Q: The Pacific Rim is made up of large number of countries, cultures, and economies. What countries and economies do you cover in this fund? Why should investors consider this fund? A: We look at all the countries that border the Pacific Ocean, from North and South America to Australia and Asian countries including Japan, China, and Korea. In all there are more than 30 countries. We believe that in the next several decades the economies of the Pacific-Rim countries will grow faster than that of the United States. The risks of investing in these countries are high. In addition to the political risks, there are currency risks, corporate governance risks, stock market liquidity risks, and disclosure risks. We want fund investors to benefit from this economic growth, but we also want to limit the risks that we undertake. The Fund invests in companies, primarily American companies, which are active or deriving an increasing share of their earnings from the region. We want to invest in companies that adhere to SEC-style disclosure and companies that trade in the US markets. We want to invest in American or European companies that are active in Asia. Q: Why do you prefer to invest in the American or European companies, when the fund is focused on Pacific Rim economies? A: One of the ways we control risk is by investing in companies that trade in the US. We look at the ADRs from Asian and European companies. In the recent past we have not been excited about the prospects for Japanese and Korean companies; however, when the situation changes, we will be ready to buy into companies in these countries. Q: Do you prefer any specific market capitalization or sectors in the region? A: We prefer to invest in large-cap stocks. We are seeking earnings growth in the region but we are also seeking value in the stock price. Traditionally, we have not invested in the banking sector but we are interested in the financial sector of the region. We are also interested in the consumer sectors that are driven by the local consumers. Ultimately, we are interested in investing companies that are benefiting from the rising purchasing power in these economies. We like to invest in long trend themes that we believe and understand. We like trends such as growth geographies, globalization, and technology. Q: Different fund managers seek different kinds of growth, what kind of growth are you seeking? A: We look for growth in core earnings or revenue. We define core earnings growth as organic growth in revenue, excluding earnings related to acquisitions and currency translation. For example, we invest in Nokia for two reasons. First, Nokia is enjoying core revenue growth in Asia and is likely to continue to do so for the next several years. Second, the company has moved a significant portion of its manufacturing operation to Asia. We think both of these factors will contribute to the firm’s earnings. We also have invested in WPP Group, one of the largest advertising agencies in the world with a consistent record of attracting new clients. We also own Intel. Currently, Intel derives 49% of its revenue from Asia and 25% from the US. The percentage of Asian revenue for the firm has doubled in the last five years. We are looking to invest in companies with similar revenue and earnings characteristics. For instance, we own Coca Cola and AIG. We also like financial services firms such as State Street Corporation. Q: Your investment approach to the Pacific Rim market is unique. Why do you follow this approach? A: Strict corporate governance and cronyism are two major impediments to investing in the region. Local companies have inadequate disclosure and excessive off-balance sheet financing that are hard to trace. If you invest in local companies, you are not sure when you will confront these problems. South Korean companies recently had to deal with these issues and, during the 1998 crisis, investors in Thai and Indonesian companies paid a heavy price. Recent corporate scandals in the US are giving investors in US stocks little comfort, but similar scandals in Asia are far more frequent. Q: Currently do you think investing in Japan is attractive? A: Since 1989, we have avoided Japan. During the last three months, we have been looking into the Japanese market but we are not ready to invest. At present Japan is going through fiscal reform that will be good for its long-term economic health. Few Japanese sectors are attractive to us currently. Japan is only now adopting a mutual fund business model, and we see that as an investment opportunity. Western-style retirement and financial planning is a new concept in Japan. The population in Japan is rapidly aging and, without an investment safety net, families have had to rely solely on corporate pension plans. Q: Do you believe that in the next decade China and other countries will offer key growth opportunities for American companies? A: Asian countries, specifically China and Japan, will be one of the largest markets in the world. Purchasing power will continue to grow in China and Taiwan. These markets will offer key growth opportunities to American companies. American companies benefit two ways when they engage in this market: First, when China is used as manufacturing hub, it lowers manufacturing costs and when these products are sold in China, it adds to revenue. Still, very few companies are engaged this way with China and, in the coming years, this phenomenon will spread beyond Fortune 1000 companies. Q: Many countries in the Pacific Rim are home to the largest commodity producers in the world. Do you invest in these companies? A: We do not invest in commodity producing companies. Many of these companies are in the public sector and we believe they do not offer future long-term growth opportunity. We exclude large numbers of local companies and sectors. We are seeking to invest in growing sectors of these economies. We believe that the future growth in the region is related to consumption or services. We have investment exposure in sectors such as financial services, healthcare, and technology. There is a general perception that the Asian consumer does not buy leading edge technology and products. We disagree with that argument. For example, Intel tells us that the ramp up of the Pentium IV chip was quicker in China then in the USA and the average selling price for chip in China is as high as in the USA. The technology consumer has the same demand profile as in the USA. We are looking at what the consumer is demanding and buying. Q: How do you research the markets and companies you invest in? A: Since we invest in the region through American companies, we direct our research efforts to companies in America and Europe. We read the public filings, and research and screen companies on quantitative measures such as growth in revenue and earnings in the region. We are looking for critical information, such as the company’s business in Asia, market share in various industries, and Asian share of the company’s earnings. We talk to the management and visit their offices. We do not visit countries in the region, but we do talk to company managements frequently. Q: Do you track any indexes for your holdings or do you weight your holdings on the basis of the GDP in the region? How do you build and monitor your portfolio? A: Our portfolio is built from the bottom up. We are not seeking to optimize or reflect holdings in our portfolio on the basis of index or GDP. In our fund, we have exposure to more than 30 countries and several currencies however, we do not engage in currency trading since the companies we invest in take that responsibility. The current weakness in dollar is temporary and we believe that in the near future this will be corrected. We build our portfolio one stock at a time. Currently, we have 26 stocks in the portfolio and, on average, we hold 25-30 stocks. Fund holdings are concentrated in relatively few stocks and we limit the turnover ratio in the fund to below 25%. We sell stocks for several reasons, such as, if there is a fundamental shift in the marketplace or the industry, if we believe we have made a mistake, if the stocks trade at a valuation higher than 50% more than it is worth, or for diversification reasons. Q: Do you look for companies that benefit from trade within the region? A: We are very interested in companies that benefit from intra-region trade. Currently we hold Expeditors International. The company provides global logistics services, distribution management, insurance procurement and freight management services. The company continues to benefit from the rising intra-region trade level and trans-Pacific trades. For small and medium sized manufacturers this kind of service is vital in their ability to reach global marketplace. Q: How has the region changed since the 1998 Asian crisis? A: Several American companies used the meltdown to expand their presence in Thailand, South Korea and Indonesia; for example, GE took advantage of the circumstances and managed to extend its market share in the Philippines and Thailand. GE had access to the capital to make acquisitions at a deep discount. Corporate governance has also improved since the last crisis, but there is still a lot of room for improvement. Intra-region investment and trade has increased substantially in the last five years. Q: Like the European common market, do you think there will be an Asian common market? A: There is a good chance that the region will gravitate towards a common or regional market led by China and Japan. Q: You have recently been acquired by Pioneer Investments, how will it help in the future? A: As Pioneer Papp America-Pacific Rim Fund, we will be able to leverage the distribution power of Pioneer Investments. We believe that the firm’s significant marketing prowess can allow us to reach critical mass, which will benefit the fund’s shareholders by lowering shared expenses due to the economies of scale. We’re very excited by all that Pioneer has to offer, and we look forward to working with them to increase the visibility of our fund and grow its assets. Pullquote: We prefer to invest in large-cap stocks. We are seeking earnings growth in the region but we are also seeking value in the stock price. Traditionally, we have not invested in the banking sector but we are interested in the financial sector of the region. We are also interested in the consumer sectors that are driven by the local consumers. Bio: L. Roy Papp: Founder, Partner, Portfolio Manager L. Roy Papp & Associates, LLP L. Roy Papp, the founder and a partner of the firm, holds an A.B. degree in Economics from Brown University and an M.B.A. degree in Finance and Banking from the Wharton School, University of Pennsylvania. He joined the investment counseling firm of Stein Roe & Farnham, Chicago, Illinois, in 1955. In his 20 years with that firm, he rose to be a senior partner and a member of its Investment Policy Committee. In 1969, he was appointed to the Board of Directors of the Federal National Mortgage Association (FNMA). In 1975 he accepted a presidential appointment as the United States Director and Ambassador to the Asian Development Bank. Confirmed by the U.S. Senate, he served in Manila, Philippine Islands, for two years. Returning to the United States in 1977, he established an investment counseling practice in Phoenix, Arizona and served on the board of four New York Stock Exchange companies. He is Past-President of the Phoenix Art Museum and a trustee of the American Graduate School of International Management. He also serves as a member of the Board of Governors of the National Hospice Foundation. He is an honorary trustee of the Hadley School for the Blind, Winnetka, Illinois. With over 40 years in the field of investment management, he provides the policy guidance for the firm's nine additional professional staff members. Rosellen C. Papp, CFA: Partner, Portfolio Manager L. Roy Papp & Associates, LLP Rosellen C. Papp is a partner of L. Roy Papp & Associates, LLP. She has been associated with the firm since 1981, and has over 20 years experience in security and financial analysis. Prior to joining the firm, she was a Supervisor, Strategic Planning Group, with G.D. Searle & Co. (where she supervised the financial planning process). She holds a Master of Management degree in Finance from the Kellogg Graduate School of Management, Northwestern University, and a Bachelor of Business Administration degree from the University of Michigan. She is a Trustee of the Desert Botanical Garden. She is also a past-president of the Desert Botanical Garden. She is an active volunteer for The Crisis Nursery. She is a Chartered Financial Analyst and a member of the International Society of Financial Analysts.