Fund, Inc. (Percentages represent value of
July 31, 1994 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Common stocks (continued)
_____________________________________________________________________________________________________________________________
Issuer Shares Value(a)
_____________________________________________________________________________________________________________________________
Industrial transportation (1.4%)
Amer Freightways 235,000 (b) $ 5,170,000
Heartland Express 70,000 (b) 2,415,000
____________
Total 7,585,000
_____________________________________________________________________________________________________________________________
Insurance (0.8%)
Equitable of Iowa 115,000 4,053,750
_____________________________________________________________________________________________________________________________
Leisure time & entertainment (1.7%)
Bally Gaming Intl 12,100 (b) 142,175
Intl Game Technology 150,000 2,925,000
Iwerks Entertainment 20,000 (b) 127,500
Marvel Entertainment Group 72,100 (b) 1,306,813
Rio Hotel & Casino 215,000 (b) 2,795,000
Savoy Pictures Entertainment 50,000 (b) 550,000
Scientific Games Holdings 35,000 (b) 1,225,000
____________
Total 9,071,488
_____________________________________________________________________________________________________________________________
Media (3.1%)
Catalina Marketing 60,000 (b) 2,775,000
Cinergi Pictures Entertainment 250,000 (b) 2,093,750
Comcast 135,000 2,193,750
Comcast Cl A 65,000 1,080,625
Information Resources 190,000 (b) 2,470,000
Multimedia 85,600 (b) 2,589,400
University Patents 205,000 (b) 1,537,500
Westcott Communciations 142,000 (b) 1,464,375
____________
Total 16,204,400
_____________________________________________________________________________________________________________________________
Multi-industry conglomerates (0.3%)
Career Horizons 40,000 (b) 705,000
Norell 54,300 (b) 773,775
_____________
Total 1,478,775
_____________________________________________________________________________________________________________________________
Restaurants & lodging (6.5%)
Boston Chicken 72,200 (b) 2,869,950
Brinker Intl 360,000 (b) 8,055,000
Buffets 250,000 (b) 4,265,625
Chart House Enterprise 205,000 (b) 1,511,875
See accompanying notes to investments in securities.
<PAGE>
PAGE 27
Investments in securities
IDS Discovery Fund, Inc. (Percentages represent value of
July 31, 1994 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Common stocks (continued)
_____________________________________________________________________________________________________________________________
Issuer Shares Value(a)
_____________________________________________________________________________________________________________________________
Cracker Barrel Old Country 220,000 $ 5,115,000
Equity Inns 200,000 2,475,000
Fresh Choice 100,000 (b,c) 2,400,000
Hospitality Franchise System 100,000 (b) 2,675,000
Outback Steakhouse 135,000 (b) 3,408,750
Starbucks 35,800 (b) 1,038,200
____________
Total 33,814,400
_____________________________________________________________________________________________________________________________
Retail (6.1%)
Bed Bath & Beyond 110,000 (b) 3,327,500
Best Buy 130,000 (b) 3,185,000
CUC Intl 140,000 (b) 4,217,500
Gap 65,000 2,502,500
Kohl's 110,000 (b) 4,620,000
Mens Wearhouse 60,000 (b) 1,050,000
PETsMART 175,000 (b) 5,381,250
Price/Costco 175,000 (b) 2,625,000
Tiffany 40,000 1,465,000
Viking Office Products 106,000 (b) 2,464,500
Whole Foods Market 50,000 (b) 925,000
____________
Total 31,763,250
_____________________________________________________________________________________________________________________________
Soaps & cosmetics (0.2%)
Duracraft 30,000 (b) 1,200,000
_____________________________________________________________________________________________________________________________
Textiles & apparel (0.6%)
Donnkenny 135,000 (b) 3,290,625
_____________________________________________________________________________________________________________________________
Utilities - gas (0.5%)
Enron 85,000 2,751,875
_____________________________________________________________________________________________________________________________
Utilities - telephone (0.9%)
ALC Communications 89,700 (b) 2,904,038
KENETECH 100,000 (b) 1,600,000
____________
Total 4,504,038
_____________________________________________________________________________________________________________________________
See accompanying notes to investments in securities.
<PAGE>
PAGE 28
Investments in securities
IDS Discovery Fund, Inc. (Percentages represent value of
July 31, 1994 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Common stocks (continued)
_____________________________________________________________________________________________________________________________
Issuer Shares Value(a)
_____________________________________________________________________________________________________________________________
Foreign (8.9%)(e)
Affymax NV 75,000 (b) $ 1,012,500
Cifra ADR Series B 1,200,000 3,330,000
Danka Business Systems ADR 105,000 4,501,875
EK Chor China Motorcycle 120,000 2,985,000
First Pacific 3,301,700 (b) 1,941,400
Grupo Iusacell Cl D 2,100 (b) 61,425
Grupo Iusacell Cl L 4,900 (b) 147,612
Grupo Situr 200,000 (b,d) 5,825,000
Grupo Televisa 24,000 (d) 1,344,000
Helicopter Lines 100,000 (b) 291,800
Imax 45,000 (b) 413,437
Newbridge Networks 115,000 (b) 4,822,813
Nokia Preferred Free 79,000 (b) 4,821,595
Renaissance Energy 128,700 (b) 2,744,926
Renaissance Energy 41,400 (b,d) 882,983
Sceptre Resources 270,000 (b) 2,586,492
Tarragon Oil & Gas 200,000 (b) 2,638,900
Television Broadcasts 1,000,000 4,440,000
Vodafone Group ADR 60,000 1,717,500
____________
Total 46,509,258
_____________________________________________________________________________________________________________________________
Total common stocks
(Cost: $445,119,359) $493,553,884
_____________________________________________________________________________________________________________________________
Preferred stocks & other (1.5%)
____________________________________________________________________________________________________________________________
Centocor
Warrants 25,000 $ 118,750
Hornbach 2,700 (e) 2,595,334
SAP 2,500 (e) 5,354,553
_____________________________________________________________________________________________________________________________
Total preferred stocks & other
(Cost: $3,204,530) $ 8,068,637
_____________________________________________________________________________________________________________________________
See accompanying notes to investments in securities. <PAGE>
PAGE 29
<CAPTION>
Investments in securities
IDS Discovery Fund, Inc. (Percentages represent value of
July 31, 1994 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Short-term securities (4.0%)
_____________________________________________________________________________________________________________________________
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C>
U.S. government agencies (0.8%)
Federal Home Loan Bank
Disc Note
08-19-94 4.24% $2,300,000 $ 2,294,608
Federal Home Loan Mtge Corp
Disc Notes
08-01-94 4.34 1,300,000 1,299,687
08-03-94 4.37 700,000 699,662
____________
Total 4,293,957
____________________________________________________________________________________________________________________ _________
Commercial paper (2.7%)
Colgate Palmolive
08-30-94 4.39 2,600,000 (f) 2,590,216
Eiger Capital
08-15-94 4.52 2,900,000 (f) 2,894,200
St. Paul Companies
08-19-94 4.38 700,000 (f) 698,300
Sandoz
08-11-94 4.52 3,600,000 3,594,600
Southwestern Bell Capital
08-19-94 4.52 4,500,000 (f) 4,488,750
____________
Total 14,266,066
_____________________________________________________________________________________________________________________________
Letter of credit (0.5%)
Bank of New York-
Riverfuel #2
09-06-94 4.42 2,300,000 2,289,318
_____________________________________________________________________________________________________________________________
Total short-term securities
(Cost: $20,849,341) $ 20,849,341
_____________________________________________________________________________________________________________________________
Total investments in securities
(Cost: $469,173,230)(g) $522,471,862
_____________________________________________________________________________________________________________________________
See accompanying notes to investments in securities.
<PAGE>
PAGE 30
Investments in securities
IDS Discovery Fund, Inc.
July 31, 1994
_____________________________________________________________________________________________________________________________
Notes to investments in securities
_____________________________________________________________________________________________________________________________
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Presently non-income producing.
(c) Security is partially or fully on loan. See Note 5 to the financial statements.
(d) Represents a security sold under Rule 144A which is exempt from registration under the Securities Act
of 1933, as amended. This security has been determined to be liquid under guidelines established
by the board of directors.
(e) Foreign security values are stated in U.S. dollars.
(f) Commercial paper sold within terms of a private placement memorandum, exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that
program or other "accredited investors." This security has been determined to be liquid under
guidelines established by the board of directors.
(g) At July 31, 1994, the cost of securities for federal income tax purposes was $469,512,577
and the aggregate gross unrealized appreciation and depreciation based on that cost was:
<CAPTION>
<S> <C>
Unrealized appreciation $91,672,310
Unrealized depreciation (38,713,025)
_____________________________________________________________________________________________________________________________
Net unrealized appreciation $52,959,285
_____________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 31
IDS mutual funds
Cash equivalent investments
These money market funds have three main goals: conversation of
capital, constant liquidity and the highest possible current income
consistent with these objectives. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial
paper, bankers' acceptances, certificates of deposits (CDs) and
other bank securities.
(icon of) piggy bank
IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and
local governments to seek high current income exempt from federal
income taxes.
(icon of) shield with piggy bank enclosed
Income investments
The funds in this group invest their assets primarily in corporate
bonds or government securities to seek interest income. Secondary
objective is capital growth. Risk varies by bond quality.
IDS Global Bond Fund
Invests primarily in debt securities of U.S. and foreign issuers to
achieve high total return through income and growth of capital.
(icon of) globe
IDS Extra Income Fund
Invests mainly in long-term, high-yielding corporate fixed-income
securities in the lower rated, higher risk bond categories to
provide high current income. Secondary objective is capital
growth.
(icon of) cornucopia
IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher
rated, lower risk bond categories,or the equivalent, and in
government bonds.
(icon of) greek column
<PAGE>
PAGE 32
IDS Strategy, Income Fund
Invests primarily in corporate and government bonds to seek high
current income while conserving capital. Also may seek capital
appreciation when consistent with its primary goals.
(icon of) chess piece
IDS Selective Fund
Invests in high-quality corporate bonds and other highly rated debt
instruments including government securities and short-term
investments. Seeks current income and preservation of capital.
(icon of) skyline
IDS Federal Income Fund
Invests primarily in securities issued or guaranteed as to the
timely payment of principal and interest by the U.S. government,
its agencies and instrumentalities. Seeks a high level of current
income and safety of principal consistent with its type of
investments.
(icon of) federal building
IDS Strategy, Short-Term Income Fund
Invests primarily in short-term and intermediate-term bonds and
notes to seek a high level of current income.
(icon of) chess piece
Tax-exempt income investments
These funds provide tax-free income by investing in municipal
bonds. The income is generally free from federal income tax. Risk
varies by bond quality.
IDS High Yield Tax-Exempt Fund
Invests primarily in medium- and lower-quality municipal bonds and
notes. Lower-quality securities generally involve greater risk of
principal and income.
(icon of) shield with basket of apples enclosed
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to
provide income to residents of each respective state that is exempt
from federal, state and local income taxes. (New York is the only
state that is exempt at the local level.)
(icon of) shield with U.S. enclosed
<PAGE>
PAGE 33
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government
units, with at least 75% in the four highest rated, lowest risk
bond categories.
(icon of) shield with Greek column
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to
the timely payment of principal and interest. The insurance
feature minimizes credit risk of the fund but does not guarantee
the market value of the fund's shares.
(icon of) shield with eagle head
Growth and income investments
These funds focus on securities of medium to large, well-
established companies that offer long-term growth of capital and
reasonable income from dividends and interest. Moderate risk.
IDS International Fund
Invests primarily in common stocks of foreign companies that offer
potential for superior growth. The fund may invest up to 20% of
its assets in the U.S. market.
(icon of) three flags
IDS Strategy, Worldwide Growth Fund
Invests primarily in common stocks of companies throughout the
world that offer potential for superior growth. Holdings may range
from small- to large-capitalization stocks, including those of
companies involve in areas of rapid economic growth.
(icon of) chess piece
IDS Managed Retirement Fund
Invests in a combination of common stocks, fixed-income investments
and money market securities to seek a maximum total return through
a combination of growth of capital and current income.
(icon of) bird in a nest
IDS Equity Plus Fund
Invests primarily in a combination of moderate growth stocks,
higher-yielding equities and bonds. Seeks growth of capital and
income.
(icon of) three apple trees
<PAGE>
PAGE 34
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities
purchased are those recommended by IDS research analysts as the
best from each industry represented on the index. Offers potential
for long-term growth as well as dividend income.
(icon of) ribbon
IDS Stock Fund
Invests primarily in common stock representing many sectors of the
economy. Seeks current income and growth of capital.
(icon of) building with columns
IDS Strategy, Equity Fund
Invests primarily in undervalued common stocks that offer potential
for growth of capital and income.
(icon of) chess piece
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to
provide high current income and growth of income and capital with
reduced volatility.
(icon of) electrical cord
IDS Diversified Equity Income Fund
Invests primarily in high-yielding common stocks to seek high
current income and, secondarily, to benefit from the growth
potential offered by stock investments.
(icon of) four puzzle pieces
IDS Mutual
Invests in a balance between common stocks and senior securities
(preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
(icon of) scale of justice
Growth investments
Funds in this group seek capital growth, primarily from common
stocks. They are high risk mutual funds with a potential for high
reward.
<PAGE>
PAGE 35
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies
emphasizing technological innovation and productivity enhancement.
Buys and holds larger growth-oriented stocks.
(icon of) ship
IDS Strategy, Aggressive Equity Fund
Invests primarily in common stocks of companies that are selected
for their potential for above-average growth. Above-average means
that their growth potential is better, in the opinion of the
portfolio's investment manager, than the Standard & Poor's
Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Growth Fund
Invests primarily in companies that have above-average potential
for long-term growth as a result of new management, marketing
opportunities or technological superiority.
(icon of) flower
IDS Global Growth Fund
Invests in stocks of companies throughout the world that are
positioned to meet market needs in a changing world economy. These
companies offer above-average potential for long-term growth.
(icon of) world
IDS New Dimensions Fund
Invests primarily in companies with significant growth potential
due to superiority in technology, marketing or management. The
Fund frequently changes its industry mix.
(icon of) dimension
IDS Progressive Fund
Invests primarily in undervalued common stocks. The fund holds
stocks for the long term with the goal of capital growth.
(icon of) shooting star
Specialty growth investment
This fund aggressively seeks capital growth as a hedge against
inflation.
<PAGE>
PAGE 36
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic
companies that explore for, mine and process or distribute gold and
other precious metals. This is the most aggressive and most
speculative IDS mutual fund.
(icon of) cart of precious gems
For more complete information about any of these funds, including
charges and expenses, you can obtain a prospectus by contacting
your financial planner or writing to IDS Shareholder Service, P.O.
Box 534, Minneapolis, MN 55440-0534. Read it carefully before you
invest or send money.
<PAGE>
PAGE 37
Federal income tax information
IDS Discovery Fund, Inc.
___________________________________________________________________
The fund is required by the Internal Revenue Code
of 1986 to tell its shareholders about the tax
treatment of the dividends it pays during its
fiscal year. The dividend listed below was
reported to you on a Form 1099-DIV, Dividends
and Distributions, last January. Shareholders
should consult a tax adviser on how to report
distributions for state and local purposes.
IDS Discovery Fund, Inc.
Fiscal year ended July 31, 1994
Capital gain distribution
taxable as long-term capital gain.
Payable date Per share
Dec. 30, 1993 $0.4765
Total distribution $0.4765
<PAGE>
PAGE 38
Quick telephone reference
IDS Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
IDS Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
IDS Infoline
Automated account information (TouchToneR phones only), including
current fund prices and performance, account values and recent
account transactions
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 671-1630
Your IDS financial planner:
AN AMERICAN EXPRESS COMPANY
1894 IDS 1994
A CENTURY OF INVESTING IN THE FUTURE
IDS Discovery Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
PAGE 39
STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) Headings. 2) The headings in the
annual report and
prospectus are placed
in blue strip at the top
of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described in
annual report and prospectus. parentheses.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
