Prospectus/July 9, 1998
1655 Fort Myer Drive, Arlington, Virginia 22209-3108
Mosaic Focus Fund
Mosaic Focus Fund's objective is long-term growth of capital. The
Fund's management believes that capital growth can best be achieved
through investing in high quality growth companies whose true prospects
are underappreciated by the market. The Fund will normally invest in
a concentrated, non-diversified portfolio of 12 - 18 securities.
Features
o 100% no-load, no commissions or sales charges
o $1,000 minimum initial investment
o No "12b-1" fees
o Free exchanges with other Mosaic mutual funds
o Purchases and redemptions by mail or by wire
o Telephone exchanges and redemptions
This prospectus is intended to be a concise statement of information
investors should know before investing. After reading the prospectus,
it should be retained for future reference. A paper copy of the
prospectus is available to investors who received an electronic
prospectus without charge by calling or writing the Fund. The
Securities and Exchange Commission maintains a site on the Worldwide Web
that contains reports, proxy and information statements and other
information regarding the Fund at http://www.sec.gov.
A Statement of Additional Information concerning the Fund, bearing the
same date as this prospectus, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. It is
available without charge by calling or writing the Fund.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank. Shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other
agency.
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.
Madison Mosaic, LLC
Investment Advisor
<PAGE>
Table of Contents
About Mosaic Focus Fund 3
Expense Summary 3
Financial Highlights 4
Investment Objective 4
Investment Policies and Limitations 4
Investment Selection 5
Investment Risks 6
Management of the Fund 6
The Fund and Its Shares 7
Dividends 7
Performance Information 8
Taxes 8
Net Asset Value 8
Shareholder Account Transactions 9
How to Open a New Account 9
How to Purchase Additional Shares 10
How to Redeem Shares 10
Other Fees and Services 12
Custodian
Star Bank NA
Cincinnati, OH 45202
Independent Accountants
Deloitte & Touche LLP
Telephone Numbers
Shareholder Services
Washington, DC area: 703-528-6500
Toll-free Nationwide: 888-670-3600
Mosaic Tiles (24-hour automated information)
Toll-free Nationwide: 800-336-3063
Introduction to the Fund
Mosaic Focus Fund (the "Fund") is a no-load, non-diversified open-end
investment company, commonly known as a mutual fund. As an open-end
company, the Fund continuously offers its shares to investors and stands
ready to redeem shares at the current net asset value per share. The
Fund is managed by Madison Investment Advisors, Inc. of Madison,
Wisconsin, through its Madison Mosaic, LLC subsidiary (the "Advisor") of
the same address as the Fund. Shares in the Fund are offered by
means of this prospectus only.
Mosaic Focus Fund's objective is long-term growth of capital. The
Fund's management believes that capital growth can best be achieved
through investing in high quality growth companies whose true prospects
are underappreciated by the market. The Fund will normally invest in
a concentrated, non-diversified portfolio of 12 - 18 securities.
Expense Summary
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee None
Exchange Fee None
Annual Fund Operating Expenses After Expense Reimbursements (as a
percentage of average net assets)
Management Fees 0.75%
12b-1 Fee None
Other Expenses 0.50%
Total Fund Operating Expenses 1.25%
Example 1 year 3 years
You would pay the following expenses on a $1,000
investment, assuming (1) a five percent annual return
and (2) redemption at the end of each period:
$13 $40
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor will bear directly and
indirectly. For a detailed discussion of the Fund's fees and expenses,
see "Management of the Fund."
The hypothetical example shown above is based on the expense
levels listed under the caption "Annual Fund Operating Expenses" which
are based on the contractual advisory and service fees that the Fund is
obligated to pay as of the date of this propectus. The five percent return
used in the example is arbitrary and is for illustrative purposes only; it
should not be considered representative of the Fund's past or future
performance. The expenses in the example represent a good faith estimate of
future expenses. Actual expenses may be less than those shown, but are not
expected to be any greater. Any increase in such expenses must be approved by
the Fund's Board of Trustees. Additional fees and transaction charges
described elsewhere in this prospectus, if applicable, will increase the level
of expenses that can be incurred (fees for certain wire transfers, stop
payments on checks, bounced investment checks, and retirement plans are
described on pages 9-12).
Financial Highlights
Because the Fund adopted its investment objectives and policies
effective January 1, 1998, no historical per share data or ratios are
provided. Prior to January 1, 1998, the Fund was known as Madison
Opportunity Fund. It operated as a diversified equity fund
invested in small to mid-cap stocks and was never publicly offered.
Investment Objective
The investment objective of the Fund is long-term growth of capital.
Production of current income is incidental to the Fund's objective. The
Fund's management believes that capital growth can best be achieved
through investing in high quality growth companies whose true prospects
are underappreciated by the market. The Fund seeks to achieve its
objective by investing in common stocks, convertible securities and
American Depository Receipts.
The Fund's investment objective may be changed without shareholder
approval. Shareholders will, however, receive prior written notice of
any material change. Of course, there can be no assurance that the
Fund's investment objective will be achieved.
Investment Policies and Limitations
Under normal market conditions, the Fund should be fully invested in
common stocks. However, for temporary defensive purposes, the Fund is
permitted to raise cash, invest in puts and calls, and enter into
futures and options contracts to a limited extent.
The purpose of the Fund is to make available to investors an investment
program under continuous supervision of experienced investment
management. The Advisor will focus on a relatively limited number of
securities (generally 18 or less, other than money market instruments).
The Fund will employ a focused investment strategy that has the
potential to produce higher returns than an investment strategy calling
for investment in a larger number of securities. However, the result
may be an increase in the overall volatility of the Fund's share price.
Since the Fund may invest more than 5% of its assets in a single
security, the appreciation or depreciation of such a security will have
a greater impact on the net asset value of the Fund. As a result, the
net asset value per share can be expected to fluctuate more than the net
asset value of a comparable "diversified" mutual fund.
Through ownership of shares of the Fund, as contrasted with ownership of
individual securities, investors are relieved of many details in the
management of their investments while their bookkeeping and income tax
records are greatly simplified. Ownership of shares in the Fund does
not constitute a complete financial program.
The value of the Fund's shares will fluctuate as the value of the
securities in which it invests fluctuates. The common stocks selected
will typically be traded on a national securities exchange or over-the-
counter in the NASDAQ system. Such stocks will primarily include
securities of large, known companies, but may also include smaller, less
well-known companies.
The Fund will typically hold 12 to 18 securities and will represent a
"non-diversified" portfolio as that term is understood under the
Investment Company Act of 1940. An investment in the Fund should be
considered a long-term investment. The Fund is not designed to meet
short-term financial needs. Likewise, the Fund is not intended to
provide a complete or balanced investment program.
As a "non-diversified" fund, the Fund is not limited under the
Investment Company Act of 1940 in the percentage of its assets that it
may invest in any one issuer or industry. However, the Fund does intend
to comply with diversification standards necessary to be classified as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code").
The Code requires that at the close of each calendar quarter, with
respect to at least half (50%) of the value of the Fund's total assets
that (a) not more than 5% of the Fund's total assets is invested in the
securities of any one issuer, and (b) the amount of securities owned by
the Fund does not represent more than 10% of the outstanding voting
securities of an issuer. In addition, the Fund as a whole may not have
more than 25% of its total assets invested in the securities of any one
issuer. Also, the Fund will meet its Code diversification requirements
by investing in certain (1) cash and cash equivalents (including
receivables) and (2) US Government securities.
The Fund's fundamental investment policies, which may not be changed
without a shareholder vote, prevent the Fund from investing more than 15
percent of its net assets in securities which cannot be liquidated
within seven days. The Fund does not intend to borrow under normal
circumstances and, as a fundamental policy, it may not borrow amounts
exceeding five percent of total assets. Other fundamental policies are
described in the Statement of Additional Information.
Investment Selection
Equity Securities. In order to achieve its investment objective, the
Fund will strive to be fully invested in common stocks most of the time.
A significant portion of the Fund's assets may be invested in securities
of companies with relatively large to medium-sized market
capitalization. It is expected that many of the securities in which the
Fund invests will pay interest or dividends; however, such payments by
the issuer will be incidental to the selection of securities by the
Advisor.
The Fund's investment success depends upon the Advisor's ability to
identify companies with reliable, above-average earnings growth. This
is accomplished in two separate but related ways:
First, the Advisor searches for companies that have exhibited
consistent, above-average earnings growth in the past. Since past
performance is no guarantee of future success, the Advisor's analysts
perform in-depth fundamental research on prospective investments. This
means that the Advisor scrutinizes financial statements, assesses
management's ability and analyzes industry conditions and competition to
determine the sustainability of a company's growth.
Second, the Advisor identifies companies that are transforming their
businesses into more profitable and reliable ones. Typically, the
Advisor will wait for clear signs of this process before purchasing
shares for the Fund.
Once the Advisor identifies desirable companies, it determines the price
the Fund will pay for them. Since the Fund is managed to buy only at
reasonable valuations, the Fund's purchases tend to occur when stocks
are under-appreciated or temporarily out of favor. Since the Fund
invests for the long term and the Advisor has confidence in the growth
potential of the purchased stock, the Fund has the luxury of waiting
patiently for true value to be realized by the market.
The Fund may also utilize convertible bonds and convertible preferred
stocks. These securities are convertible into common stocks and have
equity characteristics. Convertible bonds are convertible into a
specific number of shares of common stock of the issuer either at any
time or, more commonly, at a specific future date at a pre-determined
price per share of common stock. The Fund anticipates that convertible
securities will represent less than 25% of the Fund's portfolio.
Foreign Securities. The Fund may invest in US dollar-denominated
securities of foreign issuers in the form of American Depository
Receipts that are regularly traded on recognized US exchanges or in the
US over-the-counter market. Investments in securities of foreign
issuers may involve risks which are in addition to the usual risks
inherent in domestic investments (see "Investment Risks" below).
Options and Futures Contracts. The Fund may attempt to reduce the
overall risk of its investments by using options and futures contracts.
The decision to invest in these instruments will be based on market
conditions, regulatory limits and tax considerations. There can be no
assurance that engaging in options, futures or any other defensive
strategy will be successful.
Repurchase Agreements. Repurchase agreements involve the sale of
securities to the Fund by a financial institution or securities dealer,
simultaneous with an agreement by that seller to repurchase the
securities at the same price, plus interest, at a later date. The Fund
will limit the parties with which it will engage in repurchase
agreements to those financial institutions and securities dealers that
are deemed creditworthy pursuant to guidelines adopted by the Fund's
Board of Trustees. The Advisor will follow procedures to ensure that
all repurchase agreements acquired by the Fund are always at least 100
percent collateralized as to principal and interest.
Investment Risks
The Fund's holdings will be subject to the economic, business and market
risks associated with common stock investment. As a result, an
investor's shares, when redeemed, may be worth more or less than
original cost. There can be no assurance that the Fund's shareholders
can be protected from the risk of loss inherent in common stock
investing. In addition, any small or "mid-cap" companies in which the
Fund invests (see "Investment Selection" above) will bear a higher level
of this common stock market risk.
To the extent the Fund invests in foreign securities, it will bear the
additional risks inherent in such securities. For example, in many
countries, there is less publicly available information about issuers
than is available in the reports and ratings published about companies
in the United States. Although the Fund's foreign investments will be
denominated in US dollars, foreign investing will still involve currency
risk: foreign investments tend to become less valuable if the value of
the US dollar increases relative to the value of the currency in the
nation of the foreign issuer. Finally, some foreign companies are not
subject to uniform accounting, auditing and financial reporting
standards.
To the extent the Fund engages in a defensive strategy by investing in
options or futures contracts, if the Advisor misgauges market values or
other economic factors, the Fund may be worse off than had it not
employed the defensive strategy. While defensive strategies can reduce
the risk of loss, they can also reduce the opportunity for gain since
they offset favorable price movements. The use of defensive strategies
may result in a disadvantage to the Fund if the Fund is not able to
purchase or sell a portfolio holding at an optimal time due to the need
to cover its position or due to the inability of the Fund to liquidate
its position because of its relative illiquidity.
Since the Fund will not invest for current income, the Fund may be
unsuitable for persons who must depend on the invested funds for such
purpose.
When investing in repurchase agreements, the Fund relies on the other
party to complete the transaction on the scheduled date. Should the
other party fail to do so, the Fund would hold securities it did not
intend to own. Were it to sell such securities, the Fund might incur a
loss. In the event of insolvency or bankruptcy of the other party to a
repurchase agreement, the Fund could encounter difficulties and might
incur losses upon the exercise of its rights under the repurchase
agreement.
In accordance with its investment objectives, the Advisor is monitoring
developments as they relate to the so-called "Millennium Bug": The
computer problem that may cause errors when the calendar reaches January
1, 2000. The Millennium Bug may cause disruption in securities and
other markets that affect the national and global economy. The Fund is
taking appropriate measures to help ensure that the Millennium Bug does
not interrupt its own portfolio and shareholder accounting or the
Advisor's management operations. The Fund intends to test its computer
hardware and software and has undertaken to obtain assurances
of timely Millennium Bug solutions from the many third party vendors upon
which it relies for computer-related services.
Management of the Fund
The Trustees. Under the terms of the Fund's organizational document,
its Declaration of Trust, which is governed by the laws of the
Commonwealth of Massachusetts, the Trustees are ultimately responsible
for the conduct of the Fund's affairs. They serve indefinite terms of
unlimited duration, and they appoint their own successors, provided that
at least two-thirds of the Trustees have been elected by shareholders.
The Declaration of Trust provides that a Trustee may be removed at any
special meeting of shareholders by a vote of two-thirds of the Trust's
outstanding shares.
The Advisor. Madison Mosaic, LLC is a wholly-owned subsidiary of
Madison Investment Advisors, Inc., 6411 Mineral Point Road, Madison,
Wisconsin, 53705. Madison Mosaic, LLC manages assets of approximately
$200 million in assets in the Mosaic family of mutual funds, which
includes stock, bond and money market portfolios. Madison Investment
Advisors, Inc., a registered investment advisory firm for over 24 years,
provides professional portfolio management services to a number of
clients and has approximately $3 billion under management.
The Advisor is responsible for the day-to-day administration of the
Fund's activities. Investment decisions regarding the Fund can be
influenced in various manners by a number of individuals. As a result,
no single person is primarily responsible for the Fund's day to day
operations. Instead, all decisions regarding investment selection for
the Fund are made by the Advisor's Investment Policy Committee. This
Committee is made up of several senior members of the Advisor's
investment management personnel. The Committee's decisions are
influenced by the recommendations and research provided by several of
the Advisor's equity analysts.
The Advisor is controlled by Madison Investment Advisors, Inc. The
Advisor has the same address as the Trust.
Compensation. For its services to the Fund under its investment
advisory agreement, the Advisor receives a fee, payable monthly,
calculated as three-quarters of one percent per annum of the average
daily net assets of the Fund. The Advisor may compensate certain
financial organizations for services resulting in purchases of Fund
shares.
Distributor. Artisan Investment Services, LLC, of the same address as the
Fund, acts as the Fund's distributor. The distributor is wholly owned by
Madison.
Services Agreement. Under a separate Services Agreement with the Fund,
the Advisor provides certain operational and other support services for
which it receives a fixed fee intended to be at or below the cost of
providing such services calculated as a percentage of the average daily
net assets of the Fund. As of the date of this prospectus, such fee is
0.50%. Such fee is subject to review and approval at least annually by
the Trustees (see "Expense Summary"). Such fee pays for the Fund's
expenses, including the costs of the following: shareholder services;
legal, custodian and audit fees; trade association memberships;
accounting; certain Trustees' fees and expenses; fees for registering
the Fund's shares; the preparation of prospectuses, proxy materials and
reports to shareholders; and the expense of holding shareholder
meetings.
Transfer Agent and Dividend Paying Agent. The Fund acts as its own
transfer agent and dividend paying agent.
The Fund and Its Shares
Under the terms of the Declaration of Trust, the Trustees may issue an
unlimited number of whole and fractional shares of beneficial interest
without par value for each series of shares they have authorized. All
shares issued will be fully paid and nonassessable and will have no
preemptive or conversion rights. Under Massachusetts law, the
shareholders may, under certain circumstances, be held personally liable
for the Fund's obligations; the Declaration of Trust, however, provides
indemnification out of Fund property of any shareholder held personally
liable for obligations of the Fund.
Mosaic Focus Fund shares are the only shares currently authorized by the
Trustees of Mosaic Focus Fund Trust. The shares are all of a single class,
each representing an equal proportionate share of the assets, liabilities,
income and expense of the Fund and each having the same rights as any
other share of the Fund. Each share has one vote and fractional shares
have fractional votes. Voting is not cumulative.
The Fund does not intend to hold annual shareholder meetings.
Shareholder inquiries can be made to the offices of the Fund at the
address on the cover of this prospectus.
Dividends
The Fund's net income, if any, is declared as dividends and distributed
to shareholders at least annually. Any net realized
capital gains also will be paid to shareholders annually as capital gains
distributions. Distributions are paid in the form of additional shares
credited to investor accounts, unless a shareholder elects otherwise in
writing.
Performance Information
From time to time, the Fund advertises its total return. Total return
is based on historical data and is not intended to indicate future
performance. For advertising purposes, total return takes into account
changes in share price and assumes that dividends and other
distributions are reinvested when paid. In addition to average annual
total return, the Fund may quote total return over various periods and
may quote the aggregate total return for a period.
The Fund may also cite the ranking or performance of the Fund as
reported in the public media or by independent performance measurement
firms. The Fund's Annual Report contains additional performance
information. A copy of the Annual Report, when prepared, may be obtained
without charge by calling or writing the Fund at the telephone number and
address on the first page of this prospectus.
Taxes
Federal. For federal income tax purposes, the Fund intends to maintain
its status under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), as a regulated investment company. It does this by
distributing to shareholders 100 percent of its net income and net
capital gains, if any, by the end of its fiscal year. The Code also
requires the Fund to distribute at least 98 percent of its net income
and capital gains realized from the sale of investments by the end of
each calendar year. The capital gain distribution is determined as of
October 31 each year. Capital gains distributions, if any, are taxable
to the shareholder. For tax purposes, the Fund will send shareholders
an annual notice of dividends and other distributions paid during the
prior year.
State and Local. At the federal as well as state and local levels, dividend
income and capital gains are generally considered taxable income. Because
tax laws vary from state to state, shareholders should consult their tax
advisors concerning the impact of mutual fund ownership in their own
tax jurisdictions.
Cost Basis
Because the Fund's share price fluctuates, a redemption of shares by the
investor creates a capital gain or loss which has tax consequences. It
is the shareholder's responsibility to calculate the cost basis of
shares purchased. Investors are advised to retain all statements
received from the Fund and to maintain accurate records of their
investments.
Certification of Tax Identification Number
Shareholders who fail to provide a valid social security or tax
identification number may be subject to federal withholding at a rate of
31 percent of dividends and capital gains distributions. Any fine
assessed against the Fund as a result of an investor's failure to
provide a valid social security or tax identification number will be
charged to the investor's account.
Net Asset Value
Net asset value is calculated as of the close of the New York Stock
Exchange each day the New York Stock Exchange is open for trading. The
net asset value per share of the Fund is determined by adding the value
of all its securities and other assets, subtracting liabilities and
dividing the result by the total number of outstanding shares for the
Fund.
For purposes of calculating net asset value, securities traded on
securities exchanges are valued at their daily closing sale prices, if
available, and if not available, such securities are valued at the mean
between the bid and ask prices. Other securities for which current
market quotations are readily available are valued at the mean between
their bid and ask prices. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith according to procedures established by the
Trustees. The Fund may use an independent pricing service for
determination of securities values.
Shareholder Account Transactions
Please call a Mosaic Account Executive if you have any questions. Our
local number in the Washington, DC area is (703) 528-6500 and our toll-
free nationwide number is (888) 670-3600.
Confirmations and Statements
Daily Transaction Confirmation. All non-systematic purchases and
redemptions are confirmed in writing with a transaction confirmation.
Transaction confirmations are usually mailed within a day or two after
the transaction is posted to the account.
Quarterly Statement. Quarterly statements are mailed at the end of each
calendar quarter. The statements reflect account activity for the most
recent quarter. At the end of the calendar year, the statement will
reflect account activity for the entire year.
It is strongly recommended that shareholders retain all daily
transaction confirmations until they receive their quarterly statements.
Likewise, shareholders should retain all of the quarterly statements
until they receive the year-end statement showing the activity for the
entire year.
Changes to an Account
To make any changes to an account, it is recommended that shareholders
call an Account Executive to discuss the changes to be made and inquire
about any necessary documentation. Though some changes may be made by
phone, generally, in order to make any changes to an account, Mosaic may
require a written request signed by all of the shareholders with their
signatures guaranteed.
Telephone Transactions. The options to initiate exchanges and certain
redemptions and to obtain account balance information by telephone are
available automatically to all shareholders. Mosaic will employ
reasonable security procedures to confirm that instructions communicated
by telephone are genuine; and if it does not, it may be liable for
losses due to unauthorized or fraudulent transactions. These procedures
can include, among other things, requiring one or more forms of personal
identification prior to acting upon telephone instructions, providing
written confirmations and recording all telephone transactions. Certain
transactions, including account registration changes, must be authorized
in writing.
Certificates. Certificates will not be issued to represent shares in
the Funds.
How to Open a New Account
Minimum Initial Investment
$1,000 for a regular account
$500 for an IRA account
$100 for an Education IRA Plus account
By Check
New accounts may be opened by completing an application and forwarding
it along with a check payable to Mosaic Funds to:
Mosaic Funds
1655 Fort Myer Drive, Suite 1000
Arlington, VA 22209-3108
By Wire
Please call Mosaic before money is wired to ensure proper and timely
credit.
When a new account is opened by wire, the shareholder is required to
submit a signed application promptly thereafter. Payment of redemption
proceeds is not permitted until a signed application is received in
proper form by Mosaic. Please wire money to:
Star Bank NA
Cinti/Trust
ABA # 0420-0001-3
Credit Mosaic Acct. # 48038-8883
(Shareholder name and account number)
Wire Fee. There may be a charge of $6 for processing incoming wires
of less than $1,000.
By Exchange
Shareholders may open a new account by exchange from an existing account
when the account registration and tax identification number will remain
the same. A new account application is required only when the account
registration or tax identification number will differ from that on the
application for the original account. Exchanges may only be made into
funds that are sold in the shareholder's state of residence.
How to Purchase Additional Shares
Purchase Price. The share price (net asset values) is determined every
day that the New York Stock Exchange is open. Purchases are priced at the
next share price determined after the purchase request is received in
proper form by Mosaic.
Purchases and Uncollected Funds. To protect shareholders from loss or
dilution resulting from deposit items that are returned unpaid, the
proceeds of any redemption may be delayed 10 days or more until it can
be determined that the check or other deposit item (including purchases
by Electronic Funds Transfer "EFT") used for purchase of the shares has
cleared. Such deposit items are considered "uncollected," until Mosaic
has determined that they have actually been paid by the bank on which
they were drawn. Purchases made by federal funds wire or US Treasury
check are considered collected when received and not subject to the 10
day hold. All purchases earn dividends from the day after the day of
credit to a shareholder's account, even while not collected.
By Check
Subsequent investments may be made for $50 or more. Please make check
payable to Mosaic Funds and mail it along with an investment slip or an
indication as to which fund and account it should be credited.
Mosaic Funds
PO Box 640393
Cincinnati, OH 45264-0393
By Wire
Shareholders should call Mosaic before the money is wired to ensure
proper and timely credit.
Please wire money to:
Star Bank NA
Cinti/Trust
ABA # 0420-0001-3
Credit Mosaic Acct. # 48038-8883
(Shareholder name and account number)
Wire Fee. There may be a charge of $6 for processing incoming wires
of less than $1,000.
By Automatic Investment Plan
Shareholders may elect to have an automatic investment plan whereby
Mosaic will automatically initiate a credit to their Mosaic account and
debit the bank account they designate each month. The automatic
investment is processed as an electronic funds transfer (EFT). To
establish an automatic investment plan, complete the appropriate section
of the application or call an Account Executive for information. The
minimum monthly amount for an EFT is $100. Shareholders may change the
amount or discontinue the automatic investment plan any time.
How to Redeem Shares
Redemption Price. Share prices (net asset values) are determined every
day that the New York Stock Exchange is open. Redemptions are priced at the
next share price determined after the redemption request is received in
proper form by Mosaic.
Signature Guarantees. To protect shareholder investments, Mosaic
requires signature guarantees for certain redemptions. A signature
guarantee helps Mosaic ensure the identity of the authorized
shareholder(s). Shareholders who anticipate the need to transact large
amounts of money are encouraged to establish pre-authorized bank wire
instructions on their account. Redemptions by wire to a pre-authorized
bank and account may be in any amount and do not require a signature
guarantee. Pre-authorized bank wire instructions can be established by
completing the appropriate section of a new application or by calling an
Account Executive to inquire about any necessary documents. A signature
guarantee may be required to add or change bank wire instruction on an
account. A signature guarantee is required for any redemption when (1)
the proceeds are to be greater than $50,000 (unless proceeds are being
wired to a pre-authorized bank and account), (2) the proceeds are to be
delivered to someone other than the shareholder of record, (3) the
proceeds are to be delivered to an address other than the address of
record, or (4) there has been any change to the registration or account
privilege within the last 15 days. Mosaic accepts signature guarantees
from banks with FDIC insurance, certain credit unions, trust companies,
and members of a domestic stock exchange. A guarantee from a notary
public is not an acceptable signature guarantee.
Redemptions and Uncollected Funds. To protect shareholders from loss or
dilution resulting from deposit items that are returned unpaid, the
proceeds of any redemption may be delayed 10 days or more until it can
be determined that the check or other deposit item (including EFT) used
for purchase of the shares has cleared. Such deposited items are
considered "uncollected," until Mosaic has determined that they have
actually been paid by the bank on which they were drawn. Purchases made
with cash, federal funds wire or US Treasury check are considered
collected when received and not subject to the 10 day hold.
By Telephone or By Mail
Upon request by telephone or in writing, a redemption check up to
$50,000 may be sent to the shareholder and address of record only. A
redemption request for more than $50,000 or for proceeds to be sent to
anyone or anywhere other than the shareholder and address of record,
must be made in writing, signed by all shareholders with their
signatures guaranteed. See section Signature Guarantees above.
Redemption requests in proper form received by mail and telephone are
normally processed within one business day.
Stop Payment Fee. To stop payment on a check issued by Mosaic, call our
Shareholder Service department. Normally, the Fund charges a fee of
$28, or the cost of stop payment, if greater, for stop payment
requests on a check issued by Mosaic on behalf of a shareholder.
Certain documents may be required before such a request can be
processed.
By Wire
With one business day's notice, funds can be sent by wire transfer to
the bank and account designated on the account application or by
subsequent written authorization. Share-holders who anticipate the need
to transact large amounts of money are encouraged to establish pre-
authorized bank wire instructions on their account. Redemptions by wire
to a pre-authorized bank and account may be in any amount and do not
require a signature guarantee. Pre-authorized bank wire instructions
can be established by completing the appropriate section of a new
application or by calling an Account Executive to inquire about any
necessary documents. A signature guarantee may be required to add or
change bank wire instructions on an account. Redemption by wires can be
arranged by calling the telephone numbers on the cover of this
prospectus. Requests for wire transfer must be made by the close of the
New York Stock Exchange the day before the wire will be sent.
Wire Fee. There will be a $10 fee for redemptions by wire to domestic
banks. Wire transfers sent to a foreign bank for any amount will be
processed for a fee of $30 or the cost of the wire if greater.
By Exchange
Shareholders may redeem shares from one Mosaic account and concurrently
invest the proceeds in another Mosaic account by telephone when the
account registration and tax identification number remain the same.
There is no charge for this service.
By Systematic Withdrawal Plan
Shareholders may elect to have a systematic withdrawal plan whereby
Mosaic will automatically redeem shares in their Mosaic account and send
proceeds to a designated recipient. To establish a systematic
withdrawal plan, complete the appropriate section of the application or
call an Account Executive for information. The minimum amount for a
systematic withdrawal is $100. Shareholders may change the amount or
discontinue the systematic withdrawal plan anytime.
Electronic Funds Transfer Systematic Withdrawal. A systematic
withdrawal can be processed as an electronic funds transfer, commonly
known as EFT, to credit a bank account or financial institution.
Check Systematic Withdrawal. Or it can be processed as a check which is
mailed to anyone designated by the shareholder.
How to Close an Account
To close an account, shareholders should call an Account Executive and
request that the account be closed. When an account is closed, shares
will be redeemed at the next determined net asset value. An account may
be closed by telephone, wire transfer or by mail as explained above in
the section "How To Redeem Shares."
Other Fees and Services
Returned Investment Fee. Shareholders will be charged (by
redemption of shares) $10 for items deposited for investment that are
returned unpaid for any reason.
Minimum Balance. Mosaic reserves the right to involuntarily redeem
accounts with balances that fall below $700 as a result of shareholder
redemptions. Prior to closing any such account, the shareholder will be
given 30 days written notice, during which time the shareholder may
increase the balance to avoid having the account closed.
Other Fees. Mosaic reserves the right to impose additional charges,
upon 30 days written notice, to cover the costs of unusual transactions.
Services for which charges could be imposed include, but are not limited
to, processing items sent for special collection, international wire
transfers, research and processes for retrieval of documents or copies
of documents.
Retirement Plans
IRAs
Individual Retirement Accounts ("IRAs") may be opened with a reduced
minimum investment of $500. Even though they may be nondeductible or
partially deductible, IRA contributions up to the allowable annual
limits may be made, and the earnings on such contributions will
accumulate tax-free.
Annual IRA Fee. Mosaic currently charges an annual fee of $12 per
shareholder (not per IRA account) invested in an IRA at Mosaic. This
fee may be prepaid by the shareholder. A separate application is
required for IRA accounts.
Education IRAs
The Fund offers Education IRAs. Education IRAs may be established with
no minimum investment as long as the shareholder establishes and
maintains an "Education IRA Plus" automated investment plan of at least
$100 monthly. The "Education IRA Plus" will be invested to reach the
annual $500 Education IRA limit, with the remainder invested in another
account established by the parent or guardian of the Education IRA
beneficiary.
Education IRA Fee. Mosaic does not charge an annual fee on Education
IRA Plus accounts that have an active automatic investment plan of at least
$100 monthly or on Education IRA accounts of $5,000 or greater. All other
Education IRA accounts may be charged an annual fee of $12 per
shareholder (not per Education IRA account). This fee may be prepaid by
the shareholder.
Mosaic Funds may be invested in SEP IRAs, SIMPLEs and other retirement
plans. Further information on the retirement plans available through
Mosaic, including minimum investments, may be obtained by calling
Mosaic's shareholder service department.
<PAGE>
Telephone Numbers
Shareholder Service
Washington, DC area: 703 528-6500
Toll-free nationwide: 1 888 670-3600
Mosaic Tiles (24 hour automated information)
Toll-free nationwide: 1 800 336-3063
The Mosaic Family of Mutual Funds
Mosaic Equity Trust
Mosaic Investors Fund
Mosaic Balanced Fund
Mosaic Mid-Cap Growth Fund
Mosaic Foresight Fund
Mosaic Focus Fund
Mosaic Income Trust
Mosaic High Yield Fund
Mosaic Government Fund
Mosaic Bond Fund
Mosaic Tax-Free Trust
Mosaic Tax-Free Arizona Fund
Mosaic Tax-Free Maryland Fund
Mosaic Tax-Free Missouri Fund
Mosaic Tax-Free Virginia Fund
Mosaic Tax-Free National Fund
Mosaic Tax-Free Money Market
Mosaic Government Money Market
For more complete information on any Mosaic Fund, including
charges and expenses, request a prospectus by calling the numbers
above. Read it carefully before you invest or send money. This
prospectus does not constitute an offering by the distributor in
any jurisdiction in which such offering may not be lawfully made.
1655 Ft. Myer Drive, 10th floor
Arlington, Virginia 22209-3108
http://www.mosaicfunds.com
<PAGE>
Statement of Additional Information
Dated July 9, 1998
For use with the prospectus of the
Mosaic Focus Fund dated July 9, 1998
Mosaic Focus Fund
1655 Fort Myer Drive, 10th Floor
Arlington, VA 22209-3108
(888) 670-3600
(703) 528-6500
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the prospectus of Mosaic Focus Fund
bearing the date indicated above (the "Prospectus"). A copy of the
Prospectus may be obtained from the Fund at the address and telephone
numbers shown.
Table of Contents
Introductory Information ("About Mosaic Focus Fund") 2
Supplemental Investment Policies ("Investment Objectives" and
"Investment Policies") 2
Investment Limitations ("Investment Policies") 6
The Investment Advisor ("Management of the Fund") 7
Organization of the Fund ("The Fund and Its Shares") 8
Trustees and Officers ("Management of the Fund") 9
Administrative and Other Expenses ("Management of the Fund") 11
Portfolio Transactions ("Management of the Fund") 11
Shareholder Transactions ("Shareholder Account Transactions") 12
Share Redemptions ("How to Redeem Shares") 13
Retirement Plans ("Other Fees and Services") 14
Declaration of Dividends ("Dividends") 14
Determination of Net Asset Value ("Net Asset Value") 14
Additional Tax Matters ("Taxes") 15
Total Return Calculations ("Performance Information") 16
Custodians and Special Custodians 16
Legal Matters and Independent Auditors 17
Additional Information 17
Financial Statements and Report of Independent Auditors 17
Note: The items appearing in parentheses above are cross references to
sections in the Prospectuses which correspond to the sections of this
Statement of Additional Information.
INTRODUCTORY INFORMATION
Mosaic Focus Fund Trust (the "Fund") currently issues one series of shares:
Mosaic Focus Fund shares corresponding to a portfolio consisting primarily of
equity securities.
SUPPLEMENTAL INVESTMENT POLICIES
The investment objective of the Fund is described in the Prospectus
(see "Investment Objectives"). Reference should also be made to the
Prospectus for general information concerning the Fund's investment
policies (see "Investment Policies and Limitations"). The investment
objective and investment policies described in this section may be
changed without shareholder vote. For a description of fundamental
investment policies which may NOT be changed without shareholder vote,
see the next section entitled "Investment Limitations."
The Fund seeks to achieve its investment objectives through non-diversified
investment principally in 12-18 equity securities.
Basic Investment Policies. The Fund intends generally to select
portfolio investments on the basis of their fundamental values rather
than on the basis of technical market factors. This means that the
Fund's investments will normally be held until there is a change in the
fundamental considerations that were the reason for their purchase.
However, the Fund will be free to sell any of its investments at any
time in response to such considerations. Any such sales may result in
realized long-term or short-term capital gains and losses.
The Fund does not intend to engage in extensive short-term
trading; thus, since it will not normally be able to take advantage of
short-term market swings, the Fund should not be viewed as a vehicle
for short-term investment.
Debt Instruments. The portion of any portfolio of the Fund that is not
invested in equity securities may be invested in debt instruments. The
"Debt Instruments" in which the Fund may invest are limited to the
following US dollar denominated investments: (1) US Government
securities; (2) obligations of banks having total assets of $750 million
or more (including assets of affiliates); (3) high grade commercial
paper; (4) other corporate and foreign government obligations of
investment grade issued and sold publicly within the United States; and
(5) repurchase agreements involving any of the foregoing securities.
"US Government securities" are obligations issued or guaranteed by
the United States Government, its agencies and instrumentalities. US
Government securities include direct obligations of the United States
issued by the US Treasury, such as Treasury bills, notes and bonds.
Also included are obligations of the various federal agencies and
instrumentalities, such as the Government National Mortgage Association,
the Federal Farm Credit System, the Federal Home Loan Mortgage
Corporation and the Federal Home Loan Banks, the Small Business
Administration and the Student Loan Marketing Association. Except for
Treasury securities, all of which are full faith and credit obligations,
US Government securities may either be agency securities backed by
the full faith and credit of the United States, such as those issued by
the Government National Mortgage Association, or only by the credit of
the particular federal agency or instrumentality which issues them, such
as those issued by the Federal Farm Credit System and the Federal Home
Loan Mortgage Corporation; some such agencies have borrowing authority
from the US Treasury, while others do not.
Bank obligations include certificates of deposit ("CDs"), bankers
acceptances ("BAs") and time deposits. CDs are generally short-term,
interest-bearing negotiable certificates issued by banks against funds
deposited with the issuing bank for a specified period of time. BAs are
time drafts drawn against a business, often an importer, and "accepted"
by a bank, which agrees unconditionally to pay the draft on its maturity
date. BAs are negotiable and trade in the secondary market. Time
deposits include money market deposit accounts. The Fund will not
invest in non-transferable time deposits having penalties for early
redemption if such time deposits mature in more than seven calendar
days, and such time deposits maturing in two business days to seven
calendar days will be limited to 15% of the Fund's net assets.
"Commercial paper" describes the unsecured promissory notes issued by
major corporations to finance short-term credit needs. Commercial paper
is issued in maturities of nine months or less and usually on a discount
basis. High grade commercial paper is rated A-1 by Standard and Poor's
Corporation ("S&P") or P-1 by Moody's Investors Service, Inc.
("Moody's") or is of equivalent quality. Other corporate and foreign
government obligations generally include notes and debentures (for
maturities not exceeding 10 years) and bonds (for longer maturities).
These obligations normally pay interest to the holder semiannually; they
may be either secured or, more commonly, unsecured. Investment grade
obligations are those rated Baa or better by Moody's or BBB- or better by
S&P or are of equivalent quality.
Specialized Investment Techniques. In order to achieve its investment
objectives, the Fund may use, when the Advisor deems appropriate,
certain specialized investment techniques. Such specialized investment
techniques principally include those identified in the Prospectus (see
"Investment Policies and Limitations" and "Investment Selection"). The
following is supplemental:
1. Covered Call Options. The Fund may write "covered call options"
against any of its portfolio securities. These options represent
contracts sold on a national options exchange or in the over-the-counter
market allowing the purchaser of the contract to buy specified
underlying securities at a specified price (the "strike price") prior to
a specified expiration date. Writing covered call options may increase
the Fund's income, because a fee (the "premium") is received by the
Fund for each option contract written, but unless the option contract
is exercised it has no other ultimate impact on the Fund. The premium
received, plus the strike price of the option, will always be greater
than the value of the underlying securities at the time the option is
written.
When an option contract is "covered" it means that the Fund, as the
writer of the option contract, holds in its portfolio the underlying
securities described in the contract or securities convertible into such
securities. Thus, if the holder of the option decides to exercise his
purchase rights, the Fund may sell at the strike price securities it
already holds in portfolio or may obtain by conversion (rather than
risking having to first buy the securities in the open market at an
undetermined price). However, an option contract would not normally be
exercised unless the market price for the underlying securities
specified were greater than the strike price. Thus, when an option is
exercised the Fund will normally be forced to sell portfolio securities
at below their current market value or otherwise will be required to buy
a corresponding call contract at a price reflecting this price
differential to offset the call contract previously written (such an
offsetting call contract purchase is called a "closing purchase
transaction").
To the extent the Fund writes covered call options it will be foregoing
any opportunity for appreciation on the underlying securities above the
strike price during the period prior to expiration of the option
contract. The Fund reserves the right to close out call option
contracts written at any time in closing purchase transactions, but
there is no assurance that the Fund will be able to effect such
transactions at any particular time or at an acceptable price. The
Fund will not sell the securities covering an option contract written
prior to its expiration date unless substitute covering securities are
purchased or unless the contract written is first offset in a closing
purchase transaction; nor will the Fund write additional option
contracts if more than 25% of the Fund's assets would then be required
to cover the options written. All of the Fund's investments will be
selected on a basis consistent with its investment policies for the
respective portfolio, notwithstanding the potential for additional
premium income from option writing.
2. When-Issued Securities. The Fund may purchase and sell securities
on a when-issued or delayed delivery basis. When-issued and delayed
delivery transactions arise when securities are bought or sold with
payment for and delivery of the securities scheduled to take place at a
future time. Frequently when newly issued securities are purchased,
payment and delivery may not take place for 15 to 45 days after the
Fund commits to the purchase. Fluctuations in the value of securities
contracted for future purchase settlement may increase changes in the
value of the respective portfolio, because such value changes must be
added to changes in the values of those securities actually held in the
portfolio during the same period. When-issued transactions represent a
form of leveraging; the Fund will be at risk as soon as the when-issued
purchase commitment is made, prior to actual delivery of the securities
purchased.
When engaging in when-issued or delayed delivery transactions, the Fund
must rely upon the buyer or seller to complete the transaction at the
scheduled time; if the other party fails to do so, then the Fund might
lose a purchase or sale opportunity that could be more advantageous than
alternative opportunities available at the time of the failure. If the
transaction is completed, intervening changes in market conditions or
the issuer's financial condition could make it less advantageous than
investment alternatives otherwise available at the time of settlement.
While the Fund will only commit to securities purchases that it intends
to complete, it reserves the right, if deemed advisable, to sell any
securities purchase contracts before settlement of the transaction; in
any such case the Fund could realize either a gain or a loss, despite
the fact that the original transaction was never completed. When fixed
price contracts are made for the purchase of when-issued securities, the
Fund will maintain in a segregated account designated investments which
are liquid or mature prior to the scheduled settlement and cash
sufficient in aggregate value to provide adequate funds for completion
of the scheduled purchase.
3. Foreign Securities. The Fund may invest in securities of foreign
issuers that are listed on a recognized domestic exchange without
restriction. Foreign investments involve certain risks
not typically associated with domestic investments. Foreign investments
may be denominated in foreign currencies and may require the Fund to
hold temporary foreign currency bank deposits while transactions are
completed; although the Fund might therefore benefit from favorable
currency exchange rate changes, it could also be affected adversely by
changes in exchange rates, by currency control regulations and by costs
incurred when converting between various currencies. Furthermore,
foreign issuers may not be subject to the uniform accounting, auditing
and financial reporting requirements applicable to domestic issuers, and
there may be less publicly available information about such issuers.
In general, foreign securities markets have substantially less volume
than comparable domestic markets and therefore foreign investments may
be less liquid and more volatile in price than comparable domestic
investments. Fixed commissions in foreign securities markets may result
in higher commissions than for comparable domestic transactions, and
foreign markets may be subject to less governmental supervision and
regulation than their domestic counterparts. Foreign securities
transactions are subject to documentation and delayed settlement risks
arising from difficulties in international communications. Moreover,
foreign investments may be adversely affected by diplomatic, political,
social or economic circumstances or events in other countries, including
civil unrest, expropriation or nationalization, unanticipated taxes,
economic controls, and acts of war. Individual foreign economies may
also differ from the United States economy in such measures as growth,
productivity, inflation, national resources and balance of payments
position.
4. Loans of Portfolio Securities. The Fund, in certain circumstances,
may be able to earn additional income by loaning portfolio securities to
a broker-dealer or financial institution. The Fund may make such loans
only if cash or US Government securities, equal in value to 100% of
the market value of the securities loaned, are delivered to the Fund by
the borrower and maintained in a segregated account at full market value
each business day. During the term of any securities loan, the borrower
will pay to the Fund all dividend and interest income earned on the
loaned securities; at the same time the Fund will also be able to
invest any cash portion of the collateral or otherwise will charge a fee
for making the loan, thereby increasing its overall potential return.
It is the Fund's policy that it shall have the option to terminate any
loan of portfolio securities at any time upon seven days' notice to the
borrower. In making a loan of securities, the Fund would be exposed to
the possibility that the borrower of the securities might be unable to
return them when required, which would leave the Fund with the
collateral maintained against the loan; if the collateral were of
insufficient value, the Fund could suffer a loss. The Fund may pay
fees for the placement, administration and custody of securities loans,
as it deems appropriate.
Any loans by the Fund of portfolio securities will be made in
accordance with applicable guidelines established by the Securities and
Exchange Commission or the Trustees. In determining whether to lend
securities to a particular broker, dealer or other financial
institution, the Advisor will consider the creditworthiness of the
borrowing institution. The Fund will not enter into any securities
lending agreement having a duration of greater than one year.
5. Repurchase Agreement Transactions. A repurchase agreement involves
the acquisition of securities from a financial institution, such as a
bank or securities dealer, with the right to resell the same securities
to the financial institution on a future date at a fixed price.
Repurchase agreements are a highly flexible medium of investment, in
that they may be for very short periods, including frequently maturities
of only one day. Under the Investment Company Act of 1940, repurchase
agreements are considered loans and the securities involved may be
viewed as collateral. It is the Fund's policy to limit the financial
institutions with which it engages in repurchase agreements to banks,
savings and loan associations and securities dealers meeting financial
responsibility standards prescribed in guidelines adopted by the
Trustees.
When investing in repurchase agreements, the Fund could be subject to
the risk that the other party may not complete the scheduled repurchase
and the Fund would then be left holding securities it did not expect to
retain. If those securities decline in price to a value of less than
the amount due at the scheduled time of repurchase, then the Fund could
suffer a loss of principal or interest. The Advisor will follow
procedures designed to ensure that repurchase agreements acquired by the
Fund are always at least 100% collateralized as to principal and
interest. It is the Fund's policy to require delivery of repurchase
agreement collateral to its Custodian or (in the case of book-entry
securities held by the Federal Reserve System) that such collateral is
registered in the Custodian's name or in negotiable form. In the event
of insolvency or bankruptcy of the other party to a repurchase
agreement, the Fund could encounter restrictions on the exercise of its
rights under the repurchase agreement.
To the extent the Fund requires cash to meet redemption requests and
determines that it would not be advantageous to sell portfolio
securities to meet those requests, then it may sell its portfolio
securities to another investor with a simultaneous agreement to
repurchase them. Such a transaction is commonly called a "reverse
repurchase agreement." It would have the practical effect of
constituting a loan to the Fund, the proceeds of which would be used to
meet cash requirements for redemption requests. During the period of
any reverse repurchase agreement, the Fund would recognize fluctuations
in value of the underlying securities to the same extent as if those
securities were held by the Fund outright. If the Fund engages in
reverse repurchase agreement transactions, it will maintain in a
separate account designated securities which are liquid or mature prior
to the scheduled repurchase and cash sufficient in aggregate value to
provide adequate funds for completion of the repurchase. It is the
Fund's current operating policy not to engage in reverse repurchase
agreements for any purpose, if as a result reverse repurchase agreements
in the aggregate would exceed five percent of the Fund's total assets.
6. American Depository Receipts. The Fund may invest in American
Depository Receipts ("ADRs"). These instruments are negotiable receipts
for a given number of shares of securities in a foreign corporation.
The foreign stock certificates remain in the custody of a foreign bank.
ADRs are issued by large commercial US banks and traded in US
markets or on US exchanges. The ADR represents the depository bank's
guarantee that it holds the underlying securities. The Fund may invest
in an ADR in lieu of trading in the underlying shares on a foreign
market. ADRs are subject to a degree of US regulation and are
denominated in US dollars.
7. Convertible Securities. In addition to other equity securities, the
Fund may invest in "convertible securities." Securities convertible into
common stocks and securities having equity characteristics are bonds
that are convertible into a specific number of shares of the common
stock of the issuer either at any time or usually at a specific future
date at a determined price per share of common stock. Such bonds tend
to participate in a substantial portion of the price appreciation of the
underlying common stock while enjoying some protection against
depreciation due to higher interest rates afforded most bonds and
because of the anticipation of the bond's maturity. The portfolio
anticipates that convertible securities will represent less than 25% of
it's total assets. All convertible bonds must meet the same quality
ratings required of corporate bonds, as described for commercial paper.
The risks involved in investment in convertible securities are similar
to the risks of investment in the underlying common stocks.
8. Borrowing and Lending. The Fund may loan its portfolio securities in
an amount not in excess of one-third of the value of the Fund's gross
assets, provided collateral satisfactory to the Fund's Advisor is
continuously maintained in amounts not less than the value of the
securities loaned. The Fund may not lend money (except to governmental
units), but is not precluded from entering into repurchase agreements or
purchasing debt securities.
The Fund does not presently intend to borrow (including engaging in reverse
repurchase agreement transactions) for investment purposes. If the Fund
were to borrow for the purpose of making additional investments, such
borrowing and investment would constitute "leverage." Leverage would
exaggerate the impact of increases or decreases in the value of a
portfolio's total assets on its net asset value, and thus increase the
risk of holding the portfolio's shares. Furthermore, if bank borrowings
by the Fund for any purpose exceeded one-third of the value of a
portfolio's total assets (net of liabilities other than the bank
borrowings), then the Investment Company Act of 1940 would require the
portfolio, within three business days, to liquidate assets and
commensurably reduce bank borrowings until the borrowing level was
again restored to such one-third level. Funds borrowed for leverage
purposes would be subject to interest costs which might not be recovered
by interest, dividends or appreciation from the respective securities
purchases. The Fund might also be required to maintain minimum bank
balances in connection with such borrowings or to pay line-of-credit
commitment fees or other fees to continue such borrowings; either of
these requirements would increase the cost of the borrowing.
9. Other Activities. The Fund may purchase securities secured by real
estate or interests therein and may use financial futures contracts,
including contracts traded on a regulated commodity market or exchange,
to purchase or sell securities which the Fund would be permitted to
purchase or sell by other means and where the Fund intends to take or
make the required delivery. The Fund may acquire put options in
conjunction with a purchase of portfolio securities; it may also
purchase put options and write call options covered by securities held
in the respective portfolio (and purchase offsetting call options in
closing purchase transactions), provided that the put option purchased
or call option written at all times remains covered by portfolio
securities, whether directly or by conversion or exchange rights; but it
may not otherwise invest in or write puts and calls or combinations
thereof.
As a matter of operating policy in order to comply with certain
applicable State restrictions, but not as a fundamental policy, the Fund
will not pledge, mortgage or hypothecate in excess of 10% of its total
assets taken at market value. Although permitted to do so by its
fundamental policies (see "Investment Limitations" below), it is the
Fund's current policy not to use financial futures contracts and not to
acquire put options nor to invest in warrants (other than warrants
acquired as a part of a unit or attached to other securities at the time
of purchase) if such warrants (valued at the lower of cost or market)
would then exceed five percent of the Fund's net assets and any such
warrants not listed on the New York or American Stock Exchange would
exceed two percent of the Fund's net assets.
If the Fund alters any of the foregoing current operating policies
(relating to financial futures contracts, options, warrants or
borrowing), it will notify shareholders of the policy revision at least
30 days prior to its implementation and describe the new investment
techniques to be employed. In the implementation of its investment
policies the Fund will not consider securities to be readily
marketable unless they have readily available market quotations.
Policy Review. If, in the judgment of a majority of the Trustees of the
Fund, unanticipated future circumstances make inadvisable the
continuation of the Fund's policy of seeking capital appreciation from
investment principally in equity securities, or continuation of the more
specific policies of the Fund, then the Trustees may change any
such policies without shareholder approval, subject to the limitations
provided elsewhere in this Statement of Additional Information (see
"Investment Limitations") and after giving 30 days' written notice to
the Fund's affected shareholders.
Except for the fundamental investment limitations placed upon the
Fund's activities, the Trustees reserve the right to review and change
the other investment policies and techniques employed by the Fund, from
time to time as they deem appropriate, in response to market conditions
and other factors. Reference should be made to "Investment Limitations"
for a description of those fundamental investment policies which may not
be changed without shareholder approval. Such fundamental policies
would permit the Fund, after notice to shareholders but without a
shareholder vote, to adopt policies permitting a wide variety of
investments, including money market instruments, all types of common and
preferred equity securities, all types of long-term debt securities,
convertible securities, and certain types of option contracts. In the
event of such a policy change, a change in the Fund's name might be
required. There can be no assurance that the Fund's present objectives
will be achieved.
INVESTMENT LIMITATIONS
The Fund has adopted as fundamental policies the following limitations
on its investment activities; these fundamental policies may not be changed
without a majority vote of the Fund's shareholders as defined in the
Investment Company Act of 1940 (see "Organization of the Fund").
1. Permissible Investments.
i. Illiquid Investments
It is a fundamental policy of the Fund not to make any investment
(including repurchase agreements) for which there is no readily
available market and which may not be redeemed, terminated or otherwise
converted into cash within seven days, unless after making the
investment, not more than 15% of the Fund's net assets
would be so invested. In other words, the Fund must maintain at least
85% of its net assets in liquid securities.
ii. Concentration in a Particular Industry.
It is a fundamental policy of the Fund not to purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S. government
or any of its agencies or instrumentalities) if, as a result, more than 25%
of the fund's total assets would be invested in the securities of companies
whose principal business activities are in the same industry
2. Restricted Investments.
i. RIC Status. It is a fundamental policy to maintain the Fund's
status as a regulated investment company for purposes of the Internal
Revenue Code.
In order to accomplish this policy, the Fund must restrict its
investment activity as follows: With respect to 50% of the Fund's net
assets, not more than five percent of the value of the total assets of
the Fund may be invested in the securities of any one issuer (other than
securities issued or guaranteed by the United States Government or any
of its agencies or instrumentalities and excluding bank deposits); nor,
with respect to 50% of the Fund's net assets, may securities be
purchased when as a result more than 10% of the voting securities of the
issuer would be held by the Fund. Except to the extent a the Fund
purchases obligations issued or guaranteed by the United States
Government or its agencies and instrumentalities, obligations which
provide income exempt from federal income taxes, and obligations of
domestic banks, their branches, and other domestic depository
institutions, the Fund will limit its investments so that not more than
25% of its assets are invested in any one security. For purposes of
these restrictions, the issuer is deemed to be the specific legal entity
having ultimate responsibility for performance of the obligations
evidenced by the security and whose assets and revenues principally back
the security. Any security that does not have a governmental
jurisdiction or instrumentality ultimately responsible for its repayment
may not be purchased by the Fund when the entity responsible for such
repayment has been in operation for less than three years, if such
purchase would result in more than five percent of the total assets of
the respective portfolio of the Fund being invested in such securities.
ii. Investments in Other Funds. It is a fundamental policy of the Fund
not to purchase the securities of other investment companies,
except for shares of unit investment trusts (and then only if the value
of such shares of any one investment company does not exceed 5% of the
value of the total assets of the Fund and the aggregate value of all
such shares does not exceed 10% of the value of such total assets) or
except in connection with an investment company merger, consolidation,
acquisition or reorganization.
iii. Management of Control. It is a fundamental policy of the Fund not
to purchase any security for purposes of exercising management or
control of the issuer, except in connection with a merger,
consolidation, acquisition or reorganization of an investment company.
iv. Affiliated Transactions. It is a fundamental policy of the Fund
not to purchase or retain the securities of any issuer if, to
the knowledge of the Fund's management, the holdings of those of the
Fund's officers, Trustees and officers of its Advisor who beneficially
hold one-half percent or more of such securities, together exceed 5% of
such outstanding securities.
3. Borrowing and Lending. It is a fundamental policy of
the fund not to borrow more than 5% of assets.
It is a fundamental policy of the Fund not to issue senior securities
representing indebtedness and not to pledge, mortgage or
hypothecate any assets to secure bank loans, except in amounts not
exceeding 15% of its net assets taken at cost.
4. Other Activities.
i. Underwriting Activities. It is a fundamental policy of the Fund not
to act as an underwriter (except for activities in connection with the
acquisition or disposition of securities intended for or held by the
Fund).
ii. Short Sales/Margin Trading/Real Estate. It is a fundamental policy
of the Fund not to make short sales or maintain a short position (unless
the Fund owns at least an equal amount of such securities, or securities
convertible or exchangeable into such securities, and not more than 25%
of the Fund's net assets is held as collateral for such sales). It is
also a fundamental policy of the Fund not to purchase securities on
margin (except for customary credit used in transaction clearance),
invest in commodities, purchase interests in real estate, real estate
limited partnerships, or invest in oil, gas or other mineral exploration
or development programs or oil, gas or mineral leases.
Except as otherwise specifically provided, the foregoing percentage
limitations need only be met when the investment is made or other
relevant action is taken.
THE INVESTMENT ADVISOR
Madison Mosaic, LLC, 1655 Fort Myer Drive, Arlington, Virginia 22209-
3108, is the investment advisor to the Fund and is called the "Advisor"
throughout this Statement of Additional Information and the Prospectus.
The Advisor is responsible for the investment management of the Fund and
is authorized to execute the Fund's portfolio transactions, to select
the methods and firms with which such transactions are executed, to
oversee the Fund's operations, and otherwise to administer the affairs
of the Fund as it deems advisable. In the execution of these
responsibilities, the Advisor is subject to the investment policies and
limitations of the Fund described in the Prospectus and this Statement
of Additional Information, to the terms of the Declaration of Fund and
the Fund's By-Laws, and to written directions given from time to time by
the Trustees.
The Advisor is a Wisconsin limited liability company, wholly owned by
Madison Investment Advisors, Inc. ("Madison"), 6411 Mineral Point Road,
Madison, Wisconsin. Madison was founded in 1973 and is an independent,
registered investment advisor which has numerous advisory clients.
The investment advisory agreement between the Fund, on behalf of the
portfolios, and the Advisor is subject to annual review and approval by
the Trustees, including a majority of those Trustees who are not
"interested persons," as defined in the Investment Company Act of 1940.
The investment advisory agreement was approved by the initial shareholders
of the Fund for an initial two year term beginning in 1998.
The investment advisory agreement may be terminated at any time, without
penalty, by the Trustees or, with respect to any series or class of the
Fund's shares, by the vote of a majority of the outstanding voting
securities of that series or class (see "Organization of the Fund"), or
by the Advisor, upon sixty days' written notice to the other party. The
investment advisory agreement may not be assigned by the Advisor, and
will automatically terminate upon any assignment.
Background of the Advisor. The Advisor was formed in 1996 by Madison
for the purpose of providing investment management services to the
Mosaic family of mutual funds, including the Fund. The Advisor also
serves as the investment advisor to Mosaic Equity Trust, Mosaic
Government Money Market, Mosaic Income Trust and Mosaic Tax-Free Trust.
Management. Frank E. Burgess is President, Treasurer and Director of
Madison and Vice President of the Advisor. Mr. Burgess owns the
controlling interest in Madison, which, in turn, controls the Advisor.
Mr. Burgess is also a Trustee and Vice President of the Fund. Mr.
Burgess holds the same positions with Mosaic Government Money Market,
Mosaic Income, Mosaic Equity and Mosaic Tax-Free Trusts. Katherine L.
Frank is President and Treasurer of the Advisor and Vice President of
Madison. Ms. Frank holds the same positions with Mosaic Government
Money Market, Mosaic Income, Mosaic Equity and Mosaic Tax-Free Trusts.
Advisory Fee and Expense Limitations. For its services under the
investment advisory agreement, the Advisor receives a fee, payable
monthly, calculated as 3/4 percent per annum of the average daily net
assets of the Fund during the month. Such fees do not decrease as net
assets increase. The Advisor may waive or reduce such fees during any
period; the Advisor may also reduce such fees on a permanent basis,
without any requirement for consent by the Fund or its shareholders,
under such terms as it may determine, by written notice thereof to the
Fund.
In addition, the Advisor has agreed, in any event, to be responsible for
the fees and expenses of the Trustees and officers of the Fund who are
affiliated with the Advisor, the rent expenses of the Fund's principal
executive office premises, and its various promotional expenses
(including the distribution of Prospectuses to potential shareholders).
Other than investment management and related expenses, and the foregoing
items, the Advisor is not obligated to provide or pay for any other
services to the Fund, although it has discretion to elect to do so.
The investment advisory agreement permits the Advisor to make payments
out of its fee to other persons. Because the Fund has entered into a new
investment advisory contract with the Advisor, no historical payment
information is available.
ORGANIZATION OF THE FUND
The Fund's Declaration of Trust, dated January 1, 1998, has been
filed with the Secretary of State of the Commonwealth of Massachusetts.
The Prospectus contains general information concerning the Fund's form of
organization and its shares (see "The Fund and Its Shares"), including the
series of shares currently authorized.
Series and Classes of Shares. The Trustees may authorize at any time
the creation of additional series of shares (the proceeds of which would
be invested in separate, independently managed portfolios) and
additional classes of shares within any series (which would be used to
distinguish among the rights of different categories of shareholders, as
might be required by future regulations, methods of share distribution
or other unforeseen circumstances) with such preferences, privileges,
limitations, and voting and dividend rights as the Trustees may
determine. All consideration received by the Fund for shares of any
additional series or class, and all assets in which such consideration
is invested, would belong to that series or class (but classes may
represent proportionate undivided interests in a series), and would be
subject to the liabilities related thereto. The Investment Company Act
of 1940 would require the Fund to submit for the approval of the
shareholders of any such additional series or class any adoption of an
investment advisory contract or any changes in the Fund's fundamental
investment policies related to the series or class.
The Trustees may divide or combine the shares of any series into a
greater or lesser number of shares without thereby changing the
proportionate interests in the series. Any assets, income and expenses
of the Fund not readily identifiable as belonging to a particular
series are allocated by or under the direction of the Trustees in such a
manner as they deem fair and equitable. Upon any liquidation of the
Fund or of a series of its shares, the shareholders are entitled to
share pro-rata in the liquidation proceeds available for distribution.
Shareholders of each series have an interest only in the assets
allocated to that series.
Voting Rights. The voting rights of shareholders are not cumulative, so
that holders of more than 50 percent of the shares voting can, if they
choose, elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees.
Shareholder votes relating to the election of Trustees, approval of the
Fund's selection of independent auditors and any contract with a
principal underwriter, as well as any other matter in which the
interests of all shareholders are identical, will be voted
upon without regard to series or classes of shares. Matters that do not
affect any interest of a series or class of shares will not be voted
upon by the unaffected shareholders. Certain other matters in which the
interests of more than one series or class of shares are affected, but
where such interests are not identical, will be voted upon
separately by each series or class affected and will require a majority
vote of each such series or class to be approved by it. When a matter
is voted upon separately by more than one series or class of shares, it
may be approved with respect to a series or class even if it fails to
receive a majority vote of any other series or class or fails to receive
a majority vote of all shares entitled to vote on the matter.
Because there is no requirement for annual elections of Trustees, the
Fund does not anticipate having regular annual shareholder meetings
after the initial meeting; shareholder meetings will be called as
necessary to consider questions requiring votes by the shareholders.
The selection of the Fund's independent auditors will be submitted to a
vote of ratification at any annual meetings held by the Fund. Any
change in the Declaration of Trust, in the Investment Advisory Agreement
(except for reductions of the Advisor's fee) or in the fundamental
investment policies of the Fund must be approved by a majority of the
affected shareholders before it can become effective. For this purpose,
a "majority" of the shares of the Fund means either the vote, at an
annual or special meeting of the shareholders, of 67 percent or more of
the shares present at such meeting if the holders of more than 50
percent of the outstanding shares of the Fund are present or
represented by proxy or the vote of 50 percent of the outstanding shares
of the Fund, whichever is less. Voting groups will be comprised of
separate series and classes of shares or of all of the Fund's shares,
as appropriate to the matter being voted upon.
The Declaration of Trust provides that two-thirds of the holders of
record of the Fund's shares may remove a Trustee from office either by
declarations in writing filed with the Fund's Custodian or by votes
cast in person or by proxy at a meeting called for the purpose. The
Trustees are required to promptly call a meeting of shareholders for the
purpose of voting on removal of a Trustee if requested to do so in
writing by the record holders of at least 10% of the Fund's outstanding
shares. Ten or more persons who have been shareholders for at least six
months and who hold shares with a total value of at least $25,000 (or 1%
of the Fund's net assets, if less) may require the Trustees to assist a
shareholder solicitation to call such a meeting by providing either a
shareholder mailing list or an estimate of the number of shareholders
and approximate cost of the shareholder mailing, in which latter case,
unless the Securities and Exchange Commission determines otherwise, the
shareholders desiring the solicitation may require the Trustees to
undertake the mailing if those shareholders provide the materials to be
mailed and assume the cost of the mailing.
Shareholder Liability. Under Massachusetts law, the shareholders of an
entity such as the Fund may, under certain circumstances, be held
personally liable for its obligations. The Declaration of Trust
contains an express disclaimer of shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation or instrument, entered into or
executed by the Fund or the Trustees. The Declaration of Trust
provides for indemnification out of the Fund property of any
shareholder held personally liable for the obligations of the Fund.
The Declaration of Trust also provides that the Fund shall, upon
request, assume the defense of any claim made against any shareholder
for any act or obligation of the Fund and satisfy any judgment thereof.
Thus the risk of a shareholder incurring financial loss on account of
status as a shareholder is limited to circumstances in which the Fund
itself would be unable to meet its obligations.
Liability of Trustees and Others. The Declaration of Trust provides
that the officers and Trustees of the Fund will not be liable for any
neglect, wrongdoing, errors of judgment, or mistakes of fact or law,
except that they shall not be protected from liability arising out of
willful misfeasance, bad faith, gross negligence, or reckless disregard
of their duties to the Fund. Similar protection is provided to the
Advisor under the terms of the investment advisory agreement and the
services agreement. In addition, protection from personal liability for
the obligations of the Fund itself, similar to that provided to
shareholders, is provided to all Trustees, officers, employees and
agents of the Fund.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Fund and their principal
occupations during the past five years are shown below:
Frank E. Burgess*
6411 Mineral Point Road, Madison, WI 53705
Trustee and Vice President
President and Director of Madison Investment Advisors, Inc., the entity
which controls the Advisor. Prior to forming Madison in 1973, he was
Assistant Vice President and Trust Officer of M&I Bank of Madison,
Wisconsin. Mr. Burgess received his BS from Iowa State University and
his law degree from the University of Wisconsin. He is a member of the
State Bar of Wisconsin. b. 8/4/42.
Thomas S. Kleppe***
7100 Darby Road, Bethesda, MD 20817
Trustee
Private Investor; formerly Visiting Professor at the University of
Wyoming, Secretary of the US Department of the Interior,
Administrator of the US Small Business Administration, US
Congressman from North Dakota, Vice President and Director of Dain,
Kalman & Quail, investment bankers, and President of Gold Seal Co.,
manufacturers of household cleaning products. Attended Valley City
State College of North Dakota. b. 7/1/19.
James R. Imhoff, Jr.***
429 Gammon Place, Madison, WI 53719
Trustee
Chairman and CEO of First Weber Group, Inc. of Madison, WI, a
residential real estate company; Chairman of the Wisconsin Real Estate
Board of the Department of Regulation and Licensing; Director to the
University of Wisconsin School of Business, Center for Urban Land
Economics Research; Director of the Park Bank, Wisconsin; formerly
President of the Wisconsin Realtors Association and the Greater Madison
Board of Realtors and Director of the National Association of Realtors.
An alumnus of the Marquette University School of Business. b. 5/20/44.
Lorence D. Wheeler***
4905 W. 60th Avenue, Arvada, CO 80003
Trustee
President of Credit Union Benefits Services, Inc., a provider of
retirement plans and related services for credit union employees
nationwide. Previously a shareholder of the law firm of Bell, Metzner &
Gierart, SC. Mr. Wheeler received his law degree from the University
of Wisconsin. b. 1/31/38.
*Trustee deemed to be an "interested person" of the Fund as the term is
defined in the Investment Company Act of 1940.
*** Member of the Audit Committee of the Fund. The Audit Committee is
responsible for reviewing the results of each audit of the Fund by its
independent auditors and for recommending the selection of independent
auditors for the coming year.
Katherine L. Frank
6411 Mineral Point Road, Madison, WI 53705
President
President of Mosaic Funds, Vice President of Madison Investment
Advisors, Inc. A graduate of Macalester College, St. Paul,
Minnesota.
Julia M. Nelson
1655 Fort Myer Drive, Arlington, VA 22209-3108
Vice President
Vice President of Mosaic Funds.
Jay R. Sekelsky
6411 Mineral Point Road, Madison, WI 53705
Vice President
Vice President of Mosaic Funds and of Madison Investment
Advisors, Inc. Formerly Vice President of Wellington Management Group
of Boston, MA. Mr. Sekelsky holds a BBA in Accounting and an MBA in
Finance from the University of Wisconsin.
Christopher C. Berberet
6411 Mineral Point Road, Madison, WI 53705
Vice President
Vice President of Mosaic Funds and of Madison Investment
Advisors, Inc. Formerly the Director of Fixed Income Management for the
ELCA Board of Pensions, Minneapolis, MN. A graduate of the University
of Wisconsin.
W. Richard Mason
1655 Ft. Myer Drive, Arlington, VA 22209
Secretary
Secretary of Mosaic Funds, Artisan Investment Services, Inc.,
Presidential Savings Bank, FSB and Presidential Service Corporation.
Formerly Assistant General Counsel for the Investment Company Institute.
Mr. Mason holds a BS in Foreign Service from Georgetown University and
received his law degree from The George Washington University. He is a
member of the District of Columbia and Texas bars.
Only those persons named in the table of Trustees and officers who are
not interested persons of the Fund are eligible to be compensated by
the Fund. The compensation of each non-interested Trustee who may be
compensated by the Fund has been fixed at $1,000 per year, to be pro-
rated according to the number of regularly scheduled meetings each year.
Four Trustees' meetings are currently scheduled to take place each year.
In addition to such compensation, those Trustees who may be compensated
by the Fund shall be reimbursed for any out-of-pocket expenses incurred
by them in connection with the affairs of the Fund. The Trustees are
expected to receive annual compensation from the Fund and from the
other investment companies managed by the Advisor (see "the Investment
Advisor") totaling $16,000.
During the first twelve months of the Fund, the Trustees are expected
to be compensated as follows:
Aggregate Total Compensation from
Compensation Fund and Mosaic Complex
from Fund Paid to Trustees (a)
Frank E. Burgess $0 $0
Thomas S. Kleppe $1,000 $16,000
James R. Imhoff, Jr. $1,000 $16,000
Lorence D. Wheeler $1,000 $16,000
(a) The complex is comprised of 5 trusts with a total of 15 funds and/or
series.
Under the Declaration of Trust, the Trustees are entitled to be
indemnified by the Fund to the fullest extent permitted by law against
all liabilities and expenses reasonably incurred by them in connection
with any claim, suit or judgment or other liability or obligation of any
kind in which they become involved by virtue of their service as
Trustees of the Fund, except liabilities incurred by reason of their
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
On the effective date of this Statement of Additional Information, the
Trustees and officers of the Fund and Madison directly or indirectly
owned 100 percent of the outstanding shares in the Fund.
ADMINISTRATIVE AND OTHER EXPENSES
Except for certain expenses assumed by the Advisor (see "The Investment
Advisor"), the Fund is responsible for payment from its assets of all
of its expenses. These expenses can include any of the business or
other expenses of organizing, maintaining and operating the Fund.
Certain expense items which may represent significant costs to the Fund
include the payment of the Advisor's fee; the expense of shareholder
accounting, customer services, and calculation of net asset value; the
fees of the Custodian, of the Fund's independent accountants, and of
legal counsel to the Fund; the expense of registering the Fund and its
shares, of printing and distributing prospectuses and periodic financial
reports to current shareholders, and of trade association membership;
and the expense of preparing shareholder reports, proxy materials and of
holding shareholder meetings of the Fund. The Fund is also
responsible for any extraordinary or non-recurring expenses it may
incur.
Services Agreement. The Fund does not have any officers or employees
who are paid directly by the Fund. The Fund has entered into a
services agreement with the Advisor for the provision of operational and
other services required by the Fund. Such services may include the
functions of shareholder servicing agent and transfer agent, bookkeeping
and portfolio accounting services, the handling of telephone inquiries,
cash withdrawals and other customer service functions including
monitoring wire transfers, and providing to the Fund appropriate
supplies, equipment and ancillary services necessary to the conduct of
its affairs. The Fund is registered with the Securities and Exchange
Commission as the transfer agent for its shares and acts as its own
dividend-paying agent; while transfer agent personnel and facilities are
included among those provided to the Fund under the services agreement,
the Fund itself is solely responsible for its transfer agent and
dividend payment functions and for the supervision of those functions by
its officers. The Fund maintains books and records of shareholder
accounts and provides confirmations of transactions and quarterly
account statements.
All such services provided to the Fund by the Advisor are rendered at a
flat percentage fee calculated as a percentage of average daily net
assets, reviewed and approved at least annually by the Trustees. Such
fee is expected to approximate or be below the cost of providing such
services. The term "cost" includes both direct expenditures and the
related overhead costs, such as depreciation, employee supervision, rent
and the like; reimbursements to the Advisor pursuant to the Services
Agreement are in addition to and independent of payments made pursuant
to the Investment Advisory Agreement. The Advisor provides such
services to Mosaic Income, Mosaic Equity, Mosaic Tax-Free and Mosaic
Government Money Market Trusts. The costs covered by the Services
Agreement will also include certain direct expenses (including custody,
brokerage, blue sky, legal and audit).
Distribution Agreement. Artisan Investment Services, LLC acts as the
Fund's distributor pursuant to a distribution agreement, dated the same
date as this Statement of Additional Information, without compensation
under such agreement. This agreement has an initial term of two years
and may thereafter continue in effect only if approved annually by the
Trustees, including a majority of those who are not "interested
persons," as defined in the Investment Company Act of 1940; the
agreement provides for distribution of the Fund's shares
without a sales charge to the investor. The distributor may act as the
Fund's agent for any sales of its shares. The Fund will also sell its
shares directly to any person. The distributor makes the Fund's shares
continuously available to the general public in those states where it
has qualified to do so, but has assumed no obligation to purchase any of
the Fund's shares. The distributor is wholly owned by Madison.
PORTFOLIO TRANSACTIONS
Decisions as to the purchase and sale of securities for the Fund, and
decisions as to the execution of these transactions, including selection
of market, broker or dealer and the negotiation of commissions are,
where applicable, to be made by the Advisor, subject to review by the
officers and Trustees of the Fund.
In general, in the purchase and sale of portfolio securities the Fund
will seek to obtain prompt and reliable execution of orders at the most
favorable prices or yields. In determining the best price and
execution, the Advisor may take into account a dealer's operational and
financial capabilities, the type of transaction involved, the dealer's
general relationship with the Advisor, and any statistical, research or
other services provided by the dealer to the Advisor, including payment
for the use by the Advisor of electronic research services. Research
and statistical information regarding securities may be used by the
Advisor for the benefit of all members of the Mosaic family of mutual
funds and by other clients of Madison. To the extent such non-price
factors are taken into account the execution price paid may be
increased, but only in reasonable relation to the benefit of such non-
price factors to the Fund as determined in good faith by the Advisor.
Brokers or dealers who execute portfolio transactions for the Fund may
also sell its shares; however, any such sales will not be either a
qualifying or disqualifying factor in the selection of brokers or
dealers.
The Fund reserves the right to purchase portfolio securities through an
affiliated broker, when deemed in the Fund's best interest by the
Advisor, provided that: (1) the transaction is in the ordinary course of
the broker's business; (2) the transaction does not involve a purchase
from another broker or dealer; (3) compensation to the broker in
connection with the transaction is not in excess of one percent of the
cost of the securities purchased; and (4) the terms to the Fund for
purchasing the securities, including the cost of any commissions, are
not less favorable to the Fund than terms concurrently available from
other sources. Any compensation paid in connection with such a purchase
will be in addition to fees payable to the Advisor under the investment
advisory agreement. The Fund does not anticipate that any such
purchases through affiliates will represent a significant portion of its
total activity.
The Fund does not expect to engage in a significant amount of short-
term trading, but securities may be purchased and sold in anticipation
of market fluctuations, as well as for other reasons. The Fund
anticipates that annual portfolio turnover for each of its portfolios
generally will not exceed 100%, but the actual turnover rate will not be
a limiting factor if the Fund deems it desirable to conduct purchases
and sales of portfolio securities. Reference should be made to the Fund's
financial statements for actual rates of portfolio turnover.
SHAREHOLDER TRANSACTIONS
The Prospectus describes the basic procedures for investing in the
Fund. The following information concerning other investment procedures is
presented to supplement the information contained in the Prospectus.
Shareholder Service Policies. The Fund's policies concerning
shareholder services are subject to change from time to time.
Minimum Initial Investment and Balance. The Fund reserves the right to
change its minimum initial investment requirement or the minimum account
size below which an account is subject to a monthly service charge, or
involuntary closing by the Fund. The Fund has a $50 minimum amount for
subsequent investments. It may change this amount, if it so chooses, by 30
days written notice to its shareholders.
Special Service Charges. The Fund further reserves the right, after 30
days written notification to shareholders, to impose special charges for
services provided to individual shareholders that are not regularly
afforded to shareholders generally. Such service charges may include
but are not limited to special custodian bank processing charges such as
fees for stop payment orders and returned checks. The Fund's standard
service charges are also subject to adjustment from time to time.
Share certificates will not be issued.
Subaccounting Services. The Fund offers subaccounting services to
institutions. The Trustees reserve the right to determine from time to
time such guidelines as they deem appropriate to govern the level of
subaccounting service that can be provided to individual institutions in
differing circumstances. Normally, the Fund's minimum initial
investment to open an account will not apply to subaccounts; however,
the Fund reserves the right to impose the same minimum initial
investment requirement that would apply to regular accounts, if it deems
that the cost of carrying a particular subaccount or group of
subaccounts is otherwise likely to be excessive. The Fund may provide
and charge for subaccounting services which it determines exceed those
services which can be provided without charge. The availability and
cost of such additional services will be determined in each case by
negotiation between the Fund and the parties requesting the additional
services. The Fund is not presently aware of any such services for
which a charge will be imposed.
Crediting of Investments. The Fund reserves the right to reject any
investment in the Fund for any reason and may at any time suspend all
new investment in the Fund. The Fund may also, in its discretion or
at the instance of the Advisor, decline to give recognition as an
investment to funds wired for credit to any account, until such funds
are actually received by the Fund. Under present federal regulatory
guidelines, the Advisor may be responsible for any losses resulting from
changes in the Fund's net asset values which are incurred by the Fund
as a result of failure to receive funds from an investor to whom
recognition for investment was given in advance of receipt of payment.
If shares are purchased to be paid for by wire and the wire is not
received by the Fund or if shares are purchased by a check which, after
deposit, is returned unpaid or proves uncollectible, then the share
purchase may be canceled immediately. The shareholder that gave notice
of the intended wire or submitted the check will be held fully
responsible for any losses so incurred by the Fund, the Advisor or the
distributor.
Funds Received by Wire. Wires are normally converted into shares in the
Fund at the net asset value next determined.
Checks. Checks drawn on foreign banks will not be considered received
until the Fund has actual receipt of payment in US dollars after
submission of the check for collection; collection of such checks
through the international banking system may require 30 days or more.
Purchase Orders From Brokers. An order to purchase shares which is
received by the Fund from a securities broker will be considered
received in proper form for the net asset value per share determined as
of the close of the New York Stock Exchange on the day of the order,
provided the broker received the order from its customer prior to that
time. Shareholders who invest in the Fund through a broker may be
charged a commission for the handling of the transaction, if the broker
so elects. A shareholder may deal directly with the Fund without a
fee.
SHARE REDEMPTIONS
The value of shares redeemed will be determined according to the share
net asset value next calculated after the request has been received in
proper form. (See "Determination of Net Asset Value.") Thus, any such
request received in proper form prior to the close of the New York Stock
Exchange (normally 4 p.m. Washington, DC time) on a business day will
reflect the net asset value calculated at that time; later withdrawal
requests will be processed to reflect the share net asset value figure
calculated on the next day the calculation is made. The Fund
calculates net asset values each day the New York Stock Exchange is open
for trading.
Net asset value determinations will apply as of the day the redemption
order is submitted in proper form. A redemption request may not be
deemed to be in proper form unless a signed account application has been
submitted to the Fund by the shareholder or such an application is
submitted with the redemption request. Shareholders should be aware
that it is possible, should the share net asset value of the respective
portfolio fall as a result of normal market value changes, that amounts
available for withdrawal from an account could be less than the amount
of the original investment.
The Fund will use its best efforts in normal circumstances to handle
redemptions within the times previously given. However, it may, for any
reason, suspend the right of redemption or postpone payment for any
shares in the Fund for any period up to seven days. The Fund's sole
responsibility with regard to redemptions shall be to process, within
the aforementioned time period, redemption requests in proper form.
Neither the Fund, its affiliates, nor the Custodian can accept
responsibility for any act or event which has the effect of delaying or
preventing timely transfers of payment to or from shareholders. By law,
payment for shares in the Fund may be suspended or delayed for more than
seven days only during any period when the New York Stock Exchange is
closed, other than customary weekend and holiday closings; when trading
on such Exchange is restricted, as determined by the Securities and
Exchange Commission; or during any period when the Securities and
Exchange Commission has by order permitted such suspension.
When an account is closed, the Fund reserves the right to make payment
by check of any final dividends declared to the date of the redemption
to close the account, but not yet paid, on the same day such dividends
are paid to other shareholders, rather than at the time the account is
closed.
Inter-Fund Exchanges. Shares redeemed from one shareholder account to another
by exchange will earn their final day's dividend on the day of exchange.
The Fund reserves the right, when it deems such action necessary to
protect the interests of its shareholders, to refuse to honor withdrawal
requests made by individuals purporting to act with the authority of
another person or on behalf of a corporation or other legal entity or
whose identity has not been established to the Fund's satisfaction.
Each such individual must provide a corporate resolution or other
appropriate evidence of his authority or identity satisfactory to the
Fund. The Fund reserves the right to refuse any third party
redemptions.
If, in the opinion of the Trustees, extraordinary conditions exist which
make cash payments undesirable, payments for any shares redeemed may be
made in whole or in part in securities and other property of the Fund;
except, however, that the Fund has elected, pursuant to rules of the
Securities and Exchange Commission, to permit any shareholder of record
to make redemptions wholly in cash to the extent the shareholder's
redemptions in any 90-day period do not exceed the lesser of one percent
of the aggregate net assets of the Fund or $250,000. Any property of
the Fund distributed to shareholders will be valued at its net asset
value. In disposing of any such property received from the Fund, an
investor might incur commission costs or other transaction costs; there
is no assurance that an investor attempting to dispose of any such
property would actually receive the full net asset value for it. Except
as described herein, however, the Fund intends to pay for all share
redemptions in cash.
It is the shareholder's obligation to inform the Fund of address
changes. The Fund will exercise reasonable care to ascertain the
correct address of lost shareholders. The Fund will conduct two
database searches and use at least one information database service.
The search will be conducted at no cost to the shareholder. The Fund
will not, however, perform such searches if the shareholder's account is
less than $25, if the shareholder is not a natural person or the Fund
has received documentation that the shareholder is deceased. If a lost
shareholder cannot be located after such procedures, such shareholder's
account may be escheated to the state of the shareholder's last
residence. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
RETIREMENT PLANS
General information on retirement plans offered by the Fund is provided
in the Prospectuses (see "Retirement Plans"). Additional information
concerning these retirement plans is provided below.
IRAs. The minimum initial contribution for an IRA plan with the Fund
is $500. Spousal IRAs are accepted by creating two accounts, one for
each spouse. For IRAs opened in connection with a payroll deduction or
SEP plan, the Fund may waive the initial investment minimum on a case-
by-case basis.
The Fund's annual account maintenance fee is deducted from the account
at the end of each year or at the time of the account's closing unless
prepaid by the shareholder.
Other Retirement Plans or Retirement Plan Accounts. The Fund does not
intend to impose any monthly minimum balance charge with respect to
retirement plan accounts. Mosaic Funds offers prototype Education IRA,
Keogh, SEP IRA, SIMPLE, 401(k) and 403(b) retirement plans. The Fund
may waive the initial investment minimum for prototype or other
retirement plan accounts on a case-by-case basis.
DECLARATION OF DIVIDENDS
Substantially all of the Fund's accumulated net investment income will
be declared as dividends and distributed to shareholders at least once a year
at the end of the Fund's fiscal year. The amount of the
Fund's net investment income will reflect the Fund's dividend income,
any premiums earned for writing call options, any interest income (plus
any discount earned less premium amortized), less expenses accrued with
respect to each portfolio for the period. In the event Mosaic Focus
Fund Trust establishes more than one series of shares, then all items of
income and expense which apply solely to one of the Fund's portfolios
will be wholly allocated to that portfolio; such items which are not
clearly applicable to one portfolio will be allocated between portfolios
pro-rata on the basis of their relative net assets or upon such other
basis as the Trustees determine is equitable.
Net capital gains, if any, will be declared as a capital gain
distribution on or before December 31.
Any declaration of dividends with respect to a portfolio is dependent
upon the level of income and capital gains earned by the portfolio
during the fiscal year. No historical rate of dividend payments will be
indicative of future dividends.
Notice of dividends will be mailed to each shareholder when the
dividends are paid; for tax purposes each shareholder will also receive
an annual summary of dividends paid by the Fund and the extent to which
they constitute capital gain distributions (see "Additional Tax
Matters").
DETERMINATION OF NET ASSET VALUE
The net asset value of each portfolio of the Fund, and of the
respective shares, is calculated once each day the New York Stock
Exchange is open for trading. The net asset value of the Fund is not
calculated on New Year's Day, the observance of Martin Luther King,
Jr.'s Birthday, President's Day, Good Friday, the observance of Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and on
other days the New York Stock Exchange is closed for trading. The net
asset value calculation is made as of the close of the New York Stock
Exchange, as described in the Prospectus.
Net asset value per share of the Fund is determined by adding the
value of all its securities and other assets, subtracting its
liabilities and dividing the result by the total number of outstanding
shares that represent an interest in the Fund. These calculations
are performed by the Fund pursuant to the Services Agreement (see
"Administrative and Other Expenses"). The Fund does not charge a
"sales load," and accordingly its shares are both offered and redeemed
at net asset value.
Securities traded on a securities exchange are valued at their closing
sales price on the principal market on which such securities are traded,
if available, and if not available, such securities are valued at the
mean between the bid and ask prices. Other securities for which current
market quotations are readily available are valued at the mean between
their bid and ask prices; securities for which current market quotations
are not readily available are valued at their fair value as determined
in good faith by the Trustees. The Trustees may authorize reliance upon
an independent pricing service for the determination of securities
values. An independent pricing service may price securities with
reference to market transactions in comparable securities and to
historical relationships among the prices of comparable securities; such
prices may also reflect an allowance for the impact upon prices of the
larger transactions typical of trading by institutions. The Fund's
shares will be priced by rounding their value to the nearest one-tenth
of one cent.
Valuation of Covered Call Options. When call options are written, the
premium received is reflected on the Fund's books as a cash asset
offset by a deferred credit liability, so the premium has no impact on
net asset value at that time. The deferred credit amount is then marked
to the market value of the outstanding option contract daily. If the
option contract is exercised, the Fund reflects a sale of the
appropriate securities (which may be either the underlying portfolio
securities or corresponding securities purchased in the open market to
deliver against the option contract) at a price equal to the option
strike price plus the option premium received, and the deferred credit
liability is then extinguished. If the option expires without being
exercised (or if it is offset by a closing purchase transaction), then
the Fund recognizes the deferred credit as a gain (reduced by the cost
of any closing purchase transaction).
ADDITIONAL TAX MATTERS
Shareholders are urged to consult their tax advisors regarding the
application of foreign, federal, state and local taxes to an investment
in the Fund. The following is a general and abbreviated summary of the
applicable statutes and regulations currently in effect. These rules
are subject to legislative and administrative change which may be
prospective or retroactive.
Federal Income Tax. To qualify as a "regulated investment company" and
avoid Fund-level federal income tax under the Internal Revenue Code
(the "Code"), the Fund must, among other things, distribute
100% of its net income and net capital gains in the fiscal year in which
it is earned. The Code also requires the distribution of at least 98%
of net income for the calendar year and capital gains determined as of
October 31 each year before the calendar year end in order to avoid a 4%
excise tax. The Fund intends to distribute all taxable income to
the extent it is realized and avoid imposition of federal income excise
taxes.
To qualify as a regulated investment company under the Code, the Fund
must derive at least 90% of its gross income from dividends,
interest, gains from the sale or disposition of securities, and certain
other types of income. Should the Fund fail to qualify as a "regulated
investment company" under the Code, the Fund would be taxed as a
corporation with no allowable deduction for the distribution of
dividends.
Shareholders of the Fund, however, will be subject to federal
income tax on any ordinary net income and net capital gains realized by
the Fund and distributed to shareholders as regular or capital
gains dividends, whether distributed in cash or in the form of
additional shares. Generally, dividends declared by the Fund during
October, November or December of any calendar year and paid to
shareholders prior to February 1 of the following year will be treated
for tax purposes as received in the year the dividend was declared.
Since normally at least 65% of the Fund's assets will be invested in equity
securities, some of which may
pay eligible dividends, a substantial portion of the regular dividends
paid by such portfolios is expected to be eligible for the dividends
received deduction for corporate shareholders (70% of dividends
received).
Foreign securities held by the Fund may be subject to withholding or
taxation by foreign governments on their interest or dividends. Such
withholding or taxation may be reduced or eliminated by tax conventions
between certain countries and the US
Shareholders who fail to comply with the interest and dividends "backup"
withholding provisions of the Code (by filing Form W-9 or its
equivalent, when required) or who have been determined by the Internal
Revenue Service to have failed to properly report dividend or interest
income, may be subject to a 31% withholding requirement on transactions
with the Fund.
For tax purposes, the Fund will send shareholders an annual notice of
dividends paid during the prior year. Investors are advised to retain
all statements received from the Fund to maintain accurate records of
their investment. Shareholders of each portfolio of the Fund will be
subject to federal income tax on the net capital gains, if any, realized
by each portfolio and distributed to shareholders as capital gains
dividends. Shareholders should carefully consider the tax implications
of buying the Fund's shares just prior to declaration of a regular or
capital gains dividend. Prior to the declaration, the value of the
distribution will be reflected in net asset value per share and thus
will be paid for by the shareholder when the shares are purchased; when
the dividend is declared the amount to be distributed will be deducted
from net asset value, lowering the value of the shareholder's investment
by the same amount, but the shareholder nevertheless will be taxed on
the amount of the dividend without any offsetting deduction for the drop
in share value until the shares are ultimately redeemed. A loss on the
sale of shares held for six months or less will be treated as a long-
term capital loss to the extent of any capital gains dividend received.
The Fund reserves the right to involuntarily redeem any of its shares
if, in its judgment, ownership of the Fund's shares has or may become
so concentrated as to make the Fund a personal holding company under
the Code.
State and Local Taxes. Dividends paid by the Fund are generally
expected to be subject to any state or local taxes on income.
Shareholders should consult their tax advisors about the status of
distributions from the Fund in their own tax jurisdictions.
TOTAL RETURN CALCULATIONS
In order to provide a basis for comparisons of the Fund's portfolios
with similar funds, with comparable market indices, and with investments
such as savings accounts, savings certificates, taxable and tax-free
bonds, common stocks, money market funds and money market instruments,
the Fund calculates total return for each of its portfolios.
Total Return. Average annual total return is calculated by finding the
compounded annual rate of return over a given period that would be
required to equate an assumed initial investment in the portfolio to the
ending redeemable value the investment would have had at the end of the
period, taking into account the effect of the changes in the portfolio's
share price during the period and any recurring fees charged to
shareholder accounts, and assuming the reinvestment of all dividends and
other distributions at the applicable share price when they were paid.
Non-annualized aggregate total returns may also be calculated by
computing the simple percentage change in value that equates an assumed
initial investment in the portfolio with its redeemable value at the end
of a given period, determined in the same manner as for average annual
total return calculations.
Performance Comparisons. From time to time, in advertisements or in
reports to shareholders and others, the Fund may compare the
performance of its portfolios to that of recognized market indices or
may cite the ranking or performance of its portfolios as reported in
recognized national periodicals, financial newsletters, reference
publications, radio and television news broadcasts, or by independent
performance measurement firms.
The Fund may also compare the performance of its portfolios to that of
other funds managed by the same Advisor. It may compare its performance
to that of other types of investments, substantiated by representative
indices and statistics for those investments.
Market indices which may be used include those compiled by major
securities firms, such as Salomon Brothers, Shearson Lehman Hutton, the
First Boston Corporation, and Merrill Lynch; other indices compiled by
securities rating or valuation services, such as Ryan Financial
Corporation and Standard and Poor's Corporation may also be used.
Periodicals which report market averages and indices, performance
information, and/or rankings may include: The Wall Street Journal,
Investors Daily, The New York Times, The Washington Post, Barron's,
Financial World Magazine, Forbes Magazine, Money Magazine, Kiplinger's
Personal Finance, and the Bank Rate Monitor. Independent performance
measurement firms include Lipper Analytical Services, Inc., Frank
Russell Company, SCI, Morningstar and CDA Investment Technologies.
In addition, a variety of newsletters and reference publications provide
information on the performance of mutual funds, such as the Donoghue's
Money Fund Report, No-Load Fund Investor, Wiesenberger Investment
Companies Service, the Mutual Fund Source Book, the Mutual Fund
Directory, the Switch Fund Advisory, Mutual Fund Investing, the Mutual
Fund Observer, Morningstar, and the Bond Fund Survey. Financial news is
broadcast by the Financial News Network, Cable News Network, Public
Broadcasting System, and the major television networks as well as by
numerous independent radio and television stations.
The Fund may also disclose the contents of each of its portfolios as
frequently as daily in advertisements and elsewhere.
It should be noted that the investment results of the Fund
will tend to fluctuate over time, so historical total returns should not
be considered representations of what an investment may earn in any
future period. Actual distributions to shareholders will tend to
reflect changes in portfolio income, and will also depend upon the level
of the Fund's expenses, realized or unrealized investment gains and
losses, and the relative results of the Fund's investment policies.
Thus, at any point in time future total returns may be either higher or
lower than past results, and there is no assurance that any historical
performance record will continue.
CUSTODIANS AND SPECIAL CUSTODIANS
Star Bank NA, 425 Walnut Street, Cincinnati, OH 45202, is Custodian
for the cash and securities of the Fund. The Custodian maintains
custody of the Fund's cash and securities, handles its securities
settlements and performs transaction processing for cash receipts and
disbursements in connection with the purchase and sale of the Fund's
shares.
The Fund may appoint as Special Custodians, from time to time, certain
banks, trust companies, and firms which are members of the New York
Stock Exchange and trade for their own account in the types of
securities purchased by the Fund. Such Special Custodians will be used
by the Fund only for the purpose of providing custody and safekeeping
services of relatively short duration for designated types of securities
which, in the opinion of the Trustees or of the Advisor would most
suitably be held by such Special Custodians rather than by the
Custodian. In the event any such Special Custodian is used, it shall
serve the Fund only in accordance with a written agreement with the
Fund meeting the requirements of the Securities and Exchange Commission
for custodians and approved and reviewed at least annually by the
Trustees, and, if a securities dealer, only if it delivers to the
Custodian its receipt for the safekeeping of each lot of securities
involved prior to payment by the Fund for such securities.
The Fund may also maintain deposit accounts for the handling of cash
balances of relatively short duration with various banks, as the
Trustees or officers of the Fund deem appropriate, to the extent
permitted by the Investment Company Act of 1940.
LEGAL MATTERS AND INDEPENDENT AUDITORS
DeWitt Ross & Stevens, SC, 8000 Excelsior Drive, Madison, Wisconsin,
53708, acts as legal counsel to the Fund. Sullivan & Worcester LLP,
1025 Connecticut Avenue, NW, Washington, DC, 20036, acts as review
counsel to the Fund's independent Trustees.
Deloitte & Touche LLP, 117 Campus Drive, Princeton, NJ 08540 serves as
independent auditors to the Fund.
From time to time the Fund may be or become involved in litigation in
the ordinary conduct of its business. Material items of litigation
having consequences of possible or unspecified damages, if any, are
disclosed in the notes to the Fund's financial statements (see
"Financial Statements and Report of Independent Auditors)."
ADDITIONAL INFORMATION
The Fund issues semi-annual and annual reports to its shareholders and
may issue other reports, such as quarterly reports, as it deems
appropriate; the annual reports are audited by the Fund's independent
auditors.
Statements contained in this Statement of Additional Information and in
the Prospectus as to the contents of contracts and other documents are
not necessarily complete. Investors should refer to the documents
themselves for definitive information as to their detailed provisions.
The Fund will supply copies of its Declaration of Trust and By-Laws to
interested persons upon request.
The Fund and shares in the Fund have been registered with the
Securities and Exchange Commission in Washington, DC, by the filing of a
registration statement. The registration statement contains certain
information not included in the Prospectus or not included in this
Statement of Additional Information and is available for public
inspection and copying at the offices of such Commission.
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS
Audited Financial Statements of the Fund, together with the report of
the Fund's independent auditors for the fiscal year ended December 31,
1998, will appear in the Annual Reports to shareholders for the Fund for
the year ended December 31, 1998. Such Annual Report, when prepared,
shall be incorporated herein by reference and filed with the SEC and
shall be furnished to investors with this Statement of Additional
Information. Additional copies of such reports will be available upon
request at no charge by writing or calling the Fund at the address and
telephone number shown on the cover page above.
