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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended November 30, 2002
Or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _______________
Commission File No. 817-00807
Access Capital Strategies Community Investment Fund, Inc.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 04-3369393
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
124 Mt. Auburn Street, Suite 200N Cambridge, MA 02138
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
617-576-5858
---------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
has been required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The registrant had 74 shareholders and 22,378,207 shares of common stock
outstanding as of November 30, 2002.
Access Capital Strategies Community Investment Fund, Inc.
November 30, 2002 Form 10-Q Quarterly Report
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
-----
Item 1. Condensed Financial Statements
Condensed Statements of Assets and Liabilities-................... 4
November 30, 2002 (unaudited), May 31, 2002 and
November 30, 2001 (unaudited)
Condensed Statements of Operations (unaudited)-................... 5
Three months ended November 30, 2002 and 2001
Six months ended November 30, 2002 and 2001
Condensed Statements of Changes in Net Assets (unaudited)-........ 6
Three months ended November 30, 2002 and 2001
Six months ended November 30, 2002 and 2001
Condensed Statements of Cash Flows (unaudited).................... 7
Three months ended November 30, 2002 and 2001
Six months ended November 30, 2002 and 2001
Financial Highlights (unaudited) -................................ 8
Three months ended November 30, 2002 and 2001
Six months ended November 30, 2002 and 2001
Schedule of Investments (unaudited) - ............................ 9
November 30, 2002
Notes to Condensed Financial Statements........................... 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.......................................................... 18
PART II. OTHER INFORMATION................................................................ 20
Item 1. Legal proceedings...................................................... 20
Item 2. Changes in securities.................................................. 20
Item 3. Defaults upon senior securities........................................ 20
Item 4. Submission of matters to a vote of security holders.................... 20
Item 5. Other information...................................................... 20
Item 6. Exhibits and reports................................................... 20
Signatures....................................................................... 21
2
Certification........................................................... 22
3
Access Capital Strategies Community Investment Fund, Inc.
CONDENSED STATEMENTS OF ASSETS AND LIABILITIES
November 30, 2002 November 30, 2001
(unaudited) May 31, 2002 (unaudited)
---------------- ------------ -----------------
Assets:
Investments, at value* $ 274,210,040 $ 210,540,038 $ 181,669,324
Cash 944,575 560,043 1,180
Deposits with broker - 21,094,066 7,010,031
Receivables:
Securities sold - 4,988,156 9,393,363
Interest 1,441,289 1,215,148 1,245,591
Principal paydowns - - 679,627
Capital shares sold - - 650,000
Variation margin - 18,094 -
Prepaid expenses and other assets 64,211 278,375 346,000
------------- ------------- -------------
Total assets 276,660,115 238,693,920 200,995,116
------------- ------------- -------------
Liabilities:
Securities sold short (proceeds received -
$21,094,066 and $7,010,032, respectively) - 21,315,000 7,078,750
Payables:
Reverse repurchase agreements (including
accrued interest of $25,075, $34,812, and
$17,993, respectively) 41,725,075 25,234,812 17,217,993
Securities purchased 5,949,588 6,981,698 11,059,249
Investment advisor 224,563 184,928 148,275
Variation margin 51,531 - -
Accrued expenses and other liabilities 13,844 93,663 20,467
------------- ------------- -------------
Total liabilities 47,964,601 53,810,101 35,524,734
------------- ------------- -------------
Net Assets:
Net Assets $ 228,695,514 $ 184,883,819 $ 165,470,382
============= ============= =============
Net Assets Consist of:
Paid-in capital $ 224,588,716 $ 181,128,349 $ 160,718,175
------------- ------------- -------------
Undistributed investment income - net 984,557 944,689 785,118
Accumulated realized capital losses on
investments-net (5,427,649) (1,475,351) (1,089,208)
Unrealized appreciation on investments-net 8,549,890 4,286,132 5,056,297
------------- ------------- -------------
Total accumulated earnings-net 4,106,798 3,755,470 4,752,207
------------- ------------- -------------
Net Assets $ 228,695,514 $ 184,883,819 $ 165,470,382
============= ============= =============
Net Asset Value Per Share $ 10.22 $ 10.19 $ 10.26
============= ============= =============
- ----------------------------------------------------------------------------------------------------------
*Identified Cost $265,372,823 $ 205,524,832 $ 176,544,309
Shares issued and outstanding 22,378,207 18,139,657 16,121,195
- ----------------------------------------------------------------------------------------------------------
See Notes to Condensed Financial Statements.
4
Access Capital Strategies Community Investment Fund, Inc.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
September 1, 2002 September 1, 2001 June 1, 2002 June 1, 2001
to November to November to November to November
30, 2002 30, 2001 30, 2002 30, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Interest and amortization $3,870,513 $2,706,822 $7,427,657 $5,297,234
Income:
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses: Management fees 318,440 207,744 605,109 397,270
Interest 170,025 116,646 301,368 240,342
Professional fees 21,446 26,855 44,105 40,401
Accounting services 22,134 16,720 42,914 29,243
Organizational fees 10,820 7,417 20,754 14,251
Director's fees and expenses 7,827 6,855 15,762 12,729
Transfer agent fees 4,995 5,146 10,060 9,555
Custodian fees 6,035 2,009 11,411 3,781
Pricing fees 3,146 2,685 5,612 3,808
Other 5,984 5,572 12,097 9,835
------------- --------------- ------------ ------------
Total expenses before reimbursement 570,852 397,649 1,069,192 761,215
Reimbursement of expenses (38,897) (44,300) (79,174) (67,066)
------------- --------------- ------------ ------------
Total expenses after reimbursement 531,955 353,349 990,018 694,149
------------- --------------- ------------ ------------
Investment income-net 3,338,558 2,353,473 6,437,639 4,603,085
------------- --------------- ------------ ------------
- --------------------------------------------------------------------------------------------------------------------- ------------
Realized & Realized loss on investments-net (609,931) (8,712) (3,952,298) (137,670)
Unrealized Change in unrealized appreciation on
Gain (Loss) on investments-net (882,091) 944,965 4,263,758 3,915,279
Investments-Net: ------------- --------------- ------------ ------------
Total realized and unrealized gain (loss) on
investments-net (1,492,022) 936,253 311,460 3,777,609
------------- --------------- ------------ ------------
Net Increase in Net Assets Resulting
from Operations $1,846,536 $3,289,726 $6,749,099 $8,380,694
============= =============== ============ ============
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Condensed Financial Statements.
5
Access Capital Strategies Community Investment Fund, Inc.
CONDENSED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
September 1, September 1,
2002 2001 June 1, 2002 June 1, 2001
to November to November to November to November
Increase (Decrease) in Net Assets: 30, 2002 30, 2001 30, 2002 30, 2001
- ----------------------------------------------------------------------------------------------------------------------------------
Operations: Investment income-net $3,338,558 $2,353,473 $6,437,639 $4,603,085
Realized loss on investments-net (609,931) (8,712) (3,952,298) (137,670)
Change in unrealized appreciation on investments-net (882,091) 944,965 4,263,758 3,915,279
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations 1,846,536 3,289,726 6,749,099 8,380,694
------------ ------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends to Dividends to shareholders from investment income-net (3,296,895) (2,350,455) (6,397,771) (4,441,189)
Shareholders: ------------ ------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Share Change in net assets resulting from capital share
Transactions: transactions 18,954,812 22,354,168 43,460,367 39,343,205
------------ ------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets 17,504,453 23,293,439 43,811,695 43,282,710
Beginning of period 211,191,061 142,176,943 184,883,819 122,187,672
------------ ------------ ------------ ------------
End of period* $228,695,514 $165,470,382 $228,695,514 $165,470,382
============ ============ ============ ============
- ----------------------------------------------------------------------------------------------------------------------------------
* Undistributed investment income-net $984,557 $785,118 $ 984,557 $ 785,118
============ ============ ============ ============
- ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Condensed Financial Statements.
6
Access Capital Strategies Community Investment Fund, Inc.
CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
September 1, September 1,
2002 2001 June 1, 2002 June 1, 2001
to November to November to November to November
30, 2002 30, 2001 30, 2002 30, 2001
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Provided Net increase in net assets resulting from operations $ 1,846,536 $ 3,289,726 $ 6,749,099 $ 8,380,694
by Operating Adjustments to reconcile net increase in net assets
Activities: resulting from operations to net cash provided by
operating activities:
Decrease (increase) in receivables 29,186 (285,493) (208,047) (473,130)
Decrease in deposit from brokers - 1,486,539 21,094,066 1,544,631
Decrease (increase) in other assets (1,666) (320,598) 214,164 (346,000)
Decrease in other liabilities (3,489) (1,495,244) (21,313,390) (1,376,222)
Realized and unrealized loss (gain) on investments-net 1,492,022 (936,253) (311,460) (3,777,609)
Amortization of premium and discount 33,237 (85,393) 18,736 (188,350)
Change in unrealized depreciation on financial futures
contracts - net (11,105) - 220,814 -
Change in unrealized depreciation on short sales - net - (5,768) 220,934 (13,272)
Realized gain (loss) on financial futures contracts-net (542,351) 176,134 (3,395,453) 161,531
Realized loss on short sales - net - - (6,012) -
------------ ----------- ------------- --------------
Net cash provided by operating activities 2,842,370 1,823,650 3,283,451 3,912,273
------------ ----------- ------------- --------------
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Used Proceeds from paydowns and sales of long-term investments 30,262,782 49,613,839 87,612,409 80,785,472
for Investing Purchases of long-term investments (63,164,195) (69,324,786) (144,073,924) (125,499,059)
Activities: Purchases of short-term investments-net - (3,276,941) - (2,453,068)
------------ ----------- ------------- --------------
Net cash used for investing activities (32,901,413) (22,987,888) (56,461,515) (47,166,655)
------------ ----------- ------------- --------------
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Cash receipts from issuance of common stock 18,589,620 20,730,506 41,921,343 36,920,503
Provided Cash receipts from reverse repurchase agreements 48,700,000 17,600,000 63,216,657 37,900,000
by Financing Cash payments on reverse repurchase agreements (34,100,000) (16,000,000) (46,716,657) (28,900,000)
Activities: Dividends paid to shareholders (2,931,703) (1,376,793) (4,858,747) (2,668,487)
------------ ----------- ------------- --------------
Net cash provided by financing activities 30,257,917 20,953,713 53,562,596 43,252,016
------------ ----------- ------------- --------------
- -----------------------------------------------------------------------------------------------------------------------------------
Cash: Net increase (decrease) in cash 198,874 (210,525) 384,532 (2,366)
Cash at beginning of period 745,701 211,705 560,043 3,546
------------ ----------- ------------- -------------
Cash at end of period $ 944,575 $ 1,180 $ 944,575 $ 1,180
============ ============ ============= =============
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flow
Information: Cash paid for interest $ 170,695 $ 127,000 $ 311,105 $ 249,062
============ ============ ============= =============
- -----------------------------------------------------------------------------------------------------------------------------------
Non-Cash
Financing Capital shares issued in reinvestment of dividends paid to
Activities: shareholders $ 365,192 $ 973,662 $ 1,539,024 $ 1,772,702
============ ============ ============= =============
See Notes to Condensed Financial Statements.
7
Access Capital Strategies Community Investment Fund, Inc.
FINANCIAL HIGHLIGHTS (UNAUDITED)
The following per share data and ratios have been derived from information
provided in the financial statements.
September 1, 2002 September 1, 2001 June 1, 2002 June 1, 2001
to November to November to November to November
Increase (Decrease) in Net Asset Value: 30, 2002 30, 2001 30, 2002 30, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Net asset value, beginning of period ........... $10.28 $10.20 $10.19 $9.97
Operating ---------------- ----------------- ----------- -----------
Performance: Investment income-net ........................ .15 ++ .16 .31 ++ .32
## Realized and unrealized gain (loss) on
investments-net ............................. (.06) .06 .03 .29
---------------- ----------------- ----------- -----------
Total from investment operations ............... .09 .22 .34 .61
---------------- ----------------- ----------- -----------
Less dividends from investment income-net ...... (.15) (.16) (.31) (.32)
---------------- ----------------- ----------- -----------
Net asset value, end of period ................. $10.22 $10.26 $10.22 $10.26
================ ================= =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
Total Based on net asset value per share ............. 0.85% # 2.17% # 3.38% # 6.24% #
Investment ================ ================= =========== ===========
Return:**
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement and excluding
Average Net interest expense .............................. .67% * .58% * .66% * .58% *
Assets:+ ================ ================= =========== ===========
Expenses, excluding interest expense ........... .74% * .58% * .74% * .58% *
================ ================= =========== ===========
Expenses ....................................... 1.06% * .58% * 1.03% * .58% *
================ ================= =========== ===========
Investment income-net .......................... 6.17% * 5.72% * 6.20% * 5.86% *
================ ================= =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement and excluding
Average Net interest expense .............................. .57% * - .57% * -
Assets, ================ ================= =========== ===========
Including Expenses, excluding interest expense ........... .63% * - .64% * -
Borrowings:+ ================ ================= =========== ===========
Expenses ....................................... .90% * - .89% * -
================ ================= =========== ===========
Investment income-net .......................... 5.28% * - 5.36% * -
================ ================= =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ....... $228,696 $165,470 $228,696 $165,470
Data: ================ ================= =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
* Annualized.
** Total investment returns exclude the effects of sales charges.
# Aggregate total investment return.
## Per share operating performance figures have been adjusted,
where applicable, to reflect a 10,000 for 1 stock split that
occurred on July 9, 2001.
+ Prior to fiscal 2002, Access Capital LLC paid the Fund's
operating expenses and received six basis points for
reimbursement and the amounts paid by Access in excess of
reimbursement were disclosed in the notes to the financial
statements. Commencing in fiscal 2002, the Fund's operating
expenses are being recorded by the Fund and the Fund is being
reimbursed by Access and MLIM for operating expenses in excess
of six basis points.
++ Based on average shares outstanding.
See Notes to Condensed Financial Statements.
8
Access Capital Strategies Community Investment Fund, Inc.
Schedule of Investments
November 30, 2002 (unaudited)
Face Amount Market Value
------------------ ------------------
MORTGAGE-BACKED SECURITIES (119.3%):
Federal National Mortgage Association (FNMA) (82.6%):
15 Year Fixed Rate Single Family Mortgage-Backed Securities
5.50%, 3/1/16 $ 489,722 $ 508,185
6.00%, 4/1/14 417,867 438,593
6.50%, 6/1/14 456,045 482,484
7.00%, 1/1/15 388,963 413,818
30 Year Fixed Rate Single Family Mortgage-Backed Securities
5.00%, 3/1/29 - 7/1/32 20,684,782 20,234,859
5.50%, 1/1/29 - 11/1/32 (a) 7,283,675 7,321,269
6.00%, 7/1/29 - 10/1/32 (a) 37,030,700 38,059,096
6.48%, 3/1/32 721,211 754,140
6.50%, 5/1/17 - 7/1/32 77,506,725 80,537,167
6.61%, 3/1/20 1,105,318 1,183,036
6.70%, 6/1/19 667,640 727,215
7.00%, 5/1/29 - 3/1/31 9,057,017 9,508,601
7.25%, 12/1/29 81,086 85,909
7.50%, 7/1/29 - 2/1/31 10,612,085 11,272,097
7.90%, 1/1/18 2,148,650 2,595,378
8.00%, 2/1/30 - 4/1/30 1,579,157 1,696,375
------------------
Total single family mortgage-backed securities 175,818,222
------------------
Multi-Family Mortgage-Backed Securities
6.53%, 6/1/16 269,268 297,436
7.12%, 9/1/10 7,843,427 8,974,228
7.42%, 10/1/18 1,965,943 2,239,252
7.58%, 5/1/18 622,498 736,774
7.97%, 9/1/17 753,365 897,976
------------------
Total multi-family mortgage-backed securities 13,145,666
------------------
Total Federal National Mortgage Association securities 188,963,888
------------------
Federal Home Loan Mortgage Corporation (33.2%):
30 Year Fixed Rate Single Family Mortgage-Backed Securities
5.50%, 9/1/29 (a) 6,542,685 6,607,612
6.00%, 3/1/31 - 9/1/32 (a) 32,260,737 33,102,084
6.50%, 6/1/29 - 8/1/32 26,180,025 27,211,451
7.00%, 10/1/29 - 3/1/32 6,514,449 6,832,116
7.50%, 12/1/29 - 3/1/30 2,106,940 2,237,069
------------------
Total Federal Home Loan Mortgage Corporation
single family mortgage-backed securities 75,990,332
------------------
9
GNMA Pool (3.0%):
Multi-Family Mortgage-Backed Securities
6.00%, 12/15/31 $ 1,124,676 $ 1,163,392
6.25%, 9/15/32 538,169 570,045
6.50%, 4/15/32 - 4/20/32 1,920,198 2,005,258
7.00%, 4/15/32 962,690 1,016,312
8.25%, 12/15/32 1,704,880 1,976,138
--------------
Total GNMA Pool multi-family mortgage-backed
securities 6,731,145
--------------
Small Business Administration (0.5%)
2.125%, 6/25/18 1,216,182 1,209,584
--------------
Total mortgage-backed securities 272,894,949
--------------
GUARANTEED NOTES (0.6%):
Boston, MA, U.S. Government Guaranteed Notes
6.85%, 8/1/07 1,290,000 1,315,091
--------------
Total guaranteed notes 1,315,091
--------------
- -------------------------------------------------------------------------------------------------
Total investments (cost $265,372,823) - 119.9% $ 274,210,040
Variation margin on financial futures contracts* -
0.0% (51,531)
Liabilities in excess of other assets - (19.9%) (45,462,995)
--------------
Net assets - 100% $ 228,695,514
==============
- -------------------------------------------------------------------------------------------------
(a) Includes a "to-be-announced" (TBA) transaction. The Fund has committed to
purchasing securities for which all specific information is not available
at this time.
* Pursuant to the financial futures contracts, the Fund agrees to receive
from or pay to the broker an amount equal to the daily fluctuation in value
of the contract. Such receipts or payments, which are settled the following
business day, are known as variation margin and are recorded by the Fund as
unrealized gains or losses. Financial futures contracts sold as of November
30, 2002 were as follows:
- -------------------------------------------------------------------
Number of Expiration
Contracts Issue Date Value
- -------------------------------------------------------------------
US 5 year December
194 Treasury Bonds 2002 $21,685,563
- -------------------------------------------------------------------
Total financial futures contracts sold
(Total contract price-$21,398,237) $21,685,563
=============
- -------------------------------------------------------------------
See Notes to Condensed Financial Statements.
10
Access Capital Strategies Community Investment Fund, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The accompanying unaudited condensed financial statements reflect the results of
operations for Access Capital Strategies Community Investment Fund, Inc. and
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and adjustments) considered necessary for a fair
presentation have been included. The results of operations and other data for
the quarter and six-months ended November 30, 2002 are not necessarily
indicative of the results that may be expected for any other future interim
period or the fiscal year ending May 31, 2003. The information in this report
should be read in conjunction with the financial statements and accompanying
notes included in the May 31, 2002 Annual Report on Form 10-K. The Fund has not
changed its accounting and reporting policies from those disclosed in its May
31, 2002 financial statements.
In preparing the condensed financial statements, management is required to make
estimates and assumptions that effect the reported amounts of assets and
liabilities as of the date of the statement of assets and liabilities and
revenue and expenses for the period. Actual results could differ from those
estimates; any such differences are expected to be immaterial to the net assets
of the Fund.
This report covers the activity from June 1, 2002 through November 30, 2002.
2. Realized Gain/Loss
For the quarter ended November 30, 2002 the realized loss was $609,931, compared
to a realized loss of $3,342,367 for the prior quarter ended August 31, 2002. In
each case, the realized loss was primarily due to the Fund's hedging activities.
The Fund experiences a realized gain or loss on its hedges when the positions
are closed or when they are rolled from one expiration cycle to the next.
3. Fees and Expenses
The Fund previously agreed to pay two basis points (0.02%) of the Fund's monthly
net assets to reimburse the Fund's Manager for organizational and offering
expenses. In December 2002, subsequent to the quarter ended November 30, 2002,
the Fund's Board of Directors approved the continuance of the two basis point
reimbursement to cover unreimbursed operating expenses paid by the Fund's
Manager in the operation of the Fund prior to March 2001. These unreimbursed
operating expenses total $336,269.
11
Item 2:
Management's Discussion and Analysis of Financial Condition and
Results of Operations
This quarterly report contains certain statements that may be
considered forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. The Fund's actual results could differ
materially from those projected in the forward-looking statements as a
result of, among factors, changes in interest rates, fluctuations in assets
under management and other sources of fee income, changes in assumptions
used in making such forward-looking statements, as well as the factors
listed under "Risk Factors and Factors Affecting Forward Looking
Statements" in the Fund's Annual Report on Form 10-K for the year ended May
31, 2002. The Fund's investment objective is to invest in geographically
specific private placement debt securities located in portions of the
United States designated by Fund investors.
Overview
The Fund is a non-diversified closed-end management company electing status as a
business development company. The Fund's investment objective is to invest in
geographically specific private placement debt securities located in portions of
the United States designated by Fund investors. The Fund invests primarily in
private placement debt securities specifically designed to support underlying
community development activities targeted to low- and moderate-income
individuals such as affordable housing, education, small business lending, and
job-creating activities in areas of the United States designated by Fund
investors.
Investors in the Fund must designate a particular geography within the United
States as part of their agreement to purchase Fund shares. The Fund invests only
in areas where Fund shareholders have made targeted designations.
In addition to their geographic specificity, Fund investments must carry a AAA
credit rating or carry credit enhancement from a AAA-rated credit enhancer or be
issued or guaranteed by the U.S. Government, government agencies or
government-sponsored enterprises. The Fund expects (but cannot guarantee) that
all investments made by the Fund will be considered eligible for regulatory
credit under the Community Reinvestment Act ("CRA").
Compliance
To qualify as a Regulated Investment Company ("RIC"), the Fund must, among other
things, satisfy a diversification standard under the Internal Revenue Code (the
"Code") such that, at the close of each quarter of the Fund's taxable year, (i)
not more than 25% of the value of its total assets is invested in the securities
(other than government securities or securities of other RICs) of a single
issuer, or two or more issuers which the Fund controls (under a 20% test) and
which are engaged in the same or similar trades or business or related trades or
businesses, and (ii) at least 50% of the market value of its total assets is
represented by cash, cash items, government securities, securities of other RICs
and other securities (with each investment in such other securities limited so
that not more than 5% of the value of the Fund's total assets is invested in the
securities of a single issuer and the Fund does not own more than 10% of the
outstanding voting securities of a single issuer).
Management believes the Fund was in compliance with the above requirements for
the quarter ended November 30, 2002.
12
Fund Operations
Investment Activity
Purchases
During the quarter ended November 30, 2002, the Fund purchased $52.3 million
aggregate amount of new community development securities. During the quarter
ended November 30, 2001, the Fund had purchased $77.6 million aggregate amount
of new community development securities.
During the six months ended November 30, 2002, the Fund purchased $143.0 million
aggregate amount of new community development securities. During the six months
ended November 30, 2001, the Fund had purchased $128.4 million aggregate amount
of new community development securities.
Sales
During the quarter ended November 30, 2002, the Fund sold $30.0 million
aggregate amount of securities (including principal paydowns but excluding
securities sold short in connection with hedging activities in respect of new
investments in the Fund and sales of short-term securities). During the quarter
ended November 30, 2001, the Fund had sold $59.7 million aggregate amount of
securities (including principal paydowns but excluding securities sold short in
connection with hedging activities in respect of new investments in the Fund and
sales of short-term securities).
During the six months ended November 30, 2002, the Fund sold $82.6 million
aggregate amount of securities (including principal paydowns but excluding
securities sold short in connection with hedging activities in respect of new
investments in the Fund and sales of short-term securities). During the six
months ended November 30, 2001, the Fund had sold $90.9 million aggregate amount
of securities (including principal paydowns but excluding securities sold short
in connection with hedging activities in respect of new investments in the Fund
and sales of short-term securities).
Borrowings
The Fund is permitted to use leverage in its investment program, subject to
certain restrictions set forth in its Private Offering Memorandum and the
Investment Company Act of 1940 (the "1940 Act").
For the quarter ended November 30, 2002, the Fund averaged approximately $38.7
million in borrowings at an average rate of approximately 1.78% compared to the
quarter ended November 30, 2001 when the Fund averaged approximately $17.0
million in borrowings at an average rate of approximately 2.78%.
For the six month period ended November 30, 2002, the Fund averaged
approximately $33.2 million in borrowings at an average rate of approximately
1.82% compared to the six month period ended November 30, 2001 when the Fund
averaged approximately $14.6 million in borrowings at an average rate of
approximately 3.25%.
In each of the above referenced periods, the total proceeds from borrowings were
primarily used to support additional investments in the Fund's Designated Target
Regions.
13
Net Assets and Fund Holdings at November 30, 2002
At November 30, 2002, the Fund's Net Asset Value was $228.7 million, or $10.22
per share. At the end of the prior fiscal quarter, August 31, 2002, the Fund's
Net Asset Value was $211.2 million, or $10.28 per share. At the end of the most
recent fiscal year, May 31, 2002, the Net Asset Value was $184.9 million, or
$10.19 per share. A year ago at November 30, 2001, the Fund's Net Asset Value
was $165.5 million, or $10.26 per share.
The $17.5 million, or 8.3%, quarter-to-quarter increase in net assets from
$211.2 million to $228.7 million was primarily attributable to the sale of new
shares in the Fund. The $63.2 million, or 38.2%, year-to-year increase in net
assets was also primarily attributable to the sale of new shares in the Fund.
The Fund's primary investments are listed on the Schedule of Investments
included with this report.
Investment Income
The Fund had investment income net of all fees and expenses (as discussed below)
of $3.34 million for the quarter ended November 30, 2002, an increase of
approximately $0.24 million, or 7.7%, from net investment income of $3.10
million for the prior fiscal quarter, which ended August 31, 2002, and an
increase of approximately $0.99 million, or 42.1%, from net investment income of
$2.35 million for the fiscal quarter ended November 30, 2001. The increases were
each largely due to an increase in the average net assets of the Fund.
Management Fees & Expenses
Access Capital Strategies LLC ("Access"), the Fund's Manager, is paid an annual
management fee, paid quarterly, of fifty basis points (0.50%) of the Fund's
average monthly gross assets less accrued liabilities, other than indebtedness
for borrowing. Merrill Lynch Investment Managers, L.P. ("MLIM") receives from
Access an annual sub-management fee, paid quarterly, of twenty-five basis points
(0.25%) of the Fund's average gross monthly assets less accrued liabilities,
other than indebtedness for borrowings.
For the quarter ended November 30, 2002, the management fee paid by the Fund was
$318,440. For the prior fiscal quarter, which ended August 31, 2002, the
management fee paid by the Fund was $286,669. For the year ago fiscal quarter
ended November 30, 2001, the management fee paid by the Fund was $207,744. The
quarter-to-quarter and year-to-year management fee increases were primarily due
to increases in the net assets of the Fund.
The Fund is also charged at an annual rate of up to six basis points (0.06%) of
the Fund's monthly net assets for custody and portfolio accounting services and
operating expenses. To the extent such expenses exceed six basis points (0.06%)
of the Fund's total assets, they will be borne by Access and MLIM, except that
in the event such expenses are less than six basis points of the Fund's total
assets in any year, the amount by which such expenses are less than six basis
points of the Fund's total assets will be paid by the Fund to Access and MLIM to
the extent necessary to reimburse Access and MLIM for expenses paid by Access
and MLIM in prior periods). In addition, the Fund is currently charged at an
annual rate of two basis points (0.02%) of the Fund's monthly net assets to
reimburse Access for organizational and offering expenses. As described under
"Notes to Condensed Financial Statements" above, in December 2002 the Fund's
Board of Directors approved the continuance of the two basis reimbursement
charge to also cover unreimbursed operating expenses incurred by Access
prior to March 1, 2001.
Yield
At the quarter ended November 30, 2002, the SEC current yield was 5.90%,
compared to 6.08% for the quarter
14
ended August 31, 2002 and 6.37% for the quarter ended November 31, 2001.
For the quarter ended November 30, 2002 the ratio of net investment income to
average net assets was 6.17% compared to 6.24% for the prior quarter, which
ended August 31, 2002, and 5.72% for the year ago quarter ended November 30,
2001.
Interest rates for the quarter ended November 30, 2002 were generally lower than
in the previous and year ago quarters. Despite adding new portfolio investments
in a lower rate environment, and experiencing higher Net Asset Values, the
Fund's current yield and ratio of net investment income to average net assets
have both held up very well. The Fund's higher yields are due to the use of
leverage during a time of a steep yield curve, the performance of existing
investments purchased when rates were higher and investments in multi-family
securities with high coupons and prepayment protection.
Realized Gain/Loss
For the quarter ended November 30, 2002 the realized loss was $609,931 compared
to a realized loss of $3,342,367 for the prior quarter, which ended August 31,
2002, and a realized loss of $8,712 for the quarter ended November 30, 2001. The
realized losses were primarily due to the Fund's hedging activities as the Fund
experiences a realized gain or loss on its hedges when the positions are closed
or when they are rolled from one expiration cycle to the next.
Dividends Paid
The Fund distributes to shareholders substantially all of its net investment
income and net realized capital gains, if any, as determined for income tax
purposes. Applicable law, including provisions of the 1940 Act, may limit the
amount of dividends and other distributions payable by the Fund. Substantially
all of the Fund's net capital gain (the excess of net long-term capital gain
over net short-term capital loss) and the excess of net short-term capital gain
over net long-term capital loss, if any, are distributed annually with the
Fund's dividend distribution in December.
The Fund pays dividends on a calendar quarter basis. The Fund paid a quarterly
dividend of $0.1512 per share on October 7, 2002 to shareholders of record as of
September 30, 2002. The prior quarter, the Fund paid a quarterly dividend of
$0.1614 per share on July 10, 2002 to shareholders of record as of July 1, 2002.
A year ago, the Fund paid a quarterly dividend of $0.161 per share on October
25, 2001 to shareholders of record as of October 1, 2001. Interest rates for the
quarter ended November 30, 2002 were generally lower than in the previous and
year ago quarters. Despite adding new portfolio investments in a lower rate
environment, the Fund's per share dividend has held up very well. Maintenance of
a relatively high dividend is due to the use of leverage during a time of a
steep yield curve, the performance of existing investments purchased when rates
were higher and investments in multi-family securities with high coupons and
prepayment protection.
Total Return
For the quarter ended November 30, 2002, the total return was 0.85%, compared to
a total return of 2.51% in the quarter ended August 31, 2002 and a total return
of 2.17% in the comparable period ended November 30, 2001.
The bond market rally that occurred for much of 2002 let up during the quarter
ended November 30, 2002. In early October rates hit historic lows and then began
to move back up. Prices of assets owned by the Fund move inversely to interest
rates and ended the quarter flat or below levels three months earlier. In
addition, the Fund's
15
hedging activities perform inversely to interest rates and the amount of
negative impact in September and early October was greater than the positive
impact from mid October to quarter end.
Fund Designated Target Regions at November 30, 2002
The Fund's Designated Target Regions ("DTRs") are provided by Fund shareholders
at the time of investment. At November 30, 2002 DTRs were:
---------------------------------------------------------------------------
DTRs AMOUNT
---------------------------------------------------------------------------
AL/FL/GA/LA/MS $ 5,000,000
---------------------------------------------------------------------------
Arizona 10,000,000
---------------------------------------------------------------------------
Boston & Cambridge, MA 500,000
---------------------------------------------------------------------------
California 19,668,939
---------------------------------------------------------------------------
Connecticut 2,039,798
---------------------------------------------------------------------------
CA/TX/AZ/NV/NYC 8,000,000
---------------------------------------------------------------------------
Florida 500,000
---------------------------------------------------------------------------
Illinois 500,000
---------------------------------------------------------------------------
Texas/Louisiana 5,000,000
---------------------------------------------------------------------------
Massachusetts 25,927,019
---------------------------------------------------------------------------
MA/NH/CT 1,000,000
---------------------------------------------------------------------------
MA/NH 1,000,000
---------------------------------------------------------------------------
MA/PA/NJ/CT/RI 10,000,000
---------------------------------------------------------------------------
New England 17,123,838
---------------------------------------------------------------------------
NY/DC 10,000,000
---------------------------------------------------------------------------
NY/NJ/TX/FL/CA/MD/DE 10,000,000
---------------------------------------------------------------------------
New Jersey 5,279,616
---------------------------------------------------------------------------
New Mexico/Nevada 6,000,000
---------------------------------------------------------------------------
NM/TX 600,000
---------------------------------------------------------------------------
Oregon 500,000
---------------------------------------------------------------------------
Pennsylvania 2,000,000
---------------------------------------------------------------------------
PA/CA/DC/VA 650,000
---------------------------------------------------------------------------
Rhode Island 250,000
---------------------------------------------------------------------------
South Carolina 500,000
---------------------------------------------------------------------------
South Dakota 5,578,001
---------------------------------------------------------------------------
Texas 13,315,178
---------------------------------------------------------------------------
Utah 1,500,000
---------------------------------------------------------------------------
Utah/NJ 59,186,508
---------------------------------------------------------------------------
Washington 1,000,000
---------------------------------------------------------------------------
Washington/Oregon 2,000,000
---------------------------------------------------------------------------
TOTAL $224,618,897
---------------------------------------------------------------------------
Fund Impact per the Community Reinvestment Act
The Fund invests in securities that support community development economic
activity as defined in the CRA.
16
At November 30, 2002, the Fund's investments had outstanding loans to 2,849
homebuyers with incomes below 80% of median income from the following states in
the following numbers.
Whole Loans
Alabama 25
Arizona 117
California 170
Connecticut 35
Delaware 12
Florida 50
Georgia 8
Illinois 12
Louisiana 25
Maryland 73
Massachusetts 484
Mississippi 3
Nevada 33
New Hampshire 5
New Jersey 541
New Mexico 38
New York 123
North Carolina 1
Oregon 17
Pennsylvania 379
Rhode Island 15
South Carolina 10
South Dakota 56
Texas 276
Utah 262
Virginia 12
Washington 17
Washington D.C. 50
-----
2,849
As of November 30, 2002, the Fund's investments had outstanding loans to
sponsors of 1,376 multi-family, 14 community based non-profit affordable housing
rental units, 61 Acorn affordable housing units in Low Income Housing Tax Credit
or HUD insured subsidized properties and 11 SBA loans from the following states
in the following amounts.
Multi-Family Units
Alabama 52
California 222
Louisiana 144
Massachusetts 504
New York 157
Texas 227
Utah 70
-----
1,376
17
Community Based Non-Profit
Rhode Island 14
--
14
Acorn Affordable Housing
Massachusetts 61
--
61
SBA Loans
Utah 11
--
11
The Fund also owned a U.S. Housing & Urban Development guaranteed security
supporting community development in low-income areas of Boston, Massachusetts.
Liquidity Discussion
Sale and Redemption of Fund Shares
Fund shares are sold only to qualified investors who complete a Subscription
Agreement. All investors in the Fund must provide a Designated Target Region as
the desired location for their investment.
During the quarter ended November 30, 2002, new shareholders purchased an
additional 1,805,626 shares of the Fund for total proceeds of $18,589,620. In
addition, dividend reinvestments resulted in 35,785 additional new shares being
issued by the Fund for total proceeds of $365,192. During the preceding quarter
ended August 31, 2002, new shareholders purchased an additional 2,280,013 shares
of the Fund for total proceeds of $23,331,723, and dividend reinvestments
resulted in 117,126 additional new shares being issued by the Fund for total
proceeds of $1,173,832. During the year ago quarter ended November 30, 2001, new
shareholders purchased an additional 2,087,046 shares for total proceeds of
$21,380,506, and dividend reimbursements resulted in 95,233 additional new
shares being issued by the Fund for total proceeds of $973,662.
As discussed in the Private Offering Memorandum, the Fund allows shareholders to
redeem their shares in accordance with Rule 23c-3 of the 1940 Act.
There were no redemptions of Fund shares during the quarter ended November 30,
2002. There were no redemptions in the preceding quarter ended August 30, 2002
or the year ago quarter period ended November 30, 2001.
Item 3:
Quantitative and Qualitative Disclosures About Market Risk
A full discussion of the risks associated with ownership of Fund shares appears
in the Fund's Private Offering Memorandum. The Fund's market risks may be
summarized as follows:
18
Credit Risk. All investments made by the Fund must be in securities of Agency or
- -----------
AAA credit quality. Fund investments will typically have one or more form of
Agency or AAA credit enhancement. All credit risk of default will be borne by
the credit enhancer.
Liquidity Risk. Securities purchased by the Fund will be privately placed debt
- --------------
instruments. The market for resale of these securities may be limited.
Furthermore, the Fund may pay a premium for securities with special CRA
characteristics without any assurance that a comparable premium can be received
upon sale of the security.
Interest Rate Risk. The Fund will generally invest in fixed rate investments
- ------------------
that have their market values directly affected by changes in prevailing
interest rates. An increase in rates will generally reduce the value of Fund
investments and a decline in interest rates will generally increase the value of
those investments. There may be exceptions due to shifts in the yield curve, the
performance of individual securities and other market factors.
A summary of the Fund's portfolio holdings is contained in Item 1.
19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any pending legal proceedings.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports
The following Exhibits are filed as part of this Report:
(a) (1) N/A
(2) None
(3) (i) Articles of Incorporation are incorporated
by reference from an exhibit filed on
Form 10-Q for the period ended August 31,
1998.
(ii) By-Laws are incorporated by reference from
an exhibit filed on Form 10-Q for the period
ended August 31, 1998.
(4) N/A
(5) N/A
(8) None
(10) (i) Private Offering Memorandum is
incorporated by reference from an exhibit
filed on Form 10-K for the period ended
May 31, 2001.
(iii)(A) Management Agreement is incorporated by
reference from an exhibit filed on Form 10-Q
for the period ended August 31, 1998.
(11) N/A
(12) N/A
(13) N/A
(15) N/A
(16) None
(17) N/A
(18) None
(19) N/A
(20) N/A
(21) None
(22) None
(23) None
(24) N/A
(25) N/A
(26) N/A
(27) N/A
(b) Reports on Form 8-K
None.
20
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Access Capital Strategies Community Investment Fund, Inc.
Date: January 14, 2003 /s/ Ronald A. Homer
----------------------------------------------
Ronald A. Homer, Chairman
Date: January 14, 2003 /s/ Kevin J. Mulvaney
----------------------------------------------
Kevin J. Mulvaney, Director
Date: January 14, 2003 /s/ Peter Blampied
----------------------------------------------
Peter Blampied, Director
Date: January 14, 2003 /s/ M. Colyer Crum
----------------------------------------------
M. Colyer Crum, Director
Date: January 14, 2003 /s/ Terry K. Glenn
----------------------------------------------
Terry K. Glenn, Director
Date: January 14, 2003 /s/ Stephen B. Swensrud
----------------------------------------------
Stephen B. Swensrud, Director
Date: January 14, 2003 /s/ David F. Sand
----------------------------------------------
David F. Sand, Chief Executive Officer,
Principal Accounting Officer, Principal Financial Officer
21
CERTIFICATION
I, David F. Sand, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Access Capital
Strategies Community Investment Fund Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly 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
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of Evaluation Date:
5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors;
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant'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 the registrant's internal
controls; and
6. I have indicated in this quarterly report whether 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.
January 14, 2003
/s/ DAVID F. SAND
- -----------------------------------
David F. Sand
Chief Executive Officer and
Principal Financial Officer
22
CERTIFICATION OF PERIODIC REPORT
I, David F. Sand, Chief Executive Officer and Principal Financial
Officer of Access Capital Strategies Community Investment Fund, Inc. (the
"Fund"), certify, pursuant to Section 906 of the Sarbanes - Oxley Act of 2002,
18 U.S.C. Section 1350, that:
(1) the Quarterly Report on Form 10-Q of the Fund for the fiscal
quarter ended November 30, 2002, as filed with the Securities
and Exchange Commission or the date hereof (the "Quarterly
Report") fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended;
and
(2) the information contained in the Quarterly Report fairly
presents, in all material respects, the financial condition
and results of operations of the Fund.
/s/ David F. Sand
--------------------------
David F. Sand
Chief Executive Officer and
Principal Financial Officer
Dated: January 14, 2002