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Exhibit 10(i)
PRIVATE OFFERING MEMORANDUM
DATED FEBRUARY 18, 1998, REVISED AS OF AUGUST 22, 2000
10,000 SHARES OF COMMON STOCK
$1,000,000,000
ACCESS CAPITAL STRATEGIES COMMUNITY INVESTMENT FUND, INC.
(A MARYLAND CORPORATION)
124 MT. AUBURN STREET
SUITE 200N
CAMBRIDGE, MASSACHUSETTS 02138
PURCHASE PRICE: $100,000 PER SHARE
Access Capital Strategies Community Investment Fund, Inc. ("Fund") is a
newly organized, non-diversified closed-end management investment company
electing status as a business development company ("BDC") under the Investment
Company Act of 1940 ("1940 Act"). The Fund's investment objective is to invest
in geographically specific private placement debt securities located in portions
of the United States designated by Fund Investors. The Fund will primarily
invest in private placement debt securities specifically designed to support
underlying economic activities such as affordable housing, education, small
business lending, and community development. All Fund investments will (i) have
a rating in the highest category assigned by a nationally recognized statistical
rating organization ("NRSRO") (e.g.; at least "Aaa" from Moody's Investors
Services or "AAA" from Standard & Poor's); or (ii) be deemed by the Manager to
be of comparable quality to securities so rated; or, (iii) be credit enhanced by
one or more entities with the highest rating. There can be no assurance that the
Fund will achieve its investment objective. See "Investment Program." The Fund's
manager is Access Capital Strategies LLC ("Access" or "Manager"), an investment
adviser who is registered under the Investment Advisers Act of 1940 ("Investment
Advisers Act").
The Fund expects to qualify as a regulated investment company ("RIC")
for federal income tax purposes. As long as it so qualifies, the Fund will not
pay any federal tax on income that is timely distributed to Shareholders. There
is no assurance, however, that the Fund will be able to qualify.
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IN MAKING AN INVESTMENT DECISION, PROSPECTIVE INVESTORS MUST RELY ON
THEIR OWN REVIEW OF THE FUND AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED WITH OR APPROVED BY
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY, NOR HAVE THE FOREGOING AUTHORITIES CONFIRMED
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THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS,
(COLLECTIVELY, "SECURITIES LAWS"), PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME WHICH MAY
EXTEND UNTIL DISSOLUTION OF THE FUND IN 2032. THE OFFERING AND SALE OF THESE
SECURITIES ARE BEING MADE PURSUANT TO EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES LAWS AND THE SHARES WILL NOT BE OFFERED OR SOLD
IN ANY JURISDICTION IN WHICH SUCH TRANSACTIONS ARE NOT SO EXEMPT. SEE
"DESCRIPTION OF OFFERING" AND "TRANSFERABILITY OF SHARES."
The information contained in this Private Offering Memorandum, which is
to be used solely in connection with the consideration of an investment in the
Fund's Shares, is confidential to the person to whom it is addressed and should
not be disclosed without the prior written consent of the Manager. An offeree
may not solicit, directly or indirectly (whether through an agent or otherwise),
the participation of another institution or person, without the prior written
approval of the Manager.
Each prospective investor should consult its own counsel, accountant,
and/or investment manager as to the legal, tax, and related matters concerning
an investment in the Fund. During the offering period and before sale,
prospective investors and their advisors, if any, are invited to ask questions
of and obtain additional information from Access concerning the Fund, the terms
and conditions of the offering of Shares and any other relevant matters
(including additional information to verify the accuracy of the information in
this Private Offering Memorandum), to the extent the Fund possesses such
information or can acquire it without unreasonable effort or expense. Except as
provided in the preceding sentence, no person is authorized to give any
information or make any representations not contained in this Private Offering
Memorandum, and no such information or representations may be relied upon by
prospective investors.
This Private Offering Memorandum contains information and discussions
subject to and qualified in their entirety by reference to the Fund's Articles
of Incorporation, Bylaws, Management Agreement, and form of Subscription
Agreement, copies of which can be obtained upon request.
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AVAILABLE INFORMATION
As of the date of the First Closing of this offering, the Fund will be
subject to the informational requirements of the Securities Exchange Act of 1934
("1934 Act") and in accordance therewith will file reports and other information
with the Securities and Exchange Commission ("SEC"). The reports, proxy and
information statements, and other information filed by the Fund can be inspected
and copied at public reference facilities maintained by the SEC at 450 Fifth
Street, NW, Room 1024, Washington, DC 20549, and at certain of its Regional
Offices located at 7 World Trade Center, Suite 1300, New York, New York 10048
and Northwest Atrium Center, 500 West Madison Street, Room 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, NW, Washington, DC 20549.
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TABLE OF CONTENTS
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PRIVATE OFFERING MEMORANDUM SUMMARY...............................................................................1
The Fund ................................................................................................1
Management...............................................................................................2
Management and Account Fees..............................................................................2
Term ................................................................................................2
The Offering.............................................................................................2
Use of Proceeds..........................................................................................3
Transferability of Shares................................................................................3
Risk Factors.............................................................................................3
THE FUND .........................................................................................................5
INVESTMENT PROGRAM................................................................................................5
Financial Institutions and the Fund......................................................................5
General ................................................................................................6
Investment Guidelines: Sale of Securities...............................................................12
RISK FACTORS.....................................................................................................12
General ...............................................................................................12
Legislative and Regulatory Risks........................................................................15
Investment Risks........................................................................................16
CONFLICTS OF INTEREST............................................................................................18
USE OF PROCEEDS..................................................................................................19
REGULATION.......................................................................................................19
MANAGEMENT.......................................................................................................21
Directors...............................................................................................21
Officers ...............................................................................................22
The Manager.............................................................................................24
Management..............................................................................................24
The Management Agreement................................................................................25
Custodian...............................................................................................27
Control Persons.........................................................................................27
FEES AND OTHER EXPENSES..........................................................................................27
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<TABLE>
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DIVIDENDS AND DISTRIBUTIONS......................................................................................28
OFFERING ........................................................................................................29
Qualified Investors.....................................................................................29
Types of Financing......................................................................................30
Subscription Procedures.................................................................................30
Closings ...............................................................................................32
Withdrawal of Funds.....................................................................................32
TRANSFERABILITY OF SHARES........................................................................................33
VALUATION........................................................................................................34
PORTFOLIO TRANSACTIONS AND BROKERAGE.............................................................................35
FEDERAL INCOME TAXATION..........................................................................................36
Taxation of the Fund....................................................................................36
Taxation of Shareholders................................................................................37
DESCRIPTION OF SHARES............................................................................................39
General ...............................................................................................39
Limitation of Directors and Officers Liability; Indemnification.........................................40
REPORTS AND INDEPENDENT PUBLIC ACCOUNTANTS.......................................................................40
COUNSEL ........................................................................................................41
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PRIVATE OFFERING MEMORANDUM SUMMARY
The following is a summary of certain information contained in this
Private Offering Memorandum and is qualified in its entirety by the more
detailed information contained elsewhere herein. Each prospective investor is
urged to read this Private Offering Memorandum in its entirety.
THE FUND
Access Capital Strategies Community Investment Fund, Inc., a Maryland
corporation, is a newly organized, non-diversified closed-end management
investment company electing status as a business development company ("BDC")
under the Investment Company Act of 1940 ("1940 Act"). The Fund's investment
objective is to invest in geographically specific private placement debt
securities located in portions of the United States designated by Fund
Investors. The Fund will invest primarily in private placement debt securities
specifically designed to support underlying economic activities such as
affordable housing, education, small business lending, and job-creating
activities in areas of the United States designated by Fund investors. Fund
investments will carry a AAA credit rating or equivalent or carry credit
enhancement from a AAA-rated credit enhancer or be deemed by the Manager to be
of equivalent credit quality. Management expects that all investments made by
the Fund will be considered eligible for regulatory credit under the Community
Reinvestment Act ("CRA"). There can be no assurance that the Fund will achieve
its investment objective. As a BDC, the Fund generally must invest at least 70%
of its total assets in "eligible portfolio companies" and certain other
qualifying assets as defined in the 1940 Act; the Fund may invest up to 30% of
its total assets in securities of other companies. See "Investment Program" and
"Regulation."
The Fund will seek to meet the requirements, including diversification
requirements, for qualification as a regulated investment company ("RIC") under
the Internal Revenue Code of 1986 ("Code"). Unless and until the Fund meets
these requirements, it will be subject to federal taxation at the graduated
rates applicable to domestic corporations on its taxable income (even if that
income is distributed to shareholders) and all distributions out of its earnings
and profits will be taxable to shareholders as ordinary income; thus, such
income will be subject to a double layer of tax. If the Fund qualifies as a RIC,
it will not be subject to federal taxation on income timely distributed to its
shareholders. In general, if the Fund fails to qualify as a RIC in its first
taxable year, to qualify thereafter it must first recognize its net unrealized
gain and distribute all of its earnings and profits. There is no assurance that
the Fund will meet the requirements to qualify as a RIC. See "Federal Income
Taxation."
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MANAGEMENT
Access Capital Strategies LLC ("Access") serves as Manager. Access is a
registered investment adviser under the Investment Advisers Act of 1940
("Investment Advisers Act").
See "Management."
MANAGEMENT AND ACCOUNT FEES
Access Capital Strategies LLC, the Manager, will maintain an account
for each investor in the Fund. Investors making a commitment to the Fund will
open an account, submit a Designated Target Region designation form and pay the
Manager a fee of twenty five basis points (0.25%) of their commitment. When the
Manager has structured a Fund investment, the Manager, with certain exceptions,
will receive from the Fund a 100 basis point (1%) investment structuring fee.
The Manager will receive from the Fund an annual management fee, paid
quarterly, of fifty basis points (0.50%) of the Fund's average monthly gross
assets less accrued liabilities, other than indebtedness for borrowing.
Investors withdrawing from the Fund will receive the then current net
asset value per share and have transferred to their account maintained by the
Manager the net proceeds from liquidation of their shares in the Fund. The
Manager will then charge their account a 1% withdrawal fee and the assets
remaining in their account will then be returned to the Investor. See "Fees and
Other Expenses" for a detailed discussion of all account and fund fees and
expenses.
TERM
The Fund's Articles of Incorporation provide that, on December 31,
2032, the Fund automatically will be dissolved without any action by
shareholders. From and after such dissolution, the Fund's activities will be
limited to the winding-up of its affairs, the liquidation of its remaining
assets and the distribution of net proceeds thereof after the payment of all
expenses and other obligations of the Fund to shareholders. Under certain
circumstances Management and the Board may decide to terminate the Fund earlier.
See "Description of Shares."
THE OFFERING
The Fund is offering up to 10,000 of its Shares of Common Stock, $.001
par value ("Shares"), at the initial price of $100,000 per Share. The minimum
investment is 5 shares, or $500,000, except that the Manager and the officers
and directors of the Fund and the Manager are subject to a $1,000 minimum
subscription amount. Subscriptions for Shares may be made by execution and
delivery of a non-transferable subscription agreement in the form provided
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with this Private Offering Memorandum. Shares will be sold to subscribers, at
the Fund's then-current net asset value per Share, pursuant to one or more
closings to be made from time to time from the First Closing of this offering
through December 31, 2002.
Management reserves the right to hold a final Closing, prior to
December 31, 2002, at the earlier of receipt of subscription agreements for a
total of 10,000 shares or the acceptance of ten Designated Target Regions.
As part of their Subscription Agreement to purchase Fund Shares,
investors must designate a state, a multi-state region, a metropolitan area, or
the entire United States as the preferred geographic focus for their investment
("Designated Target Region"). See "Description of Offering."
USE OF PROCEEDS
The Fund intends to apply the net proceeds of this offering to enter
into private placement transactions with eligible portfolio investments in
Designated Target Regions in furtherance of its investment objective and
policies. Shares will be sold to subscribers pursuant to one or more closings to
be made from time to time through December 31, 2002. Management does not intend
to proceed to a closing until it is certain that sufficient co-investors can be
found to warrant entrance into a Designated Target Region. It is currently
anticipated that all funds subscribed for will be called, and that a majority of
the proceeds of this offering will be invested in privately-placed debt
securities within the earlier of (i) two years after the termination of this
offering or (ii) two and a half years after the Fund has first accepted
subscriptions from investors in the offering, although the Fund will be
permitted to enter into closings at any time until December 31, 2002. See "Use
of Proceeds."
TRANSFERABILITY OF SHARES
There will be no public market for the Shares offered hereby. The
Shares have not been registered under the Securities Act of 1933 ("1933 Act") or
any state securities law (collectively, "Securities Laws") and no public
offering or registration of the Shares in the future is contemplated. The
offering and sale of the Shares are being made pursuant to exemptions from the
registration requirements of the Securities Laws, and the Shares will not be
offered or sold in any jurisdiction in which such transactions are not exempt.
Investors will not be able to dispose of their Shares except pursuant to an
available exemption from applicable Securities Laws. See "Description of
Offering" and "Transferability of Shares."
RISK FACTORS
The Shares offered hereby involve a high degree of risk, including: the
Fund's lack of operating history; limited transferability of Shares; the
illiquidity of the Fund's portfolio investments; the effects of leveraging the
Fund's portfolio; community investing; concentration
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in the affordable housing market; competition for investments; interest rate
risk; risks relating to regulation; risks relating to tax requirements to obtain
and maintain RIC status for the Fund under the Code; and conflicts of interest.
In addition, because the Shares will not be registered under the Securities Laws
and there will be no public market for the Shares, an investment in the Fund is
suitable only for investors who understand the limitations placed upon their
investment and have carefully reviewed this Offering Memorandum. See "Risk
Factors," "Conflicts of Interest," and "Federal Income Taxation."
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THE FUND
The Fund is a newly organized, non-diversified closed-end management
investment company electing status as a BDC. The Fund's investment objective is
to invest in geographically specific private placement debt securities located
in portions of the United States designated by Fund Investors. The Fund will
invest primarily in private placement debt securities specifically designed to
support underlying economic activities such as affordable housing, education,
small business lending, and job creating activities in areas of the United
States designated by Fund investors. Fund investments will carry a AAA credit
rating or equivalent. Management expects that all investments made by the Fund
will be considered eligible for regulatory credit under the CRA. There can be no
assurance that the Fund will achieve its investment objective. The Fund was
incorporated in Maryland on May 14, 1997. Its principal office is located at 124
Mt. Auburn Street, Suite 200N, Cambridge, MA 02138, and its telephone number is
(617) 576-5858.
The Fund's Manager, Access, is an investment adviser registered under
the Investment Advisers Act. References to "Management" or the "Manager" in this
document refer to Access unless otherwise indicated.
The Fund expects to commence operations in June, 1998. The Fund has
registered its Shares pursuant to Section 12(g) of the Securities Exchange Act
of 1934 ("1934 Act"), in compliance with the requirement of Section 54(a)(2) of
the 1940 Act. The Fund is offering its Shares in an offering pursuant to
Regulation D of the 1933 Act ("Regulation D") and is selling its Shares in that
offering solely to "accredited investors," as that term is defined under
Regulation D, except that the Fund's Manager and the Manager's officers and
directors may purchase shares whether or not they are accredited investors.
INVESTMENT PROGRAM
The Fund is designed for investors seeking a competitive return on
investment from private placement securities that support underlying economic
activity in distinct parts of the United States. Typical investors in the Fund
are financial institutions and other tax-paying investors.
FINANCIAL INSTITUTIONS AND THE FUND
Financial institutions may be involved with the Fund as:
investors (see "Description of Offering--Types of Financing");
sellers of existing loans to the Fund; or
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originators of new loans that are made in response to loan
demand created by the Fund.
After extensive discussions with representatives of Federal regulatory
agencies, it is the opinion of Management that financial institutions subject to
CRA may receive CRA investment credit for their investment in the Fund.
Federal CRA regulations, and their counterparts in many states with
their own CRA requirements, require financial institutions subject to these
provisions to focus upon community development and capital markets innovation
and complexity in making loans. Management believes that federal and state
banking regulators (in those states with their own CRA requirements) will
recognize an investment in the Fund as a leadership activity on the part of
financial institutions.
The discussion of CRA credit contained in this Private Offering
Memorandum is, of necessity, general and may be affected by future regulations
and rulings. Financial institutions contemplating a purchase of Shares are urged
to consult with counsel regarding the qualification of such purchase for CRA
credit. For a further discussion of proposed modifications to CRA See "Risk
Factors -- Legislative and Regulatory Risks."
GENERAL
Investment and Economic Objectives. The Fund's investment objective is
to invest in geographically specific private placement debt securities located
in portions of the United States designated by Fund Investors. There can be no
assurance that the Fund will achieve its investment objective. The Fund's
economic objective is to act as a source of long-term fixed-rate capital for
people, institutions, and organizations located in low and moderate income
communities.
Business Development Companies. As a BDC, the Fund must invest seventy
per cent of its total assets in securities of "eligible portfolio companies." An
eligible portfolio company generally is a domestic company which is not an
investment company and: (1) does not have a class of securities registered on an
exchange or included in the Federal Reserve Board's over-the-counter margin
list; or (2) is actively controlled by a BDC and has an affiliate of a BDC on
its board of directors; or (3) meets such other criteria as may be established
by the SEC (see "Regulation").
Management has identified the BDC structure as an effective and
efficient mechanism to realize the Fund's objectives. References in this
document to "eligible portfolio investments" refer to "eligible portfolio
companies" as that term is defined in the 1940 Act.
As required by the 1940 Act, the Fund intends to make available
significant managerial assistance to eligible portfolio investments whose
securities it purchases and holds in its
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portfolio. This assistance may take the form of helping to design community
investment programs and the debt securities issued to fund them, developing
credit enhancements, and assisting program designers in maximizing the community
economic benefits of these programs. (See "Regulation" for more information on
making available significant managerial assistance.) Management believes that,
by serving as an ongoing private sector presence, the Fund can assist in
achieving the investment and community economic goals of these community
investments.
The 1940 Act permits the Fund to invest up to 30% of its total assets
in investments that are not eligible portfolio investments (including publicly
traded securities) and/or investments as to which the Fund does not offer to
make available significant managerial assistance. The Fund does not currently
intend to make any such investments except that in certain situations the Fund
may invest in special purpose private placement debt securities issued by
entities that have issued classes of publicly traded securities.
Diversification Standards. The Fund will be classified as a
"non-diversified" closed-end investment company under the 1940 Act. The Manager
will seek to increase the diversification of the Fund's portfolio so as to make
it possible to meet the RIC diversification requirements, as described below.
There can be no assurance, however, that the Fund will be able to meet those
requirements.
To qualify as a RIC, the Fund must, among other things, satisfy a
diversification standard under the Code such that, at the close of each quarter
of the Fund's taxable year, (i) not more than 25% of the value of its total
assets is invested in the securities (other than government securities or
securities of other RICs) of a single issuer, or two or more issuers which the
Fund controls (under a 20% test) and which are engaged in the same or similar
trades or business or related trades or businesses, and (ii) at least 50% of the
market value of its total assets is represented by cash, cash items, government
securities, securities of other RICs and other securities (with each investment
in such other securities limited so that not more than 5% of the value of the
Fund's total assets is invested in the securities of a single issuer and the
Fund does not own more than 10% of the outstanding voting securities of a single
issuer). See "Federal Income Taxation."
Leverage. The Fund may borrow money from and issue debt securities to
banks, insurance companies, and other lenders to obtain additional funds to
invest in private placement debt securities. Under the 1940 Act, the Fund may
not incur borrowings unless, immediately after the borrowing is incurred, such
borrowings would have "asset coverage" of at least 200%. "Asset coverage" means
the ratio which the value of the Fund's total assets, less all liabilities not
represented by the borrowings and any other liabilities constituting "senior
securities" under the 1940 Act, bears to the aggregate amount of such borrowings
and senior securities. The practical effect of this limitation is to limit the
Fund's borrowings and other senior securities to 50% of its total assets less
its liabilities other than the borrowings and other senior securities at the
time each such borrowing is to occur. The 1940 Act also requires
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that, if the Fund borrows money, provision be made to prohibit the declaration
of any dividend or other distribution on the Shares (other than a dividend
payable in Shares), or the repurchase by the Fund of Shares, if after payment of
such dividend or repurchase of Shares the asset coverage of such borrowings
would be below 200%. See "Regulation." In addition, because the Fund has adopted
a periodic repurchase program, it will comply with further restrictions under
the 1940 Act regarding leveraging the Fund. If, because of these asset coverage
requirements, the Fund is unable to pay dividends or distributions in the
amounts required under the Code, it might not be able to qualify as a RIC or, if
qualified, to continue to qualify.
See "Federal Income Taxation."
The use of leverage increases investment risk. Lenders are expected to
require that the Fund pledge portfolio assets as collateral for loans. If the
Fund is unable to service the borrowings, the Fund may risk the loss of such
pledged assets. Lenders are also expected to require that the Fund agree to loan
covenants limiting the Fund's ability to incur additional debt or otherwise
limiting the Fund's flexibility, and loan agreements may provide for
acceleration of the maturity of the indebtedness if certain financial tests are
not met. See "Risk Factors."
If the Fund does issue debt securities, the Manager will request that
the purchaser(s) of debt securities agree that at a minimum 25% of the net
proceeds of any debt raised will be placed, on a pro rata basis, in Round One
Investors' Designated Target Regions. Purchaser(s) of debt securities may select
a Designated Target Region for the balance of the debt proceeds.
(See "Description of Offering -- Types of Financing.")
FUND INVESTMENTS: IDENTIFYING INVESTMENT OPPORTUNITIES
Upon receipt of a commitment to invest in the Fund, payment of the
commitment fee and choice of a Designated Target Region(s) the Manager will
begin the search and design process for the private placement debt securities to
be created in the Designated Target Region(s). First, the Manager will subject
potential investments to the due diligence traditionally employed in evaluating
private placement debt securities. Such securities will be purchased by the Fund
only after the due diligence process has been satisfied. Second, the Manager
will analyze potential investments to ensure that they represent a commitment of
capital to underfunded community economic needs. Further, the Manager must have
a reasonable level of confidence that the expected rate of return from the
proposed investment will contribute to the Fund's investment objective.
Investment opportunities will be brought to the Manager through a
variety of channels. Prospective issuers of securities, including Federal,
state, and other public sector agencies, may contact the Fund with potential
investment programs. Investment bankers or financial advisors may also work to
develop debt securities for the Fund. Alternatively, the Manager may approach
prospective issuers or investment banks with suggestions for debt securities
that could be purchased by the Fund. The Fund will offer to provide significant
managerial
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assistance in the design, implementation, and monitoring phases of all of the
community investment programs whose debt securities it purchases.
The second avenue for the creation of Fund investments is through
identifying existing inventories of community investments that do not have
access to capital markets investors. These inventories may be loans issued by
financial institutions including non-bank lenders or other originators such as
revolving loan funds, community development corporations ("CDCs"), community
development financial institutions ("CDFIs"), and state or local economic
development authorities. Community-based loan originators, traditional and non-
traditional, are often constrained as to the amount of capital that may be
allocated to the extension of new loans. These originators may be capable of
using their skills and existing presence in the community to originate new loans
but cannot do so due to scarcity of new loan capital. If the Fund can liquefy
these inventories and turn the existing, seasoned loans into Fund investments,
these originators could then re-lend in the community with the proceeds they
receive from the sale of their loan portfolios. Increasing the velocity of
capital emanating from community-based loan originators will help the Fund
realize its financial and economic goals. The Manager will seek assurances from
the sellers that they will use the proceeds from existing loans sold to the Fund
to make new loan capital available to the targeted communities.
All Fund investments described in this Offering Memorandum must be of
AAA credit quality or equivalent, or be credit enhanced by the Federal
government, a government agency or a AAA-rated private sector entity.
INVESTMENT GUIDELINES: PURCHASING SECURITIES
The Fund will operate under the following investment guidelines for the
purchase of securities:
Geographic Targeting. Each investor will choose a Designated Target
Region as the preferred geographic focus for investment of its assets. A
Designated Target Region may be a state, multi-state region, a metropolitan
area, or the entire United States. An investor may also allocate an investment
commitment among different existing or potential Designated Target Regions by
specifying the percentage of the total commitment to be invested in each
selected Designated Target Region. Management intends to limit to the number of
Designated Target Regions to ten. See "Description Of Offering -- Qualified
Investors". Access will not accept an investor's preference for a particular
Designated Target Region unless it is reasonably certain that an adequate supply
of potential investments can be developed for the contemplated Designated Target
Region. Management intends to seek minimum commitments totaling $50 million for
each Designated Target Region. However, each investor will be a Shareholder of
the Fund, not just of the investments in its Designated Target Region. The
financial returns on an investor's investment will be determined by its
proportionate share of the total assets in the Fund's blended, geographically
diverse portfolio, not just by the performance of the assets in the Designated
Target Region selected by the investor.
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Community Investments. Fund investments will support community economic
activities that do not have full or efficient access to the capital markets.
Specifically, the Fund intends to invest in affordable housing, education, small
business lending and other types of job-creating securities. Although Access
will make the day-to-day decisions regarding whether to purchase particular debt
securities for the Fund, the economic focus of the Fund will be reviewed
regularly by the Board of Directors (the "Board"), a majority of whom will be
disinterested, for compliance with the Fund's investment objective.
When making general reference to potential Fund investments as a class,
this Private Offering Memorandum uses the term "community investments," which
refers to securities that are designed to provide for a market rate of return
while bridging capital gaps in the traditional banking and/or capital markets
and profiting from certain market inefficiencies.
Industry Concentration. Under the prevailing definition of the phrase
"industry concentration," the Fund will be concentrated in the affordable
housing industry. This means that the Fund will not invest less than 25% of its
total assets in the affordable housing industry. The Fund currently intends to
invest up to 50% of its total assets in securities issued by providers of
affordable housing. As with all Fund investments, affordable housing investments
made by the Fund must meet the Fund's return and credit quality criteria and
must also support economic activity that would not otherwise be adequately
funded through traditional banking and/or capital markets. At present and for
the foreseeable future, Management believes there are adequate opportunities for
Fund investment in the affordable housing securities industry.
Investors place billions of dollars each year in mortgage-backed
securities in support of market rate single family mortgages. Government
sponsored enterprises ("GSEs") such as Fannie Mae and Freddie Mac offer credit
guarantees for conventional mortgages that create high quality investment
instruments in support of a portion of the housing finance area. Although the
single family conforming mortgage activities of the GSEs have efficient access
to the capital markets, Management believes that additional opportunities exist
to work with the GSEs to create innovative affordable housing programs that are
complementary to and expand upon programs already in place.
Similarly, state housing finance authorities ("HFAs") issue tax-exempt
debt to finance their work in affordable housing. Management believes that HFAs
in Designated Target Regions will be interested in working with the Fund to
develop new programs that could be financed through issuance of taxable HFA debt
to be purchased by the Fund.
There can be no assurance of the continued availability of support from
GSEs, HFAs, or other credit enhancers for Fund activities. Regulatory or
statutory changes may affect the willingness or ability of housing related
entities to work in the affordable housing private placement area. Changes in
credit ratings of GSEs, HFAs, or private credit enhancers may constrain their
value to the Fund as potential sources of credit enhancement.
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<PAGE> 16
Credit Quality. All Fund investments will (i) have a rating in the
highest category assigned by a NRSRO (e.g.; at least "Aaa" from Moody's
Investors Services or "AAA" from Standard & Poor's); or (ii) be deemed by the
Manager to be of comparable quality to securities so rated; or, (iii) be credit
enhanced by one or more entities with a highest rating. The credit quality
guidelines described above are applicable to securities at the time of purchase.
Subsequent changes in credit quality, including downgrades due to changes in
status of credit enhancers, will not require automatic action by the Manager.
o To be deemed AAA, eligible investments must entail one or more
of the following:
o A guarantee or credit enhancement backed by the full faith and
credit of the U.S. Government,
o A guarantee or credit enhancement from a GSE such as Fannie
Mae or Freddie Mac,
o A guarantee or credit enhancement issued by any entity that
has a AAA rating such as an insurance company or financial
institution.
The Manager intends to invest Fund assets only in securities that, at
the time of investment, would be securities that Fund shareholders could hold
directly.
The Board will review on an ongoing basis the credit quality
determinations of the Manager as well as any changes to the credit quality of
portfolio securities. The Manager may not make any adjustments to credit quality
guidelines without consent of the Board.
Maturity. Maturities for securities held by the Fund will vary by type
of investment. Mortgage-backed securities will typically have maturities up to
thirty years while securitized small business loan transactions may have
maturities of up to ten years. See "Fund Termination Date" regarding securities
held by the Fund at the time of dissolution.
Significant Managerial Assistance. The Fund will offer to provide
significant managerial assistance to the issuers of private placement debt
securities it purchases. It is expected that such issuers will benefit from the
Fund's guidance, advice, and assistance before, during, and after the creation
of investment programs. Management expects that the Fund's ongoing involvement
will help assure that the investment and programmatic goals of each transaction
entered into by the Fund are realized.
Private Placement Securities. Fund investments will be private
placement debt securities. The Fund will often be the sole buyer of such
securities designed for purchase by the Fund. An investor purchasing Shares of
the Fund must recognize that the securities purchased by the Fund will be, by
definition, illiquid investments for which there is currently
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<PAGE> 17
no secondary market. The Manager will seek to obtain a premium for the
illiquidity inherent in holding these securities; however, there can be no
assurances as to the exact amount of premium that will be received, if any.
Other Investment Policies. The Fund will not invest in venture capital,
private equity or other asset classes not discussed in this Private Offering
Memorandum. The Fund will not sell securities short, purchase securities on
margin (except to the extent the Fund's permitted borrowings are deemed to
constitute margin purchases), write puts or calls, purchase or sell commodities
or commodity contracts, or purchase or sell real estate. The Fund will not
underwrite the securities of other companies, except to the extent the Fund may
be deemed an underwriter upon the disposition of restricted securities acquired
in the ordinary course of the Fund's business.
INVESTMENT GUIDELINES: SALE OF SECURITIES
Because the Fund will often be the sole buyer of private placement debt
securities designed for purchase by the Fund, the Fund's portfolio securities
will not be actively traded in a secondary market. However, under certain
conditions, the Manager may determine that attractive opportunities exist to
sell an investment. As the community investment industry develops, opportunities
may emerge for the Fund to sell its portfolio securities and reinvest in other
debt securities that will continue to satisfy the Fund's investment guidelines.
The Fund may sell portfolio investments in the following circumstances:
Seasoned Private Placements. The seasoning of Fund investments and the
concomitant development of a performance track record for issuers that were
initially innovative and unfamiliar to market participants may create
opportunities to sell Fund investments through traditional banking and capital
market channels.
Reduced Premium for Illiquidity. Management expects the market for
securitized small business loans to grow during the life of the Fund. Securities
held by the Fund may be attractive investments for new entrants into the market
who may be willing to buy such securities from the Fund at prices that are
favorable to the Fund.
The Fund's investment objective, investment policies, and investment
guidelines (other than its status as a BDC) are not fundamental policies and may
be changed by the Fund's Board at any time without Shareholder approval.
RISK FACTORS
GENERAL
Investment in the Fund involves substantial risks and is suitable only
for those institutions who meet the investor suitability standards set forth
herein on a continuing basis,
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<PAGE> 18
have a substantial net worth, have no need for immediate liquidity from such
investment, and are able to bear the loss of the entire investment. (See
"Description of Offering -- Qualified Investors.") Each prospective investor
should consider carefully the risk factors attendant to the purchase of Shares,
including without limitation those discussed below, and each should review the
investment with its own legal, tax, and financial advisors. In addition, each
prospective investor should understand that the Subscription Agreement
materially restricts investors from selling or otherwise disposing of their
Shares.
No Operating History; Reliance on Management. The Fund is newly
organized and does not have an investment track record. The Fund could require
substantial time to become fully invested. The Fund will be wholly dependent for
the selection, structuring, closing, and monitoring of its investments on the
diligence and skill of its Manager, acting under the supervision of the Board.
Ronald A. Homer and David F. Sand, the two senior officers of Access, will have
responsibility for the selection of investments, the negotiation of the terms of
such investments, and the monitoring of such investments after they are made.
There can be no assurance that Messrs. Sand and Homer will remain associated
with Access or that, in the event they ceased to be associated with Access,
Access would be able to find a qualified person or persons to fill their
position(s). See "Management."
Limited Transferability of Shares. The Fund has been organized to make
investments in illiquid debt securities. The Shares will not be registered under
the federal or state securities laws and are subject to substantial restrictions
on transfer. There will be no trading market for the Shares. Fund shares,
subject to Board and shareholder approval, are expected to be subject to annual
voluntary redemption as discussed in "Redemption". See "Transferability of
Shares."
Long-term Investment. The Fund's Articles of Incorporation provide
that, on December 31, 2032, the Fund will be dissolved automatically without any
action by Shareholders. From and after such dissolution, the Fund's activities
will be limited to the winding-up of its affairs, the liquidation of its
remaining assets, and the distribution of the net proceeds thereof to
Shareholders. However, the actual liquidation might not be completed for a
significant period after the Fund's dissolution. In addition, it is possible
that, if certain of the Fund's assets are not liquidated within a reasonable
time after the Fund's dissolution, the Fund may elect to make a distribution in
kind of all or part of such assets to Shareholders. In such case, Shareholders
would bear any expenses attendant to the ultimate liquidation of such assets.
See "Dissolution of the Fund."
Competition. There is no assurance that there will be a sufficient
number of attractive potential investments available to the Fund. While
Management believes that the Fund offers a unique investment vehicle at this
time, in some instances, particularly with housing-related investments, it is
possible that there will be competition from other investors seeking to invest
in the same types of privately placed debt securities in the same Designated
Target Regions. Such other investors may have greater resources than the Fund.
Furthermore, the Fund's need
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<PAGE> 19
to comply with provisions of the 1940 Act pertaining to BDCs and provisions of
the Code pertaining to RICs might restrict the Fund's flexibility as compared to
that of its competitors. The need to compete for investment opportunities may
make it necessary for the Fund to offer more attractive transaction terms than
otherwise might be the case. See "Investment Program."
Leverage. As discussed elsewhere in this Private Offering Memorandum,
Management may decide to borrow. (See "Description of Offering--Types of
Financing.") Although leverage can enhance return on invested capital, if the
return on the investments purchased with borrowed funds fails to cover the fixed
cost of the borrowings, or if the return is negative, the value of the Fund's
net assets will decline more rapidly than would be the case in the absence of
leverage. For this reason, leverage is considered a speculative investment
technique. The Fund expects to be asked to pledge portfolio assets as collateral
for its borrowings. If the Fund is unable to service its borrowings, the Fund
may risk the loss of the pledged assets. In addition, if the interest rates on
floating or variable rate borrowings increase at a time that the Fund holds
fixed-rate securities or that the Fund holds variable rate securities whose
interest rates do not increase as much as the rate on the Fund's borrowings, the
Fund's income and yield will be adversely affected. See "Investment Program --
General."
In addition, lenders may require that the Fund agree to loan covenants
that could restrict its flexibility in the future. The Fund may be required to
dispose of or seek prepayment of assets at a time it would otherwise not do so
to repay indebtedness in a timely fashion. Under the 1940 Act, if the Fund
borrows money, provision must be made to prohibit the declaration of any
dividend or other distribution on the Shares (other than a dividend payable in
Shares), or the repurchase by the Fund of Shares, if after payment of such
dividend or repurchase of Shares the value of the Fund's total assets, less all
liabilities not represented by the borrowings and any other liabilities
constituting "senior securities" under the 1940 Act, is less than 200% of the
aggregate amount of such borrowings and senior securities. If the Fund is unable
to pay dividends or distributions in the amounts required under the Code, it
might not be able to qualify for treatment as a RIC or, if qualified, to
continue to qualify for such treatment.
Regulation. The Fund has elected to be treated as a BDC under the 1940
Act. Although BDCs are exempt from registration under the 1940 Act and relieved
from compliance with many provisions of the 1940 Act, they are subject to
greater restrictions on permitted types of investments than closed-end
investment companies generally. Moreover, the applicable provisions of the 1940
Act continue to impose numerous restrictions on the activities of the Fund,
including restrictions on leverage and on the nature of its investments. There
can be no assurance that the BDC provisions of the 1940 Act will be interpreted
or administratively implemented in a manner consistent with the Fund's
objectives or manner of operation. See "Regulation."
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<PAGE> 20
LEGISLATIVE AND REGULATORY RISKS
Legislative and Administrative Changes. As discussed throughout this
document, many aspects of the Fund's investment objectives are directly affected
by the national and local legal and regulatory environments. Changes in laws,
regulations or the interpretation of regulations could all pose risks to the
successful realization of the Fund's investment objectives.
It is not known what changes, if any, will be made to the federal CRA
over the life of the Fund and what impact these changes would have on regulators
or the various states that have their own versions of CRA. As discussed in
"Investment Program," CRA regulations play an important part in influencing the
readiness and capacities of financial institutions to originate loans that may
be owned by the Fund through its investment in geographically specific fixed
income private placement debt securities. Changes in the CRA might impact upon
Fund operations and might pose a risk to the successful realization of the
Fund's investment objectives. In particular, repeal of CRA would significantly
reduce the attractiveness of Fund ownership for regulated investors.
Non-Diversified Status. The Fund is classified as a "non-diversified"
investment company under the 1940 Act. The Fund intends to qualify as a RIC
under the Code and will therefore seek to meet the diversification standards
thereunder. See "Federal Income Taxation." Nevertheless, the Fund's assets may
be subject to a greater risk of loss than if it were more widely diversified.
Tax Status. The Fund must meet a number of requirements, described
under "Federal Income Taxation," to qualify as a RIC and, if qualified, to
continue to qualify. If the Fund experiences difficulty in meeting the
diversification requirement for any fiscal quarter, it might accelerate capital
calls or borrowings in order to increase the portion of the Fund's total assets
represented by cash, cash items, and U.S. government securities shortly
thereafter and as of the close of the following fiscal quarter and thus attempt
to meet the diversification requirement. However, the Fund would incur
additional interest and other expenses in connection with any such accelerated
borrowings, and increased investments by the Fund in cash, cash items, and U.S.
government securities (whether the funds to make such investments are derived
from called equity capital or from accelerated borrowings) are likely to reduce
the Fund's return to investors. Furthermore, there can be no assurance that the
Fund would be able to meet the diversification requirements through such
actions. Failure to qualify as a RIC would subject the Fund's distributed and
undistributed income to federal income taxation, and in a year in which the Fund
has taxable income or net realized gain, would have a significant adverse effect
on the return to investors. See "Federal Income Taxation."
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<PAGE> 21
INVESTMENT RISKS
Community Investing. The Fund will focus on Community Investments as
described in other sections of this document. (See "Investment Program --
General -- Community Investments".) This investment specialization involves
risks that include, but are not limited, to those outlined below.
ECONOMIC CONDITIONS. The community investment focus of the
Fund will likely result in the purchase of investments in economically
distressed areas within an investor's Designated Target Region(s). These areas
may be in the process of economic deterioration, stabilization, and/or
revitalization. The term and therefore the value of the return on Fund
investments in economically distressed and/or redeveloping areas could be
adversely affected by the fragile nature of the local economy or unfavorable
changes in local, regional, or national economic conditions.
NATURE OF ISSUERS OF FUND INVESTMENTS. The economic objective
of the Fund (as outlined in "Investment Program -- General -- Investment and
Economic Objectives") will result in investments that represent an extension of
credit to individuals, organizations, and communities that do not have full and
efficient access to conventional banking and/or capital markets. Such
investments could be in the form of private placement debt securities in support
of affordable housing, education, small business lending, and other job-creating
activities. While all of the Fund's investments will be of the highest credit
quality or equivalent or have credit enhancement the initial sources of
repayment may be individuals or organizations that are, in some way,
economically disadvantaged. The disadvantaged economic status or related
circumstances, such as a lack of accumulated savings to employ in the case of
temporary financial hardship, of these primary issuers of the debt securities
could adversely affect their ability to meet their financial obligations.
In the event that a primary issuer is unable to fulfill its financial
obligation on a Fund investment that has credit enhancement, funds received from
the credit enhancer to meet the financial obligation may result in principal
prepayment. Such an event may require the Manager to arrange for another
investment as a replacement in the Fund portfolio. There can be no assurance
that the Manager would be able to arrange an alternative investment with
comparable returns and/or terms to the prepaid investment, or that the process
of arranging such alternative investment would not add to the costs of managing
the Fund.
COORDINATING THE DEVELOPMENT OF INVESTMENTS. Many of the
fixed-income private placement debt securities purchased as Fund investments
will be uniquely structured to achieve the financial and economic objectives of
the Fund. The Manager will often play a significant role in the structuring of
Fund investments. The development of such securities will often require the
Manager to cooperate with a variety of organizations, including but not limited
to financial institutions, foundations, state agencies, community groups,
national credit
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<PAGE> 22
enhancers and other government entities. A lack of interest of other entities in
developing investments could adversely affect the realization of the economic
and financial objectives of the Fund.
The success of developing credit enhancement for Fund investments will
depend, in large part, on the availability of funds these organizations have for
such activity and/or the amount of payment they expect to receive for their
credit guarantees. A limited or dwindling supply of funds available for credit
enhancement on Fund investments may adversely affect full realization of the
Fund's objectives.
LOCAL COMMUNITY DEVELOPMENT PROGRAMS. As described above, Fund
investments may be located in economically distressed and/or redeveloping areas.
The successful economic revitalization of a local community is often dependent
upon many factors such as the involvement of various programs and services
funded and organized by community development organizations, government
entities, non-profit groups, religious organizations and other institutions. If
these organizations are unable to arrange funding for and/or organize the
various programs and services they would normally provide to a local community,
the absence of these community development programs could impede the economic
development of a local community and have adverse affects on the performance of
Fund investments located in that area. Changes in prevailing national economic
and political environments, along with the grant-making and other activities of
philanthropic institutions, will affect the availability of financing for local
community programs.
Credit Risks. All investments purchased by the Fund will be of the
highest credit quality or equivalent or will have one or more forms of credit
enhancement. An investor in a credit enhanced debt instrument typically relies
upon the credit rating of the credit enhancer to evaluate an issue's credit
quality and appropriate pricing level. There can be no assurance that the credit
rating of a public or private entity used as a credit enhancer on a Fund
investment will remain unchanged over the period of the Fund's ownership of that
investment.
Illiquidity of Portfolio Investments. The Fund anticipates that
substantially all of its portfolio investments will consist of privately placed
debt securities that at the time of acquisition may be subject to restrictions
on sale and for which no ready secondary market will exist. Restricted
securities cannot be sold publicly without prior agreement with the issuer to
register the securities under the 1933 Act, or by selling such securities under
Rule 144A or other rules under the 1933 Act which permit only limited sales
under specified conditions. Furthermore, even if the private placement debt
securities owned by the Fund become publicly-traded, the Fund's ability to sell
such securities may be limited by the lack of or limited nature of a trading
market for such securities. If the restricted securities held by the Fund are
sold to the public, the Fund, under certain circumstances, may be deemed an
"underwriter" or a controlling person with respect thereto for the purposes of
the 1933 Act, and be subject to liabilities as such under that Act. See
"Investment Program."
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<PAGE> 23
Fixed Interest Rate Investments. The Fund generally will purchase debt
securities with fixed interest rates. The market value of these investments will
be directly affected by changes in prevailing interest rates. An increase in
interest rates will generally reduce the value of the portfolio investments and
a decline in interest rates will generally increase the value of those
investments. See "Investment Program."
Interest Rate Risk Associated with Mortgage and Asset Backed
Securities. The Fund will invest in Mortgage and Asset Backed Securities ("MBSs"
and "ABSs"). The value of MBSs and ABSs are based on the underlying pools of
mortgages and assets that serve as the asset base for the securities. The value
of MBSs and ABSs will be significantly influenced by changes in interest rates
because mortgage and asset backed pool valuations fluctuate with interest rate
changes. Specifically, when interest rates decline, many borrowers refinance
existing loans, resulting in principal prepayments which leads to early payment
of the securities. Early payment of an investment in MBSs or ABSs can result in
a significantly lower return than the return expected at the time the securities
were purchased. In addition, a decline in interest rates that leads to
prepayment of MBSs or ABSs may result in a reinvestment requirement at a time
when the interest rate environment presents less attractive alternatives for the
Manager to choose from to achieve its investment objectives.
CONFLICTS OF INTEREST
Transactions by Other Clients. The Manager's services to the Fund are
not exclusive. Access is not prohibited under the Management Agreement from
establishing additional investment entities that will engage in similar
transactions as the Fund.
To the extent that portfolios of other funds advised by the Manager
desire to invest in opportunities available to the Fund, the Manager will
allocate such opportunities among the Fund and such other funds in a manner
deemed fair and equitable considering all of the circumstances in accordance
with procedures approved by the Board (including a majority of the disinterested
directors). The participation by such other funds in the community investment
market could make it more difficult for the Fund to acquire such private
placement debt securities on attractive terms.
Indemnification and Exculpation. The Fund's Articles of Incorporation
provide for indemnification of directors, officers, employees, and agents
(including the Manager) of the Fund to the full extent permitted by Maryland law
and the 1940 Act, including the advance of expenses and reasonable counsel fees.
The Articles of Incorporation also contain a provision eliminating personal
liability, to the extent allowed by the 1940 Act, of a Fund director or officer
or its Shareholders for monetary damages for certain breaches of their duty of
care.
Election of Disinterested Directors. As required by the 1940 Act, a
majority of the Fund's directors are disinterested directors. Although the
continued tenure of all directors will
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<PAGE> 24
be subject to annual election by Shareholders, the initial election of
directors, including the disinterested directors, is made by the initial
Shareholder. See "Management."
Effect of Borrowing. The Manager's fees will be based on the value of
the Fund's total assets, including assets purchased with borrowed funds.
Therefore, decisions by the Manager to cause the Fund to borrow additional funds
will increase the Manager's fees. The Fund's overall borrowing limits, however,
are set by the 1940 Act and also by the Board in the light of its fiduciary duty
to the Shareholders. See "Investment Program -- General."
USE OF PROCEEDS
The net proceeds to the Fund from the sale of the Shares offered
hereby, after deducting the organizational and offering expenses to be paid or
reimbursed by the Fund, are estimated at $999,900,000 if the maximum number of
Shares offered hereby are sold. The Fund intends to apply the net proceeds of
this offering to purchase private placement transactions with eligible portfolio
investments in furtherance of its investment objective and policies. Shares will
be sold to subscribers pursuant to one or more closings to be made from time to
time through December 31, 2002.
Management does not intend to proceed to a closing until it is certain
that sufficient co- investors can be found to warrant entrance into a particular
Designated Target Region. It is currently anticipated that all funds subscribed
for will be called, and that a majority of the proceeds of this offering will be
invested in privately-placed debt securities within the earlier of (i) two years
after the termination of this offering or (ii) two and a half years after the
Fund has first accepted subscriptions from investors in the offering, although
the Fund will be permitted to enter into closings at any time until December 31,
2002.
REGULATION
After filing its election to be treated as a BDC, a company may not
withdraw its election without first obtaining the approval of holders of a
majority of its outstanding voting securities (as defined under the 1940 Act).
The following is a brief description of the relevant sections of the 1940 Act
and is qualified in its entirety by reference to the full text of the 1940 Act
and the rules thereunder.
Generally, to be eligible to elect BDC status, a company must engage in
the business of furnishing capital and offering significant managerial
assistance to "eligible portfolio investments" as defined below. More
specifically, in order to qualify as a BDC, a company must (i) be a domestic
company; (ii) have registered a class of its securities or have filed a
registration statement with the SEC pursuant to Section 12 of the Securities
Exchange Act of 1934 ("1934 Act"); (iii) operate for the purpose of investing in
the securities of certain types of eligible portfolio investments; (iv) offer to
extend significant managerial assistance to such eligible portfolio investments;
(v) have a majority of disinterested directors; and (vi) file (or
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<PAGE> 25
under certain circumstances, intend to file) a proper notice of election with
the SEC. The National Securities Improvement Act of 1996 relaxed the requirement
set forth in clause (iv), above, in certain respects; in this regard a BDC is
not required to offer significant managerial assistance to an issuer which has
total assets of not more than $4 million and capital and surplus of not less
than $2 million or with respect to any other issuer that meets such criteria as
the Securities and Exchange Commission otherwise may provide.
"Making available significant managerial assistance" is defined under
the 1940 Act in relevant part as (i) an arrangement whereby the BDC, through its
officers, directors or employees, offers to provide and, if accepted, does
provide, significant guidance and counsel concerning the management, operations,
or business objectives of a portfolio company; or (ii) the exercise by a BDC of
a controlling influence over the management or policies of the portfolio company
by the BDC acting individually or as part of a group acting together which
controls the portfolio company. The Fund intends to offer to provide significant
managerial assistance, including advice on the design, implementation, and
monitoring phases of the investments, to the issuers whose private placement
debt securities it purchases.
An "eligible portfolio company" generally is a United States company
that is not an investment company and that (i) does not have a class of
securities registered on an exchange or included in the Federal Reserve Board's
over-the-counter margin list; (ii) is actively controlled by a BDC and has an
affiliate of a BDC on its board of directors; or (iii) meets such other criteria
as may be established by the SEC. Control under the 1940 Act is presumed to
exist where a BDC owns more than 25% of the outstanding voting securities of the
eligible portfolio company.
The 1940 Act prohibits or restricts companies subject to its provisions
from investing in certain types of companies, such as brokerage firms, insurance
companies, investment banking firms, and investment companies. Moreover, the
1940 Act limits the type of assets that BDCs may acquire to certain prescribed
qualifying assets and certain assets necessary for its operations (such as
office furniture, equipment, and facilities) if, at the time of acquisition,
less than 70% of the value of a BDC's assets consist of qualifying assets.
Qualifying assets include: (i) privately acquired securities of companies that
were eligible portfolio investments at the time such BDC acquired their
securities; (ii) securities of bankrupt or insolvent companies; (iii) securities
of eligible portfolio investments controlled by a BDC; (iv) securities received
in exchange for or distributed in or with respect to any of the foregoing; and
(v) cash items, government securities, and high-quality short-term debt. The
1940 Act also places restrictions on the nature of transactions in which, and
the persons from whom, securities can be purchased in order for the securities
to be considered qualifying assets. Such restrictions include limiting purchases
to actions not involving a public offering and the requirement that securities
be acquired directly from either the portfolio company or its officers,
directors, or affiliates.
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<PAGE> 26
The Fund, as a BDC, may sell its Shares at a price that is below its
net asset value per Share, provided that a majority of the Fund's disinterested
directors has determined that such sale would be in the best interests of the
Fund and its Shareholders and upon the approval by the holders of a majority of
its outstanding voting securities, including a majority of the voting securities
held by non-affiliated persons, of such policy or practice within one year of
such sale. A majority of the disinterested directors also must determine in good
faith, in consultation with the underwriters of the offering if the offering is
underwritten, that the price of the securities being sold is not less than a
price which closely approximates market value of the securities, less any
distribution discounts or commissions. As deemed in the 1940 Act, the term
"majority of the outstanding voting securities" of the Fund means the vote of
(i) 67% or more of the Fund's Shares present at a meeting, if the holders of
more than 50% of the outstanding Shares are present or represented by proxy, or
(ii) more than 50% of the Fund's outstanding Shares, whichever is less.
Many transactions involving a company and its affiliates (as well as
affiliates of those affiliates) are permissible for BDCs, including the Fund,
upon the prior approval of a majority of the Fund's disinterested directors and
a majority of the directors having no financial interest in the transactions.
However, certain transactions involving certain persons related to the Fund,
including its directors, officers, and the Manager, may still require the prior
approval of the SEC. In general, (i) any person who owns, controls, or holds
power to vote, more than 5% of the Fund's outstanding Shares, (ii) any director,
executive officer, or general partner of that person, and (iii) any person who
directly or indirectly controls, is controlled by, or is under common control
with, that person, must obtain the prior approval of a majority of the Fund's
disinterested directors, and, in some situations, the prior approval of the SEC,
before engaging in certain transactions involving the company or any company
controlled by the Fund. The 1940 Act generally does not restrict actions between
the Fund and its portfolio companies. While a BDC may change the nature of its
business so as to cease being a BDC (and in connection therewith withdraw its
election to be treated as a BDC) only if authorized to do so by a majority vote
(as deemed by the 1940 Act) of its outstanding voting securities, Shareholder
approval of changes in other fundamental investment policies of a BDC, except
for fundamental policies regarding periodic repurchase of Shares, which require
a majority vote (see "DESCRIPTION OF OFFERING -- Withdrawal of Funds"), is
generally not required. In contrast, the 1940 Act requires Shareholder approval
for a change in any fundamental investment policy.
MANAGEMENT
DIRECTORS
The Fund's Board of Directors, initially elected by the initial
Shareholder and elected annually thereafter by Shareholders, will establish and
review policy for the management of the Fund. A majority of the members of the
Board, as required by Section 56(a) of the 1940 Act, are disinterested. The
Board will meet no less frequently than quarterly. The Board will
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<PAGE> 27
review and approve annually the contracts between the Fund, Access, and any
other affiliates of Access. Management will be responsible for all day-to-day
business decisions regarding operations of the Fund. Specifically, all decisions
about buying and selling portfolio investments will be Management's
responsibility. The Board will review and consider the allocation of actual
investments as compared to the allocation indicated by investors' Designated
Target Regions.
As of the date of the Private Offering Memorandum, the Fund's Directors
are:
<TABLE>
<CAPTION>
NAME AGE POSITION OTHER AFFILIATION
---- --- -------- -----------------
<S> <C> <C> <C>
Peter J. Blampied 55 Director Former Chairman, President & CEO of
Boston Five Bancorp.
Ronald A. Homer* 50 Director CEO & Co-Managing Member, Access
Capital Strategies LLC.
Kevin J. Mulvaney 49 Director President, Strategic Advisors Group.
Formerly president of DRI/McGraw-Hill and
executive vice president of BankBoston.
</TABLE>
*An "interested" Director.
OFFICERS
As of the date of the Private Offering Memorandum, the officers of the
Fund are:
<TABLE>
<CAPTION>
NAME POSITION OTHER AFFILIATION
---- -------- -----------------
<S> <C> <C>
Ronald A. Homer Chairman CEO & Co-Managing Member,
Access Capital Strategies LLC
David F. Sand CEO President & Co-Managing Member,
Access Capital Strategies LLC
</TABLE>
The Fund will pay no compensation to its officers who are "interested
persons" (as defined in the 1940 Act) of the Manager or to its directors who are
officers, directors or employees of Access or any "affiliated person" thereof
(as defined in the 1940 Act). The Fund's other directors will each receive a per
meeting fee from the Fund of up to $2,000. The Directors' fees will be set by
the Board. Such directors also will be reimbursed by the Fund for their expenses
in attending meetings of the Board or any committee thereof.
The business backgrounds of the Fund's directors and officers are as
follows:
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<PAGE> 28
<TABLE>
<CAPTION>
Name Employers(5 Years) Industry Job Description
---- ------------------ -------- ---------------
<S> <C> <C> <C>
RONALD A. HOMER Access Capital Investment CEO & Co-Managing
Strategies LLC Advisor Member
Boston Bank of President & CEO
Commerce Banking (1983-1996)
PETER J. BLAMPIED Independent Management Management
Consulting Consultant (1993-
1997)
Boston Five Bancorp. Banking Former Chairman,
President and CEO
(prior to 1993)
KEVIN J. MULVANEY Strategic Advisors Management President (4/97-
Group Consulting present)
DRI/McGraw Hill Econometrics President (1994 - 1997)
publishing
Bank of Boston Banking Executive Vice
President and Group
Executive National
Banking (prior to
1993)
DAVID F. SAND Access Capital Investment President & Co-
Strategies LLC Adviser Managing Member
(1997 - present)
Access Capital Investment CIO & CEO (prior to
Strategies Corp. Adviser 1997)
Commonwealth Investment President (prior to
Capital Strategies Banking 1995)
Commonwealth Investment Managing Director
Capital Partners Banking (prior to 1994)
</TABLE>
THE MANAGER
Access was formed in 1997 to focus upon managing the assets of
institutional investors interested in community investing. In February 1997 the
firm assumed the assets, but no liabilities, of Access Capital Strategies Corp.
The predecessor firm was a wholly owned subsidiary of Mellon Bank Corp. from
1994-97.
Access' principal business address is 124 Mt. Auburn Street, Suite
200N, Cambridge, Massachusetts 02138.
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<PAGE> 29
MANAGEMENT
Ronald A. Homer. From 1983 to 1996, Mr. Homer was the president and chief
executive officer of the Boston Bank of Commerce, New England's largest
minority-owned financial institution. During his tenure, the bank specialized in
affordable housing, community development, and small business lending. The bank
also had joint ventures in municipal bond underwriting, investment advisory
services, and real estate development. In 1996, the Boston Bank of Commerce
introduced the 'Unity' Visa Card, the largest credit offering by and for
African-Americans.
From 1979 to 1983, Mr. Homer was executive vice president and chief operating
officer of Freedom National Bank of New York. He spent his first ten years in
banking in a variety of commercial lending positions at Marine Midland Bank in
New York. This experience included asset-based, commercial real estate, and
multi-national corporate lending.
A member of several corporate boards, Mr. Homer is a director of the Nynex
Telecommunications Companies, Nellie Mae Inc., Urban Underwriters Inc. and the
West Insurance Agency. He is a past president of the National Bankers
Association and a former member of the Federal Reserve Board of Governors
Consumer Advisory Council. He served on the administrative committee of the
Government Relations Council of the American Bankers Association ('ABA') and was
the founding chair of the ABA's Center for Community Development. He currently
serves on the national board of the Initiative for a Competitive Inner City.
Mr. Homer received a BA from the University of Notre Dame in 1968 and an MBA
from the University of Rochester in 1971. He has an honorary Doctorate of Humane
Letters from the University of Massachusetts and an honorary Masters Degree in
Management from Cambridge College.
David F. Sand. David F. Sand has more than sixteen years of experience as a
portfolio manager and investment adviser. As a Vice President at Shearson (1980
to 1984) and later as First Vice President of Drexel Burnham Lambert (1984 to
1985), he worked to combine market returns and economic results for
institutional clients. He also served as Director and Portfolio Manager for
Franklin Research and Development. Mr. Sand received his undergraduate degree
from Princeton University in 1979 and his Masters in Public Administration from
the John F. Kennedy School of Government at Harvard University in 1988.
THE MANAGEMENT AGREEMENT
The Fund has entered into a Management Agreement with Access, pursuant
to which Access will, subject to the investment policies and guidelines
established by the Board, identify, evaluate, structure, and close the
investments to be made by the Fund, arrange any
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<PAGE> 30
debt financing for the Fund, provide portfolio management and servicing of
private placement debt securities held in the Fund's portfolio, and administer
the Fund's day-to-day affairs. Access will supervise all aspects of the
operations of the Fund, including oversight of the Fund's transfer agent and
portfolio accountant.
The Management Agreement provides that the Fund will be required to pay
all organizational and offering expenses (including accounting, legal, printing,
clerical, filing and other expenses) incurred by the Fund. These expenses were
approximately $100,000. The Fund will also pay all operating expenses except
those specifically required to be borne by the Manager, including (i) brokerage
and commission expenses and other transaction costs incident to the acquisition
and dispositions of investments, (ii) federal, state, and local taxes and fees,
including transfer taxes and filing fees, incurred by or levied upon the Fund,
(iii) interest charges and other fees in connection with borrowings, (iv) SEC
fees and expenses and any fees and expenses of state securities regulatory
authorities, (v) expenses of printing and distributing reports and notices to
Shareholders, (vi) costs of proxy solicitation, (vii) costs of meetings of
Shareholders and the Board, (viii) charges and expenses of the Fund's custodian,
transfer agent, and dividend disbursing agent, (ix) compensation and expenses of
the Fund's disinterested directors, and of any of the Fund's disinterested
officers, and expenses of all directors in attending board or Shareholder
meetings, (x) legal and auditing expenses, including expenses incident to the
documentation for, and consummation of, transactions; (xi) costs of any
certificates representing the Shares, (xii) costs of stationery and supplies,
(xiii) the costs of membership by the Fund in any trade organizations, (xiv)
expenses associated with litigation and other extraordinary or non-recurring
expenses, and (xv) any insurance premiums.
(See "Fees and Other Expenses".)
The operating expenses required to be borne by the Manager are: (i) all
costs and fees incident to the selection and investigation of prospective Fund
investments, including associated due diligence expenses such as travel expenses
and professional fees (but excluding legal and accounting fees and other costs
incident to the closing, documentation, or consummation of such transactions);
(ii) the cost of adequate office space for the Fund and all necessary office
equipment and services, including telephone service, heat, utilities, and
similar items; (iii) the cost of providing the Fund with such corporate,
administrative, and clerical personnel (including officers and directors of the
Fund who are interested persons of the Manager and are acting in their
respective capacities as officers and directors) as the Board reasonably deems
necessary or advisable to perform the services required to be performed by the
Manager under the Management Agreement; and (iv) the cost of providing
significant managerial assistance offered to and accepted by the recipients of
Fund investments.
As compensation for its services to the Fund, the Manager will receive
an annual management fee of 0.50% of the Fund's average gross monthly assets
less accrued liabilities, other than indebtedness for borrowings. This fee will
be paid quarterly. Other fees payable to the Manager are discussed in "Fees and
other expenses."
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<PAGE> 31
Under the Management Agreement, the Manager will not be liable for any
error in judgment or mistake of law or for any loss suffered by the Fund in
connection with the Management Agreement, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Manager in the
performance of its duties or from reckless disregard of its duties and
obligations under the Management Agreement. The Management Agreement will
continue in effect for a period longer than two years from its date of execution
only if such continuation is approved at least annually by the Board or a
majority of the outstanding voting securities of the Fund, and by a majority of
the directors who are not parties to the Management Agreement or interested
persons of such parties. The Management Agreement is terminable by vote of the
Board or by the holders of a majority of the voting securities of the Fund, at
any time without penalty, on 60 days' written notice to the Manager. The
Management Agreement may also be terminated by the Manager on 60 days' written
notice to the Fund and will be terminated automatically upon its assignment, as
defined in the 1940 Act.
CUSTODIAN
The Fund's Custodian is Investors Fiduciary Trust Co., an affiliate of
State Street Bank and Trust Company. The Fund will be charged an annual fee,
paid monthly, of 0.03% of the Fund's monthly net assets.
CONTROL PERSONS
The Fund had no shares outstanding as of the date of this Private
Offering Memorandum. It is anticipated that, prior to the First Closing, Access
will purchase one share at a price of $1,000 as the Fund's initial capital.
Therefore, until immediately subsequent to the First Closing for investor
purchase of shares, Access will be deemed to control the Fund.
FEES AND OTHER EXPENSES
Access Capital Strategies LLC, the Manager, will maintain an account
for each investor in the Fund. Investors making a commitment to the Fund will
open an account, submit a Designated Target Region designation form and pay the
Manager a fee of twenty five basis points (0.25%) of their commitment. The
Manager will work to identify investment opportunities and will call upon
Investor commitments when Fund investments are ready. When the Manager is ready
to make a Fund investment, Investor commitments will be called and the Manager
will purchase shares in the Fund on behalf of each Investor.
When the Manager has structured a Fund investment, the Manager will
receive from the Fund a 100 basis point (1%) investment structuring fee. It is
the Fund's current expectation that some of the issuers of the private
placements debt securities that the Fund intends to purchase will pay the Fund a
fee for structuring and effecting those transactions. It cannot be predicted
with any certainty whether these fees received by the Fund from issuers will
exceed
-26-
<PAGE> 32
or be less than the investment structuring fee paid by the Fund to the Manager
as described above. Where the Fund does not receive a fee from an issuer of the
private placement debt securities, the Manager will not charge the Fund the 1%
investment structuring fee. Where the Fund expects to receive a fee from the
issuer, but has not received payment of the fee, the Manager will not charge the
Fund the investment structuring fee until the Fund has been paid by the issuer.
The Manager will receive from the Fund an annual management fee, paid
quarterly, of fifty basis points (0.50%) of the Fund's average monthly gross
assets less accrued liabilities, other than indebtedness for borrowing.
The Fund will be charged 0.03% of the Fund's average monthly net assets
for custody and portfolio accounting services.
Combined organizational and offering expenses (primarily legal) for the
Fund are expected to be approximately $100,000. The Manager has agreed to pay
these expenses and be reimbursed by the Fund during the offering period.
Beginning with the First Closing and continuing until the Final Closing, the
Fund will be charged an annual fee of .02% of the Fund's monthly net assets,
paid quarterly, to reimburse the Manager up to the amount of combined
organizational and offering expenses. To the extent that the Manager is not
fully reimbursed for these expenses, they will be borne by the Manager.
Annual operating expenses for the Fund are estimated to be
approximately $150,000. During the offering period the Manager has agreed to pay
these expenses and be reimbursed by the Fund. The Fund will be charged an annual
fee of .03% of monthly net assets, paid quarterly, for operating expenses. To
the extent that the Manager is not fully reimbursed for these expenses, they
will be borne by the Manager.
Investors withdrawing from the Fund will receive the then current net
asset value per share and have transferred to their account maintained by the
Manager the net proceeds from liquidation of their shares in the Fund. The
Manager will then charge their account a 1% withdrawal fee and the assets
remaining in their account will then be returned to the Investor.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute to Shareholders substantially all of its
net investment income and net realized capital gains, if any, as determined for
income tax purposes. Applicable law, including provisions of the 1940 Act, may
limit the amount of dividends and other distributions payable by the Fund.
Income dividends will generally be paid quarterly in March, June, September and
December to Shareholders of record on the last day of each preceding calendar
quarter end. Substantially all of the Fund's net capital gain (the excess of net
long-term capital gain over net short-term capital loss) and the excess of net
short-term
-27-
<PAGE> 33
capital gain over net long-term capital loss, if any, will be distributed
annually with the Fund's dividend distribution in December.
The Manager may seek to invest the proceeds of matured, repaid or
resold investments, net of the above distributions to Shareholders, principal
payments on borrowings, and expenses or other obligations of the Fund, in new
private placement debt securities. Alternatively, any such proceeds, net of any
principal repayments on borrowings, expenses or other obligations of the Fund,
and certain other amounts, may be distributed periodically to Shareholders.
Distribution of such amounts is likely to cause annual distributions to exceed
the earnings and profits of the Fund, in which case such excess will be
considered a tax-free return of capital to a Shareholder, to the extent of the
Shareholder's adjusted basis in his Shares, and then as capital gain.
DESCRIPTION OF OFFERING
QUALIFIED INVESTORS
An investment in the Fund involves a high degree of financial risk and
is suitable only for investors of substantial financial means who have no need
for liquidity in their investment and who can afford to bear the risk of loss of
a significant portion of their investment. Each prospective investor must meet
the suitability standards summarized in this section and contained in the
Subscription Agreement. These standards have been set based upon applicable
regulations of the SEC regarding exempt offerings. Prospective investors should
be aware that the suitability standards represent only one of many factors to be
considered in making a decision whether to invest in the Fund. The suitability
standards are minimum requirements and should not be construed as an indication
that a prospective investor should purchase an interest in the Fund.
The Shares are offered only to such institutions as are deemed to be
"accredited investors" as defined in Regulation D under the 1933 Act. In
addition, no offer or sale of the Shares will be made to any investor unless the
Fund believes prior to making the sale that the investor, either alone or with
its purchaser representative(s), has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of an
investment in the Fund. Moreover, the Fund must believe that the investor is
acquiring the Shares for its own account and not for resale. Each prospective
investor will be required to represent in its Subscription Agreement that it
meets the foregoing requirements.
Management will seek institutional investors for the Fund from within
the United States. Prior to December 31, 2002, Management reserves the right to
close the Fund to new equity investment at the earlier of $1 billion in total
Round One commitments, as defined in "Description of Offering -- Types of
Financing" or the designation of ten distinct Designated Target Regions. After
December 31, 2002, the Fund may be closed for a period of time and then reopened
for new investment or may remain closed until the Fund termination date.
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<PAGE> 34
The offering of subscriptions for Shares will begin upon the effective
date of this Offering Memorandum. The minimum subscription amount is $500,000,
except that the Manager and the officers and directors of the Fund and the
Manager are subject to a $1,000 minimum subscription amount.
TYPES OF FINANCING
The Fund may have two rounds of financing. Round One will raise equity
capital through the sale of common stock. Investors buying Shares in Round One
will elect the Board (subsequent to the initial election of the Board by the
initial Shareholder) and will earn dividends on their Shares based upon the
investment performance of all of the geographically specific private placement
debt securities in the Fund not just by the performance of the assets in the
Designated Target Region selected by an investor.
Round Two will occur if and when Management decides that the Fund will
issue debt securities. If the Fund does issue debt securities, the Manager will
request the purchaser(s) of debt instruments to agree that at a minimum 25% of
the net proceeds of any proceeds raised will be placed, on a pro rata basis, in
the Designated Target Region(s) selected by Round One investors. Purchaser(s) of
debt instruments may select a Designated Target Region for the balance of the
proceeds.
There are regulatory limits on the amount of leverage that a BDC may
incur. The Fund may not incur borrowings unless, immediately after the borrowing
is incurred, such borrowings would have asset coverage of at least 200%. In
other words, the amount of money borrowed in Round Two is limited to 50% of the
prevailing market value of the Fund's net assets.
Management believes that leveraging the Fund may enhance the value of
Share ownership for all investors in that:
the amount borrowed will not expose the Fund to undue risk; and
investors will be rewarded for their commitment through receipt of
added dividends on their Shares if the Fund is able to earn returns on
investment in Round Two greater than the debt service obligations incurred.
Round Two will be undertaken at the discretion of Management only if
market and other conditions warrant. Leveraging the Fund is not essential to
successful realization of its investment objective. There is no assurance that
Round Two debt financing will occur, or that Management will be successful in
causing the use of leverage to enhance the return of the Fund.
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<PAGE> 35
SUBSCRIPTION PROCEDURES
To purchase Shares, a prospective qualified investor must deliver to
the Fund (i) a completed prospective subscriber questionnaire in the form
provided with this Private Offering Memorandum and (ii) two completed, executed
copies of the Subscription Agreement, such agreement and the signature page to
be in the form provided with this Private Offering Memorandum. Upon receipt of
notice, the prospective investor must also pay by wire transfer to an account
designated by the Fund, before the due date specified by the Fund, the payment
for the twenty five basis point commitment fee.
Subscriptions may be made only by executing and delivering a
Subscription Agreement in the form specified by the Fund. The rights and
obligations under the Subscription Agreements may not be transferred or assigned
by a subscriber without the consent of the Fund.
The Fund will give investors whose subscriptions have been received and
accepted at least 15 days' written notice of the closing at which the investor
will first purchase Shares. The notices will include payment instructions.
Following the closing at which a subscriber purchases Shares, the Fund
will provide the Subscriber a countersigned copy of the subscriber's
Subscription Agreement and a statement issued by the Fund's transfer agent
indicating that Shares have been credited to the subscriber's account. Similar
statements will be issued after each closing. Shareholders will have dividend
and voting rights only with respect to Shares that have been purchased at any
given time.
Interest will be charged on amounts due under the Subscription
Agreement and received by the Fund later than fourteen business days after the
date the payment is due, calculated at a daily rate equal on an annualized basis
to four percentage points over the highest rate of interest reported from time
to time as a "prime rate" by The Wall Street Journal (but not in excess of the
maximum rate of interest permitted by law). If a default in a payment under the
Subscription Agreement (including interest charges) remains un-cured for 30 days
following a payment date, the Fund may, at its option, pursue any or all of the
following remedies: (i) cancel the balance of the subscriber's Share
subscription (including the installment as to which the subscriber had
defaulted), (ii) assign the remaining balance of the subscriber's Share
subscription (including the installment as to which the subscriber has
defaulted) to another investor selected by the Fund and/or (iii) repurchase the
Shares then owned by the defaulting subscriber at a purchase price per Share
equal to the lesser of 90% of the Shares' then-current net asset value or the
price at which the Subscriber purchased the Shares. The election by the Fund to
pursue one or more of these remedies will not preclude the Fund from pursuing
any rights it may have to seek judicial enforcement of the Subscriber's
subscription obligation.
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<PAGE> 36
The Fund will offer and sell its shares directly. In addition, Access
may pay commissions to certain persons for assisting in the capital-raising
activities of the Fund. However, the expense of such commissions will be borne
by Access and will not be paid out of the Fund's assets.
CLOSINGS
Management anticipates holding a First Closing for Round One in 1998.
The first Designated Target Region is expected to be New England. Management
anticipates being able to hold subsequent closings soon after the First Closing.
Generally, subsequent closings will be held when other regions have been
targeted or when additional investors wish to commit to regions already
designated. Shares will be issued concurrent with the First Closing for a
purchase price of $100,000 per share. Shares will be issued in subsequent
closings at the Fund's then-current net asset value per Share, which may be more
or less than $100,000 per Share. A final closing for Round One investors will be
held on or before December 31, 2002.
The amount and timing of closings may be affected by the
diversification requirements under the Internal Revenue Code for qualification
as a RIC. See "Federal Income Taxation."
WITHDRAWAL OF FUNDS
Periodic Repurchase Program. The Fund has a periodic repurchase program
which was duly adopted by the Board and the sole Shareholder of the Fund. The
periodic repurchase program can only be changed by the vote of a majority of the
Shareholders.
The periodic repurchase program will be an opportunity for investors to
tender their Shares if they so choose; however, investors will not be required
to tender their Shares (subject to conditions in "Fund Termination Date" below).
Investors tendering Shares under the periodic repurchase program will receive
the net proceeds of liquidated shares in their account and will then be charged
a 1% redemption fee. Under the periodic repurchase plan, the Board will
determine the percentage of the Fund's outstanding shares that may be tendered
by Shareholders for redemption ("redemption amount"). The redemption amount may
not be greater than 25% nor less than 5% of the Fund's outstanding shares. In
the event that too many shares are tendered by Shareholders, the Fund will
repurchase shares on a pro rata basis. The first deadline for tendering shares
pursuant to the periodic repurchase program has been established by the Board
("repurchase request deadline") as August 3, 1998. Each succeeding repurchase
request deadline under the periodic repurchase program will occur every three
months thereafter. Each investor will receive advance notice of each repurchase
request deadline and other terms of the periodic repurchase offer as proscribed
by Rule 23c-3.
During the period before any repurchase offer is made, Management may
recommend to the Board that the Fund apply for an order from the SEC exempting
it from certain restrictions of Rule 23c-3, including restrictions on the
percentage of Shares it may offer to
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<PAGE> 37
repurchase under the Rule 23c-3 periodic repurchase program. If the Board
determines that it is in the best interest of the Shareholders to do so, the
Board may apply for such exemptive relief from the current 25% maximum cap.
However, unless and until such exemptive relief is obtained, the current 25%
maximum restrictions will apply. There can be no assurance that the Fund will
apply for or obtain exemptive relief.
Discretionary Repurchase Program. Management expects that it will at
some time in the future recommend that the Board establish a discretionary
repurchase program. The discretionary repurchase program also will be an
opportunity for investors to tender their Shares if they so choose; however,
investors will not be required to tender their Shares (subject to conditions in
"Fund Termination Date" below). Investors tendering Shares under the
discretionary repurchase program will receive the net proceeds of liquidated
shares in their account and will then be charged a 1% redemption fee.
Under the discretionary repurchase plan, the Board also will determine
the redemption amount percentage that may be tendered by Shareholders for
redemption, however, the redemption amount may be up to 100% of the Fund's
outstanding shares. After the first discretionary repurchase program another
discretionary repurchase program cannot be authorized until two years from the
date of that discretionary repurchase offer. The periodic repurchase program
will not be affected by discretionary repurchase program. Each investor will
receive advance notice of each repurchase request deadline and other terms of
the discretionary repurchase program as proscribed by Rule 23c-3.
Method of Repurchasing Shares. Management will design a strategy for
payments to investors for each repurchase offering using one or more of the
following funding options in order of preference:
Open the Fund to new investors; or
Sell investments in the Fund to generate proceeds needed to
make payments.
Management will be responsible for designing strategies for
distributions under the repurchase program that balance the needs of investors
tendering Shares and investors remaining in the Fund.
Fund Termination Date. The Fund will terminate operations and all
investors will be required to tender all Shares outstanding on December 31,
2032.
Management will be responsible for designing a strategy for terminating
Fund operations. At the time of termination, Management will raise funds to pay
Shareholders by:
Liquidating Fund investments and distributing the proceeds; or
Making in-kind distribution of Fund investments.
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<PAGE> 38
TRANSFERABILITY OF SHARES
The Shares will not be registered under the 1933 Act or under the
securities laws of the various states (except as necessary to claim a limited
offering exemption) on the grounds that their issuance and sale is exempt from
such registration requirements as not involving a public offering pursuant to
Section 4(2) of the 1933 Act and applicable provisions of the securities laws of
the various states.
Because the Shares will be acquired by investors in transactions not
involving a public offering, they will be "restricted securities" and may be
required to be held until the Fund Termination unless redeemed earlier. Shares
may not be sold, transferred, assigned, pledged, or otherwise disposed of
without registration under applicable federal or state securities laws or
pursuant to an exemption from registration (in which case the Shareholder will
at the option of the Fund be required to provide the Fund with a legal opinion,
in form and substance satisfactory to the Fund, that registration is not
required). Accordingly, an investor must be willing to bear the economic risk of
investment in the Shares until Shares are redeemed or the Fund is liquidated. No
sale, transfer, assignment, pledge, or other disposition, whether voluntary or
involuntary, of the Shares may be made except by registration by the transfer
agent on the Fund's books. Each transferee will be required to execute an
instrument agreeing to be bound by these restrictions and to execute such other
instruments or certifications as are reasonably required by the Fund. A transfer
of the Shares owned by a Shareholder will not relieve the Shareholder of any
unfulfilled subscription obligation. Consent of the Fund is required prior to
the assumption of the transferor's Subscription Agreement by another party. The
Fund may withhold consent to such an assumption at its absolute discretion.
VALUATION
The value of the private placement debt securities and other assets in
the Fund's portfolio will be determined weekly and at such other times as the
Board believes circumstances warrant. Fund securities will be valued by the
Custodian based on the specific pricing methodology provided by Access for each
particular security.
The Manager will not supply market prices for purposes of valuing the
Fund's portfolio and marking Fund investments to market. Due to the nature of
the Fund's investments, Access believes that reliable market quotations
generally will not be readily available for purposes of valuing the Fund's
portfolio securities. The initial purchase price of a particular security will
be negotiated between the security issuer and Access based on all relevant
factors, including current market conditions. Following this initial valuation
of a portfolio security, Access will provide the Custodian with a pricing matrix
designed to maintain fair value of that security. The matrix will be based on
information with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships among
securities in order to determine value. Any other
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<PAGE> 39
portfolio securities for which market quotations are readily available will be
stated at fair market value. All securities and assets will valued by the
Custodian at their fair value following the procedures approved by the Board of
Directors.
The Fund's independent auditors may review and express an opinion on
the reasonableness of the procedures applied by the Board and/or the Custodian
in valuing such assets and the appropriateness of the underlying documentation,
but determinations of fair value involve subjective judgment not susceptible to
substantiation by auditing procedures. Accordingly, under current standards, the
auditors' opinion on the Fund's financial statements in its annual report is
expected to be rendered subject to the possible effect on the financial
statements of such valuations.
Net asset value per Share generally will be determined weekly. In
addition, to comply with a provision of the 1940 Act that Shares not be sold at
a price below net asset value without Shareholder approval, net asset value per
Share must be determined as of a date within 48 hours (excluding Saturdays,
Sundays and holidays) before Shares are sold (including sales pursuant to
capital calls; see "Description of Offering"). Net asset value per Share will be
determined by dividing the value of the portfolio investments held by the Fund,
plus cash and other assets (including interest and dividends accrued but not yet
received and earned discount minus all liabilities including expenses and fees)
by the total number of Shares outstanding at that time.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Private placement debt securities will generally be acquired by the
Fund from the issuer thereof in privately-negotiated transactions not involving
payment of brokerage commissions. The Fund may occasionally pay a commission or
other fee to an unaffiliated third party for brokerage or referral services.
The Manager may, consistent with the best interests of the Fund and
subject to review by the Board, select brokers to execute the Fund's portfolio
transactions on the basis of the brokerage, research, statistical, and pricing
services they provide to the Fund. A commission paid to such brokers may be
higher than another qualified broker might have charged for effecting the same
transaction, provided the Manager determines in good faith that such commission
is reasonable in terms either of the transaction or the overall responsibility
of the Manager to the Fund and the Manager's other clients and that the total
commission paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long term.
Investment decisions for the Fund and for other clients managed by the
Manager will generally be made independently of each other in light of the
different Designated Target Regions selected by investors in each Fund. The same
investment decision, however, may occasionally be made for the Fund and one or
more of such other clients. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then allocated between the
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<PAGE> 40
Fund and such other clients as to amount according to a method deemed equitable
to the Fund and such other clients. While in some cases this could have a
detrimental effect upon the price or value of the security as far as the Fund is
concerned or upon its ability to complete its entire order, in other cases it is
believed that coordination and the ability to participate in volume transactions
will be beneficial to the Fund.
FEDERAL INCOME TAXATION
TAXATION OF THE FUND
The Fund intends to elect the special income tax treatment available to
RICs under the Code in order to be relieved of federal tax on that part of its
net investment income and realized capital gains that it distributes in a timely
manner to Shareholders.
The following is a general summary of certain of the United States
federal income tax laws relating to the Fund and investors in its Shares. This
discussion is based on the Code, regulations, published rulings and procedures
and court decisions as of the date hereof. The tax law, as well as the
interpretation thereof, is subject to change and any such change might interfere
with the Fund's ability to qualify as a RIC. This discussion does not purport to
deal with all of the United States federal tax consequences applicable to the
Fund or to all categories of investors, some of whom may be subject to special
rules. In addition, it does not address state, local, foreign or other taxes to
which the Fund or its investors may be subject, or any proposed changes in
applicable tax laws. Investors should consult their tax advisers with respect to
an investment in Fund Shares.
To be eligible for the special tax treatment accorded RICs, the Fund
must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment income
and any excess of net short-term capital gain over net long-term capital losses)
("Distribution Requirement") and must meet several additional requirements.
Among the requirements are the following: (a) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to loans of securities and gains from the sale or other disposition of
securities or other income derived with respect to its business of investing in
securities ("Income Requirement"); (b) the Fund must diversify its assets so
that, at the close of each quarter of the Fund's taxable year, (i) not more than
25% of the value of its total assets is invested in the securities of a single
issuer or in the securities of two or more issuers that the Fund controls under
a 20% test and that are engaged in the same or similar trades or businesses or
related trades or businesses and (ii) at least 50% of the value of its total
assets is represented by cash, cash items, government securities, securities of
other RICs and other securities (with each investment in such other securities
limited so that not more than 5% of the market value of the Fund's total assets
is invested in the securities of a single issuer and the Fund does not own more
than 10% of the outstanding voting securities of a single issuer)
("Diversification Requirement"); and (c) the Fund must file an election to be
treated as a RIC.
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In general, if the Fund fails to distribute in a calendar year
substantially all of its net investment income and substantially all of its
capital gain net income for the one-year period ending October 31 of such year
(plus any amount that was not distributed in previous taxable years), the Fund
will be subject to a 4% excise tax on the retained amounts. The Fund intends
generally to make distributions sufficient to avoid imposition of federal income
or excise taxes, although it may not be able to do so because of the borrowing
coverage requirements under the 1940 Act.
There can be no assurance that the Fund will qualify to be taxed as a
RIC. Because of coverage requirements under the 1940 Act, it may be unable to
satisfy the Distribution Requirement, and the Fund may have difficulty
satisfying the Diversification Requirement, particularly during its start-up
period. If the Fund does not qualify to be taxed as a RIC, the Fund will be
taxed on its net income, and, in addition, all distributions from earnings and
profits, including distributions of net capital gain, will be taxable, to
shareholders not exempt from federal income taxation, as ordinary income. If the
Fund does not qualify as a RIC during its first taxable year, or if the Fund
qualifies as a RIC and thereafter fails to qualify, in order to qualify or
requalify as a RIC thereafter, the Fund may be required to recognize unrealized
gains, pay substantial taxes and interest, and make certain distributions.
TAXATION OF SHAREHOLDERS
If the Fund qualifies to be taxed as a RIC, distributions of net
investment income and the excess, if any, of net short-term capital gains over
net long-term capital losses, will be taxable to shareholders not exempt from
federal income taxation as ordinary income, and are anticipated not to be
eligible for the corporate dividends-received deduction. Designated
distributions of the excess, if any, of net long-term capital gains over net
short-term capital losses ("net capital gain") will be taxable to each
shareholder as long-term capital gains, without regard to how long a shareholder
has held Shares of the Fund, and will not qualify for the corporate
dividends-received deduction. Distributions in excess of the Fund's earnings and
profits (generally, its net investment income and net capital gain) will be
treated as a tax-free return of capital to the extent of the shareholders' basis
in their shares and thereafter as capital gain.
Any dividend declared by the Fund in October, November, or December and
payable to shareholders of record on a date in such a month generally is deemed
to have been received by the shareholders on December 31 of such year, provided
that the dividend actually is paid during January of the following year. The
Fund will notify shareholders each year of the amount and tax status of
dividends and other distributions, including the amount of any distribution of
net capital gain. In general, any gain or loss realized upon a taxable
disposition of shares held by a shareholder as a capital asset will be treated
as long-term capital gain or loss if the shares have been held for more than
twelve months, and otherwise as short-term capital gain or loss. However, any
loss realized upon a taxable disposition of Shares held for six months or less
will be treated as long-term, rather than short-term, capital loss to the extent
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of any long-term capital gain distributions received by the shareholder with
respect to those Shares. All or a portion of any loss realized upon a taxable
disposition of Shares will be disallowed if other Shares are purchased within 30
days before or after the disposition. In such a case, the basis of the newly
purchased Shares will be adjusted to reflect the disallowed loss.
Individuals and other taxpayers subject to limitations on miscellaneous
itemized deductions are required to include in gross income an amount of certain
Fund expenses relating to the production of income that are allocable to the
shareholder. Such amount may be deductible by an individual shareholder as a
miscellaneous itemized deduction to the extent such miscellaneous itemized
deductions exceed 2% of adjusted gross income. Banks and other incorporated
entities (other than S corporations) are not required to include these expenses
in gross income.
The Fund generally is required to withhold and remit to the U.S.
Treasury 31% of the taxable dividends and other distributions paid to any
individual or other non-exempt shareholder who fails to furnish the Fund with a
correct taxpayer identification number, who has under reported dividends or
interest income, or who fails to certify to the Fund that he or she is not
subject to such withholding. An individual's taxpayer identification number is
his or her social security number.
Under the periodic repurchase program, a redemption may be treated for
federal income tax purposes as a sale or exchange of the Shares redeemed, a
dividend, or a return of capital (or in part a dividend and in part a return of
capital). The redemption will be treated as an exchange if it is not essentially
equivalent to a dividend, if it is a "substantially disproportionate"
redemption, or if it is a termination of the Shareholder's interest. The
redemption will be treated as "substantially disproportionate" if the ratio that
Shares owned by the redeeming Shareholder immediately after the redemption bears
to all of the Shares of the Fund at such time is less than 80% of the ratio that
such Shareholder's Shares immediately before the redemption bears to all of the
Fund's Shares at such time.
If a Shareholder's redemption under the periodic repurchase program is
not eligible for treatment as an exchange as described above, and if the
redemption is not treated as an isolated redemption, the Fund's Shareholders
that redeem either no Shares or a smaller percentage of their Shares and whose
relative interest in the Fund increased in connection with the redemption will
be treated as receiving a distribution with respect to their Shares. The
redemptions so treated and any deemed distributions to such other Shareholders,
along with regular cash distributions, will be treated as dividends to the
extent of the Fund's current and accumulated earnings and profits. Thereafter,
such actual and deemed distributions will be treated as a return of capital,
with basis reduction to the extent thereof, and then as gain.
Unless the Fund determines conclusively that a redemption is not
eligible for treatment as an exchange for the reasons described above, it will
not treat the redemption or any related deemed distribution as a dividend for
purposes of satisfying the Distribution Requirement. It is
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not expected that the Fund will possess sufficient information to make this
determination with respect to any redemption under the periodic repurchase
program. It is therefore possible that it will later be determined that actual
distributions made by the Fund should have been treated by Shareholders as a
return of capital or as gain.
DESCRIPTION OF SHARES
GENERAL
Shareholder Rights. The holders of the Fund's outstanding Shares will
elect all the directors (subsequent to the election of the initial Board by the
initial shareholder) and are entitled to one vote per Share on all matters
submitted to Shareholder vote. All Shares will participate equally in dividends
and distributions and in the proceeds of any liquidation. Shares have no
preference, conversion, exchange, or cumulative voting rights. The Fund has
10,000 Shares authorized.
Annual meetings of Shareholders will be held beginning in 1998, and
special meetings may be called by the Chairman of the Board or President, a
majority of the Board, or Shareholders holding at least 25% of the outstanding
Shares entitled to be voted at a meeting. The Fund anticipates soliciting
proxies from Shareholders for each annual meeting. The Fund's Articles of
Incorporation can be amended by the affirmative vote of two-thirds of all the
votes entitled to be cast on the matter.
The Fund will not issue Share certificates. The ownership of
noncertificated Shares will be recorded on a stock ledger maintained by the Fund
as transfer agent. At the time of issue or registration of transfer of any
noncertificated Shares, the Fund will deliver to the registered holder of such
Shares a nontransferable statement of ownership specifying the number and class
of Shares being issued or offered and certain other information. The Fund's
Articles of Incorporation provide that each holder of Shares will be required
upon demand, to disclose to the Fund such information with respect to direct or
indirect holdings of Shares as is deemed necessary to comply with provisions of
the Internal Revenue Code applicable to the Fund, to comply with requirements of
any other appropriate taxing authority, or to comply with the provisions of the
1940 Act or the Employment Retirement Income Security Act of 1974 (ERISA).
Dissolution of the Fund. The Fund may, subject to market conditions,
invest the proceeds of any of its investments, net of any principal repayments
on loans or other obligations of the Fund and required distributions to
Shareholders, in additional private placement debt securities.
The Fund's Articles of Incorporation provide that, on December 31,
2032, the Fund automatically will be dissolved without any action by
Shareholders. From and after such
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dissolution, the Fund's activities will be limited to the winding-up of its
affairs, the liquidation of its remaining assets, and the distribution of the
net thereof to Shareholders. Furthermore, the Fund may not be able to sell Fund
investments for a significant period of time due to legal or contractual
restrictions on resale or the absence of a liquid secondary market. As a result,
the liquidation process might not be completed for a significant period after
the Fund's dissolution. In addition, it is possible that if certain of the
Fund's assets are not liquidated within a reasonable time after the Fund's
dissolution, the Fund may elect to make a distribution in kind of all or part of
such assets to Shareholders. In such case, Shareholders would bear any expenses
attendant to the liquidation of such assets.
LIMITATION OF DIRECTORS AND OFFICERS LIABILITY; INDEMNIFICATION
The corporation law of the State of Maryland, under which the Fund is
incorporated, permits the articles of incorporation of a Maryland corporation to
include a provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, subject to specified
restrictions. The law does not, however, allow the liability of directors and
officers to the corporation or its stockholders to be limited to the extent that
(1) it is proved that the person actually received an improper benefit or profit
or (2) a judgment or other final adjudication is entered in a proceeding based
on a finding that the person's action, or failure to act, was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the process. The Articles of Incorporation of the Fund contain a
provision limiting the liability of the directors and officers of the Fund and
its Shareholders to the fullest extent permitted from time to time by the laws
of Maryland (but not in violation of the 1940 Act). The Maryland corporation law
also permits a corporation to indemnify its directors, officers and agents,
among others, against judgments, penalties, fines, settlements, and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other capacities
unless it is established that the act or omissions of the party seeking to be
indemnified was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty, or
the party actually received an improper personal benefit, or, in the case of any
criminal proceeding, the party had reasonable cause to believe that the act or
omission was unlawful.
The Fund's Articles of Incorporation and Bylaws require the Fund to
indemnify its directors, officers and agents (including the Manager) to the
fullest extent permitted from time to time by the laws of Maryland, subject to
the limitations on indemnification under the 1940 Act. The Fund's Bylaws provide
that the Fund may purchase and maintain insurance on behalf of any person who is
or was a director, officer, or agent of the Fund against any liability asserted
against that person and incurred by that person in or arising out of his or her
position, whether or not the Fund would have the power to indemnify him or her
against such liability; provided that no such insurance purchased will protect
or purport to protect any officer or director against liabilities for willful
misfeasance, bad faith, gross negligence, or reckless disregard of duty.
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REPORTS AND INDEPENDENT PUBLIC ACCOUNTANTS
The Fund will provide audited annual financial statements to its
Shareholders. The independent auditors engaged to audit the Fund's financial
statements are KPMG LLP. The selection of independent auditors by the Fund's
directors will be ratified annually.
COUNSEL
Ropes & Gray, 1301 K Street, NW, Suite 800 East, Washington, DC, serves
as counsel to the Fund.
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