[GRAPHIC OF L. ROY PAPP]
PAPP FOCUS 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>
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
1 YEAR SINCE INCEPTION
PAPP FOCUS FUND 15.9% 20.7%
STANDARD & POOR'S 500
STOCK INDEX 7.2% 16.6%
<TABLE>
<CAPTION>
[LINE CHART}
YEAR PAPP FOCUS FUND STANDARD & POOR'S 500 STOCK INDEX
<S> <C> <C>
3/2/98 $10,000 $10,000
1998 13,330 11,860
1999 13,410 14,360
6/30/00 15,505 14,297
</TABLE>
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 500 of the largest U.S. companies. All values shown include
reinvested dividends.
2
<PAGE>
PAPP FOCUS FUND, INC.
-----------------------
Dear Fellow Shareholders:
Our Fund was up 15.6% for the six months ended June 30, 2000. This
compares with down 0.4% for the Standard & Poor's 500 Stock Index. Since
inception on March 2, 1998 we were up 55.0% while the S&P 500 was up 43.0%.
In our Annual Report to Shareholders for 1999 we noted that as a
non-diversified investment company with a self-imposed limit of just sixteen
stocks, our Fund is not for the fainthearted. We expected that the Fund would
experience a large degree of volatility and that is exactly what happened. From
inception through the end of 1998 we were up 33.3% which was almost twice the
performance of the S&P 500. In 1999, however, we lost all of this advantage
being up less than one percent because of earnings disappointments and investors
reluctance to own smaller companies unless they featured a "dot-com" in the
name, while the S&P 500 was up 21%. This situation continued through the first
two months of 2000 driven by rampant speculation by day-traders, especially in a
few Internet and biotechnology stocks.
But 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 kinds of stocks this Fund owns. The companies in
our Fund actually make money and have done so for a long time. Most are larger
companies and hold a leading position in their industry. Even the smaller
companies such as T. Rowe Price, G & K Services, and Techne are among the
leaders in the niche they occupy.
Our Fund is aggressive only in the sense that we own a small number of
stocks. We are not aggressive in that we are well-diversified, own only good
quality issues, and refuse to invest in new issues (IPOs), stocks that are
selling on the hope of future earnings (Internet or small biotechnology stocks),
or momentum issues.
This is a difficult Fund to manage for two reasons. The first is
provisions in the Internal Revenue Code which in essence require us to invest
not more than 5% of its assets, at the time of purchase, in at least 10 stocks.
The second is our limitation of 16 stocks which requires us to sell a stock,
even when we are comfortable with it, if a compelling case is made for a
replacement.
While we recognize those with a short time horizon will not be
comfortable with our unwillingness to gamble, we believe the true long-term
shareholder will be amply rewarded for his patience.
Warmest regards,
L. Roy Papp, Chairman
July 28, 2000
3
<PAGE>
<TABLE>
<CAPTION>
PAPP FOCUS FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 2000
(UNAUDITED)
Number Market
Common Stocks of Shares Value
--------------------------------------------------------------------------- --------- --------
<S> <C> <C>
Computer Equipment (14.4%)
Intel Corporation
(Manufacturer of microprocessors, microcontrollers, and
memory chips) 3,000 $401,063
International Business Machines Corporation
(Global provider of information technology, hardware,
software, and services) 1,550 169,822
---------
570,885
---------
Electronic Equipment (14.0%)
American Power Conversion *
(Leading producer of uninterruptible power supply products) 9,000 367,312
Molex, Inc.
(Supplier of interconnection products) 5,400 189,000
---------
556,312
---------
Industrial Services (13.1%)
G & K Services, Inc. Class A
(Uniform rental service) 7,800 195,487
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 7,600 326,800
---------
522,287
---------
Financial Services (11.8%)
American International Group
(Major international insurance holding company) 1,650 193,875
State Street Corporation
(Provider of U.S. and global securities custodial services) 2,600 275,762
---------
469,637
---------
Investment Management (9.4%)
T. Rowe Price Associates, Inc.
(No-load mutual fund company) 8,800 374,000
---------
Biotechnology (6.4%)
Techne Corporation *
(Leading producer of biotechnology products) 1,950 253,500
---------
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
<CAPTION>
PAPP FOCUS FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 2000
(UNAUDITED)
Number Market
Common Stocks (continued) of Shares Value
------------------------------------------------------------------------------ --------- --------
<S> <C> <C>
Software (4.9%)
Microsoft Corporation *
(Personal computer software) 2,450 $196,000
--------
Consumer Products (4.8%)
Clorox Company
(Manufacturer of bleach and other consumer products) 4,300 192,693
--------
Pharmaceutical (4.8%)
Merck & Company
(Prescription pharmaceuticals) 2,500 191,563
--------
Specialty Retailing (4.6%)
Wal-Mart Stores, Inc.
(Leading discount retailer) 3,150 181,519
--------
Restaurants (4.5%)
McDonald's Corporation
(Fast food restaurants and franchising) 5,400 177,863
--------
Medical Products (4.3%)
Medtronic, Inc.
(Manufacturer of implantable biomedical devices) 3,400 169,363
--------
Total Common Stocks - 96.9% 3,855,622
Cash and Other Assets, Less Liabilities - 3.1% 122,227
----------
Net Assets - 100% $3,977,849
==========
Net Asset Value Per Share
(Based on 256,680 shares outstanding at June 30, 2000) $ 15.50
==========
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAPP FOCUS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
(UNAUDITED)
ASSETS
<S> <C>
Investment in securities at market value (original
cost $2,562,175 at June 30, 2000) (Note 1) $3,855,622
Cash 121,269
Dividends and interest receivable 2,927
----------
Total assets $3,979,818
==========
LIABILITIES
Accrued expenses $ 1,969
==========
NET ASSETS
Paid-in capital $2,609,601
Accumulated undistributed net realized gain
on sale of investments 127,388
Accumulated undistributed net investment loss (52,587)
Net unrealized gain on investments 1,293,447
----------
Net assets applicable to Fund shares outstanding $3,977,849
==========
Fund shares outstanding 256,680
==========
Net Asset Value Per Share (net assets/shares
outstanding) $ 15.50
==========
The accompanying notes are an integral part of this financial statement.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PAPP FOCUS FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<S> <C>
INVESTMENT INCOME:
Dividends $ 9,708
Interest 2,245
----------
Total investment income 11,953
----------
EXPENSES:
Management fee (Note 3) 18,939
Auditing fees 7,200
Legal fees 5,093
Filing fees 4,190
Custodial fees 2,700
Printing and postage fees 1,227
Transfer agent fees 794
Directors' attendance fees 500
----------
Total expenses 40,643
----------
Less fees waived by adviser (Note 3) (16,970)
----------
Net expenses 23,673
----------
Net investment loss (11,720)
----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Proceeds from sales of securities 1,200,698
Cost of securities sold (1,039,804)
----------
Net realized gain on investments sold 160,894
Net change in unrealized gain on investments 400,216
----------
Net realized and unrealized gain on investments 561,110
----------
Net increase in net assets resulting from operations $ 549,390
==========
The accompanying notes are an integral part of this financial statement.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PAPP FOCUS FUND, INC.
STATEMENT 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 (11,720) (29,475)
Net realized gain/(loss) on investments sold 160,894 (98)
Net change in unrealized gain on investments 400,216 37,859
----------- -----------
Increase in net assets resulting from
operations 549,390 8,286
----------- -----------
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 82,701 1,288,280
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 (605,637) (1,376,564)
----------- -----------
Decrease in net assets resulting
from shareholder transactions (522,936) (88,284)
----------- -----------
Total increase/(decrease) in net assets 26,454 (79,998)
Net assets at beginning of the period 3,951,395 4,031,393
----------- -----------
Net assets at end of period $3,977,849 $3,951,395
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
PAPP FOCUS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(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.
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. To date, the Fund has not declared any dividends or
distributions.
(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 $16,970 was required for the six months
ended June 30, 2000.
9
<PAGE>
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 for the year ended December 31, 1999,
investment transactions excluding short-term investments were as follows:
2000 1999
---------- -----------
Purchase at cost $ 696,772 $2,196,009
Sales 1,200,698 2,279,973
(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 $ 82,701 6,050
Dividends and distributions reinvested - -
Shares redeemed (605,637) (43,952)
----------- ----------
Net decrease $ (522,936) (37,902)
=========== ==========
Period ended December 31, 1999
Shares issued $ 1,288,280 99,296
Dividends and distributions reinvested - -
Shares redeemed (1,376,564) (107,193)
----------- ----------
Net decrease $ (88,284) (7,897)
=========== ==========
(6) UNREALIZED APPRECIATION:
Unrealized appreciation of portfolio securities for both financial statement and
federal income tax purposes is as follows:
2000 1999
------------- ------------
Market value $3,855,622 $3,798,438
Original cost (2,562,175) (2,905,207)
------------- ------------
Net unrealized appreciation $1,293,447 $ 893,231
============= ============
As of June 30, 2000, gross unrealized gains on investments in which market value
exceeded cost totaled $1,321,453 and gross unrealized losses on investments in
which cost exceeded market value totaled $28,006.
As of December 31, 1999, gross unrealized gains on investments in which market
value exceeded cost totaled $1,001,308 and gross unrealized losses on
investments in which cost exceeded market value totaled $108,077.
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 Year Ended Period Ended
June 30, December 31, December 31,
2000 1999 1998(A)
---------------- ------------ ----------------
<S> <C> <C> <C>
Net asset value, beginning
of period $ 13.41 $ 13.33 $ 10.00
Income from operations:
Net investment loss (0.06) (0.11) (0.06)
Net realized and unrealized
gain on investments 2.15 0.19 3.39
---------------- ------------ ----------------
Total from operations 2.09 0.08 3.33
Less Distributions:
Dividend from investment
income - - -
Distribution of net realized
gain - - -
---------------- ------------ ----------------
Total distributions - - -
Net asset value, end of period $15.50 $13.41 $13.33
================ ============ ================
Total return 15.59% 0.60% 33.30%
================ ============ ================
Ratios/Supplemental Data:
Net assets, end of period $3,977,849 $3,951,395 $4,031,393
Expenses to average
net assets (B) 1.25%* 1.25% 1.25%*
Investment income to
average net assets (C) 0.63%* 0.54% .70%*
Portfolio turnover rate 37.38%* 53.85% 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 2.13%,
1.63% and 1.38% for the periods ended June 30, 2000, December 31, 1999
and 1998.
(C) Computed giving effect to investment adviser's expense limitation
undertaking.
11
<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.
