Picture of man in a chair
PAPP FOCUS FUND, INC.
A No-Load Fund
ANNUAL REPORT
DECEMBER 31, 1998
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>
CHART
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN PAPP FOCUS FUND, INC. AND
STANDARD & POOR'S 500 STOCK INDEX
AVERAGE ANNUAL TOTAL RETURN
Period from March 2, 1998 until December 31, 1998
Papp Focus Fund 33.3%
Standard & Poor's 500 Stock Index 18.6%
Year Focus Fund Standard & Poor's 500 Index
3/2/98 10,000 10,000
1998 13,330 11,860
PAST PERFORMANCE IS NOT PREDICTIVE 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 than
their original cost. This Fund's performance is measured against that of the
Standard & Poor's 500 Stock Index (an unmanaged [market-weighted] index that
includes stocks of the 500 largest U.S. companies). All values shown include
reinvested dividends.
2
<PAGE>
PAPP FOCUS FUND, INC.
Dear Fellow Shareholder:
Papp Focus Fund is off to a fine start. From inception on March 2, 1998 through
the end of the year we were up 33.3%. This may be compared with the Standard &
Poor's 500 Stock Index which was up 18.6% during the same period. As the chart
on the opposite page indicates, we did nearly twice as well as the Standard &
Poor's 500. More importantly, however, we were able to establish this record
through the purchase of good quality companies with long-term growth prospects.
We did not purchase new issues hoping to sell them quickly to realize short-term
profits, nor did we purchase "story" stocks such as the internet companies which
are the latest fad and which sell at a multiple of sales, not earnings.
We believe that a Fund that concentrates its investments in a small number of
stocks fits in quite well with our investment style, which is to emphasize
individual issues rather than to purchase a large number of stocks in a
particular industry.
Our Fund is structured in accordance with Internal Revenue Service requirements
applicable to mutual funds. One requirement is that 50% of the Fund's assets be
invested in cash equivalents and stocks, each of which cannot amount to more
than 5% of that Fund's assets. This means that we are required to own at least
10 stocks, each of which comprises 5% or less of our Fund's total assets. As to
the other 50% of our Fund's assets, we are free to concentrate our investments
in a very few companies and this is the manner in which our portfolio is
structured.
Our stocks are well diversified by industry. We own both large and smaller
companies. For example, we own Intel, a very large company, worldwide in scope,
American Power Conversion, a mid-sized company that is dominant in
uninterruptible power supply products, and Steiner Leisure, a small company with
a near monopoly in the luxury cruise ship spa business. All of our companies
have one thing in common: all have some international exposure. We firmly
believe that our international trade will continue to increase and become an
even greater part of our economy. Companies in the forefront of this expansion
will prosper.
While short-term performance cannot be predictive of the future, we are very
pleased that our Fund has enjoyed such an auspicious beginning.
Warmest regards,
L. Roy Papp, Chairman
February 1, 1999
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of the
Papp Focus Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of the Papp
Focus Fund, Inc. including the schedule of portfolio investments, as of December
31, 1998, and the related statements of operations, changes in net assets, and
the financial highlights for the period from March 2, 1998 (date of commencement
of operations) through December 31, 1998. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1998, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Papp Focus Fund, Inc. as of December 31, 1998, and the results of its
operations, changes in its net assets, and its financial highlights for the
period from March 2, 1998 (date of commencement of operations) through December
31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 21, 1999.
4
<PAGE>
PAPP FOCUS FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Number Market
Common Stocks of Shares Value
- -------------------------------------------------------- ------------ -----------
<S> <C> <C>
Medical Products (17.3%)
Johnson & Johnson
(Healthcare products) 2,250 $ 188,719
Medtronic, Incorporated
(Manufacturer of implantable biomedical devices) 2,450 181,912
Safeskin Corp. *
(Leading manufacturer of hypoallergenic, disposable
latex examination gloves) 13,500 325,687
-------------
696,318
-------------
Industrial Services (15.9%)
G & K Services, Inc. Class A
(Uniform rental service) 5,000 266,250
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 4,700 374,825
-------------
641,075
-------------
Financial Services (14.2%)
American International Group
(Major international insurance holding company) 1,900 183,588
State Street Corporation
(Provider of U.S. and global securities custodial services) 2,600 180,862
T. Rowe Price Associates, Inc.
(Provides investment advisory and administrative 6,100 208,925
-------------
services to their family of no-load mutual funds) 573,375
-------------
Computer Equipment (9.6%)
Intel Corporation
(Manufacturer of microprocessors, microcontrollers, and
memory chips) 1,630 193,257
International Business Machines
(Global provider of information technology, hardware,
software and services) 1,050 193,987
-------------
387,244
-------------
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
PAPP FOCUS FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
Number Market
Common Stocks (continued) of Shares Value
- -------------------------------------------------------- ------------ -----------
Pharmaceutical (9.2%)
Astra AB
(International pharmaceutical company) 9,000 $ 186,188
Merck & Company
(Ethical drugs) 1,250 184,609
-------------
370,797
-------------
Specialty Retailing (8.4%)
Office Depot *
(Large office supply retailer and direct marketer of
office products) 9,200 339,825
-------------
Consumer Services (8.2%)
Steiner Leisure Ltd. *
(Provider of spa services, beauty salons, and health
clubs on cruise ships) 10,300 329,600
-------------
Electrical Equipment (7.8%)
American Power Conversion *
(Leading producer of uninterruptible power supply products) 6,500 314,844
-------------
Restaurants (4.8%)
McDonald's Corporation
(Fast food restaurants and franchising) 2,500 191,563
-------------
Total Common Stocks - 95.4% 3,844,641
Cash and Other Assets, Less Liabilities - 4.6% 186,752
-------------
Net Assets - 100% $ 4,031,393
=============
Net Asset Value Per Share
(Based on 302,478 shares outstanding at December 31, 1998) $ 13.33
=============
*Non-income producing security.
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE>
PAPP FOCUS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in securities at market value (original
cost $2,989,269 at December 31, 1998) (Note 1) $ 3,844,641
Cash 216,460
Dividends and interest receivable 2,172
Receivable for Fund shares sold 118,542
----------------
Total assets $ 4,181,815
================
LIABILITIES
Payable for securities purchased $ 150,422
================
NET ASSETS
Paid-in capital $ 3,220,821
Accumulated undistributed net realized loss
on sale of investments (33,408)
Accumulated undistributed net investment loss (11,392)
Net unrealized gain on investments 855,372
----------------
Net assets applicable to Fund shares outstanding $ 4,031,393
================
Fund shares outstanding 302,478
Net Asset Value Per Share (net assets/share
outstanding) $ 13.33
================
</TABLE>
The accompanying notes are an integral part of this financial statement.
7
<PAGE>
PAPP FOCUS FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 2, 1998
(DATE OF COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends $ 10,881
Interest 3,998
-------------
Total investment income 14,879
-------------
EXPENSES:
Management fee (Note 3) 21,018
Custodial fees 2,810
Accounting fees 1,500
Filing fees 1,190
Directors' attendance fees 1,100
Legal fees 987
Other fees 616
-------------
Total expenses 29,221
-------------
Less fees waived by adviser (Note 3) (2,950)
-------------
Net expenses 26,271
-------------
Net investment loss (11,392)
-------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS:
Proceeds from sales of securities 1,203,246
Cost of securities sold (1,236,654)
--------------
Net realized loss on investments sold (33,408)
Net change in unrealized gain on investments 855,372
-------------
Net realized and unrealized gain on investments 821,964
-------------
Net increase in net assets resulting from operations $ 810,572
=============
</TABLE>
The accompanying notes are an integral part of this financial statement.
8
<PAGE>
PAPP FOCUS FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM MARCH 2, 1998
(DATE OF COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
FROM OPERATIONS:
Net investment loss $ (11,392)
Net realized loss on investments sold (33,408)
Net change in unrealized gain on investments 855,372
------------------
Increase in net assets resulting from
operations 810,572
------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income -
Net realized gain on investments sold -
------------------
Decrease in net assets resulting from
distributions to shareholders -
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 3,532,754
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 (311,933)
------------------
Increase in net assets resulting
from shareholder transactions 3,220,821
------------------
Total increase in net assets 4,031,393
Net assets at beginning of the period -
------------------
Net assets at end of period $ 4,031,393
==================
</TABLE>
The accompanying notes are an integral part of this financial statement.
9
<PAGE>
PAPP FOCUS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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 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.
10
<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, 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. There were no dividends or distributions for the period
ended December 31, 1998.
(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 $2,950 was required in 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.
11
<PAGE>
(4) PURCHASES AND SALES OF SECURITIES:
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:
Purchases at cost $ 4,225,923
Sales 1,203,246
(5) CAPITAL SHARE TRANSACTIONS:
At December 31, 1998, 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
--------------- --------------
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 at December 31:
1998
---------------
Market value $ 3,844,641
Original cost (2,989,269)
---------------
Net unrealized appreciation $ 855,372
==============
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.
12
<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.
Period Ended December 31,
1998
Net asset value, beginning
of period (A) $ 10.00
Income from investment
operations:
Net investment loss (.06)
Net realized and unrealized
gain (loss) on investments 3.39
-----------
Total from investment
operations 3.33
Less Distributions:
Dividend from investment
income -
-----------
Distribution of net realized
gain -
Total Distributions -
Net asset value, end of period $ 13.33
===========
Total return 33.30%
===========
Ratios/Supplemental Data:
Net assets, end of period $4,031,393
Expenses to average
net assets (B) 1.25%*
Net investment income to
average net assets (C) .70%*
Portfolio turnover rate 50.37%
Average commission per share $0.041
* 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 1.38%, for the period ended December 31, 1998.
(C) Computed giving effect to investment adviser's expense limitation
undertaking.
13
<PAGE>
FACTS ABOUT THE FUND
Investment Objective - The Fund, which commenced operations on March 2, 1998, is
designed for those long-term investors who wish to invest a portion of their
common stock assets in a relatively small number of companies. The Fund
purchases the shares of companies that, over time, have shown the ability to
substantially increase their earnings.
The Investment Adviser - The Fund's assets are managed by L. Roy Papp &
Associates, the largest investment counseling firm in Arizona, with over $1.3
billion in total assets managed for individuals, trusts, corporations, and
charitable and educational institutions. Founded in 1978, the firm is solely in
the investment management business. The firm is an independent general
partnership. Of its ten general partners, seven hold the Chartered Financial
Analyst (CFA) designation.
Experienced Management - The securities portfolio of the Fund is
managed by L. Roy Papp and Rosellen C. Papp. Mr. Papp, the founder of L. Roy
Papp & Associates, has over 44 years experience in the field of investment
management. Prior to founding L. Roy Papp & Associates, he was a senior partner
of a large investment counseling firm in Chicago, Illinois and the United States
Director and Ambassador to the Asian Development Bank, Manila, Philippines. He
received his M.B.A. degree from the Wharton School, University of Pennsylvania
and his A.B. degree from Brown University.
Rosellen C. Papp, the director of research at L. Roy Papp & Associates, has over
21 years experience in security and financial analysis. She holds a Master of
Management degree in finance from the Kellogg Graduate School of Management,
Northwestern University and a B.B.A. degree from the University of Michigan. She
is a Chartered Financial Analyst and member of the International Society of
Financial Analysts.
"Pure" No-Load - The Fund is a "pure" no-load fund in that there are no
"loading" charges or sales commissions paid in connection with the purchase of
its shares. In addition, there are no deferred sales loads, no redemption fees,
and no 12b-1 fees. The Fund's investment adviser receives an annual management
fee of 1% which is based on the Fund's average daily net asset value. Other
expenses such as auditing charges, legal fees, and custodial expenses are
limited to 1/4% of the Fund's average daily net asset value; therefore, the
Fund's annual expenses may not exceed 1 1/4%.
Suitability - The Fund is suitable only for long-term investors seeking capital
appreciation over time. Included are individuals of most ages, institutional
accounts such as pension and profit sharing plans, retirement accounts such as
IRA's, educational accounts for young children, and many personal trusts. The
Fund is not suitable for those with high current income needs, aggressive
investors who desire maximum short-term results and are willing to assume the
attendant risks, and those with relatively short time horizons who may require
their capital in the near-term.
14
<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.
15
