<PAGE>
PAGE 1
1996 ANNUAL REPORT
IDS Discovery Fund
(prospectus enclosed)
(Icon of) Ship
The goal of IDS Discovery Fund, Inc. is long-term growth of
capital. The Fund invests primarily in common stocks of small- and
medium-size growth companies.
(This annual report includes a prospectus that describes in detail
the Fund's objective, investment policies, risks, sales changes,
fees and other matters of interest. Please read the prospectus
carefully before you invest or send money.)
AMERICAN
EXPRESS
Financial
Advisors
Distributed by American Express Financial Advisors Inc.
<PAGE>
PAGE 2
(Icon of) Ship
Your piece of the future
Glance through current business magazine and newspaper articles on
the fastest-growing companies in America - and you'll find many of
the stocks that Discovery Fund owns. The Fund seeks small to
medium-size firms at the forefront of rapidly growing markets or
industries. From high-tech companies in computer networking or
biotechnology to firms that have found new ways to make, manage or
market traditional products and services, these are the companies
that are creating jobs and reshaping U.S. industry today.
<PAGE>
PAGE 3
Contents
(Icon of) One open book inside of another.
The purpose of this annual report is to tell investors how the Fund
performed.
The prospectus, which is bound into the middle of this annual
report, describes the Fund in detail.
1996 annual report
From the president 4
From the portfolio manager 4
Ten largest holdings 6
Making the most of the Fund 7
Long-term performance 8
Independent auditor's report 9
Financial statements 10
Notes to financial statements 13
Investments in securities 24
IDS mutual funds 28
Federal income tax information 31
1996 prospectus
The Fund in brief 3p
Goal 3p
Investment policies and risks 3p
Manager and distributor 3p
Portfolio manager 3p
Alternative purchase arrangements 3p
Sales charge and Fund expenses 4p
Performance 6p
Financial highlights 6p
Total returns 8p
Investment policies and risks 10p
Facts about investments and their risks 11p
Alternative investment option 15p
Valuing Fund shares 15p
How to purchase, exchange or redeem shares 16p
Alternative purchase arrangements 16p
How to purchase shares 19p
How to exchange shares 22p
How to redeem shares 23p
Reductions and waivers of the sales charge 28p
Special shareholder services 32p
Services 32p
Quick telephone reference 32p
<PAGE>
PAGE 4
Distributions and taxes 33p
Dividend and capital gain distributions 33p
Reinvestments 33p
Taxes 34p
How to determine the correct TIN 36p
How the Fund is organized 37p
Shares 37p
Voting rights 38p
Shareholder meetings 38p
Board members and officers 39p
Investment manager 41p
Administrator and transfer agent 42p
Distributor 43p
About American Express Financial Corporation 45p
General information 45p
Appendix 46p
Description of derivative instruments 46p
(This annual report is not part of the prospectus.)
<PAGE>
PAGE 5
To our shareholders
(Photo of William R. Pearce)
William R. Pearce
President of the Fund
(Photo of Kurt Winters)
Kurt Winters
Portfolio manager
From the president
The volatility in the stock market in recent months has put some
investors, even experienced ones, on edge. Although no one can
know exactly what will happen next, history tells us that ups and
downs are intrinsic to stock investing.
But history also shows that changing strategies with every twist
and turn of the market is an impractical and, worse yet, typically
unproductive way to invest. What matters more, therefore, is how
we react to market volatility.
If we take a long-term view and accept the downs with the ups, we
improve our chances of success. For in the investment world, the
race most often goes not to the swift, but to the persistent.
Along the way, of course, you'll still want to review your
investment program to make sure it's on track to achieving your
financial goals. Your American Express financial advisor will help
you do just that, and I suggest you take advantage of his or her
services on a regular basis.
(signature)
William R. Pearce)
From the portfolio manager
The past 12 months was an extremely volatile period for growth
stocks, especially those of the technology-related companies that
comprised much of IDS Discovery Fund's portfolio. Still, the Fund
managed to provide a positive total return for the August 1995
through the July 1996 period. (Much of the Fund's return came in
the form of a capital gain, which was paid to shareholders last
December and reduced the Fund's net asset value by the same amount
at that time.)
After turning in a spectacular, market-leading performance through
the summer of 1995, technology stocks began to lose ground in the
fall of the year. The drop was particularly punishing for this
Fund because of its substantial exposure to technology stocks (as
much as one-third of the portfolio at times).
'Small-caps' struggle to keep up with broad market
<PAGE>
PAGE 6
The Fund's performance also was tempered early in the fiscal year
by an emphasis on stocks of growth companies with small market
capitalizations. (Market capitalization is derived by multiplying
the price of the stock by the number of shares outstanding.) These
"small-caps" not only lagged the often-stellar performance of
larger stocks in 1995, they tended to fall farther when the broad
market stumbled.
By late winter; however, the environment began to improve. Led
mainly by its technology holdings, the Fund surged by approximately
20% from February through May. But the volatility wasn't over, as
those stocks quickly went into a nose dive during July that erased
much of the gain of the previous four months.
Portfolio repositioning
There were considerable changes behind the scenes as well during
the fiscal year. At the outset in August 1995, the median market
cap of stocks in the portfolio was about $400 million - at the low
end of the small-cap scale. To improve liquidity and reduce
volatility, the decision was made to bring the Fund's median market
capitalization up to the high end of the small-cap scale. By
period-end, the median market cap of our holdings was about $800
million. While this repositioning ultimately paid off, it was not
done without cost. This was especially true for holdings among
very small, less liquid stocks, which were often sold at discounted
prices. From this point, I intend to keep the portfolio's median
market cap below $1 billion.
Fund performance also was affected by investments in Russell 2000
future contracts, a type of derivative security whose value is
linked to the value of that small-cap stock index. Overall, these
contracts, which were closed out last spring, gave us positive
results.
As the new fiscal year begins, I am maintaining an emphasis on
stocks of companies that have products and services that enhance
business productivity. While technology-related companies are
certainly on that list, a diverse mix of industrial and service
companies also figure prominently in the portfolio. Naturally,
that won't take all the volatility out of small-company growth
investing, but it should provide a combination of healthy
appreciation potential with less volatility.
(signature)
Kurt Winters
<PAGE>
PAGE 7
Class A
12-month performance
(All figures per share)
Net asset value (NAV)
__________________________
July 31, 1996 $10.73
__________________________
July 31, 1995 $13.16
__________________________
Decrease $ 2.43
__________________________
Distributions
Aug. 1, 1995 - July 31, 1996
__________________________
From income $ 0.09
__________________________
From capital gains $ 2.74
__________________________
Total distributions $ 2.83
__________________________
Total return* 4.0%**
__________________________
Class B
12-month performance
__________________________
(All figures per share)
Net asset value (NAV)
__________________________
July 31, 1996 $10.63
__________________________
July 31, 1995 $13.12
__________________________
Decrease $ 2.49
__________________________
Distributions
Aug. 1 1995 - July 31, 1996
__________________________
From income $ 0.06
__________________________
From capital gains $ 2.74
__________________________
Total distributions $ 2.80
__________________________
Total return* 3.2%**
__________________________
<PAGE>
PAGE 8
Class Y
12-month performance
__________________________
(All figures per share)
Net asset value (NAV)
__________________________
July 31, 1996 $10.73
__________________________
July 31, 1995 $13.17
__________________________
Decrease $ 2.44
__________________________
Distributions
Aug. 1, 1995 - July 31, 1996
__________________________
From income $ 0.11
__________________________
From capital gains $ 2.74
__________________________
Total distributions $ 2.85
__________________________
Total return* 4.2%**
__________________________
*The prospectus discusses
the effect of sales
charges, if any, on the
various classes.
**The total return is a
hypothetical investment
in the Fund with all
distributions reinvested.<PAGE>
PAGE 9
<TABLE><CAPTION>
The ten holdings listed here make up 23.31% of the Fund's net assets
____________________________________________________________________________________
Percent Value
(of Fund's net assets)(as of July 31, 1996)
____________________________________________________________________________________
<S> <C> <C>
OfficeMax 2.98 23,187,500
The second-largest company in the office products industry. The company currently operates
345 office superstores in 39 states.
Progressive (Ohio) 2.43 18,937,500
An insurance holding company whose insurance subsidiaries write non-standard auto and
specialty property/casualty insurance primarily through independent insurance agents.
Mutual Risk Management 2.31 17,937,500
Zero Coupon Cv with attached put
7.00% 2015
An international holding company. Through its subsidiaries, the company provides risk
management services related to the design and implementation of alternative insurance
programs for clients
Tech Data 2.28 17,700,000
The number three wholesale distributor of personal computers, peripherals, networking
products and software. The customer base consists of value-added resellers, corporate
resellers and mass merchants.
Sybron 2.25 17,500,000
A manufacturer of value-added products for the laboratory and professional orthodontic and
dental markets in the United States and abroad.
Cardinal Health 2.23 17,375,000
A wholesale distributor of pharmaceutical, surgical and hospital supplies and health and
beauty aids.
Praxair 2.22 17,268,750
Spun off from Union Carbide in 1992, Praxair is the largest producer of industrial gases in
North and South America, and also provides wear-resistant and corrosion-resistant coatings.
Boston Chicken 2.21 17,225,000
Zero Coupon Cv with attached put
8.00% 2015
Operates and franchises food service stores that specialize in complete meals. The company
operates over 250 stores in 18 states.
Foundation Health 2.21 17,150,000
A managed care company with health maintenance organizations (HMO) in California, Florida
and Colorado.
Millipore 2.19 17,062,500
A leading supplier of filtration products used to analyze, purify and separate fluids.
/TABLE
<PAGE>
PAGE 10
Making the most of the Fund
Average annual total return
(as of July 31, 1996)
1 year Since inception* 5 years 10 years
Class A -1.16% __ % +9.00% +9.76%
Class B -1.76% +11.28% __ % __ %
Class Y +4.19% +15.12% __ % __ %
*Inception date was March 20, 1995.
The performance of Class B and Class Y will vary from the
performance of Class A based on differences in sales charges and
fees.
Your investment and return values fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
Figures for Class A and Class B reflect the effect of the maximum
5% sales charge. This was a period of widely fluctuating security
prices. Past performance is no guarantee of future results.
Build your assets systematically
One of the best ways to invest in the Fund is by dollar-cost
averaging - a time-tested strategy that can make market
fluctuations work for you. To dollar-cost average, simply invest a
fixed amount of money regularly. You'll automatically buy more
shares when the Fund's share price is low, fewer shares when it is
high.
This does not ensure a profit or avoid a loss if the market
declines. But, if you can continue to invest regularly through
changing market conditions, it can be an effective way to
accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Month Amount Per-share Number of shares purchased
invested market price
Jan $100 $20 5.00 XXXXX
Feb 100 18 5.56 XXXXXx
March 100 17 5.88 XXXXXx
April 100 15 6.67 XXXXXXx
May 100 16 6.25 XXXXXXx
June 100 18 5.56 XXXXXx
July 100 17 5.88 XXXXXx
Aug 100 19 5.26 XXXXXx
Sept 100 21 4.76 XXXXx
Oct 100 20 5.00 XXXXX
(footnotes to table) By investing an equal number of dollars each
month...
(arrow in table pointing to April) you automatically buy more
shares when the per share market price is low...
<PAGE>
PAGE 11
(arrow in table pointing to September) and fewer shares when the
per share market price is high.
You have paid an average price of only $17.91 per share over 10
months, while the average market price actually was $18.10.
The Fund's long-term performance
Three ways to benefit from a mutual fund:
o your shares increase in value when the Fund's investments do
well
o you receive capital gains when the gains on investments sold
by the Fund exceeds losses
o you receive income when the Fund's stock dividends, interest
and short-term gains exceed its expenses.
All three make up your total return. And you potentially can
increase your investment if, like most investors, you reinvest your
dividends and capital gain distributions to buy additional shares
of the Fund or another fund.
<TABLE><CAPTION>
How your $10,000 has grown in IDS Discovery Fund
<C> <C> <C> <C>
S&P 500
Stock Index
$25,391
Discovery Fund
Class A
Lipper Small Co.
$9,500 Growth Fund Index
'86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96
</TABLE>
(The following three paragraphs appear in the margin next to the
graph:)
Assumes: o Holding period from 8/1/86 to 7/31/96
o Returns do not reflect taxes payable on distributions
o Reinvestment of all income and capital gain
distributions for the Fund, with a value of $12,031. Also see
"Performance" in the Fund's current prospectus.
The Standard & Poor's 500 Stock Index, an unmanaged list of larger
stocks, is frequently used as a general measure of market
performance. However, the S&P 500 companies are generally larger
than those in which Discovery Fund invests.
<PAGE>
PAGE 12
The Lipper Small Company Growth Fund Index includes 30 funds that
are generally similar to Discovery Fund, although some funds in the
index may have somewhat different investment policies or
objectives.
Average annual total return
(as of July 31, 1996)
1 year Since inception* 5 years 10 years
Class A - 1.16% __% +9.00% +9.76%
Class B - 1.76% +11.28% __ % __ %
Class Y + 4.19% +15.12% __ % __ %
*Inception date was March 20, 1995.
On the graph above you can see how the Fund's total return compared
to two widely cited performance indexes, the S&P 500 and the Lipper
Small Company Growth Fund Index. In comparing Discovery Fund to
the two indexes, you should take into account the fact that the
Fund's performance reflects the maximum sales charge of 5%, while
such charges are not reflected in the performance of the indexes.
If you were actually to buy either individual stocks or growth
mutual funds, any sales charges that you pay would reduce your
total return as well.
Your investment and return values fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
Average annual total return figures reflect the deduction of the
maximum 5% sales charge. This was a period of widely fluctuating
security prices. Past performance is no guarantee of future
results.<PAGE>
PAGE 13
Independent auditors' report
The board of directors and shareholders
IDS Discovery Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in securities,
of IDS Discovery Fund, Inc. as of July 31, 1996, and the related
statement of operations for the year then ended and the statements
of changes in net assets for each of the years in the two-year
period ended July 31, 1996, and the financial highlights for each
of the years in the ten-year period ended July 31, 1996. These
financial statements and the financial highlights are the
responsibility of fund management. Our responsibility is to express
an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Investment securities held in custody are
confirmed to us by the custodian. As to securities purchased and
sold but not received or delivered, we request confirmations from
brokers, and where replies are not received, we carry out other
appropriate auditing procedures. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IDS
Discovery Fund, Inc. at July 31, 1996, and the results of its
operations for the year then ended and the changes in its net
assets for each of the years in the two-year period ended July 31,
1996, and the financial highlights for the periods stated in the
first paragraph above, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 6, 1996
<PAGE>
PAGE 14
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Discovery Fund, Inc.
July 31, 1996
_____________________________________________________________________________________________________________
Assets
_____________________________________________________________________________________________________________
<S> <C>
Investments in securities, at value (Note 1):
Investments in securities of unaffiliated issuers
(identified cost $803,178,080) $779,135,108
Investments in securities of affiliated issuers
(identified cost $7,862,127) 6,100,000
Receivable for investment securities sold 30,322,138
Dividends and accrued interest receivable 278,410
Receivable from AEFC 16,550
_____________________________________________________________________________________________________________
Total assets 815,852,206
_____________________________________________________________________________________________________________
Liabilities
_____________________________________________________________________________________________________________
Disbursements in excess of cash on demand deposit 3,741,657
Payable for investment securities purchased 30,756,787
Accrued distribution fee 881
Accrued service fee 3,455
Accrued transfer agency fee 3,969
Accrued administrative services fee 1,157
Other accrued expenses 120,813
Open option contracts written, at value
(premium received $1,816,554)(Note 6) 3,271,875
_____________________________________________________________________________________________________________
Total liabilities 37,900,594
_____________________________________________________________________________________________________________
Net assets applicable to outstanding capital stock $777,951,612
_____________________________________________________________________________________________________________
Represented by
_____________________________________________________________________________________________________________
Capital stock -- authorized 10,000,000,000 shares of $.01 par value $ 725,588
Additional paid-in capital 694,704,919
Undistributed net investment income 2,185,644
Accumulated net realized gain (Note 1) 107,595,881
Unrealized depreciation of investments (Note 4) (27,260,420)
_____________________________________________________________________________________________________________
Total -- representing net assets applicable to outstanding capital stock $777,951,612
_____________________________________________________________________________________________________________
Net assets applicable to outstanding shares: Class A $682,656,220
Class B $ 43,492,563
Class Y $ 51,802,829
Net asset value per share of outstanding capital stock: Class A shares 63,641,887 $ 10.73
Class B shares 4,091,263 $ 10.63
Class Y shares 4,825,606 $ 10.73
See accompanying notes to financial statements.<PAGE>
PAGE 15
Financial statements
Statement of operations
IDS Discovery Fund, Inc.
Year ended July 31, 1996
_____________________________________________________________________________________________________________
Investment income
_____________________________________________________________________________________________________________
Income:
Interest $ 9,743,104
Dividends 1,631,575
_____________________________________________________________________________________________________________
Total income 11,374,679
_____________________________________________________________________________________________________________
Expenses (Note 2):
Investment management services fee 4,068,196
Distribution fee -- Class B 182,393
Transfer agency fee 1,414,949
Incremental transfer agency fee -- Class B 4,597
Service fee
Class A 1,220,944
Class B 42,488
Administrative services fee 424,647
Compensation of board members 19,181
Compensation of officers 6,930
Custodian fees 105,798
Postage 81,456
Registration fees 115,694
Reports to shareholders 135,174
Audit fees 25,500
Administrative 7,002
Other 11,165
_____________________________________________________________________________________________________________
Total expenses 7,866,114
Earnings credits on cash balances (Note 2) (8,092)
_____________________________________________________________________________________________________________
Total net expenses 7,858,022
_____________________________________________________________________________________________________________
Investment income -- net 3,516,657
_____________________________________________________________________________________________________________
Realized and unrealized gain (loss) -- net
_____________________________________________________________________________________________________________
Net realized gain on security transactions 95,308,347
Net realized gain on sale of affiliated issuers 1,625,808
Net realized gain on closed stock index futures contracts (Note 4) 16,116,887
Net realized gain on closed, exercised or expired option contracts written (Note 6) 7,940,821
_____________________________________________________________________________________________________________
Net realized gain on investments 120,991,863
Net change in unrealized appreciation or depreciation of investments (98,059,098)
_____________________________________________________________________________________________________________
Net gain on investments 22,932,765
_____________________________________________________________________________________________________________
Net increase in net assets resulting from operations $26,449,422
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
/TABLE
<PAGE>
PAGE 16
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Discovery Fund, Inc.
Year ended July 31,
_____________________________________________________________________________________________________________
Operations and distributions 1996 1995
_____________________________________________________________________________________________________________
<S> <C> <C>
Investment income -- net $ 3,516,657 $ 3,967,370
Net realized gain on investments 120,991,863 142,003,421
Net change in unrealized appreciation or depreciation of investments (98,059,098) 17,500,050
_____________________________________________________________________________________________________________
Net increase in net assets resulting from operations 26,449,422 163,470,841
_____________________________________________________________________________________________________________
Distributions to shareholders from:
Net investment income
Class A (4,817,749) --
Class B (109,553) --
Class Y (369,986) --
Net realized gain
Class A (141,682,931) (1,459,261)
Class B (4,249,927) --
Class Y (9,128,279) --
_____________________________________________________________________________________________________________
Total distributions (160,358,425) (1,459,261)
_____________________________________________________________________________________________________________
Capital share transactions (Note 5)
_____________________________________________________________________________________________________________
Proceeds from sales
Class A shares (Note 2) 423,969,758 319,261,555
Class B shares 39,614,584 9,122,076
Class Y shares 30,960,567 41,198,971
Reinvestment of distributions at net asset value
Class A shares 145,127,830 1,450,495
Class B shares 4,297,905 --
Class Y shares 9,498,265 --
Payments for redemptions
Class A shares (495,135,942) (269,336,702)
Class B shares (Note 2) (5,520,898) (84,493)
Class Y shares (19,208,184) (7,973,466)
_______________________________________________________________________________________________________________
Increase in net assets from capital share transactions 133,603,885 93,638,436
_______________________________________________________________________________________________________________
Total increase (decrease) in net assets (305,118) 255,650,016
Net assets at beginning of year 778,256,730 522,606,714
_______________________________________________________________________________________________________________
Net assets at end of year
(including undistributed net investment income of
$2,185,644 and $3,966,275) $777,951,612 $778,256,730
_______________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 17
Notes to financial statements
IDS Discovery Fund, Inc.
___________________________________________________________________
1. Summary of significant accounting policies
The Fund is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company.
The Fund invests primarily in common stocks of small- and medium-
size growth companies. The Fund offers Class A, Class B and Class Y
shares. Class A shares are sold with a front-end sales charge.
Class B shares may be subject to a contingent deferred sales charge
and such shares automatically convert to Class A after eight years.
Class Y shares have no sales charge and are offered only to
qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation
and other rights, and the same terms and conditions, except that
the level of distribution fee, transfer agency fee and service fee
(class specific expenses) differs among classes. Income, expenses
(other than class specific expenses) and realized and unrealized
gains or losses on investments are allocated to each class of
shares based upon its relative net assets.
Significant accounting policies followed by the Fund are summarized
below:
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from
those estimates.
Valuation of securities
All securities are valued at the close of each business day.
Securities traded on national securities exchanges or included in
national market systems are valued at the last quoted sales price;
securities for which market quotations are not readily available
are valued at fair value according to methods selected in good
faith by the board. Determination of fair value involves, among
other things, reference to market indexes, matrixes and data from
independent brokers. Short-term securities maturing in more than
60 days from the valuation date are valued at the market price or
approximate market value based on current interest rates; those
maturing in 60 days or less are valued at amortized cost.
<PAGE>
PAGE 18
Option transactions
In order to produce incremental earnings, protect gains, and
facilitate buying and selling of securities for investment
purposes, the Fund may buy or write options traded on any U.S. or
foreign exchange or in the over-the-counter market where the
completion of the obligation is dependent upon the credit standing
of the other party. The Fund also may buy and sell put and call
options and write covered call options on portfolio securities and
may write cash-secured put options. The risk in writing a call
option is that the Fund gives up the opportunity of profit if the
market price of the security increases. The risk in writing a put
option is that the Fund may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying
an option is that the Fund pays a premium whether or not the option
is exercised. The Fund also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary
market does not exist.
Futures transactions
In order to gain exposure to or protect itself from changes in the
market, the Fund may buy and sell futures contracts traded on any
U.S. or foreign exchange. The Fund also may buy or write put and
call options on these contracts. Risks of entering into futures
contracts and related options include the possibility that there
may be an illiquid market and that a change in the value of the
contract or option may not correlate with changes in the value of
the underlying security.
Upon entering into a futures contract, the Fund is required to
deposit either cash or securities in an amount (initial margin)
equal to a certain percentage of the contract value. Subsequent
payments (variation margin), if any, are made or received by the
Fund each day. The variation margin payments or market value of the
contracts are equal to the daily changes in the contract value and
are recorded as unrealized gains and losses. The Fund recognizes a
realized gain or loss when the contract is closed or expires.
Foreign currency translations and
foreign currency contracts
Securities and other assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the closing
rate of exchange. Foreign currency amounts related to the purchase
or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in
foreign exchange rates on realized and unrealized security gains or
losses is reflected as a component of such gains or losses. In the
statement of operations, net realized gains or losses from foreign
currency transactions may arise from sales of foreign currency,
closed forward contracts, exchange gains or losses realized between
the trade date and settlement dates on securities transactions, and
other translation gains or losses on dividends, interest income and
foreign withholding taxes.
<PAGE>
PAGE 19
The Fund may enter into forward foreign currency exchange contracts
for operational purposes and to protect against adverse exchange
rate fluctuation. The net U.S. dollar value of foreign currency
underlying all contractual commitments held by the Fund and the
resulting unrealized appreciation or depreciation are determined
using foreign currency exchange rates from an independent pricing
service. The Fund is subject to the credit risk that the other
party will not complete the obligations
of the contract.
Federal taxes
Since the Fund's policy is to comply with all sections of the
Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income to shareholders, no
provision for income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) may
differ for financial statement and tax purposes primarily because
of the deferral of losses on certain futures contracts, the
recognition of certain foreign currency gains (losses) as ordinary
income (loss) for tax purposes and losses deferred due to "wash
sale" transactions. The character of distributions made during the
year from net investment income or net realized gains may differ
from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the
year that the income or realized gains (losses) were recorded by
the Fund.
Dividends to shareholders
An annual dividend declared and paid at the end of the calendar
year from net investment income is reinvested in additional shares
of the Fund at net asset value or payable in cash. Capital gains,
when available, are distributed along with the income dividend.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Dividend income is recognized on the ex-dividend
date and interest income, including level-yield amortization of
premium and discount, is accrued daily.
___________________________________________________________________
2. Expenses and sales charges
Effective March 20, 1995, the Fund entered into agreements with
American Express Financial Corporation (AEFC) for managing its
portfolio, providing administrative services and serving as
transfer agent. Under its Investment Management Services Agreement,
AEFC determines which securities will be purchased, held or sold.
The management fee is a percentage of the Fund's daily net assets
in reducing percentages from 0.64% to 0.515% annually. The fee is
adjusted upward or downward by a performance incentive adjustment
<PAGE>
PAGE 20
based on the Fund's average daily net assets over a rolling 12-
month period as measured against the change in the Lipper Small
Company Growth Fund Index. The maximum adjustment is 0.12% of the
Fund's average daily net assets after deducting 1% from the
performance difference. If the performance difference is less than
1%, the adjustment will be zero. The adjustment decreased the fee
by $698,515 for the year ended July 31, 1996.
Under an Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at a percentage of the
Fund's average daily net assets in reducing percentages from 0.06%
to 0.035% annually.
Under a separate Transfer Agency Agreement, AEFC maintains
shareholder accounts and records. The Fund pays AEFC an annual fee
per shareholder account for this service as follows:
o Class A $15
o Class B $16
o Class Y $15
Also effective March 20, 1995, the Fund entered into agreements
with American Express Financial Advisors Inc. for distribution and
shareholder servicing-related services. Under a Plan and Agreement
of Distribution, the Fund pays a distribution fee at an annual rate
of 0.75% of the Fund's average daily net assets attributable to
Class B shares for distribution-related services.
Under a Shareholder Service Agreement, the Fund pays a fee for
service provided to shareholders by financial advisors and other
servicing agents. The fee is calculated at a rate of 0.175% of the
Fund's average daily net assets attributable to Class A and Class B
shares.
AEFC will assume and pay any expenses (except taxes and brokerage
commissions) that exceed the most restrictive applicable state
expense limitation.
Sales charges received by American Express Financial Advisors Inc.
for distributing fund shares were $1,896,604 for Class A and
$15,230 for Class B for the year ended July 31, 1996. The Fund also
pays custodian fees to American Express Trust Company, an affiliate
of AEFC.
During the year ended July 31, 1996, the Fund's custodian and
transfer agency fees were reduced by $8,092 as a result of earnings
credits from overnight cash balances.
Prior to April 30, 1996, the Fund had a retirement plan for its
independent board members. The plan was terminated April 30, 1996.
The retirement plan expense amounted to $8,718 for the year. The
total liability for the plan is $28,098, which will be paid out at
some future date.
<PAGE>
PAGE 21
____________________________________________________________
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $1,391,541,992 and
$1,200,804,790, respectively, for the year ended July 31, 1996.
Realized gains and losses are determined on an identified cost
basis.
Brokerage commissions paid to brokers affiliated with AEFC were
$232,645 for the year ended July 31, 1996.
Income from securities lending amounted to $13,526 for the year
ended July 31, 1996. The risks to the Fund of securities lending
are that the borrower may not provide additional collateral when
required or return the securities when due.
___________________________________________________________________
4. Capital share transactions
Transactions in shares of capital stock for the periods indicated
are as follows:
___________________________________________________________________
Year ended July 31, 1996
Class A Class B Class Y
___________________________________________________________________
Sold 36,682,783 3,408,482 2,643,673
Issued for reinvested
distributions 14,117,493 419,963 924,046
Redeemed (42,626,793) (493,590) (1,670,645)
___________________________________________________________________
Net increase 8,173,483 3,334,855 1,897,074
__________________________________________________________________
___________________________________________________________________
Year ended July 31, 1995
Class A Class B* Class Y*
__________________________________________________________________
Sold 28,277,355 763,482 3,603,336
Issued for reinvested 130,627 -- --
distributions
Redeemed (23,508,861) (7,074) (674,804)
___________________________________________________________________
Net increase 4,899,121 756,408 2,928,532
_________________________________________________________________
*Inception date was March 20, 1995.
___________________________________________________________________
<PAGE>
PAGE 22
5. Option contracts written
Option contracts are valued daily at the closing prices on their
primary exchanges and unrealized appreciation or depreciation is
recorded. The Fund will realize a gain or loss upon expiration or
closing of the option transaction. When an option is exercised, the
proceeds on sales for a written call option, the purchase cost for
a written put option or the cost of a security for a purchased put
or call option is adjusted by the amount of premium received or
paid.
The number of contracts and premium amounts associated with options
contracts written is as follow:
<TABLE>
<CAPTION>
Year ended July 31, 1996
___________________________________________________________________________
Puts Calls
___________________________________________________________________________
Contracts Premium Contracts Premium
<C> <C> <C> <C>
___________________________________________________________________________
Balance July 31, 1995 7,750 $ 446,734 2,650 $ 247,380
Opened 121,789 14,034,029 132,100 19,726,571
Closed (80,075) (9,021,342) (63,730) (10,400,635)
Exercised (13,750) (2,276,266) (33,825) (5,550,104)
Expired (28,464) (2,220,133) (31,195) (3,169,680)
___________________________________________________________________________
Balance July 31, 1996 7,250 $ 963,022 6,000 $ 853,532
___________________________________________________________________________
</TABLE>
___________________________________________________________________
6. Financial highlights
"Financial highlights" showing per share data and selected
information is presented on pages 6 and 7 of the prospectus.
<PAGE>
PAGE 23
<TABLE>
<CAPTION>
Investments in securities
IDS Discovery Fund, Inc. (Percentages represent value of
July 31, 1996 investments compared to net assets)
Investments in securities of unaffiliated issuers
_____________________________________________________________________________________________________________________________
Common stocks (84.9%)
_____________________________________________________________________________________________________________________________
Issuer Shares Value(a)
_____________________________________________________________________________________________________________________________
<S> <C> <C>
Chemicals (4.4%)
Millipore 500,000 17,062,500
Praxair 450,000 17,268,750
____________
Total 34,331,250
_____________________________________________________________________________________________________________________________
Communication equipment & services (2.3%)
Geotek Communications 650,000 (b) 6,500,000
Spectralink 765,000 (b) 4,494,375
Transaction Network Services 500,000 (b) 7,125,000
____________
Total 18,119,375
_____________________________________________________________________________________________________________________________
Computers & office equipment (21.3%)
Affiliated Computer Services 150,000 (b) 8,250,000
Business Objects ADR 425,000 (b) 8,181,250
Danka Business Systems ADR 225,000 6,187,500
Exabyte 525,000 (b) 6,300,000
Fiserv 75,000 (b) 2,512,500
FORE Systems 275,000 (b) 7,528,125
Informix 375,000 (b) 8,179,688
Network General 425,000 (b) 7,490,625
PLATINUM Technology 850,000 (b) 8,340,625
Renaissance Solutions 275,000 (b) 7,940,625
Sanmina 125,000 (b) 3,968,750
Shiva 125,000 (b) 6,468,750
Softkey Intl 150,000 (b) 2,775,000
Solectron 525,000 (b) 16,537,500
Sterling Commerce 250,000 (b) 7,906,250
System Software 625,000 8,125,000
Tech Data 800,000 (b) 17,700,000
3Com 425,000 (b) 16,734,375
Viewlogic Systems 375,000 (b) 5,156,250
Western Digital 300,000 (b,c) 8,962,500
____________
Total 165,245,313
_____________________________________________________________________________________________________________________________
Electronics (7.7%)
Adaptec 200,000 (b) 8,300,000
Elsag Bailey Process Auto 275,000 (b) 6,565,625
Fusion Systems 307,500 (b) 6,226,875
Lattice Semiconductor 325,000 (b) 8,409,375
Level One Communications 375,000 (b) 6,281,250
Methode Electronics 400,000 6,800,000
See accompanying notes to investments in securities.
<PAGE>
PAGE 24
Microchip Technology 275,000 (b) 8,765,625
Sipex 160,000 (b) 2,240,000
Tencor Instruments 375,000 (b) 6,000,000
____________
Total 59,588,750
_____________________________________________________________________________________________________________________________
Energy (4.0%)
Devon Energy 275,000 6,428,125
Global Natural Resources 400,000 (b) 6,050,000
Nuevo Energy 200,000 (b) 6,150,000
Pogo Producing 200,000 6,675,000
United Meridian 175,000 (b) 5,753,125
____________
Total 31,056,250
_____________________________________________________________________________________________________________________________
Energy equipment & services (0.8%)
Input/Output 200,000 (b) 6,300,000
_____________________________________________________________________________________________________________________________
Financial Services (2.3%)
FINOVA Group 300,000 14,850,000
United Companies Financial 100,000 3,300,000
____________
Total 18,150,000
_____________________________________________________________________________________________________________________________
Health care (5.2%)
ALZA 275,000 (b) 6,806,250
PAREXEL Intl 175,000 (b) 7,087,500
Spine-Tech 275,000 (b) 7,046,875
Sybron 700,000 (b) 17,500,000
Watson Pharmaceuticals 45,000 (b) 1,755,000
____________
Total 40,195,625
_____________________________________________________________________________________________________________________________
Health care services (9.3%)
Cardinal Health 250,000 17,375,000
Foundation Health 700,000 (b) 17,150,000
Genesis Health Ventures 275,000 (b,c) 6,909,375
HEALTHSOUTH 475,000 (b) 14,428,125
Physician Sales & Service 450,000 (b) 7,875,000
Quorum Health Group 375,000 (b) 8,812,500
____________
Total 72,550,000
_____________________________________________________________________________________________________________________________
Industrial equipment & services (6.8%)
Greenfield Industries 225,000 6,496,875
Harnischfeger Industries 500,000 15,500,000
Measurex 225,000 (c) 6,215,625
United Waste Systems 300,000 (b) 7,762,500
Wolverine Tube 475,000 (b,c) 16,862,500
____________
Total 52,837,500
_____________________________________________________________________________________________________________________________
Industrial transportation (0.8%)
Landstar System 250,000 (b) 6,437,500
_____________________________________________________________________________________________________________________________
Insurance (6.6%)
American Re 225,000 (c) 12,656,250
PennCorp Financial Group 250,000 7,000,000
Progressive (Ohio) 375,000 (c) 18,937,500
PXRE 275,000 6,256,250
Risk Capital Holdings 375,000 (b) 6,515,625
____________
Total 51,365,625
_____________________________________________________________________________________________________________________________
Media (1.6%)
EchoStar Communications Group 250,000 (b) 6,812,500
Regal Cinemas 125,000 5,312,500
____________
Total 12,125,000
_____________________________________________________________________________________________________________________________
Metals (1.8%)
IMCO Recycling 391,600 6,265,600
Stillwater Mining 350,000 (b) 7,525,000
<PAGE>
PAGE 25
____________
Total 13,790,600
_____________________________________________________________________________________________________________________________
Multi-industry (3.5%)
Alco Standard 236,200 10,333,750
Career Horizons 600,000 (b) 16,875,000
____________
Total 27,208,750
_____________________________________________________________________________________________________________________________
Paper & packaging (1.2%)
Sealed Air 275,000 (b) 9,556,250
_____________________________________________________________________________________________________________________________
Restaurants & lodging (0.8%)
Wyndham Hotel 319,100 (b) 6,421,887
_____________________________________________________________________________________________________________________________
Retail (3.8%)
Gymboree 275,000 (b) 6,393,750
OfficeMax 1,750,000 (b) 23,187,500
____________
Total 29,581,250
_____________________________________________________________________________________________________________________________
Utilities - telephone (0.7%)
Intermedia Communications of Florida 225,000 (b,c) 5,681,250
_____________________________________________________________________________________________________________________________
Total common stocks
(Cost: $679,448,677) $660,542,175
_____________________________________________________________________________________________________________________________
Options (0.0%)
_____________________________________________________________________________________________________________________________
Structured OTC option contract on the Emerging Market Equity Index, entered into
with Merrill Lynch Limited, notional amount of $30,000,000, expiration date of 8/1/96
(Cost: $1,014,008) $ (25,252)
_____________________________________________________________________________________________________________________________
Bonds (7.3%)
_____________________________________________________________________________________________________________________________
Issuer and Principal Value(a)
coupon rate amount
_____________________________________________________________________________________________________________________________
Boston Chicken
Zero Coupon Cv with attached put
8.00% 2015 $65,000,000 (g) $17,225,000
Mutual Risk Management
Zero Coupon Cv with attached put
7.00% 2015 50,000,000 (d,g) 17,937,500
Softkey Intl
Cv
5.50% 2000 15,000,000 11,775,000
United Waste Systems
Cv
4.50% 2001 10,000,000 (d) 10,075,000
_____________________________________________________________________________________________________________________________
Total bonds
(Cost: $61,103,901) $57,012,500
____________________________________________________________________________________________________________________________
</TABLE>
<TABLE><CAPTION>
Short-term securities (7.9%)
_____________________________________________________________________________________________________________________________
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C>
U.S. government agencies (0.9%)
Federal Home Loan Bank
Disc Nt 5.22% $5,000,000 $ 4,989,869
Federal Home Loan Mtge Corp
Disc Nt 5.23 2,170,000 2,166,539
_____________
Total 7,156,408
<PAGE>
PAGE 26
______________________________________________________________________________________________________________________
Commercial paper (7.0%)
Alabama Power
08-23-96 5.31 1,200,000 1,196,121
BellSouth
08-21-96 5.41 5,900,000 5,882,398
CAFCO
09-19-96 5.43 2,600,000 2,579,839
Dean Witter, Discover & Company
09-04-96 5.32 3,400,000 3,383,013
Fleet Funding
09-06-96 5.35 1,200,000 (e) 1,193,616
Lilly (Eli)
08-09-96 5.40 4,300,000 4,294,859
Metlife Funding
09-09-96 5.39 6,900,000 6,859,934
Morgan Stanley
09-06-96 5.37 2,100,000 2,088,786
Natl Australia Funding
08-01-96 5.38 5,000,000 5,000,000
Northern States Power
08-02-96 5.37 6,300,000 6,299,064
Sandoz
08-23-96 5.36 3,100,000 (e) 3,089,884
Toyota Motor Finance
08-13-96 5.39 5,300,000 5,290,513
USAA Capital
08-07-96 5.38 4,000,000 3,996,427
09-19-96 5.39 700,000 694,823
Unilever Capital
08-01-96 5.38 2,600,000 (e) 2,600,000
_____________
Total 54,449,277
_____________________________________________________________________________________________________________________________
Total short-term securities
(Cost: $61,611,494) $61,605,685
_____________________________________________________________________________________________________________________________
Total investments in securities of unaffiliated issuers
(Cost: $803,178,080) $779,135,108
_____________________________________________________________________________________________________________________________
Investments in securities of affiliated issuers (f)
_____________________________________________________________________________________________________________________________
Common stocks (0.8%)
_____________________________________________________________________________________________________________________________
Issuer Shares Value(a)
_____________________________________________________________________________________________________________________________
Physician Support Systems 400,000 (b) 6,100,000
_____________________________________________________________________________________________________________________________
Total investments in securities of affiliated issuers
(Cost: $7,862,127) $ 6,100,000
_____________________________________________________________________________________________________________________________
Total investments in securities
(Cost: $811,040,207)(h) $785,235,108
_____________________________________________________________________________________________________________________________
Notes to investments in securities
_____________________________________________________________________________________________________________________________
(a) Securities are valued by procedures described in Note 1 to the
financial statements.
(b) Presently non-income producing.
(c) At July 31, 1996, securities valued at $23,421,875 were held to cover
open call options written as follows:
Issuer Number of Exercise Expiration Value(a)
contracts price date
_________________________________________________________________________
<C> <C> <C> <C> <C>
American Re 2,250 $45 Aug. 1996 $2,306,250
Genesis Health Ventures 250 25 Aug. 1996 29,687
Intermedia Communications
of Florida 1,500 35 Aug. 1996 18,750
Measurex 1,250 30 Aug. 1996 23,438
Progressive (Ohio) 250 50 Aug. 1996 34,375
Western Digital 250 30 Aug. 1996 35,937
Wolverine Tube 250 35 Aug. 1996 28,125
__________
Total $2,476,562
<PAGE>
PAGE 27
At July 31, 1996, cash or short-term securities were designated to
cover open put options written as follows:
Issuer Number of Exercise Expiration Value(a)
contracts price date
_____________________________________________________________________
<C> <C> <C> <C> <C>
FINOVA Group 250 $50 Aug. 1996 $ 26,562
FORE Systems 250 25 Aug. 1996 26,562
Fritz Companies 3,000 12 Aug. 1996 196,875
Millipore 500 35 Aug. 1996 75,000
Shiva 250 50 Aug. 1996 60,938
Softkey Intl 1,750 20 Aug. 1996 339,063
Watson Pharmaceuticals 1,250 35 Aug. 1996 70,313
________
Total $795,313
(d) Represents a security sold under 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This
security has been determined to be liquid under guidelines
established by the board.
(e) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under Section 4(2) of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "accredited investors." This security has been determined to be
liquid under guidelines established by the board.
(f) Investments representing 5% or more of the outstanding voting
securities of the issuer.
(g) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(h) At July 31, 1996, the cost of securities for federal income tax
purposes was approximately $819,244,945 and the aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $42,765,729
Unrealized depreciation (76,775,566)
____________________________________________________________
Net unrealized depreciation $(34,009,837)
____________________________________________________________
/TABLE
<PAGE>
PAGE 28
IDS mutual funds
Cash equivalent investments
These money market funds have three main goals: conservation of
capital, constant liquidity and the highest possible current income
consistent with these objectives. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial
paper, bankers' acceptances, certificates of deposits (CDs) and
other bank securities.
(icon of) piggy bank
IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and
local governments to seek high current income exempt from federal
income taxes.
(icon of) shield with piggy bank enclosed
Income investments
The funds in this group invest their assets primarily in corporate
bonds or government securities to seek interest income. Secondary
objective is capital growth. Risk varies by bond quality.
IDS Global Bond Fund
Invests primarily in debt securities of U.S. and foreign issuers to
seek high total return through income and growth of capital.
(icon of) globe
IDS Extra Income Fund
Invests mainly in long-term, high-yielding corporate fixed-income
securities in the lower rated, higher risk bond categories to seek
high current income. Secondary objective is capital growth.
(icon of) coins
IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher
rated, lower risk bond categories, or the equivalent, and in
government bonds.
(icon of) greek column
<PAGE>
PAGE 29
IDS Selective Fund
Invests in high-quality corporate bonds and other highly rated debt
instruments including government securities and short-term
investments. Seeks current income and preservation of capital.
(icon of) skyline
IDS Federal Income Fund
Invests primarily in securities issued or guaranteed as to the
timely payment of principal and interest by the U.S. government,
its agencies and instrumentalities. Seeks a high level of current
income and safety of principal consistent with its type of
investments.
(icon of) shield with eagle head enclosed
Tax-exempt income investments
These funds provide tax-free income by investing in municipal
bonds. The income is generally free from federal income tax. Risk
varies by bond quality.
IDS High Yield Tax-Exempt Fund
Invests primarily in medium- and lower-quality municipal bonds and
notes. Lower-quality securities generally involve greater risk of
principal and income.
(icon of) shield with basket of apples enclosed
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to
provide income to residents of each respective state that is exempt
from federal, state and local income taxes. (New York is the only
state that is exempt at the local level.)
(icon of) shield with U.S. enclosed
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government
units, with at least 75% in the four highest rated, lowest risk
bond categories.
(icon of) shield with Greek column enclosed
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to
the timely payment of principal and interest. The insurance
feature minimizes credit risk of the fund but does not guarantee
the market value of the fund's shares.
(icon of) shield with star enclosed
<PAGE>
PAGE 30
Growth and income investments
These funds focus on securities of medium to large, well-
established companies that offer long-term growth of capital and
reasonable income from dividends and interest. Moderate risk.
IDS International Fund
Invests primarily in common stocks of foreign companies that offer
potential for superior growth. The fund may invest up to 20% of
its assets in the U.S. market.
(icon of) three flags
IDS Managed Allocation Fund
Invests in U.S. equity securities, U.S. and foreign debt
securities, foreign equity securities and money market instruments.
The fund provides diversification among these major investment
categories and has a target mix that represents the way the fund's
investments will be allocated over the long term. Seeks maximum
total return.
(icon of) bird in a nest
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks,
higher-yielding equities and bonds. Seeks growth of capital and
income.
(icon of) three pine trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities
purchased are those recommended by our research analysts as the
best from each industry represented on the index. Offers potential
for long-term growth as well as dividend income.
(icon of) ribbon
IDS Stock Fund
Invests in common stock of companies representing many sectors of
the economy. Seeks current income and growth of capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential
for growth of capital and income.
(icon of) three growing flowers
<PAGE>
PAGE 31
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek
high current income and growth of income and capital with reduced
volatility.
(icon of) light bulb
IDS Diversified Equity Income Fund
Invests primarily in high-yielding common stocks to seek high
current income and, secondarily, to benefit from the growth
potential offered by stock investments.
(icon of) two puzzle pieces
IDS Mutual
Invests in a balance between common stocks and senior securities
(preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
(icon of) scale of justice
Growth investments
Funds in this group seek capital growth, primarily from common
stocks. They are high risk mutual funds with a potential for high
reward.
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies
emphasizing technological innovation and productivity enhancement.
Buys and holds larger growth-oriented stocks.
(icon of) ship
IDS Small Company Index Fund
Invests in all or a representative group of the equity securities
comprising the S&P SmallCap 600 Index, as it strives to provide
long-term capital appreciation.
(icon of) office building
IDS Progressive Fund
Invests primarily in undervalued common stocks. The fund holds
stocks for the long term with the goal of capital growth.
(icon of) shooting star
<PAGE>
PAGE 32
IDS Global Growth Fund
Invests in stocks of companies throughout the world that are
positioned to meet market needs in a changing world economy. These
companies offer above-average potential for long-term growth.
(icon of) world
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected
for their potential for above-average growth. Above-average means
that their growth potential is better, in the opinion of the
portfolio's investment manager, than the Standard & Poor's
Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Research Opportunities Fund
Invests primarily in equity securities of companies included in the
S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the
Research Department of AEFC. Goal is long-term appreciation.
(icon of) magnifying glass
IDS Growth Fund
Invests primarily in companies that have above-average potential
for long-term growth as a result of new management, marketing
opportunities or technological superiority.
(icon of) trees
IDS New Dimensions Fund
Invests primarily in companies with significant growth potential
due to superiority in technology, marketing or management. The
fund frequently changes its industry mix.
(icon of) dimension
Specialty growth investment
This fund aggressively seeks capital growth as a hedge against
inflation.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic
companies that explore for, mine and process or distribute gold and
other precious metals. This is the most aggressive and most
speculative IDS mutual fund.
(icon of) cart of precious gems
<PAGE>
PAGE 33
For more complete information about any of these funds, including
charges and expenses, you can obtain a prospectus by contacting
your financial advisor or writing to American Express Shareholder
Service, P.O. Box 534, Minneapolis, MN 55440-0534. Read it
carefully before you invest or send money.
<PAGE>
PAGE 34
Federal income tax information
IDS Discovery Fund, Inc.
___________________________________________________________________
The fund is required by the Internal Revenue Code of 1986 to tell
its shareholders about the tax treatment of the dividends it pays
during its fiscal year. The dividend listed below was reported to
you on a Form 1099-DIV, Dividends and Distributions, last January.
Shareholders should consult a tax adviser on how to report
distributions for state and local purposes.
IDS Discovery Fund, Inc.
Fiscal year ended July 31, 1996
Class A
Income distribution taxable as dividend income, 1.45% qualifying
for deduction by corporations.
Payable date Per share
Dec. 29, 1995 $0.82634
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1995 $2.00475
Total distributions $2.83109
The distributions of $2.83109 per share, payable Dec. 29, 1995,
consisted of $0.09268 derived from net investment income, $0.73366
from net short-term capital gains (a total of $0.82634 taxable as
dividend income) and $2.00475 from net long-term capital gains.
Class B
Income distribution taxable as dividend income, 1.45% qualifying
for deduction by corporations.
Payable date Per share
Dec. 29, 1995 $0.79596
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1995 $2.00475
Total distributions $2.80071
The distributions of $2.80071 per share, payable Dec. 29, 1995,
consisted of $0.06230 derived from net investment income, $0.73366
from net short-term capital gains (a total of $0.79596 taxable as
dividend income) and $2.00475 from net long-term capital gains.
<PAGE>
PAGE 35
Class Y
Income distribution taxable as dividend income, 1.45% qualifying
for deduction by corporations.
Payable date Per share
Dec. 29, 1995 $0.84457
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1995 $2.00475
Total distributions $2.84932
The distributions of $2.84932 per share, payable Dec. 29, 1995,
consisted of $0.11091 derived from net investment income, $0.73366
from net short-term capital gains (a total of $0.84457 taxable as
dividend income) and $2.00475 from net long-term capital gains.
<PAGE>
PAGE 36
Quick telephone reference
American Express Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
American Express Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
American Express Infoline
Automated account information (TouchToneR phones only), including
current fund prices and performance, account values and recent
account transactions
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 671-1630
AMERICAN
EXPRESS
Financial
Advisors
IDS Discovery Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
PAGE 37
STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) Headings. 2) The headings in the
annual report are
placed in a blue strip
at the top of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
