UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number _______811-05631_____________________
__________First Pacific Mutual Fund, Inc.__________
(Exact name of registrant as specified in charter)
2756 Woodlawn Drive, Suite #6-201
___________Honolulu, HI 96822-1856__________
(Address of principal executive offices) (Zip code)
Audrey C. Talley
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
__________Philadelphia, PA 19103-6996__________
(Name and address of agent for service)
Registrant's telephone number, including area code: 808-988-8088
Date of fiscal year end: September 30
Date of reporting period: September 30, 2005
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. 3507.
Item 1. Reports to Stockholders.
November 20, 2005
Dear fellow shareholder,
As we begin our 18th year of operations, we are pleased to provide you
with our Funds' 2005 Annual Report.
In these uncertain financial times, isn't it comforting to know that you
are invested in the Hawaii Municipal Fund and the Hawaii Intermediate Fund? As
shareholders of the Funds, you are earning tax-free income* and supporting
local projects designed to enrich our community. The money raised through
municipal bonds is commonly used to build schools, hospitals, roads, airports,
harbors, and water and electrical systems that serve to create jobs and improve
the quality of life here in our islands.
On the following pages are line graphs comparing each Fund's performance
to the Lehman Muni Bond Index for the 10 years ended September 30, 2005, or the
inception of the Fund if less than 10 years. Each graph assumes a hypothetical
$10,000 investment in the respective funds. The object of the graph is to
permit a comparison of the Funds with a benchmark and to provide perspective on
market conditions and investment strategies and techniques that materially
affected the performance of each Fund.
Interest rates are the most important of many factors which can affect
bond prices. Over the course of the fiscal year, the treasury yield curve
flattened with short-term interest rates rising sharply and long-term interest
rates slightly increasing. This accounts for the Hawaii Municipal Fund's
fiscal year price change of $0.11. The Hawaii Municipal Fund Investor Class
had a Net Asset Value ("NAV") of $11.21 on October 1, 2004 and a NAV of $11.10
on September 30, 2005. The Hawaii Municipal Fund Institutional Class had a NAV
of $11.22 on October 1, 2004 and a NAV of $11.11 on September 30, 2005. The
rise in short term-rates resulted in the Hawaii Intermediate Fund's fiscal year
price change of $0.04. The Hawaii Intermediate Fund had a NAV of $5.22 of
October 1, 2004 and a NAV of $5.18 on September 30, 2005. The primary
investment strategy of the Hawaii Municipal Fund was to purchase high quality
long-term Hawaii municipal bonds. The primary investment strategy of the
Hawaii Intermediate Fund was to purchase high quality three to ten year Hawaii
municipal bonds. The past year's performance for these Funds, which is
presented in this Annual Report, was primarily a result of the implementation
of these strategies. As of September 30, 2005, 79.37% of the Hawaii Municipal
Bond Fund's portfolio was invested in bonds rated AAA by Standard & Poor's
("S&P"). As of September 30, 2005, 78.11% of the Hawaii Intermediate Fund's
portfolio was invested in bonds rated AAA by S&P.
During the fiscal year ended September 30, 2005, the Federal Reserve Bank
increased the Federal Funds Rate eight times for a total of two percent.
Despite this dramatic increase in short term rates, the ten year treasury
bond's yield rose by only .13%. The market's relatively mild reaction suggests
that these actions, among other market events, will keep inflation pressures
under control for the foreseeable future. The modest increase in rates at the
long end of the yield curve can be interpreted as an indication that bond
investors believe inflation will not greatly increase over the long-term.
Still, there continues to be risks to inflation and the bond market, among
which are US fiscal policy, international conflicts/terrorism and global
economic factors.
STANDARD & POOR'S
MUNICIPAL BOND RATINGS
September 30, 2005
[The following table was depicted as a pie chart in the printed material.]
Hawaii Municipal Fund
AAA 79.37%
AA 1.94%
A 9.76%
BBB 6.72%
NR 2.21%
[The following table was depicted as a pie chart in the printed material.]
Hawaii Intermediate Fund
AAA 78.11%
A 6.50%
BBB 12.37%
NR 3.02%
We are proud to report that as a Hawaii resident, 100% of the dividends
earned in 2005 were both state and federal tax-free.* There are no capital
gain distributions for the Hawaii Intermediate Fund in 2005. There will be a
long-term capital gain distribution in 2005 to shareholders of the Hawaii
Municipal Fund.
If you have any questions about this Annual Report or would like us to
provide information about the Funds to your family or friends, please call us
at 988-8088.
Thank you for your business as well as the many referrals. On behalf of
the staff and management of the Funds, I would like to extend to you and your
family best wishes for a safe and happy holiday season.
Warmest Aloha,
/s/ Terrence K.H. Lee
Terrence K.H. Lee
President and CEO First Pacific Securities, Inc./Distributor
A description of the policies and procedures that the Funds use to determine
how to vote proxies relating to portfolio securities is available without
charge, upon request, by calling (808) 988-8088.
Before investing, read the prospectus carefully. Please carefully consider the
Funds' investment objectives, risks, and charges and expenses before investing.
The prospectus contains this and other information about the Funds. Call 988-
8088 for a free prospectus.
*Some income may be subject to the federal alternative minimum tax for certain
investors. Funds' yields, share prices and investment returns fluctuate so
that you may receive more or less than your original investment upon
redemption. Past performance is no guarantee of future results. Hawaii
Municipal Fund and Hawaii Intermediate Fund are series of First Pacific Mutual
Fund, Inc.
Hawaii Municipal Fund Investor Class
$10,000 Investment in Fund Compared to Lehman Muni Bond Index
[The following table was depicted as a line chart in the printed material.]
Hawaii Municipal Fund Lehman Muni
Investor Class Bond Index
09/30/95 $10,000 $10,000
09/30/96 $10,563 $10,604
09/30/97 $11,311 $11,560
09/30/98 $12,011 $12,567
09/30/99 $12,005 $12,480
09/30/00 $12,452 $13,250
09/30/01 $13,461 $14,628
09/30/02 $14,535 $15,935
09/30/03 $15,114 $16,556
09/30/04 $15,724 $17,317
09/30/05 $16,170 $18,018
Average Annual Total Return
1 Year 2.84%
5 Year 5.36%
10 Year 4.92%
The graph above compares the increase in value of a $10,000 investment in the
Hawaii Municipal Fund Investor Class with the performance of the Lehman Muni
Bond Index. The objective of the graph is to permit you to compare the
performance of the Fund with the current market and to give perspective to
market conditions and investment strategies and techniques pursued by the
investment manager that materially affected the performance of the Fund. The
Lehman Muni Bond Index reflects reinvestment of dividends but not the expenses
of the Fund. The return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Past performance is not indicative of future
results. The total returns are before taxes on distributions or redemptions of
Fund shares.
Hawaii Municipal Fund Institutional Class
$10,000 Investment in Fund Compared to Lehman Muni Bond Index
[The following table was depicted as a line chart in the printed material.]
Hawaii Municipal Fund Lehman Muni
Institutional Class Bond Index
10/22/02 $10,000 $10,000
09/30/03 $10,737 $10,734
09/30/04 $11,204 $11,228
09/30/05 $11,556 $11,682
Average Annual Total Return
1 Year 3.14%
Since Inception 5.04%
The graph above compares the increase in value of a $10,000 investment in the
Hawaii Municipal Fund Institutional Class with the performance of the Lehman
Muni Bond Index. The objective of the graph is to permit you to compare the
performance of the Fund with the current market and to give perspective to
market conditions and investment strategies and techniques pursued by the
investment manager that materially affected the performance of the Fund. The
Lehman Muni Bond Index reflects reinvestment of dividends but not the expenses
of the Fund. The return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Past performance is not indicative of future
results. The total returns are before taxes on distributions or redemptions of
Fund shares.
Hawaii Intermediate Fund
$10,000 Investment in Fund Compared to Lehman Muni Bond Index
[The following table was depicted as a line chart in the printed material.]
Hawaii Intermediate Fund Lehman Muni Bond Index
09/30/95 $10,000 $10,000
09/30/96 $10,395 $10,604
09/30/97 $10.932 $11,560
09/30/98 $11,486 $12,567
09/30/99 $11,657 $12.480
09/30/00 $12,112 $13,250
09/30/01 $13,033 $14,628
09/30/02 $13,718 $15,935
09/30/03 $14,091 $16,556
09/30/04 $14,402 $17,317
09/30/05 $14,712 $18,018
Average Annual Total Return
1 Year 2.15%
5 Year 3.97%
10 Year 3.94%
The graph above compares the increase in value of a $10,000 investment in the
Hawaii Intermediate Fund with the performance of the Lehman Muni Bond Index.
The objective of the graph is to permit you to compare the performance of the
Fund with the current market and to give perspective to market conditions and
investment strategies and techniques pursued by the investment manager that
materially affected the performance of the Fund. The Lehman Muni Bond Index
reflects reinvestment of dividends but not the expenses of the Fund. The
return and principal value of an investment in the Fund will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Past performance is not indicative of future results. The
total returns are before taxes on distributions or redemptions of Fund shares.
Your Fund's Expenses
As a Fund shareholder, you can incur two types of costs:
Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
Ongoing Fund costs, including management fees, distribution and service (12b-
1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived
from the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period, by following these
steps. Of course, your account value and expenses will differ from those in
this illustration:
1. Divide your account value by $1,000.
If an account had an $8,600 value, the $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
If expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
Hypothetical example for Comparison with Other Funds
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical
"Ending Account Value" is based on the actual expense ratio for each class and
an assumed 5% annual rate of return before expenses, which does not represent
the Fund's actual return. The figure under the heading "Expenses Paid During
Period" shows the hypothetical expenses your account would have incurred under
this scenario. You can compare this figure with the 5% hypothetical examples
that appear in shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing
costs and do not reflect any transaction costs, such as sales charges or
redemption fees. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. Please refer to the Fund prospectus for additional
information on operating expenses.
Beginning Ending Expenses Paid
Account Value Account Value During Period*
03/31/05 09/30/05 03/31/05-09/30/05
Hawaii Municipal Fund Investor Class
Actual $1,000.00 $1,018.30 $4.94
Hypothetical $1,000.00 $1,020.10 $4.95
Hawaii Municipal Fund Institutional Class
Actual $1,000.00 $1,019.70 $3.69
Hypothetical $1,000.00 $1,021.35 $3.69
Hawaii Intermediate Fund
Actual $1,000.00 $1,015.00 $4.18
Hypothetical $1,000.00 $1,020.85 $4.19
*Expenses are equal to the annualized expense ratio for each class (.98%, .73%
and .83%, respectively), multiplied by the average account value over the
period, multiplied by 183/366 to reflect the one-half year period.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
First Pacific Mutual Fund, Inc.
Honolulu, Hawaii
We have audited the accompanying statements of assets and liabilities of Hawaii
Municipal Fund and Hawaii Intermediate Fund (each a series of shares of First
Pacific Mutual Fund, Inc.), including the schedule of investments, as of
September 30, 2005, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended and the financial highlights for the periods indicated
thereon. These financial statements and financial highlights are the
responsibility of the Funds' 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 the standards of the Public Company
Accounting Oversight Board (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. We were not engaged to perform an audit of the Funds' internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Funds' internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also 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 September 30, 2005, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly in all material respects, the financial position of Hawaii
Municipal Fund and Hawaii Intermediate Fund as of September 30, 2005, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated thereon, in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
November 7, 2005
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS
September 30, 2005
Value
Par Value (Note 1 (A))
HAWAII MUNICIPAL BONDS - 97.35%
Hawaii County
General Obligation Bonds - 6.27%
$ 300,000 5.600%, 05/01/11 $ 332,757
2,385,000 5.000%, 07/15/15 2,612,696
1,000,000 5.625%, 05/15/18 1,081,700
1,000,000 5.625%, 05/15/19 1,080,630
1,025,000 5.125%, 07/15/20 1,084,440
1,250,000 5.125%, 07/15/21 1,319,187
1,000,000 5.000%, 07/15/22 1,055,270
1,000,000 5.000%, 07/15/23 1,053,230
9,619,910
Hawaii State
General Obligation Bonds - 10.88%
135,000 6.000%, 10/01/08 145,973
120,000 5.250%, 04/01/11 127,483
3,000,000 5.000%, 07/01/17 3,249,900
5,000,000 5.050%, 07/01/18 5,391,350
2,000,000 5.250%, 07/01/18 2,156,080
3,705,000 5.000%, 10/01/19 3,959,348
1,580,000 5.125%, 02/01/22 1,672,904
16,703,038
Airport Systems Revenue Bonds - 10.05%
2,000,000 8.000%, 07/01/11 2,406,420
385,000 6.900%, 07/01/12 435,231
3,000,000 6.500%, 07/01/14 3,375,900
500,000 6.500%, 07/01/15 561,955
8,000,000 5.625%, 07/01/18 8,651,680
15,431,186
Certificates of Participation #1 - Capital District - 2.30%
1,000,000 5.000%, 05/01/16 1,058,000
555,000 5.000%, 05/01/18 586,352
1,750,000 5.500%, 05/01/20 1,882,090
3,526,442
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 2005
Value
Par Value (Note 1 (A))
Department of Budget & Finance Special Purpose Revenue Bonds
Hawaiian Electric Company, Inc. - 16.50%
$ 5,430,000 5.750%, 12/01/18 $ 5,894,917
125,000 6.150%, 01/01/20 136,370
1,125,000 5.700%, 07/01/20 1,210,005
115,000 5.450%, 11/01/23 115,250
625,000 6.200%, 05/01/26 641,200
600,000 5.875%, 12/01/26 620,064
9,225,000 5.650%, 10/01/27 10,032,556
6,025,000 6.200%, 11/01/29 6,677,447
25,327,809
Hawaii Pacific Health- 0.10%
150,000 5.600%, 07/01/33 156,879
Kapiolani Health Care System - 3.76%
1,500,000 6.000%, 07/01/11 1,562,580
1,525,000 6.400%, 07/01/13 1,696,776
700,000 6.200%, 07/01/16 730,219
1,715,000 6.250%, 07/01/21 1,789,671
5,779,246
Kuakini Hawaii Health System - 3.20%
1,570,000 6.300%, 07/01/22 1,690,058
3,000,000 6.375%, 07/01/32 3,227,940
4,917,998
The Queen's Health Systems - 4.36%
1,020,000 6.000%, 07/01/20 1,062,942
100,000 5.250%, 07/01/23 105,805
5,310,000 5.750%, 07/01/26 5,523,940
6,692,687
Wilcox Hospital - 2.16%
800,000 5.250%, 07/01/13 838,512
2,245,000 5.350%, 07/01/18 2,353,433
115,000 5.500%, 07/01/28 118,662
3,310,607
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 2005
Value
Par Value (Note 1 (A))
Harbor Capital Improvements Revenue Bonds - 4.53%
$ 2,000,000 5.750%, 07/01/12 $ 2,113,160
1,580,000 5.250%, 01/01/16 1,695,419
1,665,000 5.375%, 01/01/17 1,837,510
200,000 5.750%, 07/01/17 210,688
500,000 5.500%, 07/01/19 538,380
520,000 5.750%, 07/01/29 557,617
6,952,774
Hawaii Health Systems - 1.40%
760,000 3.800%, 02/15/13 752,749
1,370,000 4.700%, 02/15/19 1,390,331
2,143,080
Highway Revenue Bonds - 4.26%
400,000 5.000%, 07/01/12 434,220
1,000,000 5.600%, 07/01/14 1,039,580
1,100,000 5.000%, 07/01/16 1,166,022
3,655,000 5.000%, 07/01/22 3,898,569
6,538,391
Housing Authority Single Family
Mortgage Special Purpose Revenue Bonds - 2.10%
515,000 5.750%, 07/01/30 516,973
2,640,000 5.375%, 07/01/33 2,709,511
3,226,484
Department of Hawaiian Homelands - 2.59%
900,000 4.050%, 07/01/06 904,716
1,355,000 4.100%, 07/01/07 1,367,859
1,465,000 4.250%, 07/01/09 1,495,399
200,000 4.450%, 07/01/11 205,754
3,973,728
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 2005
Value
Par Value (Note 1 (A))
University Faculty Housing - 1.52%
$ 800,000 5.650%, 10/01/16 $ 811,040
1,500,000 5.700%, 10/01/25 1,520,760
2,331,800
University of Hawaii - Revenue Bonds - 2.93%
750,000 5.500%, 07/15/16 830,708
3,500,000 5.125%, 07/15/32 3,663,800
4,494,508
Honolulu City & County
Board of Water Supply - 1.53%
500,000 5.800%, 07/01/16 515,620
750,000 5.800%, 07/01/21 773,430
1,000,000 5.000%, 07/01/23 1,058,700
2,347,750
Waste & Water System - 3.76%
1,000,000 5.250%, 07/01/18 1,072,110
4,370,000 5.000%, 07/01/18 4,704,742
5,776,852
General Obligation Bonds - 3.54%
200,000 7.350%, 07/01/06 206,358
275,000 5.125%, 07/01/15 294,737
105,000 5.500%, 09/01/16 109,523
4,500,000 5.500%, 07/01/19 4,829,715
5,440,333
Housing Authority Multi-Family Mortgage Revenue Bonds
Maunakea Apartments - 0.43%
628,000 5.750%, 11/20/09 667,168
Sunset Villas - 3.36%
2,955,000 5.600%, 07/20/21 3,054,081
2,000,000 5.700%, 07/20/31 2,098,160
5,152,241
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 2005
Value
Par Value (Note 1 (A))
Kauai County
General Obligation Bonds - 3.84%
$ 410,000 5.850%, 08/01/07 $ 430,102
1,280,000 5.850%, 08/01/07 1,342,758
595,000 6.250%, 08/01/19 673,195
695,000 6.250%, 08/01/22 786,337
2,565,000 5.000%, 08/01/25 2,663,163
5,895,555
Housing Authority Paanau Project - 0.77%
1,175,000 7.250%, 04/01/12 1,175,658
Maui County
General Obligation Bonds - 1.21%
235,000 5.750%, 06/01/13 241,707
500,000 5.300%, 09/01/14 526,620
500,000 5.000%, 09/01/17 523,860
525,000 5.000%, 03/01/23 557,755
1,849,942
Total Hawaii Municipal Bonds (Cost $144,805,004) 149,432,066
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 2005
Value
Par Value (Note 1 (A))
PUERTO RICO MUNICIPAL BONDS - 0.30%
Puerto Rico Commonwealth
Housing Finance Corp.
Multi-Family Mortgage Revenue Bonds - 0.15%
$ 70,000 7.500%, 10/01/15 $ 70,216
155,000 7.500%, 04/01/22 155,277
225,493
Single-Family Mortgage Revenue Bonds - 0.15%
230,000 6.250%, 04/01/29 234,009
Total Puerto Rico Municipal Bonds (Cost $454,920) 459,502
VIRGIN ISLANDS MUNICIPAL BONDS - 0.08%
Virgin Islands
Public Finance Authority, Series A - 0.08%
100,000 7.300%, 10/01/18 126,710
Total Virgin Islands Municipal Bonds (Cost $99,625) 126,710
Total Investments (Cost $145,359,549) (a) 97.73% 150,018,278
Other Assets Less Liabilities 2.27% 3,485,715
Net Assets 100.00% $ 153,503,993
(a) Aggregate cost for federal income tax purposes is $145,315,141.
At September 30, 2005, unrealized appreciation (depreciation) of
securities for federal income tax purposes is as follows:
Gross unrealized appreciation $ 5,114,389
Gross unrealized depreciation (411,251)
Net unrealized appreciation $ 4,703,138
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII INTERMEDIATE FUND
SCHEDULE OF INVESTMENTS
September 30, 2005
Value
Par Value (Note 1 (A))
HAWAII MUNICIPAL BONDS - 94.27%
Hawaii County
General Obligation Bonds - 12.05%
$ 100,000 4.700%, 02/01/07 $ 102,099
800,000 5.000%, 07/15/11 865,280
250,000 4.000%, 07/15/13 255,867
1,223,246
Hawaii State
Airport Systems Revenue Bonds - 4.89%
100,000 5.000%, 07/01/07 102,555
100,000 6.900%, 07/01/12 113,284
250,000 6.375%, 07/01/12 280,330
496,169
Certificates of Participation - Kapolei - 2.63%
250,000 5.250%, 05/01/13 266,765
Certificates of Participation - Capitol District - 1.01%
100,000 4.750%, 05/01/07 102,557
Department of Budget & Finance
Special Purpose Revenue Bonds
Hawaiian Electric - 4.25%
400,000 4.950%, 04/01/12 431,960
Kapiolani Health Care Systems - 10.96%
1,000,000 6.400%, 07/01/13 1,112,640
The Queen's Health Systems - 2.82%
275,000 5.750%, 07/01/26 286,080
Wilcox Hospital - 1.03%
100,000 5.250%, 07/01/13 104,814
General Obligation Bonds - 4.16%
150,000 5.900%, 10/01/06 154,311
100,000 5.250%, 07/01/12 110,041
150,000 5.000%, 04/01/15 158,462
422,814
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII INTERMEDIATE FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 2005
Value
Par Value (Note 1 (A))
Harbor Capital Improvements Revenue Bonds - 8.53%
$ 200,000 5.400%, 07/01/09 $ 210,530
70,000 5.750%, 07/01/10 76,787
210,000 5.000%, 07/01/10 223,541
185,000 5.250%, 07/01/11 193,921
150,000 5.000%, 07/01/12 160,972
865,751
Hawaiian Homeland Department - 3.49%
250,000 4.050%, 07/01/06 251,310
100,000 4.450%, 07/01/11 102,877
354,187
Highway & Transportation Authority - 2.75%
275,000 5.000%, 07/01/06 279,199
Housing Authority
Multi-Family Special Purpose Mortgage
Revenue Bonds - 0.98%
100,000 3.700%, 01/01/13 99,744
Housing Authority
Single Family Special Purpose Mortgage
Revenue Bonds - 10.27%
300,000 4.800%, 07/01/07 305,442
270,000 4.650%, 07/01/12 276,556
450,000 4.800%, 07/01/13 460,921
1,042,919
University of Hawaii
University Revenue Bonds - 3.07%
300,000 4.300%, 07/15/13 311,601
Hawaii Health Systems Corp. - 2.93%
300,000 3.800%, 02/15/13 297,138
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII INTERMEDIATE FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 2005
Value
Par Value (Note 1 (A))
Honolulu City & County
General Obligation Bonds - 6.51%
$ 150,000 4.750%, 02/01/09 $ 156,256
100,000 5.000%, 07/01/09 106,254
170,000 4.850%, 02/01/10 178,706
100,000 5.375%, 09/01/12 110,596
100,000 5.000%, 07/01/13 109,025
660,837
Waste System Revenue - 4.23%
200,000 4.400%, 07/01/11 208,410
200,000 5.500%, 07/01/11 221,390
429,800
Multi-Family Mortgage Purpose Revenue Bond - 1.22%
117,000 5.750%, 11/20/09 124,297
Kauai County
General Obligation Bonds - 2.53%
250,000 4.125%, 08/01/08 256,660
Maui County
General Obligation Bonds - 3.96%
190,000 4.650%, 03/01/07 194,596
200,000 4.250%, 03/01/12 207,836
402,432
Total Hawaii Municipal Bonds (Cost $9,468,977) 9,571,610
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII INTERMEDIATE FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 2005
Value
Par Value (Note 1 (A))
VIRGIN ISLANDS MUNICIPAL BONDS - 2.68%
Virgin Islands Water & Power Authority
Electric System Revenue - 2.68%
$ 250,000 5.000%, 07/01/14 $ 272,210
Total Virgin Islands Municipal Bonds (Cost $271,711) 272,210
Total Investments (Cost $9,740,688) (a) 96.95% 9,843,820
Other Assets Less Liabilities 3.05% 310,435
Net Assets 100.00% $10,154,255
(a) Aggregate cost for federal income tax purposes is $9,740,688.
At September 30, 2005, unrealized appreciation (depreciation) of
securities for federal income tax purposes is as follows:
Gross unrealized appreciation $ 137,181
Gross unrealized depreciation (34,049)
Net unrealized appreciation $ 103,132
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
HAWAII INTERMEDIATE FUND
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 2005
Municipal Intermediate
Fund Fund
ASSETS
Investments at market value
(Identified cost $145,359,550 and $9,740,688
respectively) (Note 1 (A)) $150,018,279 $9,843,820
Cash 1,449,639 200,967
Interest receivable 2,256,454 120,570
Subscriptions receivable 68,417 -
Other assets 14,432 1,319
Total assets 153,807,221 10,166,676
LIABILITIES
Distributions payable 141,677 5,445
Redemptions payable 30,188 -
Management fees payable 63,016 3,322
Administration fees payable 2,471 166
Distribution plan payable 18,533 -
Shareholder servicing fees payable 12,356 -
Transfer agent fees payable 7,357 993
Accrued expenses 27,630 2,495
Total liabilities 303,228 12,421
NET ASSETS $153,503,993 $10,154,255
INVESTOR CLASS SHARES
Net assets
(Applicable to 13,556,359 and 1,961,589
shares outstanding, respectively $.01 par value,
20,000,000 shares authorized) $150,504,811 $10,154,255
NET ASSET VALUE, OFFERING AND REPURCHASE
PRICE PER SHARE, INVESTOR CLASS SHARES $11.10 $5.18
INSTITUTIONAL CLASS SHARES
Net assets
(Applicable to 269,945 shares outstanding, $.01 par value,
20,000,000 shares authorized) $2,999,182
NET ASSET VALUE, OFFERING AND REPURCHASE
PRICE PER SHARE, INSTITUTIONAL CLASS SHARES $11.11
NET ASSETS
At September 30, 2005, net assets consisted of:
Paid-in capital $148,239,680 $10,053,175
Undistributed net investment income 47,542 -
Accumulated net realized gain
(loss) investments 558,042 (2,052)
Net unrealized appreciation 4,658,729 103,132
$153,503,993 $10,154,255
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
HAWAII INTERMEDIATE FUND
STATEMENTS OF OPERATIONS
For the year ended September 30, 2005
Municipal Intermediate
Fund Fund
INVESTMENT INCOME
Interest income $6,843,327 $351,009
Expenses
Management fees (Note 2) 746,186 49,118
Distribution costs (Notes 2 and 3) 219,484 -
Transfer agent fees (Note 2) 104,480 8,242
Shareholder services fees (Note 2) 146,321 -
Administration fees (Note 2) 29,262 1,963
Accounting fees 79,860 6,747
Legal and audit fees 50,410 6,156
Printing 18,999 1,186
Miscellaneous 3,029 12
Custodian fees 41,038 2,676
Insurance 11,734 1,963
Registration fees 6,237 1,341
CCO Salary 23,964 -
Directors fees 1,700 2,519
Total expenses 1,482,704 81,923
Expense reimbursement (Note 2) - (9,862)
Fee reductions (Note 5) (80,395) (5,503)
Net expenses 1,402,309 66,558
Net investment income 5,441,018 284,451
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss)
from security transactions 592,953 (343)
Change in unrealized appreciation
of investments (1,852,249) (99,365)
Net (loss) on investments (1,259,296) (99,708)
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $4,181,722 $184,743
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
STATEMENT OF CHANGES IN NET ASSETS
For The Year Ended For The Year Ended
September 30, 2005 September 30, 2004
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income $5,441,018 $5,785,097
Net realized gain on investments 592,953 186,759
Increase (decrease) in unrealized appreciation
(depreciation) of investments (1,852,249) (143,481)
Net increase in net assets
resulting from operations 4,181,722 5,828,375
Distributions to shareholders from:
Net investment income
Investor Class
($.41 and $.47 per share, respectively) (5,329,059) (5,641,162)
Institutional Class
($.44 and $.51 per share, respectively) (114,848) (128,842)
Capital gains
Investor Class
($.02 and $.01 per share, respectively) (217,179) (115,358)
Institutional Class
($.02 and $.01 per share, respectively) (4,488) (2,381)
Total distributions (5,665,574) (5,887,743)
Capital share transactions (a)
Increase in net assets resulting from
capital share transactions 9,211,693 1,183,048
Total increase in net assets 7,727,841 1,123,680
NET ASSETS
Beginning of year 145,776,152 144,652,472
End of year
(including undistributed net investment income of
$47,542 and $50,583, respectively) $153,503,993 $145,776,152
(a) Summary of capital share activity follows:
Investor Class Investor Class
For The Year Ended For The Year Ended
September 30, 2005 September 30, 2004
Shares Value Shares Value
Shares sold 1,773,207 $19,837,309 1,242,013 $13,868,349
Shares issued on reinvestment
of distributions 350,847 3,923,846 361,783 4,040,714
2,124,054 23,761,155 1,603,796 17,909,063
Shares redeemed (1,294,199) (14,481,407) (1,523,997) (17,008,045)
Net increase (decrease) 829,855 $ 9,279,748 79,799 $ 901,018
Institutional Class Institutional Class
For The Year Ended For The Year Ended
September 30, 2005 September 30, 2004
Shares Value Shares Value
Shares sold 66,945 $749,862 47,890 $ 532,931
Shares issued on reinvestment
of distributions 1,612 18,043 1,541 17,218
68,557 767,905 49,431 550,149
Shares redeemed (74,593) (835,960) (24,183) (268,119)
Net increase (decrease) (6,036) $(68,055) 25,248 $ 282,030
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII INTERMEDIATE FUND
STATEMENT OF CHANGES IN NET ASSETS
For The Year Ended For The Year Ended
September 30, 2005 September 30, 2004
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income $284,451 $248,677
Net realized gain (loss) on investments (343) 3,838
Increase (decrease) in unrealized appreciation
(depreciation) of investments (99,365) (49,032)
Net increase in net assets resulting
from operations 184,743 203,483
Distributions to shareholders from:
Net investment income
($.15 and $.15 per share, respectively) (284,451) (248,677)
Capital share transactions (a)
Increase in net assets resulting from
capital share transactions 1,281,258 1,369,248
Total increase in net assets 1,181,550 1,324,054
NET ASSETS
Beginning of year 8,972,705 7,648,651
End of year $10,154,255 $8,972,705
(a) Summary of capital share activity follows:
For The Year Ended For The Year Ended
September 30, 2005 September 30, 2004
Shares Value Shares Value
Shares sold 618,630 $3,236,495 654,310 $3,403,971
Shares issued on reinvestment
of distributions 42,969 224,036 38,581 200,875
661,599 3,460,531 692,891 3,604,846
Shares redeemed (418,802) (2,179,273) (429,327) (2,235,598)
Net increase 242,797 $1,281,258 263,564 $1,369,248
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
INVESTOR CLASS
Years Ended September 30,
2005 2004 2003 2002(b) 2001
Net asset value
Beginning of year $11.21 $11.22 $11.25 $10.89 $10.55
Income from investment operations
Net investment income .41 .47 .47 .48 .50
Net gain (loss) on securities
(both realized and unrealized) (.09) - (.03) .36 .34
Total from investment operations .32 .47 .44 .84 .84
Less distributions
Dividends from net investment income (.41) (.47) (.47) (.48) (.50)
Distributions from capital gains (.02) (.01) -** - -
Total distributions (.43) (.48) (.47) (.48) (.50)
End of year $11.10 $11.21 $11.22 $11.25 $10.89
Total return 2.84% 4.03% 3.98% 7.98% 8.11%
Ratios/Supplemental Data
Net assets, end of year(in 000's)$150,505 $142,680 $141,838 $134,980 $121,471
Ratio of expenses to average
net assets (a) .98% 1.00% 1.01% 1.02% 1.03%
Ratio of net investment income
to average net assets 3.55% 3.98% 4.22% 4.42% 4.64%
Portfolio turnover 26.82% 10.53% 16.40% 13.06% 22.06%
*** Less than $.01 per share
(a) Ratios of expenses to average net assets after the reduction of custodian
fees and other expenses under a custodian arrangement were .94%, .98%,
..99%, .96%, and .94%, for the years ended September 30, 2005, 2004, 2003,
2002, and 2001, respectively.
(b) As required, effective October 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing market discount on debt securities. Had the Fund not
amortized market discount as an adjustment to interest income, the net
investment income to average net assets would have been 4.38%. Per share and
ratios prior to October 1, 2001 have not been restated to reflect this change in
presentation.
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
INSTITUTIONAL CLASS
For the Period ended
Years Ended September 30, September **
2005 2004 2003
Net asset value
Beginning of year $11.22 $11.23 $10.91
Income from investment operations
Net investment income .44 .51 .47
Net gain (loss) on securities
(both realized and unrealized) (.09) - .32
Total from investment operations .35 .51 .79
Less distributions
Dividends from net investment income (.44) (.51) (.47)
Distributions from capital gains (.02) (.01) -***
Total distributions (.46) (.52) (.47)
End of year $11.11 $11.22 $11.23
Total return 3.14% 4.58% 7.36%
Ratios/Supplemental Data
Net assets, end of year (in 000's) $2,999 $3,096 $2,814
Ratio of expenses to average
net assets (a) .73% .75% .76%*
Ratio of net investment income
to average net assets 3.89% 4.23% 4.47%
Portfolio turnover 26.82% 10.53% 16.40%
* Annualized
** Commencement of Operations was October 22, 2002
*** Less than $.01 per share
(a) Ratios of expenses to average net assets after the reduction of custodian
fees and other expenses under a custodian arrangement for the Institutional
Class were .69%, .73% and .74% for the periods ended September 30, 2005,
2004 and 2003, respectively.
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII INTERMEDIATE FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
Years Ended September 30,
2005 2004 2003 2002 2001
Net asset value
Beginning of year $5.22 $5.26 $5.27 $5.17 $5.01
Income from investment operations
Net investment income .15 .15 .15 .16 .21
Net gain (loss) on securities
(both realized and unrealized) (.04) (.04) (.01) .10 .16
Total from investment operations .11 .11 .14 .26 .37
Less distributions
Dividends from net investment income (.15) (.15) (.15) (.16) (.21)
Total distributions (.15) (.15) (.15) (.16) (.21)
End of year $5.18 $5.22 $5.26 $5.27 $5.17
Total return 2.15% 2.21% 2.72% 5.26% 7.61%
Ratios/Supplemental Data
Net assets, end of year (in 000's) $10,154 $8,973 $7,647 $6,345 $4,944
Ratio of expenses to average net assets
Before expense reimbursements .83% .82% .96% .84% .88%
After expense reimbursements .73%(a) .72%(a) .73%(a).74%(a) .88%(a)
Ratio of net investment income to
average net assets
Before expense reimbursements 2.74% 2.84% 2.61% 3.15% 4.12%
After expense reimbursements 2.90% 2.94% 2.86% 3.15% 4.12%
Portfolio turnover 15.72% 13.96% 20.02% 18.29% 19.28%
(a) Ratios of expenses to average net assets after the reduction of custodian
fees and other expenses under a custodian arrangement were .68%, .70%,
..71%, .69%, and .79%, for the years ended September 30, 2005, 2004, 2003,
2002, and 2001, respectively.
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
HAWAII INTERMEDIATE FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hawaii Municipal Fund and Hawaii Intermediate Fund ("Funds") are each a
series of shares of First Pacific Mutual Fund, Inc. which is registered
under the Investment Company Act of 1940, as a non-diversified open-end
management company. Hawaii Municipal Fund is authorized to offer two
Classes of Shares: Investor Shares and Institutional Shares. The Classes
offer different distribution charges and shareholder servicing fees which
may affect performance.
The investment objective of the Funds is to provide a high level of current
income exempt from federal and Hawaii state income taxes, consistent with
preservation of capital and prudent investment management. The Funds seek
to achieve their objective by investing primarily in municipal securities
which pay interest that is exempt from federal and Hawaii income taxes.
The Funds are subject to the risk of price fluctuation of the municipal
securities held in their portfolios which is generally a function of the
underlying credit rating of an issuer, the maturity length of the
securities, the securities' yield, and general economic and interest rate
conditions.
Since the Funds invest primarily in obligations of issuers located in
Hawaii, the marketability and market value of these obligations may be
affected by certain Hawaiian constitutional provisions, legislative
measures, executive orders, administrative regulations, voter initiatives,
and other political and economic developments. If any such problems arise,
they could adversely affect the ability of various Hawaiian issuers to meet
their financial obligation.
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the reported
amounts of income and expenses during the reported period. Actual results
could differ from those estimates.
(A) SECURITY VALUATION
Portfolio securities, which are fixed income securities, are valued by an
independent pricing service using market quotations, prices provided by
market-makers, or estimates of market values obtained from yield data
relating to instruments or securities with similar characteristics, in
accordance with procedures established in good faith by the Board of
Directors. Securities with remaining maturities of 60 days or less are
valued on the amortized cost basis as reflecting fair value. Securities
for which market quotations are not readily available will be valued at
their "fair value" in good faith. For these purposes, "fair value"
means the price that the Fund Accountant and the Investment Manager
reasonably expect the Fund could receive from an arm's-length buyer upon
the current sale of the securities within seven (7) days, after
considering all appropriate factors and indications of value available to
them. Such value will be cost if the Investment Manager determines such
valuation is appropriate after considering a multitude of factors in
accordance with established procedures.
HAWAII MUNICIPAL FUND
HAWAII INTERMEDIATE FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
September 30, 2005
(B) FEDERAL INCOME TAXES
It is the Funds' policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute their taxable income, if any, to their shareholders.
Therefore, no federal income tax provision is required. At September
30, 2005, the Hawaii Intermediate Fund had an unused capital loss
carryforward of $2,052 of which $1,709 expires in 2010, and $343 expires
in 2013.
(C) SECURITY TRANSACTIONS, INVESTMENT INCOME AND DISTRIBUTIONS TO
SHAREHOLDERS
Security transactions are recorded on the trade date. Interest
income is recorded on the accrual basis. Bond discounts and premiums are
amortized using the interest method. Distributions to shareholders are
declared daily and reinvested or paid in cash monthly.
The tax character of distributions paid during the years ended
September 30, 2005 and 2004 were as follows:
Exempt- Long-Term
Interest Ordinary Capital Total
Dividends Income Gains Distributions
Hawaii Municipal Fund
2005 $5,443,907 $ - $221,667 $5,665,574
2004 $5,770,004 $ - $117,739 $5,887,743
Hawaii Intermediate Fund
2005 $ 284,451 $ - $ - $ 284,451
2004 $ 248,677 $ - $ - $ 248,677
The tax character of distributable earnings at September 30, 2005 were
as follows:
Undistributed Post Unrealized Total
Ordinary Exempt- Undistributed Capital Loss October Gain/ Distributable
Interest Income Capital Gains Carryforwards Loss* (Loss)** Earnings
Hawaii
Municipal Fund
$ - $557,889 $ - $ - $4,703,138 $5,261,027
Intermediate Fund
$ - $ - $ (2,052) $ - $ 103,132 $ 101,080
* Under the current tax law capital losses realized after October 31
and prior to the Fund's fiscal year end may be deferred as occurring
on the first day of the following fiscal year.
** The difference between book basis and tax basis unrealized
appreciation is attributable to market discount on debt securities.
Accounting principles generally accepted in the United States of America
require that certain components of net assets be reclassified between
financial and tax reporting. These reclassifications have no effect
on net assets or net asset value per share. For the year ended
September 30, 2005, the Hawaii Municipal Fund increased realized gain
(loss) by $151 and decreased undistributed net investment income $151.
HAWAII MUNICIPAL FUND
HAWAII INTERMEDIATE FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
September 30, 2005
(2) INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Lee Financial Group Inc. ("LFG") provides the Funds with management and
administrative services pursuant to a management agreement and
administrative services agreement. In accordance with the terms of the
management agreement and the administrative services agreement, LFG receives
compensation at the annual rate of .50% and up to .05% of each Fund's
average daily net assets, respectively. For the year ended September 30,
2005, LFG voluntarily waived certain management fees in the amount of $9,862
for the Hawaii Intermediate Fund.
The Funds' distributor, First Pacific Securities, Inc. ("FPS"), a wholly-
owned subsidiary of LFG, received $219,484 and $0 for costs incurred in
connection with the sale of Hawaii Municipal Fund's shares and Hawaii
Intermediate Fund's shares, respectively (See Note 3).
First Pacific Recordkeeping, Inc. ("FPR"), a wholly-owned subsidiary of
LFG, serves as the transfer agent for the Funds. In accordance with the
terms of the transfer agent agreement, FPR receives compensation at the
annual rate of .06% of each Fund's average daily net assets. FPR also
provides the Hawaii Municipal Fund with certain clerical, bookkeeping and
shareholder services pursuant to a service agreement approved by the Fund's
directors. As compensation for these services FPR receives a fee, computed
daily and payable monthly, at an annualized rate of .10% of average daily
net assets.
Certain officers and directors of the Funds are also officers of LFG, FPS
and FPR.
(3) DISTRIBUTION COSTS
The Funds' Board of Directors, including a majority of the Directors who are
not "interested persons" of the Funds, as defined in the Investment
Company Act of 1940, adopted a distribution plan pursuant to Rule 12b-1 of
the Act. The Plan regulates the manner in which a regulated investment
company may assume costs of distributing and promoting the sales of its
shares.
The Plan provides that the Hawaii Municipal Fund Investor Class and the
Hawaii Intermediate Fund may incur certain costs, which may not exceed .25%
per annum of the Funds' average daily net assets, for payment to the
distributor for items such as advertising expenses, selling expenses,
commissions or travel, reasonably intended to result in sales of shares of
the Funds. The Hawaii Municipal Fund Institutional Class will not incur any
distribution costs.
(4) PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities aggregated $45,738,375 and $37,891,571,
respectively, for the Hawaii Municipal Fund. Purchases and sales of
securities for the Hawaii Intermediate Fund aggregated $2,591,460 and
$1,448,969, respectively.
HAWAII MUNICIPAL FUND
HAWAII INTERMEDIATE FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
September 30, 2005
(5) CUSTODY CREDITS
Under an agreement with the Custodian Bank, custodian fees are paid by
credits for cash balances. Any remaining credits are used to offset expenses
of other vendors and service providers. During the year ended September
30, 2005, such reductions amounted to $80,395 and $5,503 for the Hawaii
Municipal Fund and the Hawaii Intermediate Fund, respectively. Credits
used to offset expenses were as follows:
Municipal Intermediate
Fund Fund
Custody $24,511 $2,676
Analysis 715 -
Overdraft Charge 1,453 -
Accounting 53,716 2,827
$80,395 $5,503
FIRST PACIFIC MUTUAL FUND, INC.
BOARD OF DIRECTORS AND OFFICERS (Unaudited)
Overall responsibility for management of First Pacific Mutual Fund, Inc., (the
"Fund") rests with the Board of Directors. Each Director serves during the
lifetime of the Fund and until its termination, or until the Director's death,
resignation, retirement or removal. The Directors, in turn, elect the officers
of the Fund to actively supervise its day-to-day operations. The officers have
been elected for an annual term. The following table provides information
regarding each Director and officer of the Fund.
Name, Age and Address
Position & Office With the Fund
Term of Office and Length of Time Served
Principal Occupation During the Past Five Years
Number of Portfolios in Fund Complex Overseen by Director
DISINTERESTED DIRECTORS
Clayton W.H. Chow (53)
896 Puuikena Dr.
Honolulu, HI 96821
Director
Unlimited Term, 17 Years
Office Technology Specialist, Xerox Corporation;
Account Executive Roadway Express
2
Lynden M. Keala (51)
47-532 Hui Iwa St.
Kaneohe, HI 96744
Director
Unlimited Term, 16 Years
Account Executive, Xpedx (Distribution Division of International Paper);
Account Executive, Reynolds & Reynolds (formerly Vanier Business Forms)
2
Stuart S. Marlowe (65)
PO Box 630507
Lanai City, HI 96763
Director
Unlimited Term, 17 Years
Owner, Surfside Sales and Marketing (Sales and marketing of music for the State
of Hawaii);
Vice President/General Manager Navarre Corp. (Distributor of music and
software products.)
2
Karen T. Nakamura (61)
1727 Dillingham Boulevard
Honolulu, HI 96819
Director
Unlimited Term, 8 Years
Executive Vice President & CEO, Building Industry Association of Hawaii;
Vice President, Wallpaper Hawaii Ltd.
2
Kim F. Scoggins (58)
220 S. King Street, #1800
Honolulu, HI 96813
Director
Unlimited Term, 8 Years
Commercial Real Estate, Colliers Monroe Friedlander, Inc.;
Real Estate, 1250 Oceanside Partners.
2
INTERESTED DIRECTORS
Terrence K.H. Lee (48)
593 Moaniala Street
Honolulu, HI 96821
Director, President and CEO
Unlimited Term, 17 Years
Director, President and CEO, Lee Financial Group Inc.; President and CEO, First
Pacific Securities, Inc; President and CEO, First Pacific Recordkeeping, Inc.
OFFICERS
Nora B. Simpson (45)
503 Blackbird Drive
Hockessin, DE 19707
Treasurer, Chief Compliance Officer, Assistant Secretary
Vice President, CCO and CFO, Lee Financial Group Inc.; Vice President, CCO and
CFO, First Pacific Securities, Inc.; Vice President, Compliance Officer and CFO
First Pacific Recordkeeping, Inc.
Charlotte A. Meyer (52)
64-5251 Puu Nani Drive
PO Box 2834
Kamuela, HI 96743
Assistant Treasurer
Director, Treasurer, and Vice President, Lee Financial Group Inc.;
Treasurer, and Vice President, First Pacific Securities, Inc; Treasurer and Vice
President, First Pacific Recordkeeping, Inc.
Jean E. Lee (49)
2756 Woodlawn Drive, #6-201
Honolulu, HI 96822
Secretary
Director,
Secretary, and Vice President, Lee Financial Group Inc.; Secretary and,
Vice President, First Pacific Securities, Inc; Secretary and Vice President,
First Pacific Recordkeeping, Inc.
There are no other Directorships held by any of the Directors. Terrence K.H.
Lee and Jean E. Lee are husband and wife. Terrence K.H. Lee is an interested
person of First Pacific Mutual Fund, Inc. by virtue of his relationship as
President of the investment adviser and principal underwriter and has had a
material and professional relationship with the Fund for the last three
completed fiscal years.
Additional information about members of the Board of Directors and executive
officers is available in the Statement of Additional Information ("SAI"). To
obtain a free copy of the SAI, please call (808) 988-8088.
Hawaii Municipal Fund Investor Class
Hawaii Municipal Fund Institutional Class
Hawaii Intermediate Fund
Shareholder Information
Proxy Voting Policies and Procedures
The Fund has established Proxy Voting Policies and Procedures ("Policies")
that the Fund uses to determine how to vote proxies relating to portfolio
securities. Shareholders may request copies of the Policies free of charge by
calling (808) 988-8088 or by sending a written request to Lee Financial Group
Inc., 2756 Woodlawn Drive, Suite #6-201, Honolulu, HI 96822. Copies of the
Fund's proxy voting records are posted on the Securities and Exchange
Commission's website at www.sec.gov and reflect the 12-month period beginning
July 1, 2004 and ending June 30, 2005.
Quarterly Statement of Investments
The Fund files a complete statement of investments with the Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the
Commission's website at www.sec.gov. The filed form may also be viewed and
copied at the Commission's Public Reference Room in Washington, DC.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Disclosure Regarding Approval of the Management Agreement
At a meeting held on July 27, 2005, the Board of Directors First Pacific Mutual
Fund, Inc. ("Fund") considered and approved the continuance of the Investment
Management Agreement between the Fund and Lee Financial Group Inc. ("LFG")
with respect to the Hawaii Municipal Fund and the Hawaii Intermediate Fund
(each a "Portfolio" and collectively, the "Portfolios") for an additional
one-year period ending September 30, 2006.
Prior to the meeting, the Directors had received detailed information from LFG.
This information together with other information provided by LFG and the
information provided to the Directors throughout the course of year formed the
primary (but not exclusive) basis for the Board's determinations as summarized
below. The information, material factors and conclusions that formed the basis
for the Board's subsequent approval of the Investment Management Agreement are
described below.
1. Information Received
Materials reviewed - During the course of the year, the Directors received a
wide variety of materials relating to the services provided by LFG, including
reports on each Portfolio's investment results; portfolio composition;
portfolio trading practices; and other information relating to the nature,
extent and quality of services provided by LFG to the Fund. In addition, the
Board reviewed supplementary information that included materials regarding each
Portfolio's investment results, management fee and expense comparisons,
financial and profitability information regarding LFG, descriptions of various
functions such as compliance monitoring and portfolio trading practices, and
information about the personnel providing investment management and
administrative services to each Portfolio.
Review Process. The Board received assistance regarding legal and industry
standards from independent counsel to the independent Directors. The Board
discussed the renewal of the agreement with LFG representatives. In deciding
to recommend the renewal of the agreement, the Directors did not identify any
single issue or particular information that, in isolation, was the controlling
factor. This summary describes the most important, but not all, of the factors
considered by the Board.
2. Nature, Extent and Quality of Services
In the Board's review of LFG, its personnel and its resources, it considered
the depth and quality of LFG's investment management process; the experience,
capability and integrity of its senior management and other personnel; the
turnover rates of its personnel; and the overall financial strength and
stability of its organization. Based on this review, the Board determined that
LFG has the capabilities, resources and personnel necessary to manage the Fund
and the Board is satisfied with the quality of services provided by LFG in
advising the Portfolios.
3. Investment Performance
The Board considered each Portfolio's unique, balanced pursuit of its
investment objectives and the investment results of each Portfolio in light of
its objectives. The Directors reviewed the short-term and long-term
performance of each Portfolio on both an absolute basis and in comparison to
benchmark indices. The Directors also reviewed the rankings for each of the
Funds Portfolios by an independent rating and ranking organization. Based on
that review, the Board concluded that the performance of each of the Portfolios
is generally competitive with their benchmark index and other comparable mutual
funds.
4. Management Fees and Total Operating Expenses
The Board reviewed the management fees and total operating expenses of each
Portfolio and compared such amounts with the industry average fees and expense
levels of other comparable Funds. The Board considered that the management
fees for each Portfolio, both before and after voluntary fee waivers and/or
expense offsets, are generally competitive with fees paid by comparable funds;
the expense ratio of each Portfolio is generally competitive with the expenses
paid by comparable funds.
5. Adviser, Costs, Level of Profits, Economies of Scale and Ancillary Benefits
The Board reviewed information regarding LFG's costs of providing services to
the Fund, as well as the resulting level of profits to LFG. The Board further
concluded that the profit to LFG for investment management services seems
reasonable based on the services provided. The Board noted that since the
management fees do not contain breakpoints, there would be no economies of
scale from reduction of the management fees as the Portfolios' assets grow. In
assessing the benefits to LFG from its relationships with the Fund, the Board
noted that there are no soft dollar arrangements. The Board also took into
account potential benefits to LFG as the Fund's administrator and the
engagement of affiliates for distribution, shareholder servicing and transfer
agency services and concluded that the management fee for each Portfolio was
reasonable in relation to the benefits derived by LFG from these relationships.
6. Conclusions
No single factor was determinative of the Board's decision to re-approve the
Investment
Management Agreement, but rather the Directors based their determination on the
total mix of information available to them. Based on their review, including
their consideration of each of the factors referred to above, the Board,
including all of the Independent Directors, concluded that the Investment
Management Agreement, and the compensation is determined to be fair and
reasonable in light of such services provided and expenses incurred under the
Agreement.
INVESTMENT MANAGER
Lee Financial Group Inc.
2756 Woodlawn Drive, Suite #6-201
Honolulu, Hawaii 96822-1856
DISTRIBUTOR
First Pacific Securities, Inc.
2756 Woodlawn Drive, Suite #6-201
Honolulu, Hawaii 96822-1856
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street, 15th Floor
San Francisco, California 94111
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103-6996
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
1818 Market Street, Suite #2400
Philadelphia, Pennsylvania 19103-2108
TRANSFER AGENT
First Pacific Recordkeeping, Inc.
2756 Woodlawn Drive, Suite #6-201
Honolulu, Hawaii 96822-1856
Item 2. Code of Ethics.
(a) The registrant has adopted a code of ethics that applies to its principal
executive and senior financial executives.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)(1) Pursuant to Item 12(a), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive and senior
financial executives.
(f)(2) Copies of the Code of Ethics may be obtained free of charge by accessing
the website www.leehawaii.com, by calling (808) 988-8088 or by sending a
written request to Lee Financial Group Inc., 2756 Woodlawn Drive, Suite #6-201,
Honolulu, HI 96822.
Item 3. Audit Committee Financial Expert
(a)(1) The registrant's board of directors has determined that the registrant
does not have an audit committee financial expert serving on its audit
committee.
(a)(2) Not applicable.
(a)(3) The board of directors concluded that based on the required attributes,
no independent member of the Board qualified as a financial expert. Based on
the size of the Fund, the Board further concluded that a financial expert was
not required.
Item 4. Principal Accountant Fee and Services.
(a) Audit Fees.
The aggregate fees billed for each of the last two fiscal years for professional
services rendered by the principal accountant for the audit of the registrant's
annual financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
were $29,800.00 for the fiscal year ended September 30, 2005 and $29,800.00 for
the fiscal year ended September 30, 2004.
(b) Audit-Related Fees.
The aggregate fees billed in each of the last two fiscal years for assurance
and related services by the principal accountant that are reasonably related to
the performance of the audit of the registrant's financial statements and are
not reported under paragraph (a) of this Item were none for the fiscal year
ended September 30, 2005 and none for the fiscal year ended September 30, 2004.
(c) Tax Fees.
The aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning were $5,000.00 for the fiscal year ended September 30, 2005 and
$5,000.00 for the fiscal year ended September 30, 2004.
(d) All Other Fees.
The aggregate fees billed in each of the last two fiscal years for products and
services provided by the principal accountant, other than the services reported
in paragraphs (a) through (c) of this Item were $6,500.00 for the fiscal year
ended September 30, 2005 and $6,500.00 for the fiscal year ended September 30,
2004. These fees are for services related to the internal control audit of the
transfer agency.
(e)(1) Audit Committee's Pre-Approval Policies and Procedures
1. (a) The Committee shall review and approve proposals for the
independent accountants to render permissible non-audit services. The
Committee may adopt pre-approval policies and procedures, including both
general pre-approvals and terms for specific case-by-case approvals, and may
delegate the authority to grant such pre-approvals to one or more members of
the Committee.
(b) The pre-approval requirement may be waived with respect to
the provision of non-audit services for the Funds if: (i) the aggregate amount
of all such non-audit services provided to the Funds constitutes no more than
5% of the total amount of revenues paid by the Funds to its independent
accountants during the fiscal year in which the non-audit services are
provided; (ii) such services were not recognized at the time of the engagement
to be non-audit services; and (iii) such services are promptly brought to the
attention of the Committee and approved prior to the completion of the audit.
2. Review and approve in advance with the independent accountants each
non-audit engagement involving the Funds' independent accountants and the
Funds' investment adviser and any entity controlling, controlled by or under
common control with the adviser ("control affiliates") where: (i) the
investment adviser or its control affiliate provides ongoing services to the
Funds; and (ii) the engagement relates directly to the operations and financial
reporting of the Funds.
(a) The pre-approval requirement may be waived if: (i) the
aggregate amount of all services provided constitutes not more than 5% of the
total amount of revenues paid to the Funds' independent accountants by the
Funds' investment adviser and its control affiliates that provide ongoing
services to the Funds during the fiscal year in which the services are provided
that would have to be pre-approved by the Funds' Committee; (ii) such services
were not recognized by the Funds' adviser or its control affiliates (that
provide ongoing services to the Fund) at the time of the engagement to be non-
audit services; and (iii) such services are promptly brought to the attention
of the Committee and approved prior to the completion of the audit.
(e)(2) All of the services provided to the registrant described in paragraphs
(b) - (d) of Item 4 were pre-approved by the audit committee.
(f) Not applicable.
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the Registrant and the Registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were none for the fiscal year ended September 30, 2005 and none for
the fiscal year ended September 30, 2004.
(h) Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Schedule is included as part of the report to shareholders filed under Item 1
of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
No material changes were made to the procedures by which shareholders recommend
nominees to the board.
Item 11. Controls and Procedures.
(a) The registrant's principal executive and principal financial officers,
or person performing similar functions, has 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 (the "1940
Act") (17CFR 270.30a-3(c))) are effective, as of a date within 90 days
of the filing date of the report that includes the disclosure required
by this paragraph, based on their evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-
3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act
of 1934, as amended (17CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's second fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 12. Exhibits.
(a)(1) Code of Ethics is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940
Act (17 CFR270.30a-2(a)) and Section 302 of the Sarbanes Oxley
Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(a) under the 1940 Act
and Section 906 of the Sarbanes-Oxley Act of 2002 are attached
hereto.
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) __________First Pacific Mutual Fund, Inc.__________
By (Signature and Title)* ___/s/ Terrence K.H. Lee______________
Terrence K.H. Lee, President and CEO
(principal executive officer)
Date __________December 7, 2005__________
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 (Signature and Title)* ___/s/ Terrence K.H. Lee___________________
Terrence K.H. Lee, President and CEO
(principal executive)
By (Signature and Title)* ___/s/ Nora B. Simpson____________________
Nora B. Simpson, Treasurer
(principal financial officer)
Date __________December 7, 2005__________
*Print the name and title of each signing officer under his or her signature.