<PAGE>
[ARTWORK APPEARS HERE]
THE L. ROY PAPP STOCK FUND, INC.
A No-Load Fund
SEMI-ANNUAL REPORT
JUNE 30, 1998
Managed by:
L. Roy Papp & Associates
P.O. Box 15508
Phoenix, AZ 85060-5508
(602)956-1115 Local
(800)421-4004
E-mail: [email protected]
Web:
http://www.roypapp.com
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
Dear Fellow Shareholder:
Our Fund had a good second quarter because we were up during the period along
with other large-cap growth funds. Practically every other group small, medium,
sector, foreign and commodity funds were down. During the last three and one
half years we were up 146% which means that a $10,000 investment made on January
1, 1995 was worth $24,638 at the end of June, 1998. Thus, the long-term investor
did very well while the short-term trader or market timer was not very
successful.
About a month ago many economists and forecasters discovered that the Japanese
economy was going into depression (of course this began nine years ago). The
last nine years have taken most of the risk out of the Japanese market even
though there is still some left. Fortunately, after this rumor was reported the
market decided not to worry about it. This is the type of thing that causes
people to sell stocks for foolish reasons rather than continue their long-term
investment strategy.
Conditions today are far different than they were during World War II and the
Cold War that followed. Comparing our economy with the economy of 1929 is
nothing but an exercise in futility. We see a healthy economy with a lot of
pluses that never existed before, one of the most important being that the media
has educated the public that common stocks have been four times as productive as
bonds over the last seventy years after adjusting for inflation. We also are the
undisputed leaders in the world's technology. Our people are better educated and
more entrepreneurial in their attitudes than Europe and much of the rest of the
world. For better or for worse the world is infatuated with American culture. No
matter where you go there are American Jeans, Pop Music, McDonald's, and Barbie
dolls. This reflects our dominance in the global cultural marketplace.
All of the above have helped to cause higher stock prices than historical norms,
but if you look through the windshield rather than through the rear view mirror
this market does not seem unreasonable. We continue to believe that for the
long-term the United States stock market is probably the least risky and most
attractive place to be.
Best regards
L. Roy Papp, Chairman
July 20, 1998
2
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Number Market
Common Stocks of Shares Value
- ------------------------------------------------------------------ --------- -----------
<S> <C> <C>
Computers and Software (19.0%)
American Power Conversion*
(Leading producer of uninterruptible power supply products) 98,000 $ 2,940,000
Hewlett-Packard Company
(Manufacturer of printers, computers, and medical
electronic equipment) 58,000 3,472,750
Intel Corporation
(Manufacturer of microprocessors, microcontrollers,
and memory chips) 51,000 3,780,375
Microsoft Corporation*
(Personal computer software) 64,000 6,936,000
-----------
17,129,125
-----------
Financial Services (16.6%)
Northern Trust Corporation
(Bank specializing in trust services) 34,000 2,592,500
State Street Corporation
(Provider of U.S. and global securities custodial services) 109,200 7,589,400
T. Rowe Price Associates, Inc.
(Provides investment advisory and administrative
services to their family of no-load mutual funds) 128,000 4,808,000
-----------
14,989,900
-----------
Industrial Services (13.7%)
G&K Services Inc., Class A
(Uniform rental service) 103,000 4,493,375
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 90,000 5,461,875
Manpower, Inc.
(Provider of non-government employment services) 84,000 2,409,750
-----------
12,365,000
-----------
Pharmaceutical (8.8%)
American Home Products Corporation
(Ethical and proprietary drugs) 30,000 1,552,500
Merck & Company
(Ethical drugs and specialty chemicals) 47,500 6,353,125
-----------
7,905,625
-----------
Consumer Products (7.7%)
Clorox Company
(Manufacturer of bleach and other consumer products) 29,200 2,784,950
Mattel, Inc.
(Toy manufacturer) 98,000 4,146,625
-----------
6,931,575
-----------
</TABLE>
*Non-income producing security.
3
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
Number Market
Common Stocks (continued) of Shares Value
- -------------------------------------------------------------- --------- -----------
<S> <C> <C>
Distributors (7.0%)
Arrow Electronics, Inc.*
(Distributor of electronic components and computer products) 38,000 $ 826,500
Marshall Industries, Inc.*
(Distributor of industrial electronic components) 87,000 2,370,750
Sigma-Aldrich Corp.
(Develops, manufactures and distributes specialty chemicals) 66,000 2,318,250
W.W. Grainger
(Distributor and manufacturer of electric equipment) 16,000 797,000
-----------
6,312,500
-----------
Electrical Equipment (6.9%)
General Electric Co.
(Diversified industrial company) 45,000 4,095,000
Emerson Electric Company
(Manufacturer of electrical and electronic products and systems) 35,000 2,113,125
-----------
6,208,125
-----------
Consumer Services (6.1%)
Service Corporation International
(Funeral service; cemetery owner/operator) 127,000 5,445,125
-----------
Restaurants (4.3%)
McDonald's Corporation
(Fast food restaurants and franchising) 56,000 3,864,000
-----------
Telecommunications (2.6%)
Motorola, Inc.
(Manufacturer of communication equipment) 45,000 2,365,313
-----------
Retail Stores (2.3%)
Walgreen Company
(Retail drug store chain) 50,000 2,065,625
-----------
Miscellaneous (4.3%)
Medtronic, Inc.
(Manufacturer of implantable biomedical devices) 61,000 3,888,750
-----------
Total Common Stocks - 99.3% 89,470,663
Cash and Other Assets, Less Liabilities - 0.7% 593,140
-----------
Net Assets - 100% $90,063,803
===========
Net Asset Value Per Share
(Based on 2,645,090 shares outstanding at June 30, 1998) $ 34.05
===========
</TABLE>
4
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Investment in securities at market value (identified
cost $39,573,919 at June 30, 1998) (Note 1) $89,470,663
Cash 614,100
Dividends and interest receivable 82,221
-----------
Total assets $90,166,984
===========
LIABILITIES
Accrued expenses $ 93,371
Redemptions payable 9,809
-----------
Total liabilities $ 103,180
-----------
NET ASSETS
Paid-in capital applicable to 2,645,090 outstanding
shares at June 30, 1998 $40,167,059
Net unrealized gain on investments 49,896,744
-----------
Net assets $90,063,803
===========
Net Asset Value Per Share (net assets/shares
outstanding) $ 34.05
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
THE L. ROY PAPP STOCK FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends $ 321,988
Interest 18,504
-----------
Total investment income 340,492
-----------
EXPENSES:
Management fee (Note 3) 433,116
Filing fees 21,203
Accounting 8,000
Transfer agent fees 4,642
Printing and postage 3,762
Custodial 3,538
Legal 2,548
Directors' attendance fees 2,400
Other fees 25,439
-----------
Total expenses 504,648
-----------
Net investment loss (164,156)
-----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Proceeds from sales of securities 4,498,076
Cost of securities sold 3,078,682
-----------
Net realized gain on investments sold 1,419,394
Net change in unrealized gain on investments 10,334,960
-----------
Net realized and unrealized gain on investments 11,754,354
-----------
Net increase in net assets resulting from operations $11,590,198
===========
</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, 1998 AND THE YEAR
ENDED DECEMBER 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1998 December 31, 1997
----------------- ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment (loss) $ (164,156) $ (89,641)
Net realized gain on investments sold 1,419,394 1,139,336
Net change in unrealized gain on investments 10,334,960 17,054,879
------------ ------------
Increase in net assets resulting
from operations 11,590,198 18,104,574
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income - -
Net realized gain on investments sold - (1,139,336)
------------ ------------
Total distribution to shareholders - (1,139,336)
------------ ------------
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 10,193,403 23,054,309
Net asset value of shares issued to shareholders
in reinvestment of net investment income and
net realized gain on investments sold - 1,023,261
Payments for redemption of shares (11,539,866) (14,499,827)
------------ ------------
Decrease/Increase in net assets
Resulting from shareholder transactions (1,346,463) 9,577,743
------------ ------------
Total increase in net assets 10,243,735 26,542,981
Net assets at beginning of the period 79,820,068 53,277,087
------------ ------------
Net assets at end of period $ 90,063,803 $ 79,820,068
============ ============
</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, 1998
(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.
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.
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 $4,642 and $9,189 in 1998 and 1997, respectively, from the
Manager for providing shareholder and transfer agent services.
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.
9
<PAGE>
(4) PURCHASES AND SALES OF SECURITIES:
For the six months ended June 30 and the year ended December 31, investment
transactions excluding short-term investments were as follows:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Purchases at cost $3,105,347 $12,654,701
Sales 4,498,076 4,191,708
</TABLE>
(5) CAPITAL SHARE TRANSACTIONS:
At June 30, 1998, 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>
Six months ended June 30, 1998
Shares issued $ 10,193,403 321,215
Dividends and distributions reinvested - -
Shares redeemed (11,539,866) (356,562)
------------ --------
Net decrease $ (1,346,463) (35,347)
============ ========
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
============ ========
</TABLE>
(6) UNREALIZED APPRECIATION:
Unrealized appreciation of portfolio securities for both financial statement and
federal income tax purposes is as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Market value $89,470,663 $79,109,038
Original cost 39,573,919 39,547,255
----------- -----------
Net unrealized appreciation $49,896,744 $39,561,783
=========== ===========
</TABLE>
As of June 30, 1998, gross unrealized gains on investments in which market value
exceeded cost totaled $50,679,548 and gross unrealized losses on investments in
which cost exceeded market value totaled $782,805.
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.
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 Year Ended December 31,
-------------------------------------------------------------------------------------------
June 30, 1998 1997 1996 1995 1994 1993
------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 29.78 $ 22.70 $ 19.29 $ 14.63 $ 14.98 $ 14.96
Income from operations:
Net investment income - - .01 .07 .13 .13
Net realized and unrealized gain
(loss) on investments 4.27 7.51 4.16 4.73 (.35) .11
----------- ----------- ----------- ----------- ----------- -----------
Total from operations 4.27 7.51 4.17 4.80 (.22) .24
Less distributions:
Dividend from net investment
income - - (.01) (.07) (.13) (.13)
Distribution of net realized gain - (.43) (.75) (.07) - (.09)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions - (.43) (.76) (.14) (.13) (.22)
Net asset value, end of Period $ 34.05 $ 29.78 $ 22.70 $ 19.29 $ 14.63 $ 14.98
=========== =========== =========== =========== =========== ===========
Total return 14.34% 33.12% 21.77% 32.93% (1.46)% 1.65%
=========== =========== =========== =========== =========== ===========
Ratios/Supplemental Data:
Net assets, end of period $90,166,984 $79,820,068 $53,277,087 $44,508,543 $36,577,759 $39,522,420
Expenses to average net assets (B) 1.15%* 1.12% 1.16% 1.17% 1.19% 1.25%
Net investment income to
average net assets (C) .78%* 1.00% 1.19% 1.60% 2.08% 2.22%
Portfolio turnover rate 7.16%* 6.19% 14.47% 22.39% 20.00% 15.00%
Average commission rate (D) $ .0342 $ .0247 $ .0442
</TABLE>
<TABLE>
<CAPTION>
Period
Ended Dec.
Year Ended December 31, 31,
-------------------------------------------------------------
1992 1991 1990 1989(A)
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.45 $ 10.42 $ 10.38 $ 10.00
Income from operations:
Net investment income .13 .15 .16 .02
Net realized and unrealized gain
(loss) on investments 1.68 3.46 .09 .38
----------- ----------- ---------- ----------
Total from operations 1.81 3.61 .25 .40
Less distributions:
Dividend from net investment
income (.13) (.15) (.16) (.02)
Distribution of net realized gain (.17) (.43) (.05) -
----------- ----------- ---------- ----------
Total distributions (.30) (.58) (.21) (.02)
Net asset value, end of Period $ 14.96 $ 13.45 $ 10.42 $ 10.38
=========== =========== ========== ==========
Total return 13.54% 33.79% 2.60% 3.99%
=========== =========== ========== ==========
Ratios/Supplemental Data:
Net assets, end of period $22,874,733 $13,367,176 $6,104,345 $1,322,532
Expenses to average net assets (B) 1.25% 1.25% 1.25% 1.25%*
Net investment income to
average net assets (C) 2.28% 2.46% 2.82% 2.23%*
Portfolio turnover rate 11.00% 4.00% 28.00% 0.00%
Average commission rate (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.
11
<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
Treasurer - Rosellen C. Papp
Assistant Treasurer - Julie A. Hein
Investment Adviser
L. Roy Papp & Associates
P.O. Box 15508
Phoenix, Arizona 85060-5508
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
P.O. Box 15508
Phoenix, Arizona 85060-5508
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.
