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, 2008
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 17, 2008
Dear fellow shareholder,
As we begin our 21st year of operations, we are pleased to provide you
with our Fund's 2008 Annual Report.
It has been and continues to be daunting times for investors. We have
seen unprecedented downturns in the domestic and international equity
markets. The economy seems to be in a negative spin with few signs of
immediate recovery. Amidst this continued turmoil, municipal bonds have
generally experienced less volatility than many of their equity counterparts.
As shareholders of the Hawaii Municipal Fund, 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 the Fund's performance
to the Lehman Muni Bond Index for the 10 years ended September 30, 2008. The
graph assumes a hypothetical $10,000 investment in the Fund. The object of
the graph is to permit a comparison of the Fund with a benchmark and to
provide perspective on market conditions and investment strategies and
techniques that materially affected the performance of the 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
steepened with short-term interest rates falling by 2.75% and long-term
interest rates dropping by just under one-half percent. Toward the end of
the fiscal year, municipal bonds were adversely affected by the global
financial crisis. The municipal market was hurt by selling pressure from
insurance companies, hedge funds, and mutual funds, which were experiencing
significant redemptions. Institutional buyers were scarce, with retail
investors being the main source of demand. This accounts for the Hawaii
Municipal Fund's fiscal year price decrease of $0.58. The Hawaii Municipal
Fund Investor Class had a Net Asset Value ("NAV") of $10.89 on October 1,
2007 and a NAV of $10.31 on September 30, 2008. The primary investment
strategy of the Hawaii Municipal Fund is to purchase high quality long-term
Hawaii municipal bonds. The past year's performance for the Fund, which is
presented in this Annual Report, was primarily a result of the implementation
of this strategy. As of September 30, 2008, 75.36% of the Hawaii Municipal
Bond Fund's portfolio was invested in bonds rated AAA by Standard & Poor's.
During the fiscal year ended September 30, 2008, the Federal Reserve
Bank lowered the Federal Funds Rate six times from 4.75% to 2.00%. Despite
this 275 basis point decrease in short term rates, the 30 year treasury
bond's yield fell by 48 basis points. In our opinion, this modest decrease
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
Hawaii Municipal Fund
September 30, 2008
[The following table was depicted as a pie chart in the printed material.]
Hawaii Municipal Fund
AAA 75.36%
AA 11.24%
AA- 0.09%
BBB+ 4.67%
BBB 2.23%
NR 6.41%
We are proud to report that as a Hawaii resident, 100% of the income
dividends earned in 2008 were both state and federal tax-free.* There were
no capital gain distributions for the Hawaii Municipal Fund for the 2007
calendar year. There will be a capital gain distribution for the Hawaii
Municipal Fund for the 2008 calendar year.
If you have any questions about this Annual Report or would like us to
provide information about the Fund 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 Fund, 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 Lee Financial Securities, Inc./Distributor
A description of the policies and procedures that the Fund uses 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 Fund's investment objective, risks, and charges and expenses before
investing.* Some income may be subject to the federal alternative minimum
tax for certain investors. The prospectus contains this and other
information about the Fund. This Annual Report must be accompanied or
preceded by a prospectus.
*Fund's yield, share price and investment return 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 is a
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
09/30/98 $10,000 $10,000
09/30/99 $ 9,995 $ 9,930
09/30/00 $10,367 $10,544
09/30/01 $11,207 $11,640
09/30/02 $12,102 $12,680
09/30/03 $12,584 $13,174
09/30/04 $13,091 $13,779
09/30/05 $13,463 $14,337
09/30/06 $13,936 $14,976
09/30/07 $14,236 $15,439
09/30/08 $13,987 $15,150
Average Annual Total Return
1 Year -1.73%
5 Year 2.14%
10 Year 3.41%
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. The Fund's annual operating expense ratio, as
stated in the current prospectus, is 1.02%. This rate can fluctuate and may
differ from the expenses incurred by the Fund for the period covered by this
report.
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 Expenses Paid During
Account Ending Account Period*
Value 04/01/08 Value 09/30/08 04/01/08-9/30/08
Hawaii Municipal Fund Investor Class
Actual $1,000.00 $ 981.20 $5.15
Hypothetical $1,000.00 $1,019.80 $5.25
*Expenses are equal to the annualized expense ratio (1.04%), multiplied by
the average account value over the period, multiplied by 183/366 to reflect
the one-half year period.
TAIT, WELLER & BAKER LLP
Certified Public Accountants
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of First Pacific Mutual Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Hawaii Municipal Fund, a series of First Pacific Mutual Fund, Inc., including
the schedule of investments, as of September 30, 2008, the related statement
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 financial
highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with 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. The Fund is not required to have, nor were we
engaged to perform, an audit of the Fund's 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 Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2008, 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 as of September 30, 2008, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Tait, Weller & Baker LLP
Philadelphia, Pennsylvania
November 21, 2008
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS
September 30, 2008
Value
Par Value (Note 1 (A))
HAWAII MUNICIPAL BONDS - 97.88%
Hawaii County
General Obligation Bonds - 2.73%
$ 300,000 5.600%, 05/01/11 $ 319,203
350,000 5.000%, 07/15/11 368,735
1,000,000 5.625%, 05/15/18 1,030,390
1,000,000 5.625%, 05/15/19 1,030,390
1,000,000 5.000%, 07/15/22 992,060
370,000 5.000%, 07/15/24 362,071
4,102,849
Hawaii State
General Obligation Bonds - 1.20%
135,000 6.000%, 10/01/08 135,000
100,000 5.250%, 07/01/12 107,138
1,575,000 5.000%, 07/01/23 1,565,141
1,807,279
Airport Systems Revenue Bonds - 18.16%
2,000,000 8.000%, 07/01/11 2,153,980
320,000 6.900%, 07/01/12 338,640
650,000 6.900%, 07/01/12 687,863
250,000 6.375%, 07/01/12 257,690
4,580,000 6.500%, 07/01/13 4,722,575
4,000,000 6.500%, 07/01/14 4,113,040
500,000 6.500%, 07/01/15 512,265
3,000,000 5.750%, 07/01/15 3,013,260
2,500,000 5.750%, 07/01/16 2,500,375
3,235,000 5.750%, 07/01/17 3,197,539
6,000,000 5.625%, 07/01/18 5,747,280
27,244,507
Certificates of Participation - # 1 Capital District - 2.23%
1,000,000 5.000%, 05/01/16 1,010,890
555,000 5.000%, 05/01/18 560,828
1,750,000 5.500%, 05/01/20 1,768,585
3,340,303
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 2008
Value
Par Value (Note 1 (A))
Certificates of Participation - Kapolei - 0.91%
$ 250,000 5.250%, 05/01/13 $ 252,842
1,100,000 5.000%, 05/01/15 1,112,034
1,364,876
Department of Budget & Finance Special Purpose Revenue Bonds
Hawaiian Electric Company, Inc. - 18.49%
400,000 4.950%, 04/01/12 422,156
5,430,000 5.750%, 12/01/18 5,503,142
125,000 6.150%, 01/01/20 126,506
1,125,000 5.700%, 07/01/20 1,122,030
115,000 5.450%, 11/01/23 113,483
9,825,000 5.650%, 10/01/27 9,118,386
8,085,000 6.200%, 11/01/29 8,181,616
2,400,000 5.100%, 09/01/32 2,097,672
1,380,000 4.650%, 03/01/37 1,061,400
27,746,391
Chaminade University - 2.32%
95,000 4.000%, 01/01/11 95,706
2,600,000 5.000%, 01/01/26 2,332,226
1,270,000 4.700%, 01/01/31 1,056,551
3,484,483
Hawaii Pacific Health - 0.66%
1,140,000 5.600%, 07/01/33 987,536
Hawaii Mid-Pacific Institute - 1.21%
2,085,000 5.000%, 01/01/26 1,823,687
Kapiolani Health Care System - 1.82%
2,525,000 6.400%, 07/01/13 2,725,081
Kuakini Hawaii Health System - 2.19%
570,000 6.300%, 07/01/22 551,139
3,000,000 6.375%, 07/01/32 2,738,910
3,290,049
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 2008
Value
Par Value (Note 1 (A))
Wilcox Hospital - 2.11%
$ 900,000 5.250%, 07/01/13 $ 901,854
2,245,000 5.350%, 07/01/18 2,201,424
65,000 5.500%, 07/01/28 57,689
3,160,967
Harbor Capital Improvements Revenue Bonds - 4.86%
70,000 5.750%, 07/01/10 73,256
210,000 5.000%, 07/01/10 216,751
150,000 5.000%, 07/01/12 156,272
500,000 5.000%, 01/01/14 522,450
1,580,000 5.250%, 01/01/16 1,652,301
1,665,000 5.375%, 01/01/17 1,741,340
500,000 5.500%, 07/01/19 513,550
2,005,000 5.250%, 01/01/21 1,888,911
520,000 5.750%, 07/01/29 525,590
7,290,421
Hawaii Health Systems - 1.43%
815,000 3.800%, 02/15/13 815,326
1,370,000 4.700%, 02/15/19 1,336,983
2,152,309
Highway Revenue Bonds - 1.35%
1,000,000 5.000%, 07/01/20 1,015,360
1,000,000 5.000%, 07/01/21 1,005,610
2,020,970
Housing Authority
Single Family Mortgage
Special Purpose Revenue Bonds - 9.00%
265,000 4.650%, 07/01/12 264,801
445,000 4.800%, 07/01/13 444,444
140,000 5.250%, 07/01/13 141,428
4,595,000 5.350%, 07/01/18 4,641,823
4,390,000 5.400%, 07/01/29 4,027,649
220,000 5.750%, 07/01/30 220,231
2,615,000 5.375%, 07/01/33 2,276,358
1,510,000 5.000%, 07/01/36 1,486,746
13,503,480
HCDC Rental Housing System Revenue Bonds - 0.06%
100,000 3.700%, 01/01/13 96,368
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 2008
Value
Par Value (Note 1 (A))
Department of Hawaiian Homelands - 1.19%
$ 1,465,000 4.250%, 07/01/09 $ 1,480,807
300,000 4.450%, 07/01/11 306,144
1,786,951
Hawaiian Homelands - COP Kapolei - 2.75%
210,000 3.750%, 11/01/16 203,236
950,000 4.125%, 11/01/23 814,768
3,295,000 5.000%, 11/01/31 3,105,570
4,123,574
University Faculty Housing - 1.50%
740,000 5.650%, 10/01/16 741,199
1,500,000 5.700%, 10/01/25 1,502,505
2,243,704
University of Hawaii - Revenue Bonds - 2.84%
300,000 4.300%, 07/15/13 311,658
100,000 4.000%, 07/15/16 100,194
1,500,000 5.000%, 10/01/23 1,475,145
2,500,000 5.000%, 07/15/29 2,378,800
4,265,797
Honolulu City & County
Board of Water Supply - 2.56%
2,545,000 4.750%, 07/01/19 2,523,698
1,000,000 5.000%, 07/01/23 973,480
325,000 5.250%, 07/01/31 345,170
3,842,348
General Obligation Bonds - 2.13%
150,000 4.750%, 02/01/09 150,678
100,000 5.000%, 07/01/09 101,881
170,000 4.850%, 02/01/10 173,388
365,000 6.000%, 11/01/10 390,010
275,000 5.125%, 07/01/15 281,044
1,000,000 5.000%, 07/01/23 983,540
1,185,000 5.000%, 07/01/30 1,110,286
3,190,827
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 2008
Value
Par Value (Note 1 (A))
Housing Authority Multi-Family Mortgage Revenue Bonds
Maunakea Apartments - 4.22%
$ 265,000 5.750%, 11/20/09 $ 269,635
6,020,000 6.500%, 05/20/41 6,055,999
6,325,634
Sunset Villas - 3.21%
2,955,000 5.600%, 07/20/21 2,939,250
2,000,000 5.700%, 07/20/31 1,877,880
4,817,130
Waste System Revenue - 0.95%
200,000 4.400%, 07/01/11 203,904
200,000 5.500%, 07/01/11 213,178
1,000,000 5.000%, 07/01/20 1,008,870
1,425,952
Kauai County
General Obligation Bonds - 3.34%
595,000 6.250%, 08/01/19 634,157
695,000 6.250%, 08/01/22 740,738
1,065,000 5.000%, 08/01/25 1,054,180
2,780,000 5.000%, 08/01/27 2,584,204
5,013,279
Housing Authority Paanau Project - 0.48%
740,000 7.250%, 04/01/12 724,763
Maui County
General Obligation Bonds - 1.98%
500,000 5.000%, 07/01/20 505,400
525,000 5.000%, 03/01/23 513,896
1,000,000 5.000%, 07/01/23 978,490
1,000,000 5.000%, 07/01/24 973,360
2,971,146
Total Hawaii Municipal Bonds (Cost $153,340,959) 146,872,661
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 2008
Value
Par Value (Note 1 (A))
VIRGIN ISLANDS MUNICIPAL BONDS - 0.25%
Virgin Islands
Public Finance Authority, Series A - 0.08%
$ 100,000 7.300%, 10/01/18 $ 118,167
Public Finance Authority, Series A - 0.17%
250,000 5.000%, 07/01/14 259,378
Total Virgin Islands Municipal Bonds (Cost $363,649) 377,545
Total Investments (Cost $153,704,608)(a) 98.13% 147,250,206
Other Assets Less Liabilities 1.87% 2,808,933
Net Assets 100.00% $150,059,139
(a) Aggregate cost for federal income tax purposes is $153,603,328.
At September 30, 2008, unrealized appreciation (depreciation) of
securities for federal income tax purposes is as follows:
Gross unrealized appreciation $ 686,857
Gross unrealized (depreciation) (7,039,979)
Net unrealized (depreciation) $(6,353,122)
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2008
Municipal
Fund
ASSETS
Investments at market value
(Identified cost $153,704,608) (Note 1 (A)) $147,250,206
Cash 895,030
Interest receivable 2,461,811
Subscriptions receivable 1,616
Other assets 3,346
Total assets 150,612,009
LIABILITIES
Distributions payable 145,939
Redemptions payable 244,629
Management fee payable 67,969
Administration fee payable 2,719
Distribution plan payable 20,390
Shareholder servicing fee payable 13,593
Transfer agent fee payable 8,156
Chief Compliance Officer fee payable 5,479
Accrued expenses 43,996
Total liabilities 552,870
NET ASSETS $150,059,139
(Applicable to 14,558,084 shares outstanding,
$.01 par value, 20,000,000 shares authorized)
NET ASSET VALUE, OFFERING AND REPURCHASE
PRICE PER SHARE, INVESTOR CLASS SHARES $10.31
NET ASSETS
At September 30, 2008, net assets consisted of:
Paid-in capital $156,106,821
Undistributed net investment income 101,280
Accumulated net realized gain on investments 305,440
Net unrealized depreciation (6,454,402)
$150,059,139
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
STATEMENT OF OPERATIONS
For the year ended September 30, 2008
Municipal
Fund
INVESTMENT INCOME
Interest income $7,214,364
Expenses
Management fee (Note 2) 775,313
Distribution costs (Notes 2 and 3) 232,596
Transfer agent fee (Note 2) 111,832
Shareholder services fee (Note 2) 155,061
Administration fee (Note 2) 31,010
Accounting fee 89,587
Legal and audit fees 99,120
Printing 26,246
Custodian fee 33,967
Insurance 7,951
Registration fee 10,801
Miscellaneous 26,565
Chief Compliance Officer fee 62,063
Directors fee 4,104
Total expenses 1,666,216
Fee reductions (Note 5) (91,238)
Net expenses 1,574,978
Net investment income 5,639,386
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain from security transactions 349,826
Change in unrealized appreciation of investments (8,686,288)
Net (loss) on investments (8,336,462)
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(2,697,076)
<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, 2008 September 30, 2007
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income $ 5,639,386 $ 5,505,933
Net realized gain (loss) on investments 349,826 (54,224)
(Decrease) increase in unrealized
appreciation (depreciation) of investments (8,686,288) (2,213,309)
Net (decrease) increase in net assets
resulting from operations (2,697,076) 3,238,400
Distributions to shareholders from:
Net investment income
Investor Class ($.39 and $.39 per
share, respectively)
(5,579,783) (5,361,273)
Institutional Class ($.00 and $.34 per
share, respectively)**
- (106,840)
Capital gains
Investor Class ($.00 and $.00* per
share, respectively)
- (19,732)
Institutional Class ($.00 and $.00* per
share, respectively)**
- (437)
Total distributions to shareholders (5,579,783) (5,488,282)
Capital share transactions (a)
Increase (decrease) in net assets resulting
from capital share transactions
9,442,814 (4,005,301)
Total increase (decrease) in net assets 1,165,955 (6,255,183)
NET ASSETS
Beginning of year 148,893,184 155,148,367
End of year
(including undistributed net investment
income of $101,280 and $106,305,
respectively) $150,059,139 $148,893,184
*Less than .01 per share.
**Institutional Class Shares liquidated on July 12, 2007 (Note 1)
(a) Summary of capital share activity follows:
Investor Class Investor Class
For The Year Ended For The Year Ended
September 30, 2008 September 30, 2007
Shares Value Shares Value
Shares sold 1,082,932 $11,666,302 1,086,338 $11,972,493
Shares received through
acquisition (Note 7) 777,597 8,357,283 - -
Shares issued on reinvestment
of distributions 369,373 3,963,456 351,144 3,849,855
2,229,902 23,987,041 1,437,482 15,822,348
Shares redeemed (1,350,780) (14,544,227) (1,508,741) (16,534,476)
Net increase (decrease) 879,122 $9,442,814 (71,259) $ (712,128)
Institutional Class**
For The Year Ended
September 30, 2007
Shares Value
Shares sold 21,088 $ 232,215
Shares received through
acquisition (Note 7) - -
Shares issued on reinvestment
of distributions 1,739 19,142
22,827 251,357
Shares redeemed (321,056) (3,544,530)
Net (decrease) increase (298,229) $(3,293,173)
<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,
2008 2007 2006 2005 2004
Net asset value
Beginning of year $10.88 $11.04 $11.10 $11.21 $11.22
Income from investment operations
Net investment income .39 .39 .40 .41 .47
Net gain (loss) on securities
(both realized and unrealized) (.57) (.16) (.02) (.09) -
Total from investment operations (.18) .23 .38 .32 .47
Less distributions
Dividends from net investment income (.39) (.39) (.40) (.41) (.47)
Distributions from capital gains - - * (.04) (.02) (.01)
Total distributions (.39) (.39) (.44) (.43) (.48)
End of year $10.31 $10.88 $11.04 $11.10 $11.21
Total return -1.73% 2.14% 3.52% 2.84% 4.03%
Ratios/Supplemental Data
Net assets, end of year(in 000's)$150,059 $148,893 $151,852 $150,505 $142,680
Ratio of expenses to average
net assets (a) 1.08% 1.02% 1.04% .98% 1.00%
Ratio of net investment income
to average net assets 3.54% 3.55% 3.64% 3.55% 3.98%
Portfolio turnover 13.47% 15.66% 22.17% 26.82% 10.53%
* 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 1.02%, .96%, .90%,
..94%, and .98%, for the years ended September 30, 2008, 2007, 2006, 2005, and
2004, respectively.
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 2008
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hawaii Municipal Fund ("Fund") is 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 currently authorized to offer one Class of Shares: Investor
Shares. On July 12, 2007 all of the Hawaii Municipal Fund Institutional
Class shares were redeemed. On June 12, 2007, the Board of Directors
approved the reorganization of the Hawaii Intermediate Fund Investor Class
into the Hawaii Municipal Fund Investor Class. On December 18, 2007 the
shareholders of the Fund approved the reorganization of the Hawaii
Intermediate Fund Investor Class into the Hawaii Municipal Fund Investor
Class. The reorganization was completed on December 24, 2007.
The investment objective of the Fund 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 Fund seeks
to achieve its objective by investing primarily in municipal securities
which pay interest that is exempt from federal and Hawaii income taxes.
The Fund is subject to the risk of price fluctuation of the municipal
securities held in its portfolio 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 Fund invests 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
NOTES TO FINANCIAL STATEMENTS - (Continued)
September 30, 2008
(B) FEDERAL INCOME TAXES
It is the Fund's 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, 2008, the Hawaii Municipal Fund used their capital loss
carryforward to reduce current year gains.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, the Fund intends to declare each year as
dividends in each calendar year at least 98% of its net investment
income (earned during the calendar year) and 98% of its net realized
capital gains (earned during the twelve months ended October 31) plus
undistributed amounts, if any, from prior years.
Net capital losses incurred after October 31 and within the taxable
year are deemed to arise on the first business day of the Fund's next
taxable year.
(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.
(2) INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Lee Financial Group Inc. ("LFG") provides the Fund 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 the
Fund's average daily net assets, respectively.
The Fund's distributor, Lee Financial Securities, Inc. (formerly, First
Pacific Securities, Inc.) ("LFS"), a wholly-owned subsidiary of LFG,
received $232,596 for costs incurred in connection with the sale of Hawaii
Municipal Fund's shares (See Note 3).
Lee Financial Recordkeeping, Inc. (formerly, First Pacific Recordkeeping,
Inc.) ("LFR"), a wholly-owned subsidiary of LFG, serves as the transfer
agent for the Fund. In accordance with the terms of the transfer agent
agreement, LFR receives compensation at the annual rate of .06% of the
Fund's average daily net assets. LFR 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 LFR receives a fee, computed daily and payable monthly,
at an annualized rate of .10% of the Fund's average daily net assets.
Certain officers and directors of the Fund are also officers of LFG, LFS
and LFR.
HAWAII MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
September 30, 2008
(3) DISTRIBUTION COSTS
The Fund's Board of Directors, including a majority of the Directors who
are not "interested persons" of the Fund, 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 may incur
certain costs, which may not exceed .25% per annum of the Fund's 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 Fund.
(4) PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities aggregated $32,033,275 and $20,219,789,
respectively, for the Hawaii Municipal Fund.
(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. If not for the offset
agreement, the assets could have been employed to produce income. During
the year ended September 30, 2008, such reductions amounted to $91,238 for
the Hawaii Municipal Fund. Credits used to offset expenses were as
follows:
Municipal
Fund
Custody fees $ 23,623
Accounting fees 24,196
Legal fees 12,566
Audit fees 24,000
Postage 285
Printing 4,195
Directors fees 1,000
Registration fees 1,373
$ 91,238
HAWAII MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
September 30, 2008
(6) TAX COMPONENTS OF CAPITAL AND DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended September
30, 2008 and 2007 were as follows:
Exempt- Long-Term
Interest Ordinary Capital Total
Dividends Income Gains Distributions
Hawaii Municipal Fund
2008 $5,579,783 $ - $ - $5,579,783
2007 $5,468,113 $ - $ 20,169 $5,488,282
The tax character of distributable earnings at September 30, 2008 were
as follows:
Undistributed Post Unrealized Total
Ordinary Exempt- Undistributed Capital Loss October Gain/ Distributable
Interest Income Capital Gains Carryforwards Losses (Loss)* Earnings
Hawaii Municipal Fund
$ - $305,440 $ - $ - $(6,353,122) $(6,047,682)
* The difference between book basis and tax basis unrealized
depreciation 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. During the year, the Hawaii
Municipal Fund's undistributed investment income was decreased by $64,628,
unrealized depreciation was decreased by $54,789 and accumulated net
realized gain on investments was increased by $9,839.
(7) ACQUISITION OF HAWAII INTERMEDIATE FUND
On December 21, 2007, the Hawaii Municipal Fund Investor Class acquired
the assets and assumed the liabilities of the Hawaii Intermediate Fund in
a tax-free exchange for shares of the Hawaii Municipal Fund Investor
Class. Pursuant to a plan of reorganization approved by the Hawaii
Intermediate Fund shareholders on December 18, 2007, Hawaii Intermediate
Fund shareholders received shares of the Hawaii Municipal Fund Investor
Class (777,597 shares) in exchange for their Hawaii Intermediate Fund
shares (1,629,311 shares). No gain or loss for federal income tax
purposes was recognized on the exchange. The reorganization was completed
on December 24, 2007. The number and value of shares issued by the Hawaii
Municipal Fund Investor Class are presented in the schedule of changes in
net assets. Net assets and unrealized appreciation as of the
reorganization date were as follows:
Total net assets of Hawaii Intermediate Fund
prior to acquisition: $8,467,391
Total net assets of Hawaii Municipal Fund
Investor Class prior to acquisition: $147,886,102
Total net assets of Hawaii Municipal Fund
Investor Class after acquisition: $156,353,493
Acquired Fund unrealized appreciation: $110,108
HAWAII MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
September 30, 2008
(8) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On March 31, 2008, the Fund adopted Financial Accounting Standards Board
("FASB") Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in
Income Taxes". FIN 48 requires the evaluation of tax positions taken on
previously filed tax returns or expected to be taken of future returns.
These positions must meet a "more-likely-than-not" standard that, based on
the technical merits, have a more than fifty percent likelihood of being
sustained upon examination. In evaluating whether a tax position has met
the recognition threshold, the Fund must presume that the position will be
examined by the appropriate taxing authority that has full knowledge of
all relevant information. Tax positions not deemed to meet the "more-
likely-than-not" threshold are recorded as a tax expense in the current
year.
FIN 48 requires the Fund to analyze all open tax years, as defined by the
Statute of Limitations, for all major jurisdictions. Open tax years are
those that are open for exam by taxing authorities. The major
jurisdiction for the Fund is the Federal jurisdiction. As of September
30, 2008, open Federal tax years include the tax years ended September 30,
2005 - September 30, 2008. The Fund has no examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and
concluded that the adoption of FIN 48 resulted in no effect to the Fund's
financial position or results of operations. There is no tax liability
resulting from unrecognized tax benefits relating to uncertain income tax
positions taken or expected to be taken on the tax return for the fiscal
year ended September 30, 2008. The Fund is also not aware of any tax
positions for which it is reasonably possible that the total amounts of
unrecognized tax benefits will significantly change in the next twelve
months.
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No.
157 defines fair value, establishes a framework for measuring fair value
in accordance with generally accepted accounting principles and expands
disclosure about fair value measurements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. Management is currently evaluating the impact the
adoption of SFAS No. 157 will have on the Fund's financial statement
disclosures.
In March 2008, Statement of Financial Accounting Standards No. 161,
"Disclosures about Derivative Instruments and Hedging Activities" ("SFAS
161") was issued and is effective for fiscal years beginning after
November 15, 2008. SFAS 161 is intended to improve financial reporting
for derivative instruments by requiring enhanced disclosure that enables
investors to understand how and why an entity uses derivatives, how
derivatives are accounted for, and how derivative instruments affect an
entity's results of operations and financial position. Management is
currently evaluating the implications of SFAS 161. The impact on the
Fund's financial statement disclosures, if any, is currently being
assessed.
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.
Number of
Portfolios
Position Term of in Fund
& Office and Complex
Office with Length of Principal Occupation Overseen
Name Age the Time During the Past by
and Address Fund Served Five Years Director
DISINTERESTED DIRECTORS
Clayton W.H. Chow (56) Director Unlimited Term Office Technology Specialist, 1
896 Puuikena Dr. 20 years Xerox Corporation
Honolulu, HI 96821 Account Executive,
Roadway Express
Lynden M. Keala (54) Director Unlimited Term Account, Executive, Workflow 1
47-532 Hui Iwa St. 19 years One (formerly The Relizon
Kaneohe, HI 96744 Company) Account Executive, Xpedx
(Distribution Division of
International Paper)
Stuart S. Marlowe (68) Director Unlimited Term Owner, Surfside Sales and 1
PO Box 630507 20 years Marketing (Sales and marketing of
Lanai City, HI 96763 music for the State of Hawaii)
Karen T. Nakamura (64) Director Unlimited Term Executive Vice President & CEO, 1
1727 Dillingham Boulevard 11 years Building Industry Association
Honolulu, HI 96819 of Hawaii; Vice President,
Wallpaper Hawaii, Ltd.
Kim F. Scoggins (61) Director Unlimited Term Commercial Real Estate, 1
220 S. King Street, #1800 11 years Colliers Monroe Friedlander, Inc.
Honolulu, HI 96813 Real Estate, 1250 Oceanside
Partners
INTERESTED DIRECTORS
Terrence K.H. Lee (51) Director Unlimited Term Director, President and 1
593 Moaniala Street President 20 years CEO, Lee Financial Group Inc.,
Honolulu, HI 96821 and Lee Financial Securities, Inc.,
CEO and Lee Financial Recordkeeping,
Inc.
OFFICERS
Nora B. Simpson (48) Treasurer, Chief Vice President, CCO, CFO and
503 Blackbird Drive Compliance Officer, Treasurer, Lee Financial Group
Hockessin, DE 19707 Assistant Secretary Inc., Lee Financial Securities,
Inc., and Lee Financial
Recordkeeping, Inc.
Charlotte A. Meyer (55)Assistant Treasurer Director, Assistant Treasurer and
64-5251 Puu Nani Drive Vice President, Lee Financial
PO Box 2834 Group Inc., Lee Financial
Kamuela, HI 96743 Securities, Inc., and Lee
Financial Recordkeeping, Inc.
Jean Chun Lee (52) Secretary Director, Secretary and Vice
2756 Woodlawn Drive, #6-201 President, Lee Financial Group
Honolulu, HI 96822 Inc., Lee Financial Securities,
Inc., and Lee Financial
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, principal underwriter and transfer agent
and has had a material and professional relationship with the Fund for the last
two completed calendar 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
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 the Fund's website at www.leehawaii.com and reflect the
12-month period beginning July 1, 2007 and ending June 30, 2008.
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 or the Fund's website
at www.leehawaii.com. 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 16, 2008, the Board of Directors of 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 (the "Portfolio") for an additional one-year period ending
September 30, 2009.
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 the 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 the
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 the 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 Portfolio.
3. Investment Performance
The Board considered the Portfolio's unique, balanced pursuit of its
investment objectives and the investment results of the Portfolio in
light of its objectives. The Directors reviewed the short-term and
long-term performance of the Portfolio on both an absolute basis and in
comparison to its benchmark index. The Directors also reviewed the
rankings for the Portfolio by an independent rating and ranking
organization. Based on that review, the Board concluded that the
performance of the Portfolio 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
the Portfolio and compared such amounts with the industry average fees
and expense levels of other comparable funds. The Board concluded
that: the management fees for the Portfolio, are generally competitive
with fees paid by comparable funds and are reasonable as compared to
LFG's other similarly managed clients; and the expense ratio of the
Portfolio, both before and after expense offsets, 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 fee does not contain
breakpoints, there would be no economies of scale from reduction of the
management fee as the Portfolio's 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 the
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 a majority 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
Lee Financial Securities, Inc.
2756 Woodlawn Drive, Suite #6-201
Honolulu, Hawaii 96822-1856
FUND ACCOUNTANT
Ultimus Fund Solutions, LLC
225 Pictoria Drive, Suite 450
Cincinnati, OH 45246
CUSTODIAN
Union Bank of California, N.A.
350 California Street, 6th Floor
San Francisco, California 94104
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
Lee Financial 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)(1), 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 $28,500.00 for the fiscal
year ended September 30, 2008 and $31,800.00 for the fiscal year ended
September 30, 2007.
(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, 2008 and none
for the fiscal year ended September 30, 2007.
(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 $3,000.00 for the fiscal
year ended September 30, 2008 and $5,400.00 for the fiscal year ended
September 30, 2007.
(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
$7,300.00 for the fiscal year ended September 30, 2008 and $7,000.00
for the fiscal year ended September 30, 2007. 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 Fund if: (i)
the aggregate amount of all such non-audit services provided to the
Fund constitutes no more than 5% of the total amount of revenues paid
by the Fund 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 Fund's independent
accountants and the Fund's 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 Fund; and (ii) the
engagement relates directly to the operations and financial reporting
of the Fund.
(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 Fund's independent
accountants by the Fund's investment adviser and its control affiliates
that provide ongoing services to the Fund during the fiscal year in
which the services are provided that would have to be pre-approved by
the Fund's Committee; (ii) such services were not recognized by the
Fund's 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 any
entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant
were $10,300 for the fiscal year ended September 30, 2008 and $12,400
for the fiscal year ended September 30, 2007.
(h) Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
(a) Schedule I - Investment in securities of unaffiliated issuers is
included as part of the report to shareholders filed under Item 1 of
this Form.
(b) Not applicable.
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(b)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 5, 2008__________
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 officer)
By (Signature and Title)* ___/s/ Nora B. Simpson____________________
Nora B. Simpson, Treasurer
(principal financial officer)
Date __________December 5, 2008__________
*Print the name and title of each signing officer under his or her
signature.