Prospectus/February 1, 1999
1655 Fort Myer Drive, Arlington, Virginia 22209-3108
Mosaic Government Money Market
Mosaic Government Money Market is a money market mutual fund that invests in
short-term debt securities issued or guaranteed by the United States Government
and United States Government agencies.
Features
* No commissions or sales charges
* $1,000 minimum initial investment
* No "12b-1" expenses
* Checking privileges
* Dividends accrue every day and can be paid by check,
* electronic funds transfer, or reinvested monthly.
* Invest or withdraw funds by phone or by mail
<i>The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.</i>
Madison Mosaic, LLC
Investment Advisor
Table of Contents
Risk/Return Summary: Investments, Risks and Performance
Fund Investment Objectives/Goals 3
Principal Investment Stategies of the Fund 3
Principal Risks of Investing in the Fund 3
Risk/Return Bar Chart and Table 3
Fees and expenses of the Fund 4
Investment Objectives 5
Implementation of Investment Policies 5
Management 7
Pricing of Fund Shares 8
Dividends and Distributions 8
Taxes 8
Financial Highlights 9
<PAGE>
Risk/Return Summary: Investments, Risks and Performance
Fund Investment Objectives/Goals
Mosaic Government Money Market (the "Fund") is a money market mutual fund. It
has two main objectives: (1) To preserve capital and (2) provide liquidity by
investing in US Government securities.
Principal Investment Strategies of the Fund
The Fund's principal investment strategy is to maintain a stable share price
of $1.00 per share. In doing so, the Fund invests in securities that are
issued or guaranteed by the US Government. It may also invest in securities
that are collateralized by such securities. In order to maintain the Fund's
price stability, the Fund limits its investments to short-term US Government
securities that may not yield as high a level of income as longer-term
securities.Principal Risks of Investing in the Fund
Since the Fund's share price is stable, it is intended for investors who are
seeking current income with little risk. Because the Fund limits its
investments to US Government securities, it is unlikely that a Fund investment
will default. However, you should understand that Government backing applies
to investments in the Fund and not to shares of the Fund itself. As a result,
an investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks
to preserve the value of your investments at $1.00 per share, it is possible
to lose money by investing in the Fund.
Risk/Return Bar Chart and Table
The chart and table below demonstrate the variability of the Fund's returns
during periods of changing interest rates. The performance of the Fund in the
past, shown above, is not necessarily an indication of how the Fund will
perform in the future.
Depicted herein is a bar chart reflecting the following annual
total returns:
Year Return
1998 4.51%
1997 4.54%
1996 4.33%
1995 4.76%
1994 3.14%
1993 2.07%
1992 3.14%
1991 5.08%
1990 7.34%
1989 8.59%
During the period shown in the bar chart, the highest return for a quarter was
2.23% (quarter ending June 30, 1989) and the lowest return for a quarter was
0.50% (quarter ending March 31, 1993).
Average Annual Total Past One Year Past 5 Years Past 10 Years
Returns
(for the periods ending 4.51% 4.26% 4.70%
December 31, 1998)
To obtain the Fund's current 7-day yield, call our shareholder service
department toll-free at 888-670-3600 or call our toll-free 24-hour automated
information line, Mosaic Tiles, at 800-336-3063.
Fees and expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) of any type None
Redemption Fee None
Exchange Fee None
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets)
Management Fee 0.50%
Distribution (12b-1) Fees None
Other Expenses 0.38%
Total Annual Fund Operating Expenses 0.88%
Example:
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
1 Year 3 Years 5 Years 10 Years
$90 $281 $488 $1,084
Additional fees and transaction charges described in Mosaic's "Guide to Doing
Business", if applicable, will increase the level of expenses that can be
incurred. (For example, fees are charged for certain wire transfers, stop
payments on checks, bounced investment checks, and retirement plans).
Investment Objectives
The investment objectives of the Fund are (1) to preserve capital and (2)
provide liquidity by investing in the relative safety of US Government
securities.The Trustees may change the Fund's investment objectives without
shareholder approval. However, you will receive prior written notice of any
material change.
There is no assurance that the Fund's investment objective will be achieved.
Implementation of Investment Policies
Maintain $1.00 Share Price
In order to achieve the relative safety and liquidity required by its
investment objectives, we seek to maintain a stable share price of $1.00 for
the Fund. We attempt to do this by limiting our investments for the Fund to
shorter-term US Government securities. These securities may not yield as
high a level of current income as is normally available from longer-term or
lower-rated securities.
Invest in US Government securities
US Government securities include a variety of securities that are issued or
guaranteed by (1) the US Treasury, (2) various agencies of the federal
government, (3) various instrumentalities which have been established or
sponsored by the US Government and (4) certain interests in these types of
securities.
US Treasury securities include notes, bills and bonds. Obligations of the
Government National Mortgage Association, the Federal Home Loan Bank, the
Federal Farm Credit System, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Small Business Administration and
the Student Loan Marketing Association are also considered US Government
securities. All US Treasury securities are backed by the "full faith and
credit" of the United States. However, not all of the other types of US
Government securities are backed by United States "full faith and credit."
Some federal agencies have authority to borrow from the US Treasury
while others do not. In the case of securities not backed by the full
faith and credit of the United States, the Fund, as an investor, will look to
the agency issuing or guaranteeing the obligation for ultimate repayment. In
the unlikely event that an agency or instrumentality of the US Government
defaults on its obligations, the Fund may not be able to assert a claim
against the United States itself.
Invest in Repurchase Agreements
In addition, we expect to invest a portion of the Fund's assets in repurchase
agreements that are at least 100% collateralized by US Government securities.
What is a repurchase agreement? This involves the sale of securities to the
Fund by a financial institution or securities dealer, simultaneous with an
agreement by that institution to repurchase the same securities at the same
price, plus interest, at a later date.
What does "at least 100% collateralized" mean? If the other party doesn't buy
back the securities, the Fund won't lose any principal or interest. However,
the Fund could end up holding securities it did not intend to own. Were it to
sell such securities, the Fund might incur a loss. Hold Securities to Maturity
We intends normally to hold securities for the Fund until they mature.
Historically, securities issued or guaranteed by the US Government or its
agencies or instrumentalities have involved little risk to principal and
interest if held to maturity.
Comply with Money Market Regulations
We intend to comply with Federal regulations that govern money market mutual
funds (i.e., mutual funds that seek to maintain a stable share price of
$1.00). Essentially, this means that we will limit the Fund's purchases of
investments to securities having a maximum maturity of 13 months or less. We
will not purchase any investment that would, at the time of purchase, cause
the average maturity of the Fund to exceed 90 days.
Risks
Because we limit our investments for the Fund to US Government securities, it
is unlikely that a Fund investment will default. However, you should
understand that Government backing applies to investments in the Fund and not
to shares of the Fund itself. As a result, an investment in the Fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Although we seek to preserve the value of your
investments at $1.00 per share, it is possible to lose money by investing in
the Fund.
Management
The Advisor
We are Madison Mosaic, LLC (of the same address as the Fund), a wholly-owned
subsidiary of Madison Investment Advisors, Inc., 6411 Mineral Point Road,
Madison, Wisconsin ("Madison"). We administer manage approximately $200
million in assets in the Mosaic family of mutual funds, which includes stock,
bond and money market portfolios. Madison, a registered investment advisory
firm for over 24 years, provides professional portfolio management services to
a number of clients and has approximately $3.5 billion under management. We
are responsible for the day-to-day administration of the Fund's activities.
Compensation
Advisory Fee. For its services under its Investment Advisory Agreement with
the Fund, we receive a fee, payable monthly. The fee equals 0.50% per year of
the average daily net assets of the Fund.
Administrative and Services Fee. Under a separate Services Agreement with the
Fund, we provide or arrange for the Fund to have all other operational and
other support services it needs. We receive a fee calculated as a percentage
of the average daily net assets of the Fund for these services. This fee has
been set at 0.38% since October 1, 1997.
Managing for the Year 2000
We are 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.
At Mosaic Funds, we are taking appropriate measures to help ensure that the
Millennium Bug does not interrupt our own portfolio and shareholder accounting
or our fund management operations. For example, we requested and received
written assurances of Year 2000 compliance from the mission critical companies
we use to manage fund records and information. Also, we plan to test all our
systems before the end of 1999 to help ensure that our operations will not be
compromised by the Millenium Bug.
Pricing of Fund Shares
The price of each Fund share is based on its net asset value (or "NAV"). This
equals the total daily value of the Fund's investments, minus its expenses and
liabilities, divided by the total number of shares. The Fund's NAV is
calculated at the close of the New York Stock Exchange each day it is open for
trading.
When you purchase or redeem shares, your transaction will be priced based on
the next calculation of NAV after your order is placed. Under normal
circumstances, the NAV of the Fund will not change from one day to the next.
The Fund's securities are valued according to the "amortized cost" method,
which is intended to stabilize the share price at $1.00.
Dividends and Distributions
The Fund's net income is declared as dividends each business day. Dividends
are paid in the form of additional shares credited to your account at the end
of each calendar month, unless you elect in writing to receive a monthly
dividend check. (Please refer to Mosaic's Guide to Doing Business for more
information about dividend distribution options.)
Taxes
Federal
The Fund will distribute to shareholders 100% of its net income and net
capital gains, if any, by the end of its fiscal year. We will send you an
annual notice of dividends paid during the year.
State and Local
At the state and local level, dividend income and capital gains are generally
considered taxable income. Interest on certain US Government securities held
by the Fund may be exempt from state and local income taxes if held directly
by the shareholder. The Fund is generally permitted to "pass-through" this
exemption to shareholders. We will send shareholders an annual notice of the
percentage of US Government securities that are exempt from state and local
income taxes.
Certification of Tax Identification Number
If you do not provide a valid social security or tax identification number,
you may be subject to federal withholding at a rate of 31% of your Fund
distributions. You should retain all statements received from the Fund to
maintain accurate records of your investments.
Financial Highlights
The following financial highlights table is intended to help you understand
the Fund's financial performance for the past 5 years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information for periods after March 31, 1997 was audited by Deloitte & Touche
LLP, whose report, along with the Fund's financial statements, are included in
the annual report. It is available upon request. Other independent
accountants audited information for periods before April 1, 1997.
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net
Net asset Distributions Net asset Net assets Ratio of investment
Year value Net Total from from net Total value at at end expenses income to
ended beginning investment investment investment distri- end Total of period to average average
Sep. 30 of period income operations income butions of period return (thousands) net assets net assets
1998 $1.00 $0.05 $0.05 $(0.05) $(0.05) $1.00 4.76% $46,512 0.87%(3) 4.66%(3)
1997(1) $1.00 $0.02 0.02 (0.02) (0.02) 1.00 2.33 50,793 0.90(2) 4.58(2)
Fiscal Years Ended March 31
1997 1.00 0.04 0.04 (0.04) (0.04) 1.00 4.38 54,687 1.05 4.29
1996 1.00 0.05 0.05 (0.05) (0.05) 1.00 4.62 57,197 1.23 4.52
1995 1.00 0.04 0.04 (0.04) (0.04) 1.00 3.80 64,541 1.16 3.70
1994 1.00 0.02 0.02 (0.02) (0.02) 1.00 2.08 78,090 1.11 2.08
</TABLE>
(1) For the six month period ended September 30, 1997.
(2) Annualized.
(3) The ratio of expenses and net investment income to average net assets
would have been 0.88% and 4.65%, respectively, if we did not waive fees for
the period.
[Required back cover information and disclosures]
Mosaic Government Money Market has a Statement of Additional Information that
includes additional information about the Fund. Additional information about
the Fund's investments is available in the Fund's annual and semi-annual
reports to shareholders. The Statement of Additional Information and the
Fund's annual and semi-annual reports are available, without charge by calling
the Trust at the shareholder service phone number.
Information on how to purchase and sell shares in any Mosaic Fund is provided
in a separate brochure entitled, "Guide to Doing Business." Mosaic's "Guide
to Doing Business" is incorporated by reference into this prospectus.
Please call our shareholder service department if you have any questions about
the Fund or if you would like a copy of any written Fund information.
Additional information is also available at the Mosaic Funds Internet
Investment Center at http://www.mosaicfunds.com.
Finally, you can review and copy information about Mosaic Government Money
Market at the SEC's Public Reference Room in Washington, DC. Information
about the operation of the Public Reference Room may be obtained by calling
the SEC at 800-SEC-0330. The SEC maintains a Worldwide Web site that contains
reports, proxy information statements and other information regarding the Fund
at http://www.sec.gov. Copies of this information may also be obtained, upon
payment of a duplicating fee, by writing the SEC's Public Reference Section,
Washington, DC 20549-6009.
Telephone Numbers
Shareholder Service
Washington, DC area: 703 528-6500
Toll-free nationwide: 888 670-3600
Mosaic Tiles (24 hour automated information)
Toll-free nationwide: 800 336-3063
Mosaic Funds
1655 Fort Myer Drive, 10th Floor
Arlington, Virginia 22209-3108
SEC File Number 811-2910
<PAGE>
Mosaic's Guide to Doing Business
The information disclosed in this Guide is part of and incorporated in,
the prospectuses of Mosaic Government Money Market, Mosaic Tax-Free Trust,
Mosaic Equity Trust, Mosaic Income Trust and Mosaic Focus Fund.
Mosaic Funds
http://www.mosaicfunds.com
<PAGE>
An Introduction to Mosaic Services
This brochure is your guide to taking advantage of the many transaction
choices available to Mosaic shareholders.
Mosaic's flagship fund, Mosaic Investors, was launched in 1978. Since that
time, Mosaic Funds has grown to provide a wide range of investment options,
including stock, bond, tax-free and money market funds.
If any of the information in this Guide prompts questions, please call a
Mosaic account executive. Our toll-free nationwide number is 888-670-3600 and
our local number in the Washington, DC area is 703-528-6500. Account
executives are available Monday through Friday, from 9:00 am to 6:00 p.m.
Eastern time.
Mosaic Tiles, our 24-hour automated information line, can be reached at 800-
336-3063. Visit our Internet Investment Center for additional information,
including daily share prices: http://www.mosaicfunds.com.
Table of Contents
Shareholder Account Transactions
Confirmations and Statements
Changes to an Account
How to Open An Account
Minimum Initial Investment
By Check
By Wire
By Exchange
How to Purchase Additional Shares
By Check
By Wire
By Automatic Investment Plan
How to Redeem Shares
By Telephone or By Mail
By Wire
By Exchange
By Customer Check
By Systematic Withdrawal Plan
Special Redemption Rules for IRAs
How to Close an Account
Other Fees
Returned Investment Check Fee
Minimum Balance
Broker Fees
Other Fees
Retirement Plans
Traditional IRAs
Roth IRAs
Conversion Roth IRAs
Education IRAs
Employer Plans
Shareholder Account Transactions Confirmations and Statements
Daily Transaction Confirmation.
All purchases and redemptions (unless systematic) are confirmed in writing
with a transaction confirmation. Transaction confirmations are usually mailed
on the same day a transaction is posted to your account. Therefore, you
should receive the confirmation in the mail within a few days of your
transaction.
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.
We strongly recommend that you retain all daily transaction confirmations
until you receive your quarterly statements. Likewise, you should keep all of
your quarterly statements until you receive your year-end statement showing
the activity for the entire year.
Changes to an Account
To make any changes to an account, we recommend that you call an account
executive to discuss the changes to be made and ask about any documentation
that you may need to provide us. 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.
Mosaic Funds has a number of telephone transaction options. You can exchange
your investment among the funds in the family, request a redemption and obtain
account balance information by telephone. 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
your telephone instructions, providing written confirmations of your
transaction and recording all telephone conversations with shareholders.
Certain transactions, including some account registration changes, must be
authorized in writing.
Certificates.
Certificates will not be issued to represent shares in any Mosaic fund.
How to Open a New Account
Minimum Initial Investment
o $1,000 for a regular account
o $500 for an IRA account*
o $100 for an Education IRA Plus account*
*Not available to Mosaic Tax-Free Trust accounts.
By Check
Open your new account by completing an application and sending 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 you wire money to ensure proper and timely
credit to your account.
When you open a new account by wire, you must promptly send us a signed
application. We cannot send any redemption proceeds from your account until
we have your signed application in proper form. Please wire money to:
Star Bank, NA
Cinti/Trust
ABA # 0420-0001-3
Credit Mosaic Acct # 48038-8883
(Shareholder name and account number)
<I>Wire Fee.</I>
There may be a charge of $6.00 for processing incoming wires of less than
$1,000.
By Exchange
You may open a new account by exchange from an existing account when your new
account will have the same registration and tax identification number as the
existing account. A new account application is required only when the account
registration or tax identification number will be different from the
application for the existing 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.
Share prices (net asset values or "NAV") are 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.
Sometimes a shareholder investment check or electronic transfer is returned to
Mosaic Funds unpaid. In other words, we sometimes get checks that bounce.
Mosaic has a procedure to protect you and other shareholders from loss
resulting from these items. We may delay paying the proceeds of any redemption
for 10 days or more until we can be determine 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 determines that they have actually been paid by the
bank on which they were drawn.
Purchases made by federal funds wire or U.S. 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.
Minimum Subsequent Investment
Subsequent investments may be made for $50 or more.
By Check
Please make your check payable to Mosaic Funds. Mail it along with an
investment slip or, if you don't have one, please write your fund and account
number (and the name of the fund) on your check. Mail it to:
Mosaic Funds
PO Box 640393
Cincinnati, OH 45264-0393
By Wire
You should call Mosaic before you wire money 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)
<I>Wire Fee.</I>
There may be a charge of $6.00 for processing incoming wires of less than
$1,000.
By Automatic Investment Plan
You can elect to have a monthly (or less frequent) automatic investment plan.
Mosaic will automatically credit your Mosaic account and debit the bank
account you designate with the amount of your automatic investment. 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. You may change the amount or discontinue
the automatic investment plan any time. Mosaic does not charge for this
service.
How to Redeem Shares
Redemption Price.
Share prices (net asset values or "NAVs") 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 your investments, Mosaic requires signature guarantees for certain
redemptions.
What is a signature guarantee? It is a certification by a financial
institution that knows you and recognizes your signature that your signature
on a document is genuine.
A signature guarantee helps Mosaic ensure the identity of the authorized
shareholder(s). If you anticipate the need to redeem large amounts of money,
we encourage you to establish pre-authorized bank wire instructions on your
account. Redemptions by wire to a pre-authorized bank and account may be in
any amount and do not require a signature guarantee. You can pre-authorize
bank wire instructions 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 you, as shareholder
of record,
(3) the proceeds are to be delivered to an address other than your address of
record, or
(4) you made any change to your registration or account privileges 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.
We may delay paying the proceeds of any redemption for 10 days or more until
we can determine 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 determines that
the bank on which they were drawn has actually paid them. Purchases made with
federal funds wire or U.S. 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, we will send a redemption check up to
$50,000 to you, the shareholder, at your 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 at the 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 immediately.
Normally, Mosaic Funds charges a fee of $28.00, 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, we can send funds by wire transfer to the bank
and account designated on the account application or by subsequent written
authorization. If you anticipate the need to redeem large amounts of money, we
encourage you to establish pre-authorized bank wire instructions on your
account. Redemptions by wire to a pre-authorized bank and account may be in
any amount and do not require a signature guarantee. You can pre-authorize
bank wire instructions 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.
Redemptions by wire can be arranged by calling the telephone numbers on the
back page of your prospectus and this Guide to Doing Business. Requests for
wire transfer must be made by 4:00 p.m. Eastern time 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
You can redeem shares from one Mosaic account and concurrently invest the
proceeds in another Mosaic account by telephone when your account registration
and tax identification number are the same. There is no charge for this
service.
By Customer Check
If you requested check writing privileges and submitted a signature card, you
can write checks in any amount payable to anyone. Check writing privileges
are not available from Mosaic Equity Trust or Mosaic Focus Fund accounts.
A confirmation statement showing the amount and number of each check you write
will be sent to you. Mosaic does not return canceled checks, but will provide
copies of specifically requested checks. Mosaic charges a fee of $1.00 per
copy for frequent requests or a request for numerous copies.
<I>Stop Payment Fee.</I>
To stop payment on a customer check that you wrote, call an Account Executive
immediately.
Mosaic will honor stop payment requests on unpaid checks that you wrote for a
fee of $5.00. Oral stop payment requests are effective for 14 calendar days.
Unless you confirm your oral stop order in writing, it will be canceled after
14 calendar days.
Written stop payment orders are effective for six months. You can extend
their effectiveness for another six months by written request.
Ordering Customer Checks.
When you complete a signature card for check writing privileges an initial
supply of preprinted checks will be sent free of charge. The cost of check
reorders (currently $2.00) and of printing special checks will be charged to
the shareholder's account.
By Systematic Withdrawal Plan
You can elect to have a systematic withdrawal plan whereby Mosaic will
automatically redeem shares in your Mosaic account and send the 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 that is mailed to anyone you designate.
Special Redemption Rules for IRAs
Because IRA owners must make a written withholding election for income tax
purposes when they redeem shares from their IRA, you must request IRA
redemptions in writing. Before you think you may need to redeem funds from
your IRA at Mosaic, call us for a form that contains the required tax election
provisions.
How to Close an Account
To close an account, you should call an Account Executive and request that
your account be closed. You cannot close your account by writing a check.
When you close your account, shares will be redeemed at the next determined
net asset value. You can close your account by telephone, wire transfer or by
mail as explained above in the section "How To Redeem Shares."
Other Fees
Returned Investment Check Fee.
Your account will be charged (by redemption of shares) $10.00 for items
deposited for investment that are returned unpaid for any reason.
Minimum Balance.
Mosaic reserves the right to involuntarily redeem accounts with balances of
less than $700. Prior to closing any such account, Mosaic will give you 30
days written notice, during which time you may increase the balance to avoid
having the account closed.
Broker Fees.
If you purchase or redeem shares through a securities broker, your broker may
charge you a transaction fee. This charge is kept by the broker and not
transmitted to Mosaic Funds. However, you can engage in any transaction
directly with Mosaic Funds to avoid such charges.
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
All Mosaic Funds except Mosaic Tax-Free Trust can be used for retirement plan
investments, including IRAs.
<I>Annual IRA Fee. </I>
Mosaic currently charges an annual fee of $12 per shareholder (not per IRA
account) invested in an IRA of any type at Mosaic. You can prepay this fee.
Traditional IRAs
Traditional Individual Retirement Accounts ("Traditional IRAs") may be opened
with a reduced minimum investment of $500. Even though they may be
nondeductible or partially deductible, traditional IRA contributions up to the
allowable annual limits may be made, and the earnings on such contributions
will accumulate tax-free until distribution. Traditional IRA contributions
that you deducted from your income taxes and the earnings on such
contributions will be taxable when distributed.
Mosaic Funds will provide you with an IRA disclosure statement with an IRA
application. The disclosure statement explains various tax rules that apply
to traditional IRAs. A separate application is required for IRA accounts.
Roth IRAs
Roth IRA may be opened with a reduced minimum investment of $500. Roth IRAs
are nondeductible; however, the earnings on such contributions will accumulate
and are distributed tax-free as long as you meet the Roth IRA requirements.
Mosaic Funds will provide you with an IRA disclosure statement with an IRA
application. The disclosure statement explains various tax rules that apply
to Roth IRAs. A separate application is required for IRA accounts.
Conversion Roth IRAs
You may convert all or part of your Traditional IRA into a Roth IRA at Mosaic.
Please call an Account Executive for a Conversion Roth IRA form if you want to
accomplish this conversion. You will be required to pay taxes on some or all
of the amounts converted from a traditional IRA to a Conversion Roth IRA. You
should consult your tax advisor and your IRA disclosure statement before you
accomplish this conversion.
Education IRAs
Mosaic Funds offers Education IRAs. Eligible investors may establish
Education IRAs with a reduced minimum investment of $100 as long as the
shareholder establishes and maintains an "Education IRA Plus" automatic
investment plan of at least $100 monthly.
The "Education IRA Plus" is designed to invest $41.66 each month into an
Education IRA, with the remaining $58.34 (or more) invested in another account
established by the parent or guardian of the Education IRA beneficiary. As a
result, each Education IRA Plus that is open for a full year will reach, but
not exceed, the annual $500 Education IRA limit. If you establish an
Education IRA Plus program in the middle of the year, you can make an
additional investment during the year to the Education IRA to make up for any
months you missed before your automatic monthly investments started.
Mosaic Funds will provide you with an Education IRA disclosure document with
an Education IRA application. The disclosure document explains various tax
rules that apply to Education IRAs. A separate application is required for
Education IRA accounts.
<I>Education IRA Fee.</I> 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 for each
Education IRA beneficiary (not for each Education IRA account). You can
prepay this fee.
Employer Plans
Mosaic also offers SEP IRAs, SIMPLEs, 401(k) and 403(b) 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
This guide does not constitute an offering by the distributor in any
jurisdiction in which such offering may not be lawfully made.
1655 Fort Myer Drive, 10th Floor
Arlington, Virginia 22209-3108
mosgtdb199
<PAGE>
Statement of Additional Information
Dated February 1, 1999
For use with Prospectus dated February 1, 1999
Mosaic Government Money Market
1655 Fort Myer Drive
Arlington, VA 22209-3108
(888) 670-3600
(703) 528-6500
This Statement of Additional Information is not a Prospectus. You should read
this Statement of Additional Information with the Prospectus of Mosaic
Government Money Market bearing the date indicated above (the "Prospectus").
You can obtain a copy of the Prospectus from Mosaic Funds at the address and
telephone numbers shown above.
Audited Financial Statements for the Fund for the fiscal year ended September
30, 1998 appear in the Fund's Annual Report to shareholders for that period.
The Report is incorporated herein by reference. You can get a copy of the
Report at no charge by writing or calling Mosaic Funds at the address and
telephone numbers shown above.
Table of Contents
FUND HISTORY........................................................... 2
DESCRIPTION OF THE FUND ("Investment Objectives" and "Implementation
of Investment Policies")
Classification......................................................... 2
Investment Strategies and Risks........................................ 2
Fund Policies.......................................................... 4
Fundamental Policies................................................... 5
MANAGEMENT OF THE FUND ("Management")
Board of Trustees................................................ 6
Management Information........................................... 6
Compensation..................................................... 7
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.................... 7
INVESTMENT ADVISORY AND OTHER SERVICES ("Fees and Expenses of the
Fund" and "Management")............................................... 7
BROKERAGE ALLOCATION AND OTHER PRACTICES...............................10
CAPITAL STOCK AND OTHER SECURITIES.....................................11
PURCHASE, REDEMPTION AND PRICING OF SHARES ("Guide to Doing Business,"
"Pricing of Fund Shares" and "Dividends and Distributions")...........12
TAXATION OF THE FUND ("Taxes").........................................14
CALCULATION OF PERFORMANCE DATA ("Risk/Return Summary")................15
FINANCIAL STATEMENTS AND OTHER ADDITIONAL INFORMATION ("Financial
Highlights")..........................................................16
Note: The items appearing in parentheses above are cross references to
sections in the Prospectus that correspond to the sections of this Statement
of Additional Information.
FUND HISTORY
Mosaic Government Money Market (the "Fund") is organized as a Massachusetts
business trust under a Declaration of Trust dated February 14, 1979. The Fund
was one of the first money market mutual funds to invest solely in US
government securities.
The Fund was originally known as Government Investors Trust. The Fund changed
its name in May 1997. The name change followed the 1996 change in the Fund's
advisor from Bankers Finance Investment Management Corp. to Madison Mosaic,
LLC.
DESCRIPTION OF THE FUND
Classification
Mosaic Government Money Market (the "Fund") is a diversified open-end
management investment company, commonly known as a money market mutual fund.
The Fund invests solely in short-term debt securities issued or guaranteed by
agencies and instrumentalities of the US Government. In managing the Fund, we
may use a variety of investment techniques with the objective of providing as
high a yield as is available from US Government securities and the investment
quality associated with these securities.
Investment Strategies and Risks
We seek to achieve the Fund's investment objective through investment in
securities issued or guaranteed by the US Government, its agencies or
instrumentalities. We also invest in participation interests in and
repurchase agreements based on such securities. The investment objective of
the Fund is described in the Prospectus. You should also read the Prospectus
for information about the Fund's principal investment strategies and risks.
In addition to the principal investment strategies described in the
Prospectus, the following describes additional investment strategies. Also
discussed are the risks associated with such strategies that you should
understand.
1. US Government Securities: Scope of Permissible Investments and Application
of "Full Faith and Credit". As used in the Prospectus and in this Statement
of Additional Information, the term "US Government securities" refers to a
variety of securities. These include securities that are issued or guaranteed
by the United States Treasury, by various agencies of the United States
Government, by various instrumentalities established or sponsored by the
United States Government and to certain interests in these types of US
Government securities.
Except for US Treasury securities, these obligations, even those which are
guaranteed by federal agencies or instrumentalities, may or may not be backed
by the "full faith and credit" of the United States. When we invest in
securities not backed by the full faith and credit of the United States, the
Fund must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment. We may not be able to assert a claim
against the United States itself in the event the agency or instrumentality
does not meet its commitments.
Treasury securities include Treasury bills, Treasury notes and Treasury bonds.
Some of the Government agencies which issue or guarantee securities are the
Department of Housing and Urban Development, the Department of Health and
Human Services, the Government National Mortgage Association, the Farmers Home
Administration, the Department of Transportation, the Department of Energy,
the Department of the Interior, the Department of Commerce, the Department of
Defense and the Small Business Administration. Other Government agencies and
instrumentalities which issue or guarantee securities include the Export-
Import Bank, the Federal Farm Credit System, the Federal Home Loan Banks, the
Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation and the Student Loan Marketing Association.
There are certain international development organizations that operate under
sponsorship of the US Government and that issue or guarantee securities.
These include the Inter-American Development Bank, the Asian Development Bank
and the International Bank for Reconstruction and Development. We do not
presently intend to hold their securities in the Fund, but we may do so in the
future.
For purposes of the Fund, when we refer to "US Government securities" we mean
securities issued or guaranteed by any of the entities described in this
section or by any other agency or instrumentality established or sponsored by
the United States Government. We also mean participation interests (with
unaffiliated persons) in and instruments evidencing deposit or safekeeping for
any of these securities. Participation interests are pro-rata interests in US
Government securities held by others. Instruments evidencing deposit or
safekeeping are documentary receipts for such original securities held in
custody by others.
2. Investment in "Floating Rate" Government Agency Securities. These
Government agency securities provide for an interest rate which is adjusted
(i.e., the interest rate "floats") at regular intervals according to a
published interest rate. Interest rates (and income to the Fund) on these
securities will normally float downward when interest rates are falling and
float upward when their reference rates of interest rise.
Generally, such investments float in relation to the "prime" interest rate of
New York or other money center banks. The rate may be adjusted upward or
downward periodically. Some such securities float in relationship to other
published interest rates or at more or less frequent intervals. These
floating rate securities may have stated maturities of up to 30 years,
although 10-year stated maturities are more typical.
3. Reverse Repurchase Agreement Transactions. If the Fund needs cash to meet
redemption requests and we determine that it would not be advantageous to sell
portfolio securities to meet those requests, then we may sell Fund 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 from redemption requests.
While a reverse repurchase agreement is outstanding, the Fund will 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, we will take steps for the Fund's
protection. Specifically, (1) we will maintain, in a segregated account,
designated Government securities that are liquid or mature prior to the
scheduled repurchase; and (2) we will maintain sufficient cash in the Fund to
provide adequate funds to complete the repurchase.
4. Investment in Matched Purchase/Sale Transactions. We may invest by means
of matched purchase/sale transactions containing two elements: (1) the
purchase of US Government securities and (2) a simultaneous sale of those
securities by means of a future delivery contract at a fixed price for later
delivery to a different institution (securities dealer, bank, etc.). During
the interval between the actual dates they are bought and sold, the securities
will be held by the Fund's Custodian. As a result, the transactions are self-
liquidating and produce a known yield, similar to a repurchase agreement.
This yield is comprised of the interest earned on the securities while they
are held plus the price differential between the purchase and sale. The sale
price may be more or less than the price at which the securities could
otherwise be sold on the day delivery is due. These arbitrage transactions
may be attractive if market conditions create opportunities for higher yields
than on repurchase agreements.
We will not hold a future delivery contract for the sale of securities that
the Fund does not own. Established markets are available for future delivery
contracts, including financial futures exchanges and the over-the-counter
market.
5. Investments Purchased for Forward Delivery. Institutional investors such
as the Fund often enter into commitments to take delivery of securities at a
future time under specified terms of purchase. Such transactions sometimes
appear advantageous because they may provide an opportunity to acquire an
investment otherwise unavailable, or with more attractive terms than are
currently available or anticipated for the future.
Such transactions, however, can involve a risk that the yields available in
the market when the delivery takes place may actually be higher than those
obtained in the transaction itself. There is also a risk that the Fund's
available cash may be less than projected, possibly necessitating a
disadvantageous resale of the securities purchased or of other portfolio
securities at a loss to the Fund. Securities purchased for forward delivery
do not accrue interest until they are delivered.
We intend to enter into forward delivery transactions when we believe it is in
the Fund's interest. However, in order to reduce the Fund's exposure to price
instability through changes in interest rates before the transactions are
completed, our policy is that we will only take on these commitments in
connection with securities having maturities of one year or less.
6. Investments in Specialized Kinds of Government Agency Securities. These
agency securities often provide higher yields than are available from more
common types of Government-backed investments. However, such specialized
investments may only be available from a few sources, in limited amounts, or
only in very large denominations. They may also require specialized
capability in portfolio servicing and in legal matters related to Government
guarantees. While frequently offering attractive yields, the limited-activity
markets of many of these securities means that if the Fund were forced to sell
any of them, it might not be able to do so advantageously. Accordingly, we
intend to normally hold such securities to maturity or pursuant to repurchase
agreements.
7. Maturities. As used in this document and in the prospectus, the term
"effective maturity" may have a variety of meanings. (1) It may mean the
actual stated maturity of the investment. (2) It may also
mean the time between its scheduled interest rate adjustment dates (for
variable rate securities). (3) Finally, it may mean the time between its
purchase settlement and scheduled future resale settlement pursuant to a
resale or optional resale under fixed terms arranged in connection with the
purchase, whichever period is shorter.
A "stated maturity" means the time scheduled for final repayment of the entire
principal amount of the investment under its terms. "Short-term" means a
maturity of one year or less, while "long-term" means a longer maturity.
Fund Policies
1. Derivatives
Except for repurchase agreements and reverse repurchase agreements described in
the prospectus and this document, we will not invest in so-called "derivative"
securities. (Such prohibited "derivative" securities include, but are not
limited to, futures contracts, options on futures, swaptions, caps, floors and
other synthetic securities.) The Trustees must provide advance approval for
any deviation from this policy.
2. Repurchase Agreements
We require delivery of repurchase agreement collateral to the Fund's
Custodian. Alternatively, in the case of book-entry securities held by the
Federal Reserve System, we require that such collateral be 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, we could encounter
restrictions on the exercise of the Fund's rights under the repurchase
agreement. We will limit the financial institutions with which we
engage in repurchase agreements to banks, savings and loan associations and
securities dealers meeting financial responsibility standards prescribed in
guidelines adopted by the Trustees.
3. Reverse Repurchase Agreements
We will not engage in reverse repurchase agreements except for purposes of
meeting redemption requests. We will not enter into any reverse repurchase
agreement if, as a result, reverse repurchase agreements in the aggregate
would exceed 10% of the Fund's total assets. The risk of engaging in reverse
repurchase agreements is that the value of the securities we agreed to
repurchase may fall below the amount we agreed to pay.
4. Assets as Collateral
We will not pledge, mortgage or hypothecate in excess of 10% of the Fund's net
assets at market value.
5. Illiquid Securities
We will not invest more than 10% of the Fund's net assets at the time of
purchase in illiquid assets and securities for which there is no readily
available market. (Fully insured certificates of deposit would be considered
illiquid unless the Trustees determine they are readily marketable.) We will
not invest more than 10% of the Fund's net assets in repurchase agreements
that cannot be terminated within seven days.
The Fund will not invest more than 10% of its net assets in matched
purchase/sale transactions that cannot be terminated within seven days.
Matched purchase/sales generally involve the purchase of liquid securities
coupled with a sale for future delivery. Future delivery contracts traded on
an organized exchange (such as the Chicago Board of Trade or the International
Monetary Market) are considered liquid, while such contracts executed in the
over-the-counter market may be illiquid, if a readily available futures market
has not developed. Liquidity of a matched purchase/sale transaction requires
liquidity of both of its parts: the securities purchased and the future
delivery sale contract. The sale contract may be considered liquid if there
is a readily available market for it or if it has a contractual provision
permitting delivery at any time within seven days.
6. Maintaining $1.00 Net Asset Value.
If for any reason, including a change in market interest rates, the market
value of Fund securities differs by more than 1/2 of 1 percent from the $1.00
per share price, the Trustees are required to meet and consider steps to
restore the market price to $1.00 per share. Such steps could include
adjusting dividends, selling portfolio securities before maturity to realize
capital gains or losses, shortening the portfolio's maturity, or redeeming
shares in kind. Such steps could dilute shareholders' interests.
In determining market values for this purpose, the Trustees may rely upon an
independent pricing service or other valuation technique. In this manner,
securities may be priced 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.
Should the SEC change its rules governing the "amortized cost" valuation
method, we reserve the right, following majority Trustee approval, to use the
"penny rounding" method of valuation pursuant to the terms of the Fund's
exemptive order issued by the SEC.
Fundamental Policies
The Fund has a number of limitations on its investment activities designated
as "Fundamental Policies." These limitations are described below. By
designating these policies as fundamental, we cannot change them without a
majority vote of the Fund's shareholders.
1. Illiquid Investments.
We will not invest in securities for which there is no readily available
market if at the time of acquisition more than 10% of the Fund's net assets
would be invested in such securities.
2. Borrowing and Lending.
We will not obtain bank loans for the Fund except for extraordinary or
emergency purposes.
We may enter into reverse repurchase agreements for the Fund in amounts up to
25% of the Fund's total assets (including the proceeds of the reverse
repurchase transactions) for purposes of purchasing other securities. We will
not obtain loans or enter into reverse repurchase agreements in total amounts
exceeding one-third of total assets for any purpose, including the meeting of
cash withdrawal requests or for extraordinary purposes.
We will not mortgage, pledge or hypothecate any assets to secure bank loans,
except in amounts up to 15% of the Fund's net assets taken at cost, and only
for extraordinary or emergency purposes.
We will not loan more than two thirds of the Fund's portfolio securities
(calculated as a percentage of gross assets). For any portfolio securities
loaned, we will require the Fund to be provided collateral satisfactory to the
Trustees. The collateral must be continuously maintained in amounts equal to
or greater than the value of the securities loaned.
3. Other Prohibited Activities.
* The Fund may not act as an underwriter.
* We will not make short sales (or maintain a short position), or write put or
call options for the Fund.
* We will not purchase securities on margin (except for customary credit used
in transaction clearance) for the Fund.
* We will not invest in commodities. This prohibition does not prevent the
Fund from using financial futures contracts to make purchases or sales of US
Government securities, provided the transactions would otherwise be permitted
under the Fund's investment policies.
* We will not invest in real estate for the Fund.
* We will not acquire shares of other investment companies for the Fund. This
restriction does not apply to any investment in other money market mutual
funds that invest solely in US Government securities under limited
circumstances. (1) Such investment cannot exceed 10% of net assets. (2) The
Trustees must make a determination that the other money market fund meets all
applicable requirements of Rule 2a-7 under the Investment Company Act of 1940
(i.e. the rules governing the quality and diversification standards by which
money market mutual funds must operate).
* We will not knowingly take any investment action which has the effect of
eliminating the Fund's tax qualification as a regulated investment company
under applicable provisions of the Internal Revenue Code.
MANAGEMENT OF THE FUND
Board of Trustees.
Under the terms of the 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. As such, they meet at least quarterly to
review our operation and management of the Fund. In addition to the
information we provide the Trustees, they also meet with the Fund's
independent accountants at least annually to discuss any accounting or
internal control issues that the accountants may raise.
The Trustees serve indefinite terms of unlimited duration and they appoint
their own successors, provided that always 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 Fund's outstanding shares.
Management Information.
Trustees and executive officers of the Trust and their principal occupations
during the past five years are shown below:
<TABLE>
<C> <C> <C>
Name, Address and Age Positions Held with Fund Principal Occupation During
Past 5 Years
Frank E. Burgess+ Trustee and Vice President President and Director of
6411 Mineral Point Road Madison Investment Advisors,
Madison, WI 53705 Inc.; Trustee and Vice
Born 08/04/1942 President of each Mosaic fund
and Vice President of Madison
Mosaic.
Thomas S. Kleppe* Trustee Trustee of each Mosaic fund;
7100 Derby Road Chairman of the Board of
Bethesda, MD 20817 Presidential Savings Bank, FSB;
Born 07/01/1919 Retired US Congressman and
Presidential Cabinet Secretary.
James R. Imhoff, Jr.* Trustee Trustee of each Mosaic fund;
429 Gammon Place Chairman and CEO of First Weber
Madison, WI 53719 Group, Inc. (residential real
Trustee estate brokers) of Madison, WI.
Born 05/20/1944
Lorence D. Wheeler* Trustee Trustee of each Mosaic fund;
4905 W. 60th Avenue Pension Specialist for CUNA
Arvada, CO 80003 Mutual Group (insurance); formerly
Born 01/31/1938 President of Credit Union Benefits
Services, Inc. (a provider of
retirement plans and related
services for credit union
employees nationwide).
Katherine L. Frank+ President President of each Mosaic Fund;
6411 Mineral Point Road Vice President and Principal of Madison
Madison, WI 53705 Investment Advisors, Inc.;
Born 11/27/1960 President of Madison Mosaic.
Julia M. Nelson+,** Vice President Vice President and Chief
1655 Fort Myer Drive Operating Officer of each Mosaic
Arlington, VA 22209 fund; Principal of Mosaic Funds
Born 05/17/1958 Distributor, LLC; Vice
President of Madison Mosaic.
Jay R. Sekelsky+,** Vice President Vice President of each Mosaic fund;
6411 Mineral Point Road Vice President and Principal of
Madison, WI 53705 Madison Investment Advisors, Inc;
Born 9/14/1959 Vice President of Madison Mosaic.
Christopher C. Berberet+,**Vice President Vice President of each Mosaic fund;
6411 Mineral Point Road Vice President and Principal of
Madison, WI 53705 Madison Investment Advisors, Inc;
Born 07/31/1959 Vice President of Madison Mosaic.
W. Richard Mason+,** Secretary Secretary and General Counsel of
1655 Ft. Myer Drive each Mosaic fund; Principal of
Arlington, VA 22209 Mosaic Funds Distributor, LLC;
Born 05/13/1960 General Counsel of Madison Mosaic;
Secretary of Presidential Savings
Bank, FSB
</TABLE>
+An "interested person" of the Fund as the term is defined in the Investment
Company Act of 1940. Only those persons named in the above table of Trustees
and officers who are not interested persons of the Fund are eligible to be
compensated by the Fund.
*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 accountants and for recommending the selection of independent
accountants for the coming year.
**Member of the Pricing Committee of the Fund. The Pricing Committee is
responsible for reviewing the accuracy of the Fund's daily net asset value
determinations. It reports to the Trustees at least quarterly and makes any
recommendations for pricing of Fund securities in the event pricing cannot be
determined in accordance with established written pricing procedures adopted
by the Trustees.
Compensation.
The compensation of each non-interested (or "Independent") Trustee who may be
compensated by the Fund currently is fixed at $6,000 per year, to be pro-rated
according to the number of regularly scheduled Board meetings each year. Four
Board meetings are currently scheduled to take place each year. In addition
to such compensation, those Trustees who may be compensated by the Fund will
be reimbursed for any out-of-pocket expenses incurred by them in connection
with the affairs of the Fund, such as travel to any Board meetings.
During the last fiscal year of the Fund, the Trustees were compensated as
follows:
Aggregate Total Compensation from
Compensation Fund and Fund Complex*
from Fund Paid to Trustees
Frank E. Burgess 0 0
Thomas S. Kleppe $6,000 $15,000
James R. Imhoff, Jr. $6,000 $15,000
Lorence D. Wheeler $6,000 $15,000
*The Mosaic Funds complex is comprised of 5 trusts with a total of 15 funds
and/or series.
Under the Declaration of Trust, the Trustees can be indemnified by the Fund
for certain matters. For example, they can be indemnified against all
liabilities and expenses reasonably incurred by them by virtue of their
service as Trustees of the Fund. However, they will not be indemnified for
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.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
No Fund shareholder owns or is known by the Fund to own beneficially 5% or
more of the Fund's outstanding shares as of October 30, 1998.
As of October 30, 1998, the Trustees and officers of the Fund directly or
indirectly owned as a group less than 1% of the outstanding shares of the
Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
1. Investment Advisors.
We are Madison Mosaic, LLC (known as Bankers Finance Advisors, LLC prior to
April 1998), 1655 Fort Myer Drive, Arlington, Virginia 22209-3108, the
investment advisor to the Fund.
We are a wholly owned subsidiary of Madison Investment Advisors, Inc.
("Madison"), 6411 Mineral Point Road, Madison, Wisconsin. Madison is a
registered investment advisor and has numerous advisory clients. Madison was
founded in 1973 and has no business affiliates other than those described in
the Prospectus and this Statement of Additional Information. Madison operates
Madison Scottsdale in Scottsdale, Arizona. We share our investment management
personnel with Madison.
Frank E. Burgess is President, Treasurer and Director of Madison. Mr. Burgess
owns a majority of the controlling interest of Madison, which, in turn, owns
and controls Madison Mosaic (see "Management Information" above).
Madison created us in 1996 for the purpose of providing investment management
services to the Mosaic family of mutual funds, including the Fund. We
purchased the investment management assets of the former advisor to the Fund,
Bankers Finance Investment Management Corp., on July 31, 1996. As a result,
any references in this Statement of Additional Information and in the
Prospectus to advisory or management activities during periods prior to July
31, 1996 refer to Bankers Finance Investment Management Corp. We also serve
as the investment advisor to Mosaic Equity Trust, Mosaic Income Trust, Mosaic
Focus Fund Trust and Mosaic Tax-Free Trust.
During the fiscal years ending March 31, 1996 and 1997, the 6 month period
ended September 30, 1997, and the fiscal year ended September 30, 1998, the
Fund paid the following investment advisory fees, respectively: $410,098,
$273,026, $129,459 and $238,680.
2. Principal Underwriter.
Mosaic Funds Distributor, LLC, 1655 Ft. Myer Drive, Suite 1000, Arlington,
Virginia 22209, acts as the Fund's broker-dealer Distributor pursuant to a
Distribution Agreement dated July 30, 1998 between it and all Mosaic Funds.
The Distributor does not engage in underwriting activities and receives no
compensation for its services (see the "Distribution Agreement" section
below). The Distributor is a wholly owned subsidiary of Madison.
3. Services Provided by Each Investment Advisor and Fund Expenses Paid by
Third Parties.
Together, we (Madison Mosaic) and Madison are responsible for the investment
management of the Fund. We are 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 we deem advisable.
We provide or arrange for all the Fund's required services through three main
contracts: An investment advisory agreement; a services agreement and a
distribution agreement. These contracts are described below. No Fund
expenses are paid by third parties.
Investment Advisory Contract.
The Investment Advisory Agreement between us and the Fund 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 agreement was approved by Fund shareholders for an initial two year
term at a special meeting of shareholders held in July 1996 and most recently
renewed for another year last July.
The Investment Advisory Agreement may be terminated at any time, without
penalty, by the Trustees or by the vote of a majority of the outstanding
voting securities, or by us, upon sixty days' written notice to the other
party. We cannot assign the agreement and it will automatically terminate
upon any assignment.
Advisory Fee and Expense Limitations. For our services under the Investment
Advisory Agreement, we receive a fee, payable monthly, calculated as 1/2
percent per annum of the average daily net assets of the Fund during the
month. Such percentage does not decrease as net assets increase. We can
waive or reduce this fee during any period. We can also reduce our fee on a
permanent basis, without any requirement for consent by the Fund or its
shareholders, under such terms as we may determine, by written notice to the
Fund.
In the agreement, we agreed to an overall limit on Fund expenses (excluding
securities transaction commissions and expenses, taxes, interest and
extraordinary and non-recurring expenses). Fund expenses shall not exceed
during any fiscal year 1-1/2% of the Fund's daily average net assets up to $40
million and 1% of the amount, if any, by which such assets exceed $40 million.
In addition, we agreed to be responsible for the fees and expenses of the
Trustees and officers of the Fund who are affiliated with us. We are also
responsible for the Fund's various promotional expenses (including
distributing Prospectuses to potential shareholders).
Payments to Third Parties. The Investment Advisory Agreement permits sharing
of our fee with other persons. Under regulations of the Securities and
Exchange Commission, such arrangements are permissible in connection with
distributing investment company shares, if the payments of the shared fee
amounts are made out of our own resources.
Services Contract.
The Fund does not have any officers or employees who are paid directly by the
Fund. The Fund entered into a Services Agreement with us for 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.
* Handling telephone inquiries, cash withdrawals and other customer service
functions (including monitoring wire transfers).
* Providing appropriate supplies, equipment and ancillary services necessary to
conduct of its affairs.
* Calculating net asset value.
* Arranging for and paying the Custodian.
* Arranging for and paying the Fund's independent accountants.
* Arranging for and paying the Fund's legal counsel.
* Registering the Fund and its shares with the Securities and Exchange
Commission and notifying any applicable state securities commissions of its
sale in their jurisdiction.
* Printing and distributing prospectuses and periodic financial reports to
current shareholders.
* Trade association membership.
* Preparing shareholder reports, proxy materials and holding shareholder
meetings.
We provide all these services to the Fund for a fee calculated as a percentage
of average daily net assets. This fee is reviewed and approved at least
annually by the Trustees and is compared with the fee paid by other mutual
funds of similar size and investment objective to determine if it is
reasonable. The current fee is stated in the Fund's Prospectus.
Our payment under the Services Agreement is in addition to and independent of
payments made pursuant to the Investment Advisory Agreement. We also provide
such services to Mosaic Equity Trust, Mosaic Income Trust, Mosaic Focus Fund
Trust and Mosaic Tax-Free Trust.
The Trust remains responsible for any extraordinary or non-recurring expenses
it incurs.
Distribution Agreement.
Mosaic Funds Distributor, LLC, is the Distributor of Mosaic Funds. It
receives no compensation for its services under the Distribution Agreement.
The agreement has an initial term of two years beginning July 30, 1998 and may
continue in effect after that term 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 Distribution 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, but the Fund may 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 given notice that
it will do so. However, the Distributor has no obligation to purchase any of
the Fund's shares.
The Distributor is wholly owned by Madison Investment Advisors, Inc. and we
share our personnel.
4. Other Service Providers.
We arrange for Fund securities to be held in custody by the Fund's Custodian,
for the Fund to be audited annually by independent accountants and for the
Fund and the Independent Trustees to be represented by outside counsel. The
Fund does not pay any separate fees for the services of these third parties
because the cost of these services is included in the advisory and service
fees we receive to manage the Fund.
Transfer Agent and Dividend-Paying Agent.
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
services provided to the Fund under the Services Agreement between us and the
Fund (see above), the Fund itself is ultimately responsible for its transfer
agent and dividend payment functions and for supervising those functions by
its officers.
Custodian.
Star Bank, N.A., 425 Walnut Steet, 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.
From time to time, the Fund may appoint as Special Custodians certain banks,
trust companies, and firms that 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 in limited circumstances. First,
custody would be of relatively short duration. Second, custody would be for
designated types of securities that, in our opinion or in the opinion of the
Trustees, 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. The agreement must meet
the requirements of the Securities and Exchange Commission for mutual fund
custodians and be approved and reviewed at least annually by the Trustees. If
the Special Custodian is a securities dealer, it must deliver 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 we or the Trustees deem
appropriate, to the extent permitted by the Investment Company Act of 1940.
Independent Public Accountant.
Deloitte & Touche LLP, 117 Campus Drive, Princeton, NJ 08540, serves as
independent public accountants to the Fund. The independent accountant audits
the Fund's annual reports and annually reviews the internal controls of the
Fund both as a mutual fund and as a transfer agent.
BROKERAGE ALLOCATION AND OTHER PRACTICES
We make all decisions regarding the purchase and sale of securities and
executing of these transactions. This includes selecting market, broker or
dealer and negotiating of commissions. Our decisions are subject to review by
the Trustees.
During its three most recent fiscal years, the Fund did not pay any brokerage
commissions.
In general, we seek to obtain prompt and reliable execution of orders at the
most favorable prices or yields when purchasing and selling Fund securities.
In determining the best price and execution, we may take into account a
dealer's operational and financial capabilities, the type of transaction
involved, the dealer's general relationship with us and any statistical,
research or other services the dealer provides us. 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 we determine in good faith.
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 selecting brokers or dealers.
We expect that most portfolio transactions will be made directly with a dealer
acting as a principal thus, not involving the payment of commissions.
However, any purchases from an underwriter or selling group could involve
payments of fees and concessions to the underwriting or selling group.
Affiliated Transactions. We can purchase portfolio securities through an
affiliated broker if we decide it is in the Fund's interests. If we trade
through an affiliated broker, we will observe four requirements. (1) The
transaction must be in the ordinary course of the broker's business. (2) The
transaction cannot involve a purchase from another broker or dealer. (3)
Compensation to the broker in connection with the transaction cannot be in
excess of one percent of the cost of the securities purchased. (4) The terms
to the Fund for purchasing the securities, including the cost of any
commissions, must be as favorable to the Fund as the terms concurrently
available from other sources. Any compensation paid in connection with such a
purchase will be in addition to fees payable to us under the Investment
Advisory Agreement.
We do not anticipate that any such purchases through affiliates will ever
represent a significant portion of the Fund's trading activity. In fact, no
such transactions took place during the Fund's six most recent fiscal years.
Portfolio Turnover. Normally, we intend to hold Fund investments to maturity.
However, the short maturities of these investments are expected to result in a
relatively high rate of portfolio turnover. The actual turnover rate will not
be a limiting factor in our purchase and sale decisions.
CAPITAL STOCK AND OTHER SECURITIES
Summary.
The Declaration of Trust, dated February 14, 1979, was filed with the
Secretary of State of the Commonwealth of Massachusetts and the Clerk of the
City of Boston, Massachusetts. 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, under certain circumstances, may 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.
Shares and Classes of Shares.
The Fund's shares are the only series of the Trust's shares that are currently
authorized. Each share has one vote and fractional shares have fractional
votes. Except as otherwise required by applicable regulations, any matter
submitted to a shareholder vote will be voted upon by all shareholders without
regard to series or class. For matters where the interests of separate series
or classes are not identical, the question will be voted on separately by each
affected series or class.
The Trustees may authorize at any time creating additional series of shares.
The proceeds of the new series would be invested in separate, independently
managed portfolios. The Trustees can also authorize 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 or other unforeseen circumstances). These classes can have such
preferences, privileges, limitations, and voting and dividend rights as the
Trustees may determine.
All money received by the Trust 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 its own related liabilities.
Share Splits and Liquidation Rights.
The Trustees may divide or combine the shares into a greater or lesser number
of shares as long as the action will not change your proportionate interest in
the Fund. Upon any liquidation of the Fund, you would be entitled to share
pro-rata in the liquidation proceeds available for distribution.
Shareholder Meetings.
Because there is no requirement for annual elections of Trustees, the Fund
does not anticipate having regular annual shareholder meetings. Shareholder
meetings will be called as necessary to consider questions requiring a
shareholder vote. The selection of the Fund's independent accountants will be
submitted to a ratification vote by the shareholders at any meetings held by
the Fund.
Any change in the terms of the Declaration of Trust (except for immaterial
changes like a name change), in the Investment Advisory Agreement (except for
reductions of the Advisor's fee) or in the fundamental investment limitations
of the Fund must be approved by a majority of the shareholders before it can
become effective.
Shareholder inquiries can be made to the offices of the Fund at the address on
the cover of this document.
Voting Rights.
The voting rights of shareholders are not cumulative. As a result, 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.
A "majority" is constituted by either 50 percent of all shares of the Fund or
67 percent of the shares voted at an annual meeting or special meeting of
shareholders at which at least 50 percent of the shares are present or
represented by proxy.
The Declaration of Trust provides that two-thirds of the holders of record of
the Fund's shares may remove a Trustee from office by votes cast in person or
by proxy at a meeting called for the purpose. A Trustee may also be removed
from office provided two-thirds of the holders of record of the Fund's shares
file declarations in writing with the Fund's Custodian.
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. The Declaration of Trust
provides for indemnification out of 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 against a shareholder under such a claim. 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. However, they are not 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.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Mosaic's "Guide to Doing Business"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 Guide.
Offering Price.
Net asset value per share of the Fund (NAV) 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. The Fund's
shares are offered (and redeemed) at NAV.
The Fund's securities are valued at their amortized cost, pursuant to
regulations of the Securities and Exchange Commission (SEC) intended to permit
the price of the Fund's shares to be stabilized at $1.00. These regulations
require us to limit Fund investments to securities that should present minimal
credit risks and to limit Fund maturities to those appropriate to its
objective of maintaining a stable share price.
Shareholder Service Policies.
Our policies concerning shareholder services are subject to change from time
to time. In the event of a material change, you will receive an updated
"Guide to Doing Business."
Minimum Initial Investment and Minimum Balance.
We reserve the right to change the minimum account size below which an account
is subject to a monthly service charge or to involuntary closing. We may
change the Fund's minimum amount for subsequent investments by 30 days written
notice. The notice may be provided in Mosaic's quarterly shareholder
newsletter.
Special Service Charges.
We may, after 30 days written notice to you or shareholders in general, impose
special service charges for services that are not regularly afforded to
shareholders. These special charges may include, but are not limited to, fees
for excessive exchange activity or unusual historical account research and
copying requests. Mosaic's standard service charges are also subject to
adjustment from time to time.
Share Certificates.
The Fund will not issue share certificates.
Subaccounting Services.
The Fund can provide 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, we reserve the right to impose the same minimum initial investment
requirement that would apply to regular accounts if it seems that the cost of
carrying a particular subaccount or group of subaccounts is likely to be
excessive.
The Fund may provide and charge for subaccounting services that we determine
exceed those services that can be provided without charge. The availability
and cost of such additional services will be determined in each case by
negotiation between Mosaic and the parties requesting the additional services.
We are not presently aware of any such services for which a charge will be
imposed.
Crediting of Investments.
We reserve the right to reject any investment in the Fund for any reason and
may at any time suspend all new investment in the Fund. We may also, in our
discretion, decline to recognize an investment by funds wired for credit until
such funds are actually received by the Fund. This is because we may be
responsible for any losses resulting from changes in the Fund's net asset
value that happen because we failed to receive funds from a shareholder to
whom recognition for investment was given in advance of receipt of payment.
If shares are purchased by wire and the wire is not received or if shares are
purchased by a check that, 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 incurred by us, the Fund or the
Distributor.
Foreign Checks.
Checks drawn on foreign banks will not be considered received until we have
actual receipt of payment in immediately available US dollars after submitting
the check for collection. Collection of such checks through the international
banking system may require 30 days or more. If you make an investment with a
foreign check, you must pay the cost of collection by redemption of shares
equal to such cost.
Purchase Orders from Brokers.
An order to purchase shares that we receive from a securities broker will be
considered received in proper form for the net asset value per share
determined as of the close of business of the New York Stock Exchange on the
day of the order. However, the broker must assure us that it 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 handling the transaction. A shareholder may deal directly with
us anytime to avoid the fee.
Redemptions and Checkwriting.
Redemptions will take place at the NAV for the day we receive the redemption
order in proper form. A redemption request may not be in proper form unless
we have a signed account application from you or your application is submitted
with the withdrawal request.
If you draw a check against your account, it will not be considered in proper
form unless there are sufficient collected funds available in the account on
the day the check is presented for payment. Generally, it takes up to 10 days
before checks deposited in your account are collected. Therefore, if you plan
to write a check against your account shortly after making an investment, we
recommend you call us to make sure that your funds will be available.
Unusual Circumstances Resulting in Suspension of Payments.
We will use our best efforts in normal circumstances to handle redemptions
timely. However, we may for any reason we deem sufficient suspend the right
of redemption or postpone payment for any shares in the Fund for any period up
to seven days.
Our sole responsibility with regard to redemptions shall be to timely process
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.
Payment for shares in the Fund may be suspended or delayed for more than seven
days only in limited circumstances. These occur (1) during any period when
the New York Stock Exchange is closed, other than customary weekend and
holiday closings; (2) when trading on such Exchange is restricted, as
determined by the Securities and Exchange Commission; or (3) during any period
when the Securities and Exchange Commission has by order permitted such
suspension.
Final Payments on Closed Accounts.
The redemption payment you receive when you close your account will normally
have all accrued dividends included. However, when an account is closed, we
may make payment by check of any final dividends declared but not yet paid to
the date of the redemption that closed the account. The payment may be made
on the same day such dividends are paid to other shareholders, rather than at
the time the account is closed.
Inter-Fund Exchange.
Funds exchanged between shareholder accounts will earn their final day's
dividend on day of exchange.
We reserve the right, when we deem such action necessary to protect the
interests of Fund shareholders, to refuse to honor withdrawal requests made by
anyone purporting to act with the authority of another person or on behalf of
a corporation or other legal entity. Each such individual must provide a
corporate resolution or other appropriate evidence of his or her authority or
satisfactory identity. We reserve the right to refuse any third party
redemption requests.
Payments in Kind.
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. However, the
Fund 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 1% of the aggregate net assets of the Fund or $250,000.
Any property of the Fund distributed to shareholders will be valued at fair
value. In disposing of any such property received from the Fund, a
shareholder might incur commission costs or other transaction costs. There is
no assurance that a shareholder attempting to dispose of any such property
would actually receive the full net asset value for it. Except as described
herein, however, we intend to pay for all share redemptions in cash.
Address Changes and Lost Shareholder Accounts.
It is your obligation to inform us of address changes.
We will exercise reasonable care to ascertain your correct address if you
become "lost" in our records. We will conduct two database searches for you
and use at least one information database service. The search will be
conducted at no cost to you. We will not, however, perform such searches if
your account is less than $25, if you are not a natural person or we receive
documentation that you are deceased. If we cannot locate you after such
procedures, your account may be escheated to the State of your last residence
in our records.
No interest will accrue on amounts represented by uncashed distribution or
redemption checks.
Dividend Payments.
Dividends are paid in the form of additional shares of the Fund credited to
your account at the end of each calendar month (or normally when the account
is closed, if sooner), unless you make a written election to receive dividends
in cash.
You will receive notice of payment of dividends quarterly. For tax purposes,
you will also receive an annual summary of dividends paid by the Fund and the
extent to which they constitute capital gains dividends. If you purchase
shares as of a particular net asset value determination (the close of the New
York Stock Exchange) on a given day, you will not be considered a shareholder
of record for the dividend declaration made that day. If you withdraw as of
such determination you will be considered a shareholder of record with respect
to the shares withdrawn. A "business day" will be any day the New York Stock
Exchange is open for trading.
TAXATION OF THE FUND
Federal Income Tax Requirements.
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 its net income and net capital gains in the fiscal
year in which it is earned. The Code also requires the Fund to distribute at
least 98% of undistributed 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 to avoid federal excise taxes.
To qualify as a regulated investment company under the Code, the Fund must
also 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, it would be taxed as a corporation with no allowable deduction for
distributing dividends.
Tax Consequences to Shareholders.
As a shareholder, you will be subject to federal income tax on any ordinary
net income and net capital gains realized by the Fund and distributed to you
as regular or capital gains dividends. It does not matter whether the
dividend is 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 you before February 1 of the following year
will be treated for tax purposes as received in the year the dividend was
declared.
Dividends Received Deduction.
No portion of the dividends paid by the Fund to its shareholders is expected
to be subject to the dividends received deduction for corporations (70% of
dividends received).
31% Withholding.
You may be subject to a 31% withholding requirement on transactions with the
Fund in certain circumstances. (1) If you fail to comply with the interest
and dividends "back-up" withholding provisions of the Code (by accurately
filing Form W-9 or its equivalent, when required); or (2) if the Internal
Revenue Service determined that you failed to properly report dividend or
interest income.
Personal Holding Company.
We reserve the right to involuntarily redeem Fund shares if ownership of the
Fund's shares has or may become concentrated as to make the Fund a personal
holding company under the Code.
CALCULATION OF PERFORMANCE DATA
Explanation of Yield.
From time to time, we advertise the Fund's yield and effective annual yield.
Both figures are based on historical data and are not intended to indicate
future performance.
7-day Yield. For advertising purposes, the yield is calculated according to a
standard formula prescribed by the Securities and Exchange Commission. This
formula divides the net income earned on one share during a given 7-day period
by the initial value of that share (normally $1.00), and expresses the result
as an annualized percentage. We calculate yield by dividing net income
(including the benefit of any expenses waived or reimbursed by us) earned on
one share during a given seven-day period, exclusive of any capital changes,
by the initial value of that share (normally $1.00). The result (called the
"base period return") is expressed as an annualized percentage. The base
period return is annualized by multiplying it by 365 and dividing the product
by seven, with the resulting yield figure carried to at least the nearest
hundredth of one percent.
Effective Annual Yield. We calculate the Fund's "effective annual yield" in a
similar manner as 7-day yield, except that we assume the net income earned
during a seven-day period is reinvested at the same rate over a full year,
thereby generating additional earnings from compounding. The effective annual
yield is computed by adding one to the base period return, raising the result
to the power equal to 365 divided by seven, and subtracting one from the
result, which is then expressed as a percentage.
Representative Yield Quotations.
The Fund's standardized yield for the 7-day period ending September 30, 1998
was 4.62% and its annual effective yield for the same period was 4.73%.
Caution Regarding Representative Yield Quotations. The Fund's yield is not
fixed. The yield tends to fluctuate daily. Do not consider effective annual
yield as representative of what an investment may earn in any future period.
Actual dividends will tend to reflect changes in money market interest rates
and will also depend upon the level of the Fund's expenses, any realized or
unrealized investment gains and losses and the relative results of the Fund's
investment policies. Thus, at any point in time, future yields may be either
higher or lower than past yields and there is no assurance that any historical
yield level will continue.
Performance Comparisons.
From time to time, in advertisements or in reports to shareholders and others,
we may compare the performance of the Fund to that of recognized market
indices. We may cite the ranking or performance of the Fund as reported in
recognized national periodicals, financial newsletters, reference
publications, radio and television news broadcasts, or by independent
performance measurement firms.
We may also compare the performance of the Fund to that of other funds we
manage, if appropriate. We may compare our performance to that of other types
of investments, substantiated by representative indices and statistics for
those investments.
Market indices that we may use include those compiled by major securities
firms. Other indices compiled by securities rating or valuation services,
such as Standard and Poor's Corporation, may also be used. Periodicals that
report market averages and indices, performance information, and/or rankings
may include: The Wall Street Journal, Investors Business Daily, The New York
Times, The Washington Post, Barron's, Forbes Magazine, Money Magazine, Mutual
Funds Magazine, Kiplinger's Personal Finance and the Bank Rate Monitor.
Independent performance measurement firms include Lipper Analytical Services,
Inc. and Morningstar.
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. Financial news is broadcast by various radio and television
media.
When we use Lipper Analytical Services, Inc. to make performance comparisons
in advertisements or in reports to shareholders or others, we compare the Fund
to mutual funds categorized as "US Government Money Market Funds". If Lipper
changes this category, we will make comparisons to the revised category.
Average Maturities. We calculate the Fund's average maturity information.
The "average maturity" of the Fund on any day is determined by first
multiplying the number of days then remaining to the effective maturity of
each investment in the Fund by the value of that investment. Next, the
results of these calculations are summed. Finally, the total is divided by
the aggregate value of the Fund that day. Thus, the average maturity
represents a dollar-weighted average of the effective maturities of Fund
investments.
By comparison, the "mean average maturity" of the Fund over some period, such
as seven days, a month or a year, represents the arithmetic mean (i.e., simple
average) of the daily average maturity figures for the Fund during the
respective period.
FINANCIAL STATEMENTS AND OTHER ADDITIONAL INFORMATION
Audited Financial Statements for the Fund, together with the Report of
Deloitte & Touche LLP, Independent Accountants for the fiscal year ended
September 30, 1998, appear in the Fund's Annual Report to shareholders for the
fiscal year ended September 30, 1998. That report is incorporated herein by
reference. Excluded from such incorporation by reference is the Fund's letter
to shareholders appearing in the Report. The Report was filed with the
Securities and Exchange Commission.
Statements contained in this Statement of Additional Information and in the
Prospectus regarding the contents of contracts and other documents are not
necessarily complete. You should refer to the documents themselves for
definitive information on their provisions. We will supply copies of the
Fund's important documents and contracts to interested persons upon request,
or you can obtain them from the SEC's Internet site at www.sec.gov.
The Fund registered with the Securities and Exchange Commission in Washington,
DC, by the filing a Registration Statement. The Registration Statement
contains certain additional information not included in the Prospectus or this
Statement of Additional Information. This information is available from the
SEC or its Internet site. (See the back cover of the Prospectus for
information about obtaining this information.)
