As filed with the Securities and Exchange Commission on January 29, 1999
Registration No. 333-30221
File No. 811-08273
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 |X|
Pre-Effective Amendment No.
Post-Effective Amendment No.3 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 |X||X|
Amendment No. 6
BUILDERS FIXED INCOME FUND, INC.
2190 Mason Road, Suite 208
St. Louis, Missouri 63131
Telephone: (314) 822-1644
(Registrant's Name, Address and Telephone Number)
JOHN W. STEWART, PRESIDENT
2190 Mason Road, Suite 208
St. Louis, Missouri 63131
Telephone: (314) 822-1644
(Name and Address of Agent for Service)
Copies to:
DEE ANNE SJoGREN, ESQ.
Thompson Coburn
One Mercantile Center
St. Louis, MO 63101
Approximate Date of Proposed Public Offering:
As soon as practicable after the effectiveness of the Registration Statement
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate check this box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
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N-1A ITEM NO. LOCATION
PART A: PROSPECTUS
<S> <C> <C>
Item 1 Front and Back Cover Pages Front and Back Cover Pages
Item 2 Risk/Return Summary: Risk/Return Summary
Investments, Risks, and Performance
Item 3 Risk/Return Summary: Fee Table Risk/Return Summary
Item 4 Investment Objectives, Principal Investment Objective; Investment Strategies;
Strategies, and Related Risks and Risks
Item 5 Management's Discussion of Fund Not Applicable
Performance
Item 6 Management, Organization, and Management of the Fund
Capital Structure
Item 7 Shareholder Information Purchase, Redemption and Valuation of Fund
Shares; Distributions; and Tax Information
Item 8 Distribution Arrangements Distribution Plan
Item 9 Financial Highlight Information Financial Highlights
PART B: STATEMENT OF ADDITIONAL INFORMATION
Item 10 Cover Page and Table of Contents Cover Page and Table of Contents
Item 11 Fund History Fund History
Item 12 Description of the Fund and Its Description of the Fund; Fund Policies
Investments and Risks
Item 13 Management of the Fund Management of the Fund
Item 14 Control Persons and Principal Holders Control Persons and Principal Security Holders
of Securities
Item 15 Investment Advisory and Other Investment Advisory and Other Services
Services
Item 16 Brokerage Allocation and Other Brokerage Allocation and other Practices
Practices
Item 17 Capital Stock and Other Securities Capital Stock
Item 18 Purchase, Redemption and Pricing of Purchase, Redemption and Pricing of Shares
Shares
Item 19 Taxation of the Fund Tax Information
Item 20 Underwriters Underwriter
Item 21 Calculation of Performance Data Calculation of Performance Data
Item 22 Financial Statements Financial Statements
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PART C: STATEMENT OF OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
BUILDERS FIXED INCOME FUND, INC.
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As filed with the Securities and Exchange
Commission on January 29, 1999
Registration No. 333-30221
File No. 811-08273
================================================================================
Part A
of
Form N-1A
REGISTRATION STATEMENT
BUILDERS FIXED INCOME FUND, INC.
================================================================================
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
2190 MASON ROAD, SUITE 208
ST. LOUIS, MO 63131
(314) 822-1644
Builders Fixed Income Fund, Inc. (the "Fund") is a no-load, non-diversified,
open-end investment company. Its investment objective is to provide current
income. The Fund invests at least 65% of its assets in investment-grade fixed
income securities, including at least 30% of its net assets in GNMA, FNMA and
FHLMC mortgage-backed securities secured by ProLoan mortgages on residential
homes built by union labor. The Fund is designed to provide institutional
investors with the opportunity to invest in an investment grade bond portfolio
while also promoting employment in the housing construction trade and related
industries through the ProLoan program.
Prospectus dated January 29, 1999
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY............................................................1
INVESTMENT OBJECTIVE...........................................................4
INVESTMENT STRATEGIES..........................................................4
RISKS..........................................................................7
MANAGEMENT OF THE FUND ........................................................9
PURCHASE, REDEMPTION AND VALUATION OF FUND SHARES.............................10
DISTRIBUTIONS.................................................................13
TAX INFORMATION...............................................................14
DISTRIBUTION PLAN.............................................................15
FINANCIAL HIGHLIGHTS..........................................................16
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RISK/RETURN SUMMARY
FUND OBJECTIVE AND INVESTMENT STRATEGIES
The Fund's investment objective is to provide current income. Under normal
circumstances, the Fund invests at least 65% of its total assets in investment
grade fixed income securities, including at least 30% of its net assets in
mortgage-backed securities that are issued or guaranteed by the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC") and
secured by ProLoan mortgages on residential homes that are built by union labor
("ProLoan mortgage-backed securities"). For purposes of this policy, "investment
grade securities" are those rated at the time of purchase A-/A3 or better by
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's"), respectively, or, if unrated, determined to be comparable by
Commerce Bank, N.A., the Fund's Subadviser. The average credit rating of the
Fund's entire portfolio will be at least AA-/Aa3 as rated by S&P or Moody's,
respectively, or the equivalent rating of another rating agency. Its average
effective duration will be within 30% of the duration of the Lehman Aggregate
Bond Index, which currently is 4.5 years. Thus, the Fund's duration will be
between 3 and 6 years. There is no assurance, however, that the Fund will
achieve its investment objective. See "Risks."
The Fund invests in different types of fixed income securities, including
corporate bonds, zero coupon bonds and debentures, obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
("government securities") and money market instruments. The Fund also may invest
up to 65% of its net assets in mortgage-backed securities, collateralized
mortgage obligations ("CMOs") and asset-backed securities.
PROLOAN PROGRAM
The ProLoan program is a coordinated effort involving home builders, mortgage
lenders and organized building trade unions. The Fund contracts with banks and
other mortgage lenders to offer ProLoans to individuals whose homes are
substantially union-built and newly constructed or substantially renovated.
Capital Mortgage Management, Inc., the Fund's Manager, coordinates with home
builders and local building trade unions to ensure that residential homes are
built using trained union labor and, thus, are eligible to be included in the
ProLoan program. ProLoan home mortgages offer qualified borrowers the
opportunity to lock in interest rates, typically for up to six months, to allow
time for construction or renovation of the borrower's home. This extended
interest rate protection period is longer than the 45- to 60-day standard
interest rate protection offered with respect to most ordinary home mortgages.
The ProLoan program also allows borrowers to "float down" to a lower interest
rate, if interest rates decline after the borrower has locked in an interest
rate on a ProLoan, by paying a fee to the Fund.
RISKS
The value of your investment in the Fund may go up or down, which means that you
could lose money.
INTEREST RATE RISKThe market value of fixed income securities in which the Fund
invests and, thus, the Fund's net asset value, can be expected to vary inversely
to changes in interest rates. When interest rates rise, the net asset value of
the Fund generally will decline. When interest rates fall, the net asset value
of the Fund generally will increase in value. Zero coupon bonds are subject to
greater market fluctuations from changing interest rates than debt obligations
of comparable maturities which make current distributions of interest. Debt
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also affect the
value of these securities. Fluctuations in the market value of fixed income
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securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in the Fund's net asset value.
The Fund may experience additional interest rate risk because of its investment
in ProLoan mortgage-backed securities, because the Fund will be subject to a
potential six-month interest rate lock period, which is substantially longer
than the typical 45- to 60-day interest rate lock period. During this six-month
period, the potential increase in the market value of ProLoan mortgage-backed
securities is less than the potential decrease due to the borrower's ability to
float down to a lower interest rate under the ProLoan program. Also, early
repayment of principal on ProLoan mortgage-backed securities may expose the Fund
to a lower rate of return when it reinvests the principal. The interest rate
offered on ProLoans may be lower than the average market rate offered by most
financial institutions for ordinary home mortgage loans in order to generate
interest in the ProLoan program. As a result, the value of the ProLoan
mortgage-backed securities may be lower than the market value of comparable
mortgage-backed securities.
CREDIT RISK: An issuer of bonds could default on its obligation to pay interest
and repay principal. The Fund may invest up to 35% of its total assets in
investment-grade securities, which are securities rated at the time of purchase
BBB/Baa or higher by S&P or Moody's, respectively, or similarly rated by another
rating agency or, are unrated, but determined to be of comparable quality by the
Subadviser. Obligations rated BBB/ Baa are considered to have speculative
characteristics and are subject to greater credit and market risk than higher
rated securities.
MANAGEMENT RISK: There is a risk that a management strategy employed by Capital
Mortgage Management, Inc. the Fund's Manager, or an investment strategy employed
by Commerce Bank, N.A., the Fund's Subadviser, could be unsuccessful. AN
INVESTMENT IN THE FUND IS NOT A DEPOSIT OF COMMERCE BANK, N.A. AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
PERFORMANCE
The bar chart and table below provide some indication of the risks of investing
in the Fund by comparing the Fund's performance with a broad measure of market
performance. Past performance does not guarantee future results.
ANNUAL TOTAL RETURN
(FOR THE YEAR ENDED DECEMBER 31, 1998)
Builders ProLoan Fund, Inc.
Annual return from 1/1/98 to
12/31/98
1998
----
6.48%
During the year ended December 31, 1998 shown in the bar chart above, the
highest return for a quarter was 3.23% (quarter ended September 30, 1998) and
the lowest return for a quarter was -.26% (quarter ended December 31, 1998).
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- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1998)
================================================================================
Past Since Inception
One Year (10/31/97)
- --------------------------------------------------------------------------------
Builders Fixed Income Fund, Inc. 6.48% 6.96%
- --------------------------------------------------------------------------------
Lehman Brothers Mortgage-Backed Securities Index* 6.88% 6.99%
* The Lehman Brothers Mortgage-Backed Securities Index is a broad,
market-weighted index of 15- and 30-year fixed rate securities backed by
mortgage pools of GNMA, FNMA and FHLMC, as well as FNMA and FHLMC balloon
mortgages with fixed-rate coupons.
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
================================================================================
SHAREHOLDER FEES (fees paid directly from your investment)
================================================================================
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Deferred Sales Charge (as a percentage of original purchased price) None
Redemption Fee (as a percentage of amount redeemed)(1) 1.00%
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses
that are deducted from Fund assets)
Management Fees (2) 0.36%
Distribution (12b-1) Fees 0.10%
Other Expenses (3) 0.25%
-----
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.71%
Fee Waiver (4) -0.11%
Net Expenses 0.60%
================================================================================
(1) Fee imposed only on Fund shares redeemed less than one year after they were
purchased.
(2) The Fund's Manager receives a management fee of 0.15% plus all fees payable
to the Subadviser. The Subadviser contractually has agreed to waive a portion of
its subadvisory fees so that these fees do not exceed 0.165% of the Fund's net
assets through December 31, 1999. Management Fees were 0.36% prior to this fee
waiver and 0.32% after the waiver.
(3) Huntleigh Fund Distributors, Inc., the Fund's Distributor, contractually has
agreed to waive its fees and/or reimburse expenses so that Other Expenses do not
exceed 0.18% of the Fund's net assets through December 31, 2002. Other Expenses
were 0.25% prior to this fee waiver.
(4) The Fee Waiver is comprised of 0.04% subadvisory fees waived by the
Subadviser and 0.07% Distribution (12b-1) Fees waived by the Distributor.
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EXAMPLE:
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that :
+ you invest $10,000 in the Fund for the time period indicated;
+ you redeem all of your shares at the end of those periods;
+ your investment has a 5% return each year; and
+ the Fund's operating expenses remain the same.
Although your actual costs could be higher or lower, based on these assumptions
your costs would be:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
$166 $227 $395 $883
You would pay the following expenses if you did not redeem your shares:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
$ 61 $227 $395 $883
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide current income. There is no
assurance, however, that the Fund will achieve its investment objective. See
"Risks." The Fund's investment objective may not be changed without a majority
vote of the Fund's outstanding shares, which is the lesser of (1) 67% of the
Fund shares present or represented if the holders of more than 50% of the shares
are present or represented at the shareholders meeting; or (2) more than 50% of
the shares of the Fund. The investment strategies of the Fund described below
can be changed at any time by the Board of Directors to the extent that such
changes are consistent with the Fund's investment objective.
INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests at least 65% of its total assets in
investment grade fixed income securities, including at least 30% of its net
assets in ProLoan mortgage-backed securities. For purposes of this policy,
"investment grade" securities are those rated at the time of purchase A-/A3 or
better by S&P or Moody's, respectively, or, if unrated, determined to be of
comparable quality by the Subadviser. The Fund may invest in different types of
fixed income securities, including corporate debt obligations such as fixed and
variable-rate bonds, zero coupon bonds and debentures, government securities,
and money market instruments. All of the fixed income securities acquired by the
Fund other than those subject to the 65% requirement described above will be
rated at the time of purchase BBB/Baa or higher by S&P or Moody's, respectively,
or similarly rated by another rating agency or, are unrated but determined to be
of comparable quality by the Subadviser.
The Fund also may invest up to 65% of its net assets in mortgage-backed
securities, CMOs, and asset-backed securities. Mortgage-backed securities
represent interests in "pools" of mortgage loans assembled by various government
agencies as well as private issuers. CMOs are mortgage obligations structured in
multiple classes, with each class bearing a different stated maturity, coupon
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rate or interest rate sensitivity. CMOs may be collateralized by whole mortgage
loans but typically are collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. Asset-backed securities represent
a participation in, or are secured by or payable from, a stream of payments
governed by particular assets. Such securities may include home equity and
manufactured housing loans, automobile and credit card receivables, and other
types of receivables or other assets.
The Fund also invests in government securities including separately traded
registered interest and principal securities ("STRIPS") and other zero coupon
obligations; corporate bonds, notes and debentures; domestic certificates of
deposit, bank deposit notes and bank notes; and cash or cash equivalents,
including commercial paper, loan participation interests and other promissory
notes maturing in 397 days or less. These securities may have a fixed, variable
or floating rate of interest.
DESCRIPTION OF THE PROLOAN PROGRAM. The Fund is designed to provide
institutional investors with the opportunity to invest in an investment grade
bond portfolio while also promoting employment in the housing construction trade
and related industries through the ProLoan program. The ProLoan program is a
coordinated effort involving home builders, mortgage lenders and organized
building trade unions. The Fund contracts with banks and other mortgage lenders
(collectively, the "Lenders") to offer ProLoans to individuals whose homes are
substantially union-built and newly constructed or substantially renovated, as
determined by the Fund's Manager. The Manager also coordinates with home
builders and local building trade unions to ensure that residential homes are
built using trained union labor and, thus, are eligible to be included in the
ProLoan program. ProLoan allows qualified borrowers the opportunity to lock in
interest rates on their home mortgages, typically for up to six months, to allow
time for construction or renovation of their home. This extended interest rate
protection period is longer than the 45- to 60-day standard interest rate
protection offered with respect to most ordinary home mortgages.
ProLoans are offered by qualified Lenders with the interest rate and points
established each week by the Subadviser, based on its survey of local markets
and the ability of the Fund to invest in additional ProLoan mortgage-backed
securities. Borrowers pay a ProLoan commitment fee, which is refunded to the
borrower at closing. These commitment fees might not fully compensate the Fund
for the additional interest rate risk it will bear during the six-month 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 these parties. If
interest rates decline after a borrower has locked in an interest rate on a
ProLoan, the borrower may reduce the interest rate by paying a "float-down" fee
to the Fund, which typically is one-half of one percent of the loan amount. If
construction or renovation of a home is not complete by the date set for
closing, the borrower may extend a ProLoan for up to 60 days, at the discretion
of the Subadviser, for an extension fee which typically is one-quarter of one
percent of the loan amount for each 30 day extension.
PROLOAN MORTGAGE-BACKED SECURITIES. The Fund invests at least 30% of its net
assets in mortgage-backed securities secured by pools of ProLoans created by the
Lenders, which have been securitized and guaranteed by GNMA, FNMA or FHLMC. At
the Subadviser's discretion, a ProLoan may be sold instead of being included in
a pool by a Lender. The Fund purchases ProLoan mortgage-backed securities 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. ProLoan
mortgage-backed securities typically are delivered to the Fund within eight
months from the initial commitment date.
The Fund commits to acquire ProLoan mortgage-backed securities on a
"when-issued" basis. At the time of the commitment, the Fund's custodian
segregates cash or other liquid assets equal to the amount of the commitment.
The value of the ProLoans 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
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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 sell ProLoans 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 mortgage commitments.
DIVERSIFICATION AND CONCENTRATION RISK: The Fund is non-diversified, which means
that the Fund may invest a greater percentage of its assets in a particular
issuer compared with diversified mutual funds. The change in value of any one
security could affect the overall value of the Fund more than it would the value
of a diversified fund. The Fund invests at least 30% of its net assets in
ProLoan mortgage-backed securities. As a result, an economic, business,
political or other change affecting the residential building and trade
industries in the geographical areas in which ProLoan programs are offered could
increase the market risk and the potential for fluctuation in the value of the
Fund's shares.
TEMPORARY INVESTMENTS. For temporary defensive purposes, the Fund may invest up
to 100% of its total assets in cash or cash equivalent short-term obligations,
including money market instruments such as bank obligations, commercial paper
and notes, U.S. Government obligations and repurchase agreements. See the
Statement of Additional Information ("SAI") for a description of the foregoing
securities. Principal and/or interest payments for government securities may or
may not be backed by the full faith and credit of the U.S. Government. The Fund
may not achieve its investment objective if it engages in temporary defensive
strategies.
REPURCHASE AGREEMENTS. The Fund enters into repurchase agreements under which it
buys a security and obtains a simultaneous commitment from the seller to
repurchase the security at a specified time and price. The seller must maintain
with the Fund's Custodian collateral equal to at least 100% of the repurchase
price including accrued interest as monitored daily by the Subadviser. If the
seller under the repurchase agreement defaults, the Fund may incur a loss if the
value of the collateral securing the repurchase agreement has declined and may
incur disposition costs in connection with liquidating the collateral.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in illiquid
securities, including securities having legal or contractual restrictions on
resale or no readily available market (including repurchase agreements, variable
and floating rate instruments and time deposits with notice/termination dates in
excess of 7 days) and certain securities that are subject to trading
restrictions because they are not registered under the Securities Act of 1933
(the "1933 Act"). The Fund may purchase commercial paper issued pursuant to
section 4(2) of the 1933 Act and securities that are not registered under the
1933 Act but that can be sold to "qualified institutional buyers" in accordance
with Rule 144A under the 1933 Act. These securities will not be considered
illiquid as long as the Subadviser determines, under guidelines approved by the
Board of Directors, that an adequate trading market exists.
CREDIT QUALITY. Under normal market conditions, the Fund will invest at least
65% of its total assets in fixed income securities rated at the time of purchase
A-/A3 or better by S&P or Moody's, respectively, or, if unrated, determined to
be of comparable quality by the Subadviser. The Fund's average credit rating,
calculated based upon the market value of each security in the Fund's portfolio,
will be at least AA-/Aa3 as rated by S&P or Moody's, respectively, or the
equivalent rating of another rating agency. All of the fixed income and floating
rate securities acquired by the Fund other than those subject to the 65%
requirement will be rated at the time of purchase AAA/Aaa, AA/Aa, A or BBB/Baa
by S&P or Moody's, respectively, or are similarly rated by another rating agency
or are unrated but determined to be of comparable quality by the Subadviser.
DURATION. Although the Fund is not restricted as to the maximum or minimum
duration of any individual security it holds, its average effective duration
will be within 30% of the duration of the Lehman Aggregate Bond Index, which
currently is 4.5 years. Thus, the Fund's duration will be between 3 and 6 years.
"Duration" means the average time to receipt of expected cash flows (discounted
to present value) on a particular fixed income instrument or a portfolio of
instruments. Duration takes into account the pattern of a security cash flow
6
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over time, including how cash flow is affected by prepayments and changes in
interest rates. Duration also generally takes into account the effect of
interest rate changes on bond prices. For example, if interest rates increase by
1%, the value of a security having an effective duration of five years generally
would decrease in value by 5%.
RISKS
INTEREST RATE RISK. The market value of fixed rate securities and, thus, the net
asset value of the Fund's shares, is expected to vary inversely with movements
in interest rates. The market value of variable and floating rate instruments
will not vary as much as the market value of fixed rate securities due to the
periodic adjustments in their interest rates. An adjustment that increases the
interest rate of variable and floating rate securities should reduce or
eliminate declines in market value resulting from a prior upward movement in
interest rates, and an adjustment which decreases the interest rate of such
securities should reduce or eliminate increases in market value resulting from a
prior downward movement in interest rates. The market value of investment grade
fixed income securities and the resulting net asset value of the Fund's
portfolio will fluctuate with changes in interest rates. When interest rates
rise, the net asset value of the Fund will decline; shareholders who redeem Fund
shares in such circumstances will suffer the resulting loss in value of those
shares. Conversely, in certain periods of declining interest rates,
mortgage-backed securities held by the Fund will increase in market value but
may be prepaid by the various mortgagors or other obligors so that anticipated
yields on such investments may not be realized.
CMOs involve risks in addition to those found in other types of mortgage-related
obligations, since they may exhibit more price volatility and interest rate
risk. During periods of rising interest rates, CMOs could lose their liquidity
because CMO market makers may choose not to repurchase, or might offer prices
based on current market conditions that are unacceptable to the Fund based on
the Subadviser's analysis of the market value of the security. Zero coupon bonds
also are subject to greater market fluctuations from changing interest rates
than debt obligations of comparable maturities that make current distributions
of interest.
PREPAYMENT RISKS. Early repayment of principal on mortgage-backed securities
(arising from prepayments of principal due to sale of the underlying property,
refinancing, or foreclosure, net of fees and costs that may be incurred) could
expose the Fund to a lower rate of return upon reinvestment of principal. Also,
if a security subject to prepayment has been purchased at a premium, in the
event of prepayment, the value of the premium would be lost. Like other debt
securities, when interest rates rise, the value of mortgage-related securities
generally will decline; and when interest rates fall, the value of
mortgage-related securities with prepayment features may not increase as much as
other debt securities.
CREDIT RISK. An issuer of bonds could default on its obligation to pay interest
and repay principal. The Fund may invest up to 35% of its total assets in
securities rated at the time of purchase BBB/Baa or higher by S&P or Moody's,
respectively, or are similarly rated by another rating agency or are unrated but
determined to be of comparable quality by the Subadviser. Obligations rated
BBB/Baa are considered to have speculative characteristics and are subject to
greater credit and market risk than higher rated securities. Subsequent to their
purchase by the Fund, up to 5% of its portfolio securities may represent
securities downgraded below investment-grade or may be deemed by the Subadviser
to no longer be comparable to investment-grade securities. See the SAI for a
description of applicable debt ratings.
PROLOAN RISKS. ProLoan mortgage-backed securities bear additional risks to those
described above. For example, the Fund could experience additional interest rate
risk, since ProLoan mortgage-backed securities will be subject to a potential
six month interest rate lock period, exclusive of extensions, which is
substantially longer than the typical 45 to 60 day interest rate lock period.
Also, ProLoan interest rates could be lower than the average market rate offered
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by most financial institutions for ordinary home mortgage loans in order to
generate interest in the ProLoan program. As a result, the market value of
ProLoan mortgage-backed securities could be lower than the market value of
comparable mortgage-backed securities.
In addition, the Fund's investment in ProLoan mortgage-backed securities
requires it to commit funds for future purchases of such securities at rates
that are set at the time of the commitment, with delivery of such securities
taking place at a future date (typically up to eight months later). These
securities involve the risk that the yield obtained in the transaction (and thus
the value of the security) may be less favorable than the yield available in the
market when the security is delivered. At the time the Fund makes the commitment
to acquire ProLoan mortgage-backed securities, these commitments will be valued
for purposes of determining the Fund's net asset value and the Fund's custodian
will segregate cash or liquid assets equal to the value of the commitments,
which will be marked to market daily. If the market value of the underlying
commitments declines due to a rise in interest rates or otherwise, the Fund will
segregate additional assets. Because the Fund will segregate cash and liquid
assets in this manner, its liquidity and the Subadviser's ability to manage the
Fund's portfolio might be affected in the event its when-issued purchases or
forward commitments ever exceeded 33 1/3% of the value of its assets. In this
event, the Fund would be required to liquidate a portion of its ProLoan
commitments on the open market or pursuant to a contractual obligation with a
Lender. On the date of securitization, the Fund will fulfill its obligations
from securities that are then maturing or sales of securities held in the
segregated account and/or from available cash flow. If the Fund disposes of the
right to acquire a mortgage commitment prior to its acquisition it can incur a
gain or loss due to market fluctuation. In the event that interest rates
decline, it may be difficult for the Fund to obtain delivery of the ProLoans
that secure the Fund's investments and the Fund may incur a loss or will have
lost the opportunity to invest the amount set aside for the ProLoans in the
segregated asset account. The Fund does not intend to engage in ProLoan
commitments for speculative purposes, but only in furtherance of its investment
objective.
The ProLoan program depends upon the continued participation of the Lenders.
There is no assurance that banks, mortgage lenders and other financial
institutions will continue to participate in the ProLoan program. To the extent
that the ProLoan program does not generate sufficient ProLoan mortgage-backed
securities, the Fund will invest in other mortgage-backed securities and fixed
income securities as described in this Prospectus.
There can be no assurance that the Manager will attempt to establish a ProLoan
program in the area in which an investor is located. If the Manager does attempt
to establish a ProLoan program in a particular metropolitan area, there can be
no assurance that its attempt will be successful and there may be a substantial
delay between an investor's purchase of Fund shares and the development of a
ProLoan program in the area in which the investor resides. In addition, the
terms of the ProLoan program could vary from city to city depending upon the
nature of the regional real estate, mortgage and banking industries.
ASSET-BACKED SECURITIES. Asset-backed securities involve certain risks that do
not exist with mortgage-related securities because they usually do not have the
benefit of a complete security interest in the related collateral. For example,
credit card receivables generally are unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, some of
which may reduce the ability to obtain full payment. In the case of automobile
receivables, due to various legal and economic factors, proceeds from
repossessed collateral may not be sufficient to support payment on the
securities. The risks associated with asset-backed securities are often reduced
by the addition of credit enhancements such as a letter of credit from a bank,
excess collateral, or a third-party guarantee.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in illiquid
securities. If, through a change in net asset value or other circumstances, the
Fund were in a position where more than 15% of its net assets were invested in
8
<PAGE>
illiquid securities, the Subadviser would seek to take steps to protect the
liquidity of the Fund's portfolio. The sale of illiquid securities may require
more time and result in higher transaction costs and other selling expenses than
the sale of liquid securities.
Rule 144A securities will not be considered illiquid as long as the Subadviser
determines, under guidelines approved by the Board of Directors, that an
adequate trading market exists. The Fund's investment in 144A securities could
increase the level of liquidity during any period that qualified institutional
buyers become uninterested in purchasing these securities.
The Fund's commitments to acquire ProLoan mortgage-backed securities will not be
considered illiquid as long as the Fund has a valid contractual agreement with a
third party to assume the commitments, or provided that the Manager determines,
pursuant to guidelines established by the Board, that an adequate trading market
exists for the commitments. To the extent that a secondary market source or a
Lender becomes uninterested in purchasing the Fund's ProLoan commitments or
refuses to honor its contractual commitment to the Fund, the Fund's ProLoan
commitments would increase the level of illiquidity in its portfolio. As a
result of such illiquidity, the Fund might not be able to sell these commitments
when the Subadviser considers it desirable to do so or may have to sell them at
a lower price than could be obtained if they were more liquid. These factors
could have an adverse impact on the Fund's net asset value.
YEAR 2000 RISKS. Like other investment companies, financial and business
organizations around the world, the Fund could be adversely affected if the
computer systems used by its service providers do not properly process and
calculate date-related information and data after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Manager is taking steps to
address the Year 2000 problem with respect to the computer systems that it uses
and to obtain assurance that comparable steps are being taken by the Fund's
other service providers. At this time, however, there can be no assurances that
these steps will be sufficient to avoid any adverse impact on the Fund as a
result of the Year 2000 Problem. In addition, the Year 2000 Problem could
adversely affect the ability of issuers of securities in which the Fund invests
to make timely payments with respect to principal and interest, which could in
turn adversely affect the value of those securities and reduce the assets and
yield of the Fund.
MANAGEMENT OF THE FUND
MANAGER
Capital Mortgage Management, Inc., located at 2190 South Mason Road, Suite 208,
St. Louis, Missouri 63131, is responsible for the management of the Fund and the
ProLoan program. Capital Mortgage provides or oversees all administrative,
investment advisory and portfolio management services for the Fund. Capital
Mortgage was formed in 1997 to provide investment advice to the Fund. John W.
Stewart, President of Capital Mortgage, formerly served as Controller/System
Administrator of the approximately $688 million pension fund for the Carpenters'
District Council of Greater St. Louis from August 1988 to September 1997.
Capital Mortgage provides the Fund with office space, office equipment and
personnel necessary to manage and administer the Fund's operations and the
ProLoan program. In addition, Capital Mortgage also monitors the Subadviser's
investment program and results.
9
<PAGE>
The Fund paid Capital Mortgage management fees equal to 0.315% of its average
daily net assets, of which Capital Mortgage paid fees of 0.165% of the Fund's
average daily net assets to the Subadviser, during the fiscal year ending
December 31, 1998.
INVESTMENT SUBADVISER
Commerce Bank N.A., 8000 Forsyth Boulevard, St. Louis, Missouri 63105, is the
Fund's investment subadviser. Commerce Bank has provided investment management
services to The Commerce Funds since 1994, to private and public pension funds,
endowments and foundations since 1946, and to individuals since 1906. Currently,
Commerce Bank had discretionary investment authority with respect to
approximately $9.1 billion of assets. Commerce Bank is a full-service lending
bank, and it makes loans in the ordinary course of its business to, among
others, home builders to finance the construction of homes which are subject to
sales contracts with home buyers. Some of these home buyers may participate in
the ProLoan program. However, such loans to home builders are based upon normal
lending policies of the Subadviser and are unrelated to the ProLoan program.
PORTFOLIO MANAGER
Scott M. Colbert, Chartered Financial Analyst, serves as the Vice President and
Director of Fixed Income Management of Commerce Bank. Mr. Colbert has primary
responsibility for the day-to-day investment operations of the Fund. Mr. Colbert
joined the Fixed Income Management Group of Commerce Bank in 1993. Prior to
that, he served as portfolio manager for Armco Investment Management, Inc. from
1987 to 1993 with respect to fixed income investments for employee benefit,
insurance and endowment funds. Mr. Colbert also serves as portfolio manager for
the following portfolios of The Commerce Funds: The Short-Term Government Fund,
The Bond Fund and The Balanced Fund. Mr. Colbert has primary investment
responsibility for approximately $5 billion in assets on behalf of Commerce Bank
and its affiliates.
PURCHASE, REDEMPTION AND VALUATION OF FUND SHARES
Shares of the Fund are sold at net asset value without the deduction of any
sales charge. The Fund offers to redeem its shares from its shareholders at any
time at the next determined net asset value without the deduction of any sales
charge, although the Fund imposes a 1.00% redemption fee on shares redeemed less
than one year after they are purchased. The redemption price may be paid either
in cash or by a distribution in kind of securities held by the Fund.
PRICING OF FUND SHARES
The net asset value of the Fund is determined as of 4:00 p.m. Eastern time on
each day on which the New York Stock Exchange is open for trading and the Fund's
Custodian and Transfer Agent are open for business ("Business Day"). The net
asset value of all outstanding shares of the Fund will be determined based on a
pro rata allocation of the value of the Fund's investment income and total
capital gains and losses and expenses based on comparative net asset value at
the beginning of the day.
Equity securities listed on securities exchanges are valued at the last quoted
sales price on a designated exchange prior to the close of trading on the
exchange or, lacking any sales, on the basis of the last current bid price prior
to the close of trading on the exchange. Over-the-counter equity securities are
valued on the basis of the last bid price on that date prior to the close of
trading. Debt securities (other than short-term securities) will normally be
valued on the basis of prices provided by a pricing service and may take into
account appropriate factors such as institution-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data. In some cases, the prices of debt
10
<PAGE>
securities may be determined using quotes obtained from brokers. Securities for
which market quotations are not readily available are valued at fair market
value, as determined in good faith and pursuant to procedures approved by the
Fund's Board of Directors. Investment grade short- term obligations with 60 days
less to maturity are valued using the amortized cost method
The Fund values its commitments to acquire ProLoan mortgage-backed securities at
the price at which the Fund could assign these commitments to a third party, as
long as this price is considered by the Manager to equal no more than the fair
market value of the commitments. The formula for determining this price is an
amount equal to the principal amount of the underlying ProLoan, multiplied by
any positive difference between the price at which the Fund committed to acquire
the ProLoan and the six-month forward price of FNMA mortgage-backed securities
with the coupon rate nearest to, but not greater than, the coupon rate that is
0.625% below the weighted average yield for all such ProLoans. See the SAI for
additional valuation methods.
PURCHASING SHARES OF THE FUND
Fund shares are offered without a sales charge to institutional investors who
make an initial investment of at least $1 million. There is no minimum amount
for subsequent investments. The Manager and the Distributor may agree to waive
this minimum investment requirement.
Fund shares are sold without a sales charge at the net asset value next
determined after the receipt of a request to purchase shares accompanied by a
check drawn on a U.S. bank or immediately available funds. Shares of the Fund
are offered and purchase orders accepted at the next determined net asset value.
Net asset value is determined as of 4:00 p.m. Eastern time on each Business Day.
The Fund reserves the right to reject any order for the purchase of shares and
to limit or suspend, without prior notice, the offering of shares.
You may purchase Fund shares as follows:
BY WIRE -- To purchase by wire:
+ Call the Fund's transfer agent toll-free at 1-877-923-5626 to obtain an
account number (for new accounts only)
+ Complete and return your account application to the transfer agent
+ Instruct your bank to wire your investment to:
UMB Bank, N.A.
ABA #1010-0069-5
Credit to: #9800006823
FBO: Builders Fixed Income Fund 740601000
Your name(s)
Your account number ________________________
BY DEPOSITING SECURITIES -- Shares of the Fund may be purchased in exchange for
an investor's securities if the securities are acceptable to the Fund and
satisfy applicable investment objectives and policies. Investors interested in
exchanging securities must:
+ Contact Capital Mortgage to acquire instructions regarding submission of a
written description of the securities which the investor wishes to
exchange.
+ Represent that all such securities offered to the Fund are not subject to
any sale restrictions.
+ Within five business days after receipt of the written description, Capital
Mortgage will advise the investor whether the securities to be exchanged
are acceptable. There is no charge for this review by Capital Mortgage.
+ Upon acceptance of such orders, the securities must be delivered in fully
negotiable form within five days.
11
<PAGE>
Securities accepted by the Fund must have a readily ascertainable value as
determined by the Fund's Custodian. Securities are valued in the manner
described for valuing Fund assets in the section entitled "Valuation of Shares."
Acceptance of such orders may occur on any day during the five-day period
afforded Capital Mortgage to review the acceptability of the securities. Capital
Mortgage will provide delivery instructions at the time of acceptance. A gain or
loss for federal income tax purposes may be realized by the investor upon the
exchange of securities, depending upon the adjusted tax basis and value of the
securities tendered. The Fund will accept securities in this manner only for
purposes of investment, and not for resale.
BY MAIL -- To purchase Fund shares by mail:
+ Complete and sign the account application
+ Mail your application and check to:
+ Builders Fixed Income Fund, Inc.
c/o Unified Fund Services, Inc.
P.O. Box 6110
(431 N. Pennsylvania Street for overnight deliveries)
Indianapolis, IN 46206-6110
If you are making additional purchase of shares, include your account number on
the check. Purchase checks are accepted subject to collection at full face value
in U.S. funds and must be drawn in U.S. dollars on a U.S. bank. Third party
checks will not be accepted by the Fund.
REDEMPTION OF SHARES
You may sell your Fund shares on any Business Day.
Write a letter of instruction that includes:
+ your account name(s)
+ your account number
+ the dollar amount or the number of shares to be redeemed
+ how to send the proceeds to you (by check or wire*)
+ your signature (the letter must be signed by an authorized person(s) in the
exact name which appears on the account)
+ any legal documents, if required
* If you want to have the redemption proceeds wired to your bank account,
provide the name, location, ABA or bank routing number and your bank account
number. Your bank may charge a fee to receive the wire.
Mail your written instructions to:
Builders Fixed Income Fund, Inc.
c/o Unified Fund Services, Inc.
P.O. Box 6110
(431 N. Pennsylvania Street for overnight deliveries)
Indianapolis, IN 46206-6110
12
<PAGE>
Your shares will be sold at the next net asset value calculated after your order
is received in good order by the Fund's transfer agent. Any share certificates
being sold must be returned with your redemption request. The share certificates
must be properly endorsed or accompanied by a stock assignment with signature
guaranteed by a bank, trust company or member of a recognized stock exchange.
You generally will receive the redemption proceeds within seven (7) days after
receipt of your redemption request. The redemption check will be sent to the
address of record.
REDEMPTION FEE. If shares of the Fund are purchased and then redeemed within
twelve months from the date of purchase, a redemption fee of 1.00% will be
deducted from the redemption proceeds by the Fund. In determining whether a
redemption fee is payable, it will be assumed that the redemption is made first
of shares that have been held for more than one year and, second, of shares that
are still subject to the redemption fee.
SUSPENSION OF REDEMPTIONS. The Fund reserves the right to suspend redemptions or
postpone the date of payment:
(a) for any periods during which the New York Stock Exchange is closed (other
than for customary weekend and holiday closings), or when trading on the
Exchange is restricted,
(b) at such time as an emergency exists as determined by the Securities and
Exchange Commission ("SEC") so that disposal of a Fund's investments or
determination of its net asset value is not reasonably practicable, or
(c) for such other periods as the SEC by order may permit for protection of the
Fund's shareholders.
If the shares being redeemed were purchased by check, payment may be delayed to
verify that the check has been honored, normally not more than fifteen (15)
days.
REDEMPTIONS IN KIND. Although the Fund intends to redeem shares in cash, it
reserves the right to pay the redemption price in whole or in part by a
distribution of readily marketable securities held by the Fund. However,
shareholders always will be entitled to redeem shares for cash up to the lesser
of $250,000 or 1% of the Fund's net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. In addition, if
redemption is made in kind, shareholders who receive securities and sell them
could receive less than the redemption value of their securities and could incur
certain transaction costs.
DISTRIBUTIONS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. Dividends and other distributions paid
on the Fund's shares are calculated at the same time and in the same manner.
Dividends consisting of substantially all of the net investment income of the
Fund normally are declared on each Business Day immediately prior to the
determination of the net asset value and are payable to shareholders of record
as of the opening of business on the day on which declared. Dividends are paid
monthly. The Fund's net investment income will consist of dividends and interest
(including discount) accrued on the securities held by the Fund less applicable
expenses of the Fund. Distributions of the Fund's realized net short-term
capital gain and net capital gain (the excess of net long-term capital gain over
net short-term capital loss) normally will be made annually.
13
<PAGE>
Unless a shareholder elects otherwise by so notifying the Fund in writing, all
dividends and other distributions on the Fund's shares will be automatically
declared and paid in additional shares of the Fund. However, a shareholder may
choose to have distributions of net capital gain paid in shares and dividends
paid in cash or to have all such distributions and dividends paid in cash. An
election may be changed at any time by delivering written notice that is
received by the Transfer Agent at least ten days prior to the payment date for a
dividend or other distribution.
TAX INFORMATION
The following summary deals only with the principal federal income tax
consequences of the ownership of a share of the Fund. It does not deal with
shares of the Fund held by special classes of taxpayers, such as dealers in
securities or currencies, banks, life insurance companies, tax-exempt
organizations, and individuals or entities whose functional currency is not the
U.S. dollar or who are not included within the term "United States Person" as
defined by the Internal Revenue Code of 1986, as amended (the "Code").
Similarly, this summary does not address shares of the Fund held as a hedge,
interests hedged against currency or interest-rate risks, or interests that are
part of a straddle or conversion transaction. The summary is based on the Code,
its legislative history, existing and proposed regulations thereunder, published
rulings and court decisions, all as currently in effect and all subject to
change at any time, perhaps with retroactive effect. PROSPECTIVE PURCHASERS OF
SHARES OF THE FUND SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
CONSEQUENCES OF THEIR PARTICULAR CIRCUMSTANCES UNDER THE CODE AND THE LAWS OF
ANY RELEVANT STATE, COUNTY, CITY, OR OTHER TAXING JURISDICTION APPLICABLE TO THE
ACQUISITION, OWNERSHIP, AND DISPOSITION OF SUCH SHARES.
TAXATION OF SHAREHOLDERS OF THE FUND
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. All dividends and capital gain
distributions paid by the Fund, whether received in cash or reinvested in
additional shares of the Fund, may be subject to federal, state, and local
income tax. The Fund contemplates that distributions to shareholders will be
taxable primarily as ordinary income (principally from interest, original issue
discount (discussed below) and market discount), although the Fund also
anticipates making some distributions taxable to shareholders as capital gains
and losses (principally from the disposition of portfolio securities).
GAIN OR LOSS ON SALE OR EXCHANGE OF FUND SHARES. You will recognize a taxable
gain or loss when you sell shares of the Fund. The nature of that gain or loss,
and the manner in which it is to be recognized for federal income tax purposes,
depend primarily on (1) the length of time you have held the shares, and (2)
whether the amount realized in the transaction--the cash proceeds or the fair
market value of property received--exceeds your adjusted basis in the
relinquished shares. In computing a shareholder's adjusted basis, the Code
increases the original cost of the shares by the excess of the undistributed
capital gains the shareholder is required to report over the tax (imposed on the
RIC and) deemed to have been paid by the shareholder on such gains. In general,
the exchange of Fund shares for other securities or property would also result
in the current recognition of taxable gain or loss unless the exchange is part
of a tax-qualified corporate reorganization under the Code.
ACCRUAL OF ORIGINAL ISSUE DISCOUNT. To the extent the Fund invests in debt
securities (such as zero coupon bonds) that include an "original issue discount"
component (as that term is defined in applicable provisions of the Code and
related regulations), the Fund--regardless of its regular method of tax
accounting--must recognize that original issue discount as income as it accrues.
As discussed above, this increases income and, in order to avoid the 4% excise
tax on insufficient distributions, effectively requires the Fund to increase its
cash distribution before it receives the cash to which the income is
attributable. As a result, the Fund may be required to dispose of securities at
an earlier time than it would have done in the absence of the accrued original
issue discount income. Such dispositions made to fund distribution requirements
may themselves produce currently-taxable gains, requiring additional funds for
distribution.
INFORMATION REPORTING AND BACKUP WITHHOLDING. Each January, the Fund will send
to U.S. shareholders (other than corporations) a statement showing all taxable
14
<PAGE>
distributions and redemption proceeds received during the calendar year. The
Fund will be required to effect so-called "backup withholding" at the rate of
thirty-one percent (31%) if a non-corporate U.S. shareholder fails to provide an
accurate taxpayer identification number to the Fund, or if the Fund is notified
by the Internal Revenue Service that the shareholder has failed to report
certain amounts required to be reported on the shareholder's federal tax
returns.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan under Rule 12b-1 of the Investment
Company Act of 1940 that allows the Fund to pay distribution fees for the sale
and distribution of its shares. Under this Plan, the Fund pays to Huntleigh Fund
Distributors, Inc. an annual fee of 0.10% of the Fund's net assets to help
defray the cost of distributing the Fund's shares and servicing its
shareholders. Although Fund shares are sold without a sales charge, Huntleigh
also may pay from its own resources a sales commission to its representatives
who sell Fund shares. In addition, Huntleigh may make quarterly payments of
service fees to its representatives with respect to Fund shares attributable to
shareholders for whom the representatives are designated of record. Payments
made to Huntleigh as underwriter for the Fund represent compensation for
distribution and service activities, not reimbursement for specific expenses
incurred. Because these fees are paid out of the Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the period from October 31, 1997
(commencement of Fund operations) to December 31, 1998. Certain
information reflects financial results for a single Fund share. The
total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has
been has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's financial statements, are incorporated by reference in
the SAI, which is available upon request.
- --------------------------------------------------------------------------------
10/31/97*
Year Ended to
12/31/98 12/31/97
- --------------------------------------------------------------------------------
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 (or
Losses) on Investments 0.15 0.10
-------- --------
Total From Net Investment Operations 0.95 0.24
-------- --------
LESS DISTRIBUTIONS:
Dividends (from net investment income) (0.80) (0.14)
Distributions (from capital gains) (0.11) 0.00
-------- --------
Total Distributions (0.91) (0.14)
-------- --------
Net Asset Value, End of Period $ 15.14 $ 15.10
======== ========
Total Return 6.48% 1.58%+
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period $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 Income to Average Net Assets 5.36% 5.41%++
Portfolio Turnover Rate 39.39% 1.29%
- --------------------------------------------------------------------------------
* Commencement of operations.
+ Not annualized.
++ Annualized.
16
<PAGE>
[back cover]
A Statement of Additional Information ("SAI") about the Fund has been filed with
the Securities and Exchange Commission ("SEC"), and is incorporated herein by
reference. Additional information about the Fund's investments is available in
the Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. Shareholders may make inquiries or request the SAI and the Fund's
reports to shareholders without charge by calling or writing the Fund at the
telephone number or the address listed on the cover page or by calling the
Fund's transfer agent toll-free at (877) 923-5626. Information about the Fund
may also be reviewed at the SEC's Public Reference Room in Washington, D.C. or
through the SEC's Internet sight at HTTP:///WWW.SEC.GOV. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. Copies of information about the Fund may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington, D.C. 20549-6009. The Fund also maintains an Internet site at
http://www.proloan.com.
FUND'S INVESTMENT COMPANY ACT OF 1940 FILE NUMBER: 811-08273
<PAGE>
As filed with the Securities and Exchange
Commission on January 29, 1999
Registration No. 333-30221
File No. 811-08273
================================================================================
Part B
of
Form N-1A
REGISTRATION STATEMENT
BUILDERS FIXED INCOME FUND, INC.
================================================================================
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
BUILDERS FIXED INCOME FUND, INC.
JANUARY 29, 1999
Builders Fixed Income Fund, Inc. (the "Fund") is an open-end,
non-diversified management investment company.
This Statement of Additional Information should be read in conjunction with
the Prospectus for the Fund dated January 29 1999 ("Prospectus"). The Fund's
annual report is incorporated herein by reference. A copy of the Prospectus and
annual report may be obtained without charge by calling toll-free (877)
923-5626. This Statement of Additional Information is not a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by a current Prospectus.
<PAGE>
TABLE OF CONTENTS
FUND HISTORY...................................................................1
DESCRIPTION OF THE FUND........................................................1
FUND POLICIES.................................................................15
MANAGEMENT OF THE FUND........................................................17
CONTROL PERSONS AND PRINCIPAL SECURITY HOLDERS................................19
INVESTMENT ADVISORY AND OTHER SERVICES........................................20
BROKERAGE ALLOCATION AND OTHER PRACTICES......................................22
CAPITAL STOCK.................................................................22
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................23
TAX INFORMATION...............................................................25
UNDERWRITER...................................................................27
CALCULATION OF PERFORMANCE DATA...............................................27
FINANCIAL STATEMENTS..........................................................28
APPENDIX A: DESCRIPTION OF BOND RATINGS......................................30
APPENDIX B: OPTIONS AND FUTURES CONTRACTS....................................32
<PAGE>
FUND HISTORY
The Fund was incorporated under the laws of the State of Maryland on June 13,
1997. The Fund currently is comprised of one investment portfolio with one class
of common stock, par value $0.01, although it has the authority to issue
multiple series and classes of shares.
Prior to January 28, 1999, the Fund's name was "Builders Proloan Fund, Inc."
DESCRIPTION OF THE FUND
The Fund is a non-diversified, no-load, open-end management investment company
registered under the Investment Company Act of 1940 ("1940 Act").
The Fund may invest in the following types of instruments:
ASSET-BACKED SECURITIES - These securities do not have the benefit of the
same security interest in the underlying collateral. Payment on asset-backed
securities of private issuers is typically supported by some form of credit
enhancement, such as a letter of credit, surety bond, limited guaranty or
subordination. Assets generating such payments will consist of such instruments
as motor vehicle installment purchase obligations, credit card receivables and
home equity and manufactured housing loans. The Fund may also invest in other
types of asset-backed securities available in the future. The yield
characteristics of asset-backed securities differ from traditional debt
securities. A major difference is that the principal amount of the obligation
may be prepaid at any time because the underlying assets (i.e., loans) generally
may be prepaid at any time. As a result, if an asset-backed security is
purchased at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Conversely, if an
asset-backed security is purchased at a discount, faster than expected payments
will increase, while slower than expected prepayments will decrease yield to
maturity. In calculating the average weighted maturity of the Fund, the maturity
of asset-backed securities will be based on estimates of average life.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates. Furthermore, prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of a shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities may involve certain risks that are not presented by
mortgage-backed securities arising primarily from the nature of the underlying
assets (e.g., credit card and automobile loan receivables as opposed to real
estate mortgages). Ultimately, asset-backed securities are dependent upon
payment of the consumer loans or receivables by individuals, and the certificate
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holder frequently has no recourse against the entity that originated the loans
or receivables. Credit card receivables are generally unsecured and the debtors
are entitled to the protection of a number of state and federal consumer credit
laws, many of which have given debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. In addition, default may
require repossession of the personal property of the debtor which may be
difficult or impossible in some cases. Most issuers of automobile receivables
permit the servicers to return possession of the underlying obligations. If the
servicers were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the number of vehicles
involved in a typical issuance and technical requirements under state law, the
trustee for the automobile receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there is
a possibility that recoveries of repossessed collateral may not, in some cases,
be able to support payment on these securities.
Asset-backed securities may be subject to greater risk of default during
periods of economic downturn than other instruments. Also, the secondary market
for certain asset-backed securities may not be as liquid as the market for other
types of securities, which could result in the Fund's experiencing difficulty in
valuing or liquidating such securities. In certain circumstances, asset-backed
securities may be considered illiquid securities subject to the percentage
limitation described under "Illiquid Securities" below.
BANK DEPOSIT NOTES - Bank deposit notes are obligations of a bank, rather
than bank holding company corporate debt. The only structural difference between
bank deposit notes and certificates of deposit is that interest on bank deposit
notes is calculated on a 30/360 basis as are corporate notes/bonds. Similar to
certificates of deposit, deposit notes represent bank level investments and,
therefore, are senior to all holding company corporate debt.
BANKERS' ACCEPTANCES - Bankers acceptances are short-term credit
instruments used to finance the import, export, transfer or storage of goods.
They are termed "accepted" when a bank guarantees their payment at maturity.
BANK OBLIGATIONS - For purposes of the Fund's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. Investments
in obligations issued by foreign banks and foreign branches of U.S. banks may
involve risks that are different from investments in obligations of domestic
branches of U.S. banks. These risks may include future unfavorable political and
economic developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held by the Fund. Additionally, these institutions
may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping requirements than those
applicable to domestic branches of U.S. banks.
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Certificates of deposit issued by domestic branches of domestic banks do
not benefit materially, and certificates of deposit issued by foreign branches
of domestic banks do not benefit at all, from insurance from the Federal Deposit
Insurance Corporation.
Both domestic banks and foreign branches of domestic banks are subject to
extensive governmental regulations, which may limit both the amount and types of
loans which may be made and interest rates which may be charged. In addition,
the profitability of the banking industry is dependent largely upon the
availability and costs of funds for the purpose of financing and lending
operations under prevailing money market conditions. General economic conditions
as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of this
industry.
CASH EQUIVALENTS - Cash equivalents include certificates of deposit, bearer
deposit notes, bankers acceptances, government obligations, commercial paper,
short-term corporate debt securities and repurchase agreements.
CERTIFICATES OF DEPOSIT - Certificates of deposit are issued against funds
deposited in an eligible bank (including its domestic and foreign branches,
subsidiaries and agencies), are for a definite period of time, earn a specified
rate of return and are normally negotiable.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS - Commercial
paper refers to promissory notes representing an unsecured debt of a corporation
or finance company with a fixed maturity of no more than 270 days. The other
corporate obligations in which the Fund may invest consist of high quality, U.S.
dollar denominated short-term bonds and notes (including variable amount master
demand notes) issued by domestic corporations bearing fixed, floating or
variable interest rates.
DEBENTURES - The Fund may invest in debt obligations, such as bonds and
debentures, issued by corporations and other business organizations that are
rated at the time of purchase within the three highest ratings categories of
Standard & Poor's Rating Group ("S&P") or Moody's Investors Service, Inc
("Moody's") or, if unrated, are determined to be of comparable quality by the
Subadviser. Unrated securities will be determined to be of comparable quality to
rated debt obligations if, among other things, other outstanding obligations of
the issuers of such securities are rated A or better. Debentures are unsecured
debt securities. The holder of a debenture is protected only by the general
creditworthiness of the issuer.
ILLIQUID SECURITIES - The Fund may invest up to 15% of its net assets in
illiquid securities, including securities having legal or contractual
restrictions on resale or no readily available market. The Fund's commitments to
acquire ProLoan mortgage-backed securities will not be considered to be illiquid
so long as the Manager determines, pursuant to guidelines established by the
Board of Directors, that an adequate trading market exists for these
commitments. To the extent that a secondary market source or a Lender becomes
uninterested in purchasing the Fund's mortgage commitments or refuses to honor
its contractual commitment to the Fund, the Fund's mortgage commitments could
increase the level of illiquidity in its portfolio. As a result of such
illiquidity, the Fund may not be able to sell these instruments when the
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Subadviser considers it desirable to do so or may have to sell them at a lower
price than could be obtained if they were more liquid. These factors may have an
adverse impact on net asset value. The sale of illiquid securities may require
more time and result in higher transaction costs and other selling expenses than
the sale of liquid securities.
LOAN PARTICIPATION INTERESTS - LPIs represent interests in bank loans made
to corporations. The contractual arrangement with the bank transfers the cash
stream of the underlying bank loan to the participating investor. Because the
issuing bank does not guarantee the participations, they are subject to the
credit risks generally associated with the underlying corporate borrower. In
addition, because it may be necessary under the terms of the loan participation
for the investor to assert through the issuing bank such rights as may exist
against the underlying corporate borrower, in the event the underlying corporate
borrower fails to pay principal and interest when due, the investor may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the investor had purchased a direct obligation (such as
commercial paper) of such borrower. Moreover, under the terms of the loan
participation, the investor may be regarded as a creditor of the issuing bank
(rather than of the underlying corporate borrower), so that the issuer may also
be subject to the risk that the issuing bank may become insolvent. Further, in
the event of the bankruptcy or insolvency of the corporate borrower, the loan
participation may be subject to certain defenses that can be asserted by such
borrower as a result of improper conduct by the issuing bank. The secondary
market, if any, for these loan participations is extremely limited and any such
participations purchased by the investor are regarded as illiquid.
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities, which are
derivatives, consist of both collateralized mortgage obligations ("CMOs") and
mortgage pass-through certificates.
COLLATERALIZED MORTGAGE OBLIGATIONS - CMOs and real estate mortgage
investment conduits ("REMICs") are debt securities collateralized by mortgages,
or mortgage pass-through securities (the "Mortgage Assets"). CMOs divide the
cash flow generated from the underlying mortgages or mortgage pass-through
securities into different groups referred to as "tranches," which are then
retired sequentially over time in order of priority. The principal governmental
issuers of such securities are FNMA, a government sponsored corporation owned
entirely by private stockholders and the Federal Home Loan Mortgage Corporation
("FHLMC"), a corporate instrumentality of the United States created pursuant to
an act of Congress which is owned entirely by Federal Home Loan Banks. CMOs are
structured as trusts or corporations established for the purpose of issuing such
CMOs and often have no assets other than those underlying the securities and any
credit support provided. REMICs are a mortgage securities vehicle, authorized by
the Tax Reform Act of 1986, that hold residential or commercial mortgages and
issues securities representing interests in those mortgages. A REMIC may be
formed as a corporation, partnership, or segregated pool of assets. The REMIC
itself is generally exempt from federal income tax, but the income from the
mortgages is reported by investors. For investment purposes, REMIC securities
are virtually indistinguishable from CMOs.
CMOs may involve additional risks other than those found in other types of
mortgage-related obligations. CMOs may exhibit more price volatility and
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interest rate risks than other types of mortgage-related obligations. During
periods of rising interest rates, CMOs may lose their liquidity as CMO market
makers may choose not to repurchase, or may offer prices, based on current
market conditions, that are unacceptable to the Fund based on the Fund's
analysis of the market value of the security.
Each class of CMOs or REMIC Certificates, often referred to as a "tranche,"
is issued at a specific adjustable or fixed interest rate and must be fully
retired no later than its final distribution date. Principal prepayments on the
Mortgage Assets underlying the CMOs or REMIC Certificates may cause some or all
of the classes of CMOs or REMIC Certificates to be retired substantially earlier
than their final distribution dates. Generally, interest is paid or accrues on
all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of an interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" "sequential pay" CMOs or REMIC
Certificates), payment of principal, including any principal prepayments, on the
Mortgage Assets generally are applied to the classes of CMOs or REMIC
Certificates in the order of their respective final distribution dates. Thus, no
payment of principal will be made on any class of sequential pay CMOs or REMIC
Certificates until all other classes having an earlier final distribution date
have been paid in full.
Additional structures of CMOs or REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those that are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
MORTGAGE PASS-THROUGH CERTIFICATES - Mortgage pass-through certificates are
issued by governmental, government-related and private organizations which are
backed by pools of mortgage loans.
(1) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") MORTGAGE
PASS-THROUGH CERTIFICATES ("GINNIE MAES") - GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban
Development. Ginnie Maes represent an undivided interest in a pool of
mortgages that are insured by the Federal Housing Administration or the
Farmers Home Administration or guaranteed by the Veterans Administration.
Ginnie Maes entitle the holder to receive all payments (including
prepayments) of principal and interest owed by the individual mortgagors,
net of fees paid to GNMA and to the issuer which assembles the mortgage
pool and passes through the monthly mortgage payments to the certificate
holders (typically, a mortgage banking firm), regardless of whether the
individual mortgagor actually makes the payment. Because payments are made
to certificate holders regardless of whether payments are actually received
on the underlying mortgages, Ginnie Maes are of the "modified pass-through
mortgage certificate type. GNMA is authorized to guarantee the timely
payment of principal and interest on the Ginnie Maes. The GNMA guarantee is
backed by the full faith and credit of the United States, and GNMA has
unlimited authority to borrow funds from the U.S. Treasury to make payments
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under the guarantee. The market for Ginnie Maes is highly liquid because of
the size of the market and the active participation in the secondary market
of security dealers and a variety of investors.
(2) FHLMC MORTGAGE PARTICIPATION CERTIFICATES ("FREDDIE MACS") -
Freddie Macs represent interests in groups of specified first lien
residential conventional mortgages underwritten and owned by FHLMC. Freddie
Macs entitle the holder to timely payment of interest, which is guaranteed
by FHLMC. FHLMC guarantees either ultimate collection or timely payment of
all principal payments on the underlying mortgage loans. In cases where
FHLMC has not guaranteed timely payment of principal, the FHLMC may remit
the amount due because of its guarantee of ultimate payment of principal at
any time after default on an underlying mortgage, but in no event later
than one year after it becomes payable. Freddie Macs are not guaranteed by
the United States or by any of the Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home
Loan Bank. The secondary market for Freddie Macs is highly liquid because
of the size of the market and the active participation in the secondary
market of FHLMC, security dealers and a variety of investors.
(3) FNMA GUARANTEED MORTGAGE PASS-THROUGH CERTIFICATES ("FANNIE MAES")
- Fannie Maes represent an undivided interest in a pool of conventional
mortgage loans secured by first mortgages or deeds of trust, on one family
or two to four family, residential properties. FNMA is obligated to
distribute scheduled monthly installments of principal and interest on the
mortgages in the pool, whether or not received, plus full principal of any
foreclosed or otherwise liquidated mortgages. The obligation of FNMA under
its guarantee is solely its obligation and is not backed by, nor entitled
to, the full faith and credit of the United States.
(4) MORTGAGE-RELATED SECURITIES ISSUED BY PRIVATE ORGANIZATIONS - Pools
created by non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government guarantees of payments in such pools.
However, timely payment of interest and principal of these pools is often
partially supported by various enhancements such as over-collateralization
and senior/subordination structures and by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance.
The insurance and guarantees are issued by government entities, private
insurers or the mortgage poolers. Although the market for such securities
is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable.
MORTGAGE DOLLAR ROLLS - The Fund may enter into mortgage dollar rolls in
which it sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar, but not identical,
securities on a specified future date. The Fund gives up the right to receive
principal and interest paid on the securities sold. However, the Fund would
benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation, and gain or loss due to mortgage prepayments
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that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the Fund's investment
performance. The Fund's custodian will segregate cash or liquid assets until the
settlement date, in an amount equal to the forward purchase price. There is no
assurance that mortgage dollar rolls can be employed successfully.
MORTGAGES - The Fund may purchase mortgages in the form of whole loans or
participations. The Fund will invest only in residential and multi-family
mortgage loans and whole loan participations that have been underwritten and
originated to secondary market underwriting standards. Although mortgages bear
the same risks as mortgage-backed securities, there are additional risks to be
considered. Privately-issued mortgage-related securities typically are not
guaranteed by the U.S. Government, its agencies, instrumentalities or sponsored
enterprises but such securities are generally structured with one or more types
of credit enhancement such as a guarantee, subordination, insurance policies or
letters of credit obtained by the issuer or sponsor from third parities, through
various means of structuring the transaction or through a combination of such
approaches. In addition, although the Fund treats each mortgage-related
portfolio as a separate issuer, concentration in issues of mortgage-related
securities within the Fund, sponsored by the same sponsor or serviced by the
same servicer, may involve certain risks. Servicers of mortgage-related pools
collect payments on the underlying mortgage assets for pass-through to the
security holders on a periodic basis. Upon insolvency of the servicer, the
security holders may be at risk with respect to collections received by the
servicer but not yet delivered to the security holders. In addition, a sponsors'
transfer of assets to a trust or other pooling vehicles may not represent a true
sale and, upon insolvency of the sponsor, the security holders of the trust or
other pool may be at risk with respect to the assets transferred to the trust or
pool by the sponsor.
Mortgages are illiquid in nature and, as such, may be difficult to sell
when the Subadviser considers it desirable to do so or may have to be sold at a
price lower than could be obtained if they were more liquid. The Fund's
investment in mortgages is subject to the limitation on illiquid securities set
forth under "Fund Policies" below.
FORECLOSURE RISK - In cases in which the Fund invests directly in mortgage
loans, it is anticipated that the mortgage loan will be secured by a deed of
trust or mortgage, depending upon the prevailing practice in the state in which
the subject property is located. Foreclosure of a deed of trust may be
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust which authorizes the trustee to sell the property upon any default
by the borrower under the terms of the note or deed of trust. Foreclosure of a
mortgage generally is accomplished by judicial action. The action is initiated
by the service of legal pleadings upon all parties having an interest in the
real property. Delays in completion of the foreclosure occasionally may result
from difficulties in locating necessary party defendants. The borrower may seek
bankruptcy protection in an attempt to delay or avert a foreclosure and/or
assert other defenses to the proceedings. Any bankruptcy filing will, and the
assertion of other defenses may, significantly delay the proceedings and
increase the expenses incurred by the lender in prosecuting the proceedings, and
could result in a reduction of the secured debt in the event of a "cramdown" by
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a bankruptcy court. Depending upon market conditions, the net proceeds of the
sale of the property after foreclosure, fix-up, and selling expenses may be less
than the Fund's investment.
In some states, after foreclosure and sale, the borrower and foreclosed
junior lienholders are given a statutory period in which to redeem the property
from the foreclosure sale. In some states, redemption may occur only upon
payment of the entire principal balance of the loan, accrued interest and
expenses of foreclosure. In other states, redemption may be authorized if the
former borrower pays only a portion of the sums due. The effect of a statutory
right of redemption is to diminish the ability of the lender to sell the
foreclosed property. Consequently, the practical effect of the redemption right
is often to force the lender to retain the property and pay the expenses of
ownership until the redemption period has run.
OPTIONS AND FUTURES CONTRACTS - The Fund may purchase put and call options
with primary over-the-counter dealers for hedging purposes only. Such options
may relate to interest rates and other economic factors and would not exceed 5%
of the Fund's net assets. The Fund also may invest in futures contracts and
options on futures, index futures contracts or interest rate futures contracts,
as applicable for hedging purposes. See Appendix B - Options and Futures
Contracts.
RATINGS OF LONG-TERM OBLIGATIONS - The Fund utilizes ratings provided by
the following nationally recognized statistical rating organizations ("Rating
Organizations") in order to determine eligibility of long-term obligations.
The four highest Moody's ratings for long-term obligations (or issuers
thereof) are Aaa, Aa, A and Baa. Obligations rated Aaa are judged by Moody's to
be of the best quality. Obligations rated Aa are judged to be of high quality by
all standards. Together with the Aaa group, such debt comprises what is
generally known as high-grade debt. Moody's states that debt rated Aa is rated
lower than Aaa debt because margins of protection or other elements make
long-term risks appear somewhat larger than for Aaa debt. Obligations which are
rated A by Moody's possess many favorable investment attributes and are
considered upper medium-grade obligations. Obligations which are rated Baa by
Moody's are considered to be medium grade obligations, i.e., they are neither
highly protected or poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Moody's
also supplies numerical indicators 1, 2, and 3 to rating categories. The
modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking; and modifier 3 indicates
a ranking toward the lower end of the category.
The four highest S&P's ratings for long-term obligations are AAA, AA, A and
BBB. Obligations rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
Obligations rated AA have a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
Obligations rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions. Obligations rated BBB by Standard &
Poor's are regarded as having adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
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economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Duff & Phelps' four highest ratings for long-term obligations are AAA, AA,
A and BBB. Obligations rated AAA have the highest credit quality with risk
factors being negligible. Obligations rated AA are of high credit quality and
strong protection factors. Risk is modest but may vary slightly from time to
time because of economic conditions. Obligations rated A have average but
adequate protection factors. However, risk factors are more variable and greater
in periods of economic stress. Obligations rated BBB have below average
protection factors with considerable variability in risk during economic cycles,
but are still considered sufficient for prudent investment.
Thomson BankWatch ("Bankwatch") long-term debt ratings apply to specific
issues of long-term debt and preferred stock. They specifically assess the
likelihood of an untimely repayment of principal or interest over the term to
maturity of the rated instrument. BankWatch's four highest ratings for long-term
obligations are AAA, AA, A and BBB. Obligations rated AAA indicate that the
ability to repay principal and interest on a timely basis is very high.
Obligations rated AA indicate a superior ability to repay principal and interest
on a timely basis, with limited incremental risk compared to issues rated in the
highest category.
Obligations rated A indicate the ability to repay principal and interest is
strong. Issues rated A could be more vulnerable to adverse developments (both
internal and external) than obligations with higher ratings. BBB is the lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated BBB are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
Fitch Investors Service, Inc. ("Fitch") investment grade bond ratings
provide a guide to investors in determining the credit risk associated with a
particular security. The ratings represent Fitch's assessment of the issuer's
ability to meet the obligations of a specific debt issue or class of debt in a
timely manner. Obligations rated AAA are considered to be investment grade and
of the highest credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be affected by
reasonable foreseeable events. Bonds rated AA are considered to be investment
grade and of very high credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong as bonds rated AAA.
Bonds rated A are considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings. Bonds rated BBB are considered to
be investment grade and of satisfactory credit quality. The obligor's ability to
pay interest and repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
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Standard & Poor's, Duff & Phelps and Fitch apply indicators "+","-," and no
character to indicate relative standing within the major rating categories.
RATINGS OF SHORT-TERM OBLIGATIONS - The rating P-1 is the highest
short-term rating assigned by Moody's. Among the factors considered by Moody's
in assigning ratings are the following: (1) evaluations of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
Short-term obligations (or issuers thereof) rated A-1 by Standard & Poor's
have the following characteristics. Liquidity ratios are adequate to meet cash
requirements. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the
above factors determines whether the issuer's short-term obligation is rated
A-1, A-2, or A-3.
The distinguishing feature of the Duff & Phelps Credit Ratings' short-term
rating is the refinement of the traditional 1 category. The majority of
short-term debt issuers carry the highest rating, yet quality differences exist
within that tier. Obligations rated D-1+ indicate the highest certainty of
timely payment. Safety is just below risk-free U.S. Treasury obligations.
Obligations rated D-1 have a very high certainty of timely payment. Risk factors
are minor. Obligations rated D-1- have a high certainty of timely payment. Risk
factors are very small. Obligations rated D-2 have good certainty of timely
payment. Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
Thomson BankWatch short-term ratings are intended to assess the likelihood
of an untimely or incomplete payment of principal or interest. Obligations rated
TBW-1 indicate a very high likelihood that principal and interest will be paid
on a timely basis. While the degree of safety regarding timely payment of
principal and interest is strong for an obligation rated TBW-2, the relative
degree of safety is not as high as for issues rated TBW-1.
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. A rating of F-1+ indicates exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment. Obligations rated F-1 have very strong credit
quality. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+. Issues assigned a rating of F-2
indicate good credit quality.
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Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ and F-1 ratings.
REPURCHASE AGREEMENTS - A repurchase agreement, which provides a means to
earn income on funds for periods as short as overnight, is an arrangement under
which the purchaser (i.e., the Fund) purchases securities and the seller agrees,
at the time of sale, to repurchase the securities at a specified time and price.
The repurchase price may be higher than the purchase price, the difference being
income to the purchaser, or the purchase and repurchase prices may be the same,
with interest at a stated rate due to the purchaser together with the repurchase
price on repurchase. In either case, the income to the purchaser is unrelated to
the interest rate on the securities subject to the repurchase agreement.
Repurchase agreements are considered to be loans under the 1940 Act.
The Fund may enter into repurchase agreements with any bank or registered
broker-dealer who, in the opinion of the Board, presents a minimum risk of
bankruptcy during the term of the agreement based upon guidelines which
periodically are reviewed by the Board. The Fund may enter into repurchase
agreements as a short-term investment of its idle cash in order to earn income.
The securities will be held by a custodian (or subcustodian) or in the Federal
Reserve/U.S. Treasury book entry system. If the market value of the securities
subject to the repurchase agreement becomes less than the repurchase price
(including interest), the Fund will direct the seller of the securities to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price.
In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before the repurchase of the
securities under a repurchase agreement, the Fund may encounter a delay and
incur costs before being able to sell the security being held as collateral.
Delays may involve loss of interest or decline in price of the securities. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the securities, in which case the Fund
may incur a loss if the proceeds to the Fund from the sale of the securities to
a third party are less than the repurchase price.
REVERSE REPURCHASE AGREEMENTS - The Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements. Pursuant to such
agreements, the Fund would sell portfolio securities to financial institutions
such as banks and broker/dealers and agree to repurchase them at a mutually
agreed-upon date and price. The Fund intends to enter into reverse repurchase
agreements only to avoid selling securities to meet redemptions during market
conditions deemed unfavorable by the Subadviser. At the time the Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account assets such as liquid high quality debt securities having a value not
less than 100% of the repurchase price (including accrued interest), and will
subsequently monitor the account to ensure that such required value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Fund may decline below the price at which the Fund
is obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by an investment company under the 1940 Act.
11
<PAGE>
SECURITIES LENDING - The Fund may lend its securities in accordance with
the following conditions: (1) the Fund must receive at least 100% collateral in
the form of cash or cash equivalents, securities of the U.S. Government and its
agencies and instrumentalities, and approved bank letters of credit; (2) the
borrower must increase the collateral whenever the market value of the loaned
securities (determined on a daily basis) rises above the level of collateral;
(3) the Fund must be able to terminate the loan after notice, at any time; (4)
the Fund must receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest or other
distributions on the securities loaned, and any increase in market value of the
loaned securities; (5) the Fund may pay only reasonable custodian fees in
connection with the loan; and (6) voting rights on the securities loaned may
pass to the borrower, provided, however, that if a material event affecting the
investment occurs, the Board must be able to terminate the loan and vote proxies
or enter into an alternative arrangement with the borrower to enable the Board
to vote proxies. While there may be delays in recovery of loaned securities or
even a loss of rights in collateral supplied should the borrower fail
financially, loans will be made only to firms deemed by the Board to be of good
financial standing and will not be made unless the consideration to be earned
from such loans would justify the risk. The Fund currently does not intend to
engage in securities lending absent prior Board approval.
SEPARATELY TRADED REGISTERED INTEREST AND PRINCIPAL SECURITIES ("STRIPS")
AND ZERO COUPON OBLIGATIONS - The Fund may invest in instruments known as
"stripped" securities. These instruments include U.S. Treasury bonds and notes
and federal agency obligations on which the unmatured interest coupons have been
separated from the underlying obligation. Such obligations are usually issued at
a discount to their "face value," and because of the manner in which principal
and interest are returned may exhibit greater price volatility than more
conventional debt securities. The Fund may invest in "interest only" stripped
securities that have been issued by a federal instrumentality known as the
Resolution Funding Corporation and other stripped securities issued or
guaranteed by the U.S. Government, where the principal and interest components
are traded independently under the STRIPS program. Under STRIPS, the principal
and interest components are individually numbered and separately issued by the
U.S. Treasury at the request of depository financial institutions, which then
trade the component parts independently. The Fund may also invest in instruments
that have been stripped by their holder, typically a custodian bank or
investment brokerage firm, and then resold in a custodian receipt program under
names such as TIGRs and CATS.
Although stripped securities do not pay interest to their holders before
they mature, federal income tax rules require the Fund each year to recognize a
part of the discount attributable to a security as interest income. This income
must be distributed along with the other income the Fund earns. To the extent
shareholders request that they receive their dividends in cash rather than
reinvesting them, the money necessary to pay those dividends must come from the
assets of the Fund or from other sources such as proceeds from sales of Fund
shares and/or sales of portfolio securities. The cash so used would not be
available to purchase additional income-producing securities, and the Fund's
current income could ultimately be reduced as result.
12
<PAGE>
The Fund may acquire zero coupon bonds. Such obligations will not result in
the payment of interest until maturity and typically have greater price
volatility than coupon obligations. The Fund will accrue income on such
investments for tax and accounting purposes, as required, which is distributable
to shareholders and which, because no cash is received at the time of accrual,
may require the liquidation of other portfolio securities to satisfy the Fund's
distribution obligations. These actions may occur under disadvantageous
circumstances and may reduce the Fund's assets, thereby increasing its expense
ratio and decreasing its rate of return. Zero coupon bonds are subject to
greater market fluctuations from changing interest rates than debt obligations
of comparable maturities that make current distributions of interest.
U.S. GOVERNMENT SECURITIES - U.S. Government securities are issued or
guaranteed by the U.S. Government and include U.S. Treasury obligations (see
definition below) and securities issued by U.S. agencies and instrumentalities.
U. S. Government agencies or instrumentalities which issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, GNMA, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, FHLMC, Federal Intermediate Credit Banks,
Federal Land Banks, Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board, Inter-American Development Bank,
Asian-American Development Bank, Agency for International Development, Student
Loan Marketing Association and International Bank of Reconstruction and
Development.
Obligations of U.S. Government agencies and instrumentalities may or may
not be supported by the full faith and credit of the United States. Some are
backed by the right of the issuer to borrow from the Treasury; others by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while still others, such as the Student Loan Marketing Association,
are supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment.
U.S. TREASURY OBLIGATIONS - U.S. Treasury obligations include bills, notes
and bonds issued by the U.S. Treasury and STRIPS (described above).
VARIABLE OR FLOATING RATE OBLIGATIONS - A variable rate obligation is one
whose terms provide for the adjustment of its interest rate on set dates and
which, upon such adjustment, can reasonably be expected to have a market value
that approximates its par value. A floating rate obligation is one whose terms
provide for the adjustment of its interest rate whenever a specified interest
rate changes and which, at any time, can reasonably be expected to have a market
value that approximates its par value. Variable or floating rate obligations may
be secured by bank letters of credit.
13
<PAGE>
Variable and floating rate instruments are not frequently rated by credit
rating agencies. However, in determining the creditworthiness of unrated
variable and floating rate instruments and their eligibility for purchase by the
Fund, the Fund's subadviser, Commerce Bank, N.A. (the "Subadviser"), will
consider the earning power, cash flows and other liquidity ratios of the issuers
and guarantors of such obligations and, if the obligation is subject to a demand
feature, will monitor their financial status to meet payment on demand. In
determining average weighted portfolio maturity, an instrument will usually be
deemed to have a maturity equal to the longer of the period remaining to the
next interest rate adjustment or the time the Fund can recover payment of
principal as specified in the instrument. Participation interests provide the
Fund with a specified undivided interest (up to 100%) in the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the participation interest from the institution upon a
specified number of days' notice, not to exceed thirty days. Each participation
interest is backed by an irrevocable letter of credit or guarantee of a bank
that the Subadviser has determined meets the prescribed quality standards for
the Fund. The bank typically retains fees out of the interest paid on the
obligation for servicing the obligation, providing the letter of credit and
issuing the repurchase commitment.
WHEN-ISSUED AND FORWARD COMMITMENTS - The Fund may purchase U.S. Government
and other securities that are permissible investments of the Fund on a
when-issued basis and may purchase or sell such securities on a "forward
commitment" basis in order to hedge against anticipated changes in interest
rates and prices. When such transactions are negotiated, the price, which is
generally expressed in terms of yield, is fixed at the time the commitment is
made, but delivery and payment for the securities takes place on a later date.
When-issued and forward commitment securities may be sold prior to the
settlement date. At the time the Fund makes the commitment to purchase
securities on a when-issued or forward commitment basis, it will record the
transaction and thereafter reflect the value of such securities in determining
its net asset value. At the time the Fund enters into a transaction on a
when-issued or forward commitment basis, cash or liquid securities such as U.S.
Government securities or other appropriate high grade debt obligations equal to
the value of the when-issued or forward commitment securities will be segregated
and maintained by the Fund's custodian and will be marked to market daily. On
the delivery date, the Fund will meet its obligations from securities that are
then maturing or sales of securities held in the segregated asset account and/or
from available cash flow. If the Fund disposes of the right to acquire a
when-issued or forward commitment security prior to its acquisition or disposes
of its right deliver against a forward commitment, it can incur a gain or loss
due to market fluctuation. In some instances, the third-party seller of
when-issued or forward commitment securities may determine prior to the
settlement date that it will be unable to meet its existing transaction
commitments without borrowing securities. If advantageous from a yield
perspective, the Fund may, in that event, agree to resell its purchase
commitment to the third-party seller at the current market price on the date of
sale and concurrently enter into another purchase commitment for such securities
at a later date. As an inducement for the Fund to "roll-over" its purchase
commitment, the Fund may receive a negotiated fee.
There is always a risk that the securities may not be delivered and that
the Fund may incur a loss or will have lost the opportunity to invest the amount
set aside for such transaction in the segregated asset account. Settlements in
the ordinary course, which may take substantially more than five business days
14
<PAGE>
for mortgage-relates securities, are not treated by the Fund as when-issued or
forward commitment transactions.
FUND POLICIES
The following restrictions have been adopted by the Fund and may be changed only
by the majority vote of the Fund's outstanding shares, which as used herein
means the lesser of (a) 67% of the shares of the Fund present at the meeting if
the holders of more than 50% of the shares are present and represented at the
shareholders' meeting or (b) more than 50% of the shares of the Fund.
The Fund may not:
1. Invest more than 25% of its total assets in the securities of companies
primarily engaged in only one industry other than: (1) the U.S. Government, its
agencies and instrumentalities; and (2) mortgage-related securities. Finance
companies as a group are not considered a single industry for purposes of this
policy.
2. Act as an underwriter (sell securities for others), except to the extent
that the Fund may be deemed to be an underwriter in connection with the
disposition of portfolio securities or the sale of its own shares under federal
securities laws.
3. Borrow money or property in excess of 33 1/3% of its total assets
(including the amount borrowed and through reverse repurchase agreements and
mortgage dollar rolls) less all liabilities and indebtedness other than the bank
or other borrowings, except that the Fund may borrow up to an additional 5% of
its total assets for temporary defensive purposes.
4. Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund from
investing in mortgages, mortgage-related securities, derivative mortgage-backed
securities and other instruments backed by real estate or securities of
companies engaged in the real estate business or real estate investment trusts.
5. Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not prevent the
Fund from buying or selling financial instruments (such as options and futures
contracts) or from investing in securities or other instruments backed by, or
whose value is derived from, physical commodities.
6. Lend Fund securities in excess of 20% of its net assets. In making loans
the Fund receives the market price in cash, U.S. government securities, letters
of credit or such other collateral as may be permitted by regulatory agencies
and approved by the board. If the market price of the loaned securities goes up,
the Fund will get additional collateral on a daily basis. The risks are that the
borrower may not provide additional collateral when required or return the
securities when due. During the existence of the loan, the Fund receives cash
payments equivalent to all interest or other distributions paid on the loaned
securities. A loan will not be made unless the Subadviser believes the
opportunity for additional income outweighs the risks.
15
<PAGE>
7. Make loans to any person or firm, except that the Fund may enter into
repurchase agreements, lend its investment securities to broker-dealers or other
institutional investors and acquire whole loan or participation mortgages for
investment purposes in accordance with the guidelines stated in the Prospectus;
provided, however, that the making of a loan shall not be construed to include
the acquisition for investment of bonds, debentures, notes or other evidences of
indebtedness of any corporation or government which are publicly distributed.
8. Purchase from or sell portfolio securities to its officers, Directors or
other "interested persons" of the Fund, as defined in the Investment Company Act
of 1940, including its investment adviser, its investment subadviser and their
affiliates, except as permitted by the 1940 Act and exemptive rules or orders
thereunder.
9. Issue senior securities (including borrowing money from banks and other
entities and through reverse repurchase agreements) in excess of 33 1/3% of its
total assets (including the proceeds of senior securities issued).
The following non-fundamental investment restrictions apply to the Fund and may
be changed with respect to the Fund by a majority vote of the Fund's Board of
Directors (the "Board").
1. The Fund may not purchase securities on margin, effect short sales
(except that the Fund may obtain such short-term credits as may be necessary for
the clearance of purchases or sales of securities) or engage in the writing of
call options.
2. The Fund may invest up to 10% of its total assets in the securities of
other investment companies to the extent permitted by law. The Fund may incur
duplicate advisory or management fees when investing in another mutual fund.
3. The Fund may not invest in warrants.
4. The Fund may make contracts to purchase securities for a fixed price at
a future date beyond normal settlement time (when-issued securities or forward
commitments). Under normal market conditions, the Fund does not intend to commit
more than 33 1/3% of its total assets to these practices. The Fund does not pay
for the securities or receive dividends or interest on them until the
contractual settlement date. The Fund will designate cash or liquid high-grade
debt securities at least equal in value to its forward commitments to purchase
the securities. When-issued securities or forward commitments are subject to
market fluctuations and they may affect the Fund's total assets the same as
securities it owns.
5. The Fund may not invest more than 15% of its net assets in securities
that lack an established secondary trading market or are otherwise considered
illiquid, including time deposits and repurchase agreements that mature in more
than seven days. In determining the liquidity of commercial paper issued in
transactions not involving a public offering under Section 4(2) of the
Securities Act of 1933, the Fund's Subadviser, under guidelines established by
the Board, will evaluate relevant factors such as the issuer and the size and
nature of its commercial paper programs, the willingness and ability of the
16
<PAGE>
issuer or dealer to repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
6. For temporary investment purposes, the Fund may invest 100% of its total
assets in cash and cash-equivalent short-term obligations. The cash-equivalent
investments the Fund may use are short-term U.S. government securities and
negotiable certificates of deposit, non-negotiable fixed-time deposits, bankers
acceptances and letters of credit of banks or savings and loan associations
having capital, surplus and undivided profits (as of the date of its most
recently published annual financial statements) in excess of $100 million (or
the equivalent in the instance of a foreign branch of a U.S. bank) at the date
of investment. The Fund also may purchase short-term corporate notes and
obligations rated in the top two classifications by Moody's or S&P or the
equivalent and may use repurchase agreements with broker-dealers registered
under the Securities Exchange Act of 1934 and with commercial banks.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Board provides broad supervision over the Fund's
affairs. Capital Mortgage Management, Inc. is responsible for the management of
the Fund and the ProLoan program, and the Fund's officers are responsible for
the Fund's operations. The directors and officers of the Fund are listed below,
together with their principal occupations during the past five years.
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION WITH
DATE OF BIRTH THE FUND PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- --------------- ----------------------------------------
<S> <C> <C>
John W. Stewart* Director, President, Capital Mortgage Management, Inc. (July
2190 Mason Road, Ste. 208 President and 1997-Present); Controller/System Administrator,
St. Louis, MO 63131 Secretary Carpenters' District Council of Greater St. Louis (August
(11/21/58) 1988-July 1997)
Terry Nelson* Director Executive Secretary and Treasurer, Carpenters' District
1401 Hampton Avenue Council of Greater St. Louis (Aug. 1993-present);
St. Louis, MO 63139 Managing Trustee, Carpenters' District Council of Greater
(12/01/40) St. Louis pension fund, health and welfare fund and
vacation fund (Aug. 1993-present); Business
Representative, Carpenters' District Council of Greater
St. Louis (1981-Aug. 1993); Director, United Way (Aug.
1993-present).
John P. Mulligan* Director Chairman, Carpenters' District Council of Greater St.
1401 Hampton Avenue Louis pension fund, health and welfare fund and vacation
St. Louis, MO 63139 fund (Nov. 1984 - present); National Director, Associated
(12/21/35) General Contractors of America (March 1989-present);
President, Mulligan Construction, Inc. (March
1983-present); Trustee, Construction Labor Pension Fund
(1990-present); Trustee, Construction Training
Advancement Fund (1986-present).
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION WITH
DATE OF BIRTH THE FUND PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- --------------- ----------------------------------------
<S> <C> <C>
James D. Slebiska Director Fifth District General Executive Board Member,
4281 NE 38th Street United Brotherhood of Carpenters (Oct. 1969
Des Moines, IA 50317 1988-present).
(10/24/44)
Joseph A. Montanaro Director Executive Director, TWA Pilots Directed Account Plan 401K
3221 McKelvey (July 1993 - present) and Chairman of Investment
Suite 105 Committee (Oct. 1991 - July 1993); Co-Trustee, TWA Flight
Bridgeton, MO 63044 Engineers Trust Plan (1976 - Oct. 1991).
(12/14/38)
Leonard Terbrock Director Retired (1993-present); Former Executive
5 Mary Rose Secretary and Treasurer, Carpenters' District
Hazelwood, MO 63042 Council of Greater St. Louis (1986-1993) and
(07/27/33) Assistant Executive Secretary and Treasurer
(1981-1986); Director, Catholic Charities
(1992-present); Director, St. Louis Regional
Commerce and Growth Association (1990-1993);
Director, Sold on St. Louis (1988-1993);
Committee Chairman, United Way (1970-1993).
Douglas J. McCarron Director General President, United Brotherhood of Carpenters and
101 Constitution Avenue, N.W. Joiners of America (Nov. 1995-present) and General
Washington, D.C. 20001 Second Vice President (1992-1995); President, Southern
(9/23/50) California Conference of Carpenters (1995-present) and
Secretary Treasurer (1987-1995); President and Chairman,
999 Office Builder Corporation; Chairman, Carpenters
Health and Welfare Trust for Southern California;
Chairman, 13 County Carpenters Vacation, Savings and
Holiday plan; Co-Chairman, Carpenters' Trusts for
Southern California; President and Chairman, Inland
Empire Hotel Corporation, President, RPS Resort
Corporation; President and Chairman, Santa Nella Hotel
Corporation; President, THMI Motel Corporation;
Chairman, Carpenters Southern California Administrative
Corporation; Co-Chairman, Carpenters Joint
Apprenticeship and Training Committee Fund for Southern
California; Chairman, Carpenters Pension Trust for
Southern California; Chairman, Carpenters National
Health and Welfare Fund; Chairman, Carpenter Canadian
Local Unions and Councils Pension Fund and the General
Officers and Representatives Pension Fund; Chairman,
UBC Pension Fund, General Office Employees Retirement
Plan, Retirees Health and Welfare Fund and
Apprenticeship and Training Fund; Director, Works
Partnership.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION WITH
DATE OF BIRTH THE FUND PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- --------------- ----------------------------------------
<S> <C> <C>
James A. Winkelmann* Treasurer President, Huntleigh Fund Distributors, Inc. (Feb.
8000 Maryland Place 1986-present); President, Huntleigh Financial
St. Louis, MO 63105 Services, Inc. (Jan. 1997 - present); Vice
(6/2/58) President, Huntleigh Capital Management, Inc.
(1988-present); Vice President, Longrow
Insurance Agency (June 1996-present); Vice
President, Longrow Holdings, Inc. (Oct. 1996-
present); Principal, Huntleigh Securities Corp. (Oct.
1996- present)
</TABLE>
*Messrs. Stewart, Nelson, Mulligan and Winkelmann, by virtue of their positions,
are deemed to be "interested persons" of the Fund as defined by the 1940 Act.
The Fund compensates each Independent Director by an annual fee of $2,000.
Directors also are reimbursed for any expenses incurred in attending meetings.
For its fiscal year ended December 31, 1998, the Fund paid the following
compensation to its independent directors:
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS ESTIMATED COMPENSATION FROM
AGGREGATE ACCRUED AS ANNUAL FUND AND FUND
COMPENSATION PART OF FUND BENEFITS UPON COMPLEX PAID TO
NAME OF PERSON AND POSITION FROM FUND EXPENSES RETIREMENT DIRECTORS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John W. Stewart, President, Secretary
and Director $0 $0 $0 $0
Terry Nelson, Director $0 $0 $0 $0
John P. Mulligan, Director $0 $0 $0 $0
Fred Carter , Director $0 $0 $0 $0
Joseph A. Montanaro, Director $2,000 $0 $0 $2,000
Leonard Terbrock, Director $2,000 $0 $0 $2,000
Douglas J. McCarron, Director $0 $0 $0 $0
</TABLE>
CONTROL PERSONS AND PRINCIPAL SECURITY HOLDERS
As of December 31, 1998, the pension fund of the Carpenters' District Council of
Greater St. Louis, 1401 Hampton Avenue, St. Louis, MO 63144, owned 93.29% of the
Fund's shares and, thus, may be deemed to control the Fund.
19
<PAGE>
All directors and officers of the Fund as a group own less than 1% of the
outstanding shares of the Fund. Terry Nelson and John Mulligan, directors of the
Fund, are managing trustee and chairman, respectively, of the pension fund of
the Carpenters' District Council described above.
INVESTMENT ADVISORY AND OTHER SERVICES
MANAGER. Capital Mortgage Management, Inc., the Fund's Manager, is paid a
management fee by the Fund as compensation for its management services with
respect to the ProLoan program and for paying the Subadviser's fees. The
Management Agreement between the Manager and the Fund initially was approved by
the Board and the initial shareholder of the Fund effective as of September 24,
1997. John W. Stewart, President, Secretary and a director of the Fund, owns all
of the issued and outstanding stock of the Manager.
For the period October 31, 1997 (commencement of operations) to December 31,
1997, the Fund paid management fees of $73,042 to the Manager, of which the
Manager paid the Subadviser $30,007 in subadvisory fees. The Subadviser waived
$10,028 of its fees for this period. For the fiscal year ended December 31,
1998, the Fund paid the Manager $454,819 in management fees, of which the
Manager paid the Subadviser $266,833 in subadvisory fees. The Subadviser waived
$60,047 of its fees during this period.
SUBADVISER. The Investment Subadvisory Agreement between Commerce Bank, N.A.
(St. Louis) and the Manager, as described in the Prospectus, initially was
approved by the Board and the initial shareholder of the Fund effective as of
September 24, 1997. Under the terms of the Subadvisory Agreement, the Subadviser
agrees to provide investment advisory services to the Fund, with discretion to
purchase and sell securities on behalf of the Fund in accordance with its
investment objective, policies and restrictions. The Subadvisory Agreement will
automatically terminate if assigned and may be terminated without penalty at any
time by the Manager, by a vote of a majority of the Board or by a vote of a
majority of the outstanding voting securities of the Fund on no less than thirty
(30) days' nor more than sixty (60) days' written notice to the Subadviser, or
by the Subadviser upon sixty (60) days' written notice to the Fund. The
Subadvisory Agreement will continue in effect provided that annually such
continuance is specifically approved by a vote of the Board, including the
affirmative votes of a majority of the Directors who are not parties to the
Agreement or "interested persons" (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of considering such
approval, or by the vote of shareholders.
PRINCIPAL UNDERWRITER. Huntleigh Fund Distributors, Inc., 8000 Maryland Avenue,
St. Louis, MO 63105 is the Fund's principal underwriter. James A. Winkelmann,
Treasurer of the Fund, is President, Treasurer and a director of Huntleigh Fund
Distributors.
Also as described more fully in the Prospectus, Huntleigh Fund Distributors (or
another entity approved by the Fund Board) under a distribution plan adopted
pursuant to Rule 12b-1 under the 1940 Act, is paid by the Fund 0.10% per annum
of the average daily net assets of the Fund for distribution-related services.
The Fund paid distribution fees of $20,005, which were used for advertising
20
<PAGE>
expenses, for the period October 31, 1997 (commencement of operations) to
December 31, 1997. The Fund paid distribution fees of $125,324 for the fiscal
year ended December 31, 1998, of which $21,037 was used for printing, $27,523
was used for wages and benefits, $12,782 was used for travel and entertainment,
$29,492 was used for other expenses to include: postage, telephone, supplies and
sales seminars, and $9,926 was used for advertising.
CUSTODIAN. The Fund's securities and cash are held by UMB Bank, N.A., 928 Grand
Avenue, Kansas City, Missouri, 64141-6226, through a custodian agreement. The
Custodian is permitted to deposit some or all of its securities in central
depository systems as allowed by federal law. The Fund pays the Custodian a fee
for serving as custodian of its assets according to the following fee schedule:
1 basis point on the first $100,000,000 of the Fund's net assets; plus 0.75
basis point on the next $100,000,000 of net assets; plus 0.50 basis point of the
Fund's net assets in excess of $200,000,000; subject to a $250 per month
minimum. The Fund also pays the Custodian stated portfolio transaction fees and
the Custodian's out-of-pocket expenses. The Custodian also receives a fee of:
3.0 basis points of the first $100,000,000 of average net assets; 2.0 basis
points of the next $250,000,000; 1.0 basis points of the next $650,000,000 and
0.5 basis points on average net assets in excess of $1,000,000,000; subject to
an annual minimum of $24,000 plus out-of-pocket expenses for serving as Fund
accountant.
TRANSFER AGENT. The Fund has a Transfer Agency Agreement with Unified Fund
Services, Inc., 431 North Pennsylvania Street, Indianapolis, IN 46204-1806. This
agreement governs the transfer agent's responsibility for administering and/or
performing transfer agent functions, for acting as service agent in connection
with dividend and distribution functions and for performing shareholder account
administration agent functions in connection with the issuance, exchange and
redemption or repurchase of the Fund's shares. Under the agreement, the transfer
agent will earn a fee from the Fund determined by multiplying the number of
shareholder accounts at the end of the day by a stated rate and dividing by the
number of days in the year. The rate is $16.20 per open account and $3.00 per
closed account, with a minimum fee of $12,000 per year. The Fund also pays the
Transfer Agent stated activity fees, a one-time fund implementation fee, and the
Transfer Agent's out-of-pocket expenses. The fees paid to the Transfer Agent may
be changed from time to time upon agreement of the parties without shareholder
approval.
ADMINISTRATOR. The Fund pays a fee for administrative services provided to the
Fund by Investment Company Administration, L.L.C., 2020 E. Financial Way, Suite
100, Glendora, CA 91741 (the "Administrator"). Pursuant to the terms of an
Administration Agreement with the Fund, the Administrator supervises the overall
supervision 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
records of the Fund, and supervision of other organizations that provide
services to the Fund. The Fund pays the Administrator an annual fee of $50,000
on the first $150 million of the Fund's average daily net assets, and 0.05% of
average daily net assets above $150 million. The Fund paid administration fees
of $10,002 for the period October 31, 1997 (commencement of operations) to
December 31, 1997 and $56,132 for the fiscal year ended December 31, 1998.
21
<PAGE>
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Subadvisory Agreement provides, in substance, that in executing portfolio
transactions and selecting brokers or dealers, the principal objective of the
Subadviser is to seek the best net price and execution available. It is expected
that securities ordinarily will be purchased in customary public markets, and
that in assessing the best net price and execution available, the Subadviser
shall consider all factors it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis.
In selecting brokers or dealers to execute particular transactions, the
Subadviser is authorized to consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of
1934), provision of statistical quotations (including the quotations necessary
to determine the Fund's net asset value), the sale of Fund shares by such broker
or the servicing of Fund shareholders by such broker, and other information
provided to the Fund, to the Manager and/or to the Subadviser (or their
affiliates), provided, however, that the Subadviser determines that it has
received the best net price and execution available. The Subadviser also is
authorized to cause the Fund to pay a commission to a broker or dealer who
provides such brokerage and research services for executing a portfolio
transaction that exceeds the amount of the commission another broker or dealer
would have charged for effecting that transaction. The Board, the Manager or the
Subadviser, as appropriate, must determine in good faith, however, that such
commission was reasonable in relation to the value of the brokerage and research
services provided viewed in terms of that particular transaction or in terms of
all the accounts over which the Manager or the Subadviser exercises investment
discretion.
The fees of the Subadviser are not reduced by reason of receipt of such
brokerage and research services. The Subadviser does not provide any services to
the Fund except portfolio investment management and related recordkeeping
services. However, with disclosure to and pursuant to written guidelines
approved by the Board, the Subadviser may execute portfolio transactions through
an affiliated broker-dealer or the Distributor, who may receive usual and
customary brokerage commissions (within the meaning of Rule 17e-1 under the 1940
Act) for doing so.
CAPITAL STOCK
The Fund was incorporated under the laws of the State of Maryland on June 13,
1997. The Fund is not required to hold annual shareholders meetings. However,
the Fund will hold special shareholder meetings whenever required to do so under
the federal securities laws or the Fund's Articles of Incorporation or by-laws.
Directors can be removed by a shareholder vote at special shareholder meetings.
The Fund currently is comprised of one investment portfolio with one class of
common stock, par value $0.01, although it has the authority to issue multiple
series and classes of shares. Each share of common stock is entitled to one vote
on matters affecting the Fund. Share voting rights are not cumulative, and
shares have no preemptive or conversion rights.
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PURCHASE, REDEMPTION AND PRICING OF SHARES
OFFERING PRICE. The net asset value of a share of the Fund is computed by
dividing the value of the Fund's total assets, less the Fund's liabilities, by
the number of outstanding shares of the Fund. The net asset value is computed
each Business Day on which shares are offered and orders accepted or upon
receipt of a redemption request in accordance with procedures outlined in the
Prospectus.
VALUATION. In determining net assets before shareholder transactions, the
securities held by the Fund are valued as follows as of the close of business of
the New York Stock Exchange (the Exchange):
- - Securities, except bonds other than convertibles, traded on a
securities exchange for which a last-quoted sales price is readily
available are valued at the last-quoted sales price on the exchange
where such security is primarily traded.
- - Securities traded on a securities exchange for which a last-quoted
sales price is not readily available are valued at the mean of the
closing bid and asked prices, looking first to the bid and prices on
the exchange where the security is primarily traded and, if none exist,
to the over-the-counter market.
- - Securities included in the Nasdaq National Market System (Nasdaq) are
valued at the last-quoted sales price in this market.
- - Securities included in Nasdaq for which a last-quoted sales price is
not readily available, and other securities traded over-the-counter but
not included in the Nasdaq are valued at the mean of the closing bid
and asked prices.
- - Futures and options traded on major exchanges are valued at the
last-quoted sales price on their primary exchange.
- - Short-term securities maturing more than 60 days from the valuation
date are valued at the readily available market price or approximate
market value based on current interest rates. Short-term securities
maturing in 60 days or less that originally had maturities of more than
60 days at acquisition date are valued at amortized cost using the
market value on the 61st day before maturity. Short-term securities
maturing in 60 days or less at acquisition date are valued at amortized
cost. Amortized cost is an approximation of market value determined by
systematically increasing the carrying value of a security if acquired
at a discount, or reducing the carrying value if acquired at a premium,
so that the carrying value is equal to maturity value on the maturity
date.
- - Securities without a readily available market price, bonds other than
convertibles and other assets are valued at fair value as determined in
good faith by the Board. The Board is responsible for selecting methods
it believes provide fair value. When possible, bonds are valued by a
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pricing service independent from the Fund. If a valuation of a bond is
not available from a pricing service, the bond will be valued by a
dealer knowledgeable about the bond if such a dealer is available.
- - The Fund's commitments to acquire ProLoan mortgage-backed securities
will be valued at a price described as follows. The Fund has contracted
with a secondary market source to purchase, at any time, the Fund's
commitments to acquire ProLoan mortgage-backed securities generated
through the ProLoan program. Upon exercise of this right, the Fund will
pay the purchaser to assume a ProLoan commitment at an amount equal to
the principal amount of the underlying ProLoans multiplied by any
positive difference (the "Price Differential") between: (i) the price
(stated as a percentage of the applicable principal amount) at which
the Fund committed to acquire the ProLoan (the "Commitment Price") and
(ii) the six-month forward to-be-announced ("TBA") price of Federal
National Mortgage Association ("FNMA") mortgage-backed securities with
the one-half percent (1/2%) coupon rate increment nearest to, but not
greater than, the rate that is 0.625% below the weighted average yield
for all such ProLoans (the "Adjusted Market Price"). The Fund would
have spent approximately 0.625% for servicing, guarantee fees and
securitization costs had such ProLoan been securitized). The six-month
forward TBA price of FNMA mortgage-backed securities shall be
determined pursuant to independent pricing source(s) recognized by and
acceptable to the counterparty to the Agreement. The price shall be
paid either by the counterparty to the Agreement or the Fund depending
upon the composition of the commitments at the time and the result of
the foregoing calculation. If the Commitment Price is greater than the
Adjusted Market Price, then the Fund shall pay to the counterparty an
amount equal to the Price Differential times the principal amount of
the applicable ProLoan(s). If the Commitment Price is less than the
Adjusted Market Price, then the counterparty shall pay to the Fund an
amount equal to the Price Differential times to the principal amount of
the applicable ProLoan(s). The Fund's commitments to acquire
mortgage-backed securities generated through the ProLoan program will
not be considered to be illiquid so long as the Manager determines,
pursuant to guidelines established by the Board of Directors, that an
adequate trading market exists for these commitments. The Custodian
will value the Fund's commitments to acquire ProLoan mortgage-backed
securities at the above price, as long as this price is considered by
the Fund's Manager to be no more than the fair market value of the
commitments.
The Exchange, the Manager, the Subadviser and the Fund will be closed on the
following holidays: New Year's Day, Presidents' Day, Martin Luther King, Jr.
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
REDEEMING SHARES. Investors have a right to redeem their shares at any time. For
an explanation of redemption procedures, please see the Prospectus.
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During an emergency, the Board can suspend the computation of net asset value,
stop accepting payments for purchase of shares or suspend the duty of the Fund
to redeem shares for more than seven days. Such emergency situations would occur
if:
+ The New York Stock Exchange closes for reasons other than the usual
weekend and holiday closings or trading on the Exchange is restricted,
or
+ Disposal of the Fund's securities is not reasonably practicable or it
is not reasonably practicable for the Fund to determine the fair value
of its net assets, or
+ The SEC, under the provisions of the 1940 Act, declares a period of
emergency to exist.
Should the Fund stop selling shares, the Board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the Board. In these
circumstances, the securities distributed would be valued as set forth in the
prospectus. Should the Fund distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.
TAX INFORMATION
STATUS AND TAXATION OF THE FUND
The Fund was organized as a corporation, but intends to continue to qualify for
treatment as a regulated investment company (a "RIC") under the Internal Revenue
Code of 1986, as amended (the "Code") in each taxable year. There can be no
assurance that it actually will so qualify. If the Fund qualifies as a RIC, its
dividend and capital gain distributions generally are subject only to a single
level of taxation. This differs from distributions of a regular business
corporation which, in general, are taxed first as taxable income of the
distributing corporation, and then again as dividend income of the shareholder.
If the Fund does qualify as a RIC but (in a particular tax year) distributes
less than ninety-eight percent (98%) of its ordinary income and its capital gain
net income (as the Code defines each such term), the Fund is subject to an
excise tax. The excise tax, if applicable, is four percent (4%) of the excess of
the amount required to have been distributed over the amount actually
distributed for the applicable year. If the Fund does NOT qualify as a RIC, its
income will be subject to taxation as a regular business corporation, without
reduction by dividends paid to shareholders of the Fund.
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To continue to qualify for treatment as a RIC under Subchapter M of the Code,
the Fund must, among other requirements:
+ Derive at least ninety percent (90%) of its gross income each taxable
year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock or securities
or foreign currencies, and certain other income (including gains from
options, futures, or forward contracts derived with respect to the
RIC's business of investing in stock, securities, or foreign
currencies) ("Income Requirement");
+ Diversify its investments in securities within certain statutory
limits; and
+ Distribute annually to its shareholders at least ninety percent (90%)
of its investment company taxable income (generally, taxable net
investment income less net capital gain) (the "Distribution
Requirement").
The Fund may acquire zero coupon or other securities issued with original issue
discount. If it does so, the Fund will have to include in its income its share
of the original issue discount that accrues on the securities during the taxable
year, even if the Fund receives no corresponding payment on the securities
during the year. Because the Fund annually must distribute (a) ninety-eight
percent (98%) of its ordinary income in order to avoid imposition of a 4% excise
tax, and (b) ninety percent (90%) of its investment company taxable income,
including any original issue discount, to satisfy the Distribution Requirement,
the Fund may be required in a particular year to distribute as a dividend an
amount that is greater than the total amount of cash it actually receives. Those
distributions would be made from the Fund's cash assets, if any, or from the
sales of portfolio securities, if necessary. The Fund might realize capital
gains or losses from any such sales, which would increase or decrease the Fund's
investment company taxable income and/or net capital gain (the excess of net
long-term capital gain over net short-term capital loss).
Hedging strategies, to reduce risk in various ways, are subject to complex rules
that determine for federal income tax purposes the character and time for
recognition of gains and losses the Fund realizes in connection with the hedge.
The Fund's income from options, futures, and forward contracts, in each case
derived with respect to its business of investing in stock, securities, or
foreign currencies, should qualify as allowable income for the Fund under the
Income Requirement.
The foregoing is only a summary of some of the important federal income tax
considerations affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD
CONSULT THEIR OWN TAX ADVISERS FOR MORE DETAILED INFORMATION REGARDING THE ABOVE
AND FOR INFORMATION REGARDING FEDERAL, STATE, LOCAL AND FOREIGN TAXES.
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UNDERWRITER
RULE 12B-1 PLAN. To help Huntleigh Fund Distributors defray the cost of
distribution and servicing, the Fund and the Distributor entered into a Plan and
Agreement of Distribution (Plan). Under the Plan, the Distributor is paid a fee
at an annual rate of 0.10% of the Fund's average daily net assets.
The Plan must be approved annually by the Board, including a majority of the
Independent Directors, if it is to continue for more than a year. At least
quarterly, the Board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of Board members who are not interested persons of the Company and have
no direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting securities of the Fund's shares or by the Distributor. The Plan (or any
agreement related to it) will terminate in the event of its assignment, as that
term is defined in the 1940 Act. The Plan may not be amended to increase the
amount to be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of the Board
members, including a majority of the Board members who are not interested
persons of the Fund and who do not have a financial interest in the operation of
the Plan or any agreement related to it. The selection and nomination of
disinterested Board members is the responsibility of the other disinterested
Board members. No Board member who is not an interested person, has any direct
or indirect financial interest in the operation of the Plan or any related
agreement. As of December 31, 1998, the amount of unreimbursed expenses carried
over to future years, was $76,915, which represents 0.06% of the Fund's net
assets.
CALCULATION OF PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN QUOTATION. The advertised total return for the Fund
is calculated by equating an initial amount invested in the Fund to the ending
redeemable value, according to the following formula:
P(1 + T)n - ERV
where "P" is a hypothetical initial payment of $1,000; "T" is the average annual
total return for the Fund; "n" is the number of years involved; and "ERV" is the
ending redeemable value of a hypothetical $1,000 payment made in the Fund at the
beginning of the investment period covered. The Fund commenced operations on
October 31, 1997. For a two month period from October 31, 1997 (commencement of
operations) to December 31, 1997, the Fund's total return was 1.58% (not
annualized.) For the fiscal year ended December 31, 1998, the Fund's total
return was 6.48%.
The Fund also may use aggregate total return figures for various periods which
represent the cumulative change in value of an investment in the Fund for the
specific period. Such total returns reflect changes in share prices in the Fund
and assume reinvestment of dividends and distributions.
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In reports or other communications to shareholders or in advertising material,
the Fund may from time to time compare its performance with that of other mutual
funds in rankings prepared by Lipper Analytical Services, Inc., Morningstar,
Inc., IBC/Donoghue, Inc. and other similar independent services which monitor
the performance of mutual funds or publications such as the "New York Times" and
the "Wall Street Journal." The Fund also may compare its performance with
various other indices prepared by independent services such as Standard & Poor's
or Morgan Stanley.
Advertisements for the Fund may compare the Fund to federally insured
investments such as bank certificates of deposit and credit union deposits,
including the long-term effects of inflation on these types of investments.
Advertisements may also compare the historical rate of return of different types
of investments.
FINANCIAL STATEMENTS
The Fund's financial statements contained in its Annual Report to shareholders
at the end of the fiscal year were audited by Deloitte & Touche LLP, One City
Centre, St. Louis, MO 63101. The independent auditors also provide other
accounting and tax-related services as requested by the Fund.
Incorporated by reference herein are the report of Deloitte & Touche LLP, the
Fund's independent accountants, dated January 15, 1999, and the other portions
of Registrant's annual report to shareholders for the fiscal year ended December
31, 1998, under the headings: "SCHEDULE OF INVESTMENTS," "STATEMENT OF ASSETS
AND LIABILITIES," "STATEMENT OF OPERATIONS," "STATEMENTS OF CHANGES IN NET
ASSETS," "NOTES TO FINANCIAL STATEMENTS," and "INDEPENDENT AUDITORS' REPORT."
Copies of the annual report are available, upon request and without charge, by
calling the Fund's transfer agent toll-free at (877) 923-5626, or by writing to
the following address: Builders Fixed Income Fund, Inc., c/o Unified Fund
Services, Inc., Transfer Agent, P.O. Box 6110, Indianapolis, IN 46206-6110.
The Prospectus and this Statement of Additional Information do not contain all
the information included in the Registration Statement filed with the Securities
and Exchange Commission under the Securities Act of 1933 with respect to the
securities offered by the Fund's Prospectus. Certain portions of the
Registration Statement have been omitted from the Prospectus and this Statement
of Additional Information, pursuant to the rules and regulations of the
Securities and Exchange Commission. The Registration Statement including the
exhibits filed therewith may be examined at the office of the Securities and
Exchange Commission in Washington, D.C.
Statements contained in the Prospectus or in this Statement of Additional
Information as to the contents of any contract or other documents referred to
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
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APPENDIX A: DESCRIPTION OF BOND RATINGS
These ratings concern the quality of the issuing corporation. They are not an
opinion of the market value of the security. Such ratings are opinions on
whether the principal and interest will be repaid when due. A security's rating
may change which could affect its price.
Ratings by Moody's Investors Service, Inc. are Aaa, Aa, A, Baa, Ba, B, Caa, Ca,
and C.
Bonds rated:
AAA are judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edged." Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
AA are judged to be of high quality by all standards. Together with the Aaa
group they comprise what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risk
appear somewhat larger than the Aaa securities.
A possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
BAA are considered as medium-grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ratings by Standard & Poor's Ratings Group are AAA, AA, A, BBB, BB, B, CCC, CC,
C and D.
AAA has the highest rating assigned by S&P. Capacity to pay interest and repay
principal is extremely strong.
AA has a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree.
A has a strong capacity to pay interest and repay principal, although it is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher-rated categories.
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BBB is regarded as having adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
higher-rated categories.
Non-rated securities will be considered for investment when they possess a risk
comparable to that of rated securities consistent with the Fund's objectives and
policies. When assessing the risk involved in each non-rated security, the Fund
will consider the financial condition of the issuer or the protection afforded
by the terms of the security.
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APPENDIX B: OPTIONS AND FUTURES CONTRACTS
The Fund may buy options traded on any U.S. exchange or in the over-the-counter
market. The Fund also may buy put and call options on futures. Options in the
over-the-counter market will be purchased only when the Subadviser believes a
liquid secondary market exists for the options and only from dealers and
institutions the Subadviser believes present a minimal credit risk. Some options
are exercisable only on a specific date. In that case, or if a liquid secondary
market does not exist, the Fund could be required to buy or sell securities at
disadvantageous prices, thereby incurring losses.
OPTIONS. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who buys a put option has the right to sell a security at a set price
for the length of the contract. An option is covered if the writer owns the
security (in the case of a call) or sets aside the cash or securities of
equivalent value (in the case of a put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In addition the
buyer generally pays a broker a commission. The writer receives a premium, less
another commission, at the time the option is written. The cash received is
retained by the writer whether or not the option is exercised. A writer of a
call option may have to sell the security for a below-market price if the market
price rises above the exercise price. A writer of a put option may have to pay
an above-market price for the security if its market price decreases below the
exercise price. The risk of the writer is potentially unlimited, unless the
option is covered.
Options can be used to produce incremental earnings, protect gains and
facilitate buying and selling securities for investment purposes. The use of
options may benefit the Fund and its shareholder by improving the Fund's
liquidity and by helping to stabilize the value of its net assets.
BUYING OPTIONS. Put and call options may be used as a trading technique to
facilitate buying and selling securities for investment reasons. They also may
be used for investment. Options are used as a trading technique to take
advantage of any disparity between the price of the underlying security in the
securities market and its price on the options market. It is anticipated the
trading technique will be utilized only to effect a transaction when the price
of the security plus the option price will be as good or better than the price
at which the security could be bought or sold directly. When the option is
purchased, the Fund pays a premium and a commission. It then pays a second
commission on the purchase or sale of the underlying security when the option is
exercised. For recordkeeping and tax purposes, the price obtained on the
purchase of the underlying security will be the combination of the exercise
price, the premium and both commissions. When using options as a trading
technique, commissions on the option will be set as if only the underlying
securities were traded.
The risk the Fund assumes when it buys an option is the loss of the premium. To
be beneficial to the Fund, the price of the underlying security must change
within the time set by the option contract. Furthermore, the change must be
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sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains.
If a covered call option is exercised, the security is sold by the Fund. The
premium received upon writing the option is added to the proceeds received from
the sale of the security. The Fund will recognize a capital gain or loss based
upon the difference between the proceeds and the security's basis. Premiums
received from writing outstanding call options will be included as a deferred
credit in the Statement of Assets and Liabilities and adjusted daily to the
current market value.
Options are valued at the close of the New York Stock Exchange. An option listed
on a national exchange, Chicago Board of Exchange or Nasdaq will be valued at
the last-quoted sales price or, if such a price is not readily available, at the
mean of the last bid and asked prices.
INTEREST RATE FUTURES CONTRACTS. The Fund may enter into futures contracts and
options for hedging purposes. Such transactions are described in this Appendix.
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the
cash market and the futures market. In the cash market, bonds are purchased and
sold with payment for the full purchase price of the bond being made in cash,
generally within five business days after the trade. In the futures market, only
a contract is made to purchase or sell a bond in the future for a set price on a
certain date. Historically, the prices for bonds established in the futures
markets have tended to move generally in the aggregate in concert with the cash
market prices and have maintained fairly predictable relationships. Accordingly,
the Fund may use interest rate futures contracts as a defense, or hedge, against
anticipated interest rate changes and not for speculation. As described below,
this would include the use of futures contract sales to protect against expected
increases in interest rates and futures contract purchases to offset the impact
of interest rate declines.
The Fund presently could accomplish a similar result to that which it hopes to
achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market, the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, by using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by the Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
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obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchanges on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual delivery
or acceptance of securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery of securities.
Closing out a futures contract sale is effected by the Fund entering into a
futures contract purchase for the same aggregate amount of the specific type of
financial instrument and the same delivery date. If the price of the sale
exceeds the price of the offsetting purchase, the Fund is immediately paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund entering into
a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Fund would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
which is a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term U.S. Treasury Bonds and Notes, GNMA modified
pass-through mortgage backed securities, three-month U.S. Treasury Bills and
ninety-day commercial paper. The Fund may trade in any interest rate futures
contracts for which there exists a public market, including, without limitation,
the foregoing instruments.
INDEX FUTURES CONTRACTS.
GENERAL. A stock or bond index assigns relative values to the stocks or bonds
included in the index, which fluctuates with changes in the market values of the
stocks or bonds included.
The Fund may sell index futures contracts in order to offset a decrease in
market value of its portfolio securities that might otherwise result from a
market decline. The Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, the Fund will purchase
index futures contracts in anticipation of purchases of securities. A long
futures position may be terminated without a corresponding purchase of
securities.
In addition, the Fund may utilize index futures contracts in anticipation of
changes in the composition of its portfolio holdings. For example, in the event
that the Fund expects to narrow the range of industry groups represented in its
holdings it may, prior to making purchases of the actual securities, establish a
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long futures position based on a more restricted index, such as an index
comprised of securities of a particular industry group. The Fund may also sell
futures contracts in connection with this strategy, in order to protect against
the possibility that the value of the securities to be sold as part of the
restructuring of the portfolio will decline prior to the time of sale.
Unlike the purchase or sale of an equity security, no price would be paid or
received by the Fund upon entering into futures contracts. However, the Fund
would be required to deposit with its custodian, in a segregated account in the
name of the futures broker, an amount of cash or U.S. Treasury bills equal to
approximately 5% of the contract value. This amount is known as initial margin.
The nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not involve
borrowing funds by the Fund to finance the transactions. Rather, the initial
margin is in the nature of a performance bond or good-faith deposit on the
contract that is returned to the Fund upon termination of the contract, assuming
all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the broker would be
made on a daily basis as the price of the underlying interest rate fluctuates,
making the long and short position in the contract more or less valuable, a
process known as marking to market. For example, when the Fund enters into a
contract in which it benefits from a rise in the value of an interest rate and
the underlying interest rate has risen, the Fund will receive from the broker a
variation margin payment equal to that increase in value. Conversely, if the
price of the underlying interest rate declines, the Fund would be required to
make a variation margin payment to the broker equal to the decline in value.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS.
1. Liquidity. The Fund may elect to close some or all of its contracts
prior to expiration. The purpose of making such a move would be to reduce or
eliminate the hedge opposition held by the Fund. The Fund may close its
positions by taking opposite positions. Final determinations of variation margin
are then made, additional cash as required is paid by or to the Fund, and the
Fund realizes a gain or a loss.
2. Hedging Risks. There are several risks in using interest rate futures
contracts as a hedging device. One risk arises because the prices of futures
contracts may not correlate perfectly with movements in the underlying interest
rate due to certain market distortions. First, all participants in the futures
market are subject to initial margin and variation margin requirements. Rather
than making additional variation margin payments, investors may close the
contracts through offsetting transactions which could distort the normal
relationship between the interest rate and futures markets. Second, the margin
requirements in the futures market are lower than margin requirements in the
securities market, and as a result the futures market may attract more
speculators than does the securities market. Increased participation by
speculators in the futures market also may cause temporary price distortions.
Because of price distortion in the futures market and because of imperfect
correlation between movements in interest rates and movements in prices of
34
<PAGE>
futures contracts, even a correct forecast of general market trends may not
result in a successful hedging transaction over a short period.
Another risk arises because of imperfect correlation between movements in the
value of the futures contracts and movements in the value of securities subject
to the hedge. If this occurred, the Fund could lose money on the contracts and
also experience a decline in the value of its portfolio securities. It also is
possible that if the Fund has hedged against a decline in the value of the
stocks held in its portfolio and stock prices increase instead, the Fund will
lose part or all of the benefit of the increased value of its stock which it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Fund may have to sell securities at a time when
it may be disadvantageous to do so.
35
<PAGE>
PART C. OTHER INFORMATION
Item 23. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements included as a part of this Registration
Statement:
1. Included in Part A of this Registration Statement: Financial
Highlights for the period October 31, 1997 (commencement of
operations) to December 31, 1997 and for the fiscal year ended
December 31, 1998.
2. Included in part B of this Registration Statement: Schedule of
Investments as of December 31, 1998; Statement of Assets and
Liabilities as of December 31, 1998; Statement of Operations for the
fiscal year ended December 31, 1998; Statements of Changes in Net
Assets for the period October 31, 1997 (commencement of operations) to
December 31, 1997 and for the fiscal year ended December 31, 1998;
Financial Highlights for the period October 31, 1997 (commencement of
operations) to December 31, 1997 and for the fiscal year ended
December 31, 1998; related notes; and the Independent Auditors' Report
for the Builders Fixed Income Fund, Inc. (the "Fund") dated January
15, 1999 are incorporated by reference to the Annual Report to
Shareholders of the Fund for the fiscal year ended December 31, 1998.
(b) Exhibits
1. a. Articles of Incorporation - filed with the Fund's initial
registration statement on Form N-1A dated June 27, 1997
b. Amendment to Articles of Incorporation - filed with the
Fund's Pre-Effective Amendment No. 2 to its registration
statement on Form N-1A dated October 20, 1997
c. Amendment to Articles of Incorporation - filed herewith
2. a. By-Laws - filed with the Fund's initial registration
statement on Form N- 1A dated June 27, 1997
b. Amendment to By-Laws - filed herewith
3. Voting Trust Agreement - none
4. Specimen Security - - filed with the Fund's Pre-Effective
Amendment No. 2 to its registration statement on Form N-1A dated
October 20, 1997
5. a. (1) Management Agreement -filed with the Fund's
Pre-Effective Amendment No. 1 to its registration statement
on Form N-1A dated September 12, 1997
<PAGE>
(2) Amendment to the Management Agreement - filed herewith
b. (1) Subadvisory Agreement - filed with the Fund's
Pre-Effective Amendment No. 1 to its registration statement
on Form N-1A dated September 12, 1997
(2) Amendment to the Subadvisory Agreement - filed
c. (1) Administration Agreement - filed with the Fund's
Pre-Effective Amendment No. 1 to its registration statement
on Form N-1A dated September 12, 1997
(2) Amendments to the Administration Agreement - filed
herewith
6. Distribution Agreement - filed with the Fund's Pre-Effective
Amendment No. 2 to its registration statement on Form N-1A dated
October 20, 1997
7. Bonus, Profit-Sharing or Pension Plan - none
8. a. Custodian Agreement - filed with the Fund's Pre-Effective
Amendment No. 2 to its registration statement on Form N-1A
dated October 20, 1997
b. Fund Accounting Agreement - filed with the Fund's
Pre-Effective Amendment No. 2 to its registration statement
on Form N-1A dated October 20, 1997
9. a. Transfer Agency Agreement - filed herewith
b. ProLoan Master Agreement - filed with the Fund's
Pre-Effective Amendment No. 2 to its registration statement
on Form N-1A dated October 20, 1997
c. ProLoan Liquidity Agreement - filed with the Fund's
Pre-Effective Amendment No. 2 to its registration statement
on Form N-1A dated October 20, 1997
10. Opinion and Consent of Counsel - filed herewith
11. Consent of Independent Auditors - filed herewith
12. Financial Statements Omitted from Prospectus - none
13. Letter of Investment Intent - filed with the Fund's Pre-Effective
Amendment No. 2 to its registration statement on Form N-1A dated
October 20, 1997
14. Plan Pursuant to Rule 12b-1 - filed with the Fund's Pre-Effective
Amendment No. 1 to its registration statement on Form N-1A dated
September 12, 1997
15. Financial Data Schedule- filed herewith
16. Plan Pursuant to Rule 18f-3 - none
<PAGE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
See "Control Person and Principal Shareholders" in the Statement of
Additional Information dated January 29, 1999.
Item 25. INDEMNIFICATION
Article Seventh, Section (j) of the Articles of Incorporation of the
Fund provides that:
The Corporation shall indemnify: (a) its directors to the full extent
provided by the general laws of the State of Maryland now or hereafter
in force, including the advance of expenses under the procedures
provided by such laws; (b) its officers to the same extent it shall
indemnify its directors; and (c) its officers who are not directors to
such further extent as shall be authorized by the Board of Directors
and be consistent with law; provided, however, that nothing herein
shall be construed to protect any director or officer of the
Corporation against any liability to which such director or officer
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved
in the conduct of his or her office. The foregoing shall not limit the
authority of the Corporation to indemnify other employees and agents
consistent with the law.
A director or officer of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages as a director or
officer, except to the extent such exemption from liability or
limitation thereof is not permitted by statutory or decisional law
(including the 1940 Act) as currently in effect or as the same may
hereafter be amended or judicially interpreted; provided, however,
that nothing herein shall be construed to protect any director or
officer of the Corporation against any liability to which such
director or officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his or her office. No amendment,
modification or repeal of this Article SEVENTH shall adversely affect
any right or protection of a director or officer that exists at the
time of such amendment, modification or repeal.
Item 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT MANAGER
Capital Mortgage Management, Inc. (the "Manager"), 2190 Mason Road,
Suite 208 Avenue, St. Louis, Missouri 63131, offers investment
management services to the Fund. Information as to the officers and
directors of the Manager is included in the Manager's current Form ADV
filed with the SEC and is incorporated herein by reference. Commerce
Bank, N.A. (the "Subadviser"), 8000 Forsyth Blvd., St. Louis, Missouri
63105, offers investment subadvisory services to the Fund.
<PAGE>
The officers and directors of Commerce Bank, N.A. are as follows:
<TABLE>
<CAPTION>
NAME TITLE POSITION WITH FUND
<S> <C> <C>
David W. Kemper Chairman, President and CEO None
John O. Brown Vice Chairman None
Jonathan M. Kemper Vice Chairman None
William A. Sullins Vice Chairman None
Seth M. Leadbeater Executive Vice President None
Robert C. Mathews, Jr. Executive Vice President None
Edward J. Reardon, II Executive Vice President None
</TABLE>
Item 27. PRINCIPAL UNDERWRITER
(a) Huntleigh Fund Distributors, Inc., 8000 Maryland, St. Louis, MO
63105, is the principal underwriter for the Fund.
(b) The directors and officers of the principal underwriter are as
follows:
<TABLE>
<CAPTION>
NAME TITLE POSITION WITH FUND
<S> <C> <C>
James A. Winkelmann President, Treasurer and Treasurer
Director
Don C. Weir, Jr. Vice President, Secretary and None
Director
</TABLE>
(c) Not Applicable
Item 28. LOCATION OF ACCOUNTS AND RECORDS
The books and other documents required by Rule 31a-1 under the
Investment Company Act of 1940 are maintained in the physical
possession of the Fund's custodian, Administrator, transfer agent or
Subadviser.
Item 29. MANAGEMENT SERVICES
All substantive provisions of any management-related service contract
are discussed in Parts A and B of this Registration Statement.
Item 30. UNDERTAKINGS
Registrant hereby undertakes, if requested by the holders of at least
10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of
a director(s) and to assist in communications with other shareholders
in accordance with Section 16(c) of the 1940 Act, as though Section
16(c) applied.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of its latest annual report to
shareholders, upon request and without charge.
<PAGE>
Registrant hereby undertakes to carry out all indemnification
provisions of its Articles of Incorporation in accordance with
Investment Company Act Release No. 11330 (Sept. 4, 1980) and successor
releases.
Insofar as indemnifications for liability arising under the Securities
Act of 1933, as amended ("1933 Act"), may be permitted to directors,
officers and controlling person of the Registrant pursuant to the
provision under Item 27 herein, or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the 1933 Act and is, therefor,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1933 Act and will be
governed by the final adjudication.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment No. 3 to its Registration Statement on Form
N-1A to be signed on its behalf by the undersigned, thereto duly authorized, in
the city of St. Louis and the State of Missouri on January 28, .
BUILDERS FIXED INCOME FUND, INC.
By: /s/ JOHN W. STEWART
--------------------
John W. Stewart
President
Attest:
/s/ JAMES A. WINKELMANN
- -----------------------
James A. Winkelmann, Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 3 to the Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/ John W. Stewart President, Secretary and January 28, 1999
- ------------------- Director
John W. Stewart
/s/ John Mulligan + Director January 28, 1999
- -------------------
John Mulligan
/s/ Terry Nelson + Director January 28, 1999
- ------------------
Terry Nelson
/s/ James D. Slebiska Director January 28, 1999
- ---------------------
James D. Slebiska
/s/ Joseph A. Montanaro + Director January 28, 1999
- -------------------------
Joseph A. Montanaro
/s/ Leonard Terbrock + Director January 28, 1999
- ----------------------
Leonard Terbrock
/s/ Douglas Mccarron + Director January 28, 1999
- ----------------------
Douglas McCarron
+ /s/ John W. Stewart
- ----------------------
John W. Stewart, Attorney-In-Fact Under Powers of Attorney
Filed with Registration Statement on October 20, 1997 and December 1, 1998
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
1(a) Amendment to Articles of Incorporation
2(b) Amendment to the By-Laws
5(a) Amendment to the Management Agreement
5(b) Amendment to the Subadvisory Agreement
5(c) Amendments to the Administration Agreement
9(a) Transfer Agent Agreement
10 Opinion and Consent of Counsel
11 Independent Auditors' Consent
15 Financial Data Schedule
BUILDERS PROLOAN FUND, INC.
ARTICLES OF AMENDMENT
Builders ProLoan Fund, Inc., a Maryland Corporation having its
principal office at c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202 (herein after called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland, that:
FIRST: The charter of the Corporation is hereby amended by striking out
Article SECOND of the Articles of Incorporation and inserting in lieu thereof
the following:
SECOND: The name of the Corporation is Builders Fixed Income Fund, Inc.
THIRD: By unanimous vote at a meeting of the Board of Director held
January 28, 1999 pursuant to Section 2-408 of Corporations and Associations
Article of the Annotated Code of Maryland, the Board of Directors of the
Corporation duly adopted a resolution in which was set forth the foregoing
amendment of the charter as proposed was in the best interest of the
Corporation.
FOURTH: The Board of Directors of the Corporation duly adopted the
foregoing amendment without any action by the shareholders pursuant to Article
SEVENTH section (i) of the Articles of Incorporation.
FIFTH The amendment of the charter of the Corporation as hereinabove
set forth has been duly advised and approved by the Board of Directors of the
Corporation.
SIXTH: The Articles of Amendment shall become effective on the 29th day
of January, 1999.
IN WITNESS WHEREOF, Builders ProLoan Fund, Inc. has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Secretary as of January 28, 1999.
BUILDERS PROLOAN FUND, INC.
By:
------------------------------
John W. Stewart, President
ATTEST:
- --------------------------------
John W. Stewart, Secretary
THE UNDERSIGNED, President of BUILDERS PROLOAN FUND, INC., who executed
on behalf of said Corporation the foregoing Articles of Amendment, of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said Corporation, the foregoing Articles of Amendment to be the corporate act of
said Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
-------------------------------
John W. Stewart
BUILDERS FIXED INCOME FUND, INC.
BY-LAWS
ARTICLE I
STOCKHOLDERS
SECTION 1.1 ANNUAL MEETING. The Corporation shall hold an annual
meeting of its stockholders to elect Directors and transact any other business
within its powers, during the month of April in each year at such date and time
as may be designated by the Board of Directors, except that the Corporation
shall not be required to hold an annual meeting in any year in which none of the
following matters is required to be acted upon by stockholders under the
Investment Company Act of 1940, as amended (the "1940 Act") election of
Directors, approval of the investment Advisory Agreement, ratification of the
selection of independent public accountants or approval of a Distribution
Agreement. Except as the Charter or statute provides otherwise, any business may
be considered at an annual meeting without the purpose of the meeting having
been specified in the notice. Failure to hold an annual meeting does not
invalidate the Corporation's existence or affect any otherwise valid corporate
acts.
SECTION 1.2 SPECIAL MEETING. At any time in the interval between annual
meetings, a special meeting of the stockholders may be called by the Chairman of
the Board or the President or by a majority of the Board of Directors by vote at
a meeting or in writing (addressed to the Secretary of the Corporation) with or
without a meeting.
SECTION 1.3 PLACE OF MEETINGS. Meetings of stockholders shall be held
at such place in the United States as is set from time to time by the Board of
Directors.
SECTION 1.4 NOTICE OF MEETINGS; WAIVER OF NOTICE. Not less than ten nor
more than 90 days before each stockholders' meeting, the Secretary shall give
written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The notice
shall state the time and place of the meeting and, if the meeting is a special
meeting or if notice of the purpose is required by statute, the purpose of the
meeting. Notice is given to a stockholder when it is personally delivered to
him, left at his residence or usual place of business, or mailed to him at his
address as it appears on the records of the Corporation. Notwithstanding the
foregoing provisions, each person who is entitled to notice waives notice if he
before or after the meeting signs a waiver of the notice which is filed with the
records of stockholders' meetings, or is present at the meeting in person or by
proxy.
SECTION 1.5 QUORUM; VOTING. Unless a statute or the Charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting constitutes a quorum, and a majority of all the votes entitled to be
cast at the meeting constitutes a quorum.
SECTION 1.6 ADJOURNMENTS. Whether or not a quorum is present, a meeting
of stockholders convened on the date for which it was called may be adjourned
from time to time by the stockholders present in person or by proxy by a
majority vote. Any business which might have been transacted at the meeting as
originally notified may be deferred and transacted at any such adjourned meeting
at which a quorum shall be present. No further notice of an adjourned meeting
other than by announcement shall be necessary if held on a date not more than
120 days after the original record date.
<PAGE>
SECTION 1.7 GENERAL RIGHT TO VOTE; PROXIES. Unless the Charter provides
for a greater or lesser number of votes per share or limits or denies voting
rights, each outstanding share of stock, regardless of class, is entitled to one
voce on each matter submitted to a vote at a meeting of stockholders and
fractional shares shall be entitled to corresponding fractions of one vote. In
all elections for Directors, each share of stock may be voted for as many
individuals as there are Directors to be elected and for whose election the
share is entitled to be voted. A stockholder may vote the stock he owns of
record either in person or by written proxy signed by the stockholder or by his
duly authorized attorney in fact. Unless a proxy provides otherwise, it is not
valid more than 11 months after its date.
SECTION 1.8 LIST OF STOCKHOLDERS. At each meeting of stockholders a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by the
secretary.
SECTION 1.9 CONDUCT OF VOTING. At all meetings of stockholders, unless
the voting is conducted by inspectors, the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies and the acceptance or rejection of votes shall be decided by
the chairman of the meeting. If demanded by stockholders present in person or by
proxy entitled to cast 10% in number of votes entitled to be cast, or if ordered
by the chairman, the vote upon any election or question shall be taken by ballot
and, upon like demand or order, the voting shall be conducted by two inspectors,
in which event the proxies and ballots shall be received, and all questions
touching the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by such inspectors, unless so
demanded or ordered, no vote need be by ballot and voting need not be conducted
by inspectors. The stockholders at any meeting may choose an inspector or
inspectors to act at such meeting, and in default of such election the chairman
of the meeting may appoint an inspector or inspectors. No candidate for election
as a director at a meeting shall serve as an inspector thereat.
SECTION 1.10 INFORMAL ACTION BY STOCKHOLDERS. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders' meetings an
unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right to
dissent signed by each stockholder entitled to notice of the meeting but not
entitled to vote at it.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 FUNCTION OF DIRECTORS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or By-Laws.
SECTION 2.2 NUMBER OF DIRECTORS. The Corporation shall have at least
three Directors; provided that, if there is no stock outstanding, the number of
Directors may be less than three but not less than one, and, if there is stock
outstanding and so long as there are less than three stockholders, the number of
Directors may be less than three but not less than the number of stockholders.
The Corporation shall have the number of Directors provided in the Charter until
changed as herein provided. A majority of the entire Board of Directors may
alter the number of Directors set by the Charter to not exceeding 25 nor less
2
<PAGE>
than the minimum number then permitted herein, but the action may not affect the
tenure of office of any director.
SECTION 2.3 ELECTION AND TENURE OF DIRECTORS. Until the first annual
meeting of shareholders and until successors or additional Directors are duly
elected and qualify, the Board shall consist of the persons named as such in the
Charter. At the first annual meeting of stockholders and at each annual meeting
thereafter, the stockholders shall elect Directors to hold office until the next
annual meeting and until their successors are elected and qualify.
SECTION 2.4 REMOVAL OF DIRECTOR. Unless a statute or the Charter
provides otherwise, the stockholders may remove any director, with or without
cause, by the affirmative vote of a majority of all the votes entitled to be
cast for the election of Directors.
SECTION 2.5 VACANCY ON BOARD. The stockholders may elect a successor to
fill a vacancy on the Board of Directors which results from the removal of a
director. A director elected by the stockholders to fill a vacancy which results
from the removal of a director serves for the balance of the term of the removed
director. A majority of the remaining Directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except an increase in the number of Directors and a majority of
the entire Board of Directors may fill a vacancy which results from an increase
in the number of Directors; provided, in either case, that immediately after
filling such vacancy at least two-thirds of the Directors then holding office
shall have been elected to such office by the stockholders at an annual or
special meeting thereof. If at any time after the first annual meeting of
stockholders of the Corporation a majority of Directors in office shall consist
of Directors elected by the Board of Directors, a meeting of the stockholders
shall be called forthwith for the purpose of electing the entire Board of
Directors, and the terms of office of the Directors then in office shall
terminate upon the election and qualification of such Board of Directors. A
director elected by the Board of Directors to fill a vacancy serves until the
next annual meeting of stockholders and until his successor is elected and
qualifies.
SECTION 2.6 REGULAR MEETINGS. After each meeting of stockholders at
which a Board of Directors shall have been elected, the Board of Directors so
elected shall meet as soon as practicable for the purpose of organization and
the transaction of other business; and in the event that no other time is
designated by the stockholders, the Board of Directors shall meet one hour after
the time for such stockholders, meeting or immediately following the close of
such meeting, whichever is later, on the day of such meeting. Such first regular
meeting shall be held at any place as may be designated by the stockholders, or
in default of such designation at the place designated by the Board of Directors
for such first regular meeting, or in default of such designation at the place
of the holding of the immediately preceding meeting of stockholders. No notice
of such first meeting shall be necessary if held as hereinabove provided. Any
other regular meeting of the Board of Directors shall be held on such date and
at any place as may be designated from time to time by the Board of Directors.
SECTION 2.7 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board or the
President or by a majority of the Board of Directors by vote at a meeting, or in
writing with or without a meeting. A special meeting of the Board of Directors
shall be held on such date and at any place as may be designated from time to
time by the Board of Directors. In the absence of designation such meeting shall
be held at such place as may be designated in the call.
SECTION 2.8 NOTICE OF MEETING. Except as provided in Section 2.6, the
Secretary shall give notice to each director of each regular and special meeting
of the Board of Directors. The notice shall state the time and place of the
meeting. Notice is given to a director when it is delivered personally to him,
3
<PAGE>
left at his residence or usual place of business, or sent by telegraph or
telephone, at least 24 hours before the time of the meeting or, in the
alternative by mail to his address as it shall appear on the records of the
Corporation, at least 72 hours before the time of the meeting. Unless the
By-Laws or a resolution of the Board of Directors provides otherwise, the notice
need not state the business to be transacted at or the purposes of any regular
or special meeting of the Board of Directors. No notice of any meeting of the
Board of Directors need be given to any director who attends, or to any director
who, in writing executed and filed with the records of the meeting either before
or after the holding thereof, waives such notice. Any meeting of the Board of
Directors, regular or special, may adjourn from time to time to reconvene at the
same or some other place, and no notice need be given of any such adjourned
meeting other than by announcement.
SECTION 2.9 ACTION BY DIRECTORS. Unless a statute or the Charter or
these By-Laws requires a greater proportion, the action of a majority of the
Directors present at meeting at which a quorum is present is action of the Board
of Directors. A majority of the entire Board of Directors shall constitute a
quorum for the transaction of business. In the absence of a quorum, the
Directors present by majority vote and without notice other than by announcement
may adjourn the meeting from time to time until a quorum shall attend. At any
such adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken without a meeting, if an unanimous written consent
which sets forth the action is signed by each member of the Board and filed with
the minutes of proceedings of the Board.
SECTION 2.10 MEETING BY CONFERENCE TELEPHONE. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
SECTION 2.11 COMPENSATION. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to Directors. A director who serves the Corporation in
any other capacity also may receive compensation for such other services,
pursuant to a resolution of the Directors.
ARTICLE III
COMMITTEES
SECTION 3.1 COMMITTEES. The Board of Directors may appoint from among
its members an Executive Committee and other committees composed of two or more
Directors and delegate to these committees any of the powers of the Board of
Directors, except the power to declare dividends or other distributions on
stock, elect Directors, issue stock other than as provided in the next sentence,
recommend to the stockholders any action which requires stockholder approval,
amend the By-Laws, or approve any merger or share exchange which does not
require stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock, a committee of the Board, in accordance
with a general formula or method specified by the Board by resolution or by
adoption of a stock option or other plan, may fix the terms of stock subject to
classification or reclassification and the terms on which any stock, may be
issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors.
4
<PAGE>
SECTION 3.2 COMMITTEE PROCEDURE. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of the
committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if an unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee. The members of a committee may conduct any meeting
thereof by conference telephone in accordance with the provisions of Section
2.10.
SECTION 3.3 EMERGENCY. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its Directors and officers as contemplated by the
Charter and the By-Laws, any two or more available members of the then incumbent
Executive Committee shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Corporation in
accordance with the provisions of Section 3.1. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available Directors shall elect an Executive Committee
consisting of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Corporation
in accordance with the foregoing provisions of this Section. This Section shall
be subject to implementation by resolution of the Board of Directors passed from
time to time for that purpose, and any provisions of the By-Laws (other than
this Section) and any resolutions which are contrary to the provisions of this
Section or to the provisions of any such implementary resolutions shall be
suspended until it shall be determined by any interim Executive Committee acting
under this Section that it shall be to the advantage of the Corporation to
resume the conduct and management of its affairs and business under all the
other provisions of the By-Laws.
ARTICLE IV
OFFICERS
SECTION 4.1 EXECUTIVE AND OTHER OFFICERS. The Corporation shall have a
President, a Secretary, and a Treasurer who shall be the executive officers of
the Corporation. It may also have a Chairman of the Board; the Chairman of the
Board shall be an executive officer if he is designated as the chief executive
officer of the Corporation. The Board of Directors may designate who shall serve
as chief executive officer, having general supervision of the business and
affairs of the Corporation, or as chief operating officer, having supervision of
the operations of the Corporation; in the absence of designation the President
shall serve as chief executive officer and chief operating officer. The
Corporation may also have one or more Vice-Presidents, assistant officers, and
subordinate officers as may be established by the Board of Directors. A person
may hold more than one office in the Corporation but may not serve concurrently
as both President and Vice-President of the Corporation. The Chairman of the
Board shall be a director; the other officers may be Directors.
SECTION 4.2 CHAIRMAN OF THE BOARD. The Chairman of the Board, if one be
elected, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present; and, in general, he shall perform all
such duties as are from time to time assigned to him by the Board of Directors.
5
<PAGE>
SECTION 4.3 PRESIDENT. The President, in the absence of the Chairman of
the Board, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present; he may sign and execute, in the name
of the Corporation, all authorized deeds, mortgages, bonds, contracts or other
instruments, except in cases in which the signing and execution thereof shall
have been expressly delegated to some other officer or agent of the Corporation;
and, in general, he shall perform all duties usually performed by a president of
a corporation and such other duties as are from time to time assigned to him by
the Board of Directors or the chief executive officer of the Corporation.
SECTION 4.4 VICE-PRESIDENTS. The Vice-President or Vice-Presidents, at
the request of the chief executive officer or the President, or in the
President's absence or during his inability to act, shall perform the duties and
exercise the functions of the President, and when so acting shall have the
powers of the President. If there be more than one vice-president, the Board of
Directors may determine which one or more of the Vice-Presidents shall perform
any of such duties or exercise any of such functions, or if such determination
is not made by the Board of Directors, the chief executive; officer, or the
President may make such determination; otherwise any of the Vice-Presidents may
perform any of such duties or exercise any of such functions. The Vice-President
or Vice-Presidents shall have such other powers and perform such other duties,
and have such additional descriptive designations in their titles (if any), as
are from time to time assigned to them by the Board of Directors, the chief
executive officer, or the President.
SECTION 4.5 SECRETARY. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for the purpose; he shall see that all notices are duly given
in accordance with the provisions of the By-Laws or as required by law; he shall
be custodian of the records of the Corporation; he may witness any document an
behalf of the Corporation, the execution of which is duly authorized, see that
the corporate seal is affixed where such document is required or desired to be
under its seal, and, when so affixed, may attest the same; and, in general, he
shall perform all duties incident to the office of a secretary of a corporation,
and such other duties as are from time to time assigned to him by the Board of
Directors, the chief executive officer, or the President.
SECTION 4.6 TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he shall render to the President and to the Board of Directors,
whenever requested, an account of the financial condition of the Corporation;
and, in general, he shall perform all the duties incident to the office of a
treasurer of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors, the chief executive officer, or the
President.
SECTION 4.7 ASSISTANT AND SUBORDINATE OFFICERS. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary, or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Directors, the chief executive officer, or the President.
SECTION 4.8 ELECTION, TENURE AND REMOVAL OF OFFICERS. The Board of
Directors shall elect the officers. The Board of Directors may from time to time
authorize any committee or officer to appoint assistant and subordinate
officers. The President serves for one year. All other officers shall be
appointed to hold their offices, respectively, during the pleasure of the Board.
The Board of Directors (or, as to any assistant or subordinate officer, any
committee or officer authorized by the Board) may remove an officer at any time.
The removal of an officer does not prejudice any of his contract rights. The
6
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Board of Directors (or, as to any assistant or subordinate officer, any
committee or officer, authorized by the Board) may fill a vacancy which occurs
in any office for the unexpired portion of the term.
SECTION 4.9 COMPENSATION. The Board of Directors shall have power to
fix the salaries and other compensation and remuneration, of whatever kind, of
all officers of the Corporation. It may authorize any committee or officer, upon
whom the power of appointing assistant and subordinate officers may have been
conferred, to fix the salaries, compensation and remuneration of such assistant
and subordinate officers.
ARTICLE V
STOCK
SECTION 5.1 CERTIFICATES FOR STOCK. Each stockholder is entitled to
certificates which represent and certify the shares of stock he holds in the
Corporation. Each stock certificate shall include on its face the name of the
corporation that issues it, the name of the stockholder or other person to whom
it is issued, and the class of stock and number of shares it represents, it
shall be in such form, not inconsistent with law or with the Charter, as shall
be approved by the Board of Directors or any officer or officers designated for
such purpose by resolution of the Board of Directors. Each stock certificate
shall be signed by the Chairman of the Board, the President, or a
Vice-President, and countersigned by the Secretary, an Assistant Secretary, the
Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the
actual corporate seal or a facsimile of it or in any other form and the
signatures may be either manual or facsimile signatures. A certificate is valid
and may be issued whether or not an officer who signed it is still an officer
when it is issued.
SECTION 5.2 TRANSFERS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
registrar may be combined.
SECTION 5.3 RECORD DATE AND CLOSING OF TRANSFER BOOKS. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be more than 90 days before the date on which
the action requiring the determination will be taken; the transfer books may not
be closed for a period longer than 20 days; and, in the case of a meeting of
stockholders, the record date or the closing of the transfer books shall be at
least ten days before the date of the meeting.
SECTION 5.4 STOCK LEDGER. The Corporation shall maintain a stock ledger
which contains the name and address of each stockholder and the number of shares
of stock of each class which the stockholder holds. The stock ledger may be in
written form or in any other form which can be converted within a reasonable
time into written form for visual inspection. The original or a duplicate of the
stock ledger shall be kept at the offices of a transfer agent for the particular
class of stock, or, if none, at the principal office in the State of Maryland or
the principal executive offices of the Corporation.
SECTION 5.5 CERTIFICATION OF BENEFICIAL OWNERS. The Board of Directors
may adopt by resolution a procedure by which a stockholder of the Corporation
may certify in writing to the Corporation that any shares of stock registered in
the name of the stockholder are held for the account of a specified person other
7
<PAGE>
than the stockholder. The resolution shall set forth the class of stockholders
who may certify; the purpose for which the certification may be made; the form
of certification and the information to be contained in it; if the certification
is with respect to a record date or closing of the stock transfer books, the
time after the record date or closing of the stock transfer books within which
the certification must be received by the corporation; and any other provisions
with respect to the procedure which the Board considers necessary or desirable.
On receipt of a certification which complies with the procedure adopted by the
Board in accordance with this Section, the person specified in the certification
is, for the purpose set forth in the certification, the holder of record of the
specified stock in place of the stockholder who makes the certification.
SECTION 5.6 LOST STOCK CERTIFICATES. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen, or destroyed, or the
Board of Directors may delegate such power to any officer or officers of the
corporation. In their discretion, the Board of Directors or such officer or
officers may refuse to issue such new certificate save upon the order of some
court having jurisdiction in the premises.
ARTICLE VI
FINANCE
SECTION 6.1 CHECKS, DRAFTS, ETC. All checks, drafts and orders for
payment of money, notes and other evidences of indebtedness, issued in the name
of the Corporation, shall, unless otherwise provided by resolution of the Board
of Directors, be signed by the President, a Vice-President or an Assistant
Vice-President and countersigned by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary.
SECTION 6.2 ANNUAL STATEMENT OF AFFAIRS. The President shall prepare
annually a full and correct statement of the affairs of the Corporation, to
include a balance sheet and a financial statement of operations for the
preceding fiscal year. The statement of affairs shall be submitted at the annual
meeting of the stockholders and, within 20 days after the meeting, placed on
file at the Corporation's principal office.
SECTION 6.3 FISCAL YEAR. The fiscal year of the Corporation shall be
the twelve calendar months period ending December 31 in each year, unless
otherwise provided by the Board of Directors.
SECTION 6.4 DIVIDENDS. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
SECTION 6.5 CUSTODIAN. All securities and cash of the Corporation shall
be placed in the custody of a bank or trust company ("Custodian") having
(according to its last published report) not less than $2,000,000 aggregate
capital, surplus and undivided profits, provided such a Custodian can be found
ready and willing to act (or maintained in such other manner as is consistent
with Section 17(f) of the 1940 Act and the rules and regulations promulgated
thereunder). The Corporation shall enter into a written contract with the
Custodian regarding the powers, duties and compensation of the Custodian with
respect to the cash and securities of the Corporation. The Corporation shall
upon the resignation or inability to serve of the Custodian use its best efforts
to obtain a successor custodian; require that the cash and securities owned by
the Corporation be delivered directly to the successor custodian; and in the
event that no successor custodian can be found, submit to the shareholders,
8
<PAGE>
before permitting delivery of the cash and securities owned by the Corporation
to other than a successor custodian, the question whether or not the Corporation
shall be liquidated or shall function without a custodian.
ARTICLE VII
SUNDRY PROVISIONS
SECTION 7.1 BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors. The
books and records of a Corporation may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection. Minutes shall be recorded in written form but may be maintained in
the form of a reproduction. The original or a certified copy of the By-Laws
shall be kept at the principal office of the Corporation.
SECTION 7.2 CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in charge of
the Secretary. The Board of Directors may authorize one or more duplicate seals
and provide for the custody thereof. If the Corporation is required to place its
corporate seal to a document, it is sufficient to meet the requirement of any
law, rule, or regulation relating to a corporate seal to place the word "Seal"
adjacent to the signature of the person authorized to sign the document on
behalf of the Corporation.
SECTION 7.3 BONDS. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more sureties
and in such amount as may be satisfactory to the Board of Directors.
SECTION 7.4 VOTING OF SHARES IN OTHER CORPORATIONS. Stock of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice-President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
SECTION 7.5 MAIL. Any notice or other document which is required by
these By-Laws to be mailed shall be deposited in the U.S. mail, postage prepaid.
SECTION 7.6 EXECUTION OF DOCUMENTS. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 7.7 AMENDMENTS. Subject to the special provisions of Section
2.2: (a) any and all provisions of these By-Laws may be altered or repealed and
new by-laws may be adopted at any annual meeting of the stockholders, or at any
special meeting called for that purpose, and (b) the Board of Directors shall
have the power, at any regular or special meeting thereof, to make and adopt new
by-laws, or to amend, alter or repeal any of the By-Laws of the Corporation.
9
AMENDMENT TO
BUILDERS PROLOAN FUND, INC.
MANAGEMENT AGREEMENT
This Amendment to the Management Agreement ("Amendment") is entered
into and effective as of October 12, 1998 by and between Builders ProLoan Fund,
Inc., a Maryland corporation (the "Fund"), and Capital Mortgage Management,
Inc., a Delaware corporation (the "Manager").
WHEREAS, the Fund and the Manager entered into a Management Agreement
(the "Agreement") dated as of October 17, 1997 and they desire to amend the
Agreement as provided herein;
NOW THEREFORE, in consideration of the mutual covenants and promises
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. AMENDMENT. Schedule A of the Agreement is hereby amended by
replacing the fee schedule with the following:
For the Builders ProLoan Fund, Inc.
Advisory Fee as a % of
Average Daily Net Assets Average Daily Net Assets
------------------------ ------------------------
Up to $300 million 0.15%
$300 million and above 0.13%
PLUS all fees payable to the Fund's subadviser.
2. RATIFICATION AND CONFIRMATION OF AGREEMENT. Except as specifically
set forth herein, the Agreement is hereby ratified and confirmed in all respects
and shall remain in full force and effect.
3. COUNTERPARTS. This Amendment may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
4. DEFINED TERMS. Any capitalized word not otherwise defined in this
Amendment shall have the meaning given to such word in the Agreement.
5. MODIFICATION AND GOVERNING LAW. This Amendment may not be modified
except by a writing signed by authorized representatives of the parties to this
Amendment. This Amendment shall be governed by and construed and interpreted in
accordance with the laws of the State of Missouri.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the date first above written.
BUILDERS PROLOAN FUND, INC. CAPITAL MORTGAGE MANAGEMENT, INC.
- ------------------------------ ---------------------------------
By: John W. Stewart By: John W. Stewart
Title: President Title: President and Chairman
AMENDMENT TO
INVESTMENT SUBADVISORY AGREEMENT
This Amendment to the Investment Subadvisory Agreement ("Amendment") is
entered into and effective as of October 12, 1998 by and between Capital
Mortgage Management, Inc. a Delaware corporation (the "Manager"), and Commerce
Bank, N.A., a national banking association organized under the laws of the
United States (the "Subadviser").
WHEREAS, the Manager and Subadviser entered into an Investment
Subadvisory Agreement (the "Agreement") dated as of October 23, 1997 and they
desire to amend the Agreement as provided herein;
NOW THEREFORE, in consideration of the mutual covenants and promises
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. AMENDMENT. The last sentence of Section 3 of the Agreement is hereby
replaced in its entirety with the following:
The Subadviser hereby agrees to waive its fee such that the fees do not
exceed 0.l65% of the Fund's average daily net assets during a period
which will end on December 31, 1999.
2. RATIFICATION AND CONFIRMATION OF AGREEMENT. Except as specifically
set forth herein, the Agreement is hereby ratified and confirmed in all respects
and shall remain in full force and effect.
3. COUNTERPARTS. This Amendment may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
4. DEFINED TERMS. Any capitalized word not otherwise defined in this
Amendment shall have the meaning given to such word in the Agreement.
5. MODIFICATION AND GOVERNING LAW. This Amendment may not be modified
except by a writing signed by authorized representatives of the parties to this
Amendment. This Amendment shall be governed by and construed and interpreted in
accordance with the laws of the State of Missouri.
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the date first above written.
CAPITAL MORTGAGE MANAGEMENT, INC. COMMERCE BANK, N.A.
- ----------------------------- ------------------------------
By: John W. Stewart By:
Title: President Title:
ADDENDUM TO ADMINISTRATION AGREEMENT
The Administration Agreements between BUILDERS PROLOAN FUND, INC. (the
"Fund") and INVESTMENT COMPANY ADMINISTRATION CORPORATION (the "Administrator")
dated October 20, 1997, is hereby amended as follows:
1. PARAGRAPH 7 OF THE AGREEMENT.
7. COMPENSATION. As compensation for services rendered by the
Administrator during the term of this agreement, the Fund will pay the
Administrator a monthly fee at the following annual rates effective August 1,
1998:
AVERAGE NET ASSETS ANNUAL FEE
------------------ ----------
$0 to $150 million $50,000
Over $150 million 0.05% of Average Net Assets
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the day and year first written
above.
BUILDERS PROLOAN FUND, INC.
By: Date:
------------------------------ --------------------------
Name: John W. Stewart
Title: President
------------------------------
INVESTMENT COMPANY ADMINISTRATION CORPORATION
By: Date:
------------------------------ --------------------------
Name: Eric M. Banhazl
Title: Executive Vice President
---------------------------
AMENDMENT TO ADMINISTRATION AGREEMENT
The Administration Agreement between Investment Company Administration
Corporation and Builders ProLoan Fund, Inc. (the "Fund") dated October 20, 1997
is hereby amended as follows:
The parties to the Agreement shall be Investment Company
Administration, L.L.C., an Arizona Limited Liability Company, and
Builders ProLoan Fund, Inc., a Maryland Corporation.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by duly authorized persons, as of this _____ day of
___________________, 1999.
INVESTMENT COMPANY ADMINISTRATION CORPORATION
a Delaware Corporation
- ------------------------------------------
By: Eric M. Banhazl
Its: Executive Vice President
INVESTMENT COMPANY ADMINISTRATION, L.L.C.
an Arizona Limited Liability Company
- ------------------------------------------
By: Eric M. Banhazl
Its: Managing Member
Builders ProLoan Fund, Inc.
a Maryland Corporation
- ------------------------------------------
By: John W. Stewart
Its: President
TRANSFER AGENT AGREEMENT
This Agreement is made this the______ day of __________, 1998 to be
effective as of ______________, 1998, by and between Builders ProLoan Fund, Inc.
(the "Fund"), a corporation duly organized and existing under the laws of the
State of Maryland, and Unified Fund Services, Inc. (the "Transfer Agent"), which
is a duly-registered transfer agent. The Transfer Agent is duly organized and
existing under the laws of the State of Indiana.
ARTICLE I.
SECTION 1. The Fund hereby appoints the Transfer Agent as its Transfer,
Registrar, Redemption and Dividend Disbursing Agent, and the Transfer Agent
accepts such appointments and agrees to act in such capacities upon the terms
set forth in this Agreement.
SECTION 2. The Transfer Agent agrees to comply with all relevant
provisions of the Investment Company Act of 1940 (the "Act"), the Internal
Revenue Code, other applicable laws and all applicable rules and regulations
thereunder.
SECTION 3. If the Fund is or becomes a series company for purposes of Rule
18f-2 under the Act, the term "Fund" as used in this Agreement and Fee Schedule
shall be deemed to refer to each such series as a separate portfolio unless the
context otherwise requires. In performing its functions hereunder, the Transfer
Agent shall in all cases comply with the procedures and conditions set forth in
the Fund's then current Prospectus and Statement of Additional Information
("SAI"), as provided to the Transfer Agent by the Fund. To the extent that the
Prospectus and SAI cover procedures and duties of the Transfer Agent, agreement
as to such matters must have been reached between the Transfer Agent and the
Fund 30 days prior to the effectiveness of the Prospectus, unless such 30-day
period is waived by the Transfer Agent.
ARTICLE II. ISSUANCE OF SHARES
SECTION 1. The Transfer Agent shall receive order for the purchase of
shares and make original issues of shares of the Fund ("Shares") in accordance
with Sections 3 and 4 below and with the Fund's then currently effective
Prospectus, SAI and account application upon being furnished with (i) a
certified copy of a resolution or resolutions of the Board of Directors of the
Fund authorizing such issue and (ii) necessary funds for the payment of any
original issue tax applicable to such additional Shares. If requested, an
opinion of counsel as to the validity of such additional Shares shall be
furnished to the Transfer Agent upon the Fund's filing of its Rule 24f-2 Notice
under the Act with the Securities and Exchange Commission.
The Transfer Agent shall record the issuance of shares of the Fund and
maintain pursuant to Rule 17Ad-10(c) of the Securities Exchange Act of 1934 a
record of the total number of shares of the Fund which are authorized, issued
and outstanding.
The Transfer Agent will maintain mutual fund account records in the usual
form in which, among other details, it will note the issuance, transfer and
redemption of Shares, whether certificated or not. The Transfer Agent will keep
Unified Fund Services, Inc. 1/26/99 Builders ProLoan Fund, Inc. - 1
<PAGE>
account records, in which it will note the names and registered addresses of
Shareholders of the Fund ("Shareholders") and the number of full and fractional
Shares owned by them.
SECTION 2. In case of any request or demand for the inspection of the
share records of the Fund, the Transfer Agent shall notify the Fund and secure
instructions as to permitting or refusing such inspection. However, the Transfer
Agent may exhibit such records to any person in any case where it is advised by
its counsel that it may be held liable for failure to do so, unless indemnified
against such liability by the Fund.
SECTION 3. For the purposes of this Section, the Fund hereby instructs the
Transfer Agent to consider Shareholder payments as available for investment in
accordance with the policies and procedures set forth in the Fund's then current
Prospectus and SAI. Immediately after the time or times and on each day on which
the Fund's then current Prospectus or SAI states that its net asset value per
share shall be determined, the Transfer Agent shall obtain from the Fund or its
designated agent a quotation of the net asset value per share determined as of
such time on such day. The Transfer Agent reserves the right to charge the Fund
and the Fund agrees to pay the agreed upon costs of making corrections to
Shareholder records if it is later determined that the Fund or its agent(s)
supplied an inaccurate net asset value.
The Transfer Agent shall, on the same business day on which any order for
the purchase of Shares is received and utilizing the net asset value per share
next determined after the receipt of such order, determine the amount to be
invested and the number of Shares and fractional Shares (rounded to three
decimal places) to be purchased. The Transfer Agent shall thereupon as agent for
the Shareholders place a purchase order with the Fund for the proper number of
Shares and fractional Shares to be purchased and confirm such number to the Fund
in writing. The Transfer Agent shall total the amount available for investment
in Shares at the net asset value determined by the Fund or its designated agent
at each Fund pricing time.
The Transfer Agent shall pay over to the Custodian Bank the net asset
value of Shares and fractional Shares purchased immediately upon receipt of the
consideration therefor.
In the event that any check or other order for the payment of money is
returned unpaid for any reason, the Transfer Agent shall give prompt
notification to the Fund of the non-payment of said check and take such action
as the Fund may authorize.
Any profit on the liquidation of unpaid Shares accrues to the Fund. In the
event of a loss upon the liquidation of unpaid shares, other than as a result of
an error or mistake of the Transfer Agent, the Transfer Agent will charge the
purchaser's account for the amount of such loss. If the loss can't be recovered
from the Shareholder, the Fund will be liable for the loss. In the event of a
loss or gain due to an incorrect adjustment to the Shareholder's account by the
Fund's agent(s), the loss or gain will be netted on the books of the Fund and
settled monthly. If the loss is a result of an error or mistake of the Transfer
Agent it will be covered by the Transfer Agent.
Unified Fund Services, Inc. 1/26/99 Builders ProLoan Fund, Inc. - 2
<PAGE>
SECTION 4. The Transfer Agent, in making the calculations provided for in
Section 3, of this Article II shall rely on its record of available investment
funds. The proper number of Shares and fractional Shares shall then be issued
daily and credited by the Transfer Agent to the Shareholder accounts. The
Transfer Agent shall furnish each Shareholder with a confirmation of each
purchase of Fund Shares.
The Fund agrees to provide the Transfer Agent with an adequate supply of
its Prospectus, as in effect from time to time, to fulfill its obligations under
this Section.
The Transfer Agent shall provide the Fund with the total number of shares
issued by the Fund each day.
ARTICLE III. REDEMPTIONS
SECTION 1. The Transfer Agent shall process, in accordance with the Fund's
Prospectus, SAI and account application, all requests from Shareholders to
redeem Shares and shall determine the number of Shares required to be redeemed
to make monthly payments, automatic payments or the like and advise the Fund, on
the same business day that the request for redemption was received, of the total
number of Shares and fractional Shares (rounded to three decimal places) to be
redeemed. The Fund or its designated agent shall then quote to the Transfer
Agent the applicable net asset value; whereupon the Transfer Agent shall furnish
the Fund with an appropriate confirmation of the redemption and process the
redemption, at the net asset value per share next computed after receipt of the
order for redemption, by filing with the Fund's Custodian an appropriate
statement and making the proper distribution and application of the redemption
proceeds in accordance with the Fund's Prospectus or SAI. The stock registry
books recording outstanding Shares and the individual account of the Shareholder
shall be properly debited. If provided for under the provisions of the
shareholder's account, the Transfer Agent shall mail to each Shareholder a
confirmation of each redemption with a copy to an interested person if
requested. Such confirmation shall among other details show the prior Share
balance, the new Share balance and total dollar value thereof, the Shares for
which stock certificates are outstanding (if any), the amount redeemed and the
price received for the redeemed Shares.
SECTION 2. The proceeds of a redemption shall be remitted by the Transfer
Agent, in each case by check or other instrument drawn against funds held by the
Fund in the Custodian Bank, in accordance with the Fund's then currently
effective Prospectus, SAI or account application, including, to the extent
consistent therewith, as follows:
(a) By check drawn to the order of and mailed to the Shareholder at the
address of record not later than three business days after the redemption
request is received.
(b) By wire to a previously designated bank or broker upon telephone
request, without signature guarantee, if such redemption procedure has been
elected by the Shareholder.
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(c) By Automated Clearing House transfers payable to the Shareholder of
record and transmitted for deposit to the bank account previously designated in
the application form or by written authorization, in the case of an expedited
telephone redemption.
(d) In accordance with the order of the Shareholder in the case of
redemptions by draft.
(e) To a person other than the Shareholder or to an address other than the
Shareholder's registered address only if instructions are received in writing
with signature guaranteed in accordance with the Fund's Prospectus. Planholders
transferring to another Plan custodian are required to obtain written signature
guarantees and are required to obtain the written acceptance of the new
custodian.
(f) By other procedures commonly followed by mutual funds and mutually
agreed upon by the Fund and the Transfer Agent prior to the request(s).
If required by the Fund's then current Prospectus or SAI, the request and
stock certificates, if any, for Shares being redeemed, must have the owner's
signature guaranteed by a domestic commercial bank or trust company, savings and
loan association, credit union, or a member firm of a national securities
exchange or the National Association of Security Dealers ("NASD"). If Share
certificates have not been issued to the redeeming Shareholder, the signature of
the Shareholder on the redemption request must be similarly guaranteed. If the
Fund authorizes the Transfer Agent by written instructions to waive the
signature guarantee in certain instances and if the Transfer Agent has used
reasonable efforts to establish the authority of the person receiving the
redemption proceeds in accordance with procedures mutually agreed upon between
the Fund and the Transfer Agent, the Fund holds the Transfer Agent harmless in
the event that an unauthorized person withdraws funds. Whenever a signature
guarantee is required hereunder, it will be satisfied by a domestic commercial
bank or trust company, savings and loan association, credit union, or a member
firm of a national securities exchange or the NASD.
For the purposes of redemption of Shares which have been purchased by
check within 15 calendar days of a receipt of the redemption request for such
shares, the Fund shall provide the Transfer Agent, from time to time, with
written instructions concerning the time within which such requests may be
honored. The Transfer Agent will rely on the last written instruction received.
The Transfer Agent has no responsibility to determine if any investment payment
will be reversed for any reason and is not responsible in any way for the
failure of any investment to be collected.
The authority of the Transfer Agent to perform its responsibilities under
Article III, Sections 1 and 2 shall be suspended upon the Transfer Agent's
receipt of notification of the suspension of the determination of the Fund's net
asset value.
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ARTICLE IV. DIVIDENDS
SECTION 1 . Upon the declaration of each dividend and each capital gains
distribution by the Board of Directors of the Fund, the Fund shall notify the
Transfer Agent by written instructions no later than record date of such
declaration, the amount payable per share, the sources from which such dividend
or distribution is made, and, unless such dividend is a regular daily or monthly
dividend payable by a money market or other fund, the record date for
determining the Shareholders entitled to payment. The ex-date and payment date
shall always be the next determination of net asset value after the record date.
The Transfer Agent shall withhold such sums as may be required to be withheld
under applicable income tax laws, rules and regulations.
SECTION 2 . Upon the payment date of a dividend or distribution declared
by the Fund's Board of Trustees, the Fund or its agent will cause the Custodian
Bank to transfer to the disbursement account maintained by the Custodian Bank in
the name of the Fund the total amount of such dividends or distributions payable
in cash to those Shareholders electing to receive such dividends or
distributions in cash. On payment date, the Transfer Agent shall prepare a check
in the appropriate amount and mail it not later than the second business day
after the payment date to such Shareholder at his address of record or to such
other address as the Shareholder may have designated. If provided in the
Prospectus, at the Shareholder's option, payment may be made via Automated
Clearing House transfer to a bank account specified by the Shareholder in
writing.
With regard to Shareholders not electing to receive such dividends or
distributions in cash, the Transfer Agent will automatically reinvest all
dividends and other such distributions in additional Shares at the net asset
value per Share on payment date. When provided by the provisions of the
Shareholder's account, the Transfer Agent will promptly mail to each Shareholder
at his address of record or such other address as the Shareholder may have
designated a statement showing the number of full and fractional Shares (rounded
to three decimal places) currently owned by the Shareholder and the net asset
value of the Shares so credited to the Shareholder's account.
The Transfer Agent's dividend statement shall meet the requirements of the
Act and Rule 19a-1 thereunder for notification as to the source(s) of dividend
payment(s).
ARTICLE V. CERTIFICATES
SECTION 1. The Fund shall furnish to the Transfer Agent a sufficient
supply of blank Share certificates and from time to time will renew such supply
upon the request of the Transfer Agent. Such blank Share certificates shall be
signed manually or by facsimile signatures of officers of the Fund authorized by
law or the by-laws of the Fund to sign Share certificates and, if required,
shall bear the Fund's seal or facsimile thereof. In case any officer of the Fund
who shall have signed manually or whose facsimile signature shall have been
affixed to blank Share certificates shall die, resign or be removed prior to the
issuance of such Share certificates, the Transfer Agent may issue or register
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such Share certificates as the Share certificates of the Fund notwithstanding
such death, resignation or removal until otherwise directed by the Fund; and the
Fund shall file promptly with the Transfer Agent such approval, adoption or
ratification as may be required by law.
SECTION 2. The Transfer Agent shall issue Share certificates for Shares
only upon receipt of a written request from a Shareholder or from a dealer
except money market funds. In all other cases, the Transfer Agent shall dispense
with the issuance and countersignature of Share certificates whenever Shares are
purchased. The Transfer Agent shall process purchase and redemption transactions
by making appropriate entries in the Fund's account records. The Transfer Agent
may issue new full Share certificates in place of Share certificates represented
to have been lost, destroyed or stolen, upon receiving indemnity satisfactory to
the Transfer Agent and the Fund and may issue new Share certificates in exchange
for, and upon surrender of, mutilated Share certificates. Prior to the
replacement of a lost or stolen certificate, a surety bond is required and is at
the Shareholder's expense. When mail is used for delivery of Share certificates
the Transfer Agent shall forward Share certificates in "non-negotiable" form by
first-class mail, and Share certificates in "negotiable" form by registered
mail, return receipt requested.
Whenever a Shareholder deposits Shares represented by Share certificates
in an account, the Transfer Agent, upon receipt of the Share certificates
registered in the name of the Shareholder (or if not so registered, in proper
form for transfer), shall cancel such Share certificates and make appropriate
entries in its stock transfer records.
The Transfer Agent shall retain all canceled certificates for redemption
or transfer for a period of time as set by regulations promulgated by the
Securities and Exchange Commission ("SEC") during which time it shall be able to
produce said certificates upon appropriate notice from the Fund.
ARTICLE VI. GENERAL PROVISIONS
SECTION 1. The Transfer Agent will furnish money market, equity or bond
fund account confirmations with each transaction and account confirmation
statements as of December 31 of each year which include a listing of all
transactions in the account during the calendar year then ended, plus income tax
reporting information. The Transfer Agent will provide to the Shareholders
24-hour account balance and transaction services and consolidated statements.
SECTION 2. The Transfer Agent will provide a system which will enable the
Fund to monitor the total number of shares sold in each state and shall report
daily the sales and redemptions in each state in a manner suitable for state
"blue-sky" reporting by the Fund and will not accept any purchase order in
excess of the amount available for sale as provided by the Fund or its agent.
The Transfer Agent has no further responsibility as to controlling sales of
Shares of the Fund or maintaining the various registrations required under state
"blue sky" laws and regulations. The Fund is responsible for updating the system
and halting Share sales in all states where the Fund's registration is not
effective. Maintaining current registration information on-line is the
responsibility of the Fund, or its designated agent.
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SECTION 3. The Transfer Agent shall maintain records (which may be part of
the stock transfer records) in connection with the issuance and redemption of
Shares and dividend reinvestments, in which will be noted the transactions
effected for each Shareholder and the number of Shares and fractional Shares
(rounded to three decimal places) owned by each for which no Share certificates
are outstanding. The Transfer Agent shall create and maintain all necessary
records including, but not limited, to records required by Section 31(a) of the
Act and Section 17(A) of the Securities and Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder. The Transfer Agent agrees
to make available upon request and to preserve for the periods prescribed in
Section 31(a) under the Act and Section 17(A) of the Securities and Exchange Act
of 1934, as amended, and the rules and regulations thereunder, any records
relating to services provided under this Agreement or maintained by it on behalf
of the Fund. All such records shall be the property of the Fund.
The Transfer Agent shall also maintain the following records for each
Shareholder's account: name, address, and tax identification number; number of
Shares held and specific form of holding, including numbers and denominations of
certificates, if any; historical information regarding the account of each
Shareholder, including dividends paid, distributions made and date and price for
all transactions in a Shareholder's account; any stop or restraining order
placed against a Shareholder's account; any dividend reinvestment order, address
change and correspondence relating to the maintenance of a Shareholder's
account; all tax and withholding information relating to a Shareholder's
account; information with respect to withholding on foreign accounts.
The Transfer Agent shall maintain records for all accounts opened by
entities assigned an institution number ("i.e. different distributors") so that
where required the aggregate average daily value of all of an institution's
accounts can be determined and a record of such values maintained, and so that
duplicate statements for the accounts can be prepared and sent to each
institution. A representative file is available for each institution. It is the
responsibility of the Fund to update and maintain information on such file.
SECTION 4. The Transfer Agent shall cooperate with the Fund's independent
public accountants and shall take all reasonable action in the performance of
its obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their opinion,
including but not limited to the opinion included in the Fund's annual or
semi-annual reports on Form N-SAR, or of any successor annual report required by
the Act or rules thereunder to be filed by the Fund.
SECTION 5. Transfer Agent covenants and agrees tht it will not permit a
Year 2000 problem in its computer systems, software or equipment owned, leased
or licensed by it or its affiliates to interfere with its performance under this
Agreement. Transfer Agent will use reasonable commercial efforts to cooperate
and share information to further comply with this Section 5, and to minimize the
impact of any Year 2000 problem on the performance of this Agreement. Transfer
Agent will inform the Fund of any circumstance indicating a possible obstacle to
such compliance, and the steps being taken to avoid or overcome the obstacle. A
"Year problem" means a date-handling problem relating to the Year 2000 date
change that would cause a computer system, software or equipment to fail to
correctly perform, process or handle date-related data for the dates within and
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between the 20th and 21st centuries and all other centuries. Any modification to
Transfer Agent's computer systems, software or equipment necessary to solve a
Year 2000 problem shall be at no additional charge to the Fund.
SECTION 6. In addition to the services as Transfer Agent and as above set
forth, the Transfer Agent will perform other services for t he Fund as agreed
from time to time, including but not limited to, preparation and filing with the
Internal Revenue Service and mailing to Shareholders such federal tax
information forms as are required to be so prepared, filed and mailed by
applicable laws, rules and regulations, mailing periodic reports of the Fund,
and mailing initial notices of Shareholders' meetings, proxies, proxy
statements, and preparation of proxy voting reports for the Fund; preparing
shareholder meeting lists, mailing prospectuses and supplements to current
shareholders; preparing & filing Form 1099 and other required forms; preparing
and mailing confirmation forms and statements of account; preparing and mailing
monthly account activity statements.
The Transfer Agent agrees to follow-up on missing TINs by sending a letter
and Form W-9 to the Shareholder. If the Transfer Agent does not receive TIN
verification within 60 days of the acknowledgment of the missing TINs, back-up
withholding will begin. Upon receipt of a B-Notice from the IRS, the Transfer
Agent will research the accounts and send out additional Form W-9's as
necessary. The Transfer Agent will not be held liable for any penalties
associated with B-Notices served where a Shareholder has failed to return a TIN
or signed W-9. If B-Notices are not promptly delivered to the Transfer Agent
once received by the Fund, the Transfer Agent will not be held liable for any
penalties associated with late processing.
The Transfer Agent will provide the Fund with a list of all accounts
subject to back-up withholding annually.
The Transfer Agent shall answer telephone calls and correspondence from
Shareholders relating to their Share accounts during the Transfer Agent's normal
business hours. The Transfer Agent shall respond to all telephonic or written
inquiries from Shareholders relating to the administration of their accounts
within three (3) business days or as soon as reasonably practical thereafter.
Copies of all correspondence from Shareholders involving complaints about the
management of the Fund, the services provided by or for the Fund, the Transfer
Agent or others, or concerning complaints relating to the Fund shall be retained
for review by the Fund and such copies will be sent immediately to the Fund.
Telephone calls and correspondence on other matters will be referred to
the Fund.
The Transfer Agent shall keep records of Shareholder substantive telephone
calls and correspondence and replies thereto. The Transfer Agent shall make and
retain for a reasonable time (not to exceed 3 months) tape recordings of all
telephone calls from Shareholders.
SECTION 6. Nothing contained in this Agreement is intended to or shall
require the Transfer Agent in any capacity hereunder to perform any functions or
duties on any day identified in the Prospectus and/or SAI on which the Fund is
closed. Functions or duties normally scheduled to be performed on such days
shall be performed on, and as of, the next business day on which the Transfer
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Agent is open, except when the Transfer Agent is closed to observe a legal
emergency when the Fund is open and the Fund has received purchases or
redemption requests, such purchases and redemptions shall be priced and executed
"as of" such date on the business day next following such day.
SECTION 7. The Fund agrees to pay the Transfer Agent compensation for its
services and to reimburse it for expenses, as set forth in Schedule A attached
hereto, or as shall be set forth in amendments to such Schedule approved by the
Fund and the Transfer Agent. All such payments and reimbursements are to be
received no later than ten (10) days following the mailing of the respective
notice and shall be charged to and paid by the Fund no later than on a monthly
basis. It is understood that the Fund may, in the future, undertake to perform
certain of the services herein contemplated to be performed by the Transfer
Agent. To the extent, if any, the Fund undertakes such duties, the Transfer
Agent shall be relieved of such obligation, and the Fund and the Transfer Agent
shall mutually agree upon an appropriate reduction, if any, in the fees set
forth in Schedule A. In addition to any other right or remedy available to the
Transfer Agent for nonpayment of any fee due under this Agreement for the
services performed by it, in the event that the Fund and/or its agent shall fail
to pay the full fee by thirty (30) days after date of invoicing, the Fund or its
agent shall pay the Transfer Agent a late charge in a sum equal to 18% per annum
of the unpaid balance.
SECTION 8. The Transfer Agent shall not be liable hereunder for any
non-negligent action taken in good faith and reasonably believed to be within
the powers conferred upon it by this Agreement. The Fund shall indemnify the
Transfer Agent and hold it harmless from any and against any and all actions,
suits and claims, whether groundless or otherwise, arising directly or
indirectly out of or in connection with its performance under this Agreement
from and against any and all losses, damages, costs, charges, expenses and
liabilities incurred by the Transfer Agent in connection with any such action,
suit, or claim, except such as shall result from its own negligent act or
willful misconduct. The Transfer Agent shall not be under any obligation to
prosecute or to defend any action, suit or claim arising out of or in connection
with its performance under this Agreement, which, in the opinion of its counsel,
may involve it in expense or liability. At its option and upon request of the
Transfer Agent, the Fund may assume the entire defense of any action, suit, or
claim subject to the foregoing indemnity. The Transfer Agent shall give the Fund
notice, and reasonable opportunity to defend, any such action, suit, or claim,
in the name of the Fund or the Transfer Agent or both. In the event the Fund
assumes the defense, the Transfer Agent shall be responsible for its own legal
fees and expenses from the date the Fund so assumes the defense, except for such
fees and expenses incurred at the request of the Fund. The Fund and the Transfer
Agent shall cooperate fully in the defense of any action, suit or claim.
The Transfer Agent at its expense will make corrections and adjustments as
may be required, where the Transfer Agent, its officers, agents, employees or
delegates are the cause of any error made in rendering the services described in
this agreement.
Without limitation of the foregoing:
(a) The Transfer Agent may rely upon and shall not be liable to the Fund
for the advice furnished to it by the Fund, or for statements made by the Fund's
accountants, brokers and other agents of the Fund believed by it in good faith
to be expert in the matters about which they are consulted and for any actions
taken in good faith upon such statements.
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(b) The Transfer Agent shall not be liable for any action reasonably taken
in good faith reliance upon any written instructions or certified copy of any
resolution of the Board of Directors of the Fund, provided, however, that upon
receipt of a written instruction from the Fund countermanding a prior
instruction which has been fully executed by the Transfer Agent, the Transfer
Agent shall attempt to honor to the extent then possible, such later
instructions and rely upon the genuineness of any such document or
correspondence reasonably believed in good faith to have been validly executed.
(c) The Transfer Agent may rely and shall be protected in acting upon any
signature, instruction, request, letter of transmittal, certificate, opinion of
counsel, statement, instrument, report, notice, consent, order, or other paper
or document reasonably believed by it to be genuine and to have been signed or
presented by the Shareholder, Fund or other proper party or parties.
SECTION 9. The Fund shall promptly cause to be turned over to the Transfer
Agent (i) an accurate list of Shareholders of the Fund showing the proper
registered address and number of Shares owned and whether such Shares are
represented by outstanding Share Certificates or by non-certificated Share
accounts, (ii) all records relating to retirement plans, including original
applications signed by the planholders and original plan accounts recording
payments, contributions, deductions, reinvestments, withdrawals and
liquidations, and (iii) all Shareholder records, files, and other materials
necessary or appropriate for proper performance of the functions assumed by the
Transfer Agent under this Agreement (hereinafter called "Materials"). The Fund
agrees to indemnify and hold the Transfer Agent, its successors and assigns,
harmless of and from any and all expenses, damages, claims, suits, liabilities,
actions, demand and losses of third parties arising out of or in connection with
any error, omission, inaccuracy or other deficiency of such Materials, or out of
the failure of the Fund to provide such Materials or to provide any information
needed by the Transfer Agent to perform knowledgeably its functions. The Fund
agrees to pay agreed upon compensation to the Transfer Agent to cover the
Transfer Agent's expenses in correcting any such error, omission, inaccuracy or
other deficiency of the Materials.
SECTION 10. The Transfer Agent acknowledges and agrees that all books and
records maintained for the Fund in any capacity under this Agreement are the
property of the Fund and may be inspected by the Fund at any reasonable time.
Such books and records will be shipped immediately to any successor transfer
agent at the Fund's cost.
The Transfer Agent agrees to regard and preserve as confidential all
records and other information relative to the Fund, and will not without written
authority of the Fund disclose to others, during the term of this Agreement or
thereafter, any such records or other information.
SECTION 11. The following shall be a list of procedures to be taken by the
Transfer Agent should mail be returned to the Agent undeliverable:
1. The mail will be opened and the contents examined. The returned
envelope will be stapled to the back of the paperwork.
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2. Using the name and social security number on the account, a system
search will be done to check for any other accounts which may have a
"deliverable" address. If a different address is found, the account with the bad
address will be corrected and the mail will be forwarded to the new address.
3. If the account search is unsuccessful, after reasonable attempts have
been made to locate the shareholder, the account will be coded as lost and the
returned mail will be stored.
4. A listing is available of all accounts coded as lost. The Fund's
management can utilize this list if they wish to research these accounts
further.
5. Upon written request from the Fund, the Transfer Agent will provide a
listing to Fund management for escheatment purposes, of all accounts that are
lost.
SECTION 12. In the event any party which is subject to this Agreement is
unable to perform its obligations under the terms of this Agreement because of
equipment or transmission failure or damage beyond its control, acts of God, or
other causes reasonably beyond its control, such party will not be liable to the
others for any damages resulting from such failure to perform or otherwise from
such causes.
ARTICLE VII. TERMS AND TERMINATION
SECTION 1. This Agreement shall remain effective until terminated by
either party. Either the Fund or the Transfer Agent may give 60 days written
notice to the other of the termination of this Agreement, such termination to
take effect at the time specified in the notice; provided, however, the
obligations set forth in Sections 8, 10 and 11 of Article VI and Sections 6 and
7 of Article VII, for the fiscal year of the Fund in which termination occurs,
Section 4 of Article VI, shall survive such termination, unless satisfied. Any
records remaining at the Transfer Agent which are not required to be maintained,
under any laws which affect the Transfer Agent, will be destroyed twelve months
after the termination of this Agreement
SECTION 2. Should the Fund exercise its right to terminate this Agreement
pursuant to Section 1 of this Article VII, the Fund agrees to reimburse Transfer
Agent for reasonable out-of-pocket expenditures actually incurred by the
Transfer Agent upon conversion.
Upon the termination of this Agreement for any reason, the Transfer Agent
agrees to provide the Fund with complete and accurate records and to assist the
Fund in the orderly transfer of accounts and records. However, the Transfer
Agent shall retain all such records until the Transfer Agent receives payment of
all undisputed amounts due under this Agreement. Without limiting the generality
of the foregoing, the Transfer Agent agrees upon termination of this Agreement:
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(a) to deliver to the Fund computer tapes containing the Fund's accounts
and records together with such record layouts and additional information as may
be necessary to enable the Fund to utilize the information therein;
(b) to cooperate with the Fund and any successor transfer agent in the
interpretation of the Fund's accounts and records;
(c) to forward all Shareholder calls to the new Transfer Agent upon
de-conversion; and
(d) to act in good faith, to make the conversion as smooth as possible for
the Fund.
SECTION 3. The practices and procedures of the Transfer Agent and the Fund
set forth in the Agreement, or any other terms or conditions of this Agreement,
may be altered or modified from time to time as may be mutually agreed by the
parties to this Agreement. In special cases the parties hereto may adopt in
writing such procedures as may be appropriate or practical under the
circumstances, and the Transfer Agent may conclusively rely on the determination
of the Fund that any special procedure which has been approved by the Fund does
not conflict with or violate any requirements of its Articles of Incorporation,
By-Laws or Prospectus, or any rule, regulation or requirement of any regulatory
body.
SECTION 4. This Agreement may be amended from time to time by a
supplemental agreement executed by the Fund and the Transfer Agent.
SECTION 5. Any notice or other communication required by or permitted to
be given in connection with this Agreement shall be in writing, and shall be
delivered in person or sent by first class mail, postage prepaid, to the
respective parties as follows:
If to the Fund:
Builders ProLoan Fund, Inc.
Attn: President
2190 S. Mason Road, Suite 208
St. Louis, Missouri 63131
If to the Transfer Agent
Unified Fund Services, Inc.
Attention: President
431 N. Pennsylvania Street
Indianapolis, Indiana 46204-1897
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SECTION 6. The Transfer Agent and the Fund each represent and warrant to
the other as to itself that all actions required by their respective Trustees or
Shareholders have been taken to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby; the
execution and delivery of this Agreement and consummation of the transactions
contemplated hereby do not contravene any provision of their respective charter
or by-laws or of any laws, regulations or orders of any government or agency
thereof to which it is subject; do not constitute the violation or breach of any
agreement or understanding to which it is a party or by which it is bound; and
upon its execution and delivery, this Agreement shall be binding and enforceable
against it in accordance with its terms.
SECTION 7. The Transfer Agent may from time to time, with the written
consent of the Fund, delegate some or all of its duties hereunder to others, who
shall perform such functions as the agent of the Transfer Agent. To the extent
of such delegation, the term "the Transfer Agent" in this Agreement shall be
deemed to refer to both the Transfer Agent and to its designee or to either of
them, as the context may indicate. In each provision of this Agreement fixing or
limiting the liabilities or the delegations of the Transfer Agent, or providing
for the liability indemnification or protection of the Transfer Agent, the term
"the Transfer Agent" shall include the Transfer Agent's designee. The Transfer
Agent shall not be relieved of any liabilities or obligation under the Agreement
in connection with such delegation of duties, shall be responsible to supervise
and assure that any such designee properly performs the duties delegated to it,
and shall be responsible for the performance of the designee as though the
Transfer Agent had, itself, performed the duties so delegated.
SECTION 8. This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument, which is
only effective if three signatures are executed.
SECTION 9. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of the Transfer Agent or by the Transfer Agent without the written
consent of the Fund, authorized or approved by a resolution of its Board of
Trustees.
SECTION 10. This Agreement constitutes the full and complete agreement of
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements or understandings between the parties. The schedule attached
hereto shall be deemed to be part of this Agreement.
SECTION 11. Whenever pronouns are used herein, they shall be interpreted
in the neuter, masculine, feminine, singular or plural as the context may
require.
SECTION 12. Except where specific time limits are herein provided, no
delay on the part of any party hereto in exercising any power or right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any power or right hereunder preclude other or further exercise thereof or the
exercise of any other power or right. No waiver shall be enforceable against any
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party hereto unless in writing, signed by the party against whom such waiver is
claimed, and shall be limited solely to the one event.
SECTION 13. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Indiana, without giving
effect to the principles of conflicts of law.
ARTICLE VIII. DEFAULT
The following events shall be a default ("Default") under this Agreement:
(a) Fund neglects or fails, in whole or in part, to observe any of its
obligations to the Transfer Agent to make any payments due under this Agreement;
or
(b) Either party neglects or fails in whole or part to observe any of its
obligations stated herein; or
(c) Fund assigns this Agreement or any of its rights hereunder without the
prior written consent of Transfer Agent.
Upon the occurrence of a Default, the non-defaulting party may terminate
the Agreement and recover from the defaulting party:
(a) Any payments due hereunder; and
(b) All costs and expenses of collection, including reasonable attorneys'
fees; and
(c) Any and all damages available under law.
ARTICLE IX. ARBITRATION
SECTION 1. In the event of a dispute between the parties under this
Agreement, the parties shall first seek to resolve such dispute through
good-faith, face-to-face negotiations between the respective principals. If
negotiations are not successful, then the dispute shall be referred to
arbitration and such arbitration shall be conducted in accordance with the rules
of the American Arbitration Association.
SECTION 2. The decision rendered through arbitration shall be final and
binding upon the parties hereto, and judgment shall be entered in accordance
with applicable law in any court having jurisdiction thereof. In rendering a
decision, the arbitrators shall be governed by the terms of this Agreement.
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ARTICLE X. MISCELLANEOUS
SECTION 1. The Transfer Agent may contract with or establish relationships
with other parties for the provision of services or activities required by this
Agreement with the prior written consent of the Fund.
SECTION 2. The Transfer Agent agrees to promptly notify the Fund if for
any reason the Transfer Agent is unable to perform fully and promptly any of its
obligations under this Agreement.
SECTION 3. The Transfer Agent may at any time own or hold with power to
vote certain shares of the Fund which are registered in the name of the Transfer
Agent or its affiliate Unified Management Corporation or the name of their
respective nominee.
SECTION 4. The provisions of the Agreement shall in no way limit the
authority of the Fund to take such action as it may deem appropriate or
advisable in connection with all matters relating to the operations of such Fund
and/or sale of its shares.
SECTION 5. In consideration of the performance of the Services by the
Transfer Agent hereunder, the Fund severally agrees to compensate the Transfer
Agent at the rates described in and attached hereto as Schedule A, hereunder
referred to (the "Fee Schedule"), which Fee Schedule may change pursuant to a
written amendment to this Agreement executed by and among the Fund and Transfer
Agent. Payment for the Services shall be made at least monthly. The parties
mutually agree to not unreasonably withhold permission for reasonable amendments
or modifications in the Fee Schedule should circumstances arise, outside of the
party's or parties' control, which would materially and adversely affect the
party should such request for amendment or modification not be agreed to.
SECTION 6. The Transfer Agent shall indemnify and hold harmless the Fund
from and against any and all losses or liabilities that the Fund may incur ,
arising out of or related to the performance or non-performance of the Transfer
Agent of its responsibilities under this Agreement, including but not limited
to, reasonable attorney's fees, expenses and costs.
The Transfer Agent, however, shall be excluded from any obligations,
liabilities, indemnities, hold harmless provisions, losses and/or liabilities
from any such claims, suits, loss, damage or cost caused by, contributed to or
arising from any noncompliance, negligence, failure to perform by the Fund with
its obligations under this Agreement, including the non-performance by the Fund
of this or any other agreement between the parties which would prevent the
Transfer Agent from performing its obligations to the Fund under the terms of
this Agreement, as to which the Fund shall indemnify, hold harmless and defend
the Transfer Agent and Unified Management Corporation on the same basis as set
forth above.
SECTION 7. The Transfer Agent understands and agrees that the obligations
of the Fund under this Agreement are not binding upon the shareholders of the
Fund personally, but bind the Fund and the Fund's property; the Transfer Agent
Unified Fund Services, Inc. 1/26/99 Builders ProLoan Fund, Inc. - 15
<PAGE>
represents that it has notice of the provisions of the Articles of Incorporation
disclaiming shareholder liability for acts or obligations of the Fund.
SECTION 8. It is understood and agreed that in performing the services
under this Agreement, the Transfer Agent shall not be acting as an agent for the
Fund.
SECTION 9. To the extent that any of the terms, conditions and/or
obligations herein cannot be fulfilled by the Fund due to any terms and/or
conditions contained within the Fund's prospectus, or due to any subsequent
changes, alterations, or amendments to the Fund's existing prospectus, the Fund
agrees to honor and fulfill the remaining terms, conditions and/or obligations
herein for as long as the Agreement is in full force and effect.
Unified Fund Services, Inc. 1/26/99 Builders ProLoan Fund, Inc. - 16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Transfer Agent
Agreement to be signed by their respective duly authorized officers as of the
day and year first above written.
BUILDERS PROLOAN FUND, INC.
By Date
------------------------------------- ---------------------
Title
----------------------------------
Attest
---------------------------------
UNIFIED FUND SERVICES, INC.
By Date
------------------------------------- ---------------------
Title
----------------------------------
By Date
------------------------------------- ---------------------
Title
----------------------------------
Attest
---------------------------------
Unified Fund Services, Inc. 1/26/99 Builders ProLoan Fund, Inc. - 17
<PAGE>
SCHEDULE A
TRANSFER AGENCY FEE SCHEDULE
The prices contained herein are effective for twelve months from the execution
date of this contract.
I CONVERSION FEE: Fee not to exceed $500.00
II STANDARD BASE FEE FOR STANDARD BASE SERVICES
The Base Fee* is $1.50 for money market funds and $1.35 for equity/bond
funds per active Shareholder Account per month with a minimum fee of $1,000
per portfolio per month. An Active Shareholder Account is any Shareholder
Account existing on Transfer Agent's computerized files with a non-zero
Share balance. There is a $.25 per account charge for any account with a
zero share balance for the current calendar year, as determined on the last
day of each month.
*The Base Fee does not include: forms design and printing, statement
production, envelope design and printing, postage and handling, shipping,
statement microfiche copies and 800 number access to Unified's shareholder
services group.
Unified supports for an additional monthly fee of $0.05 per account per
service: receivables accounting, 12b-1 fund reporting, back-end sales load
recapture accounting, and/or detailed dealer and representative load
commission accounting and reporting. Funds paying dividends more frequently
than once per quarter (generally, money market funds) are charged an
additional $0.30 per month per account.
Unified will provide lost account search services in connection of SEC Rules
17Ad-17 and 17a-24 at a cost of $2.50 per account per account searched.
These "Electronic Data Search Services" will be performed on a semi-annual
basis. This service will apply to only Active Shareholder Accounts
maintained on the transfer agency system coded as RPO accounts.
In addition to the above fees, there will be a $500.00 minimum fee/rerun
charge when the nightly processing has be repeated due to incorrect NAV or
dividend information received from the Fund Accountant/Portfolio Pricing
Agent.
III STANDARD BASE TRANSACTION FEES
Fund/Serv processing charges are $0.25 per transaction in addition to direct
Fund/Serv charges that are passed through (See Section VI herein). Minimum
charge: $500.00 per month
Networking processing charges are $0.24 per account for Matrix levels 1, 2 &
4 and $0.06 for Matrix level 3 in addition to direct Networking charges that
are passed through (See Section VI herein). Minimum charge: $500.00 per
month.
IV STANDARD SERVICES PROVIDED
-Opening new accounts
-Maintaining Shareholder accounts
INCLUDES:
-Maintaining certificate records
-Changing addresses
-Daily reports on number of Shares, accounts
-Preparation of Shareholder federal tax information
-Withhold taxes on U.S. resident and non-resident alien accounts
-Reply to Shareholder calls and correspondence other than that for
Fund information and related inquiries
-Processing purchase of Shares
-Issuing /Canceling of certificates (Excessive use may be subject to
additional charges)
-Processing partial and complete redemptions
-Regular and legal transfer of accounts
Unified Fund Services, Inc. 1/26/99 Builders ProLoan Fund, Inc. - 18
<PAGE>
-Mail processing of semi-annual and annual reports
-Processing dividends and distributions
-Prepare Shareholder meeting lists
-One proxy processing per year per fund. Tabulation is limited to three.
-Receiving and tabulating of proxies
-Confirmation of all transactions as provided by the terms of each
Shareholder's account
-Provide a system which will enable Fund to monitor the total number of
Shares sold in each state. System has capability to halt sales and warn
of potential oversell. (Blue Sky Reports)
-Determination/Identification of lost Shareholder accounts
-1099 reporting
V STANDARD REPORTS AVAILABLE
-12b-1 Disbursement Report
-12b-1 Disbursement Summary
-Dealer Commission Report
-Dealer Commission Summary Report
-Exchange Activity Report
-Fees Paid Summary Report
-Fund Accrual Details
-Holdings by Account Type
-Posting Details
-Posting Summary
-Settlement Summary
-Tax Register
-Transactions Journal
VI ADDITIONAL FEES FOR SERVICES OUTSIDE THE STANDARD BASE
-Archiving of old records/storage of
aged records negotiable
-Off-line Shareholder research $25/hour (Billed to customer account)
-Check copies $3/each (Billed to customer account)
-Statement copies $5/each (Billed to customer account)
-Mutual Fund fulfillment/prospect
file maintenance $1.00/item
-Shareholder communications charges
(Faxes) pass through
-Leased line/equipment on TA's computer
system pass through
-Dial-up access to TA's computer system
pass through
-Labels .05 ea/$100 minimum
-Electronic filings of approved forms $75/transmission
-Monthly Director's Reports $25/mo/portfolio
-Direct Fund/Serv expenses Pass through
-Direct Networking expenses Pass through
-AD-HOC REPORTWRITER Report Generation $50.00 per report minimum
-Bank Reconciliation Service $50.00 monthly maintenance fee per
bank account $1.50 per bank item
-Systems Programming Labor Charges:
System Support Representatives $100.00/hour
Programmers, Consultants or
Department Heads $125.00/hour
Officers $150.00/hour
-Additional Proxy Processing:
Each processing $225.00 fixed charge per processing
Preparation and Tabulation $0.145/proxy issued
(includes 3 tabulations, sixteen
propositions)
Each Extra Tabulation $23.00 fixed charge per processing
$0.02 per proxy tabulated
Unified Fund Services, Inc. 1/26/99 Builders ProLoan Fund, Inc. - 19
January 28, 1999
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Builders Fixed Income Fund, Inc., formerly known as Builders Proloan
Fund, Inc.: File Nos. 811-0823 and 333-30221
Dear Sir or Madam:
Builders Fixed Income Fund, Inc., formerly known as Builders Proloan
Fund, Inc., (the "Fund") is an open-end, non-diversified management investment
company registered under the Investment Company Act of 1940 and the Securities
Act of 1933. We understand that the Fund is about to file Post-Effective
Amendment No. 3 to its registration statement pursuant to Rule 485(b) under the
Securities Act of 1933 ("Post-Effective Amendment No. 3").
We have, as legal counsel, reviewed Post-Effective Amendment No. 3,
and, pursuant to paragraph (b)(4) under Rule 485 of the Securities Act of 1933,
represent that Post-Effective Amendment No. 3 does not contain disclosures which
would render it ineligible to become effective pursuant to paragraph (b) of Rule
485.
We hereby consent to this opinion accompanying Post-Effective Amendment
No. 3.
Very truly yours,
Thompson Coburn
<PAGE>
January 28, 1999
Builders Fixed Income Fund
2190 S. Mason Road
Suite 208
St. Louis, MO 63131
Gentlemen:
Builders Fixed Income Fund, Inc., formerly known as Builders Proloan
Fund, Inc., (the "Fund") was established as a Maryland corporation under
Articles of Incorporation dated June 13, 1997. The Fund is an open-end,
non-diversified management investment company. The Fund has filed a Registration
Statement on Form N-1A with the Securities and Exchange Commission to register
up to 100,000,000 shares of common stock, par value $0.01 per share (the
"Shares"). You have requested our opinion regarding certain matters in
connection with the issuance by the Fund of the Shares.
We have, as counsel, examined the Fund's Articles of Incorporation and
amendments thereto, By-laws, minutes of meetings of its Board of Directors, and
such other proceedings, documents and records and consider such questions of law
as we deemed necessary to enable us to render the opinion hereinafter expressed.
Based upon the foregoing, we are of the opinion that the Shares
registered may be legally and validly issued in accordance with the Fund's
Articles of Incorporation and By-laws; and, when so issued and paid for in
accordance with the terms of the Fund's Registration Statement, the Shares will
be legally issued, fully paid and non-assessable by the Fund. We express no
opinion as to compliance with the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, or applicable state laws regulating
the offer and sale of securities.
We hereby consent to the filing of this opinion in connection with
Post-Effective Amendment No. 3 to the Fund's Registration Statement on Form N-1A
(SEC File No. 333-30221) to be filed with the Securities and Exchange
Commission.
Very truly yours,
Thompson Coburn
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 3 to Registration Statement under the Securities Act of 1933 (filed under
Securities Act File No. 333-30221) and in Post-Effective Amendment No. 6 to
Registration Statement under the Investment Company Act of 1940 (filed under
Investment Company Act File No. 811-08273) (both of which are referred to as the
"Post-Effective Amendment"), of our report dated January 15, 1999, appearing in
the Annual Report to Shareholders of Builders Fixed Income Fund, Inc. (formerly
Builders ProLoan Fund, Inc.) relating to the Builders Fixed Income Fund
(formerly the Builders ProLoan Fund) for the year ended December 31, 1998, which
report is incorporated by reference in the Statement of Additional Information
forming a part of the Post-Effective Amendment, and to the reference to us under
the heading "Financial Highlights" in the Prospectus forming a part of such
Post-Effective Amendment, and to the reference to us under the heading
"Financial Statements" in the Statement of Additional Information forming a part
of such Post-Effective Amendment.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
January 28, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 1038698
<NAME> BUILDERS PROLOAN FUND, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 177255
<INVESTMENTS-AT-VALUE> 177183
<RECEIVABLES> 2433
<ASSETS-OTHER> 118
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 179734
<PAYABLE-FOR-SECURITIES> 46808
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79
<TOTAL-LIABILITIES> 46887
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 131999
<SHARES-COMMON-STOCK> 8772
<SHARES-COMMON-PRIOR> 7991
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 918
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (72)
<NET-ASSETS> 132848
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7465
<OTHER-INCOME> 0
<EXPENSES-NET> 748
<NET-INVESTMENT-INCOME> 6717
<REALIZED-GAINS-CURRENT> 1730
<APPREC-INCREASE-CURRENT> (523)
<NET-CHANGE-FROM-OPS> 7924
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6717)
<DISTRIBUTIONS-OF-GAINS> (897)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 565
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 216
<NET-CHANGE-IN-ASSETS> 12199
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> 85
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 455
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 885
<AVERAGE-NET-ASSETS> 125353
<PER-SHARE-NAV-BEGIN> 15.10
<PER-SHARE-NII> 0.80
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> 0.80
<PER-SHARE-DISTRIBUTIONS> 0.11
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.14
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
