Dear Shareholder,
As a Chairman of the Builders ProLoan Fund, Inc., I would like to express my
sincere appreciation for your participation in the 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 mortgages markets. This annual report contains audited financial
statements for the period ending December 31, 1998.
The Fund completed its first full year of operations during 1998 delivering
quality core fixed income management to its investors. The Fund actively
participated in the coordination, origination and securitization of home
mortgages in various cities in the Midwest generating approximately 520 loan
applications for a total of $72,802,539. The program performance has been strong
in both St. Louis and Chicago in a period of historically low interest rates.
Currently, the rate protection offered by ProLoan is in less demand but should
interest rates rise there will be an increase in demand.
During 1998, the Fund experienced an increase in total assets from $130,501,342
to $179,735,012 representing approximately 38% growth. This pattern of growth is
attributable to the increase in the mortgage loan pipeline from $9,604,137 to
$46,195,235, and new investors for $8,600,000. In 1999, the marketing group is
expecting new investors. Combined with continued growth in the mortgage
pipeline, total assets should continue to grow dramatically.
During 1998, the investment performance managed by Scott Colbert, sub-advisor to
the Fund, provided investors with a total return of 6.48% for 1998. This
compares favorably to the Funds peer groups, due to the Fund's longer duration
and higher yields. The consistent market like performance of the sub-advisor
should continue into 1999.
As the Fund enters the 1999 calendar year we look forward to another successful
year of investment performance and continued growth in the ProLoan program. As
always, I am available to discuss any aspect of the Fund with any investor so
please do not hesitate to call or write.
Sincerely,
John W. Stewart, Chairman
Builders ProLoan Fund, Inc.
<PAGE>
BUILDERS PROLOAN FUND, INC.
PERFORMANCE COMPARISON
(TOTAL VALUE)
<TABLE>
<CAPTION>
10/31/97 11/30/97 12/31/97 1/31/98 2/28/98
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Builders ProLoan Fund 10,000.00 10,041.30 10,158.50 10,280.90 10,266.10
Lipper US Mortgage Fund Index 10,000.00 10,039.10 10,133.50 10,243.40 10,252.70
Lehman Bros. Mortgage-Backed
Securities Index 10,000.00 10,033.00 10,124.30 10,224.53 10,246.00
3/31/98 4/30/98 5/31/98 6/30/98 7/31/98
------- ------- ------- ------- -------
Builders ProLoan Fund 10,289.10 10,333.50 10,426.60 10,506.40 10,513.30
Lipper US Mortgage Fund Index 10,273.80 10,325.30 10,391.80 10,442.70 10,488.00
Lehman Bros. Mortgage-Backed
Securities Index 10,280.84 10,339.44 10,407.68 10,457.64 10,510.97
8/31/98 9/30/98 10/31/98 11/30/98 12/31/98
------- ------- -------- -------- --------
Builders ProLoan Fund 10,672.20 10,845.80 10,704.30 10,766.20 10,817.10
Lipper US Mortgage Fund Index 10,590.50 10,720.80 10,661.50 10,714.20 10,758.70
Lehman Bros. Mortgage-Backed
Securities Index 10,606.62 10,734.96 10,721.01 10,774.61 10,820.94
</TABLE>
<PAGE>
Commerce Bank, NA, the investment sub-advisor, is very pleased to report
investment results for the Builders ProLoan Fund, Inc.
12 Months Inception*
--------- ----------
ProLoan Fund 6.48% 6.96%
Lipper Peer Group 6.17% 6.47%
Relative Performance +.31 bp +.49 bp
Inception 10/31/97
* Inception returns are annualized
For the year ending December 31, 1998, the Builders ProLoan Fund returned 6.48%.
This compares favorably to the Fund's peer group as measured by the Lipper US
Mortgage Fund Index's return of 6.17%. For the fourteen months since inception,
the Builders ProLoan Fund has generated an annualized return of 6.96%. This also
compares extremely favorably to the index's return of 6.47%. 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 during the first seven months of
the year. August through mid-November was generally a period of under
performance as mortgage spreads widened dramatically relative to Treasury bonds.
Fortunately the fund posted a strong showing late in the year as the global
credit crunch dissipated and yield oriented securities showed dramatic gains.
How did we outperform over the course of the year?
Our positive results were generated primarily because of our longer duration and
a higher yield than our peer group. These two factors 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.
Throughout 1998, the duration of the portfolio was positioned longer than our
peer group. As interest rates declined throughout the year, this long
duration/maturity benefited the fund. However, during the mid-August credit
crisis sparked by the Russian government default, spreads on non-Treasury issues
including mortgage backed bonds widened. Investors wanted the safety of
Treasuries and drove yields on 30 year bonds to record lows. This sharp Treasury
rally frightened mortgage investors who worried that the refinancing of their
mortgage bonds would rise quickly. As the international markets settled down
Treasury yields rose enough to quell the fear of a substantial refinancing wave.
<PAGE>
Commerce Bank
ProLoan Fund, Inc.
January 29, 1999
Page 2
We maintained our longer duration for two strategic reasons. Primarily, we were
positive on the outlook for inflation and thus positive on the overall direction
of interest rates. Secondly, the upward sloping yield curve means that longer
maturity issues increased the portfolio's yield. Although those issues were more
volatile, the extra yield over time should likely outweigh this risk.
On a tactical basis we positioned the average mortgage coupon of the fund to be
less than that of the market. 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. In addition, the fund also benefited by having
less exposure to mortgages than a typical fund. The Fund's net mortgage exposure
at the end of 1998 was approximately 82% versus the average fund which had
closer to 100% exposure to mortgage backed securities. Mortgages were one of the
weaker performing sectors in the bond market during 1998, so our exposure to
Treasuries, corporate and asset backed securities helped us out-perform.
Finally, as the year went on we reduced the credit quality of the portfolio to
AA1, down slightly from the AAA level at the beginning of the year. This
incremental credit bet did not add any additional return during the year, but
should pay off handily in 1999.
Going forward, it's fair to say our results will not likely be as outsized
relative to the competition as they have over the first fourteen 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 to decline as they did
during 1998. In addition, we continue to build the ProLoan "pipeline" of
commitments, which has tended to act as a drag on 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 December, we had a 62% exposure
to ProLoans. We continue to work diligently in the origination and creation of
ProLoans in our investor markets.
Cautionary notes aside, Commerce Bank is extremely pleased to have assisted in
generating what amounts to an outstanding full year of investment performance.
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 monies 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.
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
% OF MARKET
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
U.S. GOVERNMENT AGENCY 1.9%
Federal National Mortgage Association***
5.75% 4/15/2003
2,500,000 (Cost $2,521,094) $2,570,305
-----------
U.S. GOVERNMENT AGENCY -
MORTGAGE BACKED SECURITIES 48.3%
GOVERNMENT NATIONAL MORTGAGE ASSOCATION II 0.7%
Pool 1470***
40,011 9.00% 9/20/2020 42,678
Pool 1472***
19,526 10.00% 9/20/2020 21,375
Pool 1507***
26,110 9.50% 11/20/2020 28,059
Pool 1614***
33,751 9.00% 5/20/2021 36,000
Pool 1615***
32,308 9.50% 5/20/2021 34,728
Pool 1646***
345,031 6.00% 4/20/2024 340,907
Pool 1740***
80,188 9.00% 12/20/2021 85,531
Pool 1920***
272,485 7.50% 12/20/2024 280,101
-----------
869,379
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCATION II 17.2%
VARIABLE RATE*
Pool 8373***
224,526 6.875% 1/20/2024 227,505
Pool 8386***
84,769 6.875% 3/20/2024 85,892
Pool 8387***
39,430 6.875% 3/20/2024 39,950
Pool 8471***
223,065 7.00% 8/20/2024 226,265
Pool 8494***
224,005 7.00% 9/20/2024 227,212
Pool 8538***
221,418 7.00% 11/20/2024 223,963
Pool 8575***
164,561 6.875% 1/20/2025 166,707
Pool 8576***
163,254 6.875% 1/20/2025 165,382
Pool 8578***
210,081 6.875% 1/20/2025 212,800
Pool 8590***
147,939 6.875% 2/20/2025 149,871
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
% OF MARKET
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
GOVERNMENT NATIONAL MORTGAGE ASSOCATION II - CONTINUED
Pool 8607***
235,902 6.875% 3/20/2025 $238,968
Pool 833685***
95,651 8.75% 1/20/2024 96,899
Pool 8191***
244,970 6.75% 5/20/2023 248,605
Pool 8302***
214,459 6.87% 10/20/2023 216,986
Pool 8315***
39,421 6.87% 11/20/2023 39,883
Pool 8324***
81,894 6.87% 11/20/2023 82,858
Pool 8340***
75,654 6.87% 12/20/2023 76,545
Pool 8419***
129,917 6.75% 5/20/2024 131,850
Pool 8420***
378,870 6.75% 5/20/2024 384,489
Pool 8479***
252,528 6.50% 8/20/2024 256,141
Pool 8482***
35,520 6.50% 8/20/2027 36,025
Pool 8502
191,707 6.50% 9/20/2024 194,434
Pool 8503
117,687 6.50% 9/20/2024 119,364
Pool 8539
255,208 6.87% 11/20/2024 258,143
Pool 8540
219,635 6.87% 11/20/2024 222,166
Pool 8705
215,219 6.50% 9/20/2025 218,232
Pool 833684
233,784 6.87% 11/20/2023 236,484
-------------
4,783,619
-------------
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
% OF MARKET
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
GOVERNMENT NATIONAL MORTGAGE ASSOCATION 2.3%
Pool 102990
64,022 12.50% 12/15/2013 $73,303
Pool 349645
486,090 7.00% 6/15/2023 498,206
Pool 349646
36,136 8.50% 9/15/2024 38,327
Pool 349647
53,421 7.50% 7/15/2023 55,131
Pool 367556
636,282 6.50% 10/15/2024 643,307
Pool 367563
710,951 7.00% 11/15/2024 728,612
Pool 367574
46,221 8.50% 6/15/2025 49,190
Pool 380088
574,090 7.00% 8/15/2024 588,351
Pool 388962
81,134 7.50% 1/15/2026 83,706
Pool 340649
257,775 7.50% 6/15/2023 266,083
---------
,024,216
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION 0.7%
Series 1403 Class J
61,000 6.50% 7/15/2019 61,399
Pool D56099
841,962 6.50% 8/1/2024 849,177
---------
910,576
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION 0.1%
VARIABLE RATE*
Pool 635235
160,934 7.60% 6/01/2025 162,719
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION 39.8%
Series 1991-67 Class H
9,692 8.00% 7/25/2020 9,669
Series 1992-25 Class J
60,000 7.50% 12/25/2006 61,590
Series 1992-181 Class PH
61,000 6.50% 9/25/2019 61,289
Series 1993-30 Class PG
15,000 6.65% 9/25/2017 15,088
Series 1993-178 Class A
623 5.25% 9/25/2023 621
Pool 50698
6,102 7.50% 3/1/2023 6,278
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
% OF MARKET
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
FEDERAL NATIONAL MORTGAGE ASSOCIATION - CONTINUED
Pool 50992
1,058,299 6.50% 3/1/2024 $1,067,064
Pool 185857
70,870 8.00% 11/1/2002 72,479
Pool 185861
29,521 9.00% 2/1/2006 30,963
Pool 185862
32,277 9.00% 10/1/2005 33,853
Pool 185863
56,661 9.50% 8/1/2004 59,042
Pool 250029
188,650 6.50% 5/1/2024 190,213
Pool 281830
831,433 6.50% 4/1/2024 838,319
Pool 281831
1,393,467 6.50% 4/1/2024 1,405,008
Pool 281832
1,172,177 6.50% 4/1/2024 1,181,885
Pool 285271
979,422 6.00% 5/1/2024 967,381
Pool 285272
1,080,749 6.50% 5/1/2024 1,089,700
Pool 286809
871,964 6.50% 6/1/2024 879,186
Pool 288235
1,062,404 6.50% 6/1/2024 1,071,203
Pool 290270
1,239,003 6.50% 7/1/2024 1,249,265
Pool 290272
701,220 6.00% 9/1/2024 692,599
Pool 290274
977,268 6.50% 9/1/2024 985,362
Pool 291853
1,258,910 6.50% 7/1/2024 1,269,336
Pool 293577
1,023,944 6.50% 8/1/2024 1,032,425
Pool 293579
2,192,731 6.50% 9/1/2024 2,210,892
Pool 295784
2,244,059 6.50% 9/1/2024 2,262,644
Pool 295895
614,622 6.50% 1/1/2025 619,713
Pool 305501
563,652 7.25% 1/1/2025 578,309
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
% OF MARKET
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
FEDERAL NATIONAL MORTGAGE ASSOCIATION - CONTINUED
Pool 305605
986,767 6.50% 1/1/2025 $994,939
Pool 337666
974,803 7.50% 5/1/2026 1,002,319
Pool 337670
395,793 8.00% 11/1/2026 410,320
Pool 345063
838,213 7.50% 4/1/2026 862,050
Pool 363714
566,005 8.00% 11/1/2026 586,778
Pool 368324
328,548 8.00% 12/1/2026 340,606
Pool 372254
693,117 7.50% 2/1/2027 712,698
Pool 379141
536,491 7.50% 5/1/2027 551,647
Pool 379182
689,770 7.50% 6/1/2027 709,256
Pool 392423
614,768 7.50% 6/1/2027 632,135
Pool 394649
144,262 7.50% 7/1/2027 148,337
Pool 395131
609,672 7.50% 8/1/2027 626,896
Pool 397941
813,865 7.50% 8/1/2027 836,857
Pool 400581
662,383 7.50% 9/1/2027 681,096
Pool 400881
1,044,360 7.50% 10/1/2027 1,073,864
Pool 403662
253,142 7.50% 10/1/2027 260,293
Pool 413349
663,982 7.00% 1/1/2028 678,305
Pool 417167
1,204,921 7.00% 1/1/2028 1,230,967
Pool 421664
852,423 7.00% 3/1/2028 $870,811
Pool 425400
1,008,577 7.00% 4/1/2028 1,030,334
Pool 429756
1,263,021 7.00% 5/1/2028 1,290,266
Pool 436722
1,086,402 7.00% 7/1/2028 1,109,837
Pool 436821
1,212,206 7.00% 7/1/2028 1,238,355
Pool 440501
1,376,512 7.00% 8/1/2028 1,406,205
Pool 443050
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
% OF MARKET
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
FEDERAL NATIONAL MORTGAGE ASSOCIATION - CONTINUED
867,914 6.50% 8/1/2028 $874,973
Pool 443545
1,209,877 7.00% 9/1/2028 1,235,975
Pool 446453
1,085,277 6.50% 10/1/2028 1,094,105
Pool 446454
1,900,501 7.00% 10/1/2028 1,941,498
Pool 450535
1,058,541 6.50% 10/1/2028 1,067,151
Pool 453442
3,842,364 6.50% 12/1/2028 3,873,617
Pool 454505
1,440,232 6.50% 11/1/2028 1,451,946
Pool 455141
983,428 6.50% 11/1/2028 991,427
Pool 457539
1,082,819 7.00% 12/1/2028 1,106,177
-------------
52,863,416
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION 1.2%
VARIABLE RATE*
Pool 295899
165,579 7.41% 7/1/2025 168,850
Pool 305512
115,703 7.40% 5/1/2025 117,650
Pool 308626
193,741 7.28% 4/1/2025 197,299
Pool 308627
165,993 7.47% 3/1/2025 169,326
Pool 308634
113,646 7.28% 6/1/2025 115,847
Pool 321228
286,925 7.60% 8/1/2025 293,536
Pool 321229
191,585 7.60% 8/1/2025 195,938
Pool 322170
8,619 7.40% 8/1/2025 8,806
Pool 333923
164,757 7.28% 10/1/2025 167,815
Pool 365957
135,506 7.43% 6/1/2025 137,289
-------------
1,572,356
-------------
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
% OF MARKET
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE BACKED SECURITIES
(COST $63,618,764) $64,186,281
-----------
ASSET BACKED SECURITIES 18.9%
Advanta Mortgage Loan Trust
1,774,882 8.92% 1/25/2026 $1,855,746
Asset Securitization Corporation
500,000 7.75% 1/13/2030 549,993
CMC Securities Corporation III
690,555 6.00% 2/25/2009 689,965
Countrywide Funding Corporation
50,000 6.50% 5/25/2024 49,912
Chase Mortgage Finance Corporation
1,000,000 6.50% 9/25/2009 1,000,265
Citibank Credit Card Master Trust I
4,600,000 0.00% 8/15/2006 3,273,176
Green Tree Financial Corporation
3,000,000 9.00% 6/15/2025 3,021,540
Green Tree Financial Corporation
1,450,000 7.30% 9/15/2026 1,458,461
Green Tree Financial Corporation
2,500,000 7.30% 12/15/2026 2,430,450
Green Tree Financial Corporation
4,000,000 7.75% 7/15/2027 4,256,086
First Union - Lehman Brothers
Commercial Mortgage
1,000,000 6.64% 3/18/2011 1,003,125
Prudential Home Mortgage Securities
1,000,000 7.38% 8/25/2023 1,012,984
Prudential Home Mortgage Securities
371,261 7.00% 5/25/2023 371,820
Standard Credit Card Master Trust
4,000,000 5.95% 10/7/2004 4,079,900
-------------
TOTAL ASSET BACKED SECURITIES
(COST $24,748,970) 25,053,423
-------------
CORPORATE BONDS 21.0%
BANK 0.8%
Citicorp***
1,000,000 6.375% 11/15/2008 1,039,297
-------------
FINANCE 11.2%
Donaldson, Lufkin & Jenrette***
2,000,000 6.11% 5/15/2001 2,005,588
Equitable Life Assurance***
2,000,000 7.70% 12/1/2015 2,200,320
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
% OF MARKET
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
FINANCE - CONTINUED
Ford Motor Credit***
1,000,000 6.625% 6/30/2003 $1,037,978
General Motors Acceptance Corporation***
1,000,000 7.50% 5/10/2004 1,070,000
Goldman Sachs Group LP - Rule 144A***
1,500,000 6.625% 12/1/2004 1,534,715
Grand Met**,***
2,105,000 0% 1/6/2004 1,551,945
Metropolitan Life Insurance Company***
2,000,000 7.70% 11/1/2015 2,221,216
Swiss Bank Corporation***
1,500,000 7.38% 6/15/2017 1,591,076
Swiss Bank Corporation***
1,500,000 7.50% 7/15/2025 1,641,452
-------------
14,854,290
-------------
INDUSTRIAL 5.6%
Lubrizol Corporation***
2,000,000 5.88% 12/1/2008 1,992,722
Ryder System, Inc.***
1,500,000 6.60% 11/15/2005 1,505,835
ServiceMaster***
2,000,000 7.10% 3/1/2018 1,971,162
WMX Technologies***
2,000,000 6.70% 5/1/2001 2,036,158
-------------
7,505,877
-------------
TRANSPORTATION 1.5%
Ford Motor Company***
2,000,000 6.50% 8/1/2018 2,049,190
-------------
UTILITIES 1.8%
GTE Corp.***
2,250,000 6.84% 4/15/2018 2,407,259
-------------
TOTAL CORPORATE BONDS
(COST $27,359,752) 27,855,913
-------------
PROLOAN PIPELINE 34.1%
6,808,035 When-Issued Commitments 45,329,074
-------------
(Cost $46,808,035)
SHORT TERM INVESTMENTS 9.2%
COMMERCIAL PAPER 6.0%
General Motor***
5,000,000 5.26% 1/15/1999 4,989,042
Merrill Lynch***
3,000,000 5.16% 1/6/1999 2,997,420
-------------
7,986,462
-------------
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
% OF MARKET
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
REPURCHASE AGREEMENT 3.2%
Northern Trust Repurchase Agreement***
4.35% 1/4/99 (Collateralized by $4,286,576
4,202,000 FNMA Discount Notes 0%, due March 11, 1999) $ 4,202,000
------------
TOTAL SHORT TERM INVESTMENTS
(COST $12,188,462) 12,188,462
------------
TOTAL INVESTMENTS IN SECURITIES 133.4%
(COST $ 177,255,077) 177,183,458
------------
Liabilities in Excess of
Other Assets (33.4%) (44,335,911)
------------
NET ASSETS 100.0% 132,847,547
============
* The rate shown on variable rate securities represents the
rate at December 31, 1998.
** Security carried at zero coupon during its term and
traded at less than par value.
*** Security segregated at custodian for "when-issued" commitments.
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ASSETS
Investments in securities at market value
(cost $177,255,077) $ 177,183,458
Cash 18,081
Receivables:
Interest 874,988
Securities sold 1,558,275
Deferred organization costs, net 83,465
Other assets 16,745
-------------
Total assets 179,735,012
-------------
LIABILITIES
Payables:
Investment securities purchased - when-issued 46,808,035
Due to advisor (Note 3) 38,715
Due to distributor (Note 3) 360
Other accrued expenses 40,355
-------------
Total liabilities 46,887,465
-------------
NET ASSETS $ 132,847,547
=============
COMPOSITION OF NET ASSETS
Paid-in capital $ 131,999,189
Undistributed net investment income 1,827
Undistributed net realized gain
on investments 918,150
Net unrealized depreciation on investments (71,619)
-------------
Net assets $ 132,847,547
=============
Number of shares issued and outstanding
(unlimited shares authorized no par value) 8,772,449
=============
Net asset value per share $ 15.14
=============
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $ 7,465,333
-----------
EXPENSES:
Subadviser fees (Note 3) 266,833
Management fees (Note 3) 187,986
Distribution fees (Note 3) 125,324
Fund accounting fees 66,107
Administration fees (Note 3) 56,132
Professional fees 39,996
Registration fees 35,000
Custodian fees 25,047
Transfer agent fees 24,499
Amortization of deferred organization costs 21,039
Insurance 16,502
Directors fees (Note 3) 10,512
Miscellaneous expenses 9,850
-----------
Total expenses 884,827
Subadviser fees waived (Note 3) (60,047)
Distribution fees waived (Note 3) (76,915)
-----------
Net expenses 747,865
-----------
NET INVESTMENT INCOME 6,717,468
-----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments 1,729,573
Net change in unrealized depreciation on investments (522,996)
-----------
Net gain on investments 1,206,577
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 7,924,045
===========
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
October 31, 1997*
Year Ended through
December 31, 1998 December 31, 1997
----------------- -----------------
INCREASE IN NET ASSETS
Operations:
Net investment income $ 6,717,468 $ 1,097,247
Net realized gain on investments 1,729,573 85,477
Net change in unrealized appreciation/
(depreciation) on investments (522,996) 451,377
------------ ------------
Net increase in net assets
resulting from operations 7,924,045 1,634,101
------------ ------------
Distributions to shareholders:
From net investment income (6,717,468) (1,095,420)
From capital gains (896,900) --
------------ ------------
Total distributions (7,614,368) (1,095,420)
------------ ------------
Capital share transactions:
Proceeds from shares sold 8,600,000 119,516,324
Net asset value of shares issued on
reinvestment of distributions 3,289,154 493,711
------------ ------------
Net increase from capital share
transactions 11,889,154 120,010,035
------------ ------------
NET INCREASE IN NET ASSETS 12,198,831 120,548,716
NET ASSETS
Beginning of period 120,648,716 100,000
------------ ------------
End of period (including undistributed net
investment income of $1,827 and $1,827,
respectively) $132,847,547 $120,648,716
============ ============
CHANGE IN SHARES
Shares sold 565,141 7,951,789
Shares issued on reinvestment of
distributions 215,905 32,947
Shares redeemed -- --
------------ ------------
Net increase 781,046 7,984,736
============ ============
*Commencement of operations.
See Accompanying Notes to Financial Statements.
<PAGE>
BUILDERS PROLOAN FUND, INC.
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.
October 31, 1997*
Year Ended through
December 31, 1998 December 31, 1997
----------------- -----------------
Net asset value, beginning of period $ 15.10 $ 15.00
----------- -----------
Income from investment operations
Net investment income 0.80 0.14
Net realized and unrealized gains
on investments 0.15 0.10
----------- -----------
Total from investment operations 0.95 0.24
----------- -----------
Distributions
Net investment income (0.80) (0.14)
Capital gains (0.11) --
----------- -----------
(0.91) (0.14)
----------- -----------
Net asset value, end of period $ 15.14 $ 15.10
=========== ===========
Total return 6.48% 1.58%+
Net assets at end of period (in 000's) $ 132,848 $ 120,649
Ratio of expenses to average net assets:
Before expenses waived 0.71% 0.63%#
After expenses waived 0.60% 0.58%#
Ratio of net investment income to average
net assets (net of expenses waived) 5.36% 5.41%#
Portfolio turnover rate 39.39% 1.29%+
- ----------
* COMMENCEMENT OF OPERATION.
+ NOT ANNUALIZED.
# ANNUALIZED.
<PAGE>
BUILDERS PROLOAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
(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 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 ("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 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 the interest rate on a ProLoan prior to
closing if market interest rates have declined from the interest rate
set
<PAGE>
BUILDERS PROLOAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
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 ("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, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
(a) Investment Valuation
Securities are valued at market value 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 circumstances, the Fund does not intend to commit
more than 33 1/3% of its total assets to these commitments.
<PAGE>
BUILDERS PROLOAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
(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 continue 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 realized 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, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
(3) MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(a) Management Fee
The Fund has an Investment Management Agreement with Capital
Mortgage Management, Inc. (the "Manager"), 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 "Subadviser"). 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, 1999. For the year ended December 31, 1998, the
Subadviser waived $60,047 of its fees.
(c) Administration Fee
The Corporation has entered into an Administration Agreement
with Investment Company Administration, L.L.C. (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. Effective August 1, 1998, the Fund will pay the
Administrator an annual fee of $50,000 for average daily net
assets up to $150 million and 0.05% for average daily net
assets greater than $150 million, payable monthly. Prior to
August 1, 1998, the Fund paid the Administrator 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 "Plan"). Under the Plan, the
Fund is authorized to pay Huntleigh Fund Distributors, Inc.
(the "Distributor") at an annual rate of 0.10% of
<PAGE>
BUILDERS PROLOAN FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
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. The Fund will reimburse the distributor for such
expenses incurred in the previous three year period to the
extent that the reimbursement does not cause the Fund's
operating expenses to exceed the .18% expense limitation. For
the year ended December 31, 1998, the Distributor waived
$76,915 of its fees.
Certain officers and directors of the Corporation are also officers and
directors of the Manager, Distributor and Administrator. Certain
"independent directors", as defined by the Investment Company 1940 Act,
are 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 year ended December 31, 1998, is
summarized below:
Purchases $64,840,169
Sales $46,793,991
At December 31, 1998, gross unrealized appreciation and depreciation of
investments, based on cost for the federal income tax purposes of
$177,255,077 were as follows:
Gross unrealized appreciation $ 47,086,611
Gross unrealized depreciation (47,158,230)
------------
Net appreciation on investments $ (71,619)
============
(5) IN-KIND CONTRIBUTION TRANSACTIONS
At the Fund's inception on October 31, 1997, the Carpenters' District
Council of Greater St. Louis purchased 7,951,789 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.
<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 of Builders
ProLoan Fund (the sole fund comprising Builders ProLoan Fund, Inc.), including
the schedule of investments, as of December 31, 1998, and the related statement
of operations for the year then ended, the statements of changes in net assets
for the year ended December 31, 1998 and for the period from October 31, 1997
(commencement of operations) to December 31, 1997, and the financial highlights
for the year ended December 31, 1998 and 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 audits.
We conducted our audits 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, 1998 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Builders ProLoan Fund as of December 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for the year ended December
31, 1998 and for the period from October 31, 1997 (commencement of operations)
to December 31, 1997, and the financial highlights for the year ended December
31, 1998 and 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
January 15, 1999
