THE PAPP FAMILY OF FUNDS
Papp Stock Fund, Inc.
Papp America-Abroad Fund, Inc.
Papp America-Pacific Rim Fund, Inc.
Papp Focus Fund, Inc.
Papp Small & Mid-Cap Growth Fund, Inc.
PROSPECTUS
May 1, 1999
6225 North 24th Street - Suite #150
Phoenix, Arizona 85016
(602) 956-1115
(800) 421-4004
No sales or redemption charges
(Pure no-load funds)
Email: [email protected]
Internet: http://www.roypapp.com
The Securities and Exchange Commission has not approved or disapproved
these securities or determined whether this prospectus is accurate or
complete. Anyone who tells you otherwise is committing a crime.
<PAGE>
Table of Contents
PAGE
PAPP STOCK FUND...............................................................1
PAPP AMERICA-ABROAD FUND......................................................3
PAPP AMERICA-PACIFIC RIM FUND.................................................5
PAPP FOCUS FUND...............................................................7
PAPP SMALL & MID-CAP GROWTH FUND..............................................8
INVESTMENT OBJECTIVES AND METHODS.............................................9
RISK FACTORS.................................................................11
PURCHASING SHARES............................................................12
REDEEMING SHARES.............................................................13
DETERMINATION OF NET ASSET VALUE.............................................14
MANAGEMENT...................................................................14
DISTRIBUTIONS................................................................15
FEDERAL INCOME TAX...........................................................15
FINANCIAL HIGHLIGHTS.........................................................15
i
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PAPP STOCK FUND
INVESTMENT OBJECTIVE
Papp Stock Fund invests with the objective of long-term capital growth.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is designed to provide a comprehensive investment for the common
stock portion of an investment program. The Fund purchases and retains a
diversified high quality group of common stocks of companies traded in the
United States. The Fund usually invests in large or mid-sized companies, but may
invest in companies of any size. In choosing stocks, the Fund looks for
companies that it regards as having excellent prospects for capital appreciation
at a price, relative to the market as a whole, that does not fully reflect the
superiority of that particular company.
RISKS YOU SHOULD CONSIDER
Because the Fund invests primarily in common stocks, your investment is
subject to certain risks. In the short-term, stock prices may fluctuate widely
in response to company, market or economic news. The Fund does not pursue
income, and is not, alone or together with the other Papp Funds, a balanced
investment plan. You can lose money by investing in the Fund.
HOW DO I KNOW IF THE FUND IS RIGHT FOR ME?
The Fund is appropriate for shareholders who are long-term investors and
who are willing to accept fluctuations in share price.
The Fund is not appropriate for investors who need regular income, have a
short-term investment horizon or who are unwilling to accept possible losses.
HOW THE FUND HAS PERFORMED
The following bar chart shows the year-to-year performance of the Fund
since January 1, 1990. The following table shows the Fund's average annual total
return for the one and five year periods ended December 31, 1998, and since the
Fund's initial offering on November 29, 1989, as compared to a broad-based
market index. This information is intended to help you assess the variability of
Fund returns over the periods indicated. Returns include the reinvestment of
dividends and distributions. Of course, past performance does not guarantee
future results. The principal value and return on your investment will fluctuate
and on redemption may be worth more or less than your original cost.
CHART
ANNUAL TOTAL RETURNS
1990 1991 1992 1993 1994 1995 1996 1997 1998
2.8% 33.8% 13.5% 1.7% -1.5% 32.9% 21.8% 33.1% 2.0%
Since the Fund's initial offering on November 29, 1989, its best and worst
quarterly returns were:
o Best quarterly return - 23.5%,
during the quarter ended December 31, 1998
o Worst quarterly return - (16.7)%,
during the quarter ended September 30, 1990
Average Annual Total Returns for the Periods Ended
December 31, 1998
- ------------------------------------------------------------
Since Inception
1 Year 5 Years November 29, 1989
- ------------------------------------------------------------
Fund 27.0% 21.9% 17.8%
S&P 500* 28.6% 24.1% 18.3%
- -----------------
* The S&P 500 Index is an unmanaged market-weighted index that includes the
stocks of the 500 largest U.S. companies.
1
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FUND FEES AND EXPENSES
The following table describes the fees and expenses that you may pay if you
invest in shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Paid directly from your investment.
Maximum sales load.................................None
Deferred sales load................................None
Redemption fees....................................None
Exchange fees......................................None
ANNUAL FUND OPERATING EXPENSES
Deducted from Fund assets.
Management fee.....................................1.00%
12b-1 fee..........................................None
Other expenses ....................................0.10%
Total annual Fund operating expenses...............1.10%
EXAMPLE
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 year....................... $116
3 years...................... $361
5 years...................... $624
10 years..................... $1376
This example is not meant to suggest actual or expected costs or returns, which
may be more or less than the amounts shown.
AVAILABILITY
Papp Stock Fund is available to the residents of all 50 states.
2
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PAPP AMERICA-ABROAD FUND
INVESTMENT OBJECTIVE
Papp America-Abroad Fund invests with the objective of long-term capital
growth.
PRINCIPAL INVESTMENT STRATEGIES
America-Abroad Fund is a way to invest "internationally" without leaving
the United States. The Fund invests in common stocks of U.S. companies that have
substantial international activities, and in common stocks of foreign companies
that are traded in the U.S.
The Fund usually invests at least 70% of its common stock assets in U.S.
companies that satisfy one of the following criteria:
o At least 35% of its aggregate reported sales and other revenues, or of its
reported operating earnings, were classified by the company as "foreign",
"international" or "outside the U.S.", or
o At least 25% of its aggregate reported revenues, operating earnings, or
identifiable assets were classified as foreign, and had doubled in amount over
the past five years, and the Fund's investment adviser believes that prospects
are excellent for a continuing large increase over the company's next five
fiscal years.
The Fund may invest up to 30% of its common stock assets in stocks of
foreign companies that are traded in the U.S.
In choosing stocks, the Fund's Adviser looks for companies that it regards
as having excellent prospects for capital appreciation at a price, relative to
the market as a whole, that does not fully reflect the superiority of that
particular company.
RISKS YOU SHOULD CONSIDER
The Fund invests primarily in common stocks. In the short-term, stock
prices may fluctuate widely in response to company, market or economic news. You
can lose money by investing in the Fund. The Fund does not pursue income, and is
not, alone or together with the other Papp Funds, a balanced investment plan.
Because it invests primarily in companies with foreign business interests,
investing in the Fund may be riskier in some ways than investing in companies
whose operations are in the U.S. only. Certain political and economic risks may
affect the Fund's portfolio companies, especially those with commitments in
developing countries. These risks include: foreign controls over currency
exchange; restrictions on monetary repatriation; oppressive regulation;
differing tax systems among countries, with differing consequences to portfolio
companies; possible seizure, nationalization or expropriation of assets; and
political, economic or social instability.
If the Fund invests directly in foreign companies, even through U.S. traded
securities, the Fund would also have risks related to: less governmental
supervision of issuers of securities; limited publicly available corporate
information; varying accounting, auditing and financial reporting standards and
financial statements among countries; and difficulties in obtaining legal
recourse and enforcing judgments abroad.
HOW DO I KNOW IF THE FUND IS RIGHT FOR ME?
The Fund is appropriate for shareholders who are long-term investors and
who are willing to accept fluctuations in share price.
The Fund is not appropriate for investors who need regular income, have a
short-term investment horizon or who are unwilling to accept possible losses.
3
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HOW THE FUND HAS PERFORMED
The following bar chart shows the year-to-year performance of the Fund
since January 1, 1992. The following table shows the Fund's average annual total
return for the one and five year periods ended December 31, 1998, and since the
Fund's initial offering on December 6, 1991, as compared to a broad-based market
index. This information is intended to help you assess the variability of Fund
returns over the periods indicated. Returns include the reinvestment of
dividends and distributions. Of course, past performance does not guarantee
future results. The principal value and return on your investment will fluctuate
and on redemption may be worth more or less than your original cost.
CHART
ANNUAL TOTAL RETURNS
1992 1993 1994 1995 1996 1997 1998
7.4% -0.1% 7.8% 37.1% 27.7% 29.9% 23.8%
Since the Fund's initial offering on December 6, 1991, the Fund's best and
worst quarterly returns were:
o Best quarterly return - 27.8%,
during the quarter ended December 31, 1998
o Worst quarterly return - (12.6)%,
during the quarter ended September 30, 1998
Average Annual Total Returns for the Periods Ended
December 31, 1998
- ------------------------------------------------------------
Since Inception
1 Year 5 Years December 6, 1991
- ------------------------------------------------------------
Fund 23.8% 24.9% 19.8%
Morgan Stanley
World Index* 24.3% 15.8% 14.4%
- -----------------
* The Morgan Stanley World Index is an unmanaged, market-weighted index that
includes 50% foreign companies and 50% U.S. companies.
FUND FEES AND EXPENSES
The following table describes the fees and expenses that you may pay if you
invest in shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Paid directly from your investment.
Maximum sales load.................................None
Deferred sales load................................None
Redemption fees....................................None
Exchange fees......................................None
ANNUAL FUND OPERATING EXPENSES
Deducted from Fund assets.
Management fee.....................................1.00%
12b-1 fee..........................................None
Other expenses ....................................0.08%
Total annual Fund operating expenses...............1.08%
EXAMPLE
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 year....................... $113
3 years...................... $354
5 years...................... $613
10 years..................... $1354
This example is not meant to suggest actual or expected costs or returns, which
may be more or less than the amounts shown.
AVAILABILITY
Papp America-Abroad Fund is available to the residents of all 50 states.
4
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PAPP AMERICA-PACIFIC RIM FUND
INVESTMENT OBJECTIVE
Papp America-Pacific Rim Fund invests with the objective of long-term
capital growth resulting to a considerable extent from the international
activities, particularly in the Pacific Rim nations, of its portfolio companies.
PRINCIPAL INVESTMENT STRATEGIES
Papp America-Pacific Rim Fund is a way to emphasize investments in the
Pacific Rim region, without leaving the United States. The Fund invests in
companies that have substantial sales to, and receive significant income from,
countries within the Pacific Rim.
The Fund usually invests at least 65% of its common stock assets in U.S.
companies that satisfy one of the following criteria:
o 50% or more of its earnings or sales are attributed to, or assets are
situated in, Pacific Rim countries including the U.S., and
o 15% or more of its earnings or sales are attributed to, or assets are
situated in, Pacific Rim countries outside the U.S.
The Fund may also invest in U.S. companies that, in the opinion of the Fund's
investment adviser, will soon meet these criteria.
The Fund may invest up to 30% of its common stock assets in foreign companies
traded in the U.S. which derive 15% or more of their earning or sales from the
Pacific Rim, or which have 15% or more of their assets located in Pacific Rim
countries.
In choosing investments, the Fund's Adviser looks for stocks of companies
that it regards as having excellent prospects for capital appreciation at a
price, relative to the market as a whole, that does not fully reflect the
superiority of that particular company.
RISKS YOU SHOULD CONSIDER
The Fund invests primarily in common stocks. In the short-term, stock
prices may fluctuate widely in response to company, market or economic news. You
can lose money by investing in the Fund. The Fund does not pursue income, and is
not, alone or together with the other Papp Funds, a balanced investment plan.
Because it invests primarily in companies with foreign business interests,
investing in the Fund may be riskier in some ways than investing in companies
whose operations are in the U.S. only. Certain political and economic risks may
affect the Fund's portfolio companies, especially those with commitments in
developing countries. These risks include: foreign controls over currency
exchange; restrictions on monetary repatriation; oppressive regulation;
differing tax systems among countries, with differing consequences to portfolio
companies; possible seizure, nationalization or expropriation of assets; and
political, economic or social instability.
If the Fund invests directly in foreign companies, even through U.S. traded
securities, the Fund would also have risks related to: less governmental
supervision of issuers of securities; limited publicly available corporate
information; varying accounting, auditing and financial reporting standards and
financial statements among countries; and difficulties in obtaining legal
recourse and enforcing judgments abroad. In addition, the Fund's emphasis on
companies with significant earnings, sales or assets in Pacific Rim countries
outside the U.S. makes the Fund more vulnerable to potential adverse economic or
market developments affecting that region than would be the case for a fund
investing in companies with broader geographic diversification of their
businesses.
HOW DO I KNOW IF THE FUND IS RIGHT FOR ME?
The Fund is appropriate for shareholders who are long-term investors and
who are willing to accept fluctuations in share price.
The Fund is not appropriate for investors who need regular income, have a
short-term investment horizon or who are unwilling to accept possible losses.
5
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HOW THE FUND HAS PERFORMED
The following bar chart shows the year-to-year performance of the Fund for
1998. The following table shows the Fund's average annual total return for the
one year period ended December 31, 1998, and since the Fund's initial offering
on March 14, 1997, as compared to a broad-based market index. This information
is intended to help you assess the variability of Fund returns over the periods
indicated. Returns include the reinvestment of dividends and distributions. Of
course, past performance does not guarantee future results. The principal value
and return on your investment will fluctuate and on redemption may be worth more
or less than your original cost.
CHART
ANNUAL TOTAL RETURNS
1998
28.7%
Since the initial offering on March 14, 1997, the Fund's best and worst
quarterly returns were:
o Best quarterly return: 26.9%,
during the quarter ended December 31, 1998
o Worst quarterly return: (9.5)%,
during the quarter ended September 30, 1998
Average Annual Total Returns for the Periods Ended December
31, 1998
- -------------------------------------------------------------
Since Inception
1 Year March 14, 1997
- -------------------------------------------------------------
Fund 28.7% 28.0%
Morgan Stanley
World Index* 24.3% 21.2%
- -----------------
* The Morgan Stanley World Index is an unmanaged, market-weighted index that
includes 50% foreign companies and 50% U.S. companies.
FUND FEES AND EXPENSES
The following table describes the fees and expenses that you may pay if you
invest in shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Paid directly from your investment.
Maximum sales load.................................None
Deferred sales load................................None
Redemption fees....................................None
Exchange fees......................................None
ANNUAL FUND OPERATING EXPENSES
Deducted from Fund assets.
Management fee.....................................1.00%
12b-1 fee..........................................None
Other expenses ....................................0.41%
------
Total annual Fund operating expenses (gross).......1.41
Expense Reimbursement.............................(0.16)%*
------
Total annual Fund operating expenses (net).........1.25%
- -----------------------
* The investment adviser has agreed to reimburse the Fund to the extent the
Fund's regular operating expenses during any fiscal year exceed 1.25% of its
average daily net asset value in such year. This limitation can not be changed
without shareholder approval.
EXAMPLE
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 year....................... $131
3 years...................... $408
5 years...................... $706
10 years..................... $1552
This example is not meant to suggest actual or expected costs or returns, which
may be more or less than the amounts shown.
AVAILABILITY
Papp America-Pacific Rim Fund is available to the residents of all 50
states.
6
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PAPP FOCUS FUND
INVESTMENT OBJECTIVE
Papp Focus Fund seeks long-term capital growth.
PRINCIPAL INVESTMENT STRATEGIES
Papp Focus Fund makes substantial investments in a relatively small number
of companies. The Fund usually owns stocks in 16 or fewer companies, although it
sometimes may own more.
In choosing investments, the Fund looks for stocks of companies that it
regards as having excellent prospects for capital appreciation at a price,
relative to the market as a whole, that does not fully reflect the superiority
of that particular company.
RISKS YOU SHOULD CONSIDER
The Fund invests primarily in common stocks. In the short-term, stock
prices may fluctuate widely in response to company, market or economic news. You
can lose money by investing in the Fund. The Fund does not pursue income, and is
not, alone or together with the other Papp Funds, a balanced investment plan.
The Fund's strategy of investing in a limited number of stocks may increase
the volatility of the Fund's investment performance as compared to funds that
invest in a larger number of stocks. If the stocks in which the Fund invests
perform poorly, the Fund could incur greater losses than it might have had it
invested in a larger number of stocks.
HOW DO I KNOW IF THE FUND IS RIGHT FOR ME?
The Fund is appropriate for shareholders who are long-term investors and
who are willing to accept fluctuations in share price.
The Fund is not appropriate for investors who need regular income, have a
short-term investment horizon or who are unwilling to accept possible losses.
FUND FEES AND EXPENSES
The following table describes the fees and expenses that you may pay if you
invest in shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Paid directly from your investment.
Maximum sales load.................................None
Deferred sales load................................None
Redemption fees....................................None
Exchange fees......................................None
ANNUAL FUND OPERATING EXPENSES
Deducted from Fund assets.
Management fee.....................................1.00%
12b-1 fee..........................................None
Other expenses ....................................0.38%
------
Total annual Fund operating expenses (gross).......1.38%
Expense Reimbursement.............................(0.13)%*
------
Total annual Fund operating expenses (net).........1.25%
- -----------------------
* The investment adviser has agreed to reimburse the Fund to the extent the
Fund's regular operating expenses during any fiscal year exceed 1.25% of its
average daily net asset value in such year. This limitation can not be changed
without shareholder approval.
EXAMPLE
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 year....................... $131
3 years...................... $408
This example is not meant to suggest actual or expected costs or returns, which
may be more or less than the amounts shown.
AVAILABILITY
Shares of Papp Focus Fund are available to persons residing in certain
states only. Contact the Fund to determine whether the Fund is available for
residents of your state.
7
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PAPP SMALL & MID-CAP GROWTH FUND
INVESTMENT OBJECTIVE
Papp Small & Mid-Cap Growth Fund's investment objective is long-term
capital growth.
PRINCIPAL INVESTMENT STRATEGIES
Papp Small & Mid-Cap Growth Fund invests primarily in the stocks of small
and medium sized companies.
In choosing investments, the Fund looks for the stocks of companies that it
regards as having excellent prospects for capital appreciation at a price,
relative to the market as a whole, that does not fully reflect the superiority
of that particular company.
RISKS YOU SHOULD CONSIDER
The Fund invests primarily in common stocks. In the short-term, stock
prices may fluctuate widely in response to company, market or economic news.
When you sell your shares, they may be worth more or less than you paid for
them. You can lose money by investing in the Fund. The Fund does not pursue
income, and is not, alone or together with the other Papp Funds, a balanced
investment plan. There can be no assurance that the Fund will achieve its
investment objective.
The stocks of small and medium-sized companies are often more volatile than
the stocks of larger companies. Further, a company with only one or several
product lines is vulnerable to the entrance of a substantial competitor. Small
and medium-sized companies, as compared to larger companies, may have a shorter
history of operations, may not have as great an ability to raise additional
capital, and may have a smaller public market for their shares.
HOW DO I KNOW IF THE FUND IS RIGHT FOR ME?
The Fund is appropriate for shareholders who are long-term investors and
who are willing to accept fluctuations in share price.
The Fund is not appropriate for investors who need regular income, have a
short-term investment horizon or who are unwilling to accept possible losses.
FUND FEES AND EXPENSES
The following table describes the fees and expenses that you may pay if you
invest in shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Paid directly from your investment.
Maximum sales load................................None
Deferred sales load...............................None
Redemption fees...................................None
Exchange fees.....................................None
Management fee.....................................1.00%
12b-1 fee..........................................None
Other expenses ....................................1.50%*
------
Total annual Fund operating expenses (gross)...... 2.50
Expense Reimbursement.............................(1.25)%
------
Total annual Fund operating expenses (net).........1.25%
- -----------------------
* In the absence of an operating history, the amount shown for "other expenses"
is the estimated amount that the Fund will incur. The investment adviser has
agreed to reimburse the Fund to the extent the Fund's regular operating expenses
during any fiscal year exceed 1.25% of its average daily net asset value in such
year. This limitation can not be changed without shareholder approval. The
investment adviser has agreed to pay all organizational expenses, and the Fund
will not reimburse such expenses.
EXAMPLE
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
1 year....................... $131
3 years...................... $408
This example is not meant to suggest actual or expected costs or returns, which
may be more or less than the amounts shown.
AVAILABILITY
Shares of Papp Small & Mid-Cap Growth Fund are available to persons
residing in certain states only. Contact the Fund to determine whether the Fund
is available for residents of your state.
8
<PAGE>
INVESTMENT OBJECTIVES AND METHODS
INVESTMENT OBJECTIVES AND METHODS APPLICABLE TO ALL FUNDS
All of the Papp Funds invest with the objective of long-term capital
growth. A Fund's investment objective may not be changed without the approval of
a majority of the Fund's outstanding shares.
The Papp Funds invest in different ways, but each follows the basic
Papp investment strategy -- each Fund tries to purchase the shares of companies
that it regards as having excellent prospects for capital appreciation at a
price, relative to the market as a whole, that does not fully reflect the
superiority of that particular company. The Funds measure a company's prospects
for capital appreciation on an overall basis by such considerations as growth
over extended periods of time, above-average profitability created through
operating efficiency rather than financial leverage, and cash flows that appear
to confirm the sustainability of growth.
The Papp Funds are "buy and hold" investors. Once a security is
purchased, the Funds ordinarily keep it so long as the investment adviser
believes that the prospects for appreciation continue to be favorable and that
the securities are not overvalued in the marketplace. As a result, although the
Funds' portfolio turnover rates will vary, they are not ordinarily more than 25%
annually (50% in the case of Papp Focus Fund and Papp Small & Mid-Cap Growth
Fund).
The Funds are not market-timers. They usually stay substantially fully
invested in common stocks, except for the cash and cash equivalents they expect
to need to pay their expenses and meet redemptions. The Funds, however, may from
time to time, take temporary defensive positions that are inconsistent with
these principal investment strategies. If the adviser believes a temporary
defensive position is necessary in view of market conditions, each Fund may hold
cash or invest up to 100% of its assets in high-quality short-term government or
corporate obligations. Taking a temporary defensive position may prevent a Fund
from achieving its investment objective.
PAPP STOCK FUND
Stock Fund invests in common stocks. The Fund may invest up to 5% of
its net assets in securities convertible into common stocks. There is no
restriction on the size of the companies in which Stock Fund may invest, but it
usually invests in large or mid-sized companies. The Fund considers large and
mid-sized companies to be those at least as large as the companies included in
the S&P Mid-Cap 400 Stock Index, which ranged from $170 million to $14.4 billion
at March 31, 1999.
PAPP AMERICA-ABROAD FUND
America-Abroad Fund invests in common stocks of United States
enterprises that have substantial international activities and common stocks of
foreign enterprises that are traded publicly in the United States. The Fund
usually invests at least 70% of its common stock assets in United States
companies that satisfy one of the following criteria:
o At least 35% of its aggregate reported sales and other revenues,
or of its reported operating earnings, were classified by the
company as "foreign", "international" or "outside the United
States", or
o At least 25% of any one of its aggregate reported revenues,
operating earnings, or identifiable assets were classified as
foreign, and had doubled in amount over the past five years, and
the Fund's investment adviser believes that prospects are
excellent for a continuing large increase over the company's next
five fiscal years.
9
<PAGE>
The Fund relies on the annual geographic segment data published and
provided by companies to determine which companies meets these criteria.
America-Abroad Fund may invest up to 30% of its common stock assets in
foreign companies that are traded in the United States.
PAPP AMERICA-PACIFIC RIM FUND
America-Pacific Rim Fund invests in common stocks of companies that
appear to have substantial sales to and receive significant income from
countries within the Pacific Rim (defined as those countries bordering the
Pacific Ocean). The Fund usually invests at least 65% of its total assets in
United States companies that meet the following criteria:
o 50% or more of their earnings or sales are attributed to, or
assets are situated in, Pacific Rim countries including the
United States, and
o 15% or more of their earnings or sales are attributed to, or
assets are situated in, Pacific Rim countries outside the
United States.
In addition (and not included toward the 65% discussed in the preceding
sentence) the Fund may invest in United States companies that, in the opinion of
the Fund's investment adviser, will soon meet these criteria.
In determining which United States companies are eligible for inclusion
in the Fund's portfolio, the Fund's investment adviser relies largely on
published annual geographic data provided by many multinational companies.
However, many companies do not separately report earnings by geographic source.
As a result, the Fund's investment adviser also relies on discussions with
officials of companies being considered for inclusion in the Fund's securities
portfolio.
The Fund may invest up to 30% of its common stock assets in foreign
companies that are traded in the United States if 15% or more of such companies'
earnings, sales, or assets can be attributed to Pacific Rim countries, excluding
the United States or, in the opinion of its investment adviser, will soon meet
these criteria.
PAPP FOCUS FUND
Focus Fund makes substantial investments in a relatively small number
of companies. The Fund usually owns stocks in 16 or fewer companies, although it
sometimes may own more.
In choosing investments, the Fund looks for stocks of companies that it
regards as having excellent prospects for capital appreciation at a price,
relative to the market as a whole, that does not fully reflect the superiority
of that particular company.
The Fund may invest up to 30% of its common stock assets in foreign
companies traded in the United States.
PAPP SMALL & MID-CAP GROWTH FUND
Small & Mid-Cap Growth Fund invests primarily in the common stocks and
securities convertible into common stocks of small and medium sized companies.
The Fund's investment adviser believes that carefully selected small and medium
sized companies offer attractive capital growth possibilities significantly
above that of the general U.S. economy. Many of those companies have developed
significant expertise in the more limited markets they serve, and are able to
increase their sales and earnings at a more rapid pace than the average company.
Further, these companies typically are subject to less Wall Street research than
larger companies and are more likely to be priced inefficiently.
10
<PAGE>
Small companies are those whose market capitalizations fall within the
range of companies in the S & P Small-Cap 600 Index (the Small-Cap Index) while
medium-sized companies are those whose market capitalizations fall within the
range of companies in the S & P Mid-Cap 400 Index (the Mid-Cap Index). As of
March 31, 1999, the Small-Cap Index included companies with capitalizations
between approximately $23 million and $3.6 billion while the Mid-Cap Index
included companies with capitalizations between approximately $170 million and
$14.4 billion. Under normal market conditions, the Fund will invest at least 65%
of its assets in small and mid-capitalization securities.
The Fund may invest a maximum of 20% of its common stock assets in
foreign domiciled companies if they are traded in the United States.
RISK FACTORS
MARKET RISK
Each of the Funds invests primarily in common stocks. In the
short-term, stock prices may fluctuate widely in response to company, market or
economic news. The Funds, alone or together, are not intended to present a
balanced investment program. They are not intended to be a vehicle for
short-term trading, but are intended for investment for the long-term. You may
receive little or no return on your investment or may lose part of your
investment and there can be no assurance that the Funds will achieve their
investment objectives.
YEAR 2000
Some of today's computer systems cannot process date-related
information because they are not programmed to distinguish between the year 2000
and the year 1900 (commonly referred to as the Year 2000 problem or Y2K). The
Papp Funds are working closely with their service providers to ensure the proper
functioning of the computer systems on which the Funds depend for smooth
operation. Based on the information currently available, the Funds do not
anticipate any material impact on the delivery of services currently provided.
Year 2000 problems may also affect the business results and prospects of
domestic and foreign issuers of stocks held by the Funds. Although the Adviser
considers the status of the issuer's preparations for the Year 2000, it has not
had a material effect on the decision to buy or sell securities thus far. There
can be no assurance, however, that the steps taken by the Papp Funds in
preparation for the year 2000 will be sufficient to avoid any adverse impact on
the Funds.
OTHER RISKS
Each of Papp America-Abroad Fund, Papp America-Pacific Rim, Papp Focus
Fund and Papp Small & Mid-Cap Growth Fund also present other risks. Below are
the additional risks of these Funds.
PAPP AMERICA-ABROAD FUND AND PAPP AMERICA-PACIFIC RIM FUND
Because the Funds invest primarily in companies with foreign business
interests (either in United States companies with substantial international
activities or foreign companies), investing in these Funds may be riskier in
some ways than investment in companies whose operations are in the U.S. only.
Certain political and economic risks may affect the Fund's portfolio companies,
especially those with commitments in developing countries. The companies in
which the Funds invest may be affected by: foreign controls over currency
exchange; restrictions on monetary repatriation; oppressive regulation;
differing tax systems among countries, with differing consequences to portfolio
companies; possible seizure, nationalization or expropriation of assets; and
political, economic or social instability.
If the Funds invest directly in foreign companies, even through U.S.
traded securities, the Funds would also have risks related to: less governmental
supervision of issuers of securities;
11
<PAGE>
limited publicly available corporate information; varying accounting,
auditing and financial reporting standards and financial statements among
countries; and difficulties in obtaining legal recourse and enforcing judgments
abroad.
Additionally, Papp America-Pacific Rim Fund's focus on companies with
significant earnings, sales or assets in Pacific Rim countries outside the
United States makes that Fund more vulnerable to potential adverse economic or
market developments affecting that region than would be the case for a fund
investing in companies with broader geographic diversification of their
businesses.
PAPP FOCUS FUND
A strategy of investing in a limited number of securities may increase
the volatility of the Fund's investment performance compared to a strategy of
investing in a larger number of securities. Since each stock may represent a
significant part of the Fund's overall portfolio, the appreciation or
depreciation of such a security will have a greater impact on the net asset
value of the Fund than it would have had if the Fund invested in a larger number
of securities. In addition, if the securities in which the Fund invests perform
poorly, the Fund could incur greater losses than it might have had it invested
in a larger number of securities. Because the Fund may invest in foreign
business interests, investing in the Fund is subject to the same risks as
investment in the Papp America-Abroad Fund.
PAPP SMALL & MID-CAP GROWTH FUND
The stocks of small and medium-sized companies often involve more
volatility and tend to be less liquid than the stocks of larger companies.
Further, a company with only one or several product lines is vulnerable to the
entrance of a substantial competitor. During some periods, the securities of
small and mid-cap companies, as a class, have performed better than the
securities of large companies and in other periods they have performed worse.
Small and mid-cap companies, as compared to larger companies, may have a shorter
history of operations, may not have as great an ability to raise additional
capital, and may have a less diversified product line - making them more
susceptible to market pressures. Also, because the Fund may invest in foreign
business interests, investing in the Fund is subject to the same risks as
investment in the Papp America-Abroad Fund.
PURCHASING SHARES
SEE THE NEW ACCOUNT PURCHASE APPLICATION ACCOMPANYING THIS PROSPECTUS.
To make an initial purchase of shares, you should complete and sign the
New Account Purchase Application and mail it, together with a check for the
total purchase price, to Papp Funds, 6225 North 24th Street, Suite 150, Phoenix,
Arizona 85016 or to P.O. Box 15508, Phoenix, Arizona 85066.
The purchase price of each Fund's shares is the net asset value per
share (NAV) next determined after receipt of the purchase order, as described
under "Determination of Net Asset Value." There are no sales loads or
commissions. The minimum initial investment to open an account is $5,000, except
for Individual Retirement Accounts (IRAs) where the minimum is $1,000. Minimum
subsequent investments in all cases are $1,000, excluding reinvestments of
dividends and capital gains distributions.
Each Fund will acknowledge your investment in shares of the Fund,
including dividends and capital gains distributions reinvested in Fund shares,
with a statement showing the number of shares you purchased, the net asset value
at which you purchased the shares, and your new balance of Fund shares owned.
The Funds do not issue stock certificates for the shares purchased. All full and
fractional shares will be carried on the books of the Funds without the issuance
of certificates.
12
<PAGE>
The Funds may authorize certain financial service companies,
broker-dealers or their designees (authorized agents) to accept purchase,
redemption, and exchange requests from their customers on whose behalf the
authorized agent holds shares of the Funds. For purchase orders placed through
an authorized agent, a shareholder will pay a Fund's NAV next computed after the
receipt by the authorized agent of such purchase order, plus any applicable
transaction charge imposed by the agent. For redemption orders placed through an
authorized agent, a shareholder will receive redemption proceeds which reflect
the NAV next computed after the receipt by the authorized agent of the
redemption order, less any redemption fees imposed by the agent.
Some financial institutions that act as the Funds' agent or that
otherwise maintain nominee accounts with the Funds for their clients for whom
they hold Fund shares might charge a fee (usually a percentage of the average
net assets held in such accounts) for accounting, shareholder servicing, and
distribution services the institution provides with respect to the underlying
Fund shares. The adviser pays these fees.
The Funds reserve the right not to accept purchase orders under
circumstances or in amounts considered disadvantageous to existing shareholders.
REDEEMING SHARES
We will redeem all or any part of shares you own upon written request
delivered to the Funds at 6225 North 24th Street, Suite 150, Phoenix, Arizona
85016, or P.O. Box 15508, Phoenix, Arizona. The redemption request must:
(1) specify the number of shares or dollar amount you want to redeem,
if less than all of your shares are to be redeemed;
(2) be signed by all owners of the shares exactly as their names
appear on our account; and
(3) include a signature guarantee in some instances. A signature
guarantee is a way to protect the Funds and their shareholders, by
guaranteeing that a person signing a request is really the person
he or she claims to be. Your signature must be guaranteed by a
bank, member firm of a national securities exchange, savings and
loan association, credit union or other entity authorized by state
law to guarantee signatures. A notary public cannot guarantee a
signature.
If you are making a redemption request on behalf of a corporation,
partnership, trust, fiduciary, executor, or administrator, you must send us
written evidence of your authority to act. Under certain circumstances, before
the shares can be redeemed, we may require additional documents to verify the
authority of the person seeking to redeem. Call 1-800-421-4004 before submitting
a redemption request if you have any questions about the documents required.
Under ordinary circumstances, a signature guarantee will not be
required. However, a signature guarantee is necessary under the following
circumstances:
(1) the redemption request exceeds $25,000.
(2) the proceeds of the redemption are requested to be sent to a
person other than the registered holder(s) of the shares to be
redeemed.
(3) the proceeds of the redemption are to be mailed to an address
other than the address of record; or
(4) a change of address request has been received by the Fund or the
Transfer Agent within the last 20 business days.
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<PAGE>
In such cases, each signature on any redemption request must be
guaranteed by a commercial bank or trust company in the United States, a member
firm of the New York Stock Exchange or other eligible guarantor institution. A
notary public is not an eligible guarantor.
The redemption price per share is net asset value determined as
described under "Determination of Net Asset Value." There is no redemption
charge. The redemption value of the shares may be more or less than your cost,
depending upon the value of a Fund's portfolio securities at the time of
redemption. If the net asset value of your account falls below $1,000 because
you sold shares, we may notify you that unless the value of your account is
increased to at least $1,000 within 60 days, we will close your account and send
the proceeds to you.
We will pay you for the shares redeemed within seven days after our
receipt of a request for redemption in good order. However, if you redeem shares
immediately after they are purchased, we may delay paying the redemption
proceeds until your check for the purchase price has been cleared, which may
take up to 15 days.
The Fund may suspend or postpone redemptions during any period when
trading on the New York Stock Exchange is restricted or as otherwise permitted
by the Securities and Exchange Commission.
DETERMINATION OF NET ASSET VALUE
A Fund's net asset value per share (NAV) is the value of a single
share. It is computed by dividing the market value of a Fund's assets, less its
liabilities, by the number of shares outstanding, and rounding the result to the
nearest full cent. The NAV 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
For purposes of computing the NAV, 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 or, if there have been no reported
sales on that day, at the most recent bid quotations. Other securities traded
over-the-counter are also 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 NAV next determined after
receipt of the order.
MANAGEMENT
INVESTMENT ADVISER
L. Roy Papp & Associates serves as investment adviser to the Funds.
Subject to the overall authority of the board of directors, the adviser
furnishes continuous investment supervision and management to the Funds under an
investment advisory agreement. L. Roy Papp & Associates is also investment
adviser to individuals, trusts, retirement plans, endowments, and foundations.
Assets under management exceed $1.2 billion. The adviser's address is
6225 North 24th Street, Suite 150, Phoenix, Arizona 85016.
PORTFOLIO MANAGERS
L. Roy Papp and Rosellen C. Papp, partners of the investment adviser,
have managed the portfolios of each Fund since each Fund's commencement. Except
for two years when he was United States director of, and ambassador to, the
Asian Development Bank, Manila, Philippines, Mr. Papp has been in the money
management field since 1955. He has been either sole proprietor of or a partner
of L. Roy Papp & Associates since 1978. Rosellen C. Papp has been the Director
of Research of L. Roy Papp & Associates since 1981.
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<PAGE>
FEES
The investment adviser receives from each of the Funds, as compensation
for its investment adviser and administrative services, a monthly fee, at an
annual rate of 1% of that Fund's average daily net assets. The adviser has
agreed to reimburse each Fund to the extent its total annual expenses, excluding
taxes, interest and extraordinary litigation expenses, during any of its fiscal
years, exceed 1.25% of its average daily net asset value in such year.
DISTRIBUTIONS
The Funds intend to distribute to shareholders substantially all net
investment income and any net capital gains realized from sales of the Funds'
portfolio securities.
The Funds automatically reinvest your dividends from net investment
income and distributions from any net realized capital gains unless you request
in writing to have them paid by check.
FEDERAL INCOME TAX
Dividends from investment income and net short-term capital gains are
taxable as ordinary income. Distributions of long-term capital gains are taxable
as long-term capital gains. The tax you pay on a capital gains distribution
depends generally on how long a Fund has held the portfolio securities it sold,
and so may qualify as long-term capital gains even if you have held your Fund
shares less than 12 months. Distributions are taxable, whether received in cash
or reinvested in shares of the Fund. The sale of shares in your account may
produce a gain or loss, and is a taxable event.
Each Fund will advise its shareholders annually of the source or
sources of distributions for federal income tax purposes. A shareholder who is
not subject to federal income taxation will not be required to pay tax on
distributions received.
If a shareholder fails to furnish his social security or other tax
identification number or to certify properly that it is correct, the Funds may
be required to withhold federal income tax at the rate of 31% ("backup
withholding") from dividend, capital gain and redemption payments to him.
Dividend and capital gain payments may also be subject to backup withholding if
the shareholder fails to certify properly that he is not subject to backup
withholding due to the under-reporting of certain income. These certifications
are contained in the New Account Purchase Application, which should be completed
and returned to the Funds when you make your initial investment.
FINANCIAL HIGHLIGHTS
The following tables are intended to help you understand each Fund's
financial performance for the past five years (or the period during which the
Fund has been in operation, if less than five years). Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned or lost on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information presented has been audited and reported on by
Arthur Andersen LLP, the Funds' independent public accountants. The report of
the independent public accountants and further information about the performance
of each Fund is contained in the Annual Report and the Statement of Additional
Information, which may be obtained from the Funds free of charge.
15
<PAGE>
PAPP STOCK FUND
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.... $29.78 $22.70 $19.29 $14.63 $14.98
Income from Investment Operations
Net investment income..................... (.09) (.04) .01 .07 .13
Net realized and unrealized gain
(loss) on investments................. 8.13 7.55 4.16 4.73 (.35)
Total from Investment Operations...... 8.04 7.51 4.17 4.80 (.22)
Less Distributions
Dividends from net investment income.. --- --- (.01) (.07) (.13)
Dividends from net realized gains
on investments........................ (.46) (.43) (.75) (.07) ---
Total Distributions....................... (.46) (.43) (.76) (.14) (.13)
Net asset value at end of period.......... $37.36 $29.78 $22.70 $19.29 $14.63
Total Return.............................. 26.99% 32.12% 21.77% 32.93% (1.46)%
Ratios/Supplemental Data
Net assets at end of period (in thousands) $98,608,333 $79,820,068 $53,277,087 $44,508,543 $36,577,759
Ratio of expenses to average net assets 1.10% 1.12% 1.16% 1.17% 1.19%
Ratio of net income to average net assets .82% 1.00% 1.19% 1.60% 2.08%
Portfolio turnover rate............... 9.74% 6.19% 14.47% 22.39% 20.00%
PAPP AMERICA ABROAD FUND
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Net asset value at beginning of period.... $25.98 $20.11 $16.47 $12.24 $11.45
Income from Investment Operations
Net investment income..................... (.05) .01 .01 .04 .10
Net realized and unrealized
gain (loss) on investments............ 6.24 6.00 4.48 4.52 .79
Total from Investment
Operations............................ 6.19 6.01 4.49 4.56 .89
Less Distributions
Dividends from net investment income.. --- (.01) (.01) (.04) (.10)
Dividends from net realized
gains on investments.................. (.04) (.13) (.84) (.29) ---
Total Distributions....................... (.04) (.14) (.85) (.33) (.10)
Net asset value at end of period.......... $32.13 $25.98 $20.11 $16.47 $12.24
Total Return.............................. 23.83% 29.92% 27.65% 37.05% 7.77%
Ratios/Supplemental Data
Net assets at end of period (in thousands) $342,814,636 $288,249,294 $29,623,497 $15,988,267 $11,573,197
Ratio of expenses to average net assets(a) 1.08% 1.11% 1.25% 1.22% 1.25%
Ratio of net income to average net assets(b) .82% 1.24% 1.30% 1.50% 2.07%
Portfolio turnover rate............... 24.97% 4.71% 12.29% 26.65% 16.00%
</TABLE>
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NOTES TO FINANCIAL HIGHLIGHTS:
* Annualized
(a) If the Fund had paid all of its expenses and there had been no
reimbursement by the investment adviser, this ratio would have been 1.30%
and 1.30% for the years ended December 31, 1996 and 1994, respectively.
(b) Computed giving effect to investment adviser's expense limitation
undertaking for periods prior to 1997.
16
<PAGE>
<TABLE>
<CAPTION>
PAPP AMERICA-PACIFIC RIM FUND
YEAR ENDED MARCH 14, 1997(a)
DECEMBER 31, 1998 TO DECEMBER 31, 1997
-------------------- ------------------------
<S> <C> <C>
Net asset value at beginning of period................... $12.10 $10.00
Income from Investment Operations
Net investment income.................................... (.06) 0.00
Net realized and unrealized gain
(loss) on investments................................ 3.53 2.11
Total from Investment Operations..................... 3.47 2.11
Less Distributions
Dividends from net investment income................. --- 0.00
Dividends from net realized gains on
investments........................................ --- (0.01)
Total Distributions.................................... --- (0.01)
Net asset value at end of period......................... $15.57 $12.10
Total Return............................................. 26.68% 21.11%
Ratios/Supplemental Data
Net assets at end of period (in thousands)............... $14,705,830 $13,741,389
Ratio of expenses to average net assets(b)........... 1.25 1.25%*
Ratio of net income to average net assets(c)......... .79 1.30%*
Portfolio turnover rate.............................. 13.73 14.30%
PAPP SMALL & MID CAP
PAPP FOCUS FUND GROWTH FUND
MARCH 2, 1998(a) DECEMBER 15, 1998(a)
TO DECEMBER 31, 1998 TO DECEMBER 31, 1997
-------------------- ------------------------
Net asset value at beginning of period................... $10.00 $15.00
Income from Investment Operations
Net investment income.................................... (.06) ---
Net realized and unrealized gain
(loss) on investments................................ 3.39 1.20
Total from Investment Operations..................... 3.33 1.20
Less Distributions
Dividends from net investment income................. --- ---
Dividends from net realized gains on
investments........................................ --- ---
Total Distributions.................................... --- ---
Net asset value at end of period......................... $13.33 $16.20
Total Return............................................. 33.30% 8.00%
Ratios/Supplemental Data
Net assets at end of period (in thousands)............... $4,031,393 $1,566,225
Ratio of expenses to average net assets.............. 1.25*(d) 1.25%*(e)
Ratio of net income to average net assets............ .70(c) 1.01%*(c)
Portfolio turnover rate.............................. 50.37% 0.00%
</TABLE>
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NOTES TO FINANCIAL HIGHLIGHTS:
* Annualized
(a) Date of commencement of operations.
(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 and 1.41%, for the year ended
December 31, 1998, respectively.
(c) Computed giving effect to investment adviser's expense limitation
undertaking.
(d) If the Fund had paid all of its expenses and there had been no
reimbursement by the investment adviser, this ratio would have been 1.38%,
for the period ended December 31, 1998.
(e) If the Fund had paid all of its expenses and there had been no
reimbursement by the investment adviser, this ratio would have been 1.56%
for the period ended December 31, 1998.
17
<PAGE>
THE PAPP FAMILY OF FUNDS
(Pure no-load funds)
Additional sources of information are available to you. The Statement
of Additional Information, incorporated by reference into this Prospectus,
contains detailed information on the Funds' policies and operation. Shareholder
reports contain management's discussion of the market conditions, investment
strategies and performance results that significantly affected each Fund's
performance as of the end of the Fund's latest semi-annual or annual fiscal year
end. You may obtain free copies of the Funds' annual and semi-annual reports,
the Statement of Additional Information, request other information and discuss
your questions about each Fund by writing or calling:
Papp Funds
6225 North 24th Street, Suite 150
Phoenix, Arizona 85016
(602)956-1115
(800)421-4004
In addition, you may obtain this and other information about each Fund
directly from the Securities and Exchange Commission (SEC). You may visit the
SEC online at http://www.sec.gov or in person at the SEC's Public Reference Room
in Washington D.C. You may also call the SEC at (800) SEC-0330, or send your
request and the appropriate duplicating fee to the SEC's Public Reference
Section, Washington, DC 20549-6009.
Stock Fund 811-05922
America-Abroad Fund 811-06402
America-Pacific Rim Fund 811-08005
Focus Fund 811-08601
Small & Mid Cap Fund 811-09055
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<PAGE>
THE PAPP FAMILY OF FUNDS
Statement of Additional Information
May 1, 1999
6225 North 24th Street - Suite #150
Phoenix, Arizona 85016
(602) 956-1115
(800) 421-4004
Email: [email protected]
Internet: http://www.roypapp.com
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus, but
provides information that should be read in conjunction with the Funds'
prospectus dated May 1, 1999 and any supplement to the prospectus. You may
obtain free copies of the prospectus by writing or calling the Funds at the
address or telephone number shown above.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
Page
Information about the Funds and Their Shares..............................2
Investment Policies.......................................................2
Investment Restrictions...................................................3
Investment Adviser........................................................6
Management of the Funds...................................................8
Principal Shareholders...................................................10
Portfolio Transactions and Brokerage.....................................11
Performance Information..................................................12
Purchasing and Redeeming Shares..........................................13
Additional Tax Information...............................................14
Custodian................................................................14
Transfer Agent...........................................................14
Financial Statements.....................................................15
- --------------------------------------------------------------------------------
<PAGE>
Information about the Funds and Their Shares
Each of the Papp Funds is a Maryland corporation: Papp Stock Fund, Inc.,
Papp America-Abroad Fund, Inc., Papp America-Pacific Rim Fund, Inc., Papp Focus
Fund, Inc. and Papp Small & Mid-Cap Growth Fund, Inc. Each Fund is an open-end
management investment company. All of the Funds are diversified except Focus
Fund which is non-diversified. Papp Stock Fund, Inc. was incorporated on
September 15, 1989, and commenced operations on November 29, 1989. Papp
America-Abroad Fund, Inc. was incorporated on August 15, 1991, and commenced
operations on December 6, 1991. Papp America-Pacific Rim Fund, Inc. was
incorporated on December 18, 1996 and commenced operations on March 14, 1997.
Papp Focus Fund was incorporated on December 17, 1997 and commenced operations
on March 2, 1998. Papp Small & Mid-Cap Growth Fund was incorporated on September
15, 1998 and commenced operations on December 15, 1998. L. Roy Papp & Associates
provides investment advisory services to the Funds.
Each share of capital stock of a Fund, $.01 par value, is entitled to
share pro rata in any dividends and other distributions on shares of that Fund
declared by its board of directors, to one vote per share in elections of
directors and other matters presented to shareholders, and to equal rights per
share in the event of liquidation.
According to Maryland law and each Fund's bylaws, the Funds are not
required to hold annual meetings of shareholders unless required to do so under
the Investment Company Act. A Fund will call a meeting of shareholders for the
purpose of voting upon the question of removal of a director or directors when
requested in writing to do so by record holders of at least 10% of that Fund's
outstanding common shares, and in connection with such meeting will comply with
the provisions of section 16(c) of the Investment Company Act concerning
assistance with a record shareholder communication asking other record
shareholders to join in that request.
Investment Policies
The Funds invest with the objective of long-term capital growth. A
Fund's investment objective may not be changed without the approval of a
majority of that Fund's outstanding shares. The investment objectives of the
Funds are more fully described in the prospectus under the caption of
"Investment Objective" for each Fund and under the caption "Investment
Objectives and Methods." The primary manner in which the Funds pursue their
investment objectives is discussed in the prospectus under the captions
"Investment Objectives and Methods" and "Risk Factors."
Temporary Investments. The Funds may, from time to time, take temporary
defensive positions that are inconsistent with their principal investment
strategies. If the adviser believes a temporary defensive position is necessary
in view of market conditions, a Fund may hold cash or invest up to 100% of its
assets in high-quality short-term government or corporate obligations. Taking a
temporary defensive position may prevent a Fund from achieving its investment
objective.
Portfolio Turnover. Each of Stock Fund, America-Abroad Fund and
America-Pacific Rim Fund expects that its annual portfolio turnover rate will
not exceed 25% under normal conditions, a turnover rate less than that of most
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<PAGE>
mutual funds that invest primarily in common stocks. Each of Focus Fund and
Small & Mid-Cap Growth Fund expects that its annual portfolio turnover rate will
not exceed 50% under normal conditions, a turnover rate less than that of most
mutual funds that invest primarily in a small number of securities or in small
and mid-capitalization securities, respectively. However, there can be no
assurance that the Funds will not exceed this rate, and the portfolio turnover
rate may vary from year to year.
Investment Restrictions
Each Fund has adopted certain fundamental investment restrictions that
may not be changed without the approval of a majority of that Fund's outstanding
shares. The Funds' fundamental investment restrictions are as follows:
Papp Stock Fund and Papp America-Abroad Fund.
Neither Fund may:
1. To the extent of 75% of its assets (valued at time of
investment), invest more than 5% of its assets (valued at such
time) in securities of any one issuer, except in obligations
of the United States Government and its agencies and
instrumentalities;
2. Acquire securities of any one issuer that at time of
investment (a) represent more than 10% of the voting
securities of the issuer or (b) have a value greater than 10%
of the value of the outstanding securities of the issuer;
3. Invest more than 5% of its assets (valued at time of
investment) in securities of issuers with less than three
years' operation (including predecessors);
4. Invest more than 5% of its assets (valued at time of investment) in
securities that are not readily marketable;
5. Invest more than 25% of its assets (valued at time of investment)
in securities of companies in any one industry;
6. Invest in repurchase agreements or reverse repurchase agreements;
7. Acquire securities of other investment companies except (a) by
purchase in the open market, where no commission or profit to
a sponsor or dealer results from such purchase other than the
customary broker's commission and (b) where the acquisition
results from a dividend or a merger, consolidation or other
reorganization [in addition to this investment restriction,
the Investment Company Act of 1940 provides that the Fund may
neither purchase more than 3% of the voting securities of any
one investment company nor invest more than 10% of the Fund's
assets (valued at time of investment) in all investment
company securities purchased by the Fund];
3
<PAGE>
8. Purchase or retain securities of a company if all of the
directors and officers of the Fund and of its investment
adviser who individually own beneficially more than 1/2% of
the securities of the company collectively own beneficially
more than 5% of such securities;
9. Borrow money except from banks for temporary or emergency
purposes in amounts not exceeding 10% of the value of the
Fund's assets at the time of borrowing (the Fund will not
purchase additional securities when its borrowings exceed 5%
of the value of its assets);
10. Pledge, mortgage or hypothecate its assets, except for temporary or
emergency purposes and then to an extent not greater than 15% of its
assets at cost;
11. Underwrite the distribution of securities of other issuers, or
acquire "restricted" securities that, in the event of a
resale, might be required to be registered under the
Securities Act of 1933 on the ground that the Fund could be
regarded as an underwriter as defined by that Act with respect
to such resale;
12. Purchase or sell real estate or interests in real estate,
although it may invest in marketable securities of enterprises
that invest in real estate or interests in real estate;
13. Purchase or sell commodities, commodity contracts or options;
14. Make margin purchases or short sales of securities;
15. Invest in companies for the purpose of management or the exercise of
control;
16. Make loans (but this restriction shall not prevent the Fund from
investing in debt securities, subject to the 5% limitation stated in
restriction 4 above);
17. Invest in or write puts, calls, straddles or spreads;
18. Invest in oil, gas or other mineral exploration or development
programs, although it may invest in marketable securities of
enterprises engaged in oil, gas or mineral exploration; and
19. Invest more than 5% of its net assets (valued at time of investment)
in warrants, nor more than 2% of its net assets in warrants that are
not listed on the New York or American Stock Exchanges.
4
<PAGE>
Papp America-Pacific Rim Fund, Papp Focus Fund and Papp Small & Mid-Cap
Growth Fund.
No Fund may:
1. (for Papp America-Pacific Rim Fund and Papp Small & Mid-Cap
Growth Fund only) To the extent of 75% of its assets (valued
at time of investment), invest more than 5% of its assets
(valued at such time) in securities of any one issuer, except
in obligations of the United States Government and its
agencies and instrumentalities;
2. Acquire securities of any one issuer that at time of
investment (a) represent more than 10% of the voting
securities of the issuer or (b) have a value greater than 10%
of the value of the outstanding securities of the issuer;
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry;
4. (for Papp America-Pacific Rim Fund only) Invest in repurchase
agreements or reverse repurchase agreements;
5. Borrow money except from banks for temporary or emergency
purposes in amounts not exceeding 10% of the value of the
Fund's assets at the time of borrowing (the Fund will not
purchase additional securities when its borrowings exceed 5%
of the value of its assets);
6. Underwrite the distribution of securities of other issuers, or
acquire "restricted" securities that, in the event of a
resale, might be required to be registered under the
Securities Act of 1933 on the ground that the Fund could be
regarded as an underwriter as defined by that Act with respect
to such resale;
7. Purchase or sell commodities, commodity contracts or options;
8. Make margin purchases or short sales of securities;
9. Invest in companies for the purpose of management or the exercise
of control;
10. (for Papp America-Pacific Rim Fund only) Make loans (but this
restriction shall not prevent the Fund from investing in debt
securities, subject to the 5% limitation stated in restriction
5 above);
(for Focus Fund and Papp Small & Mid-Cap Growth Fund
only) Make loans (but this restriction shall not prevent the
Fund from investing in debt securities); and
11. Issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
5
<PAGE>
Papp America-Pacific Rim Fund, Papp Focus Fund and Papp Small & Mid-Cap
Growth Fund have also adopted the following restrictions that may be
changed by the Board of Directors without shareholder approval:
a. Invest more than 5% of its assets (valued at time of
investment) in securities of issuers with less than three
years' operation (including predecessors);
b. (For Papp America-Pacific Rim Fund and Papp Focus Fund
only) Invest more than 5% of its assets (valued at time of
investment) in securities that are not readily marketable; and
c. Acquire securities of other investment companies except (a)
by purchase in the open market, where no commission or profit
to a sponsor or dealer results from such purchase other than
the customary broker's commission and (b) where the
acquisition results from a dividend or a merger, consolidation
or other reorganization [in addition to this investment
restriction, the Investment Company Act of 1940 provides that
the Fund may neither purchase more than 3% of the voting
securities of any one investment company nor invest more than
10% of the Fund's assets (valued at time of investment) in all
investment company securities purchased by the Fund].
Investment Adviser
L. Roy Papp & Associates provides investment advisory services to the
Funds. The adviser is an Arizona general partnership owned and controlled by its
partners, of whom there were 10 at the date of this Statement of Additional
Information: L. Roy Papp, Harry A. Papp, Robert L. Mueller, Rosellen C. Papp,
Bruce C. Williams, George D. Clark, Jr., Jeffrey N. Edwards, Robert L. Hawley,
Victoria S. Cavallero, and Julie A. Hein.
Subject to the overall authority of each Fund's board of directors, the
adviser furnishes continuous investment supervision and management to the Funds
under an investment advisory agreement. As compensation for its investment
adviser and administrative services, the investment adviser receives from each
Fund, a monthly fee, at an annual rate of 1% of that Fund's average daily net
assets. The adviser has agreed to reimburse the Funds to the extent a Fund's
total annual expenses, excluding taxes, interest and extraordinary litigation
expenses, during any of its fiscal years, exceed 1.25% of its average daily net
asset value in such year.
6
<PAGE>
The table below shows gross advisory fees paid by the Funds and any
expense reimbursements by the Adviser to them, which are described in the
prospectus.
<TABLE>
<CAPTION>
Fees Paid During Year Fees Paid During Year Fees Paid During Year
Fund Ended December 31, 1998 Ended December 31, 1997 Ended December 31, 1996
---- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Papp Stock Fund
Advisory Fee $875,849 $ 690,660 $486,360
Papp America-Abroad Fund
Advisory Fee 3,292,000 $1,599,574 $211,223
Waived 0 0 10,602
Papp America-Pacific Rim Fund
Advisory Fee 140,635 77,151* n/a
Reimbursement 21,864 21,456*
Papp Focus Fund
Advisory Fee 21,018* n/a n/a
Reimbursement 2,950*
Papp Small & Mid-Cap Growth Fund
Advisory Fee 543* n/a n/a
Reimbursement 164*
- --------------------
* From the Fund's commencement of operations.
</TABLE>
Information is indicated as not applicable ("n/a") for periods prior to a Fund's
commencement of operations.
Under the Advisory Agreements, the investment adviser furnishes at its
own expense office space to the Funds and all necessary office facilities,
equipment, and personnel for managing the assets of the Funds. The investment
adviser also pays all expenses of marketing shares of the Funds, all expenses in
determination of daily price computations, placement of securities orders and
related bookkeeping.
The Funds pay all expenses incident to their operations and business
not specifically assumed by the investment adviser, including expenses relating
to custodial, legal, and auditing charges; printing and mailing reports and
prospectuses to existing shareholders; taxes and corporate fees; maintaining
registration of the Funds under the Investment Company Act and registration of
their shares under the Securities Act of 1933; and complying with the securities
laws of certain states.
The Advisory Agreements provide that the adviser shall not be liable
for any loss suffered by the Funds or their shareholders as a consequence of any
act or omission in connection with services under the Agreement, except by
reason of the adviser's willful misfeasance, bad faith, gross negligence, or
7
<PAGE>
reckless disregard of its obligations and duties under the Advisory Agreements.
The Advisory Agreements may be continued from year to year only so long
as the continuance is approved annually (a) by the vote of a majority of the
Directors of each Fund who are not "interested persons" of the Fund or the
adviser cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board of Directors or by the vote of a majority (as
defined in the 1940 Act) of the outstanding shares of the Fund. The Agreement
will terminate automatically in the event of its assignment (as defined in the
1940 Act).
Management of the Funds
The board of directors has overall responsibility for the conduct of
each Fund's affairs. The directors of each Fund (except as noted), including
those directors who are also officers, and their principal business activities
during the past five years, are:
L. Roy Papp,* Chairman and director. Age 72. Partner, L. Roy Papp &
Associates.
Harry A. Papp,*+ CFA, President and director. Age 44. Partner, L.
Roy Papp & Associates.
Robert L. Mueller,* Vice President, Secretary and director. Age 71.
Partner, L. Roy Papp & Associates.
Rosellen C. Papp,*+ CFA, Vice President, Treasurer and director. Age
43. Partner, L. Roy Papp & Associates.
Bruce C. Williams,* CFA, Vice President and director. Age 46.
Partner, L. Roy Papp & Associates.
James K. Ballinger, director. Age 48. Director of the Phoenix Art
Museum.
Amy S. Clague, director. Age 65. Partner, Boyd and Clague
(bookkeeping services for small companies).
Carolyn P. O'Malley, director of Papp America-Pacific Rim Fund, Papp
Focus Fund and Papp Small & Mid-Cap Growth Fund. Age 50. Director
of the Desert Botanical Garden since 1994. Prior thereto, Assistant
Director of the Garden and Director of Public Relations of The
Volunteer Center of Maricopa County, Phoenix, Arizona.
George D. Clark, Jr., Vice President. Age 59. Partner, L. Roy Papp &
Associates.
Jeffrey N. Edwards, Vice President. Age 41. Partner, L. Roy Papp &
Associates.
- --------
* Indicates an "interested person" of the Fund, as defined in the Investment
Company Act of 1940.
+ Harry A. Papp is the son of L. Roy Papp and Rosellen C. Papp is the
daughter-in-law of L. Roy Papp.
8
<PAGE>
Robert L. Hawley, Vice President. Age 40. Partner, L. Roy Papp &
Associates since 1995; prior thereto, associate of L. Roy Papp &
Associates.
Victoria S. Cavallero, Vice President. Age 41. Partner, L. Roy Papp
& Associates.
Julie A. Hein, Assistant Treasurer. Age 38. Partner, L. Roy Papp &
Associates since 1996; prior thereto, associate of L. Roy Papp &
Associates.
The address of Messrs. L. Roy Papp, Harry A. Papp, Robert L. Mueller,
Bruce C. Williams, Ms. Rosellen C. Papp and each of the officers, is 6225 North
24th Street, Suite 150, Phoenix, Arizona 85016; the address of Mr. Ballinger is
1625 North Central Avenue, Phoenix, Arizona 85004; the address of Mrs. Clague is
326 East Kaler Drive, Phoenix, Arizona 85020; and the address of Mrs. O'Malley
is 1201 N. Galvin Parkway, Phoenix, Arizona 85008.
As of March 31, 1999, the directors and officers of the Funds owned,
in the aggregate, the following shares of the Funds:
- ------------------------------------------- --------------------------
Fund Shares (%)
- ------------------------------------------- --------------------------
Stock Fund 4.6%
- ------------------------------------------- --------------------------
America-Abroad Fund .7
- ------------------------------------------- --------------------------
America-Pacific Rim Fund 12.0
- ------------------------------------------- --------------------------
Focus Fund 25.4
- ------------------------------------------- --------------------------
Small & Mid Cap Growth Fund 67.4
- ------------------------------------------- --------------------------
L. Roy Papp, Harry A. Papp, and Robert L. Mueller are the members of
the executive committee for each of the Funds, which has authority during
intervals between meetings of the board of directors to exercise the powers of
the Board, with certain exceptions. All of the directors and the officers,
except Mr. Ballinger, Mrs. Clague, and Mrs. O'Malley are partners of L. Roy Papp
& Associates, the Funds' investment adviser, and serve without any compensation
from the Funds.
The following table sets forth the compensation the Funds paid to Mr.
Ballinger, Mrs. Clague, and Mrs. O'Malley during the fiscal year ended December
31, 1998. None of the Papp Funds has any pension or retirement plans.
<TABLE>
<CAPTION>
Papp Papp America- Papp Small & Total Compensation
Papp America-Abroad Pacific Rim Fund Papp Focus Mid-Cap Growth Fund All Funds
Name Stock Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
James K. Ballinger $3,200 $3,650 $850 $400 $100 $8,200
Amy S. Clague 2,400 2,650 600 300 100 6,050
Carolyn P. O'Malley n/a n/a 850 400 100 1,350
</TABLE>
9
<PAGE>
Principal Shareholders
The only persons known to own of record or "beneficially" (within the
meaning of that term as defined in rule 13d-3 under the Securities Exchange Act
of 1934) 5% or more of the outstanding shares of a Fund as of April 1, 1999
were:
<TABLE>
<CAPTION>
Name and Address Shares Percentage
<S> <C> <C>
Stock Fund
Charles Schawb & Co., Inc. 417,851.279 15.93%
101 Montgomery Street
San Francisco, CA 94104
America-Abroad Fund
Charles Schawb & Co., Inc. 5,034,374.076 49.96%
101 Montgomery Street
San Francisco, CA 94104
National Financial Services 1,233,542.898 12.24%
1 World Financial Center, 200 Liberty Street
New York, NY 10281
America-Pacific Rim Fund
Charles Schawb & Co., Inc. 212,114.759 24.09%
101 Montgomery Street
San Francisco, CA 94104
Marco Capital Group 46,303.454 5.26%
2009 Independence Drive
Sherman, TX 75091
Focus Fund
L. Roy Papp 42,008.032 11.67%
622 North 24th Street
Phoenix, AZ 85016
Gerald L. Feinberg, IRA 23,946.360 6.65%
Financial Square
New York, New York 10005
Marco Capital Group 20,080.321 5.58%
2009 Independence Drive
Sherman, TX 75091
Small & Mid Cap Growth Fund
Marco Capital Group 48,765.432 22.98%
2009 Independence Drive
Sherman, TX 75091
L. Roy Papp 20,000.000 9.43%
622 North 24th Street
Phoenix, AZ 85016
Sunchase Investment Company 15,432.099 7.27%
9520 North Max Avenue, #3
Oklahoma City, OK 73120
RKS, Inc. 11,968.881 5.64%
5600 North Palo Cristi Road
Paradise Valley, AZ 85253
</TABLE>
10
<PAGE>
Portfolio Transactions and Brokerage
The investment adviser places portfolio transactions of the Funds with
those securities brokers and dealers that it believes will provide the best
value in transaction and research services for the Funds, either in a particular
transaction or over a period of time. Although most transactions involve only
brokerage services, a very few involve research services as well.
In valuing brokerage services, the investment adviser makes a judgment
as to which brokers are capable of providing the most favorable net price (not
necessarily the lowest commission considered alone) and the best execution in a
particular transaction. Best execution connotes not only general competence and
reliability of a broker, but specific expertise and effort of a broker in
overcoming the anticipated difficulties in fulfilling the requirements of
particular transactions, because the problems of execution and the required
skills and effort vary greatly among transactions.
In valuing research services, the investment adviser makes a judgment
of the usefulness of research and other information provided by a broker to the
investment adviser in managing the Funds' investment portfolios. The
information, e.g., data or recommendations concerning particular securities,
relates to the specific transaction placed with the broker. The extent, if any,
to which the obtaining of such information may reduce the expenses of the
adviser in providing management services to the Funds is not determinable. In
addition, it is understood by the Board of Directors of each Fund that other
clients of the investment adviser might also benefit from the information
obtained for that Fund, in the same manner that the Fund might also benefit from
information obtained by the investment adviser in performing services to others.
The reasonableness of brokerage commissions paid by the Funds in
relation to transaction and research services received is evaluated by the staff
of the investment adviser on an ongoing basis. The general level of brokerage
charges and other aspects of the Funds' portfolio transactions are reviewed
periodically by each Fund's Board of Directors.
Transactions of the Funds in the over-the-counter market are executed
with primary market makers acting as principal except where the adviser believes
that better prices and execution may be obtained otherwise.
Although investment decisions for the Funds are made independently from
those for other investment advisory clients of L. Roy Papp & Associates, it may
develop that the same investment decision is made for both a Fund and one or
more other advisory clients. If both a Fund and other clients purchase or sell
the same class of securities on the same day, the transactions will be allocated
as to amount and price in a manner considered equitable to each.
11
<PAGE>
During fiscal years 1998 and 1997, the Funds paid the following
commissions to brokers.
<TABLE>
<CAPTION>
Brokerage Commissions Paid Brokerage Commissions Paid During
During Year Ended Year Ended
Fund December 31, 1998 December 31, 1997
---- ----------------- -----------------
<S> <C> <C>
Stock Fund $11,124 $5,842
America-Abroad Fund 94,329 117,210
America-Pacific Rim Fund 8,377 14,072
Focus Fund 3,766 n/a
Small & Mid-Cap Growth Fund 1,295 n/a
</TABLE>
Performance Information
From time to time the Funds may quote total return figures. "Total
Return" for a period is the percentage change in value during the period of an
investment in Fund shares, including the value of shares acquired through
reinvestment of all dividends and capital gains distributions. "Average Annual
Total Return" is the average annual compounded rate of change in value
represented by the Total Return Percentage for the period.
<TABLE>
<CAPTION>
Average Annual Total Return is computed as follows:
n
ERV = P(l+T)
<S> <C> <C>
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years from initial investment to the end of the period
ERV = ending redeemable value of a hypothetical $1,000 investment made at the beginning
of the period at the end of the period (or fractional portion thereof)
</TABLE>
12
<PAGE>
For example, total return and average annual total return for the
following periods ended December 31, 1998 of an investment of $1,000 in each of
the Funds were:
<TABLE>
<CAPTION>
Average Annual
Total Total
Return (%) Return (%)
Stock Fund
<S> <C> <C>
1 Year............................................ 26.98 26.98
Five Years........................................ 196.62 21.94
Life of the Fund (November 29, 1989).............. 344.24 17.83
America-Abroad Fund
1 Year............................................ 23.83 23.83
Five Years........................................ 203.43 24.86
Life of the Fund (December 6, 1991)............... 258.16 19.77
Pacific-Rim Fund
1 Year............................................ 28.68 28.68
Life of the Fund (March 14, 1997)................. 55.84 28.00
Focus Fund
Life of the Fund (March 2, 1998).................. 33.30 n/a
Small & Mid-Cap Growth Fund
Life of the Fund (December 15, 1998).............. 8.00 n/a
</TABLE>
The Funds impose no sales charge and pay no distribution expenses.
Income taxes are not taken into account. Each Fund's performance is a function
of conditions in the securities markets, portfolio management, and operating
expenses. Although information such as that shown above is useful in reviewing a
Fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
In advertising and sales literature, the Funds' performance may be
compared with that of market indices and other mutual funds. In addition to the
above computations, the Funds might use comparative performance as computed in a
ranking determined by Lipper Analytical Services, Inc., Morningstar, Inc., or
that of another service.
Purchasing and Redeeming Shares
Purchases and redemptions are discussed in the Funds' prospectus under
the headings "Purchasing Shares" and "Redeeming Shares." All of that information
is incorporated herein by reference.
Each Fund's net asset value is determined on days on which the New York
Stock Exchange is open for trading, which regularly is every day except Saturday
and Sunday. However, that Exchange is also closed on New Year's Day, Martin
Luther King, Jr. Day, the third Monday in February, Good Friday, the last Monday
in May, Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and if
13
<PAGE>
one of those holidays should fall on a Saturday or a Sunday, on the preceding
Friday or the following Monday, respectively. Net asset value will not be
computed on the days of observance of those holidays, unless, in the judgment of
the board of directors, it should be determined on any such day, in which case
the determination will be made as of 1:00 p.m., Phoenix time. The net asset
value per share of each Fund is determined by dividing the value of all its
securities and other assets, less its liabilities, by the number of shares of
the Fund outstanding.
Each Fund has elected to be governed by rule 18f-1 under the Investment
Company Act pursuant to which it is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder. Redemptions in excess of the above
amounts will normally be paid in cash, but may be paid wholly or partly by a
distribution in kind of securities.
Redemptions will be made at net asset value. See "Determination of Net
Asset Value" in the prospectus, which information is incorporated herein by
reference.
Additional Tax Information
Each Fund intends to continue to qualify to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended, so as to be relieved of federal income tax on its capital gains and net
investment income currently distributed to its shareholders. If a Fund should
fail to qualify for pass-through tax treatment under Subchapter M, then it would
be required to pay tax on any income and realized capital gains, reducing the
amount of income and realized capital gains that would otherwise be available
for distribution to shareholders of that Fund.
For more information on taxation, see "Federal Income Tax" in the
prospectus. All that information is incorporated herein by reference.
Custodian
Founders Bank of Arizona, 7335 E. Doubletree Ranch Road, Scottsdale,
Arizona 85258, is the custodian for the Funds. It is responsible for holding all
securities and cash of the Funds, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and collecting income from
investments, making all payments covering expenses of the Funds, and performing
other administrative duties, all as directed by authorized persons of the Funds.
The custodian does not exercise any supervisory function in such matters as
purchase and sale of portfolio securities, payment of dividends, or payment of
expenses of the Funds. The Funds have authorized the custodian to deposit
certain portfolio securities in central depository systems as permitted under
federal law. The Funds may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
Transfer Agent
L. Roy Papp & Associates, the investment adviser to the Funds, also
acts as transfer, dividend disbursing, and shareholder servicing agent for the
Funds pursuant to a written agreement with the Funds. Under the agreement, L.
Roy Papp & Associates is responsible for administering and performing transfer
14
<PAGE>
agent functions, for acting as service agent in connection with dividend and
distribution functions, for performing shareholder account administration agent
functions in connection with the issuance, transfer and redemption of the Funds'
shares, and maintaining necessary records in accordance with applicable laws,
rules and regulations.
For its services L. Roy Papp & Associates receives from the Funds a
monthly fee of $.75 for each Fund shareholder account, $.50 for each dividend
paid on a shareholder account, and $1.00 for each purchase (other than by
reinvestment, transfer or redemption) of Fund shares. The Board of Directors of
each Fund has determined the charges by L. Roy Papp & Associates to the Funds
are comparable to the charges of others performing similar services. L. Roy Papp
& Associates has agreed to make no charges for the provision of these services
to Papp Focus Fund and Papp Small & Mid-Cap Growth Fund until January 1, 2000
and January 1, 2001, respectively.
Financial Statements
The financial statements included in this prospectus and statement of additional
information have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon such reports given upon the authority of said
firm as experts in accounting and auditing.
15
<PAGE>
<TABLE>
<CAPTION>
PAPP STOCK FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
Number Market
Common Stocks of Shares Value
<S> <C> <C>
Financial Services (20.4%)
General Electric Co.
(Diversified financial and industrial company) 45,000 $ 4,592,813
Northern Trust Corporation
(Bank specializing in trust services) 34,000 2,968,625
State Street Corporation
(Provider of U.S. and global securities custodial services) 109,200 7,596,225
T. Rowe Price Associates, Inc.
(Provides investment advisory and administrative
services to their family of no-load mutual funds) 145,000 4,966,250
-------------
20,123,913
-------------
Industrial Services (14.5%)
G&K Services Inc., Class A
(Uniform rental service) 103,000 5,484,750
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 90,000 7,177,500
Omnicom Group, Inc.
(Worldwide advertising agencies) 28,000 1,624,000
-------------
14,286,250
-------------
Computer Equipment (11.2%)
Hewlett-Packard Company
(Manufacturer of printers, computers, and medical
electronic equipment) 58,000 3,962,125
Intel Corporation
(Manufacturer of microprocessors, microcontrollers,
and memory chips) 51,000 6,046,687
International Business Machines
(Global provider of information technology, hardware,
software and services) 5,800 1,071,550
-------------
11,080,362
-------------
Software (9.0%)
Microsoft Corporation*
(Personal computer software) 64,000 8,876,000
-------------
Pharmaceutical (8.8%)
American Home Products Corporation
(Ethical and proprietary drugs) 30,000 1,689,375
Merck & Company
(Ethical drugs) 47,500 7,015,156
-------------
8,704,531
Medical Products (7.2%)
Medtronic, Inc.
(Manufacturer of implantable biomedical devices) 70,000 5,197,500
Safeskin Corp. *
(Leading manufacturer of hypoallergenic disposable latex
examination gloves) 78,000 1,881,750
-------------
7,079,250
-------------
*Non-income producing security.
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
<CAPTION>
PAPP STOCK FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
Number Market
Common Stocks (continued) of Shares Value
<S> <C> <C>
Electrical Equipment (6.7%)
American Power Conversion*
(Leading producer of uninterruptible power supply products) 98,000 $ 4,746,875
Emerson Electric Company
(Manufacturer of electrical and electronic products and systems) 30,000 1,815,000
-------------
6,561,875
-------------
Consumer Products (5.7%)
Clorox Company
(Manufacturer of bleach and other consumer products) 29,200 3,410,925
Mattel, Inc.
(Toy manufacturer) 98,000 2,235,625
-------------
5,646,550
-------------
Consumer Services (4.7%)
Service Corporation International
(Funeral service; cemetery owner/operator) 122,000 4,643,625
-------------
Restaurants (4.4%)
McDonald's Corporation
(Fast food restaurants and franchising) 56,000 4,291,000
-------------
Distributors (3.5%)
Marshall Industries, Inc.*
(Distributor of industrial electronic components) 87,000 2,131,500
Sigma-Aldrich Corp.
(Develops, manufactures and distributes specialty chemicals) 46,000 1,351,250
-------------
3,482,750
-------------
Retail Stores (2.4%)
Walgreen Company
(Retail drug store chain) 40,000 2,342,500
-------------
Telecommunications (1.2%)
Motorola, Inc.
(Manufacturer of communication equipment) 20,000 1,221,250
-------------
Total Common Stocks - 99.7% 98,339,856
Cash and Other Assets, Less Liabilities - 0.3% 268,477
-------------
Net Assets - 100% $ 98,608,333
=============
Net Asset Value Per Share
(Based on 2,639,729 shares outstanding at December 31, 1998) $ 37.36
=============
</TABLE>
*Non-income producing security
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
PAPP STOCK FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
---- ----
<S> <C> <C>
Investment in securities at market value (original
cost $38,518,613 and $39,547,255 at December 31, 1998
and 1997, respectively) (Note 1) $ 98,339,856 $ 79,109,038
Cash 185,252 610,468
Dividends and interest receivable 108,935 100,562
--------------- --------------
Total assets $ 98,634,043 $ 79,820,068
=============== = ==========
LIABILITIES
Redemptions payable $ 25,710 $ -
=============== ==============
NET ASSETS
Paid-in capital $ 39,119,178 $ 40,339,790
Accumulated undistributed net realized gain
on sale of investments 2,709 1,120
Accumulated undistributed net investment loss (334,797) (82,625)
Net unrealized gain on investments 59,821,243 39,561,783
--------------- --------------
Net assets applicable to Fund shares outstanding $ 98,608,333 $ 79,820,068
=============== ==============
Fund shares outstanding 2,639,729 2,680,437
=============== ==============
Net Asset Value Per Share (net assets/shares
outstanding) $ 37.36 $ 29.78
=============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
PAPP STOCK FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 676,151 $ 644,793
Interest 34,484 38,555
-------------- -------------
Total investment income 710,635 683,348
-------------- -------------
EXPENSES:
Management fee (Note 3) 875,849 690,660
Filing fees 30,687 30,697
Accounting 12,500 19,776
Transfer agent fees 11,075 9,189
Custodial 8,775 6,031
Printing and postage 7,487 6,012
Directors' attendance fees 5,600 6,400
Legal 4,857 2,145
Other fees 5,977 2,079
-------------- -------------
Total expenses 962,807 772,989
-------------- -------------
Net investment loss (252,172) (89,641)
-------------- -------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Proceeds from sales of securities 10,660,777 4,191,708
Cost of securities sold (9,465,331) (3,052,372)
---------------- --------------
Net realized gain on investments sold 1,195,446 1,139,336
Net change in unrealized gain on investments 20,259,461 17,054,879
-------------- -------------
Net realized and unrealized gain on investments 21,454,907 18,194,215
-------------- -------------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 21,202,735 $ 18,104,574
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
PAPP STOCK FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (252,172) $ (89,641)
Net realized gain on investments sold 1,195,446 1,139,336
Net change in unrealized gain on investments 20,259,461 17,054,879
---------------- ----------------
Increase in net assets resulting
from operations 21,202,735 18,104,574
---------------- ----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income - -
Net realized gain on investments sold (1,193,857) (1,139,336)
---------------- ----------------
Decrease in net assets resulting from
distributions to shareholders (1,193,857) (1,139,336)
---------------- ----------------
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 16,924,598 23,054,309
Net asset value of shares issued to shareholders
in reinvestment of net investment income and
net realized gain on investments sold 1,079,251 1,023,261
Payments for redemption of shares (19,224,462) (14,499,827)
---------------- ----------------
(Decrease)/increase in net assets resulting
from shareholder transactions (1,220,613) 9,577,743
---------------- ----------------
Total increase in net assets 18,788,265 26,542,981
Net assets at beginning of the period 79,820,068 53,277,087
---------------- ----------------
Net assets at end of period $ 98,608,333 $ 79,820,068
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
PAPP STOCK FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) SIGNIFICANT ACCOUNTING POLICIES:
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 high 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.
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.
21
<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 28, 1998, a distribution was declared from net realized long-term
capital gains of approximately $.4565 a share, aggregating $1,193,857. The
distribution was paid on December 31, 1998, to shareholders of record on
December 29, 1998.
On December 19, 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.
(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 $11,075 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.
22
<PAGE>
(4) PURCHASES AND SALES OF SECURITIES:
For the years ended December 31, investment transactions excluding short-term
investments were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Purchases at cost $ 8,436,689 $ 12,654,701
Sales 10,660,777 4,191,708
</TABLE>
(5) CAPITAL SHARE TRANSACTIONS:
At December 31, 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
Year ended December 31, 1998
<S> <C> <C>
Shares issued $ 16,924,598 520,158
Dividends and distributions reinvested 1,079,251 28,794
Shares redeemed (19,224,462) (589,660)
-------------- --------------
Net decrease $ (1,220,613) (40,708)
=============== ===============
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 at December 31:
<TABLE>
<CAPTION>
1998 1997
-------------- ----------------
<S> <C> <C>
Market value $ 98,339,856 $ 79,109,038
Original cost (38,518,613) (39,547,255)
--------------- -----------------
Net unrealized appreciation $ 59,821,243 $ 39,561,783
============== ================
</TABLE>
As of December 31, 1998, gross unrealized gains on investments in which market
value exceeded cost totaled $59,821,243. There were no gross unrealized losses
on any of the Fund's investments at December 31, 1998.
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 $290,674.
23
<PAGE>
(7) SELECTED FINANCIAL HIGHLIGHTS:
The following selected per share data has been calculated using revenues and
expenses for the periods indicated, divided by the weighted average number of
shares outstanding during the periods. The ratios are calculated using the
revenues and expenses for the periods, divided by the weighted average of the
daily net assets of the Fund.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period$ 29.78 $ 22.70 $ 19.29 $ 14.63 $ 14.98 $ 14.96 $ 13.45
Income from operations:
Net investment income (loss) (.09) (.04) .01 .07 .13 .13 .13
Net realized and unrealized gain
(loss) on investments 8.13 7.55 4.16 4.73 (.35) .11 1.68
---- ---- ---- ---- ----- --- ----
Total from operations 8.04 7.51 4.17 4.80 (.22) .24 1.81
Less distributions:
Dividend from net investment
Income - - (.01) (.07) (.13) (.13) (.13)
Distribution of net realized (.46) (.43) (.75) (.07) - (.09) (.17)
----- ----- ----- ----- -------- ----- -----
gain
Total distributions (.46) (.43) (.76) (.14) (.13) (.22) (.30)
Net asset value, end of period $ 37.36 $ 29.78 $ 22.70 $ 19.29 $ 14.63 $ 14.98 $ 14.96
======== ======== ======== ======== ======== ========== ========
Total return 26.99% 33.12% 21.77% 32.93% (1.46)% 1.65% 13.54%
====== ====== ====== ====== ======= ===== ======
Ratios/Supplemental Data:
Net assets, end of period $ 98,608,333 $ 79,820,068 $ 53,277,087 $ 44,508,543 $ 36,577,759 $ 39,522,420 $ 22,874,733
Expenses to average net 1.10% 1.12% 1.16% 1.17% 1.19% 1.25% 1.25%
assets (B)
Net investment income to
Average net assets (C) .82% 1.00% 1.19% 1.60% 2.08% 2.22% 2.28%
Portfolio turnover rate 9.74% 6.19% 14.47% 22.39% 20.00% 15.00% 11.00%
Average commission per share (D) $ .0269 $ .0247 $ .0442
<CAPTION>
Period
Year Ended December 31, Ended Dec.
31,
---------------------------------------
1991 1990 1989 (A)
---- ---- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.42 $ 10.38 $ 10.00
Income from operations:
Net investment income (loss) .15 .16 .02
Net realized and unrealized gain
(loss) on investments 3.46 .09 .38
---- --- ---
Total from operations 3.61 .25 .40
Less distributions:
Dividend from net investment
Income (.15) (.16) (.02)
Distribution of net realized (.43) (.05) --
----- ----- --------
gain
Total distributions (.58) (.21) (.02)
Net asset value, end of period $ 13.45 $ 10.42 $ 10.38
======== ======== ==========
Total return 33.79% 2.60% 3.99%
====== ===== ====
Ratios/Supplemental Data:
Net assets, end of period $ 13,367,176 $ 6,104,345 $ 1,322,532
Expenses to average net 1.25% 1.25% 1.25%*
assets (B)
Net investment income to
Average net assets (C) 2.46% 2.82% 2.23%*
Portfolio turnover rate 4.00% 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.
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of The
L. Roy Papp Stock Fund, Inc.:
We have audited the accompanying statements of assets and liabilities of The L.
Roy Papp Stock Fund, Inc. as of December 31, 1998 and 1997, including the
schedule of portfolio investments as of December 31, 1998, and the related
statements of operations and changes in net assets for the two years then ended,
and the financial highlights for each of the six years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights 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 and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998 and 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 and financial highlights referred to
above present fairly, in all material respects, the financial position of The L.
Roy Papp Stock Fund, Inc. as of December 31, 1998 and 1997, and the results of
its operations and changes in its net assets for the two years then ended, and
its financial highlights for each of the six years in the period then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 21, 1999.
25
<PAGE>
<TABLE>
<CAPTION>
PAPP AMERICA-ABROAD FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
Number Market
Common Stocks of Shares Value
<S> <C> <C>
Electrical Equipment (15.1%)
American Power Conversion *
(Leading producer of uninterruptible power supply products) 627,900 $ 30,413,906
Emerson Electric Company
(Manufacturer of electrical and electronic products and systems) 120,000 7,260,000
Molex, Inc.
(Supplier of electrical, electronic, and fiber optic interconnection
products and systems) 450,000 14,175,000
-------------
51,848,906
-------------
Industrial Services (15.0%)
Air Express International
(Air freight forwarding) 480,000 10,440,000
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 360,000 28,710,000
Manpower, Inc.
(Provider of non-government employment services) 365,000 9,193,437
Omnicom Group, Inc.
(Worldwide advertising agencies) 50,000 2,900,000
-------------
51,243,437
-------------
Computer Equipment (13.6%)
EMC Corp. *
(Manufacturer of enterprise computer storage systems) 27,000 2,295,000
Hewlett-Packard Company
(Manufacturer of printers, computers, and medical
electronic equipment) 150,000 10,246,875
Intel Corporation
(Manufacturer of microprocessors, microcontrollers, and
memory chips) 244,000 28,929,250
International Business Machines
(Global provider of information technology, hardware, software
and services) 27,000 4,988,250
-------------
46,459,375
-------------
Financial Services (11.8%)
American International Group
(Major international insurance holding company) 56,000 5,411,000
General Electric Co.
(Diversified financial and industrial company) 140,000 14,288,750
State Street Corporation
(Provider of U.S. and global securities custodial services) 300,000 20,868,750
-------------
40,568,500
-------------
Specialty Retailing (9.0%)
Office Depot *
(Large office supply retailer and direct marketer of office products) 835,000 30,842,812
-------------
Pharmaceutical (8.0%)
Astra AB
(International pharmaceutical company) 427,000 8,833,563
Merck & Company
(Ethical drugs) 126,000 18,608,625
-------------
27,442,188
-------------
*Non-income producing security.
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
<CAPTION>
PAPP AMERICA-ABROAD FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
Number Market
Common Stocks (continued) of Shares Value
<S> <C> <C>
Consumer Services (7.4%)
Service Corporation International
(Funeral service, cemetery owner/operator) 350,000 $ 13,321,875
Steiner Leisure Ltd. *
(Provider of spa services, beauty salons, and health clubs on
cruise ships) 375,000 12,000,000
-------------
25,321,875
-------------
Restaurants (4.6%)
McDonald's Corporation
(Fast food restaurants and franchising) 208,000 15,938,000
-------------
Medical Products (4.5%)
Johnson & Johnson
(Healthcare products) 183,000 15,349,125
-------------
Software (3.6%)
Microsoft Corporation*
(Personal computer software) 90,000 12,481,875
-------------
Consumer Products (2.8%)
Gillette Company
(Personal care products and batteries) 27,000 1,304,438
Mattel, Inc.
(Toy manufacturer) 370,000 8,440,625
-------------
9,745,063
-------------
Telecommunications (2.1%)
L.M. Ericsson Telephone AB
(Manufacturer of telecom systems and cellular handsets) 100,000 2,393,750
Hong Kong Telecommunications, Ltd.
(International telecommunications services) 270,000 4,741,875
-------------
7,135,625
-------------
Distributors (1.4%)
Sigma-Aldrich Corp.
(Develops, manufactures, and distributes specialty chemicals) 155,000 4,553,125
-------------
Total Common Stocks - 98.9% 338,929,906
Cash and Other Assets, Less Liabilities - 1.1% 3,884,730
-------------
Net Assets - 100% $ 342,814,636
=============
Net Asset Value Per Share
(Based on 10,670,513 shares outstanding at December 31, 1998) $ 32.13
=======
</TABLE>
*Non-income producing security.
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
PAPP AMERICA-ABROAD FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
---------------- --------------
<S> <C> <C>
Investment in securities at market value (original
cost $248,043,277 and $260,250,479 at December 31,
1998 and 1997, respectively) (Note 1) $ 338,929,906 $ 285,776,806
Cash 6,522,782 3,507,780
Dividends and interest receivable 361,875 461,788
---------------- ---------------
Total assets $ 345,814,563 $ 289,746,374
================ ===============
LIABILITIES
Redemptions payable $ 240,533 $ 209,767
Payable for investment securities purchased 2,759,394 1,287,313
---------------- ---------------
Total liabilities $ 2,999,927 $ 1,497,080
================ ===============
NET ASSETS
Paid-in capital $ 252,595,092 $ 262,716,207
Accumulated undistributed net realized gain
on sale of investments 371 -
Accumulated undistributed net investment income/(loss) (667,456) 6,760
Net unrealized gain on investments 90,886,629 25,526,327
---------------- ---------------
Net assets applicable to Fund shares outstanding $ 342,814,636 $ 288,249,294
================ ===============
Fund shares outstanding 10,670,513 11,091,202
================ ===============
Net Asset Value Per Share (net assets/shares
outstanding) $ 32.13 $ 25.98
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
PAPP AMERICA-ABROAD FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---------------- --------------
INVESTMENT INCOME:
<S> <C> <C>
Dividends $ 2,686,890 $ 1,777,770
Interest 224,020 214,337
Foreign taxes withheld (20,469) (14,828)
---------------- --------------
Total investment income 2,890,441 1,977,279
---------------- --------------
EXPENSES:
Management fee (Note 3) 3,292,225 1,599,574
Filing fees 116,312 79,501
Printing and postage 46,725 16,210
Transfer agent fees 40,994 24,038
Custodial 28,994 27,819
Accounting 14,500 18,815
Directors' attendance fees 6,300 5,100
Legal 4,534 3,354
Other fees 14,073 2,214
---------------- --------------
Total expenses 3,564,657 1,776,625
---------------- --------------
Net investment (loss)/income (674,216) 200,654
---------------- --------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Proceeds from sales of securities 92,997,025 7,380,204
Cost of securities sold (92,579,267) (5,990,861)
----------------- ---------------
Net realized gain on investments sold 417,758 1,389,343
Net change in unrealized gain on investments 65,360,302 16,166,447
---------------- --------------
Net realized and unrealized gain on investments 65,778,060 17,555,790
---------------- --------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 65,103,844 $ 17,756,444
================ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
PAPP AMERICA-ABROAD FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---------------- --------------
FROM OPERATIONS:
<S> <C> <C>
Net investment (loss)/income $ (674,216) $ 200,654
Net realized gain on investments sold 417,758 1,389,343
Net change in unrealized gain on investments 65,360,302 16,166,447
---------------- ---------------
Increase in net assets resulting from
operations 65,103,844 17,756,444
---------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income - (200,654)
Net realized gain on investments sold (417,387) (1,389,343)
---------------- ---------------
Decrease in net assets resulting from
distributions to shareholders (417,387) (1,589,997)
---------------- ---------------
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 168,123,001 315,859,241
Net asset value of shares issued to shareholders
in reinvestment of net investment income and
net realized gain on investments sold 374,828 1,485,676
Payments for redemption of shares (178,618,944) (74,885,567)
---------------- ---------------
(Decrease)/increase in net assets resulting
from shareholder transactions (10,121,115) 242,459,350
----------------- ---------------
Total increase in net assets 54,565,342 258,625,797
Net assets at beginning of the period 288,249,294 29,623,497
---------------- ---------------
Net assets at end of period $ 342,814,636 $ 288,249,294
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
PAPP AMERICA-ABROAD FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) SIGNIFICANT ACCOUNTING POLICIES:
Papp America-Abroad Fund, Inc. (the Fund) was incorporated on August 15, 1991,
and is registered under the Investment Company Act of 1940 as an open-end
diversified management investment company. Operations of the Fund commenced on
December 6, 1991. The Fund invests with the objective of long-term capital
growth in the common stocks of United States companies that have substantial
international activities and, to a much lesser extent, in the common stocks of
foreign enterprises that are traded publicly in United States securities
markets.
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.
31
<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 28, 1998, a distribution was declared from net realized long-term
capital gains of approximately $.0396 a share aggregating $417,387. The
distribution was paid on December 31, 1998, to shareholders of record on
December 29, 1998.
On December 19, 1997, a dividend of approximately $.0189 a share, aggregating
$200,654 was declared from net investment income earned during 1997. A
distribution was also declared from net realized long-term capital gains of
approximately $.1093 a share aggregating $1,204,067. Also a distribution was
declared from net realized short-term capital gains of approximately $.0168 a
share aggregating $185,276. 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. The Fund
incurred fees of $40,994 and $24,038 in 1998 and 1997, respectively, from the
manager for providing shareholder and transfer agent services.
The Fund's independent directors receive $1,000 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.
32
<PAGE>
(4) PURCHASES AND SALES OF SECURITIES:
For the years ended December 31, investment transactions excluding short-term
investments were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
Purchases at cost $ 80,372,065 $246,423,965
Sales 92,997,025 7,380,204
</TABLE>
(5) CAPITAL SHARE TRANSACTIONS:
At December 31, 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
Year ended December 31, 1998
<S> <C> <C>
Shares issued $ 168,123,001 6,037,848
Dividends and distributions reinvested 374,828 11,761
Shares redeemed (178,618,944) (6,473,298)
--------------- -------------
Net decrease $ (10,121,115) (423,689)
================ ==============
Year ended December 31, 1997
Shares issued $ 315,859,241 12,468,691
Dividends and distributions reinvested 1,485,676 58,127
Shares redeemed (74,885,567) (2,905,655)
------------- -------------
Net increase $ 242,459,350 9,621,163
=============== =============
</TABLE>
(6) UNREALIZED APPRECIATION:
Unrealized appreciation of portfolio securities for both financial statement and
federal income tax purposes is as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
-------------- ---------------
<S> <C> <C>
Market value $ 338,929,906 $ 285,776,806
Original cost ( 248,043,277) (260,250,479)
--------------- ----------------
Net unrealized appreciation $ 90,886,629 $ 25,526,327
=============== ===============
</TABLE>
As of December 31, 1998, gross unrealized gains on investments in which market
value exceeded cost totaled $104,546,063 and gross unrealized losses on
investments in which cost exceeded market value totaled $13,659,434.
As of December 31, 1997, gross unrealized gains on investments in which market
value exceeded cost totaled $38,186,956 and gross unrealized losses on
investments in which cost exceeded market value totaled $12,660,629.
33
<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>
Year Ended December 31,
-----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 25.98 $ 20.11 $ 16.47 $ 12.24 $ 11.45
Income from operations:
Net investment income (loss) (.05) .01 .01 .04 .10
Net realized and unrealized gain
(loss) on investments 6.24 6.00 4.48 4.52 .79
---- ---- ---- ---- ---
Total from operations 6.19 6.01 4.49 4.56 .89
Less distributions:
Dividend from net investment
Income - (.01) (.01) (.04) (.10)
Distribution of net realized (.04) (.13) (.84) (.29) -
----- ----- ----- -----
gain
----
Total distributions (.04) (.14) (.85) (.33) (.10)
Net asset value, end of period $ 32.13 $ 25.98 $ 20.11 $ 16.47 $ 12.24
======== ======== ======== ======== ========
Total return 23.83% 29.92% 27.65% 37.05% 7.77%
============ ============ ============ ============= ============
Ratios/Supplemental Data:
Net assets, end of period $ 342,814,636 $ 288,249,294 $ 29,623,497 $ 15,988,267 $ 11,573,197
Expenses to average net 1.08% 1.11% 1.25% 1.22% 1.25%
assets (B)
Net investment income to
Average net assets (C) .82% 1.24% 1.30% 1.50% 2.07%
Portfolio turnover rate 24.97% 4.71% 12.29% 26.65% 16.00%
Average commission per share (D) $ .0245 $ .0297 $ .0487
Year Ended December 31, Period Ended
December 31,
--------------------------------------------------
1993 1992 1991 (A)
---- ---- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.67 $ 10.98 $ 10.00
Income from operations:
Net investment income (loss) .10 .11 .02
Net realized and unrealized gain
(loss) on investments (.11) .71 .98
----- --- ---
Total from operations (.01) .82 1.00
Less distributions:
Dividend from net investment
Income (.09) (.11) (.02)
Distribution of net realized (.12) (.02) -
----- -----
gain
-----
Total distributions (.21) (.13) (.02)
Net asset value, end of period $ 11.45 $ 11.67 $ 10.98
======== ======== ========
Total return (.08)% 7.44% 9.94%
============== ============ =============
Ratios/Supplemental Data:
Net assets, end of period $ 10,934,293 $ 5,013,407 $ 1,369,899
Expenses to average net 1.25% 1.25% 1.25%*
assets (B)
Net investment income to
Average net assets (C) 2.28% 2.28% 4.51%*
Portfolio turnover rate 8.00% 16.00% 0.00%
Average commission per share (D)
</TABLE>
* Annualized
(A) From the date of commencement of operations (December 6, 1991).
(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 1.30%, 1.30%, 1.33%, 3.16%, and 2.07% for the years ended
December 31, 1996, 1994, 1993, 1992 and the period ended December
31, 1991.
(C) Computed giving effect to investment adviser's expense limitation
undertaking.
(D) This disclosure was not required for years prior to 1996.
34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of the
Papp America-Abroad Fund, Inc.:
We have audited the accompanying statements of assets and liabilities of the
Papp America-Abroad Fund, Inc. as of December 31, 1998 and 1997, including the
schedule of portfolio investments as of December 31, 1998, and the related
statements of operations and changes in net assets for the two years then ended,
and the financial highlights for each of the six years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights of the Papp America-Abroad Fund, Inc. for the year ended December 31,
1992, and the period from December 6, 1991 (date of commencement of operations)
through December 31, 1991, 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 and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998 and 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
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Papp America-Abroad Fund, Inc. as of December 31, 1998 and 1997, and the results
of its operations and changes in its net assets for the two years then ended,
and its financial highlights for each of the six years in the period then ended,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 21, 1999.
35
<PAGE>
<TABLE>
<CAPTION>
PAPP AMERICA-PACIFIC RIM FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
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.
36
<PAGE>
<CAPTION>
60
PAPP AMERICA-PACIFIC RIM FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
Number Market
Common Stocks (continued) of Shares Value
<S> <C> <C>
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
=============
</TABLE>
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
37
<PAGE>
<TABLE>
<CAPTION>
PAPP AMERICA-PACIFIC RIM FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998 AND 1997
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.
38
<PAGE>
<TABLE>
<CAPTION>
60
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
1998 1997
---- ----
INVESTMENT INCOME:
<S> <C> <C>
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.
39
<PAGE>
<TABLE>
<CAPTION>
60
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
1998 1997
---- ----
FROM OPERATIONS:
<S> <C> <C>
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.
40
<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.
41
<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.
42
<PAGE>
(4) PURCHASES AND SALES OF SECURITIES:
For the years ended December 31, investment transactions excluding short-term
investments were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Purchases at cost $ 1,908,840 $14,459,596
Sales 4,544,223 1,172,305
</TABLE>
(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:
<TABLE>
<CAPTION>
Proceeds Shares
Period ended December 31, 1998
<S> <C> <C>
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
============ ==============
</TABLE>
(6) UNREALIZED APPRECIATION:
Unrealized appreciation of portfolio securities for both financial statement and
federal income tax purposes is as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Market value $ 14,584,338 $ 13,696,938
Original cost (10,351,153) (13,296,858)
--------------- ---------------
Net unrealized appreciation $ 4,233,185 $ 400,080
============== ==============
</TABLE>
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.
43
<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.
44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of the
Papp America-Pacific Rim Fund, Inc.:
We have audited the accompanying statements of assets and liabilities of the
Papp America-Pacific Rim Fund, Inc. as of December 31, 1998 and 1997, including
the schedule of portfolio investments as of December 31, 1998, and the related
statements of operations, changes in net assets, and the financial highlights
for the year ended December 31, 1998 and for the period from March 14, 1997
(date of commencement of operations) through December 31, 1997. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
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 and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998 and 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
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Papp America-Pacific Rim Fund, Inc. as of December 31, 1998 and 1997, and the
results of its operations, changes in its net assets, and its financial
highlights for the year ended December 31, 1998 and for the period from March
14, 1997 (date of commencement of operations) through December 31, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 21, 1999.
45
<PAGE>
<TABLE>
<CAPTION>
PAPP FOCUS FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
Number Market
Common Stocks of Shares Value
<S> <C> <C>
Medical Products (17.3%)
Johnson & Johnson
(Healthcare products) 2,250 $ 188,719
Medtronic, Incorporated
(Manufacturer of implantable biomedical devices) 2,450 181,912
Safeskin Corp. *
(Leading manufacturer of hypoallergenic, disposable
latex examination gloves) 13,500 325,687
-------------
696,318
-------------
Industrial Services (15.9%)
G & K Services, Inc. Class A
(Uniform rental service) 5,000 266,250
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 4,700 374,825
-------------
641,075
-------------
Financial Services (14.2%)
American International Group
(Major international insurance holding company) 1,900 183,588
State Street Corporation
(Provider of U.S. and global securities custodial services) 2,600 180,862
T. Rowe Price Associates, Inc.
(Provides investment advisory and administrative
services to their family of no-load mutual funds) 6,100 208,925
-------------
573,375
-------------
Computer Equipment (9.6%)
Intel Corporation
(Manufacturer of microprocessors, microcontrollers, and
memory chips) 1,630 193,257
International Business Machines
(Global provider of information technology, hardware,
software and services) 1,050 193,987
-------------
387,244
-------------
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
46
<PAGE>
<CAPTION>
PAPP FOCUS FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
Number Market
Common Stocks (continued) of Shares Value
<S> <C> <C>
Pharmaceutical (9.2%)
Astra AB
(International pharmaceutical company) 9,000 $ 186,188
Merck & Company
(Ethical drugs) 1,250 184,609
-------------
370,797
-------------
Specialty Retailing (8.4%)
Office Depot *
(Large office supply retailer and direct marketer of
office products) 9,200 339,825
-------------
Consumer Services (8.2%)
Steiner Leisure Ltd. *
(Provider of spa services, beauty salons, and health
clubs on cruise ships) 10,300 329,600
-------------
Electrical Equipment (7.8%)
American Power Conversion *
(Leading producer of uninterruptible power supply products) 6,500 314,844
-------------
Restaurants (4.8%)
McDonald's Corporation
(Fast food restaurants and franchising) 2,500 191,563
-------------
Total Common Stocks - 95.4% 3,844,641
Cash and Other Assets, Less Liabilities - 4.6% 186,752
-------------
Net Assets - 100% $ 4,031,393
=============
Net Asset Value Per Share
(Based on 302,478 shares outstanding at December 31, 1998) $ 13.33
=============
</TABLE>
*Non-income producing security.
The accompanying notes are an integral part of this financial statement.
47
<PAGE>
<TABLE>
<CAPTION>
PAPP FOCUS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
ASSETS
<S> <C>
Investment in securities at market value (original
cost $2,989,269 at December 31, 1998) (Note 1) $ 3,844,641
Cash 216,460
Dividends and interest receivable 2,172
Receivable for Fund shares sold 118,542
----------------
Total assets $ 4,181,815
================
LIABILITIES
Payable for securities purchased $ 150,422
================
NET ASSETS
Paid-in capital $ 3,220,821
Accumulated undistributed net realized loss
on sale of investments (33,408)
Accumulated undistributed net investment loss (11,392)
Net unrealized gain on investments 855,372
----------------
Net assets applicable to Fund shares outstanding $ 4,031,393
================
Fund shares outstanding 302,478
Net Asset Value Per Share (net assets/share
outstanding) $ 13.33
================
</TABLE>
The accompanying notes are an integral part of this financial statement.
48
<PAGE>
<TABLE>
<CAPTION>
PAPP FOCUS FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 2, 1998
(DATE OF COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998
INVESTMENT INCOME:
<S> <C>
Dividends $ 10,881
Interest 3,998
-------------
Total investment income 14,879
EXPENSES:
Management fee (Note 3) 21,018
Custodial fees 2,810
Accounting fees 1,500
Filing fees 1,190
Directors' attendance fees 1,100
Legal fees 987
Other fees 616
-------------
Total expenses 29,221
Less fees waived by adviser (Note 3) (2,950)
-------------
Net expenses 26,271
Net investment loss (11,392)
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS:
Proceeds from sales of securities 1,203,246
Cost of securities sold (1,236,654)
--------------
Net realized loss on investments sold (33,408)
Net change in unrealized gain on investments 855,372
-------------
Net realized and unrealized gain on investments 821,964
-------------
Net increase in net assets resulting from operations $ 810,572
=============
</TABLE>
The accompanying notes are an integral part of this financial statement.
49
<PAGE>
<TABLE>
<CAPTION>
PAPP FOCUS FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM MARCH 2, 1998
(DATE OF COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998
FROM OPERATIONS:
<S> <C>
Net investment loss $ (11,392)
Net realized loss on investments sold (33,408)
Net change in unrealized gain on investments 855,372
------------------
Increase in net assets resulting from
operations 810,572
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income -
Net realized gain on investments sold -
Decrease in net assets resulting from
distributions to shareholders -
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 3,532,754
Net asset value of shares issued to shareholders
in reinvestment of net investment income and
net realized gain on investments sold -
Payments for redemption of shares (311,933)
Increase in net assets resulting
from shareholder transactions 3,220,821
Total increase in net assets 4,031,393
Net assets at beginning of the period -
------------------
Net assets at end of period $ 4,031,393
===================
</TABLE>
The accompanying notes are an integral part of this financial statement.
50
<PAGE>
PAPP FOCUS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) SIGNIFICANT ACCOUNTING POLICIES:
Papp Focus Fund, Inc. (the Fund) was incorporated on December 16, 1997 and is
registered under the Investment Company Act of 1940 as an open-end,
non-diversified management investment company. Operations of the Fund commenced
on March 2, 1998. The Fund invests with the objective of long-term capital
growth in the common stocks of a relatively small number of companies.
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.
51
<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. There were no dividends or distributions for the period
ended December 31, 1998.
(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 $2,950 was required in 1998.
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.
52
<PAGE>
(4) PURCHASES AND SALES OF SECURITIES:
For the period from March 2, 1998 (date of commencement of operations) to
December 31, 1998, investment transactions excluding short-term investments
were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases at cost $ 4,225,923
Sales 1,203,246
</TABLE>
(5) CAPITAL SHARE TRANSACTIONS:
At December 31, 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
Period ended December 31, 1998
<S> <C> <C>
Shares issued $ 3,532,754 330,351
Dividends and distributions reinvested - -
Shares redeemed (311,933) (27,873)
------------- -------------
Net increase $ 3,220,821 302,478
============= =============
</TABLE>
(6) UNREALIZED APPRECIATION:
Unrealized appreciation of portfolio securities for both financial statement
and federal income tax purposes is as follows at December 31:
<TABLE>
<CAPTION>
1998
<S> <C>
Market value $ 3,844,641
Original cost (2,989,269)
---------------
Net unrealized appreciation $ 855,372
==============
</TABLE>
As of December 31, 1998, gross unrealized gains on investments in which market
value exceeded cost totaled $855,372. There were no gross unrealized losses on
any of the Fund's investments at December 31, 1998.
53
<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>
Period Ended December 31,
1998
-------------------------
<S> <C>
Net asset value, beginning
of period (A) $ 10.00
-----------
Income from investment
operations:
Net investment loss (.06)
Net realized and unrealized
gain (loss) on investments 3.39
-----------
Total from investment
operations 3.33
Less Distributions:
Dividend from investment
income -
Distribution of net realized
gain -
-----------
Total Distributions -
Net asset value, end of period $ 13.33
===========
Total return 33.30%
===========
Ratios/Supplemental Data:
Net assets, end of period $4,031,393
Expenses to average
net assets (B) 1.25%*
Net investment income to
average net assets (C) .70%*
Portfolio turnover rate 50.37%
Average commission per share $0.041
</TABLE>
* Annualized
(A) From the date of commencement of operations (March 2, 1998).
(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 1.38%, for the period ended December 31, 1998.
(C) Computed giving effect to investment adviser's expense limitation
undertaking.
54
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of the
Papp Focus Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of the Papp
Focus Fund, Inc. including the schedule of portfolio investments, as of December
31, 1998, and the related statements of operations, changes in net assets, and
the financial highlights for the period from March 2, 1998 (date of commencement
of operations) through December 31, 1998. These financial statements and
financial highlights 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 and financial highlights 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, 1998, 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 and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Papp Focus Fund, Inc. as of December 31, 1998, and the results of its
operations, changes in its net assets, and its financial highlights for the
period from March 2, 1998 (date of commencement of operations) through December
31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 21, 1999.
55
<PAGE>
<TABLE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
Number Market
Common Stocks of Shares Value
<S> <C> <C>
Financial Services (14.7%)
Federated Investors
(Major U.S. investment management company) 3,800 $ 68,875
T. Rowe Price Associates, Inc.
(Provides investment advisory and administration services
to their family of no-load funds) 2,700 92,475
U.S. Trust Corporation
(Financial services company) 900 68,400
-------------
229,750
-------------
Software (12.7%)
BARRA, Inc. *
(Develops application software for financial services) 2,600 61,425
Fair, Isaac & Co.
(Develops data management systems and software for
financial services) 1,100 50,806
SunGard Data Systems, Inc. *
(Develops, markets and supports application software for
proprietary investment support systems) 2,200 87,313
-------------
199,544
-------------
Industrial Services (12.6%)
Air Express International
(Air freight forwarding) 1,300 28,275
Cambridge Technology Partners, Inc. *
(International professional services business) 3,200 70,800
Expeditors International of Washington, Inc.
(Air freight forwarding) 1,200 50,400
G & K Services, Inc. Class A
(Uniform rental service) 900 47,925
-------------
197,400
-------------
Medical Products (9.2%)
Safeskin Corp. *
(Leading manufacturer of hypoallergenic, disposable
latex examination gloves) 3,000 72,375
Stryker Corp.
(Developer and manufacturer of surgical and medical devices) 1,300 71,581
-------------
143,956
-------------
Specialty Retailing (8.2%)
Dollar General Corporation
(Operates self-service discount stores) 2,800 66,150
Office Depot *
(Office supply retailer and direct marketer of office products) 1,700 62,793
-------------
128,943
-------------
*Non-income producing security.
The accompanying notes are an integral part of this financial statement.
56
<PAGE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
Number Market
Common Stocks (continued) of Shares Value
<S> <C> <C>
Electrical Equipment (7.9%)
American Power Conversion Corporation *
(Leading producer of uninterruptible power supply products) 1,000 48,438
Baldor Electric Company
(Manufacturer of industrial electric motors) 1,500 30,375
Molex, Inc.
(Supplier of electrical, electronic, and fiber optic interconnection products
and systems) 1,400 44,100
-------------
122,913
-------------
Health Care Services (6.8%)
Covance, Inc. *
(Leading contract research organization in the
pharmaceutical industry) 2,200 $ 64,075
Techne Corp. *
(Diagnostic kits) 2,000 42,250
-------------
106,325
-------------
Personal Care/Cosmetics (6.6%)
Del Labs, Inc.
(Producer of cosmetics and over the counter pharmaceuticals) 2,300 56,925
Helen of Troy Ltd. *
(Designs, develops, and markets personal care accessories) 3,200 47,000
-------------
103,925
-------------
Broadcasting (5.4%)
Metro Networks, Inc. *
(Provides traffic reporting services, local news and weather video
news to television and radio outlets) 2,000 85,250
-------------
Consumer Services (4.7%)
Steiner Leisure Ltd. *
(Provider of spa services, beauty salons, and health clubs on cruise
ships) 2,300 73,600
-------------
Miscellaneous (7.3%)
Kaydon Corp.
(Designs, manufactures and sells custom-engineered products) 1,400 56,088
Zebra Technologies Corp. *
(Worldwide provider of bar code labeling) 2,000 57,500
-------------
113,588
-------------
Total Common Stocks - 96.1% 1,505,194
Cash and Other Assets, Less Liabilities - 3.9% 61,031
-------------
Net Assets - 100% $ 1,566,225
=============
Net Asset Value Per Share
(Based on 96,681 shares outstanding at December 31, 1998) $ 16.20
=============
</TABLE>
*Non-income producing security.
The accompanying notes are an integral part of this financial statement.
57
<PAGE>
<TABLE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
ASSETS
<S> <C>
Investment in securities at market value (original
cost $1,399,845 at December 31, 1998) (Note 1) $ 1,505,194
Cash 134,603
Dividends and interest receivable 1,101
Receivable for Fund shares sold 18,000
----------------
Total assets $ 1,658,898
================
LIABILITIES
Payable for securities purchased $ 92,673
===============
NET ASSETS
Paid-in capital $ 1,460,455
Accumulated undistributed net realized gain
on sale of investments -
Accumulated undistributed net investment income 421
Net unrealized gain on investments 105,349
----------------
Net assets applicable to Fund shares outstanding $ 1,566,225
================
Fund shares outstanding 96,681
Net Asset Value Per Share (net assets/share
outstanding) $ 16.20
================
</TABLE>
The accompanying notes are an integral part of this financial statement.
58
<PAGE>
<TABLE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 15, 1998
(DATE OF COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998
INVESTMENT INCOME:
<S> <C>
Dividends $ 377
Interest 723
-------------
Total investment income 1,100
EXPENSES:
Management fee (Note 3) 543
Directors' attendance fees 300
Total expenses 843
Less fees waived by adviser (Note 3) (164)
-------------
Net expenses 679
Net investment income 421
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS:
Net change in unrealized gain on investments 105,349
-------------
Net increase in net assets resulting from operations $ 105,770
=============
</TABLE>
The accompanying notes are an integral part of this financial statement.
59
<PAGE>
<TABLE>
<CAPTION>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM DECEMBER 15, 1998
(DATE OF COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998
FROM OPERATIONS:
<S> <C>
Net investment income $ 421
Net realized gain on investments sold -
Net change in unrealized gain on investments 105,349
------------------
Increase in net assets resulting from
operations 105,770
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income -
Net realized gain on investments sold -
Decrease in net assets resulting from
distributions to shareholders -
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 1,460,455
Net asset value of shares issued to shareholders
in reinvestment of net investment income and
net realized gain on investments sold -
Payments for redemption of shares -
------------------
Increase in net assets resulting
from shareholder transactions 1,460,455
------------------
Total increase in net assets 1,566,225
Net assets at beginning of the period -
------------------
Net assets at end of period $ 1,566,225
===================
</TABLE>
The accompanying notes are an integral part of this financial statement.
60
<PAGE>
PAPP SMALL & MID-CAP GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) SIGNIFICANT ACCOUNTING POLICIES:
Papp Small & Mid-Cap Growth Fund, Inc. (the Fund) was incorporated on September
15, 1998 and is registered under the Investment Company Act of 1940 as an
open-end diversified management investment company. Operations of the Fund
commenced on December 15, 1998. The Fund invests with the objective of long-term
capital growth in the common stocks of small and mid-capitalization companies.
The investment adviser paid all start up costs, and the Fund will not reimburse
them.
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.
61
<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. There were no dividends or distributions for the period
ended December 31, 1998.
(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 $164 was required in 1998.
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.
62
<PAGE>
(4) PURCHASES AND SALES OF SECURITIES:
For the period from December 15, 1998 (date of commencement of operations) to
December 31, 1998, investment transactions excluding short-term investments
were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases at cost $ 1,399,845
Sales -
</TABLE>
(5) CAPITAL SHARE TRANSACTIONS:
At December 31, 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
Period ended December 31, 1998
<S> <C> <C>
Shares issued $ 1,460,455 96,681
Dividends and distributions reinvested - -
Shares redeemed - -
------------- -------------
Net increase $ 1,460,455 96,681
============= =============
</TABLE>
(6) UNREALIZED APPRECIATION:
Unrealized appreciation of portfolio securities for both financial
statement and federal income tax purposes is as follows:
<TABLE>
<CAPTION>
December 31,
1998
<S> <C>
Market value $ 1,505,194
Original cost (1,399,845)
---------------
Net unrealized appreciation $ 105,349
==============
</TABLE>
As of December 31, 1998, gross unrealized gains on investments in which market
value exceeded cost totaled $125,365 and gross unrealized losses on investments
in which cost exceeded market value totaled $20,016.
63
<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>
Period Ended December 31,
1998
-------------------------
<S> <C>
Net asset value, beginning
of period (A) $ 15.00
Income from investment
operations:
Net investment income -
Net realized and unrealized
gain (loss) on investments 1.20
-----------
Total from investment
operations 1.20
Less Distributions:
Dividend from investment
income -
Distribution of net realized
gain -
-----------
Total Distributions -
Net asset value, end of period $ 16.20
===========
Total return 8.00%
===========
Ratios/Supplemental Data:
Net assets, end of period $1,566,225
Expenses to average
net assets (B) 1.25%*
Net investment income to
average net assets (C) 1.01%*
Portfolio turnover rate 0.00%
Average commission per share $0.031
</TABLE>
* Annualized
(A) From the date of commencement of operations (December 15, 1998).
(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 1.56%, for the period ended December 31, 1998.
(C) Computed giving effect to investment adviser's expense limitation
undertaking.
64
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of the Papp Small & Mid-Cap Growth
Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of the Papp
Small & Mid-Cap Growth Fund, Inc. including the schedule of portfolio
investments, as of December 31, 1998, and the related statements of operations,
changes in net assets, and the financial highlights for the period from December
15, 1998 (date of commencement of operations) through December 31, 1998. These
financial statements and financial highlights 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 and financial highlights 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, 1998, 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 and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Papp Small & Mid-Cap Growth Fund, Inc. as of December 31, 1998, and the results
of its operations, changes in its net assets, and its financial highlights for
the period from December 15, 1998 (date of commencement of operations) through
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 21, 1999.
65
