UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21662
CAPSTONE CHURCH CAPITAL FUND
(Exact name of Registrant as Specified in Charter)
3700 W. Sam Houston Parkway South, Suite 250
Houston, Texas 77042
(Address of principal executive offices)(Zip code)
Edward L. Jaroski
3700 W. Sam Houston Parkway South, Suite 250
Houston, Texas 77042
(Name and Address of Agent for Service)
Copies to:
David J. Harris, Esq.
Dechert LLP
1900 K Street, N.W.
Washington, D.C. 20006
Registrant's telephone number, including Area Code: (800) 262-6631
Date of fiscal year end: September 30
Date of reporting period: March 31, 2015
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
Semi-Annual Report
Capstone Church Capital Fund (XCBFX)
LETTER TO SHAREHOLDERS
March 31, 2015 (Unaudited)
Dear Shareholder:
This is the Semi-Annual Report of the Capstone Church Capital Fund for the six-months ended March 31, 2015. The Capstone Church Capital Fund is an investment company focused on investing in church mortgage bonds and church mortgage loans. The Semi-Annual Report includes detailed information about the Fund, including performance information, portfolio holdings, financial statements and comments from the portfolio manager regarding the fixed income market and outlook.
Fixed Income Market Overview
The past three months have been underwhelming in regards to economic growth in the United States, barely keeping pace with expectations formed following a strong fourth quarter of 2014. Some of the headwinds we faced include weather, the West Coast port strike, and the change in oil prices. Just as we saw in the fourth quarter of 2014, weather had an impact on consumer spending with storms disrupting everyday behavior across the country. The West Coast port strike served as a disruption to supply chains affecting manufacturing and production. In addition, the drop in oil prices altered business investment for companies with affected corporate profits, along with job growth in the energy sector, which had been such a boost in previous quarters. The flip side of lower oil prices is that consumers have more disposable income available to them. However, with a typical lag time of about 12 months for consumers to feel that the lower prices are secure and can therefore spend their extra income, the economy has not felt the benefit from price changes as of yet.
We are seeing some positive trends on the global front. Although the growth of the Chinese economy is slowing from previous years, there does not appear to be a hard landing on the horizon as it shifts from the fast-paced growth of an emerging market to a more moderate-paced stable market. Although many export countries are struggling with lower orders from China, better news out of the Eurozone is promising. Manufacturing was up in the first quarter to its highest reading since May, 2014 with upward trends in Germany and Spain, as well as consumer spending and retail sales higher in many of the core countries that lead the Eurozone.
Looking longer term, we do anticipate continued growth in payrolls and higher wages, which should help boost consumer spending and allow business investment to resume, supporting economic growth. With most analysts projecting an outlook for stronger growth in the second quarter, economic reports will be closely watched by the Fed as they debate the timing of the first Fed Funds Rate hike and the subsequent actions to help support the labor market and price stability.
The bond market moves in anticipation of what it believes will happen. With a consensus of the Fed hiking rates at some point over the next six to nine months, rates have begun their march higher.
Performance
The Capstone Church Capital Fund produced a 0.75% total return for the three months ended March 31, 2015 and a 3.38% total return for the twelve months ended March 31, 2015. The Barclays Capital U.S. Government/Credit Index returned 1.84% and 5.86% for the same periods, respectively.
The returns generated by the Capstone Church Capital Fund continue to reflect improvement in the church mortgage bond market, the church mortgage loan market and the underlying real estate markets where the Capstone Church Capital Fund has investments. The improvement in the U.S. economy has translated into stronger financial underpinnings for some of the churches that are represented in the Capstone Church Capital Fund. In addition, the Capstone Church Capital Fund has agreed with the Trustees of the mortgage loans and mortgage bonds owned in the fund to restructure some investments so that the churches can more easily meet their obligations. Some properties have been foreclosed on and sold. The prices of the bonds in the fund reflect either prices where the bonds have traded or the best estimation of what the fund expects to receive from the borrower which, in certain circumstances, involves using current appraisals of the property.
Outlook
The difficult environment for church bonds is not over but it has improved. The improving real estate market in the U.S. means higher values for church properties and a better market to sell the properties if need be. The congregations appear to have stabilized. Some churches have restructured their bond or mortgage loan obligations making it easier for the churches to make their interest payments. This improved market has made it easier to sell bonds which the fund has done. We expect there to be fewer foreclosures going forward. If interest rates rise as many economists expect them to, prices of church bonds will be negatively affected and real estate markets around the U.S. will probably weaken.
Thank you for selecting the Capstone Church Capital Fund
For more information about the Capstone Church Capital Fund, we invite you to contact us at 800-262-6631. You may also visit our website at www.capstonechurchcapitalfund.com. We value your business, and we look forward to servicing your investment needs for many years to come.
Sincerely,
Edward L. Jaroski
President
Capstone Church Capital Fund
Claude C. Cody IV
Portfolio Manager
Capstone Church Capital Fund
CAPSTONE CHURCH CAPITAL FUND
STATE SECTOR DIVERSIFICATION
MARCH 31, 2015 (Unaudited)
The table below sets forth the diversification of the Capstone Church Capital Fund investments by State.
State Diversification - Bonds and Mortgages | Percent* | |
| California | 13.33% |
| Connecticut | 1.10% |
| Florida | 14.41% |
| Georgia | 8.09% |
| Illinois | 3.03% |
| Indiana | 3.85% |
| Louisiana | 2.66% |
| Maryland | 0.13% |
| Massachusetts | 2.52% |
| Michigan | 0.20% |
| Nevada | 1.10% |
| New Jersey | 2.99% |
| North Carolina | 0.14% |
| Ohio | 1.90% |
| Rhode Island | 2.58% |
| Tennessee | 4.11% |
| Texas | 5.87% |
| Virginia | - |
| Washington | 1.49% |
| Washington, DC | 0.49% |
| Total Bonds and Mortgages | 69.99% |
Other |
|
|
| U.S. Government Agencies and Obligations | 5.83% |
| Open-End Mutual Fund | 4.67% |
| Short-Term Investments | 19.23% |
| Other | 0.28% |
|
| 100.00% |
* Percentages indicated are based on total net assets as of March 31, 2015.
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS
MARCH 31, 2015 (Unaudited)
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
CHURCH MORTGAGE BONDS (a) |
|
| ||
|
|
|
|
|
California | 10.80% |
| ||
|
| Sonrise Baptist Church of Clovis (d) (e) |
|
|
359,774 |
| 7.50%, 06/01/2020 |
| $ 182,801 |
389,514 |
| 7.50%, 06/01/2020 |
| 197,912 |
|
| Trinity Southern Baptist Church of Livermore, California |
| |
111,000 |
| 7.30%, 03/18/2030 |
| 99,523 |
128,000 |
| 7.30%, 09/18/2030 |
| 113,178 |
143,000 |
| 7.30%, 03/18/2032 |
| 121,679 |
148,000 |
| 7.30%, 09/18/2032 |
| 124,882 |
159,000 |
| 7.30%, 09/18/2033 |
| 132,129 |
98,000 |
| 7.30%, 03/18/2034 |
| 80,879 |
|
| The United Pentecostal Church of Modesto, Inc. (c) (d) |
|
|
20,000 |
| 7.50%, 11/21/2020 |
| 13,954 |
43,000 |
| 7.50%, 05/21/2021 |
| 29,885 |
43,000 |
| 7.50%, 11/21/2021 |
| 29,902 |
45,000 |
| 7.50%, 05/21/2022 |
| 31,311 |
51,000 |
| 7.60%, 11/21/2023 |
| 35,542 |
53,000 |
| 7.60%, 05/21/2024 |
| 36,713 |
55,000 |
| 7.60%, 11/21/2024 |
| 38,110 |
56,000 |
| 7.60%, 05/21/2025 |
| 38,814 |
59,000 |
| 7.60%, 11/21/2025 |
| 40,899 |
62,000 |
| 7.60%, 05/21/2026 |
| 42,991 |
66,000 |
| 7.60%, 05/21/2027 |
| 45,784 |
69,000 |
| 7.60%, 11/21/2027 |
| 47,872 |
71,000 |
| 7.60%, 05/21/2028 |
| 49,267 |
73,000 |
| 7.60%, 11/21/2028 |
| 50,669 |
86,000 |
| 7.60%, 11/21/2030 |
| 59,185 |
89,000 |
| 7.60%, 05/21/2031 |
| 61,250 |
92,000 |
| 7.60%, 11/21/2031 |
| 63,314 |
96,000 |
| 7.60%, 05/21/2032 |
| 66,067 |
99,000 |
| 7.60%, 11/21/2032 |
| 68,132 |
103,000 |
| 7.60%, 05/21/2033 |
| 70,885 |
112,000 |
| 7.60%, 05/21/2034 |
| 77,078 |
115,000 |
| 7.60%, 11/21/2034 |
| 79,143 |
|
| Victory Christian Center of the Desert, Inc. (c) (d) |
|
|
22,730 |
| 8.40%, 10/15/2020 |
| 22,555 |
23,488 |
| 8.40%, 04/15/2021 |
| 23,283 |
24,245 |
| 8.40%, 10/15/2021 |
| 24,056 |
25,761 |
| 8.40%, 04/15/2022 |
| 25,562 |
26,518 |
| 8.40%, 10/15/2022 |
| 26,314 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2015 (Unaudited)
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
27,276 |
| 8.40%, 04/15/2023 |
| $ 26,973 |
28,791 |
| 8.40%, 10/15/2023 |
| 28,486 |
30,307 |
| 8.40%, 04/15/2024 |
| 29,813 |
31,064 |
| 8.40%, 10/15/2024 |
| 30,564 |
32,580 |
| 8.40%, 04/15/2025 |
| 32,062 |
34,095 |
| 8.40%, 10/15/2025 |
| 33,560 |
35,610 |
| 8.40%, 04/15/2026 |
| 35,059 |
36,368 |
| 8.40%, 10/15/2026 |
| 35,812 |
38,641 |
| 8.40%, 04/15/2027 |
| 38,058 |
40,157 |
| 8.40%, 10/15/2027 |
| 39,558 |
41,672 |
| 8.40%, 04/15/2028 |
| 41,055 |
43,187 |
| 8.40%, 10/15/2028 |
| 42,557 |
45,460 |
| 8.40%, 04/15/2029 |
| 44,801 |
46,976 |
| 8.40%, 10/15/2029 |
| 46,304 |
49,249 |
| 8.40%, 04/15/2030 |
| 48,141 |
51,522 |
| 8.40%, 10/15/2030 |
| 50,362 |
53,037 |
| 8.40%, 04/15/2031 |
| 51,844 |
56,068 |
| 8.40%, 10/15/2031 |
| 54,806 |
57,583 |
| 8.40%, 04/15/2032 |
| 56,287 |
60,614 |
| 8.40%, 10/15/2032 |
| 59,250 |
62,887 |
| 8.40%, 04/15/2033 |
| 61,472 |
65,917 |
| 8.40%, 10/15/2033 |
| 64,434 |
68,190 |
| 8.40%, 04/15/2034 |
| 66,656 |
52,279 |
| 8.40%, 10/15/2034 |
| 51,103 |
|
| "The Well" Ministry of Rescue (c) (d) |
|
|
21,000 |
| 8.40%, 05/15/2020 |
| 10,714 |
22,000 |
| 8.40%, 11/15/2020 |
| 11,235 |
23,000 |
| 8.40%, 05/15/2021 |
| 11,702 |
24,000 |
| 8.40%, 11/15/2021 |
| 12,278 |
25,000 |
| 8.40%, 05/15/2022 |
| 12,793 |
26,000 |
| 8.40%, 11/15/2022 |
| 13,304 |
27,000 |
| 8.40%, 05/15/2023 |
| 13,767 |
28,000 |
| 8.40%, 11/15/2023 |
| 14,283 |
Connecticut | 1.10% |
| ||
|
| Full Gospel Foundation Building Ministries International |
| |
29,000 |
| 7.60%, 07/21/2026 |
| 28,420 |
33,000 |
| 7.60%, 07/21/2028 |
| 31,555 |
35,000 |
| 7.60%, 01/21/2029 |
| 33,093 |
36,000 |
| 7.60%, 07/21/2029 |
| 33,649 |
38,000 |
| 7.60%, 01/21/2030 |
| 35,074 |
39,000 |
| 7.60%, 07/21/2030 |
| 35,588 |
40,000 |
| 7.60%, 01/21/2031 |
| 36,080 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2015 (Unaudited)
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
42,000 |
| 7.60%, 07/21/2031 |
| $ 37,489 |
43,000 |
| 7.60%, 01/21/2032 |
| 37,831 |
45,000 |
| 7.60%, 07/21/2032 |
| 39,218 |
Florida | 14.41% |
| ||
|
| Abyssinia Missionary Baptist Church Ministries, Inc. (c) (d) |
| |
257,000 |
| 7.50%, 03/15/2027 |
| 126,830 |
166,000 |
| 7.50%, 09/15/2027 |
| 81,938 |
212,000 |
| 7.50%, 03/15/2028 |
| 104,643 |
120,000 |
| 7.50%, 09/15/2028 |
| 59,244 |
187,000 |
| 7.50%, 03/15/2029 |
| 92,341 |
145,000 |
| 7.50%, 09/15/2029 |
| 71,617 |
290,000 |
| 7.50%, 03/15/2030 |
| 143,260 |
332,000 |
| 7.50%, 09/15/2030 |
| 162,547 |
91,000 |
| 7.50%, 03/15/2031 |
| 44,554 |
|
| Bethel Baptist Institutional Church, Inc. (e) |
|
|
251,757 |
| 0.00%, 01/01/2022 (g) |
| 25 |
1,733,625 |
| 3.50%, 01/01/2022 * |
| 709,573 |
|
| Celebration Baptist Church of Jacksonville, Florida, Inc. (c) (d) |
| |
17,000 |
| 8.10%, 06/15/2015 |
| 16,983 |
33,000 |
| 8.20%, 12/15/2015 |
| 33,208 |
65,000 |
| 8.40%, 12/15/2020 |
| 65,533 |
69,000 |
| 8.40%, 06/15/2021 |
| 69,297 |
71,000 |
| 8.40%, 12/15/2021 |
| 71,710 |
74,000 |
| 8.40%, 06/15/2022 |
| 74,740 |
71,000 |
| 8.40%, 12/15/2022 |
| 71,710 |
10,000 |
| 8.40%, 06/15/2025 |
| 10,016 |
23,000 |
| 8.40%, 12/15/2026 |
| 23,051 |
24,000 |
| 8.40%, 06/15/2027 |
| 24,055 |
29,000 |
| 8.40%, 12/15/2029 |
| 29,093 |
32,000 |
| 8.40%, 12/15/2030 |
| 31,834 |
117,000 |
| 8.40%, 12/15/2032 |
| 116,392 |
84,000 |
| 8.40%, 12/15/2033 |
| 83,563 |
199,000 |
| 8.40%, 06/15/2034 |
| 197,965 |
70,000 |
| 8.40%, 12/15/2034 |
| 69,636 |
|
| LifePoint Community Church of Tampa Bay, Inc. |
|
|
25,000 |
| 8.40%, 04/20/2031 |
| 24,140 |
|
| Manifestations Worldwide, Inc. |
|
|
8,000 |
| 7.60%, 09/17/2024 |
| 7,799 |
29,000 |
| 7.60%, 03/17/2025 |
| 28,440 |
29,000 |
| 7.60%, 09/17/2025 |
| 28,362 |
31,000 |
| 7.60%, 03/17/2026 |
| 30,225 |
33,000 |
| 7.60%, 09/17/2026 |
| 32,043 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2015 (Unaudited)
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
33,000 |
| 7.60%, 03/17/2027 |
| $ 31,901 |
34,000 |
| 7.60%, 09/17/2027 |
| 32,711 |
36,000 |
| 7.60%, 03/17/2028 |
| 34,448 |
38,000 |
| 7.60%, 09/17/2028 |
| 35,997 |
38,000 |
| 7.60%, 03/17/2029 |
| 35,602 |
41,000 |
| 7.60%, 09/17/2029 |
| 37,966 |
41,000 |
| 7.60%, 03/17/2030 |
| 37,581 |
44,000 |
| 7.60%, 09/17/2030 |
| 39,912 |
44,000 |
| 7.60%, 03/17/2031 |
| 39,503 |
47,000 |
| 7.60%, 09/17/2031 |
| 41,698 |
48,000 |
| 7.60%, 03/17/2032 |
| 42,062 |
51,000 |
| 7.60%, 09/17/2032 |
| 44,406 |
52,000 |
| 7.60%, 03/17/2033 |
| 44,933 |
54,000 |
| 7.60%, 09/17/2033 |
| 46,375 |
56,000 |
| 7.60%, 03/17/2034 |
| 47,734 |
59,000 |
| 7.60%, 09/17/2034 |
| 49,908 |
60,000 |
| 7.60%, 03/17/2035 |
| 50,256 |
63,000 |
| 7.60%, 09/17/2035 |
| 52,372 |
65,000 |
| 7.60%, 03/17/2036 |
| 53,515 |
68,000 |
| 7.60%, 09/17/2036 |
| 55,502 |
70,000 |
| 7.60%, 03/17/2037 |
| 56,665 |
73,000 |
| 7.60%, 09/17/2037 |
| 58,802 |
76,000 |
| 7.60%, 03/17/2038 |
| 60,914 |
79,000 |
| 7.60%, 09/17/2038 |
| 63,287 |
|
| Iglesia Cristiana La Nueva Jerusalem, Inc. (c) (d) |
|
|
73,041 |
| 7.50%, 02/5/2027 |
| 41,772 |
95,214 |
| 7.50%, 02/5/2029 |
| 54,453 |
35,216 |
| 7.50%, 08/5/2029 |
| 20,140 |
65,215 |
| 7.50%, 02/5/2031 |
| 36,957 |
|
| Philadelphia Haitian Baptist Church of Orlando, Inc. (c) (d) |
| |
26,000 |
| 7.70%, 11/28/2012 |
| 10,124 |
33,000 |
| 7.70%, 05/28/2013 |
| 12,850 |
34,000 |
| 7.70%, 11/28/2013 |
| 13,240 |
35,000 |
| 7.80%, 05/28/2014 |
| 13,629 |
63,000 |
| 8.40%, 05/28/2021 |
| 24,639 |
64,000 |
| 8.40%, 11/28/2021 |
| 25,043 |
68,000 |
| 8.40%, 05/28/2022 |
| 26,622 |
32,000 |
| 8.40%, 11/28/2023 |
| 12,470 |
30,000 |
| 8.40%, 05/28/2024 |
| 11,694 |
33,000 |
| 8.40%, 11/28/2024 |
| 12,867 |
86,000 |
| 8.40%, 05/28/2025 |
| 33,540 |
91,000 |
| 8.40%, 11/28/2025 |
| 35,499 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2015 (Unaudited)
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
93,000 |
| 8.40%, 05/28/2026 |
| $ 36,289 |
98,000 |
| 8.40%, 11/28/2026 |
| 38,240 |
42,000 |
| 8.40%, 11/28/2031 |
| 16,271 |
154,000 |
| 8.40%, 05/28/2032 |
| 59,660 |
156,000 |
| 8.40%, 11/28/2032 |
| 60,434 |
|
| Truth For Living Ministries, Inc. (e) |
|
|
308,054 |
| 4.00%, 11/15/2022 |
| 134,897 |
Georgia | 5.27% |
| ||
|
| Bible Baptist Church of Newnan, Inc. (c) (d) |
|
|
32,000 |
| 7.60%, 03/01/2015 |
| 6,909 |
33,000 |
| 7.70%, 09/01/2015 |
| 7,141 |
39,000 |
| 7.80%, 03/01/2018 |
| 8,553 |
11,000 |
| 7.80%, 09/01/2018 |
| 2,405 |
45,000 |
| 7.80%, 09/01/2019 |
| 9,774 |
46,000 |
| 7.80%, 03/01/2020 |
| 10,000 |
48,000 |
| 7.80%, 09/01/2020 |
| 10,445 |
50,000 |
| 7.80%, 03/01/2021 |
| 10,890 |
56,000 |
| 7.90%, 09/01/2022 |
| 12,230 |
50,000 |
| 7.90%, 03/01/2023 |
| 10,930 |
38,000 |
| 7.90%, 03/01/2034 |
| 8,162 |
89,000 |
| 7.90%, 09/01/2035 |
| 19,313 |
159,000 |
| 7.90%, 03/01/2036 |
| 34,153 |
64,000 |
| 7.90%, 09/01/2036 |
| 13,888 |
51,000 |
| 8.00%, 09/01/2021 |
| 11,118 |
54,000 |
| 8.00%, 03/01/2022 |
| 11,783 |
|
| Victory Baptist Church of Loganville, Inc. |
|
|
67,000 |
| 7.90%, 01/15/2030 |
| 63,556 |
69,000 |
| 7.90%, 07/15/2030 |
| 64,743 |
72,000 |
| 7.90%, 01/15/2031 |
| 66,816 |
74,000 |
| 7.90%, 07/15/2031 |
| 67,917 |
78,000 |
| 7.90%, 01/15/2032 |
| 70,769 |
81,000 |
| 7.90%, 07/15/2032 |
| 72,706 |
84,000 |
| 7.90%, 01/15/2033 |
| 74,936 |
87,000 |
| 7.90%, 07/15/2033 |
| 77,047 |
90,000 |
| 7.90%, 01/15/2034 |
| 79,218 |
95,000 |
| 7.90%, 07/15/2034 |
| 83,078 |
98,000 |
| 7.90%, 01/15/2035 |
| 84,868 |
101,000 |
| 7.90%, 07/15/2035 |
| 86,840 |
106,000 |
| 7.90%, 01/15/2036 |
| 90,259 |
110,000 |
| 7.90%, 07/15/2036 |
| 93,005 |
115,000 |
| 7.90%, 01/15/2037 |
| 96,301 |
119,000 |
| 7.90%, 07/15/2037 |
| 99,210 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2015 (Unaudited)
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
123,000 |
| 7.90%, 01/15/2038 |
| $ 101,930 |
129,000 |
| 7.90%, 07/15/2038 |
| 106,722 |
Illinois | 3.03% |
| ||
|
| First Baptist Church of Melrose Park (c) (d) |
|
|
35,000 |
| 7.80%, 06/12/2019 |
| 35,032 |
37,000 |
| 7.80%, 12/12/2019 |
| 37,070 |
37,000 |
| 7.80%, 06/12/2020 |
| 37,111 |
40,000 |
| 7.80%, 12/12/2020 |
| 40,156 |
41,000 |
| 7.80%, 06/12/2021 |
| 41,000 |
42,000 |
| 7.80%, 12/12/2021 |
| 42,025 |
45,000 |
| 7.80%, 06/12/2022 |
| 45,054 |
50,000 |
| 7.90%, 12/12/2023 |
| 50,135 |
51,000 |
| 7.90%, 06/12/2024 |
| 50,837 |
54,000 |
| 7.90%, 12/12/2024 |
| 53,838 |
56,000 |
| 7.90%, 06/12/2025 |
| 55,843 |
43,000 |
| 7.90%, 06/12/2030 |
| 42,583 |
86,000 |
| 7.90%, 12/12/2030 |
| 85,166 |
24,000 |
| 7.90%, 12/12/2033 |
| 23,767 |
112,000 |
| 7.90%, 06/12/2034 |
| 110,914 |
117,000 |
| 7.90%, 12/12/2034 |
| 115,865 |
45,000 |
| 8.00%, 12/12/2022 |
| 45,333 |
48,000 |
| 8.00%, 06/12/2023 |
| 48,106 |
Indiana | 3.85% |
| ||
|
| Madison Park Church of God, Inc. (e) |
|
|
1,845,066 |
| 2.50%, 01/01/2033 |
| 1,076,411 |
|
| Mizpah, Inc. Ebenezer Missionary Baptist Church (c) (d) |
| |
24,000 |
| 7.90%, 12/22/2031 |
| 10,070 |
26,000 |
| 7.90%, 12/22/2032 |
| 10,910 |
27,000 |
| 7.90%, 06/22/2033 |
| 11,329 |
29,000 |
| 7.90%, 12/22/2033 |
| 12,168 |
29,000 |
| 7.90%, 06/22/2034 |
| 12,168 |
31,000 |
| 7.90%, 12/22/2034 |
| 13,008 |
32,000 |
| 7.90%, 06/22/2035 |
| 13,427 |
33,000 |
| 7.90%, 12/22/2035 |
| 13,847 |
34,000 |
| 7.90%, 06/22/2036 |
| 14,266 |
36,000 |
| 7.90%, 12/22/2036 |
| 15,106 |
38,000 |
| 7.90%, 06/22/2037 |
| 15,945 |
Louisiana | 2.66% |
| ||
|
| Living Way Apostolic Church, Inc. |
|
|
100,000 |
| 7.90%, 04/20/2030 |
| 94,410 |
103,000 |
| 7.90%, 10/20/2030 |
| 96,006 |
103,000 |
| 7.90%, 04/20/2031 |
| 95,100 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2015 (Unaudited)
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
15,000 |
| 7.90%, 10/20/2031 |
| $ 13,670 |
91,000 |
| 7.90%, 04/20/2032 |
| 82,228 |
121,000 |
| 7.90%, 10/20/2032 |
| 108,440 |
126,000 |
| 7.90%, 04/20/2033 |
| 112,115 |
136,000 |
| 7.90%, 04/20/2034 |
| 119,394 |
141,000 |
| 7.90%, 10/20/2034 |
| 122,515 |
Maryland | 0.13% |
| ||
|
| Ark of Safety Christian Church, Inc. (c) (d) |
|
|
40,000 |
| 8.00%, 04/15/2029 |
| 39,796 |
Massachusetts | 2.52% |
| ||
|
| Harvest Ministries of New England, Inc. |
|
|
76,000 |
| 7.30%, 02/20/2028 |
| 71,539 |
83,000 |
| 7.30%, 02/20/2029 |
| 76,219 |
85,000 |
| 7.30%, 08/20/2029 |
| 77,197 |
89,000 |
| 7.30%, 02/20/2030 |
| 79,842 |
95,000 |
| 7.30%, 02/20/2031 |
| 83,144 |
99,000 |
| 7.30%, 08/20/2031 |
| 85,506 |
63,000 |
| 7.30%, 08/20/2032 |
| 53,266 |
95,000 |
| 7.30%, 02/20/2033 |
| 79,686 |
114,000 |
| 7.30%, 08/20/2033 |
| 94,768 |
118,000 |
| 7.30%, 02/20/2034 |
| 97,480 |
Michigan | 0.20% |
| ||
|
| Living Bread Ministries, Inc. (c) (d) |
|
|
10,000 |
| 7.50%, 02/15/2016 |
| 3,622 |
21,000 |
| 7.50%, 08/15/2016 |
| 7,642 |
22,000 |
| 7.50%, 02/15/2017 |
| 8,019 |
22,000 |
| 7.50%, 08/15/2017 |
| 8,030 |
24,000 |
| 7.50%, 02/15/2018 |
| 8,731 |
24,000 |
| 7.50%, 08/15/2018 |
| 8,707 |
26,000 |
| 7.50%, 02/15/2019 |
| 9,422 |
26,000 |
| 7.50%, 08/15/2019 |
| 9,370 |
New Jersey | 0.98% |
| ||
|
| International Faith Ministries, Inc. (c) (d) |
|
|
13,000 |
| 7.90%, 05/10/2023 |
| 4,274 |
24,000 |
| 7.90%, 11/10/2023 |
| 7,896 |
15,000 |
| 7.90%, 05/10/2024 |
| 4,905 |
26,000 |
| 7.90%, 11/10/2024 |
| 8,505 |
16,000 |
| 7.90%, 05/10/2025 |
| 5,235 |
28,000 |
| 7.90%, 11/10/2025 |
| 9,162 |
22,000 |
| 7.90%, 11/10/2027 |
| 7,205 |
24,000 |
| 7.90%, 05/10/2028 |
| 7,862 |
35,000 |
| 7.90%, 11/10/2028 |
| 11,466 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2015 (Unaudited)
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
27,000 |
| 7.90%, 05/10/2029 |
| $ 8,848 |
37,000 |
| 7.90%, 11/10/2029 |
| 12,125 |
30,000 |
| 7.90%, 05/10/2030 |
| 9,747 |
41,000 |
| 7.90%, 11/10/2030 |
| 13,321 |
33,000 |
| 7.90%, 05/10/2031 |
| 10,722 |
33,000 |
| 7.90%, 11/10/2031 |
| 10,722 |
36,000 |
| 7.90%, 05/10/2032 |
| 11,696 |
48,000 |
| 7.90%, 11/10/2032 |
| 15,595 |
40,000 |
| 7.90%, 05/10/2033 |
| 12,996 |
44,000 |
| 7.90%, 05/10/2034 |
| 14,296 |
56,000 |
| 7.90%, 11/10/2034 |
| 18,194 |
48,000 |
| 7.90%, 05/10/2035 |
| 15,595 |
61,000 |
| 7.90%, 11/10/2035 |
| 19,819 |
52,000 |
| 7.90%, 05/10/2036 |
| 16,895 |
66,000 |
| 7.90%, 11/10/2036 |
| 21,443 |
61,000 |
| 7.90%, 05/10/2037 |
| 19,819 |
11,000 |
| 8.00%, 05/10/2022 |
| 3,632 |
22,000 |
| 8.00%, 11/10/2022 |
| 7,271 |
North Carolina | 0.14% |
| ||
|
| Accumulated Resources of Kindred Spirits (c) (d) |
|
|
60,726 |
| 7.75%, 12/01/2009 |
| 43,486 |
Ohio | 1.90% |
| ||
|
| Worldview Community Church (c) (d) |
|
|
14,456 |
| 7.50%, 06/12/2018 |
| 5,451 |
57,822 |
| 7.50%, 12/12/2020 |
| 21,735 |
59,749 |
| 7.50%, 06/12/2021 |
| 22,370 |
62,641 |
| 7.50%, 12/12/2021 |
| 23,471 |
70,343 |
| 7.60%, 06/12/2023 |
| 26,400 |
72,270 |
| 7.60%, 12/12/2023 |
| 27,137 |
75,161 |
| 7.60%, 06/12/2024 |
| 28,050 |
79,015 |
| 7.60%, 12/12/2024 |
| 29,496 |
80,942 |
| 7.60%, 06/12/2025 |
| 30,224 |
113,705 |
| 7.60%, 12/12/2029 |
| 42,526 |
122,377 |
| 7.60%, 12/12/2030 |
| 45,377 |
127,195 |
| 7.60%, 06/12/2031 |
| 47,164 |
105,032 |
| 7.60%, 06/12/2032 |
| 38,946 |
142,613 |
| 7.60%, 12/12/2032 |
| 52,881 |
147,431 |
| 7.60%, 06/12/2033 |
| 54,667 |
153,212 |
| 7.60%, 12/12/2033 |
| 56,811 |
64,534 |
| 8.00%, 06/12/2022 |
| 24,316 |
67,423 |
| 8.00%, 12/12/2022 |
| 25,425 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2015 (Unaudited)
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
Rhode Island | 2.58% |
| ||
|
| The Cathedral of Life Christian Assembly (c) (d) |
|
|
10,000 |
| 7.50%, 08/15/2016 |
| $ 6,825 |
11,000 |
| 7.50%, 08/15/2017 |
| 7,508 |
23,000 |
| 7.50%, 08/15/2020 |
| 15,665 |
23,000 |
| 7.50%, 02/15/2021 |
| 15,681 |
25,000 |
| 7.50%, 08/15/2021 |
| 16,975 |
25,000 |
| 7.50%, 02/15/2022 |
| 16,985 |
35,000 |
| 7.60%, 08/15/2026 |
| 23,706 |
37,000 |
| 7.60%, 02/15/2027 |
| 25,068 |
39,000 |
| 7.60%, 08/15/2027 |
| 26,426 |
40,000 |
| 7.60%, 02/15/2028 |
| 27,108 |
41,000 |
| 7.60%, 08/15/2028 |
| 27,790 |
43,000 |
| 7.60%, 02/15/2029 |
| 29,154 |
45,000 |
| 7.60%, 08/15/2029 |
| 30,515 |
46,000 |
| 7.60%, 02/15/2030 |
| 31,197 |
48,000 |
| 7.60%, 08/15/2030 |
| 32,266 |
50,000 |
| 7.60%, 02/15/2031 |
| 33,610 |
52,000 |
| 7.60%, 08/15/2031 |
| 34,954 |
53,000 |
| 7.60%, 02/15/2032 |
| 35,627 |
58,000 |
| 7.60%, 02/15/2033 |
| 38,988 |
60,000 |
| 7.60%, 08/15/2033 |
| 40,332 |
62,000 |
| 7.60%, 02/15/2034 |
| 41,676 |
65,000 |
| 7.60%, 08/15/2034 |
| 43,693 |
67,000 |
| 7.60%, 02/15/2035 |
| 45,037 |
70,000 |
| 7.60%, 08/15/2035 |
| 47,054 |
62,000 |
| 7.60%, 08/15/2036 |
| 41,676 |
58,000 |
| 7.60%, 02/15/2037 |
| 38,988 |
7,000 |
| 7.60%, 08/15/2037 |
| 4,705 |
26,000 |
| 8.00%, 08/15/2022 |
| 17,745 |
28,000 |
| 8.00%, 02/15/2023 |
| 19,110 |
Tennessee | 4.11% |
| ||
|
| Grace Christian Fellowship Church, Inc. (c) (d) |
|
|
38,000 |
| 8.40%, 07/18/2021 |
| 28,185 |
39,000 |
| 8.40%, 10/18/2021 |
| 28,938 |
40,000 |
| 8.40%, 01/18/2022 |
| 29,836 |
41,000 |
| 8.40%, 04/18/2022 |
| 30,598 |
41,000 |
| 8.40%, 07/18/2022 |
| 30,607 |
42,000 |
| 8.40%, 10/18/2022 |
| 31,370 |
44,000 |
| 8.40%, 01/18/2023 |
| 32,872 |
44,000 |
| 8.40%, 04/18/2023 |
| 32,701 |
45,000 |
| 8.40%, 07/18/2023 |
| 33,448 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2015 (Unaudited)
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
46,000 |
| 8.40%, 10/18/2023 |
| $ 34,206 |
47,000 |
| 8.40%, 01/18/2024 |
| 34,949 |
47,000 |
| 8.40%, 04/18/2024 |
| 34,747 |
34,000 |
| 8.40%, 07/18/2024 |
| 25,136 |
50,000 |
| 8.40%, 10/18/2024 |
| 36,970 |
51,000 |
| 8.40%, 01/18/2025 |
| 37,709 |
52,000 |
| 8.40%, 04/18/2025 |
| 38,459 |
54,000 |
| 8.40%, 10/18/2025 |
| 39,949 |
56,000 |
| 8.40%, 01/18/2026 |
| 41,423 |
56,000 |
| 8.40%, 04/18/2026 |
| 41,434 |
58,000 |
| 8.40%, 10/18/2026 |
| 42,920 |
60,000 |
| 8.40%, 01/18/2027 |
| 44,400 |
35,000 |
| 8.40%, 10/18/2028 |
| 25,921 |
30,000 |
| 8.40%, 01/18/2029 |
| 22,215 |
52,000 |
| 8.40%, 04/18/2029 |
| 38,516 |
20,000 |
| 8.40%, 07/18/2029 |
| 14,812 |
75,000 |
| 8.40%, 10/18/2029 |
| 55,560 |
77,000 |
| 8.40%, 01/18/2030 |
| 57,042 |
78,000 |
| 8.40%, 04/18/2030 |
| 57,307 |
81,000 |
| 8.40%, 07/18/2030 |
| 59,503 |
81,000 |
| 8.40%, 10/18/2030 |
| 59,511 |
21,000 |
| 8.40%, 04/18/2031 |
| 15,429 |
38,000 |
| 8.40%, 07/18/2031 |
| 27,915 |
88,000 |
| 8.40%, 10/18/2031 |
| 64,654 |
100,000 |
| 8.40%, 04/18/2033 |
| 73,470 |
Texas | 2.42% |
| ||
|
| Friendship West Baptist Church, Inc. |
|
|
200,000 |
| 7.40%, 06/15/2017 |
| 202,000 |
100,000 |
| 7.60%, 06/15/2018 |
| 101,000 |
|
| Iglesia Templo Jerusalen |
|
|
46,000 |
| 7.90%, 12/12/2027 |
| 45,121 |
58,000 |
| 7.90%, 06/12/2028 |
| 56,434 |
60,000 |
| 7.90%, 12/12/2028 |
| 57,840 |
48,000 |
| 7.90%, 06/12/2029 |
| 45,816 |
65,000 |
| 7.90%, 12/12/2029 |
| 61,432 |
68,000 |
| 7.90%, 06/12/2030 |
| 63,634 |
37,000 |
| 7.90%, 12/12/2032 |
| 33,015 |
36,000 |
| 7.90%, 06/12/2033 |
| 31,990 |
76,000 |
| 7.90%, 12/12/2033 |
| 66,918 |
Virginia | 0.00% |
| ||
|
| New Life Anointed Ministries International, Inc. (c) (d) |
|
|
171,000 |
| 7.80%, 06/21/2020 |
| 17 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2015 (Unaudited)
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
100,000 |
| 7.80%, 12/21/2020 |
| $ 10 |
64,000 |
| 7.80%, 06/21/2022 |
| 6 |
124,000 |
| 7.80%, 06/21/2023 |
| 12 |
60,000 |
| 7.80%, 12/21/2023 |
| 6 |
103,000 |
| 7.80%, 06/21/2024 |
| 10 |
115,000 |
| 7.80%, 12/21/2024 |
| 13 |
142,000 |
| 7.80%, 12/21/2025 |
| 14 |
Washington | 1.49% |
| ||
|
| Cascade Christian Center of Skagit Valley (e) |
|
|
597,290 |
| 4.00%, 10/20/2020 |
| 471,621 |
Washington, DC | 0.49% |
| ||
|
| Metropolitan Baptist (c) (d) |
|
|
77,000 |
| 8.20%, 01/12/2015 |
| 22,569 |
80,000 |
| 8.30%, 07/12/2015 |
| 23,448 |
98,000 |
| 8.40%, 01/12/2018 |
| 29,135 |
45,000 |
| 8.40%, 07/12/2018 |
| 13,347 |
100,000 |
| 8.40%, 01/12/2027 |
| 29,160 |
130,000 |
| 8.40%, 01/12/2033 |
| 37,908 |
|
|
|
|
|
Total Church Mortgage Bonds (Cost $28,754,793) | 58.08% | 18,388,757 | ||
|
|
|
|
|
CHURCH MORTGAGE LOANS (b) |
|
| ||
|
|
|
|
|
California | 2.53% |
| ||
|
| Mount Olive Missionary Baptist Church of Fresno (d) |
|
|
907,554 |
| 3.50%, 05/31/2014 |
| 800,554 |
Georgia | 2.82% |
| ||
|
| God First Breakthrough Ministries, Inc. (e) |
|
|
1,072,899 |
| 10.50%, 03/01/2015 |
| 894,905 |
Nevada | 1.10% |
| ||
|
| Iglesia Christiana Verbo De Dios, Inc. (e) |
|
|
349,235 |
| 0.00%, 01/01/2014 |
| 347,488 |
New Jersey | 2.01% |
| ||
|
| Igreja Batista Do Calvario |
|
|
736,715 |
| 10.50%, 08/01/2015 |
| 636,966 |
Texas | 3.45% |
| ||
|
| Pleasant Grove Missionary Baptist Foundation (d) (f) |
|
|
1,294,261 |
| 7.50%, 08/01/2033 |
| 1,092,486 |
|
|
|
|
|
Total Church Mortgage Loans (Cost $4,360,667) | 11.91% | 3,772,399 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2015 (Unaudited)
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
U.S. TREASURY OBLIGATIONS | 5.83% |
| ||
|
|
|
|
|
1,850,000 |
| U.S. Treasury Bill, 0.275%, 1/07/2016 (Cost $1,848,489) | $ 1,847,410 | |
|
|
|
|
|
OPEN-END MUTUAL FUND | 4.67% |
| ||
|
|
|
|
|
137,868 |
| Vanguard Short-Term Investment Grade Fund (h) (Cost $1,500,000) | 1,477,941 | |
|
|
|
|
|
SHORT TERM INVESTMENTS | 19.23% |
| ||
|
|
|
|
|
Money Market Fund |
|
| ||
6,089,473 |
| Fifth Third Institutional Money Market - 0.01% (h)* (Cost $6,089,473) | 6,089,473 | |
|
|
|
|
|
Total Investments - (Cost $42,553,422) | 99.72% | $31,575,980 | ||
|
|
|
|
|
|
|
|
|
|
ASSETS IN EXCESS OF LIABILITIES | 0.28% | 87,212 | ||
|
|
|
|
|
Net Assets | 100.00% | $31,663,192 |
(a) The Issuer has the right to redeem the Bonds on any quarterly anniversary of the issue date, in whole or in part, without premium or penalty. The Issuer does not have the right to extend the terms of the offering. The Bonds are generally considered to be illiquid due to the limited, if any, secondary market.
(b) The Mortgagee has the right to prepay the Loans at any time. The Loans are generally considered to be illiquid due to the limited, if any, secondary market. The Fund participates in the principal and interest payments from the Mortgagee with the California Baptist Foundation's Church Loan Fund. See Note 3.
(c) Represents non-income producing security.
(d) Security is in default or is delinquent on interest or principal payments. As a result, further action towards the issuer is being taken by the trustee on behalf of bondholders, in the form of a demand letter, foreclosure, forbearance, liquidation of the underlying collateral or bankruptcy of the issuer.
(e) The trustee of the issuer has completed restructuring of the bond and/or mortgage. The restructured terms reduced the interest rate and/or shortened the maturity period.
(f) Security is considered income producing; however, interest payments received during the period represented only a portion of the total interest due.
(g) Issuer of security, as a part of the restructure of the bond, will receive a credit of ten percent (10%) of the principal for each year the Issuer fullfils its obligations under the restructuring agreement with the Trustee. The bonds are priced to reflect the portion of the principal the Fund believes it will receive.
(h) Mutual funds are priced at their NAV as of March 31, 2015.
* Variable rate security; the coupon rate shown represents the yield at March 31, 2015.
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2015 (Unaudited)
Assets: |
|
|
Investments in Securities, at Fair Value (Cost $42,553,422) | $ 31,575,980 | |
|
|
|
Interest and Dividends Receivable | 193,695 | |
Total Assets | 31,769,675 | |
|
|
|
Liabilities: |
|
|
Accrued Audit Fees | 43,081 | |
Accrued Service Fees (Note 4) | 11,710 | |
Accrued Management Fees (Note 4) | 10,093 | |
Accrued Insurance Expense | 8,004 | |
Accrued Compliance Fees (Note 4) | 5,759 | |
Accrued Administrative Fees (Note 4) | 2,019 | |
Accrued Trustee Expense | 3,187 | |
Other Accrued Expenses | 22,630 | |
Total Liabilities | 106,483 | |
Net Assets |
| $ 31,663,192 |
|
|
|
Net Assets Consist of: |
| |
Paid In Capital | $ 45,366,612 | |
Distributions in Excess of Accumulated Undistributed Net Investment Income | (535,101) | |
Accumulated Realized Loss on Investments | (2,190,877) | |
Unrealized Depreciation in Fair Value of Investments | (10,977,442) | |
Net Assets, for 1,807,527 Shares Outstanding (6,200,000 Shares Authorized) | $ 31,663,192 | |
|
|
|
Net Asset Value per share ($31,663,192/1,807,527 shares) | $ 17.52 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
STATEMENT OF OPERATIONS
For the six months ended MARCH 31, 2015 (Unaudited)
Investment Income: |
| |
Interest |
| $ 916,698 |
Insurance Claim Proceeds (Note 9) | 106,889 | |
Dividends |
| 13,452 |
Total Investment Income | 1,037,039 | |
|
|
|
Expenses: |
|
|
Advisory Fees (Note 4) | 59,297 | |
Audit Fees | 43,081 | |
Service Fees (Note 4) | 39,776 | |
Transfer Agent and Accounting Fees (Note 4) | 23,935 | |
Miscellaneous Fees | 19,321 | |
Compliance Fees (Note 4) | 15,627 | |
Legal Fees | 14,231 | |
Insurance Expense | 12,006 | |
Administrative Fees (Note 4) | 11,859 | |
Printing & Mailing | 8,872 | |
Trustees' Retainer and Meeting Expenses | 7,979 | |
Registration Fees | 7,480 | |
Custody Fees | 4,280 | |
Total Expenses | 267,744 | |
Voluntary Expense Waiver from the Distributor (Note 4) | (15,941) | |
Net Expenses | 251,803 | |
|
|
|
Net Investment Income | 785,236 | |
|
|
|
Realized and Unrealized Gain/(Loss) on Investments: |
| |
Realized Loss on Investments | (436,065) | |
Net Change in Unrealized Depreciation on Investments | 175,244 | |
Realized and Unrealized Gain/(Loss) on Investments | (260,821) | |
|
|
|
Net Increase in Net Assets Resulting from Operations | $ 524,415 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
|
| Six Months Ended March 31, |
| Year Ended September 30, |
|
|
| ||
|
|
| ||
|
| 2015 |
| 2014 |
|
| (Unaudited) |
|
|
Increase (Decrease) in Net Assets From Operations: |
|
|
| |
Net Investment Income | $ 785,236 |
| $ 1,578,192 | |
Net Realized Loss on Investments | (436,065) |
| (345,404) | |
Change in Unrealized Appreciation (Depreciation) on Investments | 175,244 |
| 586,792 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 524,415 |
| 1,819,580 | |
|
|
|
|
|
Distributions to Shareholders: |
|
|
| |
Net Investment Income | (782,770) |
| (1,591,069) | |
Total Dividends and Distributions Paid to Shareholders | (782,770) |
| (1,591,069) | |
|
|
|
|
|
Capital Share Transactions: |
|
|
| |
Shares Issued on Reinvestment of Dividends | 178,435 |
| 399,909 | |
Cost of Shares Repurchased | - |
| (1,692,107) | |
Net Increase (Decrease) from Shareholder Activity | 178,435 |
| (1,292,198) | |
|
|
|
|
|
Net Assets: |
|
|
|
|
Net Decrease in Net Assets | (79,920) |
| (1,063,687) | |
Beginning of Period | 31,743,112 |
| 32,806,799 | |
End of Period (Including Distributions in Excess of Accumulated |
|
|
| |
Undistributed Net Investment Loss of ($535,101) and ($537,567), respectively) | $31,663,192 |
| $ 31,743,112 | |
|
|
|
|
|
Share Transactions: |
|
|
| |
Shares Issued on Reinvestment of Dividends | 9,937 |
| 22,454 | |
Shares Repurchased | - |
| (94,426) | |
Net Increase (Decrease) in Shares | 9,937 |
| (71,972) | |
Outstanding at Beginning of Period | 1,797,590 |
| 1,869,562 | |
Outstanding at End of Period | 1,807,527 |
| 1,797,590 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
STATEMENT OF CASH FLOWS
For the six months ended MARCH 31, 2015 (Unaudited)
Cash flows from operating activities: |
| |
Net increase in net assets resulting from operations | $ 524,415 | |
Adjustments to reconcile net increase in net assets from |
| |
operations to net cash provided by operating activities: |
| |
| Proceeds from disposition of long-term investment securities | 9,917,269 |
| Purchase of long-term investment securities | (7,383,650) |
| Purchase of short-term investments, net | (2,748,806) |
| Decrease in interest and dividends receivable | 60,409 |
| Decrease in accrued expenses | (26,123) |
| Decrease in unrealized depreciation on investments | (175,244) |
| Realized loss from investments | 436,065 |
Net cash provided by operating activities | $ 604,335 | |
|
|
|
Cash flows provided by/(used for) financing activities: |
| |
| Distributions paid in cash | $ (604,335) |
Net cash provided by (used for) financing activities | ��(604,335) | |
|
|
|
Net increase/(decrease) in cash | $ - | |
|
|
|
Cash (excluding short-term investments): |
| |
| Beginning balance | - |
| Ending balance | $ - |
|
|
|
Supplemental disclosure of cash flow information: |
| |
Noncash financing activities not included herein consist of reinvestment of dividends | ||
of $178,435. |
|
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout the period.
|
| Six Months |
|
|
|
|
|
|
|
| ended |
|
|
|
|
|
|
|
| March 31, |
| Year ended September 30, | ||||
|
| 2015 |
| 2014 | 2013 | 2012 | 2011 | 2010 |
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, at Beginning of Period (a) | $ 17.66 |
| $ 17.55 | $ 16.81 | $ 20.94 | $ 22.02 | $ 23.59 | |
|
|
|
|
|
|
|
|
|
Income From Investment Operations: |
|
|
|
|
|
|
| |
Net Investment Income (b) | 0.44 |
| 0.84 | 0.17 | 0.45 | 0.86 | 1.15 | |
Net Gain/(Loss) on Securities (Realized and Unrealized) | (0.14) |
| 0.12 | 0.86 | (4.12) | (1.00) | (1.51) | |
Total from Investment Operations | 0.30 |
| 0.96 | 1.03 | (3.67) | (0.14) | (0.36) | |
|
|
|
|
|
|
|
|
|
Distributions: |
|
|
|
|
|
|
|
|
Net Investment Income | (0.44) |
| (0.85) | (0.29) | (0.46) | (0.94) | (1.21) | |
Total from Distributions | (0.44) |
| (0.85) | (0.29) | (0.46) | (0.94) | (1.21) | |
|
|
|
|
|
|
|
|
|
Repurchase Fees | - |
| - | - | - | - | - | |
|
|
|
|
|
|
|
|
|
Market Value (c) | $ - |
| $ - | $ - | $ - | $ - | $ - | |
|
|
|
|
|
|
|
|
|
Total Return (d) | 1.69% |
| 5.60% | 6.15% | (17.85)% | (0.68)% | (1.72)% | |
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data: |
|
|
|
|
|
|
| |
Net Assets at End of Period (Thousands) | $ 31,663 |
| $31,743 | $ 32,807 | $ 32,928 | $ 45,214 | $49,217 | |
Before Reimbursements, Waivers and Recoupments |
|
|
|
|
|
| ||
Ratio of Expenses to Average Net Assets | 1.68%(e ) |
| 2.23% | 5.41% | 2.10% | 1.92% | 1.14% | |
Ratio of Net Investment Income (Loss) to Average Net Assets | 4.84%(e ) |
| 4.64% | 0.86% | 2.22% | 3.88% | 4.83% | |
After Reimbursements, Waivers and Recoupments |
|
|
|
|
|
| ||
Ratio of Expenses to Average Net Assets | 1.58%(e ) |
| 2.13% | 5.31% | 2.00% | 1.82% | 1.06% | |
Ratio of Net Investment Income (Loss) to Average Net Assets | 4.94%(e ) |
| 4.74% | 0.96% | 2.32% | 3.98% | 4.91% | |
Portfolio Turnover | 27.97% |
| 3.60% | 11.91% | 0.00% | 0.00% | 0.00% | |
Average Short-term Borrowing Outstanding | $ - |
| $ - | $210,411 | $752,877 | $1,163,836 | $ - | |
Weighted Average Fund Shares Outstanding (Thousands) | 1,802 |
| 1,875 | 1,960 | 2,056 | 2,144 | N/A | |
Average Short-term Borrowing Outstanding Per Share | N/A |
| N/A | $ 0.11 | $ 0.37 | $ 0.54 | N/A | |
Asset Coverage | N/A |
| N/A | N/A | 2844% | 3868% | N/A |
(a) Price does not include sales charge.
(b) Amount calculated based on average shares outstanding throughout the period.
(c) There is no established secondary market for the Fund's shares.
(d) Total return is computed assuming shares are purchased and redeemed at the Fund's net asset value and excludes the effect of sales charges and repurchase fees. Dividends are assumed to be reinvested at the Fund's net asset value. A maximum sales charge of up to 1.50%, unless waived or reduced, was applicable to sales of Fund shares beginning January 29, 2009. Effective August 1, 2010, the maximum sales charge of up to 3.25%, unless waived or reduced, was applicable to sales of Fund shares. (Not annualized for periods less than one year.)
(e ) Annualized
N/A Not applicable
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2015 (Unaudited)
(1)
ORGANIZATION
The Capstone Church Capital Fund (the "Fund") is a non-diversified closed-end management investment company. The Fund was organized as a Delaware statutory trust in October 2004, and is registered with the Securities and Exchange Commission (“SEC”). The Fund’s principal business is managing its assets invested primarily in mortgage bonds and mortgage loan obligations issued by churches and other Christian non-profit organizations that have a stated Christian mission (“Borrowers”). Church mortgage bonds are corporate debt securities issued by U.S. local churches, denominations and associations, educational institutions, and other Christian mission related organizations for purposes including construction, purchase or refinancing of existing real property. Church mortgage loans are obligations of Borrowers issued for various purposes, including construction, property purchases or refinancing of existing real property. The Fund may invest up to 20% of its net assets plus any borrowings for investment purposes in short-term money market instruments and other non-church mortgage bond and non-church mortgage loan investments. Investments in short-term money market instruments will reduce the Fund’s overall portfolio maturity and may reduce the Fund’s yield.
Effective January 24, 2013, the Fund was closed to new share sales. Currently, there is no established secondary market for the Fund’s shares nor is one expected to develop. Pursuant to a fundamental policy in effect, on November 29, 2010, the Fund received shareholder approval to make an offer to repurchase annually, in September, at net asset value, a portion of its outstanding shares. The percentage of the outstanding shares subject to repurchase is set annually by the Board of Trustees and will be no less than 5% and no more than 25% of the Fund’s outstanding shares. As of September 30, 2011, the deadline for submitting repurchase requests is 4:00PM Eastern Time on the last business day of August of each year. The Fund’s net asset value for the repurchase offer is computed no more than 14 days after the repurchase deadline. See Note 5.
(2)
INVESTMENT OBJECTIVE
The Fund’s investment objective is to provide a high level of current income. Its investments are primarily in church mortgage bonds and church mortgage loans.
(3)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund.
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
MARCH 31, 2015 (Unaudited)
Security Valuation
The Fund’s investments in church mortgage bonds and church mortgage loans are generally considered to be illiquid due to the limited, if any, secondary market for these bonds. In the absence of such secondary market, the Fund values investments in church bonds and mortgages on the basis of readily available market quotations, if available. Lacking such quotations, the Fund values such bonds and mortgages using a pricing service when such prices are believed to reflect fair value. Church bonds and mortgages with no readily available market quotations or pricing service valuations are fair valued using policies approved by and under the general oversight of the Board of Trustees.
In determining fair value, all relevant qualitative and quantitative factors available are considered. These factors are subject to change over time and are reviewed periodically. Capstone Asset Management Company’s (“CAMCO” or “Adviser”) fair valuation process is reviewed and refined by the Adviser’s internal Valuation Committee no less than monthly and is subject to quarterly review and approval from the Fund’s Board of Trustees.
For performing Level 3 bonds and mortgages for which there is an available valuation published by an independent pricing service, the inputs are developed using various valuation methodologies such as matrix pricing, broker quotations and market transactions. Inputs may include price information, specific and broad credit data, corporate yield curves, yields of new issue church bonds, information related to principal and interest payments, as well as other factors. Certain inputs used by the pricing service are not observable and may be considered proprietary.
When a price from an independent pricing service is unavailable, the Adviser’s internal Valuation Committee will use the Market or Income Approach, whichever is appropriate.
Fair value may be determined using a matrix formula (Market Approach) that derives a price based on relevant factors, including principal amount, interest rate, term, credit quality and spreads determined under a church bond benchmark yield curve. The Adviser constructs and maintains a benchmark yield curve based on new issue church bonds and mortgages meeting the Fund’s investment requirements. The Adviser obtains credit research and analysis from various industry sources, including an underwriter of church bonds and mortgages. The Market Approach is sensitive to changes in the yield of new church bond and mortgage issues and the discount rate applied to the matrix. A reduced yield causes the price to increase. An increased discount rate causes the price to decrease.
When the bond or mortgage issue becomes delinquent on sinking fund or mortgage payments or when significant principal or balloon payments are due within the next 3 years, it is the judgment of the Adviser that the credit quality of the issuer may be impacted. Pursuant to fair value procedures adopted by the Fund’s Board of Trustees, the Adviser, under these circumstances, may determine an adjustment to the matrix price. The relevant inputs that the Adviser may consider in establishing the fair value include, but would not be limited to:
-
the general conditions in the church bond market and the overall financial market
-
the transaction price of any recent sales or purchases of the security
-
the transaction price, maturity and yield-to-maturity of any other fixed income security of the issuer
-
the estimated value of the underlying collateral
-
the issuer’s payment history, including the consideration of default on interest payments and/or delinquency of sinking fund payments and/or balloon payments; as well as conditions for accrual of interest and consideration of the collectability of accrued interest
In addition, the fair value procedures have specific provisions for treatment of defaulted bonds and mortgages. When it becomes more than a remote possibility that foreclosure proceedings are probable, the Adviser will take an Income Approach to the valuation of the securities. The relevant inputs that the Adviser may consider in using the Income Approach to determine a fair value include, but would not be limited to:
-
any current independent appraisal values
-
any current listing price or related data
-
index adjusted appraisal values based on published real estate sources
-
estimated costs associated with the disposition of the property
-
risk adjusted discount rate
-
estimated time to sell in years
-
probability of foreclosure
The Income Approach is sensitive to changes in property value, costs associated with the disposition of property, discount rates, estimated time to sell and the probability of foreclosure. An increase in a property value causes the fair value to increase, conversely a decrease in an appraisal value causes fair value to decrease. Such movements in the property value would be deemed to have the most significant impact on fair value under the Income Approach. An increase in costs associated with disposition of property, discount rates, estimated time to sell and the probability of foreclosure cause the fair value to decrease. A decrease to the aforementioned types of changes cause the fair value to increase.
The Adviser may also incorporate a probability analysis into its valuation approach for certain defaulted bonds and mortgages, whereby the value of the bond or mortgage is derived from a weighted assessment by the Adviser of the potential options for the resolution of the issuer's debt (restructuring, foreclosure, payoff at par, etc.), and the Adviser's consideration of the likelihood of each outcome.
Additionally, the Fund’s investments in church mortgage loans represent participations in the principal and interest payments from the Mortgagee with the California Baptist Foundation’s Church Loan Fund (“Loan Fund”).The trustee of the investments held by the Loan Fund (including the participations in church mortgage loans with the Fund) is actively seeking to liquidate and/or restructure all of the Loan Fund’s investments. In determining the fair value of the church mortgage loans, the Adviser also considers the potential results of the trustee’s actions, including restructuring, refinance, and acceleration of payments or other liquidation of property collateralizing the church mortgage loans. For mortgages that have been restructured, the Adviser is currently valuing such mortgages under the Income Approach until additional information is available as to the church's ability to perform under the revised terms.
Because of the inherent uncertainty of valuations determined by utilizing the above procedures, the estimated fair values may differ significantly from the values that another party might estimate or that would have been used had a ready market for the investments existed. The differences could be material. The estimated fair values may also be influenced by various market trends and can fluctuate significantly. As a result, it is reasonably possible that management’s estimate of fair value may have significant changes in the near term.
U.S. Treasury Obligations held in the Fund’s portfolio may be valued on the basis of prices furnished by one or more pricing services that determine prices for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities that are generally recognized by institutional traders. In certain circumstances, portfolio securities will be valued at the last sale price on the exchange that is the primary market for the securities, or the mean price for those securities for which the over-the-counter market is the primary market or for listed securities in which there were no sales during the day. Short-term obligations held by the Fund that mature in 60 days or less are valued at the amortized cost if their original term to maturity when acquired by the Fund was 60 days or less, or are valued at amortized cost using their value on the 61st day prior to maturity if their original term to maturity when acquired by the Fund was more that 60 days, unless in each case this is determined not to represent fair value. Repurchase agreements will be valued at cost plus accrued interest. Securities for which there exist no price quotations or valuations and all other assets are valued at fair value as determined in good faith by or on behalf of the Trustees. The Level 1 investments in open-end mutual funds and money market funds are generally priced at the respective open-end mutual fund's or money market fund's ending Net Asset Value (“NAV”).
In determining fair value, the Fund uses various valuation approaches. GAAP establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1- Quoted prices in active markets for identical assets or liabilities and NAVs for open-end mutual funds and money market funds.
Level 2- Other significant observable inputs, including, but not limited to, quoted prices in markets that are not active, quoted prices for similar securities, interest rates, prepayment speeds and credit risks.
Level 3- Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments).
Pursuant to these valuation policies, U.S. Treasury debt securities may be categorized as Level 1, and church mortgage bonds and church mortgage loans are generally categorized as Level 3. For Level 3 securities the Fund uses a pricing service (a) only for those securities that are performing; (b) only if there are no readily available market quotations for those securities; and (c) only when such pricing service prices are believed to reflect fair value of the securities.
The following table presents information about the Fund’s assets measured at fair value as of March 31, 2015:
Assets | Quoted Prices in | Significant Other |
|
March 31, 2015 |
Church Mortgage Bonds | $ - | $ - | $ 18,388,757 | $ 18,388,757 |
Church Mortgage Loans | - | - | 3,772,399 | 3,772,399 |
Open-End Mutual Fund | 1,477,941 | - | - | 1,477,941 |
U.S. Government Obligations | 1,847,410 | - | - | 1,847,410 |
Short Term Investments | 6,089,473 | - | - | 6,089,473 |
| $ 9,414,824 | $ - | $ 22,161,156 | $ 31,575,980 |
It is the Fund’s policy to recognize transfers between levels at the end of the reporting period. There were no transfers between levels during the six months ended March 31, 2015.
See the Schedule of Investments for state classification of church mortgage bonds and loans.
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
| Church Mortgage Bonds | Church Mortgage Loans | Total |
Balance as of 10/1/2014 | $ 22,995,414 | $ 3,806,907 | $ 26,802,321 |
Accrued Accretion/(Amortization) | - | - | - |
Unrealized Appreciation/(Depreciation) | 168,455 | 11,722 | 180,177 |
Realized Gain/(Loss) | (439,236) | - | (439,236) |
Gross Sales and Paydowns | (9,871,037) | (46,230) | (9,917,267) |
Gross Restructures | 5,535,161 | - | 5,535,161 |
Transfers In/(Out) of Level 3 | - | - | - |
Balance as of 3/31/2015 | $ 18,388,757 | $ 3,772,399 | $ 22,161,156 |
The total change in unrealized appreciation/(depreciation) for the six months ended March 31, 2015 included in the Statement of Operations attributable to Level 3 investments still held at March 31, 2015, includes:
|
| Change in Unrealized |
|
| Appreciation/(Depreciation) |
Church Mortgage Bonds |
| $ 168,455 |
Church Mortgage Loans |
| 11,722 |
Total |
| $ 180,177 |
The following is a summary of quantitative information about significant unobservable valuation inputs approved by the Adviser's internal Valuation Committee in accordance with procedures adopted by the Board for Level 3 Fair Value Measurements for investments held at March 31, 2015:
Type of Assets | Fair Value at March 31, 2015 | Valuation Techniques | Significant Unobservable Input(s) | Range |
|
|
|
|
|
Church Mortgage Bonds and Loans | $ 14,386,533 | Income Approach | Disposition costs | 11% - 32% |
Discount rate | 3.4% - 4.3% | |||
Time to sell | 1 - 3 years | |||
|
|
|
|
|
Church Mortgage Bonds and Loans | $1,411,587 | Market Approach | New issue bond yield | 5.6% - 7.6% |
Discount | .50 basis points | |||
| $ 15,798,120 |
|
|
|
|
|
|
|
|
Church Mortgage Bonds | $ 6,666,036 | Vendor Pricing |
|
|
Total | $ 22,161,156 |
|
|
|
Security Transactions and Investment Income
For financial reporting purposes, portfolio security transactions are recorded on the trade date. Net realized gains and losses from security transactions are reported on an identified cost basis for both financial reporting and federal income tax purposes. Interest income, adjusted for accretion of discounts and amortization of premiums, is recorded on the accrual basis. Debt obligations are placed in a non-accrual status and related interest income reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful as identified by the Adviser as part of the valuation process. Debt obligations that have been restructured or have been previously placed on a non-accrual status will reinstate interest accruals, once the Fund has received two consecutive payments on time and have no indication from the trustee that the restructured debt obligor is delinquent. The treatment of such accruals and receivables may be different for federal income tax purposes.
Purchases (including restructures) and sales of investment securities (excluding short-term investments, U.S. government and U.S. government agency securities) aggregated $5,535,161 and $9,917,269, respectively, for the six months ended March 31, 2015.
Dividends and Distributions
Effective October 1, 2010, dividends are declared and paid quarterly. Distributions from net realized capital gains, if any, will be declared and distributed at least annually.
Income dividends and capital gains distributions are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP, primarily due to timing differences in the recognition of income, gains and losses by the Fund. These book and tax accounting differences primarily relate to the tax recognition of interest income which is different from book interest income. This differential between book and tax results in a required increase in distributions from net investment income. To the extent that these differences are attributable to permanent book and tax accounting differences, the components of net assets have been adjusted.
Federal Income Taxes
The Fund intends to qualify as a regulated investment company under Sub-chapter M of the Internal Revenue Code and accordingly will generally not be subject to federal and state income taxes or federal excise taxes to the extent that the Fund intends to make sufficient distributions of net investment income and net realized capital gains. For the six months ended March 31, 2015, the Fund qualified under these provisions and accordingly, no provision for federal income tax has been made.
As of and during the six months ended March 31, 2015, the Fund did not have a liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Fund’s Statement of Operations. During the six months ended March 31, 2015, the Fund did not incur any interest or penalties. The Fund is subject to examination by U.S. federal tax authorities for tax years ending September 30, 2011 and after. For all open tax years, management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Further, management of the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of any unrecognized tax benefits will significantly change over the next fiscal year.
(4)
INVESTMENT ADVISORY FEE AND OTHER AGREEMENTS
CAMCO, a wholly-owned subsidiary of Capstone Financial Services, Inc. (“CFS”), serves as investment adviser to the Fund under an advisory agreement. CAMCO provides investment advisory and administrative services to other investment companies, pension and profit-sharing accounts, corporations and individuals. Subject to the authority of the Board of Trustees, the Adviser provides the Fund with continuous investment advisory services in accordance with an investment advisory agreement (the "Advisory Agreement") between the Adviser and the Fund. As compensation for its services as investment adviser, the Fund pays CAMCO, on a monthly basis, an investment advisory fee. Effective April 1, 2014, the Board of Trustees approved an amendment to the Advisory Agreement to reduce the investment advisory fees. Under the amended Advisory Agreement, the investment advisory fees are calculated daily at the annual rate of 0.375% on the first $500 million of the Fund’s average daily net assets. The rate declines to 0.325% on the next $500 million, and to 0.250% on average daily net assets in excess of $1 billion. For the six months ended March 31, 2015, the Fund incurred advisory fees of $59,297.
CFS Consulting Services, LLC (“CCS”), an affiliate of CAMCO and a wholly owned subsidiary of CFS, serves as administrator for the Fund under an agreement that took effect January 12, 2012. For its services as administrator, CCS receives a monthly fee from the Fund calculated at the annual rate of 0.075% on the first $500 million of the Fund's average daily net assets. The rate declines to 0.06% on the next $500 million and to 0.05% on average daily net assets in excess of $1.0 billion. For the six months ended March 31, 2015, the Fund incurred total administrative fees of $11,859.
CCS, pursuant to a Compliance Services Agreement, provided certain compliance services for the Fund and the Board, including the services of the Chief Compliance Officer (“CCO”) for the Fund. Effective April 1, 2014, the Board approved an amendment to the Compliance Services Agreement to add breakpoints to the rate for these compliance services. The Board also approved moving CCO services into a separate agreement, with no change in CCO fees. Under the amended Compliance Services Agreement, the Fund pays CCS a monthly fee at the annual rate of 0.025% of the first $500 million of the Fund’s average daily net assets for compliance services. The rate declines to 0.020% of the next $500 million, and to 0.015% of average daily net assets over $1 billion. As before, under the separate CCO agreement effective April 1, 2014, CCO compensation is paid monthly at an annual rate of $21,000. For the six months ended March 31, 2015, the Fund incurred compliance service and CCO fees of $15,627.
Capstone Asset Planning Company (“CAPCO” or “ Distributor”), an affiliate of CAMCO and a wholly-owned subsidiary of CFS, acts as the principal underwriter of the Fund’s shares pursuant to a written agreement with the Fund ("Distribution Agreement"). The Distributor has the exclusive right to distribute shares of the Fund through unaffiliated dealers. The Distributor's obligation is an agency or "best efforts" arrangement under which the Distributor is required to take and pay for only such Fund shares as may be sold to the public. The Distributor is not obligated to sell any stated number of shares. During the six months ended March 31, 2015, the Distributor did not receive sales charges. As noted earlier, the Fund is currently closed to new share sales. A maximum sales charge of 1.50% was applicable to the sale of Fund shares from January 29, 2009 through July 31, 2010. From August 1, 2010 through January 24, 2013, a maximum sales charge of 3.25% was applicable to the sale of Fund shares. Sales charges were waived for qualified fee-based financial advisors and non-profit organizations that have a stated Christian mission and that invested at least $50,000 in the Fund.
The Fund has adopted a Service Plan (the "Plan") which permits the Fund to compensate the Distributor for services and expenses incurred in connection with providing services to the Fund’s shareholders. These services include, but are not limited to, the payment of compensation to securities dealers (which may include the Distributor itself) and other financial institutions and organizations (collectively, "Service Organizations") to obtain various shareholder services for the Fund. These services include, among other things, payments to employees or agents of the Distributor who assist in or support the provision of shareholder services, processing new shareholder account applications, preparing and transmitting to the Fund’s Transfer Agent information on transactions by customers and serving as the primary source of information to customers in answering questions concerning the Fund and their transactions with the Fund. The Plan provides that payments will be made to the Distributor at an annual rate of 0.25% of the average daily net assets of the Fund. Out of its compensation and subject to applicable regulatory requirements, the Distributor may make reallowances to Service Organizations, the amount of such reallowances to be based on the average daily net asset value of shares of the Fund held by shareholders for whom the Service Organization provides services. Any remaining amounts not so allocated will be retained by the Distributor. During the six months ended March 31, 2015, fees accrued under the Plan were $39,776.
Certain officers and one Trustee of the Fund are also officers of CFS, CAMCO, CAPCO and CCS.
Mutual Shareholder Services, LLC (“MSS”) serves as the Fund’s transfer agent and fund accountant. Under the terms of the Shareholder Servicing Agreement, MSS will be paid annual per account fees. Under the terms of the Accounting Agreement, MSS is entitled to a monthly fee calculated at the annual rate of $46,000 on average net assets up to $50 million in addition to fees related to transfer agency services and certain other out of pocket expenses. For the six months ended March 31, 2015, the Fund incurred transfer agent and accounting fees and expenses of $23,935.
(5)
REPURCHASE OFFERS
Pursuant to the Fund’s fundamental policy (Note 1), the Board of Trustees authorized the Fund to offer to repurchase 5% of its outstanding shares on August 29, 2014. In accordance with SEC guidelines, the Fund’s Board of Trustees can authorize an additional 2% of the shares outstanding if tendered shares exceed the offered amount.
There were no repurchases of shares associated with the annual repurchase offer during the six months ended March 31, 2015.
The Fund will, under normal circumstances, price such shares that are repurchased in connection with a repurchase offer at the Fund’s net asset value (“NAV”) determined after the close of business not more than 14 calendar days following the Repurchase Request Deadline (or on the next business day if the fourteenth day is not a business day). Applicable regulations provide that a repurchase offer may be suspended only under limited specified circumstances.
(6)
FEDERAL INCOME TAXES
As of September 30, 2014, the cost of investments, gross unrealized appreciation and depreciation of investment securities and components of distributable earnings on a tax basis were as follows:
Cost of Investments | $ 43,425,510 |
Gross unrealized appreciation | $ 16,515 |
Gross unrealized depreciation | (11,820,411) |
Net unrealized depreciation | (11,803,896) |
Undistributed ordinary income | 52,898 |
Undistributed Realized Long Term Capital Gain/(Loss) | (1,686,066) |
Total distributable earnings | $(13,437,064) |
As of September 30, 2014, the difference between total distributable earnings on a book basis and tax basis is due primarily to timing differences in recognizing certain organizational expenses related to the commencement of operations. The difference between the cost of investments on a book basis and tax basis is due primarily to the differing treatment for the recognition of interest income, and post-October loss deferral of $68,746.
As of September 30, 2014, the Fund had a capital loss carryforward totaling $1,686,066. Of that amount $1,899 expires on September 30, 2016, and $1,240 expires on September 30, 2017, and both are treated as short-term capital losses. The remaining $1,682,927 has no expiration and is treated as long-term capital losses.
The tax character of distributions paid for six months ended March 31, 2015 was as follows:
Ordinary income | $ 782,770 |
The tax character of distributions paid for year ended September 30, 2014 was as follows:
Ordinary income | $ 1,591,069 |
(7)
SIGNIFICANT RISKS
Concentration Risk. Because the Fund invests principally in church-related obligations that are collateralized by interests in real property, it can be adversely affected by negative developments impacting church-related institutions, as well as by negative developments impacting real property generally. Such developments could include changes in tax or zoning laws, changes in government policies toward church-related institutions, and interest rate and other general economic changes, as well as changes affecting particular neighborhoods.
Church Mortgage Bonds and Loans. There is less readily available, reliable information about most church mortgage bonds and church mortgage loans than is the case for many other types of securities. In addition, there is no nationally recognized independent rating organization that evaluates or provides ratings for church mortgage bonds or church mortgage loans or for borrowers.
Illiquidity. Church mortgage bonds and church mortgage loans are not listed on any national securities exchange or automated quotation system and no active trading market exists for these instruments. As a result, church mortgage bonds and church mortgage loans are generally illiquid, meaning that the Fund may not be able to sell them quickly at a fair price. The risks of illiquidity are particularly important when the Fund's operations require cash, and may in certain circumstances require that the Fund borrow to meet short-term cash requirements. The market for illiquid securities is more volatile than the market for liquid securities. To the extent that a secondary market does exist for church mortgage bonds and church mortgage loans, the market may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods. The Fund has no limitation on the amount of its assets that may be invested in securities that are not readily marketable or that are subject to restrictions on resale. The fact that a substantial portion of the Fund's assets will generally be invested in church mortgage bonds and church mortgage loans may restrict the ability of the Fund to dispose of its investments in a timely fashion and at a fair price, and sales of these investments could result in capital losses to the Fund and a decline in the value of shares. An economic downturn, adverse developments affecting real estate or churches, or a substantial increase or decrease in interest rates would adversely affect the value of the Fund's portfolio instruments, and thus of its shares, and would further limit the ability of the Fund to dispose of portfolio securities. The economic downturn and adverse developments affecting real estate in recent years have had such negative effects on the Fund. Illiquid securities are also difficult to value, meaning that the Fund's calculated net asset value may not accurately reflect the value that could be obtained for its assets upon sale. See Note 9.
Risk of Subordination. Church mortgage bonds and church mortgage loans are subject to the risk that a court, pursuant to fraudulent conveyance or other similar laws, could subordinate these instruments to presently existing or future indebtedness of the borrower or take other action detrimental to holders of the bonds or loans. Such court action could under certain circumstances include invalidation of bonds or loans.
Borrower Credit Risk. Church mortgage bonds and church mortgage loans, like most other debt obligations, are subject to the risk of default. Default in the payment of interest or principal on a church mortgage bond or church mortgage loan results in a reduction in income to the Fund, a reduction in the value of the church mortgage bond or church mortgage loan and a decrease in the Fund's net asset value per share. The risk of default increases in the event of an economic downturn, adverse developments affecting real estate or churches, or a substantial increase in interest rates. The economic downturn and adverse developments affecting real estate in recent years have had such negative effects on the Fund
In the event of bankruptcy of a particular issuer, the trustee with respect to a particular obligation may have discretion as to whether to liquidate the underlying collateral unless otherwise requested by the holders of a specified percentage of the outstanding unpaid principal amount of the obligation. There is no assurance that the trustee will decide to liquidate, or that the Fund will, alone, satisfy any applicable percentage test to require liquidation. There is also no assurance that the court will give the trustee the full benefit of its senior positions. In the event the trustee decides, or is required, to liquidate the collateral for a church mortgage bond or church mortgage loan, there is no assurance that a buyer will be found or that the sale of the collateral would raise enough cash to satisfy the borrower's payment obligation. If the terms of a church mortgage bond or church mortgage loan do not require the borrower to pledge additional collateral in the event of a decline in the value of the original collateral, the Fund will be exposed to the risk that the value of the collateral will not at all times equal or exceed the amount of the borrower's obligations under the church mortgage bond or church mortgage loan.
General Credit Risk. The Fund’s investments in church mortgage bonds and church mortgage loans and other securities may have speculative characteristics and changes in economic conditions or other circumstances may lead, and in recent years have led, to a weakened capacity to make principal and interest payments relative to obligations deemed of higher quality.
Interest Rate and Maturity Risk. When interest rates fall, the values of already issued fixed income securities generally increase. When interest rates rise, the values of already issued fixed income securities generally decline. The Fund has stopped purchasing church bonds and mortgages in the Fund at this time. Therefore the stated maturity of the performing securities continues to decline over time. It is impossible to speculate when any non-performing securities may mature or have a partial prepayment. When securities have a prepayment, are refinanced or mature, the Fund reinvests the money in liquid, public corporate bonds, and funds that invest in such bonds and money market instruments which typically earn lower rates of interest than church bonds or mortgages. Investors should be aware that the longer the maturity of a fixed rate instrument, the greater the risk. Risks include a greater risk of borrower or issuer default and greater risk that interest rates will rise, which will negatively impact the value of the Fund's portfolio investments and the Fund's shares. Due to the illiquidity of the church mortgage bond and church mortgage loan markets, the Fund may be limited in its ability to turn over its investments to obtain instruments with more attractive rates of return.
Non-Diversified Status. The Fund has registered as a "non-diversified" investment company. This means that it may invest more than 5% of the value of its assets in the obligations of any single issuer, including obligations of a single borrower and thus is likely to have more of its assets invested in fewer issuers than if it were operated as a diversified investment company. The Fund does intend, however, to satisfy tax diversification requirements necessary to enable it to be taxed as a regulated investment company.
Cash Investment Risk. Under normal market conditions, the Fund may invest up to 20% of its net assets, plus the amount of any borrowings for investment purposes, in high-quality short-term debt securities, including money market funds, and open-end bond investment companies, and may invest up to 100% of its assets in such instruments for temporary defensive purposes. Under applicable regulatory requirements, the Fund also, for specified periods, is required to maintain liquid assets sufficient to satisfy its repurchase offers. (See Note (5) “Repurchase Offers,” above.) Such liquid investments are likely to include such short-term debt securities. These instruments are normally lower yielding than the Fund's Church Securities investments and may reduce the Fund's yield and overall portfolio maturity. Additionally, if the Fund’s cash flow from Share sales and payments on Fund portfolio securities is insufficient to replenish its cash reserves to the extent required by applicable regulations to satisfy its repurchase obligations, it will be forced to borrow funds or seek regulatory or other solutions that may increase Fund expenses. See also, "Investment in Other Investment Companies".
Real Estate Risk. Because the Fund’s Church Securities are backed by real estate, these investments are vulnerable to factors that affect the particular real estate and the local and national real estate markets. These factors include changes in local or national economic or employment conditions, which factors have negatively affected the value of the Fund’s Church Securities since 2009. Other factors affecting the value of real estate investments include, but are not limited to, changes in interest rates or in zoning or tax laws, overbuilding, environmental problems, maintenance problems, operating costs and population changes. Such factors affect not only the value of the collateral backing the Borrowers’ obligations, but also the ability of Borrowers to raise cash to meet these obligations by selling real estate. Property tax liens would also affect the availability of cash to pay other creditors in the event of a sale of the real estate, through foreclosure or otherwise. Furthermore, in the case of Church Securities, the property backing the securities may have limited suitability for other purpose.
Prepayment Risk. The maximum maturity of the performing securities in the Church Capital Fund is 24 years. It is impossible to speculate when any nonperforming securities may mature or have a partial prepayment. In the event of prepayment, which can come from refinancing, a call or early payment of principal, in a lower or falling interest rate environment, the Fund would be required to reinvest the prepayment proceed in lower-yielding obligations.
Valuation Risk. Because of the inherent uncertainty of valuations of Church Securities determined by utilizing the Fund’s procedures, the estimated fair values may differ significantly from the values that another party might estimate or that would have been used had a ready market for the investments existed. The differences could be material.
Discount Risk. There is no active trading market for Fund Shares. Therefore, a shareholder who wishes to sell his or her Shares and does not wish to participate in, or wait for, an annual repurchase offer, or is not successful in having those Shares repurchased in an annual repurchase offer, will have difficulty selling the Shares in the secondary market and there is a significant risk that any such sale would be at a significant discount from the net asset value of the Shares.
Investment in Other Investment Companies. The Fund may invest in shares of other investment companies ("funds"). The Fund bears a proportional share of the expenses of such other funds, which are in addition to those of the Fund. For example, the Fund will bear a portion of such other funds' investment advisory fees, although the fees paid by the Fund to the Adviser will not be proportionally reduced.
(8)
CONTINGENCIES AND COMMITMENTS
Under the Fund’s organizational documents its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain various representations and warranties and provide general indemnifications. The Fund’s maximum exposure under these arrangements is dependent on future claims against the Fund and is presently unknown. However, the Fund considers the risk of loss from such potential claims to be remote.
(9) OTHER MATTERS
The Securities and Exchange Commission's Enforcement Division (“SEC”) sent a letter to the Fund dated January 27, 2014, which explained that they had concluded their investigation and that they did not intend to recommend an enforcement action by the SEC. The January 27, 2014, letter also stated that according to SEC guidelines, the letter must not be construed to indicate that either CAMCO, CAPCO, or any of their employees, current or present, had been exonerated or that no actions may ultimately result from the SEC’s investigation.
The Fund and CAMCO received insurance reimbursements for the recovery of a portion of the expenses in connection with this investigation and the Financial Industry Regulatory Authority (“FINRA”) investigation, discussed in the September 30, 2013 Annual Report. These proceeds, as well as the expenses incurred in connection with this investigation, were allocated to CAMCO and the Fund based on an apportionment methodology determined by management and approved by the Board of Trustees. Total insurance reimbursements amounted to $694,017, and is reflected in investment income in the Statement of Operations for the year ended September 30, 2014. Subsequent to September 30, 2014, an additional reimbursement of $100,213 and $6,676 were received and recorded on November 18, 2014 and March 11, 2015, respectively. These reimbursements are reflected in investment income in the Statement of Operations for the six months ended March 31, 2015.
As disclosed in the preceding footnotes, the Fund has certain obligations in the upcoming year, including the repurchase of shares from Fund shareholders in accordance with the Fund’s annual repurchase offer, requiring specific timely payments. These obligations, along with the cash flow required to continue operation of the Fund, require the Fund to be able to timely liquidate certain holdings, or enter into borrowings, in order to meet these obligations. Management of the Fund believes that at this time the Fund has sufficient liquidity, without borrowing, to satisfy its obligations for at least the next 24 months.
CAPSTONE CHURCH CAPITAL FUND
ADDITIONAL INFORMATION
MARCH 31, 2015 (Unaudited)
PROXY VOTING GUIDELINES
Because the securities in which the Fund invests do not have voting rights, the Fund does not have proxy voting guidelines.
PORTFOLIO HOLDINGS DISCLOSURE POLICY
The Fund files a complete schedule of investments with the SEC for the first and third quarter of each fiscal year on Form N-Q. The Fund’s first and third fiscal quarters end on December 31 and June 30. The Form N-Q filing must be made within 60 days of the end of the quarter. The Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC (call 1-800-732-0330 for information on the operation of the Public Reference Room). You may also obtain copies by calling the Fund at 1-800-262-6631.
DISCUSSION OF REVIEW AND APPROVAL OF ADVISORY CONTRACT FOR CAPSTONE CHURCH CAPITAL FUND
At its meeting held March 3, 2015, the Board of Trustees (“Board” or “Trustees”) of Capstone Church Capital Fund (“Fund”) conducted its review of the investment advisory contract between the Fund and Capstone Asset Management Company (“CAMCO”). Its continuation was approved unanimously by the full Board and by the independent Trustees.
In advance of the meeting, the Board had received extensive information on CAMCO’s business activities; the investment advisory, administrative, compliance and customer account services provided by CAMCO and its affiliates to the Fund; the fees paid for these services; the staff performing these services; the Fund’s performance history; the Fund’s portfolio management process, CAMCO’s brokerage and soft dollar practices; various Fund expenses; various regulatory, compliance and shareholder relations matters; a report on CAMCO’s profitability with respect to the Fund; and other information designed to inform the Board of any ancillary benefits received by CAMCO and its affiliates from their relationship with the Fund.
In connection with the Board’s review, Mr. Edward Jaroski, President of CAMCO and of the Fund updated the independent Trustees about CAMCO’s business, including CAMCO’s assets under management, additions to its staff and certain functional rearrangements within the organization, as well as future plans. He also discussed the relationship between CAMCO’s parent, Capstone Financial Services, and its controlling shareholder, Steward Financial Holdings, LLC and his view of the future of this relationship. The independent Trustees then met separately with the Fund’s Chief Compliance Officer to discuss compliance activities related to the Fund and an ongoing independent review of the Fund’s and CAMCO’s regulatory compliance procedures. In their separate meeting with Fund counsel, the independent Trustees noted the significant difficulties of managing the Fund under market conditions prevailing in the past several
CAPSTONE CHURCH CAPITAL FUND
ADDITIONAL INFORMATION (Continued)
MARCH 31, 2015 (Unaudited)
years, as well as the substantial costs in both dollars and personnel time in dealing with questions raised by both regulators and auditors regarding the Fund. Of particular significance was the decision of the Securities and Exchange Commission not to pursue its enforcement action related to the Fund. In the independent Trustees’ view, this was consistent with the Trustees’ firm belief that CAMCO, as well as the Board, had done their best to deal with a very difficult environment for the Fund, the risks of which had been fully disclosed to investors. The independent Trustees noted that there continued to be significant challenges in managing Capstone Church Capital Fund’s portfolio, even though, under current market conditions, the Fund is not pursuing new investment opportunities. The independent Trustees also noted that CAMCO was reviewing various options for the Fund’s future, including possibly winding down the Fund at some point in the future – although no decisions had yet been made in this regard. The analysis was focused on fashioning a feasible plan for the Fund that would best serve the interests of the Fund’s shareholders. Despite the continuing challenges for CAMCO with Capstone Church Capital Fund, the independent Trustees were favorable to the proposed advisory fee reduction, which they expected would be welcomed by the Fund’s shareholders. The independent Trustees also reviewed extensive information regarding the Fund’s other service agreements with CAMCO affiliates and fees paid by the Fund under those agreements. This review included a review of the Fund’s administration, compliance services and distribution agreements, its Service Plan and amounts paid under those agreements and plan. They considered the overall quality of services provided to the Fund by CAMCO and its affiliates as well as the profitability to CAMCO and its affiliates of their relationship with the Fund. The independent Trustees also reviewed the Fund’s expenses and expense ratio information along with the insurance recovery amount that was received by the Fund and distributed in dividend payments to Fund shareholders. After a full discussion of these matters, the independent Trustees unanimously determined to approve the continuation of the Fund’s investment advisory agreement, and to recommend that the full Board also approve the agreement. Their approval was followed by unanimous approval of the agreement by the full Board of Trustees. The continuation of the service agreements with CAMCO affiliates, and the Service Plan were also approved.
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Item 2. Code of Ethics.
Not applicable to this filing.
Item 3. Audit Committee Financial Expert.
Not required to be included in this filing.
Item 4. Principal Accountant Fees and Services.
Not required to be included in this filing.
Item 5. Audit Committee of Listed Companies.
Not required to be included in this filing.
Item 6. Schedule of Investments.
A Schedule of Investments is included as a part of the report to shareholders filed under Item 1 of this Form N-CSR.
Item 7. Proxy Voting Policies and Procedures.
Not required to be included in this filing.
Item 8. Portfolio Manager of Closed-End Funds.
(a)
Not required to be included in this filing.
(b)
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Funds.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
The registrant has not adopted procedures by which shareholders may recommend nominees to the registrant's Board of Trustees.
Item 11. Controls and Procedures.
(a)
The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the registrant’s disclosure controls and procedures as conducted within 90 days of the filing date of this report, that these disclosure controls and procedures are adequately designed and are operating effectively to ensure that information required to be disclosed by the registrant on Form N-CSR is (i) accumulated and communicated to the registrant’s management, including its certifying officers, to allow timely decisions regarding required disclosure; and (ii) recorded, processed summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b)
There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-(3)) that occurred during the second fiscal quarter of the period covered by this report that have materially affected or are reasonably likely to materially affect the registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1)
Not Applicable.
(a)(2)
Certifications pursuant to Rule 30a-2(a) are attached hereto.
(a)(3)
Not applicable.
(b)
Certifications pursuant to Rule 30a-2(a) are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CAPSTONE CHURCH CAPITAL FUND
By /s/Edward L. Jaroski
Edward L. Jaroski
President
Date June 4, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /s/Edward L. Jaroski
Edward L. Jaroski
President
Date June 4, 2015
By /s/Carla Homer
Carla Homer
Treasurer
Date June 4, 2015