<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
A No-Load Fund
ANNUAL REPORT
DECEMBER 31, 1997
Managed by:
L. Roy Papp & Associates
4400 N. 32nd Street
Suite 280
Phoenix, AZ 85018
(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
THE L. ROY PAPP STOCK FUND, INC. AND THE STANDARD AND POOR'S
500 STOCK INDEX
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------------------------------
1 Year 5 Year Annualized Since Inception
- ------------------------------------------------------------------
<S> <C> <C> <C>
The L. Roy
Papp Stock
Fund, Inc. 33.1% 16.6% 16.7%
- ------------------------------------------------------------------
S&P 500 33.4% 20.3% 16.9%
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Standard & Poor's
Year The L. Roy Papp Stock Fund 500 Stock Index
<S> <C> <C>
11/29/89 $10,000 $10,000
1989 10,399 10,316
1990 10,669 9,999
1991 14,274 13,049
1992 16,207 14,043
1993 16,474 15,459
1994 16,233 15,663
1995 21,578 21,549
1996 26,276 26,497
1997 34,978 35,335
</TABLE>
- -- The L. Roy Papp Stock Fund -- Standard & Poor's 500 Stock Index
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. The Standard & Poor's 500 Stock Index is an unmanaged
[market-weighted] index that includes the stocks of the 500 largest U.S.
companies; the values shown include reinvested dividends.
2
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
Dear Fellow Shareholder,
The year 1997 was a good one for our Fund with per share net asset value rising
33.1%. These results were substantially identical to those of the Standard &
Poor's 500 Stock Index, which rose 33.4%. Since the Fund's inception on
November 29, 1989, we were up 249.9%.
In fact, our experience over the past three years has been most gratifying. In
1995 we were up 32.9%, in 1996 we were up 21.8%, and in 1997 we were up 33.1%.
This means that a $10,000 investment made on January 1, 1995 would have
increased to $21,545 by December 31, 1997. These numbers emphasize the
importance of being in stocks throughout the entire period, despite the
continuing warnings of some of the pundits who claimed three consecutive 20%
plus years could not happen.
We do not pretend to know what will happen in 1998, but we do not believe the
market will experience a major correction. The cold war is over and much of the
world is at peace. Resources that were dedicated to armaments can now be used
for more productive purposes. Our American economy is very strong and shows no
signs of abating, while the European economy appears to be improving. There are
some clouds over Asia, but our trade with the Southeast Asia nations remains a
relatively small part of the big picture.
Our Stock Fund is designed to provide a comprehensive investment for the common
stock portion of a securities portfolio. We own both large and medium sized
companies, many of which sell their products worldwide, while others emphasize
the markets in the United States. While we do not invest in a large number of
stocks, our holdings are well diversified by industry.
Nevertheless, there are certain themes that define our investment philosophy.
We purchase growth stocks, which means that our companies achieve higher sales
and earnings through true volume increases and operating efficiency, not through
raising prices and taking on substantial debt. We believe that globalization of
the world's economies is a fact that will become more and more evident with the
passage of time. Finally, we believe that the greatest growth will occur in the
fields of electronic and medical technology. Accordingly, we have major
investments in industry leaders like Hewlett-Packard, Intel, Microsoft, and
Motorola as well as small companies like American Power Conversion. In the
medical field, we own Merck, the giant of the industry, as well as Medtronic, a
smaller but highly innovative company. We also own companies such as Walgreen
which are highly efficient users of technology, as well as distributors of
electronic products such as Arrow Electronics and Marshall Industries.
We believe these are the companies most likely to succeed in the years ahead and
that long-term investors will be well rewarded for their patience.
Warmest regards,
/s/ L. Roy Papp
L. Roy Papp, Chairman
February 6, 1998
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of the
L. Roy Papp Stock Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of The L.
Roy Papp Stock Fund, Inc. (the Fund), including the schedule of portfolio
investments, as of December 31, 1997, and the related statements of operations
and changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then
ended. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The financial highlights of The L. Roy Papp
Stock Fund, Inc. for each of the three years in the three-year period ended
December 31, 1992, and the period from November 29, 1989 (date of commencement
of operations) through December 31, 1989, were audited by other auditors whose
report dated January 29, 1993, expressed an unqualified opinion on those
financial highlights.
We conducted our audits 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 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, 1997, by correspondence with
the custodian. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The L. Roy Papp Stock Fund,
Inc. as of December 31, 1997, and the results of its operations and changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
January 21, 1998.
4
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Number Market
Common Stocks of Shares Value
- ---------------------------------------------------------------- --------- -----------
<S> <C> <C>
Financial Services (16.1%)
Northern Trust Corporation
(Bank specializing in trust services) 36,000 $ 2,511,000
State Street Corporation
(Provider of U.S. and global securities custodial services) 109,200 6,354,075
T. Rowe Price Associates, Inc.
(Provides investment advisory and administrative
services to their family of no-load mutual funds) 64,000 4,024,000
-----------
12,889,075
-----------
Industrial Services (14.7%)
G&K Services Inc., Class A
(Uniform rental service) 103,000 4,326,000
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 90,000 4,483,125
Manpower, Inc.
(Provider of non-government employment services) 84,000 2,961,000
-----------
11,770,125
-----------
Computers and Software (14.1%)
Hewlett-Packard Company
(Manufacturer of printers, computers and medical
electronic equipment) 56,000 3,500,000
Intel Corporation
(Manufacturer of microprocessors, microcontrollers,
and memory chips) 51,000 3,582,750
Microsoft Corporation*
(Personal computer software) 32,000 4,136,000
-----------
11,218,750
-----------
Distributors (10.3%)
Arrow Electronics, Inc.*
(Distributor of electronic components and computer products) 43,000 1,394,813
Marshall Industries, Inc.*
(Distributor of industrial electronic components) 109,000 3,270,000
Sigma-Aldrich Corp.
(Develops, manufactures and distributes specialty chemicals) 66,000 2,623,500
W.W. Grainger
(Distributor and manufacturer of electric equipment) 10,000 971,875
-----------
8,260,188
-----------
Pharmaceutical (7.8%)
American Home Products Corporation
(Ethical and proprietary drugs) 15,000 1,147,500
Merck & Company
(Ethical drugs and specialty chemicals) 47,500 5,046,875
-----------
6,194,375
-----------
</TABLE>
*Non-income producing security.
5
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Number Market
Common Stocks (continued) of Shares Value
- -------------------------------------------------------------------- --------- -----------
<S> <C> <C>
Consumer Products (7.5%)
Clorox Company
(Manufacturer of bleach and other consumer products) 29,200 $ 2,308,625
Mattel, Inc.
(Toy manufacturer) 98,000 3,650,500
-----------
5,959,125
-----------
Electrical Equipment (6.6%)
General Electric Co.
(Diversified industrial company) 45,000 3,301,875
Emerson Electric Company
(Manufacturer of electrical and electronic products and systems) 35,000 1,975,313
-----------
5,277,188
-----------
Consumer Services (5.9%)
Service Corporation International
(Funeral service; cemetery owner/operator) 127,000 4,691,063
-----------
Retail Stores (4.1%)
Albertson's Inc.
(Regional retail grocery chain) 15,800 748,525
Walgreen Company
(Retail drug store chain) 80,000 2,510,000
-----------
3,258,525
-----------
Telecommunications (3.4%)
Motorola, Inc.
(Manufacturer of communication equipment) 47,000 2,681,937
-----------
Restaurants (3.4%)
McDonald's Corporation
(Fast food restaurants and franchising) 56,000 2,674,000
-----------
Miscellaneous (5.3%)
Medtronic, Inc.
(Manufacturer of implantable biomedical devices) 55,000 2,877,187
Millipore Corporation
(Supplier of purification products) 40,000 1,357,500
-----------
4,234,687
-----------
Total Common Stocks - 99.1% 79,109,038
Cash and Other Assets, Less Liabilities - .9% 711,030
-----------
Net Assets - 100% $79,820,068
===========
Net Asset Value Per Share
(Based on 2,680,437 shares outstanding at December 31, 1997) $ 29.78
===========
</TABLE>
6
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
------
1997 1996
---- ----
<S> <C> <C>
Investment in securities at market value (original
cost $39,547,255 and $29,944,927 at December 31, 1997
and 1996) (Note 1) $79,109,038 $52,451,831
Cash 610,468 774,220
Dividends and interest receivable 100,562 68,899
----------- -----------
Total assets $79,820,068 $53,294,950
=========== ===========
LIABILITIES
-----------
Redemptions payable $ -- $ 17,863
=========== ===========
NET ASSETS
----------
Paid-in capital applicable to 2,680,437 outstanding
shares at December 31, 1997 and 2,346,779 outstanding
shares at December 31, 1996 $40,258,285 $30,770,183
Net unrealized gain on investments 39,561,783 22,506,904
----------- -----------
Net assets $79,820,068 $53,277,087
=========== ===========
Net Asset Value Per Share (net assets/shares
outstanding) $ 29.78 $ 22.70
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 644,793 $ 551,760
Interest 38,555 26,886
----------- ----------
Total investment income 683,348 578,646
----------- ----------
EXPENSES:
Management fee (Note 3) 690,660 486,360
Filing fees 30,697 24,097
Accounting 19,776 13,850
Transfer agent fees 9,189 7,658
Directors' attendance fees 6,400 6,300
Custodial 6,031 6,956
Printing and postage 6,012 5,830
Legal 2,145 6,129
Other fees 2,079 3,758
----------- ----------
Total expenses 772,989 560,938
----------- ----------
Net investment (loss) income (Note 1) (89,641) 17,708
----------- ----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Proceeds from sales of securities 4,191,708 8,351,349
Cost of securities sold 3,052,373 6,627,620
----------- ----------
Net realized gain on investments sold 1,139,336 1,723,729
Net change in unrealized gain on investments 17,054,879 7,939,198
----------- ----------
Net realized and unrealized gain on investments 18,194,215 9,662,927
----------- ----------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $18,104,574 $9,680,635
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment (loss) income $ (89,641) $ 17,708
Net realized gain on investments sold 1,139,336 1,723,729
Net change in unrealized gain on investments 17,054,879 7,939,198
------------ -----------
Increase in net assets resulting
from operations 18,104,574 9,680,635
------------ -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ---- (17,708)
Net realized gain on investments sold (1,139,336) (1,723,729)
------------ -----------
Decrease in net assets resulting from
distributions to shareholders (1,139,336) (1,741,437)
------------ -----------
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 23,054,309 4,733,700
Net asset value of shares issued to shareholders
in reinvestment of net investment income and
net realized gain on investments sold 1,023,261 1,527,688
Payments for redemption of shares (14,499,827) (5,432,042)
------------ -----------
Increase in net assets resulting
from shareholder transactions 9,577,743 829,346
------------ -----------
Total increase in net assets 26,542,981 8,768,544
Net assets at beginning of the period 53,277,087 44,508,543
------------ -----------
Net assets at end of period $ 79,820,068 $53,277,087
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(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.
10
<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.
During the year ended December 31, 1997, the Fund reclassified undistributed net
investment loss of $89,641 to paid-in capital. This reclassification, which had
no impact on total net assets, is due to tax regulations not permitting the
carryforward of net investment losses to future periods.
(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 December 17, 1997, a distribution was declared from net realized long-term
capital gains of approximately $.3850 a share, aggregating $1,016,066. A
distribution was also declared from net realized short-term capital gains of
approximately $.0467 a share, aggregating $123,270. The distribution was paid
on December 31, 1997, to shareholders of record on December 19, 1997.
On December 18, 1996, a dividend of approximately $.0067 a share, aggregating
$17,708, was declared from net investment income earned during 1996. A
distribution was also declared from net realized long-term capital gains of
approximately $.4014 a share, aggregating $925,933. The dividend and
distribution were paid on December 31, 1996, to shareholders of record on
December 17, 1996.
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 19, 1996.
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 $9,189 and $7,658 in 1997 and 1996, respectively, from the
Manager for providing shareholder and transfer agent services.
11
<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 years ended December 31, investment transactions excluding short-term
investments were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Purchases at cost $12,654,701 $6,954,851
Sales 4,191,708 8,351,349
</TABLE>
(5) CAPITAL SHARE TRANSACTIONS:
At December 31, 1997, there were 25,000,000 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>
Year ended December 31, 1997
Shares issued $ 23,054,309 816,722
Dividends and distributions reinvested 1,023,261 34,835
Shares redeemed (14,499,827) (517,899)
------------ --------
Net increase $ 9,577,743 333,658
============ ========
Year ended December 31, 1996
Shares issued $ 4,733,700 223,665
Dividends and distributions reinvested 1,527,688 70,029
Shares redeemed (5,432,042) (254,673)
------------ --------
Net increase $ 829,346 39,021
============ ========
</TABLE>
(6) UNREALIZED APPRECIATION:
Unrealized appreciation of portfolio securities for both financial statement and
federal income tax purposes is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Market value $79,109,038 $52,451,831
Original cost 39,547,255 29,944,927
----------- -----------
Net unrealized appreciation $39,561,783 $22,506,904
=========== ===========
</TABLE>
As of December 31, 1997, gross unrealized gains on investments in which market
value exceeded cost totaled $39,852,457 and gross unrealized losses on
investments in which cost exceeded market value totaled $290,674.
As of December 31, 1996, gross unrealized gains on investments in which market
value exceeded cost totaled $22,672,122 and gross unrealized losses on
investments in which cost exceeded market value totaled $165,218.
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 periods, divided by the weighted average of the
daily net assets of the Fund.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 22.70 $ 19.29 $ 14.63 $ 14.98 $ 14.96 $ 13.45 $ 10.42
Income from operations:
Net investment income --- .01 .07 .13 .13 .13 .15
Net realized and
unrealized gain (loss)
on investments 7.51 4.16 4.73 (.35) .11 1.68 3.46
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from operations 7.51 4.17 4.80 (.22) .24 1.81 3.61
Less distributions:
Dividend from net
investment income --- (.01) (.07) (.13) (.13) (.13) (.15)
Distribution of net
realized gain (.43) (.75) (.07) --- (.09) (.17) (.43)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions (.43) (.76) (.14) (.13) (.22) (.30) (.58)
Net asset value,
end of period $ 29.78 $ 22.70 $ 19.29 $ 14.63 $ 14.98 $ 14.96 $ 13.45
=========== =========== =========== =========== =========== =========== ===========
Total return 33.12% 21.77% 32.93% (1.46)% 1.65% 13.54% 33.79%
=========== =========== =========== =========== =========== =========== ===========
Ratios/Supplemental Data:
Net assets, end of period $79,820,068 $53,277,087 $44,508,543 $36,577,759 $39,522,420 $22,874,733 $13,367,176
Expenses to average
net assets (B) 1.12% 1.16% 1.17% 1.19% 1.25% 1.25% 1.25%
Net investment income
to average net assets 1.00% 1.19% 1.60% 2.08% 2.22% 2.28% 2.46%
Portfolio turnover rate 6.19% 14.47% 22.39% 20.00% 15.00% 11.00% 4.00%
Average commission per
share(D) $ 0.0247 $ 0.0442
</TABLE>
<TABLE>
<CAPTION>
Period Ended
--------------December 31,
1990 1989 (A)
---------- ----------
<S> <C> <C>
Net asset value,
beginning of period $ 10.38 $ 10.00
Income from operations:
Net investment income .16 .02
Net realized and
unrealized gain (loss)
on investments .09 .38
---------- ----------
Total from operations .25 .40
Less distributions:
Dividend from net
investment income (.16) (.02)
Distribution of net
realized gain (.05) ---
---------- ----------
Total distributions (.21) (.02)
Net asset value,
end of period $ 10.42 $ 10.38
========== ==========
Total return 2.60% 3.99%
========== ==========
Ratios/Supplemental Data:
Net assets, end of period $6,104,345 $1,322,532
Expenses to average
net assets (B) 1.25% 1.25%*
Net investment income
to average net assets (C) 2.82% 2.23%*
Portfolio turnover rate 28.00% 0.00%
Average commission per Share (D)
</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.
(D) This disclosure was not required for years prior to 1996.
13
<PAGE>
FACTS ABOUT THE FUND
Investment Objective - The Fund, launched November 29, 1989, 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 $1
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 43 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
20 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>
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 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
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
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
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.
