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)
Roy W. Adams, Jr.
370 Park Street
Suite 2
Moraga, CA 94556
--------------------------------------
(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: March 31, 2013
Item 1. Reports to Stockholders.
First Pacific Low Volatility Fund
SEMI-ANNUAL REPORT
March 31, 2013
First Pacific Low Volatility Fund
--------------------------------------------------------------------------------
May 15, 2013
Dear fellow shareholder,
On June 10, 2011 the First Pacific Low Volatility Fund ("Fund")
commenced operations as a new series of First Pacific Mutual Fund, Inc. The
investment objective of the Fund is to achieve long-term capital appreciation
and preservation of capital while lowering volatility.
Equity markets have performed strongly in the six months ending March 31,
2013. The Fund had a net asset value ("NAV") of $10.42 on October 1, 2012 and a
NAV of $10.82 on March 31, 2013, which resulted in a 5.06% return* for the six
month period. During the same period, returns for the Fund's benchmarks** were
as follows: the Dow Jones Moderately Aggressive Portfolio Index, 9.45%*; S&P
500 Index, 10.19%*; and the Barclays Capital U.S. Aggregate Index, .09%*.
The portfolio management team used stop orders on selected equities to
help manage volatility on equity positions held in the portfolio. Stop orders
are sell orders that are placed below current values of an equity position in
the portfolio in order to protect gains or limit losses on the related equity
position. Additionally, the Fund's portfolio managers utilized equity call
option writing within the portfolio strategy to reduce volatility. In such a
management technique, the portfolio managers sell call options on an existing
equity position to reduce the effect of price fluctuations of securities owned
by the Fund on the Fund's NAV and to generate additional revenues. The Fund's
portfolio management team uses discretion in the selection of which equity
securities to write (or sell) the call option. During the period,
the Fund had realized gains on written options of $176,058.
The Fund continues to utilize structured notes in an effort to reduce
market volatility. The portfolio's structured note holdings performed well
during the reporting period as the reference equity indices increased. The
portfolio managers reduced their holdings in structured notes during the period
as a result of maturing issues and a combination of market and credit
conditions that they believe were not attractive for structured products. At
the end of the reporting period, the Fund held 7.33% of net assets in
structured notes.
At March 31, 2013, the portfolio had a cash allocation in excess of
29%. This was due to the portfolio manager's decision to reduce market
exposure as the equity markets were testing new highs.
CATEGORY ALLOCATION (% of Net Assets)
March 31, 2013
[The following table was depicted as a pie chart in the printed material.]
Consumer Discretionary 15.39%
Consumer Staples 7.10%
Energy 2.18%
Financials 9.53%
Health Care 8.98%
Industrials 5.66%
Information Technology 4.02%
Telecommunication Services 4.31%
Utilities 5.86%
Structured Notes 7.33%
Money Market Fund 29.60%
Other Assets .04%
On the following pages you will find our March 31, 2013 Semi-Annual
Report. If you have any questions or would like us to provide information about
the Fund to your family or friends, please call us at (808) 988-8088 or (800)
354-9654.
On a final note, we would like to express our gratitude to our
investors. The capital market environment is as challenging as ever. We
appreciate your confidence in our firm in the management of your assets.
Warmest Aloha,
/s/ Terrence K.H. Lee
Terrence K.H. Lee
President and CEO
* Return is not annualized.
** The benchmark index was changed during 2012 from the S&P 500 Index and the
Barclays Capital U.S. Aggregate Index to the Dow Jones Moderately Aggressive
Portfolio Index because the Dow Jones index is made up of composite indexes
representing stocks, bonds and cash and the Investment Manager believes it is
more reflective of the Fund's management style and investments of the Fund's
portfolio than either of the S&P or Barclays indexes.
Before investing, read the prospectus carefully. Please carefully consider the
Fund's investment objective, risks, and charges and expenses before investing.
The prospectus contains this and other information about the Fund. This Semi-
Annual Report must be accompanied or preceded by a prospectus.
The Fund's yield, share price and investment return fluctuate so that you may
receive more or less than your original investment upon redemption. Low
volatility investing does not guarantee a profit or protect against a loss in a
generally declining market. Past performance is no guarantee of future results.
The Fund is a series of First Pacific Mutual Fund, Inc. Mutual fund investing
involves risks. Principal loss is possible. The First Pacific Low Volatility
Fund's investments in structured notes may subject the Fund to greater interest
rate, credit and counterparty risks and costs than traditional equity funds.
The price of structured notes may be volatile and they may have a limited
trading market, making it difficult to value or sell them. Structured notes
are also subject to risks of debt instruments, including interest rate and call
risks, but may have a greater risk of loss than a typical debt security of the
same maturity and credit quality. In exchange for the issuer's guarantee of
full or partial payment of principal on maturity, the upside return the Fund
could achieve on its investment may be capped or limited and the issuer's
guarantee is generally available only if the Fund holds the structured
note to maturity. The Fund also invests in options which may be more volatile
and less liquid, increasing the risk of loss when compared to traditional
securities. The Fund may also invest in foreign securities which, especially
in emerging markets, involve greater volatility and political, economic,
regulatory and currency risks and differences in accounting methods. The
Fund may invest in small, mid or large companies. Investment in smaller
companies involves additional risks such as limited liquidity and greater
volatility than larger companies. The Fund's investments in other investment
companies, including exchange traded funds, subjects the Fund to those risks
affecting that investment company, including a possible decrease in the
value of the underlying securities. The Fund will also incur brokerage
costs when it purchases exchange traded funds and will incur its pro rata
share of the underlying investment company's expenses. This is not a
complete list of risks that may affect the Fund. For additional information
concerning the risks applicable to the Fund, please see the Fund's prospectus.
Lee Financial Securities, Inc./Distributor
May 29, 2013
This report may contain certain forward-looking statements about factors that
may affect the performance of the Fund in the future. These statements are
based on the predictions and expectations of Lee Financial Group Inc., the
Fund's investment manager (the "Investment Manager") concerning certain future
events, such as performance of the economy, changes in interest rates and other
factors that may impact the performance of the Fund. The Investment Manager
believes that these forward looking statements are reasonable, although they
are inherently uncertain and difficult to predict. Actual events may cause
adjustments in portfolio management strategies from those currently expected
to be employed.
YOUR FUND'S EXPENSES
--------------------
As a Fund shareholder, you can incur the following costs:
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 period indicated.
Actual Fund Expenses
--------------------
The first line (Actual) for the 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 the share 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. Therefore, the second line 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 10/01/12 Value 03/31/13 10/01/12 - 03/31/13
First Pacific Low Volatility Fund
Actual $1,000.00 $1,050.60 $9.20
Hypothetical $1,000.00 $1,015.96 $9.05
*Expenses are equal to the annualized expense ratio (1.80%), multiplied by the
average account value over the period, multiplied by 182/365 to reflect the
one-half year period.
FIRST PACIFIC LOW VOLATILITY FUND
SCHEDULE OF INVESTMENTS
March 31, 2013 (Unaudited)
-------------------------------------------------------------------------------
COMMON STOCK - 63.03%
Shares Value
------ -----
CONSUMER DISCRETIONARY - 15.39%
The Walt Disney Company 26,000 1,476,800
Home Depot, Inc. 20,000 1,395,600
McDonald's Corporation 14,000 1,395,660
Panera Bread Co. (b) 5,000 826,200
-----------
5,094,260
-----------
CONSUMER STAPLES - 7.10%
Church & Dwight Co., Inc. 14,000 904,820
Kimberly-Clark Corporation 10,000 979,800
Phillip Morris Int'l, Inc. 5,000 463,550
-----------
2,348,170
-----------
ENERGY - 2.18%
Exxon Mobil Corporation 8,000 720,880
-----------
720,880
-----------
FINANCIALS - 9.53%
American Express Company 13,200 890,472
The PNC Financial Services Group, Inc. 12,000 798,000
Ventas, Inc. (REIT) 20,000 1,464,000
-----------
3,152,472
-----------
HEALTH CARE - 8.98%
Bristol-Myers Squibb Company 40,000 1,647,600
Johnson & Johnson 5,000 407,650
UnitedHealth Group, Inc. 16,000 915,360
-----------
2,970,610
-----------
<FN>
See accompanying notes to financial statements.
</FN>
FIRST PACIFIC LOW VOLATILITY FUND
SCHEDULE OF INVESTMENTS
March 31, 2013 (Unaudited)
-------------------------------------------------------------------------------
Shares Value
------ -----
INDUSTRIALS - 5.66%
Boeing Co. 15,000 1,287,750
3M Company 5,500 584,705
-----------
1,872,455
-----------
INFORMATION TECHNOLOGY - 4.02%
Google Inc. (b) 1,000 794,030
Qualcomm Inc. 8,000 535,600
-----------
1,329,630
-----------
TELECOMMUNICATION SERVICES - 4.31%
Verizon Communications Inc. 29,000 1,425,350
-----------
1,425,350
-----------
UTILITIES - 5.86%
Oneok, Inc. 21,000 1,001,070
PPL Corporation 30,000 939,300
-----------
1,940,370
-----------
Total Common Stocks (Cost $18,001,767) 20,854,197
----------
<FN>
See accompanying notes to financial statements.
</FN>
FIRST PACIFIC LOW VOLATILITY FUND
SCHEDULE OF INVESTMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
Shares Value
------ -----
STRUCTURED NOTES - 7.33%
Deutsche Bank Capped Buffered Underlying Securities
Linked to the S&P 500 Index Due 05/20/2013 (b)
Return at maturity of 120.00% of the appreciation,
if any, of the S&P 500 Index up to cap of 13.00%
and losses of 100% of the depreciation of the
S&P 500 Index in excess of 15%. 1,000,000 1,146,000
The Goldman Sachs Group, Inc. Medium-Term
Notes, Series D Leveraged Buffered Index-Linked
Notes due 04/15/2013 Linked to the S&P 500 Index (b)
Return at maturity of 120.00% of the appreciation,
if any, of the S&P 500 Index up to cap of 12.88%
and losses of 100% of the depreciation of the
S&P 500 Index in excess of 15%. 1,000,000 1,281,000
-----------
Total Structured Notes (Cost $2,000,000) 2,427,000
-----------
MONEY MARKET FUND - 29.60%
Federated Government Obligation-I 9,793,760 9,793,760
-----------
Money Market Fund (Cost $9,793,760) 9,793,760
-----------
Total Investments (Cost $29,795,527) (a) 99.96% 33,074,957
Other Assets Less Liabilities 0.04% 14,374
------ ----------
Net Assets 100.00% $33,089,331
====== ==========
(a) Aggregate cost for federal income tax purposes is $29,795,527.
(b) Non-Income producing security.
At March 31, 2013, unrealized appreciation (depreciation) of securities for
federal income tax purposes is as follows:
Gross unrealized appreciation $3,316,428
Gross unrealized depreciation (36,998)
---------
Net unrealized appreciation $3,279,430
=========
<FN>
See accompanying notes to financial statements.
</FN>
FIRST PACIFIC LOW VOLATILITY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
Low Volatility
Fund
----
ASSETS
Investments at market value
(Identified cost $29,795,527) (Note 1 (A)) $33,074,957
Income receivable 23,448
Subscriptions receivable 47,879
Other Assets 14,555
-----------
Total assets 33,160,839
-----------
LIABILITIES
Redemptions payable 24,000
Management fee payable 17,929
Administration fee payable 552
Distribution Plan payable 4,138
Shareholder Servicing fee payable 2,758
Transfer Agent fee payable 1,655
Chief Compliance Officer fee payable 1,446
Directors fee payable 194
Accrued Expenses 18,836
-----------
Total liabilities 71,508
-----------
NET ASSETS $33,089,331
===========
(Applicable to 3,057,992 shares outstanding,
$.01 par value, 20,000,000 shares authorized)
NET ASSET VALUE, OFFERING AND REPURCHASE
PRICE PER SHARE, INVESTOR CLASS SHARES $10.82
======
NET ASSETS
At March 31, 2013, net assets consisted of:
Paid-in capital $30,076,239
Undistributed net investment income 39,517
Accumulated net realized loss on investments (305,855)
Net unrealized appreciation on investments 3,279,430
-----------
$33,089,331
===========
<FN>
See accompanying notes to financial statements.
</FN>
FIRST PACIFIC LOW VOLATILITY FUND
STATEMENT OF OPERATIONS
For the six months ended March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
Low Volatility
Fund
----
INVESTMENT INCOME
Dividend Income $ 337,192
Interest income 208
-----------
Total investment income 337,400
-----------
Expenses
Management fee (Note 2) 155,626
Distribution costs (Notes 2 and 3) 23,344
Transfer Agent fee (Note 2) 9,338
Shareholder Services fee (Note 2) 15,563
Administration fee (Note 2) 3,112
Accounting fee 21,840
Legal and Audit fees 13,716
Printing 8,958
Custodian fee 7,816
Insurance 1,835
Registration fee 10,176
Chief Compliance Officer fee (Note 2) 8,458
Directors fee 773
Miscellaneous fee 54
----------
Total expenses 280,609
----------
Management fees waived (Note 2) (54,469)
----------
Net Expenses 226,140
----------
Net investment income 111,260
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on transactions from:
Investments (465,362)
Options 176,058
Net change in unrealized appreciation (depreciation) on transactions from:
Investments 1,780,060
Options -
----------
Net realized and unrealized gain on investments 1,490,756
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,602,016
==========
<FN>
See accompanying notes to financial statements.
</FN>
FIRST PACIFIC LOW VOLATILITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For The Six Months Ended For the year end
March 31, 2013 (Unaudited) September 30, 2012
-------------------------- ------------------
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income (loss) $ 111,260 $ (35,335)
Net realized gain (loss) on investments (289,304) 485,526
Increase (decrease) in unrealized
appreciation (depreciation) of investments 1,780,060 2,656,393
----------- -----------
Net increase (decrease) in net assets
resulting from operations 1,602,016 3,106,584
----------- -----------
Distributions to shareholders from:
Net investment income
($.02 and $.00 per share, respectively) (71,743) -
Capital gains
($.10 and $.00 per share, respectively) (289,101) -
----------- -----------
Total distributions to shareholders (360,844) -
----------- -----------
Capital share transactions (a)
Increase in net assets resulting from
capital share transactions 1,153,547 6,677,627
----------- -----------
Total increase in net assets 2,394,719 9,784,211
NET ASSETS
Beginning of period 30,694,612 20,910,401
----------- -----------
End of period $33,089,331 $30,694,612
=========== ===========
(a) Summary of capital share activity follows:
-------------------------- ------------------
For The Six Months Ended For The Year Ended
March 31, 2013 September 30, 2012
-------------------------- ------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold 241,769 $ 2,499,187 923,462 $ 9,255,485
Shares issued on reinvestment
of distributions 35,869 360,844 - -
------- ----------- ------- -----------
277,638 2,860,031 923,462 9,255,485
Shares redeemed (164,765) (1,706,484) (258,845) (2,577,858)
------- ----------- ------- -----------
Net increase 112,873 $ 1,153,547 664,617 $ 6,677,627
======= =========== ======= ===========
<FN>
See accompanying notes to financial statements.
</FN>
FIRST PACIFIC LOW VOLATILITY FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
--------------------------------------------------------------------------------
--------------------------------------------
Year and Period
Ended
For The Six Months Ended September 30,
March 31, 2013 (Unaudited) 2012 2011*
--------------------------------------------
Net asset value
Beginning of period $ 10.42 $ 9.17 $ 10.00
------- ------- -------
Income from investment operations
Net investment income .04 (.01) (.03)
Net gain (loss) on securities
(both realized and unrealized) .48 1.26 (.80)
------- ------- -------
Total from investment operations .52 1.25 (.83)
------- ------- -------
Less distributions
Dividends from net investment income (.02) - -
Distributions from capital gains (.10) - -
------- ------- -------
Total distributions (.12) - -
------- ------- -------
End of period $ 10.82 $ 10.42 $ 9.17
======= ======= =======
Total return 5.06%+ 13.63% -8.30%+
Ratios/Supplemental Data
Net assets, end of period (in 000's) $33,089 $30,695 $20,910
Ratio of expenses to average net assets (a) 1.80%** 1.93% 2.28%**
before fee waivers
Ratio of expenses to average net assets (a) 1.45%** 1.77% 2.28%**
after fee waivers
Ratio of net investment income to
average net assets before fee waivers (a) 0.36%** -0.30% -1.58%**
Ratio of net investment income to
average net assets after fee waivers (a) 0.71%** -0.14% -1.58%**
Portfolio turnover 37.27%+ 81.84% 18.42%+
* Commenced operations June 10, 2011.
** Annualized
+ Not Annualized
(a) Does not include expenses of the investment companies in which the Fund
invests.
<FN>
See accompanying notes to financial statements.
</FN>
FIRST PACIFIC LOW VOLATILITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Pacific Low Volatility Fund ("Fund") is a series of First Pacific Mutual
Fund, Inc. which is registered under the Investment Company Act of 1940 as a
non-diversified open-end management investment company. First Pacific Mutual
Fund, Inc. currently has two investment portfolios, including the Fund which is
currently offering one Class of Shares: Investor Shares.
The investment objective of the Fund is to achieve long-term capital
appreciation and preservation of capital while lowering volatility. The Fund
seeks to achieve its objective by normally investing primarily in equity
securities of U.S. companies and allocating a portion of total assets to
structured notes. The Fund also may invest in exchange traded funds that
invest in domestic or foreign securities, foreign securities, real estate
investment trusts, fixed income securities, short-term debt instruments,
cash and cash equivalents, and convertible bonds and convertible preferred
stock. It also may write and purchase covered call and put options.
Structured notes are specially designed debt instruments whose principal and
interest payments are linked to, and whose values rise or fall in response to,
the value of an index, basket of securities, interest rate benchmark or other
financial asset. Structured notes are subject to interest rate risk.
They are also subject to credit risk with respect both to the issuer and, if
applicable, to the underlying security. The price of structured notes may be
volatile and they may have a limited trading market, making it difficult to
value them or sell them at an acceptable price. In exchange for the issuer's
guarantee of full or partial payment of principal on maturity, the upside
return the Fund could achieve on its investment may be capped or limited and
the issuer's guarantee is generally available only if the Fund holds the
structured note to maturity. There may be higher fees and costs associated
with structured notes than other types of investments. In some cases, the
Fund may enter into agreements with an issuer of structured notes to
purchase a minimum amount of those notes over time. Structured notes are
also subject to counterparty risk, which is the risk that the other party to
the transaction will not fulfill its contractual obligations.
The Fund may write (sell) covered call options on securities. If the option is
exercised by the purchaser prior to the expiration, the Fund is required to
deliver the underlying security against payment of the exercise price. Writing
call options is a highly specialized activity and entails greater than ordinary
investment risks. The successful use of options depends in part on the future
price fluctuations and the degree of correlation between the options and the
securities markets. The value of the Fund's positions in options will
fluctuate in response to changes in the value of the underlying security or
index, as applicable. Portfolio assets covering written options cannot be sold
while the option is outstanding, unless replaced with similar assets. As a
result there is a possibility that segregation of a large percentage of the
Fund's assets could affect its portfolio management as well as the ability of
the Fund to meet redemption requests or other current obligations. Unusual
market conditions or the lack of a ready market for any particular option at a
specific time may reduce the effectiveness of the Fund's option strategies.
Over-the-counter options may be considered illiquid and are also subject to
counterparty risk, which is the risk that the other party to the contract will
not fulfill its contractual obligation to complete the transaction with the
Fund.
FIRST PACIFIC LOW VOLATILITY FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
Disclosures about Derivative Instruments and Hedging Activities: The Fund
follows FASB ASC 815 "Disclosures about Derivative Instruments and Hedging
Activities" ("ASC 815"), effective May 1, 2009. ASC 815 requires enhanced
disclosures about the Fund's use of, and accounting for, derivative instruments
and the effect on the results of the Fund's operations and financial position.
At March 31, 2013 and during the period then ended, the Fund had the following
derivatives and transactions in derivatives:
Number of Premiums
Transactions in written option contracts Contracts Received
Options outstanding at September 30, 2012 (60) $ (69,478)
Options written (986) (213,544)
Options closed 13 35,073
Options exercised 177 106,509
Options expired 856 141,440
--------- ----------
Options outstanding at March 31, 2013 (-0-) $ (-0-)
--------- ----------
The locations on the Statement of Assets and Liabilities of the Fund's
derivative positions by type of exposure, all of which are not accounted for as
hedging instruments under ASC 815 are as follows:
Values of Derivative Instruments as of March 31, 2013 on the Statement of
Assets and Liabilities:
Liabilities Location Value
-------------------------------------------------------------------
Equity Contracts - Options Written options at value $0
The effect of Derivative Instruments on the Statement of Operations for the
period ended March 31, 2013:
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income
Written Options Total
----------------------------------------------------------------------
Equity Contracts $176,058 $176,058
Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized
in Income
Written Options Total
----------------------------------------------------------------------
Equity Contracts $0 $0
The Fund's investments in other investment companies subjects it to those risks
affecting the investment company, including the possibility that the value of
the underlying securities held by the investment company could decrease. The
Fund will incur its pro rata share of the underlying investment company's
expenses. The Fund may purchase ETFs which may trade at a discount to its
net asset value. Investors in the Fund will indirectly bear fees and expenses
charged by the underlying ETFs in which the Fund invests in addition to the
Fund's direct fees and expenses. The Fund will also incur brokerage costs when
it purchases shares of ETFs. In addition, the Fund will be affected by losses
of the underlying ETF and the level of risk arising from the investment
practices of the underlying ETF.
FIRST PACIFIC LOW VOLATILITY FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
The Fund may purchase fixed income securities which will change in value in
response to interest rate changes and other factors, such as the perception of
the issuer's creditworthiness. For example, the value of fixed income
securities will generally decrease when interest rates rise, which may cause
the value of the Fund to decrease. In addition, an underlying fund's
investment in fixed income securities with longer maturities will fluctuate
more in response to interest rate changes.
(A) SECURITY VALUATION
Portfolio securities that are fixed income (debt) securities are valued
by an independent pricing agent using methodologies that it believes are
appropriate, including actual market transactions, broker-dealer supplied
valuations, matrix pricing, or other electronic data processing
techniques designed to identify market values for such securities, in
accordance with procedures established in good faith by the Board of
Directors. Structured notes are valued at the closing price or evaluated
bid as provided daily by independent pricing agents. Equity securities
listed on a securities exchange or an automated quotation system for
which quotations are readily available will be valued at the last quoted
sale price on the principal exchange on which they are traded on the
valuation date (or at approximately 4:00 p.m. Eastern Time if a
security's principal exchange is normally open at that time), or, if
there is no such reported sale on the valuation date, at the closing
bid price. Securities traded over-the-counter will be valued at the
last reported sale price on the Nasdaq Trade Reporting Facility,
Alternative Display Facility or other facility that reports trades
of over-the-counter securities. If there is no such reported sale
on the valuation date, over-the-counter securities will be valued at
the most recently quoted bid price. Nasdaq listed securities are
valued at the Nasdaq Official Closing Price. Options listed for
trading on a securities exchange or board of trade will be valued
at the last quoted sale price or, in the absence of a sale, at
the mean of the closing bid and ask prices. In the absence of a
last quoted sales price or mean price, options are valued at the
closing ask price (for short positions). Futures contracts and
options thereon, which are traded on commodities exchanges, are
valued at their daily settlement value as of the close of such
commodities exchanges. Redeemable securities issued by open-end
investment companies are valued at the investment company's
applicable net asset value. Exchange-traded open-end investment
companies and closed-end investment companies are priced as equity
securities. Foreign securities are often principally traded on
markets that close at different hours than U.S. markets. Such
securities will be valued at their most recent closing prices on the
relevant principal exchange even if the close of that exchange is
earlier than the time of the Fund's net asset value ("NAV")
calculation. However, securities traded in foreign markets which
remain open as of the time of the NAV calculation will be valued at
the most recent sales price as of the time of the NAV calculation. In
addition, prices for certain foreign securities may be obtained from
the Fund's approved independent pricing agents. 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 or for
which available prices are believed to be suspect will be valued at
"fair value" using methods determined in good faith by or at the
direction of the Board of Directors. For these purposes, "fair value"
means the price that the Investment Manager reasonably expects 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.
FIRST PACIFIC LOW VOLATILITY FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
The Fund utilizes various methods to measure the fair value of most of
its investments on a recurring basis. U.S. generally accepted
accounting principles ("GAAP") establishes a hierarchy that prioritizes
inputs to valuation methods. The three levels of inputs are:
Level 1 - Unadjusted quoted prices in active markets for identical assets
or liabilities that the Fund has the ability to access.
Level 2 - Observable inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or
indirectly. These inputs may include quoted prices for the identical
instrument on an inactive market, prices for similar instruments,
interest rates, prepayment speeds, credit risk, yield curves, default
rates and similar data.
Level 3 - Unobservable inputs for the asset or liability, to the extent
relevant observable inputs are not available, representing the Fund's own
assumptions about the assumptions a market participant would use in
valuing the asset or liability, and would be based on the best
information available.
The availability of observable inputs can vary from security to security
and is affected by a wide variety of factors, including for example, the
type of security, whether the security is new and not yet established in
the marketplace, the liquidity of markets, and other characteristics
particular to the security. To the extent that valuation is based on
models or inputs that are less observable or unobservable in the market,
the determination of fair value requires more judgment. Accordingly, the
degree of judgment exercised in determining fair value is greatest
for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purposes, the
level in the fair value hierarchy within which the fair value measurement
falls in its entirety, is determined based on the lowest level input that
is significant to the fair value measurement in its entirety.
Changes in valuation techniques may result in transfers in/out changing
an investment's assigned level within the hierarchy.
The following is a description of the valuation techniques applied to the
Fund's major categories of financial instruments measured at fair value
on a recurring basis:
Common Stocks and Exchange-Traded Funds, to the extent these securities
are actively traded and valuation adjustments are not applied, are
categorized in Level 1 of the fair value hierarchy. Preferred stock and
other equities traded on inactive markets or valued by reference to
similar instruments are categorized in Level 2 of the fair value
hierarchy.
Structured Notes are categorized in Level 2 of the fair value hierarchy.
Investment in registered open-end investment management companies will be
categorized as Level 1 of the fair value hierarchy.
Options listed for trading on a securities exchange or board of trade,
and which are actively traded, are categorized in Level 1 of the fair
value hierarchy.
FIRST PACIFIC LOW VOLATILITY FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
The following is a summary of the inputs used in valuing the Fund's
investments, as of March 31, 2013. The inputs or methodology used for
valuing securities are not necessarily an indication of the risks
associated with investing in those securities.
Valuation Inputs at Reporting Date:
Description Level 1 Level 2 Level 3 Total
Assets
------
Common Stocks $20,854,197 $ -0- $-0- $20,854,197
Exchange Traded Funds $ -0- $ -0- $-0- $ -0-
Structured Notes $ -0- $2,427,000 $-0- $ 2,427,000
Money Market Fund $ 9,793,760 $ -0- $-0- $ 9,793,760
----------- ---------- ---- -----------
Total Investments $30,647,957 $2,427,000 $-0- $33,074,957
=========== ========== ==== ===========
Liabilities
-----------
Written covered call options $ -0- $ -0- $-0- $ -0-
=========== ========== ==== ===========
Liabilities
There were no transfers in to and out of Levels 1 and 2 during the
current period presented. There were no purchases, sales, issuances,
and settlements on a gross basis relating to Level 3 measurements during
the current period presented.
Significant Ownership Concentration
At March 31, 2013, the Fund invested 29.60% of its net assets in the
Federated Government Obligation-I Money Market Fund. The Federated
Government Obligations-I Money Market Fund's objective is to seek current
income consistent with stability of principal by investing primarily in a
portfolio of short-term U.S. Treasury and government securities, and
repurchase agreements collateralized by such obligations.
(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.
The Fund has reviewed all open tax years for all major jurisdictions,
which is the Federal jurisdiction, and concluded that there are no
significant uncertain tax positions that would require recognition in the
financial statements. As of September 30, 2012, open Federal tax
years include the tax year ended September 30, 2011 and 2012. The Fund
has no examination in progress and 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 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.
FIRST PACIFIC LOW VOLATILITY FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
On December 22, 2010, the Regulated Investment Company Modernization Act
of 2010 (the "Act") was enacted. The Act modernizes several of the
federal income and excise tax provisions related to regulated investment
companies such as the Fund, and, with certain exceptions, is effective
for taxable years beginning after December 22, 2010. Among the changes
made are changes to the capital loss carryforward rules allowing for
capital losses to be carried forward indefinitely. At September 30,
2012, the First Pacific Low Volatility Fund utilized $177,641 in short-
term capital loss carryforwards to offset current year gains.
The Fund had net capital losses of $3,067 incurred after October 31,
2011. 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. Net realized gains and losses from
investment transactions are reported on an identified cost basis.
Interest income is recognized using the accrual method and includes
accretion of original issue and market discount and amortization of
premium. Dividend income is recognized on the ex-dividend date, except
that certain dividends from foreign securities are recorded as soon as
the information becomes available after the ex-dividend date. The Fund
intends to pay income dividends at least annually.
(D) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(E) SHARE VALUATION
The net asset value per share for the Fund is determined by calculating
the total value of the Fund's assets, deducting its total liabilities and
dividing the result by the number of shares outstanding.
(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, respectively. In accordance with the terms of the
management agreement and of the administrative services agreement, LFG receives
compensation at the annual rate of 1.00% and up to .05% of the Fund's
average daily net assets, respectively. The Investment Manager has voluntarily
agreed to waive 0.35% of its 1.00% management fees through January 31, 2014.
For the period ended March 31, 2013, the Fund was allocated, and paid LFG,
$8,458 for the Chief Compliance Officer fee.
FIRST PACIFIC LOW VOLATILITY FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
The Fund's distributor, Lee Financial Securities, Inc. ("LFS"), a wholly-owned
subsidiary of LFG, received $23,344 for costs incurred in connection with the
sale of the Fund's shares (See Note 3).
Lee Financial 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 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.
(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. Rule
12b-1 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 First Pacific Low Volatility 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 $10,337,682 and $16,912,934,
respectively, for the Fund during the six month period October 1, 2012 through
March 31, 2013.
(5) TAX COMPONENTS OF CAPITAL AND DISTRIBUTIONS TO SHAREHOLDERS
For the period ending September 30, 2012 the Fund had no distributions.
The tax character of distributable earnings at September 30, 2012 were as
follows:
Undistributed Post Unrealized Total
Net Investment Undistributed Capital Loss October Gain/ Distributable
Income Capital Gains Carryforwards Losses (Loss) Earnings
------ ------------- ------------- ------ ------ --------
First Pacific Low
Volatility Fund
$ 275,617 $ - $ - $(3,067) $1,499,370 $1,771,920
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.
FIRST PACIFIC LOW VOLATILITY FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
(6) NEW ACCOUNTING PRONOUNCEMENTS
In January 2013, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2013-01 Clarifying the Scope of
Disclosures about Offsetting Assets and Liabilities. This update gives
additional clarification to the FASB ASU No. 2011-11 Disclosures about
Offsetting Assets and Liabilities. The amendments in this ASU require an
entity to disclose information about offsetting and related arrangements to
enable users of its financial statements to understand the effect of those
arrangements on its financial position. The ASU is effective for annual
reporting periods beginning on or after January 1, 2013, and interim periods
within those annual periods. The guidance requires retrospective application
for all comparative periods presented. The Fund's management is currently
evaluating the impact ASU 2013-01 will have on the financial statement
disclosures.
(7) SUBSEQUENT EVENTS DISCLOSURE
In preparing the Fund's financial statements as of March 31, 2013, the Fund's
management considered the impact of subsequent events for potential
recognition or disclosure in these financial statements.
FIRST PACIFIC LOW VOLATILITY FUND (Unaudited)
Shareholder Information
Household Delivery of Shareholder Documents: Only one Prospectus, Annual and
Semi-Annual Report will be sent to shareholders with the same last name and
address on their Fund account, unless you request multiple copies. If you would
like to receive separate copies, please call us at (808) 988-8088. We will
begin sending you additional copies within 30 days. If your shares are held
through a service provider, please contact them directly.
Business Continuity Plan Summary Disclosure Statement: First Pacific Mutual
Fund, Inc., Lee Financial Group Inc., Lee Financial Securities, Inc. and Lee
Financial Recordkeeping, Inc. have developed Business Continuity Plans on how
we will respond to events that significantly disrupt our business. Since the
timing and impact of disasters and disruptions is unpredictable, we will have
to be flexible in responding to actual events as they occur. Contacting
Us - If after a significant business disruption you cannot contact us as you
usually do at (808) 988-8088, you should go to our website at
www.LeeHawaii.com. Please visit our website at www.LeeHawaii.com for the
Business Continuity Plan Disclosure Statement.
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, 2011 and ending June 30, 2012.
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.
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, Ohio 45246
CUSTODIAN
Union Bank, N.A.
350 California Street, 6th Floor
San Francisco, California 94104
LEGAL COUNSEL
Roy W. Adams, Jr.
370 Park Street
Suite 2
Moraga, California 94556
TRANSFER AGENT
Lee Financial Recordkeeping, Inc.
2756 Woodlawn Drive, Suite #6-201
Honolulu, Hawaii 96822-1856
[FUND LOGO OMITTED]
Hawaii Municipal Fund
SEMI-ANNUAL REPORT
March 31, 2013
Hawaii Municipal Fund
--------------------------------------------------------------------------------
May 14, 2013
Dear fellow shareholder,
The April tax season has just passed, and as Hawaii taxpayers, many of
us felt the impact of paying high taxes. In fact, as a Hawaii resident, as
much as $42 of $100 of our taxable income could go to the government in
income taxes.
According to the Tax Foundation, the average employee in Hawaii works
until April 14th to pay his taxes. In this tough economy, every dollar we save
makes a difference. We believe that investing in tax-free funds such as the
Hawaii Municipal Fund can help reduce our tax burden. As shareholders of
the 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.
Interest rates are the most important of many factors which can affect
bond prices. For the period October 1, 2012 through March 31, 2013 the Federal
Reserve left the Fed Funds rate unchanged in the range of 0 - .25%. During
this period the yield curve moderately steepened with the 10 year treasury
bond yield rising from 1.65% to 1.87%. At the same time state budget
difficulties began to moderate. This accounts for the Hawaii Municipal
Fund's six month price decrease of $0.06 per share. The primary investment
strategy of the Hawaii Municipal Fund is to purchase investment grade
long-term Hawaii municipal bonds. The past six months performance for the
Fund, which is presented in this Semi-Annual Report, was primarily a result
of the implementation of this strategy.
We believe that the economy is slowly recovering from a number of
crises - housing, credit and financial. However, spending by people and
businesses remains weak, and the economy continues to be plagued with high
unemployment. This would normally be a positive for the bond market, but
because of massive federal stimulus injections, we believe that there
continues to be a higher than normal inflationary risk which may impact
the municipal bond market in the intermediate term.
MOODY'S MUNICIPAL BOND RATINGS
Hawaii Municipal Fund
March 31, 2013
[The following table was depicted as a pie chart in the printed material.]
Aaa 3.09%
Aa1 1.31%
Aa2 25.66%
Aa3 4.44% Moody's is an independent ratings service which
A1 6.59% assigns ratings from Aaa (highest) to C (lowest)
A2 15.56% to indicate the credit worthiness of the issuer's
A3 6.47% securities in the Fund's portfolio. Ratings are
Baa1 3.03% subject to change. These ratings apply to the
Baa2 2.95% issuer's credit worthiness of the securities in the
Ba1 0.34% Fund's portfolio and not the Fund or its shares.
NR^ 30.27%
WR^ 0.29%
^ Primarily all of the investments in the Hawaii Municipal Fund portfolio
are investment grade securities. Only 1.15% of the municipal bonds purchased
for the portfolio are deemed to be below investment grade by the Investment
Manager.
On the following pages you will find our March 31, 2013 Semi-Annual
Report. If you have any questions or would like us to provide information
about the Fund to your family or friends, please call us at (808) 988-8088.
Thank you for your business. As always, we look forward to providing you
with the high level of service that you have come to expect.
Warmest Aloha,
/s/ Terrence K.H. Lee
Terrence K.H. Lee
President and CEO
*Some income may be subject to the federal alternative minimum tax for certain
investors. Income may also be subject to capital gains taxes.
Before investing, read the prospectus carefully. Please carefully consider the
Fund's investment objective, risks, and charges and expenses before investing.
The prospectus contains this and other information about the Fund. This Semi-
Annual Report must be accompanied or preceded by a prospectus.
The 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. The Fund is a series of
First Pacific Mutual Fund, Inc. Mutual fund investing includes risks.
Principal loss is possible. The Fund's investments in municipal bonds
subjects the Fund to interest rate, credit, call and geographic concentration
risk.
Lee Financial Securities, Inc./Distributor
May 29, 2013
This report may contain certain forward-looking statements about factors that
may affect the performance of the Fund in the future. These statements are
based on the predictions and expectations of Lee Financial Group Inc., the
Fund's investment manager, (the "Investment Manager"), concerning certain
future events, such as performance of the economy, changes in interest rates
and other factors that may impact the performance of the Fund. The Investment
Manager believes that these forward looking statements are reasonable, although
they are inherently uncertain and difficult to predict. Actual events may cause
adjustments in portfolio management strategies from those currently expected
to be employed.
YOUR FUND'S EXPENSES
--------------------
As a Fund shareholder, you can incur the following costs:
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 the 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 the share 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. Therefore, the second line 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 10/01/12 Value 03/31/13 10/01/12 - 03/31/13
Hawaii Municipal Fund Investor Class
Actual $1,000.00 $1,009.50 $5.06
Hypothetical $1,000.00 $1,019.90 $5.09
*Expenses are equal to the annualized expense ratio (1.01%), multiplied by the
average account value over the period, multiplied by 182/365 to reflect the
one-half year period.
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
Value
Par Value (Note 1 (A))
--------- ------------
HAWAII MUNICIPAL BONDS - 97.88%
----------------------
Hawaii County
General Obligation Bonds - 3.67%
$ 1,755,000 5.000%, 07/15/21 $ 2,074,656
1,000,000 5.000%, 07/15/22 1,013,560
370,000 5.000%, 07/15/24 392,356
1,210,000 5.000%, 03/01/25 1,413,425
1,265,000 5.000%, 03/01/26 1,467,172
----------
6,361,169
----------
Hawaii State
General Obligation Bonds - 4.68%
4,000,000 5.000%, 06/01/25 4,797,440
2,880,000 5.000%, 05/01/27 3,326,774
----------
8,124,214
----------
Airport Systems Revenue Bonds - 8.02%
665,000 5.250%, 07/01/26 782,572
11,280,000 5.250%, 07/01/27 13,128,454
----------
13,911,026
----------
Certificates of Participation-State Office Buildings - 4.35%
1,500,000 5.000%, 05/01/15 1,625,655
4,200,000 5.000%, 05/01/17 4,802,616
500,000 4.000%, 05/01/19 559,080
500,000 4.000%, 05/01/20 560,425
----------
7,547,776
----------
Department of Budget & Finance Special Purpose Revenue Bonds
Hawaiian Electric Company, Inc. - 5.72%
4,725,000 5.650%, 10/01/27 4,772,959
5,000,000 4.650%, 03/01/37 5,149,300
----------
9,922,259
----------
Chaminade University - 2.99%
2,750,000 5.000%, 01/01/26 2,860,550
1,270,000 4.700%, 01/01/31 1,301,458
1,000,000 4.750%, 01/01/36 1,025,530
----------
5,187,538
----------
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
Value
Par Value (Note 1 (A))
--------- ------------
Hawaii Pacific Health - 5.05%
$ 775,000 4.625%, 07/01/21 $ 857,483
1,140,000 5.600%, 07/01/33 1,145,050
6,000,000 5.500%, 07/01/40 6,537,180
200,000 5.750%, 07/01/40 219,700
------------
8,759,413
------------
Hawaii Mid-Pacific Institute - 2.19%
2,085,000 5.000%, 01/01/26 2,150,052
1,635,000 4.625%, 01/01/36 1,642,210
------------
3,792,262
------------
Kapiolani Health Care System - 0.34%
575,000 6.400%, 07/01/13 583,182
------------
Kuakini Hawaii Health System - 0.33%
570,000 6.300%, 07/01/22 570,923
------------
Kahala Nui - 9.67%
300,000 3.350%, 11/15/19 308,340
300,000 3.600%, 11/15/20 308,403
250,000 3.800%, 11/15/21 257,148
500,000 5.000%, 11/15/21 577,060
1,065,000 4.625%, 11/15/27 1,095,480
1,200,000 5.000%, 11/15/27 1,325,220
2,000,000 5.125%, 11/15/32 2,186,420
8,200,000 8.000%, 11/15/33 8,751,860
1,815,000 5.250%, 11/15/37 1,956,969
------------
16,766,900
------------
Wilcox Hospital - 0.96%
245,000 5.250%, 07/01/13 245,813
1,250,000 5.350%, 07/01/18 1,252,850
160,000 5.500%, 07/01/28 160,194
------------
1,658,857
------------
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
Value
Par Value (Note 1 (A))
--------- ------------
Department of Hawaiian Homelands - 2.60%
$ 1,000,000 5.875%, 04/01/34 $ 1,131,460
3,000,000 6.000%, 04/01/39 3,373,050
------------
4,504,510
------------
Hawaiian Homelands - COP Kapolei - 3.87%
210,000 3.750%, 11/01/16 225,941
950,000 4.125%, 11/01/23 1,000,835
5,100,000 5.000%, 11/01/31 5,481,123
------------
6,707,899
------------
Harbor Capital Improvements Revenue Bonds - 3.79%
1,580,000 5.250%, 01/01/16 1,653,549
1,665,000 5.375%, 01/01/17 1,744,204
500,000 5.500%, 07/01/19 501,210
2,005,000 5.250%, 01/01/21 2,149,741
520,000 5.750%, 07/01/29 521,269
------------
6,569,973
------------
Hawaii Health Systems - 0.80%
1,370,000 4.700%, 02/15/19 1,381,070
------------
Highway Revenue - 1.12%
1,640,000 5.000%, 01/01/26 1,950,255
------------
Housing Authority
Single Family Mortgage
Special Purpose Revenue Bonds - 2.98%
315,000 4.800%, 07/01/13 315,980
85,000 5.250%, 07/01/13 85,292
2,550,000 5.400%, 07/01/29 2,559,027
1,775,000 5.375%, 07/01/33 1,781,266
415,000 5.000%, 07/01/36 431,953
------------
5,173,518
------------
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
Value
Par Value (Note 1 (A))
--------- ------------
HCDC Rental Housing System Revenue Bonds - 3.74%
$ 810,000 4.750%, 07/01/22 $ 852,833
600,000 4.750%, 07/01/23 636,870
895,000 5.000%, 07/01/24 956,209
100,000 5.000%, 07/01/25 106,953
990,000 6.000%, 07/01/26 1,095,504
1,055,000 6.000%, 07/01/27 1,159,498
785,000 6.000%, 07/01/28 856,443
750,000 6.000%, 07/01/29 815,265
------------
6,479,575
------------
HFDC Multi-Family-Kuhio Park- 3.45%
2,430,000 4.750%, 10/01/27 2,677,617
3,000,000 4.950%, 04/01/29 3,312,060
------------
5,989,677
------------
Multi-Family-Halekauwila- 2.88%
5,000,000 0.700%, 12/01/15 4,997,350
------------
Multi-Family-Iwilei Apartments- 2.43%
165,000 3.300%, 01/01/26 166,437
4,000,000 3.750%, 01/01/31 4,046,960
------------
4,213,397
------------
Multi-Family-Kooloaula Apartments- 2.17%
220,000 3.125%, 09/01/22 226,653
3,435,000 4.000%, 09/01/33 3,541,519
------------
3,768,172
------------
University of Hawaii - Revenue Bonds - 6.14%
100,000 4.000%, 07/15/16 110,314
1,000,000 5.000%, 10/01/18 1,193,830
1,000,000 5.000%, 10/01/19 1,211,680
1,500,000 5.000%, 10/01/23 1,697,250
3,355,000 4.500%, 07/15/26 3,668,323
2,500,000 5.000%, 07/15/29 2,768,225
------------
10,649,622
------------
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
--------------------------------------------------------------------------------
March 31, 2013 (Unaudited)
Value
Par Value (Note 1 (A))
--------- ------------
Honolulu City & County
Multi-Family - Waipahu - 1.10%
$ 1,910,000 6.900%, 06/20/35 $ 1,912,521
------------
Water System Revenue Bonds
Board of Water Supply - 4.86%
3,550,000 4.500%, 07/01/23 3,897,793
1,470,000 5.000%, 07/01/26 1,631,318
2,500,000 5.000%, 07/01/32 2,903,125
------------
8,432,236
------------
Waste System Revenue - 1.60%
2,380,000 5.250%, 07/01/36 2,772,224
------------
Kauai County
General Obligation Bonds - 3.09%
400,000 3.125%, 08/01/23 402,408
770,000 5.000%, 08/01/24 928,019
880,000 3.625%, 08/01/25 947,126
2,780,000 5.000%, 08/01/27 3,076,682
------------
5,354,235
------------
Kukuiula Development - 2.00%
1,090,000 5.625%, 05/15/33 1,132,041
2,250,000 5.750%, 05/15/42 2,335,478
------------
3,467,519
------------
Maui County
General Obligation Bonds - 1.29%
1,000,000 5.000%, 07/01/23 1,118,850
1,000,000 5.000%, 07/01/24 1,116,140
------------
2,234,990
------------
Total Hawaii Municipal Bonds (Cost $160,655,334) 169,744,262
------------
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
Value
Par Value (Note 1 (A))
--------- ------------
VIRGIN ISLANDS MUNICIPAL BONDS - 0.20%
Virgin Islands
Public Finance Authority, Series A - 0.05%
$ 75,000 7.300%, 10/01/18 $ 87,959
------------
Public Finance Authority, Series A - 0.15%
250,000 5.000%, 07/01/14 252,368
------------
Total Virgin Islands Municipal Bonds (Cost $325,495) 340,327
------------
Total Investments (Cost $160,980,829) (a) 98.08% 170,084,589
Other Assets Less Liabilities 1.92% 3,324,876
------- ------------
Net Assets 100.00% $173,409,465
======= ============
(a) Aggregate cost for federal income tax purposes is $160,872,738.
At March 31, 2013, unrealized appreciation (depreciation) of securities for
federal income tax purposes is as follows:
Gross unrealized appreciation $ 9,214,595
Gross unrealized (depreciation) (2,744)
------------
Net unrealized appreciation $ 9,211,851
============
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
Municipal
Fund
----
ASSETS
Investments at market value
(Identified cost $160,980,829) (Note 1 (A)) $ 170,084,589
Cash 1,220,459
Interest receivable 2,406,609
Other assets 8,414
------------
Total assets 173,720,071
------------
LIABILITIES
Distributions payable 128,220
Redemptions payable 22,702
Management fee payable 73,476
Administration fee payable 2,939
Distribution Plan payable 22,043
Shareholder Servicing fee payable 14,695
Transfer Agent fee payable 8,817
Chief Compliance Officer fee payable 5,083
Directors fee payable 238
Accrued expenses 32,393
------------
Total liabilities 310,606
------------
NET ASSETS $173,409,465
============
(Applicable to 15,418,561 shares outstanding,
$.01 par value, 40,000,000 shares authorized)
NET ASSET VALUE, OFFERING AND REPURCHASE
PRICE PER SHARE, INVESTOR CLASS SHARES $11.25
======
NET ASSETS
At March 31, 2013, net assets consisted of:
Paid-in capital $165,899,722
Undistributed net investment income 109,471
Accumulated net realized loss on investments (1,703,488)
Net unrealized appreciation 9,103,760
------------
$173,409,465
============
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
STATEMENT OF OPERATIONS
For the six months ended March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
Municipal
Fund
----
INVESTMENT INCOME
Interest income $3,462,370
------------
Expenses
Management fee (Note 2) 433,846
Distribution costs (Notes 2 and 3) 130,155
Transfer Agent fee (Note 2) 52,060
Shareholder Services fee (Note 2) 86,768
Administration fee (Note 2) 17,353
Accounting fee 35,854
Legal and Audit fees 39,072
Printing 7,750
Custodian fee 18,820
Insurance 5,041
Registration fee 5,819
Miscellaneous 9,704
Chief Compliance Officer fee (Note 2) 29,861
Directors fee 3,576
------------
Total expenses 875,679
Fee reductions (Note 5) (10,715)
------------
Net expenses 864,964
------------
Net investment income 2,597,406
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized loss from security transactions (504)
Change in unrealized appreciation of investments (958,171)
------------
Net loss on investments (958,675)
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,638,731
==========
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For The Six Months Ended For The Year Ended
March 31, 2013 (Unaudited) September 30, 2012
-------------------------- ------------------
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income $ 2,597,406 $ 5,070,729
Net realized (loss) on investments (504) (124,346)
Increase (decrease) in unrealized
appreciation (depreciation) of
investments (958,171) 7,133,434
----------- -----------
Net increase (decrease) in net assets
resulting from operations 1,638,731 12,079,817
----------- -----------
Distributions to shareholders from:
Net investment income
Investor Class
($.17 and $.34 per share, respectively) (2,584,886) (5,039,690)
Capital gains
Investor Class
($.00 and $.00 per share, respectively) - -
----------- -----------
Total distributions to shareholders (2,584,886) (5,039,690)
----------- -----------
Capital share transactions (a)
Increase in net assets resulting from
capital share transactions 1,694,257 7,355,597
----------- -----------
Total increase in net assets 748,102 14,395,724
NET ASSETS
Beginning of period 172,661,363 158,265,639
----------- -----------
End of period
(including undistributed net investment income
of $109,471 and $96,951, respectively) $173,409,465 $172,661,363
============ ============
(a) Summary of capital share activity follows:
Investor Class Investor Class
------------------------- ---------------------
For The Six Months Ended For The Year Ended
March 31, 2013 September 30, 2012
------------------------- ---------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold 618,770 $7,007,117 1,140,860 $12,614,641
Shares issued on
reinvestment of
distributions 163,325 1,846,875 324,338 3,595,451
------- ---------- ---------- -----------
782,095 8,853,992 1,465,198 16,210,092
Shares redeemed (633,300) (7,159,735) (802,855) (8,854,495)
-------- ---------- --------- ----------
Net increase 148,795 $1,694,257 662,343 $ 7,355,597
======== ========== ========= ===========
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
--------------------------------------------------------------------------------
INVESTOR CLASS
--------------------------------------------------------------------------
For The Six Months Ended Years Ended September 30,
March 31, 2013 (Unaudited) 2012 2011 2010 2009 2008
-------------------------- ---- ---- ---- ---- ----
Net asset value
Beginning of period $11.31 $10.83 $10.97 $10.80 $10.31 $10.88
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income .17 .34 .39 .37 .38 .39
Net gain (loss) on
Securities (both realized
and unrealized) (.06) .48 (.14) .17 .51 (.57)
------ ------ ------ ------ ------ ------
Total from investment
Operations .11 .82 .25 .54 .89 (.18)
------ ------ ------ ------ ------ ------
Less distributions
Dividends from net
investment income (.17) (.34) (.39) (.37) (.38) (.39)
Distributions from
capital gains - - - - (.02) -
------ ------ ------ ------ ------ ------
Total distributions (.17) (.34) (.39) (.37) (.40) (.39)
------ ------ ------ ------ ------ ------
End of period $11.25 $11.31 $10.83 $10.97 $10.80 $10.31
====== ====== ====== ====== ====== ======
Total return 0.95%+ 7.65% 2.45% 5.12% 8.98% -1.73%
Ratios/Supplemental Data
Net assets, end of
period (in 000's) $173,409 $172,661 $158,266 $177,933 $165,893 $150,059
Ratio of expenses to
average net assets (a) 1.01%* 1.04% 1.03% 1.03% 1.05% 1.08%
Ratio of net investment income to
average net assets 2.98%* 3.06% 3.74% 3.49% 3.77% 3.54%
Portfolio turnover 0.38%+ 22.52% 13.68% 19.60% 25.90% 13.47%
* Annualized
+ Not annualized
(a) Ratios of expenses to average net assets after the reduction of custodian
fees and other expenses under a custodian arrangement were 1.00%, 1.03%,
1.02%, 1.03%, 1.02%, and 1.02%, for the six months ended March 31, 2013
and for the years ended September 30, 2012, 2011, 2010, 2009, and 2008,
respectively.
<FN>
See accompanying notes to financial statements.
</FN>
HAWAII MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2013 (Unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hawaii Municipal Fund ("Fund") is a series of First Pacific Mutual Fund, Inc.
which is registered under the Investment Company Act of 1940, as a non-
diversified open-end management investment company. First Pacific Mutual Fund,
Inc. currently has two investment portfolios, including the Hawaii Municipal
Fund which is currently authorized to offer one Class of Shares: Investor
Shares.
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 a portfolio of investment grade
municipal securities issued by or on behalf of the State of Hawaii, or any of
its political subdivisions, which pay interest that is exempt from regular
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 Fund is subject to additional concentration of risk. Due to the level of
investment in Hawaii municipal obligations, 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. Therefore, an investment in the
Fund may be riskier than investment in other types of municipal bond funds.
(A) SECURITY VALUATION
Portfolio securities, that are fixed income securities, are valued by an
independent pricing service using methodologies that it believes are
appropriate including actual market transactions, broker-dealer supplied
valuations, matrix pricing, or other electronic data processing
techniques designed to identify market values for such securities, 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 or for which
available prices are suspect will be valued at "fair value" using
methods determined in good faith by or at the direction of the Board of
Directors. For these purposes, "fair value" means the price that the
Investment Manager reasonably expects 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.
The Fund utilizes various methods to measure the fair value of most of
its investments on a recurring basis. U.S. generally accepted
accounting principles ("GAAP") establishes a hierarchy that prioritizes
inputs to valuation methods. The three levels of inputs are:
Level 1 - Unadjusted quoted prices in active markets for identical
assets or liabilities that the Fund has the ability to access.
HAWAII MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
Level 2 - Observable inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or
indirectly. These inputs may include quoted prices for the identical
instrument on an inactive market, prices for similar instruments,
interest rates, prepayment speeds, credit risk, yield curves, default
rates and similar data.
Level 3 - Unobservable inputs for the asset or liability, to the extent
relevant observable inputs are not available, representing the Fund's
own assumptions about the assumptions a market participant would use in
valuing the asset or liability, and would be based on the best
information available.
The availability of observable inputs can vary from security to security
and is affected by a wide variety of factors, including for example, the
type of security, whether the security is new and not yet established in
the marketplace, the liquidity of markets, and other characteristics
particular to the security. To the extent that valuation is based on
models or inputs that are less observable or unobservable in the market,
the determination of fair value requires more judgment. Accordingly,
the degree of judgment exercised in determining fair value is greatest
for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purposes, the
level in the fair value hierarchy within which the fair value
measurement falls in its entirety, is determined based on the lowest
level input that is significant to the fair value measurement in its
entirety.
Changes in valuation techniques may result in transfers in/out changing
an investment's assigned level within the hierarchy.
The following is a description of the valuation techniques applied to
the Fund's major categories of financial instruments measured at fair
value on a recurring basis:
Municipal bonds are categorized in Level 2 of the fair value hierarchy.
The following is a summary of the inputs used in valuing the Fund's
investments, as of March 31, 2013. The inputs or methodology used for
valuing securities are not necessarily an indication of the risks
associated with investing in those securities.
Valuation Inputs at Reporting Date:
Description Level 1 Level 2 Level 3 Total
Municipal Bonds $-0- $170,084,589 $-0- $170,084,589
There were no transfers in to and out of Levels 1 and 2 during the
current period presented. There were no purchases, sales issuances, and
settlements on a gross basis relating to Level 3 measurements during the
current period presented.
HAWAII MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
(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 its taxable income, if any, to its shareholders. Therefore,
no federal income tax provision is required.
The Fund has reviewed all open tax years for all major jurisdictions,
which is the Federal jurisdiction, and concluded that there are no
significant uncertain tax positions that would require recognition in
the financial statements. As of September 30, 2012, open Federal tax
years include the tax years ended September 30, 2009 - September 30,
2012. The Fund has no examination in progress and 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 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.
On December 22, 2010, the Regulated Investment Company Modernization Act
of 2010 (the "Act") was enacted. The Act modernizes several of the
federal income and excise tax provisions related to regulated investment
companies such as the Fund, and, with certain exceptions, is effective
for taxable years beginning after December 22, 2010. Among the changes
made are changes to the capital loss carryforward rules allowing for
capital losses to be carried forward indefinitely. Rules in effect as
of the report date limit the carryforward period to eight years.
Capital loss carryforwards generated in taxable years beginning after
effective date of the Act must be fully used before capital loss
forwards generated in taxable years prior to effective date of the
Act; therefore, under certain circumstances, capital loss
carryforwards available as of the report date, if any, may expire
unused. At September 30, 2012, the Hawaii Municipal Fund had a
capital loss carryforward of $1,599,310 of which $547,947 expires in
2017, $120,704 expires in 2018, and $282,754 short-term capital loss
and $647,905 long-term capital loss which do not expire.
The Fund had net capital losses of $103,674 incurred after October 31,
2011. 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.
(D) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
HAWAII MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(E) SHARE VALUATION
The net asset value per share for the Fund is determined by calculating
the total value of the Fund's assets, deducting its total liabilities
and dividing the result by the number of shares outstanding.
(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, respectively. In accordance with the terms of the
management agreement and of 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. For the period ended March 31, 2013,
the Fund was allocated, and paid LFG, $29,861 of the Chief Compliance Officer
fee.
The Fund's distributor, Lee Financial Securities, Inc. ("LFS"), a wholly-owned
subsidiary of LFG, received $130,155 for costs incurred in connection with the
sale of the Fund's shares (See Note 3).
Lee Financial 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 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.
(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.
Rule 12b-1 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.
HAWAII MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
(4) PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities aggregated $7,114,550 and $644,000,
respectively, for the Fund during the period October 1, 2012 through March 31,
2013.
(5) CUSTODY CREDITS
Under an agreement with the Fund's custodian bank, a portion of the 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
six months ended March 31, 2013, such reductions amounted to $10,715 for the
Hawaii Municipal Fund. Credits used to offset expenses were as follows:
Custody fees, $10,715.
(6) TAX COMPONENTS OF CAPITAL AND DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended September
30, 2012 and 2011 were as follows:
Exempt- Long-Term
Interest Ordinary Capital Total
Dividends Income Gains Distributions
--------- -------- --------- -------------
Hawaii Municipal Fund
2012 $5,039,690 $ - $ - $5,039,690
2011 $6,118,746 $ - $ - $6,118,746
The tax character of distributable earnings at September 30, 2012 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 $ - $ - $(1,599,310) $(103,674) $10,158,882 $8,455,898
* 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. The primary difference relates
to the different treatment on amortization of discount for financial
reporting purposes versus tax reporting purposes. For the year-ended
September 30, 2012, the Hawaii Municipal Fund's undistributed
investment income was decreased by $19,301, and accumulated net realized
loss on investments was decreased by $19,301.
HAWAII MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
March 31, 2013 (Unaudited)
--------------------------------------------------------------------------------
(7) NEW ACCOUNTING PRONOUNCEMENTS
In January 2013, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2013-01 Clarifying the Scope of
Disclosures about Offsetting Assets and Liabilities. This update gives
additional clarification to the FASB ASU No. 2011-11 Disclosures
about Offsetting Assets and Liabilities. The amendments in this ASU require an
entity to disclose information about offsetting and related arrangements to
enable users of its financial statements to understand the effect of those
arrangements on its financial position. The ASU is effective for
annual reporting periods beginning on or after January 1, 2013, and interim
periods within those annual periods. The guidance requires retrospective
application for all comparative periods presented. The Fund's management is
currently evaluating the impact ASU 2013-01 will have on the financial
statement disclosures.
(8) SUBSEQUENT EVENTS DISCLOSURE
In preparing the Fund's financial statements as of March 31, 2013, the Fund's
management considered the impact of subsequent events for potential recognition
or disclosure in these financial statements.
HAWAII MUNICIPAL FUND INVESTOR CLASS (Unaudited)
Shareholder Information
Household Delivery of Shareholder Documents: Only one Prospectus, Annual and
Semi-Annual Report will be sent to shareholders with the same last name and
address on their Fund account, unless you request multiple copies. If you would
like to receive separate copies, please call us at (808) 988-8088. We will
begin sending you additional copies within 30 days. If your shares are held
through a service provider, please contact them directly.
Business Continuity Plan Summary Disclosure Statement: First Pacific Mutual
Fund, Inc., Lee Financial Group Inc., Lee Financial Securities, Inc. and Lee
Financial Recordkeeping, Inc. have developed Business Continuity Plans on how
we will respond to events that significantly disrupt our business. Since the
timing and impact of disasters and disruptions is unpredictable, we will have
to be flexible in responding to actual events as they occur. Contacting
Us - If after a significant business disruption you cannot contact us as you
usually do at (808) 988-8088, you should go to our website at
www.LeeHawaii.com. Please visit our website at www.LeeHawaii.com for the
Business Continuity Plan Disclosure Statement.
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, 2011 and
ending June 30, 2012.
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.
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, Ohio 45246
CUSTODIAN
Union Bank, N.A.
350 California Street, 6th Floor
San Francisco, California 94104
LEGAL COUNSEL
Roy W. Adams, Jr.
370 Park Street
Suite 2
Moraga, California 94556
TRANSFER AGENT
Lee Financial Recordkeeping, Inc.
2756 Woodlawn Drive, Suite #6-201
Honolulu, Hawaii 96822-1856
Item 2. Code of Ethics.
The information required by this Item is only required in an annual report on
this Form N-CSR.
Item 3. Audit Committee Financial Expert
The information required by this Item is only required in an annual report on
this Form N-CSR.
Item 4. Principal Accountant Fee and Services.
The information required by this Item is only required in an annual report on
this Form N-CSR.
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 reports 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") (17 CFR 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
(17 CFR 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 of the period covered by this report that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Act (17 CFR
270.30a-2(a)) are furnished herewith.
(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 November 5, 2013
--------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (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 November 5, 2013
---------------------------------
*Print the name and title of each signing officer under his or her signature.