BUILDERS FIXED INCOME FUND, INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
JUNE 30, 2000
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 and President 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 quality core
investment results, while working in the community to provide ProLoan mortgages
to new home buyers and employment opportunities for members of organized
building trades. This semi-annual report contains the Fund's financial
statements for the six month period ended June 30, 2000.
The Fund has been delivering a quality core fixed income portfolio to its
investors since October 1997. Capital Mortgage Management, Inc. is responsible
for managing the Fund and the ProLoan program. We are actively coordinating the
origination and securitization of ProLoan home mortgages by various financial
institutions. This "hands-on" approach is critical to creating an impact in our
targeted markets. During the past six months, the ProLoan program, operating in
various cities in the Midwest, generated approximately 276 ProLoan applications
for home mortgages in the principal amount of $38,264,642. The performance of
the ProLoan program has been strong in St Louis, Missouri and the program is
gaining momentum in Southern Illinois, in Pittsburgh, Pennsylvania, and in
Louisville, Kentucky.
As of June 30, 2000, the Fund had $169,363,474 in net assets. The Fund welcomes
a new investor, the Carpenters' Pension Fund of Illinois (Geneva) which invested
$20 million in the Fund during the first six months of 2000.
For the six month period ended June 30, 2000, the Fund's total return was 1.84%
*. As the Fund enters the new millenium, we look forward to another successful
year of investment performance and continued growth of the ProLoan program. As
always, I am available to discuss any aspect of the Fund with an investor, so
please do not hesitate to contact me.
Sincerely,
/s/ John W. Stewart
John W. Stewart, Chairman and President
Builders Fixed Income Fund, Inc.
----------
* Past performance does not guarantee future results. The Fund's one year and
average annual return since inception (October 31, 1997) through June 30,
2000 was 2.54% and 3.48%, respectively. Share value and total returns will
fluctuate and you may have a gain or loss when you sell your shares.
Performance results include reinvested dividends, interest and other
earnings.
1
<PAGE>
PRINCIPAL CAPITAL MANAGEMENT, LLC
A Company of the Principal Financial Group
The year began with the Federal Reserve raising short-term rates, the U.S.
Treasury buying back long-term treasuries. CPI (a measure of inflation) was
rising, core inflation (excluding food and energy) was not moving much.
Productivity is continuing to improve dramatically, unemployment levels are at
30-year lows. The markets experienced large inflows into equity funds and large
outflows from fixed income funds. During the first half, FNMA and FHLMC
securities came under attack for their implicit government guarantees (they are
instrumentalities of the U.S. Government). With such a mix of fixed income
indicators, fixed income investments other than U.S. Treasuries underperfomed.
The Fund's performance suffered as Treasuries, a major component of our
benchmark, encountered panic buying which was triggered by the Treasury buyback
program. We believe there are two reasons this occurred. First, many core fixed
income managers hold very few Treasuries in their portfolios including us,
opting instead to invest in higher yielding securities. Second, private sector
debt has expanded to fund investment and to enhance stock valuations by using
debt to fund stock buybacks. Fixed income managers seeing the Treasury supply
shrink and viewing the deterioration of credit by the increase of debt and
leverage, began to sense the dynamic change in potential performance. Momentum
took over as managers tried to rebalance their portfolios. This great shift
punished spread product holders relative to treasury investors. IT IS IMPORTANT
TO UNDERSTAND THAT, BARING A SALE, THERE WAS NO PERMANENT DIMUNITION OF
PERFORMANCE, JUST A CURRENT REPRICING OF ASSETS. SINCE BONDS MATURE AT A PRICE
OF PAR, ABSENT A DEFAULT OR A SALE, THIS IS A TIMING OF PERFORMANCE ISSUE AS
SPREAD SECURITIES WILL OUT EARN THEIR LOWER YIELDING TREASURY COUNTERPARTS IN
THE FUTURE. For the first half of the year, we did not get caught up in the day
to day swings in the market, choosing to be patient in very interesting times.
In regards to FNMA and FHLMC, we believe any pressure to privatize these
agencies will not happen in an election year. If, in the future they are
privatized, existing securities will be grandfathered. Most importantly, given
the high level of FNMA and FHLMC securities held at banks, thrifts and credit
unions, if these agencies failed then the U.S. financial system would probably
fail. Thus the argument that the agencies are too big too fail should hold.
We are continuing to stay close to our duration benchmarks and patiently waiting
for the return to reasonable market pricing.
Martin J. Schafer William C. Armstrong
Co-Portfolio Manager Co-Portfolio Manager
2
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS AT JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Principal % of
Amount Net Assets Value
------ ---------- -----
U.S. GOVERNMENT AND 6.1%
U.S. GOVERNMENT AGENCY
FEDERAL NATIONAL MORTGAGE ASSOCIATION 1.8%
$2,000,000 5.750%, 04/15/03** $1,939,208
1,075,000 6.500%, 08/15/04 1,055,088
------------
2,994,296
------------
Federal Home Loan Bank Notes 2.6%
3,000,000 5.875%, 09/17/01 2,964,840
1,700,000 5.425%, 09/24/08 1,511,674
------------
4,476,514
------------
Federal Home Loan Mortgage Corporation 1.7%
1,000,000 6.200%, 04/15/03 982,735
2,000,000 5.950%, 01/19/06 1,894,380
------------
2,877,115
------------
TOTAL U.S. GOVERNMENT AND
U.S. GOVERNMENT AGENCY
(cost $10,432,499) 10,347,925
------------
U.S. GOVERNMENT AGENCY -
MORTGAGE BACKED SECURITIES 22.1%
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION II 0.2%
Pool 1470
21,882 9.000%, 09/20/20 22,572
Pool 1472
8,118 10.000%, 09/20/20 8,494
Pool 1507
15,583 9.500%, 11/20/20 16,185
Pool 1614
19,012 9.000%, 05/20/21 19,591
Pool 1615
17,134 9.500%, 05/20/21 17,788
Pool 1740
46,243 9.000%, 12/20/21 47,654
Pool 1920
179,977 7.500%, 12/20/24 178,412
------------
310,696
------------
3
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS AT JUNE 30, 2000 (UNAUDITED)- (CONTINUED)
--------------------------------------------------------------------------------
Principal % of
Amount Net Assets Value
------ ---------- -----
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 0.4%
Pool 102990
$61,587 12.500%, 12/15/13 $69,303
Pool 340649
175,391 7.500%, 06/15/23 175,038
Pool 349645
381,788 7.000%, 06/15/23 372,871
Pool 349646
28,740 8.500%, 09/15/24 29,483
Pool 349647
35,445 7.500%, 07/15/23 35,313
Pool 367574
25,994 8.500%, 06/15/25 26,703
Pool 388962
60,328 7.500%, 01/15/26 60,026
------------
768,737
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION 0.7%
Pool C34597
1,133,656 7.500%, 12/01/29 1,119,197
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION 20.8%
Pool 50698
4,121 7.500%, 03/01/23 4,090
Pool 185857
44,558 8.000%, 11/01/02 44,568
Pool 185861
10,517 9.000%, 02/01/06 10,783
Pool 185862
18,938 9.000%, 10/01/05 19,418
Pool 185863
29,273 9.500%, 08/01/04 29,731
Pool 252716
654,616 7.000%, 09/01/29 632,203
Pool 337670
289,220 8.000%, 11/01/26 290,964
Pool 363714
447,172 8.000%, 11/01/26 449,868
4
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS AT JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Principal % of
Amount Net Assets Value
------ ---------- -----
FEDERAL NATIONAL MORTGAGE ASSOCIATION - (Continued)
Pool 392423
$433,123 7.500%, 06/01/27 $428,035
Pool 395131
158,120 7.500%, 08/01/27 156,263
Pool 397941
561,034 7.500%, 08/01/27 554,444
Pool 400581
650,121 7.500%, 09/01/27 642,485
Pool 403662
219,024 7.500%, 10/01/27 216,452
Pool 496714
1,086,289 6.500%, 05/01/29 1,024,913
Pool 504974
2,627,971 6.500%, 07/01/29 2,479,489
Pool 506345
1,096,825 6.500%, 07/01/29 1,034,853
Pool 510238
2,116,960 6.500%, 08/01/29 1,997,350
Pool 510448
426,373 6.000%, 07/01/14 403,767
Pool 510927
2,034,212 6.500%, 08/01/29 1,919,277
Pool 511854
1,253,579 6.500%, 09/01/29 1,182,751
Pool 512309
1,064,505 6.500%, 09/01/29 1,004,360
Pool 512724
2,092,099 6.500%, 08/01/29 1,973,894
Pool 515182
1,346,105 6.500%, 09/01/29 1,270,049
Pool 516497
937,340 6.500%, 10/01/29 884,380
Pool 516917
1,254,679 6.500%, 09/01/29 1,183,789
Pool 518156
1,160,884 6.500%, 10/01/29 1,095,293
Pool 519318
1,882,563 6.500%, 10/01/29 1,776,197
5
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS AT JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Principal % of
Amount Net Assets Value
------ ---------- -----
FEDERAL NATIONAL MORTGAGE ASSOCIATION - (Continued)
Pool 519720
$814,620 6.500%, 10/01/29 $768,593
Pool 519721
1,005,972 7.000%, 10/01/29 971,528
Pool 520054
1,034,742 7.000%, 09/01/29 999,313
Pool 523652
1,627,746 6.500%, 10/01/29 1,535,777
Pool 524686
1,155,063 7.000%, 11/01/29 1,115,515
Pool 534436
1,021,654 7.500%, 02/01/30 1,008,026
Pool 534840
1,132,052 7.000%, 02/01/30 1,092,932
Pool 540030
1,332,487 7.500%, 04/01/30 1,313,654
Pool 540031
1,135,528 8.000%, 05/01/30 1,140,896
Pool 546278
1,537,558 8.000%, 06/01/30 1,544,827
Pool 546279
1,095,943 7.500%, 06/01/30 1,080,454
------------
35,281,181
------------
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE BACKED SECURITIES
(cost $39,444,966) 37,479,811
------------
ASSET BACKED SECURITIES 14.1%
Asset Securitization Corporation
3,750,000 7.384%, 08/13/29 3,717,544
Chase Commercial Mortgage Securities Corportation
Series 2000-2 Class A1
5,000,000 7.543%, 07/15/32 5,036,890
Citibank Credit Card Master Trust I
Series 1997-6 Class B
3,000,000 Zero Coupon Bond, 08/15/06 2,177,790
6
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS AT JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Principal % of
Amount Net Assets Value
------ ---------- -----
ASSET BACKED SECURITIES - (Continued)
Citibank Credit Card Master Trust I
$3,000,000 6.900%, 11/15/06 $2,934,675
First Union - Lehman Brothers Commercial Mortgage**
Series 1998-C2 Class B
1,000,000 6.640%, 03/18/11 932,019
LB Commercial Conduit Mortgage Trust
Series 1999-C1 Class B
4,000,000 6.930%, 04/05/09 3,823,450
MBNA Master Credit Card Trust
Series 1999-B Class B
4,000,000 6.200%, 08/15/11 3,683,740
Metris Master Trust
Series 1997-1 Class A
1,500,000 6.870%, 10/20/05 1,494,187
------------
TOTAL ASSET BACKED SECURITIES
(cost $23,817,906) 23,800,295
------------
CORPORATE BONDS 45.0%
BANK 7.6%
Citicorp**
1,000,000 6.375%, 11/15/08 926,514
FleetBoston Financial Corporation
3,420,000 7.125%, 04/15/06 3,304,370
National Bank of Canada New York**
3,750,000 7.750%, 11/01/09 3,706,193
NationsBank Corporation
1,500,000 7.800%, 09/15/16 1,457,342
Swiss Bank Corporation**
1,500,000 7.375%, 06/15/17 1,438,075
Swiss Bank Corporation**
2,200,000 7.500%, 7/15/25 2,087,536
------------
12,920,030
------------
FINANCE 18.4%
American Financial Group**
3,000,000 7.125%, 04/15/09 2,638,131
Donaldson Lufkin & Jenrette**
2,000,000 6.110%, 05/15/01 1,979,856
7
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS AT JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Principal % of
Amount Net Assets Value
------ ---------- -----
FINANCE - (CONTINUED)
Countrywide Funding Corporation
$2,000,000 6.280%, 01/15/03 $1,934,426
Equitable Life Assurance 144A**
3,500,000 7.700%, 12/01/15 3,372,862
Ford Motor Credit**
1,000,000 6.625%, 06/30/03 975,660
Gatx Capital Corporation
1,000,000 6.500%, 11/01/00 996,903
General Motors Acceptance Corporation
240,000 6.850%, 04/17/01 239,299
General Motors Acceptance Corporation**
1,000,000 7.500%, 05/10/04 1,000,766
General Motors Acceptance Corporation**
3,000,000 6.150%, 04/05/07 2,743,494
Goldman Sachs Group LP**
1,500,000 6.625%, 12/01/04 1,448,432
Heller Financial, Inc.
1,500,000 5.750%, 09/25/01 1,471,899
Lehman Brothers Holdings
3,000,000 6.750%, 09/24/01 2,975,949
Lehman Brothers Holdings**
3,000,000 6.625%, 04/01/04 2,865,897
Metropolitan Life Insurance Company**
2,000,000 7.700%, 11/01/15 1,910,622
Simon Debartolo
1,000,000 7.125%, 06/24/05 950,294
Spieker Properties LP
3,750,000 7.350%, 12/01/17 3,265,939
Transamerica Financial Group
330,000 9.620%, 12/15/00 333,435
------------
31,103,864
------------
INDUSTRIAL 13.5%
Cargill, Inc., 144A**
2,000,000 6.300%, 04/15/09 1,832,200
Conoco, Inc.
1,000,000 6.350%, 04/15/09 933,367
8
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS AT JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Principal % of
Amount Net Assets Value
------ ---------- -----
INDUSTRIAL - (CONTINUED)
International Paper Company
$2,000,000 7.000%, 06/01/01 $1,993,032
International Paper Company
2,000,000 8.000%, 07/08/03 2,007,938
Joseph Seagram & Sons, Inc.
2,190,000 5.790%, 04/15/01 2,162,837
Lafarge Corporation
1,600,000 6.375%, 07/15/05 1,493,619
Lubrizol Corporation**
2,000,000 5.875%, 12/01/08 1,816,944
Raytheon Company
3,310,000 5.950%, 03/15/01 3,275,470
Ryder System, Inc.**
1,500,000 6.600%, 11/15/05 1,401,990
Ryerson Tull, Inc.
3,000,000 8.500%, 07/15/01 3,031,701
Temple-Inland, Inc.
1,000,000 9.000%, 05/01/01 1,011,620
WMX Technologies**
2,000,000 6.70%, 05/01/01 1,959,402
------------
22,920,120
------------
TRANSPORTATION 1.2%
Ford Mortor Company**
2,350,000 6.50%, 08/01/18 2,028,652
------------
UTILITIES 4.3%
AT&T Corporation
3,000,000 6.500%, 03/15/29 2,497,500
GTE California, Inc.
250,000 5.625%, 02/01/01 247,762
GTE Corporation**
2,400,000 6.840%, 04/15/18 2,155,663
Northern States Power**
2,500,000 6.875%, 08/01/09 2,366,812
------------
7,267,737
------------
TOTAL CORPORATE BONDS
(cost $79,325,489) 76,240,403
------------
9
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
SCHEDULE OF INVESTMENTS AT JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Principal % of
Amount Net Assets Value
------ ---------- -----
PROLOAN PIPELINE 20.9%
36,689,219 When-Issued Commitments
(cost $36,689,219) $35,457,885
------------
SHORT TERM INVESTMENTS 13.1%
COMMERCIAL PAPER 13.1%
Associates First Capital Corporation
7,700,000 6.890%, 07/03/00 7,695,579
Dominion Resources, Inc.
2,000,000 6.860%, 08/07/00 1,985,518
Dominion Resources, Inc.
2,000,000 6.900%, 08/24/00 1,979,184
Safeco Credit Company, Inc.
2,000,000 6.800%, 07/05/00 1,998,111
Safeco Credit Company, Inc.
2,000,000 6.930%, 09/14/00 1,970,740
Xerox Corporation
4,500,000 6.880%, 07/14/00 4,487,960
Xerox Corporation
2,000,000 6.740%, 07/17/00 1,993,634
------------
TOTAL SHORT TERM INVESTMENTS
(cost $22,110,726) 22,110,726
------------
TOTAL INVESTMENTS IN SECURITIES 121.3%
(cost $211,820,805) 205,437,045
Liabilities in excess of Other Assets (21.3%) (36,073,571)
------------
NET ASSETS 100.0% $169,363,474
============
----------
** Security segregated at custodian for "when-issued" commitments.
See Accompanying Notes to Financial Statements.
10
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $211,820,805) $ 205,437,045
Receivables:
Interest 1,786,170
Securities sold 3,130,768
Deferred organization costs, net 51,087
Other assets 15,789
-------------
Total assets 210,420,859
-------------
LIABILITIES
Payables:
Cash overdraft 18,154
Investment securities purchased - when issued 36,689,219
Securities purchased 3,288,467
Distribution to shareholders 931,540
Interest purchased 52,796
Due to advisors 43,476
Distribution fees 13,802
Accrued expenses 19,931
-------------
Total liabilities 41,057,385
-------------
NET ASSETS $ 169,363,474
=============
COMPONENTS OF NET ASSETS
Paid-in capital $ 180,067,212
Accumulated net investment income 1,827
Accumulated net realized loss on investments (4,321,805)
Net unrealized depreciation on investments (6,383,760)
-------------
Net assets $ 169,363,474
=============
Number of shares issued and outstanding
(unlimited shares authorized no par value) 12,150,967
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 13.94
=============
See accompanying Notes to Financial Statements.
11
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 5,773,146
-----------
EXPENSES
Subadvisor fees 136,166
Management fees 123,787
Distribution fees 82,525
Professional fees 32,984
Fund accounting fees 29,899
Administration fees 28,858
Custodian fees 18,016
Amortization of deferred organization costs 10,761
Insurance expense 8,372
Transfer agent fees 6,885
Director fees 5,153
Registration expense 2,625
Miscellaneous 13,767
-----------
Total expenses 499,798
Less: distribution fees waived (8,439)
-----------
Net expenses 491,359
-----------
NET INVESTMENT INCOME 5,281,787
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (3,510,319)
Net unrealized appreciation on investments 1,304,503
-----------
Net realized and unrealized loss on investments (2,205,816)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,075,971
===========
See accompanying Notes to Financial Statements.
12
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 # December 31, 1999
--------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income $ 5,281,787 $ 7,898,756
Net realized loss on investments (3,510,319) (809,391)
Net unrealized appreciation (depreciation) on investments 1,304,503 (7,616,644)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 3,075,971 (527,279)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (5,281,787) (7,898,756)
From realized gains -- (920,245)
------------- -------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (5,281,787) (8,819,001)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 20,001,002 15,081,208
Net asset value of shares issued on reinvestment of distributions 4,350,246 8,743,042
Cost of shares redeemed (107,475) --
------------- -------------
NET INCREASE FROM CAPITAL SHARE TRANSACTIONS 24,243,773 23,824,250
------------- -------------
TOTAL INCREASE IN NET ASSETS 22,037,957 14,477,970
NET ASSETS
Beginning of period 147,325,517 132,847,547
------------- -------------
END OF PERIOD (including accumulated net investment income of
$1,827 and $1,827, respectively) $ 169,363,474 $ 147,325,517
============= =============
CHANGE IN SHARES
Shares sold 1,423,980 1,047,074
Shares issued on reinvestment of distributions 311,893 603,193
Shares redeemed (7,622) --
------------- -------------
NET INCREASE 1,728,251 1,650,267
============= =============
</TABLE>
----------
# Unaudited.
See accompanying Notes to Financial Statements.
13
<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 SEMI-ANNUAL REPORT.
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
Year Ended December 31, October 31, 1997*
Six Months Ended ----------------------- through
June 30, 2000# 1999 1998^ December 31, 1997^
-------------- ---- ----- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.14 $ 15.14 $ 15.10 $ 15.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.44 0.83 0.80 0.14
Net realized and unrealized gain (loss) on investments (0.20) (0.91) 0.15 0.10
------- ------- ------- -------
Total from investment operations 0.24 (0.08) 0.95 0.24
------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income (0.44) (0.83) (0.80) (0.14)
From realized gain -- (0.09) (0.11) --
------- ------- ------- -------
Total distributions (0.44) (0.92) (0.91) (0.14)
------- ------- ------- -------
Net asset value, end of period $ 13.94 $ 14.14 $ 15.14 $ 15.10
======= ======= ======= =======
Total return 1.84%+ (0.58%) 6.48% 1.58%+
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in millions) $ 169.4 $ 147.3 $ 132.8 $ 120.6
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived 0.61%++ 0.65% 0.71% 0.63%++
After fees waived 0.60%++ 0.60% 0.60% 0.58%++
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS:
Before fees waived 6.41%++ 5.75% 5.47% 5.46%++
After fees waived 6.40%++ 5.70% 5.36% 5.41%++
Portfolio turnover rate 39.73%+ 91.01% 39.39% 1.29%+
</TABLE>
----------
# Unaudited.
* Commencement of operation.
+ Not annualized.
++ Annualized.
^ The calculations are based on average number of shares outstanding for the
period.
See accompanying Notes to Financial Statements.
14
<PAGE>
BUILDERS FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENT (UNAUDITED)
--------------------------------------------------------------------------------
(1) ORGANIZATION AND BUSINESS
Builders Fixed Income Fund, Inc. (the "Fund") 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 open-end management
investment company. Prior to January 29, 1999 the Fund was known as the
Builders ProLoan Fund, Inc. Investment operations of the Fund began on
October 31, 1997.
The Fund's investment objective is to provide current income. The Fund is
designed to provide institutional investors with the opportunity to invest
in an investment grade fixed income portfolio while also promoting
employment in the home construction industry through the ProLoan program.
The ProLoan Program is a coordinated effort involving home builders,
mortgage lenders 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 Capital Mortgage
Management, Inc. (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."
ProLoans are offered by qualified Lenders with the interest rate and points
established each week by Principal Capital Management, LLC (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
reatained by the Fund. 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.
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
Subadviser's 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, Kentucky, and
Pennsylvania 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
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BUILDERS FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED)
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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.
(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.
PROLOAN MORTGAGE COMMITMENTS are valued at the price at which the Fund
could assign the commitments to a third party, as long as this price
is considered by the Manager to equal no more than fair market value.
The formula for determining this price is as follows. The Manager
calculates the coupon rate nearest to, but not greater than, the
coupon rate that is 0.625% below the weighted average coupon rate for
all ProLoans in the pipeline. The Manager then subtracts the spread
between the forward prices for three-and one-month FNMA
mortgage-backed securities, each with the same coupon rate as
calculated above, from the three-month FNMA forward price, minus an
additional 0.125%. The Manager has determined that this price is
equivalent to the forward price of a six-month FNMA mortgage-backed
security. 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 commitment.
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
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.
16
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BUILDERS FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED)
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(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 five years. If any of the shares
designated as 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 GAAP.
(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.
(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.
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BUILDERS FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED)
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(b) SUBADVISER FEE
The Manager has entered into an Investment Subadvisory Agreement with
Principal Capital Management, LLC. At the direction of the Manager,
the Fund will pay the Subadviser a monthly fee equal to an annual rate
of 0.165% of its average daily net assets. Principal Capital
Management, LLC began serving as the Fund's Subadviser on June 1,
2000. From October 31, 1997 to May 31, 2000, Commerce Bank, N.A.
served as the Fund's subadviser, for which it received an annual fee
of 0.165% of the Fund's average daily net assets.
(c) ADMINISTRATION FEE
The Fund 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
supervising 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.
(d) DISTRIBUTION COORDINATOR AND DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a
Distribution Plan (the "Plan"). Under the Plan, the Fund is authorized
to pay Capital Mortgage Management, Inc., the Manager as Distribution
Coordinator, at an annual rate of 0.10% of the Fund's average daily
net assets, payable monthly to compensate the Distribution Coordinator
for distribution and shareholder service activities. The Distribution
Coordinator has agreed to limit the Fund's total operating expenses to
0.60% per annum of the Fund's average daily net assets through
December 31, 2000. The Fund will reimburse the Distribution
Coordinator 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 0.60% expense limitation. For the six
months ended June 30, 2000, the Distribution Coordinator waived $8,439
of its fees.
(e) OFFICERS AND DIRECTORS
Certain officers and directors of the Fund are also officers and
directors of the Manager, Distributor and Administrator. Certain
"independent directors", as defined by the 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 cost of purchases and the proceeds from the sale of securities,
excluding short-term investments for the six months ended June 30,
2000, were as follows:
Purchases $ 78,363,591
Sales $ 56,055,240
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BUILDERS FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED)
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At June 30, 2000, the basis of investments for federal income tax
purposes was the same as their costs for financial reporting purposes.
Unrealized appreciation and depreciation were as follows:
Gross unrealized appreciation $ 405,463
Gross unrealized depreciation (6,789,223)
---------------
Net unrealized depreciation $ (6,383,760)
==============
(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) SPECIAL MEETING OF SHAREHOLDERS
A special meeting of shareholders of the Fund was held at the
Carpenters' District Council on May 25, 2000. Each matter voted upon
at the meeting is set forth below.
(a) ELECTION OF DIRECTORS
The shareholders of the Fund elected the following seven directors on
May 25, 2000:
Shares
Shares Voted
Voted "For" "Against" Abstained
----------- --------- ---------
Douglas J. McCarron 153,987,745 - -
Joseph A. Montanaro 153,987,745 - -
Dan Mulligan 153,987,745 - -
Terry Nelson 153,987,745 - -
James D. Slebiska 153,987,745 - -
John W. Stewart 153,987,745 - -
Leonard Terbrock 153,987,745 - -
(b) APPROVAL OF A NEW SUBADVISORY AGREEMENT
The shareholders of the Fund approved a new Subadvisory Agreement with
Principal Capital Management LLC with 153,987,745 shares voted "For",
0 shares voted "Against" and 0 shares abstained.
(c) RATIFICATION OF DELOITTE & Touche LLP
The shareholders of the Fund ratified the selection of Deloitte &
Touche LLP as independent accountants for the Fund for its fiscal year
ending December 31, 2000 with 153,987,745 shares voted "For", 0 shares
voted "Against" and 0 abstained.
19
