1997 SEMIANNUAL REPORT
IDS
Discovery
Fund
(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.
American Express
Financial Advisors
Distributed by American Express Financial Advisors Inc.
<PAGE>
(icon of) ship
Your piece
of the future
Glance through current business magazines 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.
Contents
From the president 3
From the portfolio manager 3
Ten largest holdings 5
Financial statements 6
Notes to financial statements 9
Investments in securities 23
Board members and officers 27
IDS mutual funds 28
To our shareholders
(picture of) William Pearce
William R. Pearce
President of the Fund
From the president
If you're an experienced investor, you know that the past two years have been
unusually strong ones in many financial markets. Perhaps just as important, you
also know that history shows that bull markets don't last forever. Though
they're often unpredictable, declines -- whether they're brief or long-lasting,
moderate or substantial -- are always a possibility. That fact reinforces the
need for investors to periodically review their long-term goals and examine
whether their investment program remains on track to achieving them. Your
quarterly investment statements are one part of that monitoring process. The
other is a meeting with your American Express financial advisor. That becomes
even more important if there's a major change in your financial situation or in
the financial markets.
William R. Pearce
(picture of) Kurt Winters
Kurt Winters
Portfolio manager
From the portfolio manager
A resurgent stock market and a well-positioned portfolio resulted in a rewarding
six months for IDS Discovery Fund. For the period --August 1996 through January
1997 -- the Fund's total return from Class A shares was 22.2%. The return was
well ahead of that generated by the Russell 2000, an index of unmanaged stocks
commonly used to represent performance of small-capitalization stocks as a
whole. A portion 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 a mid-year retreat, the stock market began
moving higher as the period began last August. Supported by ongoing reports of
tame inflation and generally good corporate profits, stocks soon turned an
advance into an all-out rally that, except for a relatively brief retreat in
December, lasted through January. This Fund enjoyed its best performance in
August and September, when it recorded gains of more than 7% each month.
`Large-caps' outperform smaller stocks As has been the case in recent years,
large-capitalization stocks (those representing companies of substantial size
and worth) led the way for the market, as their liquidity and relatively
predictable earnings growth attracted the bulk of investors' capital.
Small-capitalization stocks, which form the core of this Fund's investments,
clearly lagged behind the large-cap leaders. Fortunately, by maintaining a
diverse investment portfolio and not trying to time the market, this Fund was
able to outperform the small-cap sector as a whole, as measured by the Russell
2000 (an unmanaged index of stocks often used as a proxy for small-cap
performance). Broad diversification While the portfolio was well-diversified by
business sector, the majority of the holdings fell into two groups --
technology, which comprised about one-third of portfolio assets, and consumer,
which comprised about one-fourth. A new area of investment for the Fund was
energy-related stocks, which performed extremely well during the past six
months. When the period began, the median market capitalization of the stocks in
the portfolio was about $800 million -- at the low end of the small-cap range.
Because of price appreciation, that figure rose to about $900 by January. Rather
than sell strong stocks that may appreciate further, I plan to let the median
market cap to rise to as high as $1.25 billion in the future.
Kurt Winters
<PAGE>
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 1997 $ 11.44
July 31, 1996 $ 10.73
Increase $ 0.71
Distributions
Aug. 1, 1996 - Jan. 31, 1997
From income $ 1.42
From capital gains $ 0.20
Total distributions $ 1.62
Total return* 22.2%**
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 1997 $ 11.30
July 31, 1996 $ 10.63
Increase $ 0.67
Distributions
Aug. 1, 1996 - Jan. 31, 1997
From income $ 1.39
From capital gains $ 0.20
Total distributions $ 1.59
Total return* 21.7%**
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 1997 $ 11.44
July 31, 1996 $ 10.73
Increase $ 0.71
Distributions
Aug. 1, 1996 - Jan. 31, 1997
From income $ 1.44
From capital gains $ 0.20
Total distributions $ 1.64
Total return* 22.3%**
*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>
IDS Discovery Fund, Inc.
The Fund's ten largest holdings
The ten holdings listed here make up 22.00% of the Fund's net assets
- --------------------------------------------------------------------------------
Percent Value
(of Fund's net assets) (as of Jan. 31, 1997)
- --------------------------------------------------------------------------------
Boise Cascade Office Products 2.33% 22,303,125
This company manufactures and distributes paper and paper products,
office products, and building products and owns and manages timberland
to support these operations.
AccuStaff 2.25 21,625,000
A national provider of temporary staffing personnel to
businesses, professional and service organizations and
government agencies.
Sybron Intl 2.25 21,612,500
A manufacturer of value-added products for the laboratory and
professional orthodontic and dental markets in the United States
and abroad.
FINOVA Group 2.25 21,600,000
This company, through its subsidiaries, conducts business in
commercial lending and mortgage insurance.
Millipore 2.23 21,375,000
A leading supplier of filtration products used to analyze, purify,
and separate fluids.
OfficeMax 2.19 21,000,000
The second-largest company in the office products industry.
The company currently operates 345 office superstores in 39 states.
Wolverine Tube 2.19 20,968,750
A manufacturer and distributor of copper and copper
alloy tube. The company also manufactures copper and copper
alloy rod, bar and strip products.
Mutual Risk Management 2.16 20,687,500
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.
La Quinta Inns 2.08 19,987,500
This company develops, owns, and operates a chain of limited
service motor inns.
IKON Office Solutions 2.07 19,856,250
A company that sells, rents and leases photocopiers, fax machines,
digital printers and other automated office equipment for use
in both traditional and integrated office environments. IKON
also provides equipment service and supplies, and equipment financing.
<PAGE>
Financial statements
Statement of assets and liabilities IDS Discovery Fund, Inc.
Jan. 31, 1997
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Assets
- --------------------------------------------------------------------------------
(Unaudited)
Investments in securities, at value (Note 1):
Investments in securities of unaffiliated issuers
(identified cost $831,933,722) $954,188,466
Investments in securities of affiliated issuers
(identified cost $25,888,129) 23,172,288
Receivable for investment securities sold 9,139,397
Dividends and accrued interest receivable 77,931
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Total assets 986,578,082
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Liabilities
- --------------------------------------------------------------------------------
Disbursements in excess of cash on demand deposit 2,389,925
Payable for investment securities purchased 18,851,733
Accrued investment management fee 89,930
Accrued distribution fee 1,476
Accrued service fee 4,223
Accrued transfer agency fee 3,934
Accrued administrative services fee 1,373
Other accrued expenses 66,802
Option contracts written, at value
(premium received $4,974,000)(Note 5) 6,196,094
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Total liabilities 27,605,490
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Net assets applicable to outstanding capital stock $958,972,592
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Represented by
- --------------------------------------------------------------------------------
Capital stock -- authorized 10,000,000,000
shares of $.01 par value $ 839,108
Additional paid-in capital 819,496,189
Excess of distributions over net investment income (1,288,760)
Accumulated net realized gain (Note 1) 21,609,246
Unrealized appreciation 118,316,809
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Total -- representing net assets applicable to
outstanding capital stock $958,972,592
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Net assets applicable to outstanding shares: Class A $818,748,160
Class B $ 73,018,297
Class Y $ 67,206,135
Net asset value per share of outstanding capital stock:
Class A shares 71,576,567 $ 11.44
Class B shares 6,459,072 $ 11.30
Class Y shares 5,875,184 $ 11.44
See accompanying notes to financial statements.
<PAGE>
Financial statements
Statement of operations
IDS Discovery Fund, Inc.
Six months ended Jan. 31, 1997
- --------------------------------------------------------------------------------
Investment income
- --------------------------------------------------------------------------------
(Unaudited)
Income:
Interest $2,859,821
Dividends 1,027,434
- --------------------------------------------------------------------------------
Total income 3,887,255
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Expenses (Note 2):
Investment management services fee 3,008,918
Distribution fee -- Class B 226,110
Transfer agency fee 738,988
Incremental transfer agency fee -- Class B 4,578
Service fee
Class A 674,602
Class B 52,572
Administrative services fees and expenses 241,604
Compensation of board members 5,983
Compensation of officers 3,580
Custodian fees 46,107
Postage 38,120
Registration fees 81,298
Reports to shareholders 44,416
Audit fees 12,750
Administrative 5,847
Other 5,320
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Total expenses 5,190,793
Earnings credits on cash balances (Note 2) (23,536)
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Total net expenses 5,167,257
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Investment loss -- net (1,280,002)
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Realized and unrealized gain (loss) -- net
- --------------------------------------------------------------------------------
Net realized gain on security transactions (including
$651,927 realized loss on investments of affiliated issuers) 30,621,030
Net realized gain on financial futures contracts 1,848,676
Net realized loss on option contracts written (Note 5) (2,352,332)
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Net realized gain on investments 30,117,374
Net change in unrealized appreciation or depreciation 145,577,229
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Net gain on investments 175,694,603
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Net increase in net assets resulting from operations $174,414,601
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Financial statements
Statements of changes in net assets IDS Discovery Fund, Inc.
-------------------------------------------------------------------------------
<CAPTION>
Operations and distributions Jan. 31,1997 July 31, 1996
- -------------------------------------------------------------------------------------------------
Six months ended Year ended
(Unaudited)
<S> <C> <C>
Investment loss -- net $ (1,280,002) $ 3,516,657
Net realized gain on investments 30,117,374 120,991,863
Net change in unrealized appreciation or depreciation 145,577,229 (98,059,098)
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Net increase in net assets resulting from operations 174,414,601 26,449,422
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Distributions to shareholders from:
Net investment income
Class A (795,900) (4,817,749)
Class B -- (109,553)
Class Y (109,742) (369,986)
Excess distributions of net investment income
Class A (1,132,593) --
Class Y (156,167) --
Net realized gain
Class A (99,183,189) (141,682,931)
Class B (8,596,533) (4,249,927)
Class Y (8,324,287) (9,128,279)
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Total distributions (118,298,411) (160,358,425)
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Capital share transactions (Note 4)
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Proceeds from sales
Class A shares (Note 2) 371,749,607 423,969,758
Class B shares 23,942,289 39,614,584
Class Y shares 19,458,030 30,960,567
Reinvestment of distributions at net asset value
Class A shares 99,706,941 145,127,830
Class B shares 8,544,815 4,297,905
Class Y shares 8,590,196 9,498,265
Payments for redemptions
Class A shares (385,818,402) (495,135,942)
Class B shares (Note 2) (5,132,266) (5,520,898)
Class Y shares (16,136,420) (19,208,184)
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Increase in net assets from capital share transactions 124,904,790 133,603,885
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Total increase (decrease) in net assets 181,020,980 (305,118)
Net assets at beginning of period 777,951,612 778,256,730
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Net assets at end of period
including undistributed (excess of distributions over) net
investment income of $(1,288,760) and $2,185,644) $958,972,592 $777,951,612
- --------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS Discovery Fund, Inc.
(Unaudited as to Jan. 31, 1997)
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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>
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.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund will
realize a gain or loss upon expiration or closing of the option transaction.
When an option is exercised, the proceeds on sales for a written call option,
the purchase cost for a written put option or the cost of a security for a
purchased put or call option is adjusted by the amount of premium received or
paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market, the
Fund may buy and sell 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.
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.
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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 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 increased the fee by $260,459 for
the six months ended Jan. 31, 1997.
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.
Additional administrative services paid by the Fund are office expenses,
consultant's fees and compensation of officers and employees. Under this
agreement, the Fund also pays taxes, audit and certain legal fees, registration
fees for shares, compensation of board members, corporate filing fees,
organizational expenses, and any other expenses properly payable by the Fund
approved by the board.
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.
Sales charges received by American Express Financial Advisors Inc. for
distributing fund shares were $879,260 for Class A and $21,189 for Class B for
the six months ended Jan. 31, 1997. The Fund also pays custodian fees to
American Express Trust Company, an affiliate of AEFC.
During the six months ended Jan. 31, 1997, the Fund's custodian and transfer
agency fees were reduced by $23,536 as a result of earnings credits from
overnight cash balances.
- --------------------------------------------------------------------------------
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $659,102,596 and $645,613,282, respectively, for the six
months ended Jan. 31, 1997. Realized gains and losses are determined on an
identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $108,456 for the
six months ended Jan. 31, 1997.
Income from securities lending amounted to $10,367 for the six months ended Jan.
31, 1997. 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.
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4. Capital share transactions
Transactions in shares of capital stock for the periods indicated are as
follows:
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Six months ended Jan. 31, 1997
Class A Class B Class Y
- --------------------------------------------------------------------------------
Sold 30,986,711 2,022,565 1,622,128
Issued for reinvested 8,967,277 777,084 772,708
distributions
Redeemed (32,019,308) (431,840) (1,345,258)
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Net increase 7,934,680 2,367,809 1,049,578
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Year ended July 31, 1996
Class A Class B Class Y
- --------------------------------------------------------------------------------
Sold 36,682,783 3,408,482 2,643,673
Issued for reinvested 14,117,493 419,963 924,046
distributions
Redeemed (42,626,793) (493,590) (1,670,645)
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Net increase 8,173,483 3,334,855 1,897,074
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5. Option contracts written
The number of contracts and premium amounts associated with options contracts
written (see Summary of significant accounting policies) is as follows:
Six months ended Jan. 31, 1997
-------------------------------------------------------
Puts Calls
-------------------------------------------------------
Contracts Premium Contracts Premium
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Balance July 31, 1996 7,250 $ 963,022 6,000 $ 853,532
Opened 63,050 12,077,121 93,880 17,481,309
Closed (49,300) (8,795,387) (59,192) (10,770,414)
Exercised (8,547) (1,528,595) (19,648) (3,998,983)
Expired (5,953) (929,218) (3,040) (378,387)
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Balance Jan. 31, 1997 6,500 $ 1,786,943 18,000 $ 3,187,057
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<PAGE>
<TABLE>
IDS Discovery Fund, Inc.
6. Financial highlights
The tables below show certain important financial information for evaluating the
Fund's results.
Fiscal period ended July 31,
Per share income and capital changes*
Class A
<CAPTION>
1997** 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $10.73 $13.16 $10.33$11.37 $9.87 $9.58 $9.05 $7.75 $6.69 $7.99
beginning of period
Income from investment operations:
Net investment income (.01) .06 .07 (.04) (.02) (.01) .04 .14 .13 .11
(loss)
Net gains (losses) 2.34 .34 2.79 (.52) 1.75 1.01 1.03 1.35 .98 (1.04)
(both realized
and unrealized)
Total from investment 2.33 .40 2.86 (.56) 1.73 1.00 1.07 1.49 1.11 (.93)
operations
Less distributions:
Dividends from net (.03) (.09) -- -- -- (.02) (.11) (.14) (.05) (.10)
investment income
Distributions from (1.59) (2.74) (.03) (.48) (.23) (.69) (.43) (.05) -- (.27)
realized gains
Total distributions (1.62) (2.83) (.03) (.48) (.23) (.71) (.54) (.19) (.05) (.37)
Net asset value, $11.44 $10.73 $13.16$10.33 $11.37 $9.87 $9.58 $9.05 $7.75 $6.69
end of period
Ratios/supplemental data
Class A
1997** 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of $819 $683 $730 $523 $445 $293 $207 $168 $167 $182
period (in millions)
Ratio of expenses to 1.10%+ 1.00% .99% .97% 1.03% 1.04% .98% .76% .66% .63%
average daily net
assets#
Ratio of net income (.24%)+ .46% .59% (.39%) (.17%) (.11%) .40% 1.51% 1.86% 1.49%
(loss) to average
daily
net assets
Portfolio turnover 76% 179% 192% 67% 76% 90% 95% 76% 109% 61%
rate
(excluding short-term
securities)
Total return++ 22.2% 4.0% 27.6% (5.5%) 17.5% 9.9% 13.4% 19.8% 16.7% (10.9%)
Average brokerage $.0498 -- -- -- -- -- -- -- -- --
commission rate##
</TABLE>
*For a share outstanding throughout the period. Rounded to
nearest cent.
**Six months ended Jan. 31, 1997 (Unaudited).
+Adjusted to an annual basis.
++Total return does not reflect payment of a sales charge.
#Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credits
on cash balances.
##Effective fiscal year 1997, the Fund is required to
disclose an average brokerage commission rate. The rate is
calculated by dividing the total brokerage commissions paid
on applicable purchases and sales of portfolio securities
for the period by the total number of related shares
purchased and sold.
<PAGE>
Fiscal period ended July 31,
Per share income and capital changes*
Class B Class
Y
1997*** 1996 1995** 1997*** 1996 1995**
Net asset value, $10.63 $13.12 $11.31 $10.73 $13.17 $11.31
beginning of period
Income from investment operations:
Net investment income (.06) -- .01 -- .07 .07
(loss)
Net gains (both 2.32 .31 1.80 2.35 .34 1.80
realized
and unrealized)
Total from investment 2.26 .31 1.81 2.35 .41 1.86
operations
Less distributions:
Dividends from net -- (.06) -- (.05) (.11) --
investment income
Distributions from (1.59) (2.74) -- (1.59) (2.74) --
realized gains
Total distributions (1.59) (2.80) -- (1.64) (2.85) --
Net asset value, $11.30 $10.63 $13.12 $11.44 $10.73 $13.17
end of period
Ratios/supplemental data
Class B Class
Y
1997*** 1996 1995** 1997*** 1996 1995**
Net assets, end of $73 $43 $10 $67 $52 $39
period (in millions)
Ratio of expenses to 1.88%+ 1.74% 1.95%+ .93%+ .81% .93%+
average daily net
assets#
Ratio of net income (1.03%)+ (.10%) .44%+ (.08%)+ .61% 1.51%+
(loss)
to average daily net
assets
Portfolio turnover 76% 179% 192% 76% 179% 192%
rate
(excluding short-term
securities)
Total return++ 21.7% 3.2% 16.0% 22.3% 4.2% 16.4%
Average brokerage $0.0498 -- -- $0.0498 -- --
commission rate##
*For a share outstanding throughout the period.
Rounded to the nearest cent.
**Inception date was March 20, 1995 for Class B and Y.
Significant shareholder activity began March 21, 1995 for
Class B and March 28, 1995 for Class Y.
***Six months ended Jan. 31, 1997 (Unaudited).
+Adjusted to an annual basis.
++Total return does not reflect payment of a sales charge.
#Effective fiscal year 1996, expense ratio is based on
total expenses of the Fund before reduction of earnings
credits on cash balances.
##Effective fiscal year 1997, the Fund is required to disclose
an average brokerage commission rate. The rate is calculated
by dividing the total brokerage commissions paid on
applicable purchases and sales of portfolio securities for
the period by the total number of related shares purchased
and sold.
<PAGE>
Investments in securities
IDS Discovery Fund, Inc. (Percentages represent value of
Jan. 31, 1997 (Unaudited) investments compared to net assets)
Investments in securities of unaffiliated issuers
- --------------------------------------------------------------------------------
Common stocks (88.6%)
- --------------------------------------------------------------------------------
Issuer Shares Value (a)
- --------------------------------------------------------------------------------
Automotive & related (0.7%)
Dura Automotive Systems 275,000 (b) $ 7,218,750
- --------------------------------------------------------------------------------
Chemicals (3.0%)
Millipore 500,000 (c) 21,375,000
Philip Environmental 450,000 (b) 7,762,500
-----------------
Total 29,137,500
- --------------------------------------------------------------------------------
Communications equipment & services (0.2%)
Advanced Fibre Communications 40,000 (b) 1,910,000
- --------------------------------------------------------------------------------
Computers & office equipment (20.1%)
Avant 300,000 (b) 9,656,250
Cambridge Technology Partners 325,000 (b) 9,343,750
Fiserv 475,000 (b) 15,882,812
FORE Systems 350,000 (b) 10,193,750
HMT Technology 250,000 (b) 5,406,250
Hyperion Software 325,000 (b) 7,718,750
Ikon Office Solutions 450,000 19,856,250
Informix 475,000 (b,c) 9,856,250
Learning Company 750,000 (b,c) 9,468,750
Legato Systems 85,000 (b) 2,082,500
Medic Computer Systems 275,000 (b,c) 10,656,250
Network General 350,000 (b) 9,887,500
Pure Atria 210,750 (b) 4,952,625
Renaissance Solutions 225,000 (b) 9,056,250
Sanmina 150,000 (b,c) 8,925,000
Sterling Commerce 275,000 (b) 9,315,625
Sykes Enterprises 200,000 (b) 7,900,000
Tech Data 650,000 (b) 16,575,000
TeleTech Holdings 200,000 (b) 5,700,000
Vantive 75,000 (b) 2,306,250
Wallace Computer Services 225,000 7,537,500
-----------------
Total 192,277,312
- --------------------------------------------------------------------------------
Electronics (7.5%)
Kent Electronics 75,000 (b) 2,446,875
Lattice Semiconductor 325,000 (b,c) 16,859,375
Methode Electronics Cl A 375,000 8,343,750
Microchip Technology 300,000 (b,c) 11,437,500
Panavision 140,000 (b) 2,625,000
PRI Automation 150,000 (b) 9,018,750
Tencor Instruments 350,000 (b,c) 14,262,500
Waters 250,000 (b) 7,406,250
-----------------
Total 72,400,000
- --------------------------------------------------------------------------------
Energy (3.7%)
Devon Energy 250,000 (c) 8,843,750
Nuevo Energy 150,000 (b) 7,725,000
Offshore Energy Development 265,000 (b) 3,445,000
Pogo Producing 200,000 8,425,000
United Meridian 200,000 (b,c) 7,400,000
-----------------
Total 35,838,750
- --------------------------------------------------------------------------------
Energy equipment & services (3.0%)
Input/Output 775,000 (b) 18,406,250
Pride Petroleum Services 450,000 (b,c) 10,181,250
-----------------
Total 28,587,500
- --------------------------------------------------------------------------------
Financial services (4.0%)
FINOVA Group 300,000 21,600,000
Sun Communities 225,000 7,284,375
United Companies Financial 325,000 9,140,625
-----------------
Total 38,025,000
- --------------------------------------------------------------------------------
Food (0.8%)
JP Foodservice 275,000 (b) 7,425,000
- --------------------------------------------------------------------------------
Heath care (6.8%)
Fisher Scientific Intl 200,000 8,775,000
PAREXEL Intl 125,000 (b) 7,343,750
Spine-Tech 375,000 (b) 8,156,250
Sybron Intl 700,000 (b) 21,612,500
Watson Pharmaceuticals 425,000 (b) 19,045,312
-----------------
Total 64,932,812
- --------------------------------------------------------------------------------
Health care services (6.4%)
Access Health 125,000 (b) 3,593,750
Equity Corporation Intl 300,000 (b) 5,925,000
Genesis Health Ventures 300,000 (b) 9,375,000
PhyCor 430,600 (b) 15,124,825
Physician Sales & Service 475,000 (b) 9,025,000
Quorum Health Group 650,000 (b) 18,768,750
-----------------
Total 61,812,325
- --------------------------------------------------------------------------------
Household products (0.2%)
Amscan Holdings 175,000 (b) 2,132,813
- --------------------------------------------------------------------------------
Industrial equipment & services (7.8%)
DT Inds 225,000 8,409,375
Harnischfeger Inds 425,000 18,859,375
Integrated Process Equipment 425,000 (b,c) 11,368,750
KEMET 325,000 (b) 7,718,750
United Waste Systems 200,000 (b) 7,575,000
Wolverine Tube 550,000 (b) 20,968,750
-----------------
Total 74,900,000
- --------------------------------------------------------------------------------
Industrial transportation (1.6%)
Fritz 575,000 7,475,000
Landstar System 325,000 (b) 7,718,750
-----------------
Total 15,193,750
- --------------------------------------------------------------------------------
Insurance (2.5%)
PennCorp Financial Group 450,000 16,481,250
Risk Capital Holdings 430,000 7,148,750
-----------------
Total 23,630,000
- --------------------------------------------------------------------------------
Media (1.9%)
Regal Cinemas 325,000 (b) 8,693,750
Universal Outdoor Holdings 100,000 (b) 2,800,000
Univision Communications 200,000 (b) 7,200,000
-----------------
Total 18,693,750
- --------------------------------------------------------------------------------
Metals (2.7%)
Commonwealth Aluminum 500,000 9,500,000
Stillwater Mining 525,000 (b) 9,318,750
UCAR Intl 200,000 (b) 7,500,000
-----------------
Total 26,318,750
- --------------------------------------------------------------------------------
Multi-industry conglomerates (2.3%)
AccuStaff 1,000,000 (b,c) 21,625,000
- --------------------------------------------------------------------------------
Paper & packaging (0.9%)
Sealed Air 200,000 (b) 8,550,000
- --------------------------------------------------------------------------------
Restaurants & lodging (2.1%)
La Quinta Inns 1,025,000 19,987,500
- --------------------------------------------------------------------------------
Retail (5.7%)
Boise Cascade Office Products 975,000 (b) 22,303,125
CDW Computer Centers 20,000 (b) 1,301,250
Coldwater Creek 27,600 (b) 500,250
Gymboree 400,000 (b) 9,200,000
OfficeMax 1,750,000 (b,c) 21,000,000
-----------------
Total 54,304,625
- --------------------------------------------------------------------------------
Utilities -- gas (4.3%)
Brooks Fiber Properties 325,000 (b) 8,328,125
Intermedia Communications 350,000 (b) 8,312,500
LCI Intl 750,000 (b) 16,875,000
Seagull Energy 350,000 (b,c) 7,481,250
-----------------
Total 40,996,875
- --------------------------------------------------------------------------------
Foreign (0.4%)
CBT Group ADR 30,000 (b) 1,912,500
ECsoft Group ADR 215,000 (b) 2,365,000
-----------------
Total 4,277,500
- --------------------------------------------------------------------------------
Total common stocks
(Cost: $732,151,920) $850,175,512
- --------------------------------------------------------------------------------
Bonds (4.1%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issuer Coupon Maturity Principal Value (a)
rate year amount
- -----------------------------------------------------------------------------------------------------------
HMT Technology
<S> <C> <C> <C> <C>
Cv Sub Nts 5.75% 2004 $ 5,000,000 (d) $ 5,468,750
Mutual Risk Management
Zero Coupon Cv with attached put 7.00 2015 50,000,000 (d,f) 20,687,500
United Waste Systems
Cv Sub Nts 4.50 2001 10,000,000 (d) 12,850,000
- -----------------------------------------------------------------------------------------------------------
Total bonds
(Cost: $34,775,098) $39,006,250
</TABLE>
- --------------------------------------------------------------------------------
Short-term securities (6.8%)
- --------------------------------------------------------------------------------
Issuer Annualized Amount Value (a)
yield on payable at
date of maturity
purchase
- --------------------------------------------------------------------------------
U.S. government agencies (0.5%)
Federal Home Loan Mtge Corp Disc Nt
02-03-97 5.48% $3,938,000 $3,936,801
Federal Natl Mtge Assn Disc Nt
02-06-97 5.31 400,000 399,706
-----------------
Total 4,336,507
- --------------------------------------------------------------------------------
Bankers' acceptance (0.6%)
1st Union Natl Bank
02-04-97 5.36 6,000,000 5,997,330
- --------------------------------------------------------------------------------
Commercial paper (4.8%)
Albertson's
02-28-97 5.31 2,500,000 2,490,081
BBV Finance
02-21-97 5.30 5,000,000 4,985,333
02-24-97 5.30 6,300,000 6,278,748
Ciesco LP
02-19-97 5.33 300,000 299,205
Fleet Funding
03-10-97 5.35 2,500,000 (e) 2,486,331
Gannett
02-21-97 5.32 4,300,000 (e) 4,287,339
Kredietbank North America Finance
02-25-97 5.30 7,500,000 7,473,600
Paccar Financial
02-24-97 5.30 5,000,000 4,983,133
Toyota Motor Finance
02-20-97 5.30 9,300,000 9,274,084
02-27-97 5.30 3,160,000 3,147,950
-----------------
Total 45,705,804
- --------------------------------------------------------------------------------
Letters of credit (0.9%)
Student Loan Marketing Assn
02-26-97 5.30 9,000,000 8,967,063
- --------------------------------------------------------------------------------
Total short-term securities
(Cost: $65,006,704) $ 65,006,704
- --------------------------------------------------------------------------------
Total investment in securities of unaffiliated issuers
(Cost: $831,933,722) $954,188,466
- --------------------------------------------------------------------------------
Investments in securities of affiliated issuers (g)
Common stocks (2.4%)
Issuer Shares Value (a)
- --------------------------------------------------------------------------------
ChiRex 627,400 (b) $ 6,901,400
Physician Support Systems 450,000 (b) 7,875,000
Transaction Network Services 738,100 (b) 8,395,888
-----------------
Total 23,172,288
- --------------------------------------------------------------------------------
Total investments in securities of affiliated issuers
(Cost: $25,888,129) $ 23,172,288
- --------------------------------------------------------------------------------
Total investments in securities
(Cost: $857,821,851)(h) $977,360,754
- --------------------------------------------------------------------------------
Notes to investments in securities
- --------------------------------------------------------------------------------
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) At Jan. 31, 1997, securities valued at $53,340,625 were held to cover open
call options written as follows:
Number of Exercise Expiration Value (a)
Issuer contracts price date
- --------------------------------------------------------------------------------
AccuStaff 1,500 $25 March 1997 $ 79,688
Devon Energy 250 35 Feb. 1997 34,375
Informix 500 22 Feb. 1997 35,937
Integrated Process Equipment 1,000 22 Feb. 1997 425,000
Lattice Semiconductor 1,000 45 Feb. 1997 743,750
Lattice Semiconductor 500 55 Feb. 1997 75,000
Learning Company 500 20 Feb. 1997 4,688
Medic Computer Systems 500 45 March 1997 68,750
Microchip Technology 750 40 Feb. 1997 105,469
Millipore 500 45 Feb. 1997 28,125
OfficeMax 4,000 15 June 1997 237,500
Pride Petroleum Services 750 22 Feb. 1997 60,937
Sanmina 1,500 55 Feb. 1997 890,625
Seagull Energy 2,000 22 Feb. 1997 75,000
Tencor Instruments 750 30 Feb. 1997 810,937
United Meridian 2,000 45 March 1997 175,000
-----------------
Total $3,850,781
=================
At Jan. 31, 1997, cash or short-term securities were designated to cover open
put options written as follows:
Number of Exercise Expiration Value (a)
Issuer contracts price date
- --------------------------------------------------------------------------------
Access Health 2,000 $35 Feb. 1997 $1,287,500
Cambridge Technology Partners 250 30 Feb. 1997 56,250
Fiserv 750 35 Feb. 1997 112,500
PhyCor 1,500 35 Feb. 1997 285,938
Regal Cinemas 250 25 Feb. 1997 12,500
TeleTech Holdings 1,750 30 Feb. 1997 590,625
-----------------
Total $2,345,313
=================
(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)
For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition. (g) Investements representing 5% or
more of the outstanding voting securities of the issuer. Transactions with
companies that are or were affiliates during the six months ended Jan. 31, 1997
are as follows: <TABLE>
<CAPTION>
Issuer Beginning Purchase Sales Ending Dividend
cost cost cost cost income
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Career Horizon* $17,192,843 $2,540,215 $19,733,058 $ -- $ --
ChiRex* -- 6,598,788 -- 6,598,788 --
Physician Support Systems* 7,862,127 3,540,459 3,539,018 7,863,568 --
Transaction Network Services* 10,790,786 5,955,169 5,320,182 11,425,773 --
- --------------------------------------------------------------------------------------------------------
Total $35,845,756 $18,634,631 $28,592,258 $25,888,129 $ --
- --------------------------------------------------------------------------------------------------------
*Issuer was not an affiliate for the entire period.
</TABLE>
(h) At Jan. 31, 1997, the cost of securities for federal income tax purposes was
approximately $857,819,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $139,217,000
Unrealized depreciation (19,675,000)
- --------------------------------------------------------------------------------
Net unrealized appreciation $119,542,000
- --------------------------------------------------------------------------------
PAGE
Board members and officers
Board members and officers of the Fund
- -----------------------------------------------------------------
President and interested board member
William R. Pearce
President of all funds in the IDS MUTUAL FUND GROUP.
- -----------------------------------------------------------------
Independent board members
H. Brewster Atwater Jr.
Former chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
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.
Melvin R. Laird
Senior counsellor for national and international affairs, The Readers's Digest
Association, Inc.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
- -----------------------------------------------------------------
Interested board members who are officers and/or employees of AEFC
William H. Dudley
Executive vice president, AEFC.
David R. Hubers
President and chief executive officer, AEFC.
John R. Thomas
Senior vice president, AEFC.
- -----------------------------------------------------------------
Officers who also are officers and/or employees of AEFC
<PAGE>
Peter J. Anderson
Vice President of all funds in the IDS MUTUAL FUND GROUP.
Melinda S. Urion
Treasurer of all funds in the IDS MUTUAL FUND GROUP.
- -------------------------------------------------------------------
Other officer
Leslie L. Ogg
Vice president, general counsel and secretary of all funds in the IDS MUTUAL
FUND GROUP.
<PAGE>
PAGE
IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing primarily in
foreign securities. Foreign investments may be subject to currency fluctuations
and political and economic risks of the countries in which the investments are
made. They are high risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies in developing
countries throughout the world that are believed to offer growth potential.
Seeks to provide long-term growth of capital.
(icon of) world globe
IDS Global Growth Fund
Invests in a Portfolio comprised primarily of 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 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 Global Balanced Fund
Invests in stocks-and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
(icon of) scale of globes
IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
(icon of) globe
Growth funds
<PAGE>
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
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. A
highly aggressive and speculative fund that seeks long-term growth of capital.
(icon of) cart of precious gems
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) building
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 in a Portfolio comprised primarily of 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 in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
<PAGE>
(icon of) flower
IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with significant growth
potential due to superiority in technology, marketing or management. The Fund
frequently changes its industry mix.
(icon of) dimension
IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds stocks for the
long term with the goal of capital growth.
(icon of) shooting star
Growth and income funds
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.
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 Managed Allocation Fund
Invests in a Portfolio comprised primarily of 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) spinning toy
IDS Stock Fund
<PAGE>
Invests in a Portfolio comprised primarily of common stocks 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
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 in a Portfolio comprised 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 Portfolio which seeks to 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
Income funds
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 Extra Income Fund
Invests in a Portfolio comprised 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) two coins
IDS Bond Fund
<PAGE>
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
IDS Selective Fund
Invests in a Portfolio comprised primarily of 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 in a Portfolio comprised primarily of 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
Tax-exempt income funds
These funds provide tax-free income by investing in municipal bonds. The income
is generally free from federal income tax, but a portion of the income may be
subject to state and local taxes. Risk varies by bond quality.
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government units, with at
least 75% in the four highest rated, lowest risk bond categories.
(icon of) shield with Greek column
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to the timely
payment of principal and interest. The insurance feature minimizes credit risk
of the Fund but does not guarantee the market value of the Fund's shares.
(icon of) shield with star
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
<PAGE>
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 High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of 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 Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities with
intermediate-term maturities issued by state and local government units. Goal is
to seek a high level of current income exempt from federal taxes.
(icon of) shield with tree enclosed
Money market funds
These money market funds have three main goals: conservation of capital,
constant liquidity and the highest possible current income consistent with these
objectives. An investment in these funds is neither insured nor guaranteed by
the U.S. government, and there can be no assurance that these funds will be able
to maintain a stable net asset value of $1.00 per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial paper,
bankers' acceptances, certificates of deposit (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
<PAGE>
Quick telephone reference
American Express Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
<PAGE>
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 (TouchTone(R) 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
PAGE
AMERICAN EXPRESS FINANCIAL ADVISORS
IDS Discovery Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
