<PAGE>
[ARTWORK]
PAPP AMERICA-PACIFIC RIM 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 PAPP AMERICA
PACIFIC RIM FUND, INC., AND THE MORGAN STANLEY WORLD INDEX
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------------------------
Period from March 14, 1997 to
December 31, 1997
- -----------------------------------------------------
<S> <C>
Papp America-
Pacific Rim Fund 21.1%
- -----------------------------------------------------
Morgan Stanley
World Index 13.7%
- -----------------------------------------------------
Standard & Poor's
500 Stock Index 24.2%
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Papp America-Pacific Rim Fund Morgan Stanley World Index
<S> <C> <C>
3/14/97 $10,000 $10,000
12/31/97 12,111 11,365
</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
Morgan Stanley World Index (an unmanaged [market-weighted] index that includes
50% foreign companies and 50% United States companies). Approximately 34% of the
earnings of the companies in the Fund's portfolio are derived from Pacific Rim
sources, 17% are derived from other foreign sources, and 49% are derived from
United States sources. All values shown include reinvested dividends.
2
<PAGE>
PAPP AMERICA-PACIFIC RIM FUND, INC.
Dear Fellow Shareholder:
Our Fund has performed well since its initial public offering on March 14, 1997.
At the end of the year, per share net asset value was up 21.1%. This compares
with an increase of 13.7% for the Morgan Stanley World Index, against which we
measure ourselves, and 24.2% for the Standard & Poor's 500 Stock Index.
A short time ago, I wrote you pointing out that our Fund per share price was
literally unchanged between June 30, 1997, when Asia's problems first became
evident, and the date of my letter, despite the fact that the Asian stock
markets had taken a horrific beating over the same period. There are a number of
reasons for this performance disparity.
The companies in the Pacific Rim Fund are mostly multinational in nature. While
our Fund emphasizes those companies which have substantial sales and earnings in
and from Asia, they also have worldwide operations and participate in the growth
of non-Asian markets. Moreover, a number of these companies have told us their
Asian operations remain quite satisfactory. Fourth quarter earnings seem to bear
this out. Of our companies which have reported fourth quarter earnings, most
have experienced good results.
We have no idea of when Asia will resolve its problems, but we suspect it will
not take years. The Asians are a clever and hard-working people and, prodded by
the International Monetary Fund, will eventually take the steps necessary to
revive their economies.
Some American multinational companies will suffer. These include the
construction companies which are now stuck with half completed or unoccupied
buildings, oil service companies, and those companies which specialize in
infrastructure projects. We do not own these companies. Instead, we own
companies that are the world's technological leaders, whether it be in
electronics or medicine, or who are major exporters of American culture.
Certainly, for the time being, Asian growth will not be comparable to that of
recent years. Our guess is that it will be similar to that of the United States.
This does not mean, however, that the companies we own will not do well. Indeed,
some of them will actually benefit from the strong dollar as their overseas
production costs decline or because they will be able to ship Asian finished
goods to the United States at a lower cost.
All in all, we believe the companies we own will continue to do well even in
this difficult environment and will prosper once the Asian economies again see
the light of day.
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
Papp America-Pacific Rim Fund, Inc.:
We have audited the accompanying statements of assets and liabilities of Papp
America-Pacific Rim Fund, Inc. (the Fund), including the schedule of portfolio
investments, as of December 31, 1997, and the related statements of operations,
changes in net assets, and the financial highlights for the period from March
14, 1997 (date of commencement of operations) through December 31, 1997. 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 audit.
We conducted our audit 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 and brokers. 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
audit provides 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 Papp America-Pacific Rim Fund,
Inc. as of December 31, 1997, and the results of its operations, changes in its
net assets and the financial highlights for the period from March 14, 1997 (date
of commencement of operations) through December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
January 21, 1998.
4
<PAGE>
PAPP AMERICA-PACIFIC RIM FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Number Market
Common Stocks of Shares Value
- ---------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Industrial Services (18.5%)
Air Express International
(Air freight forwarding) 23,000 $ 701,500
G & K Services, Inc. Class A
(Uniform rental service) 20,000 840,000
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 20,000 996,250
----------
2,537,750
----------
Computers and Software (14.4%)
American Power Conversion*
(Leading producer of uninterruptible power supply products) 26,000 614,250
Hewlett-Packard Company
(Manufacturer of printers, computers, and medical
electronic equipment) 9,500 593,750
Intel Corporation
(Manufacturer of microprocessors, microcontrollers,
and memory chips) 11,000 772,750
----------
1,980,750
----------
Financial Services (13.7%)
American International Group
(Major international insurance holding company) 6,000 652,500
Pacific Century Financial Corp.
(Provider of financial services in the U.S. and Pacific Island Nations) 25,000 618,750
State Street Corporation
(Provider of U.S. and global securities custodial services) 10,500 610,970
----------
1,822,220
----------
Telecommunications (10.8%)
L. M. Ericsson Telephone AB
(Manufacturer of telecom systems and cellular handsets) 16,500 615,656
Hong Kong Telecommunications Ltd.
(International telecommunications services) 21,000 433,125
Motorola, Inc.
(Manufacturer of communication equipment) 7,700 439,381
----------
1,488,162
----------
Medical Devices (9.8%)
Medtronic, Inc.
(Manufacturer of implantable biomedical devices) 14,400 753,300
Stryker Corp.
(Developer and manufacturer of surgical and medical devices) 16,000 596,000
----------
1,349,300
----------
Pharmaceutical (5.8%)
Eli Lilly and Co.
(Healthcare products) 7,200 501,300
Warner-Lambert Company
(Pharmaceutical and consumer products) 2,400 297,600
----------
798,900
----------
</TABLE>
*Non-income producing security.
5
<PAGE>
PAPP AMERICA-PACIFIC RIM FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Number Market
Common Stocks (continued) of Shares Value
- -------------------------------------------------------------- --------- ------------
<S> <C> <C>
Industrial Components (5.6%)
Millipore Corporation
(Supplier of purification products) 8,000 $ 271,500
Minnesota Mining and Manufacturing Co.
(Diversified manufacturer ) 6,100 500,581
-----------
772,081
-----------
Electrical Equipment (5.1%)
General Electric Co.
(Diversified industrial company) 9,600 704,400
-----------
Consumer Products (5.1%)
Colgate-Palmolive Company
(Household and personal care products) 2,200 161,700
Mattel, Inc.
(Toy manufacturer) 14,500 540,125
-----------
701,825
-----------
Restaurants (4.9%)
McDonald's Corporation
(Fast food restaurants and franchising) 14,000 668,500
-----------
Direct Marketing (1.8%)
Amway Asia Pacific, Ltd.
(Direct marketing of household and personal items in Asia) 12,400 241,800
-----------
Miscellaneous (4.2%)
Callaway Golf Company
(Manufacturer of golf clubs) 20,000 571,250
-----------
Total Common Stocks - 99.7% 13,696,938
Cash and Other Assets, Less Liabilities - 0.3% 44,451
-----------
Net Assets - 100.0% $13,741,389
===========
Net Asset Value Per Share
(Based on 1,135,717 shares outstanding at December 31, 1997) $ 12.10
===========
</TABLE>
6
<PAGE>
PAPP AMERICA-PACIFIC RIM FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Investment in securities at market value (identified
cost $13,296,858 at December 31, 1997) (Note 1) $13,696,938
Cash 30,164
Dividends and interest receivable 21,577
-----------
Total assets $13,748,679
===========
LIABILITES
Redemption Payable $ 7,290
===========
NET ASSETS
Paid-in capital applicable to 1,135,717 outstanding
shares at December 31, 1997 $13,341,309
Net unrealized gain on investments 400,080
-----------
Net assets $13,741,389
===========
Net Asset Value Per Share (net assets/share
outstanding) $ 12.10
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
7
<PAGE>
PAPP AMERICA-PACIFIC RIM FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 14, 1997
(DATE OF COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends $ 83,072
Interest 9,418
Foreign taxes withheld (382)
-----------
Total investment income 92,108
-----------
EXPENSES:
Management fee (Note 3) 77,151
Filing fees 17,345
Custodial fees 6,102
Legal fees 5,020
Accounting fees 2,546
Directors' attendance fees 1,200
Other fees 794
-----------
Total expenses 110,158
-----------
Less fees waived by adviser (Note 3) (21,456)
-----------
Net expenses 88,702
-----------
Net investment income 3,406
-----------
REALIZED AND UNREALIZED GAIN/LOSS
ON INVESTMENTS:
Proceeds from sales of securities 1,172,305
Cost of securities sold (1,162,759)
-----------
Net realized gain on investments sold 9,546
Net change in unrealized gain on investments 400,080
-----------
Net realized and unrealized gain on investments 409,626
-----------
Net increase in net assets resulting from operations $ 413,032
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
8
<PAGE>
PAPP AMERICA-PACIFIC RIM FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM MARCH 14, 1997
(DATE OF COMMENCEMENT OF OPERATIONS)TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
FROM OPERATIONS:
<S> <C>
Net investment income $ 3,406
Net realized gain on investments sold 9,546
Net change in unrealized gain on investments 400,080
-----------
Increase in net assets resulting from
operations 413,032
-----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,406)
Net realized gain on investments sold (9,546)
-----------
Decrease in net assets resulting from
distributions to shareholders (12,952)
-----------
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 15,900,856
Net asset value of shares issued to shareholders
in reinvestment of net investment income and
net realized gain on investments sold 11,943
Payments for redemption of shares (2,571,490)
-----------
Increase in net assets resulting
from shareholder transactions 13,341,309
-----------
Total increase in net assets 13,741,389
Net assets at beginning of the period -
-----------
Net assets at end of period $13,741,389
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
9
<PAGE>
PAPP AMERICA-PACIFIC RIM FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) SIGNIFICANT ACCOUNTING POLICIES:
Papp America-Pacific Rim Fund, Inc. (the Fund) was incorporated on December 18,
1996, and is registered under the Investment Company Act of 1940 as an open-end
diversified management investment company. Operations of the Fund commenced on
March 14, 1997. The Fund invests with the objective of long-term capital growth
in the common stocks of companies that have substantial international
activities, particularly in the Pacific Rim nations.
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.
(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 dividend of approximately $.0022 a share, aggregating
$3,406 was declared from net investment income earned during 1997. A
distribution was also declared from net realized short-term capital gains of
approximately $.0083 a share aggregating $9,546. The dividend and distribution
were 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. A
management fee expense reimbursement of $21,456 was required in 1997.
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.
11
<PAGE>
(4) PURCHASES AND SALES OF SECURITIES:
For the period from March 14, 1997 (date of commencement of operations) to
December 31, 1997, investment transactions excluding short-term investments were
as follows:
Purchases at cost $14,459,596
Sales 1,172,305
(5) CAPITAL SHARE TRANSACTIONS:
At December 31, 1997, there were 5,000,000 shares of $.01 par value capital
stock authorized. Transactions in capital shares of the Fund were as follows:
Proceeds Shares
------------ ----------
Period ended December 31, 1997
Shares issued $15,900,856 1,345,160
Dividends and distributions reinvested 11,943 929
Shares redeemed (2,571,490) (210,372)
----------- ---------
Net increase $13,341,309 1,135,717
=========== =========
(6) UNREALIZED APPRECIATION:
Unrealized appreciation of portfolio securities for both financial statement and
federal income tax purposes is as follows:
December 31,
1997
------------
Market value $13,696,938
Original cost 13,296,858
-----------
Net unrealized appreciation $ 400,080
===========
As of December 31, 1997, gross unrealized gains on investments in which market
value exceeded cost totaled $1,290,093 and gross unrealized losses on
investments in which cost exceeded market value totaled $890,013.
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 period, divided by the weighted average of the
daily net assets of the Fund.
Period Ended December 31,
1997
--------------------------
Net asset value, beginning
of period (A) $ 10.00
Income from investment
operations:
Net investment income -
Net realized and unrealized
gain (loss) on investments 2.11
-----------
Total from investment
operations 2.11
Less Distributions:
Dividend from investment
income -
Distribution of net realized
gain (.01)
-----------
Total Distributions (.01)
Net asset value, end of period $ 12.10
===========
Total return 21.11%
===========
Ratios/Supplemental Data:
Net assets, end of period $13,741,389
Expenses to average
net assets (B) 1.25%*
Net investment income to
average net assets (C) 1.30%*
Portfolio turnover rate 14.30%
Average commission per share $ 0.0535
* Annualized
(A) From the date of commencement of operations (March 14, 1997).
(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
1.55%, for the period ended December 31, 1997.
(C) Computed giving effect to investment adviser's expense limitation
undertaking.
13
<PAGE>
FACTS ABOUT THE FUND
Investment Objective - The Fund, which commenced operations on March 14, 1997,
is designed for those long-term investors who wish to invest a portion of their
common stock assets in mainly American multinational companies which do a
significant amount of business with, and receive substantial income from,
nations bordering the Pacific Ocean. The Fund purchases the shares of companies
that, over time, have shown the ability to substantially increase their
earnings.
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>
PAPP AMERICA-PACIFIC RIM 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
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: invest@roypapp
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.
15
