BUILDERS FIXED INCOME FUND, INC.
ANNUAL REPORT TO SHAREHOLDERS
DECEMBER 31, 1999
THIS REPORT IS PROVIDED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE
BUILDERS FIXED INCOME FUND, INC. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
<PAGE>
Dear Shareholder,
As Chairman of the Builders Fixed Income Fund, Inc., I would like to express my
sincere appreciation for your participation in the Fund. It is a privilege to
serve the needs of our investors by delivering a quality core investment
product, while working in the community providing ProLoan mortgages to new home
buyers and employment opportunities for organized building trades. We actively
participate in coordinating the origination and securitization of home mortgages
resulting in the hands-on approach needed to have an impact in our targeted
mortgage markets. This annual report contains financial statements for the
period ending December 31, 1999.
The Builders Fixed Income Fund, Inc. has been delivering quality core fixed
income management to its investors. The Fund actively participated in the
coordination, origination and securitization of home mortgages in various cities
in the Midwest generating approximately 488 loan applications for a total of
$67,913,130 in 1999. The program performance has been strong in St Louis while
programs in other cities are either just beginning or moving slowly. The 4th
Quarter of 1999 was a slow production period for mortgage loans. As we enter the
new year we expect home demand to increase and programs in cities other than St.
Louis to experience significant growth.
As of December 31, 1999, the Fund had $167,141,226 in total assets and
$19,741,261 in the mortgage pipeline (at par value). During the 4th quarter of
1999, the Fund decreased the pipeline in an effort to be able to maximize loan
production in the new year. In 1999, the Fund welcomed many new investors,
including the Sheet Metal Workers of Toledo, Carpenters' Pension Fund of Western
PA, Kentucky State District Council of Carpenters, Plumbers & Pipefitters Local
No. 562, and the Sheet Metal Workers Local 36. In 2000, the marketing team is
expecting many new investors, including Carpenter's Pension Fund of Illinois
which invested seventeen million dollar in the first week of January 2000.
During 1999 the investment performance managed by Scott Colbert, subadvisor to
the Fund, provided investors with a total return of - 0.58%.* This compares
favorably to the fund's peer group (Lipper Intermediate Investment Grade Index)
which was -0.98%.* Bond prices moved inversely with the direction of interest
rates in 1999 because short term interest rates rose 75 basis points as the
Federal Reserve tightened policy. This resulted in a negative return for the
bond market in 1999 and only the second negative return for the bond market as
measured by the Lehman Aggregate Indexes inception in 1976.
<PAGE>
The positive news is that we beat our benchmark while generating over 60 million
dollars in bonds. Going forward the subadvisor expects short term interest rates
to rise and has positioned the portfolio to account for the anticipated rise in
interest rates.
As the Fund enters the new millenium, we look forward to another successful year
of investment performance and continued growth in the ProLoan program. As
always, I am available to discuss any aspect of the Fund with any investor so
please do not hesitate to call or write.
Sincerely,
/s/ John Stewart
John W. Stewart, Chairman
Builders ProLoan Fund Inc.
* The Fund's average annual return from inception on October 31, 1997 through
December 31, 1999 was 3.42%. Past performance does not guarantee future
results. Share value and returns fluctuate and you may have a gain or loss
when you sell your shares. Performance results for Builders Fixed Income Fund
and Lipper Intermediate Investment Grade Index include reinvested dividends,
interest and other earnings.
2
<PAGE>
COMMERCE BANK
INVESTMENT SUB ADVISOR REPORT
INVESTMENT RESULTS
Commerce Bank, NA, the investment sub-advisor for the Builder's Fixed Income
Fund is very pleased to report POSITIVE relative investment results for all
reported periods ending December 31, 1999. The return for the second half of
1999 was a positive 0.69%. This compares favorably to the fund's mutual fund
peer group return of 0.44% as measured by Lipper Analytical Services
Intermediate Investment Grade Index. For the past year the fund also posted a
positive return relative to its Lipper peer group of -.58% vs. -1.06%. Since
inception, the fund has generated an annualized return of 3.42%. This also
compares favorably to the annualized Lipper return of 2.92%.
6 Months 1 Year 2 Year Inception*
-------- ------ ------ ----------
Builders ProLoan-After Fees 0.69% -0.58% 2.90% 3.42%
Lipper Peer Group** 0.44% -1.06% 2.49% 2.92%
Relative Performance 0.25% 0.48% 0.41% 0.50%
- ----------
* Inception 10/31/97
** Custom Lipper Index consists of the Lipper U.S. Mortgage Fund Index from
Inception through 1/31/99 and the Lipper Intermediate Investment Grade Index
from 2/1/99 forward
ANALYSIS OF INVESTMENT RESULT
While we are pleased this fund has consistently managed to beat its peer group,
the nominal investment result for the second half of the year was just
marginally positive at .69%. Worse yet, for the typical bond market investor,
full year results were actually negative. Bond prices move inversely with the
direction of interest rates, and interest rates rose materially over 1999. Short
term rates, as measured by the Federal Funds rate, rose 75 basis points as the
Federal Reserve tightened policy in June, August and November. Longer maturity
bonds were more dramatically impacted as they discounted the potential
additional Fed intervention. Five year Treasuries rose 110 basis points in the
first half of the year and 70 basis points from July to December. This resulted
in only the second negative return for the bond market (-.82%) as measured by
the Lehman Aggregate Index since the indexes inception in the 1976.
The positive news is that our fund actually managed to beat its unmanaged
benchmark on an after fee basis in 1999. This was no small accomplishment as we
generated 443 loans and approximately $61.8 million in new mortgage production.
Our out performance was entirely a function of our active management style and
was primarily attributable to three tactical moves. First, in order to protect
the funds assets in a rising rate environment, we maintained a shorter than
average duration relative to the aggregate market, particularly in the first
half of the year. In addition, we held cash equivalent securities to entirely
3
<PAGE>
Commerce Bank
Builders Fixed Income Fund, Inc.
Page 2
offset the interest rate risk of the fund as our ProLoan mortgage production
increased over 1999's record breaking single family housing market. Secondly, we
added to our credit exposure as the year progressed to take advantage of a
widening in credit spreads which peaked in September. This widening in credit
spreads was largely a result of liquidity concerns generated by end of year Y2K
fears. We correctly surmised that liquidity would return to the market and
indeed credit spreads rallied over the fourth quarter with corporate securities
outpacing all other sectors. This tactical overweight to corporate and asset
backed securities dramatically outperformed plain vanilla Treasury and Agency
securities. Finally, as credit spreads recovered and interest rates rose,
mortgage spreads also improved on the recognition that supply in the year 2000
would be dramatically lower given the higher nominal interest rate environment.
We took advantage of this situation by reducing both our production of new
mortgages and our exposure in the pipeline by selling down our closed mortgages
in the cash markets.
MARKET OUTLOOK
Going forward we expect short-term interest rates to remain under pressure and
will likely see the Fed hike rates twice, once in February and again sometime in
the first half of the year. Economic growth remains quite healthy, having grown
at a 4 plus percent pace in 1999. Oil prices have more than doubled, putting
pressure on inflation as measured by the CPI. While gains in productivity have
more than offset wage and cost pressures, economic slack is minimal, and the
tremendous wealth generated by our booming stock markets is spilling over into
the economy. Fortunately, the dramatic rise in interest rates has sown the seeds
for a modest slowdown. The Fed's preemptive policies are still likely to err on
the conservative side, but eventually even those rate hikes will end,
positioning the bond market to provide higher positive nominal returns,
particularly as compared to 1999.
Scott M. Colbert, CFA
Director of Fixed Income
Commerce Bancshares, Inc.
4
<PAGE>
PERFORMANCE GRAPH
Builders Fixed Income Fund, Inc.
Comparison Of Change In Value Of $10,000
Lipper Lehman Lehman
Builders Intermediate Brothers Brothers
Fixed Income Investment Aggregate Mortgage-Backed
Date Fund, Inc. Grade Index Index Securities Index
---- ---------- ----------- ----- ----------------
10/31/97 10,000 10,000 10,000 10,000
11/30/97 10,041 10,029 10,046 10,033
12/31/97 10,158 10,121 10,147 10,124
1/31/98 10,281 10,255 10,277 10,225
2/28/98 10,266 10,240 10,271 10,246
3/31/98 10,289 10,278 10,306 10,281
4/30/98 10,333 10,326 10,359 10,339
5/31/98 10,427 10,419 10,457 10,408
6/30/98 10,506 10,502 10,545 10,458
7/31/98 10,513 10,523 10,567 10,511
8/31/98 10,672 10,666 10,740 10,607
9/30/98 10,846 10,905 10,991 10,735
10/31/98 10,704 10,817 10,933 10,721
11/30/98 10,766 10,871 10,995 10,775
12/31/98 10,817 10,917 11,028 10,821
1/31/99 10,923 10,985 11,107 10,898
2/28/99 10,742 10,789 10,912 10,854
3/31/99 10,822 10,874 10,972 10,927
4/30/99 10,823 10,910 11,008 10,977
5/31/99 10,690 10,799 10,911 10,916
6/30/99 10,681 10,763 10,877 10,877
7/31/99 10,607 10,724 10,830 10,804
8/31/99 10,573 10,713 10,825 10,804
9/30/99 10,722 10,831 10,950 10,979
10/31/99 10,803 10,848 10,991 11,042
11/30/99 10,805 10,860 10,990 11,048
12/31/99 10,755 10,811 10,937 11,021
AVERAGE
ANNUALIZED
SINCE
TOTAL RETURNS FOR PERIOD ENDING DECEMBER 31, 1999 ONE YEAR INCEPTION*
-------- ----------
Builders Fixed Income Fund, Inc. -0.58% 3.42%
Lipper Intermediate Investment Grade Index -0.98% 3.66%
Lehman Brothers Aggregate Index -0.83% 4.22%
Lehman Brothers Mortgage-Backed Securities Index 1.85% 4.59%
* The Fund commenced operations on October 31, 1997.
TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. PAST
PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. INVESTMENT RETURN WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST.
The benchmark for Builders Fixed Income Fund changed from the Lehman Brothers
Mortgage-Backed Securities Index to Lehman Brothers Aggregate Index. This change
was made because the Fund invests primarily in investment grade fixed income
securities.
5
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
% OF
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
U.S. GOVERNMENT AND 8.3%
U.S. GOVERNMENT AGENCY
Federal National Mortgage Association 3.6%
$2,000,000 5.75% 4/15/2003** $ 1,943,234
3,500,000 6.375% 6/15/2009 3,340,995
-----------
5,284,229
-----------
Federal Home Loan Bank Notes 2.0%
3,000,000 5.875% 9/17/2001 2,970,480
-----------
U.S. Treasury Bond 2.7%
3,500,000 7.875% 2/15/2021** 3,912,335
-----------
TOTAL U.S. GOVERNMENT AND
U.S. GOVERNMENT AGENCY
(COST $12,644,373) 12,167,044
-----------
U.S. GOVERNMENT AGENCY -
MORTGAGE BACKED SECURITIES 24.2%
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION II 0.5%
Pool 1470
28,409 9.00% 9/20/2020 29,634
Pool 1472
10,625 10.00% 9/20/2020 11,419
Pool 1507
17,422 9.50% 11/20/2020 18,434
Pool 1614
21,351 9.00% 5/20/2021 22,259
Pool 1615
19,747 9.50% 5/20/2021 20,890
Pool 1740
49,923 9.00% 12/20/2021 52,046
Pool 8373
169,357 6.875% 2/20/2024 170,906
Pool 8386
63,105 6.875% 3/20/2024 63,683
Pool 8387
29,642 6.875% 3/20/2024 29,914
Pool 8471
167,976 6.625% 8/20/2024 169,641
Pool 1920
191,516 7.50% 12/20/2024 188,944
-----------
777,770
-----------
See Accompanying Notes to Financial Statements.
6
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
% OF
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION II 2.1%
VARIABLE RATE*
Pool 8191
$183,100 6.375% 5/20/2023 $ 185,246
Pool 8302
167,325 6.125% 10/20/2023 168,883
Pool 8315
30,156 6.125% 11/20/2023 30,435
Pool 8324
64,394 6.125% 11/20/2023 64,991
Pool 8340
58,810 6.375% 12/20/2023 59,352
Pool 8419
94,833 6.375% 5/20/2024 95,461
Pool 8420
280,786 6.375% 5/20/2024 282,617
Pool 8479
189,262 6.75% 8/20/2024 191,124
Pool 8482
26,892 6.75% 8/20/2024 27,154
Pool 8494
157,608 6.625% 9/20/2024 159,162
Pool 8502
149,452 6.75% 9/20/2024 150,900
Pool 8503
89,405 6.75% 9/20/2024 90,277
Pool 8538
200,191 6.125% 11/20/2024 201,917
Pool 8539
217,331 6.125% 11/20/2024 219,207
Pool 8540
159,494 6.125% 11/20/2024 160,875
Pool 8575
109,840 6.875% 1/20/2025 110,788
Pool 8576
118,622 6.875% 1/20/2025 119,643
Pool 8578
148,942 6.875% 1/20/2025 150,211
Pool 8590
106,793 6.875% 2/20/2025 107,699
Pool 8607
169,863 6.875% 3/20/2025 171,316
Pool 8705
154,476 6.75% 9/20/2025 155,768
See Accompanying Notes to Financial Statements.
7
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
% OF
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION II - CONTINUED
VARIABLE RATE*
Pool 833684
$ 228,559 6.125% 11/20/2023 $ 230,566
----------
3,133,592
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 0.6%
Pool 102990
62,452 12.50% 12/15/2013 70,280
Pool 340649
195,213 7.50% 6/15/2023 194,251
Pool 349645
406,257 7.00% 6/15/2023 395,898
Pool 349646
32,660 8.50% 9/15/2024 33,629
Pool 349647
38,527 7.50% 7/15/2023 38,286
Pool 367574
26,165 8.50% 6/15/2025 26,986
Pool 388962
60,752 7.50% 1/15/2026 60,217
----------
819,547
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION 0.8%
Series 1403 Class J
58,195 6.50% 7/15/2019 57,930
Pool C34597
1,139,197 7.50% 12/1/2029 1,129,110
----------
1,187,040
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION 0.1%
VARIABLE RATE*
Pool 635235
153,009 6.752% 6/1/2025 154,237
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION 19.4%
Series 1992-181 Class PH
61,000 6.50% 9/25/2019 60,514
Series 1992-25 Class J
53,961 7.50% 12/25/2006 54,332
Series 1993-30 Class PG
8,203 6.65% 9/25/2017 8,169
Pool 50698
4,373 7.50% 3/1/2023 4,340
See Accompanying Notes to Financial Statements.
8
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
% OF
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - CONTINUED
Pool 185857
$ 53,786 8.00% 11/1/2002 $ 54,500
Pool 185861
17,807 9.00% 2/1/2006 18,420
Pool 185862
23,602 9.00% 10/1/2005 24,415
Pool 185863
38,869 9.50% 8/1/2004 39,627
Pool 337670
290,771 8.00% 11/1/2026 292,854
Pool 363714
450,968 8.00% 11/1/2026 454,199
Pool 392423
437,760 7.50% 6/1/2027 433,418
Pool 395131
158,926 7.50% 8/1/2027 157,350
Pool 397941
566,043 7.50% 8/1/2027 560,429
Pool 400581
655,041 7.50% 9/1/2027 648,544
Pool 403662
220,825 7.50% 10/1/2027 218,635
Pool 496714
1,092,822 6.50% 5/1/2029 1,030,668
Pool 504974
2,643,357 6.50% 7/1/2029 2,493,016
Pool 506345
1,105,970 6.50% 7/1/2029 1,043,068
Pool 510238
2,129,259 6.50% 8/1/2029 2,008,157
Pool 510448
435,993 6.00% 7/1/2014 414,012
Pool 510927
2,045,904 6.50% 8/1/2029 1,929,543
Pool 511854
1,398,221 6.50% 9/1/2029 1,318,697
Pool 512309
1,076,089 6.50% 9/1/2029 1,014,887
Pool 512724
2,103,154 6.50% 8/1/2029 1,983,537
Pool 515182
1,354,294 6.50% 9/1/2029 1,277,269
See Accompanying Notes to Financial Statements.
9
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
% OF
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - CONTINUED
Pool 516497
$ 944,597 6.50% 9/16/2029 $ 890,873
Pool 516917
1,261,125 6.50% 9/1/2029 1,189,399
Pool 518156
1,166,713 6.50% 10/1/2029 1,100,356
Pool 519318
1,893,111 6.50% 10/1/2029 1,785,441
Pool 519720
818,704 6.50% 10/1/2029 772,140
Pool 519721
1,011,542 7.00% 10/1/2029 978,772
Pool 520054
1,042,112 7.00% 9/1/2029 1,008,352
Pool 523652
1,637,567 6.50% 10/1/2029 1,544,431
Pool 524686
1,162,490 7.00% 11/1/2029 1,124,830
Pool 252716
668,296 7.00% 9/1/2029 646,646
-----------
28,583,840
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION 0.7%
VARIABLE RATE*
Pool 295899
163,738 7.125% 7/1/2025 166,661
Pool 305512
114,345 6.92% 5/1/2025 117,432
Pool 308627
123,834 6.295% 3/1/2025 127,652
Pool 308634
112,296 6.795% 6/1/2025 115,130
Pool 321228
221,025 7.25% 8/1/2025 226,330
Pool 321229
189,487 7.375% 8/1/2025 193,371
Pool 322170
7,116 6.92% 8/1/2025 7,244
See Accompanying Notes to Financial Statements.
10
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
% OF
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - CONTINUED
VARIABLE RATE*
Pool 365957
$ 133,776 6.946% 6/1/2025 $ 136,249
-----------
1,090,069
-----------
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE BACKED SECURITIES
(COST $37,647,955) 35,746,095
-----------
ASSET BACKED SECURITIES 18.7%
Advanta Mortgage Loan Trust
1,236,860 8.92% 1/25/2026 1,261,665
Armesco Residential Securities
Mortgage Loan
3,000,000 7.265% 2/25/2025 2,980,547
Asset Securitization Corporation
3,750,000 7.384% 8/13/2029 3,708,105
Asset Securitization Corporation
500,000 7.7523% 1/13/2030 485,473
Citibank Credit Card Master Trust I
Series 1997-6 Class B
3,000,000 Zero Coupon Bond 8/15/2006 2,139,360
Citibank Credit Card Master Trust I
3,000,000 6.90% 11/15/2006 2,936,719
CMC Securities Corporation
Series 1994-B Class A5
432,702 6.00% 2/25/2009 425,829
Countrywide Funding Corporation
50,000 6.50% 5/25/2024 48,110
Green Tree Financial Corporation
3,000,000 9.00% 6/15/2025 2,945,625
Green Tree Financial Corporation
1,381,479 7.30% 9/15/2026 1,329,584
Green Tree Financial Corporation
2,500,000 7.30% 12/15/2026 2,340,039
Green Tree Financial Corporation
2,000,000 7.75% 7/15/2027 2,025,090
Green Tree Financial Corporation
2,500,000 7.53% 7/15/2028 2,451,312
First Union - Lehman Brothers
Commercial Mortgage**
1,000,000 6.64% 3/18/2011 930,862
See Accompanying Notes to Financial Statements.
11
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
% OF
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
ASSET BACKED SECURITIES - CONTINUED
Metris Master Trust
$1,500,000 6.87% 10/20/2005 $ 1,502,813
-----------
TOTAL ASSET BACKED SECURITIES
(COST $28,508,665) 27,511,133
-----------
CORPORATE BONDS 30.2%
BANK 3.1%
Citicorp**
1,000,000 6.375% 11/15/2008 924,586
National Bank of Canada New York
3,750,000 7.75% 11/1/2009 3,706,395
-----------
4,630,981
-----------
FINANCE 14.2%
Donaldson Lufkin & Jenrette**
2,000,000 6.11% 5/15/2001 1,977,734
Equitable Life Assurance**
2,750,000 7.70% 12/1/2015 2,697,448
Ford Motor Credit**
1,000,000 6.625% 6/30/2003 982,813
General Motors Acceptance Corp.
3,000,000 6.15% 4/5/2007 2,786,319
General Motors Acceptance Corporation**
1,000,000 7.50% 5/10/2004 1,009,280
Goldman Sachs Group LP
1,500,000 6.625% 12/1/2004 1,454,309
Lehman Brothers
3,000,000 6.625% 4/1/2004 2,908,893
Metropolitan Life Insurance Company**
2,000,000 7.70% 11/1/2015 1,970,614
Solomon Smith Barney
2,000,000 6.625% 6/1/2000 2,001,120
Swiss Bank Corporation
1,500,000 7.375% 6/15/2017 1,427,845
Swiss Bank Corporation
1,700,000 7.50% 7/15/2025 1,634,686
-----------
20,851,061
-----------
See Accompanying Notes to Financial Statements.
12
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
% OF
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
INDUSTRIAL 7.8%
Cargill Inc.
$2,000,000 6.30% 4/15/2009 $ 1,821,902
Conoco
1,000,000 6.35% 4/15/2009 926,804
Lafarge Corp.
1,600,000 6.375% 7/15/2005 1,513,024
Lubrizol Corporation**
2,000,000 5.875% 12/1/2008 1,805,314
Ryder System, Inc.
1,500,000 6.60% 11/15/2005 1,380,375
ServiceMaster Company
2,500,000 7.10% 3/1/2018 2,144,793
WMX Technologies
2,000,000 6.70% 5/1/2001 1,933,548
------------
11,525,760
------------
TRANSPORTATION 1.4%
Ford Motor Company**
2,350,000 6.50% 8/1/2018 2,079,308
------------
UTILITIES 3.7%
AT&T Corp.
1,000,000 6.50% 3/15/2029 858,698
GTE Corp.**
2,400,000 6.84% 4/15/2018 2,196,007
Northern States Power
2,500,000 6.875% 8/1/2009 2,406,315
------------
5,461,020
------------
TOTAL CORPORATE BONDS
(COST $47,827,854) 44,548,130
------------
PROLOAN PIPELINE 12.7%
19,741,261 When-Issued Commitments
(Cost $19,741,261) 18,709,443
------------
See Accompanying Notes to Financial Statements.
13
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
% OF
PAR VALUE NET ASSETS VALUE
- --------- ---------- -----
SHORT TERM INVESTMENTS 18.5%
COMMERCIAL PAPER 17.6%
Bank of New York
$3,000,000 5.75% 2/24/2000 $ 2,973,646
Duke Energy Corp.
4,000,000 5.65% 1/14/2000 3,991,211
Georgia Power Company**
9,000,000 5.75% 2/1/2000 8,954,000
UBS Financial Inc.
5,000,000 5.73% 1/21/2000 4,983,287
USAA Cap Corp.
5,000,000 5.82% 2/11/2000 4,966,050
25,868,194
------------
REPURCHASE AGREEMENT 0.9%
Northern Trust Repurchase Agreement,
3.25%, dated 12/31/99, due 1/3/00
(Collateralized by $1,365,299 FNMA
Discount Notes, 0%, due 1/26/00)
1,338,000 (Proceeds $1,338,362) (Cost $1,338,000) 1,338,000
------------
TOTAL SHORT TERM INVESTMENTS
(COST $27,206,194) 27,206,194
------------
TOTAL INVESTMENTS IN SECURITIES 112.6%
(COST $173,576,302) 165,888,039
------------
Liabilities in Excess of (12.6%)
Other Assets (18,562,522)
------------
NET ASSETS 100.0% $147,325,517
============
- ----------
* The rate shown on variable rate securities represents the rate at December
31, 1999.
** Security segregated at custodian for "when-issued" commitments.
See Accompanying Notes to Financial Statements.
14
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments in securities at value
(cost $173,576,302) $ 165,888,039
Receivables:
Interest 1,164,845
Securities sold 677
Deferred organization costs, net 61,848
Other assets 25,817
-------------
Total assets 167,141,226
-------------
LIABILITIES
Payables:
Cash overdraft 39,705
Investment securities purchased - when issued 19,741,261
Due to advisors (Note 3) 3,139
Due to Distributor (Note 3) 11,604
Other accrued expenses 20,000
-------------
Total liabilities 19,815,709
-------------
NET ASSETS $ 147,325,517
=============
COMPOSITION OF NET ASSETS
Paid-in capital $ 155,823,439
Undistributed net investment income 1,827
Accumulated net realized loss
on investments (811,486)
Net unrealized depreciation on investments (7,688,263)
-------------
Net assets $ 147,325,517
=============
Number of shares issued and outstanding
(unlimited shares authorized no par value) 10,422,716
=============
Net asset value per share $ 14.14
=============
See Accompanying Notes to Financial Statements.
15
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $ 8,721,771
-----------
EXPENSES:
Subadvisor fees (Note 3) 283,844
Management fees (Note 3) 207,485
Distribution fees (Note 3) 138,324
Fund accounting fees 55,284
Administration fees (Note 3) 50,001
Professional fees 48,241
Custodian fees 24,368
Amortization of deferred organization costs 21,617
Insurance 18,801
Transfer agent fees 11,572
Directors fees (Note 3) 10,901
Registration fees 4,381
Miscellaneous expenses 24,184
-----------
Total expenses 899,003
Subadvisor fees waived (Note 3) (55,610)
Distribution fees waived (Note 3) (20,378)
-----------
Net expenses 823,015
-----------
NET INVESTMENT INCOME 7,898,756
-----------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on investments (809,391)
Net change in unrealized depreciation on investments (7,616,644)
-----------
Net loss on investments (8,426,035)
-----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (527,279)
===========
See Accompanying Notes to Financial Statements.
16
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
INCREASE IN NET ASSETS
Operations:
Net investment income $ 7,898,756 $ 6,717,468
Net realized gain (loss) on investments (809,391) 1,729,573
Net change in unrealized depreciation
on investments (7,616,644) (522,996)
------------ ------------
Net increase (decrease) in net assets
resulting from operations (527,279) 7,924,045
------------ ------------
Distributions to shareholders:
From net investment income (7,898,756) (6,717,468)
From realized gains (920,245) (896,900)
------------ ------------
Total distributions (8,819,001) (7,614,368)
------------ ------------
Capital share transactions:
Proceeds from shares sold 15,081,208 8,600,000
Net asset value of shares issued on
reinvestment of distributions 8,743,042 3,289,154
------------ ------------
Net increase from capital share transactions 23,824,250 11,889,154
------------ ------------
NET INCREASE IN NET ASSETS 14,477,970 12,198,831
NET ASSETS
Beginning of period 132,847,547 120,648,716
------------ ------------
End of period (including undistributed net
investment income of $1,827 and $1,827,
respectively) $147,325,517 $132,847,547
============ ============
CHANGE IN SHARES
Shares sold 1,047,074 565,141
Shares issued on reinvestment of distributions 603,193 215,905
Shares redeemed -- --
------------ ------------
Net increase 1,650,267 781,046
============ ============
See Accompanying Notes to Financial Statements.
17
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS ANNUAL REPORT.
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
October 31, 1997*
Year Ended Year Ended through
December 31, 1999 December 31, 1998^ December 31, 1997^
----------------- ------------------ ------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 15.14 $ 15.10 $ 15.00
-------- -------- --------
Income from investment operations
Net investment income 0.83 0.80 0.14
Net realized and unrealized gains
(loss) on investments (0.91) 0.15 0.10
-------- -------- --------
Total from investment operations (0.08) 0.95 0.24
-------- -------- --------
Distributions
Net investment income (0.83) (0.80) (0.14)
Realized gains (0.09) (0.11) -
-------- -------- --------
(0.92) (0.91) (0.14)
-------- -------- --------
Net asset value, end of period $ 14.14 $ 15.14 $ 15.10
======== ======== ========
Total return (0.58%) 6.48% 1.58%+
Net assets at end of period (in 000's) $147,326 $132,848 $120,649
Ratio of expenses to average net assets:
Before expenses waived 0.65% 0.71% 0.63%#
After expenses waived 0.60% 0.60% 0.58%#
Ratio of net investment income to average
net assets (net of expenses waived) 5.70% 5.36% 5.41%#
Portfolio turnover rate 91.01% 39.39% 1.29%+
</TABLE>
- ----------
* Commencement of operation.
+ Not annualized.
# Annualized.
^ The calculations are based on average number of shares outstanding for the
period.
18
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) ORGANIZATION AND BUSINESS
The Builders Fixed Income Fund (the "Fund"), constituting the initial
series of The Builders ProLoan Fund, Inc. (the "Corporation"), was
incorporated in the state of Maryland on June 13, 1997 and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as a
non-diversified, no-load, open-end management investment company issuing
its shares in series, each series representing a distinct portfolio with
its own investment objectives and policies. The only series presently
authorized is the Builders Fixed Income Fund, which prior to January 29,
1999 was known as the Builders ProLoan Fund. Investment operations of the
Fund began on October 31, 1997. The investment objective of the Fund is
current income.
The Fund typically invests in mortgage-backed securities which represent
interests in single or multi-family home mortgages originated through the
ProLoan program. The ProLoan program is a coordinated effort involving real
estate professionals, home builders, mortgage originators and organized
building trade unions. To qualify for a ProLoan home mortgage loan, a
borrower's single or multi-family home must be: (1) substantially
union-built, as determined by the Manager, and (2) newly constructed or
substantially renovated. In addition, the borrower's mortgage loan must be
eligible to be secured by a Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA") or Federal Home
Loan Mortgage Corporation ("FHLMC") guarantee. Each mortgage loan meeting
the above qualifications, as established by the Manager, is referred to
hereinafter as a "ProLoan." The Fund also may purchase whole loan mortgages
originated through the ProLoan program that are not eligible to be secured
by a GNMA, FNMA or FHLMC guarantee.
The ProLoan interest rate and points generally are established by the
Subadvisor each week, based on its survey of local markets and the ability
of the Fund to invest in additional mortgage-backed securities. The Fund
has entered into agreements with selected banks, mortgage lenders and other
financial institutions (collectively, the "Lenders"), pursuant to which the
Lenders agree to originate ProLoans at the established interest rate and
points. The ProLoan program allows a borrower to reduce interest rate
exposure by locking in the interest rate on a ProLoan, typically for 180
days prior to the closing of the ProLoan, to allow time for construction or
renovation of the borrower's home. This interest rate protection is offered
in exchange for a commitment fee from the borrower, which is refundable to
the borrower at closing. These commitment fees may not fully compensate the
Fund for the additional interest rate risk it will bear during the 180-day
interest rate lock-in period and thus, the Fund may incur a loss. In the
event that the borrower does not close a ProLoan, the unrefunded commitment
fees are allocated between the Fund and the Lender in amounts agreed to by
19
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
the Fund and the Lender. A borrower may be offered the opportunity to
reduce the interest rate on a ProLoan prior to closing if market interest
rates have declined from the interest rate set on the commitment date in
exchange for a stated fee, which typically is one-half of one percent of
the borrower's principal loan amount. This "float-down" fee is retained by
the Fund. A borrower also may be offered the opportunity to purchase
additional 30 day extensions of interest rate protection, at the discretion
of the Subadvisor, if the borrower's home or renovations are not completed
by the date initially set for closing. This extended interest rate
protection is longer than the 45 to 60 day standard interest rate
protection offered with respect to most ordinary mortgages. The advantage
to the borrower is that interest rate risk is reduced for an effective
period of time during the construction or renovation of the borrower's
home. The advantage to home builders and real estate agents is that the
ProLoan program may attract potential home buyers. The ProLoan program is
designed to encourage the use of union craftsmen and promote employment in
the home building trade and related industries. There is no assurance that
the ProLoan program will achieve these objectives.
To create mortgage-backed securities from the underlying ProLoans, each
Lender pools its ProLoans and submits these pools to GNMA, FNMA or FHLMC
for securitization and the appropriate agency's guarantee. Or, at the
Subadvisors discretion, a closed ProLoan may be sold instead of being
included in a pool. The Fund purchases the ProLoan mortgage-backed
securities guaranteed by GNMA, FNMA or FHLMC from the Lenders at
established prices based on the face value of such ProLoans, as determined
pursuant to an agreement between the Fund and the Lenders. The
mortgage-backed securities typically are delivered to the Fund after the
interest rate security period and after the underlying ProLoans have
closed, usually within 60 days after closing. The ProLoan program is
currently operating in the Missouri, Illinois, Ohio and Michigan
metropolitan areas. The Fund's principal investor is the Carpenters'
District Council of Greater St. Louis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles
("GAAP"). The presentation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates and assumptions.
20
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(a) INVESTMENT VALUATION
Securities are valued based upon a computerized matrix system and/or
appraisals by a pricing service, both of which consider market
transactions and dealer-supplied valuations. Securities (including
restricted securities) for which market quotations are not readily
available are valued at their fair value as determined in good faith
under consistently applied procedures under the general supervision of
the Board of Directors. Short-term securities with remaining
maturities of sixty days or less for which quotations are not readily
available are valued at amortized cost or original cost plus accrued
income, both of which approximate market value.
QUALIFIED MORTGAGE LOAN COMMITMENTS are valued at an amount equal to
the principal amount of the underlying mortgage commitments multiplied
by any positive difference between par and the six-month forward
to-be-announced price of Federal National Mortgage Association
("FNMA") mortgage-backed securities with a coupon nearest to, but not
greater than, the rate for such securities that have a coupon equal to
the weighted average yield for all such loans, minus 0.625% (the
approximate amount that would be spent by the Fund for servicing,
guarantee fees and securitization costs had such loans been
securitized).
WHEN-ISSUED AND FORWARD COMMITMENTS. The Fund's commitment to acquire
mortgage-backed securities originated through the ProLoan program
constitute "when-issued" commitments. When the Fund agrees to acquire
securities on a when-issued basis, its custodian will segregate cash
or other liquid assets equal to or greater than the amount of the
commitment. The value of the securities underlying the when-issued
commitment, and any subsequent fluctuations in their value, will be
taken into account when determining the Fund's net asset value
starting on the day that the Fund agrees to purchase the securities.
The Fund does not earn interest on the securities it has committed to
acquire until they are paid for and delivered on the settlement date.
When the Fund engages in when-issued transactions, it relies on the
other party to consummate the trade. Failure of that party to do so
may result in the Fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous. The Fund will make
commitments to acquire securities on a when-issued basis only with the
intention of completing the transaction and actually purchasing the
securities. If deemed advisable as a matter of investment strategy,
however, the Fund may dispose of or renegotiate a commitment after it
is entered into, and may sell securities it has committed to purchase
before those securities are delivered to the Fund on the settlement
21
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
date. In those cases, the Fund may realize a gain or loss. Under
normal circumstances, the Fund does not intend to commit more than
33 1/3% of its total assets to these commitments.
(b) ORGANIZATION COSTS
Costs incurred by the Fund in connection with its organization,
registration and the initial public offering of shares have been
deferred and will be amortized over 5 years. If any of the original
shares of the Fund are redeemed by any holder thereof prior to the end
of the amortization period, the redemption proceeds will be reduced by
the pro rata share of the unamortized expenses as of the date of
redemption. The pro rata share by which the proceeds are reduced will
be derived by dividing the number of shares redeemed by the number of
original shares outstanding at the time of redemption.
(c) FEDERAL INCOME AND EXCISE TAXES
The Fund intends to continue to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders in
a manner which results in no tax cost to the Fund. Therefore, no
federal income or excise tax provision is required.
For federal income tax purposes, the fund has a net capital loss of
$811,486 which may be carried forward and used against future net
capital gains to the year 2007.
(d) DISTRIBUTION TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid
monthly. Distributions of net realized gains, if any, will be declared
at least annually. Distributions to shareholders are recorded on the
ex-dividend date. The Fund periodically makes reclassifications among
certain of its capital accounts as a result of the recognition and
characterization of distributions to shareholders determined annually
in accordance with federal tax regulations which may differ from
generally accepted accounting principles.
(e) OTHER
Investment transactions are accounted for on the trade date. The Fund
uses the identified cost method for determining realized gain or loss
on investments. Interest income is recognized on an accrual basis.
22
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(3) MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(a) MANAGEMENT FEE
The Fund has an Investment Management Agreement with Capital Mortgage
Management, Inc. (the "Manager"), to provide or oversee all
administrative, investment advisory and portfolio management services
to the Fund. Under the terms of this agreement, the Fund will pay the
Manager an annual fee as follows: 0.15% of the first $300 million of
the Fund's average daily net assets; and 0.13% of average daily net
assets in excess of $300 million. The fee is accrued daily and payable
monthly.
(b) SUBADVISOR FEE
The Advisor has entered into an Investment Subadvisory Agreement with
Commerce Bank, N.A. (the "Subadvisor"). Under the terms of this
agreement, the Manager will pay the Subadvisor an annual fee as
follows: 0.25% of the first $50 million of the Fund's average daily
net assets; 0.20% of the next $50 million of average daily net assets
and 0.165% of average daily net assets in excess of $100 million. The
fee will be accrued daily and payable monthly. The Subadvisor has
agreed to waive its subadvisory fees such that the fees do not exceed
0.165% of the Fund's average daily net assets until December 31, 2000.
For the year ended December 31, 1999, the Subadvisor waived $55,610 of
its fees.
(c) ADMINISTRATION FEE
The Corporation has entered into an Administration Agreement with
Investment Company Administration, L.L.C. (the "Administrator") to
supervise the overall administration of the Fund including, among
other responsibilities, the preparation and filing of all documents
required for compliance by the Fund with applicable laws and
regulations, arranging for the maintenance of books and record of the
Fund, and supervise other organizations that provide services to the
Fund. The Fund will pay the Administrator an annual fee of $50,000 for
average daily net assets up to $150 million and 0.05% for average
daily net assets greater than $150 million, payable monthly.
23
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(d) DISTRIBUTOR AND DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Corporation has adopted
a Distribution Plan (the "Plan"). Under the Plan, the Fund is
authorized to pay Capital Mortgage Management, Inc. (the
"Distributor") at an annual rate of 0.10% of the Fund's average daily
net assets, payable monthly to compensate the Distributor for
distribution and shareholder service activities. The Distributor has
agreed to limit the Fund's operating expenses (excluding advisory,
subadvisory and distribution fees) to 0.18% per annum of the Fund's
average daily net assets through December 31, 2000. The Fund will
reimburse the distributor for such expenses incurred in the previous
three year period to the extent that the reimbursement does not cause
the Fund's operating expenses to exceed the 0.18% expense limitation.
For the year ended December 31, 1999, the Distributor waived $20,378
of its fees.
Certain officers and directors of the Corporation are also officers
and directors of the Manager, Distributor and Administrator. Certain
"independent directors", as defined by the Investment Company 1940
Act, receive from the Fund as compensation an annual fee of $2,000 and
are reimbursed for any expenses incurred in attending meetings.
(4) INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the year ended December 31, 1999, are
summarized below:
Purchases $144,955,117
Sales $ 87,793,340
At December 31, 1999 gross unrealized appreciation and depreciation of
investments, based on cost for federal income tax purposes of $173,576,302,
were as follows:
Gross unrealized appreciation $ 27,877
Gross unrealized depreciation (7,716,140)
-----------
Net unrealized depreciation $(7,688,263)
===========
24
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(5) IN-KIND CONTRIBUTION TRANSACTIONS
At the Fund's inception on October 31, 1997, the Carpenters' District
Council of Greater St. Louis purchased 7,951,789 shares of the Fund through
nontaxable in-kind contributions of securities with a market value totaling
$119,516,324. These securities were deemed to be in accordance with the
investment objective of the Fund.
(6) SUBSEQUENT EVENT
On January 31, 2000, Commerce Bank resigned as Subadvisor to the Fund. The
resignation does not specify an effective date, but Commerce Bank plans to
continue to serve as the Fund's Subadvisor for a period of at least 90
days. The Subadvisor has agreed to remain in its capacity until a
replacement has been appointed.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Builders Fixed Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Builders
Fixed Income Fund (the sole fund comprising Builders Fixed Income Fund, Inc.),
including the schedule of investments, as of December 31, 1999, and the related
statement of operations for the year then ended, the statements of changes in
net assets for the years ended December 31, 1999 and 1998, and the financial
highlights for the years ended December 31, 1999 and 1998 and for the period
from October 31, 1997 (commencement of operations) to December 31, 1997. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999 by corresponding with the Fund's custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Builders Fixed Income Fund as of December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for the years
ended December 31, 1999 and 1998, and the financial highlights for the years
ended December 31, 1999 and 1998 and for the period from October 31, 1997
(commencement of operations) to December 31, 1997, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
St. Louis, Missouri
January 14, 2000
26
