N-CSR/A churchncsra 20150930.htm
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, Suite250
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
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: September 30, 2015
The Registrant is filing this Amendment to its Certified Shareholder Report on Form N-CSR filed with the Securities and Exchange Commission for the period ended September 30, 2015, originally filed with the Securities and Exchange Commission on December 10, 2015 (Accession Number 0001162044-15-001283), in order to reflect the missing information of the trustee. Other than the aforementioned revision, this Form N-CSR/A does not reflect events occurring after the filing of the original Form N-CSR, or modify or update the disclosures therein in any way.
Item 1. Reports to Stockholders.
This Page Was Left Blank Intentionally
Dear Shareholder:
This is the Annual Report of the Capstone Church Capital Fund for the year ended September 30, 2015. The Capstone Church Capital Fund is an investment company focused on investing in church mortgage bonds and church mortgage loans. The 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 fixed income market has been waiting a long time for the Fed to increase interest rates. It looks like we will have to wait a little longer. The U.S. economy has shown slow improvement in jobs and GDP and inflation has remained very low due in part to the significant decline in commodity prices. This type of environment is usually one in which the Fed is willing to raise rates. However, the Fed has decided not to raise rates till sometime in the future, possibly December, 2015. There remains the fear that this recovery is still fragile and weak commodity prices, indicating falling demand, would support that view. At the last meeting the Fed also raised the concern about certain global markets that have been weak. However, an increase in rates appears to be priced into the fixed income markets and it’s hard to imagine that a rise in rates of the magnitude that most economists are looking for would derail the U.S. economy. Fixed income assets have an inverse relationship with interest rates. Therefore, as rates trend higher, market values will move lower.
A trend in the U.S. bond markets is one of increased borrowing. Some of this borrowing is based on weak markets like the energy sector but much of it is because companies believe rates will be rising in the near future and they want to lock in the lower rates now. Much of this is being seen in increased merger activity. At some point in the future this increased borrowing will result in lower credit rating for the borrowers and in some cases, difficulties in meeting their obligations. So far this year, downgrades outnumber upgrades.
The biggest concern outside of the U.S. is the turmoil around the world. Syria is in midst of a civil war that is complicated by the emergence of ISIS. Russia has been drawn into the conflict. We have seen acts of terrorism around the world, most recently in Paris. These events inevitably lead investors to the U.S. bond market because of the safety that it represents. Interest rate levels are of secondary importance when safety of principal becomes paramount. Lost in the headlines is slowing growth in China which is having a ripple effect around the world. Lower commodity prices are certainly reflective of China’s reduced demand.
The demand for U.S. Treasuries should continue with the unrest around the world. That demand will likely dampen the effect of any rate increase by the Fed.
Performance
The Capstone Church Capital Fund produced a (1.28)% total return for the year ended September 30, 2015. The Barclays Capital U.S. Government/Credit Index returned 2.73% for the same period.
The returns generated by the Capstone Church Capital Fund continue to reflect the fluctuations 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. In addition, to a lesser degree, the returns reflect movements in the bond market. 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. Not all of the holdings of the fund have benefited from the improving economy. In addition, the Capstone Church Capital Fund has agreed with the Trustees of the mortgages 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.
In addition to foreclosures, where the church properties are sold, the fund has sold bonds from time to time when there is an interested buyer. The proceeds from these sales are reinvested in safe investments, short term investment grade corporate bonds and U.S. Treasury securities, so the fund can meet its obligations under the annual repurchase offer. The fund has to be cautious in determining the annual repurchase offer amount since the church bond and mortgage market is still very illiquid.
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 properties if need be. The congregations appear to have stabilized. Some churches have restructured their bond or mortgage 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.
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
SEPTEMBER 30, 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 | 13.63% |
| Connecticut | 1.16% |
| Florida | 14.88% |
| Georgia | 7.48% |
| Illinois | 2.25% |
| Indiana | 4.24% |
| Louisiana | 2.75% |
| Maryland | 0.14% |
| Massachusetts | 2.64% |
| Michigan | 0.15% |
| Nevada | 1.13% |
| New Jersey | 2.20% |
| North Carolina | 0.15% |
| Ohio | 1.94% |
| Rhode Island | 3.07% |
| Tennessee | 4.59% |
| Texas | 5.45% |
| Virginia | - |
| Washington | 1.58% |
| Washington, DC | 0.54% |
| Total Bonds and Mortgages | 69.97% |
Other |
|
|
| U.S. Treasury Obligations | 18.41% |
| Open-End Mutual Fund | 5.06% |
| Short-Term Investments | 5.96% |
| Other | 0.60% |
|
| 100.00% |
* Percentages indicated are based on total net assets as of September 30, 2015.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2015
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
CHURCH MORTGAGE BONDS (a) |
|
| ||
|
|
|
|
|
California |
|
| ||
|
| Sonrise Baptist Church of Clovis (e) | 11.39% |
|
359,774 |
| 7.50%, 06/01/2020 |
| $ 183,808 |
389,514 |
| 7.50%, 06/01/2020 |
| 199,003 |
|
| Trinity Southern Baptist Church of Livermore, California |
|
|
111,000 |
| 7.30%, 03/18/2030 |
| 97,835 |
128,000 |
| 7.30%, 09/18/2030 |
| 110,029 |
143,000 |
| 7.30%, 03/18/2032 |
| 114,886 |
148,000 |
| 7.30%, 09/18/2032 |
| 116,787 |
159,000 |
| 7.30%, 09/18/2033 |
| 123,018 |
98,000 |
| 7.30%, 03/18/2034 |
| 75,333 |
|
| The United Pentecostal Church of Modesto, Inc. (c) (d) |
|
|
20,000 |
| 7.50%, 11/21/2020 |
| 13,373 |
43,000 |
| 7.50%, 05/21/2021 |
| 28,781 |
43,000 |
| 7.50%, 11/21/2021 |
| 28,670 |
45,000 |
| 7.50%, 05/21/2022 |
| 30,020 |
51,000 |
| 7.60%, 11/21/2023 |
| 34,082 |
53,000 |
| 7.60%, 05/21/2024 |
| 35,433 |
55,000 |
| 7.60%, 11/21/2024 |
| 36,550 |
56,000 |
| 7.60%, 05/21/2025 |
| 37,225 |
59,000 |
| 7.60%, 11/21/2025 |
| 39,231 |
62,000 |
| 7.60%, 05/21/2026 |
| 41,231 |
66,000 |
| 7.60%, 05/21/2027 |
| 43,910 |
69,000 |
| 7.60%, 11/21/2027 |
| 45,919 |
71,000 |
| 7.60%, 05/21/2028 |
| 47,258 |
73,000 |
| 7.60%, 11/21/2028 |
| 48,595 |
86,000 |
| 7.60%, 11/21/2030 |
| 56,782 |
89,000 |
| 7.60%, 05/21/2031 |
| 58,763 |
92,000 |
| 7.60%, 11/21/2031 |
| 60,743 |
96,000 |
| 7.60%, 05/21/2032 |
| 63,385 |
99,000 |
| 7.60%, 11/21/2032 |
| 65,365 |
103,000 |
| 7.60%, 05/21/2033 |
| 68,006 |
112,000 |
| 7.60%, 05/21/2034 |
| 73,948 |
115,000 |
| 7.60%, 11/21/2034 |
| 75,930 |
|
| Victory Christian Center of the Desert, Inc. (c) (d) |
|
|
22,730 |
| 8.40%, 10/15/2020 |
| 21,810 |
23,488 |
| 8.40%, 04/15/2021 |
| 22,537 |
24,245 |
| 8.40%, 10/15/2021 |
| 23,239 |
25,761 |
| 8.40%, 04/15/2022 |
| 24,715 |
26,518 |
| 8.40%, 10/15/2022 |
| 25,444 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 2015
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
27,276 |
| 8.40%, 04/15/2023 |
| $ 26,212 |
28,791 |
| 8.40%, 10/15/2023 |
| 27,530 |
30,307 |
| 8.40%, 04/15/2024 |
| 28,992 |
31,065 |
| 8.40%, 10/15/2024 |
| 29,545 |
32,580 |
| 8.40%, 04/15/2025 |
| 30,993 |
34,095 |
| 8.40%, 10/15/2025 |
| 32,442 |
35,610 |
| 8.40%, 04/15/2026 |
| 33,891 |
36,368 |
| 8.40%, 10/15/2026 |
| 34,619 |
38,641 |
| 8.40%, 04/15/2027 |
| 36,790 |
40,157 |
| 8.40%, 10/15/2027 |
| 38,241 |
41,672 |
| 8.40%, 04/15/2028 |
| 39,692 |
43,187 |
| 8.40%, 10/15/2028 |
| 41,140 |
45,460 |
| 8.40%, 04/15/2029 |
| 43,315 |
46,976 |
| 8.40%, 10/15/2029 |
| 44,763 |
49,249 |
| 8.40%, 04/15/2030 |
| 46,939 |
51,522 |
| 8.40%, 10/15/2030 |
| 48,698 |
53,037 |
| 8.40%, 04/15/2031 |
| 50,131 |
56,068 |
| 8.40%, 10/15/2031 |
| 52,995 |
57,583 |
| 8.40%, 04/15/2032 |
| 54,427 |
60,614 |
| 8.40%, 10/15/2032 |
| 57,292 |
62,887 |
| 8.40%, 04/15/2033 |
| 59,440 |
65,917 |
| 8.40%, 10/15/2033 |
| 62,305 |
68,190 |
| 8.40%, 04/15/2034 |
| 64,454 |
52,279 |
| 8.40%, 10/15/2034 |
| 49,414 |
|
| "The Well" Ministry of Rescue (c) (d) |
|
|
21,000 |
| 8.40%, 05/15/2020 |
| 10,861 |
22,000 |
| 8.40%, 11/15/2020 |
| 11,389 |
23,000 |
| 8.40%, 05/15/2021 |
| 11,919 |
24,000 |
| 8.40%, 11/15/2021 |
| 12,446 |
25,000 |
| 8.40%, 05/15/2022 |
| 12,978 |
26,000 |
| 8.40%, 11/15/2022 |
| 13,497 |
27,000 |
| 8.40%, 05/15/2023 |
| 14,040 |
28,000 |
| 8.40%, 11/15/2023 |
| 14,484 |
Connecticut | 1.16% |
| ||
|
| Full Gospel Foundation Building Ministries International |
|
|
29,000 |
| 7.60%, 07/21/2026 |
| 27,840 |
33,000 |
| 7.60%, 07/21/2028 |
| 31,175 |
35,000 |
| 7.60%, 01/21/2029 |
| 32,767 |
36,000 |
| 7.60%, 07/21/2029 |
| 33,340 |
38,000 |
| 7.60%, 01/21/2030 |
| 34,561 |
39,000 |
| 7.60%, 07/21/2030 |
| 34,714 |
40,000 |
| 7.60%, 01/21/2031 |
| 34,828 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 2015
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
42,000 |
| 7.60%, 07/21/2031 |
| $ 35,826 |
43,000 |
| 7.60%, 01/21/2032 |
| 35,819 |
45,000 |
| 7.60%, 07/21/2032 |
| 36,792 |
Florida | 14.88% |
| ||
|
| Abyssinia Missionary Baptist Church Ministries, Inc. (c) (d) |
|
|
257,000 |
| 7.50%, 03/15/2027 |
| 121,330 |
166,000 |
| 7.50%, 09/15/2027 |
| 78,385 |
212,000 |
| 7.50%, 03/15/2028 |
| 100,128 |
120,000 |
| 7.50%, 09/15/2028 |
| 56,688 |
187,000 |
| 7.50%, 03/15/2029 |
| 88,357 |
145,000 |
| 7.50%, 09/15/2029 |
| 68,527 |
290,000 |
| 7.50%, 03/15/2030 |
| 137,054 |
332,000 |
| 7.50%, 09/15/2030 |
| 156,936 |
91,000 |
| 7.50%, 03/15/2031 |
| 42,634 |
|
| Bethel Baptist Institutional Church, Inc. (e) |
|
|
251,757 |
| 0.00%, 01/01/2022 (f) |
| 25 |
1,712,156 |
| 3.50%, 01/01/2022 |
| 763,622 |
|
| Celebration Baptist Church of Jacksonville, Florida, Inc. (c) (d) |
| |
17,000 |
| 8.10%, 06/15/2015 |
| 14,593 |
33,000 |
| 8.20%, 12/15/2015 |
| 28,287 |
65,000 |
| 8.40%, 12/15/2020 |
| 56,199 |
69,000 |
| 8.40%, 06/15/2021 |
| 59,719 |
71,000 |
| 8.40%, 12/15/2021 |
| 61,500 |
74,000 |
| 8.40%, 06/15/2022 |
| 64,158 |
71,000 |
| 8.40%, 12/15/2022 |
| 61,606 |
10,000 |
| 8.40%, 06/15/2025 |
| 8,595 |
23,000 |
| 8.40%, 12/15/2026 |
| 19,782 |
24,000 |
| 8.40%, 06/15/2027 |
| 20,644 |
29,000 |
| 8.40%, 12/15/2029 |
| 24,969 |
32,000 |
| 8.40%, 12/15/2030 |
| 27,325 |
117,000 |
| 8.40%, 12/15/2032 |
| 99,906 |
84,000 |
| 8.40%, 12/15/2033 |
| 71,727 |
199,000 |
| 8.40%, 06/15/2034 |
| 169,926 |
70,000 |
| 8.40%, 12/15/2034 |
| 59,773 |
|
| LifePoint Community Church of Tampa Bay, Inc. |
|
|
25,000 |
| 8.40%, 04/20/2031 |
| 23,183 |
|
| Manifestations Worldwide, Inc. |
|
|
8,000 |
| 7.60%, 09/17/2024 |
| 7,641 |
29,000 |
| 7.60%, 03/17/2025 |
| 27,779 |
29,000 |
| 7.60%, 09/17/2025 |
| 27,791 |
31,000 |
| 7.60%, 03/17/2026 |
| 29,639 |
33,000 |
| 7.60%, 09/17/2026 |
| 31,469 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 2015
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
33,000 |
| 7.60%, 03/17/2027 |
| $ 31,383 |
34,000 |
| 7.60%, 09/17/2027 |
| 32,232 |
36,000 |
| 7.60%, 03/17/2028 |
| 34,009 |
38,000 |
| 7.60%, 09/17/2028 |
| 35,602 |
38,000 |
| 7.60%, 03/17/2029 |
| 35,272 |
41,000 |
| 7.60%, 09/17/2029 |
| 37,618 |
41,000 |
| 7.60%, 03/17/2030 |
| 36,978 |
44,000 |
| 7.60%, 09/17/2030 |
| 38,865 |
44,000 |
| 7.60%, 03/17/2031 |
| 38,091 |
47,000 |
| 7.60%, 09/17/2031 |
| 39,790 |
48,000 |
| 7.60%, 03/17/2032 |
| 39,778 |
51,000 |
| 7.60%, 09/17/2032 |
| 41,601 |
52,000 |
| 7.60%, 03/17/2033 |
| 42,006 |
54,000 |
| 7.60%, 09/17/2033 |
| 43,254 |
56,000 |
| 7.60%, 03/17/2034 |
| 44,537 |
59,000 |
| 7.60%, 09/17/2034 |
| 46,604 |
60,000 |
| 7.60%, 03/17/2035 |
| 46,968 |
63,000 |
| 7.60%, 09/17/2035 |
| 48,983 |
65,000 |
| 7.60%, 03/17/2036 |
| 50,096 |
68,000 |
| 7.60%, 09/17/2036 |
| 52,000 |
70,000 |
| 7.60%, 03/17/2037 |
| 53,144 |
73,000 |
| 7.60%, 09/17/2037 |
| 55,188 |
76,000 |
| 7.60%, 03/17/2038 |
| 57,220 |
79,000 |
| 7.60%, 09/17/2038 |
| 59,195 |
|
| Iglesia Cristiana La Nueva Jerusalem, Inc. (e) |
|
|
171,728 |
| 6.00%, 11/5/2019 |
| 159,690 |
|
| Philadelphia Haitian Baptist Church of Orlando, Inc. (c) (d) |
|
|
26,000 |
| 7.70%, 11/28/2012 |
| 9,838 |
33,000 |
| 7.70%, 05/28/2013 |
| 12,487 |
34,000 |
| 7.70%, 11/28/2013 |
| 12,866 |
35,000 |
| 7.80%, 05/28/2014 |
| 13,244 |
63,000 |
| 8.40%, 05/28/2021 |
| 24,035 |
64,000 |
| 8.40%, 11/28/2021 |
| 24,320 |
68,000 |
| 8.40%, 05/28/2022 |
| 25,854 |
32,000 |
| 8.40%, 11/28/2023 |
| 12,115 |
30,000 |
| 8.40%, 05/28/2024 |
| 11,430 |
33,000 |
| 8.40%, 11/28/2024 |
| 12,500 |
86,000 |
| 8.40%, 05/28/2025 |
| 32,585 |
91,000 |
| 8.40%, 11/28/2025 |
| 34,489 |
93,000 |
| 8.40%, 05/28/2026 |
| 35,256 |
98,000 |
| 8.40%, 11/28/2026 |
| 37,152 |
42,000 |
| 8.40%, 11/28/2031 |
| 15,809 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 2015
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
154,000 |
| 8.40%, 05/28/2032 |
| $ 57,966 |
156,000 |
| 8.40%, 11/28/2032 |
| 58,718 |
|
| Truth For Living Ministries, Inc. (e) |
|
|
308,054 |
| 4.00%, 11/15/2022 |
| 82,127 |
Georgia | 5.23% |
| ||
|
| Bible Baptist Church of Newnan, Inc. (c) (d) |
|
|
32,000 |
| 7.60%, 03/01/2015 |
| 4,570 |
33,000 |
| 7.70%, 09/01/2015 |
| 4,689 |
39,000 |
| 7.80%, 03/01/2018 |
| 5,674 |
11,000 |
| 7.80%, 09/01/2018 |
| 1,595 |
45,000 |
| 7.80%, 09/01/2019 |
| 6,502 |
46,000 |
| 7.80%, 03/01/2020 |
| 6,610 |
48,000 |
| 7.80%, 09/01/2020 |
| 6,902 |
50,000 |
| 7.80%, 03/01/2021 |
| 7,195 |
56,000 |
| 7.90%, 09/01/2022 |
| 8,081 |
50,000 |
| 7.90%, 03/01/2023 |
| 7,225 |
38,000 |
| 7.90%, 03/01/2034 |
| 5,400 |
89,000 |
| 7.90%, 09/01/2035 |
| 12,771 |
159,000 |
| 7.90%, 03/01/2036 |
| 22,594 |
64,000 |
| 7.90%, 09/01/2036 |
| 9,184 |
51,000 |
| 8.00%, 09/01/2021 |
| 7,380 |
54,000 |
| 8.00%, 03/01/2022 |
| 7,787 |
|
| Victory Baptist Church of Loganville, Inc |
|
|
67,000 |
| 7.90%, 01/15/2030 |
| 62,625 |
69,000 |
| 7.90%, 07/15/2030 |
| 63,163 |
72,000 |
| 7.90%, 01/15/2031 |
| 64,505 |
74,000 |
| 7.90%, 07/15/2031 |
| 64,928 |
78,000 |
| 7.90%, 01/15/2032 |
| 67,018 |
81,000 |
| 7.90%, 07/15/2032 |
| 68,243 |
84,000 |
| 7.90%, 01/15/2033 |
| 69,980 |
87,000 |
| 7.90%, 07/15/2033 |
| 71,818 |
90,000 |
| 7.90%, 01/15/2034 |
| 73,800 |
95,000 |
| 7.90%, 07/15/2034 |
| 77,454 |
98,000 |
| 7.90%, 01/15/2035 |
| 79,194 |
101,000 |
| 7.90%, 07/15/2035 |
| 81,103 |
106,000 |
| 7.90%, 01/15/2036 |
| 84,397 |
110,000 |
| 7.90%, 07/15/2036 |
| 87,032 |
115,000 |
| 7.90%, 01/15/2037 |
| 90,229 |
119,000 |
| 7.90%, 07/15/2037 |
| 93,034 |
123,000 |
| 7.90%, 01/15/2038 |
| 95,669 |
129,000 |
| 7.90%, 07/15/2038 |
| 99,936 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 2015
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
Illinois | 2.25% |
| ||
|
| First Baptist Church of Melrose Park (c) (d) |
|
|
35,000 |
| 7.80%, 06/12/2019 |
| $ 23,996 |
37,000 |
| 7.80%, 12/12/2019 |
| 25,234 |
37,000 |
| 7.80%, 06/12/2020 |
| 25,260 |
40,000 |
| 7.80%, 12/12/2020 |
| 27,336 |
41,000 |
| 7.80%, 06/12/2021 |
| 28,044 |
42,000 |
| 7.80%, 12/12/2021 |
| 28,619 |
45,000 |
| 7.80%, 06/12/2022 |
| 30,681 |
50,000 |
| 7.90%, 12/12/2023 |
| 34,145 |
51,000 |
| 7.90%, 06/12/2024 |
| 34,843 |
54,000 |
| 7.90%, 12/12/2024 |
| 36,677 |
56,000 |
| 7.90%, 06/12/2025 |
| 38,041 |
43,000 |
| 7.90%, 06/12/2030 |
| 29,266 |
86,000 |
| 7.90%, 12/12/2030 |
| 58,033 |
24,000 |
| 7.90%, 12/12/2033 |
| 16,195 |
112,000 |
| 7.90%, 06/12/2034 |
| 75,577 |
117,000 |
| 7.90%, 12/12/2034 |
| 78,952 |
45,000 |
| 8.00%, 12/12/2022 |
| 30,861 |
48,000 |
| 8.00%, 06/12/2023 |
| 32,947 |
Indiana | 4.24% |
| ||
|
| Madison Park Church of God, Inc. (e ) |
|
|
1,821,528 |
| 2.50%, 01/01/2033 |
| 1,102,935 |
|
| Mizpah, Inc. Ebenezer Missionary Baptist Church (c) (d) |
|
|
24,000 |
| 7.90%, 12/22/2031 |
| 9,101 |
26,000 |
| 7.90%, 12/22/2032 |
| 9,859 |
27,000 |
| 7.90%, 06/22/2033 |
| 10,238 |
29,000 |
| 7.90%, 12/22/2033 |
| 10,997 |
29,000 |
| 7.90%, 06/22/2034 |
| 10,997 |
31,000 |
| 7.90%, 12/22/2034 |
| 11,755 |
32,000 |
| 7.90%, 06/22/2035 |
| 12,134 |
33,000 |
| 7.90%, 12/22/2035 |
| 12,514 |
34,000 |
| 7.90%, 06/22/2036 |
| 12,893 |
36,000 |
| 7.90%, 12/22/2036 |
| 13,651 |
38,000 |
| 7.90%, 06/22/2037 |
| 14,410 |
Louisiana | 2.75% |
| ||
|
| Living Way Apostolic Church, Inc. |
|
|
100,000 |
| 7.90%, 04/20/2030 |
| 92,580 |
103,000 |
| 7.90%, 10/20/2030 |
| 93,122 |
103,000 |
| 7.90%, 04/20/2031 |
| 91,340 |
15,000 |
| 7.90%, 10/20/2031 |
| 13,001 |
91,000 |
| 7.90%, 04/20/2032 |
| 77,514 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 2015
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
121,000 |
| 7.90%, 10/20/2032 |
| $ 101,337 |
126,000 |
| 7.90%, 04/20/2033 |
| 104,618 |
136,000 |
| 7.90%, 04/20/2034 |
| 111,262 |
141,000 |
| 7.90%, 10/20/2034 |
| 114,280 |
Maryland | 0.14% |
| ||
|
| Ark of Safety Christian Church, Inc. (c) (d) |
|
|
40,000 |
| 8.00%, 04/15/2029 |
| 39,796 |
Massachusetts | 2.64% |
| ||
|
| Harvest Ministries of New England, Inc. |
|
|
76,000 |
| 7.30%, 02/20/2028 |
| 70,589 |
83,000 |
| 7.30%, 02/20/2029 |
| 75,530 |
85,000 |
| 7.30%, 08/20/2029 |
| 76,517 |
89,000 |
| 7.30%, 02/20/2030 |
| 78,587 |
95,000 |
| 7.30%, 02/20/2031 |
| 80,142 |
99,000 |
| 7.30%, 08/20/2031 |
| 81,586 |
63,000 |
| 7.30%, 08/20/2032 |
| 49,890 |
95,000 |
| 7.30%, 02/20/2033 |
| 74,366 |
114,000 |
| 7.30%, 08/20/2033 |
| 88,270 |
118,000 |
| 7.30%, 02/20/2034 |
| 90,789 |
Michigan | 0.15% |
| ||
|
| Living Bread Ministries, Inc. (c) (d) |
|
|
10,000 |
| 7.50%, 02/15/2016 |
| 2,528 |
21,000 |
| 7.50%, 08/15/2016 |
| 5,355 |
22,000 |
| 7.50%, 02/15/2017 |
| 5,636 |
22,000 |
| 7.50%, 08/15/2017 |
| 5,648 |
24,000 |
| 7.50%, 02/15/2018 |
| 6,168 |
24,000 |
| 7.50%, 08/15/2018 |
| 6,149 |
26,000 |
| 7.50%, 02/15/2019 |
| 6,643 |
26,000 |
| 7.50%, 08/15/2019 |
| 6,635 |
North Carolina | 0.15% |
| ||
|
| Accumulated Resources of Kindred Spirits (c) (d) |
|
|
53,537 |
| 7.75%, 12/01/2009 |
| 43,620 |
Ohio | 1.94% |
| ||
|
| Worldview Community Church (c) (d) |
|
|
14,456 |
| 7.50%, 06/12/2018 |
| 5,099 |
57,822 |
| 7.50%, 12/12/2020 |
| 20,262 |
59,749 |
| 7.50%, 06/12/2021 |
| 20,957 |
62,640 |
| 7.50%, 12/12/2021 |
| 21,884 |
70,343 |
| 7.60%, 06/12/2023 |
| 24,760 |
72,270 |
| 7.60%, 12/12/2023 |
| 25,307 |
75,161 |
| 7.60%, 06/12/2024 |
| 26,332 |
79,015 |
| 7.60%, 12/12/2024 |
| 27,519 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 2015
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
80,942 |
| 7.60%, 06/12/2025 |
| $ 28,196 |
113,705 |
| 7.60%, 12/12/2029 |
| 39,675 |
122,377 |
| 7.60%, 12/12/2030 |
| 42,336 |
127,195 |
| 7.60%, 06/12/2031 |
| 44,003 |
105,032 |
| 7.60%, 06/12/2032 |
| 36,335 |
142,613 |
| 7.60%, 12/12/2032 |
| 49,336 |
147,431 |
| 7.60%, 06/12/2033 |
| 51,003 |
153,212 |
| 7.60%, 12/12/2033 |
| 53,003 |
64,534 |
| 8.00%, 06/12/2022 |
| 22,673 |
67,423 |
| 8.00%, 12/12/2022 |
| 23,705 |
Rhode Island | 3.07% |
| ||
|
| The Cathedral of Life Christian Assembly (c) (d) |
|
|
10,000 |
| 7.50%, 08/15/2016 |
| 7,445 |
11,000 |
| 7.50%, 08/15/2017 |
| 8,190 |
23,000 |
| 7.50%, 08/15/2020 |
| 17,071 |
23,000 |
| 7.50%, 02/15/2021 |
| 17,089 |
25,000 |
| 7.50%, 08/15/2021 |
| 18,592 |
25,000 |
| 7.50%, 02/15/2022 |
| 18,518 |
35,000 |
| 7.60%, 08/15/2026 |
| 25,855 |
37,000 |
| 7.60%, 02/15/2027 |
| 27,339 |
39,000 |
| 7.60%, 08/15/2027 |
| 28,821 |
40,000 |
| 7.60%, 02/15/2028 |
| 29,568 |
41,000 |
| 7.60%, 08/15/2028 |
| 30,311 |
43,000 |
| 7.60%, 02/15/2029 |
| 31,794 |
45,000 |
| 7.60%, 08/15/2029 |
| 33,282 |
46,000 |
| 7.60%, 02/15/2030 |
| 34,026 |
48,000 |
| 7.60%, 08/15/2030 |
| 35,510 |
50,000 |
| 7.60%, 02/15/2031 |
| 36,665 |
52,000 |
| 7.60%, 08/15/2031 |
| 38,132 |
53,000 |
| 7.60%, 02/15/2032 |
| 38,865 |
58,000 |
| 7.60%, 02/15/2033 |
| 42,531 |
60,000 |
| 7.60%, 08/15/2033 |
| 43,998 |
62,000 |
| 7.60%, 02/15/2034 |
| 45,465 |
65,000 |
| 7.60%, 08/15/2034 |
| 47,664 |
67,000 |
| 7.60%, 02/15/2035 |
| 49,131 |
70,000 |
| 7.60%, 08/15/2035 |
| 51,331 |
62,000 |
| 7.60%, 08/15/2036 |
| 45,465 |
58,000 |
| 7.60%, 02/15/2037 |
| 42,531 |
7,000 |
| 7.60%, 08/15/2037 |
| 5,133 |
26,000 |
| 8.00%, 08/15/2022 |
| 19,357 |
28,000 |
| 8.00%, 02/15/2023 |
| 20,846 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 2015
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
Tennessee | 4.59% |
| ||
|
| Grace Christian Fellowship Church, Inc. (c) (d) |
|
|
38,000 |
| 8.40%, 07/18/2021 |
| $ 28,933 |
39,000 |
| 8.40%, 10/18/2021 |
| 29,574 |
40,000 |
| 8.40%, 01/18/2022 |
| 30,484 |
41,000 |
| 8.40%, 04/18/2022 |
| 31,266 |
41,000 |
| 8.40%, 07/18/2022 |
| 31,275 |
42,000 |
| 8.40%, 10/18/2022 |
| 32,054 |
44,000 |
| 8.40%, 01/18/2023 |
| 33,590 |
44,000 |
| 8.40%, 04/18/2023 |
| 33,607 |
45,000 |
| 8.40%, 07/18/2023 |
| 34,380 |
46,000 |
| 8.40%, 10/18/2023 |
| 34,960 |
47,000 |
| 8.40%, 01/18/2024 |
| 35,725 |
47,000 |
| 8.40%, 04/18/2024 |
| 35,739 |
34,000 |
| 8.40%, 07/18/2024 |
| 25,857 |
50,000 |
| 8.40%, 10/18/2024 |
| 37,800 |
51,000 |
| 8.40%, 01/18/2025 |
| 38,556 |
52,000 |
| 8.40%, 04/18/2025 |
| 39,322 |
54,000 |
| 8.40%, 10/18/2025 |
| 40,840 |
56,000 |
| 8.40%, 01/18/2026 |
| 42,353 |
56,000 |
| 8.40%, 04/18/2026 |
| 42,364 |
58,000 |
| 8.40%, 10/18/2026 |
| 43,883 |
60,000 |
| 8.40%, 01/18/2027 |
| 45,396 |
35,000 |
| 8.40%, 10/18/2028 |
| 26,502 |
30,000 |
| 8.40%, 01/18/2029 |
| 22,716 |
52,000 |
| 8.40%, 04/18/2029 |
| 39,380 |
20,000 |
| 8.40%, 07/18/2029 |
| 15,146 |
75,000 |
| 8.40%, 10/18/2029 |
| 56,805 |
77,000 |
| 8.40%, 01/18/2030 |
| 58,320 |
78,000 |
| 8.40%, 04/18/2030 |
| 59,085 |
81,000 |
| 8.40%, 07/18/2030 |
| 61,357 |
81,000 |
| 8.40%, 10/18/2030 |
| 60,855 |
21,000 |
| 8.40%, 04/18/2031 |
| 15,777 |
38,000 |
| 8.40%, 07/18/2031 |
| 28,546 |
88,000 |
| 8.40%, 10/18/2031 |
| 66,114 |
100,000 |
| 8.40%, 04/18/2033 |
| 75,130 |
Texas | 2.59% |
| ||
|
| 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 |
| 44,482 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 2015
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
58,000 |
| 7.90%, 06/12/2028 |
| $ 55,738 |
60,000 |
| 7.90%, 12/12/2028 |
| 57,222 |
48,000 |
| 7.90%, 06/12/2029 |
| 45,374 |
65,000 |
| 7.90%, 12/12/2029 |
| 60,665 |
68,000 |
| 7.90%, 06/12/2030 |
| 62,329 |
37,000 |
| 7.90%, 12/12/2032 |
| 30,928 |
36,000 |
| 7.90%, 06/12/2033 |
| 29,916 |
76,000 |
| 7.90%, 12/12/2033 |
| 62,487 |
Virginia | 0.00% |
| ||
|
| New Life Anointed Ministries International, Inc. (c) (d) |
|
|
171,000 |
| 7.80%, 06/21/2020 |
| 17 |
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 | 1.58% |
| ||
|
| Cascade Christian Center of Skagit Valley (e) |
|
|
588,658 |
| 4.50%, 10/20/2020 |
| 460,213 |
Washington, DC | 0.54% |
| ||
|
| Metropolitan Baptist (c) (d) |
|
|
77,000 |
| 8.20%, 01/12/2015 |
| 22,623 |
80,000 |
| 8.30%, 07/12/2015 |
| 23,504 |
98,000 |
| 8.40%, 01/12/2018 |
| 29,292 |
45,000 |
| 8.40%, 07/12/2018 |
| 13,410 |
100,000 |
| 8.40%, 01/12/2027 |
| 29,230 |
130,000 |
| 8.40%, 01/12/2033 |
| 37,999 |
27,862,899 |
| 27,649,964 |
|
|
Total Church Mortgage Bonds (Cost $27,649,964) | 59.29% | 17,221,049 | ||
|
|
|
|
|
CHURCH MORTGAGE LOANS (b) |
|
| ||
|
|
|
|
|
California | 2.24% |
| ||
|
| Mount Olive Missionary Baptist Church of Fresno (d) |
|
|
900,972 |
| 3.50%, 05/31/2014 |
| 650,412 |
Georgia | 2.25% |
| ||
|
| God First Breakthrough Ministries, Inc. (e) |
|
|
1,074,670 |
| 3.00%, 03/01/2020 |
| 653,250 |
Nevada | 1.13% |
| ||
|
| Iglesia Christiana Verbo De Dios, Inc. (e) |
|
|
328,066 |
| 0.00%, 01/01/2014 |
| 328,066 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
SCHEDULE OF INVESTMENTS (Continued)
SEPTEMBER 30, 2015
Shares/Principal Amount |
| Fair Value | ||
|
|
|
|
|
New Jersey | 2.20% |
| ||
|
| Igreja Batista Do Calvario |
|
|
731,359 |
| 8.75%, 08/01/2038 |
| $ 640,085 |
Texas | 2.86% |
| ||
|
| Pleasant Grove Missionary Baptist Foundation (e) |
|
|
831,839 |
| 7.50%, 08/01/2033 |
| 831,839 |
|
|
|
|
|
Total Church Mortgage Loans (Cost $3,866,906) | 10.68% | 3,103,652 | ||
|
|
|
|
|
U.S. TREASURY OBLIGATIONS |
|
| ||
|
|
|
|
|
|
| U.S. Treasury Bills | 12.38% |
|
1,850,000 |
| 0.000%, 01/07/2016 * |
| 1,850,000 |
1,750,000 |
| 0.239%, 07/21/2016 * |
| 1,746,675 |
|
| Total U.S. Treasury Bills (Cost $3,593,490) |
| 3,596,675 |
|
|
|
|
|
|
| U.S. Treasury Notes | 6.03% |
|
1,750,000 |
| 0.500%, 11/30/2016 (Cost $1,750,000) |
| 1,751,225 |
|
|
|
|
|
Total U.S. Treasury Obligations (Cost $5,343,490) | 18.41% | 5,347,900 | ||
|
|
|
|
|
OPEN-END MUTUAL FUND | 5.06% |
| ||
|
|
|
|
|
137,868 |
| Vanguard Short-Term Investment Grade Fund 1 (Cost $1,500,000) | 1,468,290 | |
|
|
|
|
|
SHORT TERM INVESTMENTS | 5.96% |
| ||
|
|
|
|
|
Money Market Funds |
|
| ||
1,731,362 |
| Federated Prime Cash Obligations Fund - 0.10%* 1 (Cost $1,731,362) | 1,731,362 | |
|
|
|
|
|
Total Investments - (Cost $40,091,722) | 99.40% | 28,872,253 | ||
|
|
|
|
|
ASSETS IN EXCESS OF LIABILITIES | 0.60% | 174,889 | ||
|
|
|
|
|
Net Assets |
|
| 100.00% | $29,047,142 |
(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) Issuer of security, as a part of the restructure of the bond, will receive an annual credit of ten percent (10%) of the principal for each year the Issuer fulfills its obligations under the restructuring agreement with the trustee. The zero coupon bonds are priced to reflect the portion of principal the Fund believes it will receive.
* - Variable rate or zero coupon securities; the coupon rate shown represents the yield as of September 30, 2015.
1 - Mutual funds are priced at their NAV as of September 30, 2015.
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2015
Assets: |
|
|
Investments in Securities, at Fair Value (Cost $40,091,722) | $ 28,872,253 | |
Cash |
| 37,264 |
Interest and Dividends Receivable | 181,337 | |
Total Assets | 29,090,854 | |
|
|
|
Liabilities: |
|
|
Accrued Service Fees (Note 4) | 12,140 | |
Accrued Management Fees (Note 4) | 9,284 | |
Accrued Insurance Expense | 4,949 | |
Accrued Transfer Agent Fees | 3,928 | |
Accrued Compliance Fees (Note 4) | 3,802 | |
Accrued Administrative Fees (Note 4) | 1,857 | |
Other Accrued Expenses | 7,752 | |
Total Liabilities | 43,712 | |
Net Assets |
| $ 29,047,142 |
|
|
|
Net Assets Consist of: |
| |
Paid In Capital | $ 43,967,027 | |
Distributions in Excess of Accumulated Undistributed Net Investment Income | (382,877) | |
Accumulated Realized Loss on Investments | (3,317,539) | |
Unrealized Depreciation in Fair Value of Investments | (11,219,469) | |
Net Assets, for 1,719,765 Shares Outstanding (6,200,000 Shares Authorized) | $ 29,047,142 | |
|
|
|
Net Asset Value per share ($29,047,142/1,719,765 shares) | $ 16.89 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
STATEMENT OF OPERATIONS
For the year ended SEPTEMBER 30, 2015
Investment Income: |
| |
Interest |
| $ 1,304,839 |
Insurance Claim Proceeds (Note 9) | 106,889 | |
Dividends |
| 28,939 |
Total Investment Income | 1,440,667 | |
|
|
|
Expenses: |
|
|
Advisory Fees (Note 4) | 118,098 | |
Audit Fees | 83,000 | |
Service Fees (Note 4) | 78,723 | |
Transfer Agent and Accounting Fees (Note 4) | 46,871 | |
Compliance Fees (Note 4) | 32,356 | |
Miscellaneous Fees | 31,549 | |
Insurance Expense | 23,999 | |
Administrative Fees (Note 4) | 23,620 | |
Registration Fees | 17,106 | |
Printing and Mailing Fees | 14,234 | |
Custody Fees | 8,524 | |
Trustees' Retainer and Meeting Expenses | 7,360 | |
Legal Fees | 7,134 | |
Total Expenses | 492,574 | |
Voluntary Expense Waiver from the Distributor (Note 4) | (31,484) | |
Net Expenses | 461,090 | |
|
|
|
Net Investment Income | 979,577 | |
|
|
|
Realized and Unrealized Gain/(Loss) on Investments: |
| |
Realized Loss on Investments | (1,270,389) | |
Net Change in Unrealized Depreciation on Investments | (66,783) | |
Realized and Unrealized Gain/(Loss) on Investments | (1,337,172) | |
|
|
|
Net Decrease in Net Assets Resulting from Operations | $ (357,595) |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
|
| Year Ended | ||
|
| September 30, | ||
|
| 2015 |
| 2014 |
|
|
|
|
|
Increase (Decrease) in Net Assets From Operations: |
|
|
| |
Net Investment Income | $ 979,577 |
| $1,578,192 | |
Net Realized Loss on Investments | (1,270,389) |
| (345,404) | |
Change in Unrealized Appreciation/(Depreciation) on Investments | (66,783) |
| 586,792 | |
Net Increase/(Decrease) in Net Assets Resulting from Operations | (357,595) |
| 1,819,580 | |
|
|
|
|
|
Distributions to Shareholders: |
|
|
| |
Net Investment Income | (996,404) |
| (1,591,069) | |
Total Dividends and Distributions Paid to Shareholders | (996,404) |
| (1,591,069) | |
|
|
|
|
|
Capital Share Transactions: |
|
|
| |
Proceeds from Sale of Shares | - |
| - | |
Shares Issued on Reinvestment of Dividends | 220,621 |
| 399,909 | |
Cost of Shares Repurchased | (1,562,592) |
| (1,692,107) | |
Net Decrease from Shareholder Activity | (1,341,971) |
| (1,292,198) | |
|
|
|
|
|
Net Assets: |
|
|
|
|
Net Decrease in Net Assets | (2,695,970) |
| (1,063,687) | |
Beginning of Year | 31,743,112 |
| 32,806,799 | |
End of Year (Including Distributions in Excess of Accumulated |
|
|
| |
Undistributed Net Investment Loss of ($382,877) and ($537,567), respectively) | $29,047,142 |
| $31,743,112 | |
|
|
|
|
|
Share Transactions: |
|
|
| |
Shares Sold |
| - |
| - |
Shares Issued on Reinvestment of Dividends | 12,603 |
| 22,454 | |
Shares Repurchased | (90,428) |
| (94,426) | |
Net Decrease in Shares | (77,825) |
| (71,972) | |
Outstanding at Beginning of Year | 1,797,590 |
| 1,869,562 | |
Outstanding at End of Year | 1,719,765 |
| 1,797,590 |
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
STATEMENT OF CASH FLOWS
For the year ended SEPTEMBER 30, 2015
Cash flows from operating activities: |
| |
Net decrease in net assets resulting from operations | $ (357,595) | |
Adjustments to reconcile net decrease in net assets from |
| |
operations to net cash provided by operating activities: |
| |
| Proceeds from disposition of long-term investment securities | 10,873,539 |
| Restructures and purchases of long-term investment securities | (7,478,800) |
| Purchase of short-term investments, net | (1,982,550) |
| Decrease in interest and dividends receivable | 72,767 |
| Decrease in accrued expenses | (88,894) |
| Increase in unrealized depreciation on investments | 66,783 |
| Realized loss from investments | �� 1,270,389 |
Net cash provided by operating activities | $ 2,375,639 | |
|
|
|
Cash flows provided by/(used for) financing activities: |
| |
| Distributions paid in cash | $ (775,783) |
| Payments for shares repurchased | (1,562,592) |
|
|
|
Net cash provided by (used for) financing activities | (2,338,375) | |
|
|
|
Net increase/(decrease) in cash | $ 37,264 | |
|
|
|
Cash (excluding short-term investments): |
| |
| Beginning balance | - |
| Ending balance | $ 37,264 |
|
|
|
Supplemental disclosure of cash flow information: |
| |
Noncash financing activities not included herein consist of reinvestment of dividends | ||
of $220,621. |
|
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.
|
| Year ended September 30, | ||||
|
| 2015 | 2014 | 2013 | 2012 | 2011 |
|
|
|
|
|
|
|
Net Asset Value, at Beginning of Year (a) | $ 17.66 | $17.55 | $ 16.81 | $ 20.94 | $ 22.02 | |
|
|
|
|
|
|
|
Income From Investment Operations: |
|
|
|
|
| |
Net Investment Income (b) | 0.54 | 0.84 | 0.17 | 0.45 | 0.86 | |
Net Gain/(Loss) on Securities (Realized and Unrealized) | (0.75) | 0.12 | 0.86 | (4.12) | (1.00) | |
Total from Investment Operations | (0.21) | 0.96 | 1.03 | (3.67) | (0.14) | |
|
|
|
|
|
|
|
Distributions: |
|
|
|
|
|
|
Net Investment Income | (0.56) | (0.85) | (0.29) | (0.46) | (0.94) | |
Return of capital | - | - | - | - | - | |
Total from Distributions | (0.56) | (0.85) | (0.29) | (0.46) | (0.94) | |
|
|
|
|
|
|
|
Net Asset Value, at End of Year(a) | $ 16.89 | $17.66 | $ 17.55 | $ 16.81 | $ 20.94 | |
|
|
|
|
|
|
|
Market Value (c) | $ - | $ - | $ - | $ - | $ - | |
|
|
|
|
|
|
|
Total Return (d) | (1.28)% | 5.60% | 6.15% | (17.85)% | (0.68)% | |
|
|
|
|
|
|
|
Ratios/Supplemental Data: |
|
|
|
|
| |
Net Assets at End of Year (Thousands) | $ 29,047 | $31,743 | $32,807 | $ 32,928 | $ 45,214 | |
Before Reimbursements, Waivers and Recoupments |
|
|
|
|
| |
Ratio of Expenses to Average Net Assets | 1.56% | 2.23% | 5.41% | 2.10% | 1.92% | |
Ratio of Net Investment Income to Average Net Assets | 3.01% | 4.64% | 0.86% | 2.22% | 3.88% | |
After Reimbursements, Waivers and Recoupments |
|
|
|
|
| |
Ratio of Expenses to Average Net Assets | 1.46% | 2.13% | 5.31% | 2.00% | 1.82% | |
Ratio of Net Investment Income to Average Net Assets | 3.11% | 4.74% | 0.96% | 2.32% | 3.98% | |
Portfolio Turnover | 28.78%(e) | 3.60% | 11.91% | 0.00% | 0.00% | |
Average Short-term Borrowing Outstanding | $ 0 | $ 0 | $210,411 | $752,877 | $1,163,836 | |
Weighted Average Fund Shares Outstanding (Thousands) | 1,800 | 1,875 | 1,960 | 2,056 | 2,144 | |
Average Short-term Borrowing Outstanding Per Share | N/A | N/A | $ 0.11 | $ 0.37 | $ 0.54 | |
Asset Coverage | N/A | N/A | N/A | 2844% | 3868% |
(a) Price does not include sales charge.
(b) Amount calculated based on average shares outstanding throughout the year.
(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. Pursuant to a waiver by the Fund's distributor, from December 7, 2006 through January 28, 2009, no sales charge is applicable to sales of Fund shares. 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.
(e) Portfolio turnover figure includes the restructures of long-term investment securities.
N/A Not applicable
The accompanying notes are an integral part of these financial statements.
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
(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)
SEPTEMBER 30, 2015
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.
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2015
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 of the property securing the bonds and mortgages
-
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. An increase in time to sell causes an increase in the discount rate and the costs associated with the disposition of the property. 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.
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2015
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
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2015
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 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 September 30, 2015:
Assets | Quoted Prices in | Significant Other | Significant | Balance as of September 30, 2015 |
Church Mortgage Bonds | $ - | $ - | $ 17,221,049 | $ 17,221,049 |
Church Mortgage Loans | - | - | 3,103,652 | 3,103,652 |
Open-End Mutual Fund | 1,468,290 | - | - | 1,468,290 |
U.S. Government Obligations | 5,347,900 | - | - | 5,347,900 |
Short Term Investments | 1,731,362 | - | - | 1,731,362 |
| $ 8,547,552 | $ - | $ 20,324,701 | $ 28,872,253 |
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 year ended September 30, 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:
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2015
| 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) | 100,343 | (163,264) | (62,921) |
Realized Gain/(Loss) | (1,076,054) | (197,506) | (1,273,560) |
Gross Sales and Paydowns | (10,505,543) | (367,705) | (10,873,248) |
Gross Restructures | 5,706,889 | 25,220 | 5,732,109 |
Transfers In/(Out) of Level 3 | - | - | - |
Balance as of 9/30/2015 | $ 17,221,049 | $3,103,652 | $ 20,324,701 |
The total change in unrealized appreciation/(depreciation) for the year ended September 30, 2015 included in the Statement of Operations attributable to Level 3 investments still held at September 30, 2015, includes:
|
| Change in Unrealized |
|
| Appreciation/(Depreciation) |
Church Mortgage Bonds |
| $(1,372,051) |
Church Mortgage Loans |
| (447,138) |
Total |
| $(1,819,189) |
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 September 30, 2015:
| Fair Value at September 30, 2015 | Valuation Techniques | Significant Unobservable Input(s) | Range |
| ||||
Type of Assets | ||||
|
|
|
|
|
Church Mortgage Bonds and Loans | $ 13,349,348 | Income Approach | Disposition costs | 12% - 21% |
Discount rate | 3.2% - 4.4% | |||
Time to sell | 0 - 3 years | |||
|
|
|
|
|
Church Mortgage Bonds and Loans | $1,403,298 | Market Approach | New issue bond yield | 5.6% - 7.6% |
Discount | 50 basis points | |||
| $ 14,752,646 |
|
|
|
|
|
|
|
|
Church Mortgage Bonds | $ 5,572,055 | Vendor Pricing |
|
|
Total | $ 20,324,701 |
|
|
|
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2015
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 $7,478,800 and $10,873,539, respectively, for the year ended September 30, 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 year ended September 30, 2015, the Fund qualified under these provisions and accordingly, no provision for federal income tax has been made.
As of and during the year ended September 30, 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 year ended September 30, 2015, the Fund did not incur any
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2015
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. Under the 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 year ended September 30, 2015, the Fund incurred advisory fees of $118,098.
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 year ended September 30, 2015, the Fund incurred total administrative fees of $23,620.
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 year ended September 30, 2015, the Fund incurred compliance service and CCO fees of $32,356.
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2015
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 year ended September 30, 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 year ended September 30, 2015, fees accrued under the Plan were $78,723.
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 year ended September 30, 2015, the Fund incurred transfer agent and accounting fees and expenses of $46,871.
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2015
(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 31, 2015. 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. During the year ended September 30, 2015, the Fund repurchased shares as follows:
Repurchase request deadline
8/31/2015
Repurchase pricing date 9/8/2015
Shares repurchased
90,427.763
Percentage of Fund shares outstanding
5.00%
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, 2015, 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 | $ 40,503,491 |
Gross unrealized appreciation | $ 7,410 |
Gross unrealized depreciation | (11,638,648) |
Net unrealized depreciation | (11,631,238) |
Undistributed ordinary income | 35,559 |
Accumulated other | (1,570,661) |
Undistributed realized long term capital gain/(loss) | (1,753,545) |
Total distributable earnings | $(14,919,885) |
As of September 30, 2015, 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 $1,563,994.
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2015
As of September 30, 2015, the Fund had a capital loss carryforward totaling $1,753,545. Of that amount $1,899 expires on September 30, 2016, and $1,240 expires on September 30, 2019, and both are treated as short-term capital losses. The remaining $1,750,406 has no expiration and is treated as long-term capital losses.
The tax character of distributions paid for year ended September 30, 2015 was as follows:
Ordinary income | $ 996,404 |
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
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2015
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.
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2015
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
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2015
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
CAPSTONE CHURCH CAPITAL FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2015
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. Insurance reimbursements amounting to $694,017, were reflected in investment income in the Statement of Operations for the year ended September 30, 2014.Subsequent to September 30, 2014, additional reimbursements 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 year ended September 30, 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.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Capstone Church Capital Fund
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Capstone Church Capital Fund (the “Fund”) as of September 30, 2015, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2015, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Capstone Church Capital Fund as of September 30, 2015, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 3 to the financial statements, the financial statements include investments valued at $14,752,646 (51% of net assets) as of September 30, 2015, whose fair values have been estimated by management in accordance with policies approved by and under the general oversight of the Board of Trustees in the absence of readily determinable fair values.
COHEN FUND AUDIT SERVICES, LTD.
Cleveland, Ohio
November 25, 2015
CAPSTONE CHURCH CAPITAL FUND
ADDITIONAL INFORMATION
SEPTEMBER 30, 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.
CAPSTONE CHURCH CAPITAL FUND
TRUSTEE AND EXECUTIVE OFFICERS
SEPTEMBER 30, 2015 (Unaudited)
The business and affairs of the Fund are managed under the direction of the Fund's Board of Trustees and the Fund's officers appointed by the Board of Trustees. The tables below list the Trustees and executive officers of the Fund and their principal occupations during the last five years, other directorships held by the Trustees and their affiliations, if any, with Capstone Asset Management Company ("Adviser") and Capstone Asset Planning Company (the "Distributor").
and Age |
Fund | Term of Office and Length of Time Served |
| Number of Portfolios in Fund Complex Overseen by Trustee | Other Directorships/ By Trustee |
|
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|
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|
Interested Trustee |
|
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Edward L. Jaroski * 3700 W Sam Houston Pkwy S., Suite #250 Houston, TX 77042 Age: 68 | Trustee, President & Chairman of the Board | From 2004 | President and Director of Capstone Asset Management Company, Capstone Asset Planning Company and CFS Consulting Services, LLC; Director of Capstone Financial Services, Inc. (1987 – May 1, 2015); President/CEO of Capstone Financial Services, Inc. (1987 – May 1, 2015); President/CEO and Director of Capstone Financial Solutions, LLC (November 2008 – 2012); President, CEO and Director of Roger H. Jenswold & Company, Inc. (March 2010 –2012). | 6 | Director & Committee Member Theater Under the Stars; and Director of other Capstone Funds. |
Independent Trustees |
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John R. Parker Houston, TX 77042 Age: 69 | Trustee | From 2004 | Self-employed Investor Consultant | 6 | Trustee, Dr. Francis S. Parker & Mary L. Parker Foundation; and Director of other Capstone Funds. |
James F. Leary Houston, TX 77042 Age: 85 | Trustee | From 2004 | Financial Consultant; Managing Director of Benefit Capital Southwest | 6 | Director-Homeowners of America Insurance Company since 2006; and Director of other Capstone Funds. |
Leonard B. Melley, Jr. ** Houston, TX 77042 Age: 55 | Trustee | From 2004 | CEO/President of Ballybunion Ent., Inc.; CEO/President of Freedom Stores, Inc.; COO/Vice President of Freedom Acceptance, Co.; COO/Vice President of MCS, Inc. | 6 | Board Member, Ballybunion Ent. Inc.; Board Member, MCS, Inc.; Board of Governors Member, Forest Creek Golf Club; and Director of other Capstone Funds. |
*Mr. Jaroski is an "interested person" of the Capstone Church Capital Fund, as defined in the Investment Company Act of 1940, because of his position with the Adviser and Administrator and the Distributor.
**Mr. Melley is married to the sister of Mr. Jaroski's wife.
CAPSTONE CHURCH CAPITAL FUND
TRUSTEE AND EXECUTIVE OFFICERS (Continued)
SEPTEMBER 30, 2015 (Unaudited)
and Age |
Fund | Term of Office and Length of Time Served |
| Number of Portfolios in Fund Complex Overseen by Trustee | Other Directorships/ By Trustee |
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Independent Trustees |
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John M. Briggs, CPA c/o 3700 W Sam Houston Pkwy S., Suite #250 Houston, TX 77042 Age: 64 | Trustee | From 2005 | CPA, former Treasurer of Susan G. Komen Breast Cancer Foundation (2005 – 2011). | 6 | Lead Director-Healthcare Services Group, Inc. since 1992; PA School for the Deaf Audit Committee since 2011; and Director of other Capstone Funds. |
William H. Herrmann, Jr. c/o 3700 W Sam Houston Pkwy S., Suite #250 Houston, TX 77042 Age: 69 | Trustee | From 2011 | Herrmann & Associates, Financial Services | 6 | Director of other Capstone Funds. |
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Executive Officers |
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Mel Cody 3700 W Sam Houston Pkwy S., Suite #250 Houston, TX 77042 Age: 60 | Sr. Vice President | From 2012 | Sr. Vice President of Capstone Asset Management Company (2009- present); Co-Chairman, CFO & Portfolio Manager/Analyst of Roger H. Jenswold & Company, Inc. (2005 – 2012). Officer of other Capstone Funds. | N/A | None |
John R Wolf 3700 W. Sam Houston Pkwy S., Suite #250 Houston , TX 77042 Age:53 | Sr. Vice President | From 2004 | Sr. Vice President/Portfolio Manager of Capstone Asset Management Company and Sr. Vice President of CFS Consulting Services, LLC. | N/A | None |
Claude C. Cody, IV 3700 W. Sam Houston Pkwy S., Suite #250 Houston, TX 77042 Age: 63 | Sr. Vice President | From 2010 | Sr. Vice President of Capstone Asset Management Company (2009 – present); Co-Chairman & Portfolio Manager/Analyst of Roger H Jenswold & Company, Inc. (2005- 2012). Officer of other Capstone Funds. | N/A | None |
Victoria Fernandez 3700 W Sam Houston Pkwy S., Suite #250 Houston, TX 77042 Age: 42 | Sr. Vice President | From 2014 | Sr. Vice President of Capstone Asset Management Company (2009-present); Associate, Fayez, Sarofim & Co. (1994-2012) | N/A | None |
CAPSTONE CHURCH CAPITAL FUND
TRUSTEE AND EXECUTIVE OFFICERS (Continued)
SEPTEMBER 30, 2015 (Unaudited)
and Age |
Fund | Term of Office and Length of Time Served |
| Number of Portfolios in Fund Complex Overseen by Trustee | Other Directorships/ By Trustee |
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Executive Officers |
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Scott Wynant 3700 W Sam Houston Pkwy S., Suite #250 Houston, TX 77042 Age: 61 | Executive Vice President | From 2008 | Executive Vice President of Capstone Asset Management Company, CFS Consulting Services, LLC and Capstone Financial Services, Inc. (2009 – present); Sr. Vice President of Capstone Financial Solutions, LLC (November 2008-Decemeber 2012); Sr. Vice President of Roger H. Jenswold & Company, Inc. (March 2010- 2012). Officer of other Capstone Funds | N/A | None |
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Richard A. Nunn Pkwy S., Suite #250 Houston, TX 77042 Age: 69 | Sr. Vice President and Chief Compliance Officer | From 2004 | Sr. Vice President, Chief Compliance Officer of Capstone Asset Management Company (May 2004 – July 2013); Sr. Vice President of Capstone Financial Services, Inc. (May 2004 – July 2013); Sr. Vice President, Chief Compliance Officer and Secretary of Capstone Financial Solutions, LLC (October 2008 –2012); Sr. Vice President and Secretary of CFS Consulting Services, LLC (October 2008 – July 2013); Sr. Vice President, Chief Compliance Officer and Secretary of Roger H. Jenswold & Company, Inc. (March 2010 – 2012); Officer of other Capstone Funds; MGL Consulting Corporation, independent consultants, Vice President Regulatory Affairs, (September 2000 – Present). | N/A | None |
Kimberly Wallis McLaney 3700 W Sam Houston Pkwy S., Suite #250 Houston, TX 77042 Age: 48 | Asst. Vice President/ Compliance/ Asst. Secretary | From 2004 | Asst. Vice President Compliance, Asst. Secretary of Capstone Asset Management Company (September 2005 to July 2013); Capstone Financial Services, Inc. Asst Secretary (October 2008 – July 2013); Vice President Compliance, and Chief Compliance Officer of Capstone Asset Planning Company (September 2006 – present); Asst. Vice President and Asst. Secretary of Capstone Financial Solutions, LLC (October 2008 –2012); Asst. Secretary of CFS Consulting Services, LLC (October 2008 – July 2013); Asst. Vice President and Asst. Secretary of Roger H. Jenswold & Company, Inc. (March 2010 – 2012); Officer of other Capstone Funds. | N/A | None |
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Item 2. Code of Ethics.
(a) As of the end of the period covered by the contained in Item 1 of this Form N-CSR, the registrant has adopted a code of ethics (“Code”), as defined in Item 2 of Form N-CSR, that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
This code of ethics is included as an exhibit.
(b) During the period covered by the report, with respect to the registrant's code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions; there have been no amendments to, nor any waivers granted from, a provision that relates to any element of the code of ethics definition enumerated in paragraph (b) of this item 2.
Item 3. Audit Committee Financial Expert.
3(a)(1) The Registrant's Board of Trustees has determined that the Registrant has at least one Audit Committee Financial Expert serving on its Audit Committee.
3(a)(2) The Audit Committee Financial Expert is John Briggs, who is "Independent" for purposes of this item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
2015
2014
(a) Audit Fees
$80,000
$80,000
(b) Audit-Related Fees
$0
$0
(c) Tax Fees
$3,000
$6,400
(d) All Other Fees
$0
$0
(e) (1) The Audit Committee may pre-approve at any regularly scheduled Audit Committee meeting audit, audit-related, tax and other non-audit services to be rendered or that may be rendered by the Auditor to the Fund and certain non-audit services to be rendered by the Auditor to the Advisor which require pre-approval by the Audit Committee. In connection with such pre-approvals, the Auditor, or a Fund officer, with the assistance of the Auditor, shall provide the Audit Committee with a report containing information about each type of service to be pre-approved at the meeting.
(e) (2) For the fiscal years ended September 30, 2015 and 2014, 100% of all the fees in paragraph (b) through (d) were approved by the Audit Committee.
(f) Not applicable.
(g) For the fiscal years ended September 30, 2015 and 2014, Cohen Fund Audit Services, Ltd. billed $83,000 and $86,400, respectively.
(h) Not applicable.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. Investments.
(a) The Schedule of Investments is included as a part of the report to shareholders filed under Item 1 of this Form N-CSR.
(b) Not applicable.
Item 7. Disclosure Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to this filing (registrant is a bond fund).
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(1) The Fund’s portfolio manager is Claude C. Cody. Mr. Cody is a Senior Vice President of Capstone Asset Management Company, where he has provided investment management and administrative services for 5 years.
(2) The numbers of registered investment company accounts and private accounts, and assets in each category, managed by the portfolio manager is indicated in the following table. The portfolio manager referenced in the table below does not manage any pooled investment vehicles other than registered investment companies.
Portfolio Manager | Number of Registered Investment Companies | Assets under management (in millions) | Number of Private Accounts | Assets under management (in millions) | Total Assets (in millions) |
Claude C. Cody | 2 | $180.7 | 4 | $75.0 | $255.70 |
(3) None of the accounts managed by this portfolio manager has a performance fee-based investment advisory fee. Portfolio managers are compensated based on both assets under management and performance. Managers are provided with a bonus depending on portfolio performance versus a benchmark and relative performance versus a universe of similar managers. 100% of bonuses are based on a one year period.
(4)(a) Ownership of Securities:
The following table shows the dollar range of shares of the Fund owned by the Portfolio Manager as of September 30, 2013, including investments by his immediate family members and amounts invested through retirement and deferred compensation plans.
Portfolio Manager |
| Dollar Range of Fund Shares Owned | |
Claude C. Cody |
| $ | 0.00 |
(b) Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company. Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders. Not applicable.
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 that occurred during the registrant’s second fiscal half-year that have materially affected or are reasonably likely to materially affect the registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) The Code of Ethics that is the subject of the disclosure required by Item 2 is attached hereto.
(a)(2) EX-99.CERT. Filed herewith.
(a)(3) Not applicable.
(b) EX-99.906CERT. Filed herewith.
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.
(Registrant) CAPSTONE CHURCH CAPITAL FUND
By /s/ Edward L. Jaroski
Edward L. Jaroski,
President and Treasurer
Date December 18, 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 and Treasurer
Date December 18, 2015