UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-6027
KAVILCO INCORPORATED
(Exact name of registrant as specified in charter)
600 University Street, Suite 3010
Seattle, Washington 98101-1129
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (206) 624-6166
Date of fiscal year end: December 31, 2011
Date of reporting period: January 1, 2011-June 30, 2011
Kavilco Incorporated
Semi-Annual Report
June 30, 2011 (unaudited)
ITEM 1. | HIGHLIGHTS FROM AUGUST 2011 NEWSLETTER TO SHAREHOLDERS REGARDING FINANCIAL STATEMENTS. |
Note to SEC: Kavilco Incorporated is an Alaska Native Corporation that operates under the Investment Company Act of 1940. The Alaska Native Claims Settlement Act, which is our primary regulating authority, places numerous restrictions on the Company's stock. Kavilco's stock can only be transferred by court decree or gifting to a blood relative, and cannot be sold or used as collateral. The following discussion has been edited so that only shareholder meetings announcements, portfolio, and financial issues from Kavilco's newsletter are attached to the N-CSRS. Articles not included in our filing are Direct Deposit and In Kasaan.
38th Annual Meeting of Shareholders
The 38th Annual Meeting of Shareholders is scheduled for Saturday, November 5, 2011 at Cape Fox Lodge in Ketchikan, Alaska.
Registration will take place from 11:00 a.m. to noon in the Shaa Hit Room. The meeting will begin at 1:00 p.m. and end at 3:00 p.m. The primary items of business are the approval of the Corporation's independent public accountants and the election of Directors. Directors whose terms expire this year are Jeane Breinig, Ramona Hamar and Marie Miller. Your 2010 Annual Report and Proxy Statement will be mailed in October. We urge you to attend the Annual Meeting if possible. Attendance at our shareholder meetings helps maintain good communications and understanding. Your vote is important! Even if you are unable to attend the Annual Meeting we hope you will vote your proxy as soon as possible.
The Annual Dinner and Auction will be also be held in the Shaa Hit Room at Cape Fox Lodge. Doors will open at 5:30 p.m.
Economy and Portfolio
In October 2010, the Federal Reserve launched a program to inject $600 billion into the economy over the next eight months. This action, coupled with various stimulus programs coming out of Washington, was to spark the economy in 2011. The hoped-for second quarter bounce in the economy is clearly not evolving. The Economist forecasted the current period growth would easily eclipse the 1.8% rate of gain in the initial three months. Unfortunately, the pickup in business activity will be much more muted with gross domestic product possibly not growing by more than a listless 2.0%-2.5%.
Almost all of the current data have been disappointing. The past few weeks have seen waning sales momentum at a number of retailers and weakening results in manufacturing, durable goods orders, and consumer confidence. The most distressing news is housing, which is still in a vicious cycle of foreclosures, prices falling, and buyers remaining on the sidelines. Housing experts estimate that housing prices will decline 6 percent to 8 percent nationally this year with 6 million to 7 million more foreclosures yet to come.
Unfortunately, these problems have carried over to the employment front where non-farm payrolls rose by just 54,000 in May. That was only a third of the gain forecast. Moreover, the joblessness rate ticked up to 9.1%; it was expected to ease to 8.9%. The broader measure of unemployment, which is referred to as U6 (individuals that dropped off the unemployment rolls but are seeking employment), is 16.2%.
The weaker business tone raises questions about the impact on our portfolio. Granted, an economic slowdown will negatively impact earnings which will in turn drive down the equity market. Accordingly, we may have a reduction in the unrealized gain in our stock portfolio.
Our bond investments should weather an economic slowdown. The majority of corporations we have investments in have an adequate cash position allowing them to make interest and principle payments. The one company we are still monitoring very closely is Transocean Inc. You will recall that they were the owners of the drilling rig that exploded in the Gulf last year. BP was operating the rig and has paid for the majority of the environmental damage. However, the Coast Guard issued a report citing Transocean for a number of violations. How all this will play out will take a number of years in the courts before any financial liability will be assigned to Transocean. So, for the time being we will continue to hold the bonds in our portfolio.
Kavilco Incorporated
(An Investment Company)
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
For six months ended June 30, 2011 (unaudited)
ASSETS | |||||
Investments in securities, at market value (identified cost $30,658,788) | $ | 34,224,175 | |||
Real estate at fair value (identified cost $1,054,089) | 3,588,815 | ||||
Cash and cash equivalents | 242,559 | ||||
Interest receivable | 545,288 | ||||
Premises and equipment, net | 27,399 | ||||
Prepaid expenses and other assets | 30,836 | ||||
Total assets | 40,837,072 | ||||
LIABILITIES | |||||
Accounts payable and accrued expenses | 22,804 | ||||
Dividends payable | 140,302 | ||||
Total liabilities | 163,106 | ||||
NET ASSETS | $ | 40,673,966 | |||
Net assets consist of: | |||||
Unrealized appreciation on | |||||
Investments | $ | 244,836 | |||
Real estate | 2,534,726 | ||||
Contributed capital | 37,894,404 | ||||
Net assets | $ | 40,673,966 | |||
Net asset value per share of Class A and Class B common stock ($40,673,966) divided by 12,000 shares outstanding) | $ | 3,390 | |||
See accompanying notes (unaudited). |
Kavilco Incorporated
(An Investment Company)
SCHEDULE OF INVESTMENTS
For six months ended June 30, 2011 (unaudited)
Principal Amount or Shares | Fair Value | ||||
INVESTMENTS IN SECURITIES - 83.8% | |||||
U.S. Corporate Obligations - 81.5 % | |||||
Chemical Industry - 5.9% | �� | ||||
The Dow Chemical Company, 5.900%, due February 15, 2015 | 610,000 | $ | 685,225 | ||
E.I. DuPont de Nemour, 5.250%, due December 15, 2016 | 1,519,000 | 1,716,986 | |||
Total Chemical Industry | 2,402,211 | ||||
Communications - 12.7% | |||||
Comcast Corp., 10.625%, due July 15, 2012 | 1,338,000 | 1,470,970 | |||
AT&T, 5.100%, due September 15, 2014 | 1,250,000 | 1,373,675 | |||
CBS Corporation, 4.625%, due May 15, 2018 | 2,000,000 | 2,061,160 | |||
Deutsche Telekom Int. Fin., 6.000%, due July 8, 2019 | 250,000 | 285,473 | |||
Total Communications | 5,191,278 | ||||
Consumer, Cyclical - 10.5% | |||||
Dayton Hudson, 8.600%, due January 15, 2012 | 100,000 | 104,248 | |||
Home Depot Inc., 5.250%, due December 16, 2013 | 1,000,000 | 1,092,740 | |||
Safeway Inc., 5.625%, due August 15, 2014 | 1,229,000 | 1,357,701 | |||
Target Corp., 5.875%, due July 15, 2016 | 1,000,000 | 1,169,140 | |||
Avon Products, 6.500%, due March 1, 2019 | 500,000 | 572,525 | |||
Total Consumer, Cyclical | 4,296,354 | ||||
Consumer, Non-cyclical - 4.8% | |||||
Coca Cola Enterprises, 8.500%, due February 1, 2012 | 700,000 | 732,522 | |||
McDonald's Corp., 5.300%, due March 15, 2017 | 500,000 | 571,915 | |||
Kraft Foods Inc., 6.500%, due August 11, 2017 | 250,000 | 293,893 | |||
Yum! Brands Inc., 5.300%, due September 15, 2019 | 355,000 | 381,579 | |||
Total Consumer, Non-cyclical | 1,979,909 | ||||
Diversified Company Industry - 5.4% | |||||
TYCO Intl Group, 6.000%, due November 15, 2013 | 1,245,000 | 1,376,298 | |||
Fortune Brands Inc., 6.375%, due June 15, 2014 | 500,000 | 555,860 | |||
ITT Corp., 6.125%, due May 1, 2019 | 250,000 | 293,373 | |||
Total Diversified Company Industry | 2,225,531 | ||||
Energy - 14.0% | |||||
Kinder Morgan Energy Partners, 5.625%, due February 15, 2015 | 500,000 | 557,880 | |||
PPL Energy Supply LLC, 5.700%, due October 15, 2015 | 80,000 | 86,212 | |||
Plains All American Pipeline, 6.125%, due January 15, 2017 | 1,345,000 | 1,505,068 | |||
XTO Energy Inc., 6.250%, due August 1, 2017 | 1,000,000 | 1,211,360 | |||
Kinder Morgan Energy Partners, 5.950%, due February 15, 2018 | 460,000 | 512,518 | |||
Transocean Inc., 7.375%, due April 15, 2018 | 1,350,000 | 1,571,967 | |||
Hess Corporation, 8.125%, due February 15, 2019 | 199,000 | 251,795 | |||
Total Energy | 5,696,800 | ||||
Financial - 2.2% | |||||
Boeing Capital Corp., 6.500%, due February 15, 2012 | 500,000 | 518,545 | |||
American Express Credit Co., 5.300%, due December 2, 2015 | 117,000 | 128,309 | |||
General Electric Capital Corp., 5.625%, due September 15, 2017 | 215,000 | 237,364 | |||
Total Financial | 884,218 | ||||
Paper & Forest Products Industry - 1.6% | |||||
International Paper, 9.375%, due May 15, 2019 | 500,000 | 638,510 | |||
Technology - 8.7% | |||||
Xerox Corporation, 5.500%, due May 15, 2012 | 2,000,000 | 2,079,420 | |||
Cisco Systems Inc., 5.500%, due February 22, 2016 | 960,000 | 1,091,530 | |||
Oracle Corp., 5.000%, due July 18, 2019 | 250,000 | 272,920 | |||
Adobe Systems Inc., 4.750%, due February 1, 2020 | 100,000 | 103,129 | |||
Total Technology | 3,546,999 | ||||
Transportation - 6.8% | |||||
CSX Corp., 5.500%, due August 1, 2013 | 964,000 | 1,045,641 | |||
Union Pacific Corp., 4.875%, due January 15, 2015 | 1,000,000 | 1,093,390 | |||
FedEx Corp., 8.000%, due January 15, 2019 | 500,000 | 628,340 | |||
Total Transportation | 2,770,371 | ||||
Utilities - 8.9% | |||||
Dominion Resources Inc., 5.000%, due March 15, 2013 | 1,000,000 | 1,066,130 | |||
Potomac Electric Power, 4.650%, due April 15, 2014 | 600,000 | 647,934 | |||
American Electric Power, 5.250%, due June 1, 2015 | 50,000 | 54,951 | |||
Southern Power Company, 4.875%, due July 15, 2015 | 1,250,000 | 1,364,650 | |||
Southern Electric Power, 5.550%, due January 15, 2017 | 174,000 | 188,440 | |||
Metropolitan Edison, 7.700%, due January 15, 2019 | 250,000 | 301,328 | |||
Total Utilities | 3,623,433 | ||||
Total U.S. Corporate Obligations (cost $30,834,210) | 33,255,614 | ||||
U.S. Common Stock - 2.3% | |||||
Computer Software & Services - 0.2% | |||||
Microsoft Corp. | 3,640 | 94,640 | |||
Drug Industry - 0.3% | |||||
Merck & Co. Inc. | 1,500 | 52,935 | |||
Pfizer Inc. | 2,500 | 51,500 | |||
Sanofi-Aventis-ADR | 600 | 24,102 | |||
Total Drug Industry | 128,537 | ||||
Electric Utility - 0.4% | |||||
Consolidated Edison Inc. | 600 | 31,944 | |||
Duke Energy Corp. | 700 | 13,181 | |||
NSTAR | 600 | 27,588 | |||
Progress Energy Inc. | 600 | 28,806 | |||
Scana Corp. | 700 | 27,559 | |||
Southern Company | 600 | 24,228 | |||
Total Electric Utility | 153,306 | ||||
Exchange Traded Funds - less than 1% | |||||
iShares Investment Grade Corp. Bonds | 200 | 22,026 | |||
SPDR Gold Trust | 50 | 7,300 | |||
Total Exchange Traded Funds | 29,326 | ||||
Food Processing - 0.2% | |||||
Kraft Foods Inc. | 1,500 | 52,845 | |||
Unilever PLC | 800 | 25,912 | |||
Total Food Processing | 78,757 | ||||
Natural Gas (Diversified) - 0.1% | |||||
ONEOK Inc. | 600 | 44,406 | |||
Petroleum Industry - less than 1% | |||||
Royal Dutch Shell PLC | 400 | 28,452 | |||
Real Estate Investment Trust - 0.2% | |||||
AvalonBay Communities | 400 | 51,360 | |||
Ventas Inc. | 600 | 31,626 | |||
Total Real Estate Investment Trust | 82,986 | ||||
Telecommunications Services - 0.4% | |||||
AT&T | 2,400 | 75,384 | |||
CenturyTel Inc. | 800 | 32,344 | |||
Frontier Communications Corp. | 192 | 1,549 | |||
Verizon Communications Inc. | 2,000 | 74,460 | |||
Total Telecommunication Services | 183,737 | ||||
Total Common Stock (cost $597,156) | 824,147 | ||||
Publicly Traded Partnerships - 0.4% | |||||
Oil/Gas Distribution - 0.4% | |||||
Buckeye Partners LP | 500 | 32,280 | |||
Energy Transfer Partners LP | 600 | 29,322 | |||
Kinder Morgan Energy Partners | 500 | 36,300 | |||
Plains All American Pipeline | 400 | 25,600 | |||
Suburban Propane Partners LP | 400 | 20,912 | |||
Total Oil/Gas Distribution | 144,414 | ||||
Total Publicly Traded Partnerships (cost $101,630) | 144,414 | ||||
Total Investments in Securities (identified cost $31,532,996) | $ | 34,224,175 | |||
See accompanying notes (unaudited).
Kavilco Incorporated
(An Investment Company)
Financial Statements
STATEMENT OF OPERATIONS
For six months ended June 30, 2011 (unaudited)
INVESTMENT INCOME | |||||||
Interest | $ | 849,671 | |||||
Dividends | 19,344 | ||||||
Total investment income | 869,015 | ||||||
EXPENSES | |||||||
Salaries and benefits | 148,529 | ||||||
Directors' compensation and expenses | 114,925 | ||||||
Legal and accounting | 41,796 | ||||||
Custodian | 9,498 | ||||||
Insurance | 48,879 | ||||||
Office and equipment leases | 32,340 | ||||||
General and administrative | 37,585 | ||||||
Total expenses | 433,552 | ||||||
| |||||||
Net investment income | 435,463 | ||||||
REALIZED AND UNREALIZED GAIN ON INVESTMENTS | |||||||
Net realized gain on investments | 18,259 | ||||||
Net increase in unrealized appreciation on investments (Note 4) | 244,836 | ||||||
Total realized and unrealized gain on investments | 263,095 | ||||||
NET OPERATING INCOME | 698,558 | ||||||
OTHER INCOME | 80,492 | ||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 779,050 | |||||
| |||||||
See accompanying notes (unaudited). |
Kavilco Incorporated
(An Investment Company)
Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
For six months ended June 30, 2011 (unaudited)
INCREASE IN NET ASSETS FROM OPERATIONS | |||||||
Net investment income | $ | 435,463 | |||||
Net realized gain on investments | 18,259 | ||||||
Net increase in unrealized appreciation on investments | 244,836 | ||||||
Other income | 80,492 | ||||||
Net increase in net assets resulting from operations | 779,050 | ||||||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS | (228,000) | ||||||
Total increase in net assets | 551,050 | ||||||
NET ASSETS | |||||||
Beginning of year | 40,122,916 | ||||||
Six months ended | $ | 40,673,966 | |||||
| |||||||
See accompanying notes (unaudited). |
Kavilco Incorporated
(An Investment Company)
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS
For the six months ended June 30, 2011 (unaudited)Note 1. SEC Compliance
The following information discussed in Notes 1 and 3 are required to be conveyed to shareholders pursuant to Section 30 of the Investment Act of 1940.
Board fees: $28,600
Officers' compensation: $113,453
Note 2. Financial Accounting Standards No.157
The Company adopted the provisions of the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FAS 157 also establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data from sources independent of the Company. Unobservable inputs reflect the Company’s own assumption about the assumptions that market participants would use in pricing the asset or liability developed on the best information available in the circumstance. The three-tier hierarchy of inputs is summarized below.
Level 1 - quoted prices in active markets for identical investments
Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
Level 3 - significant unobservable inputs (including the Company's own assumptions in determining fair value of investments
The following table summarizes the valuation of the Company’s investments by the above fair value hierarchy levels as of June 30, 2011.
Level 1 | Level 2 | Level 3 | Balance as of June 30, 2011 | |||||||||
ASSETS | ||||||||||||
Investments | ||||||||||||
U.S. corporate obligations | $ | - | $ | 33,255,614 | $ | - | $ | 33,255,614 | ||||
Common stock | 824,147 | - | - | 824,147 | ||||||||
Publicly traded partnerships | 144,414 | - | - | 144,414 | ||||||||
Real estate | - | - | 3,588,815 | 3,588,815 | ||||||||
| $ | 968,561 | $ | 33,255,614 | $ | 3,588,815 | $ | 37,812,990 | ||||
Note 3. Purchases and Sales of Securities
Purchases and sales of securities for the six months ended June 30, 2011 totaled $2,469,457 and $3,473,490 respectively.
Note 4. Unrealized Gain on Investments
Unrealized gain/loss is an accounting adjustment and does not enter into the calculation of dividend payments.
ITEM 2. | CODE OF ETHICS. |
Not applicable when filing a semi-annual report to shareholders.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Not applicable when filing a semi-annual report to shareholders.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Not applicable when filing a semi-annual report to shareholders.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable when filing a semi-annual report to shareholders.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
Please see Schedule of Investments contained in the Report to Shareholders filed under Item 1 of this Form N-CSRS.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable when filing a semi-annual report to shareholders.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable when filing a semi-annual report to shareholders.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
The Alaska Native Claims Settlement Act (ANCSA), which is our primary regulating authority, places numerous restrictions on the Company's stock. Kavilco's stock was given to its shareholders. It can only be transferred by court decree or gifting to a blood relative and cannot be sold or used as collateral. There is no provision in the ANCSA regulations for repurchase of shares.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
No matters were voted on by shareholders during the period covered by this report.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) The registrant’s President/Chief Executive Officer and Chief Financial Officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective at the reasonable assurance level based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
(b) There were no changes in the registrant’s internal controls over financial reporting that occurred during the second fiscal quarter of the period that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
ITEM 12. | EXHIBITS. |
The following exhibits are attached to this Form N-CSRS:
EXHIBIT NO. | DESCRIPTION OF EXHIBIT | |
12 (a) (1) | Certification of President/Chief Executive Officer | |
12 (a) (2) | Certification of Chief Financial Officer |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): Kavilco Incorporated | ||
By: | /s/ Louis A. Thompson | |
Louis A. Thompson | ||
President/Chief Executive Officer |
Date: August 16, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Scott Burns | |
Scott Burns | ||
Chief Financial Officer | ||
Date: August 16, 2011 |