-----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, ERsaJS29jARNR1TK0UxCGUzvxqcaYfmkSGlCFrFR4hfJSBGyGBTQHr/SywnOV5NK daqNkWrpXX0u8z/PIgZHFQ== 0000859765-05-000025.txt : 20051006 0000859765-05-000025.hdr.sgml : 20051006 20051006122035 ACCESSION NUMBER: 0000859765-05-000025 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20051006 DATE AS OF CHANGE: 20051006 EFFECTIVENESS DATE: 20051006 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: 051126634 BUSINESS ADDRESS: STREET 1: ONE UNION SQUARE STREET 2: SUITE 3010 CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 2066246166 N-CSR 1 annrpt1005.txt ANNUAL 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, 2004 Date of reporting period: December 31, 2004 ITEM 1. ANNUAL REPORT TO SHAREHOLDERS - ------------------------------------------------------------------------------- 2005 Annual Meeting of Shareholders Location: Ted Ferry Civic Center 888 Venetia Way Ketchikan, Alaska Date: November 5, 2005 Time: 1:00 p.m. PRESIDENT'S REPORT - ------------------------------------------------------------------------------- Dear Shareholders, Welcome to our 32nd year since incorporating as a profit-making corporation under the passage of the 1971 Alaska Native Claims Settlement Act (ANCSA). It has been an experience of a lifetime for me to have served as your President since 1972 (as the interim President for that year and as President after incorporating on November 1973). The Board of Directors and management have been looking at every possibility for investments within our corporate Board policy as well as compliance to being a federally registered investment company under the Securities and Exchange Commission. The investment rules are very well defined in both documents and gives us what type of safe investments we can make. Our strategy is to carefully invest to get the best possible returns for a reasonable dividend to you, the shareholder. Work still continues on trying to secure funding to restore Chief-Son-I-Hat's Whale House and Totem Park. I am confident at some point that we will find the right combination of organizations to assist us. Right now the federal government seems to be short for funding projects of this nature. This could change and maybe we will be able to get an appropriation that will cover all costs for a total reconstruction of this project. This year, cleanup and removal of the sawmill in Kasaan will be accomplished. This will end the lease we have had for 15 years with the Ensleys. This sawmill, during the time it was in operation, created lumber for local consumption, as well as employment opportunities for local residents. Currently, we have been working on an agreement with a minerals company to allow exploration on the 89-plus acres of the Skookum and Copper Queen claims that we purchased from Rayonier Timber a few years ago; about the time they finished up their harvest contract with Kavilco. This will be a revenue-producing agreement for Kavilco. We will give more information at a later time. It appears, by the way, that liquidating our timber for cash, and by managing a financial portfolio and becoming a federally regulated company, has been a blessing for our shareholders' long-lasting, semi-annual dividend program. During our November 5, 2005 Annual Meeting of Shareholders we will be able to expand more on what is ongoing, and answer any questions that you may have. The Board of Directors and management will continue to strive for the best returns on the financial portfolio and other projects that will enhance a value for the company. Best wishes to you, the shareholder, for good health and we will see you at the November 5, 2005 32nd Annual Meeting. Sincerely, /s/ Louis A. Thompson Louis A. Thompson President/Chief Executive Officer CHIEF FINANCIAL OFFICER'S REPORT - ------------------------------------------------------------------------------- Dear Shareholders, Let's start off looking at the economic events of 2004. The Gross Domestic Product (GDP), a measure of the market value of all goods and services produced in the U.S., grew at an inflation adjusted rate of 4.4%. The civilian unemployment rate fell from 5.7% by year-end 2003 to 5.4% by year-end 2004. The good economic news and possible inflationary pressures woke up the Federal Reserve (Fed). The Fed raised the fed funds rate, an important benchmark for borrowing, on five occasions during the past year from 1% (the lowest level in 46 years) to 2.25%. Historically, long-term interest rates rise when the U.S. economy is strong, and fall when it is weak. The logic is simple: Rising growth is normally accompanied by inflation pressures and strengthening demands for credit. In turn, those factors put upward pressure on interest rates. But the pattern of long-term rates in the latest cyclical has been reversed. The years 2001 and 2002 saw lower inflation and weaker growth but higher long-term interest rates than we have today. However, as economic growth and inflation accelerated over the past two years, rates have fallen. So what gives? Let's see if the all-wise and powerful chairman of Fed, Alan Greenspan, can give us some insight. In congressional testimony in early 2005, when asked why long-term interest rates are so low, Mr. Greenspan famously stated that this was a "conundrum" (any puzzling question or problem). If the oracle of monetary policy doesn't have a clue than who does? The worldwide financial community has debated this issue and the one theory that seems to best explain the Fed's conundrum on low interest rates is the so-called savings glut outside the U.S. We have a massive and unprecedented international deficit while the rest of the world has huge surpluses. The basic tenet of capitalism is that money will flow to the highest return. Accordingly, this huge pool of capital must be invested, and more of such capital flows into bonds as opposed to equities. Now here's the shocker, comparable interest rates outside the U.S. are even lower than ours. Therefore, foreign demand for U.S. securities is keeping a lid on our interest rates. Until someone comes up with a better theory on low interest rates this, in essence, is the answer to the Fed's conundrum. The question is how long will interest rates stay low? No one knows the answer. However, piercing the twin bubbles of housing and stocks will put downward pressure on rates. On the flip side, inflation or a drop off of foreign investment would cause rates to increase. For the time being, we have to come to grips with the low interest rate environment and the negative impact this will have on future dividends. Despite a powerful late-year rally, the stock market turned in a lackluster performance in 2004 with the key equity averages typically scoring modest single-digit gains. In some respects, the 2004 market performance was in keeping with an economy that showed little notable strength or any large-scale weakness, but rather muddled along for much of the year at modest rates of growth. As an interesting aside, the highly regarded John Hussman of Hussman Funds stated, that "over the past seven years, even the depressed returns on risk-free, three-month Treasury bills have exceeded the total return on the S&P 500, including dividends. That underscores a basic truth of finance that's often lost in day-to-day and even year-to-year market fluctuations: valuation matters." I hope that the foregoing discussion gives you some idea as to the problems facing the management of your portfolio and what the Board of Directors have had to deal with over the past three years. There is no doubt that the low interest rate environment will severely limit our ability to make dividend distributions similar to what we had back in the latter 1990's. However, trends do change. There are enough global financial imbalances that may exert pressure on interest rates, and thus afford us an opportunity to lock in higher yields. 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 1,214,400 1994 Dividends 1,248,300 1995 Dividends 1,728,000 1996 Dividends 1,927,680 1997 Dividends 1,992.000 1998 Dividends 1,956,003 1999 Dividends 2,027,167 2000 Dividends 1,811,000 2001 Dividends 1,932,000 2002 Dividends 1,764,000 2003 Dividends 1,650,000 2004 Dividends 1,092,000 ------------ TOTAL DISTRIBUTIONS $39,169,431 ------------ PER SHARE (12,000 shares) $3,274 IF YOU HELD 100 SHARES SINCE 1980 YOU HAVE RECEIVED $327,400
[ANDERSON ZURMUEHLEN & CO., P.C. LETTERHEAD] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, 2004, and the related statement of operations for the year then ended, the statements of changes in net assets for the years ended December 31, 2004 and 2003, and the financial highlights for the years ended December 31, 2004, 2003, and 2002. 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 audits. The financial highlights for each of the two years in the period ended December 31, 2001, were audited by other auditors whose report dated February 15, 2002, expressed an unqualified opinion on those highlights. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. 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, 2004, 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, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Seattle, Washington January 27, 2005
KAVILCO INCORPORATED (an investment company) STATEMENT OF ASSETS AND LIABILITIES December 31, 2004 ------------------------------------ ASSETS Investments in securities, at market value (identified cost $33,300,746) $ 34,459,198 Real estate at fair value 3,588,815 Cash and cash equivalents 126,108 Interest receivable 246,218 Premises and equipment, net 7,150 Prepaid expenses and other assets 13,407 ------------ Total assets 38,440,896 ------------ LIABILITIES Accounts payable and accrued expenses 19,920 Dividends payable 18,200 ------------ Total liabilities 38,120 ------------ COMMITMENTS AND CONTINGENCIES Net assets $ 38,402,776 ============ Net assets consist of: Undistributed net investment income 1,796 Unrealized appreciation on Investments 1,158,452 Real estate 2,534,726 Contributed capital 34,707,802 ------------ Net assets $ 38,402,776 ============ Net asset value per share of common stock ($38,402,776 divided by 12,000 shares outstanding) $ 3,200.23 ============ The Notes to Financial Statements are an integral part of this statement
KAVILCO INCORPORATED (an investment company) SCHEDULE OF INVESTMENTS December 31, 2004 ----------------------- Principal Market amount/ value shares INVESTMENTS IN SECURITIES - 89.7% OF ----------- ---------- NET ASSETS U.S. GOVERNMENT SECURITIES - 8.2% United States Treasury Notes, 1.500% due March 31, 2006 1,000,000 $983,750 Federal National Mortgage Association, 6.210% due November 7, 2007 1,000,000 1,073,931 Federal National Mortgage Association, 6.150% due December 10, 2007 1,000,000 1,073,940 ----------- Total U.S. government securities (cost $2,993,654) 3,131,621 ----------- CORPORATE OBLIGATIONS - 29.2% Banking - 2.8% Chase Manhattan Corp., 7.875% due July 15, 2006 1,000,000 1,066,241 Beverage (soft drink) - 2.3% Coca-Cola Enterprises, 8.500% due February 1, 2012 700,000 865,085 Diversified financial services - 3.0% General Electric Cap Corp., 8.500% due July 24, 2008 1,000,000 1,149,127 Electric utility - 0.5% Potomac Electric Power Co., 6.500% due March 15, 2008 190,000 204,825 Entertainment - 0.8% Walt Disney Company, 5.800% due October 27, 2008 290,000 308,628 Finance - auto loans - 2.2% General Motors Acceptance Corp., 6.625% due October 15, 2005 827,000 845,473 Food processing - 0.6% Heinz Corp., 6.000% due March 15, 2008 229,000 244,142 Petroleum (integrated) - 2.6% Texaco Capital, Inc., 5.700% due December 1, 2008 975,000 990,141 Retail store - 3.2% Wal-Mart Stores, 6.875% due August 10, 2009 1,000,000 1,122,891 Dayton Hudson, 8.600% due January 15, 2012 100,000 124,581 Securities brokerage - 8.4% Paine Webber Group, Inc., 8.875% due March 15, 2005 1,000,000 1,011,783 Merrill Lynch & Co., 6.375% due October 15, 2008 1,000,000 1,083,434 Bear Stearns Co., 7.625% due December 7, 2009 1,000,000 1,151,482 Telecommunication services - 2.8% Pacific Bell, 6.125% due February 15, 2008 1,000,000 1,064,335 ---------- Total corporate obligations (cost $10,266,614) 11,232,168 ----------- COMMON STOCK - 0.5% Technology - 0.25%: Microsoft Corp. 3,640 97,261 Gold/Silver mining - 0.2% Barrick Gold 1,200 29,064 Newmont Mining 500 22,205 Couer d'Alene Mines Corp. 3,000 11,790 Freeport-McMoran Copper & Gold Inc. 600 22,938 Real estate investment trust - 0.05% First Industrial Realty Trust 700 28,511 ----------- Total common stock (cost $157,655) 211,769 ----------- SHORT-TERM INVESTMENTS - 51.8% U.S. Treasury Bills - 31.2% U.S. Treasury Bill, 1.731%, due January 13, 2005 5,000,000 4,996,875 U.S. Treasury Bill, 1.780%, due January 20, 2005 2,000,000 1,998,125 U.S. Treasury Bill, 2.080%, due February 17, 2005 5,000,000 4,987,500 ----------- Total U.S. Treasury Bills (cost $11,981,683) 11,982,500 Commercial paper - 17.2% The Coca-Cola Company, 2.150%, due January 7,2005 1,000,000 999,641 Dow Jones & Co., 2.000%, due January 10, 2005 1,000,000 999,499 Schering-Plough Corp., 2.380%, due January 10, 2005 1,000,000 999,404 SBC Communications, Inc., 2.170%, due January 11, 2005 1,000,000 999,396 Proctor & Gamble Co., 1.980%, due January 21, 2005 600,000 599,339 Albertsons Inc., 2.000%, due January 27, 2005 1,000,000 998,466 Hitachi Capital of America, 2.080%, due January 28, 2005 1,000,000 998,437 ----------- Total Commercial paper (cost $6,594,182) 6,594,182 Prime Obligation Funds - 3.4% 1,306,958 1,306,958 ----------- Total short-term investments (cost $19,882,823) 19,883,640 ----------- Total investments in securities (identified cost $33,300,746) $34,459,198 =========== The Notes to Financial Statements are an integral part of this statement.
KAVILCO INCORPORATED (an investment company) STATEMENT OF OPERATIONS Year Ended December 31, 2004 ---------------------------- Investment income Interest $ 1,461,636 Dividends from money market fund 72,801 Dividends 15,940 ----------- Total investment income 1,550,377 ----------- Expenses Salaries and benefits 299,479 Directors' compensation and expenses 230,935 Legal and accounting 28,662 Custodian 11,438 Insurance expense 64,312 Office and equipment leases 60,063 General and administrative 78,308 ----------- Total expenses 773,197 ----------- Net investment income 777,180 ----------- Realized and unrealized gain on investments Net realized gain on investments 390,956 Net decrease in unrealized appreciation on investments (1,172,266) ----------- Net realized and unrealized gain (loss) on investments (781,310) ----------- Net operating income (loss) (4,130) ----------- Other income 48,660 ----------- Net increase in net assets resulting from operations $48,530 =========== 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, 2004 and 2003 -------------------------------------- 2004 2003 ----------- ----------- Increase (decrease) in net assets from operations Net investment income $777,180 $1,241,690 Net realized gain on investments 390,956 235,174 Net increase (decrease) in unrealized appreciation (1,172,266) (11,017) Net other income 48,660 34,129 Net increase in net assets resulting ----------- ---------- from operations 44,530 1,499,976 ----------- ---------- Dividends and distributions Net investment income (775,384) (1,380,697) Net realized gain on investments (390,956) (235,174) Net other income (48,660) (34,129) ----------- ---------- (1,215,000) (1,650,000) ----------- ----------- Total increase (decrease) in net assets (1,170,470) (150,024) Net assets Beginning of year 39,573,246 39,723,270 ----------- ----------- End of year (including undistributed net investment income of $1,796 and $0, respectively) $38,402,776 $39,573,246 =========== =========== The Notes to Financial Statements are an integral part of these statements.
KAVILCO INCORPORATED (an investment company) FINANCIAL HIGHLIGHTS Years Ended December 31, 2000 - 2004 ------------------------------------ Per share operating performance (for a share of capital stock outstanding throughout the period): 2004 2003 2002 2001 2000 Net asset value, --------- --------- --------- --------- --------- beginning of year $3,297.77 $3,310.27 $3,268.17 $3,203.96 $2,901.74 --------- --------- --------- --------- --------- Income from investment operations Net investment income 64.77 103.48 123.70 150.06 150.10 Net realized and unrealized gain (65.11) 18.68 49.91 70.41 300.65 (loss) Net other income 4.06 2.84 15.49 4.74 3.47 --------- --------- --------- --------- --------- Total from investment operations 3.72 125.00 189.10 225.21 454.22 --------- --------- --------- --------- --------- Less dividends and distributions from Net investment income (64.62) (115.06) (116.99) (159.93) (144.40) Net realized gain on investments (32.58) (19.60) (10.85) - (4.13) Net other income (4.06) (2.84) (19.16) (1.07) (3.47) Return of capital - - - - - --------- --------- --------- --------- --------- Total distributions (101.26) (137.50) (147.00) (161.00) (152.00) --------- --------- --------- --------- ------- Net asset value, end of year $3,200.23 $3,297.77 $3,310.27 $3,268.17 $3,203.96 ========= ========= ========= ========= ========= Total return (%) 0.11 3.78 5.79 7.54 16.05* Ratios/supplemental data Net assets, end of year (in thousands)($) 38,403 39,573 39,723 39,218 38,447 Ratio to average net assets (%) Expenses 1.97 1.92 1.88 1.78 1.88 Net investment income 1.98 3.08 3.75 4.54 5.07 Portfolio turnover rate 6.2 56.7 9.6 3.0 27.6 (%) *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.
KAVILCO INCORPORATED (an investment company) NOTES TO FINANCIAL STATEMENTS December 31, 2004 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. Commercial paper is stated at amortized cost, which approximates market value. 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 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 board of directors engaged a Certified Forester (the "Forester") to provide an estimate of the value of the real property. The value of this additional land was estimated by the Forester to be $120,000 for a total cost basis of $1,054,089. 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 the future growth of timber, location of the property, recent sales of similar real property in the region and market demand and supply for this type of real property during the valuation process. The board of directors estimated the fair value of this real property at December 31, 2004 to be $3,588,815 on the basis of good faith consideration of both the aforementioned pertinent factors and the analysis performed by the Forester. 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 their payable date. Dividends are generally declared and paid twice a year. Capital gain distributions are generally declared and paid annually. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with accounting principles generally accepted in the United States of America. 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, commercial paper, and common stock) aggregated $69,988,820 for the year ended December 31, 2004, and sales and maturities of investment securities (consisting of U.S. government securities, corporate obligations, commercial paper, and common stock) aggregated $61,489,333 for the year ended December 31, 2004. 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. Depreciation expense was $3,238 for the year ended December 31, 2004. Building $154,369 Furniture, fixtures and equipment 100,096 -------- 254,465 Less accumulated depreciation (237,315) --------- $ 7,150 =========
NOTE 5. LEASE OBLIGATION - ------------------------------------------------------------------------------- The Company leases office space under a non-cancelable operating lease agreement, which terminates September 30, 2008. Rent expense for the year ended December 31, 2004 was $34,985, which has been included in the general and administrative expenses. At December 31, 2004, future minimum lease commitments under the non-cancelable operating lease are approximately as follows: 2005 $29,700 2006 29,700 2007 29,700 2008 22,200 -------- $111,300 ========
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, 11,576.83 shares Class B, no par value - Authorized, 500,000 shares; issued and outstanding, 423.17 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. NOTE 7. TAX BASIS OF DISTRIBUTABLE INCOME - ------------------------------------------------------------------------------- At December 31, 2004, there was approximately $7,000 of undistributed ordinary income for tax purposes. During the year ended December 31, 2004, $824,045 of the Company's distributions comprised ordinary income, and $390,955 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 $1,183,953 and $25,501, 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, 2004 totaled $49,913. ITEM 2. CODE OF ETHICS - ------------------------------------------------------------------------------- Kavilco adopted a code of ethics on January 29, 1990. The code of ethics was amended on November 10, 2000 and is available on the Registrant's website at: www.kavilco.com. 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 reconciliations 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 an 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 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 - ------------------------------------------------------------------------------- During the period covering the fiscal years ended December 31, 2004 and 2003, Anderson ZurMuehlen & Co., P.C. performed the following professional services: 2004 2003 ------- ------- (a)AUDIT FEES $16,500 $16,500 (b)AUDIT RELATED FEES $0 $0 (c)TAX FEES $2,750 $2,500
(d) ALL OTHER FEES. In addition, Anderson ZurMuehlen & Co., P.C.'s sister company, Employee Benefits Resources, LLC (EBR), provided services to the Company in connection with the plan document for the Company's pension plan and preparation of Form 5500. The total fees paid by the Company to EBR were $1,225 in 2004 and $0 in 2003. (e) Not applicable. (f) Not applicable. (g) Not applicable. (h) Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS - ------------------------------------------------------------------------------- Kavilco is a privately held registered investment company, and accordingly is not subject to the Securities Act of 1933. ITEM 6. SCHEDULE OF INVESTMENTS - ------------------------------------------------------------------------------- This schedule is included as part of the report to shareholders filed under Item 1 of this form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES - ------------------------------------------------------------------------------- The Board of directors adopted the following resolution during the November 2003 board meeting. KAVILCO INCORPORATED RESOLUTION 11-14-03b: PROXY VOTING POLICIES - ------------------------------------------------------------------------------- The Securities and Exchange Commission believes the recent corporate scandals have created renewed investor interest in corporate governance issues. In response, the SEC has new rules designed to increase transparency of proxy voting by mutual funds. RESOLVED, on voting common stock, the Chief Financial Officer is hereby directed to vote the management slate of directors and management's recommendations on any corporate proposals that appear on the proxy. RESOLVED, where there is a material conflict of interest where the Chief Financial Officer has a business, personal, or family relationship with a public company, voting will be deferred until the next scheduled board of directors meeting at which time the issue will be discussed. RESOLVED, pursuant to rule 30b1-4 under the Investment Company Act, Kavilco will file of form N-PX with SEC detailing a complete voting record. This filing will be made for a 12-month period commencing on June 30,2004. In addition, this information will be available on Kavilco's Web site as soon as reasonably practicable, after filing the report with the SEC, which means the same day, absent unforeseen circumstances. Date: November 14, 2003 /s/Louis A. Thompson Louis A. Thompson, President /s/John Campbell John Campbell, Secretary (Corporate Seal) ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES - ------------------------------------------------------------------------------- This disclosure requirement, which is effective for annual reports for fiscal years ending on or after December 31, 2005, is not applicable to Registrant at this time. ITEM 9. RESERVED - ------------------------------------------------------------------------------- ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------------------------- There are two options for a shareholder to run for office. OPTION 1: TO RUN FROM THE FLOOR AT AN ANNUAL MEETING A shareholder can run for office at an annual meeting if they have registered prior to the start of the annual meeting and they must be nominated by a registered shareholder. At this time only shareholders that register prior to the start of the meeting can vote for the nominee. Ballots are distributed to those shareholders in attendance that have not voted by proxy. Voting by proxy for a shareholder who is running from the floor is prohibited. OPTION 2: TO SOLICIT PROXIES 1. The Securities and Exchange Commission (SEC) has many rules governing proxies. These rules arise under the Investment Company Act of 1940 and the Securities Exchange Act of 1934. Anytime a shareholder communicates with more than ten (10) shareholders with the purpose of suggesting or soliciting that the shareholder gives, revokes or withholds his/her proxy, then they are governed by these rules. If they are not seeking authorization to vote for shareholders, or they are not interested in the outcome of the matter being considered they don't have to comply with the proxy rules. However, if they are asking to become a member of the Board of Directors, they will be voting for shareholders as their proxy holder. That means they do have to comply with the rules. The rules are varied and complex and difficult to understand. Since this is so complicated, we suggest that the candidate seek out an attorney with some experience in this area. If the campaign is not run properly, both the candidate and Kavilco can be held liable. 2. Kavilco will give candidates a list of voting shareholders so that they may mail their proxy statements to them. We are not required to bear the costs of preparing, filing or mailing the proxy materials for them. We are also not required to bear the costs of responding to comments or inquiries from the SEC, because these costs can be expensive. 3. We can not advise candidates about the requirements of the proxy rules regarding what specific information must be disclosed in the proxy statement and proxy card. The rules are very complicated, so candidates should talk with an attorney before they try to comply with them. ITEM 11. 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 12. EXHIBITS - -------------------------------------------------------------------------------- (a)(1) CEO Certification (a)(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 5, 2005 By /s/Scott Burns Scott Burns Chief Financial Officer October 5, 2005 EX-99.CERT 2 certificatelat.txt CEO CERTIFCATION [KAVILCO INCORPORATED OFFICE LETTERHEAD] Certification Required by Rule 301-2 Investment Company Act of 1940 I, Louis A. Thompson, Chief Executive Officer, certify that: 1. I have reviewed this report on Form N-CSRS 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-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company act of 1940) for Kavilco and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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)[Omitted] (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d)Disclosed in this report any change in Kavilco's internal control over financial reporting that occurred during the 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; and 5. Kavilco's other certifying officer and I have disclosed, to Kavilco's auditors and Kavilco's board of directors acting as audit committee (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 information; (b)Any fraud, whether or not material, that involves manage- ment or other employees who have a significant role in the Kavilco's internal control over financial reporting. /s/Louis A. Thompson Louis A. Thompson Chief Executive Officer October 5, 2005 EX-99.CERT 3 certificatesb.txt CFO CERTIFICATION [KAVILCO INCORPORATED OFFICE LETTERHEAD] Certification Required by Rule 301-2 Investment Company Act of 1940 I, Scott Burns, Chief Financial Officer, certify that: 1. I have reviewed this report on Form N-CSRS 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-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company act of 1940) for Kavilco and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the prepartation of financial statements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d)Disclosed in this report any change in Kavilco's internal control over financial reporting that occurred during the 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; and 5. Kavilco's other certifying officer and I have disclosed, to Kavilco's auditors and Kavilco's board of directors acting as audit committee (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 information; (b)Any fraud, whether or not material, that involves manage- ment or other employees who have a significant role in the Kavilco's internal control over financial reporting. /s/Scott Burns Scott Burns Chief Financial Officer August 5, 2005 -----END PRIVACY-ENHANCED MESSAGE-----