AXP(SM)
Discovery
Fund
1999 annual report
(PROSPECTUS ENCLOSED)
The goal of AXP Discovery Fund is to provide
shareholders with long-term growth of capital.
The Fund primarily invests in securities of
small- and medium-sized companies.
(This annual report includes a prospectus that
describes in detail the Fund's objective, investment
strategy, risks, sales charges, fees and other
matters of interest. Please read the prospectus
carefully before you invest or send money.)
Distributed by American Express Financial Advisors Inc.
AMERICAN EXPRESS Financial Advisors (logo)
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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-sized 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.
AXP DISCOVERY FUND (This annual report is not part of the prospectus.)
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Table of Contents
1999 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 4
From the Portfolio Manager 4
Fund Facts 6
The 10 Largest Holdings 7
Making the Most of the Fund 8
The Fund's Long-term Performance 9
Independent Auditors' Report 11
Financial Statements 12
Notes to Financial Statements 15
Investments in Securities 23
Federal Income Tax Information 30
1999 PROSPECTUS
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
The Fund 3p
Goal 3p
Investment Strategy 3p
Risks 5p
Past Performance 6p
Fees and Expenses 8p
Management 9p
Buying and Selling Shares 9p
Valuing Fund Shares 9p
Investment Options 10p
Purchasing Shares 11p
Sales Charges 14p
Exchanging/Selling Shares 18p
Distributions and Taxes 23p
Personalized Shareholder
Information 25p
About the Company 26p
Quick Telephone Reference 28p
Financial Highlights 29p
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
American Express(R) Funds held shareholder meetings in June 1999. Shareholders
approved all of the proposals advanced by management. Among the proposals were:
o The election of Board members and the selection of KPMG LLP as independent
auditors.
o Change in the Fund name from "IDS" to "AXP."
o A new shareholder service and distribution plan.
o Changes with respect to fundamental investment policies.
No other business was presented at the meeting, which was concluded by a report
to shareholders from the Investment Department of American Express Financial
Corporation.
Thanks to all of you for your effort in reviewing the proxy material and voting
your proxies.
Arne H. Carlson
(picture of) Kurt Winters
Kurt Winters
Portfolio manager
From the Portfolio Manager
AXP Discovery Fund overcame a severe downturn at the start to conclude the
fiscal year with positive results. For the 12 months -- August 1998 through July
1999 -- the total return for the Fund's Class A shares was 5.45%.
The period began with the U.S. stock market being buffeted by powerful ill winds
from abroad. The principal sources were Asia, Russia and parts of Latin America,
whose economic problems cast increasing doubt on American companies' ability to
sustain profits from those and other foreign markets. The heavy stock-selling
that resulted finally subsided by the end of August, but by that time the Fund
was down approximately 23%.
AXP DISCOVERY FUND (This annual report is not part of the prospectus.)
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But, with the remarkable resilience that has been its hallmark in recent years,
the stock market soon got back on its feet and, with support from three
reductions in short-term interest rates by the Federal Reserve, set out to
reclaim the lost ground. The advance continued until spring, when rising
interest rates finally snuffed out the rally.
SMALL-CAPS SHOW SOME STRENGTH
The market's gains were again led by large-capitalization growth stocks, a trend
that has worked against the Fund in recent years. Late in the period, though,
small and mid-cap stocks showed occasional signs of strength, as investors began
to worry about the sky-high prices carried by the market's leaders.
Much of the credit for the Fund's comeback during the year went to
technology-related stocks, which comprised the largest investment area for the
Fund. The consumer group, which includes health care, food and retailing, also
comprised a substantial portion of assets and made a solid contribution to
performance during the rebound.
Overall, I avoided stocks of companies with strong business ties to foreign
markets and emphasized high-quality, domestically focused companies with
consistent earnings growth and relatively low stock prices.
As the new fiscal year begins, the investment environment is different from what
it was several months ago. While the economy continues to roll along and
inflation has yet to accelerate, long-term interest rates have risen steadily,
causing periodic jitters in the stock market. Should stocks find the going
tougher in the months ahead, I think the Fund will fare relatively well given
its emphasis on reasonably priced stocks rather than the vulnerable high-fliers.
Kurt Winters
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Fund Facts
Class A -- 12-month performance
(All figures per share)
Net asset value (NAV)
July 31, 1999 $11.04
July 31, 1998 $11.18
Decrease $ 0.14
Distributions -- Aug. 1, 1998 - July 31, 1999
From income $ 0.17
From capital gains $ 0.54
Total distributions $ 0.71
Total return* +5.45**
Class B -- 12-month performance
(All figures per share)
Net asset value (NAV)
July 31, 1999 $10.65
July 31, 1998 $10.90
Decrease $ 0.25
Distributions -- Aug. 1, 1998 - July 31, 1999
From income $ 0.17
From capital gains $ 0.54
Total distributions $ 0.71
Total return* +4.65%**
Class Y -- 12-month performance
(All figures per share)
Net asset value (NAV)
July 31, 1999 $11.07
July 31, 1998 $11.20
Decrease $ 0.13
Distributions -- Aug. 1, 1998 - July 31, 1999
From income $ 0.17
From capital gains $ 0.54
Total distributions $ 0.71
Total return* +5.55%**
*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.
AXP DISCOVERY FUND (This annual report is not part of the prospectus.)
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The 10 Largest Holdings
Percent Value
(of net assets) (as of July 31, 1999)
Metris Companies 7.12% $70,762,500
Dura Automotive Systems Cl A 4.30 42,775,000
Sunrise Assisted Living 3.95 39,243,750
Papa John's Intl 3.89 38,643,750
Intermedia Communications 3.88 38,587,500
Jacobs Engineering Group 3.63 36,077,605
Allied Waste Inds 3.53 35,058,844
Finova Group 3.19 31,764,063
Aviation Sales 3.13 31,100,000
U.S. Foodservice 2.99 29,706,250
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here
make up 39.61% of net assets
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Making the Most of the Fund
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. The chart below shows how dollar-cost averaging works. In these
three hypothetical scenarios, you will see six months of share price
fluctuations.
This strategy 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
even when the price of your shares fall or the market declines, it can be an
effective way to accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Jan Feb Mar Apr May Jun
$15 $16 $18 $20
$10 $10 $12 $14
$ 5
Accumulated shares* Average market Your average
price per share cost per share
42.25 $15 $14.20
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Jan Feb Mar Apr May Jun
$15
$10 $10 $10
$ 5 $8 $5 $5 $8
Accumulated shares* Average market Your average
price per share cost per share
85.0 $7.66 $7.05
- -------------------------------------------------------------------------------
Jan Feb Mar Apr May Jun
$15
$10 $10 $8 $6 $7
$ 5 $4 $4
Accumulated shares* Average market Your average
price per share cost per share
103.5 $6.50 $5.80
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$100 invested per month. Total invested: $600.
*Shares purchased is determined by dividing the amount invested per month by the
current share price.
THREE WAYS TO BENEFIT FROM A MUTUAL FUND:
o your shares increase in value when the Fund's investments do well
o you receive capital gains when the gains on investments sold by the Fund
exceed losses
o you receive income when the Fund's stock dividends, interest and short-term
gains exceed its expenses. All three make up your total return. 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.
AXP DISCOVERY FUND (This annual report is not part of the prospectus.)
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The Fund's Long-term Performance
How your $10,000 has grown in AXP Discovery Fund
$50,000
$40,000
S&P 500
Stock Index
$30,000
$29,939
AXP Discovery Fund
Class A
Lipper Small Cap
Fund Index
$20,000
$10,000
$9,500
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99
Average annual total return (as of July 31, 1999)
1 year 5 years 10 years Since inception*
Class A +0.17% +12.54% +11.59% --%
Class B -0.24% --% --% +12.25%
Class Y +5.55% --% --% +13.54%
*Inception date was March 20, 1995.
Assumes: Holding period from 8/1/89 to 7/31/99. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund, with a value of $16,400. Also see "Past Performance"
in the Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, Standard & Poor's 500 Index (S&P 500 Index)
and the Lipper Small Cap Fund Index. In comparing AXP Discovery Fund (Class A)
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.
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 impact of the applicable sales charge up to a maximum of 5%.
This was a period of widely fluctuating security prices. Past performance is no
guarantee of future results.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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The S&P 500 Index, an unmanaged list of common stocks, is frequently used as a
general measure of market performance. The index reflects reinvestment of all
distributions and changes in market prices, but excludes brokerage commissions
or other fees. However, the S&P 500 companies may be generally larger than those
in which the Fund invests.
The Lipper Small Cap Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives..
AXP DISCOVERY FUND (This annual report is not part of the prospectus.)
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The financial statements contained in Post-Effective Amendment #37 to
Registration Statement No. 2-72174 filed on or about September 28, 1999, are
incorporated herein by reference.
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Federal Income Tax Information
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 dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
AXP Discovery Fund, Inc.
Fiscal year ended July 31, 1999
Class A
Income distribution taxable as dividend income, none qualifying for deduction by
corporations.
Payable date Per share
Dec. 23, 1998 $0.16958
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 23, 1998 $0.54112
Total distributions $0.71070
The distributions of $0.71073 per share, payable Dec. 23, 1998, consisted of
$0.16958 from net short-term capital gains and $0.54112 from net long-term
capital gains.
AXP DISCOVERY FUND (This annual report is not part of the prospectus.)
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Class B
Income distribution taxable as dividend income, none qualifying for deduction by
corporations.
Payable date Per share
Dec. 23, 1998 $0.16958
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 23, 1998 $0.54112
Total distributions $0.71070
The distributions of $0.71073 per share, payable Dec. 23, 1998, consisted of
$0.16958 from net short-term capital gains and $0.54112 from net long-term
capital gains.
Class Y
Income distribution taxable as dividend income, none qualifying for deduction by
corporations.
Payable date Per share
Dec. 23, 1998 $0.16958
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 23, 1998 $0.54112
Total distributions $0.71070
The distributions of $0.71073 per share, payable Dec. 23, 1998, consisted of
$0.16958 from net short-term capital gains and $0.54112 from net long-term
capital gains.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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S-6457 N (9/99)
AXP Discovery Fund
IDS Tower 10
Minneapolis, MN 55440-0010
AMERICAN EXPRESS Financial Advisors (logo)
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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) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
