[Graphic of L. Roy Papp]
PAPP SMALL & MID-CAP GROWTH FUND, INC.
A No-Load Fund
SEMI-ANNUAL REPORT
JUNE 30, 2000
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>
<TABLE>
<CAPTION>
[LINE CHART]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN PAPP
SMALL & MID-CAP GROWTH FUND, INC. AND RUSSELL 2000 STOCK INDEX
YEAR PAPP SMALL & MID-CAP GROWTH FUND RUSSELL 2000 STOCK INDEX
<S> <C> <C>
12/15/98 $10,000 $10,000
1998 10,800 10,837
1999 12,210 13,140
6/30/00 15,775 13,539
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
1 YEAR SINCE INCEPTION
Papp Small & Mid-Cap
Growth Fund 45.1% 34.2%
Russell 2000 Stock
Index 14.3% 21.6%
PAST PERFORMANCE IS NOT PREDICITIVE OF FUTURE PERFORMANCE
The investment return and principal value of an investment in the Fund will
fluctuate so that Fund shares, when redeemed, may be worth more or less then
their original cost. The Fund's performance is measured against that of the
Russell 2000 Stock Index, and unmanaged, weighted index that includes stocks of
2000 smaller U.S. companies, with dividends reinvested.
2
<PAGE>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
--------------------------------------
Dear Fellow Shareholders:
In our 1999 Annual Report we noted that our Fund trailed the Russell
2000 Index's performance for that year by a substantial margin due to the
meteoric rise of some of the smaller Internet and biotechnology companies'
stocks. At that time we said that the companies in our Fund are good quality
companies possessing the possibility of excellent growth in the future, and
expressed our belief that these facts would eventually be recognized.
This situation persisted during the first few months of 2000 driven by
rampant speculation by day-traders, especially in a few biotechnology stocks.
Indeed, at one time in late February, our Fund trailed the Russell 2000 by as
much as 25 percentage points. And then the bubble burst. Many day-traders lost
everything and the momentum mutual fund managers who had climbed aboard the
bandwagon saw their extraordinary profits evaporate.
The predictable result of this disaster was a flight to quality, that
is, the kind of stocks that our Fund owns. For the six months ended June 30,
2000 our Fund is up 29.2% while the Russell 2000 Index is up only 3.1%. Since
inception, a little more than a year and one-half ago, we are up 57.8% and the
Russell 2000 is up 35.5%, a difference of 22 percentage points. This change is
indeed impressive.
In previous letters to you we have pointed out the volatility often
associated with smaller companies because their shares are thinly traded and a
large buyer or seller can move the price of the issue in a major way. In the
recent past, this tendency has been exacerbated by the activities of the
short-term trader who treats the stock market as a gambling device rather than a
long-term investment vehicle. This cannot be done with very large companies
which have many shares outstanding and are priced reasonably efficiently. We
have also said this is the reason the number of companies owned by this Fund is
considerably larger than is typical in a Papp managed account.
We intend to continue managing this Fund as we have in the past,
seeking a diversified group of growth companies that have demonstrated an
ability to increase their sales and profits regardless of general market
conditions. We recognize that this is a difficult Fund to manage because
appropriate and meaningful information about smaller companies is often
difficult to obtain. Nevertheless, we believe that through careful research,
avoidance of major investments in any one stock, and wide industry
diversification, our good performance can, over time, continue.
Warmest regards,
L. Roy Papp, Chairman
July 28, 2000
3
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PAPP SMALL & MID-CAP GROWTH FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Number Market
Common Stocks of Shares Value
------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
Industrial Services (19.1%)
Catalina Marketing Corporation*
(Provider of targeted marketing products and services to packaged 1,200 $ 122,400
goods companies and retailers)
Cintas Corp.
(Leading uniform and textile rental company) 2,500 91,718
Expeditors International of Washington, Inc.
(International air freight forwarding) 4,000 190,000
Forrester Research *
(Leading provider of strategic technology research) 3,700 269,406
G & K Services, Inc. Class A
(Uniform rental service) 3,300 82,706
Harte-Hanks, Inc.
(Diversified marketing services provider) 3,000 75,000
True North Communications
(Global marketing and advertising holding company) 1,700 74,800
Young & Rubicam Inc.
(Worldwide advertising agency) 3,700 211,593
-----------
1,117,623
-----------
Financial Services (11.5%)
Bisys Group *
(Provider of administration and information services
to the financial services industry) 2,500 153,750
Charles Schwab Corp
(Leading investment services firm) 4,168 140,149
Concord EFS, Inc.*
(Electronic transaction authorization, processing, and settlement services) 7,000 182,000
Investors Financial Services Corp.
(Provides asset administration services to the financial
services industry) 5,000 198,438
-----------
674,337
-----------
Electronic Equipment (10.0%)
American Power Conversion Corporation *
(Leading producer of uninterruptible power supply products) 6,000 244,875
Molex, Inc.
(Supplier of interconnection products) 5,800 203,000
Symbol Technologies, Inc.
(Leading manufacturer of bar code based mobile computing systems) 2,550 137,700
-----------
585,575
-----------
*Non-income producing security.
The accompanying notes are an integral part of this financial statement.
4
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<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 2000
(UNAUDITED)
Number Market
Common Stocks (continued) of Shares Value
------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
Investment Management (8.4%)
Federated Investors
(Major U.S. investment management company) 8,000 $ 280,500
T. Rowe Price Associates, Inc.
(No-load mutual fund company) 5,000 212,500
-----------
493,000
-----------
Telecommunications (8.2%)
ADC Telecommunications, Inc. *
(Manufacturer and developer of data and voice networking products) 3,000 251,625
Plantronics, Inc. *
(Manufactures lightweight telephone headsets) 2,000 231,000
-----------
482,625
-----------
Medical Products (6.2%)
Del Global Technologies
(Designs, manufactures, and markets medical imaging systems) 17,000 165,220
ResMed Inc. *
(Developer and manufacturer of respiratory products) 4,000 107,000
Stryker Corp.
(Developer and manufacturer of surgical and medical devices) 2,000 87,500
-----------
359,720
-----------
Biotechnology (5.3% )
Techne Corp. *
(Leading producer of biotechnology products) 2,400 312,000
-----------
Health Care Services (4.8%)
Express Scripts, Inc.*
(Leading independent pharmacy benefit manager) 2,500 155,313
Patterson Dental Company *
(Leading distributor of dental supplies in the U.S. and Canada) 2,500 127,500
-----------
282,813
-----------
Broadcasting and Publishing (4.8%)
Central Newspapers, Inc.
(Newspaper publisher) 2,000 126,500
Saga Communications, Inc.*
(Owns/operates radio and television stations) 7,000 154,000
-----------
280,500
-----------
Specialty Retailing (4.8%)
Dollar General Corporation
(Operates self-service discount stores) 8,250 160,875
Family Dollar Stores, Inc.
(Self-service discount store chain) 6,000 117,375
-----------
278,250
-----------
*Non-income producing security.
The accompanying notes are an integral part of this financial statement.
</TABLE>
5
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<TABLE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 2000
(UNAUDITED)
Number Market
Common Stocks (continued) of Shares Value
------------------------------------------------------------------------ ----------- -------------
<S> <C> <C>
Instruments & Testing (2.8%)
National Instruments Corp. *
(Supplier of computer based instrumentation products) 3,750 $ 163,594
-------------
Software (2.8%)
BMC Software, Inc. *
(Develops data and application management software) 2,000 72,969
SunGard Data Systems, Inc. *
(Develops software for investment support systems) 2,900 89,900
-------------
162,869
-------------
Consumer Products (2.7%)
Clorox Company
(Manufacturer of bleach and other consumer products) 3,500 156,844
-------------
Restaurants (2.3%)
Brinker International, Inc.*
(Owns and operates, and franchises casual dining restaurants) 4,500 131,625
-------------
Consumer Services (2.2%)
Steiner Leisure Ltd. *
(Provider of spa services, beauty salons, and health
clubs on cruise ships) 5,800 131,225
-------------
Educational Provider (1.9%)
Apollo Group, Inc.*
(Leading provider of higher education programs for working adults) 4,000 112,000
-------------
Event Services (1.4%)
VIAD Corp.
(Provider of convention/tradeshow management services and
provider of money orders and other cash access services) 3,000 81,750
-------------
Total Common Stocks - 99.2% 5,806,350
Cash and Other Assets, Less Liabilities - 0.8% 48,441
-------------
Net Assets - 100% $ 5,854,791
=============
Net Asset Value Per Share
(Based on 247,503 shares outstanding at June 30, 2000) $ 23.66
=============
</TABLE>
* Non-income producing security.
The accompanying notes are an integral part of this financial statement.
6
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<TABLE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
(UNAUDITED)
ASSETS
<S> <C>
Investment in securities at market value (original
cost $3,896,819 at June 30, 2000) (Note 1) $5,806,350
Cash 53,350
Dividends and interest receivable 2,186
----------
Total assets $5,861,886
==========
LIABILITIES
Accrued expenses $ 7,095
==========
NET ASSETS
Paid-in capital $3,942,225
Accumulated undistributed net realized gain
on sale of investments 50,183
Accumulated undistributed net investment loss (47,148)
Net unrealized gain on investments 1,909,531
----------
Net assets applicable to Fund shares outstanding $5,854,791
==========
Fund shares outstanding 247,503
==========
Net Asset Value Per Share (net assets/share outstanding) $ 23.66
==========
The accompanying notes are an integral part of this financial statement.
</TABLE>
7
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<TABLE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
STATEMENT OF OPERATIONS
JUNE 30, 2000
(UNAUDITED)
<S> <C>
INVESTMENT INCOME:
Dividends $ 6,790
Interest 1,932
----------
Total investment income 8,722
----------
EXPENSES:
Management fee (Note 3) $ 23,663
Auditing fees 7,200
Filing fees 6,345
Legal Fees 5,262
Custody fees 2,524
Printing fees 652
Directors' attendance fees 500
----------
Total expenses 46,146
----------
Less fees waived by adviser (Note 3) (16,568)
----------
Net expenses 29,578
----------
Net investment loss (20,856)
----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Proceeds from sale of securities 745,545
Cost of securities sold (695,362)
----------
Net realized gain on investments sold 50,183
Net change in unrealized gain on investments 1,259,678
----------
Net realized and unrealized gain on investments 1,309,861
----------
Net increase in net assets resulting from operations $1,289,005
----------
The accompanying notes are an integral part of this financial statement.
</TABLE>
8
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<TABLE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
2000 1999
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (20,856) $ (31,132)
Net realized gain on investments sold 50,183 4,523
Net change in unrealized gain on investments 1,259,678 544,505
----------- -----------
Increase in net assets resulting from
operations 1,289,005 517,896
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income - prior year - (421)
Net realized gain on investments sold - -
----------- -----------
Decrease in net assets resulting from
distributions to shareholders - (421)
----------- -----------
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 310,474 2,770,330
Net asset value of shares issued to shareholders
in reinvestment of net investment income and
net realized gain on investments sold - 266
Payments for redemption of shares (70,187) (528,797)
----------- -----------
Increase in net assets resulting
from shareholder transactions 240,287 2,241,799
----------- -----------
Total increase in net assets 1,529,292 2,759,274
----------- -----------
Net assets at beginning of the period 4,325,499 1,566,225
----------- -----------
Net assets at end of period $ 5,854,791 $ 4,325,499
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(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.
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. In 1999 the Fund distributed $421 of net investment
income from the prior year.
(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
10
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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, 2000 and the year ended December 31, 1999
investment transactions excluding short-term investments were as follows:
2000 1999
--------- ----------
Purchases at cost $999,090 $3,939,176
Sales 745,545 1,750,454
(5) CAPITAL SHARE TRANSACTIONS:
At June 30, 2000, 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, 2000
Shares issued $ 310,474 15,051
Dividends and distributions reinvested - -
Shares redeemed (70,187) (3,736)
----------- ---------
Net increase $ 240,287 11,315
=========== =========
Year ended December 31, 1999
Shares issued $ 2,770,330 171,664
Dividends and distributions reinvested 266 21
Shares redeemed (528,797) (32,178)
----------- ---------
Net increase $ 2,241,799 139,507
=========== =========
(6) UNREALIZED APPRECIATION:
Unrealized appreciation of portfolio securities for both financial statement and
federal income tax purposes is as follows:
2000 1999
----------- -----------
Market value $ 5,806,350 $ 4,242,944
Original cost (3,896,819) (3,593,090)
----------- -----------
Net unrealized appreciation $ 1,909,531 $ 649,854
=========== ===========
As of June 30, 2000, gross unrealized gains on investments in which market value
exceeded cost totaled $2,012,252 and gross unrealized losses on investments in
which cost exceeded market value totaled $102,721.
As of December 31, 1999, gross unrealized gains on investments in which market
value exceeded cost totaled $989,503 and gross unrealized losses on investments
in which cost exceeded market value totaled $339,649.
11
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<TABLE>
<CAPTION>
(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.
Six months ended June 30, Year ended December 31, Period ended December 31,
2000 1999 1998(A)
----------- ---------- -----------
<S> <C> <C> <C>
Net asset value, beginning
of period $ 18.31 $ 16.20 $ 15.00
Income from operations:
Net investment loss (0.07) (0.14) -
Net realized and unrealized
gain on investments 5.42 2.25 1.20
----------- ---------- -----------
Total from operations 5.35 2.11 1.20
Less Distributions:
Dividend from investment
income - - -
Distribution of net realized gain - - -
----------- ---------- ------------
Total distributions - - -
Net asset value, end of period $ 23.66 $ 18.31 $ 16.20
=========== ========== ============
Total return 29.23% 13.04% 8.00%
=========== ========== ============
Ratios/Supplemental Data:
Net assets, end of period $ 5,854,791 $4,325,499 $ 1,566,225
Expenses to average net assets (B) 1.25%* 1.25% 1.25%*
Investment income to
average net assets (C) 0.37%* 0.32% 1.01%*
Portfolio turnover rate 31.28%* 53.07% 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 1.94%,
1.68 and 1.56%, for the periods ended June 30, 2000, December 31, 1999 and
1998, respectively.
(C) Computed giving effect to investment adviser's expense limitation
undertaking.
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.
