Back to GetFilings.com
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 February 28, 2003
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
----------------------------------------------------------------------
(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 23,477,832.68 shares of common stock
outstanding as of February 28, 2003.
Access Capital Strategies Community Investment Fund, Inc.
February 28, 2003 Form 10-Q Quarterly Report
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Condensed Financial Statements
Condensed Statements of Assets and Liabilities .............. 3
February 28, 2003 (unaudited), May 31, 2002 and
February 28, 2002 (unaudited)
Condensed Statements of Operations (unaudited) .............. 4
Three months ended February 28, 2003 and 2002
Nine months ended February 28, 2003 and 2002
Condensed Statements of Changes in Net Assets (unaudited) ... 5
Three months ended February 28, 2003 and 2002
Nine months ended February 28, 2003 and 2002
Condensed Statements of Cash Flows (unaudited) .............. 6
Three months ended February 28, 2003 and 2002
Nine months ended February 28, 2003 and 2002
Financial Highlights (unaudited) ............................ 7
Three months ended February 28, 2003 and 2002
Nine months ended February 28, 2003 and 2002
Schedule of Investments (unaudited) ......................... 8
February 28, 2003
Notes to Condensed Financial Statements (unaudited) ......... 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 11
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ................................................... 18
PART II. OTHER INFORMATION 19
Item 1. Legal proceedings ............................................. 19
Item 2. Changes in securities ......................................... 19
Item 3. Defaults upon senior securities ............................... 19
Item 4. Submission of matters to a vote of security holders ........... 19
Item 5. Other information ............................................. 19
Item 6. Exhibits and reports .......................................... 19
Signatures ............................................................ 20
Certification ......................................................... 21
2
Access Capital Strategies Community Investment Fund, Inc.
CONDENSED STATEMENTS OF ASSETS AND LIABILITIES
February 28, 2003 February 28, 2002
(unaudited) May 31, 2002 (unaudited)
----------------- -------------- -----------------
Assets:
Investments, at value* ............................... $ 292,450,807 $ 210,540,038 $ 204,365,148
Cash ................................................. - 560,043 1,147,581
Deposits with broker ................................. - 21,094,066 17,972,267
Receivables:
Securities sold .................................. - 4,988,156 -
Interest ......................................... 1,580,003 1,215,148 1,206,134
Principal paydowns ............................... 34,367 - 458,663
Variation margin ................................. - 18,094 -
Prepaid expenses and other assets .................... 67,847 278,375 223,093
------------- ------------- -------------
Total assets ......................................... 294,133,024 238,693,920 225,372,886
------------- ------------- -------------
Liabilities:
Securities sold short (proceeds received -
$21,094,066 and $17,972,267, respectively) ........... - 21,315,000 18,119,900
Payables:
Reverse repurchase agreements (including
accrued interest of $24,062, $34,812 and $18,819,
respectively) ..................................... 47,424,062 25,234,812 27,318,819
Securities purchased .............................. 3,130,997 6,981,698 2,954,217
Investment advisor ................................ 248,657 184,928 152,521
Custodian bank .................................... 346,642 - -
Variation margin .................................. 97,185 - -
Accrued expenses and other liabilities ............... 35,264 93,663 47,050
------------- ------------- -------------
Total liabilities .................................... 51,282,807 53,810,101 48,592,507
------------- ------------- -------------
Net Assets:
Net Assets ........................................... $ 242,850,217 $ 184,883,819 $ 176,780,379
============= ============= =============
Net Assets Consist of:
Paid-in capital ...................................... 235,771,189 181,128,349 171,709,927
------------- ------------- -------------
Undistributed investment income - net ................ 1,109,744 944,689 778,331
Accumulated realized capital losses on investments-net (6,831,050) (1,475,351) (1,032,521)
Unrealized appreciation on investments-net ........... 12,800,334 4,286,132 5,324,642
------------- ------------- -------------
Total accumulated earnings-net ....................... 7,079,028 3,755,470 5,070,452
------------- ------------- -------------
Net Assets ........................................... $ 242,850,217 $ 184,883,819 $ 176,780,379
============= ============= =============
Net Asset Value Per Share ............................ $ 10.34 $ 10.19 $ 10.27
============= ============= =============
- -----------------------------------------------------------------------------------------------------------------------
*Identified Cost .................................... $ 279,632,792 $ 205,524,832 $ 198,892,872
Shares issued and outstanding ........................ 23,477,833 18,139,657 17,206,219
- -----------------------------------------------------------------------------------------------------------------------
See Notes to Condensed Financial Statements.
3
Access Capital Strategies Community Investment Fund, Inc.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
December 1, 2002 December 1, 2001 June 1, 2002 June 1, 2001
to February to February to February to February
28, 2003 28, 2002 28, 2003 28, 2002
- --------------------------------------------------------------------------------------------------------------------------------
Investment Interest ................................. $4,151,253 $2,885,712 $11,578,910 $8,182,946
Income:
Expenses: Management fees .......................... 354,144 221,282 959,253 618,552
Interest ................................. 159,165 73,557 460,533 313,899
Professional fees ........................ 29,248 30,528 73,353 70,929
Accounting services ...................... 22,314 21,040 65,228 50,283
Organizational fees ...................... 11,691 7,997 32,445 22,248
Director's fees and expenses ............. 5,514 7,557 21,276 20,286
Custodian fees ........................... 6,487 3,350 17,898 7,131
Transfer agent fees ...................... 4,495 6,687 14,555 16,242
Pricing fees ............................. 5,783 3,962 11,395 7,770
Other .................................... 4,931 7,187 17,028 17,022
---------------- ------------------ ------------ ------------
Total expenses before reimbursement ...... 603,772 383,147 1,672,964 1,144,362
Reimbursement of expenses ................ (43,332) (56,086) (122,506) (123,152)
---------------- ------------------ ------------ ------------
Total expenses after reimbursement ....... 560,440 327,061 1,550,458 1,021,210
---------------- ------------------ ------------ ------------
Investment income-net .................... 3,590,813 2,558,651 10,028,452 7,161,736
---------------- ------------------ ------------ ------------
Realized & Realized gain (loss) on investments-net .. (1,403,401) 56,687 (5,355,699) (80,983)
Unrealized Change in unrealized appreciation on
Gain (Loss) on investments-net .......................... 4,250,444 268,345 8,514,202 4,183,624
---------------- ------------------ ------------ ------------
Investments - Total realized and unrealized gain on .... 2,847,043 325,032 3,158,503 4,102,641
investments-net
Net: Net Increase in Net Assets Resulting
---------------- ------------------ ------------ ------------
from Operations .......................... $6,437,856 $2,883,683 $13,186,955 $11,264,377
---------------- ------------------ ------------ ------------
See Notes to Condensed Financial Statements.
4
Access Capital Strategies Community Investment Fund, Inc.
CONDENSED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
December 1, 2002 December 1, 2001 June 1, 2002 June 1, 2001
to February to February to February to February
Increase (Decrease) in Net Assets: 28, 2003 28, 2002 28, 2003 28, 2002
Operations: Investment income-net ............................... $ 3,590,813 $ 2,558,651 $ 10,028,452 $ 7,161,736
Realized gain (loss) on investments-net ............. (1,403,401) 56,687 (5,355,699) (80,983)
Change in unrealized appreciation on investments-
net ................................................. 4,250,444 268,345 8,514,202 4,183,624
------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations .......................................... 6,437,856 2,883,683 13,186,955 11,264,377
------------ ------------ ------------ ------------
Dividends to Dividends to shareholders from investment income-
Shareholders: net ................................................. (3,465,626) (2,565,438) (9,863,397) (7,006,627)
------------ ------------ ------------ ------------
Capital Share Change in net assets resulting from capital share
Transactions: transactions ........................................ 11,182,473 10,991,752 54,642,840 50,334,957
------------ ------------ ------------ ------------
Net Assets: Total increase in net assets ........................ 14,154,703 11,309,997 57,966,398 54,592,707
Beginning of period ................................. 228,695,514 165,470,382 184,883,819 122,187,672
------------ ------------ ------------ ------------
End of period* ...................................... $242,850,217 $176,780,379 $242,850,217 $176,780,379
============ ============ ============ ============
* Undistributed investment income-net ................. $ 1,109,744 $ 778,331 $ 1,109,744 $ 778,331
============ ============ ============ ============
See Notes to Condensed Financial Statements.
5
Access Capital Strategies Community Investment Fund, Inc.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
December 1, December 1,
2002 2001 June 1, 2002 June 1, 2001
to February to February to February to February
28, 2003 28, 2002 28, 2003 28, 2002
----------- ----------- ------------ ------------
Cash Provided By Operating Activities:
Net increase in net assets resulting from operations ......... $ 6,437,856 $ 2,883,683 $ 13,186,955 $ 11,264,377
Adjustments to reconcile net increase in net assets
resulting from operations to net cash provided by
operating activities:
Decrease (increase) in receivables ........................ (138,714) 39,457 (346,761) (433,673)
Decrease (increase) in deposit from brokers ............... - (10,962,236) 21,094,066 (9,417,605)
Decrease (increase) in other assets ....................... (3,636) 122,907 210,528 (223,093)
Increase (decrease) in other liabilities .................. 436,797 11,072,805 (20,876,593) 9,696,583
Realized and unrealized gain on investments-net ........... (2,847,043) (325,032) (3,158,503) (4,102,641)
Amortization of premium and discount ...................... (9,261) (46,239) 9,475 (234,589)
Change in unrealized depreciation on financial
futures Contracts-net .................................... 269,644 - 490,458 -
Change in unrealized depreciation on short sales-net ...... - (78,915) 220,934 (92,187)
Realized gain (loss) on financial futures contracts-net ... (1,285,691) (99,735) (4,681,144) 61,796
Realized loss on short sales-net .......................... - - (6,012) -
------------ ------------ ------------- -------------
Net cash provided by operating activities .................... 2,859,952 2,606,695 6,143,403 6,518,968
------------ ------------ ------------- -------------
Cash Used for Investing Activities:
Proceeds from paydowns and sales of long-term investments .... 26,577,988 38,086,940 114,190,397 118,872,412
Purchases of long-term investments ........................... (43,799,361) (62,066,212) (187,873,285) (187,505,271)
Proceeds from sales and maturities of short--term
investments-net ............................................. - 3,282,664 - 829,596
------------ ------------ ------------- -------------
Net cash used for investing activities ....................... (17,221,373) (20,636,608) (73,682,888) (67,803,263)
------------ ------------ ------------- -------------
Cash Provided by Financing Activities:
Cash receipts from issuance of common stock .................. 10,825,000 10,592,453 52,746,343 47,512,956
Cash receipts from reverse repurchase agreements ............. 34,100,000 24,300,000 97,316,657 62,200,000
Cash payments on reverse repurchase agreements ............... (28,400,000) (14,200,000 (75,116,657) (43,100,000)
Dividends paid to shareholders ............................... (3,108,154) (1,516,139) (7,966,901) (4,184,626)
------------ ------------ ------------- -------------
Net cash provided by financing activities .................... 13,416,846 19,176,314 66,979,442 62,428,330
------------ ------------ ------------- -------------
Cash:
Net increase (decrease) in cash .............................. (944,575) 1,146,401 (560,043) 1,144,035
Cash at beginning of period .................................. 944,575 1,180 560,043 3,546
------------ ------------ ------------- -------------
Cash at end of period ........................................ $ - $ 1,147,581 $ - $ 1,147,581
============ ============ ============= =============
Cash Flow Information:
Cash paid for interest ....................................... $ 160,178 $ 72,731 $ 471,283 $ 321,793
============ ============ ============= =============
Non-Cash Financing Activities:
Capital shares issued in reinvestment of dividends paid
to shareholders ............................................. $ 357,473 $ 1,049,299 $ 1,896,497 $ 2,822,001
============ ============ ============= =============
See Notes to Condensed Financial Statements.
6
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.
December 1, December 1, June 1, June 1,
2002 2001 2002 2001
to February to February to February to February
Increase (Decrease) in Net Asset Value: 28, 2003 28, 2002 28, 2003 28, 2002##
- ------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period .............................. $ 10.22 $ 10.26 $ 10.19 $ 9.97
------------- ------------ ---------- -----------
Investment income-net ........................................... .16 ++ .15 .47 ++ .47
Realized and unrealized gain on investments-net ............... .12 .02 .15 .31
----------- ------------ ---------- -----------
Total from investment operations .................................. .28 .17 .62 .78
----------- ------------ ---------- -----------
Less dividends from investment income-net ......................... (.16) (.16) (.47) (.48)
----------- ------------ ---------- -----------
Net asset value, end of period .................................... $ 10.34 $ 10.27 $ 10.34 $ 10.27
----------- ------------ ---------- -----------
Total Investment Return:**
Based on net asset value per share ................................ 2.76% # 1.69% # 6.24% # 7.83% #
----------- ------------ ---------- -----------
Ratios to Average Net Assets:+
Expenses, net of reimbursement and excluding interest expense ..... .68% * .58% * .67% * .58% *
----------- ------------ ---------- -----------
Expenses, excluding interest expense .............................. .75% * .58% * .75% * .58% *
----------- ------------ ---------- -----------
Expenses .......................................................... 1.03% * .75% * 1.03% * .68% *
----------- ------------ ---------- -----------
Investment income-net ............................................. 6.10% * 5.84% * 6.16% * 5.85% *
----------- ------------ ---------- -----------
Ratios to Average Net Assets, Including Borrowings:+
Expenses, net of reimbursement and excluding
interest expense .................................................. .57% * .63% * .57% * .64% *
----------- ------------ ---------- -----------
Expenses, excluding interest expense .............................. .63% * .63% * .64% * .64% *
----------- ------------ ---------- -----------
Expenses .......................................................... .86% * .82% * .88% * .75% *
----------- ------------ ---------- -----------
Investment income-net ............................................. 5.11% * 6.40% * 5.27% * 6.44% *
----------- ------------ ---------- -----------
Supplemental Data:
Net assets, end of period (in thousands) .......................... $ 242,850 $ 176,780 $242,850 $176,780
----------- ------------ ---------- -----------
* Annualized.
** Total investment returns exclude the effects of sales charges.
# Aggregate total investment return.
## Per share operating performance figures have been adjusted 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 condensed 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.
7
Access Capital Strategies Community Investment Fund, Inc.
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 2003 (UNAUDITED)
Face Amount Market Value
------------------- ------------------
MORTGAGE-BACKED SECURITIES (119.9%):
Federal National Mortgage Association (FNMA) (87.1%):
15 Year Fixed Rate Single Family Mortgage-Backed Securities
5.00%, 12/1/17 - 1/1/18 $ 3,609,081 $ 3,740,587
5.50%, 3/1/16 481,370 506,638
6.00%, 4/1/14 410,440 434,110
6.50%, 6/1/14 - 5/1/17 1,661,920 1,854,908
7.00%, 1/1/15 382,776 410,632
30 Year Fixed Rate Single Family Mortgage-Backed Securities
5.00%, 3/1/29 - 12/1/32 23,822,810 23,998,785
5.23%, 4/30/21 2,000,000 2,062,600
5.41%, 3/1/21 1,079,136 1,123,834
5.50%, 1/1/29 - 2/1/33 28,974,572 29,802,205
6.00%, 7/1/29 - 12/1/32 41,401,512 43,322,787
6.48%, 3/1/32 719,736 752,822
6.50%, 1/1/31 - 7/1/32 63,649,748 66,924,379
6.61%, 3/1/20 1,102,724 1,239,474
6.70%, 6/1/19 666,247 761,506
7.00%, 5/1/29 - 3/1/31 7,147,336 7,578,848
7.25%, 12/1/29 80,868 86,359
7.50%, 7/1/29 - 2/1/31 8,730,212 9,347,865
7.90%, 1/1/18 2,143,688 2,688,953
8.00%, 2/1/30 - 4/1/30 1,298,769 1,414,564
---------------
Total single family mortgage-backed securities 198,051,856
---------------
Multi-Family Mortgage-Backed Securities
6.53%, 6/1/16 268,441 309,539
7.12%, 9/1/10 7,823,595 9,229,502
7.42%, 10/1/18 1,961,446 2,330,871
7.58%, 5/1/18 621,094 764,382
7.97%, 9/1/17 750,473 928,283
---------------
Total multi-family mortgage-backed securities 13,562,577
---------------
Total Federal National Mortgage Association securities 211,614,433
---------------
Federal Home Loan Mortgage Corporation (29.1%):
30 Year Fixed Rate Single Family Mortgage-Backed Securities
5.50%, 9/1/29 - 11/1/32 6,422,623 6,633,971
6.00%, 3/1/31 - 11/1/32 30,808,769 32,253,407
6.50%, 6/1/29 - 8/1/32 23,352,306 24,561,445
7.00%, 10/1/29 - 3/1/32 4,906,153 5,195,471
7.50%, 12/1/29 - 3/1/30 1,925,699 2,064,648
---------------
Total Federal Home Loan Mortgage Corporation
Single family mortgage-backed securities 70,708,942
---------------
8
Face Amount Market Value
------------- --------------
GNMA Pool (2.7%):
Multi-Family Mortgage-Backed Securities
6.00%, 12/15/31 $ 1,120,159 $ 1,179,219
6.25%, 9/15/32 536,753 589,929
6.50%, 4/15/32 - 4/20/32 1,724,371 1,822,924
7.00%, 4/15/32 864,962 923,669
8.25%, 12/15/32 1,672,742 1,974,210
-------------
Total GNMA Pool multi-family mortgage-backed securities 6,489,951
-------------
Small Business Administration (1.0%)
1.65%, 10/25/10 1,140,758 1,135,636
1.625%, 6/25/18 1,199,347 1,192,573
-------------
Total Small Business Administration 2,328,209
-------------
Total mortgage-backed securities 291,141,535
-------------
GUARANTEED NOTES (0.5%):
Boston, MA, U.S. Government Guaranteed Notes
6.85%, 8/1/07 1,290,000 1,309,272
-------------
Total guaranteed notes 1,309,272
-------------
Total investments (cost $279,632,792) - 120.4% $ 292,450,807
Variation margin on financial futures contracts* - 0.0%
(97,185)
Liabilities in excess of other assets - (20.4%)
(49,503,405)
-------------
Net assets - 100.0% $ 242,850,217
=============
* 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 February 28, 2003 were
as follows:
Number of Expiration
Contracts Issue Date Value
- --------------------------------------------------------------------------
214 US 5 Year Treasury Bonds June 2003 $ 24,332,469
- --------------------------------------------------------------------------
Total financial futures contracts sold
(Total contract price- $24,314,788) $ 24,332,469
=============
See Notes to Condensed Financial Statements.
9
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. (the
"Fund") 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 ended February 28, 2003 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 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 December 1, 2002 through February 28, 2003.
2. Realized Gain/Loss
For the quarter ended February 28, 2003, the realized loss was $1,403,401
compared to a realized loss of $609,931 for the prior quarter ended November 30,
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, the Fund's Board of Directors approved the
continuance of the two basis point reimbursement to cover unreimbursed expenses
paid by the Fund's Manager prior to March 2001. Total unreimbursed expenses as
of February 28, 2003 amounted to $699,236. Of this amount, $336,269 was incurred
prior to March 2001.
10
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 other 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 (including its agencies and instrumentalities)
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 and nine month period ended February 28, 2003.
11
Fund Operations
Investment Activity
Purchases
During the quarter ended February 28, 2003, the Fund purchased $41.0 million
aggregate amount of new community development securities. During the quarter
ended February 28, 2002, the Fund had purchased $53.9 million aggregate amount
of new community development securities.
During the nine month period ended February 28, 2003, the Fund purchased $184.0
million aggregate amount of new community development securities. During the
nine month period ended February 28, 2002, the Fund had purchased $182.3 million
aggregate amount of new community development securities.
Sales
During the quarter ended February 28, 2003, the Fund sold $26.6 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 quarter
ended February 28, 2002, the Fund had sold $28.5 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 nine month period ended February 28, 2003, the Fund sold $109.2
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
nine month period ended February 28, 2002, the Fund had sold $119.3 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 February 28, 2003, the Fund averaged approximately $45.9
million in borrowings at an average rate of approximately 1.39% compared to the
quarter ended February 28, 2002 when the Fund averaged approximately $15.9
million in borrowings at an average rate of approximately 1.92%.
For the nine month period ended February 28, 2003, the Fund averaged
approximately $37.4 million in borrowings at an average rate of approximately
1.64% compared to the nine month period ended February 28, 2002 when the Fund
averaged approximately $18.7 million in borrowings at an average rate of
approximately 1.67%.
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.
12
Net Assets and Fund Holdings at February 28, 2003
At February 28, 2003, the Fund's Net Asset Value was $242.9 million, or $10.34
per share. At the end of the prior fiscal quarter, November 30, 2002, the Fund's
Net Asset Value was $228.7 million, or $10.22 per share. At the end of the most
recent fiscal year, May 31, 2002, the Fund's Net Asset Value was $184.9 million,
or $10.19 per share. A year ago at February 28, 2002, the Fund's Net Asset Value
was $176.8 million, or $10.27 per share.
The $14.2 million, or 6.2%, quarter-to-quarter increase in Net Asset Value from
$228.7 million to $242.9 million was primarily attributable to the sale of new
shares in the Fund. The $66.1 million, or 37.4%, 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 $3.59 million for the quarter ended February 28, 2003, an increase of
approximately $0.25 million, or 7.5%, from net investment income of $3.34
million for the prior fiscal quarter, which ended November 30, 2002, and an
increase of approximately $1.03 million, or 40.2%, from net investment income of
$2.56 million for the fiscal quarter ended February 28, 2002. The increases were
each primarily 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 February 28, 2003, the management fee paid by the Fund was
$354,144. For the prior fiscal quarter, which ended November 30, 2002, the
management fee paid by the Fund was $318,440. For the year ago fiscal quarter
ended February 28, 2002, the management fee paid by the Fund was $221,282. 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 cover unreimbursed expenses incurred by Access prior to March 1, 2001.
13
Yield
At the quarter ended February 28, 2003, the SEC current yield was 5.87%,
compared to 5.90% for the quarter ended November 30, 2002 and 6.21% for the year
ago quarter ended February 28, 2002.
For the quarter ended February 28, 2003, the ratio of net investment income to
average net assets was 6.10% compared to 6.17% for the prior quarter, which
ended November 30, 2002, and 5.84% for the year ago quarter ended February 28,
2002.
Interest rates for the quarter ended February 28, 2003, 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 February 28, 2003, the realized loss was $1,403,401
compared to a realized loss of $609,931 for the prior quarter, which ended
November 30, 2002, and a realized gain of $56,687 for the year ago quarter ended
February 28, 2002. The realized losses in the quarter ended February 28, 2003
were 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.
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 $0.1549 per share on December 23, 2002 to shareholders of record as
of December 16, 2002. The prior quarter, the Fund paid a quarterly dividend of
$0.1512 per share on October 7, 2002 to shareholders of record as of September
30, 2002. A year ago, the Fund paid a quarterly dividend of $0.1580 per share on
December 26, 2001 to shareholders of record as of that date. Interest rates for
the quarter ended February 28, 2003 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 February 28, 2003, the total return based on Net Asset
Value was 2.76%, compared to a total return of 0.85% in the quarter ended
November 30, 2002 and a total return of 1.69% in the comparable period ended
February 28, 2002.
14
The Fund's performance was strong during the quarter ended February 28, 2003. It
outperformed most non-CRA mortgage funds and related benchmarks by a significant
margin. This was in part the result of the slower prepayment characteristics
that are inherent to CRA mortgage loans. Mortgage prepayments and refinance
volume reached all time highs during the quarter. As a result of the slower
prepayment characteristics of CRA mortgages, the negative effects of prepayments
were somewhat muted in the Fund relative to non-CRA mortgage funds. The Fund's
use of leverage also contributed to its strong performance during the quarter.
The use of leverage also enhances performance when mortgage yield spreads
tighten versus Treasury securities.
Fund Designated Target Regions at February 28, 2003
The Fund's Designated Target Regions ("DTRs") are provided by Fund shareholders
at the time of investment. At February 28, 2003 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 2,047,975
---------------------------------------------------------------------------
CA/TX/AZ/NV/NYC 8,000,000
---------------------------------------------------------------------------
Florida 500,000
---------------------------------------------------------------------------
Illinois 500,000
---------------------------------------------------------------------------
Texas/Louisiana 5,000,000
---------------------------------------------------------------------------
Massachusetts 26,564,735
---------------------------------------------------------------------------
MA/NH/CT 1,000,000
---------------------------------------------------------------------------
MA/NH 1,350,000
---------------------------------------------------------------------------
MA/PA/NJ/CT/RI 10,000,000
---------------------------------------------------------------------------
New England 17,123,838
---------------------------------------------------------------------------
New York 3,000,000
---------------------------------------------------------------------------
NY/DC 10,000,000
---------------------------------------------------------------------------
NY/NJ/TX/FL/CA/MD/DE 10,000,000
---------------------------------------------------------------------------
New Jersey 10,325,526
---------------------------------------------------------------------------
New Mexico/Nevada 6,000,000
---------------------------------------------------------------------------
NM/TX 600,000
---------------------------------------------------------------------------
North Carolina 500,000
---------------------------------------------------------------------------
Ohio 500,000
---------------------------------------------------------------------------
Oregon 500,000
---------------------------------------------------------------------------
Pennsylvania 2,000,000
---------------------------------------------------------------------------
PA/NJ 600,000
---------------------------------------------------------------------------
PA/CA/DC/VA 650,000
---------------------------------------------------------------------------
Rhode Island 250,000
---------------------------------------------------------------------------
South Carolina 500,000
---------------------------------------------------------------------------
South Dakota 5,655,359
---------------------------------------------------------------------------
TN 125,000
---------------------------------------------------------------------------
Texas 13,395,826
---------------------------------------------------------------------------
Utah 1,757,648
---------------------------------------------------------------------------
Utah/NJ 59,186,508
---------------------------------------------------------------------------
Washington 1,000,000
---------------------------------------------------------------------------
Washington/Oregon 2,000,000
---------------------------------------------------------------------------
TOTAL $235,801,354
---------------------------------------------------------------------------
15
Fund Impact per the Community Reinvestment Act
The Fund invests in securities that support community development economic
activity as defined in the CRA.
At February 28, 2003, the Fund's investments had outstanding loans to 3,158
homebuyers with incomes below 80% of median income from the following states in
the following numbers.
- -------------------------------------------------
Whole Loans
- -------------------------------------------------
Alabama 25
- -------------------------------------------------
Arizona 117
- -------------------------------------------------
California 184
- -------------------------------------------------
Connecticut 47
- -------------------------------------------------
Delaware 12
- -------------------------------------------------
Florida 50
- -------------------------------------------------
Georgia 8
- -------------------------------------------------
Illinois 12
- -------------------------------------------------
Louisiana 25
- -------------------------------------------------
Maryland 73
- -------------------------------------------------
Massachusetts 574
- -------------------------------------------------
Mississippi 3
- -------------------------------------------------
Nevada 33
- -------------------------------------------------
New Hampshire 5
- -------------------------------------------------
New Jersey 569
- -------------------------------------------------
New Mexico 38
- -------------------------------------------------
New York 123
- -------------------------------------------------
North Carolina 12
- -------------------------------------------------
Oregon 17
- -------------------------------------------------
Pennsylvania 533
- -------------------------------------------------
Rhode Island 15
- -------------------------------------------------
South Carolina 10
- -------------------------------------------------
South Dakota 56
- -------------------------------------------------
Texas 276
- -------------------------------------------------
Utah 262
- -------------------------------------------------
Virginia 12
- -------------------------------------------------
Washington 17
- -------------------------------------------------
Washington, D.C. 50
--
- -------------------------------------------------
3,158
- -------------------------------------------------
Many of the above loans were made under broad based targeted CRA lending
initiatives such as Acorn, Mass Housing Partnership or under a bank specific CRA
lending initiative designed to be responsive to a local need.
In addition, as of February 28, 2003, the Fund's investments had outstanding
loans to sponsors of 1,376 multi-family, 14 community based non-profit
affordable housing rental units and 22 SBA loans from the following states in
the following amounts.
16
Multi-Family Units
- -------------------------------------------------
Alabama 52
- -------------------------------------------------
California 222
- -------------------------------------------------
Louisiana 144
- -------------------------------------------------
Massachusetts 504
- -------------------------------------------------
New York 157
- -------------------------------------------------
Texas 227
- -------------------------------------------------
Utah 70
--
- -------------------------------------------------
1,376
- -------------------------------------------------
Community Based Non-Profit
Rhode Island 14
SBA Loans
Utah 22
The Fund also owned a U.S. Housing and 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 February 28, 2003, new shareholders purchased an
additional 1,064,417 shares of the Fund for total proceeds of $10,825,000. In
addition, dividend reinvestments resulted in 35,209 additional new shares being
issued by the Fund for total proceeds of $357,473. During the preceding quarter
ended November 30, 2002, new shareholders purchased an additional 1,805,626
shares of the Fund for total proceeds of $18,589,620, and dividend reinvestments
resulted in 35,785 additional new shares being issued by the Fund for total
proceeds of $365,192. During the year ago quarter ended February 28, 2002, new
shareholders purchased an additional 979,376 shares of the Fund for total
proceeds of $10,592,453, and dividend reimbursements resulted in 105,648
additional new shares being issued by the Fund for total proceeds of $1,049,299.
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 February 28,
2003. There were no redemptions in the preceding quarter ended November 30, 2002
or the year ago quarter period ended February 28, 2002.
17
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 principal market risks may
be summarized as follows:
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 above.
18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Fund 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) Powers of Attorney filed herein. (25) N/A
(26) N/A
(27) N/A
(b) Reports on Form 8-K
None.
19
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: April 14, 2003 /S/ Ronald A. Homer *
----------------------------------------------
Ronald A. Homer, Chairman
Date: April 14, 2003 /S/ Kevin J. Mulvaney *
----------------------------------------------
Kevin J. Mulvaney, Director
Date: April 14, 2003 /S/ Peter Blampied *
----------------------------------------------
Peter Blampied, Director
Date: April 14, 2003 /S/ M. Colyer Crum *
----------------------------------------------
M. Colyer Crum, Director
Date: April 14, 2003 /S/ Terry K. Glenn *
----------------------------------------------
Terry K. Glenn, Director
Date: April 14, 2003 /S/ Stephen B. Swensrud *
----------------------------------------------
Stephen B. Swensrud, Director
Date: April 14, 2003 /S/ David F. Sand *
----------------------------------------------
David F. Sand, Chief Executive Officer,
Principal Accounting Officer, Principal Financial
Officer
*By: /s/ Brant K. Brown
------------------
Brant K. Brown
Attorney-in-fact
20
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.
April 14, 2003
/s/ DAVID F. SAND
- ----------------------------------
David F. Sand
Chief Executive Officer and
Principal Financial Officer
21
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 February 28, 2003, as filed with the Securities and Exchange
Commission on 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: April 14, 2003