AXP(SM)
Discovery
Fund
2000 SEMIANNUAL REPORT
American
Express(R)
Funds
(icon of) ruler
AXP Discovery Fund seeks to provide shareholders with long-term growth of
capital.
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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 AXP
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 19
<PAGE>
(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
We are in an extraordinary period for investing in financial assets, with many
stocks at their all-time highs. Looking at year 2000, American Express Financial
Corporation, the Fund's investment manager, expects the economy to continue to
grow and long-term interest rates to rise only slightly. This is a great time to
take a close look at your goals and investments. We encourage you to:
o Consult a professional investment adviser who can help you cut through
mountains of data.
o Set financial goals that extend beyond those achievable through retirement
plans of your employer.
o Learn as much as you can about your current investments.
The portfolio manager's letter that follows provides a review of the Fund's
investment strategies and performance. The annual report contains other valuable
information as well. The Fund's prospectus describes its investment objectives
and how it intends to achieve those objectives. As experienced investors know,
information is vital to making good investment decisions.
So, take a moment and decide again whether the Fund's investment objectives and
management style fit with your other investments to help you reach your
financial goals. And make it a practice on a regular basis to assess your
investment options.
On behalf of the Board,
Arne H. Carlson
(picture of) Kurt Winters
Kurt Winters
Portfolio manager
From the Portfolio Manager
The smaller stocks that AXP Discovery Fund emphasizes remained out of favor
during the past six months, resulting in a loss (excluding the sales charge) of
4.09% for the Fund's Class A shares over the first half of the fiscal year --
August 1999 through January 2000. (In December 1999 the Fund distributed to
shareholders a capital gain, which reduced the net asset value by the same
amount at that time.)
The period got off to a rocky start, as the stock market struggled against
higher interest rates, the possibility of rising inflation and concerns
regarding the potential impact of the Y2K computer bug. Small- and mid-cap
stocks, which comprise the Fund's portfolio, fared poorly, as investors
concluded that they would be most vulnerable in a negative investment
environment. By the time August was over, the Fund was already down close to 7%.
A REBOUND BEGINS
The situation improved somewhat in the following few months, as investors,
encouraged by reports of still-tame inflation and generally good corporate
profits, steadily moved back into stocks. In general, though, aside from some
high-flying technology issues, they continued to shy away from most smaller
stocks. After experiencing a slight loss in September, the Fund recorded three
straight months of improving performance, which culminated in a gain of 5% in
December that put it back into positive territory for the period as a whole.
Renewed fear of inflation ended the rally in early January, however, and a
subsequent retreat by the market resulted in the Fund giving back its gain by
the end of the month.
Looking at the Fund's holdings, technology-related stocks, which made up a
substantial area of investment, provided the strongest overall performance,
particularly during the run-up in the fourth quarter of 1999. The consumer
group, which includes health care, retailing and food, comprised the largest
area of investment. On the whole, it generated mixed results, with retailing
coming out best. Among other sectors, energy-related stocks were positive, while
financial services holdings were negative performers.
Taking a broader view of the period, it was encouraging to see small- and
mid-cap stocks rebound after taking a back seat to big-cap stocks in recent
years. On the other hand, the Fund's non-momentum orientation continued to find
comparatively little favor in the market, which remained driven largely by
technology-related growth stocks, regardless of their often-sky-high price
levels. We saw some erosion within that group early in 2000, and should that
continue, the more reasonably priced stocks this Fund owns might attract greater
interest from investors over the second half of the fiscal year.
Kurt Winters
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Fund Facts
Class A -- 6-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 2000 $10.30
July 31, 1999 $11.04
Decrease $ 0.74
Distributions -- Aug. 1, 1999 - Jan. 31, 2000
From income $ 0.01
From capital gains $ 0.27
Total distributions $ 0.28
Total return* -4.09%**
Class B -- 6-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 2000 $ 9.89
July 31, 1999 $10.65
Decrease $ 0.76
Distributions -- Aug. 1, 1999 - Jan 31, 2000
From income $ 0.01
From capital gains $ 0.27
Total distributions $ 0.28
Total return* -4.49%**
Class Y -- 6-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 2000 $10.34
July 31, 1999 $11.07
Decrease $ 0.73
Distributions -- Aug. 1, 1999 - Jan. 31, 2000
From income $ 0.01
From capital gains $ 0.27
Total distributions $ 0.28
Total return* -3.99%**
*Returns do not include sales load,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, 2000)
Metris Companies 5.28% $42,118,750
Pentair 4.10 32,662,500
Linens `N Things 4.06 32,381,250
U.S. Foodservice 3.97 31,609,375
Concentric Network 3.72 29,662,499
Jacobs Engineering Group 3.70 29,500,000
Finova Group 3.65 29,081,250
Gentex 3.39 27,000,000
Dura Automotive Systems Cl A 3.36 26,800,000
Roper Inds 2.95 23,493,750
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 38.18% of net assets
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<CAPTION>
Financial Statements
Statement of assets and liabilities
AXP Discovery Fund, Inc.
Jan. 31, 2000 (Unaudited)
Assets
Investments in securities, at value (Note 1):
<S> <C> <C>
Investments in securities of unaffiliated issuers (identified cost $743,658,210) $763,249,311
Investments in securities of affiliated issuers (identified cost $50,390,072) 28,161,438
----------
Total investments in securities (identified cost $794,048,282) 791,410,749
Cash in bank on demand deposit 274,959
Dividends and accrued interest receivable 246,750
Receivable for investment securities sold 36,060,912
----------
Total assets 827,993,370
-----------
Liabilities
Payable for investment securities purchased 17,792,423
Payable upon return of securities loaned (Note 6) 9,348,000
Accrued investment management services fee 41,363
Accrued distribution fee 23,143
Accrued service fee 671
Accrued transfer agency fee 4,682
Accrued administrative services fee 3,664
Option contracts written, at value (premium received $4,162,240) (Note 5) 3,811,719
Other accrued expenses 58,324
------
Total liabilities 31,083,989
----------
Net assets applicable to outstanding capital stock $796,909,381
============
Represented by
Capital stock-- $.01 par value (Note 1) $ 778,131
Additional paid-in capital 758,094,352
Net operating loss (2,545,084)
Accumulated net realized gain (loss) 42,868,994
Unrealized appreciation (depreciation) on investments (2,287,012)
----------
Total-- representing net assets applicable to outstanding capital stock $796,909,381
============
Net assets applicable to outstanding shares: Class A $593,721,145
Class B $123,788,246
Class Y $ 79,399,990
Net asset value per share of outstanding capital stock: Class A shares 57,624,274 $ 10.30
Class B shares 12,510,746 $ 9.89
Class Y shares 7,678,084 $ 10.34
See accompanying notes to financial statements.
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<CAPTION>
Statement of operations
AXP Discovery Fund, Inc.
Six months ended Jan. 31, 2000 (Unaudited)
Investment income
Income:
<S> <C>
Dividends $ 1,158,316
Interest 1,464,819
---------
Total income 2,623,135
---------
Expenses (Note 2):
Investment management services fee 2,324,088
Distribution fee
Class A 853,753
Class B 704,005
Transfer agency fee 842,759
Incremental transfer agency fee
Class A 67,418
Class B 28,440
Service fee - Class Y 40,872
Administrative services fees and expenses 231,660
Compensation of board members 4,955
Custodian fees 59,485
Registration fees 16,441
Audit fees 13,000
Other 10,854
------
Total expenses 5,197,730
Earnings credits on cash balances (Note 2) (29,511)
-------
Total net expenses 5,168,219
---------
Investment income (loss) -- net (2,545,084)
----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (including loss of $22,738,992 on sale of affiliated issuers) (Note 3) 75,160,018
Closed short positions in securities (Note 1) 1,625,209
Options contracts written (Note 5) (12,739,077)
-----------
Net realized gain (loss) on investments 64,046,150
Net change in unrealized appreciation (depreciation) on investments (101,831,616)
------------
Net gain (loss) on investments (37,785,466)
-----------
Net increase (decrease) in net assets resulting from operations $(40,330,550)
============
See accompanying notes to financial statements.
</TABLE>
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<CAPTION>
Statements of changes in net assets
AXP Discovery Fund, Inc.
Jan. 31, 2000 July 31, 1999
Six months ended Year ended
(Unaudited)
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ (2,545,084) $ (6,518,937)
Net realized gain (loss) on investments 64,046,150 13,874,653
Net change in unrealized appreciation (depreciation) on investments (101,831,616) 45,009,332
------------ ----------
Net increase (decrease) in net assets resulting from operations (40,330,550) 52,365,048
----------- ----------
Distributions to shareholders from:
Net realized gain
Class A (17,081,244) (53,427,444)
Class B (3,709,732) (10,037,586)
Class Y (2,147,477) (5,283,632)
---------- ----------
Total distributions (22,938,453) (68,748,662)
----------- -----------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 50,604,527 182,733,509
Class B shares 11,263,866 49,854,048
Class Y shares 15,095,597 31,184,523
Reinvestment of distributions at net asset value
Class A shares 16,588,498 51,755,172
Class B shares 3,676,514 9,962,479
Class Y shares 2,147,477 5,283,632
Payments for redemptions
Class A shares (183,772,244) (326,907,949)
Class B shares (Note 2) (33,835,620) (46,132,915)
Class Y shares (15,846,072) (35,370,199)
----------- -----------
Increase (decrease) in net assets from capital share transactions (134,077,457) (77,637,700)
------------ -----------
Total increase (decrease) in net assets (197,346,460) (94,021,314)
Net assets at beginning of period 994,255,841 1,088,277,155
----------- -------------
Net assets at end of period $ 796,909,381 $ 994,255,841
============= ==============
See accompanying notes to financial statements.
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Notes to Financial Statements
AXP Discovery Fund, Inc.
(Unaudited as to Jan. 31, 2000)
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, incremental 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.
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.
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. 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.
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 at the time of
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. If
the value of the securities sold short increased between the date of the short
sale and the date on which the borrowed security is replaced, the Fund loses the
opportunity to participate in the gain. A "short sale against the box" will
result in a constructive sale of appreciated securities thereby generating
capital gains to the Fund.
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 substantially 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.
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 has agreements with American Express Financial Corporation (AEFC) to
manage its portfolio and provide 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
average 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 a comparsion of the performance of Class A shares of AXP Discovery
Fund, Inc. to the Lipper Small-Cap Core Index. The maximum adjustment is 0.12%
of the Fund's average daily net assets on an annual basis. The adjustment
decreased the fee by $424,060 for the six months ended Jan. 31, 2000.
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. A minor
portion of additional administrative service expenses paid by the Fund are
consultants' fees and fund office expenses. 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 $19
o Class B $20
o Class Y $17
The Fund has agreements with American Express Financial Advisors Inc. (the
Distributor) for distribution and shareholder services. Under a Plan and
Agreement of Distribution, the Fund pays a distribution fee at an annual rate up
to 0.25% of the Fund's average daily net assets attributable to Class A shares
and up to 1.00% for Class B shares.
Under a Shareholder Service Agreement, the Fund's Class Y shares pay a fee for
service provided to shareholders by financial advisors and other servicing
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares.
Sales charges received by the Distributor for distributing Fund shares were
$424,627 for Class A and $104,471 for Class B for the six months ended Jan. 31,
2000.
During the six months ended Jan. 31, 2000, the Fund's custodian and transfer
agency fees were reduced by $29,511 as a result of earnings credits from
overnight cash balances. The Fund also pays custodian fees to American Express
Trust Company, an affiliate of AEFC.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $918,480,980 and $1,019,343,626, respectively, for the
six months ended Jan 31, 2000. Realized gains and losses are determined on an
identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $267,113 for the
six months ended Jan. 31, 2000.
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<TABLE>
<CAPTION>
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended Jan. 31, 2000
Class A Class B Class Y
<S> <C> <C> <C>
Sold 4,831,150 1,117,782 1,433,851
Issued for reinvested distributions 1,623,096 374,708 209,715
Redeemed (17,470,762) (3,346,262) (1,507,080)
----------- ---------- ----------
Net increase (decrease) (11,016,516) (1,853,772) 136,486
Year ended July 31, 1999
Class A Class B Class Y
Sold 17,647,982 4,967,862 2,993,231
Issued for reinvested distributions 4,961,664 985,046 505,514
Redeemed (31,236,474) (4,547,905) (3,381,684)
----------- ---------- ----------
Net increase (decrease) (8,626,828) 1,405,003 117,061
5. OPTIONS CONTRACTS WRITTEN
Contracts and premium amounts associated with options contracts written are as
follows:
Six months ended Jan. 31, 2000
Puts Calls
Contracts Premium Contracts Premium
<S> <C> <C> <C> <C> <C> <C>
Balance July 31, 1999 1,000 $ 215,742 13,250 $ 4,403,052
Opened 5,750 1,148,989 148,669 49,425,471
Closed (6,750) (1,364,731) (94,108) (33,218,660)
Exercised -- -- (40,749) (12,073,929)
Expired -- -- (17,812) (4,373,694)
------ -------- ------- ----------
Balance Jan. 31, 2000 -- -- 9,250 $4,162,240
See "Summary of significant accounting policies."
6. LENDING OF PORTFOLIO SECURITIES
As of Jan. 31, 2000, securities valued at $8,251,393 were on loan to brokers.
For collateral, the Fund received $9,348,000 in cash. Income from securities
lending amounted to $295,455 for the six months ended Jan. 31, 2000. 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 has 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 for 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 American Express mutual 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, 2000.
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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 changesa
Class A
2000b 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.04 $11.18 $13.02 $10.73 $13.16
Income from investment operations:
Net investment income (loss) (.03) (.06) (.04) (.04) .06
Net gains (losses) (both realized and unrealized) (.43) .63 (.24) 3.95 .34
Total from investment operations (.46) .57 (.28) 3.91 .40
Less distributions:
Dividends from net investment income -- -- -- (.03) (.09)
Distributions from realized gains (.28) (.71) (1.56) (1.59) (2.74)
Total distributions (.28) (.71) (1.56) (1.62) (2.83)
Net asset value, end of period $10.30 $11.04 $11.18 $13.02 $10.73
Ratios/supplemental data
Net assets, end of period (in millions) $594 $758 $864 $904 $683
Ratio of expenses to average daily net assetsd 1.04%c 1.05% 1.03% 1.13% 1.00%
Ratio of net investment income (loss) to
average daily net assets (.46%)c (.54%) (.30%) (.32%) .46%
Portfolio turnover rate
(excluding short-term securities) 112% 188% 145% 153% 179%
Total returne (4.09%) 5.45% (2.42%) 39.12% 4.04%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Six months ended Jan. 31, 2000 (Unaudited).
c Adjusted to an annual basis
d 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.
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<CAPTION>
Fiscal period ended July 31,
Per share income and capital changesa
Class B Class Y
2000b 1999 1998 1997 1996 2000b 1999 1998 1997 1996
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period $10.65 $10.90 $12.82 $10.63 $13.12 $11.07 $11.20 $13.03 $10.73 $13.17
Income from investment operations:
Net investment income (loss) (.07) (.14) (.11) (.11) -- (.02) (.05) (.03) (.01) .07
Net gains (losses) (both
realized and unrealized) (.41) .60 (.25) 3.89 .31 (.43) .63 (.24) 3.95 .34
Total from investment operations (.48) .46 (.36) 3.78 .31 (.45) .58 (.27) 3.94 .41
Less distributions:
Dividends from net
investment income -- -- -- -- (.06) -- -- -- (.05) (.11)
Distributions from realized
gains (.28) (.71) (1.56) (1.59) (2.74) (.28) (.71) (1.56) (1.59) (2.74)
Total distributions (.28) (.71) (1.56) (1.59) (2.80) (.28) (.71) (1.56) (1.64) (2.85)
Net asset value, end of period $ 9.89 $10.65 $10.90 $12.82 $10.63 $10.34 $11.07 $11.20 $13.03 $10.73
Ratios/supplemental data
Net assets, end of period
(in millions) $124 $153 $141 $101 $43 $79 $83 $83 $72 $52
Ratio of expenses to
average daily net assetsd 1.81%c 1.82% 1.79% 1.90% 1.74% .88%c .96% .96% .98% .81%
Ratio of net investment
income (loss) to average
daily net assets (1.23%)c (1.30%) (1.04%) (1.10%) (.10%) (.29%)c (.44%) (.22%) (.17%) .61%
Portfolio turnover rate
(excluding short-term
securities) 112% 188% 145% 153% 179% 112% 188% 145% 153% 179%
Total returne (4.49%) 4.65% (3.16%) 38.06% 3.24% (3.99%) 5.55% (2.34%) 39.32% 4.20%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Six months ended Jan. 31, 2000 (Unaudited).
c Adjusted to an annual basis.
d 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>
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
AXP Discovery Fund, Inc.
Jan. 31, 2000 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (88.0%)
Issuer Shares Value(a)
Aerospace & defense (1.4%)
<S> <C> <C>
L-3 Communications Holdings 275,000(b) $11,068,750
Airlines (1.5%)
Atlantic Coast Airlines Holdings 600,000(b) 10,837,500
Aviation Sales 159,000(b,g,e) 1,361,438
Total 12,198,938
Automotive & related (6.8%)
Dura Automotive Systems Cl A 1,675,000(b,e) 26,800,000
Gentex 900,000(b) 27,000,000
Total 53,800,000
Chemicals (2.4%)
MacDermid 275,000 9,350,000
Pall 550,000 10,140,625
Total 19,490,625
Commercial finance (3.6%)
Finova Group 900,000 29,081,250
Communications equipment & services (1.2%)
Carrier Access 175,000(b) 7,700,000
CommScope 50,800(b) 1,933,575
Total 9,633,575
Computers & office equipment (16.3%)
Acxiom 275,000(b) 6,969,531
Cognex 50,000(b) 2,037,500
Concentric Network 700,000(b,d) 29,662,499
Concord Communications 200,000(b) 7,375,000
Data Return 40,000(b) 2,325,000
Hadco 250,000(b) 9,937,500
MedQuist 225,000(b) 4,485,938
Navigant Consulting 1,000,000(b,d) 10,625,000
NVIDIA 275,000(b,d,g) 10,192,188
Paradyne Networks 300,000(b) 8,100,000
Profit Recovery Group Intl 325,000(b) 8,815,625
Project Software & Development 50,000(b) 2,362,500
RadiSys 150,000(b) 6,112,500
Tanning Technology 10,000(b) 436,250
Transaction Systems Architects Cl A 650,000(b) 13,974,999
Wind River Systems 185,000(b) 5,480,625
Total 128,892,655
Electronics (3.8%)
C&D Technologies 250,000 10,218,750
Tektronix 200,000 8,112,500
Veeco Instruments 225,000(b,d) 12,346,875
Total 30,678,125
Energy (4.1%)
Chieftain Intl 650,000(b,c) 11,131,250
Pogo Producing 450,000 10,153,125
Stone Energy 300,000(b) 11,175,000
Total 32,459,375
Energy equipment & services (6.4%)
Hanover Compressor 250,000(b) 9,906,250
Jacobs Engineering Group 1,000,000(b) 29,500,000
Rowan Companies 500,000(b,d) 11,343,750
Total 50,750,000
Financial services (6.8%)
AmeriCredit 750,000(b) 12,281,250
Metris Companies 1,150,000(d) 42,118,750
Total 54,400,000
Food (4.0%)
U.S. Foodservice 1,750,000(b) 31,609,375
Health care (3.7%)
Alpharma Cl A 325,000(d) 11,050,000
Priority Healthcare Cl B 300,000(b) 8,681,250
Sybron Intl 425,000(b) 9,801,563
Total 29,532,813
Health care services (2.5%)
Eclipsys 400,000(b,d) 10,025,000
Renal Care Group 400,000(b) 9,825,000
Total 19,850,000
Industrial equipment & services (5.2%)
Roper Inds 700,000 23,493,750
UCAR Intl 800,000(b,d) 18,050,000
Total 41,543,750
Insurance (0.2%)
Reinsurance Group of America 79,900 1,767,788
Media (1.1%)
Citadel Communications 175,000(b) 8,750,000
Miscellaneous (0.2%)
JNI 32,500(b) 1,929,688
Multi-industry conglomerates (6.0%)
Pentair 975,000 32,662,500
PFSweb 100,000(b,g) 3,412,500
Zebra Technologies Cl A 200,000(b,d) 11,837,500
Total 47,912,500
Restaurants & lodging (1.2%)
Papa John's Intl 400,000(b) 9,950,000
Retail (6.7%)
99 Cents Only Stores 300,000(b) 10,500,000
InterTAN 900,000(b,c) 10,181,250
Linens `N Things 1,650,000(b) 32,381,250
Total 53,062,500
Transportation (1.4%)
USFreightways 300,000 10,912,500
Utilities -- telephone (1.5%)
Intermedia Communications 275,000(b) 11,825,000
Total common stocks
(Cost: $703,120,205) $701,099,207
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Options purchased (1.7%)
Issuer Shares Exercise Expiration Value(a)
price date
Calls
<S> <C> <C> <C> <C>
Cardinal Health 250,000 $50 June 2000 $1,750,000
Cardinal Health 500,000 55 June 2000 2,531,250
Family Dollar Stores 500,000 15 July 2000 1,781,250
Family Dollar Stores 1,500,000 18 July 2000 3,750,000
Kinder Morgan 300,000 20 May 2000 2,062,500
Sungard Data 300,000 23 April 2000 2,081,250
Total options purchased
(Cost: $14,540,495) $13,956,250
Short-term securities (9.6%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (9.0%)
Federal Home Loan Bank Disc Nts
02-23-00 5.59% $200,000 $199,182
02-25-00 5.58 5,900,000 5,877,239
03-24-00 5.83 1,400,000 1,387,611
03-29-00 5.68 26,200,000 25,950,109
04-07-00 5.72 11,100,000 10,977,703
Federal Home Loan Mtge Corp Disc Nts
02-01-00 5.53 1,000,000 999,833
02-08-00 5.61 1,200,000 1,198,381
02-24-00 5.62 300,000 298,699
Federal Natl Mtge Assn Disc Nts
02-04-00 5.54 600,000 599,585
02-17-00 5.65 1,800,000 1,794,557
03-02-00 5.64 2,100,000 2,089,432
03-09-00 5.83 700,000 695,667
04-27-00 5.91 20,000,000 19,718,216
Total 71,786,214
Commercial paper (0.6%)
Alcoa
02-17-00 5.65 900,000 897,607
Corporate Receivables
04-04-00 5.89 2,000,000(f) 1,979,271
Ford Motor Credit
03-03-00 5.56 500,000 497,361
General Electric Capital
03-17-00 5.78 500,000 496,186
Merrill Lynch
02-11-00 5.94 700,000 698,653
Total 4,569,078
Total short-term securities
(Cost: $76,387,582) $76,355,292
Total investments in securities
(Cost: $794,048,282)(h) $791,410,749
</TABLE>
<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, 2000, the
value of foreign securities represented 2.67% of net assets.
(d) At Jan. 31, 2000, securities valued at $32,499,999 were held to cover open
call options written as follows:
Issuer Shares Exercise Expiration Value(a)
price date
<S> <C> <C> <C> <C>
Alpharma Cl A 25,000 $30 Feb. 2000 $ 107,813
Alpharma Cl A 25,000 35 Feb. 2000 32,813
Concentric Network 300,000 35 Feb. 2000 2,343,750
Concentric Network 50,000 40 Feb. 2000 190,625
Concentric Network 50,000 45 Feb. 2000 71,875
Eclipsys 50,000 25 Feb. 2000 98,437
Metris Companies 150,000 35 Feb. 2000 440,625
Navigant Consulting 100,000 13 March 2000 100,000
NVIDIA 25,000 40 Feb. 2000 48,437
Rowan Companies 50,000 23 Feb. 2000 71,875
UCAR Intl 50,000 23 Feb. 2000 81,250
Veeco Instruments 25,000 50 Feb. 2000 162,500
Zebra Technologies Cl A 25,000 60 Feb. 2000 61,719
Total $3,811,719
(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, 2000 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 $29,995,932 $6,976,583 $32,229,171 $4,743,344 $-- $1,361,438
Dura Automotive
Systems Cl A 41,599,228 5,116,250 1,068,750 45,646,728 -- 26,800,000
---------- --------- --------- ---------- ---- ----------
Total $71,595,160 $12,092,833 $33,297,921 $50,390,072 $-- $28,161,438
(f) 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.
(g) Security is partially or fully on loan. See Note 6 to the financial
statements.
(h) At Jan. 31, 2000, the cost of securities for federal income tax purposes was
approximately $794,048,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $91,354,000
Unrealized depreciation (93,991,000)
-----------
Net unrealized depreciation $(2,637,000)
</TABLE>
<PAGE>
American
Express(R)
Funds
AXP Discovery Fund
200 AXP Financial Center
Minneapolis, MN 55474
TICKER SYMBOL
Class A: INDYX Class B: IDIBX Class Y: IDVYX
PRSRT STD AUTO
U.S. POSTAGE
PAID
SPENCER, IA
PERMIT NO. 85
Distributed by American Express Financial Advisors Inc. Member NASD. American
Express Company is separate from American Express Financial Advisors Inc. and is
not a broker-dealer.
AMERICAN EXPRESS
S-6458 N (3/00)
