<PAGE>
PAGE 1
IDS Discovery Fund
1995 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 of small- and
medium-size growth companies.
(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 send money.)
Distributed by American Express Financial Advisors 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. From 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>
PAGE 3
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.
1995 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 24
IDS mutual funds 28
Federal income tax information 31
1995 prospectus
The fund in brief
Goal 3p
Types of fund investments and their risks 3p
Proposed conversion to master/feeder structure 3p
Manager and distributor 3p
Portfolio manager 3p
Alternative sales arrangements 3p
Sales charge and fund expenses 4p
Performance
Financial highlights 6p
Total returns 7p
Key terms 9p
Investment policies and risks
Facts about investments and their risks 11p
Valuing assets 15p
How to buy, exchange or sell shares
Alternative sales arrangements 16p
How to buy shares 19p
How to exchange shares 22p
How to sell shares 23p
Reductions and waivers of the sales charge 28p
Special shareholder services
Services 32p
Quick telephone reference 32p
<PAGE>
PAGE 4
Distributions and taxes
Dividend and capital gain distributions 33p
Reinvestments 33p
Taxes 34p
How the fund is organized
Shares 37p
Voting rights 37p
Shareholder meetings 37p
Special considerations regarding master/feeder
structure 37p
Directors and officers 39p
Investment manager and transfer agent 41p
Distributor 43p
About American Express Financial Corporation
General information 45p
Appendix
Description of derivative instruments 46p
(This annual report is not part of the prospectus.)<PAGE>
PAGE 5
To our shareholders
(photo of) William R. Pearce
President of the Fund
From the president
As I indicated in the fund's previous reports, new agreements
between the fund and American Express Financial Corporation (AEFC)
were approved by shareholders in November 1994. The new agreements
became effective when the fund began offering multiple classes of
shares on March 20, 1995.
The advantage of offering more than a single class of shares is
that investors may choose how they wish to pay sales charges. A
portion of these charges compensates your American Express
financial advisor (formerly called your IDS planner), who is
committed to providing you with outstanding services.
Adding new classes of mutual fund shares does make the presentation
of financial information in this report more complex. However, we
will continue our effort to make the reports easier to read and
understand. Meanwhile, your American Express financial advisor is
available to answer your questions.
(reproduced signature)
William R. Pearce
(photo of) Kurt Winters
Portfolio Manager
From the portfolio manager
After slumping during most of last year, small-company growth
stocks made a comeback in 1995, enabling IDS Discovery Fund to turn
in a total-return gain of 27.6% for Class A for its fiscal year
(August 1994 through July 1995). Much of the return was achieved
during the final months of the fiscal year.
That also was an excellent period for the overall stock market,
which went on an impressive sustained march that was led by large-
capitalization growth stocks, particularly those in the technology
sector.
You may recall that in the semiannual report, I noted that, as the
fund's new portfolio manager, I planned to make changes to the
portfolio. Those changes included emphasizing stocks of smaller
companies ("small-caps"), reducing the number of stocks and
broadening the industries represented in the portfolio.
This portfolio restructuring required that a substantial number of
stocks be sold. As a result, the median market capitalization of
the companies held in the portfolio was reduced from $1.3 billion
to $500 million. (The market capitalization of a company is the
price per share of its stock multiplied by the total number of
shares outstanding.) Put another way, the average size of the
companies owned by the fund is now less than half of what it used
to be.<PAGE>
PAGE 6
Also, the number of companies whose stock is owned by the fund has
fallen from 180 to 60. Many of the stocks we sold were those of
companies in the technology and health-care industries.
Broadening the exposure
Lastly, to reinvest the money raised by selling so many stocks, and
to quickly broaden the industry exposure of the portfolio, I
elected to purchase contracts in the futures and options markets.
This seemed to me to be a wiser course of action than chasing
rapidly rising and illiquid, individual small-cap securities during
the final five months of the fiscal year. The fund realized
substantial benefits from those futures and options, which are
forms of derivatives. As the market became more stable and
investment opportunities were identified, some of these derivative
contracts will be closed, and a higher percentage of the fund's
assets will be invested in stocks.
(It is worth noting that the fund is required to have cash reserves
to offset long futures positions. Accordingly, the fund holds a
large position in short-term securities to meet this requirement.)
I intend to maintain a relatively broad industry and economic
exposure in the portfolio, which I believe will be a long-term
plus. Breadth should help the fund better withstand periods of
poor stock performance -- an important and inevitable factor in the
small-cap arena.
The basic reason for the changes was to position the fund to
perform more effectively in the long term for investors looking for
capital appreciation from a small-cap fund. I hope investors share
my enthusiasm for what I believe will be an exciting and profitable
future.
(reproduced signature)
Kurt Winters
Class A
12-month performance
(All figures per share)
Net asset value (NAV)
July 31, 1995 $13.16
July 31, 1994 $10.33
Increase $ 2.83
Distributions
Aug. 1, 1994 - July 31, 1995
From income $ --
From capital gains $ 0.03
From distributions $ 0.03
Total return** +27.6% ***
<PAGE>
PAGE 7
Class B
March 20, 1995 - July 31, 1995
(All figures per share)
Net asset value (NAV)
July 31, 1995 $13.12
March 20, 1995* $11.31
Increase $ 1.81
Distributions
March 20, 1995* - July 31, 1995
From income $ --
From capital gains $ --
From distributions $ __
Total return** +16.0% ***
Class Y
March 20, 1995 - July 31, 1995
(All figures per share)
Net asset value (NAV)
July 31, 1995 $13.17
March 20, 1995* $11.31
Increase $ 1.86
Distributions
March 20, 1995* - July 31, 1995
From income $ --
From capital gains $ --
From distributions $ __
Total return** +16.4% ***
* Inception date.
** The prospectus discusses the effects of sales charges, if any,
on the various classes.
*** The total return is a hypothetical investment in the fund with
all distributions reinvested.
(This annual report is not part of the prospectus.)<PAGE>
PAGE 8
<TABLE><CAPTION>
IDS Discovery Fund, Inc.
Your fund's ten largest holdings
(Pie Chart) The ten holdings listed here make up 20.52% of the fund's net assets.
_____________________________________________________________________________________
Percent Value
(of fund's net assets) (as of July 31, 1995)
____________________________________________________________________________________
<S> <C> <C>
Horizon Healthcare 2.62 $20,362,500
The company operates long-term care centers
and provided a broad range of health care
services, including nursing, rehabilitation
and other therapies, institutional pharmacy
services, specialty care to Alzheimer's
patients and subacute care.
Wabash Natl 2.54 19,812,500
Designer, manufacturer, and marketer of
standard and customized truck trailers, including
dry freight vans, refrigerated trailers and
intermodal vehicles. The company is now the
largest trailer manufacturer in the United States
with a 15% market share, up from zero in 1985 when
the company was founded.
Mid Atlantic Medical Services 2.21 17,171,875
The largest health maintenance organization (HMO)
in Maryland, Virginia and Washington, D.C.
Cincinnati Milacron 2.11 16,406,250
Manufacturer of plastics machinery, machine
tools,and industrial consumable products for
metalworking, as well as related computer controls
and software for factory automation.
Stewart & Stevenson 2.08 16,203,125
A diversified manufacturer of turnkey electrical
powerplants, tactical vehicle systems for the
United States Army, and distributor of a variety
of machinery products.
Sterling Software 1.97 15,375,000
A diversified computer software and service
company which operates three business lines:
enterprise software; electronic commerce, also
referred to as electronic data interchange; and
federal systems, which provides contract
programming for NASA and the like.
FTP Software 1.96 15,225,000
The company designs, develops, markets, and
supports internetworking software products
that enable personal computer users to access
heterogeneous resources across local area,
enterprisewide, and global private and
public networks.
Tech Data 1.77 13,750,000
The number three wholesale distributor of personal
computers, peripherals, networking products and
software. The customer base consists of value-added
resellers, corporate resellers and mass merchants.
Best Buy 1.67 13,000,000
An innovative, low-cost operator in the consumer
electronics segment. The company is a discount
retailer of brand-name consumer electronics,
computer and home office equipment, major
appliances, photographic equipment and
entertainment software.
PLATINUM Technology 1.59 12,375,000
The company develops, markets and supports software
and related educational programs and publications
for use with DB2, IBM's MVS mainframe relational
database management system.
/TABLE
<PAGE>
PAGE 9
Making the most of your fund
Average annual total return
(as of July 31, 1995)
Class A
1 year 5 years 10 years
+21.24% +10.90% +11.55%
Total returns for Class A, Class B and Class Y for the period from
March 20, 1995 to July 31, 1995 were +10.54, +11.00 and +16.44,
respectively. March 20, 1995 was the inception date for Class B
and Class Y. Total return for Class A is shown for comparative
purposes. The performance of Class B and Class Y will vary from
the performance of Class A based on differences in sales charges
and fees.
Your investment and return values fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
Figures reflect the deduction of the maximum sales charge as
discussed in the prospectus. 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.
<PAGE>
PAGE 10
(arrow in table pointing to August) 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.
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.
Class A*
How your $10,000 has grown in IDS Discovery Fund
Average annual total return
(as of July 31, 1995)
1 year 5 years 10 years S&P 500
+21.24% +10.90% +11.55% Stock Index
X
$29,846
Discovery Fund
Lipper Small Co.
Growth Fund Index
X $9,500
'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95
* The graph above is for Class A only. Class B and Class Y are not
shown. Total returns for Class A, Class B and Class Y for the
period from March 20, 1995 to July 31, 1995 were +10.54, +11.00,
+16.44, respectively. March 20, 1995 was the inception date for
Class B and Class Y. Total return for Class A is shown for
comparative purposes. The performance of Class B and Class Y will
vary from the performance of Class A based on differences in sales
charges and fees.
(The following three paragraphs appear in the margin next to the
chart above:)
Assumes: -Holding period from 7/31/85 to 7/31/95. -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 $11,258.<PAGE>
PAGE 11
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 graph 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.
Your investment and return values fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
Average annual total return figures reflect the deduction of the
maximum sales charge as discussed in the prospectus. This was a
period of widely fluctuating security prices. Past performance is
no guarantee of future results.
<PAGE>
PAGE 12
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, 1995, 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, 1995, and the financial highlights for each
of the years in the ten-year period ended July 31, 1995. 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, 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, 1995, 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,
1995, 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 1, 1995
<PAGE>
PAGE 13
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Discovery Fund, Inc.
July 31, 1995
____________________________________________________________________________________________
Assets
____________________________________________________________________________________________
<S> <C>
Investments in securities, at value (Note 1)
Investments in securities of unaffiliated issuers
(identified cost $723,715,734) $781,031,765
Investments in securities of affiliated issuers
(identified cost $14,224,987) 14,731,250
Receivable for investment securities sold 4,447,797
Variation margin receivable on futures contracts 840,000
Dividends and accrued interest receivable 545,694
____________________________________________________________________________________________
Total assets 801,596,506
____________________________________________________________________________________________
Liabilities
____________________________________________________________________________________________
Disbursements in excess of cash on demand deposit 4,753,241
Payable for investment securities purchased 17,817,635
Accrued distribution fee 803
Accrued service fee 14,264
Accrued transfer agency fee 15,230
Accrued administrative services fee 4,684
Other accrued expenses 170,439
Open option contracts written, at value
(premium received $694,114)(Note 6) 563,480
____________________________________________________________________________________________
Total liabilities 23,339,776
____________________________________________________________________________________________
Net assets applicable to outstanding capital stock $778,256,730
____________________________________________________________________________________________
Represented by
____________________________________________________________________________________________
Capital stock -- authorized 10,000,000,000 shares
of $.01 par value; $ 591,533
Additional paid-in capital 561,235,089
Undistributed net investment income 3,966,275
Accumulated net realized gain (Note 1) 141,665,155
Unrealized appreciation (Note 4) 70,798,678
____________________________________________________________________________________________
Total -- representing net assets applicable to
outstanding capital stock $778,256,730
____________________________________________________________________________________________
Net assets applicable to outstanding shares:
Class A $729,768,698
Class B $ 9,927,372
Class Y $ 38,560,660
Net asset value per share of outstanding capital stock:
Class A shares 55,468,404 $ 13.16
Class B shares 756,408 $ 13.12
Class Y shares 2,928,532 $ 13.17
See accompanying notes to financial statements.
/TABLE
<PAGE>
PAGE 14
<TABLE>
<CAPTION>
Financial statements
Statement of operations
IDS Discovery Fund, Inc.
Year ended July 31, 1995
____________________________________________________________________________________________
Investment income
____________________________________________________________________________________________
<S> <C>
Income:
Interest $ 8,237,352
Dividends (net of foreign taxes withheld
of $10,799) 2,223,925
____________________________________________________________________________________________
Total income 10,461,277
____________________________________________________________________________________________
Expenses (Note 2):
Investment management services fee 3,600,724
Distribution fee
Class A 342,543
Class B 12,716
Transfer agency fee 1,370,504
Incremental transfer agency fee - Class B 443
Service fee
Class A 432,564
Class B 2,967
Administrative services fee 144,320
Compensation of directors 10,002
Compensation of officers 7,522
Custodian fees 138,901
Postage 149,226
Registration fees 170,212
Reports to shareholders 67,414
Audit fees 24,500
Administrative 5,906
Other 13,443
____________________________________________________________________________________________
Total expenses 6,493,907
____________________________________________________________________________________________
Investment income -- net 3,967,370
____________________________________________________________________________________________
Realized and unrealized gain -- net
____________________________________________________________________________________________
Net realized gain on security and foreign currency
transactions (including loss of $1,166 from foreign
currency transaction)(Note 3) 123,307,172
Net realized loss on sale of affiliated securities (1,251,561)
Net realized gain on closed stock index futures
contracts (Note 4) 11,039,587
Net realized gain on closed or expired option
contracts written (Note 6) 8,908,223
____________________________________________________________________________________________
Net realized gain on investments and foreign currency 142,003,421
Net change in unrealized appreciation or depreciation 17,500,050
____________________________________________________________________________________________
Net gain on investments and foreign currency 159,503,471
____________________________________________________________________________________________
Net increase in net assets resulting from operations $163,470,378
____________________________________________________________________________________________
See accompanying notes to financial statements.
/TABLE
<PAGE>
PAGE 15
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Discovery Fund, Inc.
Year ended July 31,
____________________________________________________________________________________________
Operations and distributions
1995 1994
____________________________________________________________________________________________
<S> <C> <C>
Investment income (loss) -- net $ 3,967,370 $ (1,970,128)
Net realized gain on investments and
foreign currency 142,003,421 7,782,215
Net change in unrealized appreciation
or depreciation 17,500,050 (38,905,761)
____________________________________________________________________________________________
Net increase (decrease) in net assets
resulting from operations 163,470,84 (33,093,674)
____________________________________________________________________________________________
Distributions to shareholders from:
Net realized gain
Class A (1,459,261) (19,913,775)
____________________________________________________________________________________________
Capital share transactions (Note 5)
____________________________________________________________________________________________
Proceeds from sales
Class A shares (Note 2) 319,261,555 238,713,182
Class B shares 9,122,076 --
Class Y shares 41,198,971 --
Reinvestment of distributions
at net asset value
Class A shares 1,450,495 19,774,404
Payments for redemptions
Class A shares (269,336,702) (127,923,797)
Class B shares (Note 2) (84,493) --
Class Y shares (7,973,466) --
____________________________________________________________________________________________
Increase in net assets from capital
share transactions 93,638,436 130,563,789
____________________________________________________________________________________________
Total increase in net assets 255,650,016 77,556,340
Net assets at beginning of period 522,606,714 445,050,374
____________________________________________________________________________________________
Net assets at end of period (including undistributed net
investment income of $3,966,907 and $0) $778,256,730 $522,606,714
____________________________________________________________________________________________
See accompanying notes to financial statements.
/TABLE
<PAGE>
PAGE 16
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.
The fund offers Class A, Class B and Class Y shares. Class A shares
are sold with a front-end sales charge. Class B shares, which the
fund began offering on March 20, 1995, may be subject to a
contingent deferred sales charge. Class B shares automatically
convert to Class A after eight years. Class Y shares, which the
fund also began offering on March 20, 1995, have no sales charge
and are offered only to qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation
and other rights, and the same terms and conditions, except that
the level of distribution fee, transfer agency fee, and service fee
(class specific expenses) differs among classes. Income, expenses
(other than class specific expenses) and realized and unrealized
gains or losses on investments are allocated to each class of
shares based upon its relative net assets.
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,
including illiquid securities, 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<PAGE>
PAGE 17
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.
Futures transactions
In order to gain exposure to or protect itself from changes in the
market, the fund may buy and sell stock index futures contracts
traded on any U.S. or foreign exchange. The fund also may buy or
write put and call options on these contracts. Risks of entering
into futures contracts and related options include the possibility
that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the
value of the underlying security.
Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount (initial margin)
equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the fund each
day. The variation margin payments are equal to the daily changes
in the contract value and are recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the
contract is closed or expires.
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.<PAGE>
PAGE 18
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, accumulated net realized gain
has been increased by $1,559 and undistributed net investment
income has been decreased by $1,095, resulting in a net
reclassification adjustment to decrease additional paid-in-capital
by $464.
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 a prior agreement that ended March 19, 1995, the
fund paid AEFC a fee for managing its investments, recordkeeping
and other specified services. The fee was 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 was 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<PAGE>
PAGE 19
performance difference is less than 1%, the adjustment will be
zero. The adjustment decreased the fee by $454,430 for the year
ended July 31, 1995.
Also under the terms of a prior agreement, the fund paid AEFC 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 was reduced by earnings on monies
pending shareholder redemptions.
Effective March 20, 1995, when the fund began offering multiple
classes of shares, the fund entered into agreements with AEFC for
managing its portfolio, providing administrative services and
serving as transfer agent as follows: Under its Investment
Management Services Agreement, AEFC determines which securities
will be purchased, held or sold. The management fee is a percentage
of the fund's daily net assets in reducing percentages from 0.64%
to 0.515% annually. Under an Administrative Services Agreement, the
fund pays AEFC for administration and accounting services at a
percentage of the fund's average daily net assets in reducing
percentages from 0.06% to 0.035% annually.
Under a separate Transfer Agency Agreement, AEFC maintains
shareholder accounts and records. The fund pays AEFC an annual fee
per shareholder account for this service as follows:
o Class A $15
o Class B $16
o Class Y $15
Also effective March 20, 1995, the fund entered into agreements
with American Express Financial Advisors Inc. for distribution and
shareholder servicing-related services as follows: Under the Plan
and Agreement of Distribution, the fund pays a distribution fee at
an annual rate of 0.75% of the fund's average daily net assets
attributable to Class B shares for distribution-related services.
Under a Shareholder Service Agreement, the fund pays a fee for
service provided to shareholders by financial advisors and other
servicing agents. The fee is calculated at a rate of 0.175% of the
fund's average daily net assets attributable to Class A and Class B
shares.
AEFC will assume and pay any expenses (except taxes and brokerage
commissions) that exceed the most restrictive applicable state
expense limitation.
Sales charges by American Express Financial Advisors Inc. for
distributing fund shares were $3,248,785 for Class A and $480 for
Class B for the year ended July 31, 1995. The fund also pays
custodian fees to American Express Trust Company, an affiliate of
AEFC.
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<PAGE>
PAGE 20
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 $3,925 for the year ended July 31, 1995.
___________________________________________________________________
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $1,015,781,256 and
$1,133,031,994, respectively, for the year ended July 31, 1995.
Realized gains and losses are determined on an identified cost
basis.
Brokerage commissions paid to brokers affiliated with AEFC were
$220,073 for the year ended July 31, 1995.
Income from securities lending amounted to $48,914 for the year
ended July 31, 1995. 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.
___________________________________________________________________
4. Stock index futures contracts
Investments in securities at July 31, 1995, included securities
valued at $16,650,000 that were pledged as collateral to cover
initial margin deposits on 1,400 purchase contracts. The market
value of the open contracts at July 31, 1995, was $211,650,000 (27%
of the fund's net assets as of July 31, 1995)
with a $12,845,750 unrealized gain. To cover these long futures
positions, the fund maintains short-term securities amounts at
least equal to the market value of the outstanding contracts.
6. Capital share transactions
Transactions in shares of capital stock for the periods indicated
are as follows:
<TABLE>
<CAPTION>
___________________________________________________________________
Period ended July 31, 1995 Year ended
7/31/94
Class A Class B* Class Y* Class A
__________________________________________________________________
<S> <C> <C> <C> <C>
Sold 28,277,355 763,482 3,603,336 20,596,481
Issued for reinvested
distributions 130,627 -- -- 1,654,348
Redeemed (23,508,861) (7,074) (674,804) (10,838,537)
__________________________________________________________________
Net increase 4,899,121 756,408 2,928,532 11,412,292
__________________________________________________________________
*Inception date was March 20, 1995.
/TABLE
<PAGE>
PAGE 21
___________________________________________________________________
6. Option contracts written
The number of contracts and premium amounts associated with options
contracts written is as follows:
<TABLE><CAPTION>
Year ended July 31, 1995
_________________________________________________________________
Puts Calls
_________________________________________________________________
Contracts Premium Contracts Premium
_________________________________________________________________
<S> <C> <C> <C> <C>
July 31, 1994 -- $ -- -- $ --
Opened 135,891 10,636,826 127,377 16,236,671
Closed (73,555) (5,883,970) (75,440) (9,569,977)
Expired (36,970) (2,289,684) (14,248) (763,347)
Exercised (17,616) (2,016,437) (35,039) (5,655,967)
_________________________________________________________________
July 31, 1995 7,750 $ 446,735 2,650 $ 247,380
_________________________________________________________________
</TABLE>
___________________________________________________________________
7. Financial highlights
"Financial highlights" showing per share data and selected
information is presented on page 6 of the prospectus.<PAGE>
PAGE 22
<TABLE>
<CATION>
Investments in securities
IDS Discovery Fund, Inc. (Percentages represent value of
July 31, 1995 investments compared to net assets)
Investments in securities of unaffiliated issuers
__________________________________________________________________________________________
Common stocks (61.5%)
__________________________________________________________________________________________
Issuer Shares Value(a)
___________________________________________________________________________________________
<S> <C> <C>
Banks and savings & loans (0.8%)
Roosevelt Financial 425,000 $ 6,547,656
___________________________________________________________________________________________
Communications equipment (1.4%)
Applied Innovation 75,000 (b) 4,706,250
PairGain Technologies 240,000 (b) 6,360,000
____________
Total 11,066,250
___________________________________________________________________________________________
Computers & office equipment (17.3%)
Broadway & Seymour 375,000 (b) 10,218,750
Exabyte 450,000 (b) 7,143,750
FTP Software 525,000 (b) 15,225,000
Intersolv 375,000 (b) 9,328,125
Intl Imaging Materials 339,000 (b) 7,415,625
Landmark Graphics 250,000 (b) 6,875,000
Manugistics Group 120,300 (b) 1,834,575
Network Peripherals 500,000 (b) 9,750,000
Planar Systems 180,000 (b) 3,780,000
PLATINUM technology 500,000 (b) 12,375,000
Sanmina 225,000 (b) 10,800,000
Sterling Software 375,000 (b) 15,375,000
System Software 500,000 11,125,000
Tech Data 1,000,000 (b) 13,750,000
___________
Total 134,995,825
___________________________________________________________________________________________
Electronics (8.2%)
Credence Systems 150,000 (b) 5,250,000
Elsag Bailey Process Auto N.V. 225,000 (b) 6,103,125
Fusion Systems 255,000 (b) 7,905,000
GaSonics Intl 137,500 (b) 4,675,000
GTI 400,000 (b) 7,100,000
Methode Electronics Cl A 130,000 2,892,500
Micro-chip 225,000 (b,c) 8,662,500
Sterling Electronics 300,000 (b) 5,212,500
Symbol Technologies 200,000 (b) 7,625,000
Zilog 175,000 (b) 8,050,000
____________
Total 63,475,625
___________________________________________________________________________________________
Energy (3.2%)
Devon Energy 350,000 6,868,750
Nuevo Energy 200,000 (b) 4,775,000
Parker & Parsley Petroleum 325,000 6,296,875
Pogo Producing 300,000 6,637,500
____________
Total 24,578,125
___________________________________________________________________________________________
Energy equipment & services (0.9%)
Input/Output 175,000 (b) 7,306,250
___________________________________________________________________________________________
Health care (1.8%)
Sunrise Medical 250,000 (b) 6,843,750
Ventritex 425,000 (b) 6,773,437
____________
Total 13,617,187
___________________________________________________________________________________________
Health care services (6.8%)
Community Health Systems 225,000 (b) 8,831,250
Horizon Healthcare 900,000 (b,c) 20,362,500
Mid Atlantic Medical Services 875,000 (b) 17,171,875
Sierra Health Services 250,000 (b) 6,625,000
____________
Total 52,990,625<PAGE>
PAGE 23
___________________________________________________________________________________________
Industrial equipment & services (5.6%)
ADFlex Solutions 175,000 (b) 4,900,000
Cincinnati Milacron 525,000 (h) 16,406,250
Greenfield Industies 200,000 5,850,000
Stewart & Stevenson 425,000 16,203,125
____________
Total 43,359,375
___________________________________________________________________________________________
Industrial transportation (4.1%)
Landstar System 175,000 (b) 5,250,000
TNT Freightways 325,000 7,150,000
Wabash Natl 500,000 (c) 19,812,500
____________
Total 32,212,500
___________________________________________________________________________________________
Insurance (2.6%)
HCC Insurance Holdings 200,000 (b) 5,500,000
NAC Re 268,500 9,867,375
PXRE 175,000 4,528,125
____________
Total 19,895,500
___________________________________________________________________________________________
Metals (1.7%)
Birmingham Steel 489,200 9,539,400
Stillwater Mining 150,000 (b) 3,750,000
____________
Total 13,289,400
___________________________________________________________________________________________
Paper & packaging (1.2%)
Shorewood Packaging 534,200 (b) 9,348,500
___________________________________________________________________________________________
Restaurants & lodging (0.8%)
Red Lion Inns LP 282,000 (b) 5,992,500
___________________________________________________________________________________________
Retail (2.7%)
Best Buy 500,000 (h) 13,000,000
Gymboree 250,000 (b) 7,718,750
____________
Total 20,718,750
___________________________________________________________________________________________
Utilities - electric (0.8%)
KENETECH 550,000 (b) 6,600,000
___________________________________________________________________________________________
Utilities - telephone (0.7%)
Intermedia Communications of Florida 325,000 (b) 5,159,375
___________________________________________________________________________________________
Foreign (0.9%)
Sceptre Resources 1,200,000 (b,d) 7,228,916
___________________________________________________________________________________________
Total common stocks
(Cost: $422,116,792) $478,382,359
___________________________________________________________________________________________
Bonds (2.8%)
___________________________________________________________________________________________
Issuer and
coupon rate Principal Value(a)
amount
___________________________________________________________________________________________
Banco Nacional de Mexico Euro
(U.S. Dollar)
7% Cv 1999 $ 5,000,000 (d,e) $ 4,000,000
7% Cv 1999 10,000,000 (d,e) 7,925,000
Boston Chicken
4.5% Cv 2004 10,000,000 10,000,000
___________________________________________________________________________________________
Total bonds
(Cost: $18,914,636) $ 21,925,000
___________________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 24
<TABLE>
<CAPTION>
Options purchased (0.6%)
_________________________________________________________________________________________
Issuer Number Exercise Expiration Value(a)
of contracts price date
__________________________________________________________________________________________
<S> <C> <C> <C> <C>
Put
Atmel 1,750 $35 Aug. 95 $ 16,406
Informix 3,000 15 Aug. 95 18,750
Russell 7,000 90 Dec. 95 4,506,250
Silicon Graphics 1,750 30 Aug. 95 10,938
Zilog 1,750 30 Sep. 95 10,937
__________________________________________________________________________________________
Total options purchased
(Cost: $6,497,683) $ 4,563,281
__________________________________________________________________________________________
Short-term securities (35.5%)
__________________________________________________________________________________________
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
___________________________________________________________________________________________
U.S. government agencies (1.9%)
Federal Home Loan Bank
Disc Note
08-04-95 5.77% $10,000,000 $ 9,995,208
Federal Home Loan Mtge Corp
Disc Note
08-21-95 5.68 5,000,000 4,984,305
Federal Natl Mtge Assn
Disc Note
08-08-95 5.68 200,000 199,780
_____________
Total 15,179,293
___________________________________________________________________________________________
Certificates of deposit (2.0%)
NBD Bank
09-29-95 5.70 6,200,000 6,199,387
Wachovia Bank
08-21-95 5.75 9,000,000 9,000,000
____________
Total 15,199,387
___________________________________________________________________________________________
Commercial paper (31.3%)
A.I. Credit
08-24-95 5.75 5,500,000 5,479,901
American General
08-22-95 5.74 2,400,000 2,392,020
Aon
09-22-95 5.74 4,800,000 4,757,919
Barclays US Funding
08-18-95 5.76 10,000,000 9,972,989
Bayshore Fuel
08-08-95 5.99 1,600,000 1,598,149
Cafco
08-11-95 5.98 3,000,000 (f) 2,995,058
08-23-95 5.74 3,500,000 3,487,808
09-12-95 5.71 4,800,000 4,765,703
Cargill
08-16-95 5.76 2,900,000 (f) 2,893,076
09-05-95 5.75 1,600,000 1,591,133
Ciesco LP
08-25-95 5.74 3,400,000 3,387,080
Coca-Cola
08-03-95 6.01 700,000 699,747
Colgate Palmolive
08-04-95 6.01 3,300,000 (f) 3,298,358
Commerzbank US Finance
08-17-95 5.77 13,900,000 13,864,539
Deutsche Bank Financial
09-11-95 5.74 8,000,000 7,944,210
Dresdner US Finance
08-14-95 5.75 7,200,000 7,185,128
<PAGE>
PAGE 25
Household Finance
08-30-95 5.76 6,800,000 6,768,667
09-08-95 5.77 5,000,000 4,969,758
Illinois Tool Works
08-22-95 5.76 5,000,000 4,983,287
Lilly (Eli)
10-13-95 5.70 7,500,000 7,409,813
Lincoln Natl
08-10-95 5.77 7,300,000 (f) 7,289,524
Metlife Funding
08-07-95 5.97 5,500,000 5,493,730
Mobil Australia
Finance (Delaware)
08-31-95 5.74 600,000 (f) 597,155
Motorola
08-10-95 5.72 7,100,000 7,089,883
Natl Australia
Funding (Delaware)
08-09-95 5.75 4,900,000 4,893,772
09-15-95 5.76 7,500,000 7,446,422
Norfolk Southern
08-23-95 5.74 8,000,000 (f) 7,972,133
PACCAR Financial
08-01-95 5.73 4,200,000 4,200,000
09-18-95 5.92 3,200,000 3,173,399
Penney (JC) Funding
09-07-95 5.76 7,500,000 7,455,908
Pfizer
08-08-95 6.00 4,400,000 (f) 4,394,901
Reed Elsevier
08-14-95 5.75 6,500,000 (f) 6,486,574
08-15-95 5.75 8,500,000 (f) 8,481,092
08-18-95 5.75 3,400,000 (f) 3,390,816
Rohm & Haas Finance
08-09-95 5.96 900,000 898,814
08-31-95 5.84 3,200,000 3,182,555
St. Paul Companies
08-21-95 5.75 1,700,000 (f) 1,694,607
Siemens
08-17-95 5.73 6,600,000 6,583,280
Societe Generale North Amer
08-25-95 5.94 4,000,000 3,984,320
Southwestern Bell Capital
10-05-95 5.68 4,000,000 (f) 3,957,100
Toyota Motor Credit
08-16-95 5.73 6,500,000 6,484,563
08-17-95 5.74 3,100,000 3,092,133
Transamerica Finance
08-21-95 5.76 9,600,000 9,569,440
US WEST Communications
08-07-95 5.99 3,000,000 2,996,622
09-20-95 5.97 6,100,000 6,048,465
USL Capital
08-24-95 5.76 5,900,000 5,878,439
Wachovia Bank
08-02-95 5.98 10,100,000 10,100,000
____________
Total 243,279,990
___________________________________________________________________________________________
Letter of credit (0.3%)
First Chicago-
Commed Fuel
09-18-95 5.74 2,523,000 2,502,455
___________________________________________________________________________________________
Total short-term securities
(Cost: $276,186,623) $276,161,125
___________________________________________________________________________________________
Total investments in securities of unaffiliated issuers
(Cost: $723,715,734) $781,031,765
___________________________________________________________________________________________
/TABLE
<PAGE>
PAGE 26
<TABLE>
<CAPTION>
Investments in securities of affiliated issuers (g)
__________________________________________________________________________________________
Common stocks (1.9%)
___________________________________________________________________________________________
Issuer Shares Value(a)
___________________________________________________________________________________________
<S> <C> <C>
Applied Voice Technology 525,000 (b) 7,612,500
Renaissance Solutions 425,000 (b) 7,118,750
___________________________________________________________________________________________
Total investments in securities of affiliated issuers
(Cost: $14,224,987) $ 14,731,250
___________________________________________________________________________________________
Total investments in securities
(Cost: $737,940,721)(i) $795,763,015
___________________________________________________________________________________________
</TABLE>
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) At July 31, 1995, securities valued at $8,036,250 were held to
cover open call options written as follows:
Issuer Number of Exercise Expiration Value(a)
contracts price date
________________________________________________________________
Horizon Healthcare 1,400 $22 Aug. 1995 $108,080
Micro-chip 750 40 Aug. 1995 89,775
Wabash Natl 500 40 Aug. 1995 26,563
________
Total $224,418
At July 31, 1995, cash or short-term securities were designated to
cover open put options written as follows:
Issuer Number of Exercise Expiration Value(a)
contracts price date
_________________________________________________________________
AnnTaylor Stores 2,000 $17 Aug. 1995 $ 75,000
Exabyte 2,000 12 Aug. 1995 18,750
FINOVA Group 1,000 35 Aug. 1995 18,750
Fusion Systems 1,000 30 Aug. 1995 100,000
Landstar System 750 30 Aug. 1995 65,625
Network Peripherals 500 17 Aug. 1995 25,000
PairGain Technologies 500 25 Aug. 1995 35,937
________
Total $339,062
(d) Foreign security values are stated in U.S. dollars. For debt
securities, principal amounts are denominated in the currency
indicated.
(e) Represents a security sold under 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.
<PAGE>
PAGE 27
(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) Investments representing 5% or more of the outstanding voting
securities of the issuer.
(h) Partially pledged as initial margin deposit on the following
open stock index futures purchase contracts. (See Note 4 to the
financial statements):
Type of Security Contracts
________________ _________
Russell 2000, Sept. 1995 1,000
Russell 2000, Dec. 1995 400
(i) At July 31, 1995, the cost of securities for federal income tax
purposes was $738,490,166 and the aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $67,704,896
Unrealized depreciation (10,432,047)
_____________________________________________
Net unrealized appreciation $57,272,849
_____________________________________________
<PAGE>
PAGE 28
IDS mutual funds
Cash equivalent investments
These money market funds have three main goals: conservation 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
seek 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 seek
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 29
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
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
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
<PAGE>
PAGE 30
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 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 Select 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
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities
purchased are those recommended by our 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 in common stock of companies representing many sectors of
the economy. Seeks current income and growth of capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential
for growth of capital and income.
(icon of) three growing flowers
<PAGE>
PAGE 31
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek
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.
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 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
<PAGE>
PAGE 32
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.
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 advisor or writing to American Express Shareholder
Service, P.O. Box 534, Minneapolis, MN 55440-0534. Read it
carefully before you invest or send money.
<PAGE>
PAGE 33
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, 1995
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 30, 1994 $0.02507
Total distribution $0.02507
<PAGE>
PAGE 34
Quick telephone reference
American Express 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
American Express Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
American Express 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
AMERICAN
EXPRESS
FINANCIAL
ADVISORS
IDS Discovery Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
PAGE 35
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.
