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, 2013
Date of reporting period: January 1, 2013-June 30, 2013
Kavilco Incorporated
2013 Report to Shareholders
June 30, 2013 (unaudited financial statements)
ITEM 1. | HIGHLIGHTS FROM THE 2013 REPORT TO SHAREHOLDERS |
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 letters from the CEO and CFO, shareholder meetings announcements, portfolio, and financial issues from Kavilco's report to shareholders are attached to the N-CSRS. Articles not included in our filing are: historical photo descriptions and In Memoriam listing of deceased original shareholders.
Greetings to our Shareholders From your President/CEO
Kavilco's Report to Shareholders is now being sent in August of each year instead of with the proxy package in October. This biannual report replaces the August newsletter and allows us to include the June 30, 2013 unaudited biannual financial statements. In the past we included the audited annual financial statements dated December 31 of the previous year that were ten months old in the Annual Report. We are now providing you with the more recent June 30, 2013 financial statements including stock and bond portfolio information in this biannual financial report.
In Kasaan, the Alaska Native Tribal Health Consortium (ANTHC) has completed a three million dollar upgrade to the Kasaan water
system. This included a new five hundred thousand gallon storage tank and a new building for the filter system.
The State of Alaska has completed a one point three million dollar remodel to the Dexter Wallace Harbor with a new steel floating breakwater to increase protection from southeast winds.
The trail to Chief Son-i-hats Totem Park has been redone with nice new bridges made of steel but with the steel beams covered by yellow cedar planks. This work was done by the Organized Village of Kasaan's work crew. A very nice job.
The Organized Village of Kasaan has started the process of building one mile of access road to the shareholder subdivisions. This new road will give complete accessibility to all shareholder lots.
Logs for the restoration of the Chief Son-i-hat Long House are being gathered and cut into dimensional planks locally.
I would like to personally thank the shareholders for your continued support over the past years. Your Kavilco Board of Directors are working on your behalf to ensure that you are receiving dividends as well as preserving assets for all generations.
Sincerely,
/s/ Louis A. Thompson
Louis A. Thompson, President/CEO
40th Annual Meeting of Shareholders
The 40th Annual Meeting of Shareholders is scheduled for Saturday, November 2, 2013 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 Louis A. Thompson, President / CEO, Laird Jones, Secretary, and Melanie Young (previously Locklear), Director.
Your Proxy Ballot and Statement will be mailed in October 2013.
We urge you to attend the Annual Meeting if possible. Attendance at our shareholder meetings helps maintain good communications and understanding amongst us all.
Your vote is important! Even if you are unable to attend the Annual Meeting, we ask that you vote "discretionary" on the Managements Proxy Ballot as soon as you receive it.
The "Annual Shareholders 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. This annual auction benefits the Kasaan Haida Heritage Foundation; if you have any items to donate to the auction please contact Jeane Breinig at jeane@gci.net.
Greetings to our Shareholders From Your CFO
Kavilco operates as an income fund. Interest on corporate bonds and dividends from stock investments are the primary source of income for your dividends. The federal reserve seems to be the enemy of investors seeking income and the enabler of a government addicted to debt. Its zero-interest-rate policy accommodates deficit spending at the expense of investors who want to put their money somewhere safe and collect a decent income stream. Federal Reserve Chairman, Ben Bernanke, knows that punishing low yields on "safe" assets pushes investors into riskier assets, and that this can help spur investment to revive the economy. They've sure done wonders for stocks!
The sell-off of U.S. stocks in June of this year has been unlike any recent market correction. Instead of treasuries benefiting from the rush into safe-haven assets, the ten-year yield surged by over three-quarters of a percent from their May lows. What made this equity sell-off unique is that it was triggered by neither weaker economic growth nor fears of a breakup of the euro area as was the case in previous episodes, but by a sharp rise in bond yields. In other words, instead of being a shock absorber, the Treasury market was the culprit behind recent market volatility.
The federal chairman stated in June that he was going to "taper off" buying $85 million in treasury bonds each month, which in a nut shell is how the federal government employs its zero interest rate policy. The odd thing is that there is not much evidence to suggest that U.S. growth has, in fact, shifted materially higher. Indeed, in its latest round of projections, the federal government further downgraded its estimate for growth in 2013 to 2.45%, compared with last September's forecast of 2.75%.
The dilemma that Kavilco is confronted with is that at the beginning of the year we had a $3,802,888 of cash available for investment and the corporate bond portfolio had $1,660,980 in redemptions equalling $5,463,868 available for investment (for simplicity, this analysis does not consider other revenue sources that would increase the total cash available for reinvestment) with no equally safe and financially beneficial area to invest.
The Board of Directors is acutely aware of the great disconnect between what's happening in the economy and what's happening in the stock market. These imbalances have a nasty habit of correcting themselves with a devastating impact on the financial markets. Playing it safe, the Board could hold available funds with a .05% interest rate or else invest it in corporate bonds or dividend yielding stocks. Unfortunately, corporate bonds risk of defaults vs. rewards with the historically low interest rates does not make them a tenable option. This leaves only dividend yield stocks as the only option, and this has been the case the last five years and this is exactly the strategy the federal chairman wanted the investment community to pursue.
As previously stated, the federal government's statement indicating that they were tapering off of buying millions in treasury bonds had a major impact on the financial markets. The hardest hit were utilities, telecommunications stocks, master limited partnerships and real estate investment trusts, all of which have benefited from the zero interest rate policy of the federal government. As you will note on the Schedule of Investments in the financial statements, we have major investments in these sectors. Although the entire portfolio, which is interest sensitive, was subject to some losses, this will not impact the taxable earnings; your dividend income for the corporation.
The June market correction is just a taste of what will happen when the federal government changes its strategy in dealing with this anemic recovery. When the time comes, the company will have to be nimble in adjusting to the change in investment strategy.
This has been a challenging six months. With the Board's guidance, we have been able to negotiate the volatile financial markets in a declining economy and for that I truly am thankful for their support.
Sincerely,
/s/ Scott Burns
Scott Burns, Chief Financial Officer
Kavilco Incorporated
(An Investment Company)
Financial Statements (unaudted June 30, 2013)
The unaudited financial statements for the six month period ending June 30, 2013 are included in this report.
The audited financial statements dated December 31, 2012, were sent to shareholders on February 28, 2013 and will not be duplicated here. A copy of the audited financial statements can be mailed to shareholders within three working days by contacting Kavilco's Corporate Secretary at 1-800-786-9574
STATEMENT OF ASSETS AND LIABILITIES
For six months ended June 30, 2013 (unaudited)
ASSETS | |||||
Investments in securities, at market value (identified cost $33,627,870) | $ | 36,533,187 | |||
Real estate at fair value (identified cost $1,054,089) | 3,794,617 | ||||
Cash and cash equivalents | 256,741 | ||||
Interest receivable | 385,486 | ||||
Dividends receivable | 11,734 | ||||
Premises and equipment, net | 20,635 | ||||
Prepaid expenses and other assets | 23,830 | ||||
Total assets | 41,026,230 | ||||
LIABILITIES | |||||
Accounts payable and accrued expenses | 31,790 | ||||
Dividends payable | 164,894 | ||||
Total liabilities | 196,694 | ||||
NET ASSETS | $ | 40,829,546 | |||
Net assets consist of: | |||||
Unrealized appreciation on | |||||
Distributable earnings | $ | 6,121,741 | |||
Contributed Capital | 34,707,805 | ||||
| |||||
TOTAL Net assets | $ | 40,829,546 | |||
Net asset value per share of Class A and Class B common stock ($40,673,966) divided by 12,000 shares outstanding) | $ | 3,402 | |||
See accompanying notes (unaudited). |
Kavilco Incorporated
(An Investment Company)
Financial Statements
For six months ended June 30, 2013 (unaudited)
Principal Amount or Shares | Fair Value | ||||
INVESTMENTS IN SECURITIES (Portfolio) | |||||
U.S. Corporate Bonds | |||||
Chemical Industry - 4.7% | |||||
E.I. DuPont de Nemour, 5.250%, due December 15, 2016 | 1,519,000 | 1,722,743 | |||
Total Chemical Industry | 1,722,743 | ||||
Communications - 10.3% | |||||
AT&T, 5.100%, due September 15, 2014 | 1,250,000 | 1,313,400 | |||
CBS Corporation, 4.625%, due May 15, 2018 | 2,000,000 | 2,166,560 | |||
Deutsche Telekom Int. Fin., 6.000%, due July 8, 2019 | 250,000 | 293,803 | |||
Total Communications | 3,773,763 | ||||
Consumer, Cyclical - 11.5% | |||||
Home Depot Inc., 5.250%, due December 16, 2013 | 1,000,000 | 1,021,580 | |||
Safeway Inc., 5.625%, due August 15, 2014 | 1,229,000 | 1,289,663 | |||
Target Corp., 5.875%, due July 15, 2016 | 1,000,000 | 1,139,030 | |||
Avon Products, 6.500%, due March 1, 2019 | 500,000 | 558,905 | |||
Total Consumer, Cyclical | 4,009,178 | ||||
Consumer, Non-cyclical - 3.4% | |||||
McDonald's Corp., 5.300%, due March 15, 2017 | 500,000 | 564,030 | |||
Kraft Foods Inc., 6.500%, due August 11, 2017 | 250,000 | 290,663 | |||
Yum! Brands Inc., 5.300%, due September 15, 2019 | 355,000 | 396,975 | |||
Total Consumer, Non-cyclical | 1,251,668 | ||||
Diversified Company Industry - 5.7% | |||||
Fortune Brands Inc., 6.375%, due June 15, 2014 | 500,000 | 525,920 | |||
Total Diversified Company Industry | 525,920 | ||||
Energy - 15.5% | |||||
Kinder Morgan Energy Partners, 5.625%, due February 15, 2015 | 500,000 | 536,130 | |||
PPL Energy Supply LLC, 5.700%, due October 15, 2015 | 80,000 | 85,931 | |||
Plains All American Pipeline, 6.125%, due January 15, 2017 | 1,345,000 | 1,527,799 | |||
XTO Energy Inc., 6.250%, due August 1, 2017 | 1,000,000 | 1,180,990 | |||
Kinder Morgan Energy Partners, 5.950%, due February 15, 2018 | 460,000 | 533,071 | |||
Transocean Inc., 7.375%, due April 15, 2018 | 1,350,000 | 1,546,925 | |||
Hess Corporation, 8.125%, due February 15, 2019 | 199,000 | 249,443 | |||
Total Energy | 5,660,289 | ||||
Financial - 1.0% | |||||
American Express Credit Co., 5.300%, due December 2, 2015 | 117,000 | 128,431 | |||
General Electric Capital Corp., 5.625%, due September 15, 2017 | 215,000 | 243,524 | |||
Total Financial | 371,955 | ||||
Paper & Forest Products Industry - 1.8% | |||||
International Paper, 9.375%, due May 15, 2019 | 500,000 | 653,525 | |||
Technology - 4.0% | |||||
Cisco Systems Inc., 5.500%, due February 22, 2016 | 960,000 | 1,071,984 | |||
Oracle Corp., 5.000%, due July 18, 2019 | 250,000 | 285,858 | |||
Adobe Systems Inc., 4.750%, due February 1, 2020 | 100,000 | 108,828 | |||
Total Technology | 1,466,670 | ||||
Transportation - 7.3% | |||||
CSX Corp., 5.500%, due August 1, 2013 | 964,000 | 967,567 | |||
Union Pacific Corp., 4.875%, due January 15, 2015 | 1,000,000 | 1,060,200 | |||
FedEx Corp., 8.000%, due January 15, 2019 | 500,000 | 632,040 | |||
Total Transportation | 2,659,807 | ||||
Utilities - 6.7% | |||||
Potomac Electric Power, 4.650%, due April 15, 2014 | 600,000 | 617,874 | |||
Southern Power Company, 4.875%, due July 15, 2015 | 1,250,000 | 1,339,588 | |||
Southern Electric Power, 5.550%, due January 15, 2017 | 174,000 | 192,381 | |||
Metropolitan Edison, 7.700%, due January 15, 2019 | 250,000 | 306,453 | |||
Total Utilities | 2,456,296 | ||||
Total U.S. Corporate Bonds (cost $22,523,124) - 67.2% | 24,551,814 | ||||
U.S. Common Stock | |||||
Chemical Industry - 0.6% | |||||
EI Du Pont De Nemours & Co | 4,312 | 226,380 | |||
Total Chemical Industry | 226,380 | ||||
Computer and Peripherals - 0.8% | |||||
Hewlett Packard Co. | 11,680 | 289,664 | |||
Total Computer and Peripherals | 289,664 | ||||
Computer Software & Services - 0.3% | |||||
Microsoft Corp. | 3,640 | 125,744 | |||
Total Computer Software & Services | 125,744 | ||||
Consumer - non cyclical - 0.6% | |||||
McDonalds Corp. | 2,182 | 216,018 | |||
Total Consumer - non cyclical | 216,018 | ||||
Drug Industry - 1.3% | |||||
Bristol-Myers Squibb | 1,500 | 67,035 | |||
Johnson & Johnson | 2,800 | 240,408 | |||
Lilly Eli & Co. | 2,000 | 98,240 | |||
Merck & Co. Inc. | 1,500 | 69,675 | |||
Total Drug Industry | 475,358 | ||||
Electric Utility - 3.0% | |||||
Avista Corp. | 2,000 | 54,040 | |||
Atmos Energy Corp. | 1,500 | 61,590 | |||
Consolidated Edison Inc. | 1,500 | 87,465 | |||
Duke Energy Corp. | 2,255 | 152,213 | |||
Entergy Corporation New | 1,570 | 109,398 | |||
Exelon Corporation | 1,400 | 43,232 | |||
First Energy Corp | 1,255 | 46,862 | |||
NSTAR | 787 | 33,070 | |||
Pennsylvania Pwr & Lt Com (PPL) Corp. | 4,895 | 149,636 | |||
Pepco Holdings Inc. | 7,080 | 142,733 | |||
Scana Corp. | 700 | 33,370 | |||
Southern Company | 4,150 | 183,140 | |||
Total Electric Utility | 1,097,749 | ||||
Electrical Equipment - 0.6% | |||||
General Electric | 9,425 | 218,566 | |||
Total Electrical Equipment | 218,566 | ||||
Exchange Traded Funds - 0.9% | |||||
iShares Investment Grade Corp. Bonds | 640 | 72,736 | |||
iShares Silver Trust | 1,525 | 28,929 | |||
iShares S & P Preferred Stock Index | 2,516 | 98,828 | |||
SPDR Barclays Capital High Yield Bond ETF | 2,600 | 102,674 | |||
SPDR Gold Trust | 350 | 41,689 | |||
Total Exchange Traded Funds | 344,856 | ||||
Food Processing - 0.2% | |||||
Kraft Foods Inc. | 500 | 27,935 | |||
Mondelez International Inc. | 1,500 | 42,795 | |||
Total Food Processing | 70,730 | ||||
Mining - 0.1% | |||||
Silver Wheaton Corp. | 700 | 13,769 | |||
Total Mining | 13,769 | ||||
Mutual Funds - 0.3% | |||||
Blackrock Floating Rate Inc. | 3,179 | 47,876 | |||
John Hancock Preferred Income Fund | 3,284 | 68,340 | |||
Total Mutual Funds | 116,216 | ||||
Natural Gas (Diversified) - 0.1% | |||||
ONEOK Inc. | 1,200 | 49,572 | |||
Total Natural Gas (Diversified) | 49,572 | ||||
Office Equipment - .1% | |||||
Pitney Bowes Inc. | 3000 | 44,040 | |||
Total Office Equipment | 44,040 | ||||
Oil & Gas - 0.5% | |||||
Linn Energy LLC | 5,890 | 195,430 | |||
Total Oil & Gas | 195,430 | ||||
Oil Field Services & Equipment - 0.3% | |||||
Diamond Offshore Drilling | 1,500 | 104,217 | |||
Total Oil Field Services & Equipment | 104,217 | ||||
Petroleum Industry - 0.4% | |||||
Holly Frontier Corp. | 5,890 | 145,452 | |||
Total Petroleum Industry | 145,452 | ||||
Real Estate Investment Trust - 4.0% | |||||
AvalonBay Communities | 400 | 53,964 | |||
Digital Realty Trust Inc. | 1,500 | 91,500 | |||
Healthcare Realty Trust Inc. | 2,300 | 58,650 | |||
Hospitality Properties Trust | 6,100 | 160,308 | |||
Liberty Property Trust | 2,500 | 92,400 | |||
LTC Properties Inc. | 4,830 | 188,612 | |||
Mack Cali Rlty Corp | 5,600 | 137,144 | |||
Omega Healthcare Investors | 2,831 | 87,818 | |||
Redwood Trust Inc | 2,600 | 44,200 | |||
Sabra Health Care REIT | 1,960 | 51,176 | |||
Senior Housing Properties | 6,300 | 163,359 | |||
Stag Industrial Inc. | 2,400 | 47,880 | |||
Sun Communities Inc. | 1,000 | 49,760 | |||
Washington Real Estate Invt | 6,600 | 177,606 | |||
Ventas Inc. | 600 | 41,676 | |||
Total Real Estate Investment Trust | 1,446,053 | ||||
Telecommunications Services - 2.8% | |||||
AT&T | 9,200 | 325,680 | |||
CenturyTel Inc. | 6,900 | 243,915 | |||
Consolidated Communications Holdings Inc. | 9,600 | 167,136 | |||
Frontier Communications Corp. | 192 | 778 | |||
Verizon Communications Inc. | 5,640 | 283,918 | |||
Total Telecommunication Services | 1,021,427 | ||||
Common Stock - Foreign Entities | |||||
Canadian Common Stock - Petroleum Industry - 0.1% | |||||
Penn West Petroleum Ltd | 3400 | 35,972 | |||
Total Canadian Common Stock - Petroleum Industry | 35,972 | ||||
Canadian Common Stock - Utilities - 0.1% | |||||
Atlantic Power Corp. | 2,700 | 10,638 | |||
Total Canadian Common Stock - Utilities | 10,638 | ||||
France Common Stock - Drug Industry - 0.1% | |||||
Sanofi-Aventis-ADR | 600 | 30,906 | |||
Total France Common Stock - Petroleum Industry | 30,906 | ||||
Netherlands Common Stock - Petroleum Industry - 0.1% | |||||
Royal Dutch Shell PLC | 400 | 26,520 | |||
Seadrill Ltd | 1,200 | 48,888 | |||
Total Netherlands Common Stock - Petroleum Industry | 74,408 | ||||
United Kingdom Common Stock - Food Processing - 0.1% | |||||
Unilever PLC | 800 | 32,360 | |||
Total United Kingdom Common Stock - Food Processing | 32,360 | ||||
Total Common Stock (domestic and foreign) (cost $5,853,454) - 17.5% | 6,385,525 | ||||
Publicly Traded Partnerships (PTP) | |||||
PTP - Chemical Industry - 0.3% | |||||
CVR Partners LP | 4,760 | 108,195 | |||
Total PTP - Chemical Industry | 108,195 | ||||
PTP - Oil/Gas Distribution - 8.7% | |||||
Amerigas Partners - LP | 5,000 | 247,150 | |||
Atlas Pipeline Partnership | 2,000 | 76,380 | |||
Boardwalk Pipeline Partners | 6,968 | 210,434 | |||
Breitburn Energy Partners LP | 4,700 | 85,775 | |||
Buckeye Partners LP | 5,052 | 354,448 | |||
El Paso Pipeline Partners | 5,800 | 253,286 | |||
Energy Transfer Partners LP | 5,100 | 257,754 | |||
Enbridge Energy Partners LP | 3,700 | 112,813 | |||
Enterprise Products Partners | 1,600 | 99,440 | |||
Kinder Morgan Energy Partners | 2,400 | 204,960 | |||
Magellan Midstream Partners LP | 2,200 | 119,900 | |||
Markwest Energy Partners | 2,000 | 133,700 | |||
Nustar Energy LP Unit Com | 4,100 | 187,165 | |||
PAA NAT Gas Storage LP Com Unit Ltd | 5,200 | 109,408 | |||
Plains All American Pipeline | 1,600 | 89,296 | |||
PVR Partners LP | 3,000 | 81,900 | |||
Spectra Energy Partners LP | 1,350 | 62,100 | |||
Suburban Propane Partners LP | 3,200 | 148,640 | |||
TC Pipelines LP | 1,700 | 82,076 | |||
Targa Res Partners LP | 1,580 | 79,711 | |||
Williams Partners LP | 3,300 | 170,280 | |||
Total PTP - Oil/Gas Distribution | 3,166,616 | ||||
PTP - Public / Private Equity - 0.1% | |||||
CVR Partners LP | 2,370 | 46,594 | |||
Total PTP - Public / Private Equity | 46,594 | ||||
Total Publicly Traded Partnerships (cost $2,987,281) - 9.1% | 3,321,405 | ||||
Total Corporate Bonds: | 67.2 % | 24,551,814 | |||
Total Common Stocks (foreign & domestic): | 17.5 % | 6,385,525 | |||
Total Publicly Traded Partnerships: | 9.1 % | 3,321,405 | |||
Total Cash and Cash Equivalents: | 6.2 % | 2,274,443 | |||
TOTAL PORTFOLIO: | 100.0 % | 36,533,187 | |||
Kavilco Incorporated
(An Investment Company)
Financial Statements
STATEMENT OF OPERATIONS
For six months ended June 30, 2013 (unaudited)
INVESTMENT INCOME | |||||||
Interest | $ | 632,966 | |||||
Dividends | 242,281 | ||||||
Total investment income | 875,247 | ||||||
EXPENSES | |||||||
Salaries and benefits | 145,097 | ||||||
Directors' compensation and expenses | 119,369 | ||||||
Insurance | 46,627 | ||||||
General and administrative | 58,370 | ||||||
Office leases | 13,019 | ||||||
Legal and accounting | 24,806 | ||||||
Custodian | 9,565 | ||||||
Total expenses | 416,853 | ||||||
| |||||||
Net investment income | 458,394 | ||||||
REALIZED AND UNREALIZED GAIN ON INVESTMENTS | |||||||
Net realized gain on investments | 24,124 | ||||||
Net decrease in unrealized appreciation on investments (Note 4) | (46,017) | ||||||
Total realized and unrealized gain on investments | (21,893) | ||||||
NET OPERATING INCOME | 436,501 | ||||||
OTHER INCOME | 91,722 | ||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 528,223 | |||||
| |||||||
See accompanying notes (unaudited). |
Kavilco Incorporated
(An Investment Company)
Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
For six months ended June 30, 2013 (unaudited)
INCREASE IN NET ASSETS FROM OPERATIONS | June 30, 2013 | June 30, 2012 | |||||
Net investment income | $432,497 | $432,497 | |||||
24,124 | |||||||
Net realized gain on investments | (46,017) | ||||||
Net increase in unrealized appreciation on investments | 91,722 | 297,050 | |||||
Other income | 528,223 | 94,787 | |||||
Total (decrease) in net assets resulting from operations | (229,204) | 824,334 | |||||
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS | 299,019 | (198,960) | |||||
Total increase in net assets | 40,531,976 | 625,374 | |||||
NET ASSETS | |||||||
Beginning of year | 40,157,350 | 40,531,976 | |||||
Six months ended June 30, 2013 (includes undistributed ordinary income in the amount of $474,331.) | $40,829,546 | $40,157,350 | |||||
| |||||||
See accompanying notes (unaudited). |
Kavilco Incorporated
(An Investment Company)
Financial Statements
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, 2008 TO 2012 and the six months ended June 30, 2013 (annualized)
Per share operating performance (for a share of Class A and Class B capital stock outstanding throughout the period): | ||||||||||||||||||
June 30. 2013* | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||
Net asset value, beginning of year | 3,377.50 | 3,377.70 | $ | 3,343.58 | $ | 3,264.90 | $ | 2,973.95 | $ | 3,151.32 | $ | 3,130.83 | ||||||
Income from investment operations | ||||||||||||||||||
Net investment income | 38.20 | 70.10 | 69.90 | 73.28 | 78.35 | 68.36 | 78.45 | |||||||||||
Net realized and unrealized gain (loss) on investment transactions | (1.8) | 6.00 | 40.17 | 47.98 | 328.23 | (165.32) | 29.81 | |||||||||||
Net other income | 7.60 | 15.40 | 14.02 | 8.75 | 22.04 | 14.59 | 11.23 | |||||||||||
Income taxes | - | 34.67 | (34.67) | - | - | |||||||||||||
Total from investment operations | 44.00 | 91.50 | 124.09 | 164.68 | 393.95 | (82.37) | 119.49 | |||||||||||
Less dividends and distributions (Note 10) | (19.10) | (91.60) | (90.00) | (86.00) | (103.00) | (95.00) | (99.00) | |||||||||||
Net asset value, end of year | 3,402.50 | 3.377.50 | $ | 3,377.67 | $ | 3,343.58 | $ | 3,264.90 | $ | 2,973.95 | $ | 3,151.32 | ||||||
Total return | 2.61% | 2.71% | 3.67% | 4.93% | 12.07% | (2.77%) | 3.79% | |||||||||||
SUPPLEMENTAL DATA | ||||||||||||||||||
Net assets, end of year (in thousands) | 40,830 | 40,531 | $ | 40,532 | $ | 40,123 | $ | 39,179 | $ | 35,687 | $ | 37,816 | ||||||
Ratio to average net assets | ||||||||||||||||||
Expenses | 2.07% | 2.06% | 2.21% | 2.25% | 2.41% | 2.34% | 2.30% | |||||||||||
Net investment income | 2.27% | 2.08% | 2.08% | 2.22% | 2.50% | 2.23% | 2.49% | |||||||||||
Portfolio turnover rate | 4.81% | 13.71% | 8.81% | 8.68% | 6.07% | 28.85% | 45.74% | |||||||||||
*The financial information in this column has been annualized (2) fo easier comparison with previous years. | ||||||||||||||||||
Kavilco Incorporated
NOTES to financial statement dated June 30, 2013
Note 1. Organization
Kavilco Incorporated ("the Company") is a village corporation within the Sealaska region organized on November 13, 1973, pursuant to the Alaska Native Claims Settlement Act ("ANCSA") of 1971. Under ANCSA the Native claims to land in Alaska were settled in exchange for part of the state's land and compensation. Settlement benefits were given to Natives of Alaska villages in the form of ownership shares in village corporations that were organized pursuant to ANCSA. Kavilco Incorporated was organized for the purpose of securing and administering the land and benefits for the Natives of the Kasaan village in Alaska. Contributed capital includes receipts from the U.S. government and the state of Alaska under provisions of ANCSA.
On November 1, 1989, the Company began to operate as a self-managed, closed-end management investment company, as defined by the Investment Company Act of 1940 ("the Act"). The Company is subject to various restrictions imposed by the Act and the Internal Revenue Code, including restrictions on borrowing, dividend, and distribution policies, operations and reporting requirements. The Company's investment decisions, which focus primarily on fixed income investments, are made by management under the direction of the Board of Directors.
Note 2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit with banks. The Company considers all highly liquid instruments with a maturity of three months or less to be cash equivalents. The Company has cash balances in excess of federally insured limits.
Valuation of Investments
All investments are recorded at their estimated fair value, as described in Note 3.
Investment Transactions and Income
Investment transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are computed using the last in first out method. Interest income is recorded on an accrual basis as adjusted for the amortization of discounts and premiums using the effective interest method. Premiums and discounts, including original issue discounts, are amortized for both tax and financial reporting purposes. Dividend income is recorded as of the ex-dividend date. Unrealized gains and losses are included in the statement of operations.
Federal Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction and Alaska State. Generally, the Company is subject to examination by U.S. federal and state income tax authorities for three years from the filing of a tax return.
The Company's policy is to continue to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment taxable income to its shareholders. Generally, no federal income tax provision is required for the Company.
The Company records a liability, if any, for unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. No liability has been recorded for uncertain tax positions, or related interest or penalties as of June 30, 2013.
Dividends and Distributions to Shareholders
Dividends and distributions to shareholders are recorded on their payable date. Dividends are generally declared and paid twice a year. Capital gain distributions are generally declared and paid annually. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with accounting principles generally accepted in the United States of America.
Directors' Compensation and Expenses
Each member of the Board of Directors receives compensation for each board meeting attended during the year in addition to a per diem allowance. Directors are also reimbursed for such expenses as accommodation, airfare, and car rental related to board meetings. In addition to meeting related expenses, the Company pays for the medical insurance of certain directors.
Subsequent Events
The Company has evaluated subsequent events through the date of these financial statements were available to be issued, which was the date of the independent auditors' report.
Note 3. Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement determined based on assumptions that market participants would use in pricing an asset or liability. There are three levels which prioritize the inputs used in measuring fair value as follows:
Level 1: Observable market inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Observable market inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs where there is little or no market data, which require the reporting entity to develop its own assumptions.
An asset or liability's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following is a description of the valuation methodologies used for assets measured at fair value, including a general description of the asset.
Equity securities (common stock)
Securities traded on a national securities exchange (or reported on the NASDAQ national market) are stated at the last reported sales price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy.
Corporate bonds
The fair value of corporate bonds is estimated using various techniques, which may consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads, fundamental data relating to the issuer, and credit default swap spreads. Corporate bonds are generally categorized in Level 2 of the fair value hierarchy.
Publicly traded partnerships
Publicly traded partnerships consist of tax-advantage oil and gas processing and distribution companies. They do not pay state or federal corporate income tax. They are traded on a national securities exchange and are stated at the last reported sales price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy.
Real Estate
Real estate represents entitlement to the surface estate of real property, for which no readily available market quotation exists. Fair value of real estate is determined by management based on a Certified Forester's opinion as to the current value and status of the land, along with other factors. Other relevant factors include the lack of commercially viable timber due to previous harvest, amount of capital expenditures required for the future growth of timber, location of the property, recent sales of similar real property in the region and market demand and supply for this type of real property during the valuation process. Real estate is included in Level 3 of the fair value hierarchy.
The following table presents information about the Company's investments in securities and real estate measured at fair value as of June 30, 2013:
Level 1 | Level 2 | Level 3 | Balance | |||||||||
| ||||||||||||
Investments in Securities | ||||||||||||
US Corporate Bonds | $ | - | $ | 24,551,814 | $ | - | $ | 24,551,814 | ||||
US Common stock | 6,201,241 | - | - | 6,201,241 | ||||||||
Foreign Common Stock | 184,284 | - | - | 184,284 | ||||||||
Publicly Traded Partnerships | 3,321,405 | - | - | 3,321,405 | ||||||||
Money Market Fund | 2,274,443 | - | 2,274,443 | |||||||||
| $ | 11,981,373 | $ | 24,551,814 | $ | $ | 36,553,187 | |||||
| ||||||||||||
Real Estate | $ | $ | $ | 3,794,617 | $ | 3,794,617 | ||||||
The Company recognizes transfers between Level 1 and 2 at the end of the reporting period. As of June 30, 2013, no significant transfers between Level 1 or 2 occurred.
At June 30, 2013, there were no realized gain (loss), changes in unrealized gain (loss), cost or purchases, proceeds from sales or transfers in or out of Level 3 at the end of the reporting period.
Note 4. Real Estate
At June 30, 2013, the Company owns fee title to the surface estate of 22,946 acres of real estate. In 1979, the Company received entitlement under Section 12(a) of ANCSA to the surface estate of real property totaling 23,055 acres. In 1987, 194 acres of this property was distributed to the shareholders. The Company received an additional 89.24 acres during 2002 in the process of closing out a timber sale contract.
As of June 30, 2013, there is no commercial viable timber on the real estate and the Company has no outstanding timber agreements. The last harvest and sale of timber from this land was in 2001.
The financial statements include real estate valued at $3,794,617, the value of which has been determined by an independent appraisal. The Board of Directors approved this fair value estimate of the real estate.
Note 5. Trading Risk
In the normal course of business, the Company enters into financial transactions involving instruments where there is risk of potential loss due to changes in the market (market risk), or failure of the other party to the transaction to perform (credit risk).
Market risk is the potential change in value caused by fluctuations in market prices of an underlying financial instrument. Subsequent market fluctuations may require selling investments at prices that differ from the values reflected on the statement of assets and liabilities. Market risk is directly impacted by the volatility and liquidity in the markets in which financial instruments are traded. The Company's exposure to market risk may be increased in that a significant portion of its assets may be invested in a relatively small number of investment positions at any one time. Accordingly, appreciation or depreciation in value of investment positions may have a more significant effect on the value of the Company's portfolio than would be the case in a more diversified or hedged portfolio.
Credit risk is the possibility that a loss may occur due to the failure of a counter-party to perform according to the terms of a contract. The Company's exposure to credit risk associated with counter-party nonperformance includes cash deposits that may exceed applicable insurance limits. The Company seeks to control such credit risk by maintaining deposits with only high quality financial institutions and trading exchange traded financial instruments, which generally do not give rise to significant counter-party exposure due to the requirements of the individual exchanges.
Note 6. Investment Transactions
Purchases of investment securities (consisting of corporate obligations, common stock, and publicly traded partnerships) aggregated $ 3,377,807 for the six months ended June 30, 2013, and sales and maturities of investment securities (consisting of corporate obligations and common stock) aggregated $ 1,660,980 for the six month period ended June 30, 2013.
The U.S. federal income tax basis of the Company's investments is the same as for financial reporting purposes. The gross unrealized appreciation and gross unrealized depreciation for U.S. federal income tax purposes is $3,228,324 and $322,983, respectively, for the six months ended June 30, 2013
Note 7. Premises and Equipment
The following is a summary of premises and equipment at June 30, 2013:
Building | $ | 170,601 | |||||
Furniture, fixtures, and equipment | 75,398 | ||||||
245,999 | |||||||
Less accumulated depreciation | (225,363) | ||||||
$ | 20,636 | ||||||
Buildings and equipment are recorded at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets, which range from 5 to 15 years. Depreciation expense was $ 2,196 for the six month period ended June 30, 2013.
Note 8. Lease Obligation
The Company leases office space under a non-cancelable operating lease agreement, which terminates September 30, 2016. Future minimum lease commitments under this non-cancelable operating lease are as follows:
2013 | 33,720 | ||||||
2014 | 34,613 | ||||||
2015 | 35,507 | ||||||
2016 | 27,277 | ||||||
$ | 131,117 | ||||||
Rent expense for the six month period ended June 30, 2013 was $17,165.
Note 9. Net Assets
Upon organization of the Company, 100 shares of common stock (Class A) were issued to each qualified shareholder enrolled in the Company pursuant to ANCSA. The Company utilized a roll comprising 120 Alaska Natives eligible to receive stock certificates as certified by the U.S. Secretary of the Interior. Under the provisions of ANCSA, stock dividends paid or other stock grants are restricted, and the stock may not be sold, pledged, assigned, or otherwise alienated, except in certain circumstances by court decree or death, unless approved by a majority of the shareholders. The stock carries voting rights only if the holder hereof is an eligible Alaska Native. Nonvoting common stock (Class B) is issued to non-Native persons who inherit stock or are gifted stock.
The Company's capital structure is as follows:
Common stock:
- Class A, no par value - Authorized, 1,000,000 shares; issued and outstanding, 11,482.83 shares
- Class B, no par value - Authorized, 500,000 shares; issued and outstanding, 517.17 shares
Note 10. Dividends and Distributions to Shareholders
On March 1, 2013, a distribution of $19.10 per share was declared. The dividend was paid on March 13, 2013 to shareholders of record on March 4, 2013.
The tax character of distributions paid in the first six months of 2013 and the year ended December 31, 2012 and December 31, 2011 was as follows:
June 30, 2013 | 2012 | 2011 | |||||
Distributions paid from: | |||||||
Ordinary income | $ | 995,484 | $ | 995,484 | $ | 1,036,018 | |
Long-term capital gain | 103,476 | 103,476 | 43,982 | ||||
$ | 1,098,960 | $ | 1,098,960 | $ | 1,080,000 | ||
As of June 30, 2013, the components of distributable earnings on a tax basis were as follows:
June 30, 2013 | 2012 | 2011 | ||||||||
Undistributed ordinary income | $ | 474,331 | $ | 129,293 | $ | 99,124 | ||||
Net unrealized appreciation on: | ||||||||||
Investments | 2,905,341 | 2,938,505 | 2,984,522 | |||||||
Real estate | 2,740,528 | 2,740,288 | 2,740,528 | |||||||
$ | 6,120,200 | $ | 5,808,326 | $ | 5,824,174 | |||||
Note 11. Schedule of Investments
Investments are categorized by type, country, and industry. The industry category represents management's belief as to the most meaningful presentation of the classification of the principal business of the investees. The percentage of net assets is computed by dividing the fair value of each category by net assets.
Note 12. Pension Plan
Employees of the Company are covered by a defined contribution pension plan. The Company contributes 20% of each participant's compensation to the plan. The Company's contributions during the six month period ended June 30, 2013 totaled $ 24,165.
Note 13. Other Income and Expense
The Company earned income of $65,280 and $167,520 for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively, as a result of ANCSA Section 7(i) which requires regional corporations to distribute 70% of any net revenues derived from timber resources and the subsurface estate to other regional corporations who then redistribute under Section 7(j) 50% of such amounts to the village corporations and at-large shareholders.
Other income also includes $ 26,442 and $16,787 of lease and miscellaneous income for the six month period ended June 30, 2013 and the year ended December 31, 2012, respectively.
~ Kavilco's Mission Statement ~
To honor the vision and unselfish actions of our Kasaan Haida ancestors and elders, the goals of Kavilco Incorporated are to provide dividends and to preserve the assets for all generations.
Officers & Directors
Louis A. Thompson, President/CEO
Louis Jones, Sr., Vice President
Laird A. Jones, Secretary
Scott Burns, Chief Financial Officer
Jeane Breinig, Director
Kenneth Gordon, Director
Ramona Hamar, Director
Melanie Locklear, Director
Marie Miller, Director
Frederick O. Olsen, Jr., Director
32 Years of Dividend Distributions
1980 INITIAL DISTRIBUTION | $3,000,000 |
1981 Debenture | 1,200,000 |
1981 Alaska Native Fund | 283,282 |
1982 Debenture | 1,200,000 |
1983 Alaska Native Fund | 69,940 |
1983 Debenture | 1,200,000 |
1984 Debenture | 1,200,000 |
1984 Dividend | 120,000 |
1985 Debenture | 1,200,000 |
1986 Dividend | 120,000 |
1986 Debenture | 1,200,000 |
1987 Debenture | 1,200,000 |
1987 Property Dividend | 236,066 |
1987 Dividend | 120,000 |
1988 Debenture | 1,200,000 |
1989 Debenture | 1,200,000 |
1989 Dividend | 240,000 |
1990 Debenture | 1,200,000 |
1990 Dividend | 600,000 |
1991 Dividends | 1,080,000 |
1992 Dividends | 960,000 |
1993 Dividends | 1,214,400 |
1994 Dividends | 1,248,300 |
1995 Dividends | 1,728,000 |
1996 Dividends | 1,927,680 |
1997 Dividends | 1,992,000 |
1998 Dividends | 1,956,003 |
1999 Dividends | 2,027,167 |
2000 Dividends | 1,811,000 |
2001 Dividends | 1,932,000 |
2002 Dividends | 1,764,000 |
2003 Dividends | 1,650,000 |
2004 Dividends | 1,215,000 |
2005 Dividends | 1,009,200 |
2006 Dividends | 1,065,000 |
2007 Dividends | 1,188,001 |
2008 Dividends | 1,140,000 |
2009 Dividends | 1,236,000 |
2010 Dividends | 1,032,000 |
2011 Dividends | 1,080,000 |
2012 Dividends | 1,085,899 |
Total Distributions | $48,130,938 |
Per 120 Original Shareholders | $401,091 |
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 26, 2013
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 26, 2013 |