IDS
Discovery Fund
1999 semiannual report
(icon of) ruler
The goal of IDS Discovery Fund, Inc.
is long-term growth of capital.
American Express Financial Advisors
Distributed by American Express Financial Advisors Inc.
<PAGE>
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 Chairman 3
From the Portfolio Manager 3
Fund Facts 5
10 Largest Holdings 6
Financial Statements 7
Notes to Financial Statements 10
Investments in Securities 20
<PAGE>
From the Chairman
It is an honor for me to join the IDSMutual Fund Group as chairman of the board
and chief executive officer for each of the funds. I have served for the past
eight years as governor of Minnesota and also for the past 20 years as a
constitutional officer responsible for the pension investments made on behalf of
governmental employees. My responsibility in the coming years is to serve your
interests.
By law, half the members of a mutual fund board must be independent of their
investment manager and distributor. I am one of those persons. I am not an
employee of American Express Financial Corporation, nor do I own stock in
American Express Company. Both are fine companies, but the law clearly states
that to fully represent your interests I must be independent.
Having said that, I have a great deal of respect for the capabilities of
American Express Financial Corporation and for the services it provides
investors. Your financial advisor assists you in financial planning, conducts
regular investment reviews, and responds to your questions and needs. This is a
very personal service that makes AEFCa partner in your financial future.
I know that AEFC has an investment focus on the long-term performance of our
economy. AEFC wants you to participate in that growth. Our board is here to
serve you and to represent your interests in a professional manner.
Arne H. Carlson
(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Portfolio Manager
IDS Discovery Fund overcame a sharp downturn at the start to conclude the first
half of the fiscal year with positive results. For the six months -- August 1998
through January 1999 -- the total return for the Fund's Class A shares was
2.95%. (A portion of the 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 a
like amount at that time.)
Kurt Winters
(picture of) Kurt Winters
Kurt Winters
Portfolio manager
<PAGE>
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, by which time the Fund was
down approximately 23%.
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 Fund joined right in, racking up substantial gains
through the end of 1998. To illustrate the strength of the recovery, from
September through December, the Fund recorded a gain of nearly 30%.
TECHNOLOGY LEADS RECOVERY
Much of the credit for the Fund's comeback belonged to technology-related
stocks, which had been the hardest hit during the August downturn. Constituting
about 20% of assets, tech stocks were the second-largest investment area for the
Fund. The largest, with nearly 50% of assets at times, was the consumer group,
which include health care, food and retailing. They also contributed
substantially to the performance upturn. The Fund's weakest performers continued
to be oil-related stocks, which languished under the pressure of low oil prices.
I made only slight changes to the portfolio during the six months. Overall, I
avoided stocks of companies with strong business ties to foreign markets and
emphasized high-quality, domestically focused companies with consistent earnings
growth.
As we enter the second half of the fiscal year, the debate continues about when
small stocks might outperform large stocks for an extended period. Although we
saw occasional spurts by small stocks during the past several months, only time
will tell whether they can follow those up with more consistent performance. In
the meantime, I plan to keep the Fund heavily invested in stocks to allow it to
participate in the rallies that may lie ahead.
Kurt Winters
<PAGE>
Fund Facts
Class A -- 6-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 1999 $10.78
July 31, 1998 $11.18
Decrease $ 0.40
Distributions -- Aug. 1, 1998 - Jan. 31, 1999
From income $0.17
From capital gains $0.54
Total distribution $0.71
Total return* +2.95%**
Class B -- 6-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 1999 $10.44
July 31, 1998 $10.90
Decrease $ 0.46
Distributions -- Aug. 1, 1998 - Jan. 31, 1999
From income $ 0.17
From capital gains $ 0.54
Total distribution $ 0.71
Total return* +2.57%**
Class Y -- 6-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 1999 $10.80
July 31, 1998 $11.20
Decrease $ 0.40
Distributions -- Aug. 1, 1998 - Jan. 31, 1999
From income $ 0.17
From capital gains $ 0.54
Total distribution $ 0.71
Total return* +3.00%**
**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>
The 10 Largest Holdings
Percent Value
(of net assets) (as of Jan. 31, 1999)
Metris Companies 4.51% $49,237,500
Finova Group 3.59 39,162,500
Quintiles Transnational 3.55 38,812,499
Allied Waste Inds 3.26 35,656,250
Sealed Air 3.16 34,490,625
Office Depot 3.10 33,881,250
Sterling Commerce 3.05 33,276,562
Washington Mutual 2.79 30,450,000
Watson Pharmaceuticals 2.50 27,312,500
Intermedia Communications 2.45 26,709,375
For further detail about these holdings, please refer to the section entitled
"Investments in Securities" herein.
(icon of) pie chart
The 10 holdings listed here make up 31.96% of net assets
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<TABLE>
<CAPTION>
Financial Statements
Statement of assets and liabilities
IDS Discovery Fund, Inc.
Jan. 31, 1999 (Unaudited)
Assets
Investments in securities, at value (Note 1):
<S> <C>
Investments in securities of unaffiliated issuers (identified cost $843,502,900) $ 989,382,151
Investments in securities of affiliated issuers (identified cost $74,695,162) 102,912,500
-----------
Total investments in securities (identified cost $918,198,062) 1,092,294,651
Dividends and accrued interest receivable 695,049
Receivable for investment securities sold 40,798,327
U.S. government securities held as collateral (Note 6) 9,814,722
---------
Total assets 1,143,602,749
-------------
Liabilities
Disbursements in excess of cash on demand deposit 1,116,721
Payable for investment securities purchased 16,818,062
Payable upon return of securities loaned (Note 6) 27,344,722
Accrued investment management services fee 7,556
Accrued distribution fee 3,258
Accrued service fee 5,061
Accrued transfer agency fee 4,708
Accrued administrative services fee 1,538
Other accrued expenses 55,861
Option contracts written, at value
(premium received $6,462,949) (Note 5) 5,942,969
---------
Total liabilities 51,300,456
----------
Net assets applicable to outstanding capital stock $1,092,302,293
==============
Represented by
Capital stock-- $.01 par value (Note 1) $ 1,018,010
Additional paid-in capital 1,017,146,710
Net operating loss (3,578,960)
Accumulated net realized gain (loss) (96,900,038)
Unrealized appreciation (depreciation) on investments 174,616,571
-----------
Total -- representing net assets applicable to outstanding capital stock $1,092,302,293
==============
Net assets applicable to outstanding shares: Class A $ 850,331,336
Class B $ 158,872,177
Class Y $ 83,098,780
Net asset value per share of outstanding capital stock: Class A shares 78,894,093 $ 10.78
Class B shares 15,213,145 $ 10.44
Class Y shares 7,693,812 $ 10.80
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Statement of operations
IDS Discovery Fund, Inc.
Six months ended Jan. 31, 1999 (Unaudited)
Investment income
Income:
<S> <C>
Dividends (including $10,500 earned from affiliates) $ 531,475
Interest 1,452,591
---------
Total income 1,984,066
---------
Expenses (Note 2):
Investment management services fee 2,916,727
Distribution fee-- Class B 520,845
Transfer agency fee 860,009
Incremental transfer agency fee-- Class B 10,323
Service fee
Class A 681,402
Class B 120,760
Class Y 38,117
Administrative services fees and expenses 269,910
Compensation of board members 6,107
Custodian fees 100,514
Postage 46,800
Registration fees 52,284
Reports to shareholders 30,700
Audit fees 13,500
Other 13,735
------
Total expenses 5,681,733
Earnings credits on cash balances (Note 2) (36,347)
-------
Total net expenses 5,645,386
---------
Investment income (loss) -- net (3,661,320)
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (including loss of $6,333,215 on sale of affiliated issuers) (Note 3) (79,752,512)
Closed short positions in securities (Note 1) 257,424
-------
Options contracts written (Note 5) (5,079,058)
----------
Net realized gain (loss) on investments (84,574,146)
Net change in unrealized appreciation (depreciation) on investments 120,081,299
-----------
Net gain (loss) on investments 35,507,153
----------
Net increase (decrease) in net assets resulting from operations $31,845,833
===========
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Statements of changes in net assets
IDS Discovery Fund, Inc.
Jan. 31, 1999 July 31, 1998
Six months ended Year ended
(Unaudited)
Operations and distributions
<S> <C> <C>
Investment income (loss) -- net $ (3,661,320) $ (4,436,645)
Net realized gain (loss) on investments (84,574,146) 139,834,393
Net change in unrealized appreciation (depreciation) on investments 120,081,299 (162,683,508)
----------- ------------
Net increase (decrease) in net assets resulting from operations 31,845,833 (27,285,760)
---------- -----------
Distributions to shareholders from:
Net realized gain
Class A (53,427,661) (107,356,735)
Class B (10,036,574) (14,586,022)
Class Y (5,283,632) (9,866,379)
---------- ----------
Total distributions (68,747,867) (131,809,136)
----------- ------------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 107,089,996 1,130,762,329
Class B shares 28,435,998 65,338,227
Class Y shares 14,742,690 51,414,892
Reinvestment of distributions at net asset value
Class A shares 51,754,426 104,921,333
Class B shares 9,961,536 14,496,729
Class Y shares 5,283,632 9,866,378
Payments for redemptions
Class A shares (143,010,486) (1,152,288,551)
Class B shares (Note 2) (16,083,074) (17,430,145)
Class Y shares (17,247,546) (37,182,732)
----------- -----------
Increase (decrease) in net assets from capital share transactions 40,927,172 169,898,460
---------- -----------
Total increase (decrease) in net assets 4,025,138 10,803,564
Net assets at beginning of period 1,088,277,155 1,077,473,591
------------- -------------
Net assets at end of period $1,092,302,293 $1,088,277,155
============== ==============
Undistributed (excess of distributions over) net investment income $ (3,578,960) $ 82,360
-------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
IDS Discovery Fund, Inc.
(Unaudited as to Jan. 31, 1999)
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 has 10 billion
authorized shares of capital stock. 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.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge and
automatically convert to Class A shares during the ninth calendar year of
ownership.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend and liquidation rights.
The 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.
The Fund's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
<PAGE>
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. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the board. 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.
Option transactions
To produce incremental earnings, protect gains, and facilitate buying and
selling of securities for investments, the Fund may buy and write options traded
on any U.S. or foreign exchange or in the over-the-counter market where
completing the obligation depends 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 as well as write cash-secured put options. The
risk in writing a call option is that the Fund gives up the opportunity for
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 being unable 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 when the option transaction expires or closes. 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.
<PAGE>
Futures transactions
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these future contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
security.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars at the closing rate of exchange. Foreign
currency amounts related to the purchase or sale of securities and income and
expenses are translated at the exchange rate on the transaction date. The effect
of changes in foreign exchange rates on realized and unrealized security gains
or losses is reflected as a component of such gains or losses. In the statement
of operations, net realized gains or losses from foreign currency transactions,
if any, may arise from sales of foreign currency, closed forward contracts,
exchange gains or losses realized between the trade date and settlement date 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 its contract obligations.
<PAGE>
Short sales
The Fund may engage in short sales. In these transactions, the Fund sells a
security that it does not own in anticipation of a decline in the market value
of the security. To complete the transaction, the Fund must borrow the security
to make delivery to the buyer. The Fund is obligated to replace the security
that was borrowed by purchasing it at the market price on the replacement date.
The price at such time may be more or less than the price at which the Fund sold
the security. The Fund will designate cash or liquid securities to cover its
open short positions. The Fund also may engage in "short sales against the box,"
a form of short-selling that involves selling a security that the Fund owns (or
has an unconditioned right to purchase) for delivery at a specified date in the
future. This technique allows the Fund to hedge protectively against anticipated
declines in the market of its securities or to defer an unrealized gain. If the
value of the securities sold short increased prior to the scheduled delivery
date, the Fund loses the opportunity to participate in the gain.
Federal taxes
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute all of its
taxable income to shareholders. No provision for income or excise taxes is thus
required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred 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.
<PAGE>
Dividends to shareholders
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, 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
The Fund entered into agreements with American Express Financial Corporation
(AEFC) for managing its portfolio and providing administrative services. Under
an 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 twelve-month period
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
$110,157 for the six months ended Jan. 31, 1999.
<PAGE>
Under an Administrative Services Agreement, the Fund pays AEFC a fee 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 service expenses paid by the Fund are office expenses,
consultants' 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 and any
other expenses properly payable by the Fund and approved by the board.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $15
o Class B $16
o Class Y $15
The Fund entered into agreements with American Express Financial Advisors Inc.
for distribution and shareholder 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
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 and 0.10% of the Fund's average daily
net assets attributable to Class Y shares.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $891,700 for Class A and $69,385 for Class B for
the six months ended Jan. 31, 1999. The Fund also pays custodian fees to
American Express Trust Company, an affiliate of AEFC.
During the six months ended Jan. 31, 1999, the Fund's custodian and transfer
agency fees were reduced by $36,347 as a result of earnings credits from
overnight cash balances.
<PAGE>
<TABLE>
<CAPTION>
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $1,017,237,967 and $1,030,419,861, respectively, for the
six months ended Jan. 31, 1999. Realized gains and losses are determined on an
identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $300,325 for the
six months ended Jan. 31, 1999.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as follows:
Six months ended Jan. 31, 1999
Class A Class B Class Y
<S> <C> <C> <C>
Sold 10,513,225 2,876,734 1,427,490
Issued for reinvested distributions 4,961,595 984,953 505,514
Redeemed (13,848,345) (1,608,057) (1,663,729)
Net increase (decrease) 1,626,475 2,253,630 269,275
Year ended July 31, 1998
Class A Class B Class Y
Sold 87,405,005 5,195,050 3,908,832
Issued for reinvested distributions 9,196,375 1,298,061 863,805
Redeemed (88,770,903) (1,402,849) (2,884,401)
Net increase (decrease) 7,830,477 5,090,262 1,888,236
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. OPTIONS CONTRACTS WRITTEN
Contracts and premium amounts associated with options contracts written are as follows:
Six months ended Jan. 31, 1999
Puts Calls
Contracts Premium Contracts Premium
<S> <C> <C> <C> <C>
Balance July 31, 1998 11,490 $ 3,058,574 29,750 $ 10,112,467
Opened 23,300 5,735,607 99,650 31,230,743
Closed (31,540) (8,001,146) (86,189) (27,503,853)
Exercised (1,750) (353,801) (13,707) (5,077,516)
Expired -- -- (11,754) (2,738,126)
Balance Jan. 31, 1999 1,500 $ 439,234 17,750 $ 6,023,715
See "Summary of significant accounting policies."
6. LENDING OF PORTFOLIO SECURITIES
As of Jan. 31, 1999, securities valued at $25,501,163 were on loan to brokers.
For collateral, the Fund received $17,530,000 in cash and U.S. government
securities valued at $9,814,722. Income from securities lending amounted to
$166,846 for the six months ended Jan. 31, 1999. The risk to the Fund of
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due.
7. BANK BORROWINGS
The Fund entered into a revolving credit agreement with U.S. Bank, N.A., whereby
the Fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The Fund must have asset coverage or
borrowings not to exceed the aggregate of 333% of advances equal to or less than
five business days plus 367% of advances over five business days. The agreement,
which enables the Fund to participate with other IDS Funds, permits borrowings
up to $200 million, collectively. Interest is charged to each Fund based on its
borrowings at a rate equal to the Federal Funds Rate plus 0.30% or the
Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to 90
days after such loan is executed. The Fund also pays a commitment fee equal to
its pro rata share of the amount of the credit facility at a rate of 0.05% per
annum. The Fund had no borrowings outstanding during the six months ended Jan.
31, 1999.
</TABLE>
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<TABLE>
<CAPTION>
8. 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(a)
Class A
1999b 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.18 $13.02 $10.73 $13.16 $10.33
Income from investment operations:
Net investment income (loss) (.03) (.04) (.04) .06 .07
Net gains (losses) (both realized and unrealized) .34 (.24) 3.95 .34 2.79
Total from investment operations .31 (.28) 3.91 .40 2.86
Less distributions:
Dividends from net investment income -- -- (.03) (.09) --
Distributions from realized gains (.71) (1.56) (1.59) (2.74) (.03)
Total distributions (.71) (1.56) (1.62) (2.83) (.03)
Net asset value, end of period $10.78 $11.18 $13.02 $10.73 $13.16
Ratios/supplemental data
Class A
1999b 1998 1997 1996 1995
Net assets, end of period (in millions) $850 $864 $904 $683 $730
Ratio of expenses to average daily net assets(d) 1.03%c 1.03% 1.13% 1.00% .99%
Ratio of net investment income (loss)
to average daily net assets (.63%)c (.30%) (.32%) .46% .59%
Portfolio turnover rate
(excluding short-term securities) 103% 145% 153% 179% 192%
Total return(e) 2.95% (2.42%) 39.12% 4.04% 27.62%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Six months ended Jan. 31, 1999 (Unaudited).
c Adjusted to an annual basis.
d Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on
cash balances.
e Total return does not reflect payment of a sales charge.
</TABLE>
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<TABLE>
<CAPTION>
Fiscal period ended July 31,
Per share income and capital changesa
Class B Class Y
1999b 1998 1997 1996 1995c 1999b 1998 1997 1996 1995c
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period $10.90 $12.82 $10.63 $13.12 $11.31 $11.20 $13.03 $10.73 $13.17 $11.31
Income from investment operations:
Net investment
income (loss) (.07) (.11) (.11) -- .01 (.03) (.03) (.01) .07 .06
Net gains (losses)
(both realized and unrealized) .32 (.25) 3.89 .31 1.80 .34 (.24) 3.95 .34 1.80
Total from investment
operations .25 (.36) 3.78 .31 1.81 .31 (.27) 3.94 .41 1.86
Less distributions:
Dividends from net
investment income -- -- -- (.06) -- -- -- (.05) (.11) --
Distributions from
realized gains (.71) (1.56) (1.59) (2.74) -- (.71) (1.56) (1.59) (2.74) --
Total distributions (.71) (1.56) (1.59) (2.80) -- (.71) (1.56) (1.64) (2.85) --
Net asset value,
end of period $10.44 $10.90 $12.82 $10.63 $13.12 $10.80 $11.20 $13.03 $10.73 $13.17
Ratios/supplemental data
Class B Class Y
1999b 1998 1997 1996 1995c 1999b 1998 1997 1996 1995c
Net assets, end of
period (in millions) $159 $141 $101 $43 $10 $83 $83 $72 $52 $39
Ratio of expenses to
average daily net assetse 1.80%d 1.79% 1.90% 1.74% 1.95%d .96%d .96% .98% .81% .93%d
Ratio of net investment
income (loss) to average
daily net assets (1.40%)d (1.04%) (1.10%) (.10%) .44%d (.55%)d (.22%) (.17%) .61% 1.51%d
Portfolio turnover
rate (excluding
short-term securities) 103% 145% 153% 179% 192% 103% 145% 153% 179% 192%
Total return(f) 2.57% (3.16%) 38.06% 3.24% 15.96% 3.00% (2.34%) 39.32% 4.20% 16.34%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Six months ended Jan. 31, 1999 (Unaudited).
c Inception date was March 20, 1995.
d Adjusted to an annual basis.
e Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
f Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
Investments in Securities
IDS Discovery Fund, Inc.
Jan. 31, 1999 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (94.8%)
Issuer Shares Value(a)
Airlines (1.6%)
Aviation Sales 400,000(b,e) $18,000,000
Automotive & related (1.8%)
Dura Automotive Systems Cl A 600,000(b,e,f) 19,275,000
Banks and savings & loans (2.8%)
Washington Mutual 725,000 30,450,000
Chemicals (3.3%)
Allied Waste Inds 1,750,000(b) 35,656,250
Commercial finance (3.6%)
Finova Group 650,000 39,162,500
Communications equipment & services (2.7%)
ADC Telecommunications 450,000(b,d) 17,915,625
CIENA 550,000(b) 11,103,125
Total 29,018,750
Computers & office equipment (16.2%)
BMC Software 300,000(b) 14,006,250
Documentum 600,000(b) 13,987,500
Network Associates 350,000(b) 18,331,250
Rational Software 550,000(b,d) 18,081,250
Sapient 175,000(b,d,f) 12,928,125
Saville Systems Ireland ADR 750,000(b,c,d) 16,406,250
Sterling Commerce 775,000(b) 33,276,562
SunGard Data Systems 400,000(b,d) 14,350,000
Synopsys 300,000(b) 17,418,750
Tech Data 600,000(b) 18,825,000
Total 177,610,937
See accompanying notes to investments in securities.
<PAGE>
Common stocks (continued)
Issuer Shares Value(a)
Electronics (1.9%)
Waters 225,000(b) $20,475,000
Energy (1.6%)
Stone Energy 600,000(b) 17,475,000
Energy equipment & services (6.5%)
Core Laboratories 900,000(b,c,d,f)18,000,000
Hanover Compressor 800,000(b,d) 19,150,000
Jacobs Engineering Group 475,000(b,d) 19,920,313
Petroleum Geo-Services ADR 1,050,000(b,c,d) 14,175,000
Total 71,245,313
Financial services (4.5%)
Metris Companies 975,000(d,e) 49,237,500
Food (3.1%)
Suiza Foods 425,000(b,d) 15,114,063
U.S. Foodservice 350,000(b) 18,375,000
Total 33,489,063
Health care (8.5%)
ChiRex 800,000(b,d,e) 16,400,000
IDEXX Laboratories 650,000(b) 16,900,000
STERIS 600,000(b,d) 18,075,000
Stryker 300,000 13,912,500
Watson Pharmaceuticals 500,000(b,d) 27,312,500
Total 92,600,000
Health care services (11.5%)
Express Scripts Cl A 275,000(b,d) 18,081,250
HCR Manor Care 650,000(b) 17,387,500
Health Management Associates Cl A 1,500,000(b) 18,843,750
PSS World Medical 1,000,000(b) 15,625,000
Quintiles Transnational 750,000(b,d) 38,812,499
Total Renal Care Holdings 750,000(b) 17,484,375
Total 126,234,374
Media (5.2%)
Heftel Broadcasting Cl A 375,000(b) 17,109,375
Outdoor Systems 625,000(b,d) 17,968,750
Snyder Communications 550,000(b,d) 22,000,000
Total 57,078,125
See accompanying notes to investments in securities.
<PAGE>
Common stocks (continued)
Issuer Shares Value(a)
Metals (1.4%)
AK Steel Holdings 725,000 $15,089,063
Multi-industry conglomerates (1.6%)
Danaher 325,000(d) 17,387,500
Paper & packaging (3.2%)
Sealed Air 650,000(b) 34,490,625
Restaurants & lodging (1.7%)
Papa John's Intl 450,000(b,d) 18,337,500
Retail (8.5%)
Bed Bath & Beyond 525,000(b,d) 16,800,000
Circuit City Stores 350,000(d) 19,337,500
Meyer (Fred) 375,000(b,d) 23,437,500
Office Depot 975,000(b) 33,881,250
Total 93,456,250
Utilities -- electric (1.2%)
AES 400,000(b) 13,475,000
Utilities -- telephone (2.4%)
Intermedia Communications 1,925,000(b,f) 26,709,375
Total common stocks
(Cost: $860,016,644) $1,035,953,125
Bond (0.9%)
Issuer Coupon Principal Value(a)
rate amount
Riverwood Intl
Company Guaranty
08-01-07 10.63% $10,000,000 $10,175,000
Total bond
(Cost: $9,365,142) $10,175,000
See accompanying notes to investments in securities.
<PAGE>
Options purchased (0.4%)
Issuer Shares Exercise Expiration Value(a)
price date
Calls
BMC Software 100,000 $45 Feb. 1999 $350,000
Ocean Energy 1,875,000 7 June 1999 1,054,687
Total 1,404,687
Put
Intractive 80,000 700 March 1999 2,665,000
Total options purchased
(Cost: $6,719,437) $4,069,687
Short-term securities (3.9%)(d)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency (3.2%)
Federal Home Loan Mtge Corp Disc Nts
02-02-99 5.05% $2,000,000 $1,999,162
02-17-99 5.06 2,500,000 2,493,725
03-12-99 4.79 1,600,000 1,591,326
03-15-99 4.71 25,100,000 24,956,214
03-15-99 4.73 4,000,000 3,976,973
Total 35,017,400
Commercial paper (0.7%)
Commerzbank U.S. Finance
02-22-99 4.84 6,300,000 6,280,599
Consolidated Natural Gas
02-09-99 5.26 800,000 798,840
Total 7,079,439
Total short-term securities
(Cost: $42,096,839) $42,096,839
Total investments in securities
(Cost: $918,198,062)(g) $1,092,294,651
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of Jan. 31, 1999, the
value of foreign securities represented 4.45% of net assets.
(d) At Jan. 31, 1999, securities valued at $73,803,125 were held to cover open
call options written as follows:
Issuer Shares Exercise Expiration Value(a)
price date
<S> <C> <C> <C> <C>
ADC Telecommunications 75,000 $30 Feb. 1999 $731,250
Bed Bath & Beyond 25,000 30 Feb. 1999 70,313
ChiRex 50,000 20 March 1999 134,375
Circuit City Stores 50,000 55 March 1999 234,375
Core Laboratories 100,000 20 Feb. 1999 84,375
Core Laboratories 25,000 20 Feb. 1999 21,094
Core Laboratories 50,000 22 Feb. 1999 7,812
Danaher 50,000 50 Feb. 1999 215,625
Danaher 100,000 55 March 1999 237,500
Express Scripts Cl A 25,000 65 Feb. 1999 79,687
Express Scripts Cl A 50,000 70 Feb. 1999 59,375
Hanover Compressor 25,000 25 Feb. 1999 12,500
Jacobs Engineering Group 25,000 40 March 1999 81,250
Metris Companies 75,000 50 March 1999 421,875
Metris Companies 50,000 55 March 1999 184,375
Meyer (Fred) 50,000 50 Feb. 1999 625,000
Meyer (Fred) 75,000 55 Feb. 1999 562,500
Outdoor Systems 75,000 30 Feb. 1999 84,375
Papa John's Intl 25,000 40 Feb. 1999 49,219
Petroleum Geo-Services ADR 50,000 17 Feb. 1999 6,250
Quintiles Transnational 100,000 55 March 1999 243,750
Rational Software 25,000 30 Feb. 1999 95,312
Rational Software 50,000 35 March 1999 107,813
Sapient 25,000 75 Feb. 1999 145,313
Saville Systems Ireland ADR 100,000 25 Feb. 1999 87,500
Snyder Communications 50,000 40 Feb. 1999 114,062
STERIS 125,000 30 Feb. 1999 164,063
Suiza Foods 25,000 45 Feb. 1999 7,812
SunGard Data Systems 25,000 40 Feb. 1999 9,375
Watson Pharmaceuticals 100,000 50 Feb. 1999 537,500
Watson Pharmaceuticals 50,000 55 Feb. 1999 109,375
Watson Pharmaceuticals 50,000 60 March 1999 81,250
Total $5,606,250
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At Jan. 31, 1999, cash or short-term securities were designated to cover open
put options written as follows:
Issuer Shares Exercise Expiration Value(a)
price date
CIENA 75,000 $20 Feb. 1999 $133,594
Network Associates 50,000 50 Feb. 1999 90,625
Sapient 25,000 70 Feb. 1999 112,500
Total $336,719
(e) Investments 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, 1999 are as follows:
Issuer Beginning Purchase Sales Ending Dividend Value(a)
cost cost cost cost income
<S> <C> <C> <C> <C> <C> <C>
Aviation Sales* $15,563,087 $3,796,790 $5,909,487 $13,450,390 $-- $18,000,000
ChiRex 12,113,204 4,359,375 5,399,801 11,072,778 -- 16,400,000
Dura Automotive
Systems Cl A 17,016,985 4,470,938 4,447,485 17,040,438 -- 19,275,000
Hadco* 27,394,198 -- 27,394,198 -- -- --
Metris Companies* 2,401,938 45,660,806 14,931,188 33,131,556 10,500 49,237,500
Total $74,489,412 $58,287,909 $58,082,159 $74,695,162 $10,500 $102,912,500
*Issuer was not an affiliate for the entire period ended Jan. 31, 1999.
(f) Security is partially or fully on loan. See Note 6 to the financial
statements.
(g) At Jan. 31, 1999, the cost of securities for federal income tax purposes was
approximately $918,187,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $220,048,000
Unrealized depreciation (45,940,000)
Net unrealized appreciation $174,108,000
</TABLE>
<PAGE>
Quick telephone reference
American Express Financial Advisors Telephone
Transaction Service
Sales and exchanges, dividend payments or reinvestments and automatic payment
arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 612-671-3800
American Express Client Service Corporation
Fund performance, objectives and account inquiries: 800-862-7919
TTY Service
For the hearing impaired: 800-846-4852
American Express Financial Advisors
Automated account information (TouchTone(R) telephones only), including current
Fund prices and performance, account values and recent account transactions:
800-862-7919
Ticker Symbol
Class A: INDYX Class B: IDIBX Class Y: IDVYX
<PAGE>
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 85
SPENCER, IA
S-6458 M (3/99)
IDS Discovery Fund
IDS Tower 10
Minneapolis, MN 55440-0010
