Dear Shareholders:
As Chairman of the Builders ProLoan Fund, Inc., I would like to express my
sincere appreciation for your participation in this newly formed mutual fund. It
is a privilege to serve the needs of our investors by delivering quality core
investment results and service while working in the community providing ProLoan
mortgages to new home buyers and employment opportunities for organized building
trades. We actively participate in coordinating the origination and
securitization of home mortgages resulting in the hands-on approach needed to
have an impact in our targeted mortgage markets. This annual report contains
audited financial statements for the period ending December 31, 1997.
This annual report covers a short operating period for the two months ending
December 31, 1997. During that period, internal Fund operations have been a top
priority. We are comfortable with Fund's current operations and believe that our
marketing efforts will begin to attract new investors to the Fund. Significant
time has also been spent on the ProLoan program in the St. Louis area
coordinating lenders, builders and developers so that we can manage our mortgage
pipeline in the most efficient manner. The Builders ProLoan team continues to
perform diligently in the best interest of our investors providing quality
investment services while coordinating a mortgage program that creates quality
housing and employment opportunities for union craftsmen.
Sub-Advisor, Commerce Bank, NA will describe the general environment of the
fixed income capital markets, investment returns and portfolio holdings at
fiscal year-end.
As always, we are interested in your communications. If you have any ideas that
will help us improve service, please call us. We appreciate your participation
in Builders ProLoan Fund.
Sincerely,
/s/ John W. Stewart
John W. Stewart, Chairman
Builders ProLoan Trust Inc.,
<PAGE>
Report from Commerce Bank, NA
- -----------------------------
We are pleased to provide you this annual report for the Builders
ProLoan Mutual Fund. Commerce Bank, NA is a regional bank holding company
domiciled in Missouri and provides investment management services to a host of
clients managing in excess of $8 billion of discretionary accounts. We are
extremely pleased and excited to have been appointed investment sub-advisor to
the fund after having provided fixed income portfolio management services in a
similar capacity for the Carpenters Pension Trust Fund of St. Louis.
Fixed-Income Market Commentary
The theme in the bond market over the past year has been change. Just when it
looks as if a trend is developing in the direction of interest rates, the market
changes its mind and heads the opposite direction. Rates peaked in the spring as
the Federal Reserve raised the overnight borrowing rate by 25 basis points. The
market feared more increases as economic growth was strong. When inflation
failed to appear, despite tight labor markets, the market started to rally. The
Asian crises during the late summer and fall helped quell fears the economy
would overheat and the treasury market continued to rally. Credit spreads
widened during the fall as issuance of asset backed securities increased and the
overseas crises caused the market to reevaluate credit risk. With the decline in
inflation the curve has continued to flatten. Because economic growth is
reasonably good, the Fed remains vigilant, ready to increase rates if this
growth translates into inflation. The bond market remains optimistic, but with
an uneasy Fed, the market is keeping its eye on the exits.
Fund Commentary
The Fund was positioned with a neutral to slightly long duration target versus
its benchmark in both November and December. We are currently maintaining this
position. Going forward we look to add value to our shareholders by investing in
higher yielding securities, including select mortgage, asset backed and
corporate securities. We expect to add returns by maintaining our higher
yielding sector's exposure, while keeping the average maturity of our fund near
or slightly longer than our benchmark. With yields at multi-year lows, dramatic
declines in rates, significant capital gains are probably limited unless the
economy weakens more than we expect over the next several quarters.
The Fund strives to maintain its 65% exposure to the mortgage backed market. To
diversify the large exposure to the mortgage backed sector the fund increased
its Treasury holdings. In addition, the Fund is well positioned to take
advantage of the recent widening of spreads in asset backed securities and the
corporate sector. The re-pricing of the corporate sector was long overdue as
credit spreads have remained tight for the past several years. The fund
continues to maintain exceptional credit quality, with an average quality rating
of AAA.
<PAGE>
Portfolio Performance
Builders ProLoan Fund
Comparison of Change in Value of $10,000
Oct-97 Nov-97 Dec-97
------ ------ ------
Builders ProLoan Fund 10,000 10,040 10,158
Average Mortgage Backed Funds* 10,000 10,036 10,129
Lehman Aggregate Bond Index 10,000 10,046 10,147
Total return assumes reinvestment of dividends and distributions. Past
performance is not predictive of future results. Investment return will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. *Lipper Index
Builders ProLoan Fund, Inc. Total Returns
Portfolio Performance 2 Months Ended
Comparisons December 31, 1997
Total Final Value of
Return a $10,000
Initial Investment
------ ------------------
Builders ProLoan Mutual Fund 1.58% $ 10,158
Average Mortgage Backed Fund* 1.29% $ 10,129
Lehman Aggregate Bond Index 1.47% $ 10,147
*Lipper Index
We are please to report the fund got off to a good relative start. Total fund
returns for November and December were 1.58% which compares favorably to its
unmanaged benchmark, the Lehman Aggregate Bond Index's return of 1.47%. More
impressive was our relative return compared to our peer group of mortgage backed
funds whose average return was 1.29%. We attribute out incremental performance
primarily to our durational bias and somewhat higher yield than that of the
benchmark index.
/s/ Scott M. Colbert
- -------------------------
Scott M. Colbert, CFA
Portfolio Manager
Commerce Bancshares, NA
<PAGE>
BUILDERS PROLOAN FUND
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ------------- -------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS 25.6%
U.S. Treasury Notes 18.8%
$6,000,000 U.S. Treasury Notes, 7.25% 5/15/16 $6,834,360
2,000,000 U.S. Treasury Notes, 7.25% 8/15/04 2,161,560
3,000,000 U.S. Treasury Notes, 7.00% 7/15/06 3,238,110
10,000,000 U.S. Treasury Notes, 6.50% 10/15/06 10,470,300
-------------------
22,704,330
-------------------
U.S. Treasury Bonds 6.8%
7,000,000 U.S. Treasury Bonds, 7.50% 11/15/16 8,171,310
-------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $30,499,588) 30,875,640
===================
U.S. GOVERNMENT AGENCY -
MORTGAGE BACKED SECURITIES 53.8%
Government National Mortgage Assocation II 6.8%
Pool 1470
55,030 9.00% 9/20/2020 59,300
Pool 1472
28,422 10.00% 9/20/2020 31,327
Pool 1507
41,027 9.50% 11/20/2020 44,105
Pool 1614
52,433 9.00% 5/20/2021 56,502
Pool 1615
47,312 9.50% 5/20/2021 50,822
Pool 1646
374,721 6.00% 4/20/2024 361,697
Pool 1740
128,539 9.00% 12/20/2021 138,513
Pool 1920
346,278 7.50% 12/20/2024 354,586
Pool 8373
315,673 7.00% 2/20/2024 323,663
Pool 8386
120,194 7.00% 3/20/2024 122,879
Pool 8387
55,780 7.00% 3/20/2024 57,184
Pool 8471
325,232 7.00% 8/20/2024 332,551
Pool 8538
367,841 6.50% 11/20/2024 375,257
Pool 8575
328,459 7.00% 1/20/2025 337,440
Pool 8576
273,871 7.00% 1/20/2025 281,403
Pool 8578
337,667 7.00% 1/20/2025 347,007
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ------------- -------------------
<S> <C> <C> <C>
Government National Mortgage Assocation II - Continued
Pool 8590
337,594 7.00% 2/20/2025 $346,825
Pool 8607
379,381 7.00% 3/20/2025 389,753
Pool 833685
193,829 7.00% 4/20/2024 197,313
Pool 8191
348,032 7.24% 5/20/23 357,767
Pool 8302
296,961 6.75% 10/20/2023 304,988
Pool 8315
57,043 6.75% 11/20/2023 58,399
Pool 8324
111,268 6.75% 11/20/2023 114,259
Pool 8340
104,774 6.75% 12/20/2023 107,575
Pool 8419
207,846 7.24% 5/20/2024 212,816
Pool 8420
574,984 7.24% 5/20/2024 590,526
Pool 8479
357,693 6.87% 8/20/2024 366,804
Pool 8482
48,411 6.87% 8/20/2024 49,682
Pool 8502
270,759 6.87% 9/20/2024 277,824
Pool 8503
163,762 6.87% 9/20/2024 168,035
Pool 8539
443,751 6.75% 11/20/2024 454,916
Pool 8540
365,856 6.75% 11/20/2024 375,976
Pool 8705
360,116 6.87% 9/20/2025 369,288
Pool 833684
240,847 6.75% 11/20/2023 245,477
-------------------
8,262,456
-------------------
Government National Mortgage Assocation 3.7%
Pool 8494
344,780 7.00% 9/20/2024 351,514
Pool 349645
535,785 7.00% 6/15/2023 542,199
Pool 349646
43,953 8.50% 9/15/2024 46,265
Pool 349647
61,945 7.50% 7/15/2023 63,663
Pool 367556
935,768 6.50% 10/15/2024 928,395
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ------------- -------------------
<S> <C> <C> <C>
Government National Mortgage Assocation - Continued
Pool 367563
818,311 7.00% 11/15/2024 $827,599
Pool 367574
55,061 8.50% 6/15/2025 57,889
Pool 380088
1,140,361 7.00% 8/15/2024 1,153,304
Pool 388962
86,040 7.50% 1/15/2026 88,186
Pool 102990
65,402 12.50% 12/15/2013 77,686
Pool 340649
339,612 7.50% 6/15/2023 349,030
-------------------
4,485,731
-------------------
Federal Home Loan Mortgage Corporation 1.8%
Series 1263 Class E
12,355 7.50% 2/15/2004 12,363
Series 1349 Class PG
38,130 6.50% 5/15/2014 38,154
Series 1403 Class J
61,000 6.50% 7/15/2019 61,114
Series 1538 Class E
1,000,000 6.00% 3/15/2005 998,120
Pool 635235
166,517 7.453% 6/1/2025 166,350
Pool D56099
934,371 6.50% 8/1/2024 927,793
-------------------
2,203,894
-------------------
Federal National Mortgage Association 41.5%
Series 1991-67 Class H
135,765 8.00% 7/25/2020 137,249
Series G-39 Class J
137,160 7.50% 3/25/2020 137,288
Series G92-15 Class E
26,087 7.00% 9/25/2018 26,136
Series 1992-25 Class J
60,000 7.50% 12/25/2006 61,931
Series 1992-181 ClassPH
61,000 6.50% 9/25/2019 61,133
Series 1993-30 Class PG
15,000 6.65% 9/25/2017 15,117
Series 1993-178 Class A
7,059 5.25% 9/25/2023 6,859
Pool 50698
8,363 7.50% 3/1/2023 8,593
Pool 50992
1,194,279 6.50% 3/1/2024 1,184,749
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ------------- -------------------
<S> <C> <C> <C>
Federal National Mortgage Association - Continued
Pool 185857
86,566 8.00% 11/1/2002 $88,050
Pool 185861
50,366 9.00% 2/1/2006 51,776
Pool 185862
40,148 9.00% 10/01/2005 41,538
Pool 185863
85,941 9.50% 8/01/2004 89,439
Pool 250029
218,164 6.50% 5/1/2024 216,424
Pool 281830
952,338 6.50% 4/1/2024 944,739
Pool 281831
1,843,881 6.50% 4/1/2024 1,829,168
Pool 281832
1,298,468 6.50% 4/1/2024 1,288,107
Pool 285271
997,706 6.00% 5/1/2024 965,111
Pool 285272
1,273,495 6.50% 5/1/2024 1,263,333
Pool 286809
1,008,416 6.50% 6/1/2024 1,000,369
Pool 288235
1,223,638 6.50% 6/1/2024 1,242,054
Pool 290270
1,345,681 6.50% 7/1/2024 1,334,943
Pool 290272
712,098 6.00% 9/1/2024 688,835
Pool 290274
1,132,720 6.50% 9/1/2024 1,123,681
Pool 291853
1,790,900 6.50% 7/1/2024 1,776,609
Pool 293577
1,191,932 6.50% 8/1/2024 1,182,421
Pool 293579
2,383,350 6.50% 9/1/2024 2,364,331
Pool 295784
2,528,608 6.50% 9/1/2024 2,508,430
Pool 295895
763,544 6.50% 1/1/2025 757,452
Pool 305501
735,250 7.25% 1/1/2025 749,147
Pool 305605
1,104,150 6.50% 1/1/2025 1,095,340
Pool 337666
1,212,850 7.50% 5/1/2026 1,242,299
Pool 337670
809,154 8.00% 11/1/2026 838,406
Pool 345063
1,230,271 7.50% 4/1/2026 1,261,681
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ------------- -------------------
<S> <C> <C> <C>
Federal National Mortgage Association - Continued
Pool 345641
1,161,985 7.50% 5/1/2026 $1,190,198
Pool 363714
1,089,491 8.00% 11/1/2026 1,128,876
Pool 368324
971,548 8.00% 12/1/2026 1,006,670
Pool 372254
1,312,032 7.50% 2/1/2027 1,343,062
Pool 379141
1,120,303 7.50% 5/1/2027 1,146,799
Pool 379182
1,107,062 8.00% 6/1/2027 1,133,244
Pool 392423
1,194,174 7.50% 6/1/2027 1,222,417
Pool 394649
1,161,594 7.50% 7/1/2027 1,189,066
Pool 395131
1,957,264 7.50% 8/1/2027 2,003,554
Pool 397941
1,638,036 7.50% 8/1/2027 1,676,776
Pool 400581
1,390,361 7.50% 9/1/2027 1,423,243
Pool 400881
1,349,488 7.50% 10/1/2027 1,381,404
Pool 403662
1,019,704 7.50% 10/1/2027 1,043,820
Pool 295897
460,438 7.36% 6/1/2025 471,088
Pool 295899
210,870 7.36% 7/1/2025 211,929
Pool 305512
116,846 7.62% 5/1/2025 117,540
Pool 308626
195,943 7.33% 4/1/2025 196,802
Pool 308627
167,708 7.60% 3/1/2025 168,757
Pool 308634
532,361 7.93% 6/1/2025 551,330
Pool 308641
104,527 7.24% 6/1/2025 105,017
Pool 308648
723,161 7.87 8/1/2025 732,989
Pool 316514
295,403 7.33% 6/1/2025 296,833
Pool 320135
262,507 8.02% 7/1/2025 272,146
Pool 321228
393,672 7.78% 8/1/2025 404,561
Pool 321229
422,095 7.43% 8/1/2025 431,526
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ------------- -------------------
<S> <C> <C> <C>
Federal National Mortgage Association - Continued
Pool 322170
11,172 7.55% 8/1/2025 $11,184
Pool 333923
428,624 7.81% 10/1/2025 439,341
Pool 365957
1,114,135 7.65% 6/1/2025 1,129,455
-------------------
50,012,365
-------------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE BACKED SECURITIES
(Cost $64,862,219) 64,964,446
===================
ASSET BACKED SECURITIES 14.4%
Advanta Mortgage Loan Trust
2,014,000 8.92% 1/25/2026 2,155,295
CMC Securities Corporation III
1,000,000 6.00% 2/25/2009 993,430
Countrywide Funding Corporation
50,000 6.50% 5/25/2024 47,938
Chase Mortgage Finance Corporation
1,000,000 6.50% 9/25/2009 991,094
Citibank Credit Card Master Trust I
4,600,000 0.00% 8/15/2006 3,030,250
First Boston Mortgage Securities Corporation
43,492 7.05% 7/25/2023 43,323
Green Tree Financial Corporation
4,000,000 7.75% 7/15/2027 4,180,000
Prudential Home Mortgage Securities
1,000,000 7.375% 8/25/2023 1,011,560
Prudential Home Mortgage Securities
1,000,000 7.00% 5/25/2023 1,002,500
Standard Credit Card Master Trust
4,000,000 5.95% 10/7/2004 3,958,720
-------------------
TOTAL ASSET BACKED SECURITIES
(Cost $17,339,976) 17,414,109
===================
CORPORATE BONDS 5.0%
Finance 3.3%
Ford Motor Credit
1,000,000 6.625% 6/30/2003 1,013,850
Goldman Sachs Group LP
1,500,000 6.625% 12/1/2004 1,502,040
Grand Met
2,105,000 0% 1/6/2004 1,438,241
-------------------
3,954,131
-------------------
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ------------- -------------------
<S> <C> <C> <C>
Industrial 1.7%
WMX Technologies
2,000,000 6.70% 5/1/2001 2,007,760
-------------------
TOTAL CORPORATE BONDS
(cost $5,945,389) 5,961,891
===================
PROLOAN PIPELINE 8.0%
9,604,134 When-Issued Commitments 9,619,143
-------------------
(Cost $9,736,680)
SHORT-TERM INVESTMENTS 0.9%
Northern Trust Repurchase Agreement
5.80% 1/2/98 (Collateralized by $1,082,755)
U.S. Treasury Notes 5.875%, due Feb 28, 1999) 1,049,000
-------------------
(Cost $1,049,000)
TOTAL INVESTMENTS IN SECURITIES 107.7%
(Cost $ 129,432,852) $129,884,229
-------------------
Liabilities in Excess of
Other Assets -7.7% (9,235,513)
-------------------
NET ASSETS 100.0% $120,648,716
===================
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
ASSETS
Investments in securities at market value
(cost $129,432,852) $129,884,229
Cash 2,372
Receivables:
Dividends and interest 934,702
Principal paydown receivable 129,981
Deferred organization costs, net 104,504
Other assets 18,903
---------------------
Total assets 131,074,691
---------------------
LIABILITIES
Payables:
Investment securities purchased - when-issued 9,736,680
For distributions to shareholders 601,709
Due to advisor (Note 3) 48,333
Accrued Distribution fees (Note 3) 10,217
Other accrued expenses 29,036
---------------------
Total liabilities 10,425,975
---------------------
NET ASSETS $120,648,716
=====================
COMPOSITION OF NET ASSETS
Paid-in capital $120,110,035
Undistributed
net investment income 1,827
Undistributed net realized gain
on investments 85,477
Net unrealized appreciation on investments 451,377
---------------------
Net assets $120,648,716
=====================
Number of shares issued and outstanding
(unlimited shares authorized no par value) 7,991,403
=====================
Net asset value per share $15.10
=====================
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND
STATEMENT OF OPERATIONS
For the Period October 31, 1997 (Commencement of Operations)
to December 31, 1997
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $1,215,399
------------------
Expenses:
Sub-Advisory fees (Note 3) 43,035
Advisory fees (Note 3) 30,007
Distribution fees (Note 3) 20,005
Administration fees (Note 3) 10,002
Fund accounting fees 6,184
Transfer agent fees 4,094
Amortization of deferred organization costs 3,626
Legal fees 3,342
Insurance 2,758
Custodian fees 2,403
Directors fees (Note 3) 1,888
Miscellaneous expenses 836
------------------
Total expenses 128,180
Sub-Advisory fees waived (10,028)
------------------
Net Expenses 118,152
------------------
Net investment income 1,097,247
------------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments 85,477
Net change in unrealized appreciation on investments 451,377
------------------
Net gain on investments 536,854
------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,634,101
==================
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period October 31, 1997 (Commencement of Operations)
to December 31, 1997
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations:
Net investment income $1,097,247
Net realized gain on investments 85,477
Net change in unrealized appreciation
on investments 451,377
-------------------
Net increase in net assets
resulting from operations 1,634,101
-------------------
Distributions to shareholders:
From net investment income (1,095,420)
-------------------
Total distributions (1,095,420)
-------------------
Capital share transactions:
Proceeds from shares sold 119,516,324
Net asset value of shares issued on
reinvestment of distributions 493,711
-------------------
Net increase from capital share transactions 120,010,035
-------------------
Net increase in net assets 120,548,716
NET ASSETS
Beginning of period 100,000
-------------------
End of period (including undistributed
net investment income of $1,827) $120,648,716
===================
CHANGE IN SHARES
Shares sold 7,951,789
Shares issued on reinvestment of distributions 32,947
Shares Redeemed --
-------------------
Net increase 7,984,736
===================
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Annual Report. The
calculations are based on average number of shares outstanding for the period.
For a share outstanding throughout the period.
10/31/97*
to
12/31/97
------------------
Net asset value, beginning of period $15.00
Income from investment operations
Net investment income 0.14
Net realized and unrealized gains on investments 0.10
------------------
Total from investment operations 0.24
------------------
Distributions from net investment income (0.14)
------------------
Net asset value, end of period $15.10
==================
Total return 1.58%+
Net assets at end of period (in 000's) $120,649
Ratio of expenses to average net assets: #
Before expenses waived 0.63%
After expenses waived 0.58%
Ratio of net investment income to average
net assets (net of expenses waived) # 5.41%
Portfolio turnover rate 1.29%
- --------------------------------------------------------------
* Commencement of operation.
+ Not annualized.
# Annualized.
See Accompanying Notes to Financial Statements.
<PAGE>
Builders ProLoan Fund
Notes to Financial Statements
For the Period October 31, 1997 (Commencement of Operations)
to December 31, 1997
(1) Organization and Business
-------------------------
The Builders ProLoan Fund (the "Fund"), constituting the initial series
of The Builders ProLoan Fund, Inc. (the "Corporation"), was organized
as a Maryland corporation on June 13, 1997 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a
non-diversified, no-load, open-end management investment company
issuing its shares in series, each series representing a distinct
portfolio with its own investment objectives and policies. The only
series presently authorized is the Builders ProLoan Fund. Investment
operations of the Fund began on October 31, 1997. The investment
objective of the Fund is current income.
The Fund typically invests in mortgage-backed securities which
represent interests in single- or multi-family home mortgages
originated through the ProLoan program. The ProLoan program is a
coordinated effort involving real estate professionals, home builders,
mortgage originators and organized building trade unions. To qualify
for a ProLoan home mortgage, a borrower's single- or multi-family home
must be: (1) substantially union-built, as determined by the advisor,
and (2) newly constructed or substantially renovated. In addition, the
borrower's mortgage loan must be eligible to be secured by a Government
National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA") or Federal Home Loan Mortgage Corporation
("FHLMC") guarantee. Each mortgage loan meeting the above
qualifications, as established by the advisor, is referred to
hereinafter as a "Qualified Mortgage Loan." The Fund also may purchase
whole loan mortgages originated through the ProLoan program and not
eligible to be secured by a GNMA, FNMA or FHLMC guarantee.
The interest rate and points for each Qualified Mortgage Loan generally
are established by the Subadviser each week, based on its survey of
local markets and the ability of the Fund to invest in additional
mortgage-backed securities. ProLoan allows a borrower to reduce
interest rate exposure by locking in the interest rate on a Qualified
Mortgage Loan, typically for 180 days prior to the closing of the Loan,
to allow time for construction or renovation of the borrower's home.
This interest rate protection is offered in exchange for a commitment
fee from the borrower, which is refundable to the borrower at closing.
These commitment fees may not fully compensate the Fund for the
additional interest rate risk it will bear during the 180-day interest
rate lock-in period and thus, the Fund may incur a loss. In the event
that the borrower does not close a Qualified Mortgage Loan, the
unrefunded commitment fees are allocated between the Fund and the
Originator in amounts agreed to by the Fund and the Originator. A
borrower may be offered the opportunity to reduce the interest rate on
a Qualified Mortgage Loan prior to closing if market interest rates
have declined from the interest rate set on the commitment date in
<PAGE>
Builders ProLoan Fund
Notes to Financial Statements
For the Period October 31, 1997 (Commencement of Operations)
to December 31, 1997
exchange for a stated fee, which typically is one-half of one percent
of the borrower's principal loan amount. This "float-down" fee is
retained by the Fund. A borrower also may be offered the opportunity to
purchase additional 30-day extensions of interest rate protection, at
the discretion of the Sub-adviser, if the borrower's home or
renovations are not completed by the date initially set for closing.
This extended interest rate protection is longer than the 45- to 60-day
standard interest rate protection offered with respect to most ordinary
mortgages. The advantage to the borrower is that interest rate risk is
reduced for an effective period of time during the construction or
renovation of the borrower's home. The advantage to home builders and
real estate agents is that the ProLoan program may attract potential
home buyers. The ProLoan program is designed to encourage the use of
union craftsmen and promote employment in the home building trade and
related industries. There is no assurance that the ProLoan program will
achieve these objectives.
To purchase mortgage-backed securities created from Qualified Mortgage
Loans, the Fund enters into a written agreement with a bank, mortgage
lender, or other financial institution that originates the underlying
loans (each an "Originator"). The Originator obtains the appropriate
government agency's guarantee on each Qualified Mortgage Loan and
secures a certificate from that agency evidencing the mortgage-backed
securities created from pools of such Loans. The Fund agrees to
purchase the mortgage-backed securities guaranteed by GNMA, FNMA or
FHLMC at established prices based on the face value of such Loans, as
determined pursuant to an agreement between the Fund and the
Originator. The mortgage-backed securities typically are either
delivered to the Fund or its commitments to acquire these securities
are sold, at the discretion of the Subadviser, after the interest rate
security period and after the underlying Qualifying Mortgage Loans have
closed, usually within 60 days after closing. The ProLoan program is
currently operating in the St. Louis, Missouri metropolitan area. The
Fund's principal investor is the Carpenters' District Council of
Greater St. Louis.
(2) Summary of Significant Accounting Policies
------------------------------------------
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles ("GAAP"). The presentation of financial
statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates and assumptions.
<PAGE>
Builders ProLoan Fund
Notes to Financial Statements
For the Period October 31, 1997 (Commencement of Operations)
to December 31, 1997
(a) Investment Valuation
Securities are valued based upon a computerized matrix system
and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Securities
(including restricted securities) for which market quotations
are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures
under the general supervision of the Board of Directors.
Short-term securities with remaining maturities of sixty days
or less for which quotation are not readily available are
valued at amortized costs or original cost plus accrued
income, both of which approximate current value.
Qualified Mortgage Loan commitments are valued at an amount
equal to the principal amount of the underlying mortgage
commitments multiplied by any positive difference between par
and the six-month forward to-be-announced ("TBA") price of
Federal National Mortgage Association ("FNMA") mortgage-backed
securities with a coupon nearest to, but not greater than, the
rate for such securities that have a coupon equal to the
weighted average yield for all such loans, minus 0.625% (the
approximate amount that would be spent by the Fund for
servicing, guarantee fees and securitization costs had such
loans been securitized).
When-Issued and Forward Commitments. The Fund's commitment to
acquire mortgage-backed securities originated through the
ProLoan program constitute "when-issued" commitments. When the
Fund agrees to acquire securities on a when-issued basis, its
Custodian will segregate cash or other liquid assets equal to
the amount of the commitment. The value of the securities
underlying the when-issued commitment, and any subsequent
fluctuations in their value, will be taken into account when
determining the Fund's net asset value starting on the day
that the Fund agrees to purchase the securities. The Fund does
not earn interest on the securities it has committed to
acquire until they are paid for and delivered on the
settlement date. When the Fund engages in when-issued
transactions, it relies on the other party to consummate the
trade. Failure of that party to do so may result in the Fund's
incurring a loss or missing an opportunity to obtain a price
considered to be advantageous. The Fund will make commitments
to acquire securities on a when-issued basis only with the
intention of completing the transaction and actually
purchasing the securities. If deemed advisable as a matter of
investment strategy, however, the Fund may dispose of or
renegotiate a commitment after it is entered into, and may
sell securities it has committed to purchase before those
securities are delivered to the Fund on the settlement date.
In those cases, the Fund may realize a capital gain or loss.
Under normal
<PAGE>
Builders ProLoan Fund
Notes to Financial Statements
For the Period October 31, 1997 (Commencement of Operations)
to December 31, 1997
circumstances, the Fund does not intend to commit more than 33
1/3% of its total assets to these commitments.
(b) Organization Costs
Costs incurred by the Fund in connection with its
organization, registration and the initial public offering of
shares have been deferred and will be amortized over 5 years.
If any of the original shares of the Fund are redeemed by any
holder thereof prior to the end of the amortization period,
the redemption proceeds will be reduced by the pro rata share
of the unamortized expenses as of the date of redemption. The
pro rata share by which the proceeds are reduced will be
derived by dividing the number of original shares outstanding
at the time of redemption.
(c) Federal Income and Excise Taxes
The Fund intends to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and
to distribute substantially all investment company net taxable
income and net capital gains to shareholders in a manner which
results in no tax cost to the Fund. Therefore, no federal
income or excise tax provision is required.
(d) Distribution to Shareholders
Dividends from net investment income are declared daily and
paid monthly. Distributions of net realized gains, if any,
will be declared at least annually. Distributions to
shareholders are recorded on the ex-dividend date. The Fund
periodically makes reclassifications among certain of its
capital accounts as a result of the recognition and
characterization of certain income and capital gain
distributions determined annually in accordance with federal
tax regulations which may differ from generally accepted
accounting principles.
(e) Other
Investment transactions are accounted for on the trade date.
The Fund uses the identified cost method for determining
realized gain or loss on investments. Interest income is
recognized on an accrual basis.
<PAGE>
Builders ProLoan Fund
Notes to Financial Statements
For the Period October 31, 1997 (Commencement of Operations)
to December 31, 1997
(3) Management Fee and Other Transactions with Affiliates
-----------------------------------------------------
(a) Advisor Fee
The Fund has an Investment Management Agreement with Capital
Mortgage Management, Inc. (the "Advisor"), to provide or
oversee all administrative, investment advisory and portfolio
management services to the Fund. Under the terms of this
agreement, the Fund will pay the Advisor a monthly fee at the
annual rate of 0.15% of the Fund's average daily net assets.
(b) Sub-advisor Fee
The Advisor has entered into an Investment Subadvisory
Agreement with Commerce Bank, N.A. (the "Sub-advisor"). Under
the terms of this agreement, the Advisor will pay the
Sub-advisor an annual fee as follows: .25% of the first $50
million of the Fund's average daily net assets; .20% of the
next $50 million of average daily net assets; and .165% of
average daily net assets in excess of $100 million. The fee
will be accrued daily and payable monthly. The Sub-advisor has
agreed to waive its sub-advisory fees such that the fees do
not exceed .165% of the Fund's average daily net assets until
December 31, 1998. During the period October 31, 1997 to
December 31, 1997, the Sub-advisor waived $10,028 of its fees.
(c) Administration Fee
The Corporation has entered into an Administration Agreement
with Investment Company Administration Corporation (the
"Administrator") to supervise the overall administration of
the Fund including, among other responsibilities, the
preparation and filing of all documents required for
compliance by the Fund with applicable laws and regulations,
arranging for the maintenance of books and record of the Fund,
and supervise other organizations that provide services to the
Fund. Under the terms of the agreement, the Fund will pay the
Administrator an annual fee of 0.05% of the Fund's average
daily net assets, payable monthly and subject to an annual
minimum of $40,000.
<PAGE>
Builders ProLoan Fund
Notes to Financial Statements
For the Period October 31, 1997 (Commencement of Operations)
to December 31, 1997
(d) Distributor and Distribution Plan
Pursuant to Rule 12b-1 under the 1940 Act, the Corporation has
adopted a Distribution Plan (the "Plan"). Under the Plan, the
Fund is authorized to pay Huntleigh Fund Distributors, Inc.
(the "Distributor") at an annual rate of 0.10% of the Fund's
average daily net assets, payable monthly to compensate the
Distributor for distribution and shareholder service
activities. The Distributor has agreed to limit the Fund's
operating expenses (excluding advisory, sub-advisory and
distribution fees) to .18% per annum of the Fund's average
daily net assets during a period which will end on December
31, 2002. For the period October 31, 1997 to December 31,
1997, operating expenses did not exceed the cap of .18%.
Certain officers and directors of the Corporation are also officers and
directors of the Manager, Distributor and Administrator. Each
"independent director", as defined by the Investment Company 1940 Act,
is compensated by the Fund an annual fee of $2,000 and is reimbursed
for any expenses incurred in attending meetings.
(4) Investment Transactions
-----------------------
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the period October 31, 1997 to December
31, 1997 is summarized below:
Purchases $7,062,125
Sales $1,518,274
At December 31, 1997, gross unrealized appreciation and depreciation of
investments, based on cost for the federal income tax purposes of
$129,432,852 were as follows:
Gross unrealized appreciation $ 10,327,684
Gross unrealized depreciation (9,876,307)
------------
Net appreciation on investments $ 451,377
============
(5) In-Kind Contribution Transactions
---------------------------------
At the Fund's inception on October 31, 1997, the Carpenters' District
Council of Greater St. Louis purchased Fund shares through nontaxable
in-kind contributions of securities with a market value totaling
$119,277,100. These securities were deemed to be in accordance with the
investment objective of the Fund.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Builders ProLoan Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Builders ProLoan Fund (one of the series
comprising Builders ProLoan Fund, Inc.) as of December 31, 1997, and the related
statements of operation and of changes in net assets and the financial
highlights for the period from October 31, 1997 (commencement of operations) to
December 31, 1997. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1997 by
corresponding with the Fund's custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Fund as of
December 31, 1997, and the results of its operations, the changes in its net
assets, and the financial highlights for the period from October 31, 1997
(commencement of operations) to December 31, 1997, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
February 13, 1998
