PROLOAN
---
Builders ProLoan
Fund, Inc.
BUILDERS PROLOAN FUND, INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
June 30, 1998
This report is intended for shareholders of the Builders ProLoan Fund, Inc. and
may not be used as sales literature unless preceded or accompanied by a current
prospectus.
<PAGE>
PROLOAN
---
Builders ProLoan
Fund, Inc.
Dear Shareholders,
The Builders' ProLoan Fund, Inc is performing well as shown in the unaudited
financial statements for the six months ended June 30, 1998. It has been a
period of solid performance and orderly growth reflecting the strength of the
housing market. Moderate economic growth combined with low inflation and strong
employment have resulted in a steady flow of new homes across the country. The
Fund has taken advantage of this situation by providing mortgages on homes built
using substantially all union labor.
The pipeline of mortgages has grown from $9,604,137 on January 1, 1998 to
$31,192,228 as of June 30, 1998. The increase in the pipeline has caused total
assets to grow from $131,074,691 as of January 1, 1998 to $155,624,074 as of
June 30, 1998. The increase in total assets has caused the Fund to hold steady
in the percentage of ProLoan mortgages held by the Fund. As these mortgages
close and are delivered to the Fund as securities, the percentage of ProLoan
mortgages will grow significantly. The Fund should be over 65% ProLoan mortgages
over the next few months.
In addition to the growth of assets from mortgage pipeline commitments, the Fund
has also grown due to new investors in the Fund. Marketing efforts are yielding
results. New clients in St. Louis include the Laborers Local 110, Painters and
the Electricians. In Illinois we welcome the Southern Illinois District Council
of Carpenters, and in Ohio the Toledo Sheet Metal Workers. The marketing and
distribution team at Huntleigh continues the implementation of the marketing
plan approved by the Board of Directors. We expect increased investor
participation in the third and fourth quarters of 1998.
The Fund's investment performance has been strong and performs well compared
with other mortgage-backed funds around the country. The Fund's Subadviser will
provide more details on the Fund's performance.
As the Fund prepares for the future, the management team at Capital Mortgage
Management remains vigilant, continuing to manage the Fund in the best interest
of its investors.
John W. Stewart, Chairman
Builders ProLoan Fund, Inc.
1
<PAGE>
Commerce Bank, NA, the investment Subadviser, is very pleased to report
investment results for the Builders ProLoan Fund, Inc.
6 Months Inception
- --------------------------------------------------------------------------------
ProLoan Fund, Inc. 3.42% 5.06%
Lipper Peer Group 3.05% 4.43%
Relative Performance +.37 bp +.63 bp
Inception 10/31/97
Past performance is not predictive of future performance.
For the six months ending June 30, 1998, the Builders ProLoan Fund returned
3.42%. This compares favorably to the Fund's peer group as measured by the
Lipper US Mortgage Fund Index's return of 3.05%. For the eight months since
inception, the Builders ProLoan Fund has generated a return of 5.06%. This also
compares extremely favorably to the index's return of 4.43%. The Lipper U.S.
Mortgage Fund Index's performance results are an equally weighted return of the
30 largest mortgage mutual funds that invest primarily in government guaranteed
mortgage backed securities.
The positive results were generated primarily due to one strategic and three
tactical factors. These four factors, taken as a whole were more than enough to
offset the negative drag associated with building a ProLoan "pipeline" of
mortgages as we attempt to fulfill our investment objective of investing at
least 65% of the Fund's total assets in ProLoan originated mortgage backed
securities.
Why the outsized performance?
First and of primary consideration, the duration of the portfolio was and will
remain strategically positioned longer than our peer group and is targeted
closer to the duration of the Lehman Aggregate Index. As interest rates declined
over the first half of the year, this longer duration/maturity bias benefited
the Fund. We do this strategically for two reasons. First, we feel a longer term
maturity exposure affords the higher yield associated with investments
positioned further out along the yield curve. While this will add modestly to
the volatility of results, in the long run, the extra yield should positively
benefit investors in the Fund. Secondly, we are marketing the Fund as a "core
like" investment opportunity to plan sponsors, rather than a "niche like"
offering associated with most mortgaged backed funds. Since the Lehman Aggregate
Index is the primary investment benchmark of the fixed income universe (similar
to the S&P 500 for stock funds) and includes a 29% weighting of mortgage
securities, an investment result that comes closer to the Aggregate market on a
pre-fee basis should be a positive selling point for the Fund. Indeed, on a pre
fee basis for the first eight months of Fund's operation, the gross results of
the Fund were 3 basis points ahead of the Lehman Index.
2
<PAGE>
Commerce Bank
Builders ProLoan Fund, Inc.
Page 2
Secondarily, on a tactical basis we positioned the average mortgage coupon of
the Fund to be less than that of the market due to our positive bias on the
direction of interest rates over the first half of the year. While this resulted
in a modest sacrifice to current yield, it benefited the total return of the
Fund as our securities were less likely to be called away as borrowers prepaid
and refinanced there mortgages. The Fund also benefited by having less exposure
to mortgages than a typical fund. The Fund's net mortgage exposure at the end of
June was approximately 74% versus the average fund which has closer to 100%
exposure to mortgage backed securities. Mortgages were one of the weaker
performing sectors in the bond market in the first half of the year, and our
exposure to Treasuries, corporate and asset backed securities had a positive
influence on results. Finally, the credit quality of the portfolio was AA+ at
the end of June, down slightly from the AAA level at the end of 1997. This
incremental credit bet added modest returns over the first half of the year.
Going forward, its fair to say our results will not likely be as outsized
relative to the competition as they have over the first eight months of
operation. This isn't meant to act as a warning , but merely a cautionary signal
to investors that interest rates aren't nearly as likely decline as they did
over the first half of the year. In addition, we continue to aggressively build
the ProLoan "pipeline" of commitments, which tends to act as a drag to
performance. We do so in an effort to fulfill the investment objective of having
at least 65% of the Fund's total assets invested in ProLoans. At the end of
June, we had a 57% exposure to ProLoans. We are working diligently to assist in
the origination and creation of ProLoans in our investor markets, and would like
to meet our 65% goal by the end of the Fund's fiscal year.
Cautionary notes aside, Commerce Bank is extremely pleased to have assisted in
generating what amounts to an outstanding initial performance report. We look
forward to presenting a full year report to our growing list of investors this
fall. We're extremely proud of the efforts the Builder ProLoan Fund continues to
expand while providing a conservative investment offering. Not only has the Fund
been able to generate a reasonable bond like return to its investors, but we're
able to reinvest moneys back into our investor communities to provide attractive
financing for those families seeking quality built single family housing.
Scott M. Colbert, CFA
Director of Fixed Income
Commerce Bancshares, Inc.
3
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ----------- -------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS 6.2%
U.S. Treasury Notes 3.8%
$4,000,000 U.S. Treasury Notes, 7.25% 5/15/16 $4,686,240
-------------------
U.S. Treasury Bonds 2.4%
2,500,000 U.S. Treasury Bonds, 7.50% 11/15/16 3,000,075
-------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $7,323,595) 7,686,315
===================
U.S. GOVERNMENT AGENCY 2.3%
Federal National Mortgage Association
5.94%* 10/09/2019
10,000,000 (Cost $2,636,000) 2,876,600
===================
U.S. GOVERNMENT AGENCY -
MORTGAGE BACKED SECURITIES 46.1%
Government National Mortgage Assocation II 2.9%
Pool 1470
43,752 9.00% 9/20/2020 46,758
Pool 1472
23,178 10.00% 9/20/2020 25,216
Pool 1507
32,270 9.50% 11/20/2020 34,582
Pool 1614
42,693 9.00% 5/20/2021 45,627
Pool 1615
39,976 9.50% 5/20/2021 42,840
Pool 1646
352,971 6.00% 4/20/2024 344,299
Pool 1740
100,388 9.00% 12/20/2021 107,193
Pool 1920
322,902 7.50% 12/20/2024 331,111
Pool 8373
266,406 6.875% 2/20/2024 271,734
Pool 8386
100,264 6.875% 3/20/2024 102,222
Pool 8387
46,894 6.875% 3/20/2024 47,876
Pool 8471
276,828 7.00% 8/20/2024 283,273
Pool 8494
298,120 7.00% 9/20/2024 303,663
Pool 8538
249,915 7.00% 11/20/2024 253,625
</TABLE>
See Accompanying Notes to Financial Statements.
4
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ----------- -------------------
<S> <C> <C> <C>
Government National Mortgage Assocation II - Continued
Pool 8575
227,101 6.875% 1/20/2025 $232,459
Pool 8576
210,833 6.875% 1/20/2025 215,840
Pool
263,332 6.875% 1/20/2025 269,752
Pool 8590
213,498 6.875% 2/20/2025 218,135
Pool 8607
290,260 6.875% 3/20/2025 297,244
Pool 833685
96,307 6.87% 1/20/2024 97,992
-------------------
3,571,441
-------------------
Government National Mortgage Assocation II 2.7%
Variable Rate**
Pool 8191
289,492 7.48% 5/20/2023 296,052
Pool 8302
258,332 7.10% 10/20/23 264,308
Pool 8315
48,511 7.10% 11/02/2023 49,429
Pool 8324
98,134 7.10% 11/20/2023 100,419
Pool 8340
91,067 7.10% 12/20/2023 93,188
Pool 8419
160,189 7.48% 5/20/2024 163,019
Pool 8420
461,261 7.48% 5/20/2024 471,497
Pool 8479
305,374 7.10% 8/20/2024 312,627
Pool 8482
42,092 7.10% 8/20/2024 43,060
Pool 8502
230,699 7.10% 9/20/2024 235,999
Pool 8503
141,444 7.10% 9/20/2024 144,694
Pool 8539
362,292 7.10% 11/20/2024 370,727
Pool 8540
294,628 7.10% 11/20/2024 301,673
Pool 8705
279,251 7.10% 9/20/2025 285,884
Pool 833684
236,805 7.10% 11/20/2023 240,912
-------------------
3,373,488
-------------------
</TABLE>
See Accompanying Notes to Financial Statements.
5
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ----------- -------------------
<S> <C> <C> <C>
Government National Mortgage Assocation 2.9%
Pool 349645
491,765 7.00% 6/15/23 $500,582
Pool 349646
43,693 8.50% 9/15/2024 46,076
Pool 349647
58,285 7.50% 7/15/2023 59,985
Pool 367556
832,977 6.50% 10/15/2024 834,510
Pool 367563
715,843 7.00% 11/15/2024 728,228
Pool 367574
46,459 8.50% 6/15/2025 48,963
Pool 380088
855,652 7.00% 8/15/2024 870,455
Pool 388962
84,648 7.50% 1/15/2026 87,039
Pool 388962
64,734 12.50% 12/15/2013 75,436
Pool 340649
303,224 7.50% 6/15/2023 312,070
-------------------
3,563,344
-------------------
Federal Home Loan Mortgage Corporation 0.9%
Series 1403 Class J
61,000 6.50% 7/15/2019 61,476
Pool 635235
163,541 7.60% 6/01/2025 166,021
Pool D56099
927,955 6.50% 8/1/2024 928,085
-------------------
1,155,582
-------------------
Federal National Mortgage Association 35.0%
Series 1991-67 Class H
73,010 8.00% 7/25/2020 73,261
Series G92-15 Class E
10,176 7.00% 9/25/2018 10,157
Series 1992-25 Class J
60,000 7.50% 12/25/2006 61,856
Series 1992-181 ClassPH
61,000 6.50% 9/25/2019 61,400
Series 1993-30 Class PG
15,000 6.65% 9/25/2017 15,136
Series 1993-178 Class A
5,131 5.25% 9/25/2023 5,066
Pool 50698
7,323 7.50% 3/1/2023 7,521
Pool 50992
1,141,460 6.50% 3/1/2024 1,142,340
</TABLE>
See Accompanying Notes to Financial Statements.
6
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ----------- -------------------
<S> <C> <C> <C>
Federal National Mortgage Association - Continued
Pool 185857
78,884 8.00% 11/1/2002 $80,414
Pool 185861
34,551 9.00% 2/1/2006 35,503
Pool 185862
36,308 9.00% 10/01/2005 37,309
Pool 185863
64,903 9.50% 8/01/2004 67,024
Pool 250029
206,095 6.50% 5/1/2024 206,254
Pool 281830
941,300 6.50% 4/1/2024 942,025
Pool 281831
1,726,256 6.50% 4/1/2024 1,727,586
Pool 281832
1,181,727 6.50% 4/1/2024 1,182,638
Pool 285271
988,722 6.00% 5/1/2024 967,475
Pool 285272
1,100,792 6.50% 5/1/2024 1,101,640
Pool 286809
999,220 6.50% 6/1/2024 999,990
Pool 288235
1,071,992 6.50% 6/1/2024 1,091,685
Pool 290270
1,332,608 6.50% 7/1/2024 1,333,635
Pool 290272
706,874 6.00% 9/1/2024 691,683
Pool 290274
988,745 6.50% 9/1/2024 987,648
Pool 291853
1,773,088 6.50% 7/1/2024 1,771,121
Pool 293577
1,033,939 6.50% 8/1/2024 1,034,735
Pool 293579
2,363,446 6.50% 9/1/2024 2,360,823
Pool 295784
2,505,219 6.50% 9/1/2024 2,502,438
Pool 295895
618,893 6.50% 1/1/2025 618,206
Pool 305501
567,022 7.25% 1/1/2025 578,533
Pool 305605
997,120 6.50% 1/1/2025 997,889
Pool 337666
1,090,434 7.50% 5/1/2026 1,118,884
Pool 337670
398,044 8.00% 11/1/2026 412,032
Pool 345063
1,218,224 7.50% 4/1/2026 1,249,983
</TABLE>
See Accompanying Notes to Financial Statements.
7
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ----------- -------------------
<S> <C> <C> <C>
Federal National Mortgage Association - Continued
Pool 345641
596,229 7.50% 5/1/2026 $611,785
Pool 363714
664,124 8.00% 11/1/2026 687,462
Pool 368324
548,778 8.00% 12/1/2026 568,063
Pool 372254
1,008,727 7.50% 2/1/2027 1,034,722
Pool 379141
751,493 7.50% 5/1/2027 770,859
Pool 379182
872,231 8.00% 6/1/2027 894,709
Pool 392423
993,830 7.50% 6/1/2027 1,019,441
Pool 394649
804,205 7.50% 7/1/2027 824,930
Pool 395131
1,543,131 7.50% 8/1/2027 1,582,898
Pool 397941
1,377,997 7.50% 8/1/2027 1,413,509
Pool 400581
880,909 7.50% 9/1/2027 903,610
Pool 400881
1,193,288 7.50% 10/1/2027 1,224,040
Pool 403662
473,170 7.50% 10/1/2027 485,364
Pool 295897
1,157,751 7.36% 6/1/2025 1,174,285
Pool 295899
1,302,891 7.36% 7/1/2025 1,321,497
Pool 305512
857,558 7.62% 5/1/2025 869,804
Pool 308626
1,025,326 7.33% 4/1/2025 1,039,968
Pool 308627
1,271,354 7.60% 3/1/2025 1,289,510
-------------------
43,190,346
-------------------
Federal National Mortgage Association 1.7%
Variable Rate**
Pool 295897
133,288 7.00% 1/1/2028 133,403
Pool 295899
209,654 7.00% 1/1/2028 215,028
Pool 305512
116,302 7.00 3/1/2028 119,610
Pool 308626
194,823 7.00% 4/1/2028 199,817
Pool 308627
166,871 7.00% 5/1/2028 171,696
</TABLE>
See Accompanying Notes to Financial Statements.
8
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ----------- -------------------
<S> <C> <C> <C>
Federal National Mortgage Association - Continued
Variable Rate**
Pool 308634
229,778 8.16% 6/1/2025 $232,185
Pool 321228
288,683 8.06% 8/1/2025 293,556
Pool 321229
192,577 7.60% 8/1/2025 193,509
Pool 322170
9,491 7.65% 8/1/2025 9,559
Pool 333923
329,744 8.16% 10/1/2025 331,961
Pool 365957
237,672 7.85% 6/1/2025 239,605
-------------------
2,139,929
-------------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE BACKED SECURITIES
(Cost $56,682,260) 56,994,130
===================
ASSET BACKED SECURITIES 22.3%
Advanta Mortgage Loan Trust
2,014,000 8.92% 1/25/2026 2,152,777
CMC Securities Corporation III
879,644 6.00% 2/25/2009 877,445
Countrywide Funding Corporation
50,000 6.50% 5/25/2024 49,781
Chase Mortgage Finance Corporation
1,000,000 6.50% 9/25/2009 999,844
Citibank Credit Card Master Trust I
4,600,000 0.00% 8/15/2006 3,166,779
Green Tree Financial Corporation
3,000,000 9.00% 6/15/2025 3,112,500
Green Tree Financial Corporation
3,750,000 7.30% 9/15/2026 3,751,163
Green Tree Financial Corporation
2,500,000 7.30% 12/15/2026 2,500,775
Green Tree Financial Corporation
4,000,000 7.75% 7/15/2027 4,207,480
First Union - Lehman Brothers Commercial Mortgage
1,000,000 6.64% 3/18/2011 1,004,060
Prudential Home Mortgage Securities
1,000,000 7.375% 8/25/2023 1,016,560
Prudential Home Mortgage Securities
781,735 7.00% 5/25/2023 783,440
Standard Credit Card Master Trust
4,000,000 5.95% 10/7/2004 3,991,240
-------------------
TOTAL ASSET BACKED SECURITIES
(Cost $27,387,108) 27,613,844
===================
</TABLE>
See Accompanying Notes to Financial Statements.
9
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ----------- -------------------
<S> <C> <C> <C>
CORPORATE BONDS 14.5%
Finance 9.4%
Donaldson, Lufkin & Jenrette
2,000,000 6.11% 5/15/2001 $2,006,300
Equitable Life Assurance
1,500,000 7.70% 12/1/2015 1,654,770
Ford Motor Credit
1,000,000 6.625% 6/30/2003 1,019,270
Goldman Sachs Group LP
1,500,000 6.625% 12/1/2004 1,513,485
Grand Met
2,105,000 0% 1/6/2004 1,504,549
Met Life
2,000,000 7.70% 11/1/2015 2,235,480
Swiss Bank
1,500,000 7.375% 6/15/2017 1,634,175
-------------------
11,568,029
-------------------
Industrial 3.3%
ServiceMaster
2,000,000 7.10% 3/1/2018 2,014,980
WMX Technologies
2,000,000 6.70% 5/1/2001 2,024,480
-------------------
4,039,460
-------------------
Utilities 1.8%
GTE Corp.
2,250,000 6.84% 4/15/2018 2,257,718
-------------------
TOTAL CORPORATE BONDS
(cost $17,628,786) 17,865,207
===================
PROLOAN PIPELINE 25.0%
31,192,228 When-Issued Commitments 30,919,296
-------------------
(Cost $31,450,670)
SHORT TERM INVESTMENTS 8.0%
Commercial Paper 4.8%
General Motor
3,000,000 5.55% 7/23/1998 2,989,362
Merrill Lynch
3,000,000 5.54% 7/14/1998 2,993,537
-------------------
5,982,899
-------------------
</TABLE>
See Accompanying Notes to Financial Statements.
10
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
% of Market
Par Value Net Assets Value
- --------------- ----------- -------------------
<S> <C> <C> <C>
Repurchase Agreement 3.1%
Northern Trust Repurchase Agreement
5.10% 7/1/98 (Collateralized by $3,967,338
3,844,000 U.S. Treasury Notes 5.75%, due Sept. 30, 1999) $3,844,000
-------------------
TOTAL SHORT TERM INVESTMENTS
(Cost $9,826,899) 9,826,899
===================
TOTAL INVESTMENTS IN SECURITIES 124.5%
(Cost $ 152,942,164) $153,782,291
-------------------
Liabilities in Excess of
Other Assets -24.5% (30,215,013)
-------------------
NET ASSETS 100.0% $123,567,278
===================
</TABLE>
* Effective yield as of June 30, 1998.
** The rate shown on variable rate securities
represents the rate at June 30, 1998.
See Accompanying Notes to Financial Statements.
11
<PAGE>
BUILDERS PROLOAN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Investments in securities at market value
(cost $152,942,164) $153,782,291
Cash 1,000,116
Receivables:
Dividends and interest 692,622
Principal paydown receivable 679
Deferred organization costs, net 94,071
Other assets 54,295
------------
Total assets 155,624,074
------------
LIABILITIES
Payables:
Investment securities purchased - when-issued 31,450,670
For distributions to shareholders 537,709
Due to advisor (Note 3) 34,795
Accrued Distribution fees (Note 3) 10,556
Other accrued expenses 23,066
------------
Total liabilities 32,056,796
------------
NET ASSETS $123,567,278
============
COMPOSITION OF NET ASSETS
Paid-in capital $122,112,821
Undistributed
net investment income 1,827
Undistributed net realized gain
on investments 612,503
Net unrealized appreciation on investments 840,127
------------
Net assets $123,567,278
============
Number of shares issued and outstanding
(unlimited shares authorized no par value) 8,123,339
============
Net asset value per share $ 15.21
============
See Accompanying Notes to Financial Statements.
12
<PAGE>
BUILDERS PROLOAN FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $ 3,580,769
-----------
Expenses:
Subadviser fees (Note 3) 128,952
Management fees (Note 3) 90,180
Distribution fees (Note 3) 60,120
Administration fees (Note 3) 30,060
Fund accounting fees 18,348
Registration fees 17,356
Transfer agent fees 12,149
Amortization of deferred organization costs 10,433
Audit fees 9,917
Legal fees 9,917
Insurance 8,183
Custodian fees 7,128
Directors fees (Note 3) 6,842
Miscellaneous expenses 2,479
-----------
Total expenses 412,064
Subadviser fees waived (Note 3) (29,753)
Distribution fees waived (Note 3) (22,408)
-----------
Net expenses 359,903
-----------
Net investment income 3,220,866
-----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments 527,026
Net change in unrealized appreciation on investments 388,799
-----------
Net gain on investments 915,825
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 4,136,691
===========
See Accompanying Notes to Financial Statements.
13
<PAGE>
BUILDERS PROLOAN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31, 1997*
Six Months Ended through
June 30, 1998 December 31, 1997
---------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income $ 3,220,866 $ 1,097,247
Net realized gain on investments 527,026 85,477
Net change in unrealized appreciation
on investments 388,750 451,377
------------- -------------
Net increase in net assets
resulting from operations 4,136,642 1,634,101
------------- -------------
Distributions to shareholders:
From net investment income (3,220,866) (1,095,420)
------------- -------------
Total distributions (3,220,866) (1,095,420)
------------- -------------
Capital share transactions:
Proceeds from shares sold 2,000,000 119,516,324
Net asset value of shares issued on
reinvestment of distributions 2,786 493,711
------------- -------------
Net increase from capital share transactions 2,002,786 120,010,035
------------- -------------
Net increase in net assets 2,918,562 120,548,716
NET ASSETS
Beginning of period 120,648,716 100,000
------------- -------------
End of period (including undistributed
net investment income of $1,827) $ 123,567,278 $ 120,648,716
============= =============
CHANGE IN SHARES
Shares sold 131,752 7,951,789
Shares issued on reinvestment of distributions 184 32,947
Shares redeemed -- --
------------- -------------
Net increase 131,936 7,984,736
============= =============
</TABLE>
*Commencement of operations.
See Accompanying Notes to Financial Statements.
14
<PAGE>
BUILDERS PROLOAN FUND, INC.
FINANCIAL HIGHLIGHTS
(Unaudited)
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Semi-Annual Report. The
calculations are based on average number of shares outstanding for the period.
For a share outstanding throughout the period.
<TABLE>
<CAPTION>
Six Months October 31, 1997*
Ended through
June 30, 1998 December 31, 1997
----------------- ------------------
<S> <C> <C>
Net asset value, beginning of period $15.10 $15.00
----------------- ------------------
Income from investment operations
Net investment income 0.40 0.14
Net realized and unrealized gains on investments 0.11 0.10
----------------- ------------------
Total from investment operations 0.51 0.24
----------------- ------------------
Distributions from net investment income (0.40) (0.14)
----------------- ------------------
Net asset value, end of period $15.21 $15.10
================= ==================
Total return 3.42%+ 1.58%+
Net assets at end of period (in 000's) $123,567 $120,649
Ratio of expenses to average net assets: #
Before expenses waived 0.69% 0.63%
After expenses waived 0.60% 0.58%
Ratio of net investment income to average
net assets (net of expenses waived) # 5.37% 5.41%
Portfolio turnover rate+ 22.92% 1.29%
</TABLE>
- -------------------------------------------------------
* Commencement of operation.
+ Not annualized.
# Annualized.
See Accompanying Notes to Financial Statements.
15
<PAGE>
Builders ProLoan Fund, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1998
(Unaudited)
(1) Organization and Business
-------------------------
The Builders ProLoan Fund (the AFund@), constituting the initial series
of The Builders ProLoan Fund, Inc. (the ACorporation@), was organized
as a Maryland corporation on June 13, 1997 and is registered under the
Investment Company Act of 1940, as amended (the A1940 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 loan, a borrower's single- or multi-family
home must be: (1) substantially union-built, as determined by the
Manager, 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 (AGNMA@), Federal
National Mortgage Association (AFNMA@) or Federal Home Loan Mortgage
Corporation (AFHLMC@) guarantee. Each mortgage loan meeting the above
qualifications, as established by the Manager, is referred to
hereinafter as a "ProLoan." 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 ProLoan interest rate and points 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.
The Fund has entered into agreements with selected banks, mortgage
lenders and other financial institutions (collectively, the "Lenders"),
pursuant to which the Lenders agree to originate ProLoans at the
established interest rate and points. The ProLoan program allows a
borrower to reduce interest rate exposure by locking in the interest
rate on a ProLoan, typically for 180 days prior to the closing of the
ProLoan, 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 ProLoan, the unrefunded
commitment fees are allocated between the Fund and the Lender in
amounts agreed to by the Fund and the Lender. A borrower may be offered
the opportunity to reduce
16
<PAGE>
Builders ProLoan Fund, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1998
(Unaudited)
the interest rate on a ProLoan prior to closing if market interest
rates have declined from the interest rate set on the commitment date
in 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 Subadviser, 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 create mortgage-backed securities from the underlying ProLoans, each
Lender pools its ProLoans and submits these pools to GNMA, FNMA or
FHLMC for securitization and the appropriate agency's guarantee. Or, at
the Subadvisers discretion, a closed ProLoan may be sold instead of
being included in a pool by a Lender. The Fund purchases the ProLoan
mortgage-backed securities guaranteed by GNMA, FNMA or FHLMC from the
Lenders at established prices based on the face value of such ProLoans,
as determined pursuant to an agreement between the Fund and the
Lenders. The mortgage-backed securities typically are delivered to the
Fund after the interest rate security period and after the underlying
ProLoans have closed, usually within 60 days after closing. The ProLoan
program is currently operating in the Missouri, Illinois, Ohio and
Michigan 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 (AGAAP@). 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.
17
<PAGE>
Builders ProLoan Fund, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1998
(Unaudited)
(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 (ATBA@) price of
Federal National Mortgage Association (AFNMA@) 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 circumstances, the Fund does not intend to commit
more than 33 1/3% of its total assets to these commitments.
18
<PAGE>
Builders ProLoan Fund, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1998
(Unaudited)
(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.
19
<PAGE>
Builders ProLoan Fund, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1998
(Unaudited)
(3) Management Fee and Other Transactions with Affiliates
-----------------------------------------------------
(a) Management Fee
The Fund has an Investment Management Agreement with Capital
Mortgage Management, Inc. (the AManager@), 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 Manager a monthly fee at the
annual rate of 0.15% of the Fund=s average daily net assets.
(b) Subadviser Fee
The Advisor has entered into an Investment Subadvisory
Agreement with Commerce Bank, N.A. (the ASubadviser@). Under
the terms of this agreement, the Manager will pay the
Subadviser 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 Subadviser has
agreed to waive its subadvisory fees such that the fees do not
exceed .165% of the Fund=s average daily net assets until
December 31, 1998. For the six months ended June 30, 1998, the
Subadviser waived $29,753 of its fees.
(c) Administration Fee
The Corporation has entered into an Administration Agreement
with Investment Company Administration Corporation (the
AAdministrator@) 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.
(d) Distributor and Distribution Plan
Pursuant to Rule 12b-1 under the 1940 Act, the Corporation has
adopted a Distribution Plan (the APlan@). Under the Plan, the
Fund is authorized to pay Huntleigh Fund Distributors, Inc.
(the ADistributor@) at an annual rate of 0.10% of the Fund=s
average daily net assets, payable monthly to compensate the
Distributor for
20
<PAGE>
Builders ProLoan Fund, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1998
(Unaudited)
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 six months
ended June 30, 1998, the Distributor waived $22,408 of its
fees.
Certain officers and directors of the Corporation are also officers and
directors of the Manager, Distributor and Administrator. Each
Aindependent 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 six months ended June 30, 1998, is
summarized below:
Purchases $ 32,823,828
Sales $ 26,591,512
At June 30, 1998, gross unrealized appreciation and depreciation of
investments, based on cost for the federal income tax purposes of
$152,942,164 were as follows:
Gross unrealized appreciation $ 32,453,889
Gross unrealized depreciation (31,613,762)
-------------
Net appreciation on investments $ 840,127
=============
(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
$119,516,324. These securities were deemed to be in accordance with the
investment objective of the Fund.
