[Sketch of L. Roy Papp appears here]
PAPP SMALL & MID-CAP GROWTH FUND, INC.
A No-Load Fund
SEMI-ANNUAL REPORT
JUNE 30, 1999
Managed by:
L. Roy Papp & Associates
6225 North 24th Street
Suite 150
Phoenix, AZ 85016
(602)956-1115 Local
(800)421-4004
E-mail: [email protected]
Web: http://www.roypapp.com
<PAGE>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
Dear Fellow Shareholder:
As of June 30, our Fund was up less than one percent for the year. Since
inception on December 15, 1998 we were up 8.7%. The Russell 2000 index was up
more than our Fund largely because until June 30 it contained some 26 Internet
stocks, many of which had risen so dramatically in price because of their huge
popularity that they no longer fit the small stock criteria. Before June 30,
these Internet stocks represented about 7.4% of the Russell Index; after June 30
that number dropped to 2.3%.
We started this Fund because we believe that a well diversified group of small
and mid-capitalization companies is appropriate for a portion of many investors
common stock holdings and because a commingled fund comprised of a significant
number of individual companies would diversify the risk of owning a few
individual companies.
We also determined to buy good quality companies that have a successful history,
have been able to increase their earnings year after year on a reasonably
consistent basis, have no or little debt, whose product appears superior to the
competition, and whose management appears to represent the interests of its
stockholders. In short, we will purchase real companies with a promising future,
not "story" stocks.
As most of you know, we are very patient investors, it being our belief that
well selected companies with a long-term pattern of consistent earnings growth
will eventually be recognized in the marketplace. We are well aware of the fact
that for the past several years the market has largely ignored the smaller
companies in favor of very large capitalization stocks, but if history is any
guide small stocks too will have their day in the sun.
Thank you for your vote of confidence.
Warmest regards,
/s/ L. Roy Papp
L. Roy Papp, Chairman
August 1, 1999
2
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<TABLE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30,1999
(UNAUDITED)
Number Market
Common Stocks of Shares Value
- -------------------------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
FINANCIAL SERVICES (20.8%)
BISYS Group *
(Provider of administration and information services
to the financial services industry) 3,000 $ 175,500
Federated Investors
(Major U.S. investment management company) 7,900 141,706
Investors Financial Services Corp.
(Provides asset administration services to the financial
services industry) 3,000 120,000
T. Rowe Price Associates, Inc.
(No-load mutual fund company) 5,000 191,875
U.S. Trust Corporation
(Provider of investment and fiduciary management services) 1,400 129,500
-----------------
758,581
-----------------
INDUSTRIAL SERVICES (14.2%)
Cambridge Technology Partners, Inc. *
(International professional services business) 6,200 108,887
Expeditors International of Washington, Inc.
(International air freight forwarding) 2,400 65,400
Forrester Research*
(Leading provider of strategic technology research) 2,500 62,500
G & K Services, Inc. Class A
(Uniform rental service) 2,800 146,650
Young & Rubicam Inc. *
(Worldwide advertising agency) 3,000 136,312
-----------------
519,749
-----------------
MEDICAL PRODUCTS (11.0%)
Biomet, Inc.
(Developer and manufacturer of surgical and medical devices) 3,600 143,100
Del Global Technologies
(Designs, manufactures and markets medical imaging systems) 14,000 136,500
Stryker Corp.
(Developer and manufacturer of surgical and medical devices) 2,000 120,250
-----------------
399,850
-----------------
HEALTH CARE SERVICES (10.2%)
Covance, Inc. *
(Leading contract research organization to the drug industry) 5,000 119,687
Patterson Dental Company *
(Leading distributor of dental supplies in the U.S. and Canada) 2,500 86,875
Techne Corp. *
(Leading producer of raw materials for the biotechnology industry) 6,500 164,938
-----------------
371,500
-----------------
*Non-income producing security.
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1999
(UNAUDITED)
Number Market
Common Stocks (continued) of Shares Value
- -------------------------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (10.2%)
American Power Conversion Corporation *
(Leading producer of uninterruptible power supply products) 10,000 $ 201,250
Molex, Inc.
(Supplier of interconnection products) 5,400 170,100
-----------------
371,350
-----------------
SPECIALTY RETAILING (8.9%)
Dollar General Corporation
(Operates self-service discount stores) 6,625 192,125
Office Depot *
(Leading retailer and direct marketer of office supplies) 6,000 132,375
-----------------
324,500
-----------------
SOFTWARE (7.4%)
BMC Software, Inc. *
(Develops data and application management software) 2,500 135,000
SunGard Data Systems, Inc. *
(Develops software for investment support systems) 3,900 134,550
-----------------
269,550
-----------------
CONSUMER SERVICES (4.8%)
Steiner Leisure Ltd. *
(Provider of spa services, beauty salons, and health club on cruise ships) 5,800 175,813
-----------------
PERSONAL CARE/COSMETICS (3.8%)
Helen of Troy Ltd. *
(Designs, develops, and markets personal care accessories) 7,700 138,119
-----------------
TELECOMMUNICATIONS (3.6%)
Plantronics, Inc. *
(Manufactures lightweight telephone headsets) 2,000 130,250
-----------------
COMPUTER EQUIPMENT (2.8%)
National Instruments Corp. *
(Supplier of computer based instrumentation products) 2,500 100,938
-----------------
BROADCASTING (2.2%)
Metro Networks, Inc. *
(Provides traffic, news, and weather to TV and radio outlets) 1,500 80,063
-----------------
TOTAL COMMON STOCKS - 99.7% 3,640,263
CASH AND OTHER ASSETS, LESS LIABILITIES - 0.3% 11,156
-----------------
NET ASSETS - 100% $ 3,651,419
=================
NET ASSET VALUE PER SHARE
(Based on 223,841 shares outstanding at June 30, 1999) $ 16.31
=================
</TABLE>
* Non-income producing security.
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
<TABLE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
(UNAUDITED)
ASSETS
<S> <C>
Investment in securities at market value (original
cost $3,343,480 at June 30, 1999) (Note 1) $ 3,640,263
Cash 39,496
Dividends and interest receivable 956
Receivable for securities sold 107,671
---------------
Total assets $ 3,788,386
===============
LIABILITIES
Accrued expenses $ 6,542
Payable for securities purchased 130,425
---------------
Total liabilities $ 136,967
===============
NET ASSETS
Paid-in capital $ 3,506,994
Accumulated undistributed net realized loss
on sale of investments (139,013)
Accumulated undistributed net investment loss (13,345)
Net unrealized gain on investments 296,783
---------------
Net assets applicable to Fund shares outstanding 3,651,419
===============
Fund shares outstanding 223,841
===============
Net Asset Value Per Share (net assets/share
outstanding) $ 16.31
===============
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
<TABLE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<S> <C>
INVESTMENT INCOME:
Dividends $ 2,955
Interest 2,054
---------------
Total investment income 5,009
---------------
EXPENSES:
Management fee (Note 3) $ 15,022
Filing fees 5,696
Auditing fees 2,750
Legal fees 2,390
Custody fees 698
Directors' attendance fees 600
Printing fees 101
---------------
Total expenses 27,257
---------------
Less fees waived by adviser (Note 3) (8,480)
---------------
Net expenses 18,777
---------------
Net investment loss (13,768)
---------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS:
Proceeds from sale of securities 661,560
Cost of securities sold (800,572)
---------------
Net realized loss on securities sold (139,012)
---------------
Net change in unrealized gain on investments 191,435
---------------
Net realized and unrealized gain on investments 52,423
---------------
Net increase in net assets resulting from operations $ 38,655
===============
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE>
<TABLE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND FOR THE PERIOD FROM
DECEMBER 15, 1998 (DATE OF COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998
(UNAUDITED)
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, DECEMBER 31,
FROM OPERATIONS: 1999 1998
---------------- ---------------
<S> <C> <C>
Net investment (loss)/income $ (13,768) $ 421
Net realized (loss)/gain on securities sold (139,012) --
Net change in unrealized gain on investments 191,435 105,349
---------------- ---------------
Increase in net assets resulting from operations 38,655 105,770
---------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income -- --
Net realized gain on securities sold -- --
---------------- ---------------
Decrease in net assets resulting from
distributions to shareholders -- --
---------------- ---------------
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 2,230,073 1,460,455
Net asset value of shares issued to shareholders
in reinvestment of net investment income and
net realized gain on securities sold -- --
Payments for redemption of shares (183,534) --
---------------- ---------------
Increase in net assets resulting
from shareholder transactions 2,046,539 1,460,455
---------------- ---------------
Total increase in net assets 2,085,194 1,566,225
Net assets at beginning of the period 1,566,225 --
---------------- ---------------
Net assets at end of period $ 3,651,419 $ 1,566,225
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES:
Papp Small & Mid-Cap Growth Fund, Inc. (the Fund) was incorporated on September
15, 1998 and is registered under the Investment Company Act of 1940 as an
open-end diversified management investment company. Operations of the Fund
commenced on December 15, 1998. The Fund invests with the objective of long-term
capital growth in the common stocks of small and mid-capitalization companies.
The investment adviser paid all start up costs, and the Fund will not reimburse
them.
The policies described below are followed by the Fund in the preparation of its
financial statements in conformity with generally accepted accounting
principles.
INVESTMENT IN SECURITIES
For purposes of computing the net asset value of a share of the Fund, securities
traded on securities exchanges, or in the over-the-counter market in which
transaction prices are reported, are valued at the last sales prices at the time
of valuation or, lacking any reported sales on that day, at the most recent bid
quotations. Other securities traded over-the-counter are valued at the most
recent bid quotations. Securities for which quotations are not available and any
other assets are valued at a fair value as determined in good faith by the Board
of Directors. The price per share for a purchase order or redemption request is
the net asset value next determined after receipt of the order.
The Fund's net asset value per share (NAV) is the value of a single share. It is
computed by dividing the market value of a Fund's assets, less its liabilities,
by the number of shares outstanding, and rounding the result to the nearest full
cent. The NAV is determined as of the close of trading on the New York Stock
Exchange, currently 4:00 p.m. New York City time, on any day on which that
Exchange is open for trading.
Investment transactions are accounted for on the trade date (the date the order
to buy or sell is executed). Dividend income is recorded on the ex-dividend date
and interest is recorded on the accrual basis. Realized gains and losses from
investment transactions and unrealized appreciation or depreciation are
calculated on the identified cost basis.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those estimates.
8
<PAGE>
FEDERAL INCOME TAXES
The Fund's policy is to comply with the requirements of the Internal Revenue
Code which are applicable to regulated investment companies. The Code requires
that substantially all of the Fund's taxable income, as well as any net realized
gain on sales of investments, are to be distributed to the shareholders. The
Fund has complied with this policy and, accordingly, no provision for federal
income taxes is required.
(2) DIVIDENDS AND DISTRIBUTIONS:
Dividends and capital gain distributions are reinvested in additional shares of
the Fund unless the shareholder has requested in writing to be paid by check.
Dividends and distributions payable to its shareholders are recorded by the Fund
on the ex-dividend date.
(3) TRANSACTIONS WITH AFFILIATES:
The Fund has an investment advisory and management services agreement with L.
Roy Papp & Associates (Manager). The Manager receives from the Fund, as
compensation for its services, a fee accrued daily and payable monthly at an
annual rate of 1% of the Fund's net assets. The Manager will reimburse the Fund
to the extent the Fund's regular operating expenses during any of its fiscal
years exceed 1.25% of its average daily net asset value in such year. A
management fee expense reimbursement of $8,480 and $164 was required in 1999 and
1998.
The Fund's independent directors receive $100 for each meeting of the Board of
Directors attended on behalf of the Fund. Certain officers and/or directors of
the Fund are also partners of the Manager and shareholders in the Fund. The Fund
made no payments to its officers or directors, except to independent directors
as stated above.
(4) PURCHASES AND SALES OF SECURITIES:
For the six months ended June 30, 1999 and for the period from December 15, 1998
(date of commencement of operations) to December 31, 1998, investment
transactions excluding short-term investments were as follows:
1999 1998
---------- ----------
Purchases at cost $2,744,206 $1,399,845
Sales 661,560 --
9
<PAGE>
(5) CAPITAL SHARE TRANSACTIONS:
At June 30, 1999, there were 25,000,000 shares of $.01 par value capital stock
authorized. Transactions in capital shares of the Fund were as follows:
Proceeds Shares
------------------ ------------
Six months ended June 30, 1999
Shares issued $ 2,230,073 138,927
Dividends and distributions reinvested -- --
Shares redeemed (183,534) (11,766)
------------------ -------
Net increase $ 2,046,539 127,161
================== =======
Period ended December 31, 1998
Shares issued $ 1,460,455 96,681
Dividends and distributions reinvested -- --
Shares redeemed -- --
------------------ -------
Net increase $ 1,460,455 96,681
================== =======
(6) UNREALIZED APPRECIATION:
Unrealized appreciation of portfolio securities for both financial statement and
federal income tax purposes is as follows:
1999 1998
--------------- --------------
Market value $ 3,640,263 $ 1,505,194
Original cost 3,343,480 (1,399,845)
--------------- --------------
Net unrealized appreciation $ 296,783 $ 105,349
=============== ==============
As of June 30, 1999, gross unrealized gains on investments in which market value
exceeded cost totaled $369,397 and gross unrealized losses on investments in
which cost exceeded market value totaled $72,614.
As of December 31, 1998, gross unrealized gains on investments in which market
value exceeded cost totaled $125,365 and gross unrealized losses on investments
in which cost exceeded market value totaled $20,016.
10
<PAGE>
(7) SELECTED FINANCIAL HIGHLIGHTS:
The following selected per share data has been calculated using revenues and
expenses for the periods indicated, divided by the weighted average number of
shares outstanding during the periods. The ratios are calculated using the
revenues and expenses for the period, divided by the weighted average of the
daily net assets of the Fund.
<TABLE>
<CAPTION>
Six months ended Period Ended
June 30, December 31,
1999 1998 (A)
------------------ -------------------
<S> <C> <C>
Net asset value, beginning of period $ 16.20 $ 15.00
Income from investment operations:
Net investment loss (0.07) -
Net realized and unrealized
gain/(loss) on investments 0.18 1.20
------------- --------------
Total from investment operations 0.11 1.20
Less Distributions:
Dividend from investment
income - -
Distribution of net realized
gain - -
------------- --------------
Total distributions - -
Net asset value, end of period $ 16.31 $ 16.20
============= ==============
Total return 0.68% 8.00%
============= ==============
Ratios/Supplemental Data:
Net assets, end of period $ 3,651,419 $ 1,566,225
Expenses to average
net assets (B) 1.25%* 1.25%*
Investment income to
average net assets (C) 0.33%* 1.01%*
Portfolio turnover rate 44.84%* 0.00%
</TABLE>
* Annualized
(A) From the date of commencement of operations (December 15, 1998).
(B) If the Fund had paid all of its expenses and there had been no
reimbursement by the investment adviser, this ratio would have been 1.79%
and 1.56%, for the periods ended June 30,1999, and December 31, 1998.
(C) Computed giving effect to investment adviser's expense limitation
undertaking.
11
<PAGE>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
DIRECTORS
James K. Ballinger Harry A. Papp
Amy S. Clague L. Roy Papp
Robert L. Mueller Rosellen C. Papp
Carolyn P. O'Malley Bruce C. Williams
OFFICERS
Chairman - L. Roy Papp President - Harry A. Papp
VICE PRESIDENTS
Victoria S. Cavallero Julie A. Hein
George D. Clark, Jr. Robert L. Mueller
Jeffrey N. Edwards Rosellen C. Papp
Robert L. Hawley Bruce C. Williams
Secretary - Robert L. Mueller
Treasurer - Rosellen C. Papp
Assistant Treasurer - Julie A. Hein
INVESTMENT ADVISER
L. Roy Papp & Associates
6225 North 24th Street, Suite 150
Phoenix, Arizona 85016
Telephone: (602) 956-1115
E-mail: [email protected]
Web: http://www.roypapp.com
CUSTODIAN
Founders Bank of Arizona
7335 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
SHAREHOLDER SERVICES AND TRANSFER AGENT
L. Roy Papp & Associates
6225 North 24th Street, Suite 150
Phoenix, Arizona 85016
Telephone: (602) 956-1115
(800) 421-4004
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
501 North 44th Street, Suite 300
Phoenix, Arizona 85008
LEGAL COUNSEL
Bell, Boyd & Lloyd
70 West Madison Street
Chicago, Illinois 60602
This report is submitted for the general information of the shareholders of the
Fund. The report is not authorized for distribution to prospective investors in
the Fund unless it is accompanied or preceded by a currently effective
prospectus of the Fund. No sales charge to the shareholder or to the new
investor is made in offering the shares of the Fund.
