Picture of man in a chair
PAPP AMERICA-PACIFIC RIM FUND, INC.
A No-Load Fund
ANNUAL REPORT
DECEMBER 31, 1998
Managed by:
L. Roy Papp & Associates
6225 North 24th Street
Suite 150
Phoenix, AZ 85016
(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
CHART
AVERAGE ANNUAL TOTAL RETURN
1 Year Since Inception
Papp America-Pacific Rim Fund 28.7% 28.0%
Morgan Stanley World Index 24.3% 21.2%
Year Papp America-Pacific Rim Fund Morgan Stanley World Index
3/14/97 10,000 10,000
1997 12,110 11,370
1998 15,585 14,130
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 24% of the
earnings of the companies in the Fund's portfolio are derived from Pacific Rim
sources, 29% are derived from other foreign sources, and 47% are derived from
United States sources. All values shown include reinvested dividends.
2
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PAPP AMERICA-PACIFIC RIM FUND, INC.
Dear Fellow Shareholder:
Despite the surrender of the pundits who were convinced the economic situation
in Asia was unsolvable and that American companies doing business in that part
of the world were doomed to failure, our America-Pacific Rim Fund had a fine
experience in 1998. For the year we were up 28.7% while the Morgan Stanley World
Index, against which we measure ourselves, was up 24.3%. Our investment results
were slightly better than those of the Standard & Poor's 500 Stock Index, a feat
accomplished by very few stock mutual funds in 1998.
With only a few exceptions, our companies, most of which do a substantial amount
of business in Asia, managed to increase their earnings in 1998. We expect this
to continue in 1999, helped by improving economics in that part of the world as
well as a somewhat weaker dollar as measured against local currencies.
We continue to emphasize those United States companies that have demonstrated
their clear leadership in the fastest growing areas of medical and electronic
technology. In the medical area we own Warner Lambert and Johnson & Johnson,
both of which are innovative powerhouses, as well as Medtronic and Stryker which
are specialty producers of products in great demand throughout the world. In the
field of electronic technology, we own Intel, whose product is widely used, and
we also own American Power Conversion, a smaller company which manufactures
surge protectors, a product in great demand in countries where computers must be
protected against frequent brownouts.
You have heard a great deal about the problems in Indonesia and Malaysia, but
these nations account for only a tiny fraction of our Asian trade. You have
heard much less about China and Japan. The former continues to grow its economy,
albeit at a slower pace than it has in recent years. The latter has been in its
own version of recession for a number of years, but remains the world's second
largest economy and its recession can best be described as a return to reason in
areas such as real estate and other goods and services where Japan's own
citizens cannot buy as cheaply as foreigners.
We still believe the next century will be Asia's. The Chinese, Koreans, and
Japanese are hardworking and competitive. To a large extent they dominate the
economies of Indonesia, the Philippines, and Malaysia. They are the backbone of
Hong Kong and Singapore. They need the products of our superior technology so
that they can effectively compete. They want to be a part of the inevitable
globalization.
Warmest regards,
L. Roy Papp, Chairman
February 1, 1999
3
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PAPP AMERICA-PACIFIC RIM FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Number Market
Common Stocks of Shares Value
<S> <C> <C>
Industrial Services (20.8%)
Air Express International
(Air freight forwarding) 20,000 $ 435,000
Expeditors International of Washington, Inc.
(International air freight forwarding) 10,500 441,000
G & K Services, Inc. Class A
(Uniform rental service) 18,500 985,125
-------------
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 15,000 1,196,250
-------------
3,057,375
-------------
Electrical Equipment (15.0%)
American Power Conversion *
(Leading producer of uninterruptible power supply products) 26,000 1,259,375
Molex, Inc.
(Supplier of electrical, electronic, and fiber optic
interconnection products and systems) 30,000 945,000
-------------
2,204,375
-------------
Medical Products (14.7%)
Medtronic, Inc.
(Manufacturer of implantable biomedical devices) 13,400 994,950
Safeskin Corp. *
(Manufacturer of hypoallergenic disposable latex
examination gloves) 20,000 482,500
Stryker Corp.
(Developer and manufacturer of surgical and medical devices) 12,500 688,281
-------------
2,165,731
-------------
Financial Services (14.7%)
American International Group
(Major international insurance holding company) 9,000 869,625
General Electric Co.
(Diversified financial and industrial company) 5,500 561,344
State Street Corporation
(Provider of U.S. and global securities custodial services) 10,500 730,406
-------------
2,161,375
-------------
Computer Equipment (12.3%)
Hewlett-Packard Company
(Manufacturer of printers, computers, and medical
electronic equipment) 8,500 580,656
Intel Corporation
(Manufacturer of microprocessors, microcontrollers,
and memory chips) 10,400 1,233,050
-------------
1,813,706
-------------
*Non-income producing security.
The accompanying notes are an integral part of this financial statement.
5
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PAPP AMERICA-PACIFIC RIM FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
Number Market
Common Stocks (continued) of Shares Value
Pharmaceutical (8.9%)
Astra AB
(International pharmaceutical company) 15,000 $ 310,313
Eli Lilly and Co.
(Healthcare products) 6,200 551,025
Warner-Lambert Company
(Pharmaceutical and consumer products) 6,000 451,125
-------------
1,312,463
-------------
Restaurants (5.7%)
McDonald's Corporation
(Fast food restaurants and franchising) 11,000 842,875
-------------
Telecommunications (4.8%)
L. M. Ericsson Telephone AB
(Manufacturer of telecom systems and cellular handsets) 20,000 478,750
Hong Kong Telecommunications Ltd.
(International telecommunications services) 13,000 228,313
-------------
707,063
-------------
Consumer Products (2.2%)
Mattel, Inc.
(Toy manufacturer) 14,000 319,375
-------------
Total Common Stocks - 99.1% 14,584,338
Cash and Other Assets, Less Liabilities - 0.9% 121,492
-------------
Net Assets - 100.0% $ 14,705,830
=============
Net Asset Value Per Share
(Based on 944,775 shares outstanding at December 31, 1998) $ 15.57
=============
*Non-income producing security
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE>
PAPP AMERICA-PACIFIC RIM FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
---- ----
<S> <C> <C>
Investment in securities at market value (original
cost $10,351,153 and $13,296,858 at December 31,
1998 and 1997, respectively) (Note 1) $ 14,584,338 $ 13,696,938
Cash 194,464 30,164
Dividends and interest receivable 13,729 21,577
---------------- ----------------
Total assets $ 14,792,531 $ 13,748,679
================ ================
LIABILITIES
Payable for investment securities purchased $ 73,500 $ 7,290
Redemptions payable 13,201 -
---------------- ----------------
Total liabilities $ 86,701 $ 7,290
================ ================
NET ASSETS
Paid-in capital $ 10,846,991 $ 13,340,412
Accumulated undistributed net realized loss
on sale of investments (310,322) -
Accumulated undistributed net investment (loss) income (64,024) 897
Net unrealized gain on investments 4,233,185 400,080
---------------- ----------------
Net assets applicable to Fund shares outstanding $ 14,705,830 $ 13,741,389
=============== =================
Fund shares outstanding 944,775 1,135,717
================ ================
Net Asset Value Per Share (net assets/shares
outstanding) $ 15.57 $ 12.10
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
PAPP AMERICA-PACIFIC RIM FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM MARCH 14, 1997 THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 105,405 $ 83,072
Interest 7,005 9,418
Foreign taxes withheld (2,089) (382)
------------- -------------
Total investment income 110,321 92,108
------------- -------------
EXPENSES:
Management fee (Note 3) 140,635 77,151
Filing fees 31,885 17,345
Accounting fees 7,500 2,546
Custodial fees 5,609 6,102
Legal fees 4,811 5,020
Directors' attendance fees 2,300 1,200
Other fees 4,366 794
------------- -------------
Total expenses 197,106 110,158
------------- -------------
Less fees waived by adviser (Note 3) (21,864) (21,456)
------------- -------------
Net expenses 175,242 88,702
------------- -------------
Net investment (loss)/income (64,921) 3,406
------------- -------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS:
Proceeds from sales of securities 4,544,223 1,172,305
Cost of securities sold (4,854,545) (1,162,759)
-------------- --------------
Net realized (loss)/gain on investments sold (310,322) 9,546
Net change in unrealized gain on investments 3,833,105 400,080
------------- -------------
Net realized and unrealized gain on investments 3,522,783 409,626
------------- -------------
Net increase in net assets resulting from operations $ 3,457,862 $ 413,032
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
PAPP AMERICA-PACIFIC RIM FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM MARCH 14, 1997 THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (64,921) $ 3,406
Net realized (loss)/gain on investments sold (310,322) 9,546
Net change in unrealized gain on investments 3,833,105 400,080
--------------- --------------
Increase in net assets resulting from
operations 3,457,862 413,032
--------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
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 4,267,258 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 (6,760,679) (2,571,490)
--------------- --------------
(Decrease)/increase in net assets resulting
from shareholder transactions (2,493,421) 13,341,309
--------------- --------------
Total increase in net assets 964,441 13,741,389
Net assets at beginning of the period 13,741,389 -
--------------- --------------
Net assets at end of period $ 14,705,830 $ 13,741,389
=============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
PAPP AMERICA-PACIFIC RIM FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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.
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>
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.
Dividends and distributions payable to its shareholders are recorded by the Fund
on the ex-dividend date.
On December 19, 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.
(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 $21,864 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.
11
<PAGE>
(4) PURCHASES AND SALES OF SECURITIES:
For the years ended December 31, investment transactions excluding short-term
investments were as follows:
1998 1997
---- ----
Purchases at cost $ 1,908,840 $14,459,596
Sales 4,544,223 1,172,305
(5) CAPITAL SHARE TRANSACTIONS:
At December 31, 1998, 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, 1998
Shares issued $ 4,267,258 320,978
Dividends and distributions reinvested - -
Shares redeemed (6,760,679) (511,920)
------------- -------------
Net decrease $ (2,493,421) (190,942)
============= =============
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 at December 31:
1998 1997
---- ----
Market value $ 14,584,338 $ 13,696,938
Original cost (10,351,153) (13,296,858)
--------------- ---------------
Net unrealized appreciation $ 4,233,185 $ 400,080
============== ==============
As of December 31, 1998, gross unrealized gains on investments in which market
value exceeded cost totaled $4,523,937 and gross unrealized losses on
investments in which cost exceeded market value totaled $290,752.
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.
<TABLE>
<CAPTION>
Year Ended December 31, Period Ended December 31,
1998 1997
---------------------- -------------------------
<S> <C> <C>
Net asset value, beginning
of period (A) $ 12.10 $ 10.00
Income from investment
operations:
Net investment income (.06) -
Net realized and unrealized
gain (loss) on investments 3.53 2.11
-------- ---------
Total from investment
operations 3.47 2.11
Less Distributions:
Dividend from investment
income - -
Distribution of net realized
gain - (.01)
-------- -----------
Total Distributions - (.01)
Net asset value, end of period $ 15.57 $ 12.10
======== =========
Total return 28.68% 21.11%
======== =========
Ratios/Supplemental Data:
Net assets, end of period 14,705,830 $13,741,389
Expenses to average
net assets (B) 1.25% 1.25%*
Net investment income to
average net assets (C) .79% 1.30%*
Portfolio turnover rate 13.73% 14.30%
Average commission per share $ 0.0556 $ 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 1.41% and 1.55%, for the year ended December 31, 1998 and
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 $1.3
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 44 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
21 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
Treasurer - Rosellen C. Papp
Assistant Treasurer - Julie A. Hein
Investment Adviser
L. Roy Papp & Associates
6225 North 24th Street, Suite 150
Phoenix, Arizona 85016
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
6225 North 24th Street, Suite 150
Phoenix, Arizona 85016
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.
15
