<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. __
Post-Effective Amendment No. 28 (File No. 2-72174) /X/
and/or
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 28 (File No. 811-3178) /X/
------------------------
IDS DISCOVERY FUND, INC.
IDS Tower 10, Minneapolis, Minnesota 55440-0010
Leslie L. Ogg
901 S. Marquette Ave., Suite 2810
Minneapolis, MN 55402-3268
(612) 330-9283
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/X/ on March 20, 1995 pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
/ / This Post-Effective Amendment designates a new effective
date for a previously filed Post-Effective Amendment.
------------------------
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OR AMOUNT OF SECURITIES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION 24F OF THE INVESTMENT COMPANY ACT OF
1940. REGISTRANT'S RULE 24F-2 NOTICE FOR ITS MOST RECENT FISCAL YEAR WAS FILED
ON OR ABOUT SEPT. 28, 1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
SHOWING LOCATION IN THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION OF
THE INFORMATION CALLED FOR BY THE ITEMS ENUMERATED IN PARTS A AND B OF FORM
N-1A.
Negative answers omitted from prospectus are so indicated.
<TABLE>
<CAPTION>
PART A
- ---------------------------------------
PAGE NUMBER IN
ITEM NO. PROSPECTUS
- ---------------- ---------------------
<S> <C>
1 3
2 5-8
3(a) 9
(b) NA
(c) 10
(d) 9
4(a) 5-8;12-16;34-38
(b) 12-16
(c) 12-16
5(a) 35
(b) 34-39
(b)(i) 39
(b)(ii) 36-37
(b)(iii) 36-37
(c) 6
(d) 5-6
(e) 36-37
(f) 37-38
(g) 36-37
5A(a) *
(b) *
6(a) 34
(b) NA
(c) NA
(d) 34
(e) 3;30
(f) 31
(g) 32-33
7(a) 37-38
(b) 10-11;16
(c) 17
(d) 21
(e) NA
(f) 37-38
8(a) 22-24
(b) NA
(c) 21
(d) 24
9 None
<CAPTION>
PART B
- ---------------------------------------
PAGE NUMBER IN
STATEMENT OF
ADDITIONAL
ITEM NO. INFORMATION
- ---------------- ---------------------
<S> <C>
10 42
11 43
12 NA
13(a) 44-46,67-81
(b) 44-46
(c) 45-46
(d) 48
14(a) 35**,62-66
(b) 62-66
(c) 66
15(a) NA
(b) NA
(c) 66
16(a)(i) 39**
(a)(ii) 59-62
(a)(iii) 59-60
(b) 59-62
(c) NA
(d) None
(e) NA
(f) 61-62
(g) NA
(h) 66
(i) 60-61;66
17(a) 46-48
(b) 49
(c) 46-48
(d) 48
(e) 48
18(a) 34**
(b) NA
19(a) 52-56
(b) 50-56
(c) NA
20 58-59
21(a) 61
(b) 61
(c) NA
22(a) NA
(b) 49-50
23 NA
<FN>
*Designates information is located in annual report.
**Designates page number in prospectus.
</TABLE>
<PAGE>
This prospectus IDS
contains facts that can DISCOVERY
help you decide if the FUND
fund is the right
investment for you. PROSPECTUS
Read it before you SEPT. 29, 1994
invest and keep it for AS REVISED MARCH 20,
future reference. 1995
Additional facts about [GRAPHIC]
the fund are in a
Statement of Additional THE GOAL OF IDS
Information (SAI), DISCOVERY FUND, INC. IS
filed with the LONG-TERM GROWTH OF
Securities and Exchange CAPITAL. THE FUND
Commission. The SAI, INVESTS PRIMARILY IN
dated Sept. 29, 1994 as COMMON STOCKS OF SMALL-
revised March 20, 1995, AND MEDIUM-SIZE GROWTH
is incorporated here by COMPANIES.
reference. For a free
copy, contact American American Express
Express Shareholder Shareholder Service
Service. P.O. Box 534
Minneapolis, MN
THESE SECURITIES HAVE 55440-0534
NOT BEEN APPROVED OR 612-671-3733
DISAPPROVED BY THE TTY: 800-846-4852
SECURITIES AND EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE COMMISSION
OR ANY STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY OR
ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES IN THE FUND
ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR
GUARANTEED OR
ENDORSED BY, ANY
BANK, AND SHARES ARE
NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION,
THE FEDERAL RESERVE
BOARD, OR ANY
OTHER AGENCY.
<PAGE>
- ------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
- ------------------------------------------
THE FUND IN BRIEF
Goal
Types of fund investments
Manager and distributor
Portfolio manager
Alternative sales arrangements
- ------------------------------------------
SALES CHARGE AND FUND EXPENSES
Sales charge
Operating expenses
- ------------------------------------------
PERFORMANCE
Financial highlights
Total returns
Key terms
- ------------------------------------------
INVESTMENT POLICIES AND RISKS
Facts about investments and their
risks
Alternative investment option
Valuing assets
- ------------------------------------------
HOW TO BUY, EXCHANGE OR SELL SHARES
Alternative sales arrangements
How to buy shares
How to exchange shares
How to sell shares
Reductions of the sales charge
Waivers of the sales charge
- ------------------------------------------
SPECIAL SHAREHOLDER SERVICES
Services
Quick telephone reference
- ------------------------------------------
DISTRIBUTIONS AND TAXES
Dividend and capital gain
distributions
Reinvestments
Taxes
- ------------------------------------------
HOW THE FUND IS ORGANIZED
Shares
Voting rights
Shareholder meetings
Directors and officers of the fund
Investment manager and transfer
agent
Distributor
- ------------------------------------------
ABOUT AMERICAN EXPRESS FINANCIAL CORPORATION
General information
- ------------------------------------------
APPENDIX
Descriptions of derivative
instruments
</TABLE>
2P
<PAGE>
The fund in brief
GOAL
IDS Discovery Fund seeks to provide shareholders with long-term
growth of capital. Because any investment involves risk,
achieving this goal cannot be guaranteed. Only shareholders can
change the goal.
TYPES OF FUND INVESTMENTS
The fund is a diversified mutual fund that invests primarily in
common stocks of small- and medium-size growth companies. Many
are in businesses involving technological innovation or
experiencing rapidly improving productivity.
Stocks of smaller, growing companies historically have provided
higher returns to investors than stocks of larger, established
companies. But their prices have fluctuated more. Therefore, the
fund is appropriate for long-term investors who are comfortable
with a relatively high degree of short-term price variability and
investment risk.
MANAGER AND DISTRIBUTOR
The fund is managed by American Express Financial Corporation, a
provider of financial services since 1894. American Express
Financial Corporation currently manages more than $37 billion in
assets for the IDS MUTUAL FUND GROUP. Shares of the fund are sold
through American Express Financial Advisors Inc., a wholly
owned subsidiary of American Express Financial Corporation.
3P
<PAGE>
The fund in brief
PORTFOLIO MANAGER
Kurt Winters joined American Express Financial Corporation in
1987 and serves as portfolio manager. He was appointed to manage
the fund in January 1995. From 1992 to 1995, he managed IDS Life
Series Managed Portfolio. Prior to joining the Growth Income Team
as associate manager in 1991, he served as an American Express
Financial Corporation stock analyst.
ALTERNATIVE SALES ARRANGEMENTS
The fund offers its shares in three classes. Class A shares are
subject to a sales charge at the time of purchase. Class B shares
are subject to a contingent deferred sales charge (CDSC) on
redemptions made within six years of purchase and an annual
distribution (12b-1) fee. Class Y shares are sold without a sales
charge to qualifying institutional investors. Other differences
between the classes include the fees paid by each class. The fund
offers these alternatives so you may choose the method of
purchasing shares that is most beneficial given the amount of
purchase, length of time you expect to hold the shares and other
circumstances.
4P
<PAGE>
Sales charge and fund expenses
When you buy Class A shares, you pay a maximum sales charge of 5%
of the public offering price. This charge can be reduced,
depending on your total investments in IDS funds. See "Reductions
of the sales charge." No sales charge applies at the time of
purchase of Class B shares, although Class B shares may be
subject to a CDSC on redemptions made within 6 years and are
subject to annual distribution (12b-1) fees. Class Y shares are
sold without a sales charge to qualifying institutional
investors. Shareholder transaction expenses are incurred directly
by an investor on the purchase or redemption of fund shares. Fund
operating expenses are paid out of fund assets for each class of
shares. Operating expenses are reflected in the fund's daily
share price and dividends, and are not charged directly to
shareholder accounts.
-------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS Y
<S> <C> <C> <C>
Maximum sales charge on
purchases (as a percentage of
offering price)............... 5% 0% 0%
Maximum deferred sales charge
imposed on redemptions (as a
percentage of original
purchase price)............... 0% 5% 0%
-----------------------------------------------------------
</TABLE>
-------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES*
(% OF AVERAGE DAILY NET ASSETS):
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS Y
<S> <C> <C> <C>
-----------------------------------------------------------
Management fee............... 0.63% 0.63% 0.63%
-----------------------------------------------------------
12b-1 fee.................... 0.00% 0.75% 0.00%
-----------------------------------------------------------
Other expenses**............. 0.48% 0.49% 0.31%
-----------------------------------------------------------
Total........................ 1.11% 1.87% 0.94%
<FN>
* Expenses for Class A are based on actual expenses for the
last fiscal year, restated to reflect current fees. Expenses
for Class B and Class Y are estimated based on the restated
expenses for Class A, except that the 12b-1 fee for Class B
is based on the Plan and Agreement of Distribution for that
class.
** Other expenses include an administrative services fee, a
shareholder services fee, and a transfer agent fee.
</TABLE>
5P
<PAGE>
Sales charge and fund expenses
EXAMPLE: Suppose for each year for the next 10 years, fund
expenses are as above and annual return is 5%. If you sold your
shares at the end of the following years, for each $1,000
invested, you would pay total expenses of:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years**
<S> <C> <C> <C> <C>
------------------------------------------------------------------------
Class A...................... $61 $84 $108 $179
------------------------------------------------------------------------
Class B...................... $69 $99 $121 $200
------------------------------------------------------------------------
Class B*..................... $19 $59 $101 $200
------------------------------------------------------------------------
Class Y...................... $10 $30 $52 $116
<FN>
*Assuming Class B shares are not redeemed at the end of the
period.
**Based on conversion of Class B shares to Class A shares after
8 years.
</TABLE>
THIS EXAMPLE DOES NOT REPRESENT ACTUAL EXPENSES, PAST OR FUTURE.
ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN. Because
Class B pays annual distribution (12b-1) fees, long-term
shareholders of Class B may indirectly pay an equivalent of more
than a 6.25% sales charge, the maximum permitted by the National
Association of Securities Dealers.
6P
<PAGE>
Performance
FINANCIAL HIGHLIGHTS
FISCAL YEAR ENDED JULY 31,
- --------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES*
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------
Net asset value, $11.37 $9.87 $9.58 $9.05 $7.75 $6.69 $7.99 $7.63 $6.72 $5.96
beginning of year
INCOME FROM INVESTMENT OPERATIONS:
------------------------------------------------------------------------------------------------------------
Net investment (.04) (.02) (.01) .04 .14 .13 .11 .07 .09 .11
income (loss)
------------------------------------------------------------------------------------------------------------
Net gains (losses) (.52) 1.75 1.01 1.03 1.35 .98 (1.04) 1.21 1.41 .88
on securities (both
realized and
unrealized)
------------------------------------------------------------------------------------------------------------
Total from (.56) 1.73 1.00 1.07 1.49 1.11 (.93) 1.28 1.50 .99
investment
operations
LESS DISTRIBUTIONS:
------------------------------------------------------------------------------------------------------------
Dividends from net -- -- (.02) (.11) (.14) (.05) (.10) (.07) (.09) (.11)
investment income
------------------------------------------------------------------------------------------------------------
Distributions from (.48) (.23) (.69) (.43) (.05) -- (.27) (.85) (.50) (.12)
realized gains
------------------------------------------------------------------------------------------------------------
Total distributions (.48) (.23) (.71) (.54) (.19) (.05) (.37) (.92) (.59) (.23)
------------------------------------------------------------------------------------------------------------
Net asset value, end $10.33 $11.37 $9.87 $9.58 $9.05 $7.75 $6.69 $7.99 $7.63 $6.72
of year
</TABLE>
- --------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------
Net assets, end of $523 $445 $293 $207 $168 $167 $182 $257 $297 $288
year (in millions)
------------------------------------------------------------------------------------------------------------
Ratio of expenses to .97% 1.03% 1.04% .98% .76% .66% .63% .67% .70% .81%
average daily net
assets
------------------------------------------------------------------------------------------------------------
Ratio of net income (.39%) (.17%) (.11%) .40% 1.51% 1.86% 1.49% .71% 1.07% 1.50%
(loss) to average
daily net assets
------------------------------------------------------------------------------------------------------------
Portfolio turnover 67% 76% 90% 95% 76% 109% 61% 33% 63% 52%
rate
(excluding
short-term
securities)
------------------------------------------------------------------------------------------------------------
Total return** (5.5%) 17.5% 9.9% 13.4% 19.8% 16.7% (10.9%) 16.8% 22.3% 16.7%
<FN>
* For a share outstanding throughout the year. Rounded to the
nearest cent.
** Total return does not reflect payment of a sales charge.
</TABLE>
The information in this table has been audited by KPMG Peat
Marwick LLP, independent auditors. The independent auditors'
report and additional information about the performance of the
fund are contained in the fund's annual report which, if not
included with this prospectus, may be obtained without charge.
Information on Class B and Class Y shares is not included because
no shares of those classes were outstanding for the periods
shown.
7P
<PAGE>
Performance
TOTAL RETURNS
-------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF JULY 31, 1994
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
PURCHASE MADE AGO AGO AGO
<S> <C> <C> <C>
Discovery:
------------------------------------------------------------
Class A -10.24% +9.52% +10.56%
------------------------------------------------------------
S&P 500 +5.16% +9.15% +15.63%
------------------------------------------------------------
Lipper Small Co. Growth Fund
Index +3.28% +10.07% +12.23%
</TABLE>
-------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
AS OF JULY 31, 1994
<TABLE>
<CAPTION>
10
1 YEAR 5 YEARS YEARS
PURCHASE MADE AGO AGO AGO
<S> <C> <C> <C>
Discovery:
-----------------------------------------------------------
Class A -10.24% +57.52% +172.82%
-----------------------------------------------------------
S&P 500 +5.16% +54.86% +327.26%
-----------------------------------------------------------
Lipper Small Co. Growth Fund
Index +3.28% +61.58% +216.98%
</TABLE>
These examples show total returns from hypothetical investments
in Class A shares of the fund. These returns are compared to
those of popular indexes for the same periods. No shares for
Class B and Class Y were outstanding during the periods
presented.
For purposes of calculation, information about the fund assumes:
- a sales charge of 5% for Class A shares
- no adjustments for taxes an investor may have paid on the
reinvested income and capital gains
- a period of widely fluctuating securities prices. Returns shown
should not be considered a representation of the fund's future
performance.
The fund includes primarily common stocks that may be different
from those in the indexes. The indexes reflect reinvestment of
all distributions and changes in market prices, but exclude
brokerage commissions or other fees.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of
common stocks, is frequently used as a general measure of market
performance. However, the S&P 500 companies are generally larger
than those in which the fund invests.
Lipper Small Company Growth Fund Index, published by Lipper
Analytical Services, Inc., includes 30 funds that are generally
similar to the fund, although some funds in the index may have
somewhat different investment policies or objectives.
8P
<PAGE>
-------------------------------------------------------------
KEY TERMS
NET ASSET VALUE (NAV)
Value of a single fund share. For each class, it is the total
market value of all of a fund's investments and other assets
attributable to that class, less any liabilities attributable to
that class, divided by the number of shares of that class
outstanding.
When you buy shares, you pay the NAV plus any applicable sales
charge. When you sell shares, the price you receive is the NAV
minus any applicable sales charge. The NAV usually changes daily,
and is calculated at the close of business, normally 3 p.m.
Central time, each business day (any day the New York Stock
Exchange is open).
PUBLIC OFFERING PRICE
Price at which you buy shares. It is the NAV plus the sales
charge for Class A. It is the NAV for Class B and Class Y. NAVs
and public offering prices of IDS funds are listed each day in
major newspapers and financial publications.
INVESTMENT INCOME
Dividends and interest earned on securities held by the fund.
CAPITAL GAINS OR LOSSES
Increase or decrease in value of the securities the fund holds.
Gains or losses are realized when securities that have increased
or decreased in value are sold. A fund also may have unrealized
gains or losses when securities increase or decrease in value but
are not sold.
DISTRIBUTIONS
Payments to shareholders of two types: investment income
(dividends) and realized net long-term capital gains (capital
gains distributions).
TOTAL RETURN
Sum of all of your returns for a given period, assuming you
reinvest all distributions. Calculated by taking the total value
of shares you own at the end of the period (including shares
acquired by reinvestment), less the price of shares you purchased
at the beginning of the period.
AVERAGE ANNUAL TOTAL RETURN
The annually compounded rate of return over a given time period
(usually two or more years) -- total return for the period
converted to an equivalent annual figure.
9P
<PAGE>
Investment policies and risks
The fund invests primarily in common stocks of U.S. and foreign
small- and medium-size growth companies. Many of these companies
emphasize technological innovation or productivity improvements.
The fund invests in common stock and debt securities of large,
well-established companies when the portfolio manager believes
such investments offer the best opportunity for capital growth.
The fund also uses derivative instruments and money market
instruments.
The various types of investments the portfolio manager uses to
achieve investment performance are described in more detail in
the next section and in the SAI.
FACTS ABOUT INVESTMENTS AND THEIR RISKS
COMMON STOCKS: Stock prices are subject to market fluctuations.
Stocks of smaller companies may be subject to more abrupt or
erratic price movements than stocks of larger, established
companies or the stock market as a whole. Also, small companies
often have limited product lines, smaller markets or fewer
financial resources. Therefore, some of the securities in which
the fund invests involve substantial risk and may be considered
speculative.
DEBT SECURITIES: The price of an investment-grade bond fluctuates
as interest rates change or if its credit rating is upgraded or
downgraded. Prices of bonds below investment grade may react more
to the ability of the issuing company to pay interest and
principal when due. These bonds have greater price fluctuations
and are more likely to experience a default.
10P
<PAGE>
FOREIGN INVESTMENTS: Securities of foreign companies and
governments may be traded in the United States, but often they
are traded only on foreign markets. Frequently, there is less
information about foreign companies and less government
supervision of foreign markets. Foreign investments are subject
to political and economic risks of the countries in which the
investments are made, including the possibility of seizure or
nationalization of companies, imposition of withholding taxes on
income, establishment of exchange controls or adoption of other
restrictions that might affect an investment adversely. If an
investment is made in a foreign market, the local currency must
be purchased. This is done by using a forward contract in which
the price of the foreign currency in U.S. dollars is established
on the date the trade is made, but delivery of the currency is
not made until the securities are received. As long as the fund
holds foreign currencies or securities valued in foreign
currencies, the price of a fund share will be affected by changes
in the value of the currencies relative to the U.S. dollar.
Because of the limited trading volume in some foreign markets,
efforts to buy or sell a security may change the price of the
security, and it may be difficult to complete the transaction.
The fund may invest up to 25% of its total assets in foreign
investments.
11P
<PAGE>
Investment policies and risks
DERIVATIVE INSTRUMENTS: The portfolio manager may use derivative
instruments in addition to securities to achieve investment
performance. Derivative instruments include futures, options and
forward contracts. Such instruments may be used to maintain cash
reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to
reduce transaction costs, or to pursue higher investment returns.
Derivative instruments are characterized by requiring little or
no initial payment and a daily change in price based on or
derived from a security, a currency, a group of securities or
currencies, or an index. A number of strategies or combination of
instruments can be used to achieve the desired investment
performance characteristics. A small change in the value of the
underlying security, currency or index will cause a sizable gain
or loss in the price of the derivative instrument. Derivative
instruments allow the portfolio manager to change the investment
performance characteristics very quickly and at lower costs.
Risks include losses of premiums, rapid changes in prices,
defaults by other parties, and inability to close such
instruments. The fund will use derivative instruments only to
achieve the same investment performance characteristics it could
achieve by directly holding those securities and currencies
permitted under the investment policies. The fund will designate
cash or appropriate liquid assets to cover its portfolio
obligations. No more than 5% of the fund's net assets can be used
at any one time for good faith deposits on futures and premiums
for options on futures that do not offset existing investment
positions. For further information, see the Appendix to this
prospectus.
12P
<PAGE>
SECURITIES AND DERIVATIVE INSTRUMENTS THAT ARE ILLIQUID: Illiquid
means the security or derivative instrument cannot be sold
quickly in the normal course of business. Some investments cannot
be resold to the U.S. public because of their terms or government
regulations. All securities and derivative instruments, however,
can be sold in private sales, and many may be sold to other
institutions and qualified buyers or on foreign markets. The
portfolio manager will follow guidelines established by the board
of directors and consider relevant factors such as the nature of
the security and the number of likely buyers when determining
whether a security is illiquid. No more than 10% of the fund's
net assets will be held in securities and derivative instruments
that are illiquid.
MONEY MARKET INSTRUMENTS: Short-term debt securities rated in the
top two grades are used to meet daily cash needs and at various
times to hold assets until better investment opportunities arise.
Generally less than 25% of the fund's total assets are in these
money market instruments. However, for temporary defensive
purposes these investments could exceed that amount for a limited
period of time.
The investment policies described above may be changed by the
board of directors.
LENDING PORTFOLIO SECURITIES: The fund may lend its securities to
earn income so long as borrowers provide collateral equal to the
market value of the loans. The risks are that borrowers will not
provide collateral when required or return securities when due.
Unless shareholders approve otherwise, loans may not exceed 30%
of the fund's net assets.
13P
<PAGE>
Investment policies and risks
ALTERNATIVE INVESTMENT OPTION
In the future, the board of the fund may determine for operating
efficiencies to use a master/feeder structure. Under that
structure, the fund's investment portfolio would be managed by
another investment company with the same goal as the fund, rather
than investing directly in a portfolio of securities.
VALUING ASSETS
- Securities (except bonds) and assets with available market
values are valued on that basis.
- Securities maturing in 60 days or less are valued at amortized
cost.
- Bonds and assets without readily available market values are
valued according to methods selected in good faith by the board
of directors.
14P
<PAGE>
How to buy, exchange or sell shares
HOW TO BUY SHARES -- ALTERNATIVE SALES ARRANGEMENTS
The fund offers three different classes of shares -- Class A,
Class B and Class Y. The primary differences among the classes
are in the sales charge structures and in their ongoing expenses.
These differences are summarized in the table below. You may
choose the class that best suits your circumstances and
objectives.
<TABLE>
<CAPTION>
SERVICE FEE
SALES CHARGE AND DISTRIBUTION (AS A % OF AVERAGE
(12B-1) FEE DAILY NET ASSETS) OTHER INFORMATION
<S> <C> <C> <C>
----------------------------------------------------------
Class A Maximum initial sales charge Service fee of 0.175% Initial sales charge waived or
of 5% reduced for certain purchases
----------------------------------------------------------
Class B No initial sales charge; Service fee of 0.175% Shares convert to Class A
distribution fee of 0.75% of after 8 years; CDSC waived in
daily net assets; maximum CDSC certain circumstances
of 5%, declines to 0% after 6
years
----------------------------------------------------------
Class Y None None Available only to certain
qualifying institutional
investors
</TABLE>
CONVERSION OF CLASS B SHARES TO CLASS A SHARES -- Eight calendar
years after Class B shares were originally purchased, Class B
shares will convert to Class A shares and will no longer be
subject to a distribution fee. The conversion will be on the
basis of relative net asset values of the two classes, without
the imposition of any sales charge. Class B shares purchased
through reinvested dividends and distributions will convert to
Class A shares in a pro-rata portion as the Class B shares
purchased other than through reinvestment.
15P
<PAGE>
How to buy, exchange or sell shares
CONSIDERATIONS IN DETERMINING WHETHER TO PURCHASE CLASS A OR CLASS B
SHARES -- You should consider the information below in determining whether to
purchase Class A or Class B shares.
SALES CHARGES ON PURCHASE OR REDEMPTION
IF YOU PURCHASE CLASS A SHARES IF YOU PURCHASE CLASS B SHARES
- - You will not have all of your purchase - All of your money is invested in
price invested. Part of your purchase shares of stock. However, you
price will go to pay the sales charge. will pay a sales charge if you
You will not pay a sales charge when redeem your shares within 6 years
you redeem your shares. of purchase.
- - You will be able to take advantage of - No reductions of the sales charge
reductions in the sales charge. If are available for large
your investments in IDS funds total purchases.
$250,000 or more, you are better off
paying the reduced sales charge in
Class A than paying the higher fees in
Class B. If you qualify for a waiver
of the sales charge, you should
purchase Class A shares.
- - The sales charges and distribution fee are structured so that you will have
approximately the same total return at the end of 8 years regardless of which
class you chose.
ONGOING EXPENSES
- - Your shares will have a lower expense - The distribution and transfer
ratio than Class B shares because agent fees for Class B will cause
Class A does not pay a distribution your shares to have a higher
fee and the transfer agent fee for expense ratio and to pay lower
Class A is lower than the fee for dividends than Class A shares.
Class B. As a result, Class A shares After 8 years, Class B shares
will pay higher dividends than Class B will convert to Class A shares
shares. and will no longer be subject to
higher fees.
You should consider how long you plan to hold your shares and whether the
accumulated higher fees and CDSC on Class B shares prior to conversion would be
less than the initial sales charge on Class A shares. Also consider to what
extent the difference would be offset by the lower expenses on Class A shares.
To help you in this analysis, the Example in the "Sales charge and fund
expenses" section of the prospectus illustrates the charges applicable to each
class of shares.
16P
<PAGE>
CLASS Y SHARES -- Class Y shares are offered to certain
institutional investors. Class Y shares are sold without a
front-end sales charge or a CDSC and are not subject to either a
service fee or a distribution fee. The following investors are
eligible to purchase Class Y shares:
- Qualified employee benefit plans* if the plan:
-- uses a daily transfer recordkeeping service offering
participants daily access to IDS funds and has
-- at least $10 million in plan assets or
-- 500 or more participants; or
-- does not use daily transfer recordkeeping and has
-- at least $3 million invested in funds of the IDS MUTUAL
FUND GROUP or
-- 500 or more participants.
- Trust companies or similar institutions, and charitable
organizations that meet the definition in Section 501(c)(3) of
the Internal Revenue Code.* These must have at least $10 million
invested in funds of the IDS MUTUAL FUND GROUP.
- Nonqualified deferred compensation plans* whose participants
are included in a qualified employee benefit plan described
above.
* Eligibility must be determined in advance by American
Express Financial Advisors. To do so, contact your
financial advisor.
Financial advisors may receive different compensation for selling
Class A, Class B and Class Y shares.
HOW TO BUY SHARES
If you're investing in this fund for the first time, you'll need
to set up an account. Your financial advisor will help you fill
out and submit an application. Once your account is set up, you
can choose among several convenient ways to invest.
17P
<PAGE>
How to buy, exchange or sell shares
IMPORTANT: When opening an account, you must provide your correct
Taxpayer Identification Number (Social Security or Employer
Identification number). See "Distributions and taxes."
When you buy shares for a new or existing account, the price you
pay per share is determined at the close of business on the day
your investment is received and accepted at the Minneapolis
headquarters.
PURCHASE POLICIES:
- Investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to be
included in your account that day and to receive that day's
share price. Otherwise your purchase will be processed the next
business day and you will pay the next day's share price.
- The minimums allowed for investment may change from time to
time.
- Wire orders can be accepted only on days when your bank,
American Express Financial Corporation, the fund and Norwest
Bank Minneapolis are open for business.
- Wire purchases are completed when wired payment is received and
the fund accepts the purchase.
- American Express Financial Corporation and the fund are not
responsible for any delays that occur in wiring funds, including
delays in processing by the bank.
- You must pay any fee the bank charges for wiring.
- The fund reserves the right to reject any application for any
reason.
- If your application does not specify which class of shares you
are purchasing, it will be assumed that you are investing in
Class A shares.
18P
<PAGE>
THREE WAYS TO INVEST
- --------------------------------------------------------------
- --
1
BY REGULAR Send your check and application MINIMUM AMOUNTS
ACCOUNT (or your name and account number Initial investment: $2,000
if you have an established Additional investments: $100
account) to: Account balances: $300 *
American Express
Financial Advisors Inc.
P.O. Box 74
Minneapolis, MN 55440-0074
Your financial advisor will help
you with this process.
- --------------------------------------------------------------
- --
2
BY Contact your financial advisor MINIMUM AMOUNTS
SCHEDULED to set up one of the following Initial investments: $100
INVESTMENT scheduled plans: Additional investments: $100 /mo.
PLAN - automatic payroll deduction Account balances: none
- bank authorization (on active plans of
- direct deposit of Social monthly payments)
Security check
- other plan approved by the
fund
- --------------------------------------------------------------
- --
3
BY WIRE If you have an established If this information is not
account, you may wire money to: included, the order may be
Norwest Bank Minneapolis rejected and all money received
Routing No. 091000019 by the fund, less any costs the
Minneapolis, MN fund or American Express
Attn: Domestic Wire Dept. Financial Corporation will be
returned promptly.
Give these instructions: MINIMUM AMOUNTS
Credit IDS Account #00-30-015 Each wire investment: $1,000
for personal account # (your
account number) for (your name).
*If your account balance falls below $300, you will be asked in
writing to bring it up to $300 or establish a scheduled
investment plan. If you don't do so within 30 days, your
shares can be redeemed and the proceeds mailed to you.
19P
<PAGE>
How to buy, exchange or sell shares
HOW TO EXCHANGE SHARES
You can exchange your shares of the fund at no charge for shares
of the same class of any other publicly offered fund in the IDS
MUTUAL FUND GROUP available in your state. Exchanges into IDS
Tax-Free Money Fund must be made from Class A shares. For
complete information, including fees and expenses, read the
prospectus carefully before exchanging into a new fund.
If your exchange request arrives at the Minneapolis headquarters
before the close of business, your shares will be redeemed at the
net asset value set for that day. The proceeds will be used to
purchase new fund shares the same day. Otherwise, your exchange
will take place the next business day at that day's net asset
value.
For tax purposes, an exchange represents a sale and purchase and
may result in a gain or loss. However, you cannot create a tax
loss (or reduce a taxable gain) by exchanging from the fund
within 91 days of your purchase. For further explanation, see the
SAI.
HOW TO SELL SHARES
You can sell (redeem) your shares at any time. American Express
Shareholder Service will mail payment within seven days after
receiving your request.
When you sell shares, the amount you receive may be more or less
than the amount you invested. Your shares will be redeemed at net
asset value, minus any applicable sales charge, at the close of
business on the day your request is accepted at the Minneapolis
headquarters. If your request arrives after the close of
business, the price per share will be the net asset value, minus
any applicable sales charge, at the close of business on the next
business day.
A redemption is a taxable transaction. If the fund's net asset
value when you sell shares is more or less than the cost of your
shares, you will have a gain or loss, which can affect your tax
liability. Redeeming shares held in an IRA or qualified
retirement account may subject you to certain federal taxes,
penalties and reporting requirements. Consult your tax advisor.
20P
<PAGE>
TWO WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES
- --------------------------------------------------------------
- --
1
BY LETTER Include in your letter: - any paper certificates of
- the name of the fund(s) shares you hold
- the class of shares to be REGULAR MAIL:
exchanged or redeemed American Express Shareholder
- your account number(s) (for Service
exchanges, both funds must be Attn: Redemptions
registered in the same P.O. Box 534
ownership) Minneapolis, MN 55440-0534
- your Taxpayer Identification EXPRESS MAIL:
Number (TIN) American Express Shareholder
- the dollar amount or number Service
of shares you want to Attn: Redemptions
exchange or sell 733 Marquette Ave.
- signature of all registered Minneapolis, MN 55402
account owners
- for redemptions, indicate how
you want your sales proceeds
delivered to you
- --------------------------------------------------------------
- --
2
BY PHONE - The fund and American Express American Express Shareholder
American Financial Corporation will Service. Each registered owner
Express honor any telephone exchange must sign the request.
Telephone or redemption request - American Express Financial
Transaction believed to be authentic and Corporation answers phone
Service: will use reasonable requests promptly, but you
800-437-3133 procedures to confirm that may experience delays when
or they are. This includes or call volume is high. If you
612-671-3800 asking identifying questions are unable to get through,
and tape recording calls. So use mail procedure as an
long as reasonable procedures alternative.
are followed, neither the - Phone privileges may be
fund nor American Express modified or discontinued at
Financial Corporation will be any time.
liable for any loss resulting MINIMUM AMOUNT
from fraudulent requests. Redemption: $100
- Phone exchange and redemption MAXIMUM AMOUNT
privileges automatically Redemption: $50,000
apply to all accounts except
custodial, corporate or
qualified retirement accounts
unless you request these
privileges NOT apply by
writing
21P
<PAGE>
How to buy, exchange or sell shares
EXCHANGE POLICIES:
- You may make up to three exchanges within any 30-day period,
with each limited to $300,000. These limits do not apply to
scheduled exchange programs and certain employee benefit plans
or other arrangements through which one shareholder represents
the interests of several. Exceptions may be allowed with
pre-approval of the fund.
- Exchanges must be made into the same class in the new fund.
- If your exchange creates a new account, it must satisfy the
minimum investment amount for new purchases.
- Once we receive your exchange request, you cannot cancel it.
- Shares of the new fund may not be used on the same day for
another exchange.
- If your shares are pledged as collateral, the exchange will be
delayed until written approval is obtained from the secured
party.
- American Express Financial Corporation and the fund reserve the
right to reject any exchange, limit the amount, or modify or
discontinue the exchange privilege, to prevent abuse or adverse
effects on the fund and its shareholders. For example, if
exchanges are too numerous or too large, they may disrupt the
fund's investment strategies or increase its costs.
REDEMPTION POLICIES:
- A "change of mind" option allows you to change your mind after
requesting a redemption and to use all or part of the proceeds
to buy new shares in the same account at the net asset value,
rather than the offering price on the date of a new purchase. If
you reinvest in this manner, any CDSC you paid on the amount you
are reinvesting also will be reinvested in the fund. To take
advantage of this option, send a written request within 30 days
of the date your redemption request was received. Include your
account number and mention this option. This privilege may be
limited or withdrawn at any time, and it may have tax
consequences.
- A telephone redemption request will not be allowed within 30
days of a phoned-in address change.
IMPORTANT: If you request a redemption of shares you recently
purchased by a check or money order that is not guaranteed, the
fund will wait for your check to clear. Please expect a minimum
of 10 days from the date of purchase before a check is mailed to
you. (A check may be mailed earlier if your bank provides
evidence satisfactory to the fund and American Express Financial
Corporation that your check has cleared.)
22P
<PAGE>
THREE WAYS TO RECEIVE PAYMENT WHEN YOU SELL SHARES
- --------------------------------------------------------------
- --
1
BY REGULAR - Mailed to the address on record.
OR EXPRESS - Payable to names listed on the account.
MAIL
NOTE: The express mail delivery charges you pay will vary
depending on the courier you select.
- --------------------------------------------------------------
- --
2
BY WIRE - Minimum wire redemption: $1,000.
- Request that money be wired to your bank.
- Bank account must be in the same ownership as the IDS fund
account.
NOTE: Pre-authorization required. For instructions, contact your
financial advisor or American Express Shareholder Service.
- --------------------------------------------------------------
- --
3
BY - Minimum payment: $50.
SCHEDULED - Contact your financial advisor or American Express Shareholder
PAYOUT Service to set up regular payments to you on a monthly,
PLAN bimonthly, quarterly, semiannual or annual basis.
- Buying new shares while under a payout plan may be
disadvantageous because of the sales charges.
23P
<PAGE>
How to buy, exchange or sell shares
CLASS A -- INITIAL SALES CHARGE ALTERNATIVE
On purchases of Class A shares, you pay a 5% sales charge on the
first $50,000 of your total investment and less on investments
after the first $50,000:
-------------------------------------------------------------
TOTAL INVESTMENT SALES CHARGE AS A PERCENT OF:*
<TABLE>
<CAPTION>
PUBLIC OFFERING NET AMOUNT
PRICE INVESTED
<S> <C> <C> <C>
----------------------------------------------------------------------------------
Up to $50,000 5.0% 5.26%
----------------------------------------------------------------------------------
Next $50,000 4.5 4.71
----------------------------------------------------------------------------------
Next $400,000 3.8 3.95
----------------------------------------------------------------------------------
Next $500,000 2.0 2.04
----------------------------------------------------------------------------------
More than $1,000,000 0.0 0.00
<FN>
*To calculate the actual sales charge on an investment greater
than $50,000, amounts for each applicable increment must be
totaled. See the SAI.
</TABLE>
REDUCTIONS OF THE SALES CHARGE ON CLASS A SHARES
Your sales charge may be reduced, depending on the totals of:
- the amount you are investing in this fund now,
- the amount of your existing investment in this fund, if any,
and
- the amount you and your immediate family (spouse or unmarried
children under 21) are investing or have in other funds in the
IDS MUTUAL FUND GROUP that carry a sales charge.
Other policies that affect your sales charge:
- IDS Tax-Free Money Fund and Class A shares of IDS Cash
Management Fund do not carry sales charges. However, you may
count investments in these funds if you acquired shares in them
by exchanging shares from IDS funds that carry sales charges.
- IRA purchases or other employee benefit plan purchases made
through a payroll deduction plan or through a plan sponsored by
an employer, association of employers, employee organization or
other similar entity, may be added together to reduce sales
charges for all shares purchased through that plan.
For more details, see the SAI.
24P
<PAGE>
WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES
Sales charges do not apply to:
- Current or retired trustees, directors, officers or employees
of the fund or American Express Financial Corporation or its
subsidiaries, their spouses and unmarried children under 21.
- Current or retired American Express financial advisors, their
spouses and unmarried children under 21.
- Qualified employee benefit plans* using a daily transfer
recordkeeping system offering participants daily access to IDS
funds.
(Participants in certain qualified plans for which the initial
sales charge is waived may be subject to a deferred sales charge
of up to 4% on certain redemptions. For more information, see the
SAI. Participants should refer to their plan documents for more
complete information.)
- Shareholders who have at least $1 million invested in funds of
the IDS MUTUAL FUND GROUP. If the investment is redeemed in the
first year after purchase, a CDSC of 1% will be charged on the
redemption.
- Purchases made within 30 days after a redemption of shares (up
to the amount redeemed):
-- of a product distributed by American Express Financial
Advisors in a qualified plan subject to a deferred sales charge
or
-- in a qualified plan where American Express Trust Company acts
as trustee or recordkeeper.
Send the fund a written request along with your payment,
indicating the amount of the redemption and the date on which it
occurred.
- Purchases made with dividend or capital gain distributions from
another fund in the IDS MUTUAL FUND GROUP that has a sales
charge.
* Eligibility must be determined in advance by American Express
Financial Advisors. To do so, contact your financial advisor.
25P
<PAGE>
How to buy, exchange or sell shares
CLASS B -- CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE
Where a CDSC is imposed on a redemption, it is based on the
amount of the redemption and the number of calendar years,
including the year of purchase, between purchase and redemption.
The following table shows the declining scale of percentages that
apply to redemptions during each year after a purchase:
<TABLE>
<CAPTION>
IF A REDEMPTION THE PERCENTAGE
IS MADE RATE FOR THE
DURING THE CDSC IS:
<S> <C>
-----------------------------------------------------------------
First year 5%
-----------------------------------------------------------------
Second year 4%
-----------------------------------------------------------------
Third year 4%
-----------------------------------------------------------------
Fourth year 3%
-----------------------------------------------------------------
Fifth year 2%
-----------------------------------------------------------------
Sixth year 1%
-----------------------------------------------------------------
Seventh year 0%
</TABLE>
If the amount you are redeeming reduces the current net asset
value of your investment in Class B shares below the total dollar
amount of all your purchase payments during the last 6 years
(including the year in which your redemption is made), the CDSC
is based on the lower of the redeemed purchase payments or market
value.
The following example illustrates how the CDSC is applied. Assume
you had invested $10,000 in Class B shares and that your
investment had appreciated in value to $12,000 after 15 months,
including reinvested dividend and capital gain distributions. You
could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you
redeemed $2,500, the CDSC would apply only to the $500 that
represented part of your original purchase price. The CDSC rate
would be 4% because a redemption after 15 months would take place
during the second year after purchase.
26P
<PAGE>
Because the CDSC is imposed only on redemptions that reduce the
total of your purchase payments, you never have to pay a CDSC on
any amount you redeem that represents appreciation in the value
of your shares, income earned by your shares or capital gains. In
addition, when determining the rate of any CDSC, your redemption
will be made from the oldest purchase payment you made. Of
course, once a purchase payment is considered to have been
redeemed, the next amount redeemed is the next oldest purchase
payment. By redeeming the oldest purchase payments first, lower
CDSCs are imposed than would otherwise be the case.
WAIVERS OF THE SALES CHARGE FOR CLASS B SHARES
The CDSC on Class B shares will be waived on redemptions of
shares:
- In the event of the shareholder's death,
- Purchased by any trustee, director, officer or employee of a
fund or American Express Financial Corporation or its
subsidiaries,
- Purchased by any American Express financial advisor,
- Held in a trusteed employee benefit plan,
- Held in IRAs or certain qualified plans for which American
Express Trust Company acts as custodian, such as Keogh plans,
tax-sheltered custodial accounts or corporate pension plans,
provided that the shareholder is:
-- at least 59-1/2 years old, and
-- taking a retirement distribution (if the redemption is part of
a transfer to an IRA or qualified plan in a product distributed
by American Express Financial Advisors, or a
custodian-to-custodian transfer to a product not distributed by
American Express Financial Advisors, the CDSC will not be
waived), or
-- redeeming under an approved substantially equal periodic
payment arrangement.
27P
<PAGE>
Special shareholder services
SERVICES
To help you track and evaluate the performance of your
investments, American Express Financial Corporation provides
these services:
QUARTERLY STATEMENTS listing all of your holdings and
transactions during the previous three months.
YEARLY TAX STATEMENTS featuring average-cost-basis reporting of
capital gains or losses if you redeem your shares along with
distribution information -- which simplifies tax calculations.
A PERSONALIZED MUTUAL FUND PROGRESS REPORT detailing returns on
your initial investment and cash-flow activity in your account.
It calculates a total return to reflect your individual history
in owning fund shares. This report is available from your
financial advisor.
-------------------------------------------------------------
QUICK TELEPHONE REFERENCE
AMERICAN Redemptions and exchanges, National/Minnesota:
EXPRESS dividend payments or 800-437-3133
TELEPHONE reinvestments and automatic Mpls./St. Paul area:
TRANSACTION payment arrangements 671-3800
SERVICE
----------------------------------------------------
AMERICAN Fund performance, objectives and 612-671-3733
EXPRESS account inquiries
SHAREHOLDER
SERVICE
----------------------------------------------------
TTY SERVICE For the hearing impaired 800-846-4852
----------------------------------------------------
AMERICAN Automated account information National/Minnesota:
EXPRESS (TouchTone-Registered Trademark- 800-272-4445
INFOLINE phones only), including current Mpls./St. Paul area:
fund prices and performance, 671-1630
account values and recent
account transactions
----------------------------------------------------
28P
<PAGE>
Distributions and taxes
The fund distributes to shareholders investment income and net
capital gains. It does so to qualify as a regulated investment
company and to avoid paying corporate income and excise taxes.
Dividend and capital gains distributions will have tax
consequences you should know about.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
The fund distributes its net investment income (dividends and
interest earned on securities held by the fund, less operating
expenses) to shareholders of record by the end of the calendar
year. Short-term capital gains distributed are included in net
investment income. Net realized capital gains, if any, from
selling securities are distributed at the end of the calendar
year. Before they're distributed, both net investment income and
net capital gains are included in the value of each share. After
they're distributed, the value of each share drops by the
per-share amount of the distribution. (If your distributions are
reinvested, the total value of your holdings will not change.)
Dividends paid by each class will be calculated at the same time,
in the same manner and in the same amount, except the expenses
attributable solely to Class A, Class B and Class Y will be paid
exclusively by that class. Class B shareholders will receive
lower per share dividends than Class A and Class Y shareholders
because expenses for Class B are higher than for Class A or Class
Y. Class A shareholders will receive lower per share dividends
than Class Y shareholders because expenses for Class A are higher
than for Class Y.
REINVESTMENTS
Dividends and capital gain distributions are automatically
reinvested in additional shares in the same class of the fund,
unless:
- you request the fund in writing or by phone to pay
distributions to you in cash, or
- you direct the fund to invest your distributions in any
publicly available IDS fund for which you've previously opened
an account. You pay no sales charge on shares purchased through
reinvestment from this fund into any IDS fund.
The reinvestment price is the net asset value at close of
business on the day the distribution is paid. (Your quarterly
statement will confirm the amount invested and the number of
shares purchased.)
If you choose cash distributions, you will receive only those
declared after your request has been processed.
29P
<PAGE>
Distributions and taxes
If the U.S. Postal Service cannot deliver the checks for the cash
distributions, we will reinvest the checks into your account at
the then-current net asset value and make future distributions in
the form of additional shares.
TAXES
Distributions are subject to federal income tax and also may be
subject to state and local taxes. Distributions are taxable in
the year the fund pays them regardless of whether you take them
in cash or reinvest them.
Each January, you will receive a statement showing the kinds and
total amount of all distributions you received during the
previous year. You must report all distributions on your tax
returns, even if they are reinvested in additional shares.
"Buying a dividend" creates a tax liability. This means buying
shares shortly before a net investment income or a capital gain
distribution. You pay the full pre-distribution price for the
shares, then receive a portion of your investment back as a
distribution, which is taxable.
Redemptions and exchanges subject you to a tax on any capital
gain. If you sell shares for more than their cost, the difference
is a capital gain. Your gain may be either short term (for shares
held for one year or less) or long term (for shares held for more
than one year).
YOUR TAXPAYER IDENTIFICATION NUMBER (TIN) IS IMPORTANT. As with
any financial account you open, you must list your current and
correct Taxpayer Identification Number (TIN) -- either your
Social Security or Employer Identification number. The TIN must
be certified under penalties of perjury on your application when
you open an account at American Express Financial Corporation.
If you don't provide the TIN, or the TIN you report is incorrect,
you could be subject to backup withholding of 31% of taxable
distributions and proceeds from certain sales and exchanges. You
also could be subject to further penalties, such as:
- a $50 penalty for each failure to supply your correct TIN
- a civil penalty of $500 if you make a false statement that
results in no backup withholding
- criminal penalties for falsifying information
You also could be subject to backup withholding because you
failed to report interest or dividends on your tax return as
required.
30P
<PAGE>
-------------------------------------------------------------
HOW TO DETERMINE THE CORRECT TIN
FOR THIS TYPE OF ACCOUNT USE THE SOCIAL SECURITY
OR
EMPLOYER IDENTIFICATION
NUMBER OF
----------------------------------------------------
Individual or joint The individual or first
account person listed on the
account
----------------------------------------------------
Custodian account of a The minor
minor (Uniform
Gifts/Transfers to Minors
Act)
----------------------------------------------------
A living trust The grantor-trustee (the
person who puts the money
into the trust)
----------------------------------------------------
An irrevocable trust, The legal entity (not the
pension trust or estate personal representative
or trustee, unless no
legal entity is
designated in the account
title)
----------------------------------------------------
Sole proprietorship or The owner or partnership
partnership
----------------------------------------------------
Corporate The corporation
----------------------------------------------------
Association, club or tax- The organization
exempt organization
----------------------------------------------------
For details on TIN requirements, ask your financial advisor or
local American Express Financial Advisors office for Federal Form
W-9, "Request for Taxpayer Identification Number and
Certification."
IMPORTANT: This information is a brief and selective summary of
certain federal tax rules that apply to this fund. Tax matters
are highly individual and complex, and you should consult a
qualified tax advisor about your personal situation.
31P
<PAGE>
How the fund is organized
The fund is a diversified, open-end management investment
company, as defined in the Investment Company Act of 1940.
Originally incorporated on April 29, 1981 in Nevada, the fund
changed its state of incorporation on June 13, 1986 by merging
into a Minnesota corporation incorporated on April 7, 1986. The
fund headquarters are at 901 S. Marquette Ave., Suite 2810,
Minneapolis, MN 55402-3268.
SHARES
The fund is owned by its shareholders. The fund issues shares in
three classes -- Class A, Class B and Class Y. Each class has
different sales arrangements and bears different expenses. Each
class represents interests in the assets of the fund. Par value
is 1 cent per share. Both full and fractional shares can be
issued.
The fund no longer issues stock certificates.
VOTING RIGHTS
As a shareholder, you have voting rights over the fund's
management and fundamental policies. You are entitled to one vote
for each share you own. Each class has exclusive voting rights
with respect to the provisions of the fund's distribution plan
that pertain to a particular class and other matters for which
separate class voting is appropriate under applicable law.
SHAREHOLDER MEETINGS
The fund does not hold annual shareholder meetings. However, the
directors may call meetings at their discretion, or on demand by
holders of 10% or more of the outstanding shares, to elect or
remove directors.
DIRECTORS AND OFFICERS
Shareholders elect a board of directors that oversees the
operations of the fund and chooses its officers. Its officers are
responsible for day-to-day business decisions based on policies
set by the board. The board has named an executive committee that
has authority to act on its behalf between meetings. The
directors also serve on the boards of all of the other funds in
the IDS MUTUAL FUND GROUP, except for Mr. Dudley, who is a
director of all publicly offered funds.
32P
<PAGE>
- ------------------------------------------------------------------
DIRECTORS AND OFFICERS OF THE FUND
President and WILLIAM R. PEARCE
interested director President of all funds in the IDS MUTUAL FUND GROUP.
- ------------------------------------------------------------------
Independent LYNNE V. CHENEY
directors Distinguished fellow, American Enterprise Institute for
Public Policy Research.
ROBERT F. FROEHLKE
Former president of all funds in the IDS MUTUAL FUND
GROUP.
HEINZ F. HUTTER
Former president and chief operating officer, Cargill,
Inc.
ANNE P. JONES
Attorney and telecommunications consultant.
DONALD M. KENDALL
Former chairman and chief executive officer, PepsiCo,
Inc.
MELVIN R. LAIRD
Senior counsellor for national and international
affairs,
The Reader's Digest Association, Inc.
LEWIS W. LEHR
Former chairman and chief executive officer, Minnesota
Mining and Manufacturing Company (3M).
EDSON W. SPENCER
Former chairman and chief executive officer, Honeywell,
Inc.
WHEELOCK WHITNEY
Chairman, Whitney Management Company.
C. ANGUS WURTELE
Chairman of the board and chief executive officer,
The Valspar Corporation.
- ------------------------------------------------------------------
Interested directors WILLIAM H. DUDLEY
who are officers Executive vice president, American Express Financial
and/or employees Corporation.
of American Express DAVID R. HUBERS
Financial President and chief executive officer, American Express
Corporation Financial Corporation.
JOHN R. THOMAS
Senior vice president, American Express Financial
Corporation.
- ------------------------------------------------------------------
Other officer LESLIE L. OGG
Vice president of all funds in the IDS MUTUAL FUND
GROUP and general counsel and treasurer of the publicly
offered funds.
Refer to the SAI for the directors' and officers' biographies.
33P
<PAGE>
How the fund is organized
INVESTMENT MANAGER AND TRANSFER AGENT
The fund pays American Express Financial Corporation for managing
its portfolio, providing administrative services and serving as
transfer agent (handling shareholder accounts).
Under its Investment Management Services Agreement, American
Express Financial Corporation determines which securities will be
purchased, held or sold (subject to the direction and control of
the fund's board of directors). Effective March 1995, the fund
pays American Express Financial Corporation a fee for these
services based on the average daily net assets of the fund, as
follows:
<TABLE>
<CAPTION>
ASSETS ANNUAL RATE
(BILLIONS) AT EACH ASSET VALUE
<S> <C> <C>
----------------------------------------
First $ 0.25 0.640%
----------------------------------------
Next 0.25 0.615
----------------------------------------
Next 0.25 0.590
----------------------------------------
Next 0.25 0.565
----------------------------------------
Next 1.0 0.540
----------------------------------------
Over 2.0 0.515
</TABLE>
This fee may be increased or decreased by a performance
adjustment based on the Lipper Small Company Growth Fund Index.
The maximum adjustment is 0.12% of the fund's average daily net
assets on an annual basis.
For the fiscal year ended July 31, 1994, under a prior agreement,
the fund paid American Express Financial Corporation a total
investment management fee of 0.57% of its average daily net
assets. Under the Agreement, the fund also pays taxes, brokerage
commissions and nonadvisory expenses.
Under an Administrative Services Agreement, the fund pays
American Express Financial Corporation for administration and
accounting services at an annual rate of 0.06% decreasing in
gradual percentages to 0.035% as assets increase.
34P
<PAGE>
In addition, under a separate Transfer Agency Agreement, American
Express Financial Corporation maintains shareholder accounts and
records. The fund pays American Express Financial Corporation an
annual fee per shareholder account for this service as follows:
- Class A $15.50
- Class B $16.50
- Class Y $15.50
DISTRIBUTOR
The fund sells shares through American Express Financial
Advisors, a wholly owned subsidiary of American Express Financial
Corporation, under a Distribution Agreement. Financial advisors
representing American Express Financial Advisors provide
information to investors about individual investment programs,
the fund and its operations, new account applications, exchange
and redemption requests. The cost of these services is paid
partially by the fund's sales charge.
Portions of sales charges may be paid to securities dealers who
have sold the fund's shares, or to banks and other financial
institutions. The proceeds paid to others range from 0.8% to 4%
of the fund's offering price depending on the monthly sales
volume.
For Class B shares, to help defray costs not covered by sales
charges, including costs for marketing, sales administration,
training, overhead, direct marketing programs, advertising and
related functions, the fund pays American Express Financial
Advisors a distribution fee, also known as a 12b-1 fee. This fee
is paid under a Plan and Agreement of Distribution that follows
the terms of Rule 12b-1 of the Investment Company Act of 1940.
Under this Agreement, 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.
The total 12b-1 fee paid by the fund under a prior agreement for
the fiscal year ended July 31, 1994 was 0.09% of its average
daily net assets. This fee will not cover all of the costs
incurred by American Express Financial Advisors.
35P
<PAGE>
How the fund is organized
Under a Shareholder Service Agreement, the fund also 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.
Total expenses paid by the fund in the fiscal year ended July 31,
1994 were 0.97% of its average daily net assets.
Total fees and expenses (excluding taxes and brokerage
commissions) cannot exceed the most restrictive applicable state
expense limitation.
36P
<PAGE>
About American Express Financial Corporation
GENERAL INFORMATION
The American Express Financial Corporation family of companies
offers not only mutual funds but also insurance, annuities,
investment certificates and a broad range of financial management
services.
Besides managing investments for all publicly offered funds in
the IDS MUTUAL FUND GROUP, American Express Financial Corporation
also manages investments for itself and its subsidiaries, IDS
Certificate Company and IDS Life Insurance Company. Total assets
under management on July 31, 1994 were more than $100 billion.
American Express Financial Advisors serves individuals and
businesses through its nationwide network of more than 175
offices and more than 7,800 advisors.
Other American Express Financial Corporation subsidiaries provide
investment management and related services for pension, profit
sharing, employee savings and endowment funds of businesses and
institutions.
American Express Financial Corporation is located at IDS Tower
10, Minneapolis, MN 55440-0010. It is a wholly owned subsidiary
of American Express Company, a financial services company with
headquarters at American Express Tower, World Financial Center,
New York, NY 10285. The fund may pay brokerage commissions to
broker-dealer affiliates of American Express and American Express
Financial Corporation.
37P
<PAGE>
Appendix
-------------------------------------------------------------
DESCRIPTIONS OF DERIVATIVE INSTRUMENTS
What follows are brief descriptions of derivative instruments the
fund may use. At various times the fund may use some or all of
these instruments and is not limited to these instruments. It may
use other similar types of instruments if they are consistent
with the fund's investment goal and policies. For more
information on these instruments, see the Statement of Additional
Information.
OPTIONS AND FUTURES CONTRACTS.
An option is an agreement to buy or sell an instrument at a set
price during a certain period of time. A futures contract is an
agreement to buy and sell an instrument for a set price on a
future date. The fund may buy and sell options and futures
contracts to manage its exposure to changing interest rates,
security prices and currency exchange rates. Options and futures
may be used to hedge the fund's investments against price
fluctuations or to increase market exposure.
ASSET-BACKED AND MORTGAGE-
BACKED SECURITIES.
Asset-backed and mortgage-backed securities include interests in
pools of consumer loans or mortgages, such as collateralized
mortgage obligations and stripped mortgage-backed securities.
Interest and principal payments depend on payment of the
underlying loans or mortgages. The value of these securities may
also be affected by changes in interest rates, the market's
perception of the issuers and the creditworthiness of the parties
involved. Stripped mortgage-backed securities include interest
only (IO) and principal only (PO) securities. Cash flows and
yields on IOs and POs are extremely sensitive to the rate of
principal payments on the underlying mortgage loans or
mortgage-backed securities.
INDEXED SECURITIES.
The value of indexed securities is linked to currencies, interest
rates, commodities, indexes or other financial indicators. Most
indexed securities are short- to intermediate-term fixed income
securities whose values at maturity or interest rates rise or
fall according to the change in one or more specified underlying
instruments. Indexed securities may be more volatile than the
underlying instrument itself.
38P
<PAGE>
INVERSE FLOATERS.
Inverse floaters are created using the interest payment on
securities. A portion of the interest received is paid to holders
of instruments based on current interest rates for short-term
securities. The remainder, minus a servicing fee, is paid to
holders of inverse floaters. Inverse floaters are extremely
sensitive to changes in interest rates.
STRUCTURED PRODUCTS.
Structured products are over-the-counter financial instruments
created specifically to meet the needs of one or a small number
of investors. The instrument may consist of a warrant, an option
or a forward contract embedded in a note or any of a wide variety
of debt, equity and/or currency combinations. Risks of structured
products include the inability to close such instruments, rapid
changes in the market and defaults by other parties.
39P
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS DISCOVERY FUND
Sept. 29, 1994 as revised March 20, 1995
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
Annual Report which may be obtained from your American Express financial advisor
or by writing to American Express Shareholder Service, P.O. Box 534,
Minneapolis, MN 55440-0534.
This SAI is dated Sept. 29, 1994 as revised March 20, 1995, and it is to be used
with the prospectus dated Sept. 29, 1994 as revised March 20, 1995, and the
Annual Report for the fiscal year ended July 31, 1994.
-1-
<PAGE>
TABLE OF CONTENTS
Goal and Investment Policies.........................See Prospectus
Additional Investment Policies................................p.
Portfolio Transactions........................................p.
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation........................p.
Performance Information.......................................p.
Valuing Fund Shares...........................................p.
Investing in the Fund.........................................p.
Redeeming Shares..............................................p.
Pay-out Plans.................................................p.
Exchanges.....................................................p.
Taxes.........................................................p.
Agreements....................................................p.
Directors and Officers........................................p.
Custodian.....................................................p.
Independent Auditors..........................................p.
Financial Statements..............................See Annual Report
Prospectus....................................................p.
Appendix A: Description of Corporate Bond Ratings............p.
Appendix B: Foreign Currency Transactions....................p.
Appendix C: Options and Stock Index Futures Contracts........p.
Appendix D: Mortgage-Backed Securities.......................p.
Appendix E: Dollar-Cost Averaging............................p.
-2-
<PAGE>
ADDITIONAL INVESTMENT POLICIES
These are investment policies in addition to those presented in the prospectus.
Unless holders of a majority of the outstanding shares agree to make the change
the fund will not:
'Concentrate in any one industry. According to the present interpretation by
the Securities and Exchange Commission (SEC), this means no more than 25% of the
fund's total assets, based on current market value at time of purchase, can be
invested in any one industry.
'Purchase more than 10% of the outstanding voting securities of an issuer.
'Invest more than 5% of its total assets, at market value, in securities of any
one company, government or political subdivision thereof, except the limitation
will not apply to investments in securities issued by the U.S. government, its
agencies or instrumentalities, and except that up to 25% of the fund's total
assets may be invested without regard to this limitation.
'Buy or sell real estate, unless acquired as a result of ownership of securities
or other instruments, except this shall not prevent the fund from investing in
securities or other instruments backed by real estate or securities of companies
engaged in the real estate business.
'Buy or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the fund from
buying or selling options and futures contracts or from investing in securities
or other instruments backed by, or whose value is derived from, physical
commodities.
'Make a loan of any part of its assets to American Express Financial
Corporation, to the directors and officers of American Express Financial
Corporation or to its own directors and officers.
'Purchase securities of an issuer if the directors and officers of the fund and
of American Express Financial Corporation hold more than a certain percentage of
the issuer's outstanding securities. If the holdings of all directors and
officers of the fund and of American Express Financial Corporation who own more
than 0.5% of an issuer's securities are added together, and if in total they own
more than 5%, the fund will not purchase securities of that issuer.
'Lend portfolio securities in excess of 30% of its net assets. This policy may
not be changed without shareholder approval. The current policy of the fund's
board of directors is to make these loans, either long- or short-term, to
broker-dealers. In making such loans the fund gets the market price in cash,
U.S. government securities, letters of credit or such other collateral as may be
permitted by regulatory agencies and approved by the board of directors. If the
market price of the loaned securities goes up, the fund will get additional
collateral on a daily basis. The risks are that the borrower may not provide
additional collateral
-3-
<PAGE>
when required or return the securities when due. During the existence of the
loan, the fund receives cash payments equivalent to all interest or other
distributions paid on the loaned securities. A loan will not be made unless the
investment manager believes the opportunity for additional income outweighs the
risks.
Unless changed by the board of directors, the fund will not:
'Buy on margin or sell short, but it may make margin payments in connection with
transactions in stock index futures contracts.
'Pledge or mortgage its assets beyond 15% of total assets. If the
fund were ever to do so, valuation of the pledged or mortgaged assets
would be based on market values. For purposes of this restriction,
collateral arrangements for margin deposits on a futures contract are
not deemed to be a pledge of assets.
'Invest more than 5% of its total assets in securities of companies,
including any predecessors, that have a record of less than three years
continuous operations.
'Invest more than 10% of its total assets in securities of investment
companies.
'Invest in a company to control or manage it.
'Invest in exploration or development programs, such as oil, gas or mineral
programs.
'Invest more than 5% of its net assets in warrants. Under one state's law no
more than 2% of the fund's net assets may be invested in warrants not listed on
an Exchange.
'Make contracts to purchase securities for a fixed price at a future date beyond
normal settlement time (when-issued securities or forward commitments). Under
normal market conditions, the fund does not intend to commit more than 5% of its
total assets to these practices. The fund does not pay for the securities or
receive dividends or interest on them until the contractual settlement date.
The fund will designate cash or liquid high-grade debt securities at least equal
in value to its commitments to purchase the securities. When-issued securities
or forward commitments are subject to market fluctuations and they may affect
the fund's total assets the same as owned securities.
'Invest more than 10% of its net assets in securities and derivative instruments
that are illiquid. For purposes of this policy illiquid securities include some
privately placed securities, public securities and Rule 144A securities that for
one reason or another may no longer have a readily available market, repurchase
agreements with maturities greater than seven days, non- negotiable fixed-time
deposits and over-the-counter options.
-4-
<PAGE>
In determining the liquidity of commercial paper issued in transactions not
involving a public offering under Section 4(2) of the Securities Act of 1933,
the investment manager, under guidelines established by the board of directors,
will evaluate relevant factors such as the issuer and the size and nature of its
commercial paper programs, the willingness and ability of the issuer or dealer
to repurchase the paper, and the nature of the clearance and settlement
procedures for the paper.
'Maintain a portion of its assets in cash and cash-equivalent investments. The
cash-equivalent investments the fund may use are short-term U.S. and Canadian
government securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of banks or
savings and loan associations having capital, surplus and undivided profits (as
of the date of its most recently published annual financial statements) in
excess of $100 million (or the equivalent in the instance of a foreign branch of
a U.S. bank) at the date of investment. Any cash-equivalent investment in
foreign securities will be subject to the limitations on foreign investments
described in the prospectus. The fund also may repurchase short-term corporate
notes and obligations rated in the top two classifications by Moody's Investors
Service, Inc. or Standard & Poor's Corporation or the equivalent and may use
repurchase agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. A risk of a repurchase
agreement is that if the seller seeks the protection of the bankruptcy laws, the
fund's ability to liquidate the security involved could be impaired.
Notwithstanding any of the fund's other investment policies, the fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies and restrictions as the fund for the
purpose of having those assets managed as part of a combined pool.
For a discussion of corporate bond ratings, see Appendix A. For a discussion on
foreign currency transactions, see Appendix B. For a discussion on options and
stock index futures contracts, see Appendix C. For a discussion on
mortgage-backed securities, see Appendix D.
PORTFOLIO TRANSACTIONS
Subject to policies set by the board of directors, American Express Financial
Corporation is authorized to determine, consistent with the fund's investment
goal and policies, which securities will be purchased, held or sold. In
determining where the buy and sell orders are to be placed, American Express
Financial Corporation has been directed to use its best efforts to obtain the
best available price and the most favorable execution except where otherwise
authorized by the board of directors. In selecting broker-dealers to execute
transactions, American Express Financial Corporation may consider the price of
the security, including commission or mark up, the size and difficulty of the
order, the reliability,
-5-
<PAGE>
integrity, financial soundness and general operation and execution capabilities
of the broker, the broker's expertise in particular markets, and research
services provided by the broker.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge.
The board of directors has adopted a policy authorizing American Express
Financial Corporation to do so to the extent authorized by law, if American
Express Financial Corporation determines, in good faith, that such commission is
reasonable in relation to the value of the brokerage or research services
provided by a broker or dealer, viewed either in the light of that transaction
or American Express Financial Corporation's overall responsibilities to the
funds in the IDS MUTUAL FUND GROUP and other funds for which it acts as
investment advisor.
Research provided by brokers supplements American Express Financial
Corporation's own research activities. Such services include economic data on,
and analysis of, U.S. and foreign economies; information on specific industries;
information about specific companies, including earnings estimates; purchase
recommendations for stocks and bonds; portfolio strategy services; political,
economic, business and industry trend assessments; historical statistical
information; market data services providing information on specific issues and
prices; and technical analysis of various aspects of the securities markets,
including technical charts. Research services may take the form of written
reports, computer software or personal contact by telephone or at seminars or
other meetings. American Express Financial Corporation has obtained, and in the
future may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management and trading functions
and other services to the extent permitted under an interpretation by the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, American Express Financial
Corporation must follow procedures authorized by the board of directors. To
date, three procedures have been authorized. One procedure permits American
Express Financial Corporation to direct an order to buy or sell a security
traded on a national securities exchange to a specific broker for research
services it has provided. The second procedure permits American Express
Financial Corporation, in order to obtain research, to direct an order on an
agency basis to buy or sell a security traded in the over-the-counter market to
a firm that does not make a market in that security. The commission paid
generally includes compensation for research services. The third procedure
permits American Express Financial Corporation, in order to obtain research and
brokerage services, to cause the fund to pay a commission in excess of the
amount another broker might have charged. American Express Financial
Corporation has advised the fund it is necessary to do business with a number of
brokerage
-6-
<PAGE>
firms on a continuing basis to obtain such services as the handling of large
orders, the willingness of a broker to risk its own money by taking a position
in a security, and the specialized handling of a particular group of securities
that only certain brokers may be able to offer. As a result of this
arrangement, some portfolio transactions may not be effected at the lowest
commission, but American Express Financial Corporation believes it may obtain
better overall execution. American Express Financial Corporation has assured
the fund that under all three procedures the amount of commission paid will be
reasonable and competitive in relation to the value of the brokerage services
performed or research provided.
All other transactions shall be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by American Express Financial Corporation
in providing advice to all the funds in the IDS MUTUAL FUND GROUP even though it
is not possible to relate the benefits to any particular fund or account.
Each investment decision made for the fund is made independently from any
decision made for another fund in the IDS MUTUAL FUND GROUP or other account
advised by American Express Financial Corporation or any of its subsidiaries.
When the fund buys or sells the same security as another fund or account,
American Express Financial Corporation carries out the purchase or sale in a way
the fund agrees in advance is fair. Although sharing in large transactions may
adversely affect the price or volume purchased or sold by the fund, the fund
hopes to gain an overall advantage in execution. American Express Financial
Corporation has assured the fund it will continue to seek ways to reduce
brokerage costs.
On a periodic basis, American Express Financial Corporation makes a
comprehensive review of the broker-dealers and the overall reasonableness of
their commissions. The review evaluates execution, operational efficiency and
research services.
The fund paid total brokerage commissions of $660,322 for the fiscal year ended
July 31, 1994, $449,685 for fiscal year 1993, and $366,772 for fiscal year 1992.
Substantially all firms through whom transactions were executed provide research
services. In fiscal year 1994, transactions amounting to $14,321,000, on which
$37,899 in commissions were imputed or paid, were specifically directed to
firms.
The fund acquired no securities of its regular brokers or dealers or of the
parents of those brokers or dealers that derived more than 15% of gross revenue
from securities-related activities during the fiscal year ended July 31, 1994.
The portfolio turnover rate was 67% in the fiscal year ended July 31, 1994, and
76% in fiscal year 1993.
-7-
<PAGE>
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS FINANCIAL
CORPORATION
Affiliates of American Express Company (American Express) (of which American
Express Financial Corporation is a wholly owned subsidiary) may engage in
brokerage and other securities transactions on behalf of the fund according to
procedures adopted by the fund's board of directors and to the extent consistent
with applicable provisions of the federal securities laws. American Express
Financial Corporation will use an American Express affiliate only if (i)
American Express Financial Corporation determines that the fund will receive
prices and executions at least as favorable as those offered by qualified
independent brokers performing similar brokerage and other services for the fund
and (ii) the affiliate charges the fund commission rates consistent with those
the affiliate charges comparable unaffiliated customers in similar transactions
and if such use is consistent with terms of the Investment Management Services
Agreement.
Information about brokerage commissions paid by the fund for the last three
fiscal years to brokers affiliated with American Express Financial Corporation
is contained in the following table:
<TABLE>
<CAPTION>
For the Fiscal Year Ended July 31,
1994 1993 1992
--------------------------------------------- ---------- ---------
Aggregate Percent of Aggregate Aggregate
Dollar Aggregate Dollar Dollar Dollar
Amount of Percent of Amount of Amount of Amount of
Nature Commissions Aggregate Transactions Commissions Commissions
of Paid to Brokerage Involving Payment Paid to Paid to
Broker Affiliation Broker Commissions of Commissions Broker Broker
- ------ ----------- ------ ----------- -------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Lehman (1) $ 6,854 1.04% 1.42% $10,150 $ 9,200
Brothers,
Inc.
American (2) 35,936 5.44 10.26 49,025 18,592
Enterprise
Investment
Services,
Inc.
<FN>
(1) Until May 31, 1994, under common control with American Express Financial
Corporation as a subsidiary of American Express. As of May 31, 1994 is no
longer a subsidiary of American Express.
(2) Wholly owned subsidiary of American Express Financial Corporation.
</TABLE>
PERFORMANCE INFORMATION
The fund may quote various performance figures to illustrate past performance.
An explanation of the methods used by the fund to compute performance follows
below.
AVERAGE ANNUAL TOTAL RETURN
The fund may calculate average annual total return for a class for certain
periods by finding the average annual compounded rates of return over the period
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
-8-
<PAGE>
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
AGGREGATE TOTAL RETURN
The fund may calculate aggregate total return for a class for certain periods
representing the cumulative change in the value of an investment in the fund
over a specified period of time according to the following formula:
ERV - P
-------
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
In its sales material and other communications, the fund may quote, compare or
refer to rankings, yields or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business Week, Donoghue's Money Market Fund Report, Financial
Services Week, Financial Times, Financial World, Forbes, Fortune, Global
Investor, Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Mutual Fund Forecaster, Newsweek,
The New York Times, Personal Investor, Stanger Report, Sylvia Porter's Personal
Finance, USA Today, U.S. News and World Report, The Wall Street Journal and
Wiesenberger Investment Companies Service.
VALUING FUND SHARES
The value of an individual share for each class is determined by using the net
asset value before shareholder transactions for the day. On Aug. 1, 1994, the
first business day following the end of the fiscal year, the computation looked
like this:
Net assets before Shares outstanding Net asset value
shareholder transactions at end of previous day of one share
-----------------------------------------------------------------
Class A* $523,402,895 divided by 50,569,283 equals $10.35
*Shares of Class B and Class Y were not outstanding on that date.
In determining net assets before shareholder transactions, the fund's portfolio
securities are valued as follows as of the close of business of the New York
Stock Exchange:
-9-
<PAGE>
'Securities, except bonds other than convertibles, traded on a securities
exchange for which a last-quoted sales price is readily available are valued at
the last-quoted sales price on the exchange where such security is primarily
traded.
'Securities traded on a securities exchange for which a last-quoted sales price
is not readily available are valued at the mean of the closing bid and asked
prices, looking first to the bid and asked prices on the exchange where the
security is primarily traded and, if none exist, to the over-the-counter market.
'Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
'Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities traded
over-the-counter but not included in the NASDAQ National Market System are
valued at the mean of the closing bid and asked prices.
'Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
'Foreign securities traded outside the United States are generally valued as of
the time their trading is complete, which is usually different from the close
of the New York Stock Exchange (the "Exchange"). Foreign securities quoted in
foreign currencies are translated into U.S. dollars at the current rate of
exchange. Occasionally, events affecting the value of such securities may occur
between such times and the close of the Exchange that will not be reflected in
the computation of the fund's net asset value. If events materially affecting
the value of such securities occur during such period, these securities will be
valued at their fair value according to procedures decided upon in good faith
by the fund's board of directors (the "board").
'Short-term securities maturing more than 60 days from the valuation date are
valued at the readily available market price or approximate market value based
on current interest rates. Short-term securities maturing in 60 days or less
that originally had maturities of more than 60 days at acquisition date are
valued at amortized cost using the market value on the 61st day before
maturity. Short-term securities maturing in 60 days or less at acquisition
date are valued at amortized cost. Amortized cost is an approximation of
market value determined by systematically increasing the carrying value of
a security if acquired at a discount, or reducing the carrying value if
acquired at a premium, so that the carrying value is equal to maturity value
on the maturity date.
'Securities without a readily available market price, bonds other than
convertibles and other assets are valued at fair value as determined in good
faith by the board. The board is responsible for selecting methods it believes
provide fair value. When possible, bonds are valued by a pricing service
independent from
-10-
<PAGE>
the fund. If a valuation of a bond is not available from a pricing
service, the bond will be valued by a dealer knowledgeable about the
bond if such a dealer is available.
The New York Stock Exchange, American Express Financial Corporation, and
the fund will be closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
INVESTING IN THE FUND
Sales Charge
Shares of the fund are sold at the public offering price determined at the
close of business on the day an application is accepted. The public offering
price is the net asset value of one share plus a sales charge, if applicable.
For Class B and Class Y, there is no initial sales charge so the public
offering price is the same as the net asset value. For Class A, the public
offering price for an investment of less than $50,000, made Aug. 1, 1994, was
determined by dividing the net asset value of one share, $10.35, by 0.95
(1.00-0.05 for a maximum 5% sales charge) for a public offering price of
$10.89. The sales charge is paid to American Express Financial Advisors by
the person buying the shares.
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
<TABLE>
<CAPTION>
Within each increment,
sales charge as a
percentage of:
----------------------------------------
Public Net
Amount of Investment Offering Price Amount Invested
- -------------------- -------------- ---------------
<S> <C> <C>
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
More than 1,000,000 0.0 0.00
</TABLE>
Sales charges on an investment greater than $50,000 are calculated for each
increment separately and then totaled. The resulting total sales charge,
expressed as a percentage of the public offering price and of the net amount
invested, will vary depending on the proportion of the investment at different
sales charge levels.
For example, compare an investment of $60,000 with an investment of $85,000.
The $60,000 investment is composed of $50,000 that incurs a sales charge of
$2,500 (5.0% x $50,000) and $10,000 that incurs a sales charge of $450 (4.5% x
$10,000). The total sales charge of $2,950 is 4.92% of the public offering
price and 5.17% of the net amount invested.
-11-
<PAGE>
In the case of the $85,000 investment, the first $50,000 also incurs a sales
charge of $2,500 (5.0% x $50,000) and $35,000 incurs a sales charge of $1,575
(4.5% x $35,000). The total sales charge of $4,075 is 4.79% of the public
offering price and 5.04% of the net amount invested.
The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
<TABLE>
<CAPTION>
On total investment, sales
charge as a percentage of
--------------------------------------------
Public Net
Offering Price Amount Invested
-------------- ---------------
Amount of Investment ranges from:
- -------------------- --------------------------------------------
<S> <C> <C>
First $ 50,000 5.00% 5.26%
More than 50,000 to 100,000 5.00-4.50 5.26-4.71
More than 100,000 to 500,000 4.50-3.80 4.71-3.95
More than 500,000 to 1,000,000 3.80-2.00 3.95-2.04
More than 1,000,000 0.00 0.00
</TABLE>
The initial sales charge is waived for certain qualified plans that meet the
requirements described in the prospectus. Participants in these qualified plans
may be subject to a deferred sales charge on certain redemptions. The deferred
sales charge on certain redemptions will be waived if the redemption is a result
of a participant's death, disability, retirement, attaining age 59 1/2, loans or
hardship withdrawals. The deferred sales charge varies depending on the number
of participants in the qualified plan and total plan assets as follows:
Deferred Sales Charge
<TABLE>
<CAPTION>
Number of Participants
----------------------
Total Plan Assets 1-99 100 or more
- ----------------- ---- -----------
<S> <C> <C>
Less than $1 million 4% 0%
$1 million or more 0% 0%
_________________________________________________________
</TABLE>
Class A - Reducing the Sales Charge
Sales charges are based on the total amount of your investments in the fund.
The amount of all prior investments plus any new purchase is referred to as your
"total amount invested." For example, suppose you have made an investment of
$20,000 and later decide to invest $40,000 more. Your total amount invested
would be $60,000. As a result, $10,000 of your $40,000 investment qualifies for
the lower 4.5% sales charge that applies to investments of more than $50,000 to
$100,000.
-12-
<PAGE>
The total amount invested includes any shares held in the fund in the name of a
member of your immediate family (spouse and unmarried children under 21). For
instance, if your spouse already has invested $20,000 and you want to invest
$40,000, your total amount invested will be $60,000 and therefore you will pay
the lower charge of 4.5% on $10,000 of the $40,000.
Until a spouse remarries, the sales charge is waived for spouses and unmarried
children under 21 of deceased trustees, directors, officers or employees of the
fund or American Express Financial Corporation or its subsidiaries and deceased
advisors.
The total amount invested also includes any investment you or your immediate
family already have in the other publicly offered funds in the IDS MUTUAL FUND
GROUP where the investment is subject to a sales charge. For example, suppose
you already have an investment of $25,000 in IDS Growth Fund and $5,000 in this
fund. If you invest $40,000 more in this fund, your total amount invested in
the funds will be $70,000 and therefore $20,000 of your $40,000 investment will
incur a 4.5% sales charge.
Finally, Individual Retirement Account (IRA) purchases, or other employee
benefit plan purchases made through a payroll deduction plan or through a plan
sponsored by an employer, association of employers, employee organization or
other similar entity, may be added together to reduce sales charges for shares
purchased through that plan.
Class A - Letter of Intent
You can reduce the sales charges in Class A by filing a letter-of-intent
stating that you intend to invest $1 million over a period of 13 months. The
agreement can start at any time and will remain in effect for 13 months. Your
investment will be charged normal sales charges until you have invested $1
million. At that time, the sales charges previously paid will be reversed. If
you do not invest $1 million by the end of 13 months, there is no penalty,
you'll just miss out on the sales charge adjustment. A letter-of-intent is not
an option (absolute right) to buy shares.
Here's an example. You file a letter-of-intent to invest $1 million and make an
investment of $100,000 at that time. You pay the normal 5% sales charge on the
first $50,000 and 4.5% sales charge on the next $50,000 of this investment.
Let's say you make a second investment of $900,000 (bringing the total up to $1
million) one month before the 13-month period is up. What sales charge do you
pay? American Express Financial Corporation makes an adjustment on your last
purchase so that there's no sales charge on the total $1 million investment,
just as if you had invested $1 million all at once.
Systematic Investment Programs
After you make your initial investment of $2,000 or more, you can arrange to
make additional payments of $100 or more on a regular basis. These minimums do
not apply to all systematic investment
-13-
<PAGE>
programs. You decide how often to make payments - monthly, quarterly or
semiannually. You are not obligated to make any payments. You can omit
payments or discontinue the investment program altogether. The fund also can
change the program or end it at any time. If there is no obligation, why do it?
Putting money aside is an important part of financial planning. With a
systematic investment program, you have a goal to work for.
How does this work? Your regular investment amount will purchase more shares
when the net asset value per share decreases, and fewer shares when the net
asset value per share increases. Each purchase is a separate transaction.
After each purchase your new shares will be added to your account. Shares
bought through these programs are exactly the same as any other fund shares.
They can be bought and sold at any time. A systematic investment program is not
an option or an absolute right to buy shares.
The systematic investment program itself cannot ensure a profit, nor can it
protect against a loss in a declining market. If you decide to discontinue the
program and redeem your shares when their net asset value is less than what you
paid for them, you will incur a loss.
For a discussion on dollar-cost averaging, see Appendix E.
Automatic Directed Dividends
Dividends, including capital gain distributions, paid by another fund in the IDS
MUTUAL FUND GROUP subject to a sales charge, may be used to automatically
purchase shares in the same class of this fund without paying a sales charge.
Dividends may be directed to existing accounts only. Dividends declared by a
fund are exchanged to this fund the following day. Dividends can be exchanged
into one fund but cannot be split to make purchases in two or more funds.
Automatic directed dividends are available between accounts of any ownership
EXCEPT:
'Between a non-custodial account and an IRA, or 401(k) plan account or other
qualified retirement account of which American Express Trust Company acts as
custodian;
'Between two American Express Trust Company custodial accounts with different
owners (for example, you may not exchange dividends from your IRA to the IRA of
your spouse);
'Between different kinds of custodial accounts with the same ownership (for
example, you may not exchange dividends from your IRA to your 401(k) plan
account, although you may exchange dividends from one IRA to another IRA).
Dividends may be directed from accounts established under the Uniform Gifts to
Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) only into other UGMA
or UTMA accounts with identical ownership.
-14-
<PAGE>
The fund's investment goal is described in its prospectus along with other
information, including fees and expense ratios. Before exchanging dividends
into another fund, you should read its prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an explanation of
redemption procedures, please see the prospectus.
DURING AN EMERGENCY, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares or suspend the duty of the fund
to redeem shares for more than seven days. Such emergency situations would
occur if:
'The New York Stock Exchange closes for reasons other than the usual weekend and
holiday closings or trading on the Exchange is restricted, or
'Disposal of the fund's securities is not reasonably practicable or it is not
reasonably practicable for the fund to determine the fair value of its net
assets, or
'The SEC, under the provisions of the Investment Company Act of 1940, as
amended, declares a period of emergency to exist.
Should the fund stop selling shares, the board may make a deduction from the
value of the assets held by the fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all shareholders.
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem Class B shares you may be subject to a contingent
deferred sales charge as discussed in the prospectus. While the plans differ on
how the pay-out is figured, they all are based on the redemption of your
investment. Net investment income dividends and any capital gain distributions
will automatically be reinvested, unless you elect to receive them in cash. If
you are redeeming a tax-qualified plan account for which American Express Trust
Company acts as custodian, you can elect to receive your dividends and other
distributions in cash when permitted by law. If you redeem an IRA or a
qualified retirement account, certain restrictions, federal tax penalties and
special federal income tax reporting requirements may apply. You should consult
your tax advisor about this complex area of the tax law.
Applications for a systematic investment in a class of the fund subject to a
sales charge normally will not be accepted while a pay-out plan for any of those
funds is in effect. Occasional investments, however, may be accepted.
-15-
<PAGE>
To start any of these plans, please write or call American Express Shareholder
Service, P.O. Box 534, Minneapolis, MN 55440-0534, 612- 671-3733. Your
authorization must be received in the Minneapolis headquarters at least five
days before the date you want your payments to begin. The initial payment must
be at least $50. Payments will be made on a monthly, bimonthly, quarterly,
semiannual or annual basis. Your choice is effective until you change or cancel
it.
The following pay-out plans are designed to take care of the needs of most
shareholders in a way American Express Financial Corporation can handle
efficiently and at a reasonable cost. If you need a more irregular schedule of
payments, it may be necessary for you to make a series of individual
redemptions, in which case you'll have to send in a separate redemption request
for each pay- out. The fund reserves the right to change or stop any pay-out
plan and to stop making such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed for each
payment and that amount will be sent to you. The length of time these payments
continue is based on the number of shares in your account.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset value of the
shares in the account computed on the day of each payment. Percentages range
from 0.25% to 0.75%. For example, if you are on this plan and arrange to take
0.5% each month, you will get $50 if the value of your account is $10,000 on the
payment date.
EXCHANGES
If you buy shares in the fund and then exchange into another fund, it is
considered a sale and subsequent purchase of shares. Under the tax laws, if
this exchange is done within 91 days, any sales charge waived on Class A shares
on a subsequent purchase of shares applies to the new shares acquired in the
exchange. Therefore, you cannot create a tax loss or reduce a tax gain
attributable to the sales charge when exchanging shares within 91 days.
-16-
<PAGE>
Retirement Accounts
If you have a nonqualified investment in the fund and you wish to move part or
all of those shares to an IRA or qualified retirement account in the fund, you
can do so without paying a sales charge. However, this type of exchange is
considered a sale of shares and may result in a gain or loss for tax purposes.
In addition, this type of exchange may result in an excess contribution under
IRA or qualified plan regulations if the amount exchanged plus the amount of the
initial sales charge applied to the amount exchanged exceeds annual contribution
limitations. For example: If you were to exchange $2,000 in Class A shares
from a nonqualified account to an IRA without considering the 5% ($100) initial
sales charge applicable to that $2,000, you may be deemed to have exceeded
current IRA annual contribution limitations. You should consult your tax
advisor for further details about this complex subject.
TAXES
Net investment income dividends received should be treated as dividend income
for federal income tax purposes. Corporate shareholders are generally entitled
to a deduction equal to 70% of that portion of the fund's dividend that is
attributable to dividends the fund received from domestic (U.S.) securities.
For the fiscal year ended July 31, 1994, 0% of the fund's net investment income
dividends qualified for the corporate deduction.
Capital gain distributions received by individual and corporate shareholders, if
any, should be treated as long-term capital gains regardless of how long they
owned their shares. Short-term capital gains earned by the fund are paid to
shareholders as part of their ordinary income dividend and are taxable.
You may be able to defer taxes on current income from a fund by investing
through an IRA, 401(k) plan account or other qualified retirement account. If
you move all or part of a non-qualified investment in the fund to a qualified
account, this type of exchange is considered a sale of shares. You pay no sales
charge, but the exchange may result in a gain or loss for tax purposes, or
excess contributions under IRA or qualified plan regulations.
Under federal tax law, by the end of a calendar year the fund must declare and
pay dividends representing 98% of ordinary income for that calendar year and 98%
of net capital gains (both long-term and short-term) for the 12-month period
ending Oct. 31 of that calendar year. The fund is subject to an excise tax
equal to 4% of the excess, if any, of the amount required to be distributed over
the amount actually distributed. The fund intends to comply with federal tax
law and avoid any excise tax.
The fund may be subject to U.S. taxes resulting from holdings in a passive
foreign investment company (PFIC). A foreign corporation is a PFIC when 75% or
more of its gross income for the taxable year is passive income or if 50% or
more of the average value of its assets consists of assets that produce or could
produce passive income.
-17-
<PAGE>
This is a brief summary that relates to federal income taxation only.
Shareholders should consult their tax advisor as to the application of federal,
state and local income tax laws to fund distributions.
AGREEMENTS
Investment Management Services Agreement
The fund has an Investment Management Services Agreement with American Express
Financial Corporation. For its services, American Express Financial Corporation
is paid a fee based on the following schedule:
<TABLE>
<CAPTION>
Assets Annual rate at
(billions) each asset level
- ---------- ----------------
<S> <C>
First $0.25 0.640%
Next 0.25 0.615
Next 0.25 0.590
Next 0.25 0.565
Next 1.0 0.540
Over 2.0 0.515
</TABLE>
In March 1995, the daily rate applied to the fund's assets is expected to be
approximately 0.63% on an annual basis. The fee is calculated for each calendar
day on the basis of net assets as of the close of business two business days
prior to the day for which the calculation is made.
Before the fee based on the asset charge is paid, it is adjusted for investment
performance. The adjustment, determined monthly, will be calculated using the
percentage point difference between the change in the net asset value of one
share of the fund's capital stock and the change in the Lipper Small Company
Growth Fund Index (Index). The performance of one fund share is measured by
computing the percentage difference between the opening and closing net asset
value of one share of the fund, as of the last business day of the period
selected for comparison, adjusted for dividend or capital gain distributions
which are treated as reinvested at the end of the month during which the
distribution was made. The performance of the Index for the same period is
established by measuring the percentage difference between the beginning and
ending Index for the comparison period. The performance is adjusted for
dividend or capital gain distributions (on the securities which comprise the
Index), which are treated as reinvested at the end of the month during which the
distribution was made. One percentage point will be subtracted from the
calculation to help assure that incentive adjustments are attributable to
American Express Financial Corporation's management abilities rather than random
fluctuations and the result multiplied by 0.01%. That number will be multiplied
times the fund's average net assets for the comparison period and then divided
by the number of months in the comparison period to determine the monthly
adjustment.
-18-
<PAGE>
Where the fund's performance exceeds that of the Index, the base fee will be
increased. Where the performance of the Index exceeds the performance of the
fund, the base fee will be decreased. The maximum monthly increase or decrease
will be 0.12% of the fund's average net assets on an annual basis.
The 12 month comparison period rolls over with each succeeding month, so that it
always equals 12 months, ending with the month for which the performance
adjustment is being computed. The adjustment decreased the fee by $267,998 for
the fiscal year ended July 31, 1994.
The management fee is paid monthly. Under a prior agreement, the total amount
paid was $2,909,548 for the fiscal year ended July 31, 1994, $2,322,801 for
fiscal year 1993, and $1,718,297 for fiscal year 1992.
Under the current Agreement, the fund also pays taxes, brokerage commissions and
nonadvisory expenses, that include custodian fees; audit and certain legal fees;
fidelity bond premiums; registration fees for shares; fund office expenses;
consultants' fees; compensation of directors, officers and employees; corporate
filing fees; organizational expenses; expenses incurred in connection with
lending portfolio securities of the fund; and expenses properly payable by the
fund, approved by the board of directors. Under a prior agreement, the fund
paid nonadvisory expenses of $477,399 for the fiscal year ended July 31, 1994,
$347,298 for fiscal year 1993, and $266,201 for fiscal year 1992.
Administrative Services Agreement
The fund has an Administrative Services Agreement with American Express
Financial Corporation. Under this agreement, the fund pays American Express
Financial Corporation for providing administration and accounting services. The
fee is calculated as follows:
<TABLE>
<CAPTION>
Assets Annual rate
(billions) each asset level
----------- ----------------
<S> <C>
First $0.25 0.060%
Next 0.25 0.055
Next 0.25 0.050
Next 0.25 0.045
Next $1 0.040
Over $2 0.035
</TABLE>
Transfer Agency Agreement
The fund has a Transfer Agency Agreement with American Express Financial
Corporation. This agreement governs American Express Financial Corporation's
responsibility for administering and/or performing transfer agent functions, for
acting as service agent in connection with dividend and distribution functions
and for performing shareholder account administration agent functions in
connection with the issuance, exchange and redemption or repurchase of the
fund's shares. Under the agreement, American Express
-19-
<PAGE>
Financial Corporation will earn a fee from the fund determined by multiplying
the number of shareholder accounts at the end of the day by a rate determined
for each class and dividing by the number of days in the year. The rate for
Class A and for Class Y is $15 per year. The rate for Class B is $16 per year.
The fees paid to American Express Financial Corporation may be changed from time
to time upon agreement of the parties without shareholder approval. The fund
paid fees of $1,095,455 for the fiscal year ended July 31, 1994.
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for distributing fund
shares are paid to American Express Financial Advisors daily. These charges
amounted to $3,173,756 for the fiscal year ended July 31, 1994. After paying
commissions to personal financial advisors, and other expenses, the amount
retained was $1,168,119. The amounts were $2,965,115 and $122,727 for fiscal
year 1993, and $2,666,717 and $817,003 for fiscal year 1992.
Additional information about commissions and compensation for the fiscal year
ended July 31, 1994, is contained in the following table:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
- ----------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
American
Express
Financial
Corporation None $47,064 $42,790* $439,675**
American
Express
Financial
Advisors $3,173,756 None None None
<FN>
*For further information see "Brokerage Commissions Paid to Brokers Affiliated
with American Express Financial Corporation."
**Distribution fees paid pursuant to the Plan and Supplemental Agreement of
Distribution.
</TABLE>
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.
Plan and Agreement of Distribution
For Class B shares, to help American Express Financial Advisors defray the cost
of distribution and servicing, not covered by the sales charges received under
the Distribution Agreement, the fund
-20-
<PAGE>
and American Express Financial Advisors entered into a Plan and Agreement of
Distribution (Plan). These costs cover almost all aspects of distributing the
fund's shares except compensation to the sales force. A substantial portion of
the costs are not specifically identified to any one fund in the IDS MUTUAL FUND
GROUP. Under the Plan, American Express Financial Advisors is paid a fee at an
annual rate of 0.75% of the fund's average daily net assets attributable to
Class B shares.
The Plan must be approved annually by the board, including a majority of the
disinterested directors, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of directors who are not interested persons of the fund and have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting securities of the fund or by American Express Financial Advisors. The
Plan (or any agreement related to it) will terminate in the event of its
assignment, as that term is defined in the Investment Company Act of 1940, as
amended. The Plan may not be amended to increase the amount to be spent for
distribution without shareholder approval, and all material amendments to the
Plan must be approved by a majority of the directors, including a majority of
the directors who are not interested persons of the fund and who do not have a
financial interest in the operation of the Plan or any agreement related to it.
The selection and nomination of disinterested directors is the responsibility of
the other disinterested directors. No interested person of the fund, and no
director who is not an interested person, has any direct or indirect financial
interest in the operation of the Plan or any related agreement.
Total fees and nonadvisory expenses cannot exceed the most restrictive
applicable state limitation. Currently, the most restrictive applicable state
expense limitation, subject to exclusion of certain expenses, is 2.5% of the
first $30 million of the fund's average daily net assets, 2% of the next $70
million and 1.5% of average daily net assets over $100 million, on an annual
basis. At the end of each month, if the fees and expenses of the fund exceed
this limitation for the fund's fiscal year in progress, American Express
Financial Corporation will assume all expenses in excess of the limitation.
American Express Financial Corporation then may bill the fund for such expenses
in subsequent months up to the end of that fiscal year, but not after that date.
No interest charges are assessed by American Express Financial Corporation for
expenses it assumes.
DIRECTORS AND OFFICERS
The following is a list of the fund's directors who, except for Mr. Dudley, also
are directors of all other funds in the IDS MUTUAL FUND GROUP. Mr. Dudley is a
director of all publicly offered funds. All shares have cumulative voting
rights when voting on the election of directors.
-21-
<PAGE>
LYNNE V. CHENEY+'
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed Corp., and the
Interpublic Group of Companies, Inc. (advertising).
WILLIAM H. DUDLEY+**
2900 IDS Tower
Minneapolis, MN
Executive vice president and director of American Express Financial Corporation.
ROBERT F. FROEHLKE+
1201 Yale Place
Minneapolis, MN
Former president of all funds in the IDS MUTUAL FUND GROUP. Director, the ICI
Mutual Insurance Co., Institute for Defense Analyses, Marshall Erdman and
Associates, Inc. (architectural engineering) and Public Oversight Board of the
American Institute of Certified Public Accountants.
DAVID R. HUBERS**
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of American Express Financial
Corporation. Previously, senior vice president, finance and chief financial
officer of American Express Financial Corporation.
HEINZ F. HUTTER+
P.O. Box 5724
Minneapolis, MN
President and chief operating officer, Cargill, Incorporated (commodity
merchants and processors) from February 1991 to September 1994. Executive vice
president from 1981 to February 1991.
ANNE P. JONES+
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. and C-Cor Electronics,
Inc.
-22-
<PAGE>
DONALD M. KENDALL'
PepsiCo, Inc.
Purchase, NY
Former chairman and chief executive officer, PepsiCo, Inc.
MELVIN R. LAIRD+
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.
Senior counsellor for national and international affairs, The Reader's Digest
Association, Inc. Chairman of the board, COMSAT Corporation, former nine-term
congressman, secretary of defense and presidential counsellor. Director, Martin
Marietta Corp., Metropolitan Life Insurance Co., The Reader's Digest
Association, Inc., Science Applications International Corp., Wallace Reader's
Digest Funds and Public Oversight Board (SEC Practice Section, American
Institute of Certified Public Accountants).
LEWIS W. LEHR'
3050 Minnesota World Trade Center
30 E. Seventh St.
St. Paul, MN
Former chairman of the board and chief executive officer, Minnesota Mining and
Manufacturing Company (3M). Director, Jack Eckerd Corporation (drugstores).
Advisory Director, Peregrine Inc. (microelectronics).
WILLIAM R. PEARCE+*
901 S. Marquette Ave.
Minneapolis, MN
President of all funds in the IDS MUTUAL FUND GROUP since June 1993. Former
vice chairman of the board, Cargill, Incorporated (commodity merchants and
processors).
EDSON W. SPENCER
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Chairman of the board, Mayo
Foundation (healthcare). Former chairman of the board and chief executive
officer, Honeywell Inc. Director, Boise Cascade Corporation (forest products)
and CBS Inc. Member of International Advisory Councils, Robert Bosch (Germany)
and NEC (Japan).
JOHN R. THOMAS**
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of American Express Financial Corporation.
-23-
<PAGE>
WHEELOCK WHITNEY+
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. ANGUS WURTELE
1101 S. 3rd St.
Minneapolis, MN
Chairman of the board and chief executive officer, The Valspar Corporation
(paints). Director, Bemis Corporation (packaging), Donaldson Company (air
cleaners & mufflers) and General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of the fund.
**Interested person by reason of being an officer, director, employee and/or
shareholder of American Express Financial Corporation or American Express.
The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.
Besides Mr. Pearce, who is president, the fund's other officer is:
LESLIE L. OGG
901 S. Marquette Ave.
Minneapolis, MN
Vice president of all funds in the IDS MUTUAL FUND GROUP and general counsel and
treasurer of the publicly offered funds.
During the fiscal year that ended July 31, 1994, the members of the board, for
attending up to 49 meetings, received the following compensation, in total, from
all funds in the IDS MUTUAL FUND GROUP.
<TABLE>
<CAPTION>
Board compensation
Aggregate Retirement Estimated Total Cash
compensation benefits annual compensation
from the accrued as benefit on from the IDS
Board member fund fund expenses retirement MUTUAL FUND GROUP
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lynne V. Cheney $365 $--- $250 $31,600
(part of year)
Robert F. Froehlke 895 386 250 76,600
Anne P. Jones 745 98 250 70,300
Donald M. Kendall 690 440 250 68,000
Melvin R. Laird 764 319 250 71,100
Lewis W. Lehr 774 438 244 71,500
William R. Pearce --- 169 250 ---
(part of year)
Edson W. Spencer 755 208 133 70,700
Wheelock Whitney 795 189 250 73,800
</TABLE>
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On July 31, 1994, the fund's directors and officers as a group owned less than
1% of the outstanding shares. During the fiscal year ended July 31, 1994, no
director or officer earned more than $60,000 from this fund. All directors and
officers as a group earned $15,024, including $2,334 of retirement plan expense,
from this fund.
CUSTODIAN
The fund's securities and cash are held by American Express Trust Company, 1200
Northstar Center West, 625 Marquette Ave., Minneapolis, MN 55402-2307, through
a custodian agreement. The custodian is permitted to deposit some or all of its
securities in central depository systems as allowed by federal law.
The custodian has entered into a sub-custodian arrangement with the Morgan
Stanley Trust Company (Morgan Stanley), One Pierrepont Plaza, 8th Floor,
Brooklyn, NY 11201-2775. As part of this arrangement, portfolio securities
purchased outside the United States are maintained in the custody of various
foreign branches of Morgan Stanley or in such other financial institutions as
may be permitted by law and by the fund's sub-custodian agreement.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to shareholders, for the
fiscal year ended July 31, 1994, were audited by independent auditors, KPMG Peat
Marwick LLP, 4200 Norwest Center, 90 S. Seventh St., Minneapolis, MN
55402-3900. The independent auditors also provide other accounting and
tax-related services as requested by the fund.
FINANCIAL STATEMENTS
The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the 1994 Annual Report to shareholders, pursuant to Section 30(d)
of the Investment Company Act of 1940, as amended, are hereby incorporated in
this SAI by reference. No other portion of the Annual Report however, is
incorporated by reference.
PROSPECTUS
The prospectus for IDS Discovery Fund dated Sept. 29, 1994 as revised March 20,
1995, is hereby incorporated in this SAI by reference.
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APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
BOND RATINGS
The ratings concern the quality of the issuing corporation. They are not an
opinion of the market value of the security. Such ratings are opinions on
whether the principal and interest will be repaid when due. A security's rating
may change which could affect its price. Ratings by Moody's Investors Service,
Inc. are Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D. Ratings by Standard & Poor's
Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D.
Bonds rated Aaa and AAA are judged to be of the best quality and carry the
smallest degree of investment risk. Capacity to pay interest and repay
principal is extremely strong. Prices are responsive only to interest rate
fluctuations.
Bonds rated Aa and AA also are judged to be high-grade although margins of
protection for interest and principal may not be quite as good as Aaa or AAA
rated securities. Long-term risk may appear greater than the Aaa or AAA group.
Prices are primarily responsive to interest rate fluctuations.
Bonds rated A are considered upper-medium grade. Protection for interest and
principal is deemed adequate but susceptible to future impairment. The market
prices of such obligations move primarily with interest rate fluctuations but
also with changing economic or trade conditions.
Bonds rated Baa and BBB are considered medium-grade obligations. Protection for
interest and principal is adequate over the short-term; however, these
obligations have certain speculative characteristics. They are susceptible to
changing economic conditions and require constant review. Such bonds are more
responsive to business and trade conditions than to interest rate fluctuations.
Bonds rated Ba and BB are considered to have speculative elements. Their future
cannot be considered well assured. The protection of interest and principal
payments may be very moderate and not well safeguarded during future good and
bad times. Uncertainty of position characterizes these bonds.
Bonds rated B or lower lack characteristics of the desirable investments. There
may be small assurance over any long period of time of the payment of interest
and principal or of the maintenance of other contract terms. Some of these
bonds are of poor standing and may be in default or have other marked
short-comings.
Bonds rated Caa and CCC are of poor standing. Such issues may be in default or
there may be elements of danger with respect to principal or interest.
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Bonds rated Ca and CC represent obligations that are highly speculative. Such
issues are often in default or have other marked shortcomings.
Bonds rated C are obligations with a higher degree of speculation. These
securities have major risk exposures to default.
Bonds rated D are in payment default. The D rating is used when interest
payments or principal payments are not made on the due date.
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APPENDIX B
FOREIGN CURRENCY TRANSACTIONS
Since investments in foreign countries usually involve currencies of foreign
countries, and since the fund may hold cash and cash-equivalent investments in
foreign currencies, the value of the fund's assets as measured in U.S. dollars
may be affected favorably or unfavorably by changes in currency exchange rates
and exchange control regulations. Also, the fund may incur costs in connection
with conversions between various currencies.
SPOT RATES AND FORWARD CONTRACTS. The fund conducts its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts) as a hedge against fluctuations in future foreign exchange
rates. A forward contract involves an obligation to buy or sell a specific
currency at a future date, which may be any fixed number of days from the
contract date, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirements. No commissions are charged at any stage
for trades.
The fund may enter into forward contracts to settle a security transaction or
handle dividend and interest collection. When the fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency or has
been notified of a dividend or interest payment, it may desire to lock in the
price of the security or the amount of the payment in dollars. By entering into
a forward contract, the fund will be able to protect itself against a possible
loss resulting from an adverse change in the relationship between different
currencies from the date the security is purchased or sold to the date on which
payment is made or received or when the dividend or interest is actually
received.
The fund also may enter into forward contracts when management of the fund
believes the currency of a particular foreign country may suffer a substantial
decline against another currency. It may enter into a forward contract to sell,
for a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the fund's portfolio securities denominated in such
foreign currency. The precise matching of forward contract amounts and the
value of securities involved generally will not be possible since the future
value of such securities in foreign currencies more than likely will change
between the date the forward contract is entered into and the date it matures.
The projection of short-term currency market movements is extremely difficult
and successful execution of a short-term hedging strategy is highly uncertain.
The fund will not enter into such forward contracts or maintain a net exposure
to such contracts when consummating the contracts would obligate the fund to
deliver an amount of foreign currency in excess of the value of the fund's
portfolio securities or other assets denominated in that currency.
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The fund will designate cash or securities in an amount equal to the value of
the fund's total assets committed to consummating forward contracts entered into
under the second circumstance set forth above. If the value of the securities
declines, additional cash or securities will be designated on a daily basis so
that the value of the cash or securities will equal the amount of the fund's
commitments on such contracts.
At maturity of a forward contract, the fund may either sell the portfolio
security and make delivery of the foreign currency or retain the security and
terminate its contractual obligation to deliver the foreign currency by
purchasing an offsetting contract with the same currency trader obligating it to
buy, on the same maturity date, the same amount of foreign currency.
If the fund retains the portfolio security and engages in an offsetting
transaction, the fund will incur a gain or a loss (as described below) to the
extent there has been movement in forward contract prices. If the fund engages
in an offsetting transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices decline between
the date the fund enters into a forward contract for selling foreign currency
and the date it enters into an offsetting contract for purchasing the foreign
currency, the fund will realize a gain to the extent that the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to buy. Should forward prices increase, the fund will suffer a loss to the
extent the price of the currency it has agreed to buy exceeds the price of the
currency it has agreed to sell.
It is impossible to forecast what the market value of portfolio securities will
be at the expiration of a contract. Accordingly, it may be necessary for the
fund to buy additional foreign currency on the spot market (and bear the expense
of such purchase) if the market value of the security is less than the amount of
foreign currency the fund is obligated to deliver and a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the fund is obligated to deliver.
The fund's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of the fund's portfolio
securities against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes
a rate of exchange that can be achieved at some point in time. Although such
forward contracts tend to minimize the risk of loss due to a decline in value of
hedged currency, they tend to limit any potential gain that might result should
the value of such currency increase.
Although the fund values its assets each business day in terms of U.S. dollars,
it does not intend to convert its foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and shareholders should be aware
of currency conversion
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<PAGE>
costs. Although foreign exchange dealers do not charge a fee for conversion,
they do realize a profit based on the difference (spread) between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the fund at one rate, while offering a lesser rate
of exchange should the fund desire to resell that currency to the dealer.
OPTIONS ON FOREIGN CURRENCIES. The fund may buy put and write covered call
options on foreign currencies for hedging purposes. For example, a decline in
the dollar value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if their value
in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the fund may buy put options
on the foreign currency. If the value of the currency does decline, the fund
will have the right to sell such currency for a fixed amount in dollars and will
thereby offset, in whole or in part, the adverse effect on its portfolio which
otherwise would have resulted.
As in the case of other types of options, however, the benefit to the fund
derived from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
fund could sustain losses on transactions in foreign currency options which
would require it to forego a portion or all of the benefits of advantageous
changes in such rates.
The fund may write options on foreign currencies for the same types of hedging
purposes. For example, when the fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates,
it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the diminution in value of portfolio securities will be
fully or partially offset by the amount of the premium received.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the fund would be required to buy or sell
the underlying currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the fund also may
be required to forego all or a portion of the benefits which might otherwise
have been obtained from favorable movements on exchange rates.
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if the fund holds currency sufficient to cover the
option or has an absolute and immediate right to acquire that currency without
additional cash
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<PAGE>
consideration upon conversion of assets denominated in that currency or exchange
of other currency held in its portfolio. An option writer could lose amounts
substantially in excess of its initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an over-the-
counter trading environment, many of the protections afforded to exchange
participants will not be available. For example, there are no daily price
fluctuation limits, and adverse market movements could therefore continue to an
unlimited extent over a period of time. Although the purchaser of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the OCC, thereby reducing the risk of counterparty
default. Further, a liquid secondary market in options traded on a national
securities exchange may be more readily available than in the over-the-counter
market, potentially permitting the fund to liquidate open positions at a profit
prior to exercise or expiration, or to limit losses in the event of adverse
market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the- counter market. For
example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in certain foreign
countries for the purpose. As a result, the OCC may, if it determines that
foreign governmental restrictions or taxes would prevent the orderly settlement
of foreign currency option exercises, or would result in undue burdens on OCC or
its clearing member, impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
FOREIGN CURRENCY FUTURES AND RELATED OPTIONS. The fund may enter into currency
futures contracts to sell currencies. It also may buy put and write covered
call options on currency futures. Currency futures contracts are similar to
currency forward contracts, except that they are traded on exchanges (and have
margin requirements) and are standardized as to contract size and delivery date.
Most currency futures call for payment of delivery in U.S. dollars. The fund
may use currency futures for the same
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purposes as currency forward contracts, subject to CFTC limitations, including
the limitation on the percentage of assets that may be used, described in the
prospectus. All futures contracts are aggregated for purposes of the percentage
limitations.
Currency futures and options on futures values can be expected to correlate with
exchange rates, but will not reflect other factors that may affect the values of
the fund's investments. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the fund
against price decline if the issuer's creditworthiness deteriorates. Because
the value of the fund's investments denominated in foreign currency will change
in response to many factors other than exchange rates, it may not be possible to
match the amount of a forward contract to the value of the fund's investments
denominated in that currency over time.
The fund will not use leverage in its currency options and futures strategies.
The fund will hold securities or other options or futures positions whose values
are expected to offset its obligations. The fund will not enter into an option
or futures position that exposes the fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or (ii) cash,
receivables and short-term debt securities with a value sufficient to cover its
potential obligations.
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APPENDIX C
OPTIONS AND STOCK INDEX FUTURES CONTRACTS
The fund may buy or write options traded on any U.S. or foreign exchange or in
the over-the-counter market. The fund may enter into 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 futures and on stock indexes. Options in
the over-the-counter market will be purchased only when the investment manager
believes a liquid secondary market exists for the options and only from dealers
and institutions the investment manager believes present a minimal credit risk.
Some options are exercisable only on a specific date. In that case, or if a
liquid secondary market does not exist, the fund could be required to buy or
sell securities at disadvantageous prices, thereby incurring losses.
Under normal conditions, the fund will invest no more than % of its net
assets in derivatives.
OPTIONS. An option is a contract. A person who buys a call option for a
security has the right to buy the security at a set price for the length of
the contract. A person who sells a call option is called a writer. The writer
of a call option agrees to sell the security at the set price when the buyer
wants to exercise the option, no matter what the market price of the security
is at that time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person who writes a
put option agrees to buy the security at the set price if the purchaser wants
to exercise the option, no matter what the market price of the security is at
that time. An option is covered if the writer owns the security (in the case
of a call) or sets aside the cash or securities of equivalent value (in the
case of a put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In addition the
buyer generally pays a broker a commission. The writer receives a premium, less
another commission, at the time the option is written. The cash received is
retained by the writer whether or not the option is exercised. A writer of a
call option may have to sell the security for a below-market price if the market
price rises above the exercise price. A writer of a put option may have to pay
an above-market price for the security if its market price decreases below the
exercise price. The risk of the writer is potentially unlimited, unless the
option is covered.
Options can be used to produce incremental earnings, protect gains and
facilitate buying and selling securities for investment purposes. The use of
options may benefit the fund and its shareholders by improving the fund's
liquidity and by helping to stabilize the value of its net assets.
BUYING OPTIONS. Put and call options may be used as a trading technique to
facilitate buying and selling securities for investment reasons. They also may
be used for investment. Options are used as a trading technique to take
advantage of any disparity between the price of the underlying security in the
securities
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market and its price on the options market. It is anticipated the trading
technique will be utilized only to effect a transaction when the price of the
security plus the option price will be as good or better than the price at which
the security could be bought or sold directly. When the option is purchased,
the fund pays a premium and a commission. It then pays a second commission on
the purchase or sale of the underlying security when the option is exercised.
For record keeping and tax purposes, the price obtained on the purchase of the
underlying security will be the combination of the exercise price, the premium
and both commissions. When using options as a trading technique, commissions on
the option will be set as if only the underlying securities were traded.
Put and call options also may be held by the fund for investment purposes.
Options permit the fund to experience the change in the value of a security with
a relatively small initial cash investment.
The risk the fund assumes when it buys an option is the loss of the premium. To
be beneficial to the fund, the price of the underlying security must change
within the time set by the option contract. Furthermore, the change must be
sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
WRITING COVERED OPTIONS. The fund will write covered options when it feels it
is appropriate and will follow these guidelines:
'All options written by the fund will be covered. For covered call options if a
decision is made to sell the security, the fund will attempt to terminate the
option contract through a closing purchase transaction.
'The fund will deal only in standard option contracts traded on national
securities exchanges or those that may be quoted on NASDAQ (a system of price
quotations developed by the National Association of Securities Dealers, Inc.).
'The fund will write options only as permitted under federal or state laws or
regulations, such as those that limit the amount of total assets subject to the
options. While no limit has been set by the fund, it will conform to the
requirements of those states. For example, California limits the writing of
options to 50% of the assets of a fund.
Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains. Since the fund is taxed as a regulated
investment company under the Internal Revenue Code, any gains on options and
other securities held less than three months must be limited to less than 30% of
its annual gross income.
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If a covered call option is exercised, the security is sold by the fund. The
premium received upon writing the option is added to the proceeds received from
the sale of the security. The fund will recognize a capital gain or loss based
upon the difference between the proceeds and the security's basis. Premiums
received from writing outstanding call options are included as a deferred credit
in the Statement of Assets and Liabilities and adjusted daily to the current
market value.
Options are valued at the close of the New York Stock Exchange. An option
listed on a national exchange, CBOE or NASDAQ will be valued at the last-quoted
sales price or, if such a price is not readily available, at the mean of the
last bid and asked prices.
STOCK INDEX FUTURES CONTRACTS. Stock index futures contracts are commodity
contracts listed on commodity exchanges. They currently include contracts on
the Standard & Poor's 500 Stock Index (S&P 500 Index) and other broad stock
market indexes such as the New York Stock Exchange Composite Stock Index and the
Value Line Composite Stock Index, as well as narrower sub-indexes such as the
S&P 100 Energy Stock Index and the New York Stock Exchange Utilities Stock
Index. A stock index assigns relative values to common stocks included in the
index and the index fluctuates with the value of the common stocks so included.
A futures contract is a legal agreement between a buyer or seller and the
clearinghouse of a futures exchange in which the parties agree to make a cash
settlement on a specified future date in an amount determined by the stock index
on the last trading day of the contract. The amount is a specified dollar
amount (usually $100 or $500) multiplied by the difference between the index
value on the last trading day and the value on the day the contract was struck.
For example, the S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. The S&P 500 Index assigns
relative weightings to the common stocks included in the Index, and the Index
fluctuates with changes in the market values of those stocks. In the case of
S&P 500 Index futures contracts, the specified multiple is $500. Thus, if the
value of the S&P 500 Index were 150, the value of one contract would be $75,000
(150 x $500). Unlike other futures contracts, a stock index futures contract
specifies that no delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the termination of the
contract. For example, excluding any transaction costs, if the fund enters into
one futures contract to buy the S&P 500 Index at a specified future date at a
contract value of 150 and the S&P 500 Index is at 154 on that future date, the
fund will gain $500 x (154-150) or $2,000. If the fund enters into one futures
contract to sell the
S&P 500 Index at a specified future date at a contract value of 150 and the S&P
500 Index is at 152 on that future date, the fund will lose $500 x (152-150) or
$1,000.
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Unlike the purchase or sale of an equity security, no price would be paid or
received by the fund upon entering into futures contracts. However, the fund
would be required to deposit with its custodian, in a segregated account in the
name of the futures broker, an amount of cash or U.S. Treasury bills equal to
approximately 5% of the contract value. This amount is known as initial margin.
The nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not involve
borrowing funds by the fund to finance the transactions. Rather, the initial
margin is in the nature of a performance bond or good-faith deposit on the
contract that is returned to the fund upon termination of the contract, assuming
all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the broker would be
made on a daily basis as the price of the underlying stock index fluctuates,
making the long and short positions in the contract more or less valuable, a
process known as marking to market. For example, when the fund enters into a
contract in which it benefits from a rise in the value of an index and the price
of the underlying stock index has risen, the fund will receive from the broker a
variation margin payment equal to that increase in value. Conversely, if the
price of the underlying stock index declines, the fund would be required to make
a variation margin payment to the broker equal to the decline in value.
HOW THE FUND WOULD USE STOCK INDEX FUTURES CONTRACTS. The fund intends to use
stock index futures contracts and related options for hedging and not for
speculation. Hedging permits the fund to gain rapid exposure to or protect
itself from changes in the market. For example, the fund may find itself with a
high cash position at the beginning of a market rally. Conventional procedures
of purchasing a number of individual issues entail the lapse of time and the
possibility of missing a significant market movement. By using futures
contracts, the fund can obtain immediate exposure to the market and benefit from
the beginning stages of a rally. The buying program can then proceed and once
it is completed (or as it proceeds), the contracts can be closed. Conversely, in
the early stages of a market decline, market exposure can be promptly offset by
entering into stock index futures contracts to sell units of an index and
individual stocks can be sold over a longer period under cover of the resulting
short contract position.
The fund may enter into contracts with respect to any stock index or sub-index.
To hedge the fund's portfolio successfully, however, the fund must enter into
contracts with respect to indexes or sub-indexes whose movements will have a
significant correlation with movements in the prices of the fund's portfolio
securities.
SPECIAL RISKS OF TRANSACTIONS IN STOCK INDEX FUTURES CONTRACTS.
1. LIQUIDITY. The fund may elect to close some or all of its contracts prior
to expiration. The purpose of making such a move would be to reduce or
eliminate the hedge position held by the
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fund. The fund may close its positions by taking opposite positions. Final
determinations of variation margin are then made, additional cash as required is
paid by or to the fund, and the fund realizes a gain or a loss.
Positions in stock index futures contracts may be closed only on an exchange or
board of trade providing a secondary market for such futures contracts. For
example, futures contracts transactions can currently be entered into with
respect to the S&P 500 Stock Index on the Chicago Mercantile Exchange, the New
York Stock Exchange Composite Stock Index on the New York Futures Exchange and
the Value Line Composite Stock Index on the Kansas City Board of Trade. Although
the fund intends to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time. In such event, it may not be possible to close a
futures contract position, and in the event of adverse price movements, the fund
would have to make daily cash payments of variation margin. Such price
movements, however, will be offset all or in part by the price movements of the
securities subject to the hedge. Of course, there is no guarantee the price of
the securities will correlate with the price movements in the futures contract
and thus provide an offset to losses on a futures contract.
2. HEDGING RISKS. There are several risks in using stock index futures
contracts as a hedging device. One risk arises because the prices of futures
contracts may not correlate perfectly with movements in the underlying stock
index due to certain market distortions. First, all participants in the futures
market are subject to initial margin and variation margin requirements. Rather
than making additional variation margin payments, investors may close the
contracts through offsetting transactions which could distort the normal
relationship between the index and futures markets. Second, the margin
requirements in the futures market are lower than margin requirements in the
securities market, and as a result the futures market may attract more
speculators than does the securities market. Increased participation by
speculators in the futures market also may cause temporary price distortions.
Because of price distortion in the futures market and because of imperfect
correlation between movements in stock indexes and movements in prices of
futures contracts, even a correct forecast of general market trends may not
result in a successful hedging transaction over a short period.
Another risk arises because of imperfect correlation between movements in the
value of the futures contracts and movements in the value of securities subject
to the hedge. If this occurred, the fund could lose money on the contracts and
also experience a decline in the value of its portfolio securities. While this
could occur, the investment manager believes that over time the value of the
fund's portfolio will tend to move in the same direction as the market indexes
and will attempt to reduce this risk, to the extent possible, by entering into
futures contracts on indexes whose movements it believes will have a significant
correlation with movements in the value of the fund's portfolio securities
sought to be hedged. It also is possible that if the fund has hedged against
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a decline in the value of the stocks held in its portfolio and stock prices
increase instead, the fund will lose part or all of the benefit of the increased
value of its stock which it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The fund may have to sell
securities at a time when it may be disadvantageous to do so.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Options on stock index futures
contracts are similar to options on stock except that options on futures
contracts give the purchaser the right, in return for the premium paid, to
assume a position in a stock index futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. If the option is
closed instead of exercised, the holder of the option receives an amount that
represents the amount by which the market price of the contract exceeds (in the
case of a call) or is less than (in the case of a put) the exercise price of the
option on the futures contract. If the option does not appreciate in value
prior to the exercise date, the fund will suffer a loss of the premium paid.
OPTIONS ON STOCK INDEXES. Options on stock indexes are securities traded on
national securities exchanges. An option on a stock index is similar to an
option on a futures contract except all settlements are in cash. A fund
exercising a put, for example, would receive the difference between the exercise
price and the current index level. Such options would be used in the same
manner as options on futures contracts.
SPECIAL RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEX FUTURES CONTRACTS AND
OPTIONS ON STOCK INDEXES. As with options on stocks, the holder of an option on
a futures contract or on a stock index may terminate a position by selling an
option covering the same contract or index and having the same exercise price
and expiration date. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. The fund will not purchase options unless the market for such options
has developed sufficiently, so that the risks in connection with options are not
greater than the risks in connection with stock index futures contracts
transactions themselves. Compared to using futures contracts, purchasing
options involves less risk to the fund because the maximum amount at risk is the
premium paid for the options (plus transaction costs). There may be
circumstances, however, when using an option would result in a greater loss to
the fund than using a futures contract, such as when there is no movement in the
level of the stock index.
TAX TREATMENT. As permitted under federal income tax laws, the fund intends to
identify futures contracts as mixed straddles and not mark them to market, that
is, not treat them as having been sold at the end of the year at market value.
Such an election may
-38-
<PAGE>
result in the fund being required to defer recognizing losses incurred by
entering into futures contracts and losses on underlying securities identified
as being hedged against.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and stock indexes is currently unclear, although the fund's
tax advisors currently believe marking to market is not required. Depending on
developments, and although no assurance is given, the fund may seek Internal
Revenue Service (IRS) rulings clarifying questions concerning such treatment.
Certain provisions of the Internal Revenue Code may also limit the fund's
ability to engage in futures contracts and related options transactions. For
example, at the close of each quarter of the fund's taxable year, at least 50%
of the value of its assets must consist of cash, government securities and other
securities, subject to certain diversification requirements. Less than 30% of
its gross income must be derived from sales of securities held less than three
months.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements. In order to avoid realizing a gain within the
three-month period, the fund may be required to defer closing out a contract
beyond the time when it might otherwise be advantageous to do so. The fund also
may be restricted in purchasing put options for the purpose of hedging
underlying securities because of applying the short sale holding period rules
with respect to such underlying securities.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
-39-
<PAGE>
APPENDIX D
MORTGAGE-BACKED SECURITIES
A mortgage pass through certificate is one that represents an interest in a
pool, or group, of mortgage loans assembled by the Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal
National Mortgage Association (FNMA) or non-governmental entities. In
pass-through certificates, both principal and interest payments, including
prepayments, are passed through to the holder of the certificate. Prepayments
on underlying mortgages result in a loss of anticipated interest, and the actual
yield (or total return) to the fund, which is influenced by both stated interest
rates and market conditions, may be different than the quoted yield on
certificates. Some U.S. government securities may be purchased on a
"when-issued" basis, which means that it may take as long as 45 days after the
purchase before the securities are delivered to the fund.
STRIPPED MORTGAGE-BACKED SECURITIES. The fund may invest in stripped
mortgage-backed securities. Generally, there are two classes of stripped
mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs
entitle the holder to receive distributions consisting of all or a portion of
the interest on the underlying pool of mortgage loans or mortgage-backed
securities. POs entitle the holder to receive distributions consisting of all or
a portion of the principal of the underlying pool of mortgage loans or
mortgage-backed securities. The cash flows and yields on IOs and POs are
extremely sensitive to the rate of principal payments (including prepayments) on
the underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs. A slow
rate of principal payments may adversely affect the yield to maturity of POs.
If prepayments of principal are greater than anticipated, an investor may incur
substantial losses. If prepayments of principal are slower than anticipated,
the yield on a PO will be affected more severely than would be the case with a
traditional mortgage-backed security.
MORTGAGE-BACKED SECURITY SPREAD OPTIONS. The fund may purchase mortgage-backed
security (MBS) put spread options and write covered MBS call spread options.
MBS spread options are based upon the changes in the price spread between a
specified mortgage-backed security and a like-duration Treasury security. MBS
spread options are traded in the OTC market and are of short duration, typically
one to two months. The fund would buy or sell covered MBS call spread options
in situations where mortgage-backed securities are expected to under perform
like-duration Treasury securities.
-40-
<PAGE>
APPENDIX E
DOLLAR-COST AVERAGING
A technique that works well for many investors is one that eliminates random buy
and sell decisions. One such system is dollar-cost averaging. Dollar-cost
averaging involves building a portfolio through the investment of fixed amounts
of money on a regular basis regardless of the price or market condition. This
may enable an investor to smooth out the effects of the volatility of the
financial markets. By using this strategy, more shares will be purchased when
the price is low and less when the price is high. As the accompanying chart
illustrates, dollar-cost averaging tends to keep the average price paid for the
shares lower than the average market price of shares purchased, although there
is no guarantee.
While this does not ensure a profit and does not protect against a loss if the
market declines, it is an effective way for many shareholders who can continue
investing through changing market conditions to accumulate shares in a fund to
meet long term goals.
<TABLE>
<CAPTION>
DOLLAR-COST AVERAGING
- --------------------------------------------------------------------------------
REGULAR MARKET PRICE SHARES
INVESTMENT OF A SHARE ACQUIRED
- --------------------------------------------------------------------------------
<S> <C> <C>
$100 $ 6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
---- ------ -----
$500 $25.00 103.4
</TABLE>
Average market price of a share over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each share:
$4.84 ($500 divided by 103.4).
-41-
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. (A) FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<C> <C> <S>
(a) FINANCIAL STATEMENTS
Registrant's annual report to shareholders filed electronically pursuant to Section
270.30d-1 on or about Sept. 29, 1994 is incorporated herein by reference.
(b) EXHIBITS:
1. Articles of Incorporation, as amended October 17, 1988, filed as Exhibit 1 to
Post-Effective Amendment No. 16 to Registration Statement No. 2-72174, is
incorporated herein by reference.
2. By-laws, as amended January 12, 1989, filed as Exhibit 3 to Post-Effective
Amendment No. 16 to Registration Statement No. 2-72174, is incorporated herein by
reference.
3. Not Applicable.
4. Stock certificate, filed as Exhibit No. 4 to Registrant's Registration Statement
No. 2-72174 on April 28, 1981, is incorporated herein by reference.
5. Investment Management and Services Agreement between Registrant and IDS Financial
Corporation, dated Nov. 14, 1991, filed as Exhibit 5 to Post-Effective Amendment
No. 22 to Registration Statement No. 2-72174, is incorporated herein by
reference.
6. Distribution Agreement between Registrant and IDS Financial Services Inc., dated
January 1, 1987, filed as Exhibit 6 to Post-Effective Amendment No. 12 to
Registration Statement No. 2-72174, is incorporated herein by reference.
7. All employees are eligible to participate in a profit sharing plan. Entry into
the plan is Jan. 1 or July 1. The Registrant contributes each year an amount up
to 15 percent of their annual salaries, the maximum deductible amount permitted
under Section 404(a) of the Internal Revenue Code.
8. (a) Custodian Agreement, dated Jan. 2, 1985, filed as Exhibit 8 to Post-Effective
Amendment No. 9 to Registration Statement No. 2-72174, is incorporated herein by
reference.
(b) Sub-Custodian Agreement, dated August 1992, filed as Exhibit 8(b) to
Post-Effective Amendment No. 24 to Registration Statement No. 2-72174, is
incorporated herein by reference.
9. (a) Copy of Plan and Agreement of Merger dated April 10, 1986, filed as Exhibit 9
to Post-Effective Amendment No. 10 to Registration Statement No. 2-72174, is
incorporated herein by reference.
(b) Copy of Transfer Agency Agreement, between Registrant and IDS Financial
Corporation, dated Nov. 14, 1991, filed as Exhibit 9(b) to Post-Effective
Amendment No. 22 to Registration Statement No. 2-72174, is incorporated herein by
reference.
(c) Copy of License Agreement, dated January 25, 1988, between IDS and
Registrant, filed as Exhibit 9(c) to Post-Effective Amendment No. 16 to
Registration Statement No. 2-72174, is incorporated herein by reference.
10. Not Applicable.
11. Not Applicable.
12. None.
13. Not Applicable.
14. Forms of Keogh, IRA and other retirement plans, filed as Exhibits 14(a) through
14(n) to IDS Growth Fund, Inc., Post-Effective Amendment No. 34 to Registration
Statement No. 2-38355, are incorporated herein by reference.
15. Plan and Supplemental Agreement of Distribution between Registrant and IDS
Financial Services Inc., dated January 1, 1987, filed as Exhibit 15 to
Post-Effective Amendment No. 12 to Registration Statement No. 2-72174, is
incorporated herein by reference.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <C> <S>
16. Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22 filed as Exhibit 16 to
Post-Effective Amendment No. 23 to Registration Statement No. 2-72174, is
incorporated herein by reference.
17. Not applicable.
18. (a) Directors' Power of Attorney to sign Amendments to this Registration
Statement, dated Nov. 10, 1994, is filed electronically herewith.
18. (b) Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated June 1, 1993, filed as Exhibit 17(b) to Post-Effective Amendment
No. 24 to Registration Statement No. 2-72174, is incorporated herein by
reference.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
(1) (2)
NUMBER OF
RECORD
HOLDERS AS OF
TITLE OF CLASS JAN. 23, 1995
- -------------- -------------
<S> <C>
Common Stock 85,613
</TABLE>
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, IDS Discovery Fund, Inc. has
duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis
and State of Minnesota on the 1st day of February, 1995.
IDS DISCOVERY FUND, INC.
By /s/ WILLIAM R. PEARCE**
------------------------------------
William R. Pearce,
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following persons in
the capacities indicated on the 1st day of February, 1995.
SIGNATURE CAPACITY
- ----------------------------------- -------------------------
/s/ WILLIAM R. PEARCE** President and Principal
- ----------------------------------- Executive Officer and
William R. Pearce Director
Treasurer, Principal
/s/ LESLIE L. OGG** Financial Officer, and
- ----------------------------------- Principal Accounting
Leslie L. Ogg Officer
/s/LYNNE V. CHENEY*
- ----------------------------------- Director
Lynne V. Cheney
/s/ WILLIAM H. DUDLEY*
- ----------------------------------- Director
William H. Dudley
/s/ ROBERT F. FROEHLKE*
- ----------------------------------- Director
Robert F. Froehlke
/s/ DAVID R. HUBERS*
- ----------------------------------- Director
David R. Hubers
/s/HEINZ F. HUTTER*
- ----------------------------------- Director
Heinz F. Hutter
II-3
<PAGE>
SIGNATURE CAPACITY
- ----------------------------------- -------------------------
/s/ ANNE P. JONES*
- ----------------------------------- Director
Anne P. Jones
/s/ DONALD M. KENDALL*
- ----------------------------------- Director
Donald M. Kendall
/s/ MELVIN R. LAIRD*
- ----------------------------------- Director
Melvin R. Laird
/s/ LEWIS W. LEHR*
- ----------------------------------- Director
Lewis W. Lehr
/s/ EDSON W. SPENCER*
- ----------------------------------- Director
Edson W. Spencer
/s/ JOHN R. THOMAS*
- ----------------------------------- Director
John R. Thomas
/s/ WHEELOCK WHITNEY*
- ----------------------------------- Director
Wheelock Whitney
/s/ C. ANGUS WURTELE*
- ----------------------------------- Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney filed electronically herewith
as Exhibit 18(a) by:
/s/ LESLIE L. OGG
----------------------------------
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney filed electronically as Exhibit
17(b) to Post-Effective Amendment No. 24 to Registration Statement No.
2-72174, by:
/s/ LESLIE L. OGG
----------------------------------
Leslie L. Ogg
II-4
<PAGE>
CONTENTS OF THIS
POST-EFFECTIVE AMENDMENT NO. 28
TO REGISTRATION STATEMENT NO. 2-72174
This post-effective amendment comprises the following papers and documents:
The facing sheet.
The cross reference sheet.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Part C.
Other information.
The signatures.
<PAGE>
Exhibit 18(a)
DIRECTORS/TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors and trustees of the
below listed open-end, diversified investment companies that
previously have filed registration statements and amendments
thereto pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940 with the Securities and
Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
----------- -----------
IDS Bond Fund, Inc. 2-51586 811-2503
IDS California Tax-Exempt Trust 33-5103 811-4646
IDS Discovery Fund, Inc. 2-72174 811-3178
IDS Equity Select Fund, Inc. 2-13188 811-772
IDS Extra Income Fund, Inc. 2-86637 811-3848
IDS Federal Income Fund, Inc. 2-96512 811-4260
IDS Global Series, Inc. 33-25824 811-5696
IDS Growth Fund, Inc. 2-38355 811-2111
IDS High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901
IDS International Fund, Inc. 2-92309 811-4075
IDS Investment Series, Inc. 2-11328 811-54
IDS Managed Retirement Fund, Inc. 2-93801 811-4133
IDS Market Advantage Series, Inc. 33-30770 811-5897
IDS Money Market Series, Inc. 2-54516 811-2591
IDS New Dimensions Fund, Inc. 2-28529 811-1629
IDS Precious Metals Fund, Inc. 2-93745 811-4132
IDS Progressive Fund, Inc. 2-30059 811-1714
IDS Selective Fund, Inc. 2-10700 811-499
IDS Special Tax-Exempt Series Trust 33-5102 811-4647
IDS Stock Fund, Inc. 2-11358 811-498
IDS Strategy Fund, Inc. 2-89288 811-3956
IDS Tax-Exempt Bond Fund, Inc. 2-57328 811-2686
IDS Tax-Free Money Fund, Inc. 2-66868 811-3003
IDS Utilities Income Fund, Inc. 33-20872 811-5522
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg
or either one of them, as her or his attorney-in-fact and agent, to
sign for her or him in her or his name, place and stead any and all
further amendments to said registration statements filed pursuant
to said Acts and any rules and regulations thereunder, and to file
such amendments with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission,
granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in
connection therewith.
Dated the 10th day of November, 1994.
<PAGE>
/s/ Lynne V. Cheney /s/ Melvin R. Laird
- -------------------------- ----------------------------
Lynne V. Cheney Melvin R. Laird
/s/ William H. Dudley /s/ Lewis W. Lehr
- -------------------------- ----------------------------
William H. Dudley Lewis W. Lehr
/s/ Robert F. Froehlke /s/ William R. Pearce
- -------------------------- ----------------------------
Robert F. Froehlke William R. Pearce
/s/ David R. Hubers /s/ Edson W. Spencer
- -------------------------- ----------------------------
David R. Hubers Edson W. Spencer
/s/ Heinz F. Hutter /s/ John R. Thomas
- -------------------------- ----------------------------
Heinz F. Hutter John R. Thomas
/s/ Anne P. Jones /s/ Wheelock Whitney
- -------------------------- ----------------------------
Anne P. Jones Wheelock Whitney
/s/ Donald M. Kendall /s/ C. Angus Wurtele
- -------------------------- ----------------------------
Donald M. Kendall C. Angus Wurtele
