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[ARTWORK]
PAPP FOCUS FUND, INC.
A No-Load Fund
SEMI-ANNUAL REPORT
JUNE 30, 1998
Managed by:
L. Roy Papp & Associates
P.O. Box 15508
Phoenix, AZ 85060-5508
(602)956-1115 Local
(800)421-4004
E-mail: [email protected]
Web: http://www.roypapp.com
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PAPP FOCUS FUND, INC.
Dear Shareholder:
Our Focus Fund made its debut on March 2, a little more than four months ago. On
June 30, per share net asset value was $10.92, an increase of 9.2% during the
period. This was slightly better than the increase in the Standard & Poor's 500
Stock Index over the same period.
We began this Fund because a number of shareholders and friends said they felt
overdiversified with their mutual fund holdings and suggested we start a fund
that would focus on a small number of companies that we believe have unusually
good growth prospects. We concluded the best way to accomplish this was through
a non-diversified mutual fund where half of its assets could be invested in only
a few stocks.
The Fund is diversified by industry. Currently, our five largest holdings are
American International Group (a very large international insurance company),
American Power Conversion (a producer of uninterruptible power supply products
especially important in developing nations), G & K Services (a uniform rental
company that benefits from current "clean room" requirements), Interpublic Group
of Companies (a large worldwide advertising agency), and Viking Office Products
(an office supply company soon to be acquired by Office Depot Company).
We believe that the Focus Fund offers the possibility of substantial capital
appreciation to the long-term investor and we are pleased you have selected it
as one of your investments.
Best regards,
L. Roy Papp, Chairman
July 20, 1998
2
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PAPP FOCUS FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Number Market
Common Stocks of Shares Value
- -------------------------------------------------- --------- --------
<S> <C> <C>
Industrial Services (22.3%)
G & K Services, Inc. Class A
(Uniform rental service) 5,500 $239,938
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 4,200 254,887
Manpower, Inc.
(Provider of non-government employment services) 3,400 97,537
-------
592,362
-------
Computers and Software (12.8%)
American Power Conversion*
(Leading producer of uninterruptible power supply products) 7,100 213,000
Intel Corporation
(Manufacturer of microprocessors, microcontrollers, and
memory chips) 1,700 126,013
-------
339,013
-------
Financial Services (12.4%)
American International Group
(Major international insurance holding company) 1,400 204,400
State Street Corporation
(Provider of U.S. and global securities custodial services) 1,800 125,100
-------
329,500
-------
Electrical Equipment (9.6%)
General Electric Co.
(Diversified industrial company) 1,400 127,400
Molex, Inc.
(Supplier of electrical, electronic, and fiber optic interconnection 5,400 126,225
products and systems) -------
253,625
-------
Direct Marketing (9.5%)
Viking Office Products*
(Direct international marketer of office products to small and
medium sized businesses) 8,000 251,000
-------
</TABLE>
*Non-income producing security.
3
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PAPP FOCUS FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Number Market
Common Stocks (continued) of Shares Value
- ---------------------------------------------- --------- ----------
<S> <C> <C>
Health Care (8.8%)
Johnson & Johnson
(Healthcare products) 1,600 $ 118,000
Merck & Company
(Ethical drugs and specialty chemicals) 850 113,688
--------
231,688
--------
Consumer Products (4.9%)
Mattel, Inc.
(Toy manufacturer) 3,100 131,169
--------
Consumer Services (4.7%)
Service Corporation International
(Funeral service, cemetery owner/operator) 2,900 124,337
--------
Restaurants (4.0%)
McDonald's Corporation
(Fast food restaurants and franchising) 1,550 106,950
--------
Miscellaneous (5.3%)
Steiner Leisure Ltd.*
(Provider of spa services,beauty salons,
and health clubs on cruise ships) 4,700 142,175
--------
Total Common Stocks 94.3% 2,501,819
Cash and Other Assets, Less Liabilities - 5.7% 152,096
----------
Net Assets - 100% $2,653,915
==========
Net Asset Value Per Share
(Based on 243,105 shares outstanding
at June 30, 1998) $ 10.92
==========
</TABLE>
*Non-income producing security.
4
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PAPP FOCUS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities at market value (identified
cost $2,361,394 at June 30, 1998) (Note 1) $2,501,819
Cash 128,714
Dividends and interest receivable 1,362
Receivable for securities sold 28,604
----------
Total assets $2,660,499
----------
LIABILITIES
Accrued Expenses $ 6,584
----------
NET ASSETS
Paid-in capital applicable to 243,105 outstanding
shares at June 30, 1998 $2,513,490
Net unrealized gain on investments 140,425
----------
Net assets $2,653,915
==========
Net Asset Value Per Share (net assets/shares outstanding) $ 10.92
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PAPP FOCUS FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 2, 1998
(DATE OF COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends $ 3,093
Interest 2,159
Total investment income 5,252
--------
EXPENSES:
Management fee (Note 3) 5,794
Directors' attendance fees 500
Filing fees 158
Other fees 6,584
--------
Total expenses 13,036
Less fees waived by adviser (Note 3) (5,794)
--------
Net expenses 7,242
--------
Net investment loss (1,990)
--------
REALIZED AND UNREALIZED GAIN/LOSS
ON INVESTMENTS:
Proceeds from sales of securities 179,436
Cost of securities sold 169,809
--------
Net realized gain on investments sold 9,627
Net change in unrealized gain on investments 140,425
--------
Net realized and unrealized gain on investments 150,052
--------
Net increase in net assets resulting from operations $148,062
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PAPP FOCUS FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM MARCH 2, 1998
(DATE OF COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Period ended
June 30, 1998
-------------
<S> <C>
FROM OPERATIONS:
Net investment loss $ (1,990)
Net realized gain on investments sold 9,627
Net change in unrealized gain on investments 140,425
----------
Increase in net assets resulting from operations 148,062
----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -
Net realized gain on investments sold -
----------
Total distributions to shareholders -
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 2,555,029
Net asset value of shares issued to shareholders
in reinvestment of net investment income and
net realized gain on investments sold -
Payments for redemption of shares (49,176)
----------
Increase in net assets resulting from
shareholder transactions 2,505,853
----------
Total increase in net assets 2,653,915
Net assets at beginning of the period -
----------
Net assets at end of period $2,653,915
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
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PAPP FOCUS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES:
Papp Focus Fund, Inc. (the Fund) was incorporated on December 16, 1997, and is
registered under the Investment Company Act of 1940 as a non-diversified
management investment company. Operations of the Fund commenced on March 2,
1998. The Fund intends to make substantial investments in a relatively small
number of companies, all selected for the possibility of long-term capital
growth.
The policies described below are followed by the Fund in the preparation of its
financial statements in conformity with generally accepted accounting
principles.
(a) 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 net asset value of a share of the Fund 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, by dividing the market
value by the number of shares outstanding, and rounding the result to the
nearest full cent.
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.
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(b) 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, is 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 $5,794 was required through June 30,
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.
9
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(4) PURCHASES AND SALES OF SECURITIES:
For the period from March 2, 1998 (date of commencement of operations) to June
30, 1998, investment transactions excluding short-term investments were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases at cost $2,531,203
Sales 179,436
</TABLE>
(5) CAPITAL SHARE TRANSACTIONS:
At June 30, 1998, there were 25,000,000 shares of $.01 par value capital stock
authorized. Transactions in capital shares of the Fund were as follows:
<TABLE>
<CAPTION>
Period ended June 30, 1998 Proceeds Shares
-------- ------
<S> <C> <C>
Shares issued $2,555,029 247,810
Dividends and distributions reinvested - -
Shares redeemed (49,176) (4,705)
---------- -------
Net increase $2,505,853 243,105
========== =======
</TABLE>
(6) UNREALIZED APPRECIATION:
Unrealized appreciation of portfolio securities for both financial statement and
federal income tax purposes is as follows:
<TABLE>
<CAPTION>
June 30, 1998
-------------
<S> <C>
Market value $2,501,819
Original cost 2,361,394
----------
Net unrealized appreciation $ 140,425
==========
</TABLE>
As of June 30, 1998, gross unrealized gains on investments in which market value
exceeded cost totaled $197,048 and gross unrealized losses on investments in
which cost exceeded market value totaled $56,623.
10
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(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 periods, divided by the weighted average of the
daily net assets of the Fund.
<TABLE>
<CAPTION>
Period Ended June 30,
1998 (A)
----------------------
<S> <C>
Net asset value, beginning of period $ 10.00
Income from investment operations:
Net investment income -
Net realized and unrealized gain (loss) on investments 0.92
----------
Total from investment operations 0.92
Less Distributions:
Dividend from investment income -
Distribution of net realized gain -
----------
Total Distributions -
Net asset value, end of period $ 10.92
==========
Total return 9.20%
==========
Ratios/Supplemental Data:
Net assets, end of period $2,653,915
Expenses to average net assets (B) 1.25%*
Net investment income to average net assets (C) 1.33%*
Portfolio turnover rate 22.18%*
Average commission per share $ 0.0553
</TABLE>
* Annualized
(A) From the date of commencement of operations (March 2, 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
2.20%, for the period ended June 30, 1998.
(C) Computed giving effect to investment adviser's expense limitation
undertaking.
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PAPP FOCUS 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
P.O. Box 15508
Phoenix, Arizona 85060-5508
Telephone: (602) 956-1115
E-mail: invest@roypapp
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
P.O. Box 15508
Phoenix, Arizona 85060-5508
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.
