Mosaic Tax-Free Trust
Management's Discussion of Fund Performance
September 30, 1998
Dear Shareholder,
The annual period ending September 30, 1998 witnessed a dramatic decline in
interest rates that left long term Treasury bonds at levels not seen in a
generation. The 30-year benchmark Treasury bond yield dropped to a low of
4.98% on the last day of this reporting period. The combination of global
economic turmoil and extremely benign inflation on the domestic front left
investors scrambling to purchase risk-free U.S. Treasury bonds in a classic
"flight to quality" rally. The economic malaise in the developing countries
finally caused a major pullback in the domestic stock market as the Dow Jones
Industrial Average reached a record high of 9337 in July only to fall 16
percent to 7842 on September 30. The Federal Reserve Board responded to the
weak economic environment by cutting the Federal Funds rate one quarter of one
percent to 5.25% on September 30. Investors were anticipating a move to lower
interest rates by the Fed since yields across short and long-term Treasuries
previously fell below overnight bank lending rates.
Looking forward, we continue to believe that the global economic problems will
persist for the foreseeable future. The United States should experience
slower growth in the quarters to come as export demand wanes and consumers
pull back on purchases as the result of a less buoyant stock market. All of
this should bode well for domestic fixed income investors with intermediate
and longer term time horizons. In fact, we believe long-term interest rates
may fall as low as 4.5% on 30-year municipal securities by the year 2000.
The worldwide economic uneasiness and low inflation environment was just the
recipe for lower interest rates during the past year. The 30-year generic
municipal bond yield fell 43 basis points from 5.25% on September 30, 1997 to
4.82% on September 30, 1998. The 2-year generic muni bond yield fell 40 basis
points from 3.90% at the end of September 1997 to 3.50% at the end of
September 1998. The municipal bond market posted an 8.71% total return for
the annual period as measured by the Lehman Brothers Municipal Bond Index.
Our response to this environment was to emphasize bond structure and credit
quality. We purchased bonds that will allow the Tax-Free Trust funds to
participate in bull markets (falling interest rates) through price
appreciation while still generating attractive levels of tax-free income. We
extended the duration of the portfolios to coincide with our belief that the
overall trend in interest rates is down. Credit spreads remained very tight
in the municipal market. We continue to favor higher quality bonds for the
Tax-Free Trusts as all of the portfolios have overall credit quality ratings
of AA or higher. Of course, only the bonds that we deem to have the most
favorable risk/return characteristics will be purchased for the Tax-Free
Trust.
National Fund
The National Fund had a total return of 7.66% for the annual period and the
30-day SEC yield was 3.52%. The duration of the portfolio was extended to
8.51 years while the average credit quality was maintained at AA. Purchases
made during the period included Washington D.C. for the Smithsonian Institute,
Puerto Rico General Obligations, and North Carolina Education Agency for St.
Augustines College. The United States and its territories has issued $214
billion in muni bonds year-to-date through the end of September which
represents a 37% increase in volume over the same period last year.
Arizona Fund
Arizona continues to enjoy a strong, well-diversified service and tourism
based economy. The State does not have a credit rating because it does not
issue general obligation bonds. The Fund had a total return of 7.21% for the
annual period and the 30-day SEC yield was 3.52%. The duration of the
portfolio was extended to 7.71 years while the average credit quality remained
at AA. Purchases made during the period included Peoria Water and Sewer
Authority, Puerto Rico Electric Authority, and Salt River Power District.
Arizona ranked 21st in the country in terms of issuance on a year-to-date
basis.
Missouri Fund
Missouri has a broad-based and diversified economy that is service-sector
oriented. The State's general obligation bonds are rated AAA. The Fund had a
total return of 7.61% for the annual period and the 30-day SEC yield was
3.61%. The duration of the portfolio was extended to 8.79 years while the
average credit quality was maintained at AA. Purchases during the period
included Missouri Health and Education Authority for the BJC Health System,
St. Louis Airport Authority for Lambert Airport, and Missouri State
Development Finance Board for the Greater St. Louis YMCA. Missouri ranked
18th in the country in terms of issuance on a year-to-date basis.
Maryland Fund
Maryland's economy is diversified among services, light manufacturing and the
federal government. The State's general obligation bonds are rated AAA. The
Fund had a total return of 6.68% for the annual period and the 30-day SEC
yield was 3.54%. The duration of the portfolio was extended to 7.87 years
while the average credit quality continues to be AA. Purchases during the
period included Maryland Health and Education Authority for the Upper
Chesapeake Hospital and Maryland Health and Education Authority for Green
Acres School. Maryland ranked 22nd in the country in terms of issuance on a
year-to-date basis.
Virginia Fund
The Commonwealth of Virginia maintains a AAA general obligation bond rating
based on a well-diversified economy that emphasizes services and government.
The Fund had a total return of 7.66% for the annual period and the 30-day SEC
yield was 3.67%. The duration of the portfolio was extended to 8.50 years
while the average credit quality was maintained at AA. Purchases during the
period included Upper Occoquan Sewer Authority, Chesapeake Bay Bridge and
Tunnel Authority, and Lynchburg Industrial Development Authority for Centra
Health. Virginia ranked 11th in the country in terms of issuance on a year-
to-date basis.
Money Market Fund
The Fund continues to provide a high degree of liquidity and safety of
principal. As of September 30, 1998, the Fund's seven day yield was 2.94%,
which is equivalent to a taxable yield of 4.60% for an investor in the 36%
federal tax bracket. The average maturity of the Fund stood at 46 days at the
end of the annual period.
We appreciate your confidence in Mosaic Funds and reaffirm our commitment to
provide you with competitive returns to meet your investment objectives.
Sincerely,
(signature)
Michael J. Peters, CFA
Vice President
Comparison of Changes in the Value of a $10,000 Investment
and the Lehman Municipal Bond Index
Depicted herein are graphic comparisons of the changes in the value of a
$10,000 investment in each respective fund with a hypothetical
investment in the Lehman Municipal Bond Index.
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Lehman National Lehman VA Lehman AZ Lehman MO Lehman MD
1998 22,301 18,781 22,301 19,160 20,274 17,592 20,274 17,500 14,400 12,968
1997 20,514 17,445 20,514 17,797 18,649 16,409 18,649 16,262 13,246 12,156
1996 18,817 16,198 18,817 16,486 17,106 15,240 17,106 15,097 12,151 11,317
1995 17,745 15,402 17,745 15,627 16,132 14,535 16,132 14,345 11,458 10,886
1994 15,959 14,208 15,959 14,266 14,508 13,341 14,508 13,176 10,305 9,971
1993 16,358 15,155 16,358 15,123 14,871 14,223 14,871 13,988 10,563 10,645
1992 14,510 13,479 14,510 13,401 13,191 12,635 13,191 12,491 10,000 10,000
1991 13,136 12,161 13,136 12,304 11,942 11,513 11,942 11,453
1990 11,606 11,006 11,606 11,119 10,551 10,362 10,551 10,337
1989 10,867 10,544 10,867 10,561 10,000 10,000 10,000 10,000
1988 10,000 10,000 10,000 10,000
</TABLE>
Notes to tabular presentation of graphic representations:
Data for Arizona and Missouri starts 10/31/89
Data for Maryland starts 2/28/93
The following average annual total returns are presented within each
graph:
1 Year 5 Year 10 Year Since Inception
Arizona Portfolio 7.21% 4.34% 6.44% October 13, 1989
Maryland Portfolio 6.68% 4.03 4.86% February 10, 1993
Missouri Portfolio 7.61% 4.58% 6.37% October 12, 1989
Virginia Portfolio 7.69% 4.85% 6.72
National Portfolio 7.66% 4.38% 6.51%
Past performance is not predictive of future performance.
Figures as of September 30, 1998, unless otherwise noted.
<PAGE>
Independent Auditors' Report
To the Board of Trustees and Shareholders
of Mosaic Tax-Free Trust:
We have audited the accompanying statements of assets and liabilities,
including the statements of net assets, of the Mosaic Tax-Free Trust (the
"Trust") (comprising, respectively, the Arizona, Maryland, Missouri, Virginia,
National, and Money Market Funds (the "Funds")), as of September 30, 1998,
and the related statements of operations for the period then ended, the
changes in net assets and the financial highlights for each of the two years
in the period then ended. These financial statements and financial high-
lights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial high-
lights based on our audits. The financial highlights of the Funds for each
of the years in the three year period ending September 30, 1996 were audited
by other auditors whose report, dated November 7, 1996, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of September 30, 1998, by
correspondence with the custodian and broker. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Mosaic Tax-Free Trust, as of
September 30, 1998, the results of their operations for the period then ended,
the changes in their net assets and their financial highlights for each of the
two years in the period then ended in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
(signature)
Princeton, New Jersey
November 6, 1998
<PAGE>
Arizona Fund
Statement of Net Assets - September 30, 1998
Credit Rating* Principal
Moody's S&P Amount Value
LONG-TERM MUNICIPAL BONDS: 96.7% of Net Assets
EDUCATION: 4.9%
Aa2 nr Arizona Educational Loan Marketing
Corporation, Educational Loan Revenue
(AMT), 7%, 3/1/03 $400,000 $431,500
ELECTRIC: 9.5%
Baa1 BBB+ Puerto Rico Electric Power Authority,
Power Revenue, 5%, 7/1/28 400,000 398,000
Aa2 AA Salt River Project Agriculture Improvement
& Power District Electrical
System Revenue, 4.75%, 1/1/17 425,000 420,219
GENERAL OBLIGATION: 39.9%
Aaa AAA Chandler (FGIC Insured), 7%, 7/1/12 300,000 325,125
Aaa AAA Maricopa County Unified High School
District #216 (FGIC Insured), 6.7%, 7/1/11 110,000 116,462
Aaa AAA Maricopa County School District #14
(Creighton) (FSA Insured), 5.3%, 7/1/09 300,000 330,000
Aa3 AA Maricopa County Unified High School
District #210 (Phoenix), 5.375%, 7/1/13 400,000 425,000
A1 A+ Maricopa County School District #6
(Washington), 4.875%, 7/1/10 400,000 412,500
Aaa AAA Maricopa County Unified School District #80
(Chandler) (FGIC Insured), 6.25%, 7/1/11 310,000 369,288
Aaa AAA Mohave County Elementary School District
#16 (Mohave Valley) (MBIA Insured),
5.375%, 7/1/13 425,000 451,031
Baa1 A Puerto Rico Commonwealth, Public Improve-
ment, 4.5%, 7/1/23 400,000 375,500
Aa1 AA+ Phoenix, 5%, 7/1/19 430,000 432,687
Aaa AAA Pima County Unified School District #30
(Sauhuarita)(MBIA Insured), 4.875%, 7/1/09 190,000 200,213
HOSPITAL: 2.5%
#Aaa AAA Arizona Health Facilities Authority,
Hospital Revenue (Phoenix Baptist Hospital)
(MBIA Insured) (Escrowed to Maturity),
6.25%, 9/1/11 200,000 219,750
HOUSING: 6.2%
nr AAA Phoenix Industrial Development Authority,
Mortgage Revenue (Chris Ridge)
(FHA Insured), 6.75%, 11/1/12 500,000 532,500
INDUSTRIAL DEVELOPMENT: 3.7%
nr AA- Mohave County Industrial Development
Authority Industrial Development Revenue
(Citizens Utilities), 7.05%, 8/1/20 300,000 317,250
REVENUE: 9.9%
Aaa AAA Puerto Rico Commonwealth Infrastructure
Financing Authority (AMBAC Insured),
5%, 7/1/28 400,000 403,500
Aaa AAA Scottsdale Preservation Authority Excise
Tax (FGIC Insured), 5.625%, 7/1/22 425,000 450,500
TRANSPORTATION: 12.1%
Aa AA Arizona State Transportation Board,
Highway Revenue, 6%, 7/1/08 400,000 462,000
Aaa AAA Flagstaff, Street and Highway User
Revenue Junior Lien (FGIC Insured),
5.9%, 7/1/10 500,000 578,125
WATER AND SEWER: 8.0%
Aaa AAA Chandler, Water and Sewer Revenue
(FGIC Insured), 6.75%, 7/1/06 250,000 270,313
Aaa AAA Peoria, Water And Sewer Revenue (FGIC
Insured), 4%, 7/1/18 475,000 423,344
TOTAL INVESTMENTS (Cost $7,799,143) $8,344,807
CASH AND RECEIVABLES LESS LIABILITIES: 3.3% of Net Assets 280,357
NET ASSETS: 100% $8,625,164
Maryland Fund
Statement of Net Assets - September 30, 1998
Credit Rating* Principal
Moody's S&P Amount Value
LONG-TERM MUNICIPAL BONDS: 95.6% of Net Assets
EDUCATION: 14.6%
Aaa AAA Maryland State Health & Higher Educa-
tional Facilities Authority Revenue
(Loyola College) (MBIA Insured), 5.375%,
10/1/26 $100,000 $104,000
nr BBB- Maryland State Health & Higher Educa-
tional Facilities Authority Revenue
(Green Acres), 5.3%, 7/1/28 100,000 100,875
Aaa AAA St. Marys College, University Revenue
(MBIA Insured), 5.55%, 9/1/23 100,000 104,250
ELECTRIC: 5.1%
Baa1 BBB+ Puerto Rico Electric Power Authority,
Power Revenue, 6%, 7/1/14 100,000 108,625
GENERAL OBLIGATION: 19.8%
Aa AA+ Anne Arundel County, Solid Waste Projects
(AMT), 5.5%, 9/1/16 100,000 106,375
Aaa AAA Baltimore, Public Improvements (AMBAC
Insured), 6%, 10/15/04 100,000 111,625
Baa1 A Puerto Rico Commonwealth, Public Improve-
ment, 4.5%, 7/1/23 100,000 93,875
Aaa AAA Prince Georges County, Public Improvements
(MBIA Insured), 5.375%, 3/15/16 100,000 105,625
HOSPITAL: 8.4%
Baa2 nr Maryland State Health & Higher Educational
Facilities Authority Revenue
(Kennedy Krieger Issue), 5.125%, 7/1/22 75,000 75,469
Aaa nr Maryland State Health & Higher Educational
Facilities Authority Revenue
(Upper Chesapeake Hospitals) (FSA Insured),
5.125%, 1/1/38 100,000 101,250
HOUSING: 5.1%
Aa2 nr Maryland State Community Development Admin-
istration, (Single-Family Program) (AMT),
6.2%, 4/1/17 100,000 107,375
LEASING: 11.4%
Aa AA- Maryland State Stadium Authority, Sports
Facility Lease Revenue, (AMT) 7.5%,
12/15/10 125,000 132,969
nr AA Montgomery County Revenue Authority,
Lease Revenue (Human Services Headquarters),
5.6%, 8/1/14 100,000 107,875
POLLUTION CONTROL: 11.5%
A2 A Anne Arundel County, Pollution Control
Revenue (Baltimore Gas and Electric
Company), 6%, 4/1/24 100,000 107,500
A1 A Prince Georges County, Pollution Control
Revenue (Potomac Electric), 6.375%,
1/15/23 125,000 135,781
PUBLIC FACILITIES: 8.8%
Aaa AAA Baltimore Convention Center Revenue,
5.0%, 9/1/19 75,000 76,312
Aa AA- Howard County, Special Facilities Revenue,
5.95%, 2/15/10 100,000 109,500
TRANSPORTATION: 10.9%
Aa3 AA- Baltimore, Port Facilities Revenue (Con-
solidated Coal Sales), 6.5%, 10/1/11 100,000 110,375
#Aaa AAA Maryland State Transportation Authority
Transportation Facilities Project Revenue
(Escrowed to Maturity), 6.8%, 7/1/16 100,000 120,875
TOTAL INVESTMENTS (Cost $1,896,144) $2,020,531
CASH AND RECEIVABLES LESS LIABILITIES: 4.4% of Net Assets 92,465
NET ASSETS: 100% $2,112,996
Missouri Fund
Statement of Net Assets - September 30, 1998
Credit Rating* Principal
Moody's S&P Amount Value
LONG-TERM MUNICIPAL BONDS: 100.7% of Net Assets
AIRPORT: 4.2%
Aaa AAA St. Louis, Airport Revenue, Lambert-
St. Louis International (FGIC Insured),
5.125%, 7/1/22 $500,000 $510,000
EDUCATION: 14.5%
A nr Missouri Higher Educational Loan
Authority, Student Loan Revenue Subordinated
Lien (AMT), 5.9%, 2/15/08 500,000 520,000
Aa3 nr Missouri State Health & Educational
Facilities Authority, Educational
Facilities Revenue (Baptist College),
5.15%, 5/15/23 500,000 502,500
Aa1 AA+ Missouri State Health & Educational
Facilities Authority, Educational
Facilities Revenue (Washington University),
5%, 11/15/37 250,000 251,250
Aaa AAA Missouri State Health & Educational
Facilities Authority, Educational
Facilities Revenue (St. Louis University)
(AMBAC Insured), 5.125%, 10/1/16 300,000 307,500
#Aaa AAA Missouri State Health & Educational
Facilities Authority, Educational
Facilities Revenue (St. Louis University
General Tuition) (AMBAC Insured)
(Prerefunded 8/1/01 @ 102), 6.5%, 8/1/16 150,000 164,062
ELECTRIC: 3.9%
Aaa AAA Sikeston, Electric Revenue (MBIA Insured),
6%, 6/1/14 400,000 462,500
GENERAL OBLIGATION: 22.4%
Aa2 nr Jefferson City School District, 6.7%,
3/1/11 200,000 245,500
Aaa AAA Missouri State (Fourth State Building),
5.75%, 8/1/19 400,000 435,000
Aaa AAA Missouri State (Fourth State Building),
5.5%, 4/1/20 500,000 531,875
nr AA North Kansas City School District (Direct
Deposit Program), 5.25%, 3/1/12 450,000 477,563
Baa1 A Puerto Rico Commonwealth, Public
Improvement, 4.5%, 7/1/23 500,000 469,375
Aaa AAA St. Louis County, 5.2%, 2/1/12 500,000 527,500
HOSPITAL: 25.5%
#Aaa AAA Missouri State Health and Educational
Facilities Authority, Health Facilities
Revenue (Prerefunded 1/1/00 @ 102), 7.625%,
7/1/18 95,000 101,412
Aa2 AA Missouri State Health and Educational
Facilities Authority, Health Facilities
Revenue (BJC Health System), 5%, 5/15/38 500,000 491,250
Aaa AAA Missouri State Health and Educational
Facilities Authority, Health Facilities
Revenue (Heartland Health System) (AMBAC
Insured), 6.35%, 11/15/17 500,000 546,250
nr AA Missouri State Health and Educational
Facilities Authority, Health Facilities
Revenue (Lake Ozarks General Hospital),
5.125%, 2/15/24 350,000 352,625
Aaa AAA Missouri State Health and Educational
Facilities Authority, Health Facilities
Revenue (SSM Health Care) (MBIA Insured),
5%, 6/1/18 250,000 251,875
n/a n/a Missouri State Health and Educational
Facilities Authority, Health Facilities
Revenue (SSM Health Care) (MBIA Insured)
(Prerefunded 6/1/02 @ 102), 6.25%, 6/1/16 45,000 49,669
Aaa nr Missouri State Health and Educational
Facilities Authority, Health Facilities
Revenue (SSM Health Care) (MBIA Insured),
6.25%, 6/1/16 205,000 222,681
Aaa AAA Missouri State Health and Educational
Facilities Authority, Health Facilities
Revenue (Health Midwest) (MBIA Insured),
6.25%, 2/15/22 500,000 538,125
Aaa nr New Liberty Hospital District Revenue
(MBIA Insured), 5%, 12/1/18 500,000 503,750
HOUSING: 6.6%
nr AAA Missouri State Housing Development Commis-
sion, Single-Family Mortgage Revenue (GNMA
Collaterized) (FHA) (AMT), 7.75%, 6/1/22 55,000 57,681
nr AAA Missouri State Housing Development Commis-
sion, Single-Family Mortgage Revenue (GNMA
Collaterized) (FHA) (AMT), 7.375%, 8/1/23 170,000 180,413
nr AAA St. Louis County, Mortgage Revenue (Escrowed
to Maturity) (AMT), 5.65%, 2/1/20 500,000 558,750
LEASING AND OTHER FACILITIES: 21.5%
Aaa AAA Kansas City Municipal Assistance Corp.,
Lease Revenue (Capital Improvements)
(AMBAC Insured), 5.2%, 1/15/06 400,000 430,000
#Aaa AAA Kansas City Municipal Assistance Corp,
Lease Revenue (H. Roe Bartle)(AMBAC Insured)
(Prerefunded 4/15/01 @ 100), 6%, 4/15/20 500,000 528,750
nr AA- Missouri State Devevelopment Financial
Board Recreation Facilities Revenue
(YMCA - Greater St. Louis), 5%, 9/1/11 250,000 259,375
A1 A+ Missouri State Regional Convention and
Sports Complex Authority, 5.6%, 8/15/17 250,000 262,500
A1 A+ Missouri State Regional Convention and
Sports Complex Authority, 5.5%, 8/15/13 250,000 264,375
A BBB+ St. Louis County Regional Convention and
Sports Complex Authority, 5.5%, 8/15/13 300,000 312,750
Aaa AAA St. Louis Parking Facilities Revenue (MBIA
Insured), 5.375%, 12/15/21 500,000 520,625
REVENUE: 2.0%
A1 A+ St. Louis Industrial Development Authority
Pollution Control Revenue (Anheuser-Busch),
6.65%, 5/1/16 200,000 243,500
TOTAL INVESTMENTS (Cost $11,329,905) $12,080,981
CASH AND RECEIVABLES LESS LIABILITIES: (0.7%) of Net Assets (78,750)
NET ASSETS: 100% $12,002,231
Virginia Fund
Statement of Net Assets - September 30, 1998
Credit Rating* Principal
Moody's S&P Amount Value
LONG-TERM MUNICIPAL BONDS: 97.3% of Net Assets
AIRPORT: 5.0%
Aaa AAA Capital Regional Airport Commission, Airport
Revenue (AMBAC Insured), 5.625%, 7/1/15 $ 500,000 $533,750
Aaa AAA Metropolitan Washington, DC Airports
Authority, Airport Revenue (FGIC Insured)
(AMT), 7%, 10/1/18 500,000 536,250
Aaa AAA Metropolitan Washington, DC Airports
Authority, Airport Revenue (MBIA Insured)
(AMT), 6.625%, 10/1/12 500,000 552,500
EDUCATION: 11.3%
A1 nr Loudoun County Industrial Development
Authority, University Facilities Revenue
(George Washington University), 6.25%,
5/15/22 500,000 536,250
nr A- Lynchburg Industrial Development Authority,
Educational Facilities Revenue (Randolph-
Macon Women's College), 5.875%, 9/1/13 500,000 530,625
nr BBB- Virginia College Building Authority,
Educational Facilities Revenue (Marymount
University), 7%, 7/1/22 350,000 381,937
#Aaa AAA Virginia College Building Authority, Edu-
cational Facilities Revenue (Washington
and Lee University) (Prerefunded 1/1/04
@ 102), 5.75%, 1/1/14 325,000 348,563
Aa2 AA Virginia College Building Authority, Edu-
cational Facilities Revenue (Washington
and Lee University), 5.75%, 1/1/14 230,000 246,675
Aa2 AA Virginia State Public Schools Authority,
Revenue, 6.2%, 8/1/13 500,000 560,625
Aa AA Virginia State Public Schools Authority,
Special Obligation (York County), 5.9%,
7/15/13 500,000 551,250
A1 AA- Virginia State Universities, University
Revenue (Virginia Commonwealth University),
5.75%, 5/1/15 500,000 531,875
ELECTRICAL: 7.0%
Aaa AAA Halifax County Industrial Development
Authority Exempt Facilities Revenue
(Old Dominion Electric Co-op) (MBIA Insured)
(AMT), 6%, 12/1/22 1,000,000 1,058,750
Baa1 BBB+ Puerto Rico Electric Power Authority,
Power Revenue, 5%, 7/1/28 1,250,000 1,243,750
GENERAL OBLIGATION: 12.8%
Aa3 AA Cheasapeake, Water & Sewer, 5.375%,
12/1/14 1,000,000 1,066,250
Aa3 AA- Hampton, 6%, 1/15/08 500,000 560,625
A2 A Henry County, 6%, 7/15/14 500,000 545,625
Aaa AAA Leesburg (AMBAC Insured), 5.6%, 6/1/15 500,000 538,125
Aaa AAA Norfolk (MBIA Insured), 5.75%, 6/1/13 500,000 542,500
Baa1 A Puerto Rico Commonwealth, Public
Improvement, 4.5%, 7/1/23 1,200,000 1,126,500
HOSPITAL: 17.1%
Aaa AAA Danville Industrial Development Authority,
Hospital Revenue (Danville Regional Medical
Center) (FGIC Insured) (Prerefunded 10/1/04
@ 101), 6.375%, 10/1/14 500,000 570,625
Aa2 AA Fairfax County Industrial Development
Authority Revenue (Inova Health Systems),
5.25%, 8/15/19 1,000,000 1,041,250
Aaa AAA Hanover County Industrial Development
Authority Revenue (Bon Secours
Health Systems) (MBIA Insured), 6%,
8/15/10 640,000 738,400
A1 A+ Lynchburg Industrial Development Authority,
Healthcare Facilities Revenue
(Centra Health), 5.2%, 1/1/28 1,000,000 1,008,750
Aa2 AA Norfolk Industrial Development Authority,
Hospital Revenue (Sentara Hospital),
6.5%, 11/1/13 1,000,000 1,127,500
Aaa nr Prince William County Industrial Develop-
ment Authority, Hospital Revenue (Potomac
Hospital Corp.) (FSA Insured), 4.625%,
10/1/11 500,000 503,750
Aaa AAA Roanoke Industrial Development Authority,
Hospital Revenue (Roanoke Memorial
Hospitals) (MBIA Insured), 6.125%, 7/1/17 500,000 586,875
HOUSING: 2.0%
nr AAA Fairfax County Redevelopment & Housing
Authority, Multi-Family Housing Revenue
(Castel Lani) (FHA Insured), 5.5%, 4/1/28 625,000 639,844
INDUSTRIAL DEVELOPMENT: 8.2%
Baa2 nr Amherst Industrial Development Authority
Revenue (Georgia Pacific Corp.) (AMT),
5.25%, 2/1/11 500,000 502,500
Baa2 nr Greensville County, Industrial Development
Authority Revenue (Georgia Pacific Corp.),
5.3%, 8/1/14 500,000 503,125
Baa3 BBB Peninsula Ports Authority, Coal Terminal
Revenue (Dominion Terminal), 7.375%,
6/1/20 1,000,000 1,107,500
A1 A Puerto Rico Industrial Pollution Control
Facilities Financing Authority Revenue
(Pepsico, Inc.), 6.25%, 11/15/13 500,000 552,500
LEASING AND OTHER FACILITIES: 3.3%
nr BBB Fairfax County Park Authority, Facilities
Revenue, 6.625%, 7/15/14 500,000 548,750
Aa2 AA Fairfax County Economic Development Authority,
Lease Revenue, 5.5%, 5/15/18 500,000 523,750
TRANSPORTATION: 8.9%
Aaa AAA Chesapeake Bay Bridge & Tunnel Revenue
(MBIA Insured), 5%, 7/1/22 1,000,000 1,007,500
Aaa AAA Virginia Port Authority, Port Facilities
Revenue (MBIA Insured) (AMT), 6%, 7/1/05 685,000 762,919
Aaa AAA Washington, DC Metropolitan Area Transit
Authority (FGIC Insured), 6%, 7/1/07 1,000,000 1,136,250
WATER & SEWER: 23.6%
A1 A+ Fairfax County Economic Development
Authority, Resource Recovery Revenue
(Ogden Martin Systems) (AMT), 7.75%,
2/1/11 500,000 520,890
Aaa AAA Loudoun County Sanitation Authority, Water
and Sewer Revenue (FGIC Insured),
6.25%, 1/1/16 500,000 545,625
Aaa AAA Upper Occoquan Sewer Authority, Sewer
Revenue (MBIA Insured), 4.75%, 7/1/29 1,000,000 978,750
Aaa BBB West Point Industrial Development
Authority, Waste Revenue (Chesapeake
Corporation), 6.25%, 3/1/19 250,000 271,875
Aaa AAA Augusta County Service Authority, Water
and Sewer Revenue(MBIA Insured), 5%,
11/1/24 1,500,000 1,513,125
Aa2 AA Fairfax County Water Authority, Water
Revenue, 5%, 4/1/29 1,000,000 1,007,500
Aaa AAA Frederick-Winchester Service Authority,
Sewer Revenue (AMBAC Insured), 5.75%,
10/1/15 1,000,000 1,071,250
Aaa AAA Prince William County Service Authority,
Water and Sewer Revenue (FGIC Insured),
4.75%, 7/1/29 1,000,000 973,750
LONG-TERM MUNICIPAL BOND TOTAL $31,736,978
SHORT-TERM MUNICIPAL BONDS: 0.9% of Net Assets
Aa2 nr Peninsula Ports Authority, Coal Terminal
Revenue (Dominion Terminal), 4.1%, 7/1/16^ 300,000 300,000
TOTAL INVESTMENTS (Cost $29,807,597) $32,036,978
CASH AND RECEIVABLES LESS LIABILITIES: 1.8% of Net Assets 575,145
NET ASSETS: 100% $32,612,123
National Fund
Statement of Net Assets - September 30, 1998
Credit Rating* Principal
Moody's S&P Amount Value
LONG-TERM MUNICIPAL BONDS: 98.6% of Net Assets
ARIZONA: 4.5%
Aa AA Arizona State Transportation Board, Highway
Revenue, 6%, 7/1/08 $1,000,000 $1,155,000
DISTRICT OF COLUMBIA: 3.9%
Aaa AAA District Of Columbia Revenue, Smithsonian
Inst., 5%, 2/1/28 1,000,000 1,001,250
GEORGIA: 4.3%
Aaa AAA Georgia Municipal Electric Authority,
Electric Revenue (MBIA Insured), 5.5%,
1/1/12 1,000,000 1,102,500
ILLINOIS: 1.5%
Aaa AAA Regional Transportation Authority, Transit
Revenue (AMBAC Insured), 7.2%, 11/1/20 300,000 395,250
IOWA: 4.3%
#Aaa AAA Mason City, Hospital Facilities Revenue
(Sisters of Mercy) (FSA Insured)
(Prerefunded 8/15/01 @ 102), 7%, 8/15/14 1,000,000 1,106,250
KANSAS: 2.3%
Aa AA Kansas State Department of Transportation,
Highway Revenue, 6.125%, 9/1/09 500,000 583,750
MASSACHUSETTS: 9.6%
Aa3 AA- Massachusetts Bay Transportation Authority,
General Transit System, 7%, 3/1/14 1,000,000 1,266,250
Aa3 A+ University of Massachusetts Building
Authority Revenue, 6.625%, 5/1/08 1,000,000 1,190,000
MINNESOTA: 2.0%
Aa2 AA+ Minnesota State Housing Finance Agency,
Housing Revenue (Single-Family Mortgage)
(AMT), 6.25%, 7/1/26 470,000 502,313
MISSISSIPPI: 6.4%
Aaa AAA Harrison County Wastewater Management District,
Sewer Revenue (Wastewater Treatment Facilities)
(FGIC Insured), 7.75%, 2/1/14 500,000 673,125
Aaa AAA Harrison County Wastewater Management District,
Sewer Revenue (Wastewater Treatment Facilities)
(FGIC Insured), 8.5%, 2/1/13 500,000 720,625
nr AAA South Panola School District (AMBAC Insured),
6.5%, 5/1/04 205,000 231,906
MISSOURI: 0.8%
Aaa AAA Missouri State Health & Educational Facilities
Authority, Educational Facilities Revenue
(St. Louis University) (AMBAC Insured), 5.125%,
10/1/16 200,000 205,000
NORTH CAROLINA: 5.9%
nr AA North Carolina Educational Facilities Financial
Agency Revenue (St. Augustines College),
5.25%, 10/1/28 1,000,000 1,021,250
Baa1 nr North Carolina Medical Care Commission,
Hospital Revenue (Halifax Regional
Medical Center), 5%, 8/15/18 500,000 484,375
PENNSYLVANIA: 4.9%
Aaa AAA Lehigh County, General Purpose Authority,
Hospital Revenue (Lehigh Valley Hospital)
(MBIA Insured), 7%, 7/1/16 1,000,000 1,267,500
PUERTO RICO: 3.7%
Baa1 A Puerto Rico Commonwealth, Public Improvement,
General Obligation, 4.5%, 7/1/23 1,000,000 938,750
SOUTH CAROLINA: 8.6%
Aaa AAA Piedmont Municipal Power Agency, Electric
Revenue (FGIC Insured), 6.5%, 1/1/16 855,000 1,033,481
#Aaa AAA Piedmont Municipal Power Agency, Electric
Revenue (FGIC Insured) (Escrowed to maturity),
6.5%, 1/1/16 145,000 176,900
Aaa AAA South Carolina Highway, General Obligation,
4.5%, 4/1/20 1,040,000 999,700
TEXAS: 12.7%
Aa2 AA Harris County, Toll Road and Subordinated Lien
Revenue Refunding, General Obligation,
6.5%, 8/15/15 790,000 870,975
#Aaa AAA Texas Public Building Authority, Building
Revenue (MBIA Insured) (Escrowed to Maturity),
7.125%, 8/1/11 1,000,000 1,211,250
Aaa AAA United Independent School District, General
Obligation (PSF Guarantee), 7%, 8/15/05 1,000,000 1,178,750
VIRGINIA: 14.9%
#Aaa AAA Charlottesville Industrial Development
Authority Hospital Revenue (Martha Jefferson)
(AMBAC Insured) (Prerefunded 10/1/00 @ 102),
7.375%, 10/1/20 1,000,000 1,090,000
Aaa nr Dinwiddie County Industrial Development
Authority, Lease Revenue County Courthouse
Completion Project (MBIA Insured), 5%, 2/1/17 300,000 303,375
Aaa nr Dinwiddie County Industrial Development
Authority, Lease Revenue County School
Completion Project (MBIA Insured), 5%, 2/1/19 365,000 371,387
Aa2 AA Fairfax County Industrial Development
Authority Revenue, (Inova Health Systems),
5.25%, 8/15/19 1,000,000 1,041,250
Aaa AAA Hanover County Industrial Development
Authority Revenue, (Bon Secours Health Systems)
(MBIA Insured), 6%, 8/15/10 500,000 576,875
Aa AA+ Virginia State Housing Development Authority,
Multifamily Housing Revenue, 6.65%, 11/1/13 400,000 440,500
WASHINGTON: 8.3%
AA1 AA+ King County, Sewer, General Obligation, 5.25%,
1/1/14 1,000,000 1,043,750
nr AA- Port Seattle, Revenue (AMBAC Insured) (AMT)
(Prerefunded 12/1/00 @ 102), 7.6%, 12/1/09 155,000 169,725
Aa3 AA- Port Seattle, Revenue (AMBAC Insured) (AMT),
7.6%, 12/1/09 345,000 378,638
AA1 AA+ Washington State Public Power Supply System,
Electric Revenue (Nuclear Project Number 2),
4.9%, 7/1/05 500,000 523,750
TOTAL LONG-TERM MUNICIPAL BONDS (Cost $23,267,745) $25,255,400
CASH AND RECEIVABLES LESS LIABILITIES: 1.4% of Net Assets 351,348
NET ASSETS: 100% $25,606,748
Money Market Fund
Statement of Net Assets - September 30, 1998
Credit Rating* Principal
Moody's S&P Amount Value
SHORT-TERM MUNICIPAL SECURITIES: 96.9% of Net Assets
ARIZONA: 2.7%
VMIG1 A1+ Phoenix, AZ (SPA- Morgan Guaranty Trust),
4.1%, 6/1/20^ $200,000 $ 200,000
COLORADO: 1.4%
nr AA Lakewood Sales & Use Tax Revenue, 5%,
12/1/98 100,000 100,257
FLORIDA: 2.7%
VMIG1 nr Atlantic Beach Revenue (Fleet Landing) (LOC
- Barnett Bank), 4.2%, 10/1/24^ 200,000 200,000
GEORGIA: 4.1%
VMIG1 A1 Burke County Development Authority Pollution
Control Revenue (Georgia Power),
4.05%, 7/1/24^ 295,000 295,000
ILLINOIS: 2.8%
nr A1+ Illinois Development Financial Authority
Industrial Development Revenue (Field Container
Corp.) (LOC-American National Bank & Trust),
3.75%, 12/1/99^ 200,000 200,000
INDIANA: 2.8%
Aa2 AAA Indianapolis, Marion County Public Library,
4.10%, 7/1/99 205,000 206,045
IOWA: 4.2%
nr SP1 Iowa Higher Education Loan Authority Revenue
(Briar Cliff), 4.25%, 7/7/99 300,000 302,268
KENTUCKY: 4.1%
P1 nr Ashland Pollution Control Revenue (Ashland Oil
Inc.) (LOC-Swiss Bank), 3.75%, 4/1/09^ 300,000 300,000
LOUISIANA: 9.7%
VMIG1 A1 Louisiana Public Facilities Authority Hospital
Revenue (Willis Knighton Medical) (AMBAC
Insured) (SPA- Credit Local De France), 3.6%,
9/1/23^ 200,000 200,000
VMIG1 A1+ New Orleans Aviation Board Revenue (MBIA Insured)
(SPA- Credit Local De France), 3.65%,
8/1/16^ 400,000 400,000
#Aaa AAA Tangipahoa Parish, LA School Board Sales &
Use Tax (MBIA Insured) (Escrowed to Maturity),
8.6%, 5/1/99 105,000 108,125
MINNESOTA: 4.1%
VMIG1 A1+ Minnesota State Housing Finance Agency, (Single
Family Mortgage) (General Obligation of Agency),
4.15%, 12/1/98 300,000 300,315
MISSISSIPPI: 4.1%
P1 nr Jackson County Pollution Control Revenue (Chevron
USA, Inc), 4.0%, 6/1/23^ 300,000 300,000
MISSOURI: 11.3%
VMIG1 nr Columbia, Special Obligation (LOC- Toronto
Dominion Bank), 3.55%, 6/1/08^ 300,000 300,000
VMIG1 A1 Kansas City Industrial Development Authority
Hospital Revenue (Research Health Services)
(MBIA Insured) (SPA- Bank of America, IL),
4.1%, 10/15/15^ 300,000 300,000
VMIG1 nr Missouri State Health & Educational Facilities
Authority Revenue (Drury College) (LOC- Chase
Manhattan Bank), 4.15%, 8/15/21^ 225,000 225,000
NEBRASKA: 5.5%
VMIG1 nr Nebhelp, Inc. Revenue, Multiple Mode Student
Loans (MBIA Insured) (SPA- Sallie Mae), 3.6%,
12/1/15^ 400,000 400,000
NEW YORK: 4.9%
#Aaa AAA Battery Park (Prerefunded 5/1/99 @ 100), 6.5%,
5/1/99 250,000 254,632
VMIG1 A1+ New York City (LOC- Morgan Guaranty Trust),
4.1%, 8/1/17^ 100,000 100,000
NORTH CAROLINA: 8.3%
VMIG1 A1+ Greensboro Public Improvement, General Obliga-
tion (SPA- Wachovia Bank of North Carolina),
3.55% 4/1/07^ 300,000 300,000
VMIG1 A1+ North Carolina Medical Care Commission,
Hospital Revenue (Pooled Equipment Project)
(MBIA Insured) (SPA- Kreditbank Nv), 3.8%,
12/1/25^ 300,000 300,000
SOUTH DAKOTA: 1.4%
#Aaa AAA Heartland Consumers Power District, Electric
Revenue (FSA Insured) (Escrowed to Maturity),
6.7%, 1/1/99 100,000 100,804
TENNESSEE: 3.8%
VMIG1 A1 Metropolitan Nashville Airport Authority
Revenue (FGIC Insured) (LOC- Societe Generale),
3.65%, 7/1/19^ 275,000 275,000
TEXAS: 5.5%
VMIG1 A1+ Port Development Corporation, Marine Terminal
Revenue (Stolt Terminals) (LOC- Canadian
Imperial Bank), 3.55%, 1/15/14^ 400,000 400,000
VIRGINIA: 1.4%
VMIG1 nr Henrico County, Industrial Development
Authority Revenue (Hermitage) (LOC- Nationsbank
of Virginia), 4.2%, 5/1/24^ 100,000 100,000
WASHINGTON: 6.2%
nr A1+ Port of Kalama, Public Corp. Port Revenue
(Conagra, Inc.) (LOC-Morgan Guaranty Trust),
3.55%, 1/1/04^ 50,000 50,000
VMIG1 nr Washington State Housing Finance Commission,
Nonprofit Housing Revenue (Panorama City) (LOC-
Key Bank of Washington), 4.35%, 1/1/27^ 100,000 100,000
nr A1+ Washington State Housing Finance Commission,
Multi-Family Mortgage Revenue (LOC- Pacific
First Federal Savings), 3.9%, 7/1/20^ 300,000 300,000
WISCONSIN: 5.9%
Aa1 nr Brown County, 4.60%, 11/1/98 250,000 250,244
Aa2 AA+ Wisconsin State Clean Water Revenue, 6.20%,
6/1/99 175,000 178,313
TOTAL INVESTMENTS (Cost $7,042,636) $7,046,003
CASH AND RECEIVABLES LESS LIABILITIES: 3.1% of Net Assets 223,966
NET ASSETS: 100% $7,269,969
Notes to Statement of Net Assets:
^ Security has a variable coupon rate and is subject to a demand feature
before final maturity.
Coupon rate as of September 30, 1998.
#Aaa Refunded Bonds
AMBAC American Municipal Bond Assurance Corporation
AMT Subject to Alternative Minimum Tax
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Administration
FSA Federal Security Assistance
GNMA Government National Mortgage Association
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance Corporation
Moody's Moody's Investors Service, Inc.
nr Not rated
PSF Permanent School Fund
S&P Standard & Poor's Corporation
* Credit Ratings are unaudited
Security Purchased on a When-Issued or a Delayed Delivery Basis
<PAGE>
Statements of Assets and Liabilities
September 30, 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Money
Arizona Maryland Missouri Virginia National Market
Fund Fund Fund Fund Fund Fund
ASSETS
Investments, at value (Note 1)
Investment securities $8,344,807 $2,020,531 $12,080,981 $31,736,978 $25,255,400 $ --
Short term securities -- -- -- 300,000 -- 7,046,003
Total investments $8,344,807 $2,020,531 $12,080,981 $32,036,978 $25,255,400 $7,046,003
Cash 176,704 63,920 246,040 68,885 503,518 55,147
Receivables
Interest 109,762 29,387 166,745 527,771 336,652 49,266
Capital shares sold (Note 1) 1,500 -- -- -- 3,000 120,048
Total assets 8,632,773 2,113,838 12,493,766 32,633,634 26,098,570 7,270,464
LIABILITIES
Payables
Investment securities purchased -- -- 485,715 -- 480,793 --
Dividends 7,609 842 5,820 21,511 9,399 493
Capital shares redeemed (Note 1) -- -- -- -- 1,630 2
Total Liabilities 7,609 842 491,535 21,511 491,822 495
NET ASSETS (Note 4) $8,625,164 $2,112,996 $12,002,231 $32,612,123 $25,606,748 $7,269,969
CAPITAL SHARES OUTSTANDING 803,181 206,384 1,104,507 2,734,074 2,327,403 7,266,659
NET ASSET VALUE PER SHARE $ 10.74 $ 10.24 $ 10.87 $ 11.93 $ 11.00 $ 1.00
</TABLE>
Statements of Operations
For the Year Ended September 30, 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Money
Arizona Maryland Missouri Virginia National Market
Fund Fund Fund Fund Fund Fund
INVESTMENT INCOME (Note 1)
Interest income $453,792 $110,715 $607,692 $1,705,174 $1,303,277 $242,089
EXPENSES (Notes 2 and 3)
Investment advisory fee 53,176 13,251 71,998 201,362 163,646 34,022
Transfer agent and administrative expenses 41,476 10,754 53,947 126,222 115,216 24,100
Total expenses 94,652 24,005 125,945 327,584 278,862 58,122
NET INVESTMENT INCOME 359,140 86,710 481,747 1,377,590 1,024,415 183,967
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on investments 144,610 9,822 128,887 536,649 224,781 --
Change in net unrealized appreciation of
investments 85,687 39,574 236,429 469,046 679,410 3,388
NET GAIN ON INVESTMENTS 230,297 49,396 365,316 1,005,695 904,191 3,388
TOTAL INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $589,437 $136,106 $847,063 $2,383,285 $1,928,606 $187,355
</TABLE>
Statements of Changes in Net Assets
For the Years Ended September 30
<TABLE>
<CAPTION> Arizona Fund Maryland Fund Missouri Fund
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS
Net investment income $ 359,140 $ 400,732 $ 86,710 $ 87,470 $ 481,747 $ 501,191
Net realized gain on investments 144,610 120,555 9,822 10,664 128,887 122,415
Net unrealized appreciation
of investments 85,687 131,914 39,574 46,291 236,429 209,786
Total increase in net assets
resulting from operations 589,437 653,201 136,106 144,425 847,063 833,392
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (359,140) (400,732) (86,710) (87,470) (481,747) (501,191)
CAPITAL SHARE
TRANSACTIONS (Note 7) (350,924) (572,609) (34,483) (813) 83,439 (159,832)
TOTAL INCREASE (DECREASE)
IN NET ASSETS (120,627) (320,140) 14,913 56,142 448,755 172,369
NET ASSETS
Beginning of period 8,745,791 9,065,931 2,098,083 2,041,941 11,553,476 11,381,107
End of period $8,625,164 $8,745,791$2,112,996 $2,098,083 $12,002,231 $11,553,476
</TABLE>
<TABLE>
<CAPTION>
Virginia Fund National Fund Money Market Fund
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS
Net investment income $ 1,377,590 $ 1,489,753 $ 1,024,415 $ 1,187,964 $ 183,967 $ 194,657
Net realized gain on investments 536,649 259,497 224,781 389,761 -- 114
Net unrealized appreciation
of investments 469,046 756,780 679,410 500,002 3,388 125
Total increase in net assets
resulting from operations 2,383,285 2,506,030 1,928,606 2,077,727 187,355 194,896
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (1,377,590) (1,489,753) (1,024,415) (1,187,964) (184,342) (194,282)
CAPITAL SHARE
TRANSACTIONS (Note 7) (1,007,248) (1,742,549) (1,995,805) (3,477,538) 414,867 (647,793)
TOTAL INCREASE (DECREASE)
IN NET ASSETS (1,553) (726,272) (1,091,614) (2,587,775) 417,880 (647,179)
NET ASSETS
Beginning of period 32,613,676 33,339,948 26,698,362 29,286,137 6,852,089 7,499,268
End of period $32,612,123 $32,613,676 $25,606,748 $26,698,362 $7,269,969 $6,852,089
</TABLE>
Financial Highlights
Selected data for a share outstanding throughout each period ending September
30:
Arizona Fund Year ended September 30,
1998 1997 1996 1995 1994
Net asset
value
beginning
of period $10.45 10.15 10.11 9.71 11.21
Net
investment
income $0.45 0.47 0.44 0.44 0.44
Net
realized &
unrealized
gains
(losses) on
securities $0.29 0.30 0.04 0.40 (1.10)
Total from
investment
operations $0.74 0.77 0.48 0.84 (0.66)
Distributions
from net
investment
income $(0.45) (0.47) (0.44) (0.44) (0.44)
Distributions
from capital
gains $ -- -- -- -- (0.40)
Total
Distributions$(0.45) (0.47) (0.44) (0.44) (0.84)
Net asset
value end
of period $10.74 10.45 10.15 10.11 9.71
Total
Return 7.21% 7.67% 4.85% 8.95% (6.20)%
Net assets
at end of
period
(thousands) $8,625 8,746 9,066 10,009 11,815
Ratio of
expenses to
average net
assets-1 1.11% 1.11% 1.35% 1.31% 1.29%
Net
investment
income to
average
net assets 4.22% 4.54% 4.35% 4.48% 4.23%
Portfolio
turnover 26% 32% 9% 24% 67%
Maryland Fund
Year ended September 30,
1998 1997 1996 1995 1994
Net asset
value
beginning
of period $10.00 9.71 9.74 9.32 10.44
Net
investment
income $ 0.41 0.42 0.41 0.42 0.46
Net
realized &
unrealized
gains
(losses) on
securities $ 0.24 0.29 (0.03) 0.42 (1.10)
Total from
investment
operations $0.65 0.71 0.38 0.84 (0.64)
Distributions
from net
investment
income $(0.41)(0.42) (0.41) (0.42) (0.46)
Distributions
from capital
gains $ -- -- -- -- (0.02)
Total
Distributions$(0.41)(0.42) (0.41) (0.42) (0.48)
Net asset
value end
of period $10.24 10.00 9.71 9.74 9.32
Total
Return 6.68% 7.42% 3.96% 9.17% (6.33)%
Net assets
at end of
period
(thousands) $2,113 2,098 2,042 2,880 3,083
Ratio of
expenses to
average net
assets-1 1.13% 1.12% 1.28% 0.87% 0.64%
Net
investment
income to
average
net assets 4.09% 4.29% 4.12% 4.42% 4.60%
Portfolio
turnover 30% 15% 21% 9% 78%
Missouri Fund
Years ended September 30,
1998 1997 1996 1995 1994
Net asset
value
beginning
of period $10.53 10.22 10.13 9.73 11.17
Net
investment
income $0.44 0.46 0.44 0.44 0.44
Net
realized &
unrealized
gains
(losses) on
securities $0.34 0.31 0.09 0.40 (1.05)
Total from
investment
operations $0.78 0.77 0.53 0.84 (0.61)
Distributions
from net
investment
income $(0.44)(0.46) (0.44) (0.44) (0.44)
Distributions
from capital
gains $ -- -- -- -- (0.39)
Total
Distributions$(0.44)(0.46) (0.44) (0.44) (0.83)
Net asset
value end
of period $10.87 10.53 10.22 10.13 9.73
Total
Return 7.61% 7.72% 5.24% 8.87% (5.80)%
Net assets
at end of
period
(thousands) $12,002 11,553 11,381 11,394 11,490
Ratio of
expenses to
average net
assets-1 1.09% 1.02% 1.34% 1.31% 1.29%
Net
investment
income to
average
net assets 4.18% 4.45% 4.27% 4.43% 4.23%
Portfolio
turnover 24% 41% 21% 16% 52%
Virginia Fund
Years ended September 30,
1998 1997 1996 1995 1994
Net asset
value
beginning
of period $11.56 11.21 11.12 10.63 12.37
Net
investment
income $ 0.50 0.52 0.51 0.50 0.48
Net
realized &
unrealized
gains
(losses) on
securities $0.37 0.35 0.09 0.49 (1.14)
Total from
investment
operations $0.87 0.87 0.60 0.99 (0.66)
Distributions
from net
investment
income $(0.50) (0.52) (0.51) (0.50) (0.48)
Distributions
from capital
gains $ -- -- -- -- (0.60)
Total
Distributions$(0.50) (0.52) (0.51) (0.50) (1.08)
Net asset
value end
of period $11.93 11.56 11.21 11.12 10.63
Total
Return 7.66% 7.95% 5.50% 9.54% (5.67)%
Net assets
at end of
period
(thousands) $32,612 32,614 33,340 33,822 35,550
Ratio of
expenses to
average net
assets-1 1.02% 1.05% 1.20% 1.14% 1.18%
Net
investment
income to
average
net assets 4.28% 4.55% 4.53% 4.68% 4.23%
Portfolio
turnover 32% 28% 28% 55% 104%
National Fund*
Years ended September 30,
1998 1997 1996 1995 1994
Net asset
value
beginning
of period $10.62 10.29 10.21 9.85 11.91
Net
investment
income $ 0.42 0.44 0.45 0.45 0.42
Net
realized &
unrealized
gains
(losses) on
securities $0.38 0.33 0.08 0.36 (1.12)
Total from
investment
operations $0.80 0.77 0.53 0.81 (0.70)
Distributions
from net
investment
income $(0.42)(0.44) (0.45) (0.45) (0.42)
Distributions
from capital
gains $ -- -- -- -- (0.94)
Total
Distributions$(0.42)(0.44) (0.45) (0.45) (1.36)
Net asset
value end
of period $11.00 10.62 10.29 10.21 9.85
Total
Return 7.66% 7.70% 5.17% 8.40% (6.25)%
Net assets
at end of
period
(thousands) $25,607 26,698 29,286 32,734 34,072
Ratio of
expenses to
average net
assets-1 1.07% 1.05% 1.20% 1.18% 1.23%
Net
investment
income to
average
net assets 3.91% 4.20% 4.32% 4.49% 3.98%
Portfolio
turnover 20% 44% 39% 56% 175%
Money Market
Years ended September 30,
1998 1997 1996 1995 1994
Net asset
value
beginning
of period $ 1.00 1.00 1.00 1.00 1.00
Net
investment
income $ 0.03 0.03 0.03 0.03 0.02
Net
realized &
unrealized
gains
(losses) on
securities $ -- -- -- -- --
Total from
investment
operations $0.03 0.03 0.03 0.03 0.02
Distributions
from net
investment
income $(0.03)(0.03) (0.03) (0.03) (0.02)
Distributions
from capital
gains $ -- -- -- -- --
Total
distributions$(0.03)(0.03) (0.03) (0.03) (0.02)
Net asset
value end
of period $ 1.00 1.00 1.00 1.00 1.00
Total
Return 2.75% 2.71% 2.63% 2.87% 1.56%
Net assets
at end of
period
(thousands) $7,270 6,852 7,499 8,454 8,916
Ratio of
expenses to
average net
assets-1 0.85% 0.83%-2 0.88%-2 0.81% 0.81%
Net
investment
income to
average
net assets 2.70% 2.68%-3 2.59%-3 2.83% 1.52%
1 For the years ended September 30, 1997 and 1996, the ratio reflects fee
paid indirectly.
2 For the years ended September 30, 1997 and 1996, the ratio of expenses
before expenses incurred and paid by the investment advisor to average net
assets would have been 0.95% and 1.15%, respectively, for such years.
3 For the years ended September 30, 1997 and 1996, the ratio of net
investment income before expenses incurred and paid by the investment advisor
to average net assets would have been 2.56% and 2.32%, respectively, for
such years.
<PAGE>
Mosaic Tax-Free Trust
Notes to Financial Statements
For the Year Ended September 30, 1998
1. Summary of Significant Accounting Policies. Mosaic Tax-Free Trust (the
"Trust"), known as GIT Tax-Free Trust before May 12, 1997, is registered with
the Securities and Exchange Commission under the Investment Company Act of 1940
as an open-end, diversified investment management company. The Trust maintains
six separate funds (described in the following sentences and defined as the
"Funds") which invest principally in securities exempt from federal income
taxes, commonly known as "municipal" securities. The Arizona, Maryland,
Missouri and Virginia Funds (the "State Funds") invest solely in securities
exempt from both federal and state income taxes in their respective states.
The National Fund invests in securities exempt from federal taxes. The
National Fund and the State Funds invest in long-term securities. The Money
Market Fund invests in short-term securities and is priced according to the
"penny rounding" method whereby the share price is rounded to the nearest
cent to maintain a stable share price of $1.00. The State and National
Funds' price per share fluctuates with the market value of the respective
underlying portfolio of securities. Because the Trust is 100% no-load, the
shares of each fund are offered and redeemed at the net asset value per share.
Securities Valuation: Securities having maturities of 60 days or less are
valued at amortized cost, which approximates market value. Securities
having longer maturities, for which market quotations are readily available
are valued at the mean between their bid and asked prices. Securities for
which market quotations are not readily available are valued at their fair
value as determined in good faith by the trustees. Investment transactions
are recorded on the trade date.
The cost of investments sold is determined on the identified cost basis for
financial statement and federal income tax purposes.
Investment Income: Interest income, net of amortization of premium and original
issue discount, and other income (if any) is recorded as earned.
Dividends: Net investment income, determined as gross investment income less
expenses, is declared as a regular dividend each business day. Dividends are
distributed to shareholders or reinvested in additional shares as of the close
of business at the end of each month. Capital gain dividends, if any, are
declared and paid annually in December. Additional distributions may be made if
necessary.
Income Tax: In accordance with the provisions of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies, all taxable income,
if any, of each fund is distributed to its shareholders. Therefore, no federal
income tax provision is required. As of September 30, 1998, capital loss
carryovers available to offset future capital gains for federal income tax
purposes were $251,700 for the Arizona Fund; $176,651 for the Maryland Fund;
$29,189 for the Missouri Fund; $267,977 for the Virginia Fund; and $1,502,429
for the National Fund. The preceding carryovers expire from September 30, 2003
through September 30, 2004.
Use of Estimates: The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. Such estimates affect the reported amounts of assets and
liabilities and reported amounts of increases and decreases in net assets from
operations during the reporting period. Actual results could differ from those
estimates.
Change of Independent Auditor: Effective for fiscal years beginning on and after
October 1, 1996, the Trust's Independent Auditor is Deloitte & Touche LLP.
Financial information appearing in this Annual Report for fiscal years begin-
ning prior to October 1, 1996 was audited by another independent auditor.
2. Investment Advisory Fees and Other Transactions with Affiliates. The
investment advisor to the Trust, Madison Mosaic, LLC, a wholly owned subsidiary
of Madison Investment Advisors, Inc., ("the Advisor"), earns an advisory fee
equal to 0.63% per annum of the average net assets of the State and National
Funds and 0.5% per annum of the average net assets of the Money Market. The
fees are accrued daily and are paid monthly.
3. Other Expenses. Effective October 1, 1997, all expenses and support
services are provided by the Advisor under a Services Agreement for fees based
on a percentage of average net assets that is accrued daily and paid monthly.
This percentage is 0.49% for the Arizona Fund, 0.51% for the Maryland Fund,
0.47% for the Missouri Fund, 0.39% for the Virginia Fund, 0.44% for the
National Fund and 0.36% for the Money Market Fund.
The Advisor is responsible for the fees and expenses of trustees who are
affiliated with the Advisor and certain promotional expenses.
4. Aggregate Cost and Unrealized Appreciation. The aggregate cost for federal
income tax purposes and the net unrealized appreciation are stated as follows
as of September 30, 1998:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Arizona Maryland Missouri Virginia National Money
Fund Fund Fund Fund Fund Market Fund
Aggregate cost $7,799,143 $1,896,144 $11,329,905 $29,807,597 $23,267,745 $7,042,636
Gross unrealized appreciation 545,664 124,387 751,076 2,229,381 1,987,655 3,367
Gross unrealized depreciation -- -- -- -- -- --
Net unrealized appreciation 545,664 124,387 751,076 2,229,381 1,987,655 3,367
</TABLE>
5. Net Assets. At September 30, 1998, net assets included the following:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Arizona Maryland Missouri Virginia National Money
Fund Fund Fund Fund Fund Market Fund
Paid in capital $8,331,200 $2,165,260 $11,280,344 $30,650,719 $25,121,522 $7,266,602
Accumulated net realized losses (251,700) (176,651) (29,189) (267,977) (1,502,429) --
Net unrealized appreciation of
investments 545,664 124,387 751,076 2,229,381 1,987,655 3,367
Total net assets $8,625,164 $2,112,996 $12,002,231 $32,612,123 $25,606,748 $7,269,969
</TABLE>
6. Investment Transactions. Purchases and sales of securities other than
short-term securities, for the year ended September 30, 1998, were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Arizona Maryland Missouri Virginia National
Fund Fund Fund Fund Fund
Purchases $2,164,292 $613,045 $3,490,292 $10,208,215 $5,189,997
Sales 2,513,391 608,870 2,746,084 11,192,176 6,293,782
</TABLE>
7. Capital Share Transactions. An unlimited number of capital shares, without
par value, are authorized. Transactions in capital shares for the years ended
September 30 were as follows:
<TABLE>
<CAPTION> Arizona Fund Maryland Fund Missouri Fund
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
In Dollars
Shares sold $1,005,335 $ 666,047 $ 487,888 $ 766,040 $ 628,962 $1,704,174
Shares issued in reinvestment
of dividends 257,733 289,326 76,992 76,269 415,551 428,836
Total shares issued 1,263,068 955,373 564,880 842,309 1,044,513 2,133,010
Shares redeemed (1,613,992) (1,527,982) (599,363) (843,122) (961,074) (2,292,842)
Net increase (decrease) $ (350,924)$ (572,609) $(34,483) $ (813) $(83,439 $ (159,832)
In Shares
Shares sold 95,174 64,807 48,324 77,959 59,077 164,166
Shares issued in reinvestment
of dividends 24,415 28,120 7,620 7,759 39,010 41,465
Total shares issued 119,589 92,927 55,944 85,718 98,087 205,631
Shares redeemed (153,470) (148,830) (59,419) (86,058) (90,706) (222,102)
Net increase (decrease) (33,881) (55,903) (3,475) (340) 7,381 (16,471)
</TABLE>
<TABLE>
<CAPTION>
Virginia Fund National Fund Money Market Fund
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
In Dollars
Shares sold $3,593,165 $4,270,549 $2,654,150 $2,161,833 $5,471,204 $5,684,463
Shares issued in reinvestment
of dividends 1,141,294 1,262,506 910,359 1,075,273 177,642 187,148
Total shares issued 4,734,459 5,533,055 3,564,509 3,237,106 5,648,846 5,871,611
Shares redeemed (5,741,707)(7,275,604) (5,560,314) (6,714,644) (5,233,979) (6,519,404)
Net increase (decrease) $(1,007,248)$(1,742,549) $(1,995,805) $(3,477,538) $ (414,867) $(647,793)
In Shares
Shares sold 306,607 377,392 247,074 208,047 5,471,204 5,684,463
Shares issued in reinvestment
of dividends 97,417 111,204 84,498 103,207 177,642 187,148
Total shares issued 404,024 488,596 331,572 311,254 5,648,846 5,871,611
Shares redeemed (490,342) (642,474) (517,305) (645,357) (5,233,979) (6,519,404)
Net increase (decrease) (86,318) (153,878) (185,733) (334,103) 414,867 (647,793)
</TABLE>
Mosaic Tax-Free Trust
Special Information
(Unaudited)
September 30, 1998
Pursuant to Section 852 of the Internal Revenue Code of 1986, as amended, the
following are designated as tax-exempt dividends: $359,140 for the Arizona
Fund; $86,710 for the Maryland Fund; $481,747 for the Missouri Fund;
$1,377,590 for the Virginia Fund; $1,024,415 for the National Fund; and
$184,342 for the Money Market Fund.
In January 1999, shareholders of the Tax-Free Trust will receive Federal income
tax information on all distributions paid to their accounts in calendar year
1998, including any distributions paid between September 30, 1998 and December
31, 1998.
