Dear Fellow Shareholders:
August 31 marked the midpoint of our first year of operation, and the early
results are reflected in these pages. Please bear in mind that our first six
months represent only the first step on what we trust will be a long and
profitable journey to investment success. When we launched the fund at the start
of March, stocks were achieving new all-time highs and the market mood was very
positive. Since then, equities have struggled to maintain their upward movement,
encountering frequent peaks and valleys in the short term. But our focus and, we
hope, yours, should continue to be on the long-term potential of the excellent
companies in our MP 63 Index (and in the fund itself). While we are gratified to
have surpassed $12 million in assets in a relatively short period, we expect to
achieve better results with the passage of time and the improvement in stock
prices.
Several of our stocks have been unfairly punished by active traders and the
analysts who concentrate solely on short-term results. Bank One, for example,
suggested that analysts' expectations for 1999 were too high. Rather than
earning $3.90 per share, it said that it will net about $3.60 to $3.65 -- still
10-12% more than last year. Its stock immediately lost about 25% of its market
price, going from $55 per share down to $42, and the share price eventually
slipped to about $35...less than 10 times earnings. This was clearly an
overreaction, and the story was similar for Avon Products, Coca-Cola, Newell
Rubbermaid, and VF Corp., among others. Fortunately, as investors with a
longer-term perspective, we're able and willing to take advantage of "bargain"
prices to accumulate more shares. Whenever the Net Asset Value (NAV) slips, you
may consider it a shorthand way to decide to allocate even more money to the
fund. We encourage you to participate in the same kind of dollar-cost averaging
that you'd use to accumulate shares through a dividend reinvestment plan (DRP)
by adding funds to your MP 63 Fund account. And, certainly, don't lose your
resolve to invest regularly just because you see a drop in the fund's NAV!
One especially troubling stock has been Rite Aid, which has seen its share
price drop sharply on the heels of poor earnings and organizational
difficulties. The company, you may recall, has expanded rapidly through
acquisitions, buying the Thrifty Payless, K&B, and Harco drugstore chains in
rapid succession. More recently, it acquired the PCS Health Systems managed-care
business. Because of the integration costs and the challenge of standardizing
its computer network, earnings have come under pressure for the past few
quarters. Rite Aid sold some of its California stores and said that it will
close a distribution facility in Utah, further depressing the stock. But that
facility will be replaced by a larger, more efficient one located closer to its
stores on the West Coast, where the locations sold were larger than its typical
format. The company has formed alliances with General Nutrition and
drugstore.com, and has taken an equity stake in the latter. So, while it is
struggling, there is reason to believe that Rite Aid will recover. Meanwhile,
we're buying shares cheaply. The situation is eerily similar to that last year
at Union Pacific, which was faced by an uphill battle in the wake of its merger
with Southern Pacific, reporting losses and operating problems. Yet that company
has rectified those problems and, not so surprisingly, has regained the favor of
analysts...and returned to profitability. Rite Aid is just the latest example of
a company becoming so unloved that this may be the perfect time at which to
invest.
<PAGE>
Another series of events that took place shortly after we launched the fund
were the announcements, in March, of three mergers affecting our components.
Although they aren't reflected in this summary, all three will have been
completed by October 1. In two cases, we've chosen to allow the acquirer to
replace its merger partner. So you'll see Fleet Boston in place of BankBoston
and DuPont in place of Pioneer Hi-Bred when we next report. The third merger
involved the acquisition of Frontier Corp. by Global Crossing Ltd., which does
not offer a DRP. We'll replace Frontier with CenturyTel, formerly Century
Telephone, and begin buying shares in the latter. The GBLX shares we receive in
exchange for Frontier shares will be held until we determine an optimal time to
dispose of them. The same is true of the Too Inc. (TOO) shares we received as a
spin-off of The Limited. In order to minimize capital gains distributions, we'll
probably hold the extra companies' shares at least until after the end of our
fiscal year, which will occur next February 28. A subsequent merger was
announced in August, whereby Hannaford Brothers will be acquired by Delhaize
America, formerly Food Lion. We don't plan to invest in Delhaize, which has a
high-fee DRP and limited prospects, so we'll be replacing Hannaford with Corning
(GLW), which specializes in high-growth businesses, such as fiber-optics and
flat-panel display glass.
Our first six months have been a learning experience. We expect that the
fund's NAV will rise as our companies regain favor. In the meantime, by buying
excellent stocks at reasonable prices, we are setting the stage for accumulating
wealth over the long haul. But our journey is still in its early stages, so we
urge shareholders to exercise the same patience that has worked in the stock
markets consistently for many years. We invite your feedback, either by mail or
by sending E-mail to us at [email protected]. Also, check the Internet for
periodic updates. For your convenience, we've also included a tear-off form to
submit additional funds. We hope you'll join us in continuing to invest in the
fine companies held by the MP 63 Fund.
<PAGE>
THE MP 63 FUND, INC.
Schedule of Investments in Securities
August 31, 1999 - (Unaudited)
<TABLE>
<CAPTION>
Market
Shares Value
- ------ ----------
<C> <S> <C>
COMMON STOCKS 97.55%
ADVERTISING - 1.84%
5,600 Interpublic Group of Companies $221,900
----------
APPAREL - 1.10%
3,700 VF Corporation 133,200
----------
AUTOMOTIVE MANUFACTURING - 2.35%
5,200 Harley-Davidson, Inc. 283,400
----------
AUTOMOTIVE PARTS - 1.00%
4,200 Genuine Parts Co. 121,275
----------
BANKING - 6.76%
3,000 Bank One Corporation 120,375
6,000 Bank Boston Corporation 278,625
7,100 BB&T Corporation 237,850
6,500 National City Corporation 179,563
----------
816,413
----------
BEVERAGES - 1.59%
3,200 Coca-Cola Corporation 191,400
----------
CHEMICALS - 2.05%
6,100 Engelhard Inc. 121,619
9,500 RPM Inc. 126,469
----------
248,088
----------
COMPUTERS - 4.36%
6,400 Intel Corporation 526,000
----------
<PAGE>
THE MP 63 FUND, INC.
Schedule of Investments in Securities
August 31, 1999 - (Unaudited)-(Continued)
Market
Shares Value
- ------------------ ---------
CONSUMER PRODUCTS - 5.25%
5,500 Avon Products, Inc. $241,313
2,700 Johnson & Johnson 276,075
5,800 Jostens, Inc. 116,725
----------
634,113
----------
DRUGS - 5.57%
4,600 Abbott Laboratories 199,525
9,000 Schering-Plough Corporation 473,063
----------
672,588
----------
FINANCIAL - 5.56%
5,200 Franklin Resources Inc. 186,875
2,300 H&R Block, Inc. 127,938
12,100 Paychex, Inc. 356,194
----------
671,006
----------
FOOD - 8.03%
5,900 Conagra Inc. 144,550
9,400 Flowers Industries Inc. 148,638
4,000 Hormel Foods Corporation 161,000
5,800 Pioneer Hi-Bred International 226,925
6,300 Sara Lee Corporation 139,781
1,900 Wrigley Company 148,794
----------
969,688
----------
INSURANCE - 3.49%
6,300 AFLAC Inc. 283,106
4,300 St. Paul Companies 137,869
----------
420,975
----------
MACHINERY - 1.69%
3,200 Ingersoll-Rand Company 203,600
----------
MANUFACTURING - 10.26%
10,600 Clayton Homes Inc. 100,700
3,400 Illinois Tool Works Inc. 264,988
1,700 Minnesota Mining & Manufacturing Company 160,650
<PAGE>
THE MP 63 FUND, INC.
Schedule of Investments in Securities
August 31, 1999 - (Unaudited)-(Continued)
Market
Shares Value
- ------------------ ------------------
MANUFACTURING -(Continued)
3,800 Newell Rubbermaid Inc. $155,800
2,600 TRW Inc. 141,700
4,100 Tyco International Ltd. 415,381
----------
1,239,219
----------
METALS - 1.11%
2,400 Phelps Dodge Corporation 134,250
----------
OFFICE EQUIPMENT - 2.88%
5,100 Diebold Inc. 135,788
3,600 Pitney Bowes Inc. 212,400
----------
348,188
----------
OIL & GAS - 3.17%
2,600 Exxon Corporation 205,075
2,800 Texaco Inc. 177,800
----------
382,875
----------
PACKAGING - 1.23%
3,900 Bemis Company Inc. 147,956
----------
PAPER & LUMBER - 1.13%
2,900 International Paper Company 136,481
----------
PERSONNEL - 1.33%
9,700 Servicemaster Co. 160,050
----------
PUBLISHING - 1.52%
2,700 Gannett Company Inc. 183,431
----------
REAL ESTATE INVESTMENT TRUST - 0.97%
6,200 New Plan Excel Realty Trust, Inc. 117,413
----------
RESTAURANTS - 1.11%
4,800 Wendys International 134,400
----------
<PAGE>
THE MP 63 FUND, INC.
Schedule of Investments in Securities
August 31, 1999 - (Unaudited)-(Continued)
Market
Shares Value
- ------------------ ------------
RETAIL-APPARELL - 1.54%
4,600 The Limited 174,225
657 Too Inc. * 11,541
------------
185,766
------------
RETAIL-DRUGS - 1.26%
8,200 Rite Aid Corporation 151,700
------------
RETAIL-GENERAL - 4.55%
3,100 Hannaford Brothers Co. $222,425
4,000 Home Depot 244,500
6,600 Kmart Corporation * 82,913
------------
549,838
------------
TELECOMMUNICATIONS - 4.63%
5,000 Bellsouth Corporation 226,250
3,800 Frontier Corporation 159,363
3,600 SBC Communications Inc. 172,800
------------
558,413
------------
TOBACCO - 1.43%
4,600 Phillip Morris Companies Inc. 172,213
------------
TRANSPORTATION - 1.87%
4,500 Ryder System Inc. 99,281
2,600 Union Pacific Corporation 126,588
------------
225,869
------------
UTILITY - ELECTRIC - 3.33%
2,400 Duke Energy Corporation 138,000
5,300 Edison International 134,488
5,200 Scana Corporation 130,000
------------
402,488
------------
<PAGE>
THE MP 63 FUND, INC.
Schedule of Investments in Securities
August 31, 1999 - (Unaudited)-(Continued)
Market
Shares Value
- ------------------ ----------
UTILITY - GAS - 2.26%
3,100 National Fuel Gas Company 145,894
6,700 Questar Corporation 126,463
----------
272,357
----------
UTILITY - WATER - 1.33%
5,500 American Water Works Company, Inc. 160,188
----------
TOTAL COMMON STOCKS
(Cost $11,948,572) $11,776,735
-----------
CASH EQUIVALENTS - 2.28%
274,706 Firstar Treasury Fund 274,706
-----------
TOTAL INVESTMENTS
(Cost $12,223,278) 99.83% 12,051,441
Other assets less liabilities 0.17% 21,012
------------------------
TOTAL NET ASSETS 100.00% $12,072,453
========================
<FN>
(1) Federal Tax Information: At August 31, 1999 the net unrealized depreciation
based on cost for Federal Income Tax purposes of $12,223,278 was as
follows:
Aggregate gross unrealized appreciation for all investments
for which there was an excess of value over cost........... $534,625
Aggregate gross unrealized depreciation for all investments
for which there was an excess of cost over value........... (706,462)
---------
Net unrealized depreciation................................ ($171,837)
==========
* Non-income producing security
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
THE MP 63 FUND
Statement of Assets and Liabilities
August 31, 1999
(Unaudited)
<TABLE>
ASSETS
<S> <C>
Investments in securities, at value
(cost $12,223,278) $ 12,051,441
Dividends and interest receivable 19,315
Receivable for fund shares sold 54,342
Prepaid expenses 21,957
------------
------------
Total assets 12,147,055
------------
LIABILITIES
Payable to advisor (Note 3) 36,339
Other accrued expenses 38,263
------------
------------
Total liabilities 74,602
------------
Net Assets $ 12,072,453
============
NET ASSETS CONSIST OF:
Capital stock, $.001 par value; 1 billion
shares authorized; 1,196,888 shares
outstanding $ 12,214,764
Undistributed net investment income 29,526
Net unrealized appreciation on investments (171,837)
------------
============
Net Assets $ 12,072,453
============
Net asset value ($12,072,453/1,196,888)
$ 10.09
============
</TABLE>
See notes to financial statements.
<PAGE>
THE MP 63 FUND
Statement of Operations
For the six months ended August 31, 1999
(Unaudited)
<TABLE>
Investment Income:
<S> <C>
Dividends $ 68,970
Interest 13,649
---------
Total investment income 82,619
---------
Expenses:
Advisory fees (Note 3) 14,866
Administration fees (Note 4) 14,866
Registration fees 14,460
Printing expense 9,493
Custody fees 8,236
Insurance expense 4,612
Audit fees 3,114
Trustees fees 2,992
Legal fees 2,493
Other expenses 2,348
---------
Total expenses 77,480
Less: expense reimbursement (Note 3) (24,387)
---------
Net expenses 53,093
---------
Net investment income 29,526
---------
Net Realized and Unrealized Gains
on Investments
Net realized gain on investments 0
Net increase in unrealized depreciation
on investments (171,837)
---------
Net loss on investments (171,837)
---------
Net decrease in net assets resulting
from operations $(142,311)
=========
</TABLE>
See notes to financial statements.
<PAGE>
THE MP 63 FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the
six months ended
August 31, 1999
(Unaudited)
-----------------
OPERATIONS:
<S> <C>
Net investment income $ 29,526
Net realized gain from investment transactions 0
Net increase in unrealized appreciation on investments (171,837)
------------
------------
Net increase in net assets resulting from operations (142,311)
------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income 0
Distributions from net realized gains on investments 0
------------
Change in net assets derived from investment activities 0
------------
FUND SHARE TRANSACTIONS:
Proceeds from shares sold 12,180,607
Dividends reinvested 0
Payment for shares redeemed (net of $1,276 redemption fees) (65,843)
------------
Net increase in net assets from fund share transactions 12,114,764
------------
Net increase in net assets 11,972,453
NET ASSETS, BEGINNING
OF PERIOD 100,000
------------
NET ASSETS, END OF PERIOD $ 12,072,453
============
</TABLE>
See notes to financial statements.
<PAGE>
THE MP 63 FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the period
March 1, 1999
(commencement of
operations)
through
August 31, 1999
(Unaudited)
-----------------
<S> <C>
Net asset value, beginning of period $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.09
Net realized and unrealized gains (losses)
on investments 0.00
----------
Total from investment operations 0.09
----------
LESS DISTRIBUTIONS
Dividend from net investment income 0.00
Distribution in excess of net investment income 0.00
Distribution from realized gains 0.00
Distribution in excess of net realized gains
on investments 0.00
----------
Total dividends and distributions 0.00
----------
Net asset value, end of period $ 10.09
==========
Total return 0.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 12,072
RATIOS TO AVERAGE NET ASSETS:
Expenses (before reimbursement) 1.82%*
Expenses (net of reimbursement) 1.25%*
Net investment income 0.69%*
Portfolio turnover rate 0.00%
<FN>
* Annualized
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
The MP 63 Fund, Inc.
Notes to Financial Statements
August 31, 1999
(Unaudited)
NOTE 1. ORGANIZATION
The MP 63 Fund (the "Fund"), is organized as a Maryland Corporation,
incorporated on October 13, 1998, and registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended. The Fund's business and affairs are managed by its officers under the
direction of its Board of Directors. The Fund's investment objective is to seek
long-term capital appreciation for shareholders
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund. These policies are in conformity with
generally accepted accounting principles.
A. SECURITY VALUATION - Securities for which market quotations are
readily available are valued at market value. Portfolio securities
for which market quotations are not considered readily available are
stated at fair value on the basis of valuations furnished by a
pricing service approved by the Board of Directors. The pricing
service determines valuations for normal, institutional-size trading
units of such securities using methods based on market transactions
for comparable securities and various relationships between
securities that are generally recognized by institutional traders.
Short-term investments held by the Fund that mature in 60 days or
less are valued at amortized cost, which approximates market value.
All other securities and assets are valued at their fair value
following procedures approved by the Board of Directors.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Securities
transactions are accounted for on the trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis.
C. FEDERAL INCOME TAXES - The Fund intends to comply with requirements
of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its
shareholders. Therefore, no provision for Federal income tax is
required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - The Fund records
dividends and distributions to shareholders on the ex-dividend date.
The Fund will distribute its net investment income, if any, and net
realized capital gains, if any, annually.
E. USE OF ESTIMATES - The preparation of financial statements in
conformity with general accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
NOTE 3. INVESTMENT ADVISORY AGREEMENT
The Fund has an investment advisory agreement with The Moneypaper Advisor,
Inc. ("Advisor"). Under this agreement, the Advisor provides the Fund with
investment advice and supervises the Fund's management and investment programs
for which the Fund pays a monthly advisory fee equal, on an annual basis, to
0.35% of its average daily net assets.
<PAGE>
The Advisor has voluntarily agreed to reimburse the Fund for expenses in
excess of 1.25% of average net assets for the fiscal year ending February 28,
2000. The amount reimbursed by the Advisor for the six months ended August 31,
1999 is set forth in the Statement of Operations.
NOTE 4. FUND ADMINISTRATOR AGREEMENT
The Fund has an administrative agreement with American Data Services, Inc.
("ADS" or the "Administrator"). Under this agreement, the Administrator
provides the Fund with administrative, transfer agency, and fund accounting
services. For the services rendered to the Fund by the Administrator, the Fund
pays the Administrator a monthly fee, which is based on its average net
assets. If the Fund's average daily net assets are: less than $75 million, the
Administrator's fee is equal to 0.35% of its average daily net assets; between
$75 million and $200 million, the Administrator's fee is equal to 0.30% of
such assets; between $200 million and $500 million, the Administrator's fee is
equal to 0.25% of such assets; between $500 million and $1 billion, the
Administrator's fee is equal to 0.20% of such assets; and in excess of $1
billion, the Administrator receives a fee equal to 0.10% of the Fund's average
daily net assets. The Fund also reimburses the Administrator for printing,
postage, and telephone costs.
NOTE 5. CAPITAL SHARE TRANSACTIONS
At August 31, 1999 there were 1 billion shares authorized at $.001 par
value. Transactions in capital stock during the six months ended August 31,
1999 were as follows:
Shares sold.............................................. 1,193,388
Shares issued for dividend reinvestment.................. 0
Shares repurchased........................................ (6,500)
---------
1,186,888
=========
NOTE 6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short term
securities, for the six months ended August 31, 1999 aggregated $11,948,572,
and $0, respectively.
