-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VOBHb63A7XBRCwjedbyAY+xyRP4nTOgL9yU31GO/Zxz9zIHv2UwdeCmrv1LfFMX4 A6JtYIwsOEoAPfycc4oCHw== 0000859765-03-000022.txt : 20031020 0000859765-03-000022.hdr.sgml : 20031020 20031020114221 ACCESSION NUMBER: 0000859765-03-000022 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20031020 EFFECTIVENESS DATE: 20031020 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAVILCO INC/WA/ CENTRAL INDEX KEY: 0000859765 IRS NUMBER: 920045958 STATE OF INCORPORATION: AK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06027 FILM NUMBER: 03947280 BUSINESS ADDRESS: STREET 1: ONE UNION SQUARE STREET 2: SUITE 3010 CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 2066246166 N-CSR 1 anncsr.txt CERTIFIED SHAREHOLDER REPORT 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 811-6027 KAVILCO INCORPORATED (Exact name of registrant as specified in charter) 600 UNIVERSITY STREET, SUITE 3010 SEATTLE, WASHINGTON 98101-1129 (Address of Principal executive offices) (Zip Code) Registrant's telephone number, including area code: (206) 624-6166 Date of fiscal year end: December 31 Date of reporting period: January 1, 2002 - December 31, 2002 ITEM 1. ANNUAL REPORT TO SHAREHOLDERS - ------------------------------------- PRESIDENT'S REPORT Dear Shareholders, Welcome to the thirtieth year that our corporation has been in business. A lot of decisions have been made over the years. Those decisions were made not only by the shareholders that were elected Directors, but through ideas expressed by shareholders at our Annual Meetings. There has been a balance of serious and fun times throughout our thirty years of operation. This past year we have been busy trying to secure funds from Congress for the Chief Son-I-Hat Whale House and Totem Park renovation. This effort will be ongoing until we meet with success. Another major undertaking in the works is joining with the Alaska Native Tribal Health Consortium (ANTHC) and the Organized Village of Kasaan to connect the Kavilco shareholder subdivision to water and sewer lines. This will mean developing a totally new water treatment plant and water holding tank along with strategically placed water mains and sewer lines throughout the whole subdivision. This project is funded by the Denali Commission which is funded by a Congressional appropriation. On a serious note, our long time director Rosemarie Trambitas passed away on May 17, 2003. She was involved in the formation of Kavilco in 1973 as one of the incorporators and served on the Board of Directors from 1978 until her passing. She was raised in Kasaan as a child and attended school there. As a director her input and observation were well received and heeded in most cases. She will be very much missed. The Board of Directors received eight resumes from shareholders applying for the vacancy created by Rosemarie's passing. The number of shareholders interested in filling this position demonstrates their interest in what the Corporation is doing and how they may be involved. The selection of a candidate from the resumes submitted was difficult because all of the candidates were equally well qualified. In the end Marie K. Miller was chosen to fill the vacancy. She will attend her first meeting as a director on November 14, 2003 and continue to fulfill Rosemarie's unexpired term, which has two years left. Overall the Corporation is doing as well as can be expected considering the current economic condition. The Board of Directors is staying on top of the financial interest of the company for the benefit of the shareholders, as well as keeping the investing principle intact. I commend the directors for their consistent approach to the long term well being of Kavilco and the interest of its shareholders. My hope for the future is that it finds all of our shareholders in good health and maintaining an interested in their company, as always. Sincerely, /s/ Louis A. Thompson Louis A. Thompson Chief Executive Officer CHIEF FINANCIAL OFFICER'S REPORT Dear Shareholders, What an amazing and historical breaking year 2002 has been. The Dow Jones Industrials have been down three years in a row. The last time this happened was in 1939-1941. Those were the years when Germany was winning the war, and it appeared that the Nazis had a good chance of taking over the world. Britain alone stood between the Nazis and their total conquest of Europe, while Japan threatened all of Asia. There was only one time when the Dow declined for four consecutive years and that was during 1929-1932. Those four years forecast the worst depression in US history. At the deepest depth of the depression one-third of the nation was unemployed, and the Gross Domestic Product had dropped in half. What could the current three and possible four consecutive years of stock market decline mean? I don't know but it doesn't sound encouraging. How did Kavilco do in the stock market in 2002? We had one strategy that beat all others and that was cash. The funds that were approved for stock market investments was held in a Money Market account and earned an average +1.7% interest. That was a lot better than the -20.90% loss on the Wilshire 5000 Stock Index (since the beginning of the bear market this index, which includes all stocks, has dropped a staggering 43%). So is it time to invest in stocks now after the devastation that took place in the stock market? Every bull market in history has started when stocks were at great values. Historically, great values have been characterized by two phenomena-low price/earnings ratios (P/E) and high dividend yields. Since World War II, there have been thirteen bear markets and the average P/E ratio and dividend yield at the end of these bear markets were 11.0 and 4.7%, respectively. So where was the market at the end of 2002? The P/E was 29.1 with a dividend yield of 1.75%. However, it should be noted that at the peak of this bull market the P/E was an unprecedented 61.87. Compare this to the 50-year average P/E of 13.21. As you can see, we have a long way to go before the excesses of the stock market mania are finally purged. Turning our attention bonds, how did the bond market do? It is still in a primary bull market. This simply means that interest rates continued on their downward slide. Granted, our portfolio has increased in value, but declining interest rates severely restrict our investment opportunities. For example, in 2002 $4 million worth of bonds matured or were sold from our portfolio, yielding over 7%. As of year-end, only highly speculative corporate bonds (junk bonds) were yielding 7%. It should be noted that our investment policy precludes us from investing in speculative bonds. In an attempt to partially offset this re-investment problem the board approved a strategy whereby we would actively trade the 10-year Treasury Bonds. This is a very liquid security that may afford us an opportunity to make capital gains on short swings in interest rates. During 2002 three unique financial events occurred that played a major role in your dividend. First, due to a computer glitch, interest income was overstated by $103,000. This was discovered after the November dividend payment. The Second event was a rent-for-land swap deal with Rayonier Timber. Rayonier owed us $120,000 for back rent on our log storage site. In lieu of payment we obtained property and a mining claim that was contiguous to our property. Lastly, with the re-investment problem discussed above, you can see that making up for this deficit in earnings in a low interest rate environment will be nearly impossible. In addition to the events listed above, the corporate bond portfolio had its own set of problems. In the late 1990's the strategy for the bond portfolio was capital preservation. We invested in what we considered strong companies that could weather the economic fallout from the inevitable stock market crash. However, there is no strategy that can avoid corporate fraud. This was the case with Qwest Communications. Our initial investment was in U.S. West Communications, which was acquired by Qwest Communications. Recently, four corporate officers of the company were indicted for fraudulently inflating revenues. The company is under SEC investigation and the financial shenanigans could force the company into bankruptcy. The good news is that the company is under new management and they are in the process of liquidating assets in order to satisfy debt obligations. This is a wait-and-see situation since sales of this security would result in a major loss. So far we have made it through these devastating financial times without sustaining any losses. Financial losses are one thing, but personal losses are quite another. Rosemarie Trambitas was dearly loved and an integral part of Kavilco. It is hard to believe that her loss would have impacted me the way it has when I only saw her 12 days out of the year. I can only attribute this to her wonderful sense of humor and her concern over my personal as well as professional life. During her valiant fight against the disease that eventually took her life she never lost sight of her responsibilities as a Board member. There were meetings when she was too weak to stand, yet she actively participated in the decision making process. She was a very strong woman who truly cared about Kavilco and I will dearly miss her. Sincerely, /s/ Scott Burns Scott Burns Chief Financial Officer
DIVIDEND DISTRIBUTIONS 1980 Initial Distribution $3,000,000 1981 Debenture 1,200,000 1981 Alaska Native Fund 283,282 1982 Debenture 1,200,000 1983 Alaska Native Fund 69,940 1983 Debenture 1,200,000 1984 Debenture 1,200,000 1984 Dividend 120,000 1985 Debenture 1,200,000 1986 Dividend 120,000 1986 Debenture 1,200,000 1987 Debenture 1,200,000 1987 Property Dividend 236,066 1987 Dividend 120,000 1988 Debenture 1,200,000 1989 Debenture 1,200,000 1989 Dividend 240,000 1990 Debenture 1,200,000 1990 Dividend 600,000 1991 Dividends 1,080,000 1992 Dividends 960,000 1993 Dividends 1,212,000 1994 Dividends 1,248,300 1995 Dividends 1,728,000 1996 Dividends 1,927,680 1997 Dividends 1,992,000 1998 Dividends 1,956,003 1999 Dividends 2,027,160 2000 Dividends 1,811,000 2001 Dividends 1,932,000 2002 Dividends 1,764,000 ------------ TOTAL DISTRIBUTIONS $36,427,431 ============ PER SHARE (12,000 shares total) $3,036.00 IF YOU HELD 100 SHARES SINCE 1980 YOU HAVE RECEIVED $303,600.00
[ANDERSON ZURMUEHLEN & CO., P.C. LETTERHEAD] INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Kavilco Incorporated (an investment company) We have audited the accompanying statement of assets and liabilities of Kavilco Incorporated (an investment company), including the schedule of investments, as of December 31, 2002, and the related statements of operations and changes in net assets for the year then ended, and the financial highlights of the year then ended. These financial statements and financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the year ended December 31, 2001 and the financial highlights for each of the four years in the period ended December 31, 2001, were audited by other auditors whose report dated February 15, 2002, expressed an unqualified opinion on that statement and those highlights. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Kavilco Incorporated as of December 31, 2002, the results of its operations, the changes in its net assets, and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. /s/Anderson ZurMuehlen & Co., P.C. Seattle, Washington January 28, 2003
KAVILCO INCORPORATED (an investment company) STATEMENT OF ASSETS AND LIABILITIES December 31, 2002 ------------------------------------ ASSETS Investments in securities, at market value (identified cost $33,110,795) $ 35,452,530 Real estate at fair value 3,588,815 Cash and cash equivalents 113,756 Interest receivable 544,028 Premises and equipment, net 10,471 Prepaid expenses and other assets 34,190 ------------ Total assets 39,743,790 ------------ LIABILITIES Accounts payable and accrued expenses 20,520 ------------ Total liabilities 20,520 ------------ COMMITMENTS AND CONTINGENCIES Net assets $ 39,723,270 ============ Net assets consist of: Undistributed net investment income 74,516 Unrealized appreciation on Investments 2,341,735 Real estate 2,534,726 Contributed capital 34,772,293 ------------ Net assets $ 39,723,270 ============ Net asset value per share of common stock divided by 12,000 shares outstanding) $ 3,310.27 ============ The Notes to Financial Statements are an integral part of this statement
KAVILCO INCORPORATED (an investment company) SCHEDULE OF INVESTMENTS December 31, 2002 ----------------------- Principal Market amount/sha value res INVESTMENTS IN SECURITIES - 89.2% OF NET ---------- --------- ASSETS --- --- U.S. GOVERNMENT SECURITIES - 24.6% United States Treasury Notes, 7.25% due August 15, 2004 5,000,000 $ 5,469,950 United States Treasury Notes, 2.000% due November 30, 2004 1,000,000 1,008,459 Federal National Mortgage Association, 6.210% due November 7, 2007 1,000,000 1,140,350 Federal National Mortgage Association, 6.150% due December 10, 2007 1,000,000 1,138,628 United States Treasury Bond, 4.000% due November 15, 2012 1,000,000 1,015,061 --------- --- Total U.S. government securities (cost 9,772,448 $8,961,934) --------- --- CORPORATE OBLIGATIONS - 53.3% Auto and truck - 4.5% General Motors Corp., 7.700% due April 15, 1,000,000 1,011,014 2016 Ford Motor Company, 6.625% due February 15, 1,000,000 794,948 2028 Banking - 5.6% Chase Manhattan Corp., 7.875% due July 15, 1,000,000 1,137,714 2006 J.P. Morgan Chase & Co., 6.500% due January 1,000,000 1,073,242 15,2009 Beverage (soft drink) - 2.2% Coca-Cola Enterprises, 8.500% due February 700,000 890,816 1, 2012 Diversified financial services - 3.1% General Electric Cap Corp., 8.500% due July 1,000,000 1,217,262 24, 2008 Electric utility - 5.0% Nisource Financial Corp., 7.500% due 1,000,000 1,010,000 November 15, 2003 Potomac Electric Power Co., 6.500% due March 190,000 207,184 15, 2008 Northern States Power Co., 6.500% due March 1,000,000 775,000 1, 20028 Entertainment - 0.8% Walt Disney Company, 5.800% due October 27, 290,000 312,653 2008 Finance - auto loans - 2.1% General Motors Acceptance Corp., 6.625% due 827,000 855,759 October 15, 2005 Financial services - 2.7% Marsh & McLennan Co., 6.625% due June 15, 1,000,000 1,060,148 2004 Food processing - 6.2% Unilever Capital Corp., 6.750% due November 1,000,000 1,042,061 1, 2003 Heinz Corp., 6.000% due March 15, 2008 229,000 254,585 Hershey Foods, 6.950% due August 15, 2012 1,000,000 1,175,376 Petroleum (integrated) - 2.6% Texaco Capital, Inc., 5.700% due December 1, 975,000 1,048,495 2008 Retail store - 3.3% Wal-Mart Stores, 6.875% due August 10, 2009 1,000,000 1,167,544 Dayton Hudson, 8.600% due January 15, 2012 100,000 127,460 Securities brokerage - 9.0% Bear Stearns Co., 6.150% due March 2, 2004 172,000 180,290 Paine Webber Group, Inc., due March 15, 2005 1,000,000 1,121,776 Merrill Lynch & Co., 6.375% due October 15, 1,000,000 1,111,843 2008 Bear Stearns Co., 7.625% due December 7, 1,000,000 1,160,625 2009 Telecommunication services - 6.2% Pacific Bell, 6.125% due February 15, 2008 1,000,000 1,100,490 GTE Corp., 6.460% due April 15, 2008 500,000 543,222 US West Communications, Inc., 7.500% due 1,000,000 800,000 June 15, 2003 --------- --- Total corporate obligations (cost 21,179,50 $19,738,633) 7 --------- --- COMMON STOCK - 0.3% Technology - 0.3% Microsoft Corp. 2,720 140,624 --------- --- Total common stock (cost $50,277) 140,624 --------- --- SHORT-TERM INVESTMENTS - 11.0% Prime Obligation Funds 4,359,951 4,359,951 --------- --- Total short-term investments (cost 4,359,951 $4,359,951) --------- --- Total investments in securities $ (identified cost $33,110,795) 35,452,53 0 ========= === The Notes to Financial Statements are an integral part of this statement.
KAVILCO INCORPORATED (an investment company) STATEMENT OF OPERATIONS Year Ended December 31, 2002 ---------------------------- Investment income Interest $ 2,174,979 Dividends from money market fund 52,112 Dividends 193 ----------- Total investment income 2,227,284 ----------- Expenses Salaries and benefits 287,784 Directors' compensation and expenses 214,244 Legal and accounting 31,734 Custodian 11,474 Insurance expense 49,119 Office and equipment leases 78,011 General and administrative 70,537 ----------- Total expenses 742,903 ----------- Net investment income 1,484,381 ----------- Realized and unrealized gain on investments Net realized gain on investments 130,140 Net increase in unrealized appreciation on investments 468,842 ----------- Net realized and unrealized gain on investments 598,982 ----------- Net operating income 2,083,363 --------- Rental income 149,598 Other income 36,256 --------- Net other income 185,854 --------- Net increase in net assets resulting from operations $2,269,217 =========== The Notes to Financial Statements are an integral part of this statement.
KAVILCO INCORPORATED (an investment company) STATEMENTS OF CHANGES IN NET ASSETS Years Ended December 31, 2002 and 2001 -------------------------------------- 2002 2001 ----------- ----------- -- -- Increase (decrease) in net assets from operations Net investment income $ $ 1,484,381 1,800,745 Net realized gain (loss) on investments 130,140 (6,821) Net increase in unrealized appreciation 468,842 851,752 Net other income 185,854 56,913 Net increase in net assets resulting ----------- ----------- -- -- from operations 2,269,217 2,702,589 ----------- ----------- -- -- Dividends and distributions Net investment income (1,403,937) (1,919,156) Net realized gain on investments (130,140) - Net other income (229,923) (12,844) ----------- ----------- -- -- (1,764,000) (1,932,000) ----------- ----------- -- -- Total increase in net assets 505,217 770,589 Net assets Beginning of year 39,218,053 38,447,464 ----------- ----------- -- -- End of year (including undistributed net investment income of $74,516 and $45,331, respectively) $ $ 39,7223,270 39,218,053 =========== =========== == == The Notes to Financial Statements are an integral part of these statements.
KAVILCO INCORPORATED (an investment company) FINANCIAL HIGHLIGHTS Years Ended December 31, 1998 - 2002 ------------------------------------ Per share operating performance (for a share of capital stock outstanding throughout the period): 2002 2001 2000 1999 1998 Net asset value, ------- ------- ------- ------- ------- -- -- -- -- -- beginning of year $3,268. $3,203. $2,901. $3,123. $3,046. 17 96 74 38 78 ------- ------- ------- ------- ------- -- -- -- -- -- Income from investment operations Net investment income 123.70 150.06 150.10 157.47 152.07 Net realized and unrealized gain (loss) 49.91 70.41 300.65 (212.90 85.86 ) Net other income 15.49 4.74 3.47 2.72 1.67 ------- ------- ------- ------- ------- -- -- -- -- -- Total from investment operations 189.10 225.21 454.22 (52.71) 239.60 ------- ------- ------- ------- ------- -- -- -- -- -- Less dividends and distributions from Net investment income (116.99 (159.93 (144.40 (157.47 (152.07 ) ) ) ) ) Net realized gain on (10.85) - (4.13) (8.10) (9.26) investments Net other income (19.16) (1.07) (3.47) (2.72) (1.67) Return of capital - - - (.64) - ------- ------- ------- ------- ------- -- -- -- -- -- Total distributions (147.00 (161.00 (152.00 (168.93 (163.00 ) ) ) ) ) ------- ------- ------- ------- ------- -- -- -- -- -- Net asset value, end of $3,310. $3,268. $3,203. $2,901. $3,123. year 27 17 96 74 38 ======= ======= ======= ======= ======= == == == == == Total return (%) 5.79 7.54 16.05* (1.42) 7.86 Ratios/supplemental data Net assets, end of year (in thousands)($) 39,732 39,218 38,447 34,821 37,481 Ratio to average net assets (%) Expenses 1.88 1.78 1.88 1.85 1.84 Net investment income 3.75 4.54 5.07 5.41 4.93 Portfolio turnover rate 9.6 3.0 27.6 0.2 0.1 (%) *8.40% of 16.05% is a result of unrealized appreciation on real estate The Notes to Financial Statements are an integral part of these statements.
NOTES TO FINANCIAL STATEMENTS December 31, 2002 NOTE 1. ORGANIZATION - -------------------- Kavilco Incorporated (the Company) is a village corporation within the Sealaska region organized pursuant to the Alaska Native Claims Settlement Act ("ANCSA"). Contributed capital includes receipts from the U.S. government and the state of Alaska under provisions of ANCSA. Under Section 12(a) of ANCSA, on December 5, 1979 the Company received entitlement to the surface estate of real property totaling approximately 23,055 acres. In 1987, 194 acres of the Company's real property were distributed to shareholders, and the timber rights on the remaining 22,861 acres were sold. However, the Company retains all other rights to the surface estate of the real property. The sale of the timber rights contract expired in December 2001, and the timber rights reverted back to the Company. However, at that time, there were no stands of economically viable timber remaining on the property. Since selling the timber rights, the Company has derived the majority of its income from investments. On November 1, 1989, the Company began to operate as a self- managed, closed-end management investment company, as defined by the Investment Company Act of 1940 (the "Act"). The Company is subject to various restrictions imposed by the Act and the Internal Revenue Code, including restrictions on borrowing, dividend and distribution policies, operations and reporting requirements. The Company's investment decisions, which focus primarily on fixed income investments, are made by management under the direction of the Board of Directors. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------- The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for investment companies. The following is a summary of the significant accounting policies consistently followed by the Company in the preparation of these financial statements. SECURITY VALUATION: Investments in securities consist primarily of U.S. government securities, corporate obligations and common stock. Investments in securities traded on a national securities exchange (or reported on the NASDAQ national market) are stated at the last reported sales price on the day of valuation; other securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are stated at the last quoted bid price. INVESTMENT TRANSACTIONS: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. INVESTMENT INCOME: Interest income is recorded on an accrual basis as adjusted for the amortization of discounts and premiums using the effective interest method. Premiums and discounts, including original issue discounts, are amortized for both tax and financial reporting purposes. Dividend income is recorded as of the ex-dividend date. REAL ESTATE: Real estate is carried at fair value as determined in good faith by the board of directors. Real estate represents entitlement to the surface estate of real property described in Note 1, for which no readily available market quotation exists. The real estate was initially recorded by the Company at its appraised value at the date of conveyance ($934,089). In order to estimate the fair value of this real property, the board of directors has considered such relevant factors as the lack of commercially viable timber due to previous harvest, amount of capital expenditures required for future growth of timber, location of the property, recent sales of similar real property in the region and market demand and supply for this type of real property during the valuation process. In addition to the above consideration, the board of directors engaged a Certified Forester (the "Forester") to provide an estimate of the value of the real property in year 2002. The board of directors estimated the fair value of this real property at December 31, 2002 to be $3,468,815 on the basis of good faith consideration of both the aforementioned pertinent factors and the analysis performed by the Forester. In addition, during the year 2002, the Company received an additional 89.24 acres in the process of closing out the timber sale contract, in payment of a past due rent obligation that was owed to the Company. The value of this additional land was estimated by the Forester to be $120,000, for a total land value of $3,588,815 at December 31, 2002. Based on the inherent uncertainty of valuation, however, this estimated value may differ significantly from the value that would have been used had a ready market for the real property existed, and the difference could be material. FEDERAL INCOME TAXES: The Company's policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its net investment taxable income to its shareholders. Therefore, no federal income tax provision is required for the Company. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends and distributions to shareholders are recorded on payable date. Dividends are generally declared and paid twice a year. Capital gain distributions are generally declared and paid annually. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with accounting principles generally accepted in the United States of America. USE OF ESTIMATES: The preparation of financial statements in accordance 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 and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. NOTE 3. INVESTMENTS - ------------------- Purchases of investment securities (consisting of U.S. government securities and corporate obligations) aggregated $4,063,171 for the year ended December 31, 2002, and sales and maturities of investment securities (consisting of corporate obligations and common stock) aggregated $7,035,154 for the year ended December 31, 2002. NOTE 4. PREMISES AND EQUIPMENT - ------------------------------ Buildings and equipment are recorded at cost less accumulated depreciation. Depreciation is computed generally on the straight- line method over the estimated useful lives of the related assets, which range from 5 to 15 years. Building $154,369 Furniture, fixtures and equipment 93,844 -------- 248,213 Less accumulated depreciation (237,742) --------- $ 10,471 =========
NOTE 5. LEASE OBLIGATION - ------------------------ The Company leases office space under a non-cancelable operating lease agreement, which terminates September 30, 2003. Rent expense for the year ended December 31, 2002 was $50,064, which has been included in the general and administrative expenses. At December 31, 2002, future minimum lease commitments under the non-cancelable operating lease total $31,131 in 2003. NOTE 6. NET ASSETS - ------------------ The Company's capital structure is as follows: Common Stock Class A, no par value - Authorized, 1,000,000 shares; issued and outstanding, 11,596.83 shares Class B, no par value - Authorized, 500,000 shares; issued and outstanding, 403.17 shares Upon organization, 100 shares of common stock (Class A) were issued to each qualified shareholder enrolled in the Company pursuant to ANCSA. The Company utilized a roll comprising 120 Alaska Natives eligible to receive stock certificates as certified by the U. S. Secretary of the Interior. Under the provisions of ANCSA, stock dividends paid or other stock grants are restricted, and the stock may not be sold, pledged, assigned, or otherwise alienated, except in certain circumstances by court decree or death, unless approved by a majority of the shareholders. (Before the Company's stock may be publicly traded, it must amend its Articles of Incorporation.) The stock carries voting rights only if the holder hereof is an eligible Alaska Native. Nonvoting common stock (Class B) is issued to non-Native persons who inherit stock. The following reclassifications have been made to reflect activity for the year ended December 31, 2002: Undistributed Accumulated net net investment realized Contributed income gain capital ------------- ------------ --------------- (367) - 367
NOTE 7. TAX BASIS OF DISTRIBUTABLE INCOME - ----------------------------------------- At December 31, 2002, the amount of undistributed ordinary income for tax purposes aggregated $87,640. During the year ended December 31, 2002, $1,633,860 of the Company's distributions comprised ordinary income, and $130,140 were considered long-term capital gains. The tax cost of investments is the same as for financial reporting purposes. The gross unrealized appreciation and gross unrealized depreciation on a tax basis is $2,942,607 and $600,872 respectively. NOTE 8. PENSION PLAN - -------------------- Employees of the Company are covered by a defined contribution pension plan. The Company contributes 20% of each participant's compensation to the plan. The Company's contributions during the year ended December 31, 2002 totaled $47,964. ITEM 2. CODE OF ETHICS - ------------------------ Kavilco adopted a code of ethics on January 29, 1990. That code of ethics was amended on November 10, 2000 and is attached hereto under Item 10. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT - ------------------------------------------ Kavilco Incorporated is subject to the Alaska Native Claims Settlement Act (Act). Pursuant to the Act, Kavilco's stock and dividends may not be sold, pledged, subjected to a lien or judgement execution, assigned in present or future, or otherwise alienated, except pursuant to a court decree of separation or child support. However, the stock can be gifted to a relative provided the recipient is a descendant of an Alaska Native. The Chief Financial Officer has no control over the financial records of the corporation. The Corporate Secretary maintains the accounting records. Monthly, an independent accountant performs various reconciliation's and adjusting journal entries on the corporate books and records. Kavilco does not have an audit committee. The CFO reviews the entire audited financial statement and various CPA correspondences with the board of directors. Two board members have degrees in business. However, pursuant to SEC regulations their experience would not qualify them as financial experts. The only contentious financial issue that Kavilco has had to deal with since becoming and Investment Company involves the evaluation of our land holdings in Alaska. After a two-year battle with our previous auditors, PricewaterhouseCoopers, and pressure by the Security Exchange Commission, the Board relented and increased the value of our land holdings. The CFO opposed this action because it served no practical purpose. The primary purpose of a financial expert serving on the board of directors is to prevent the gross accounting inequities that were driven by greed and outright thievery at such firms as Qwest Communications, Enron, and Tyco. There is no incentive on behalf of management to commit fraud since Kavilco's stock cannot be publicly traded and we do not have compensation incentives. More importantly, the board of directors is not a rubber stamp for management. Many of the shareholders are related to the directors, which acts as an additional incentive to have a high degree of business probity. Kavilco is celebrating its thirty-year anniversary and has never been involved in financial deceit. This superior track record can only be attributed to the excellent oversight of an active and knowledgeable board of directors. Accordingly, Kavilco does not have an audit committee or a financial expert as defined by the SEC. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES - ------------------------------------------------ Kavilco paid Anderson ZurMuehlen & Company, P.C. $2,500 for income tax preparation and $13,500 for audit services for the fiscal year ended December 31, 2002 for a total of $16,000. For the fiscal year ended December 31, 2001, Kavilco paid PricewaterhouseCoopers, LLP $24,019 for audit fees and $9,500 in other fees for a total of $33,519. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS - ----------------------------------------------- Not applicable. ITEM 6. RESERVED - ------------------ ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES - ---------------------------------------------------------------- This issue will be considered for adoption at our November 15, 2003 Board of Director's meeting. ITEM 8. RESERVED - ------------------ ITEM 9. CONTROLS AND PROCEDURES - --------------------------------- (a) The registrant's President and Chief Financial Officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-2 under the Investment Company Act of 1940) are effective in design and operation and are sufficient to form the basis of the certifications required, based on their evaluation of these disclosure controls and procedures within 90 days of the filing date of this report. (b) There were no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEM 10. EXHIBITS - ------------------ (a) Code of Ethics (b)(1) CEO Certification (b)(2) CFO Certification SIGNATURES - ---------- 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 Kavilco Incorporated and in the capacities and on the dates indicated. By /s/Louis A. Thompson Louis A. Thompson Chief Executive Officer October 15, 2003 By /s/Scott Burns Scott Burns Chief Financial Officer October 15, 2003 EX-99.CODE ETH 3 ethics.txt CODE OF ETHICS KAVILCO INCORPORATED RESOLUTION 11-10-00-b: ACCESS TO SECURITIES AND CODE OF ETHICS BY KAVILCO INCORPORTATED, A REGISTERED INVESTMENT COMPANY --------------------------------------------------------------------- WHEREAS, Kavilco Incorporated (the "Company") is an Alaska Native Village Corporation that became registered with the U.S. Securities and Exchange Commission ("SEC") on January 29, 1990 as a registered investment company under the Investment Company Act of 1940 (the "Act"); and WHEREAS, as a registered investment company, the Company is subject to the various provisions of the Act and rules and regulations promulgated thereunder and the Company hereby desires to adopt certain resolutions in accordance with the requirements of the Act, rules and regulation; NOW, THEREFORE, IT IS HEREBY RESOLVED, that the following resolutions are hereby adopted effective as of November 10, 2000: 1. Pursuant to Section 17(f) of the Act and Rule 17f-2 thereunder, no person shall be authorized or permitted to have access to the securities and similar investments of the Company that are deposited in the safekeeping of, or in a vault or other depository maintained by, a bank or other company whose functions and physical facilities are supervised by Federal or State authority except Louis A. Thompson and Scott Burns, the Company's President and Chief Financial Officer, respectively, and access to such securities and similar investments shall be had only by such persons jointly. 2. Pursuant to Section 17(j) of the Act and Rule 17j-1 (b)(1) thereunder, the Company hereby adopts the following provisions as its written code of ethics ("Code of Ethics"): a. No director, officer or employee of the Company who, in connection with his or her regular functions or duties, makes, participates in, or obtains any information regarding the purchase or sale of a security or similar investment by the Company, or whose functions relate to the making of any recommendations with respect to such purchases or sales, nor any natural person in a control relationship to the Company who obtains information concerning recommendations with respect to such purchase or sale of a security or similar investment ("access persons"), shall, in connection with the purchase or sale, directly or indirectly, by such person of a security or similar investment held or to be acquired by the Company: (1) Employ any device, scheme or artifice to defraud the Company; (2) Make to the company any untrue statement of a material fact or omit to state to the Company a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; (3) Engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon the Company; or (4) Engage in any manipulative practice with respect to the Company. b. To further prevent access persons from engaging in any act, practice or course of business prohibited by paragraphs (1) through (4) above, the following procedures are hereby adopted: (1) Every access person of the Company shall report to the Company within ten days after the person becomes an access person with respect to any security or similar investment in which such access person has any direct or indirect beneficial ownership as of the date the person became an access person, and every such report shall contain the following information: (A) The title, number of shares and the principal amount of each such security or other investment; (B) The name of any broker, dealer or bank with whom the access person maintained an account in which any securities were held for the direct or indirect benefit of the access person; and (C) The date that the report is submitted by the access person. (2) Every access person of the Company shall report to the Company with respect to transactions in any security or similar investment in which such access person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership in the security or similar investment and every such report shall be made not later than 10 days after the end of the calendar quarter in which the transaction to which the report relates was effected and shall contain the following information: (A) The date of the transaction, the title, the interest rate and maturity date (if applicable), and the number of shares and the principal amount of each security or other investment involved; (B) The nature of the transaction (that is, purchase, sale or any other type of acquisition or disposition); (C) The price at which the transaction was effected; (D) The name of the broker, dealer or bank with or through whom the transaction was effected; and (E) The date that the report is submitted by the access person. (3) Every access person of the Company shall report to the Company annually with respect to any security or similar investment in which such access person has any direct or indirect beneficial ownership as of the date not more than 30 days before the report is submitted, and every such report shall contain the following information: (A) The title, number of shares and the principal amount of each such security or other investment; (B) The name of any broker, dealer or bank with whom the access person maintained an account in which any securities were held for the direct or indirect benefit of the access person; and (C) The date that the report is submitted by the access person. (4) The Company shall identify all access persons who are under a duty to made such reports to it and shall inform such persons of such duty. (5) No employee of the Company who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by the Company, nor any natural person in a control relationship to the Company who obtains information concerning recommendations with respect to such purchase or sale of a security or similar investment, may directly or indirectly acquire beneficial ownership of any securities in an initial public offering or a limited offering without the prior approval of the Company. For purposes of this paragraph, the term "initial public offering" means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or15(d) of the Securities Exchange Act of 1934. For purposes of this paragraph, the term "limited offering" means an offering that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) or pursuant to Rule 504, Rule 505 or Rule 506 under the Securities Act of 1933. (6) The Company shall, at its principal place of business, maintain records in the manner and to the extent set forth below, and make such records available to the SEC or any representative thereof at any time and from time to time for reasonable periodic, specimen or other examination: (A) A copy of this Code of Ethics or any other code of ethics which is then in effect, or at any time within the then past five years has been in effect, and any such code of ethics shall be preserved in an easily accessible place; (B) A record of any violation of any such code of ethics, and of any action taken as a result of such violation, shall be preserved in an easily accessible place for a period of not less than five years following the end of the fiscal year of the Company in which any such violation occurs; (C) A copy of each report made by an access person pursuant to this Code of Ethics shall be preserved for period of not less than five years from the end of the fiscal year of the Company in which it is made and for the first two years thereof shall be preserved in an easily accessible place; and (D) A list of all persons who are at any time, or within the past five years from the then present time have been, required to make reports pursuant to this Code of Ethics shall be maintained in an easily accessible place. 3. The foregoing resolutions are intended to supersede Resolution No. 90-05-01 adopted by the Board of Directors of the Company effective as of January 29, 1990. /s/ Louis A. Thompson /s/ John Campbell Louis A. Thompson, President John Campbell, Secretary (Corporate Seal) EX-99.CERT 4 ceocertann.txt CHIEF EXECUTIVE OFFICER CERTIFICATION [KAVILCO INCORPORATED OFFICE LETTERHEAD] Certification Required by Rule 30a-2 Investment Company Act of 1940 I, Louis A. Thompson, Chief Executive Officer, certify that: 1. I have reviewed this report on Form N-CSR of Kavilco Incorporated (Kavilco); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of Kavilco as of, and for, the periods presented in this report; 4. Kavilco's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2(c) under the Investment Company Act) for Kavilco and have: a) designed such disclosure controls and procedures to ensure that material information relating to Kavilco, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and; c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. Kavilco's other certifying officers and I have disclosed, based on our most recent evaluation, to Kavilco's auditors and the audit committee of Kavilco's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect Kavilco's ability to record, process, summarize, and report financial data and have identified for Kavilco's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in Kavilco's internal controls; and 6. Kavilco's other certifying officer and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/Louis A. Thompson Louis A. Thompson Chief Executive Officer October 15, 2003 EX-99.CERT 5 cfocertann.txt CHIEF FINANCIAL OFFICER CERTIFICATION [KAVILCO INCORPORATED OFFICE LETTERHEAD] Certification Required by Rule 30a-2 Investment Company Act of 1940 I, Scott Burns, Chief Financial Officer, certify that: 1. I have reviewed this report on Form N-CSR of Kavilco Incorporated (Kavilco); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of Kavilco as of, and for, the periods presented in this report; 4. Kavilco's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2(c) under the Investment Company Act) for Kavilco and have: a) designed such disclosure controls and procedures to ensure that material information relating to Kavilco, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and; c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. Kavilco's other certifying officers and I have disclosed, based on our most recent evaluation, to Kavilco's auditors and the audit committee of Kavilco's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect Kavilco's ability to record, process, summarize, and report financial data and have identified for Kavilco's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in Kavilco's internal controls; and 6. Kavilco's other certifying officer and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/Scott Burns Scott Burns Chief Financial Officer October 15, 2003 -----END PRIVACY-ENHANCED MESSAGE-----