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[ARTWORK]
PAPP AMERICA-PACIFIC RIM 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>
PAPP AMERICA-PACIFIC RIM 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. From inception on March
14, 1997, through June 30, our Fund was up 35.7%. This may be contrasted with
many funds investing in Asian stocks that went down by this amount or more.
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. Indeed, some of our companies have told us they believe
the downturn, including Japan, is over and recovery has begun.
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
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PAPP AMERICA-PACIFIC RIM FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Number Market
Common Stocks of Shares Value
------------- --------- ------
<S> <C> <C>
Industrial Services (21.2%)
Air Express International
(Air freight forwarding) 23,000 $ 615,250
Expeditors International of Washington, Inc.
(International air freight forwarding) 10,500 462,000
G & K Services, Inc. Class A
(Uniform rental service) 19,000 828,875
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 20,000 1,213,750
---------
3,119,875
---------
Computers and Software (14.7%)
American Power Conversion *
(Leading producer of uninterruptible power supply products) 26,000 780,000
Hewlett-Packard Company
(Manufacturer of printers, computers, and medical
electronic equipment) 9,500 568,813
Intel Corporation
(Manufacturer of microprocessors, microcontrollers,
and memory chips) 11,000 815,375
---------
2,164,188
---------
Telecommunications (11.9%)
L. M. Ericsson Telephone AB
(Manufacturer of telecom systems and cellular handsets) 33,000 944,625
Hong Kong Telecommunications Ltd.
(International telecommunications services) 21,000 396,375
Motorola, Inc.
(Manufacturer of communication equipment) 7,700 404,731
---------
1,745,731
---------
Financial Services (10.9%)
American International Group
(Major international insurance holding company) 6,000 876,000
State Street Corporation
(Provider of U.S. and global securities custodial services) 10,500 729,750
---------
1,605,750
---------
Electrical Equipment (10.7%)
General Electric Co.
(Diversified industrial company) 9,600 873,600
---------
Molex, Inc.
(Supplier of electrical, electronic, and fiber optic
interconnection products and systems) 30,000 701,250
---------
1,574,850
---------
</TABLE>
*Non-income producing security.
3
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PAPP AMERICA-PACIFIC RIM FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Number Market
Common Stocks (continued) of Shares Value
------------------------- --------- ------
<S> <C> <C>
Medical Devices (9.8%)
Medtronic, Inc.
(Manufacturer of implantable biomedical devices) 14,400 $ 918,000
Stryker Corp.
(Developer and manufacturer of surgical and medical devices) 13,500 518,062
-----------
1,436,062
-----------
Pharmaceutical (6.6%)
Eli Lilly and Co.
(Healthcare products) 7,200 475,650
Warner-Lambert Company
(Pharmaceutical and consumer products) 7,200 499,500
-----------
975,150
-----------
Restaurants (6.1%)
McDonald's Corporation
(Fast food restaurants and franchising) 13,000 897,000
-----------
Consumer Products (5.5%)
Colgate-Palmolive Company
(Household and personal care products) 2,200 193,600
Mattel, Inc.
(Toy manufacturer) 14,500 613,531
-----------
807,131
-----------
Miscellaneous ( 1.7%)
Callaway Golf Company
(Manufacturer of golf clubs) 13,000 255,938
-----------
Total Common Stocks - 99.1% 14,581,675
Cash and Other Assets, Less Liabilities - 0.9% 134,175
-----------
Net Assets - 100.0% $14,715,850
===========
Net Asset Value Per Share
(Based on 1,085,634 shares outstanding at June 30, 1998) $ 13.56
===========
</TABLE>
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PAPP AMERICA-PACIFIC RIM FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Investment in securities at market value (identified
cost $12,046,827 at June 30, 1998) (Note 1) $14,581,675
Cash 92,454
Dividends and interest receivable 19,368
Receivable for securities sold 37,211
-----------
Total assets $14,730,708
===========
LIABILITIES
Redemptions Payable 6,000
Accrued Expenses 8,858
-----------
Total Liabilities $ 14,858
-----------
NET ASSETS
Paid-in capital applicable to 1,085,634 outstanding
shares at June 30, 1998 $12,181,002
Net unrealized gain on investments 2,534,848
-----------
Net assets $14,715,850
===========
Net Asset Value Per Share (net assets/shares
outstanding) $ 13.56
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
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PAPP AMERICA-PACIFIC RIM FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends $ 60,582
Interest 4,422
Foreign taxes withheld (1,106)
----------
Total investment income 63,898
----------
EXPENSES:
Management fee (Note 3) 70,818
Filing fees 24,556
Accounting fees 4,000
Legal fees 2,508
Custodial fees 2,220
Directors' attendance fees 800
Other fees 2,012
----------
Total expenses 106,914
Less fees waived by adviser (Note 3) (18,392)
----------
Net expenses 88,522
----------
Net investment loss (24,624)
----------
REALIZED AND UNREALIZED GAIN/LOSS
ON INVESTMENTS:
Proceeds from sales of securities 1,946,347
Cost of securities sold 2,458,299
----------
Net realized loss on investments sold (511,952)
Net change in unrealized gain on investments 2,134,768
----------
Net realized and unrealized gain on investments 1,622,817
----------
Net increase in net assets resulting from operations $1,598,193
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
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PAPP AMERICA-PACIFIC RIM FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment (loss) income $ (24,624) $ 3,406
Net realized (loss)/gain on investments sold (511,952) 9,546
Net change in unrealized gain on investments 2,134,768 400,080
----------- -----------
Increase in net assets resulting from
Operations 1,598,193 413,032
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (3,406)
Net realized gain on investments sold -- (9,546)
----------- -----------
Total distributions to shareholders -- (12,952)
----------- -----------
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 3,641,195 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 (4,264,927) (2,571,490)
----------- -----------
Decrease/Increase in net assets resulting
from share transactions (623,732) 13,341,309
----------- ----------
Total increase in net assets 974,461 13,741,389
Net assets at beginning of the period 13,741,389 --
----------- -----------
Net assets at end of period $14,715,850 $13,741,389
----------- -----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
7
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PAPP AMERICA-PACIFIC RIM FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
(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.
8
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(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 $18,392 and $21,456 was required in 1998
and 1997 respectively.
The Fund's independent directors receive $250 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
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(4) PURCHASES AND SALES OF SECURITIES:
For the six months ended June 30, 1998 and the period ended December 31, 1997,
investment transactions excluding short-term investments were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Purchases at cost $ 1,208,268 $14,459,596
Sales 1,946,347 1,172,305
</TABLE>
(5) CAPITAL SHARE TRANSACTIONS:
At June 30, 1998, 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>
Six months ended June 30, 1998 Proceeds Shares
-------- ------
<S> <C> <C>
Shares issued $ 3,641,195 276,057
Dividends and distributions reinvested -- --
Shares redeemed (4,264,927) (326,140)
----------- ---------
Net decrease $ (623,732) (50,083)
=========== =========
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
=========== =========
</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, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Market value $14,581,675 $13,696,938
Original cost 12,046,827 13,296,858
----------- -----------
Net unrealized appreciation $ 2,534,848 $ 400,080
----------- -----------
</TABLE>
As of June 30, 1998, gross unrealized gains on investments in which market value
exceeded cost totaled $3,039,504 and gross unrealized losses on investments in
which cost exceeded market value totaled $504,656.
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.
10
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(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.
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1998 December 31, 1997(A)
---------------- --------------------
<S> <C> <C>
Net asset value, beginning of
period $ 12.10 $ 10.00
Income from investment operations:
Net investment income -- --
Net realized and unrealized gain
(loss) on investments 1.46 2.11
Total from investment operations: 1.46 2.11
Less Distributions:
Dividend from investment income -- --
Distribution of net realized gain -- (.01)
Total Distributions -- (.01)
Net asset value, end of period $ 13.56 $ 12.10
=========== ===========
Total return 12.07% 21.11%
=========== ===========
Ratios/Supplemental Data:
Net assets, end of period $14,715,850 $13,741,389
Expenses to average net assets (B) 1.25%* 1.25%*
Net investment income to average
net assets (C) 0.89%* 1.30%*
Portfolio turnover rate 17.04% 14.30%*
Average commission per share $ 0.0624 $ 0.0535
</TABLE>
* 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
1.50% and 1.55%, for the six months ended June 30, 1998 and the period
ended December 31, 1997.
(C) Computed giving effect to investment adviser's expense limitation
undertaking.
11
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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
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: 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
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.
