<PAGE>
[ARTWORK]
THE L. ROY PAPP STOCK FUND, INC.
A No-Load Fund
SEMI-ANNUAL REPORT
JUNE 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
<PAGE>
The L. Roy Papp Stock Fund, Inc.
Dear Fellow Shareholder:
Our Fund produced good results for the first half of 1996. During the six months
ended June 30, we were up 11.1%. Since inception in November, 1989 the Fund was
up 138.8%.
In my "Views From Camelback Mountain" letter dated June 25, 1996 I wrote that,
while we are comfortable with our economy, we believe that some of the smaller,
more speculative companies, particularly the IPO's (Initial Public Offerings),
were vulnerable to a decline which could cause some nervousness in the broad
markets.
Such a correction has been underway for the past two weeks. While the more
speculative sectors of the Stock Market have experienced the most severe losses,
many good quality growth stocks have also suffered. We are not interested in
short-term market volatility. We are very interested in whether our companies
are performing as we expect. With only a few exceptions, our companies have been
reporting second quarter earnings exceeding analyst estimates.
Interestingly, the current correction began when the government reported that
employment has reached record highs and that the real wages of American workers
were again rising after years of stagnation. These data do not indicate that a
recession is around the corner. To the contrary, they indicate the economy is
healthy, a condition we believe will continue for the next few years.
Under these conditions, our country will prosper and overall corporate earnings
will continue to grow as will stock prices. This is especially true of the
companies owned by our Fund which benefit from a healthy U.S. economy.
Best regards,
L. Roy Papp, Chairman
July 15, 1996
2
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 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) 12,700 $ 547,688
Marshall Industries, Inc.*
(Distributor of industrial electronic components) 109,000 3,052,000
Sigma-Aldrich Corp.
(Develops, manufactures, and distributes specialty chemicals) 19,500 1,043,250
W.W. Grainger
(Distributor and manufacturer of electric equipment) 21,200 1,643,000
----------
6,285,938
----------
ETHICAL DRUGS (12.1%)
American Home Products Corporation
(Ethical and proprietary drugs) 22,000 1,322,750
Merck & Company
(Ethical drugs and specialty chemicals) 47,500 3,069,688
Mylan Laboratories, Inc.
(Manufacturer of prescription generic drugs) 87,150 1,503,338
----------
5,895,776
----------
CONSUMER SERVICES (11.2%)
G&K Services Class A
(Uniform rental service) 59,000 1,681,500
Service Corporation International
(Funeral service; cemetery owner/operator) 65,500 3,766,250
----------
5,447,750
----------
COMPUTERS AND SOFTWARE (9.4%)
Hewlett-Packard Company
(Manufacturer of printers, computers and medical
electronic equipment) 12,000 1,195,500
Intel Corporation
(Manufacturer of microprocessors, microcontrollers,
and memory chips) 20,000 1,468,750
Microsoft Corporation*
(Personal computer software) 16,000 1,922,000
----------
4,586,250
----------
FINANCIAL SERVICES (8.7%)
Northern Trust Corporation
(Bank specializing in trust services) 25,000 1,443,750
State Street Boston Corporation
(Provider of securities custodial services) 54,600 2,784,600
----------
4,228,350
----------
INDUSTRIAL SERVICES (7.9%)
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 60,000 2,812,500
Manpower, Inc.
(Provider of nongovernment employment services) 26,000 1,020,500
----------
3,833,000
----------
RETAIL STORES (7.7%)
Albertson's Inc.
(Regional retail grocery chain) 51,800 2,143,225
Walgreen Company
(Retail drug store chain) 47,000 1,574,500
----------
3,717,725
----------
</TABLE>
*Non-income producing security.
3
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Number Market
Common Stocks (continued) of Shares Value
- ---------------------------------------------------------------- --------- ------------
<S> <C> <C>
TELECOMMUNICATIONS (5.9%)
Motorola, Inc.
(Manufacturer of electronic equipment) 46,000 $ 2,892,250
-----------
ELECTRICAL EQUIPMENT (5.5%)
General Electric Co.
(Diversified industrial company) 12,600 1,089,900
Emerson Electric Company
(Manufacturer of electrical and electronic products and systems) 17,500 1,581,562
-----------
2,671,462
-----------
CONSUMER PRODUCTS (5.4%)
Clorox Company
(Manufacturer of bleach and other consumer products) 14,600 1,293,925
Procter & Gamble Company
(Household, personal care, and food products) 14,700 1,332,187
-----------
2,626,112
-----------
RESTAURANTS (3.7%)
McDonald's Corporation
(Fast food restaurants and franchising) 39,000 1,823,250
-----------
MISCELLANEOUS (8.5%)
Intermagnetics General*
(Manufacturer of superconductive magnetic systems
and environmentally acceptable refrigerant) 22,500 405,000
Mattel, Inc.
(Toy manufacturer) 83,750 2,397,343
Verifone, Inc.*
(Supplier of transaction automation systems) 31,000 1,309,750
-----------
4,112,093
-----------
TOTAL COMMON STOCKS - 98.9% 48,119,956
CASH AND OTHER ASSETS, LESS LIABILITIES - 1.1% 516,193
-----------
NET ASSETS - 100% $48,636,149
===========
NET ASSET VALUE PER SHARE
(Based on 2,307,667 shares outstanding at June 30, 1996) $21.08
===========
</TABLE>
*Non-income producing security.
4
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in securities at market value (identified
cost $30,031,426 at June 30, 1996) (Note 1) $ 48,119,956
Cash 645,574
Dividends and interest receivable 53,309
------------
Total assets $ 48,818,839
============
LIABILITIES
Accrued expenses $ 41,146
Payable for securities purchased 123,095
Redemption payable 18,449
------------
Total liabilities $ 182,690
============
NET ASSETS
Paid-in capital applicable to 2,307,667 outstanding
shares at June 30, 1996 $ 30,547,619
Net unrealized gain on investments 18,088,530
------------
Net assets $ 48,636,149
============
Net Asset Value Per Share (net assets/shares
outstanding) $ 21.08
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends $ 267,699
Interest 13,614
------------
Total investment income 281,313
------------
EXPENSES:
Management fee (Note 3) 233,954
Filing fees 15,247
Accounting 13,600
Printing and postage 3,593
Legal 3,201
Transfer agent fees 3,173
Directors' attendance fees 3,100
Custodial 1,894
Other fees 2,982
------------
Total expenses 280,744
------------
Net investment income 569
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Proceeds from sales of securities 5,344,718
Cost of securities sold 3,906,723
------------
Net realized gain on investments sold 1,437,995
Net change in unrealized gain on investments 3,520,825
------------
Net realized and unrealized gain on investments 4,958,820
------------
Net increase in net assets resulting from
operations $ 4,959,389
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND THE YEAR ENDED
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1996 December 31, 1995
------------- ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 569 $ 174,379
Net realized gain on investments sold 1,437,995 178,446
Net change in unrealized gain on investments 3,520,825 11,093,392
----------- -----------
Increase in net assets resulting
from operations 4,959,389 11,446,217
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income - (174,379)
Net realized gain on investments sold (797,796) (177,387)
----------- -----------
Total distribution to shareholders (797,796) (351,766)
----------- -----------
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 2,087,172 2,657,765
Net asset value of shares issued to shareholders
in reinvestment of net investment income and
net realized gain on investments sold 705,237 310,260
Payments for redemption of shares (2,826,396) (6,131,692)
----------- -----------
Decrease in net assets resulting
from shareholder transactions (33,987) (3,163,667)
----------- -----------
Total increase in net assets 4,127,606 7,930,784
Net assets at beginning of the period 44,508,543 36,577,759
----------- -----------
Net assets at end of period $48,636,149 $44,508,543
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES:
The L. Roy Papp Stock Fund, Inc. (the Fund) was incorporated on September 15,
1989, and is registered under the Investment Company Act of 1940 as an open-end
diversified management investment company. Operations of the Fund commenced on
November 29, 1989. 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.
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.
8
<PAGE>
(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.
On June 19, 1996, a distribution of approximately $.35 a share, aggregating
$797,796, was declared from net realized long-term capital gains earned during
1996. The distribution was paid on June 28, 1996, to shareholders of record on
June 20, 1996.
On December 21, 1995, a dividend of approximately $.029793 a share, aggregating
$68,704, was declared from net investment income earned during 1995. A
distribution was also declared from net realized long-term capital gains of
approximately $.076922 a share, aggregating $177,387. The dividend and
distribution were paid on December 29, 1995, to shareholders of record on
December 20, 1995.
On June 21, 1995, a dividend of approximately $.044 a share, aggregating
$105,675, was declared from net investment income earned during 1995. The
dividend was paid on June 30, 1995, to shareholders of record on June 20, 1995.
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. The Fund
incurred fees of $3,173 and $7,907 in 1996 and 1995, respectively, from the
Manager for its services as shareholder services and transfer agent.
9
<PAGE>
The Fund's independent directors receive $800 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, 1996 and the year ended December 31, 1995,
investment transactions excluding short-term investments were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Purchases at cost $ 4,197,358 $ 8,953,222
Sales 5,344,718 12,294,010
</TABLE>
(5) CAPITAL SHARE TRANSACTIONS:
At June 30, 1996, there were 5,000,000 shares of $.01 par value capital stock
authorized. Transactions in capital shares of the Fund were as follows:
<TABLE>
<CAPTION>
Proceeds Shares
------------ ---------
<S> <C> <C>
Six months ended June 30, 1996
Shares issued $ 2,087,172 104,652
Dividends and distributions reinvested 705,237 33,297
Shares redeemed (2,826,396) (138,039)
----------- --------
Net decrease $ (33,987) (90)
=========== ========
Year ended December 31, 1995
Shares issued $ 2,657,765 155,585
Dividends and distributions reinvested 310,260 16,810
Shares redeemed (6,131,692) (364,966)
----------- --------
Net decrease $(3,163,667) (192,571)
=========== ========
</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, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Market value $48,119,956 $44,219,525
Original cost 30,031,426 29,651,819
----------- ------------
Net unrealized appreciation $18,088,530 $14,567,706
=========== ============
</TABLE>
As of June 30, 1996, gross unrealized gains on investments in which market value
exceeded cost totaled $18,497,696 and gross unrealized losses on investments in
which cost exceeded market value totaled $409,166.
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 periods, divided by the weighted average of the
daily net assets of the Fund.
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, ----------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $ 19.29 $ 14.63 $ 14.98 $ 14.96 $ 13.45 $ 10.42 $ 10.38
Income from Investment
Operations:
Net investment income - .07 .13 .13 .13 .15 .16
Net realized and
unrealized (loss)
gain on investments 2.14 4.73 (.35) .11 1.68 3.46 .09
----------- ----------- ----------- ----------- ----------- ------------ ----------
Total from Investment
Operations 2.14 4.80 (.22) .24 1.81 3.61 .25
Less Distributions:
Dividend from net
investment income - (.07) (.13) (.13) (.13) (.15) (.16)
Distribution of net
realized gain (.35) (.07) - (.09) (.17) (.43) (.05)
----------- ----------- ----------- ----------- ----------- ----------- ----------
Total Distributions (.35) (.14) (.13) (.22) (.30) (.58) (.21)
Net Asset Value,
end of period $ 21.08 $ 19.29 $ 14.63 $ 14.98 $ 14.96 $ 13.45 $ 10.42
=========== =========== =========== =========== =========== =========== ==========
Total Return 11.09% 32.93% (1.46)% 1.65% 13.54% 33.79% 2.60%
=========== =========== =========== =========== =========== =========== ==========
Ratios/Supplemental
Data:
Net assets, end of period $48,636,149 $44,508,543 $36,577,759 $39,522,420 $22,874,733 $13,367,176 $6,104,345
Expenses to average
net assets (B) 1.20%* 1.17% 1.19% 1.25% 1.25% 1.25% 1.25%
Net investment income
to average net assets (C) 1.20%* 1.60% 2.08% 2.22% 2.28% 2.46% 2.82%
Portfolio turnover rate 10.45% 22.39% 20.00% 15.00% 11.00% 4.00% 28.00%
Period Ended
December 31,
1989 (A)
------------
<S> <C>
Net Asset Value,
beginning of period $ 10.00
Income from Investment
Operations:
Net investment income .02
Net realized and
unrealized (loss)
gain on investments .38
-----------
Total from Investment
Operations .40
Less Distributions:
Dividend from net
investment income (.02)
Distribution of net
realized gain -
-----------
Total Distributions (.02)
Net Asset Value,
end of period $ 10.38
===========
Total Return 3.99%
Ratios/Supplemental
Data:
Net assets, end of period $ 1,322,522
Expenses to average
net assets (B) 1.25%*
Net investment income
to average net assets (C) 2.23%*
Portfolio turnover rate 0.00%
</TABLE>
* Annualized
(A) From the date of commencement of operations (November 29, 1989).
(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 1.25%, 1.26%, 1.35%,
1.92% and 1.80% for the years ended December 31, 1993, 1992, 1991, 1990 and
the period ended December 31, 1989, respectively.
(C) Computed giving effect to investment adviser's expense limitation
undertaking.
<PAGE>
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
First Interstate 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.
