[Sketch of L. Roy Papp appears here]
PAPP FOCUS 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 FOCUS FUND, INC.
Dear Fellow Shareholder:
Despite the fine year-end performance and first quarter earnings reports by
almost all of the companies in our Fund, we made little progress during the
first half of 1999 being up a little less than one percent. However, since
inception on March 2, 1998 we were up 33.7% which was slightly better than the
Standard & Poor's 500 Stock Index. In particular, some of our smaller companies
including American Power Conversion, G&K Services, Office Depot, Steiner
Leisure, and T. Rowe Price were virtually ignored in the marketplace even though
their earnings were more than satisfactory.
We have not sold any of these stocks, nor do we intend to do so as long as they
continue to produce results in line with our expectations. Since this is a
non-diversified mutual fund holding a small number of stocks and emphasizing a
very few, we expected the substantial volatility experienced during the first
half of the year. Many investors, especially the professionals, are notoriously
fickle in their stock selection process, moving from growth companies to the so
called "value" stocks with great speed as they did for a short time early this
year.
We, on the other hand, are long-term investors in growth stocks. We do not use
Wall Street research believing that to be an exercise in futility. Instead, we
rely on the efforts of our own research staff and our partners, seven of whom
are Chartered Financial Analysts (CFAs). Our goal is to seek and purchase 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 products seem superior to the competition, and whose
management respects the interests of its stockholders.
Our companies have one thing in common: all have some international exposure. In
addition, most are heavily involved in electronic or medical technology. We
believe that a major percentage of our future growth will result from our
participation in globalization and technology and we will make every effort to
own shares of those companies most likely to succeed in these outstanding
opportunities.
Warmest regards,
/s/ L. Roy Papp
L. Roy Papp, Chairman
August 1, 1999
2
<PAGE>
<TABLE>
<CAPTION>
PAPP FOCUS FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1999
(UNAUDITED)
Number Market
Common Stocks of Shares Value
- -------------------------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
FINANCIAL SERVICES (20.1%)
American International Group
(Major international insurance holding company) 1,750 $ 204,859
State Street Corporation
(Provider of U.S. and global securities custodial services) 2,500 213,437
T. Rowe Price Associates, Inc.
(No-load mutual fund company) 11,000 422,125
-----------------
840,421
-----------------
SPECIALTY RETAILING (14.8%)
Office Depot *
(Leading retailer and direct marketer of office supplies) 18,000 397,125
Wal-Mart Stores, Inc.
(Leading discount retailer) 4,600 221,950
-----------------
619,075
-----------------
INDUSTRIAL SERVICES (13.1%)
G & K Services, Inc. Class A
(Uniform rental service) 4,200 219,975
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 3,800 329,175
-----------------
549,150
-----------------
COMPUTER EQUIPMENT (12.3%)
Intel Corporation
(Manufacturer of microprocessors, microcontrollers, and
memory chips) 3,400 202,300
International Business Machines Corporation
(Global provider of information technology, hardware,
software and services) 2,400 310,200
-----------------
512,500
-----------------
CONSUMER SERVICES (10.1%)
Steiner Leisure Ltd. *
(Provider of spa services, beauty salons, and health
clubs on cruise ships) 14,000 424,375
-----------------
ELECTRICAL EQUIPMENT (8.2%)
American Power Conversion *
(Leading producer of uninterruptible power supply products) 17,000 342,125
-----------------
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
<CAPTION>
PAPP FOCUS FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1999
(UNADUDITED)
Number Market
Common Stocks (continued) of Shares Value
- -------------------------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
PHARMACEUTICAL (5.3%)
Merck & Company
(Prescription pharmaceuticals) 3,000 $ 222,000
-----------------
SOFTWARE (5.2%)
Microsoft Corporation *
(Personal computer software) 2,400 216,450
-----------------
MEDICAL PRODUCTS (5.0%)
Medtronic, Inc.
(Manufacturer of implantable biomedical devices) 2,700 210,263
-----------------
RESTAURANTS (4.9%)
McDonald's Corporation
(Fast food restaurants and franchising) 5,000 206,563
-----------------
HEALTHCARE SERVICES (4.7%)
Techne Corporation *
(Leading producer of raw materials for biotechnology industry) 7,800 197,925
-----------------
TOTAL COMMON STOCKS - 103.7% 4,340,847
CASH AND OTHER ASSETS, LESS LIABILITIES - (3.7%) (154,503)
-----------------
NET ASSETS - 100% $ 4,186,344
=================
NET ASSET VALUE PER SHARE
(Based on 313,075 shares outstanding at June 30, 1999) $ 13.37
=================
</TABLE>
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
<TABLE>
<CAPTION>
PAPP FOCUS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
(UNAUDITED)
ASSETS
<S> <C>
Investment in securities at market value (original
cost $3,437,003 at June 30, 1999) (Note 1) $ 4,340,847
Cash 150,833
Dividends and interest receivable 2,763
Receivable for securities sold 25,404
---------------
Total assets $ 4,519,847
===============
LIABILITIES
Accrued expenses $ 13,134
Redemptions payable 320,369
---------------
Total liabilities $ 333,503
===============
NET ASSETS
Paid-in capital $ 3,372,304
Accumulated undistributed net realized loss
on sale of investments (63,007)
Accumulated undistributed net investment loss (26,797)
Net unrealized gain on investments 903,844
---------------
Net assets applicable to Fund shares outstanding $ 4,186,344
===============
Fund shares outstanding 313,075
===============
Net Asset Value Per Share (net assets/share
outstanding) $ 13.37
===============
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
<TABLE>
<CAPTION>
PAPP FOCUS FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<S> <C>
INVESTMENT INCOME:
Dividends $ 9,806
Interest 2,098
---------------
Total investment income 11,904
---------------
EXPENSES:
Management fee (Note 3) 21,847
Filing fees 4,500
Legal fees 3,608
Auditing fees 2,750
Custodial fees 2,717
Directors' attendance fees 600
---------------
Total expenses 36,022
---------------
Less fees waived by adviser (Note 3) (8,713)
---------------
Net expenses 27,309
---------------
Net investment loss (15,405)
---------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS:
Proceeds from sales of securities 1,093,863
Cost of securities sold (1,123,462)
---------------
Net realized loss on securities sold (29,599)
---------------
Net change in unrealized gain on investments 48,473
---------------
Net realized and unrealized gain on investments 18,874
---------------
Net increase in net assets resulting from operations $ 3,469
===============
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE>
<TABLE>
<CAPTION>
PAPP FOCUS FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
AND FOR THE PERIOD FROM MARCH 2, 1998
(DATE OF COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998
(UNADUDITED)
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, DECEMBER 31,
FROM OPERATIONS: 1999 1998
---------------- ---------------
<S> <C> <C>
Net investment loss $ (15,405) $ (11,392)
Net realized loss on securities sold (29,599) (33,408)
Net change in unrealized gain on investments 48,473 855,372
---------------- ---------------
Increase in net assets resulting fromtions 3,469 810,572
---------------- ---------------
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 1,049,121 3,532,754
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 (897,639) (311,933)
---------------- ---------------
Increase in net assets resulting
from shareholder transactions 151,482 3,220,821
---------------- ---------------
Total increase in net assets 154,951 4,031,393
Net assets at beginning of the period 4,031,393 -
---------------- ---------------
Net assets at end of period $ 4,186,344 $ 4,031,393
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
PAPP FOCUS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(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 an open-end,
non-diversified management investment company. Operations of the Fund commenced
on March 2, 1998. The Fund invests with the objective of long-term capital
growth in the common stocks of a relatively small number of companies.
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 $8,713 and $2,950 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 March 2, 1998
(date of commencement of operations) to December 31, 1998, investment
transactions excluding short-term investments were as follows:
1999 1998
--------------- -----------------
Purchase at cost $ 1,571,195 $ 4,225,923
Sales 1,093,863 1,203,246
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 $ 1,049,121 80,097
Dividends and distributions reinvested - -
Shares redeemed (897,639) (69,500)
------------------- ------------
Net increase $ 151,482 10,597
=================== ============
Period ended December 31, 1998
Shares issued $ 3,532,754 330,351
Dividends and distributions reinvested - -
Shares redeemed (311,933) (27,873)
------------------- ------------
Net increase $ 3,220,821 302,478
=================== ============
(6) UNREALIZED APPRECIATION:
Unrealized appreciation of portfolio securities for both financial statement and
federal income tax purposes is as follows:
1999 1998
--------------- --------------
Market value $ 4,340,847 $ 3,844,641
Original cost (3,437,003) (2,989,269)
--------------- --------------
Net unrealized appreciation $ 903,844 $ 855,372
=============== ==============
As of June 30, 1999, gross unrealized gains on investments in which market value
exceeded cost totaled $903,844. There were no gross unrealized losses on any of
the Fund's investments at June 30, 1999.
As of December 31, 1998, gross unrealized gains on investments in which market
value exceeded cost totaled $855,372. There were no gross unrealized losses on
any of the Fund's investments at December 31, 1998.
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 $ 13.33 $ 10.00
Income from investment operations:
Net investment loss
(0.04) (0.06)
Net realized and unrealized
gain (loss) on investments
0.08 3.39
------------------ -------------------
Total from investment operations 0.04 3.33
Less Distributions:
Dividend from investment
income - -
Distribution of net realized
gain - -
------------------ -------------------
Total distributions - -
Net asset value, end of period $ 13.37 $ 13.33
================== ===================
Total return 0.30% 33.30%
================== ===================
Ratios/Supplemental Data:
Net assets, end of period $ 4,186,344 $ 4,031,393
Expenses to average
net assets (B) 1.25%* 1.25%*
Investment income to
average net assets (C) .54%* .70%*
Portfolio turnover rate 50.44%* 50.37%*
</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 1.63% and 1.38% for the
periods ended June 30, 1999 and December 31, 1998.
(C) Computed giving effect to investment adviser's expense limitation
undertaking.
<PAGE>
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
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.
