[GRAPHIC OMITTED]
PAPP STOCK FUND, INC.
A No-Load Fund
ANNUAL REPORT
December 31, 2002
Managed by:
L. Roy Papp & Associates, LLP
6225 North 24th Street
Suite 150
Phoenix, AZ 85016
(602)956-1115 Local
(800)421-4004
E-mail: invest@roypapp.com
-------------------
Web: http://www.roypapp.com
----------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
PAPP STOCK FUND, INC. AND THE STANDARD AND POOR'S 500
STOCK INDEX THROUGH DECEMBER 31, 2002
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------------------------------
1 Year 5 Years 10 Years Since
Inception
- ---------------------------------------------------------------
Papp Stock Fund, Inc. -23.98% -1.85% 6.99% 9.26%
- ---------------------------------------------------------------
Standard &Poor's 500 -22.10% -0.59% 9.34% 9.87%
Stock Index
- ---------------------------------------------------------------
[Mountain Chart in thousands of dollars]
- -------------------------------------------------------------------------------
Year Papp Stock Fund Standard & Poor's 500 Stock Index
- -------------------------------------------------------------------------------
11/29/89 10 10
- ----------------------------------------------------------------------
1989 10.399 10.316
- ----------------------------------------------------------------------
1990 10.669 9.995
- ----------------------------------------------------------------------
1991 14.274 13.04
- ----------------------------------------------------------------------
1992 16.207 14.034
- ----------------------------------------------------------------------
1993 16.474 15.449
- ----------------------------------------------------------------------
1994 16.233 15.653
- ----------------------------------------------------------------------
1995 21.578 21.537
- ----------------------------------------------------------------------
1996 26.276 26.482
- ----------------------------------------------------------------------
1997 34.978 35.316
- ----------------------------------------------------------------------
1998 44.419 45.409
- ----------------------------------------------------------------------
1999 51.077 54.963
- ----------------------------------------------------------------------
2000 48.003 49.956
- ----------------------------------------------------------------------
2001 41.911 44.016
- ----------------------------------------------------------------------
2002 31.861 34.289
- -------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
The investment return and principal value of an investment in the Fund will
fluctuate so that Fund shares, when redeemed, may be worth more or less than
their original cost. The line graph and the table do not reflect the deduction
of taxes that a shareholder would pay on Fund distributions or the redemption of
Fund shares. The Standard & Poor's 500 Stock Index is an unmanaged,
market-weighted index that includes the stocks of 500 of the largest U.S.
companies. The values shown include reinvested dividends.
2
PAPP STOCK FUND, INC.
Dear Fellow Shareholder:
While our long-term performance continues to be quite satisfactory (see the
chart on the opposite page), the year 2002 was a disappointment with one problem
after another surfacing. For the year our Fund was down 23.98% compared with a
decline of 22.10% for the Standard & Poor's 500 Stock Index. Since inception in
1989 we were up 218.61% while the S&P 500 was up 242.92%.
Although a few of our companies did reasonably well during the downturn, a
number of others, especially those in electronic technology, advertising, and
consumer goods experienced a dismal year. We have not lost faith in these
companies because they do represent the future growth of our nation in both
national and international terms. Accordingly, we will continue to invest in
them and will not be panicked by short-term price fluctuations in their shares.
Given our basic premise of buying and holding good quality stocks that offer the
probability of long-term growth, the past year has been difficult for even the
long-term investor who continues to be very nervous about world conditions in
general and the status of our economy in particular. Even though the events of
9/11 have not as yet been repeated, the terrorist threat continues to occupy the
attention of many of our officials who have spent an enormous amount of time
focusing on the problem. Financial scandals, such as those at Enron, Global
Crossing, and World Com have badly shaken the investment community's faith in
our business leadership. While we believe these scandals represent only a tiny
minority of business, most of which is managed by people with good ethical
standards, its effects continue to dampen investor morale. Add to this, the
perception of insider trading (Martha Stewart) and a fragile international
situation, including the possibility of war with Iraq and the recent problem
with North Korea, and one can understand that investors are justifiably
concerned about the long-term outlook.
Our Stock Fund was initially organized in 1989 and we have designed it to
represent the common stock portion of an investment program. It is not designed
to achieve rapid growth with attendant substantial risk. Over the longer-term
this philosophy has worked well. From 1995 through 1999, respectively, we were
+32.9%, +21.8%, +33.1%, +27.0%, and +15.0%. Of course, we have given up a
portion of those profits over the past three years but this does not mean that
the fundamental growth in our economy has ended.
Indeed, many felt that common stocks were finished after the 1973-74 collapse,
but they did recover and went on to new heights. We believe that a
well-diversified common stock portfolio, consisting of good quality growth
companies, is an absolute necessity for those looking towards the long-term.
This is of course what you pay us to do, and our partners and employees, all of
whom own shares of this Fund either personally or through our Firm's 401(K)
plan, have a continuing interest in its prosperity.
Best regards,
/s/ L. Roy Papp
L. Roy Papp, Chairman
February 3, 2003
3
PAPP STOCK FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 2002
Number Fair
Common Stocks of Shares Value
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES (18.6%)
General Electric Company
(Diversified financial and industrial company) 104,000 $ 2,532,400
Northern Trust Corporation
(Bank specializing in trust services) 51,500 1,805,075
State Street Corporation
(Provider of U.S. and global securities custodial services) 140,000 5,460,000
-------------
9,797,475
-------------
MEDICAL PRODUCTS (11.7%)
Medtronic, Inc.
(Manufacturer of implantable biomedical devices) 135,000 6,156,000
-------------
SPECIALTY RETAILING (11.3%)
Walgreen Company
(Retail drug store chain) 74,500 2,174,655
Wal-Mart Stores, Inc.
(Discount retailer) 75,000 3,788,250
-------------
5,962,905
-------------
PHARMACEUTICAL (10.5%)
Merck & Company, Inc.
(Prescription pharmaceuticals) 86,000 4,868,460
Wyeth
(Prescription pharmaceuticals) 17,500 654,500
-------------
5,522,960
-------------
SOFTWARE (10.3%)
Microsoft Corporation*
(Personal computer software) 105,000 5,428,500
-------------
INDUSTRIAL SERVICES (7.4%)
G&K Services Inc., Class A
(Uniform rental service) 16,000 566,416
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 115,000 1,619,200
Omnicom Group, Inc.
(Worldwide advertising agencies) 26,000 1,679,600
-------------
3,865,216
-------------
SEMICONDUCTORS & EQUIPMENT (7.2%)
Applied Materials, Inc.*
(Developer, manufacturer, and marketer
of semiconductor manufacturing systems) 56,600 737,498
-------------
The description provided in parentheses of the investment is unaudited.
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
4
PAPP STOCK FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 2002
Number Fair
Common Stocks (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT (7.2%) CONTINUED
Intel Corporation
(Manufacturer of microprocessors, microcontrollers, and memory chips) 150,000 $2,335,500
Linear Technology Corporation
(Designer of high performance analog semiconductors) 27,700 712,444
-------------
3,785,442
-------------
INVESTMENT MANAGEMENT (6.7%)
T. Rowe Price Associates, Inc.
(No-load mutual fund company) 128,000 3,491,840
-------------
CONSUMER PRODUCTS (6.1%)
Clorox Company
(Manufacturer of bleach and other consumer products) 77,000 3,176,250
-------------
FINANCIAL PROCESSING (6.0%)
Automatic Data Processing, Inc.
(Provider of computing and data processing services) 27,500 1,079,375
First Data Corporation
(Provider of credit card processing and money transfer services) 58,000 2,053,780
-------------
3,133,155
-------------
COMPUTER EQUIPMENT (1.4%)
Hewlett-Packard Company
(Manufacturer of printers, computers, and supplies) 44,000 763,840
-------------
RESTAURANTS (0.9%)
McDonald's Corporation
(Fast food restaurants and franchising) 28,000 450,240
-------------
TRANSPORTATION & SHIPPING (0.7%)
United Parcel Service
(Provider of package delivery and logistics services) 5,500 346,940
-------------
ELECTRONIC EQUIPMENT (0.4%)
Molex, Inc.
(Supplier of interconnection products) 10,000 198,900
-------------
TOTAL COMMON STOCKS - 99.2% (COST $25,415,693) 52,079,663
CASH AND OTHER ASSETS - 0.8% 448,563
-------------
NET ASSETS - 100% $ 52,528,226
-------------
The description provided in parentheses of the investment is unaudited.
The accompanying notes are an integral part of this financial statement.
5
PAPP STOCK FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2002
ASSETS
Investment in securities, at fair value (cost $25,415,693) (Note 1) $ 52,079,663
Cash 165,054
Dividends and interest receivable 128,607
Receivable for investment securities sold 154,902
-------------
Total assets 52,528,226
LIABILITIES
Liabilities -
-------------
Net assets $ 52,528,226
-------------
NET ASSETS
Paid-in capital $ 25,980,055
Accumulated undistributed net realized loss on investments sold (115,799)
Net unrealized appreciation on investments 26,663,970
-------------
Net assets applicable to Fund shares outstanding $ 52,528,226
-------------
Fund shares outstanding 2,201,027
-------------
Net Asset Value Per Share $ 23.87
-------------
(Based on 2,201,027 shares outstanding at December 31, 2002)
The accompanying notes are an integral part of this financial statement.
6
PAPP STOCK FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
INVESTMENT INCOME:
Dividends $ 694,491
Interest 4,723
Foreign taxes withheld (355)
-----------
Total investment income 698,859
-----------
EXPENSES:
Management fee (Note 3) 638,771
Filing fees 25,924
Auditing fees 18,456
Legal fees 8,766
Printing and postage fees 8,493
Transfer agent fees (Note 3) 8,301
Custodial fees 7,297
Directors' attendance fees 6,400
Other fees 2,200
-----------
Total expenses 724,608
-----------
Net investment loss (25,749)
-----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Proceeds from sales of securities 7,469,842
Cost of securities sold 7,585,641
-----------
Net realized loss on investments sold (115,799)
-----------
Net change in unrealized appreciation on investments (17,345,367)
-----------
Net realized and unrealized loss on investments (17,461,166)
-----------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (17,486,915)
-----------
The accompanying notes are an integral part of this financial statement.
7
PAPP STOCK FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
--------------- ---------------
FROM OPERATIONS:
Net investment loss $ (25,749) $ (154,682)
Net realized (loss)/gain on investments sold (115,799) 2,510,931
Net change in unrealized appreciation on investments (17,345,367) (14,967,638)
--------------- ---------------
Decrease in net assets resulting from operations (17,486,915) (12,611,389)
--------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain on investment securities sold - (2,509,326)
--------------- ---------------
Decrease in net assets resulting from
distributions to shareholders - (2,509,326)
--------------- ---------------
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 2,532,841 3,859,164
Net asset value of shares issued to shareholders in
reinvestment of net realized gain on investment securities sold - 2,247,512
Payments for redemption of shares (7,732,984) (14,243,186)
--------------- ---------------
Decrease in net assets resulting
from shareholder transactions (5,200,143) (8,136,510)
--------------- ---------------
Total decrease in net assets (22,687,058) (23,257,225)
Net assets at beginning of the year 75,215,284 98,472,509
--------------- ---------------
Net assets at end of the year $ 52,528,226 $ 75,215,284
--------------- ---------------
The accompanying notes are an integral part of these financial statements.
8
PAPP STOCK FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(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 accounting principles generally accepted
in the United States.
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. 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.
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.
NET ASSET VALUE, ORDERS, AND REDEMPTIONS
The price per share for a purchase order or redemption request is the net asset
value next determined after receipt of the order. The 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. Eastern Standard time, on any day on which that Exchange is open for
trading.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
9
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, are to be distributed to the shareholders. The
Fund has complied with this policy and, accordingly, no provision for Federal
income taxes is required.
At December 31, 2002, the capital loss carry forward for U.S. Federal income tax
purposes is $115,799. This amount was incurred during 2002 and, as such, will
expire December 31, 2010. The Fund may offset future capital gains with this
capital loss carry forward.
During the year ended December 31, 2002, the Fund's accumulated net investment
losses that are not available deductions for tax purposes of $1,269,994 were
reclassified to paid in capital.
(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.
During the year ended December 31, 2002, the Fund designated as a capital gain
distribution a portion of earnings and profits.
On June 27, 2001, a distribution was declared from net realized long-term
capital gains of approximately $1.00 a share aggregating $2,509,326. The
distribution was paid on July 6, 2001, to shareholders of record July 2, 2001.
There were no significant differences between the book basis and tax basis of
distributions for the year ended December 31, 2002.
(3) TRANSACTIONS WITH AFFILIATES:
The Fund has an investment advisory and management services agreement with L.
Roy Papp & Associates, LLP (the 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 $8,301 in 2002 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.
10
(4) PURCHASES AND SALES OF SECURITIES:
For the year ended December 31, 2002, purchase and sale transactions excluding
short-term investments, were $2,251,667 and $7,469,842, respectively.
(5) CAPITAL SHARE TRANSACTIONS:
At December 31, 2002, there were 25,000,000 shares of $.01 par value capital
stock authorized. Transactions in capital shares of the Fund were as follows:
Proceeds Shares
-------------------- --------------------
Year ended December 31, 2002
Shares issued $ 2,532,841 89,993
Shares redeemed (7,732,984) (284,566)
-------------------- --------------------
-------------------- --------------------
Net decrease $ (5,200,143) (194,573)
==================== ====================
Year ended December 31, 2001
Shares issued $ 3,859,164 118,934
Distributions reinvested 2,247,512 70,455
Shares redeemed (14,243,186) (448,401)
-------------------- --------------------
-------------------- --------------------
Net decrease $ (8,136,510) (259,012)
==================== ====================
(6) UNREALIZED APPRECIATION:
The U.S. Federal income tax basis of the Fund's investments at December 31,
2002, was $25,415,693, and net unrealized appreciation for U.S. Federal income
tax purposes was $26,663,970, with gross unrealized gains on investments in
which fair value exceeded cost totaled $27,048,853 and gross unrealized losses
on investments in which cost exceeded fair value totaled $384,883.
11
(7) SELECTED FINANCIAL HIGHLIGHTS:
The following selected per share data has been calculated using revenues and
expenses for the years indicated, divided by the average number of shares
outstanding during the years. The ratios are calculated using the revenues and
expenses for the years, divided by the average of the daily net assets of the
Fund.
Year Ended December 31,
2002 2001 2000 1999 1998
-------------- -------------- ----------- -------------- -----------
Net asset value, beginning of year $ 31.40 $ 37.09 $ 42.20 $ 37.36 $ 29.78
Income from operations:
Net investment loss (0.06) (0.11) (0.13) (0.15) (0.09)
Net realized and unrealized
(loss)/gain on investments (7.47) (4.58) (2.22) 5.75 8.13
-------------- -------------- -------------- -------------- -----------
Total from operations (7.53) (4.69) (2.35) 5.60 8.04
Less distributions from:
Net realized gains - (1.00) (2.76) (0.76) (0.46)
-------------- -------------- -------------- -------------- ------------
Total distributions (1.00) (2.76) (0.76) (0.46)
-------------- -------------- -------------- -------------- ------------
Net asset value, end of year $ 23.87 $ 31.40 $ 37.09 $ 42.20 $ 37.36
-------------- -------------- -------------- -------------- ------------
Total return -23.98% -12.69% -6.02% 14.99% 26.99%
-------------- -------------- -------------- -------------- ------------
Ratios/Supplemental Data:
Net assets, end of year $ 52,528,226 $ 75,215,284 $ 98,472,509 $ 105,101,464 $ 98,608,333
Expenses to average net assets 1.14% 1.11% 1.09% 1.09% 1.10%
Investment income to
average net assets 1.10% 0.91% 0.71% 0.71% 0.82%
Portfolio turnover rate 3.55% 4.92% 13.33% 6.60% 9.74%
12
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Papp Stock Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Papp
Stock Fund, Inc. (the "Fund"), including the schedule of portfolio investments,
as of December 31, 2002, and the related statements of operations and changes in
net assets and financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of changes
in net assets for the year ended December 31, 2001 and the financial highlights
for each of the four years in the period ended December 31, 2001 were audited by
other auditors who have ceased operations. Those auditors expressed an
unqualified opinion on those financial statements in their report dated January
17, 2002.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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, 2002, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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 Papp
Stock Fund, Inc. as of December 31, 2002, the results of its operations, changes
in net assets and financial highlights for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Phoenix, Arizona
January 21, 2003
13
THE FOLLOWING REPORT IS A COPY OF THE
PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP
REPORT AND HAS NOT BEEN REISSUED BY
ARTHUR ANDERSEN LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Papp Stock Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Papp
Stock Fund, Inc., (the Fund) including the schedule of portfolio investments, as
of December 31, 2001, and the related statements of operations and changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five 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.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2001, 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 Papp
Stock Fund, Inc. as of December 31, 2001, the results of its operations and
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the United
States.
/s/ Arthur Andersen LLP
Los Angeles, California
January 17, 2002
14
FACTS ABOUT THE FUND
INVESTMENT OBJECTIVE - The Fund, which commenced operations on November 29,
1989, invests for the long-term in good quality common stocks. For the most
part, the companies in which the Fund invests occupy a dominant position in
their industry and are purchased at prices, which in the opinion of the Fund's
management, do not reflect their superior long-term growth of earnings and
dividends. Once purchased, the shares of these companies are ordinarily retained
so long as management believes that the prospects for appreciation continue to
be favorable and that the securities are not greatly overvalued in the
marketplace.
THE INVESTMENT ADVISER - The Fund's assets are managed by L. Roy Papp &
Associates, LLP, the largest investment counseling firm in Arizona, with over
$613 million in total assets managed for individuals, trusts, corporations, and
charitable and educational institutions. Founded in 1978, the firm is solely in
the investment management business. The firm is an independent limited liability
partnership. Of its 12 partners, 8 hold the Chartered Financial Analyst (CFA)
designation.
EXPERIENCED MANAGEMENT - The securities portfolio of the Fund is managed by L.
Roy Papp and Rosellen C. Papp. Mr. Papp, the founder of L. Roy Papp &
Associates, LLP, has over 46 years experience in the field of investment
management. Prior to founding L. Roy Papp & Associates, LLP, he was a senior
partner of a large investment counseling firm in Chicago, Illinois and the
United States Director and Ambassador to the Asian Development Bank, Manila,
Philippines. He received his M.B.A. degree from the Wharton School, University
of Pennsylvania and his A.B. degree from Brown University.
Rosellen C. Papp, the director of research at L. Roy Papp & Associates, LLP, has
over 24 years experience in security and financial analysis. She holds a Master
of Management degree in finance from the Kellogg Graduate School of Management,
Northwestern University and a B.B.A. degree from the University of Michigan. She
is a Chartered Financial Analyst and member of the International Society of
Financial Analysts.
"PURE" NO-LOAD - The Fund is a "pure" no-load fund in that there are no
"loading" charges or sales commissions paid in connection with the purchase of
its shares. In addition, there are no deferred sales loads, no redemption fees,
and no 12b-1 fees. The Fund's investment adviser receives an annual management
fee of 1%, which is based on the Fund's average daily net asset value. Other
expenses such as auditing charges, legal fees, and custodial expenses are
limited to 1/4% of the Fund's average daily net asset value; therefore, the
Fund's annual expenses may not exceed 1 1/4%.
SUITABILITY - The Fund is suitable only for long-term investors seeking capital
appreciation over time. Included are individuals of most ages, institutional
accounts such as pension and profit sharing plans, retirement accounts such as
IRA's, educational accounts for young children, and many personal trusts. The
Fund is not suitable for those with high current income needs, aggressive
investors who desire maximum short-term results and are willing to assume the
attendant risks, and those with relatively short time horizons who may require
their capital in the near-term.
15
Management of the Fund
- -----------------------
The Board of Directors has overall responsibility for the conduct of
the Fund's affairs. Directors hold office until the next meeting of shareholders
called for the election of directors and until their successors are elected and
qualified. The Fund is not required to hold meetings of shareholders. The 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 the Fund's outstanding common shares.
Shareholders may remove a director, with or without cause, by the vote of a
majority of all the votes entitled to be cast for the election of directors.
The names of the directors and officers of the Fund, the date each was
first elected or appointed to office, their principal business occupations
during the last five years, the number of portfolios each oversees and other
directorships they hold, are shown below.
NUMBER OF
DATE FIRST ELECTED PORTFOLIOS IN FUND
NAME, POSITION(S) AND AGE AT OR APPOINTED TO PRINCIPAL OCCUPATION(S) DURING COMPLEX OVERSEEN BY OTHER
----------------------------- ---------------- ------------------------------- -------------------- -----
JANUARY 1, 2003 OFFICE PAST FIVE YEARS DIRECTOR DIRECTORSHIPS
--------------- ------ --------------- -------- -------------
OFFICERS OF THE FUND:
Victoria S. Cavallero, CFA [44] 1990 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP.
George D. Clark, Jr., CFA [63] 1990 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP.
Jeffrey N. Edwards, CFA [44] 1990 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP.
Julie A. Hein, [40] 1991 Partner, L. Roy Papp & NA NA
Vice President and Associates, LLP.
Assistant Treasurer
Jane E. Couperus, CFA [33] 2001 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP since 2001;
prior thereto, Associate, L. Roy
Papp & Associates, LLP since 1997.
John L. Stull, CFA [38] 2001 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP since 2001;
prior thereto, Associate, L. Roy
Papp & Associates, LLP since
1997 and Financial Analyst,
Finova Capital Group.
Russell A. Biehl, [39] 2001 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP since 2001;
prior thereto, Associate, L. Roy
Papp & Associates, LLP since
1998 and Portfolio Manager,
Harris Trust Bank.
16
NUMBER OF
DATE FIRST ELECTED PORTFOLIOS IN FUND
NAME, POSITION(S) AND AGE AT OR APPOINTED TO PRINCIPAL OCCUPATION(S) DURING COMPLEX OVERSEEN BY OTHER
----------------------------- ---------------- ------------------------------- -------------------- -----
JANUARY 1, 2003 OFFICE PAST FIVE YEARS DIRECTOR DIRECTORSHIPS
--------------- ------ --------------- -------- -------------
DIRECTORS WHO ARE INTERESTED PERSONS OF THE FUND:
L. Roy Papp,* [75] 1989 Partner, L. Roy Papp & Five None
Chairman and Director Associates, LLP.
Harry A. Papp, CFA*+ [48] 1989 Partner, L. Roy Papp & Five None
President and Director Associates, LLP.
Robert L. Mueller,* [74] 1989 Partner, L. Roy Papp & Five None
Vice President, Secretary and Associates, LLP.
Director
Rosellen C. Papp, CFA *+ [48] 1989 Partner, L. Roy Papp & Five None
Vice President, Treasurer and Associates, LLP.
Director
Bruce C. Williams, CFA * [49] 1989 Partner, L. Roy Papp & Five None
Vice President and Director Associates, LLP.
DIRECTORS WHO ARE NOT INTERESTED PERSONS OF THE FUND:
James K. Ballinger, [51] 1989 Director, Phoenix Art Museum Five None
Director
Amy S. Clague, [68] 1989 Private investor since 2000; Five None
Director prior thereto, Partner, Boyd and
Clague, bookkeeping services.
- --------
* Messrs. L. Roy Papp, Harry A. Papp, Robert L. Mueller and Bruce C. Williams
and Ms. Rosellen C. Papp are "interested persons" of the Fund, as defined
in the Investment Company Act of 1940, because they are Partners of the
Adviser.
+ Harry A. Papp is the son of L. Roy Papp and Rosellen C. Papp is the
daughter-in-law of L. Roy Papp.
- ---------
The address of Messrs. L. Roy Papp, Harry A. Papp, Robert L. Mueller and
Bruce C. Williams and 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 322 W. Holly Street, Phoenix, Arizona 85003; the address of Mrs.
Clague is 326 East Kaler Drive, Phoenix, Arizona 85020.
The Statement of Additional Information includes additional information
about the directors and officers. You may obtain a free copy of the Statement of
Additional Information by calling toll-free (800) 421-4004.
This report is submitted for the general information of the shareholders of
the Fund. The report is not authorized for distribution to prospective investors
in the Fund unless it is accompanied or preceded by a currently effective
prospectus of the Fund. No sales charge to the shareholder or to the new
investor is made in offering the shares of the Fund.
17
[Picture of man sitting in chair]
PAPP SMALL & MID-CAP GROWTH FUND, INC.
A No-Load Fund
ANNUAL REPORT
December 31, 2002
Managed by:
L. Roy Papp & Associates, LLP
6225 North 24th Street
Suite 150
Phoenix, AZ 85016
(602)956-1115 Local
(800)421-4004
E-mail: invest@roypapp.com
Web: http://www.roypapp.com
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN PAPP SMALL & MID-CAP
GROWTH FUND, INC. AND RUSSELL 2000 STOCK INDEX THROUGH DECEMBER 31, 2002
- -----------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------------------
1 Year Since Inception
- -----------------------------------------------
Papp Small & Mid-Cap -18.30% 7.21%
Fund
- -----------------------------------------------
Russell 2000 Stock -20.48% 0.94%
Index
- -----------------------------------------------
[Mountain Chart data in thousands]
- --------------------------------------------------------
Year Papp Small & Russell 2000
Mid-Cap Growth Fund Stock Index
- --------------------------------------------------------
12/15/98 10 10
- --------------------------------------------------------
1998 10.8 10.837
- --------------------------------------------------------
1999 12.21 13.14
- --------------------------------------------------------
2000 16.03 12.74
- --------------------------------------------------------
2001 16.212 13.06
- --------------------------------------------------------
2002 13.246 10.386
- --------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
The investment return and principal value of an investment in the Fund will
fluctuate so that Fund shares, when redeemed, may be worth more or less than
their original cost. The line graph and table do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption of
Fund shares. This Fund's performance is measured against that of the Russell
2000 Stock Index, an unmanaged, weighted index that includes stocks of 2000
smaller U.S. companies, with dividends reinvested.
2
PAPP SMALL & MID-CAP GROWTH FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 2002
Number Fair
Common Stocks of Shares Value
- ---------------------------------------------------------------------------------- ----------------
Industrial Services (14.6%)
Catalina Marketing Corporation*
(Provider of targeted marketing products and services
to packaged goods companies and retailers) 15,000 $ 277,500
Cintas Corporation
(Uniform and textile rental company) 9,400 430,050
Expeditors International of Washington, Inc.
(International air freight forwarding) 15,000 489,750
Forrester Research *
(Provider of strategic technology research) 11,700 182,169
Harte-Hanks, Inc.
(Diversified marketing services provider) 26,550 495,689
WPP Group PLC.
(Worldwide advertising agencies) 11,000 416,680
----------------
2,291,838
----------------
Financial Services (10.9%)
Bisys Group *
(Provider of administration and information services
to the financial services industry) 14,000 222,600
DST Systems, Inc.*
(Provides data processing, billing, and outsourcing services
to customers in the financial services, utility, and
telecommunications industries) 9,800 348,390
Fiserv, Inc.*
(Provides data processing, information management, and
outsourcing services to the financial services industry) 15,500 526,225
Investors Financial Services Corporation
(Provides asset administration services to the financial
services industry) 17,500 479,325
SEI Corporation
(Provider of trust management and accounting services,
mutual fund and distribution services, and investment
management services) 5,000 135,900
-----------------
$ 1,172,440
-----------------
Consumer Products (8.9%)
Alberto-Culver Company
(Leading distributor of beauty supplies and manufacturer
of various consumer products) 9,700 488,880
The description provided in parentheses of the investment is unaudited.
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
3
PAPP SMALL & MID-CAP GROWTH FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 2002
Number Fair
Common Stocks (continued) of Shares Value
- ------------------------------------------------------------------------------------ -----------------
Consumer Products (8.9%) Continued
American Italian Pasta Corporation *
(North American producer of private label pasta) 12,500 $ 449,750
Clorox Company
(Manufacturer of bleach and other consumer products) 11,100 457,875
-----------------
1,396,505
-----------------
Instruments & Testing (7.6%)
Mettler-Toledo International, Inc.
(Leading designer, manufacturer, and marketer of weight
and measurement instruments) 9,500 304,570
Molecular Devices Corporation
(Designs, manufactures, and markets equipment used in the
drug discovery process) 16,000 263,520
National Instruments Corporation *
(Supplier of computer based instrumentation products) 12,500 406,125
Waters Corporation*
(Manufacturer of high performance instruments
used for life sciences research) 10,000 217,800
-----------------
1,192,015
-----------------
Semiconductors & Equipment (7.5%)
KLA-Tencor Corporation *
(Designs and produces wafer inspection and process control
equipment for the semiconductor industry) 10,000 353,700
Linear Technology
(Designer of high performance analog semiconductors) 14,000 360,080
Novellus Systems, Inc.*
(Designs and manufactures semiconductor fabrication equipment) 8,000 224,640
Semtech Corporation*
(Designs analog and mixed signal semiconductors) 21,000 229,320
-----------------
1,167,740
-----------------
Health Care Services (6.8%)
Express Scripts, Inc.*
(Independent pharmacy benefit manager) 8,500 408,340
IMS Health, Inc.
(Provider of information solutions and market
research to pharmaceutical industry) 11,000 176,000
Patterson Dental Company *
(Distributor of dental supplies in the U.S. and Canada) 11,000 481,140
-----------------
1,065,480
-----------------
The description provided in parentheses of the investment is unaudited.
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
4
PAPP SMALL & MID-CAP GROWTH FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 2002
Number Fair
Common Stocks (continued) of Shares Value
- -------------------------------------------------------------------------------- -----------------
Medical Products (6.4%)
Dentsply International, Inc.
(Manufacturer of dental consumables and dental equipment) 13,500 $ 502,200
Stryker Corporation
(Developer and manufacturer of surgical and medical devices) 7,400 496,688
-----------------
998,888
-----------------
Investment Management (6.1%)
Federated Investors
(Major U.S. investment management company) 19,000 482,030
T. Rowe Price Associates, Inc.
(No-load mutual fund company) 17,200 469,216
-----------------
951,246
-----------------
Educational Providers (4.3%)
Apollo Group, Inc.*
(Provider of higher education programs for working adults) 7,000 308,000
DeVry, Inc.*
(Owns and operates post-secondary,
technical education institutions) 22,000 365,420
-----------------
673,420
-----------------
Software (3.8%)
Advent Software, Inc. *
(Develops and markets portfolio software for the
investment management industry) 6,000 81,780
SunGard Data Systems, Inc. *
(Develops software for investment support systems) 21,500 506,540
-----------------
588,320
-----------------
Restaurants (3.5%)
Brinker International, Inc.*
(Owns, operates, and franchises casual dining restaurants) 16,850 543,412
-----------------
Specialty Retailing (3.4%)
Family Dollar Stores, Inc.
(Self-service discount store chain) 17,200 536,812
-----------------
The description provided in parentheses of the investment is unaudited.
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
5
PAPP SMALL & MID-CAP GROWTH FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 2002
Number Fair
Common Stocks (continued) of Shares Value
- --------------------------------------------------------------------------------- -----------------
Broadcasting and Publishing (3.3%)
Entercom Communications Corporation
(Radio broadcaster) 5,700 $ 267,444
Saga Communications, Inc.*
(Radio broadcaster) 13,250 251,750
-----------------
519,194
-----------------
Electronic Equipment (2.9%)
Molex, Inc.
(Supplier of interconnection products) 23,100 459,459
-----------------
Biotechnology (2.9% )
Techne Corporation*
(Producer of biotechnology products) 16,000 457,088
-----------------
Distributors (2.2%)
Sigma-Aldrich Corporation
(Develops, manufactures, and distributes specialty chemicals) 7,000 340,900
-----------------
Telecommunications (1.1%)
Plantronics, Inc. *
(Manufactures lightweight telephone headsets) 11,000 166,430
-----------------
Total Common Stocks 96.2% (cost $15,306,572) $ 15,061,187
-----------------
Bonds & Notes - 0.0%
Del Global Promissory Note
(Yield 6%, Due 3/27/07) $ 2,013
-----------------
Total Investments - 96.2% (cost $15,306,572) 15,063,200
Cash and Other Assets, Less Liabilities - 3.8% 596,023
-----------------
Net Assets - 100% $ 15,659,223
=================
The description provided in parentheses of the investment is unaudited.
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
6
PAPP SMALL & MID-CAP GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2002
ASSETS
Investments, at fair value (cost $15,306,572) (Note 1) $ 15,063,200
Cash 698,041
Dividends and interest receivable 7,416
-------------------
Total assets 15,768,657
LIABILITIES
Payable for investment securities purchased 109,434
-------------------
Net assets $ 15,659,223
===================
NET ASSETS
Paid-in capital $ 16,329,780
Accumulated undistributed net realized loss on investments sold (427,185)
Net unrealized depreciation on investments (243,372)
-------------------
Net assets applicable to Fund shares outstanding $ 15,659,223
==================
Fund shares outstanding 823,237
===================
Net Asset Value Per Share $ 19.02
===================
(Based on 823,237 shares outstanding at December 31, 2002)
The accompanying notes are an integral part of this financial statement.
7
PAPP SMALL & MID-CAP GROWTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
INVESTMENT INCOME:
Dividends $ 39,706
Interest 8,366
Foreign taxes withheld (351)
--------------------
Total investment income 47,721
--------------------
EXPENSES:
Management fee (Note 3) 130,219
Filing fees 25,607
Auditing fees 16,092
Custody fees 14,003
Legal fees 8,900
Printing and postage fees 3,104
Directors' attendance fees 3,000
Transfer agent fees (Note 3) 1,766
Other fees 1,475
--------------------
Total expenses 204,166
Less fees waived by adviser (Note 3) (41,393)
--------------------
Net expenses 162,773
--------------------
Net investment loss (115,052)
--------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Proceeds from sale of securities 690,383
Cost of securities sold (956,423)
--------------------
Net realized loss on investments sold (266,040)
Net change in unrealized appreciation on investments (2,399,488)
--------------------
Net realized and unrealized loss on investments (2,665,528)
--------------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (2,780,580)
====================
The accompanying notes are an integral part of this financial statement.
8
PAPP SMALL & MID-CAP GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS FOR
THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
-------------------- --------------------
FROM OPERATIONS:
Net investment loss $ (115,052) $ (69,098)
Net realized loss on investments sold (266,040) (161,145)
Net change in unrealized appreciation on investments (2,399,488) 383,907
-------------------- --------------------
(Decrease)/Increase in net assets resulting from
operations (2,780,580) 153,664
-------------------- --------------------
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 10,116,903 3,065,195
Net asset value of shares issued to shareholders
in reinvestment of net realized gain
on investment securities sold - -
Payments for redemption of shares (1,441,422) (216,684)
-------------------- --------------------
Increase in net assets resulting
from shareholder transactions 8,675,481 2,848,511
-------------------- --------------------
Total increase in net assets 5,894,901 3,002,175
-------------------- --------------------
Net assets at beginning of the year 9,764,322 6,762,147
-------------------- --------------------
Net assets at end of year $ 15,659,223 $ 9,764,322
==================== ====================
The accompanying notes are an integral part of these financial statements.
9
PAPP SMALL & MID-CAP GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(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 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. 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.
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.
NET ASSET VALUE, ORDERS, AND REDEMPTIONS
The price per share for a purchase order or redemption request is the net asset
value next determined after receipt of the order. The 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. Eastern Standard time, on any day on which that Exchange is open for
trading.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
10
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, are to be distributed to the shareholders. The
Fund has complied with this policy and, accordingly, no provision for federal
income taxes is required.
At December 31, 2002, the net capital loss carryovers noted below are available
to offset future realized capital gains and thereby reduce future capital gains
distributions.
Expiration Date Amount
- ------------------------------------ ----------------
December 31, 2009 $ (161,145)
December 31, 2010 $ (266,040)
----------------
Total capital loss carryover $ (427,185)
================
During the year ended December 31, 2002, the Fund's accumulated net investment
losses that are not available deductions for tax purposes of $222,617 were
reclassified to paid in capital.
(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.
(3) TRANSACTIONS WITH AFFILIATES:
The Fund has an investment advisory and management services agreement with L.
Roy Papp & Associates, LLP (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 $41,393 was required in 2002. The Fund
incurred fees of $1,766 in 2002 from the manager for providing shareholder and
transfer agent services.
The Fund's independent directors receive $300 for each meeting of the Board of
Directors attended on behalf of the Fund. Certain officers and/or directors of
the Fund are also partners of the Manager and shareholders in the Fund. The Fund
made no payments to its officers or directors, except to independent directors
as stated above.
11
(4) PURCHASES AND SALES OF SECURITIES:
For the year ended December 31, 2002, purchase and sale transactions excluding
short-term investments, were $8,813,610 and $690,383, respectively.
(5) CAPITAL SHARE TRANSACTIONS:
At December 31, 2002 there were 25,000,000 shares of $.01 par value capital
stock authorized. Transactions in capital shares of the Fund were as follows:
Proceeds Shares
------------------- ----------------
Year ended December 31, 2002
Shares issued $10,116,903 474,373
Shares redeemed (1,441,422) (70,649)
------------------- ----------------
Net increase $8,675,481 403,724
=================== ================
Year ended December 31, 2001
Shares issued $3,065,195 135,472
Shares redeemed (216,684) (9,661)
------------------- ----------------
Net increase $2,848,511 125,811
=================== ================
(6) UNREALIZED APPRECIATION:
The U.S. Federal income tax basis of the Fund's investments at December 31,
2002, was $15,306,572, and net unrealized depreciation for U.S. Federal income
tax purposes was $243,372, with gross unrealized gains on investments in which
fair value exceeded cost totaled $1,680,279 and gross unrealized losses on
investments in which cost exceeded fair value totaled $1,923,651.
12
13
(7) SELECTED FINANCIAL HIGHLIGHTS:
The following selected per share data has been calculated using revenues and
expenses for the periods indicated, divided by the weighted average number of
shares outstanding during the periods. The ratios are calculated using the
revenues and expenses for the period, divided by the weighted average of the
daily net assets of the Fund.
Period Ended
Year ended December 31, December 31,
2002 2001 2000 1999 1998(A)
---------------------------------- ----------------- --------------- -----------------
Net asset value, beginning
of period $ 23.28 $ 23.02 $ 18.31 $ 16.20 $ 15.00
Income from operations:
Net investment loss (0.01) (0.12) (0.14) (0.14) -
Net realized and unrealized
gain/(loss) on investments (4.25) 0.38 5.89 2.25 1.20
---------------- --------------- ----------------- --------------- -----------------
Total from operations (4.26) 0.26 5.75 2.11 1.20
Less distributions from:
Net realized gain - - (1.04) - -
---------------- --------------- ----------------- --------------- -----------------
Total distributions - - (1.04) - -
---------------- --------------- ----------------- --------------- -----------------
Net asset value, end of period $ 19.02 $ 23.28 $ 23.02 $ 18.31 $ 16.20
================ =============== ================= =============== =================
Total return -18.30% 1.13% 31.32% 13.04% 8.00%
================ =============== ================= =============== =================
Ratios/Supplemental Data:
Net assets, end of period $ 15,659,223 $9,764,322 $ 6,762,147 $4,325,499 $ 1,566,225
Expenses to average
net assets (B) 1.25% 1.25% 1.25% 1.25% 1.25%*
Investment income to
average net assets (C) 0.37% 0.39% 0.36% 0.32% 1.01%*
Portfolio turnover rate 5.49% 10.57% 40.42% 53.07% 0.00%
* Annualized
(A) From December 15, 1998 (date of commencement of operations) through
December 31, 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%,
1.69%, 1.89%, 1.68% and 1.56% for the years ended December 31, 2002, 2001,
2000, 1999 and 1998 respectively.
(C) Computed giving effect to investment adviser's expense limitation
undertaking.
13
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Papp Small & Mid-Cap Growth Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Papp
Small & Mid-Cap Growth Fund, Inc. (the "Fund"), including the schedule of
portfolio investments, as of December 31, 2002, and the related statements of
operations and changes in net assets and financial highlights for the year then
ended. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended December 31,
2001 and the financial highlights for each of the four years in the period ended
December 31, 2001 were audited by other auditors who have ceased operations.
Those auditors expressed an unqualified opinion on those financial statements in
their report dated January 17, 2002.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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, 2002, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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 Papp
Small & Mid-Cap Growth Fund, Inc. as of December 31, 2002, the results of its
operations, changes in net assets and financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
Phoenix, Arizona
January 21, 2003
14
THE FOLLOWING REPORT IS A COPY OF THE PREVIOUSLY ISSUED ARTHUR ANDERSEN
LLP REPORT AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Papp Small & Mid-Cap Growth Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Papp
Small & Mid-Cap Growth Fund, Inc., (the Fund) including the schedule of
portfolio investments, as of December 31, 2001, and the related statements of
operations and changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the three years in the
period ending December 31, 2001 and for the period from commencement of
operations (December 15, 1998) 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 and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2001, 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 Papp
Small & Mid-Cap Growth Fund, Inc. as of December 31, 2001, the results of its
operations and changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the three years in the
period ending December 31, 2001 and for the period from commencement of
operations (December 15, 1998) through December 31, 1998, in conformity with
accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Los Angeles, California
January 17, 2002
15
Management of the Fund
The Board of Directors has overall responsibility for the conduct of
the Fund's affairs. Directors hold office until the next meeting of shareholders
called for the election of directors and until their successors are elected and
qualified. The Fund is not required to hold meetings of shareholders. The 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 the Fund's outstanding common shares.
Shareholders may remove a director, with or without cause, by the vote of a
majority of all the votes entitled to be cast for the election of directors.
The names of the directors and officers of the Fund, the date each was
first elected or appointed to office, their principal business occupations
during the last five years, the number of portfolios each oversees and other
directorships they hold, are shown below.
DATE FIRST NUMBER OF
ELECTED OR PRINCIPAL OCCUPATION(S) PORTFOLIOS IN FUND
NAME, POSITION(S) AND APPOINTED TO DURING PAST COMPLEX OVERSEEN BY OTHER
AGE AT JANUARY 1, 2003 OFFICE FIVE YEARS DIRECTOR DIRECTORSHIPS
------- ------ ---------- -------- -------------
OFFICERS OF THE FUND:
Victoria S. Cavallero, CFA [44] 1998 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP.
George D. Clark, Jr., CFA [63] 1998 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP.
Jeffrey N. Edwards, CFA[44] 1998 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP.
Julie A. Hein, [40] 1998 Partner, L. Roy Papp & NA NA
Vice President and Associates, LLP.
Assistant Treasurer
Jane E. Couperus, CFA [33] 2001 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP since 2001; prior
thereto, Associate, L. Roy Papp &
Associates, LLP since 1997.
John L. Stull, CFA [38] 2001 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP since 2001; prior
thereto, Associate, L. Roy Papp &
Associates, LLP since 1997 and
Financial Analyst, Finova Capital
Group.
Russell A. Biehl, [39] 2001 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP since 2001; prior
thereto, Associate, L. Roy Papp &
Associates, LLP since 1998 and
Portfolio Manager, Harris Trust
Bank.
16
DATE FIRST NUMBER OF
ELECTED OR PRINCIPAL OCCUPATION(S) PORTFOLIOS IN FUND
NAME, POSITION(S) AND APPOINTED TO DURING PAST COMPLEX OVERSEEN BY OTHER
AGE AT JANUARY 1, 2003 OFFICE FIVE YEARS DIRECTOR DIRECTORSHIPS
------- ------ ---------- -------- -------------
DIRECTORS WHO ARE INTERESTED PERSONS OF THE FUND:
L. Roy Papp,* [75] 1998 Partner, L. Roy Papp & Five None
Chairman and Director Associates, LLP.
Harry A. Papp, CFA *+ [48] 1998 Partner, L. Roy Papp & Five None
President and Director Associates, LLP.
Robert L. Mueller,* [74] 1998 Partner, L. Roy Papp & Five None
Vice President, Secretary and Associates, LLP.
Director
Rosellen C. Papp, CFA *+ [48] 1998 Partner, L. Roy Papp & Five None
Vice President, Treasurer and Associates, LLP.
Director
Bruce C. Williams, CFA * [49] 1998 Partner, L. Roy Papp & Five None
Vice President and Director Associates, LLP.
DIRECTORS WHO ARE NOT INTERESTED PERSONS OF THE FUND:
James K. Ballinger, [51] 1998 Director, Phoenix Art Museum Five None
Director
Amy S. Clague, [68] 1998 Private investor since 2000; Five None
Director prior thereto, Partner, Boyd and
Clague, bookkeeping services.
Carolyn P. O'Malley, [53] 1998 Executive Director, Dorrance Three None
Director Family Foundation since 2001;
prior thereto, Director, Desert
Botanical Garden.
- ------------------------------------
* Messrs. L. Roy Papp, Harry A. Papp, Robert L. Mueller and Bruce C. Williams
and Ms. Rosellen C. Papp are "interested persons" of the Fund, as defined
in the Investment Company Act of 1940, because they are Partners of the
Adviser.
+ Harry A. Papp is the son of L. Roy Papp and Rosellen C. Papp is the
daughter-in-law of L. Roy Papp.
- ------------------------------------
The address of Messrs. L. Roy Papp, Harry A. Papp, Robert L. Mueller, Bruce
C. Williams and 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
322 W. Holly Street, Phoenix, Arizona 85003; the address of Mrs. Clague is 326
East Kaler Drive, Phoenix, Arizona 85020; and the address of Mrs. O'Malley is
4438 E. Camelback Road #155, Phoenix, Arizona 85018.
The Statement of Additional Information includes additional information
about the directors and officers. You may obtain a free copy of the Statement of
Additional Information by calling toll-free (800) 421-4004.
This report is submitted for the general information of the shareholders of
the Fund. The report is not authorized for distribution to prospective investors
in the Fund unless it is accompanied or preceded by a currently effective
prospectus of the Fund. No sales charge to the shareholder or to the new
investor is made in offering the shares of the Fund.
17
PAPP SMALL & MID-CAP GROWTH FUND, INC.
Dear Fellow Shareholder:
In the year 2002 our Fund did manage to outperform the Russell 2000 Index by a
small amount. We were down 18.30% while the Russell 2000 was down 20.28%. Again,
the Russell 2000 did a little better than the Standard & Poor's 500 Stock Index,
which measures the performance of 500 of the largest American companies. That
Index was down 22.10%.
Over the longer-term our Fund continues to outperform the Russell 2000 by a
large margin. As the chart on the opposite page indicates, since inception in
December, 1998 we were up 32.46% while the Russell 2000 was up 3.86%.
The past year has been a difficult one for investors who continue to be very
nervous about world conditions in general and the status of our economy in
particular. The terrorist threat continues to occupy the attention of many of
our officials and does not appear to be waning. Financial scandals, such as
those at Enron, Global Crossing, and World Com, have badly shaken the investment
community's faith in our business leadership. While we believe most of the
scandals have already been exposed, its effects continue to dampen investor
morale. Add to this, the perception of insider trading (Martha Stewart), the
strengthening of our dollar versus some other currencies, a fragile
international situation including the possibility of a war with Iraq and the
recent problem with North Korea, and one can understand that investors are
justifiably concerned about the long-term outlook.
When we started this Fund we committed to the purchase of good quality growth
stocks with a history of growing sales and earnings. We were determined to avoid
"story" stocks such as the dot.coms and other momentum companies where price is
based on hope rather than reality. We were also sensitive to the need for
selecting individual names rather than placing our investments on groups of
stocks within a particular industry on the hope that industry would do well.
We also believed that we should diversify our investments among a variety of
industries and that we should not commit a large amount of money to a particular
stock. For these reasons we own retail companies such as discount department
stores and restaurants, for profit higher education institutions, a number of
financial service companies ranging from mutual fund operations to asset
administration services, dental supply companies, and software companies.
Because smaller companies are subject to competition, cancellations, or
extensions of delivery times, they are subject to wide price fluctuations and
this is the decision behind our holding a relatively large number of stocks.
For these reasons we believe that over time our good results will continue.
Best regards,
/s/ L. Roy Papp
L. Roy Papp, Chairman
February 3, 2003
Photo: man on chair
PAPP AMERICA-ABROAD FUND, INC.
A NO-LOAD FUND
ANNUAL REPORT
DECEMBER 31, 2002
Managed by:
L. Roy Papp & Associates,
LLP
6225 North 24th Street
Suite 150
Phoenix, AZ 85016
602-956-1115
800-421-4004
E-mail: invest@roypapp.com
Web: http://www.roypapp.com
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
PAPP AMERICA-ABROAD FUND, INC. AND THE MORGAN
STANLEY WORLD INDEX THROUGH DECEMBER 31, 2002
AVERAGE ANNUAL TOTAL RETURN
Since
1 Year 5 Years 10 Years Inception
Papp America-Abroad Fund -25.02% -4.05% 7.13% 8.03%
Morgan Stanley World Index -21.06% -2.84% 5.90% 5.47%
[chart data]
(in thousands of dollars)
Papp America- Morgan Stanley
Year Abroad Fund World Index
12/6/91 10 10
1991 10.994 10.72
1992 11.811 10.158
1993 11.803 12.45
1994 12.725 13.079
1995 17.44 15.848
1996 22.262 17.985
1997 28.91 20.817
1998 35.799 25.882
1999 40.815 32.338
2000 37.296 27.792
2001 31.359 22.837
2002 23.513 18.027
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
The investment return and principal value of an investment in the Fund will
fluctuate so that Fund shares, when redeemed, may be worth more or less than
their original cost. The line graph and the table do not reflect the deduction
of taxes that a shareholder would pay on Fund distributions or the redemption of
Fund shares. This Fund's performance is measured against that of the Morgan
Stanley World Index. Approximately 42% of the sales of the companies in the
Fund's portfolio are derived from foreign sources and 58% are derived from
United States sources. The Morgan Stanley World Index is an unmanaged,
market-weighted index that includes 50% foreign companies and 50% United States
companies. The values shown include reinvested dividends.
2
PAPP AMERICA-ABROAD FUND, INC.
Dear Fellow Shareholder:
The past year was a very difficult one for multi-national companies, especially
those in technology and allied businesses. Not only were the earnings weak, but
the whole international situation became very fragile, led by the possibility of
war with Iraq and, more recently, with the North Korean troubles. Our Fund was
down 25.02% against a decline of 21.06% for the Morgan Stanley World Index,
against which we compare ourselves, and down 22.10% for the Standard & Poor's
500 Stock Index. Over the longer term we have had good results. Since the Fund's
inception in December 1991 we were up 135.24% compared with an advance of 80.30%
for the World Index and plus 190.10% for the S&P 500. The Fund's record versus
the World index is shown on the opposite page.
On the whole our drug companies did relatively well in 2002, but the electronic
technology companies had a dismal experience. We have not lost faith in the
actual and potential benefits of technology, because we believe it will be the
leader as the twenty first century unfolds. Accordingly, we will continue to
invest in the best technology companies and will not be panicked by short-term
price fluctuations in their shares.
Given our basic premise of buying and holding good quality stocks that offer the
probability of long-term growth, the past year has been difficult for even the
long-term investor who continues to be very nervous about world conditions in
general and the status of our economy in particular. Even though the events of
9/11 have not as yet been repeated, the terrorist threat continues to occupy the
attention of many of our officials who have spent an enormous amount of time
focusing on the problem. Financial scandals, such as those at Enron, Global
Crossing, and World Com have badly shaken the investment community's faith in
our business leadership. While we believe these scandals represent only a tiny
minority of business, most of which is managed by people with good ethical
standards, its effects continue to dampen investor morale. Add to this, the
perception of insider trading (Martha Stewart), a fragile international
situation, and one can understand that investors are justifiably concerned about
the long-term outlook.
As investment professionals, it is our job to take the longer view and to find
the best managed companies that fit within our overall investment philosophy.
Stocks like Intel, Hewlett-Packard, IBM, and Microsoft have suffered in terms of
both earnings and price performance, but these are of high quality and possess
excellent management. We believe they will survive and prosper. Fortunately, we
have avoided those companies that have been involved in financial scandals. This
is, of course, what you pay us to do, and our partners and employees, all of
whom own shares of this Fund either personally or through our firm's 401(K)
plan, have a continuing interest in the Fund's prosperity.
Best regards,
/s/ L. Roy Papp
L. Roy Papp, Chairman
February 3, 2003
3
PAPP AMERICA-ABROAD FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 2002
Number Fair
Common Stocks of Shares Value
- ----------------------------------------------------------------- --------- -----------
FINANCIAL SERVICES (24.9%)
American International Group
(Major international insurance holding company) 58,500 $ 3,384,225
General Electric Company
(Diversified financial and industrial company) 130,000 3,165,500
State Street Corporation
(Provider of U.S. and global securities custodial services) 201,000 7,839,000
-----------
14,388,725
-----------
PHARMACEUTICAL (15.3%)
Eli Lilly & Company
(Prescription pharmaceuticals) 34,000 2,159,000
Merck & Company, Inc.
(Prescription pharmaceuticals) 118,000 6,679,980
-----------
8,838,980
-----------
MEDICAL PRODUCTS (14.1%)
Johnson & Johnson
(Healthcare products) 119,000 6,391,490
Medtronic, Inc.
(Manufacturer of implantable biomedical devices) 38,000 1,732,800
-----------
8,124,290
-----------
SOFTWARE (13.9%)
Microsoft Corporation*
(Personal computer software) 155,000 8,013,500
-----------
INDUSTRIAL SERVICES (12.5%)
Expeditors International of Washington, Inc.
(International air freight forwarding) 140,600 4,590,590
Omnicom Group, Inc.
(Worldwide advertising agencies) 40,700 2,629,220
-----------
7,219,810
-----------
SEMICONDUCTORS & Equipment (12.0%)
Applied Materials, Inc.*
(Developer, manufacturer, and marketer of
semiconductor manufacturing systems) 72,000 938,160
Intel Corporation
(Manufacturer of microprocessors, microcontrollers,
and memory chips) 320,000 4,982,400
Linear Technology
(Designer of high performance analog semiconductors) 40,000 1,028,800
-----------
6,949,360
-----------
The description provided in parentheses of the investment is unaudited.
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
4
PAPP AMERICA-ABROAD FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 2002
Number Fair
Common Stocks (continued) of Shares Value
- ----------------------------------------------------------------- --------- -----------
COMPUTER EQUIPMENT (2.4%)
Hewlett-Packard Company
(Manufacturer of printers, computers, and supplies) 25,000 $ 434,000
International Business Machines Corporation
(Global provider of information technology, hardware,
software, and services) 12,500 968,750
-----------
1,402,750
-----------
ELECTRONIC EQUIPMENT (2.0%)
American Power Conversion *
(Producer of uninterruptible power supply products) 18,000 272,700
Molex, Inc.
(Supplier of interconnection products) 45,250 900,022
-----------
1,172,722
-----------
CONSUMER PRODUCTS (1.1%)
Colgate-Palmolive Company
(Leading manufacturer and marketer of oral care and
other personal care products) 12,000 629,160
-----------
DISTRIBUTORS (0.7%)
Sigma-Aldrich Corporation
(Develops, manufactures, and distributes
specialty chemicals) 8,000 389,600
-----------
OIL EXPLORATION AND PRODUCTION (0.4%)
Royal Dutch Petroleum Company, PLC
(Oil exploration and production company) 5,000 220,100
-----------
TOTAL COMMON STOCKS 99.3% (COST $42,053,427) 57,348,997
CASH AND OTHER ASSETS 382,974
-----------
NET ASSETS - 100% $57,731,971
===========
The description provided in parentheses of the investment is unaudited.
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
5
PAPP AMERICA-ABROAD FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2002
ASSETS
Investment in securities, at fair value
(cost $42,053,427 ) (Note 1) $57,348,997
Cash 106,687
Dividends and interest receivable 108,382
Receivables for securities sold 167,905
-----------
Total assets 57,731,971
===========
LIABILITIES
Liabilities -
-----------
Net assets $57,731,971
===========
NET ASSETS
Paid-in capital $42,587,320
Accumulated undistributed realized loss on investments sold (150,919)
Net unrealized appreciation on investments 15,295,570
-----------
Net assets applicable to Fund shares outstanding $57,731,971
===========
Fund shares outstanding 3,439,845
===========
Net Asset Value Per Share $ 16.78
===========
(Based on 3,439,845 shares outstanding at December 31, 2002)
The accompanying notes are an integral part of this financial statement.
6
PAPP AMERICA-ABROAD FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
INVESTMENT INCOME:
Dividends $ 765,586
Interest 3,813
Foreign taxes withheld (3,380)
-----------
Total investment income 766,019
-----------
EXPENSES:
Management fee (Note 3) 777,766
Printing and postage fees 29,991
Filing fees 27,037
Transfer agent fees (Note 3) 22,467
Auditing fees 20,518
Custodial fees 16,379
Legal fees 8,896
Directors' attendance fees 7,600
Other fees 2,200
-----------
Total expenses 912,854
-----------
Net investment loss (146,835)
-----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Proceeds from sales of securities 31,667,174
Cost of securities sold (31,631,724)
-----------
Net realized gain on investments sold 35,450
Net change in unrealized
appreciation on investments (22,276,386)
-----------
Net realized and unrealized
loss on investments (22,240,936)
-----------
DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(22,387,771)
===========
The accompanying notes are an integral part of this financial statement.
7
PAPP AMERICA-ABROAD FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
FROM OPERATIONS:
Net investment loss $ (146,835) $ (331,210)
Net realized gain on investments sold 35,450 5,045,826
Net change in unrealized appreciation on investments (22,276,386) (29,871,027)
------------ -------------
Decrease in net assets resulting
from operations (22,387,771) (25,156,411)
------------ -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain on investment securities sold - prior year - (186,369)
Net realized gain on investment securities sold - (5,041,893)
------------ -------------
Decrease in net assets resulting from
distributions to shareholders - (5,228,262)
------------ -------------
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 4,169,477 8,356,808
Net asset value of shares issued to shareholders in
reinvestment of net realized gain
on investment securities sold - 4,728,423
Payments for redemption of shares (23,364,580) (52,001,938)
------------ -------------
Decrease in net assets resulting
from shareholder transactions (19,195,103) (38,916,707)
------------ -------------
Total decrease in net assets (41,582,874) (69,301,380)
Net assets at beginning of the year 99,314,845 168,616,225
------------ -------------
Net assets at end of the year $ 57,731,971 $ 99,314,845
============ =============
The accompanying notes are an integral part of these financial statements.
8
PAPP AMERICA-ABROAD FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(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 accounting principles generally accepted
in the United States.
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. 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.
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.
NET ASSET VALUE, ORDERS, AND REDEMPTIONS
The price per share for a purchase order or redemption request is the net asset
value next determined after receipt of the order. The 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. Eastern Standard time, on any day on which that Exchange is open for
trading.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
9
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, are to be distributed to the shareholders. The
Fund has complied with this policy and, accordingly, no provision for Federal
income taxes is required.
During the year ended December 31, 2002, the Fund reclassified $186,369 from
undistributed net realized gains to additional paid-in-capital to align
financial reporting with tax reporting. In addition, the Fund's accumulated net
investment losses that are not available deductions for tax purposes of
$2,253,766 were reclassified to paid in capital.
At December 31, 2002, the capital loss carry forward for U.S. Federal income tax
purposes is $150,919. This amount was incurred in 2002 and, as such, will expire
December 31, 2010. The Fund may offset future capital gains with this capital
loss carry forward.
(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.
During the year ended December 31, 2002, the Fund designated as a capital gain
distribution a portion of earnings and profits.
On June 27, 2001, a distribution was declared from net realized long-term
capital gains of approximately $1.00 a share aggregating to $5,228,262. The
distribution was paid on July 6, 2001, to shareholders of record on July 2,
2001.
There were no significant differences between the book basis and tax basis of
distributions for the year ended December 31, 2002.
(3) TRANSACTIONS WITH AFFILIATES:
The Fund has an investment advisory and management services agreement with L.
Roy Papp & Associates, LLP (the 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 $22,467 in 2002, from the Manager for providing shareholder and
transfer agent services.
The Fund's independent directors receive $900 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.
10
(4) PURCHASES AND SALES OF SECURITIES:
For the year ended December 31, 2002, purchase and sale transactions excluding
short-term investments, were $7,845,799 and $31,667,174, respectively.
(5) CAPITAL SHARE TRANSACTIONS:
At December 31, 2002, there were 25,000,000 shares of $.01 par value capital
stock authorized. Transactions in capital shares of the Fund were as follows:
Proceeds Shares
------------ ------------
Year ended December 31, 2002
Shares issued $ 4,169,477 205,390
Shares redeemed (23,360,647) (1,202,459)
------------ ------------
Net decrease $(19,191,170) (997,069)
============ ============
Year ended December 31, 2001
Shares issued $ 8,356,808 335,552
Distributions reinvested 4,728,423 201,045
Shares redeemed (52,001,938) (2,175,228)
------------ ------------
Net decrease $(38,916,707) (1,638,631)
============ ============
(6) UNREALIZED APPRECIATION:
The U.S. Federal income tax basis of the Fund's investments at December 31,
2002, was $42,053,427, and net unrealized appreciation for U.S. Federal income
tax purposes was $15,295,570, with gross unrealized gains on investments in
which fair value exceeded cost totaled $16,589,222 and gross unrealized losses
on investments in which cost exceeded fair value totaled $1,293,652.
11
(7) SELECTED FINANCIAL HIGHLIGHTS:
The following selected per share data has been calculated using revenues and
expenses for the years indicated, divided by the average number of shares
outstanding during the years. The ratios are calculated using the revenues and
expenses for the years, divided by the average of the daily net assets of the
Fund.
Year Ended December 31,
2002 2001 2000 1999 1998
------------------- --------------- --------------- ---------------- -------------
Net asset value, beginning
of year $ 22.38 $ 27.75 $ 35.25 $ 32.13 $ 25.98
Income from operations:
Net investment loss (0.19) (0.18) (0.22) (0.23) (0.05)
Net realized and unrealized
(loss)/gain on investments (5.41) (4.19) (2.19) 4.74 6.24
------------------- --------------- --------------- ---------------- -------------
Total from operations (5.60) (4.37) (2.41) 4.51 6.19
Less distributions from:
Net realized gains - (1.00) (5.09) (1.39) (0.04)
------------------- --------------- --------------- ---------------- -------------
Total distributions - (1.00) (5.09) (1.39) (0.04)
------------------- --------------- --------------- ---------------- -------------
Net asset value, end of year $ 16.78 $ 22.38 $ 27.75 $ 35.25 $ 32.13
=================== =============== =============== ================ =============
Total return -25.02% -15.92% -8.62% 14.01% 23.83%
=================== =============== =============== ================ =============
Ratios/Supplemental Data:
Net assets, end of year $ 57,731,971 $ 99,314,845 $ 168,616,225 $ 242,610,345 $ 342,814,636
Expenses to average net
assets 1.18% 1.11% 1.08% 1.07% 1.08%
Investment income to
average net assets 0.98% 0.84% 0.57% 0.61% 0.82%
Portfolio turnover rate 10.07% 3.76% 10.78% 5.47% 24.97%
12
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Papp America-Abroad Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Papp
America-Abroad Fund, Inc. (the "Fund"), including the schedule of portfolio
investments, as of December 31, 2002, and the related statements of operations
and changes in net assets and financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended December 31, 2001 and the financial
highlights for each of the four years in the period ended December 31, 2001 were
audited by other auditors who have ceased operations. Those auditors expressed
an unqualified opinion on those financial statements in their report dated
January 17, 2002.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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, 2002, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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 Papp
America-Abroad Fund, Inc. as of December 31, 2002, the results of its
operations, changes in net assets and financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
Phoenix, Arizona
January 21, 2003
13
THE FOLLOWING REPORT IS A COPY OF THE PREVIOUSLY
ISSUED ARTHUR ANDERSEN LLP REPORT AND HAS NOT BEEN
REISSUED BY ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Papp America-Abroad Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Papp
America-Abroad Fund, Inc., (the Fund) including the schedule of portfolio
investments, as of December 31, 2001, and the related statements of operations
and changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the five 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.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2001, 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 Papp
America-Abroad Fund, Inc. as of December 31, 2001, the results of its operations
and changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended, in conformity with accounting principles generally accepted in the
United States.
/s/ Arthur Andersen LLP
Los Angeles, California
January 17, 2002
14
FACTS ABOUT THE FUND
INVESTMENT OBJECTIVE - The Fund, which commenced operations December 6, 1991,
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 INVESTMENT ADVISER - The Fund's assets are managed by L. Roy Papp &
Associates, LLP, the largest investment counseling firm in Arizona, with over
$613 million in total assets managed for individuals, trusts, corporations, and
charitable and educational institutions. Founded in 1978, the Firm is solely in
the investment management business. The Firm is an independent limited liability
partnership. Of its 12 partners, 8 hold the Chartered Financial Analysts (CFA)
designation.
EXPERIENCED MANAGEMENT - The securities portfolio of the Fund is managed by L.
Roy Papp and Rosellen C. Papp. Mr. Papp, the founder of L. Roy Papp &
Associates, LLP, has over 46 years experience in the field of investment
management. Prior to founding L. Roy Papp & Associates, LLP, he was a senior
partner of a large investment counseling firm in Chicago, Illinois and the
United States Director and Ambassador to the Asian Development Bank, Manila,
Philippines. He received his M.B.A. degree from the Wharton School, University
of Pennsylvania and his A.B. degree from Brown University.
Rosellen C. Papp, the director of research at L. Roy Papp & Associates, LLP, has
over 24 years experience in security and financial analysis. She holds a Master
of Management degree in Finance from the Kellogg Graduate School of Management,
Northwestern University and a B.B.A. degree from the University of Michigan. She
is a Chartered Financial Analyst and member of the International Society of
Financial Analysts.
"PURE" NO-LOAD - The Fund is a "pure" no-load fund in that there are no
"loading" charges or sales commissions paid in connection with the purchase of
its shares. In addition, there are no deferred sales loads, no redemption fees,
and no 12b-1 fees. The Fund's investment adviser receives an annual management
fee of 1%, which is based on the Fund's average daily net asset value. Other
expenses such as auditing charges, legal fees, and custodial expenses are
limited to 1/4% of the Fund's average daily net asset value; therefore, the
Fund's annual expenses may not exceed 1 1/4%.
SUITABILITY - The Fund is suitable only for long-term investors seeking capital
appreciation over time. Included are individuals of most ages, institutional
accounts such as pension and profit sharing plans, retirement accounts such as
IRA's, educational accounts for young children, and many personal trusts. The
Fund is not suitable for those with high current income needs, aggressive
investors who desire maximum short-term results and are willing to assume the
attendant risks, and those with relatively short time horizons who may require
their capital in the near-term.
15
Management of the Fund
The Board of Directors has overall responsibility for the conduct of
the Fund's affairs. Directors hold office until the next meeting of shareholders
called for the election of directors and until their successors are elected and
qualified. The Fund is not required to hold meetings of shareholders. The 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 the Fund's outstanding common shares.
Shareholders may remove a director, with or without cause, by the vote of a
majority of all the votes entitled to be cast for the election of directors.
The names of the directors and officers of the Fund, the date each was
first elected or appointed to office, their principal business occupations
during the last five years, the number of portfolios each oversees and other
directorships they hold, are shown below.
DATE FIRST NUMBER OF
ELECTED OR PORTFOLIOS IN FUND
NAME, POSITION(S) AND AGE AT APPOINTED TO PRINCIPAL OCCUPATION(S) DURING COMPLEX OVERSEEN BY OTHER
JANUARY 1, 2003 OFFICE PAST FIVE YEARS DIRECTOR DIRECTORSHIPS
--------------- ------ --------------- -------- -------------
OFFICERS OF THE FUND:
Victoria S. Cavallero, CFA [44] 1991 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP.
George D. Clark, Jr., CFA [63] 1991 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP.
Jeffrey N. Edwards, CFA [44] 1991 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP.
Julie A. Hein, [40] 1991 Partner, L. Roy Papp & NA NA
Vice President and Associates, LLP.
Assistant Treasurer
Jane E. Couperus, CFA [33] 2001 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP since 2001;
prior thereto, Associate, L. Roy
Papp & Associates, LLP since
1997.
John L. Stull, CFA [38] 2001 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP since 2001;
prior thereto, Associate, L. Roy
Papp & Associates, LLP since
1997 and Financial Analyst,
Finova Capital Group.
Russell A. Biehl, [39] 2001 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP since 2001;
prior thereto, Associate, L. Roy
Papp & Associates, LLP since
1998 and Portfolio Manager,
Harris Trust Bank.
16
NUMBER OF
DATE FIRST ELECTED PORTFOLIOS IN FUND
NAME, POSITION(S) AND AGE AT OR APPOINTED TO PRINCIPAL OCCUPATION(S) DURING COMPLEX OVERSEEN BY OTHER
JANUARY 1, 2003 OFFICE PAST FIVE YEARS DIRECTOR DIRECTORSHIPS
--------------- ------ --------------- -------- -------------
DIRECTORS WHO ARE INTERESTED PERSONS OF THE FUND:
L. Roy Papp,* [75] 1991 Partner, L. Roy Papp & Five None
Chairman and Director Associates, LLP.
Harry A. Papp, CFA *+ [48] 1991 Partner, L. Roy Papp & Five None
President and Director Associates, LLP.
Robert L. Mueller,* [74] 1991 Partner, L. Roy Papp & Five None
Vice President, Secretary and Associates, LLP.
Director
Rosellen C. Papp, CFA *+ [48] 1991 Partner, L. Roy Papp & Five None
Vice President, Treasurer and Associates, LLP.
Director
Bruce C. Williams, CFA * [49] 1991 Partner, L. Roy Papp & Five None
Vice President and Director Associates, LLP.
DIRECTORS WHO ARE NOT INTERESTED PERSONS OF THE FUND:
James K. Ballinger, [51] 1991 Director, Phoenix Art Museum Five None
Director
Amy S. Clague, [68] 1991 Private investor since 2000; Five None
Director prior thereto, Partner, Boyd and
Clague, bookkeeping services.
- --------
* Messrs. L. Roy Papp, Harry A. Papp, Robert L. Mueller and Bruce C. Williams
and Ms. Rosellen C. Papp are "interested persons" of the Fund, as defined
in the Investment Company Act of 1940, because they are Partners of the
Adviser.
+ Harry A. Papp is the son of L. Roy Papp and Rosellen C. Papp is the
daughter-in-law of L. Roy Papp.
- --------
The address of Messrs. L. Roy Papp, Harry A. Papp, Robert L. Mueller
and Bruce C. Williams and 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 322 W. Holly Street, Phoenix, Arizona 85003; the address of Mrs.
Clague is 326 East Kaler Drive, Phoenix, Arizona 85020.
The Statement of Additional Information includes additional information
about the directors and officers. You may obtain a free copy of the Statement of
Additional Information by calling toll-free (800) 421-4004.
This report is submitted for the general information of the
shareholders of the Fund. The report is not authorized for distribution to
prospective investors in the Fund unless it is accompanied or preceded by
currently effective prospectus of the Fund. No sales charge to the shareholder
or to the new investor is made in offering the shares of the Fund
[GRAPHIC OMITTED]
PAPP AMERICA-PACIFIC RIM FUND, INC.
A No-Load Fund
ANNUAL REPORT
December 31, 2002
Managed by:
L. Roy Papp & Associates, LLP
6225 North 24th Street
Suite 150
Phoenix, AZ 85016
(602)956-1115 Local
(800)421-4004
E-mail: invest@roypapp.com
Web: http://www.roypapp.com
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
PAPP AMERICA-PACIFIC RIM FUND, INC. AND THE MORGAN
STANLEY WORLD INDEX THROUGH DECEMBER 31, 2002
AVERAGE ANNUAL TOTAL RETURN
1 Year 5 Years Since Inception
Papp America-Pacific Rim Fund -20.18% 2.18% 5.30%
Morgan Stanley World Index -21.06% -2.84% -0.28%
[Chart in thousands of dollars]
- --------------------------------------------------------
Year Papp America-Pacific Morgan Stanley
Rim Fund World Index
- --------------------------------------------------------
3/14/97 10 10
- --------------------------------------------------------
1997 12.11 11.37
- --------------------------------------------------------
1998 15.58 14.13
- --------------------------------------------------------
1999 19.46 17.65
- --------------------------------------------------------
2000 19.63 15.17
- --------------------------------------------------------
2001 16.896 12.468
- --------------------------------------------------------
2002 13.486 9.843
- --------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
The investment return and principal value of an investment in the Fund will
fluctuate so that Fund shares, when redeemed, may be worth more or less than
their original cost. The line graph and table do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption of
Fund shares. This Fund's performance is measured against that of the Morgan
Stanley World Index. Approximately 25% of the sales of the companies in the
Fund's portfolio are derived from Pacific Rim sources, 54% are derived from
other foreign sources, and 26% are derived from United States sources. The
Morgan Stanley World Index is an unmanaged, market-weighted index that includes
50% foreign companies and 50% United States companies. The values shown include
reinvested dividends.
2
PAPP AMERICA-PACIFIC RIM FUND, INC.
Dear Fellow Shareholder:
In spite of extremely difficult market conditions our Pacific Rim Fund did
relatively well in 2002. We were down 20.18% while the Morgan Stanley World
Index, against which we measure ourselves, was down 21.06%. The Standard &
Poor's 500 Stock Index was down 22.10%.
Since the Fund was first publicly offered in March 1997 we were up 34.87%.
During that period the World Index was actually down 1.58% and the S&P 500 was
up 20.58%. The chart on the opposite page illustrates this differential.
While a few of our holdings including Expeditors International of Washington and
Stryker Corp. did well in 2002, the majority, especially those in technology
suffered sharp losses. We have not lost faith in the actual and potential
benefits of technology, whether it is medical or electronic, because we believe
it will lead the way in our trade with Asian nations. Accordingly, we will
continue to invest in the best companies in technology and will not be panicked
by short-term fluctuations in their shares. You pay us to purchase and hold
shares of the best companies we can find and we intend to do exactly that and
not be overly impressed with short-term price movements.
Given our basic premise of buying and holding good quality stocks that offer the
probability of long-term growth, the past year has been difficult for even the
long-term investor who continues to be very nervous about world conditions in
general and the status of our economy in particular. Even though the events of
9/11 have not as yet been repeated, the terrorist threat continues to occupy the
attention of many of our officials who have spent an enormous amount of time
focusing on the problem. Financial scandals, such as those at Enron, Global
Crossing, and World Com have badly shaken the investment community's faith in
our business leadership. While we believe these scandals represent only a tiny
minority of business, most of which is managed by people with good ethical
standards, its effects continue to dampen investor morale. Add to this, the
perception of insider trading (Martha Stewart) and a fragile international
situation, including the possibility of a war with Iraq and our recent problems
with North Korea, and one can understand that investors are justifiably
concerned about the long-term outlook.
As investment professionals, it is our job to take the longer view and to find
the best managed companies that fit in our overall investment philosophy. We
have tried to do this through a diversified list of good international companies
whose future is promising. In time we believe our efforts will continue to be
rewarded.
Best regards,
/s/ L. Roy Papp
L. Roy Papp, Chairman
February 3, 2003
3
PAPP AMERICA-PACIFIC RIM FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 2002
Number Fair
Common Stocks of Shares Value
- ----------------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS (15.9%)
Medtronic, Inc.
(Manufacturer of implantable biomedical devices) 18,000 $ 820,800
Stryker Corporation
(Developer and manufacturer of surgical and medical devices) 14,000 939,680
----------
1,760,480
----------
FINANCIAL SERVICES (13.4%)
American International Group
(Major international insurance holding company) 11,000 636,350
General Electric Company
(Diversified financial and industrial company) 12,500 304,375
State Street Corporation
(Provider of U.S. and global securities custodial services) 14,000 546,000
----------
1,486,725
----------
PHARMACEUTICAL (10.8%)
Eli Lilly & Company
(Prescription pharmaceuticals) 11,000 698,500
Pfizer, Inc.
(Prescription pharmaceuticals) 16,500 504,405
----------
1,202,905
----------
INDUSTRIAL SERVICES (9.9%)
Expeditors International of Washington, Inc.
(International air freight forwarding) 27,000 881,550
Interpublic Group of Companies, Inc.
(Worldwide advertising agencies) 15,500 218,240
----------
1,099,790
----------
CONSUMER PRODUCTS (8.6%)
Clorox Company
(Manufacturer of bleach and other consumer products) 18,000 742,500
Colgate-Palmolive Company
(Leading manufacturer and marketer of oral care and
other personal care products ) 4,000 209,720
----------
952,220
----------
SEMICONDUCTORS & EQUIPMENT (7.5%)
Applied Materials, Inc.*
(Developer, manufacturer, and marketer of
semiconductor manufacturing systems) 28,400 370,052
Intel Corporation
(Manufacturer of microprocessors, microcontrollers,
and memory chips) 21,500 334,755
Linear Technology Corporation
(Designer of high performance analog semiconductors) 5,000 128,600
----------
833,407
----------
The description provided in parentheses of the investment is unaudited.
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
4
PAPP AMERICA-PACIFIC RIM FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 2002
Number Fair
Common Stocks (continued) of Shares Value
- ----------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT (7.1%)
American Power Conversion *
(Producer of uninterruptible power supply products) 13,000 $196,950
Molex, Inc.
(Supplier of interconnection products) 30,000 596,700
----------
793,650
----------
SOFTWARE (5.1%)
Microsoft Corporation*
(Personal computer software) 11,000 568,700
----------
INVESTMENT MANAGEMENT (4.7%)
T. Rowe Price Associates, Inc.
(No-load mutual fund company) 19,000 518,320
----------
INSTRUMENTS & TESTING (4.4%)
National Instruments Corporation *
(Supplier of computer based instrumentation products) 15,000 487,350
----------
COMPUTER EQUIPMENT (4.3%)
Hewlett-Packard Company
(Manufacturer of printers, computers, and supplies) 14,400 249,984
International Business Machines Corporation
(Global provider of information technology, hardware,
software, and services) 3,000 232,500
----------
482,484
----------
TELECOMMUNICATIONS (2.7%)
Cisco Systems, Inc. *
(Supplier of computer internetworking systems) 7,200 94,320
Nokia Corporation
(Manufacturer of wireless handsets) 13,000 201,500
----------
295,820
----------
RESTAURANTS (2.6%)
McDonald's Corporation
(Fast food restaurants and franchising) 18,000 289,440
----------
OIL EXPLORATION AND PRODUCTION (1.6%)
Royal Dutch Petroleum Company, PLC
(Oil exploration and production company) 4,000 176,080
----------
TOTAL COMMON STOCKS - 98.6% (COST $9,711,995) 10,947,371
CASH AND OTHER ASSETS - 1.4% 160,685
-----------
NET ASSETS - 100.0% $11,108,056
===========
The description provided in parentheses of the investment is unaudited.
*Non-income producing security
The accompanying notes are an integral part of this financial statement.
5
PAPP AMERICA-PACIFIC RIM FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2002
ASSETS
Investment in securities, at fair value (cost $9,711,995) (Note 1) $10,947,371
Cash 148,295
Dividends and interest receivable 12,390
-----------
Total assets 11,108,056
-----------
LIABILITIES
Liabilities -
-----------
Net assets $11,108,056
===========
NET ASSETS
Paid-in capital $10,559,147
Accumulated undistributed net realized loss on investments sold (686,467)
Net unrealized appreciation on investments 1,235,376
-----------
Net assets applicable to Fund shares outstanding $11,108,056
===========
Fund shares outstanding 897,230
===========
Net Asset Value Per Share $ 12.38
===========
(Based on 897,230 shares outstanding at December 31, 2002)
The accompanying notes are an integral part of this financial statement.
6
PAPP AMERICA-PACIFIC RIM FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
INVESTMENT INCOME:
Dividends $109,901
Interest 1,624
Foreign taxes withheld (1,900)
------------
Total investment income 109,625
------------
EXPENSES:
Management fee (Note 3) 125,287
Filing fees 22,210
Auditing fees 15,592
Legal fees 8,693
Directors' attendance fees 5,400
Custodial fees 4,427
Printing and postage fees 3,800
Transfer agent fees (Note 3) 3,221
Other fees 1,475
------------
Total expenses 190,105
Less fees waived by adviser (Note 3) (33,496)
------------
Net expenses 156,609
------------
Net investment loss (46,984)
------------
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS:
Proceeds from sales of securities 1,716,096
Cost of securities sold (2,130,733)
------------
Net realized loss on investments sold (414,637)
Net change in unrealized appreciation on investments (2,399,723)
------------
Net realized and unrealized loss on investments (2,814,360)
------------
DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $(2,861,344)
============
The accompanying notes are an integral part of this financial statement.
7
PAPP AMERICA-PACIFIC RIM FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
----------- -----------
FROM OPERATIONS:
Net investment loss $ (46,984) $ (73,597)
Net realized loss on investments sold (414,637) (271,829)
Net change in unrealized appreciation on investments (2,399,723) (2,133,858)
----------- -----------
Decrease in net assets resulting
from operations (2,861,344) (2,479,284)
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain on investment securities sold - prior year - (38,742)
Net realized gain on investment securities sold - -
----------- -----------
Decrease in net assets resulting from
distributions to shareholders - (38,742)
----------- -----------
FROM SHAREHOLDER TRANSACTIONS:
Proceeds from sale of shares 932,487 576,870
Net asset value of shares issued to shareholders in
reinvestment of net realized gain on investment
securities sold - 36,914
Payments for redemption of shares (1,614,101) (1,081,346)
----------- -----------
Decrease in net assets resulting
from shareholder transactions (681,614) (467,562)
----------- -----------
Total decrease in net assets (3,542,958) (2,985,588)
Net assets at beginning of the year 14,651,014 17,636,602
----------- -----------
Net assets at end of the year $11,108,056 $14,651,014
=========== ===========
The accompanying notes are an integral part of these financial statements.
8
PAPP AMERICA-PACIFIC RIM FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(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 accounting principles generally accepted
in the United States.
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. 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.
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.
NET ASSET VALUE, ORDERS, AND REDEMPTIONS
The price per share for a purchase order or redemption request is the net asset
value next determined after receipt of the order. The 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. Eastern Standard time, on any day on which that Exchange is open for
trading.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
9
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, are to be distributed to the shareholders. The
Fund has complied with this policy and, accordingly, no provision for Federal
income taxes is required.
At December 31, 2002, the capital loss carryovers noted below are available to
offset future realized capital gains and thereby reduce future capital gains
distributions.
Expiration Date Amount
----------------------------- ---------
December 31, 2009 $(271,829)
December 31, 2010 $(414,637)
---------
Total capital loss carryover $(686,466)
=========
During the year ended December 31, 2002, the Fund's accumulated net investment
losses that are not available deductions for tax purposes of $435,681 were
reclassified to paid in capital.
(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 26, 2001, a distribution was declared from net realized long-term
capital gains of approximately $0.0411 a share aggregating $38,742. The
distribution was paid on December 31, 2001, to shareholders of record on
December 26, 2001.
There were no significant differences between the book basis and tax basis of
distributions for the year ended December 31, 2002.
(3) TRANSACTIONS WITH AFFILIATES:
The Fund has an investment advisory and management services agreement with L.
Roy Papp & Associates, LLP (the 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 $33,496 was required in 2002. The Fund
incurred fees of $3,221 in 2002 from the Manager for providing shareholder and
transfer agent services.
The Fund's independent directors receive $450 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.
10
(4) PURCHASES AND SALES OF SECURITIES:
For the year ended December 31, 2002, purchase and sale transactions excluding
short-term investments, were $942,193 and $1,716,096, respectively.
(5) CAPITAL SHARE TRANSACTIONS:
At December 31, 2002, there were 5,000,000 shares of $.01 par value capital
stock authorized. Transactions in capital shares of the Fund were as follows:
Proceeds Shares
----------- --------
Year ended December 31, 2002
Shares issued $ 932,487 69,385
Shares redeemed (1,614,101) (116,799)
----------- --------
Net decrease $ (681,614) (47,414)
=========== ========
Year ended December 31, 2001
Shares issued $ 576,870 35,753
Distributions reinvested 36,914 2,362
Shares redeemed (1,081,346) (69,346)
----------- --------
Net decrease $ (467,562) (31,231)
=========== ========
(6) UNREALIZED APPRECIATION:
The U.S. Federal income tax basis of the Fund's investments at December 31,
2002, was $9,711,995, and net unrealized appreciation for U.S. Federal income
tax purposes was $1,235,376, with gross unrealized gains on investments in which
fair value exceeded cost totaled $2,903,207 and gross unrealized loss on
investments in which cost exceeded fair value totaled $1,667,831.
11
(7) SELECTED FINANCIAL HIGHLIGHTS:
The following selected per share data has been calculated using revenues and
expenses for the years indicated, divided by the average number of shares
outstanding during the years. The ratios are calculated using the revenues and
expenses for the years, divided by the average of the daily net assets of the
Fund.
Years ended December 31,
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
Net asset value, beginning
of year $ 15.51 $ 18.07 $ 19.44 $ 15.57 $ 12.10
Income from operations:
Net investment loss (0.08) (0.08) (0.09) (0.12) (0.06)
Net realized and unrealized
(loss)/gain on investments (3.05) (2.44) 0.53 3.99 3.53
----------- ----------- ----------- ----------- -----------
Total from operations (3.13) (2.52) 0.44 3.87 3.47
Less dstributions from:
Net realized gains - (0.04) (1.81) - -
----------- ----------- ----------- ----------- -----------
Total distributions - (0.04) (1.81) - -
Net asset value, end of year $ 12.38 $ 15.51 $ 18.07 $ 19.44 $ 15.57
=========== =========== =========== =========== ===========
Total return -20.18% -13.94% 0.90% 24.86% 28.68%
=========== =========== =========== =========== ===========
Ratios/Supplemental Data:
Net assets, end of year $11,108,056 $14,651,014 $17,636,602 $16,478,700 $14,705,830
Expenses to average
net assets (A) 1.25% 1.25% 1.25% 1.25% 1.25%
Investment income to
average net assets (B) 0.88% 0.77% 0.63% 0.58% 0.79%
Portfolio turnover rate 7.57% 7.25% 28.33% 17.52% 13.73%
(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 1.52%,
1.40%, 1.32%, 1.39%, and 1.41% for the years ended December 31,2002, 2001,
2000, 1999, and 1998, respectively.
(B) Computed giving effect to investment adviser's expense limitation
undertaking.
12
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Papp America-Pacific Rim Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Papp
America-Pacific Rim Fund, Inc. (the "Fund"), including the schedule of portfolio
investments, as of December 31, 2002, and the related statements of operations
and changes in net assets and financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended December 31, 2001 and the financial
highlights for each of the four years in the period ended December 31, 2001 were
audited by other auditors who have ceased operations. Those auditors expressed
an unqualified opinion on those financial statements in their report dated
January 17, 2002.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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, 2002, 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 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 Papp
America-Pacific Rim Fund, Inc. as of December 31, 2002, the results of its
operations, changes in net assets and financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
Phoenix, Arizona
January 21, 2003
13
THE FOLLOWING REPORT IS A COPY OF THE PREVIOUSLY ISSUED
ARTHUR ANDERSEN LLP REPORT AND HAS NOT BEEN REISSUED BY
ARTHUR ANDERSEN LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Papp America-Pacific Rim Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Papp
America-Pacific Rim Fund, Inc., (the Fund) including the schedule of portfolio
investments, as of December 31, 2001, and the related statements of operations
and changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the four years in the period ending
December 31, 2001 and for the period from commencement of operations (March 14,
1997) 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 auditing standards generally accepted
in the United States. 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, 2001, 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 Papp
America-Pacific Rim Fund, Inc. as of December 31, 2001, the results of its
operations and changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the four years in the
period ending December 31, 2001 and for the period from commencement of
operations (March 14, 1997) through December 31, 1997, in conformity with
accounting principles generally accepted in the United States.
/s/ Arthur Andersen
Los Angeles, California
January 17, 2002
14
FACTS ABOUT THE FUND
INVESTMENT OBJECTIVE - The Fund, which commenced operations on March 14, 1997,
is designed for those long-term investors who wish to invest a portion of their
common stock assets in mainly American multinational companies which do a
significant amount of business with, and receive substantial income from,
nations bordering the Pacific Ocean. The Fund purchases the shares of companies
that, over time, have shown the ability to substantially increase their
earnings.
THE INVESTMENT ADVISER - The Fund's assets are managed by L. Roy Papp &
Associates, LLP, the largest investment counseling firm in Arizona, with over
$613 million in total assets managed for individuals, trusts, corporations, and
charitable and educational institutions. Founded in 1978, the firm is solely in
the investment management business. The firm is an independent limited liability
partnership. Of its 12 partners, 8 hold the Chartered Financial Analyst (CFA)
designation.
EXPERIENCED MANAGEMENT - The securities portfolio of the Fund is managed by L.
Roy Papp and Rosellen C. Papp. Mr. Papp, the founder of L. Roy Papp &
Associates, LLP, has over 46 years experience in the field of investment
management. Prior to founding L. Roy Papp & Associates, LLP, he was a senior
partner of a large investment counseling firm in Chicago, Illinois and the
United States Director and Ambassador to the Asian Development Bank, Manila,
Philippines. He received his M.B.A. degree from the Wharton School, University
of Pennsylvania and his A.B. degree from Brown University.
Rosellen C. Papp, the director of research at L. Roy Papp & Associates, LLP, has
over 24 years experience in security and financial analysis. She holds a Master
of Management degree in finance from the Kellogg Graduate School of Management,
Northwestern University and a B.B.A. degree from the University of Michigan. She
is a Chartered Financial Analyst and member of the International Society of
Financial Analysts.
"PURE" NO-LOAD - The Fund is a "pure" no-load fund in that there are no
"loading" charges or sales commissions paid in connection with the purchase of
its shares. In addition, there are no deferred sales loads, no redemption fees,
and no 12b-1 fees. The Fund's investment adviser receives an annual management
fee of 1% which is based on the Fund's average daily net asset value. Other
expenses such as auditing charges, legal fees, and custodial expenses are
limited to 1/4% of the Fund's average daily net asset value; therefore, the
Fund's annual expenses may not exceed 1 1/4%.
SUITABILITY - The Fund is suitable only for long-term investors seeking capital
appreciation over time. Included are individuals of most ages, institutional
accounts such as pension and profit sharing plans, retirement accounts such as
IRA's, educational accounts for young children, and many personal trusts. The
Fund is not suitable for those with high current income needs, aggressive
investors who desire maximum short-term results and are willing to assume the
attendant risks, and those with relatively short time horizons who may require
their capital in the near-term.
15
Management of the Fund
The Board of Directors has overall responsibility for the conduct of
the Fund's affairs. Directors hold office until the next meeting of shareholders
called for the election of directors and until their successors are elected and
qualified. The Fund is not required to hold meetings of shareholders. The 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 the Fund's outstanding common shares.
Shareholders may remove a director, with or without cause, by the vote of a
majority of all the votes entitled to be cast for the election of directors.
The names of the directors and officers of the Fund, the date each was
first elected or appointed to office, their principal business occupations
during the last five years, the number of portfolios each oversees and other
directorships they hold, are shown below.
DATE FIRST NUMBER OF
ELECTED OR PORTFOLIOS IN FUND
NAME, POSITION(S) AND AGE AT APPOINTED TO PRINCIPAL OCCUPATION(S) DURING PAST COMPLEX OVERSEEN BY OTHER
JANUARY 1, 2003 OFFICE FIVE YEARS DIRECTOR DIRECTORSHIPS
- -------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUND:
Victoria S. Cavallero, CFA [44] 1996 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP.
George D. Clark, Jr., CFA [63] 1996 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP.
Jeffrey N. Edwards, CFA [44] 1996 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP.
Julie A. Hein, [40] 1996 Partner, L. Roy Papp & NA NA
Vice President and Associates, LLP.
Assistant Treasurer
Jane E. Couperus, CFA [33] 2001 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP since 2001; prior
thereto, Associate, L. Roy Papp &
Associates, LLP since 1997.
John L. Stull, CFA [38] 2001 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP since 2001; prior
thereto, Associate, L. Roy Papp &
Associates, LLP since 1997 and
Financial Analyst, Finova Capital
Group.
Russell A. Biehl, [39] 2001 Partner, L. Roy Papp & NA NA
Vice President Associates, LLP since 2001; prior
thereto, Associate, L. Roy Papp &
Associates, LLP since 1998 and
Portfolio Manager, Harris Trust
Bank.
16
DATE FIRST NUMBER OF
ELECTED OR PORTFOLIOS IN FUND
NAME, POSITION(S) AND AGE AT APPOINTED TO PRINCIPAL OCCUPATION(S) DURING PAST COMPLEX OVERSEEN BY OTHER
JANUARY 1, 2003 OFFICE FIVE YEARS DIRECTOR DIRECTORSHIPS
- -------------------------------------------------------------------------------------------------------------------------------
DIRECTORS WHO ARE INTERESTED PERSONS OF THE FUND:
L. Roy Papp,* [75] 1996 Partner, L. Roy Papp & Associates, Five None
Chairman and Director LLP.
Harry A. Papp, CFA *+ [48] 1996 Partner, L. Roy Papp & Associates, Five None
President and Director LLP.
Robert L. Mueller * [74] 1996 Partner, L. Roy Papp & Associates, Five None
Vice President, Secretary and LLP.
Director
Rosellen C. Papp, CFA *+ [48] 1996 Partner, L. Roy Papp & Associates, Five None
Vice President, Treasurer and LLP.
Director
Bruce C. Williams, CFA * [49] 1996 Partner, L. Roy Papp & Associates, Five None
Vice President and Director LLP.
DIRECTORS WHO ARE NOT INTERESTED PERSONS OF THE FUND:
James K. Ballinger, [51] 1996 Director, Phoenix Art Museum Five None
Director
Amy S. Clague, [68] 1996 Private investor since 2000; Five None
Director prior thereto, Partner, Boyd and
Clague, bookkeeping services.
Carolyn P. O'Malley, [53] 1996 Executive Director, Dorrance Family Three None
Director Foundation since 2001; prior
thereto, Director, Desert Botanical
Garden.
- ----------------------------
* Messrs. L. Roy Papp, Harry A. Papp, Robert L. Mueller and Bruce C. Williams
and Ms. Rosellen C. Papp are "interested persons" of the Fund, as defined
in the Investment Company Act of 1940, because they are Partners of the
Adviser.
+ Harry A. Papp is the son of L. Roy Papp and Rosellen C. Papp is the
daughter-in-law of L. Roy Papp.
- ----------------------------
The address of Messrs. L. Roy Papp, Harry A. Papp, Robert L. Mueller, Bruce
C. Williams and 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
322 W. Holly Street, Phoenix, Arizona 85003; the address of Mrs. Clague is 326
East Kaler Drive, Phoenix, Arizona 85020; and the address of Mrs. O'Malley is
4438 E. Camelback Road #155, Phoenix, Arizona 85018.
The Statement of Additional Information includes additional information
about the directors and officers. You may obtain a free copy of the Statement of
Additional Information by calling toll-free (800) 421-4004.
This report is submitted for the general information of the shareholders of the
Fund. The report is not authorized for distribution to prospective investors in
the Fund unless it is accompanied or preceded by a currently effective
prospectus of the Fund. No sales charge to the shareholder or to the new
investor is made in offering the shares of the Fund.
17