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[ARTWORK]
THE L. ROY PAPP STOCK FUND, INC.
A No-Load Fund
THIRD QUARTER REPORT
SEPTEMBER 30, 1996
Managed by:
L. Roy Papp & Associates
4400 North 32/nd/ Street
Suite 280
Phoenix, AZ 85018
(602)956-1115 Local
(800)421-4004
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FACTS ABOUT THE FUND
Investment Objective
The Fund invests for the long-term in good quality common stocks. For the most
part, the companies in which the Fund invests occupy a dominant position in
their industry and are purchased at prices which, in the opinion of the Fund's
management, do not reflect their superior long-term growth of earnings and
dividends. Once purchased, the shares of these companies are ordinarily retained
so long as management believes that the prospects for appreciation continue to
be favorable and that the securities are not greatly overvalued in the
marketplace.
The Investment Adviser
The Fund's assets are managed by L. Roy Papp & Associates, the largest
investment counseling firm in Arizona, with over $578 million 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 are Chartered Financial Analysts (CFAs).
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 41 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
17 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
and increased dividend income 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.
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The L. Roy Papp Stock Fund, Inc.
Dear Fellow Shareholder:
Our Fund has done well during the first nine months of 1996. On a per share
basis, we were up 14.6% during that period. Since inception, a little less than
five years ago, we are up 147.2%. Despite a minor technical correction in July,
which the pundits had been predicting for over two years and from which the
overall market recovered quickly, the Standard & Poor's 500 Stock Average
actually gained 3.1% during the September quarter.
Shareholders often ask me whether the stock market is "too high." While the S&P
500 is selling at about 16.8 times expected 1997 earnings, viewed in the light
of a number of critical factors, today's prices seem reasonable. Consider the
following:
Our economy is strong. Many new jobs have been created and unemployment is
at its lowest level in a long time. Rather than an increase in benefits and
perquisites, the real disposable income of the average worker is increasing
for the first time in many years.
Inflation is moderate and shows no signs of getting out of hand. Any
increase in interest rates by the Federal Reserve will probably be minor
and will likely not adversely affect the economy.
The worldwide competitive position of the United States has never been
better. We are the leaders in technology and the world wants our products
as represented by consumer goods, movies, television productions, and
music.
The earnings of our best managed, growth companies continue to improve,
often dramatically. It is the shares of companies like these which we seek
for our Fund's portfolio.
Finally, although there are plenty of hot spots around the world, the cold
war has ended and the United States has emerged as the only Superpower.
This has enabled many nations to reduce their armaments spending, which in
turn frees more income for discretionary spending.
These are the circumstances in which we find ourselves today. They are not
conditions under which one would expect a weak stock market, especially when it
appears the present situation will continue for at least a few more years. And
these are the reasons we remain optimistic.
Warmest regards,
/s/ L. Roy Papp
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L. Roy Papp, Chairman
October 4, 1996
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THE L. ROY PAPP STOCK FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Number Market
Common Stocks of Shares Value
- ----------------------------------------------------------------- --------- ----------
<S> <C> <C>
Distributors (12.9%)
Arrow Electronics, Inc.*
(Distributor of electronic components and computer products) 13,700 $ 609,650
Marshall Industries, Inc.*
(Distributor of industrial electronic components) 109,000 3,283,625
Sigma-Aldrich Corp.
(Develops, manufactures, and distributes specialty chemicals) 19,500 1,111,500
W.W. Grainger
(Distributor and manufacturer of electric equipment) 21,200 1,489,300
----------
6,494,075
----------
Ethical Drugs (11.6%)
American Home Products Corporation
(Ethical and proprietary drugs) 17,000 1,083,075
Merck & Company
(Ethical drugs and specialty chemicals) 47,500 3,342,813
Mylan Laboratories, Inc.
(Manufacturer of prescription generic drugs) 82,150 1,406,819
----------
5,833,382
----------
Consumer Services (11.1%)
G&K Services Class A
(Uniform rental service) 59,000 1,725,750
Service Corporation International
(Funeral service; cemetery owner/operator) 127,000 3,841,750
----------
5,567,500
----------
Computers and Software ( 10.3%)
Hewlett-Packard Company
(Manufacturer of printers, computers and medical
electronic equipment) 24,000 1,170,000
Intel Corporation
(Manufacturer of microprocessors, microcontrollers,
and memory chips) 20,000 1,908,750
Microsoft Corporation*
(Personal computer software) 16,000 2,110,000
----------
5,188,750
----------
Financial Services (9.8%)
Northern Trust Corporation
(Bank specializing in trust services) 19,500 1,282,125
State Street Boston Corporation
(Provider of securities custodial services) 54,600 3,132,675
T. Rowe Price
(Provides investment advisory and administrative
services to the their family of no-load mutual funds) 15,000 487,500
----------
4,902,300
----------
Industrial Services (7.8%)
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 60,000 2,835,000
Manpower, Inc.
(Provider of nongovernment employment services) 33,000 1,097,250
----------
3,932,250
----------
</TABLE>
*Non-income producing security.
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THE L. ROY PAPP STOCK FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Number Market
Common Stocks (continued) of Shares Value
- ----------------------------------------------------------------------- --------- ------------
<S> <C> <C>
RETAIL STORES (7.8%)
Albertson's Inc.
(Regional retail grocery chain) 51,800 $ 2,182,075
Walgreen Company
(Retail drug store chain) 47,000 1,739,000
-----------
3,921,075
-----------
ELECTRICAL EQUIPMENT (5.8%)
General Electric Co.
(Diversified industrial company) 14,600 1,328,600
Emerson Electric Company
(Manufacturer of electrical and electronic products and systems) 17,500 1,577,187
-----------
2,905,787
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CONSUMER PRODUCTS (5.6%)
Clorox Company
(Manufacturer of bleach and other consumer products) 14,600 1,399,775
Procter & Gamble Company
(Household, personal care, and food products) 14,700 1,433,250
-----------
2,833,025
-----------
TELECOMMUNICATIONS (4.7%)
Motorola, Inc.
(Manufacturer of electronic equipment) 46,000 2,374,750
-----------
RESTAURANTS (3.7%)
McDonald's Corporation
(Fast food restaurants and franchising) 39,000 1,847,625
-----------
MISCELLANEOUS (7.8%)
Intermagnetics General*
(Manufacturer of superconductive magnetic systems
and environmentally acceptable refrigerant) 22,950 318,431
Mattel, Inc.
(Toy manufacturer) 83,750 2,167,031
Verifone, Inc.*
(Supplier of transaction automation systems) 31,000 1,387,250
-----------
3,872,712
-----------
TOTAL COMMON STOCKS - 98.9% 49,673,231
CASH AND OTHER ASSETS, LESS LIABILITIES - 1.1% 534,224
-----------
NET ASSETS - 100% $20,207,455
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NET ASSET VALUE PER SHARE
(Based on 2,309,726 shares outstanding at September 30, 1996) $21.74
===========
</TABLE>
*Non-income producing security.
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THE L. ROY PAPP STOCK FUND, INC.
DIRECTORS
James K. Ballinger L. Roy Papp
Amy S. Clague Rosellen C. Papp
Robert L. Mueller Bruce C. Williams
Harry A. Papp
OFFICERS
Chairman - L. Roy Papp President - Harry A. Papp
VICE PRESIDENTS
Victoria S. Cavallero Robert L. Mueller
George D. Clark, Jr. Rosellen C. Papp
Jeffrey N. Edwards Bruce C. Williams
Robert L. Hawley
SECRETARY - Robert L. Mueller
ASSISTANT SECRETARY - Barbara D. Perleberg
TREASURER - Rosellen C. Papp
ASSISTANT TREASURER - Julie A. Hein
INVESTMENT ADVISER
L. Roy Papp & Associates
4400 North 32nd Street, Suite 280
Phoenix, Arizona 85018
Telephone: (602) 956-1115
CUSTODIAN
Wells Fargo Bank of Arizona
100 West Washington Street
Phoenix, Arizona 85003
SHAREHOLDER SERVICES AND TRANSFER AGENT
L. Roy Papp & Associates
4400 North 32nd Street, Suite 280
Phoenix, Arizona 85018
Telephone: (602) 956-1115, (800) 421-4004
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2 North Central Avenue, Suite 1000
Phoenix, Arizona 85004
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.
