As Filed with the
Commission on January 27, 1998
Registration No. 2-77986
SEC File No. 811-3486
Securities and Exchange Commission
Washington, D.C.
FORM N-1A
Registration Statement Under the Securities Act of 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 22 [X]
and/or
Registration Statement Under the Investment Company Act
of 1940 [X]
Amendment No. 24
Mosaic Tax-Free Trust
(Exact Name of Registrant as Specified in Charter)
1655 Fort Myer Drive, Arlington, Virginia 22209
Registrant's Telephone Number: (703) 528-3600
W. Richard Mason, Secretary
Mosaic Tax-Free Trust
1655 Fort Myer Drive
Arlington, Virginia 22209
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[X] on February 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Title of Securities Being Registered: Mosaic Tax-Free Trust (National
Fund, Tax-Free Money Market, Arizona Fund, Maryland Fund, Missouri Fund
and Virginia Fund).
<PAGE>
Cross-Reference Sheet
Form N1-A
Part A, Information Required in a Prospectus
Item 1 Inside cover Page
Item 2 Expense Summary
Item 3 Financial Highlights
Item 4 Inside cover, About Mosaic Tax-Free Trust,
Investment Objective, Investment Considerations,
Fund Specific Considerations, Specialized Investment
Techniques
Item 5 Management of the Trust
Item 5A Incorporated by reference in the
Registrant's annual report
Item 6 The Trust and Its Shares, Dividends,
Performance Information, Taxes
(including Federal Tax Considerations
and State Tax Considerations), Net
Asset Value, Shareholder Account
Transactions and rear cover page
Item 7 How to Purchase Additional Shares and How to Open
A New Account
Item 8 How to Redeem Shares
(Additional Charges and Closing An Account)
Item 9 Not applicable
Part B, Items Required in a Statement of
Additional Information
Item 10 Cover page
Item 11 Table of Contents (Cover page)
Item 12 Introductory Information
Item 13 Supplemental Investment Policies,
Investment Limitations
Item 14 The Investment Advisor
Item 15 Organization of the Trust, Trustees and
Officers
Item 16 The Investment Advisor, Administrative
and Other Expenses, Custodians and
Special Custodians
Item 17 Portfolio Transactions
Item 18 Organization of the Trust
Item 19 Shareholder Transactions, Redemptions,
Declaration of Dividends, Determination
of Net Asset Value
Item 20 Additional Tax Matters
Item 21 Not applicable
Item 22 Yield and Total Return Calculations
Item 23 Annual and Semi-Annual Reports are
incorporated by reference and discussed
in Financial Statements and Independent
Auditors' Report, Legal Matters & Inde-
pendent Auditors, Additional Information
Part C, Other Information
Items 24 through 32 follow Part B
<PAGE>
Prospectus/February 1, 1998
1655 Fort Myer Drive, Arlington, Virginia 22209-3108
Mosaic Tax-Free Trust
Arizona Fund Missouri Fund National Fund
Maryland Fund Virginia Fund Tax-Free Money Market
Mosaic Tax-Free Trust (formerly known as GIT Tax-Free Trust) is a mutual
fund whose goal is to provide its investors dividend income free of
income tax. The Trust seeks to achieve its objectives through
investment in tax-free municipal securities.
The Arizona, Maryland, Missouri and Virginia Funds. For long-term
investing to obtain dividend income free of both federal and state
income tax for those who purchase shares in the fund of their home
state. Value per share may increase or decrease due to fluctuations in
the market value of fund securities.
The National Fund. For long-term investing to obtain higher yields free
of federal income tax. Value per share may increase or decrease due to
fluctuations in the market value of fund securities.
Tax-Free Money Market. For short-term investing to obtain high income
free of federal income tax with liquidity and relative safety of
principal. Yield varies daily. The fund is managed for a stable $1.00
per share price, although there is no assurance that this price per
share can be maintained on a continuous basis. Investments in the Trust
are neither insured nor guaranteed by the United States government.
This Prospectus is intended to be a concise statement of information
which investors should know before investing. After reading the
Prospectus, it should be retained for future reference. A paper copy of
the prospectus is available to investors who received an electronic
prospectus without charge by calling or writing the Trust.
A Statement of Additional Information concerning the Trust bearing the
same date as this prospectus has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. It is
available without charge by calling or writing the Trust. The
Commission maintains a worldwide web site that contains reports, proxy
information statements and other information regarding the Trust at
http://www.sec.gov.
<i>Shares of the Trust are not deposits or obligations of, or guaranteed
or endorsed by, any bank. Shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency.</i>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Madison Mosaic
Investment Advisor
<PAGE>
TABLE OF CONTENTS
Features 3
Expense Summary 3
Financial Highlights 4
About Mosaic Tax-Free Trust 6
Investment Objective 6
Investment Policies 6
Management of the Trust 9
The Trust and Its Shares 10
Dividends 10
Performance Information 10
Taxes 11
Net Asset Value 12
Shareholder Account Transactions 12
How to Open a New Account 13
How to Purchase Additional Shares 13
How to Redeem Shares 14
Other Fees and Services 15
Custodian
Star Bank N.A.
Cincinnati, OH 45202
Independent Auditors
Deloitte & Touche LLP
Telephone Numbers
Shareholder Services
Washington, DC area: 703-528-6500
Toll-free nationwide: 888-670-3600
Mosaic Tiles (24-hour automated information)
Toll-free nationwide: 800-336-3063
<PAGE>
Features
o No commissions or sales charges
o Invest or withdraw funds by mail, wire
transfer or in person
o No "12b-1" fees
o Tax-free dividends from day of investment
to day of withdrawal
o Check-writing privileges
o Telephone exchange and redemption
o $1,000 minimum investment
Expense Summary
The following table describes certain expenses attributable to the Trust
and to a hypothetical investment in each fund.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Arizona Maryland Missouri Virginia National Money
Fund Fund Fund Fund Fund Market
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None None None None None None
Maximum Sales Load Imposed on Reinvested
Dividends........................... None None None None None None
Deferred Sales Load.................... None None None None None None
Redemption Fees........................ None None None None None None
Exchange Fee........................... None None None None None None
Annual Fund Operating Expenses
<i>(as a percentage of average net assets)</i>
Management Fees........................ 0.63% 0.63% 0.63% 0.63% 0.63% 0.50%
12b-1 Fees............................. None None None None None None
Other Expenses......................... 0.48% 0.49% 0.39% 0.42% 0.42% 0.33%*
Total Fund Operating Expenses....... 1.11% 1.12% 1.02% 1.05% 1.05% 0.83%
Example:
You would pay the following
expenses on a $1,000 investment,
assuming (1) five percent annual
return and (2) redemption at the
end of each time period.
1 year......................... $11 $11 $10 $11 $11 $8
3 years........................ $35 $36 $32 $33 $33 $26
5 years........................ $61 $62 $56 $58 $58 $46
10 years....................... $135 $136 $125 $128 $128 $103
</TABLE>
*After expense reimbursements
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor will bear directly or
indirectly in connection with an investment in a fund (see also
"Management of the Trust").
The "Annual Fund Operating Expenses" shown for the Money Market was
reduced because the Advisor waived the billing of certain reimbursable
expenses. Had such costs been incurred by the Money Market, its "Other
Expenses" would have been 0.45%, which would have made its "Total Fund
Operating Expenses" 0.95%.
The hypothetical example shown above is based on the restated expense
levels for the year ended September 30, 1997 listed under the caption
"Annual Fund Operating Expenses" and is intended to provide the investor
with an understanding of the level of expenses that might be incurred in
the future. The five percent return used in the example is arbitrary
and is for illustrative purposes only; it should not be considered
representative of the Trust's past or future performance, nor should the
expenses in the example be considered representative of future expenses,
which may actually be greater or less than those shown. Additional fees
and transaction charges described elsewhere in this prospectus, if
applicable, will increase the level of expenses that can be incurred
(fees for certain wire transfers, stop payments on checks, and bounced
investment checks are described on pages 12-15).
Financial Highlights
The financial highlights data for a share outstanding and other
performance information for the fiscal year ended September 30, 1997
appearing below is derived from the financial statements audited by
Deloitte & Touche LLP, independent auditors, whose report appears in the
Annual Report to Shareholders. This report is also available by calling
or writing the Trust. The per share information for the fiscal years
ended September 30, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995 and
1996 has been derived from the financial statements audited by Ernst &
Young LLP.
<TABLE>
<CAPTION>
Arizona Fund
Years ended September 30,
<C> <C> <C> <C> <C> <C> <C> <C>
1997 1996-1 1995 1994 1993 1992 1991 1990*
Net asset
value
beginning
of period $10.153 10.113 9.706 11.208 10.568 10.187 9.703 10.000
Net
investment
income $0.466 0.444 0.440 0.436 0.490 0.528 0.569 0.590
Net
realized &
unrealized
gains
(losses) on
securities $0.295 0.040 0.407 (1.102) 0.786 0.434 0.484 (0.297)
Total from
investment
operations $0.761 0.484 0.847 (0.666) 1.276 0.962 1.053 0.293
Distributions
from net
investment
income $(0.466)(0.444)(0.440)(0.436)(0.490)(0.528)(0.569)(0.590)
Distributions
from capital
gains $ -- -- -- (0.400)(0.146)(0.053) -- --
Total
Distributions$(0.466)(0.444)(0.440)(0.836)(0.636)(0.581)(0.569)(0.590)
Net asset
value end
of period $10.448 10.153 10.113 9.706 11.208 10.568 10.187 9.703
Total
Return 7.67% 4.85% 8.95% (6.20)%12.57% 9.74% 11.11% 3.25%-3
Net assets
at end of
period
(thousands) $ 8,746 9,066 10,009 11,815 15,471 11,911 8,061 3,831
Ratio of
expenses to
average net
assets-2 1.11% 1.35% 1.31% 1.29% 1.23% 1.15% 0.47% --
Net
investment
income to
average
net assets 4.54% 4.35% 4.48% 4.23% 4.54% 5.14% 5.61% 6.59%-3
Portfolio
turnover 32% 9% 24% 67% 63% 23% 57% 14%
</TABLE>
* For the period from October 13, 1989 (inception) to September 30, 1990.
Maryland Fund
<TABLE>
Years ended September 30,
<S> <C> <C> <C> <C> <C>
1997 1996-1 1995 1994 1993*
Net asset
value
beginning
of period $ 9.714 9.738 9.323 10.441 10.000
Net
investment
income $ 0.421 0.405 0.418 0.455 0.274
Net
realized &
unrealized
gains
(losses) on
securities $ 0.284(0.024) 0.415 (1.102) 0.441
Total from
investment
operations $0.705 0.381 0.833 (0.647) 0.715
Distributions
from net
investment
income $(0.421)(0.405)(0.418)(0.455)(0.274)
Distributions
from capital
gains $ -- -- -- (0.016) --
Total
Distributions$(0.421)(0.405)(0.418)(0.471)(0.274)
Net asset
value end
of period $ 9.998 9.714 9.738 9.323 10.441
Total
Return 7.42% 3.96% 9.17% (6.33)%11.91%-3
Net assets
at end of
period
(thousands) $2,098 $2,042 2,880 3,083 3,377
Ratio of
expenses to
average net
assets-2 1.12% 1.28% 0.87% 0.64% 0.20%-3
Net
investment
income to
average
net assets 4.29% 4.12% 4.42% 4.60% 4.72%-3
Portfolio
turnover 15% 21% 9% 78% 35%
</TABLE>
* For the period from February 10, 1993 (inception)
to September 30, 1993.
Missouri Portfolio
<TABLE>
Years ended September 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996-1 1995 1994 1993 1992 1991 1990*
Net asset
value
beginning
of period $10.220 10.133 9.728 11.173 10.468 10.117 9.684 10.000
Net
investment
income $0.460 0.438 0.436 0.437 0.494 0.514 0.585 0.580
Net
realized &
unrealized
gains
(losses) on
securities $0.311 0.087 0.405 (1.058) 0.726 0.377 0.433 (0.316)
Total from
investment
operations $0.771 0.525 0.841 (0.621) 1.220 0.891 1.018 0.264
Distributions
from net
investment
income $(0.460)(0.438)(0.436)(0.437)(0.494)(0.514)(0.585)(0.580)
Distributions
from capital
gains $ -- -- -- (0.387)(0.021)(0.026) -- --
Total
Distributions$(0.460)(0.438)(0.436)(0.824)(0.515)(0.540)(0.585)(0.580)
Net asset
value end
of period $10.531 10.220 10.133 9.728 11.173 10.468 10.117 9.684
Total
Return 7.72% 5.24% 8.87% (5.80)%11.98% 9.06% 10.80% 2.94%-3
Net assets
at end of
period
(thousands) $11,553 11,381 11,394 11,490 14,001 11,023 7,227 4,079
Ratio of
expenses to
average net
assets-2 1.02% 1.34% 1.31% 1.29% 1.23% 1.18% 0.45% --
Net
investment
income to
average
net assets 4.45% 4.27% 4.43% 4.23% 4.59% 5.05% 5.85% 6.56%-3
Portfolio
turnover 41% 21% 16% 52% 65% 8% 33% 3%
</TABLE>
* For the period from October 12, 1989 (inception) to September 30, 1990.
Virginia Portfolio
<TABLE>
Years ended September 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996-1 1995 1994 1993 1992 1991 1990 1989 1988*
Net asset
value
beginning
of period $11.209 11.115 10.631 12.372 11.621 11.351 10.832 10.891 11.051 10.000
Net
investment
income $ 0.515 0.508 0.503 0.479 0.569 0.592 0.609 0.624 0.625 0.714
Net
realized &
unrealized
gains
(losses) on
securities $0.355 0.094 0.484 (1.146) 0.871 0.387 0.519 (0.059)(0.023) 1.051
Total from
investment
operations $0.870 0.602 0.987 (0.667) 1.440 0.979 1.128 0.565 0.602 1.765
Distributions
from net
investment
income $(0.515)(0.508)(0.503)(0.479)(0.569)(0.592)(0.609)(0.624)(0.625)(0.714)
Distributions
from capital
gains $ -- -- -- (0.595)(0.120)(0.117) -- -- (0.137) --
Total
Distributions$(0.515)(0.508)(0.503)(1.074)(0.689)(0.709)(0.609)(0.624)(0.762)(0.714)
Net asset
value end
of period $11.564 11.209 11.115 10.631 12.372 11.621 11.351 10.832 10.891 11.051
Total
Return 7.95% 5.50% 9.54% (5.67)%12.85% 8.92% 10.66% 5.28% 5.61% 19.23%-3
Net assets
at end of
period
(thousands) $32,614 33,340 33,822 35,550 44,092 37,421 30,696 24,607 20,471 18,622
Ratio of
expenses to
average net
assets-2 1.05% 1.20% 1.14% 1.18% 1.10% 1.13% 1.18% 1.25% 1.22% 0.72%-3
Net
investment
income to
average
net assets 4.55% 4.53% 4.68% 4.23% 4.80% 5.20% 5.47% 5.69% 5.71% 6.41%**
Portfolio
turnover 28% 28% 55% 104% 80% 74% 73% 11% 34% 58%
</TABLE>
* For the period from October 13, 1987 (inception
to September 30, 1988.
National Portfolio*
<TABLE>
Years ended September 30,
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net asset
value
beginning
of period $10.286 10.211 9.851 11.910 11.329 10.794 10.364 10.597 10.757 10.376
Net
investment
income $ 0.437 0.446 0.446 0.420 0.550 0.605 0.632 0.693 0.728 0.758
Net
realized &
unrealized
gains
(losses) on
securities $0.338 0.075 0.360 (1.122) 0.793 0.535 0.430 (0.233)(0.160) 0.381
Total from
investment
operations $0.775 0.521 0.806 (0.702) 1.343 1.140 1.062 0.460 0.568 1.139
Distributions
from net
investment
income $(0.437)(0.446)(0.446)(0.420)(0.550)(0.605)(0.632)(0.693)(0.728)(0.758)
Distributions
from capital
gains $ -- -- -- (0.937)(0.212) -- -- -- -- --
Total
Distributions$(0.437)(0.446)(0.446)(1.357)(0.762)(0.605)(0.632)(0.693)(0.728)(0.758)
Net asset
value end
of period $10.624 10.286 10.211 9.851 11.910 11.329 10.794 10.364 10.597 10.757
Total
Return 7.70% 5.17% 8.40% (6.25)%12.44% 10.83% 10.50% 4.38% 5.44% 11.31%
Net assets
at end of
period
(thousands) $26,698 29,286 32,734 34,072 42,483 41,273 40,352 40,360 41,051 39,833
Ratio of
expenses to
average net
assets-2 1.05% 1.20% 1.18% 1.23% 1.10% 1.17% 1.24% 1.24% 1.19% 1.16%
Net
investment
income to
average
net assets 4.20% 4.32% 4.49% 3.98% 4.83% 5.47% 5.95% 6.54% 6.78% 7.15%
Portfolio
turnover 44% 39% 56% 175% 212% 114% 91% 41% 58% 77%
</TABLE>
Money Market Portfolio
<TABLE>
Years ended September 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996-1 1995 1994 1993 1992 1991 1990 1989 1988
Net asset
value
beginning
of period $ 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
Net
investment
income $ 0.027 0.026 0.028 0.015 0.020 0.030 0.040 0.050 0.050 0.040
Net
realized &
unrealized
gains
(losses) on
securities $ -- -- -- -- -- -- -- -- -- --
Total from
investment
operations $ 0.027 0.026 0.028 0.015 0.020 0.030 0.040 0.050 0.050 0.040
Distributions
from net
investment
income $(0.027)(0.026)(0.028)(0.015)(0.020)(0.030)(0.040)(0.050)(0.050)(0.040)
Distributions
from capital
gains $ -- -- -- -- -- -- -- -- -- --
Total
distributions$(0.027)(0.026)(0.028)(0.015)(0.020)(0.030)(0.040)(0.050)(0.050)(0.040)
Net asset
value end
of period $ 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
Total
Return 2.71% 2.63% 2.87% 1.56% 1.53% 2.57% 4.13% 5.36% 4.26% 4.26%
Net assets
at end of
period
(thousands) $6,852 7,499 8,454 8,916 13,391 14,861 17,844 23,463 24,965 22,256
Ratio of
expenses to
average net
assets-2 0.83% 0.88% 0.81% 0.81% 0.81% 0.83% 0.81% 0.81% 0.82% 0.84%
Net
investment
income to
average
net assets 2.68% 2.59% 2.83% 1.52% 1.52% 2.55% 4.12% 5.22% 5.51% 4.35%
Portfolio
turnover -- -- -- -- -- -- -- -- -- --
</TABLE>
1 Effective July 31, 1996, pursuant to shareholder approval, the
investment advisory function was transferred to Madison Mosaic from
Bankers Finance Investment Management Corp.
2 For the year ended September 30, 1996, ratio reflects custodians fees
paid indirectly.
3 Annualized.
For the years ended September 30, 1997, 1996, 1995, 1994, 1993, 1992 and
1991, the Advisor waived the billing of certain reimbursable expenses
with respect to the Money Market Fund. Had the Advisor not waived such
expenses during these periods for the Money Market Fund, the ratio of
expenses to average net assets would have been 0.95%*, 1.15%*, 1.07%,
1.02%, 1.03%, 1.02% and 1.01%, respectively, and the ratio of net
investment income to average net assets would have been 2.56%, 2.32%,
2.56%, 1.31%, 1.30%, 2.36% and 3.91%, respectively. For the years ended
September 30, 1996, 1995 and 1994 and for the period from February 10,
1993 to September 30, 1993, the Advisor deferred the billing of certain
reimbursable expenses and waived the advisory fee with respect to the
Maryland Fund. Had the Advisor not waived or deferred such expenses,
the Maryland Fund's annualized ratio of expenses to average net assets,
for the years ended September 30, 1996, 1995 and 1994 and for the period
from February 10, 1993 to September 30, 1993, would have been 1.86%*,
1.50%, 1.34% and 1.74%, respectively, and the annualized ratio of net
investment income to average net assets would have been 3.54%, 3.80%,
3.90% and 3.18%, respectively.
*Reflects custodian fees paid indirectly
About Tax-Free Trust
Mosaic Tax-Free Trust ("the Trust") is a diversified open-end management
investment company, commonly known as a "mutual fund." Mosaic Tax-Free
Trust was organized as a Massachusetts business trust under a
Declaration of Trust dated June 8, 1982. The Trust is managed by
Madison Mosaic, a wholly-owned subsidiary of Madison Investment
Advisors, Inc. (the "Advisor") of the same address as the Trust.
Only shares in the Trust's Arizona Fund, Maryland Fund, Missouri Fund,
Virginia Fund, National Fund and Money Market are offered by this
prospectus. (References hereinafter to the "fund" or each "fund"
pertain only to these six funds, unless specifically stated otherwise.)
The Trust may offer additional funds which are managed independently.
Currently, there are no such additional portfolios.
Investment Objective
The objective of each fund is to receive income from municipal
securities and to distribute that income to its investors as tax-free
dividends. Dividends from the Arizona, Maryland, Missouri and Virginia
Funds are intended to be exempt from state as well as federal income
taxes for those who invest in the fund of their home state. There can
be no assurance that the objective of any fund will be achieved.
Each fund seeks to achieve its objective consistent with the quality
rating guidelines described in this prospectus and with the intention to
maintain shareholder liquidity. Although the investment objective of
any fund may be changed without shareholder approval, shareholders will
be notified in writing prior to any material change.
Investment Policies
Each fund seeks to achieve its objective through diversified investment
in municipal securities. For the Arizona, Maryland, Missouri and
Virginia Funds, such securities, in the opinion of counsel to the
issuer, are exempt from federal and state income tax for residents of
the state of issue. For the National and Money Market Funds, such
securities, in the opinion of counsel to the issuer, are exempt from
federal income tax. These securities may be issued by state
governments, their political subdivisions, municipalities and public
authorities. Investment may also be made in securities that pay
interest which, under federal law, is exempt from federal and state
income taxation, such as securities issued by the District of Columbia,
Puerto Rico, the Virgin Islands and Guam.
As a fundamental policy that cannot be changed without shareholder
approval, the Arizona, Maryland, Missouri and Virginia Funds each will
seek to maintain its tax exempt status by meeting the requirement that
80 percent of the fund's assets be invested in securities whose income
is exempt from both federal and its respective state income tax, while
the National and Money Market Funds each will seek to maintain its tax
exempt status by meeting the requirement that 80 percent of assets be
invested in securities whose income is exempt from federal tax. Under
normal circumstances, it is expected that 100 percent of each fund will
be invested in such tax-exempt securities.
In order to ensure diversification, the Trust's fundamental policies
stipulate certain restrictions. No more than 5 percent of each fund's
assets may be invested in the securities of one issuer (excluding U.S.
Government securities and certain instruments issued by domestic banks).
No more than 25 percent of each fund's assets may be invested in issuers
in a single industry. No more than 10 percent of any fund's assets may
be invested in illiquid securities, including restricted securities,
repurchase agreements that cannot be terminated within seven days,
privately arranged loans (to the extent these are considered illiquid)
and securities for which market quotations are not readily available.
No fund may borrow, except as a temporary measure for extraordinary
purposes, and then only in amounts not exceeding 5 percent of its net
assets. These fundamental policies cannot be changed without a
shareholder vote.
The Trust may invest more than 5 percent of the net assets of any fund
in municipal lease obligations which are determined, based on guidelines
adopted by the Trustees for making such determinations, to be liquid for
purposes of the Trust's 10 percent limitation on investments in illiquid
securities. These guidelines require consideration of the frequency of
trades, nature of and number of dealers in the market for such
obligations and assurance that their marketability will be maintained
throughout the time the instrument is held.
Although the funds do not intend to engage in short-term trading, the
Advisor is free to alter the composition of any fund with regard to
quality and maturity, and it may sell securities prior to maturity.
Turnover for each fund is generally not expected to exceed 100% (except
for the Money Market for which turnover statistics are inappropriate).
Sales of fund securities may result in realized gains and losses which
are not exempt from taxation.
Each fund other than the Money Market invests in long-term securities,
which normally provide a higher return than comparably rated shorter-
term securities, but have a greater tendency to fluctuate in value as
interest rates change. Any of these funds may have an average maturity
of 20 years or more. Average maturities of 15 to 20 years may be more
typical, and an average maturity of 10 years or less may be appropriate
in some market conditions.
Arizona, Maryland, Missouri and Virginia Funds. The lowest grade
securities in which any fund will make an investment are Medium Grade
securities. (BBB or greater, as such quality rating term is defined in
the Statement of Additional Information.)
National Fund. The Advisor intends to invest the majority of the
National Fund in Medium Grade securities, with the remainder of the fund
in High Grade securities.
Money Market. The Money Market invests in High Grade municipal
securities having a maximum effective maturity of 13 months. It will
not purchase any investment which at the time of purchase would cause
the average effective maturity of the fund to exceed 90 days. The
Advisor intends to manage the fund in accordance with current
regulations of the Securities and Exchange Commission applicable to
funds seeking to maintain a constant price per share of $1.00. There is
no assurance that the fund will be able to maintain a constant share
price of $1.00.
Investment Considerations
The value of shares purchased in each fund other than the Money Market
will fluctuate due to changes in the value of securities held by such
fund. At the time an investor redeems shares, they may be worth more or
less than their original cost. While dividend income is expected to be
tax-free, gains and losses incurred when shares are sold will have tax
consequences for the investor.
The Money Market is intended to maintain a constant share price of
$1.00. This $1.00 share price has been maintained since inception, but
there can be no assurance that this price will be maintained in the
future.
Municipal securities tend to increase in value when prevailing interest
rates fall, and to decrease in value when prevailing interest rates
rise. Longer maturities increase the magnitude of these changes.
Investments with the highest yields may have longer maturities or lower
quality ratings than other investments, increasing the possibility of
fluctuations in value per share. Municipal securities may be subject to
call features which could affect yield.
Each fund other than the Money Market may invest in Medium Grade
securities. For these securities, factors giving security to principal
and interest are considered adequate for the present, but certain
protective elements may be lacking or may be unreliable over the long
run. These securities may have speculative characteristics. If any
issuer of securities held by a fund is unable to meet its financial
obligations, that fund's income, ability to preserve capital and
liquidity may be adversely affected.
Tax-exempt securities generally are subject to credit risks, such as
possible default, and the marketability of such securities may be
generally limited, making it difficult to dispose of large investments
advantageously.
The tax-exempt status of municipal securities could be affected by
future changes in the tax laws or by the errors and omissions of issuers
or their counsel. Under certain extraordinary conditions, the Advisor
may find it advisable to make investments that result in income subject
to federal or state taxation.
Fund-Specific Considerations
Arizona, Maryland, Missouri and Virginia Funds. Since each fund will
invest primarily in securities issued by one state, each fund is
susceptible to changes in value due to political and economic factors
affecting its state. A municipal bond fund which is not concentrated in
one state would be less susceptible to such risks.
Arizona Fund. Arizona's economy is based primarily on tourism,
government, retail trade, construction and manufacturing. The state
economy has experienced strong growth which is expected to begin to
slow. The retail and construction sectors have begun to experience
labor shortages, with unemployment rates in 1997 at their lowest level
since 1984. It is not possible to predict whether these difficulties
might affect the state's finances in the future. The State of Arizona
does not issue general obligation bonds.
Maryland Fund. In recent years, the federal and local government and
the information technology and life-sciences industries (including
health services) have become increasingly important to maintaining the
employment base in Maryland. Government spending reductions, including
defense-related spending cuts, increasing competition concomitant with
the maturation of the information technologies industry and pressures on
health services providers to reduce costs could adversely affect the
Maryland economy to a greater degree than that of other areas.
Maryland's general obligation bonds are characterized by AAA and Aaa
ratings by Standard & Poor's and Moody's, respectively, as of the date
of this prospectus.
Missouri Fund. Missouri has a well-diversified economy based on
manufacturing, commerce, trade, agriculture and mining. Its general
obligation bonds are rated AAA by Standard & Poor's and Aaa by Moody's,
as of the date of this prospectus. While service and trade gains have
offset recent losses in manufacturing-sector employment, the state's
somewhat larger-than-average dependence on manufacturing leaves its
industry vulnerable to possible cutbacks in defense spending.
Virginia Fund. The Virginia economy is based primarily on
manufacturing, government, agriculture, transportation, mining and
tourism. Because of its proximity to Washington, DC, Virginia's economy
has been more sensitive than other states to federal spending
reductions. The Virginia state constitution mandates a balanced budget
and contains certain restrictions on the creation of debt. As of the
date of this prospectus, bonds representing general obligations of the
Commonwealth of Virginia carry ratings of AAA by Standard & Poor's and
Aaa by Moody's.
National Fund. The fund may invest in securities with lower quality
ratings to increase yields. The lowest-rated securities in which the
fund may invest are those rated "B," however, the fund held no
securities rated lower than BBB- as of December 31, 1997, and the
Advisor does not anticipate investing in securities rated lower than
BBB-. In general, securities rated BB or lower are high risk and are
commonly referred to as "junk" bonds.
If any issuer of securities held by any fund is unable to meet its
financial obligations, that fund's income and ability to preserve
capital and liquidity may be adversely affected.
Specialized Investment Techniques
To achieve its objectives, each fund may use certain specialized
investment techniques, including investment in securities with variable
interest rates, "when-issued" securities and securities with "put"
rights. The Trust may also invest in privately arranged loans and
participations, loans of portfolio securities, financial futures
contracts and repurchase agreements. These techniques may involve
certain risks, which are summarized below and are discussed further in
the Statement of Additional Information.
Variable rate securities periodically adjust their rates in a fixed
relationship to a recognized base rate. These securities may offer
higher yields than shorter-term securities and less risk of market
fluctuations than longer-term securities with fixed interest rates.
Variable rate securities may not be rated as to investment quality and
may not have a readily available secondary market, and therefore it
could be difficult to sell them advantageously.
"When-issued" securities are purchased with payment and delivery
scheduled to take place at a future time. Securities purchased for
future delivery may cause changes in the value of a fund, and they do
not accrue interest prior to the settlement date. The yield on such
securities may be less than that available from other securities at the
time of settlement. When engaging in a "when-issued" transaction, the
Trust relies on the other party to complete the transaction and if the
other party fails to do so, the Trust might lose a more advantageous
investment opportunity.
Securities with "put" rights give the Trust the right to resell
securities at a given price within a given time period. If the party
issuing the "put" or a third party acting as guarantor were to fail in
its obligation, the Trust would own securities which would be worth less
than the price at which they were to have been sold with the "put."
Because the cost of a security with "put" rights is higher than a
comparable security without such rights, a fund's investment in
securities with "put" rights decreases a fund's yield.
Management of the Trust
The 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 Trust's affairs. They
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 Trust's outstanding shares.
The Advisor. Madison Mosaic (formerly known as Bankers Finance
Advisors, LLC) is a wholly-owned subsidiary of Madison Investment
Advisors, Inc., 6411 Mineral Point Road, Madison, Wisconsin, 53705
("Madison"). Madison Mosaic manages assets of approximately $200
million in the Mosaic family of mutual funds, which includes stock, bond
and money market portfolios. Madison Investment Advisors, Inc., a
registered investment advisory firm for over 24 years, provides
professional portfolio management services to a number of clients,
including stock and bond mutual funds, and has approximately $3 billion
under management.
The Advisor is responsible for the day-to-day administration of the
Trust's activities. Investment decisions regarding each of the Trust's
portfolios can be influenced in various manners by a number of
individuals. The individuals primarily responsible for the management
of the Trust's Funds are Michael J. Peters and Chris Berberet.
Mr. Peters, portfolio manager and vice president of Madison, was
formerly Vice President and Fixed-Income Portfolio Manager for Wachovia
Asset Management. Prior to his management of mutual fund assets at
Wachovia, Mr. Peters was involved in municipal bond management and
trading for NationsBank. Mr. Peters began managing the Trust's
portfolios on February 20, 1997.
Mr. Berberet, vice president, has served as vice president of Madison
since 1992. Prior to joining Madison, he was the Director of Fixed
Income Management for the ELCA Board of Pensions in Minneapolis,
Minnesota. Mr. Berberet began managing the Trust's portfolios after
July 31, 1996.
The Advisor is controlled by Madison. The Advisor purchased the
investment management assets of Bankers Finance Investment Management
Corp., the Trust's previous investment advisor, effective July 31, 1996.
The Advisor has the same address as the Trust.
Compensation. For its services under its Investment Advisory Agreement
with the Trust, the Advisor receives a fee, payable monthly, calculated
as 5/8 percent per annum of the average daily net assets of each fund
other than the Money Market and 1/2 percent per annum of the average
daily net assets of the Money Market.
Distributor. GIT Investment Services, Inc. of the same address as the
Trust acts as the Trust's Distributor. The Distributor is wholly-owned
by A. Bruce Cleveland, the controlling owner of the Trust's previous
investment advisor.
Services Agreement. Under a separate Services Agreement with the Trust,
the Advisor provides operational and other support services for which it
receives a fixed fee calculated as a percentage of the average daily net
assets of each respective Trust portfolio. The fee is intended to be at
or below the cost of providing such services. Such fee is subject to
annual review and approval by the Trustees. Such fee pays for the
Trust's expenses, including the costs of the following: shareholder
services; legal, custodian and audit fees; trade association
memberships; accounting; certain Trustees' fees and expenses; fees for
registering the Trust's shares; the preparation of prospectuses, proxy
materials and reports to shareholders; and the expense of holding
shareholder meetings.
Transfer Agent and Dividend Paying Agent. The Trust acts as its own
transfer agent and dividend paying agent.
The Trust and Its Shares
Under the terms of the Declaration of Trust, the Trustees may issue an
unlimited number of whole and fractional shares of beneficial interest
without par value for each series of shares authorized by the Trustees.
All shares issued will be fully paid and nonassessable and will have no
preemptive or conversion rights. Under Massachusetts law, shareholders
may, under certain circumstances, be held personally liable for the
Trust's obligations. The Declaration of Trust, however, provides
indemnification out of Trust property for any shareholder held
personally liable for obligations of the Trust.
Shares in six portfolios are currently authorized by the Trustees:
Arizona Tax-Free Fund, Maryland Tax-Free Fund, Missouri Tax-Free Fund,
Virginia Tax-Free Fund, Tax-Free National Fund and Tax-Free Money Market
Fund. Shares of each fund are of a single class, each representing an
equal proportionate share in the assets, liabilities, income and expense
of its fund and each having the same rights as any other share within
the series.
Each share has one vote, and fractional shares have fractional votes.
Except as otherwise required by applicable regulations, any matter
submitted to a vote will be voted on 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. Voting is not cumulative. Blueridge
& Co. controls the Missouri Fund as discussed in the Statement of
Additional Information.
The Trust does not intend to have regular shareholder meetings.
Shareholder inquiries can be made to the offices of the Trust at the
address on the cover of this prospectus.
Dividends
Each fund's net income is declared as dividends each business day.
Dividends are paid in the form of additional shares credited to investor
accounts at the end of each calendar month, unless a shareholder elects
in writing to receive a monthly dividend check. Any net realized
capital gains will be distributed at least annually.
Performance Information
From time to time the Trust advertises its yield, tax equivalent yield
and total return. Such figures are based on historical data and are not
intended to indicate future performance.
For advertising purposes the yield is calculated according to a standard
formula prescribed by the Securities and Exchange Commission. For each
fund other than the Money Market, the formula divides the theoretical
net income per share during a 30-day period by the share price on the
last day of the period.
For the Money Market, the prescribed formula divides the net income
earned on one share during a given seven-day period by the initial value
of that share (normally $1.00) and expresses the result as an annualized
percentage. The Money Market's "effective yield" is calculated in a
similar manner, except that the net income earned during a seven-day
period is assumed to be reinvested at the same rate over a full year.
This calculation results in a slightly higher yield figure which shows
the effect of compounding.
While yield calculations ignore changes in share price, total return
calculations take such changes into account, assuming that dividends and
other distributions are reinvested when paid.
In addition to average annual total returns, the Trust may quote total
returns over various periods and may quote the aggregate total return
for a period. The Trust may also cite the ranking or performance of a
portfolio as reported in the public media or by independent performance
measurement firms.
Further information on the methods used to calculate each fund's yield
and total return may be found in the Trust's Statement of Additional
Information. The Trust's Annual Report contains additional performance
information. A copy of the Annual Report may be obtained without charge
by calling or writing the Trust at the telephone number and address on
the cover of this prospectus.
Taxes
Federal Tax Considerations
For federal income tax purposes, the Trust intends to maintain its
status under Subchapter M of the Internal Revenue Code (the "Code") as a
regulated investment company. It does this by distributing to
shareholders 100 percent of its net income and net capital gains, if
any, for each fund. The Code also requires each fund to distribute at
least 98 percent of net income and capital gains realized from the sale
of investments by calendar year end in order to avoid a four percent
excise tax. The capital gain distribution is determined as of October
31 each year. Capital gain distributions, if any, are taxable to the
shareholder. The Trust will send shareholders an annual notice of
dividends and other distributions paid during the prior year. While
dividends will normally be exempt from income tax, capital gain
distributions are subject to taxation.
Because the share price fluctuates for each fund except the Money
Market, redemption of shares by the investor in such funds creates a
capital gain or loss which has tax consequences. It is the
shareholder's responsibility to calculate the cost basis of shares
purchased. Investors are advised to retain all statements received from
the Trust and to maintain accurate records of their investments.
Investors who fail to provide a valid social security or tax
identification number may be subject to federal withholding at a rate of
31% of dividends and any capital gain distributions. Any fine assessed
against the Trust which results from the investor's failure to provide a
valid social security or tax identification number will be charged
against the investor's account.
The Trust may purchase certain "private activity" bonds the interest on
which could become subject to alternative minimum tax ("AMT").
Shareholders should add any income attributable to these bonds (as
reported by the Trust annually) to other tax preference items and
applicable income adjustments to determine possible liability for AMT.
State Tax Considerations
Under existing laws of Arizona, Maryland, Missouri and Virginia,
dividends derived from their own obligations or from the obligations of
their political subdivisions are exempt from state income tax for their
own residents. Should any fund fail to qualify as a separate "regulated
investment company," this exemption could be unavailable or
substantially limited.
While dividends from these four funds will normally be exempt from
income tax in their respective states, capital gain distributions are
subject to applicable state taxation in Arizona, Missouri and Virginia.
In Maryland, capital gain derived from Maryland obligations is exempt
from Maryland state tax.
Normally, the percentage of the National Fund or the Money Market
invested in the shareholder's home state becomes the percentage of total
dividend income exempt from state taxes.
Net Asset Value
The net asset value per share of each fund is calculated each day the
New York Stock Exchange is open. Net asset value calculations are made
as of the close of the New York Stock Exchange. The net asset value of
the Trust will not be determined on those days the New York Stock
Exchange is closed for trading. The net asset value per share of each
fund is determined by adding the value of all its securities and other
assets, subtracting liabilities and dividing the result by the total
number of outstanding shares for the fund.
For purposes of calculating net asset value, securities for which
current market quotations are readily available are valued at the mean
between their bid and asked prices. Securities having a remaining
effective maturity of 60 days or less are valued at amortized cost,
subject to the Trustees' determination that this method reflects their
fair value. The Trustees may use an independent pricing service for
determination of security values. The Money Market 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.
Shareholder Account Transactions
Please call a Mosaic Account Executive if you have any questions. Our
local number in the Washington, DC area is (703) 528-6500 and our toll-
free nationwide number is (888) 670-3600.
Confirmations and Statements
Daily Transaction Confirmation. All purchases and redemptions are
confirmed in writing with a transaction confirmation. Transaction
confirmations are usually mailed within a day or two after the
transaction is posted to the account.
Quarterly Statement. Quarterly statements are mailed at the end of each
calendar quarter. The statements reflect account activity for the most
recent quarter. At the end of the calendar year, the statement will
reflect account activity for the entire year.
It is strongly recommended that shareholders retain all daily
transaction confirmations until they receive their quarterly statements.
Likewise, shareholders should retain all of the quarterly statements
until they receive the year-end statement showing the activity for the
entire year.
Changes to an Account
To make any changes to an account, it is recommended that shareholders
call an Account Executive to discuss the changes to be made and inquire
about any necessary documentation. Though some changes may be made by
phone, generally, in order to make any changes to an account, Mosaic may
require a written request signed by all of the shareholders with their
signatures guaranteed.
Telephone Transactions. The options to initiate exchanges and certain
redemptions and to obtain account balance information by telephone are
available automatically to all shareholders. Mosaic will employ
reasonable security procedures to confirm that instructions communicated
by telephone are genuine; and if it does not, it may be liable for
losses due to unauthorized or fraudulent transactions. These procedures
can include, among other things, requiring one or more forms of personal
identification prior to acting upon telephone instructions, providing
written confirmations and recording all telephone transactions. Certain
transactions, including account registration changes, must be authorized
in writing.
Certificates. Certificates will not be issued to represent shares in
the Trust.
How to Open a New Account
Minimum initial investment is $1,000.
By Check
New accounts may be opened by completing an application and forwarding
it along with a check payable to Mosaic Funds to:
Mosaic Funds
1655 Fort Myer Drive, Suite 1000
Arlington, VA 22209-3108
By Wire
Please call Mosaic before money is wired to ensure proper and timely
credit.
When a new account is opened by wire, the shareholder is required to
submit a signed application promptly thereafter. Payment of redemption
proceeds is not permitted until a signed application is received in
proper form by Mosaic. Please wire money to:
Star Bank, NA
Cinti/TrustABA # 0420-0001-3
Credit Mosaic Acct # 48038-8883
(Shareholder name and account number)
Wire Fee. There may be a charge of $6.00 for processing incoming wires
of less than $1,000.
By Exchange
Shareholders may open a new account by exchange from an existing account
when the account registration and tax identification number will remain
the same. A new account application is required only when the account
registration or tax identification number will differ from that on the
application for the original account. Exchanges may only be made into
funds that are sold in the shareholder's state of residence.
How to Purchase Additional Shares
Purchase Price. Share prices (net asset values) 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. To protect shareholders from loss or
dilution resulting from deposit items that are returned unpaid, the
proceeds of any redemption may be delayed 10 days or more until it can
be determined that the check or other deposit item (including purchases
by Electronic Funds Transfer "EFT") used for purchase of the shares has
cleared. Such deposit items are considered "uncollected," until Mosaic
has determined that they have actually been paid by the bank on which
they were drawn. Purchases made by federal funds wire or 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.
By Check
Subsequent investments may be made for $50 or more. Please make check
payable to Mosaic Funds and mail it along with an investment slip or an
indication as to which fund and account it should be credited.
Mosaic Funds
PO Box 640393
Cincinnati, OH 45264-0393
By Wire
Shareholders should call Mosaic before the money is wired to ensure
proper and timely credit.
Please wire money to:
Star Bank, NA
Cinti/Trust
ABA # 0420-0001-3
Credit Mosaic Acct # 48038-8883
(Shareholder name and account number)
Wire Fee. There may be a charge of $6.00 for processing incoming wires
of less than $1,000.
By Automatic Investment Plan
Shareholders may elect to have an automatic investment plan whereby
Mosaic will automatically initiate a credit to their Mosaic account and
debit the bank account they designate each month. The automatic
investment is processed as an electronic funds transfer (EFT). To
establish an automatic investment plan, complete the appropriate section
of the application or call an Account Executive for information. The
minimum monthly amount for an EFT is $100. Shareholders may change the
amount or discontinue the automatic investment plan any time.
How to Redeem Shares
Redemption Price. Share prices (net asset values) are determined every
day that the New York Stock Exchange is open. Redemptions are priced at
the next share price determined after the redemption request is received
in proper form by Mosaic.
Signature Guarantees. To protect shareholder investments, Mosaic
requires signature guarantees for certain redemptions. A signature
guarantee helps Mosaic ensure the identity of the authorized
shareholder(s). Shareholders who anticipate the need to transact large
amounts of money are encouraged to establish pre-authorized bank wire
instructions on their account. Redemptions by wire to a pre-authorized
bank and account may be in any amount and do not require a signature
guarantee. Pre-authorized bank wire instructions can be established by
completing the appropriate section of a new application or by calling an
Account Executive to inquire about any necessary documents. A signature
guarantee may be required to add or change bank wire instruction on an
account. A signature guarantee is required for any redemption when (1)
the proceeds are to be greater than $50,000 (unless proceeds are being
wired to a pre-authorized bank and account), (2) the proceeds are to be
delivered to someone other than the shareholder of record, (3) the
proceeds are to be delivered to an address other than the address of
record, or (4) there has been any change to the registration or account
privilege within the last 15 days.
Mosaic accepts signature guarantees from banks with FDIC insurance,
certain credit unions, trust companies, and members of a domestic stock
exchange. A guarantee from a notary public is not an acceptable
signature guarantee.
Redemptions and Uncollected Funds. To protect shareholders from loss or
dilution resulting from deposit items that are returned unpaid, the
proceeds of any redemption may be delayed 10 days or more until it can
be determined that the check or other deposit item (including EFT) used
for purchase of the shares has cleared. Such deposited items are
considered "uncollected," until Mosaic has determined that they have
actually been paid by the bank on which they were drawn. Purchases made
with cash, federal funds wire or 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, a redemption check up to
$50,000 may be sent to the shareholder and address of record only. A
redemption request for more than $50,000 or for proceeds to be sent to
anyone or anywhere other than the shareholder and address of record,
must be made in writing, signed by all shareholders with their
signatures guaranteed. See section Signature Guarantees above.
Redemption requests in proper form received by mail and telephone are
normally processed within one business day.
Stop Payment Fee. To stop payment on a check issued by Mosaic, call our
Shareholder Service department. Normally, the Fund charges a fee of
$28.00, 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, funds can be sent by wire transfer to
the bank and account designated on the account application or by
subsequent written authorization. Shareholders who anticipate the need
to transact large amounts of money are encouraged to establish pre-
authorized bank wire instructions on their account. Redemptions by wire
to a pre-authorized bank and account may be in any amount and do not
require a signature guarantee. Pre-authorized bank wire instructions
can be established by completing the appropriate section of a new
application or by calling an Account Executive to inquire about any
necessary documents. A signature guarantee may be required to add or
change bank wire instruction on an account. Redemption by wires can be
arranged by calling the telephone numbers on the cover of this
prospectus. Requests for wire transfer must be made by 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
Shareholders may redeem shares from one Mosaic account and concurrently
invest the proceeds in another Mosaic account by telephone when the
account registration and tax identification number remain the same.
There is no charge for this service.
By Customer Check
A shareholder who has requested check writing privileges and submitted a
signature card may write checks in any amount payable to anyone.
A confirmation statement showing the amount and number of each check
written is sent to the shareholder. Mosaic does not return canceled
checks, but will provide copies of specifically requested checks. A fee
of $1.00 per copy is charged for frequent requests or a request for
numerous copies.
Stop Payment Fee. To stop payment on a customer check that you have
written, call an Account Executive. Mosaic will honor stop payment
requests on unpaid customer checks written by shareholders for a fee of
$5.00. Oral stop payment requests are effective for 14 calendar days,
at which time they will be canceled unless confirmed in writing.
Written stop payment orders are effective for six months and may be
extended by written request for another six months.
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 and of printing special
checks will be charged to the shareholder's account.
By Systematic Withdrawal Plan
Shareholders may elect to have a systematic withdrawal plan whereby
Mosaic will automatically redeem shares in their Mosaic account and send
proceeds to a designated recipient. To establish a systematic
withdrawal plan, complete the appropriate section of the application or
call an Account Executive for information. The minimum amount for a
systematic withdrawal is $100. Shareholders may change the amount or
discontinue the systematic withdrawal plan anytime.
Electronic Funds Transfer Systematic Withdrawal. A systematic
withdrawal can be processed as an electronic funds transfer, commonly
known as EFT, to credit a bank account or financial institution.
Check Systematic Withdrawal. Or it can be processed as a check which is
mailed to anyone designated by the shareholder
How to Close an Account
To close an account, shareholders should call an Account Executive and
request that the account be closed. Shareholders cannot close their
account by writing a check. When an account is closed, shares will be
redeemed at the next determined net asset value. An account may be
closed by telephone, wire transfer or by mail as explained above in the
section "How To Redeem Shares."
Other Fees and Services
Returned Investment Check Fee. Shareholders 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, the shareholder will be given 30 days written notice, during
which time the shareholder may increase the balance to avoid having the
account closed.
Other Fees. Mosaic reserves the right to impose additional charges,
upon 30 days written notice, to cover the costs of unusual transactions.
Services for which charges could be imposed include, but are not limited
to, processing items sent for special collection, international wire
transfers, research and processes for retrieval of documents or copies
of documents.
<PAGE>
Statement of Additional Information
Dated February 1, 1998
For use with the prospectus of the Mosaic Tax-Free Trust dated February
1, 1998.
Mosaic Tax-Free Trust
1655 Fort Myer Drive
Arlington, VA 22209-3108
(888) 670-3600
(703) 528-6500
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the prospectus of Mosaic Tax-Free Trust
bearing the date indicated above (the "prospectus"). A copy of the
prospectus may be obtained from the Trust at the address and telephone
numbers shown.
Table of Contents
INTRODUCTORY INFORMATION ("About Mosaic Tax-Free Trust") 2
SUPPLEMENTAL INVESTMENT POLICIES ("Investment Objectives"
and "Investment Policies") 2
MUNICIPAL SECURITIES ("Investment Policies") 6
SPECIAL CONSIDERATIONS REGARDING STATE PORTFOLIOS ("Investment
Policies") 7
INVESTMENT LIMITATIONS ("Investment Policies") 9
THE INVESTMENT ADVISOR ("Management of the Trust") 10
ORGANIZATION OF THE TRUST ("The Trust and Its Shares") 11
TRUSTEES AND OFFICERS ("Management of the Trust") 12
ADMINISTRATIVE AND OTHER EXPENSES ("Management of the Trust") 13
PORTFOLIO TRANSACTIONS ("Management of the Trust") 14
SHAREHOLDER TRANSACTIONS ("How to Purchase Additional Shares") 14
REDEMPTIONS ("How to Redeem Shares") 15
DECLARATION OF DIVIDENDS ("Dividends") 16
DETERMINATION OF NET ASSET VALUE ("Net Asset Value") 16
ADDITIONAL TAX MATTERS ("Taxes") 17
YIELD AND TOTAL RETURN CALCULATIONS ("Performance Information") 18
CUSTODIANS AND SPECIAL CUSTODIANS 20
LEGAL MATTERS & INDEPENDENT AUDITORS ("Financial Highlights") 20
ADDITIONAL INFORMATION 20
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT 20
APPENDIX - QUALITY RATINGS ("Investment Policies") 21
Note: The items appearing in parentheses above are cross references to
sections in the prospectus which correspond to the sections of this
Statement of Additional Information.
INTRODUCTORY INFORMATION
Mosaic Tax-Free Trust (the "Trust") issues six series of shares: Arizona
Tax-Free Fund shares, Maryland Tax-Free Fund shares, Missouri Tax-Free
Fund shares, Virginia Tax-Free Fund shares, Tax-Free National Fund
shares (known as Tax-Free High Yield Portfolio shares prior to February
1, 1994) and Tax-Free Money Market Fund shares. Shares in each of the
four state tax-free funds represent interest in a portfolio principally
composed of long-term tax-free bonds from issuers in the state named
(the "Arizona Fund," the "Maryland Fund," the "Missouri Fund" and the
"Virginia Fund," or collectively the "State Funds"). Tax-Free National
Fund shares represent interests in a portfolio principally composed of
long-term, tax-free bonds (the "National Fund"). Tax-Free Money Market
Fund shares represent interests in a portfolio principally composed of
short-term, tax-free "money market" securities (the "Money Market
Fund"). These funds are described more fully below (see "Supplemental
Investment Policies").
Unless described herein or in the Prospectus, the Trust will not invest
in "derivative" securities.
SUPPLEMENTAL INVESTMENT POLICIES
The investment objectives of each portfolio are described in the
prospectus (see "Investment Objective"). Reference should also be made
to the prospectus for general information concerning the Trust's
investment policies (see "Investment Policies"). The Trust seeks to
achieve its investment objectives through diversified investment in
those tax-exempt securities commonly called "municipal" securities,
issued by states and local governments, and by the separate agencies,
authorities and instrumentalities of those jurisdictions (see "Municipal
Securities").
Securities have been separated by the Trust into quality rating
classifications of "High Grade," "Medium Grade" and "Low Grade." As used
in this Statement of Additional Information (and in the prospectuses),
"High Grade" securities include U.S. Government securities and those
municipal securities which are rated AAA, AA, A-1; SP-1 by Standard &
Poor's Corporation; Aaa, Aa, P-1, MIG-1, MIG-2, VMIG-1; or VMIG-2 by
Moody's Investors Service, Inc. "Medium Grade" municipal securities are
those rated A, BBB, A-2, A-3, SP-2 or SP-3 by Standard & Poor's; A, Baa,
P-2, P-3, MIG-3; or VMIG-3 by Moody's. "Low Grade" securities are those
rated BB or B by Standard & Poor's and Ba or B by Moody's.
For unrated municipal securities the Advisor may make its own
determinations of those investments it classifies as "High Grade,"
"Medium Grade" and "Low Grade," as a part of the exercise of its
investment discretion on behalf of the Trust. However, such
determinations will be made by reference to the rating criteria followed
by recognized rating agencies (see "Quality Ratings"), and the Advisor's
quality classification procedures will be subject to review by the
Trustees.
Each of the Trust's funds will be subject to the same investment
policies, however, the maturities, quality ratings and issuing
jurisdictions of the municipal securities purchased will normally differ
among the six portfolios. The specific types of municipal securities
that may be purchased for each portfolio are described in the prospectus
(see "Investment Policies").
The lowest rated securities in which the State Portfolios may invest are
those rated BBB or Baa. These are considered Medium Grade obligations.
They are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
The lowest rated securities in which the National Fund may invest are
those rated B. B-rated and BB-rated ("Low Grade") securities may have
speculative characteristics and may lack desirable investment
characteristics and assurance of interest and principal payments or
maintenance of other terms of the investment over extended periods of
time may be small.
It is expected that the preponderance of the State Portfolios will be in
High Grade securities with a portion of each portfolio in Medium Grade
securities to improve yields. It is expected that the preponderance of
the National Fund will be in Medium Grade securities and that the
remainder of the portfolio will be in High Grade securities. Within the
established quality parameters, however, the Advisor will be free to
select investments for these portfolios in any quality rating mix it
deems appropriate, based on the Advisor's evaluation of the desirability
of each investment in light of its relative yield and credit
characteristics.
To the extent the investments selected have higher yields than
alternative investments, they may be less liquid, have lower quality
ratings and entail more risk that their value could fall than comparable
investments with lower yields. To the extent lower-rated investments
are purchased, the average credit quality of the National Fund will be
reduced. (See "Quality Ratings" for the investment characteristics of
lower rated securities.)
Other Policies. The Trust reserves the right to maintain a portion of
its assets in uninvested cash or in the short-term taxable investments
described below. The Trust may invest up to 20% of its assets in
taxable investments (as described below), including obligations that are
subject to Alternative Minimum Tax ("AMT"). As a matter of policy, each
of the Trust's portfolios will be at least 80% invested in securities
whose income is exempt from Federal income tax, and the State Portfolios
will be at least 80% invested in securities whose income is exempt from
Federal and state income taxes for residents of their respective states;
however, if the Advisor determines that extraordinary conditions exist
(such as tax law changes or a need to adopt a defensive investment
position) which make it advisable to invest a larger portion of assets
in taxable investments, more than 20% and even as much as 100% of a
portfolio's assets could be invested in securities whose income is
taxable on the federal or state level.
The Trust has not adopted any restrictions limiting the extent to which
the securities purchased may be concentrated in the same state or in
similar types of issuers (for example, industrial development bond
issuers). Accordingly, if a particular state or type of issuer
generally declined in credit standing, then the Trust could be more
adversely affected than if its investments were more diversified. This
risk is greatest in the State Portfolios, which are each expected to be
invested principally in the securities of one state.
Specialized Investment Techniques. In order to achieve each portfolio's
investment objective, the Trust may use certain specialized investment
techniques. Such specialized investment techniques principally include
those identified in the prospectus (see "Investment Policies"), which
are described more fully below:
1. Securities with Variable Interest Rates. Some securities purchased
by the Trust may carry variable interest rates. Municipal securities
with variable interest rates are adjusted periodically to pay a fixed
percentage of some base rate, such as the current rate on Treasury bills
or the "prime" rate of a specified bank. Rate adjustments may be
specified to occur on fixed dates, such as the beginning of each
calendar month, or to occur whenever the base rate changes. Certain of
these variable rate municipal securities may be payable upon demand by
the holder, generally within seven days; others may have a fixed stated
maturity with no demand feature.
Variable rate securities may offer higher yields than are available from
shorter term securities but less risk of market value fluctuations than
longer term securities with fixed interest rates. When interest rates
are generally falling, yields of variable rate securities will tend to
fall. When rates are generally rising, variable rate yields will tend
to rise.
Variable rate securities may not be rated and may not have a readily
available secondary market. To the extent these securities are
illiquid, they will be subject to the Trust's 10% limitation on
investments in illiquid securities (see "Investment Limitations"). The
Trust's ability to obtain payment after the exercise of demand rights
could be adversely affected by subsequent events prior to repayment of
the investment at par. On an ongoing basis, the Advisor will monitor
the revenues and liquidity of issuers of variable rate securities and
the ability of issuers to pay principal and interest pursuant to any
demand feature.
2. When-Issued Securities. The Trust may purchase and sell securities
on a when-issued or delayed delivery basis. When-issued and delayed
delivery transactions arise when securities are bought or sold with
payment for and delivery of the securities scheduled to take place at a
future time. When newly issued municipal securities are purchased,
payment and delivery may not take place for 15 to 45 days after the
Trust commits to the purchase. Fluctuations in the value of securities
contracted for future settlement may increase changes in portfolio
value, since they must be added to changes in the values of those
securities actually held in the portfolio during the same period.
When engaging in when-issued or delayed delivery transactions, the Trust
must rely on the seller or buyer to complete the transaction at the
scheduled time; if the other party fails to do so, the Trust might lose
an opportunity for a more advantageous purchase or sale. If the
transaction is completed, intervening changes in market conditions or
the issuer's financial condition could make it less advantageous than
investment alternatives available at the time of settlement.
While the Trust will only commit to security purchases it intends to
complete, it reserves the right to sell any securities purchase
contracts before settlement of the transaction, in which case the Trust
could realize a gain or loss despite the fact that the original
transaction was never completed. When fixed yield contracts are made
for the purchase of when-issued securities, the Trust will maintain in a
separate account designated investments which are liquid or mature prior
to the scheduled settlement and cash sufficient in aggregate value to
provide adequate funds for completion of the scheduled purchase.
3. Privately Arranged Loans and Participations. The Trust may make or
acquire participations in privately negotiated loans to municipal
borrowers. Frequently such loans have variable interest rates and may
be backed by a bank letter of credit; in other cases they may be
unsecured. The Trust will rely on the opinion of tax or bond counsel to
the borrower as to the tax status of these loans. Such transactions may
provide an opportunity to achieve higher tax-free yields than would be
available from municipal securities offered and sold to the general
public.
Privately arranged loans, however, will generally not be rated by a
credit rating agency and will normally be liquid, if at all, only
through a provision requiring repayment following demand by the lender.
Such loans made by the Trust will normally have a demand provision
permitting the Trust to require repayment within seven days.
Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these
securities are illiquid, they will be subject to the Trust's 10%
limitation on investments in illiquid securities (see "Investment
Limitations"). Recovery of an investment in any such loan that is
illiquid and payable on demand may be dependent on the ability of the
municipal borrower to meet an obligation for full repayment of principal
and payment of accrued interest within the demand period, normally seven
days or less (unless the Trust determines that a particular loan issue,
unlike most such loans, has a readily available market). As it deems
appropriate, the Advisor will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to honor
contractual payment obligations.
4. Securities with Put Rights. In certain cases the Trust may acquire
securities and in the same or a related transaction acquire the right to
resell the same securities at a fixed price during a specified period of
time. Such puts may be considered standby commitments. The combined
cost of the securities purchased and the related put rights may exceed
the price at which the securities could be purchased alone, in which
case the effective yield on the transaction would be lower than that
available from the security itself. The advantage of such a combined
transaction is that the put rights insulate the Trust from the risk that
the price at which the securities can be resold may fall; thus, the
combined transaction produces an investment that may be terminated prior
to the maturity of the securities while providing a known minimum yield.
Generally, puts are expected to be non-assignable and to terminate if
the related securities are sold by the Trust. Since the Trust may only
acquire puts in connection with portfolio securities (see "Investment
Limitations") and such puts may not be assignable, puts acquired by the
Trust will normally be without value except in conjunction with specific
portfolio investments. Accordingly, the Trust intends to value any such
puts at zero as separate securities but to value any related investments
at their fair value as determined in good faith by the Trustees, after
consideration of the value of the investment unit represented by the
specific securities and the related put together, or at the value of
such related investments alone, if higher.
A put is subject to the ability of the issuer to actually make payment
for the securities if the investor exercises his put rights. In the
event the issuer of the put is unable to make such payment, the Trust
will be left with securities which would probably be worth less than the
price at which they were to have been resold by means of the put. The
Trust may acquire puts issued by issuers of the related securities or by
financial institutions, including securities dealers, but the Trust will
only acquire puts issued by institutions it deems to be creditworthy.
5. Loans of Portfolio Securities. The Trust, in certain circumstances,
may be able to earn additional income by loaning portfolio securities to
a broker-dealer or financial institution. The Trust may make such loans
only if cash or U.S. Government securities, equal in value to 100% of
the market value of the securities loaned, are delivered to the Trust by
the borrower and maintained in a segregated account at full market value
each business day. During the term of any securities loan, the borrower
will pay to the Trust all dividend and interest income earned on the
loaned securities; at the same time the Trust will also be able to
invest any cash portion of the collateral or otherwise will charge a fee
for making the loan, thereby increasing its overall potential return.
It is the Trust's policy that it shall have the option to terminate any
loan of portfolio securities at any time upon seven days' notice to the
borrower. In making a loan of securities, the Trust would be exposed to
the possibility that the borrower of the securities might be unable to
return them when required, which would leave the Trust with the
collateral maintained against the loan; if the collateral were of
insufficient value, the Trust could suffer a loss. The Trust may pay
fees for the placement, administration and custody of securities loans,
as it deems appropriate.
6. Financial Futures Contracts. The Trust may use financial futures
contracts, including contracts traded on a regulated commodity market or
exchange, to purchase or sell securities which the Trust would be
permitted to purchase or sell by other means. A futures contract on a
security is a binding contractual commitment which, if held to maturity,
will result in an obligation to make or accept delivery, during a
particular month, of securities having a standardized face value and
rate of return. By purchasing a futures contract, the Trust will
legally obligate itself to make delivery of the security against payment
of the agreed price. The Trust will use financial futures contracts
only where it intends to take or make the required delivery of
securities; however, if it is economically more advantageous to do so,
the Trust may acquire or sell the same securities in the open market
prior to the time the purchase or sale would otherwise take place
according to the contract and concurrently liquidate the corresponding
futures position by entering into another futures transaction that
precisely offsets the original futures position.
A financial futures contract for a purchase of securities is called a
"long" position, while a financial futures contract for a sale of
securities is called a "short" position. Short futures contracts may be
used as a hedge against a decline in the value of an investment by
locking in a future sale price for the securities specified for delivery
against the contract. Long futures contracts may be used to protect
against a possible decline in interest rates. Hedges may be implemented
by futures transactions for either the securities held or for comparable
securities that are expected to parallel the price movements of the
securities being hedged. Customarily, most futures contracts are
liquidated prior to the required settlement date by disposing of the
contract; such transactions may result in either a gain or loss, which
when part of a hedging transaction, would be expected to offset
corresponding losses or gains on the hedged securities.
The Trust intends to use financial futures contracts as a defense, or
hedge, against anticipated interest rate changes and not for
speculation. A futures contract sale is intended to protect against an
expected increase in interest rates and a futures contract purchase is
intended to offset the impact of an interest rate decline. By means of
futures transactions, the Trust may arrange a future purchase or sale of
securities under terms fixed at the time the futures contract is made.
A portfolio of the Trust may not purchase or sell futures contracts if
immediately thereafter the sum of the amount of margin deposits of the
portfolio's existing futures positions and premiums paid for related
options would exceed five percent of the market value of the portfolio's
total assets.
The Trust will incur brokerage fees in connection with its futures
transactions, and it will be required to deposit and maintain cash or
U.S. Government securities with brokers as margin to guarantee
performance of its futures obligations. When purchasing securities by
means of futures contracts the Trust will maintain in separate accounts
(including brokerage accounts used to maintain the margin required by
the contracts) High Grade investments which are liquid or which mature
prior to the scheduled purchase and cash sufficient in aggregate value
to provide adequate funds for completion of the purchase. While futures
will be utilized to reduce the risks of interest rate fluctuations,
futures trading itself entails certain other risks. Thus, while the
Trust may benefit from the use of financial futures contracts,
unanticipated changes in interest rates may result in a poorer overall
performance than if the Trust had not entered into any such contracts.
7. Repurchase Agreement Transactions. A repurchase agreement involves
the acquisition of securities from a financial institution, such as a
bank or securities dealer, with the right to resell the same securities
to the financial institution on a future date at a fixed price.
Repurchase agreements are a highly flexible medium of investment, in
that they may be for very short periods, including frequently maturities
of only one day. Under the Investment Company Act of 1940, repurchase
agreements are considered loans and the securities involved may be
viewed as collateral. It is the Trust's policy to limit the financial
institutions with which it engages in repurchase agreements to banks,
savings and loan associations and securities dealers meeting financial
responsibility standards prescribed in guidelines adopted by the
Trustees.
When investing in repurchase agreements, the Trust could be subject to
the risk that the other party may not complete the scheduled repurchase
and the Trust would then be left holding securities it did not expect to
retain. If those securities decline in price to a value of less than
the amount due at the scheduled time of repurchase, then the Trust could
suffer a loss of principal or interest. The Advisor will follow
procedures designed to ensure that repurchase agreements acquired by the
Trust are always at least 100% collateralized as to principal and
interest. It is the Trust's policy to require delivery of repurchase
agreement collateral to its Custodian or (in the case of book-entry
securities held by the Federal Reserve System) that such collateral is
registered in the Custodian's name or in negotiable form. In the event
of insolvency or bankruptcy of the other party to a repurchase
agreement, the Trust could encounter restrictions on the exercise of its
rights under the repurchase agreement.
To the extent the Trust requires cash to meet redemption requests and
determines that it would not be advantageous to sell portfolio
securities to meet those requests, then it may sell its portfolio
securities to another investor with a simultaneous agreement to
repurchase them. Such a transaction is commonly called a "reverse
repurchase agreement." It would have the practical effect of
constituting a loan to the Trust, the proceeds of which would be used to
meet cash requirements for redemption requests. During the period of
any reverse repurchase agreement, the Trust would recognize fluctuations
in value of the underlying securities to the same extent as if those
securities were held by the Trust outright. If the Trust engages in
reverse repurchase agreement transactions, it will maintain in a
separate account designated securities which are liquid or mature prior
to the scheduled repurchase and cash sufficient in aggregate value to
provide adequate funds for completion of the repurchase. It is the
Trust's current operating policy not to engage in reverse repurchase
agreements for any purpose, if as a result reverse repurchase agreements
in the aggregate would exceed five percent of a portfolio's total
assets.
Taxable Investments. The Trust does not intend to invest in any taxable
securities under normal circumstances. The Advisor may decide, however,
that extraordinary conditions require the purchase of taxable
investments. The "Taxable Investments" in which the Trust may invest
are limited to the following U.S. dollar denominated investments: (1)
U.S. Government securities; (2) obligations of banks having total assets
of $750 million or more; (3) commercial paper and other corporate debt
securities of High Grade (see "Quality Ratings"); and (4) repurchase
agreements involving any of the foregoing securities or municipal
securities.
For the State Portfolios and the National Fund, maturities of Taxable
Investments may exceed one year in extraordinary circumstances when the
Trust has determined to invest more than 20% of its assets in taxable
securities. For the Money Market Fund, the Trust's Taxable Investments
may not have an effective maturity exceeding thirteen months.
"U.S. Government securities" are obligations issued or guaranteed by the
United States Government, its agencies and instrumentalities. U.S.
Government securities include direct obligations issued by the U.S.
Treasury, such as Treasury bills, notes and bonds. Also included are
obligations of the various federal agencies and instrumentalities, such
as the Government National Mortgage Association, the Federal Farm Credit
System, the Federal Home Loan Mortgage Corporation and the Federal Home
Loan Banks, and deposits fully insured as to principal by federal
deposit insurance. Except for Treasury securities, which are full faith
and credit obligations, U.S. Government securities may either be backed
by the full faith and credit of the United States or only by the credit
of the particular federal agency or instrumentality which issues them;
some such agencies have borrowing authority from the U.S. Treasury,
others do not.
Bank obligations eligible as Taxable Investments are certificates of
deposit ("CDs"), bankers acceptances ("BAs") and other obligations of
banks having assets of $750 million or more (including assets of
affiliates). CDs are generally short-term interest-bearing negotiable
certificates issued by banks against funds deposited with the issuing
bank for a specified period of time. Such CDs may be marketable or may
be redeemable upon demand of the holder. BAs are time drafts drawn
against a business, often an importer, and "accepted" by a bank, which
agrees unconditionally to pay the draft on its maturity date. BAs are
negotiable and trade in the secondary market.
"Commercial paper" describes unsecured promissory notes issued by major
corporations to finance short-term credit needs. Commercial paper is
issued in maturities of nine months or less usually on a discount basis.
The Trust may purchase taxable commercial paper rated A-1 or P-1 (see
"Quality Ratings"). The Trust may also purchase other non-convertible
corporate debt securities (e.g., notes, bonds and debentures) of the
appropriate remaining maturities.
Maturities. As used in this Statement of Additional Information and the
prospectus, the term "effective maturity" means either the actual stated
maturity of the investment, the time between its scheduled interest rate
adjustment dates (for variable rate securities), or 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. However, for purposes of the
Trust's "penny rounding" exemptive order (see "Determination of Net
Asset Value") in the case of a variable rate security, the "effective
maturity" will be the longer of the notice period required before the
Trust is entitled to repayment under the terms of the security or the
period remaining until its next interest rate adjustment. 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 longer than one
year.
Policy Review. If, in the judgment of a majority of the Trustees,
unanticipated future circumstances make inadvisable continuation of the
Trust's policy of seeking tax exempt income or continuation of the more
specific policies of each portfolio, then the Trustees may change any
such policies without shareholder approval, subject to the limitations
provided elsewhere in this Statement of Additional Information (see
"Investment Limitations"), and after giving 30 days' written notice to
shareholders affected by the change. In the event of a permanent
change, a larger portion, and possibly all, of the portfolios could be
invested in Taxable Investments. Regulatory guidelines may require a
change in the Trust's name in such an event.
Except for the fundamental investment limitations placed upon the
Trust's activities, the Trustees reserve the right to review and change
the other investment policies and techniques employed by the Trust, from
time to time, as they deem appropriate, in response to market conditions
and other factors. Reference should be made to "Investment Limitations"
for a description of those fundamental investment policies which may not
be changed without shareholder approval. There can be no assurance that
the Trust's present objectives will be achieved.
MUNICIPAL SECURITIES
As used in this Statement of Additional Information and in the
prospectus, the terms "tax-free" and "tax-exempt" refer to interest or
dividend income which is exempt from federal income taxes, and in the
case of the State Portfolios, refer also to income exempt from state
income taxes in their respective states. The term "municipal
securities" refers to securities having tax-free income, in the opinion
of counsel to the issuer.
The term "municipal securities" includes a variety of debt obligations
issued for public purposes by or on behalf of states, territories and
possessions of the United States, their political subdivisions, the
District of Columbia, Guam, Puerto Rico and other territories and the
duly constituted authorities, agencies, public corporations and other
instrumentalities of these jurisdictions.
Municipal securities may be used for many public purposes, including
construction of public facilities such as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets, water and
sewer works and gas and electric utilities. Municipal securities may
also be used to refund outstanding obligations, to obtain funds to lend
to other public institutions and certain private borrowers, or for
general operating expenses. Municipal securities are usually classified
as either "general obligation," "revenue" or "industrial development."
General Obligation securities are the obligations of an issuer with
taxing power and are payable from the issuer's general unrestricted
revenues. These securities are backed by the full faith, credit and
taxing power of the issuer for the payment of principal and interest.
They are not limited to repayment from any particular fund or revenue
source.
Revenue securities are repayable only from revenues derived from a
particular facility, local agency, special tax, facility user or other
specific revenue source. Certain revenue issues may also be backed by a
reserve fund or specific collateral.
Industrial development securities are revenue obligations backed only by
the agreement of a specific private sector entity to make regular
payments to the public authority in whose name they were issued.
Collateral may be pledged. Industrial development securities are
generally issued by a state or local authority on behalf of private
organizations for the purpose of attracting or assisting local industry.
These securities usually have no credit backing from any public body.
Municipal securities may be classified according to maturity as "notes"
if up to about two years in term, or as "bonds" if longer in term.
Bonds are classified according to their credit backing and purpose as
"general obligation," "revenue," "industrial revenue" or "pollution and
environmental control revenue"; the latter two are industrial
development securities.
Callable municipal bonds are municipal bonds which contain a provision
in the bond indenture permitting the issuer to redeem bonds prior to
maturity. Callable bonds are generally subject to call during periods
of declining interest rates. If the proceeds of a called bond under
such circumstances are reinvested, the result may be a lower overall
yield due to lower interest rates. If the purchase of such bond
included a premium related to the appreciated value of the bonds, some
or all of that premium may not be recovered, depending on the call
price.
Ordinary revenue bonds are used to finance income producing projects
such as public housing, toll roads and bridges. The investor bears the
risk that the project will produce insufficient revenue and have
insufficient reserves to cover debt service on the bonds. Industrial
revenue bonds are used to finance privately-operated facilities for
business, manufacturing, housing, sports and other purposes and are
limited to $10 million per issuer, except when used for certain exempted
purposes. Pollution and environmental control revenue bonds are used to
finance air and water pollution control facilities required by private
users. Repayment of revenue bonds issued to finance privately used or
operated facilities is usually dependent entirely on the ability of the
private beneficiary to meet its obligations and on the value of any
collateral pledged.
Notes are generally used to meet short-term financing needs and include
the following specific types:
1. Tax Anticipation Notes, normally general obligation issues, are sold
to meet cash needs prior to collection of taxes and generally are
payable from specific future tax revenues.
2. Bond Anticipation Notes, also normally general obligation issues,
are sold to provide interim financing in anticipation of sales of long-
term bonds and generally are payable from the proceeds of a specific
proposed bond issue.
3. Revenue Anticipation Notes may be general obligation issues and are
sold to provide cash prior to receipt of expected non-tax revenues from
a specific source, such as scheduled payments due from the federal
government.
4. Project Notes are issued by local authorities to finance various
local redevelopment and housing projects conducted under sponsorship of
the federal government. Project notes are guaranteed and backed by the
full faith and credit of the United States.
5. Construction Loan Notes are sold to provide interim financing for
construction projects. They are frequently issued in connection with
federally insured or guaranteed mortgage financing and may also be
insured or guaranteed by the federal government.
6. Tax-Exempt Commercial Paper (sometimes also called "municipal
paper") is similar to conventional commercial paper, but tax-free.
Municipal paper may be either a general obligation or a revenue issue,
although the latter is more common. These issues may provide greater
flexibility in scheduling maturities than other municipal notes.
Municipal Lease Obligations are issued by municipalities to finance
their obligation to pay rent on buildings or equipment they use. The
Trust intends to limit its investments in such obligations to those
which the Advisor determines, based on guidelines established by the
Trustees, represent liquid securities for purposes of a portfolio's 10%
limitation on investments in illiquid securities (see "Investment
Limitations"). Determinations concerning the liquidity and appropriate
valuation of each such obligation shall be made on a daily basis and
based on all relevant facts including the frequency of trades and quotes
for the obligation, the number of dealers willing to purchase or sell
the security and the number of other potential buyers, the willingness
of dealers to undertake to make a market in the security, and the nature
of the marketplace trades, including the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the
transfer. A municipal lease obligation will not be considered liquid
unless, in the opinion of the Advisor, there is reasonable assurance
that its marketability will be maintained throughout the time the
instrument is held by the Trust and the Advisor reasonably concludes
that the obligation is liquid considering: whether the lease can be
cancelled; what assurance there is that the assets represented by the
lease can be sold; the strength of the lessee's general credit; the
likelihood that the municipality will discontinue appropriating funding
for the leased property because the property is no longer deemed
essential to the operations of the municipality; and the legal recourse
in the event of failure to appropriate.
The market for municipal securities is diverse and constantly changing.
The foregoing is therefore not necessarily a complete description of all
types of municipal securities the Trust may purchase.
In the interpretation of its investment policies and limitations, the
Trust will be required from time to time to make determinations as to
the identity of the issuer of particular municipal securities. These
determinations will be made by the Advisor, and in the case of
securities that are not general obligation issues or securities that
have guarantors, such determinations will include judgments by the
Advisor as to the assets and revenue principally backing the issue and
the most significant source of repayment of principal and interest for
the issue. If the specific securities are backed by assets and revenues
that are independent or separate from the assets and revenues of the
jurisdiction or agency in whose name they were issued, then those
securities will normally be deemed to have a separate issuer.
Municipal securities generally are subject to possible default,
bankruptcy or insolvency of the issuer. Repayment of principal and
interest may be affected by federal, state and local legislation,
referendums, judicial decisions, and executive acts. The tax-exempt
status of municipal securities may be affected by future changes in the
tax laws, litigation involving the tax status of the securities, and
errors and omissions by issuers and their counsel. The Trust will not
attempt to make an independent determination of the present or future
tax-exempt status of municipal securities acquired by it.
While most municipal securities have a readily available market, a
variety of factors, including the scarcity of issues and the fact that
tax-free investments are inappropriate for significant numbers of
investors, limit the depth of the market for these securities.
Accordingly, it may be more difficult for the Trust to sell large blocks
of municipal securities advantageously than would be the case with
comparable taxable securities.
SPECIAL CONSIDERATIONS REGARDING STATE PORTFOLIOS
The following is a general discussion of the factors that might
influence the ability of the issuers in the various states to repay
principal and interest due on the obligations contained in their
respective State Portfolios. Such information is derived from sources
generally available to investors, but has not been independently
verified and may not be complete.
1. Arizona. Arizona has been one of the fastest growing states in the
nation since World War II. Its growth has been due, in part, to its
favorable climate and affordable housing generally associated with the
states in the Southwest. In the late 1980s, the state's rapid growth
was sharply curtailed by an overbuilding of office space which led to a
slower rate of new construction and financial difficulties in the
banking and savings and loan industries. This was compounded by reduced
defense spending which adversely affected many defense-related
electronics firMs. The economy has also seen a noticeable shift away
from manufacturing toward services, evidenced in part by the attraction
of major credit card processing centers. These and other trends have
resulted in a shift to lower paying jobs. The state's economy is
improving and Arizona has had some success in attracting businesses from
California, which is seen as having a less favorable regulatory
environment.
Many new companies have established operations in Arizona because of its
proximity to Mexico, so that they can take better advantage of the North
American Free Trade Agreement. The state also lowered its corporate
income tax rate to 9.0% in 1994, down from 9.3% in 1993. The corporate
tax rate was 10.5% in 1989. Arizona is now the leading state in the
region for business locations and expansions.
Although the state economy is generally strong, Arizona's financial
flexibility has been eroded recently due to slow revenue growth in
recent years together with a substantial increase in expenditures for
prisons and health and welfare prograMs. The state is required by law to
maintain a balanced budget and has managed recurring budget shortfalls
since 1985 with a combination of internal borrowing, acceleration of tax
payments, onetime adjustments and program cuts. The state's budget is
now characterized by a surplus. This has allowed for tax reductions
since 1993. The governor favors an additional $200 million tax cut in
1998. If, however, budget shortfalls should develop, the state
legislature may be required to take additional actions, including budget
reductions and tax increases, to close such deficits.
2. Maryland. Maryland has been one of the wealthiest states in the
nation. It experienced rapid growth during the 1980s with both total
personal income and per capita income outperforming national averages.
Maryland continues to remain among the highest states in the nation in
terms of per capita personal income. However, annual percentage gains
in personal income have been lagging national gains during the 1990s.
The economy is well diversified with services, trade and government
accounting for the majority of total employment. Earnings per worker
are growing faster in Maryland than in the nation due, in part, to
above-average education levels and rising self-employment and
proprietor's income.
Since Maryland is adjacent to Washington, DC, Federal government
employment plays an important role in the economy and has served to
insulate the economy somewhat from more volatile economic swings. For
this reason, Maryland's unemployment rate had historically been below
the national average. The significant federal presence in Maryland is
now having a negative effect as agency employment reductions and defense
cutbacks take place. The state suffered through thousands of job cuts
in 1995, but these jobs were regained in 1996. A slow growth trend is
forecast for the next few years as defense and government activities
continue to contract. Maryland's unemployment rate, approximately 4.7%,
is virtually unchanged since October 1996 through October 1997.
The state's main sources of revenue are its sales tax, income tax,
property tax and the state lottery. The state is required by law to
maintain a balanced budget and has been required to reduce revenue
estimates and implement budget cuts to reduce budget gaps. The state's
most recent fiscal year ended with a greater than expected budget
surplus and moderate tax cuts went into effect in 1998, but no further
tax cuts are planned.
3. Missouri. Missouri's economic structure closely resembles that of
the U.S., with a somewhat larger dependence on manufacturing. The
state's economic base is broad and diverse, with transportation
equipment, machinery, and chemicals the leading sectors. The service
sector now is the principal source of both employment and personal
income, providing about 25% of each. Growth in the service industries
has provided compensatory offset to the continuing manufacturing losses.
Such gains have been aided by the state's significant increase in
tourism, with the City of Branson's development as a music and
entertainment center, now ranking as one of the nation's major tourist
attractions.
Unemployment rates continue to decline relative to the U.S., a trend
that has characterized the state since late 1985. Unemployment rates,
now in the 4% range, are at a 15-year low. Missouri ranks about in the
middle of the states as to wealth and resources, and while growth
generally has been below average over the past decade, some relative
gains have been registered in the past two years. With McDonnell
Douglas Corp. as the state's largest employer at more than 30,000
employees, down from peak levels, this industry remains vulnerable to
ongoing cutbacks in defense spending and had reduced its workforce by 30
percent in five years. Most analysts believe that the merger of
McDonnell Douglas and rival Boeing will not cause any net job loss in
the St. Louis area. The merger was considered a good strategy for
McDonnell Douglas which had been eliminated from bidding for the
Pentagon's 21st century joint strike fighter.
With regard to debt position, the state's cautious use of debt and the
strong security provisions, including the constitutional requirement
that debt service payments are a first appropriation and are transferred
to the sinking fund one year in advance, are the foremost credit
considerations supporting the state's 'AAA' rating. Net tax-supported
debt represented a modest $281 per capita in 1996. Including leases,
which are being more actively used for capital financings, the state's
debt service was less than 3% in 1996.
Total state revenues for fiscal year 1996 exceeded the state revenue
limit by $229.1 million. The excess revenue will be refunded to
taxpayers in calendar year 1998. Since revenues are expected to exceed
the 1997 revenue limit, the governor has recommended tax reductions for
fiscal year 1998.
The state maintains balanced operations, acting quickly to reduce
expenditures to stay within available resources. Liquidity is ensured
from a fully funded cash reserve that may be used during the year but
must be repaid by May 15.
4. Virginia. Virginia has always maintained a conservative approach to
debt, with attention to keeping a level that is low in relation to its
substantial resources. General obligation debt is strictly limited,
giving rise to greater use of appropriation obligations. Virginia's
debt ratios are low by all standards, although the level of debt and
diversity of instruments have increased substantially over the past
decade. All debt is closely controlled and recognized as tax-supported
debt of the Commonwealth. Debt policy calls for maintenance of debt
ratios at below-average levels, and the commonwealth has adopted debt
affordability and long-range capital planning. Through 1997,
authorization of new tax-supported debt has declined from the levels
recorded in the late 1980's and early 1990's. However, net tax-
supported debt levels are not expected to decline until after year 2000.
Conservative policies also dominate financial operations, with the
general fund maintaining budgetary surplus positions. Tax dependence
rests heavily on the personal income tax, supplemented by the sales tax
and other levies. Collections of net individual income taxes
contributed $141.8 million to the revenue surplus in fiscal year 1997
for a total surplus of $179.7 million. The general fund is expected to
grow between 6 and 7% through 2000. By contrast, Virginia's Governor
has pledged to eliminate the state's lucrative personal property tax on
automobiles over the next five years. If enacted, this could affect the
forecasted growth of nongeneral fund revenues through 2000. This tax is
forecasted to generate $400 million in 1998 and 1999, less than 5% of
nongeneral fund revenues.
Virginia has a broad and diverse economy with several distinct regions.
Over the past decade, the economy has grown in size and in wealth.
Virginia's job growth is expected to outperform the nation's over the
next few years now that the economy has recovered from the recession and
absorbed the impact of defense reductions. The Northern Virginia
economy will be particularly affected by Federal government spending
reductions as a result of its proximity to Washington, DC. However,
during 1997, Northern Virginia lost 1,800 government sector jobs while
economic growth generated 30,700 jobs, primarily in the services sector.
Likewise, in the Norfolk/Newport News/Virginia Beach region, the loss of
1,700 Federal government jobs was offset by 20,300 new jobs created by
economic growth.
Virginia's employment profile differs from the nation's, with more
dependence on government and construction and less on manufacturing.
Beginning in 1998, the magnitude of job losses from Federal government
downsizing is expected to be considerably smaller than it had been
during the prior six fiscal years. The previous six years of Federal
government downsizing have already taken more than 60,000 jobs from the
Virginia economy -- nearly a typical year's job growth. Over the next
three fiscal years, job losses in the federal sector are expected to
total only 4,400.
The impact on Virginia of federal government downsizing lessened in
fiscal year 1997 as federal civilian government employment lost 1,500
jobs or 0.9%. This is smaller than the average losses of about 4,300
jobs per year during the prior three fiscal years.
INVESTMENT LIMITATIONS
The Trust has adopted as fundamental policies the following limitations
on its investment activities, which apply to each of its portfolios;
these fundamental policies may not be changed without a majority vote
(see "Organization of the Trust") of the Trust's shareholders.
1. Permissible Investments. The Trust may not purchase securities
other than securities which at the time of purchase provide income
through interest or dividend payments (or equivalent income through a
purchase price discount from par); but the Trust may purchase or acquire
put options related to any such securities held, and any such securities
may be purchased pursuant to repurchase agreements with financial
institutions or securities dealers or may be purchased from any person,
under terms and arrangements determined by the Trust, for future
delivery. Any of these securities may have limited markets and may be
purchased with restrictions on transfer; however, the Trust may not make
any investment (including repurchase agreements and privately arranged
loan transactions) for which there is no readily available market and
which may not be redeemed, terminated or otherwise converted to cash
within seven days, unless after making the investment not more than 10%
of a portfolio's total assets would be so invested.
2. Restricted Investments. Not more than five percent of the value of
the total assets of a portfolio of the Trust (determined as of the date
of purchase) may be invested in the securities of any one issuer (other
than securities issued or guaranteed by the United States Government or
any of its agencies or instrumentalities and excluding bank deposits);
nor may securities be purchased when as a result more than 10% of the
voting securities of the issuer would be held by a portfolio. For
purposes of these restrictions, the issuer is deemed to be the specific
legal entity having ultimate responsibility for payment of the
obligations evidenced by the security and whose assets and revenues
principally back the security. Any security that does not have a
government jurisdiction or instrumentality ultimately responsible for
its repayment may not be purchased by the Trust when the entity
responsible for such repayment has been in operation for less than three
years, if the purchase would result in more than five percent of the
assets of the portfolio of the Trust being invested in such securities.
To the extent the Trust purchases securities for the Tax-Free Money
Market other than obligations issued or guaranteed by the United States
Government or its agencies and instrumentalities, obligations which
provide income exempt from Federal income taxes, and short-term
obligations of domestic banks, their branches, and other domestic
depository institutions, the Trust will limit such investments so that
not more than 25% of the assets of the portfolio is invested in any one
industry. Domestic banks and their branches may include the domestic
branches of foreign banks, to the extent such domestic branches are
subject to the same regulation as United States banks; but they will not
include the foreign branches of domestic banks, unless such obligations
of such foreign branches are unconditionally guaranteed by the domestic
parent. In purchasing securities for the Tax-Free National Fund and the
State Portfolios (other than obligations issued or guaranteed by the
United States Government or its agencies and instrumentalities, or
obligations which provide income exempt from Federal income taxes), the
Trust will limit such investments so that not more than 25% of the
assets of each portfolio is invested in any one industry. For purposes
of the foregoing limitation on investments in any one industry, the
general obligations of governmental units will not be considered related
to any industry, but revenue obligations backed by particular types of
projects, (roads, hospitals, etc.) will be considered related to the
industry classifications of the associated projects and industrial
revenue obligations will be classified by the industry of the private
user or users.
The Trust may not purchase the securities of other investment companies,
except for shares of unit investment trusts holding securities of the
type purchased by the Trust itself and then only if the value of such
shares of any one investment company does not exceed five percent of the
value of the total assets of the Trust's portfolio in which the shares
are included and the aggregate value of all such shares does not exceed
10% of the value of such total assets, or except in connection with an
investment company merger, consolidation, acquisition or reorganization.
The Trust may not purchase any security for purposes of exercising
management control of the issuer, except in connection with a merger,
consolidation, acquisition or reorganization of an investment company.
The Trust may not purchase or retain the securities of any issuer if, to
the knowledge of the Trust's management, the holdings of those of the
Trust's officers, Trustees and officers of its Advisor who beneficially
hold one-half percent or more of such securities, together exceed five
percent of such outstanding securities.
3. Borrowing and Lending. The Trust may not borrow money (including
the proceeds of reverse repurchase transactions) except as a temporary
measure for extraordinary or emergency purposes, and then only in an
amount not exceeding five percent of the value of a portfolio's net
assets at the time of borrowing. The Trust may not otherwise issue
senior securities representing indebtedness. The Trust may not pledge,
mortgage or hypothecate any assets to secure bank loans, except in
amounts not exceeding 15% of a fund's net assets taken at cost. The
Trust may loan its portfolio securities in an amount not in excess of
one-third of the value of a portfolio's gross assets, provided
collateral satisfactory to the Trust's Advisor is continuously
maintained in amounts not less than the value of the securities loaned.
The Trust may lend money only to governmental jurisdictions and
instrumentalities, but is not precluded from entering into repurchase
agreements or purchasing debt securities.
4. Other Activities. The Trust may not act as an underwriter (except
for activities in connection with the acquisition or disposition of
securities intended for or held by one of the Trust's portfolios), make
short sales or maintain a short position (unless the applicable fund
owns at least an equal amount of such securities, or securities
convertible or exchangeable into such securities, and not more than 25%
of a fund's net assets is held as collateral for such sales). Nor may
the Trust purchase securities on margin (except for customary credit
used in transaction clearance), invest in commodities, purchase
interests in real estate or invest in oil, gas or other mineral
exploration or development prograMs. However, the Trust may purchase
securities secured by real estate or interests therein and may use
financial futures contracts, including contracts traded on a regulated
commodity market or exchange, to purchase or sell securities which the
Trust would be permitted to purchase or sell by other means and where
the Trust intends to take or make the required delivery. The Trust may
acquire put options in conjunction with a purchase of portfolio
securities; it may also purchase put options and write call options
covered by securities held in the respective portfolio (and purchase
offsetting call options in closing purchase transactions), provided that
the put option purchased or call option written at all times remains
covered by portfolio securities, whether directly or by conversion or
exchange rights; but it may not otherwise invest in or write puts and
calls or combinations thereof.
Except as otherwise specifically provided, the foregoing percentage
limitations need only be met when the investment is made or other
relevant action is taken. The Trust will not borrow for the purpose of
making investments and, as a matter of operating policy to comply with
certain applicable state restrictions but not as a fundamental policy,
will not pledge, mortgage or hypothecate more than 10% of a portfolio's
total assets taken at market value. Although permitted to do so by its
fundamental policies, it is the Trust's current policy not to write call
options, not to acquire put options except in conjunction with a
purchase of portfolio securities, not to lend portfolio securities, and
not to use financial futures contracts. Should the Trust alter such
policy, it will notify shareholders of the policy revision at least 30
days prior to its implementation and describe the new investment
techniques to be employed.
THE INVESTMENT ADVISOR
Effective July 31, 1996, Madison Mosaic (formerly known as Bankers
Finance Advisors, LLC), 1655 Fort Myer Drive, Arlington, Virginia 22209-
3108, is the investment advisor to the Trust and is called the "Advisor"
throughout this Statement of Additional Information and the Prospectus.
The Advisor is responsible for the investment management of the Trust
and is authorized to execute the Trust's portfolio transactions, to
select the methods and firms with which such transactions are executed,
to oversee the Trust's operations, and otherwise to administer the
affairs of the Trust as it deems advisable. In the execution of these
responsibilities, the Advisor is subject to the investment policies and
limitations of the Trust described in the Prospectus and this Statement
of Additional Information, to the terms of the Declaration of Trust and
the Trust's By-Laws, and to written directions given from time to time
by the Trustees.
The Advisor is 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 of
its own. Madison was founded in 1973 and has never been controlled or
affiliated with any other business entity or person other than those
described herein. Madison also operates the Madison Scottsdale division
in Scottsdale, Arizona.
The investment advisory agreement between the Trust, on behalf of the
funds, and the Advisor, is subject to annual review and approval by the
Trustees, including a majority of those Trustees who are not "interested
persons," as defined in the Investment Company Act of 1940. The
investment advisory agreement was approved by shareholders for an
initial two year term at a special meeting of each portfolio's
shareholders held in July 1996.
The Investment Advisory Agreement may be terminated at any time without
penalty by the Trustees, or with respect to any series or class of the
Trust's shares, by the vote of a majority of the outstanding voting
securities of that series or class (see "Organization of the Trust"), or
by the Advisor upon sixty days' written notice to the other party. The
Investment Advisory Agreement may not be assigned by the Advisor, and
will automatically terminate upon any assignment.
Background of the Advisor. The Advisor was formed in 1996 by Madison
for the purpose of providing investment management services to the
Mosaic family of mutual funds (previously known as the GIT family of
funds), including the Trust. The Advisor purchased the investment
management assets of the former advisor to the Trust, Bankers Finance
Investment Management Corp on July 31, 1996. For periods prior to July
31, 1996, references in this Statement of Additional Information and in
the Prospectus to the "Advisor" refer to Bankers Finance Investment
Management Corp. The Advisor also serves as the investment advisor to
Mosaic Government Money Market, Mosaic Equity Trust and Mosaic Income
Trust.
Management. Frank E. Burgess is President, Treasurer and Director of
Madison and Vice President of the Advisor. Mr. Burgess owns a majority
of the controlling interest of Madison, which owns 100% of the Advisor.
Mr. Burgess is also a Trustee and Vice President of the Trust. Mr.
Burgess holds the same positions with Mosaic Equity Trust, Mosaic Income
Trust and Mosaic Government Money Market. Katherine L. Frank is
President and Treasurer of the Advisor and Vice President of Madison.
Ms. Frank holds the same positions with Mosaic Government Money Market,
Mosaic Income Trust and Mosaic Equity Trust.
Advisory Fee and Expense Limitations. For its services under the
Investment Advisory Agreement, the Advisor receives a fee, payable
monthly, calculated as 1/2 percent per annum of the average daily net
assets of the Trust's Money Market Fund and 5/8 percent per annum of the
average daily net assets of the other Funds. Such percentage does not
decrease as net assets increase. The Advisor may waive or reduce such
fee during any period. The Advisor may also reduce such fee on a
permanent basis, without any requirement for consent by the Trust or its
shareholders, under such terms as it may determine, by written notice
thereof to the Trust.
The Advisor has agreed, in any event, to be responsible for the fees and
expenses of the Trustees and officers of the Trust who are affiliated
with the Advisor and its various promotional expenses (including the
distribution of prospectuses to potential shareholders). Other than
investment management and the related expenses and the foregoing items,
the Advisor is not obligated to provide or pay for any other services to
the Trust, although it may elect to do so. The Investment Advisory
Agreement permits the Advisor to make payments out of its fee to other
persons, including broker-dealers that make one or more of the Trust's
funds available to investors pursuant to any "no transaction fee"
network or service they provide.
The Arizona Fund paid aggregate advisory fees for the fiscal years ended
September 30, 1992, 1993, 1994, 1995, 1996 and 1997 in the amounts of
$61,602, $84,951, $86,146, $64,823, $59,352 and $55,147, respectively.
The Missouri Fund paid aggregate advisory fees for the fiscal years
ended September 30, 1992, 1993, 1994, 1995, 1996 and 1997 in the amounts
of $55,902, $76,300, $81,307, $69,391, $71,065 and $70,293,
respectively.
The Advisor waived $9,460 in advisory fees in connection with the
Maryland Fund for the period from February 10, 1993 (inception) to
September 30, 1993 and waived $20,607, $18,524 and $15,118 in advisory
fees for the fiscal years ending September 30, 1994, 1995 and 1996,
respectively. For the fiscal years ended September 30, 1996 and 1997,
the portfolio paid $1,214 and $12,517 in advisory fees, respectively.
The Virginia Fund paid aggregate advisory fees to the Advisor for the
period October 13, 1987, through September 30, 1988, for the fiscal
years ended September 30, 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996
and 1997 in the amounts of $72,123, $117,791, $142,774, $172,966,
$214,486, $254,204, $251,858, $207,900, $213,357 and $204,610,
respectively.
During the fiscal years ending September 30, 1988, 1989, 1990, 1991,
1992, 1993, 1994, 1995, 1996 and 1997, the Advisor received aggregate
advisory fees in connection with the Trust's National Fund of $248,341,
$251,380, $254,998, $250,654, $254,528, $257,734, $238,703, $202,743,
$192,643 and $176,540, respectively, and aggregate advisory fees of
$111,535, $113,931, $118,603, $100,865, $79,866, $72,803, $58,333,
$45,081, $41,488 and $36,259, respectively, in connection with the
Trust's Money Market.
ORGANIZATION OF THE TRUST
The Declaration of Trust, dated June 8, 1982, has been filed with the
Secretary of State of the Commonwealth of Massachusetts and the Clerk of
the City of Boston, Massachusetts. The prospectus contains general
information concerning the Trust's form of organization and its shares
(see "The Trust and Its Shares"), including the series of shares
currently authorized.
Series and Classes of Shares. At any time the Trustees may authorize
the creation of additional series of shares (the proceeds of which would
be invested in separate, independently managed Portfolios) and
additional classes of shares within any series (which would be used to
distinguish among the rights of different categories of shareholders, as
might be required by future regulations, methods of share distribution
or other unforeseen circumstances) with such preferences, privileges,
limitations, and voting and dividend rights as the Trustees may
determine. All consideration received by the 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 the liabilities related thereto. For any such additional
series or class, any adoption of an investment advisory contract or
changes in fundamental investment policies related to the series or
class must be submitted for shareholder approval, as required by the
Investment Company Act of l940.
The Trustees may divide or combine the shares of any series into a
greater or lesser number of shares without thereby changing the
proportionate interests in the series. In the event of unforeseen gains
or losses, the Trustees might use this authority to maintain the price
of Money Market shares at $1.00. Any assets, income and expenses of the
Trust not readily identifiable as belonging to a particular series are
allocated by or under the direction of the Trustees in such a manner as
they deem fair and equitable. Upon any liquidation of the Trust or of a
series of its shares, the shareholders are entitled to share pro-rata in
the liquidation proceeds available for distribution. Shareholders of
each series have an interest only in the assets allocated to that
series.
Voting Rights. The voting rights of shareholders are not cumulative, so
that holders of more than 50% 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. As of November 28, 1997,
the shareholders which held five percent or more of the Trust were: for
the Arizona Portfolio -- Charles Schwab & Co., 101 Montgomery Street, San
Francisco, CA (8%); for the Maryland Portfolio -- Marie Cheng, 7508
Cayuga, Bethesda, MD (5%); for the Missouri Portfolio -- Blueridge & Co.,
4240 Blue Ridge Blvd., Kansas City, MO (34%); for the Virginia Portfolio
- -- none; for the National Portfolio -- none; and for the Money Market
Portfolio -- Fagel & Haber, 140 South Dearburn Street, Chicago, IL (11%),
K.L. Norris, 4637 Randolph Drive, Annandale, VA (7%), and S & C Schaub,
1924 Gaither St., Temple Hills, MD (8%).
By virtue of owning more than 25% of the Missouri Fund, the shareholder
referenced above is considered to control the fund. The shareholder is
a Missouri financial institution acting in a fiduciary capacity and is
not otherwise related to the Trust or its advisor, nor does it
beneficially own the shares it controls.
Shareholder votes relating to the election of Trustees, approval of the
Trust's selection of independent public auditors and any contract with a
principal underwriter, as well as any other matter in which the
interests of all shareholders are substantially identical, will be voted
on without regard to series or classes of shares. Matters that affect a
particular series or class of shares will not be voted upon by the
unaffected shareholders. Holders of an entity such as the Trust, under
certain circumstances in which the interests of more than one series or
class of shares are affected, but where such interests are not
substantially identical, will be voted on separately by each series or
class affected and will require a majority vote of each such series or
class to be approved.
In particular, required shareholder approval of the Investment Advisory
Agreement and any change in the Trust's fundamental investment policies
(see "Investment Limitations") will be submitted to a separate vote by
each series and class of shares. When a matter is voted upon separately
by more than one series or class of shares, it may be approved with
respect to a series or class even if it fails to receive a majority vote
of any other series or class or fails to receive a majority vote of all
shares entitled to vote on the matter.
Because there is no requirement for annual elections of Trustees, the
Trust 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 Trust's independent
auditors will be submitted to a vote of ratification by the shareholders
at any annual meeting held by the Trust. Any change in the Declaration
of Trust, in the Investment Advisory Agreement (except for reductions of
the Advisor's fee) or in fundamental investment policies must be
approved by a majority of the affected shareholders before it can become
effective. For this purpose, a "majority" of the shares of the Trust
means either the vote, at an annual or special meeting of the
shareholders, of 67 percent or more of the shares present at such
meeting if the holders of more than 50 percent of the outstanding shares
of the Trust are present or represented by proxy or the vote of 50
percent of the outstanding shares of the Trust, whichever is less.
The Declaration of Trust provides that two-thirds of the holders of
record of the Trust'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 Trust's shares file declarations in writing
with the Custodian. The Trustees are required to promptly call a
meeting of shareholders for the purpose of voting on removal of a
Trustee if requested to do so in writing by the record holders of at
least 10% of the Trust's outstanding shares. Ten or more persons who
have been shareholders for at least six months and who hold shares with
a total value of at least $25,000 (or 1% of the Trust's net assets, if
less) may require the Trust to assist a shareholder solicitation with
the purpose of calling a shareholder meeting. Such assistance could
include providing a shareholder mailing list or an estimate of the
number of shareholders and approximate cost of the shareholder mailing,
in which latter case, unless the Securities and Exchange Commission
determines otherwise, the shareholders desiring the solicitation may
require the Trustees to undertake the mailing if those shareholders
provide the materials to be mailed and assume the cost of the mailing.
Shareholder Liability. Under Massachusetts law, the shareholders of an
entity such as the Trust 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 Trust, and requires that notice of such disclaimer be
given in each agreement, obligation or instrument, entered into or
executed by the Trust or Trustees. The Declaration of Trust provides
for indemnification out of Trust property of any shareholder held
personally liable for the obligations of the Trust. The Declaration of
Trust also provides that the Trust shall, upon request, assume the
defense of any claim made against any shareholder for any act or
obligation of the Trust and satisfy any judgment thereof. Thus the risk
of a shareholder incurring financial loss on account of status as a
shareholder is limited to circumstances in which the Trust 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 Trust will not be liable for any
neglect, wrongdoing, errors of judgment, or mistakes of fact or law,
except that they shall not be protected from liability arising out of
willful misfeasance, bad faith, gross negligence, or reckless disregard
of their duties to the Trust. 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 Trust itself, similar to that provided to
shareholders, is provided to all Trustees, officers, employees and
agents of the Trust.
TRUSTEES AND OFFICERS
As of November 28, 1997, the Trustees and executive officers of the
Trust and their principal occupations during the past five years are
shown below:
Frank E. Burgess*
6411 Mineral Point Road, Madison, WI 53705
Trustee and Vice President
President and Director of Madison Investment Advisors, Inc., the entity
which controls the Advisor. Prior to forming Madison in 1973, he was
Assistant Vice President and Trust Officer of M&I Bank of Madison,
Wisconsin. Mr. Burgess received his BS from Iowa State University and
his law degree from the University of Wisconsin. He is a member of the
State Bar of Wisconsin. b. 8/4/42.
Thomas S. Kleppe***
7100 Darby Road, Bethesda, MD 20817
Trustee
Private Investor; formerly Visiting Professor at the University of
Wyoming, Secretary of the U.S. Department of the Interior, Administrator
of the U.S. Small Business Administration, U.S. Congressman from North
Dakota, Vice President and Director of Dain, Kalman & Quail, investment
bankers, and President of Gold Seal Co., manufacturers of household
cleaning products. Attended Valley City State College of North Dakota.
b. 7/1/19.
James R. Imhoff, Jr.***
429 Gammon Place, Madison, WI 53719
Trustee
Chairman and CEO of First Weber Group, Inc. of Madison, WI, a
residential real estate company; Chairman of the Wisconsin Real Estate
Board of the Department of Regulation and Licensing; Director to the
University of Wisconsin School of Business, Center for Urban Land
Economics Research; Director of the Park Bank, Wisconsin; formerly
President of the Wisconsin Realtors Association and the Greater Madison
Board of Realtors and Director of the National Association of Realtors.
An alumnus of the Marquette University School of Business. b. 5/20/44.
Lorence D. Wheeler***
4905 W. 60th Avenue, Arvada, CO 80003
Trustee
President of Credit Union Benefits Services, Inc., a provider of
retirement plans and related services for credit union employees
nationwide. Previously a shareholder of the law firm of Bell, Metzner &
Gierart, SC. Mr. Wheeler received his law degree from the University of
Wisconsin. b. 1/31/38.
Katherine L. Frank
6411 Mineral Point Road, Madison, WI 53705
President
President of Mosaic Funds, Vice President of Madison Investment
Advisors, Inc. A graduate of Macalester College, St. Paul, Minnesota.
Julia M. Nelson
1655 Fort Myer Drive, Arlington, VA 22209-3108
Vice President
Vice President of Mosaic Funds.
Jay R. Sekelsky
6411 Mineral Point Road, Madison, WI 53705
Vice President
Vice President of Mosaic Funds and of Madison Investment Advisors, Inc.
Formerly Vice President of Wellington Management Group of Boston, MA.
Mr. Sekelsky holds a BBA in Accounting and an MBA in Finance from the
University of Wisconsin.
Christopher C. Berberet
6411 Mineral Point Road, Madison, WI 53705
Vice President
Vice President of Mosaic Funds and of Madison Investment Advisors, Inc.
Formerly the Director of Fixed Income Management for the ELCA Board of
Pensions, Minneapolis, MN. A graduate of the University of Wisconsin.
W. Richard Mason
1655 Ft. Myer Drive, Arlington, VA 22209
Secretary
Secretary of Mosaic Funds, GIT Investment Services, Inc., Presidential
Savings Bank, FSB and Presidential Service Corporation. Formerly
Assistant General Counsel for the Investment Company Institute. Mr.
Mason holds a BS in Foreign Service from Georgetown University and
received his law degree from The George Washington University. He is a
member of the District of Columbia and Texas bars.
*Trustee deemed to be an "interested person" of the Trust as the term is
defined in the Investment Company Act of 1940. Only those persons named
in the table of Trustees and officers who are not interested persons of
the Trust are eligible to be compensated by the Trust. The compensation
of each non-interested Trustee who may be compensated by the Trust has
been fixed at $6,000 per year, to be pro-rated according to the number
of regularly scheduled meetings each year. Four Trustees' meetings are
currently scheduled to take place each year. In addition to such
compensation, those Trustees who may be compensated by the Trust shall
be reimbursed for any out-of-pocket expenses incurred by them in
connection with the affairs of the Trust. Mr. Kleppe will receive
annual compensation from the Trust and from the other investment
companies managed by the Advisor or Madison (see "the Investment
Advisor") totalling $15,000. Mr. Imhoff and Mr. Wheeler received annual
compensation from the Trust and from other investment companies managed
by the Advisor or Madison totalling $18,000 through June 13, 1997, and
thereafter will be compensated in the same amount as Mr. Kleppe.
During the last fiscal year of the Trust, the Trustees were compensated
as follows:
Aggregate Total Compensation from
Compensation Trust and Fund Complex
from Trust Paid to Trustees (a)
Frank E. Burgess 0 0
Thomas S. Kleppe $4,000 $15,000
James R. Imhoff, Jr. $4,000 $18,000
Lorence D. Wheeler $4,000 $18,000
(a) Prior to June 13, 1997, the complex was comprised of 4 trusts and
three corporations with a total of 16 funds and/or series. As of June
13, 1997, the complex is comprised of 4 trusts and one corporation with
a total of 15 funds and/or series.
***Member of the Audit Committee of the Trust. The Audit Committee is
responsible for reviewing the results of each audit of the Trust by its
independent auditors and for recommending the selection of independent
auditors for the coming year.
Under the Declaration of Trust, the Trustees are entitled to be
indemnified by the Trust to the fullest extent permitted by law against
all liabilities and expenses reasonably incurred by them in connection
with any claim, suit or judgment or other liability or obligation of any
kind in which they become involved by virtue of their service as
Trustees of the Trust, except liabilities incurred by reason of their
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
As of November 28, 1997, the Trustees and officers of the Trust directly
or indirectly owned as a group less than 1% of the shares in the Money
Market and National Fund, and no shares in the Arizona, Maryland,
Missouri and Virginia Funds.
ADMINISTRATIVE AND OTHER EXPENSES
Except for certain expenses assumed by the Advisor (see "The Investment
Advisor"), the Trust is responsible for payment from its assets of all
of its expenses which are satisified pursuant to the Services Agreement
desribed below.. These expenses can include any of the business or
other expenses of organizing, maintaining and operating the Trust.
Certain expense items which may represent significant costs to the Trust
include the payment of the Advisor's fee; the expense of shareholder
accounting, customer services, and calculation of net asset value; the
fees of the Custodian, of the Trust`s independent auditors, and of legal
counsel to the Trust; the expense of registering the Trust and its
shares, of printing and distributing prospectuses to current
shareholders, and of trade association membership; the expense of
preparing shareholder reports, proxy materials and of holding
shareholder meetings of the Trust.
Services Agreement. The Trust does not have any officers or employees
who are paid directly by the Trust. The Trust has entered into a
Services Agreement with the Advisor for the provision of operational and
other services required by the Trust. Such services may include the
functions of shareholder servicing agent and transfer agent, bookkeeping
and portfolio accounting services, the handling of telephone inquiries,
cash withdrawals and other customer service functions including
monitoring wire transfers, and providing to the Trust appropriate
supplies, equipment and ancillary services necessary to the conduct of
its affairs. The Trust is registered with the Securities and Exchange
Commission as the transfer agent for its shares and acts as its own
dividend-paying agent; while transfer agent personnel and facilities are
included among those provided to the Trust under the Services Agreement,
the Trust itself is solely responsible for its transfer agent and
dividend payment functions and for the supervision of those functions by
its officers. The Trust maintains books and records of shareholder
accounts and provides confirmations of transactions and quarterly
account statements.
All such services provided to the Trust by the Advisor are rendered at a
flat percentage fee calculated as a percentage of average daily net
assets, reviewed and approved at least annually by the Trustees. Such
fee is expected to approximate or be below the cost of providing such
services. The term "cost" includes both direct expenditures and the
related overhead costs, such as depreciation, employee supervision, rent
and the like; reimbursements to the Advisor pursuant to the Services
Agreement are in addition to and independent of payments made pursuant
to the Investment Advisory Agreement. The Advisor provides such
services to Mosaic Equity Trust, Mosaic Income Trust, and Mosaic
Government Money Market. The Trust's costs will also include certain
direct expenses (including custody, brokerage, blue sky, legal and
audit).
Distribution Agreement. GIT Investment Services, Inc. acts as the
Trust's Distributor and principal underwriter pursuant to a Distribution
Agreement dated November 18, 1982. This Agreement has an initial term
of two years and may thereafter continue in effect only if approved
annually by the Trustees, including a majority of those who are not
"interested persons" as defined in the Investment Company Act of 1940.
The Agreement provides for distribution of the Trust's shares without a
sales charge to the investor. The Distributor may act as the Trust's
marketing and offering agent for any sales of its shares. The Trust
will also sell its shares directly to any party. The Distributor makes
the Trust's shares continuously available to the general public in those
states where it has qualified to do so, but has assumed no obligation to
purchase any of the Trust's shares. The Distributor is wholly owned by
A. Bruce Cleveland.
PORTFOLIO TRANSACTIONS
Decisions as to the purchase and sale of securities and decisions as to
the execution of these transactions, including selection of market,
broker or dealer and the negotiation of commissions, are to be made by
the Advisor, subject to review by the officers and Trustees.
In the purchase and sale of portfolio securities the Trust seeks to
obtain prompt and reliable execution of orders at the most favorable
price or yield. In determining the best price and execution, the
Advisor may take into account a dealer's operational and financial
capabilities, the type of transaction involved, the dealer's general
relationship with the Advisor, and any statistical, research or other
services provided by the dealer to the Advisor. 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 Trust as determined in good faith by the Advisor.
In selecting brokers and dealers with which to execute transactions, the
Advisor gives consideration to whether a dealer has previously given
research information concerning the particular securities being
purchased. Such broker-dealer selections, however, are not made as a
result of agreements with the firms involved and the Advisor does not
maintain an allocation system for dealing with broker-dealers. Brokers
or dealers who execute transactions for the Trust may also sell its
shares; however, any such sales will be neither a qualifying nor a
disqualifying factor in the selection. The Trust did not purchase any
securities issued by broker-dealers during the fiscal year ended
September 30, 1997. During its three most recent fiscal years, the
Trust purchased all of its investments in principal transactions and
paid no brokerage commissions.
Owing to the nature of the market for municipal securities, the Trust
expects that most portfolio transactions are made directly with an
underwriter or dealer acting as a principal, and thus do not involve
direct payments of commissions, although purchases from an underwriter
involve payments of fees and concessions by the issuer to the
underwriting group. The Trust also reserves the right to purchase
portfolio securities through an affiliated broker, when deemed in the
Trust's best interests by the Advisor, provided that: (1) the
transaction is in the ordinary course of the broker's business; (2) the
transaction does not involve a purchase from another broker or dealer;
(3) compensation to the broker in connection with the transaction is not
in excess of one percent of the cost of the securities purchased; and
(4) the terms to the Trust for purchasing the securities, including the
cost of any commissions, are not less favorable to the Trust than terms
concurrently available from other sources. Any compensation paid in
connection with such a purchase will be in addition to fees payable to
the Advisor under the Investment Advisory Agreement. The Trust does not
anticipate that any such purchases through affiliates will represent a
significant portion of its total activity; no such transactions took
place during the Trust's three most recent fiscal years.
The Trust does not expect to engage in short-term trading for its State
Portfolios or National Fund, but securities may be purchased and sold in
anticipation of market interest rate changes, as well as for other
reasons. The Trust anticipates that annual portfolio turnover for these
portfolios will generally not exceed 100%, but actual turnover rate will
not be a limiting factor if the Trust deems it desirable to make
purchases or sales. Reference should be made to the Prospectus for
actual rates of portfolio turnover (see "Financial Highlights").
Although the Trust intends normally to hold securities in its Money
Market to maturity, the short maturities of these investments are
expected to result in a relatively high rate of portfolio turnover.
SHAREHOLDER TRANSACTIONS
The Prospectus describes the basic procedures for investing in the Trust
(see "Shareholder Transactions," "How to Open a New Account" and "How to
Purchase Additional Shares"). The following information concerning
other investment procedures is presented to supplement the information
contained in the Prospectus.
Shareholder Service Policies. The Trust's policies concerning
shareholder services are subject to change from time to time.
Minimum Initial Investment and Minimum Balance. The Trust reserves the
right to change the minimum account size below which an account is
subject to a monthly service charge or to involuntary closing by the
Trust. The Trust may change its minimum amount for subsequent
investments by 30 days written notice to its shareholders.
Special Service Charges. The Trust further reserves the right, after 30
days written notice to shareholders, to impose special service charges
for services that are not regularly afforded to shareholders, such
service charges may include but are not limited to fees for stop payment
orders and returned checks. The Trust's standard service charges are
also subject to adjustment from time to time.
Share certificates will not be issued.
Subaccounting Services. The Trust offers subaccounting services to
institutions. The Trustees reserve the right to determine from time to
time such guidelines as they deem appropriate to govern the level of
subaccounting service that can be provided to individual institutions in
differing circumstances. Normally, the Trust's minimum initial
investment to open an account will not apply to subaccounts; however,
the Trust reserves the right to impose the same minimum initial
investment requirement that would apply to regular accounts, if it deems
that the cost of carrying a particular subaccount or group of
subaccounts is otherwise likely to be excessive. The Trust may provide
and charge for subaccounting services which it determines exceed those
services which can be provided without charge; the availability and cost
of such additional services will be determined in each case by
negotiation between the Trust and the parties requesting the additional
services. The Trust is not presently aware of any such services for
which a charge will be imposed.
Crediting of Investments. The Trust reserves the right to reject any
investment in the Trust for any reason and may at any time suspend all
new investment in the Trust. The Trust may also, in its discretion or
at the instance of the Advisor, decline to give recognition as an
investment to funds wired for credit to either type of account, until
such funds are actually received by the Trust. Under present federal
regulatory guidelines, the Advisor may be responsible for any losses
resulting from changes in the Trust's net asset value which are incurred
by the Trust as a result of failure to receive funds from a shareholder
to whom recognition for investment was given in advance of receipt of
payment.
If shares are purchased to be paid for by wire and the wire is not
received by the Trust or if shares are purchased by a check which, after
deposit, is returned unpaid or proves uncollectible, then the share
purchase may be canceled immediately or the purchased shares may be
immediately redeemed. The shareholder that gave notice of the intended
wire or submitted the check will be held fully responsible for any
losses so incurred by the Trust, the Advisor or the Distributor.
Checks. Checks drawn on foreign banks will not be considered received
in federal funds until the Trust has actual receipt of payment in
immediately available U.S. dollars after submission of the check for
collection; collection of such checks through the international banking
system may require 30 days or more.
Wire. Funds received by wire are normally converted into shares in the
Trust at the net asset value next determined.
Purchase Orders from Brokers. An order to purchase shares which is
received by the Trust 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, provided the broker received the order from its customer
prior to that time and transmitted it to the Trust prior to the close of
the New York Stock Exchange. Shareholders who invest in the Trust
through a broker may be charged a commission for handling the
transaction. A shareholder may deal directly with the Trust anytime to
avoid the fee.
REDEMPTIONS
The value of shares redeemed will be determined according to the share
net asset value next calculated after the request has been received in
proper form (See "Determination of Net Asset Value."). Thus, any such
request received in proper form prior to the close of the New York Stock
Exchange on a business day will reflect the net asset value calculated
at that time; later withdrawal requests will be processed to reflect the
share net asset value figure calculated on the next day the calculation
is made. The Trust calculates net asset values each day the New York
Stock Exchange is open for trading.
Net asset value determinations will apply as of the day the redemption
order is submitted in proper form. A redemption request may not be
deemed to be in proper form unless a signed account application has been
properly submitted to the Trust by the shareholder or such an
application is submitted with the withdrawal request.
A shareholder draft check drawn against an account will not be
considered in proper form unless sufficient collected funds are
available in the account on the day the check is presented for payment.
The "day of withdrawal" for share redemptions refers to the day on which
corresponding funds are paid out by the Trust, whether by wire transfer,
exchange between accounts, check, or debit of the investor's account to
cover a customer checks presented for payment.
Shareholders should be aware that it is possible, should the share net
asset value of the Trust fall, that amounts available for withdrawal
from an account could be less than the amount of the original
investment. All redemptions from the Trust will be affected by the
redemption of the appropriate number of whole and fractional shares
having a net asset value equal to the amount withdrawn.
The Trust will use its best efforts in normal circumstances to handle
withdrawals within the times previously given. However, it may for any
reason it deems sufficient suspend the right of redemption or postpone
payment for any shares in the Trust for any period up to seven days.
The Trust's sole responsibility with regard to withdrawals shall be to
process, within the aforementioned time period, redemption requests in
proper form. Neither the Trust, its affiliates, nor the Custodian can
accept responsibility for any act or event which has the effect of
delaying or preventing timely transfers of payment to or from
shareholders. By law, payment for shares in the Trust may be suspended
or delayed for more than seven days only during any period when the New
York Stock Exchange is closed, other than customary weekend and holiday
closings; when trading on such Exchange is restricted, as determined by
the Securities and Exchange Commission; or during any period when the
Securities and Exchange Commission has by order permitted such
suspension.
When an account is closed, the Trust reserves the right to make payment
by check of any final dividends declared to the date of the redemption
to close the account, but not yet paid, on the same day such dividends
are paid to other shareholders, rather than at the time the account is
closed.
Inter-Fund Exchange. Funds exchanged between shareholder accounts will
earn its final days dividend on the day of exchange.
The Trust reserves the right, when it deems such action necessary to
protect the interests of its 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 identity satisfactory to the Trust.
The Trust reserves the right to refuse any third party redemption
requests.
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 Trust;
except, however, that the Trust has elected, pursuant to rules of the
Securities and Exchange Commission, to permit any shareholder of record
to make redemptions wholly in cash to the extent the shareholder's
redemptions in any 90-day period do not exceed the lesser of 1% of the
aggregate net assets of the Trust or $250,000. Any property of the
Trust distributed to shareholders will be valued at fair value. In
disposing of any such property received from the Trust, 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, the Trust intends to pay for all share
redemptions in cash.
It is the shareholder's obligation to inform the Trust of address
changes. The Trust will exercise reasonable care to ascertain the
correct address of lost shareholders. The Trust will conduct two
database searches and use at least one information database service.
The search will be conducted at no cost to the shareholder. The Trust
will not, however, perform such searches if the shareholder's account is
less than $25, if the shareholder is not a natural person or the Trust
has received documentation that the shareholder is deceased. If a lost
shareholder cannot be located after such procedures, such shareholder's
account may be escheated to the state of the shareholder's last
residence. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
DECLARATION OF DIVIDENDS
Substantially all of each fund's accumulated net income is declared as
dividends each business day. Calculation of accumulated net income for
each of the Trust's portfolios is made just prior to calculation of the
funds's net asset value (see "Determination of Net Asset Value"). The
amount of such net income reflects interest income (plus any original
discount earned less premium amortized) and expenses accrued by the fund
since the previously declared dividends.
Realized capital gains and losses and unrealized appreciation and
depreciation are reflected as changes in net asset value per share of
the Trust's portfolios. Premium on securities purchased is amortized
daily as a charge against income. Original issue discount on municipal
bonds is considered tax-exempt and an amortization of the remaining
unearned portion of such discount will be included in the Trust's daily
income.
Dividends are payable to shareholders of record at the time they are
determined. Dividends are paid in the form of additional shares
credited to the respective investor account at the end of each calendar
month (or normally when the account is closed, if sooner), unless the
shareholder makes a written election to receive dividends in cash.
Notice of payment of dividends will be mailed to each shareholder
quarterly. For tax purposes each shareholder will also receive an
annual summary of dividends paid by the Trust and the extent, if any, to
which they constitute "exempt-interest dividends" (see "Additional Tax
Matters"). Any investor purchasing shares in an account of the Trust as
of its net asset value determination (the close of the New York Stock
Exchange) on a given day will not be considered a shareholder of record
for the dividend declaration made that day; but an investor withdrawing
as of such determina-tion will be considered a shareholder of record
with respect to the shares withdrawn. A "business day" is any day the
New York Stock Exchange is open for trading.
Net realized capital gains, if any, will be distributed to shareholders
at least annually. Since the Money Market does not hold securities
having an effective maturity longer than one year, capital gains in this
portfolio are unlikely; however, to the extent any capital gains are
realized in this portfolio, they will be distributed to shareholders at
least once a year.
DETERMINATION OF NET ASSET VALUE
The net asset value of each portfolio and of individual shares is
calculated each day the New York Stock Exchange is open for trading.
Net asset value is not calculated on New Year's Day, the observance of
Martin Luther King, Jr.'s Birthday, Presidents Day, Good Friday, the
observance of Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day, and on other days the New York Stock Exchange is
closed for trading. The net asset value calculation for each of the
Trust's portfolios is made as of a specific time of day, as described in
the prospectus.
Net asset value per share of each portfolio is determined by adding the
value of all its securities and other assets, subtracting its
liabilities and dividing the result by the total number of outstanding
shares that represent an interest in the portfolio. These calculations
are performed by the Trust, pursuant to the Services Agreement (see
"Administrative and Other Expenses"). The Trust does not charge a
"sales load," and accordingly its shares are both offered and redeemed
at net asset value. Securities for which current market quotations are
readily available are valued at the mean between their bid and asked
prices; securities for which current market quotations are not readily
available are valued at their fair value as determined in good faith by
the Trustees. Securities having a remaining effective maturity of 60
days or less are valued at amortized cost, subject to the Trustees'
determination that this method reflects their fair value. The Trustees
may authorize reliance upon an independent pricing service for the
determination of security values. The market for many municipal issues
is not active and transactions in such issues may occur infrequently.
Accordingly, the independent pricing service may price securities with
reference to market transactions in comparable securities and to
historical relationships among the prices of comparable securities; such
prices may also reflect an allowance for the impact upon prices of the
larger transactions typical of trading by institutions.
Shares in the State Portfolios and National Fund are priced by rounding
to the nearest one-tenth of one percent. Net asset value of these
shares is expected to fluctuate daily, and the Trust will make no
attempt to stabilize the value of any such portfolio shares.
To the extent reasonably practicable in light of current market
conditions, the Trustees intend to assure that the Money Market's net
asset value per share will not deviate from $1.00. In accordance with
this objective, the Trustees intend to price shares according to the
"penny rounding" method, whereby the share price will be rounded to the
nearest cent. This pricing method will be followed pursuant to an
exemptive order of the Securities and Exchange Commission, which
requires the Money Market to limit its investments to dollar-denominated
high grade instruments deemed to represent minimal credit risks (see
"Quality Ratings"), to limit maturities to those appropriate to the
objective of maintaining a stable share price, and in any event to the
maturity restrictions provided in the Trust's investment policies (see
"Investment Policies"), and to invest in a manner which the Trustees
determine will, to the extent reasonably practicable taking into account
current market conditions, assure that the portfolio's net asset value
per share will not deviate from $1.00. The Trust reserves the right to
use the "penny rounding" valuation method pursuant to any applicable
rules adopted by the Securities and Exchange Commission, even if the
terms of such rules differ from the terms of the Trust's exemptive
order.
Despite these considerations, there can be no absolute assurance that
the Money Market will always maintain a $1.00 share price. The "penny
rounding" pricing method, in fact, requires that if the net asset value
per share deviates one-half percent or more from $1.00, the share price
must be rounded upward or downward accordingly.
ADDITIONAL TAX MATTERS
Federal Income Tax. Each portfolio of the Trust intends to continue to
qualify for the special treatment afforded regulated investment
companies under the Internal Revenue Code of 1986, as amended (the
"Code"). If it so qualifies, each portfolio will not be subject to
Federal income tax on the amounts distributed to shareholders.
Furthermore, the Code permits regulated investment companies with at
least 50 percent of the value of their assets invested in tax-exempt
securities as of the close of each fiscal quarter to "flow through" to
shareholders the tax-exempt character of the interest paid. The Trust
intends to qualify under this provision so that dividends paid to
shareholders will be treated as "exempt-interest dividends" in the same
proportion as the Trust's annual net investment income is derived from
tax-exempt sources. Thus, to the extent a portfolio's dividends are
exempt-interest dividends, they may be treated by shareholders for
Federal income tax purposes as if they were interest excluded from gross
income. To qualify as exempt-interest dividends, distributions must be
designated as such in a written notice mailed to shareholders within 60
days of the close of the Trust's taxable year.
Shareholders who fail to comply with the interest and dividends "backup"
withholding provisions of the Code (by filing Form W-9 or its equivalent
when required) or who have been determined by the Internal Revenue
Service to have failed to properly report dividend or interest income,
may be subject to a 31% withholding requirement on transactions with the
Trust.
Under provisions of the Code, interest received on certain otherwise
tax-exempt securities is subject to an alternative minimum tax ("AMT").
AMT will apply to interest received on "private activity" bonds issued
after August 7, 1986 which are used to finance activities other than
those generally performed by governmental units (for example, bonds
issued to finance commercial enterprises or reduced interest rate home
mortgage loans). Interest income received on such bonds will be a "tax
preference item" which may make shareholders liable for payment of AMT.
Deductions and preference items such as state and local taxes, excess
depletion and excess intangible drilling costs (in addition to interest
on AMT bonds) are among the items which are added to taxable income to
determine whether AMT is due in place of ordinary income tax.
Corporations which have accounts with the Trust may be subject to AMT
based in part on certain differences between their taxable income
adjusted for other tax preference items and their "adjusted current
earnings." The Trust may purchase bonds on which the interest received
may be subject to AMT.
Pursuant to the Omnibus Reconciliation Act of 1993, if a security is
purchased by a portfolio at a "market discount", the amount of gain
earned by the portfolio upon disposition of the security may be
considered ordinary taxable income. Such income earned as a result of
"market discount" will be distributed to shareholders and will not
qualify as tax-exempt. For the Trust's fiscal year ended September 30,
1997, no portfolio experienced any recognizable gain due to "market
discount."
The Code requires that each portfolio of the Trust distribute 100% of
its net income and net capital gains in order to avoid all regular
corporate tax. The Code also requires the distribution of at least 98%
of net income and capital gains (determined as of October 31) before
calendar year-end in order to avoid a 4% excise tax, but the excise tax
will not apply to a portfolio's tax-exempt income. The Trust intends to
distribute any taxable income to the extent such income is realized and
avoid imposition of the excise tax. Shareholders will, however, be
subject to federal income tax on any dividends paid out of taxable
ordinary net income of a portfolio or out of long-term or short-term
capital gains. Such dividends are taxable to shareholders whether
distributed in cash or reinvested in additional shares. The Trust has
reserved freedom to sell any securities held by it or which it has
committed to purchase. Since profits realized from such sales are
classified as capital gains, they would be subject to capital gains
taxes, even if the securities sold are otherwise tax-exempt. For
shareholders who receive exempt-interest dividends on shares held for
less than six months, any loss on the sale or exchange of such shares
will, to the extent of such dividends, be disallowed. Any such loss to
the extent not disallowed by the preceding sentence will be treated as a
long-term capital loss to the extent of any capital gain dividends
received by the shareholder.
State and Local Taxes. Exemption from federal income tax of dividends
derived from municipal securities does not necessarily result in an
exemption under the tax laws of any state or local taxing authority.
Shareholders may be exempt from state and local taxes on dividends
derived from municipal securities issued by entities located within
their state of residence, but may be subject to state or local tax on
dividends derived from other obligations. A breakdown of dividends by
state is provided to shareholders on an annual basis for the National
Fund and Money Market. Shareholders should consult their tax advisors
about the status of distributions from the Trust in their own tax
jurisdictions.
YIELD AND TOTAL RETURN CALCULATIONS
In order to provide a basis for comparisons of the Trust's portfolios
with similar funds, with comparable market indices, and with investments
such as savings accounts, savings certificates, taxable and tax-free
bonds, taxable money market funds and money market instruments, the
Trust calculates yields for all of its portfolios and total returns for
the National Fund and the State Portfolios.
Standardized Yield. For advertising purposes, the yields of each of the
Trust's portfolios will be calculated according to standardized formulas
prescribed by the Securities and Exchange Commission.
The State Portfolios and National Fund. The standardized yields of the
State Portfolios and of the National Fund are calculated by adding one
to the respective portfolio's total daily theoretical net income per
share during a given 30-day period divided by the portfolio's maximum
offering price per share on the last day of the period, raising the
result to the sixth power, subtracting one, and multiplying the result
by two. Such standardized yields may be calculated daily; weekly, as of
each Friday; and monthly, as of the last business day of each month.
For purposes of such yield calculations, the daily theoretical gross
income of each obligation in a portfolio is determined as1/360 of the
obligation's yield to maturity (or put or call date in certain cases),
based upon its current value (defined as the obligation's closing market
value that day, plus any accrued interest), multiplied by such current
value. For tax-exempt securities having a current value discount which
exceeds any unamortized original issue discount, such securities are
valued at the unamortized original issue discount, or if there is none,
at par. A portfolio's daily theoretical gross income is the sum of the
daily theoretical gross income amounts computed for each of the
obligations in the portfolio. A portfolio's total daily theoretical net
income per share during a given 30-day period is the portfolio's daily
theoretical gross income, less daily expenses accrued (as reduced by any
expenses waived or reimbursed by the Advisor), totalled for each day in
the period and divided by the average number of shares outstanding
during the period.
Money Market. The standardized yield of the Money Market is calculated
by dividing the net income (including the benefit of any expenses waived
or reimbursed by the Advisor) 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), and expressing the result (called the "base
period return") as an annualized percentage. The base period return is
annualized by multiplying it by 365 and dividing the product by seven.
The Money Market's "effective yield" is calculated in a similar manner,
except that the net income earned during a seven-day period is assumed
to be reinvested at the same rate over a full year, thereby generating
additional earnings from compounding interest. The effective 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.
Taxable Equivalent Yield. The Trust may also compute taxable equivalent
yields for each of its portfolios. The taxable equivalent yield of a
fund is equal to the portion of its yield representing tax-exempt
income, divided by one minus a stated income tax rate (expressed as a
fraction), plus any portion of the fund's yield which is not tax-exempt.
Total Return. For the State Portfolios and National Fund, average
annual total return is calculated by finding the compounded annual rate
of return over a given period that would be required to equate an
assumed initial investment in the fund to the ending redeemable value
the investment would have had at the end of the period, taking into
account the effect of the changes in the portfolio's share price during
the period and any recurring fees charged to shareholder accounts, and
assuming the reinvestment of all dividends and other distributions at
the applicable share price when they were paid. Non-annualized
aggregate total returns may also be calculated by computing the simple
percentage change in value that equates an assumed initial investment in
the portfolio with its redeemable value at the end of a given period,
determined in the same manner as for average annual total return
calculations.
Representative Total Return Quotations. As of September 30, 1997, the
standardized 30-day yield of the Arizona Fund was 3.83% per annum and
the corresponding taxable equivalent yield as of such date was 6.34%.
The taxable equivalent yield is based on the combined highest Arizona
and 36% federal income tax rate of 39.58% for the Arizona Fund
(determined after giving effect to the deductibility of Arizona income
tax payments for federal tax purposes). For the third quarter of 1997,
its return was 2.56%. For the year ended September 30, 1997, the
average annual total return of the Arizona Fund was 7.67%. For the five
years ended September 30, 1997, the average annual total return of the
Arizona Fund was 5.37%. For the period from October 13, 1989
(commencement date of public offering) through September 30, 1997, the
average annual total return of the Arizona Fund was 6.34%. The average
annual total return since inception would have been 5.90% for the
Arizona Fund had the Advisor not waived a portion of its management fee
or paid certain expenses during this period.
As of September 30, 1997, the standardized 30-day yield of the Maryland
Fund was 3.98% per annum and the corresponding taxable equivalent yield
as of such date was 6.76%. The taxable equivalent yield is based on the
combined highest Maryland, highest county and 36% federal income tax of
41.12% (determined after giving effect to the deductibility of local
income tax payments for federal tax purposes). For the third quarter of
1997, its return was 2.56%. For the year ended September 30, 1997, the
annual total return of the Maryland Fund was 7.42%. For the period from
February 10, 1993 (inception) through September 30, 1997, the average
annual total return of the Maryland Fund was 4.47%. Had the advisor not
waived a portion of its management fees or paid certain expenses for the
period from February 10, 1993 (inception) through September 30, 1997,
the average annual total return would have been 4.28%.
As of September 30, 1997, the standardized 30-day yield of the Missouri
Fund was 3.73% per annum and the corresponding taxable equivalent yield
as of such date was 6.20%. The taxable equivalent yield is based on the
combined highest Missouri and 36% federal income tax rate of 39.84% for
the Missouri Fund (determined after giving effect to the deductibility
of Missouri income tax payments for federal tax purposes). For the
third quarter of 1997, its return was 2.82%. For the year ended
September 30, 1997, the annual total return of the Missouri Fund was
7.72%. For the five years ended September 30, 1997, the average annual
total return of the Missouri Fund was 5.42%. For the period from
October 12, 1989 (commencement date of public offering) through
September 30, 1997, the average annual total return of the Missouri Fund
was 6.21%. The average annual total return since inception would have
been 5.78% for the Missouri Fund had the Advisor not waived a portion of
its management fee or paid certain expenses during this period.
As of September 30, 1997, the standardized 30-day yield of the Virginia
Fund was 4.03% per annum and the corresponding taxable equivalent yield
as of such date was 6.68%. The taxable equivalent yield is based on the
combined highest Virginia and 36% federal income tax rate of 39.68% for
the Virginia Fund (determined after giving effect to the deductibility
of Virginia income tax payments for federal tax purposes). For the
quarter ended September 30, 1997, its total return was 2.73%. For the
year ended September 30, 1997, the annual total return of the Virginia
Fund was 7.95%. For the five years ended September 30, 1997 the average
annual total return of the Virginia Fund was 5.84%. For the period from
October 13, 1987 (commencement date of public offering), through
September 30, 1997, the average annual total return of the Virginia Fund
was 7.72%. The average annual total return since inception would have
been 7.65% for the Virginia Fund had the Advisor not waived a portion of
its management fee or paid certain expenses.
As of September 30, 1997, the standardized 30-day yield of the National
Fund was 3.54% per annum and the corresponding taxable equivalent yield
as of such date was 5.53%. The taxable equivalent yield is based on the
federal income tax rate of 36% for the National Fund. For the year
ended September 30, 1997, the average annual total return of the
National Fund was 7.70%. For the five years ended September 30, 1997,
the average annual total return of the National Fund was 5.29%. For the
10 years ended September 30, 1997, the average annual total return of
the National Fund was 6.86%. For the period from November 16, 1982
(inception), through September 30, 1997, the average annual total return
was 8.22%.
As of September 30, 1997, the standardized 7-day yield of the Money
Market was 2.99%, amounting to an effective annual yield of 2.91% per
annum. The corresponding taxable equivalent yield as of such date was
4.67%. The taxable equivalent yield is based on the federal income tax
rate of 36% for the Money Market.
Performance Comparisons. From time to time, in advertisements or in
reports to shareholders and others, the Trust may compare the
performance of its portfolios to that of recognized market indices or
may cite the ranking or performance of its portfolios as reported in
recognized national periodicals, financial newsletters, reference
publications, radio and television news broadcasts, or by independent
performance measurement firMs. Market indices which may be used include
those compiled by major securities firms, such as Salomon Brothers,
Shearson Lehman Hutton, the First Boston Corporation, and Merrill Lynch;
other indices compiled by securities rating or valuation services, such
as Ryan Financial Corporation and Standard and Poor's Corporation, may
also be used. The national financial periodicals which 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, Financial World Magazine, Forbes
Magazine, Money Magazine, Personal Investor Magazine, Sylvia Porter's
Money Management Magazine, and the Bank Rate Monitor. Independent
performance measurement firms include Lipper Analytical Services, Inc.,
Frank Russel Company, SCI, CDA Investment Technologies, and Morningstar,
Inc.
In addition, a variety of newsletters and reference publica-tions
provide information on the performance of mutual funds, such as the
Donoghue's Money Fund Report, No-Load Fund Investor, Wiesenberger
Investment Companies Service, the Mutual Fund Source Book, the Mutual
Fund Director, the Switch Fund Advisory, Mutual Fund Investing, the
Mutual Fund Observer, and the Bond Fund Survey. Financial news is
broadcast by the Financial News Network, Cable News Network, Public
Broad-casting System, and major television networks, as well as by
numerous independent radio and television stations.
In advertisements and elsewhere the Trust may cite the ranking of any of
its portfolios, as determined by Lipper Analytical Services, Inc.
("Lipper") for any period, in comparison to all mutual funds, or in
comparison to a specific category of mutual funds in which the portfolio
is ranked by Lipper among funds having similar investment objectives.
As of the date of this Statement of Additional Information, the Virginia
Fund is ranked by Lipper in the category of "Virginia Municipal Debt
Funds," the Arizona Fund is ranked in the Lipper category of "Arizona
Municipal Debt Funds", the Maryland Fund is ranked in the Lipper
category of "Maryland Municipal Debt Funds," and the Missouri Fund is
ranked in the Lipper category of "Missouri Municipal Debt Funds."
Similarly, the Money Market is ranked by Lipper in the category of "Tax-
Exempt Money Market Funds," and the National Fund is ranked by Lipper in
the category of "General Municipal Debt Funds." In the event Lipper
changes the category in which a portfolio is ranked, then the revised
category will be used by the Trust when rankings are cited.
The Trust may also disclose the contents of each of its funds as
frequently as daily in advertisements and elsewhere.
Average Maturities. The Trust also calculates average maturity for each
portfolio. The "average maturity" of a fund on any day is determined by
multiplying the number of days remaining to the effective maturity (see
"Supplemental Investment Policies") of each investment in the fund by
the value of that investment, summing the results and dividing the total
by the aggregate value of the portfolio that day (determined as of the
close of the New York Stock Exchange). Thus, the average maturity
represents a dollar-weighted average of the effective maturities of the
portfolio investments. The "mean average maturity" of a portfolio 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 period.
The yield of none of the funds is fixed. In fact, since yields
fluctuate daily, annualized rates of return should not be considered
representative of what an investment may earn in the future. Since the
average maturities of the National Fund and the State Portfolios are
expected to be longer than the average maturity of the Money Market, the
actual monthly dividend income from an investment in the National Fund
or in any State Portfolio is expected to change more slowly over time
than the monthly dividend income from a comparable Money Market account.
For all funds, actual dividends will tend to reflect changes in money
market and bond interest rates, and will also depend upon the level of
the Trust's expenses, any realized or unrealized investment gains and
losses, and the relative results of the Trust's investment policies.
Thus, future yields may be higher or lower than past yields, and there
is no assurance that any historical yield level will continue.
CUSTODIANS AND SPECIAL CUSTODIANS
Star Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202, is Custodian
for the cash and securities of the Trust. The Custodian maintains
custody of the Trust'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 Trust's
shares.
From time to time, the Trust may appoint a special custodian from among
certain banks, trust companies, and firms which are members of the New
York Stock Exchange and trade for their own accounts in the types of
securities purchased by the Trust. Such special custodians will be used
by the Trust only for the purpose of providing custody and safekeeping
services of relatively short duration for designated types of securities
which, in the opinion of the Trustees or the Advisor, would most
suitably be held by such a special custodian rather than the Custodian.
In the event a special custodian is used, it shall serve only in
accordance with a written agreement meeting the requirements of the
Securities and Exchange Commission, 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 prior to payment by the Trust for such
securities.
The Trust may also maintain deposit accounts for the handling of cash
balances of relatively short duration with various banks, as the
Trustees or officers of the Trust deem appropriate, to the extent
permitted by the Investment Company Act of 1940.
LEGAL MATTERS & INDEPENDENT AUDITORS
DeWitt Ross and Stevens, S.C., 8000 Excelsior Drive, Madison, Wisconsin
53717-1914, acts as legal counsel to the Trust. Sullivan & Worcester
LLP, 1025 Connecticut Avenue, NW, Washington, DC 20036, serves as review
counsel to the Trust's Independent Trustees.
Deloitte & Touche LLP, 117 Campus Drive, Princeton, NJ 08540, serves as
independent auditors to the Trust.
From time to time the Trust may be or become involved in litigation in
the ordinary conduct of its business. If there are material items of
litigation having consequences of possible or unspecified damages, they
would be disclosed in the notes to the Trust's financial statements.
ADDITIONAL INFORMATION
The Trust issues semi-annual and annual reports to its shareholders and
may issue other reports, such as quarterly reports, as it deems
appropriate. Annual reports are audited by the Trust's independent
auditors.
Statements contained in this Statement of Additional Information and in
the prospectus as to the content of contracts and other documents are
not necessarily complete. Investors should refer to the documents
themselves for definitive information as to their detailed provisions.
The Trust will supply copies of its Declaration of Trust and Bylaws to
interested persons upon request.
The Trust and shares in the Trust have been registered with the
Securities and Exchange Commission in Washington, DC, by the filing of a
Registration Statement. The Registration Statement contains certain
information not included in the prospectus or in this Statement of
Additional Information, and is available for public inspection and
copying at the offices of the Commission.
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
Audited Financial Statements for the Trust, together with the Report of
Deloitte & Touche LLP, Independent Auditors for the fiscal year ended
September 30, 1997, appear in the Trust's Annual Report to shareholders
for the fiscal year ended September 30, 1997, which is incorporated
herein by reference. Excluded from such incorporation by reference is
the Trust's letter to shareholders appearing in such Report. Such
Report has been filed with the Securities and Exchange Commission.
Copies of such Report are available upon request at no charge by writing
or calling the Trust at the address and telephone number shown on the
cover page above.
Excluded from such incorporation by reference are the Trust's letters to
shareholders appearing in each Semi-Annual Report. Such Reports to
Shareholders have been filed with the Securities and Exchange Commission
and the most current report is furnished to investors with this
Statement of Additional Information. Additional copies of such Reports
are available upon request at no charge by writing or calling the Trust
at the address and telephone number shown on the cover page above.
APPENDIX - QUALITY RATINGS
Any investment made by the Trust will have a "quality rating" determined
principally by ratings assigned by recognized credit rating agencies, or
otherwise according to comparable standards applied by the Advisor when
there is no published rating or when published ratings differ or are
considered obsolete. Quality ratings will normally be determined by
referring to the ratings assigned by the two major private organizations
which rate municipal securities: Moody's Investors Service, Inc.
("Moody's") and Standard and Poor's Corporation ("S&P"). In cases where
both Moody's and S&P rate an issue, it will be graded according to
whichever assigned rating the Advisor deems appropriate; in cases where
neither organization rates an issue, it will be graded by the Advisor
following standards which, in its judgment, are comparable to those
followed by Moody's and S&P. For the Money Market Portfolio, in cases
where neither organization rates an issue, it will be graded accord-ing
to procedures established by the Trust's Board of Trustees. Moody's has
separate rating schemes for municipal bonds and municipal notes; S&P
rates only municipal bonds. Both services also rate commercial paper,
some of which may be tax-exempt.
Municipal Bonds. For municipal bonds, Moody's uses ratings Aaa, Aa, A,
Baa, Ba, B, Caa, Ca and C; S&P uses ratings AAA, AA, A, BBB, BB, B, CCC,
CC and C. Municipal bonds rated Aaa or AAA are judged to be of the best
quality; interest and principal are secure and prices respond only to
market rate fluctuations. Bonds rated Aa or AA are also judged to be of
high quality, but margins of protection for interest and principal may
not be quite as good as for the highest rated securities.
Municipal bonds rated A are considered upper medium grade by each
organization. Protection for interest and principal is deemed adequate
but susceptible to future impairment, and market prices of such
obligations, while moving primarily with market rate fluctuations, also
may respond to economic conditions and issuer credit factors.
Bonds rated Baa or BBB are considered medium grade obligations.
Protection for interest and principal is adequate over the short term,
but these bonds may have speculative characteristics over the long term
and therefore may be more susceptible to changing economic conditions
and issuer credit factors than they are to market rate fluctuations.
Municipal bonds rated Ba or BB are considered to have immediate
speculative elements and their future can not be con-sidered well
assured; protection of interest and principal may be only moderate and
not secure over the long term; the position of these bonds is
characterized as uncertain. Bonds rated B or lower are generally deemed
to lack desirable investment characteristics; there may be only small
assurance of payment of interest and principal or adherence to the
original terms of issue over any long period. The Trust does not invest
in issues rated Caa or CCC and below or equivalent unrated issues.
Obligations rated Baa or above by Moody's or rated BBB or above by S&P
are considered "investment grade" securities, whereas lower rated
obligations are considered "speculative grade" securities.
Bond ratings may be further enhanced by the notation "+" or "-." For
purposes of the Trust and its investment policies and restrictions, such
notations shall be disregarded. Thus, for example, bonds rated BBB- are
considered investment grade while bonds rated BB+ are not.
Municipal Notes. Moody's rates shorter term municipal issues with
"Moody's Investment Grade" or "MIG" designations, MIG-1, MIG-2 and MIG-
3; it assigns separate "VMIG" ratings, VMIG-1, VMIG-2 and VMIG-3, to
variable rate demand obligations for which the issuer or a third-party
financial institution guarantees to repurchase the obligation upon
demand from the holder. MIG-1 and VMIG-1 notes are of the best quality,
enjoying strong protection from established cash flows for debt service
or well established and broadly based access to the market for
refinancing. MIG-2 and VMIG-2 notes are of high quality, with ample
margins of protection, but not as well protected as the highest rated
issues. MIG-3 and VMIG-3 notes are of favorable quality, having all
major elements of security, but lacking the undeniable strength of the
higher rated issues and having less certain access to the market for
refinancing. Moody's also assign the "S.G." rating for speculative
grade short-term debt instruments when the credit quality of the issue
depends upon a guarantee from a third-party financial institution.
S&P assigns the ratings, SP-1, SP-2, and SP-3, to shorter term municipal
issues, which are comparable to Moody's MIG-1, MIG-2 and MIG-3 ratings,
respectively.
Commercial Paper. Commercial paper, only some of which may be tax-
exempt, is rated by Moody's with "Prime" or "P" designations, as P-1, P-
2 or P-3, all of which are considered investment grades. In assigning
its rating, Moody's considers a number of credit characteristics of the
issuer, including: (1) industry position; (2) rates of return; (3)
capital structure; (4) access to financial markets; and (5) backing by
affiliated companies. P-1 issuers have superior repayment capacity and
credit characteristics; P-2 issuers have strong repayment capacity but
more variable credit characteristics; P-3 issuers have acceptable
repayment capacity, but highly variable credit characteristics and may
be highly leveraged.
S&P rates commercial paper as A-1, A-2 or A-3. To receive a rating from
S&P the issuer must have adequate liquidity to meet cash requirements,
long-term senior debt rated A or better (except for occasional
situations in which a BBB rating is permitted), and at least two
additional channels of borrowing. The issuer's basic earnings and cash
flow must have an upward trend (except for unusual circumstances), and
typically, the issuer's has a strong position in a well-established
industry. S&P assigns the individual ratings A-1, A-2 and A-3 based on
its assessment of the issuer's relative strengths and weakness within
the group of ratable companies.
<PAGE>
Part C
February 1, 1998
Mosaic Tax-Free Trust
Cross Reference Sheet Continued
24(a) Financial Statements
Included in Part A: Financial Highlights
Included in Part B: Filed with the Securities and Exchange
Commission pursuant to Section 30 of the Investment Company
Act of 1940 on June 5, 1997, and incorporated herein by
reference is the Trust's Annual Report to Shareholders for the
fiscal year ended September 30, 1997.
Included in such Reports to Shareholders are: Statement
of Net Assets, Statements of Assets and Liabilities, Statements
of Operations, Statements of Changes in Net Assets, Financial
Highlights, Notes to Financial Statements and Report of
Deloitte & Touche LLP, Independent Auditors.
Included in Part C: Consent of Independent Auditors (Because
the Statements of Changes in Net Assets involved more than one
fiscal year and were audited by different Independent Accountants,
a separate consent from both Ernst & Young LLP and Deloitte &
Touche LLP is included)
24(b) Exhibits
Exhibit No. Description of Exhibit
1 Declaration of Trust* #
2 By-Laws* #
3 Not Applicable
4 Not Applicable
5 Investment Advisory Agreement*
6 Distribution Agreement*
7 Not Applicable
8 Custodian Agreement with Fee Schedule*
9 Services Agreement*
10 Consent of Counsel*
11 Consent of Independent Auditors (Filed Herewith)
12 Not Applicable
13 Not Applicable
14 Not Applicable
15 Not Applicable
16 Computation of Performance Data (Filed Herewith)
17 Financial Data Schedules (Filed Herewith)
18 Not Applicable
* Previously filed by Mosaic Tax-Free Trust.
# An EDGAR version is filed herewith.
25. Persons Controlled by or Under Common Control with Registrant.
None
26. Number of Holders of Securities.
The number of holders of record of securities of the
Registrant as of January 16, 1998 is as follows:
Title of Class Number of Holders of Record
Shares of Beneficial Interest 2,554
27. Indemnification
Previously Filed
28. Business and Other Connections of Investment Advisor effective
July 24, 1997.
Name Position with Other Business
Advisor
Frank E. Burgess Director President and Director of
Madison Investment Advisors,
Inc., 6411 Mineral Point
Road, Madison, WI 53705
Katherine L. Frank President Vice President of Madison
Investment Advisors, Inc.
6411 Mineral Point
Road, Madison, WI 53705
Jay R. Sekelsky Vice President Vice President of Madison
Investment Advisors, Inc.
6411 Mineral Point
Road, Madison, WI 53705
Chris Berberet Vice President Vice President of Madison
Investment Advisors, Inc.
6411 Mineral Point
Road, Madison, WI 53705
W. Richard Mason Secretary Secretary of Presidential
Savings Bank, FSB and
Presidential Service
Corporation, 4600 East-West
Highway, Bethesda, MD
20814; Secretary of GIT
Investment Services, Inc.
of the same
address as the Trust.
Julia M. Nelson Vice President Principal of GIT Investment
Services, Inc. of the same
address as the Trust.
29. Principal Underwriters
(a) The registrant does not utilize the services of an underwriter.
GIT Investment Services, Inc., the distributor of the Trust, also acts
as distributor for Mosaic Equity Trust, Mosaic Government Money Market
Trust and Mosaic Income Trust.
(b)
Name and Principal Position and Offices Position and Offices
Business Address with Underwriters with Registrant
A. Bruce Cleveland Chairman, President None
1655 Ft. Myer Dr.
Arlington, VA 22209
W. Richard Mason Secretary Secretary
1655 Ft. Myer Dr.
Arlington, VA 22209
Peggy L. Hicks Treasurer None
1700 N. Moore St.
Arlington, VA 22209
(c) Not Applicable
30. Location of Accounts and Records
The books, records and accounts of the Registrant will be
maintained at 1655 Ft. Myer Drive, Arlington, VA 22209, at
which address are located the offices of the Registrant and
of Bankers Finance Investment Management Corp. Additional
records and documents relating to the affairs of the
Registrant are maintained by the Star Bank, N.A. of
Cincinnati, OH, the Registrant's Custodian, at the
Custodian's offices located at 425 Walnut Street,
Cincinnati, OH 45202. Pursuant to the Custodian Agreement
(see Article IX, Section 12), such materials will remain the
property of the Registrant and will be available for
inspection by the Registrant's officers and other duly
authorized persons. Certain records may be maintained at
the offices of the Advisor's parent, Madison Investment
Advisors, Inc., 6411 Mineral Point Road, Madison, WI 53705.
31. Management Services
Discussed in Parts A and B
32. Undertakings
(a) Not Applicable
(b) Not Applicable
(c) The Registrant shall furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest
Annual Report to shareholders upon such person's request and
without charge.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has
duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the County of
Arlington, Commonwealth of Virginia, on the 27 day of January,
1998.
Mosaic Tax-Free Trust
By: (signature)
Katherine L. Frank
President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment to the Registration Statement
has been signed below by the following persons in the
capacities and on the date indicated.
Trustee (Date)
Frank E. Burgess*
Trustee
Lorence Wheeler* (Date)
Trustee
Thomas S. Kleppe * (Date)
Trustee
James Imhoff* (Date)
*(Signature), Attorney-In-Fact, 1/27/98
John Rashke, Esquire
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of
Mosaic Tax-Free Trust, a Massachusetts business trust, does
hereby constitute and appoint JOHN RASHKE and CHRISTOPHER DANIELS, and
each of them, his true and lawful attorney and agent to do any and all
acts and things and to execute any and all instruments which said
attorney and agent may deem necessary or advisable: (1) to enable the
said Trust to comply with the Securities Act of 1933, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under
said Securities Act of the shares of beneficial interest of said Trust
(the "Securities"), including, specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to a Registration Statement or to any amendment thereto filed with
the Securities and Exchange Commission in respect of said Securities and
to any instrument or document filed as part of, an exhibit to or in
connection with said Registration Statement or amendment; (2) to enable
said Trust to comply with the Investment Company Act of 1940, as
amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the
registration under said Investment Company Act of the Trust, including
specifically, but without limiting the generality of the foregoing, the
power an authority to sign for and on behalf of the undersigned the name
of the undersigned as Trustee of said Trust to a Registration Statement
or of any amendment thereto filed with the Securities and Exchange
Commission in respect of said Trust and to any instrument or document
filed as part of, as an exhibit to or in connection with said
Registration Statement or amendment; and (3) to register or qualify said
Securities for sale and to register or license said Trust as a broker or
dealer in said Securities under the securities or Blue Sky laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said Securities as contemplated by said
Registration Statement, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any
exhibit filed as a part thereof or in connection therewith, which is
required to be signed by the undersigned and to be filed with the public
authority or authorities administering said securities or Blue Sky laws
for the purpose of so registering or qualifying said Securities or
registering or licensing said Trust, and the undersigned does hereby
ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
22 day of July, 1997.
(signature)
Thomas S. Kleppe
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of
Mosaic Tax-Free Trust, a Massachusetts business trust, does
hereby constitute and appoint JOHN RASHKE and CHRISTOPHER DANIELS, and
each of them, his true and lawful attorney and agent to do any and all
acts and things and to execute any and all instruments which said
attorney and agent may deem necessary or advisable: (1) to enable the
said Trust to comply with the Securities Act of 1933, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under
said Securities Act of the shares of beneficial interest of said Trust
(the "Securities"), including, specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to a Registration Statement or to any amendment thereto filed with
the Securities and Exchange Commission in respect of said Securities and
to any instrument or document filed as part of, an exhibit to or in
connection with said Registration Statement or amendment; (2) to enable
said Trust to comply with the Investment Company Act of 1940, as
amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the
registration under said Investment Company Act of the Trust, including
specifically, but without limiting the generality of the foregoing, the
power an authority to sign for and on behalf of the undersigned the name
of the undersigned as Trustee of said Trust to a Registration Statement
or of any amendment thereto filed with the Securities and Exchange
Commission in respect of said Trust and to any instrument or document
filed as part of, as an exhibit to or in connection with said
Registration Statement or amendment; and (3) to register or qualify said
Securities for sale and to register or license said Trust as a broker or
dealer in said Securities under the securities or Blue Sky laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said Securities as contemplated by said
Registration Statement, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any
exhibit filed as a part thereof or in connection therewith, which is
required to be signed by the undersigned and to be filed with the public
authority or authorities administering said securities or Blue Sky laws
for the purpose of so registering or qualifying said Securities or
registering or licensing said Trust, and the undersigned does hereby
ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
22 day of July, 1997.
(signature)
Frank E. Burgess
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of
Mosaic Tax-Free Trust, a Massachusetts business trust, does
hereby constitute and appoint JOHN RASHKE and CHRISTOPHER DANIELS, and
each of them, his true and lawful attorney and agent to do any and all
acts and things and to execute any and all instruments which said
attorney and agent may deem necessary or advisable: (1) to enable the
said Trust to comply with the Securities Act of 1933, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under
said Securities Act of the shares of beneficial interest of said Trust
(the "Securities"), including, specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to a Registration Statement or to any amendment thereto filed with
the Securities and Exchange Commission in respect of said Securities and
to any instrument or document filed as part of, an exhibit to or in
connection with said Registration Statement or amendment; (2) to enable
said Trust to comply with the Investment Company Act of 1940, as
amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the
registration under said Investment Company Act of the Trust, including
specifically, but without limiting the generality of the foregoing, the
power an authority to sign for and on behalf of the undersigned the name
of the undersigned as Trustee of said Trust to a Registration Statement
or of any amendment thereto filed with the Securities and Exchange
Commission in respect of said Trust and to any instrument or document
filed as part of, as an exhibit to or in connection with said
Registration Statement or amendment; and (3) to register or qualify said
Securities for sale and to register or license said Trust as a broker or
dealer in said Securities under the securities or Blue Sky laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said Securities as contemplated by said
Registration Statement, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any
exhibit filed as a part thereof or in connection therewith, which is
required to be signed by the undersigned and to be filed with the public
authority or authorities administering said securities or Blue Sky laws
for the purpose of so registering or qualifying said Securities or
registering or licensing said Trust, and the undersigned does hereby
ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
22 day of July, 1997.
(signature)
James R. Imhoff, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of
Mosaic Tax-Free Trust, a Massachusetts business trust, does
hereby constitute and appoint JOHN RASHKE and CHRISTOPHER DANIELS, and
each of them, his true and lawful attorney and agent to do any and all
acts and things and to execute any and all instruments which said
attorney and agent may deem necessary or advisable: (1) to enable the
said Trust to comply with the Securities Act of 1933, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under
said Securities Act of the shares of beneficial interest of said Trust
(the "Securities"), including, specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to a Registration Statement or to any amendment thereto filed with
the Securities and Exchange Commission in respect of said Securities and
to any instrument or document filed as part of, an exhibit to or in
connection with said Registration Statement or amendment; (2) to enable
said Trust to comply with the Investment Company Act of 1940, as
amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the
registration under said Investment Company Act of the Trust, including
specifically, but without limiting the generality of the foregoing, the
power an authority to sign for and on behalf of the undersigned the name
of the undersigned as Trustee of said Trust to a Registration Statement
or of any amendment thereto filed with the Securities and Exchange
Commission in respect of said Trust and to any instrument or document
filed as part of, as an exhibit to or in connection with said
Registration Statement or amendment; and (3) to register or qualify said
Securities for sale and to register or license said Trust as a broker or
dealer in said Securities under the securities or Blue Sky laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said Securities as contemplated by said
Registration Statement, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any
exhibit filed as a part thereof or in connection therewith, which is
required to be signed by the undersigned and to be filed with the public
authority or authorities administering said securities or Blue Sky laws
for the purpose of so registering or qualifying said Securities or
registering or licensing said Trust, and the undersigned does hereby
ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
22 day of July, 1997.
(signature)
Lorence D. Wheeler
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data derived from the registrant's form
NSAR, current financial Statement and prospectus and is qualified in its
entirety by reference to such source documents.
</LEGEND>
<CIK> 0000703303
<NAME> MOSAIC TAX-FREE TRUST
<SERIES>
<NUMBER> 1
<NAME> TAX-FREE MONEY MARKET
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 6,912
<INVESTMENTS-AT-VALUE> 6,912
<RECEIVABLES> 35
<ASSETS-OTHER> 156
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,103
<PAYABLE-FOR-SECURITIES> 251
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 251
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6852
<SHARES-COMMON-STOCK> 6,852
<SHARES-COMMON-PRIOR> 7,500
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,852
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 255
<OTHER-INCOME> 0
<EXPENSES-NET> 60
<NET-INVESTMENT-INCOME> 194
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 194
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 194
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,684
<NUMBER-OF-SHARES-REDEEMED> 6,519
<SHARES-REINVESTED> 187
<NET-CHANGE-IN-ASSETS> (647)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 60
<AVERAGE-NET-ASSETS> 7,256
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.027
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.027
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the registrant's
form NSAR, current financial statement and prospectus and is qualified in its
entirety by reference to such source documents.
</LEGEND>
<CIK> 0000703303
<NAME> MOSAIC TAX-FREE TRUST
<SERIES>
<NUMBER> 2
<NAME> TAX-FREE NATIONAL FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 24,282
<INVESTMENTS-AT-VALUE> 25,590
<RECEIVABLES> 337
<ASSETS-OTHER> 1,306
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,233
<PAYABLE-FOR-SECURITIES> 535
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 535
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,117
<SHARES-COMMON-STOCK> 2513
<SHARES-COMMON-PRIOR> 2847
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,727)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,308
<NET-ASSETS> 26,698
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,486
<OTHER-INCOME> 0
<EXPENSES-NET> 298
<NET-INVESTMENT-INCOME> 1,188
<REALIZED-GAINS-CURRENT> 390
<APPREC-INCREASE-CURRENT> 500
<NET-CHANGE-FROM-OPS> 2,078
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,188
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,162
<NUMBER-OF-SHARES-REDEEMED> 6,715
<SHARES-REINVESTED> 1,075
<NET-CHANGE-IN-ASSETS> (3,478)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 177
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 298
<AVERAGE-NET-ASSETS> 28,258
<PER-SHARE-NAV-BEGIN> 10.286
<PER-SHARE-NII> 0.437
<PER-SHARE-GAIN-APPREC> 0.338
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.437
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.624
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's form NSAR, current financial statement and prospectus and is
qualified in its entirety by reference to such source documents.
</LEGEND>
<CIK> 0000703303
<NAME> MOSAIC TAX-FREE TRUST
<SERIES>
<NUMBER> 3
<NAME> TAX-FREE VIRGINIA FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 30,006
<INVESTMENTS-AT-VALUE> 31,766
<RECEIVABLES> 526
<ASSETS-OTHER> 322
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,614
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,658
<SHARES-COMMON-STOCK> 2,513
<SHARES-COMMON-PRIOR> 2,847
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (805)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,760
<NET-ASSETS> 32,614
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,834
<OTHER-INCOME> 0
<EXPENSES-NET> 344
<NET-INVESTMENT-INCOME> 1,490
<REALIZED-GAINS-CURRENT> 259
<APPREC-INCREASE-CURRENT> 757
<NET-CHANGE-FROM-OPS> 2,506
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,490
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,271
<NUMBER-OF-SHARES-REDEEMED> 7,276
<SHARES-REINVESTED> 1,263
<NET-CHANGE-IN-ASSETS> (1,743)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 205
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 344
<AVERAGE-NET-ASSETS> 32,761
<PER-SHARE-NAV-BEGIN> 11.209
<PER-SHARE-NII> 0.515
<PER-SHARE-GAIN-APPREC> 0.355
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.515
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.564
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the registrant's
Form NSAR, current financial statement and prospectus and is qualified in its
entirety by reference to such source documents.
</LEGEND>
<CIK> 0000703303
<NAME> MOSAIC TAX-FREE TRUST
<SERIES>
<NUMBER> 6
<NAME> TAX-FREE MARYLAND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 1,887
<INVESTMENTS-AT-VALUE> 1,972
<RECEIVABLES> 32
<ASSETS-OTHER> 94
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,098
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,200
<SHARES-COMMON-STOCK> 210
<SHARES-COMMON-PRIOR> 210
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 186
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 85
<NET-ASSETS> 2,098
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 110
<OTHER-INCOME> 0
<EXPENSES-NET> 23
<NET-INVESTMENT-INCOME> 87
<REALIZED-GAINS-CURRENT> 11
<APPREC-INCREASE-CURRENT> 46
<NET-CHANGE-FROM-OPS> 144
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 401
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 766
<NUMBER-OF-SHARES-REDEEMED> 843
<SHARES-REINVESTED> 76
<NET-CHANGE-IN-ASSETS> (813)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23
<AVERAGE-NET-ASSETS> 2,039
<PER-SHARE-NAV-BEGIN> 9.714
<PER-SHARE-NII> 0.421
<PER-SHARE-GAIN-APPREC> 0.284
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.421
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.998
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the registrant's
form NSAR, current financial statement and prospectus and is qualified in its
entirety by reference to such source documents.
</LEGEND>
<CIK> 0000703303
<NAME> MOSAIC TAX-FREE TRUST
<SERIES>
<NUMBER> 4
<NAME> TAX-FREE ARIZONA FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 8,006
<INVESTMENTS-AT-VALUE> 8,466
<RECEIVABLES> 140
<ASSETS-OTHER> 140
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,746
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,682
<SHARES-COMMON-STOCK> 837
<SHARES-COMMON-PRIOR> 893
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (396)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 460
<NET-ASSETS> 8,746
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 499
<OTHER-INCOME> 0
<EXPENSES-NET> 98
<NET-INVESTMENT-INCOME> 401
<REALIZED-GAINS-CURRENT> 121
<APPREC-INCREASE-CURRENT> 132
<NET-CHANGE-FROM-OPS> 653
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 401
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 666
<NUMBER-OF-SHARES-REDEEMED> 1,527
<SHARES-REINVESTED> 289
<NET-CHANGE-IN-ASSETS> (572)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 55
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 98
<AVERAGE-NET-ASSETS> 8,830
<PER-SHARE-NAV-BEGIN> 10.153
<PER-SHARE-NII> 0.466
<PER-SHARE-GAIN-APPREC> 0.295
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.466
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.448
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the registrant's
Form NSAR, current financial statement and prospectus and is qualified in its
entirety by reference to such source documents.
</LEGEND>
<CIK> 0000703303
<NAME> MOSAIC TAX-FREE TRUST
<SERIES>
<NUMBER> 5
<NAME> TAX-FREE MISSOURI FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 10,469
<INVESTMENTS-AT-VALUE> 10,984
<RECEIVABLES> 159
<ASSETS-OTHER> 827
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,970
<PAYABLE-FOR-SECURITIES> 412
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5
<TOTAL-LIABILITIES> 412
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,197
<SHARES-COMMON-STOCK> 1,097
<SHARES-COMMON-PRIOR> 1,114
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (158)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 515
<NET-ASSETS> 11,553
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 616
<OTHER-INCOME> 0
<EXPENSES-NET> 115
<NET-INVESTMENT-INCOME> 501
<REALIZED-GAINS-CURRENT> 122
<APPREC-INCREASE-CURRENT> 210
<NET-CHANGE-FROM-OPS> 833
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 501
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,704
<NUMBER-OF-SHARES-REDEEMED> 2,293
<SHARES-REINVESTED> 429
<NET-CHANGE-IN-ASSETS> (160)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 70
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 115
<AVERAGE-NET-ASSETS> 11,257
<PER-SHARE-NAV-BEGIN> 10.220
<PER-SHARE-NII> 0.460
<PER-SHARE-GAIN-APPREC> 0.311
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.460
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.531
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
Declaration of Trust
Mosaic Tax-Free Trust
<PAGE>
Article I. Name and Definitions 1
1. Name............................. 1
2. Definitions
(a) 1940 Act.................... 1
(b) Commission................... 1
(c) Affiliated Person, Assignment,
Interested Person,
Principal Underwriter,
Majority Shareholder Vote............ 1
(d) Trust..................................... 2
(e) Accumulated Net Income................... 2
(f) Trustees.................................. 2
(g) Shares.................................... 2
(h) Shareholder............................... 2
(i) Business Day.............................. 2
Article II Purpose of Trust................................... 2
Article III Beneficial Interest................................ 2
1. Shares of Beneficial Interest 2
2. Ownership of Shares...........................
3. Investment in the Trust....................... 3
4. No Pre-emptive Rights......................... 3
5. Provisions Relating to Series
of Shares..................................... 4
Article IV The Trustees....................................... 5
1. Management of the Trust....................... 5
2. Election of Trustees.......................... 5
3. Term of Office of Trustees.................... 5
4. Termination Services and
Appointment of Trustees....................... 5
5. Temporary Absence of Trustees............ 6
6. Number of Trustees........................... 6
7. Effect of Death, Resignation,
Etc., of a Trustee............................ 6
8. Ownership of the Trust........................ 6
Article V Powers of the Trustees.............................. 6
1. Powers........................................ 6
2. Principal Transactions........................ 9
3. Trustees and Officers as Share-
Article VI Trustees' Expenses and Compensation.. 10
1. Trustee Reimbursement.......... 10
2. Trustee Compensation........... 11
Article VII Investment Adviser, Administrative
Services, Principal Underwriter and
Transfer Agent................... 11
1. Investment Adviser.............. 11
2. Administrative Services......... 12
3. Principal Underwriter........... 12
4. Transfer Agent.................. 12
5. Provisions and Amendments....... 12
Article VIII Shareholders' Voting Powers and
Meetings............................ 13
1. Voting Powers................... 13
2. Meetings........................ 13
3. Quorum and Required Vote........ 13
4. Proxies......................... 14
5. Additional Provisions........... 14
Article IX Custodians.......................... 14
1. Appointment of Custodian
and Duties...................... 14
2. Central Certificate System...... 15
3. Special Custodians.............. 15
4. Special Depositaries............ 15
Article X Distributions and Redemptions....... 16
1. Distributions................... 16)
2. Redemptions and Repurchases..... 16
3. Determination of Accumulated Net Income....................... 17
4. Net Asset Value of Shares....... 17
5. Suspension of the Right of Redemption...................... 18
6. Trust's Right to Redeem Shares 19
Article XI Limitation of Liability and
Indemnification..................... 19
1. Limitation of Personal Liability
and Indemnification of Share-
holders......................... 19
2. Limitation of Personal Liability
of Trustees, Officers, Employees
or Agents of the Trust.......... 20
3. Express Exculpatory Clauses and Instruments...............20
4. Mandatory Indemnification....... 20
Article XII Miscellaneous....................... 21
1. Trust is not a Partnership...... 21
2. Trustee's Good Faith Action,
Expert Advice, No Bond or
Surety.......................... 21
3. Establishment of Record Dates... 22
4. Termination of Trust............ 22
5. offices of the Trust, Filing of Copies, References, Headings...23
6. Applicable Law.................. 23
7. Amendments...................... 23
8. Conflicts with Law or
Regulations..................... 24
9. Use of Name..................... 24
GIT TAX-FREE TRUST
DECLARATION OF TRUST
This DECLARATION OF TRUST is made June 8, 1982, by A. Bruce
Cleveland, Michael D. Goth, Robert W. Dudley, Thomas S. Kleppe, and
Gerald W. Nensel, as Trustees.
WHEREAS the Trustees desire to establish a trust fund for the investment
and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed under
this Declaration of Trust IN TRUST as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
Section 1. Name. This Trust shall be known as "GIT Tax-Free Trust."
Should the Trustees determine that the use of such name is not advisable
or otherwise cease using such name, then they may hold the property of
the Trust and conduct its business under another name of their choosing,
and shall undertake to change the name of the Trust accordingly.
Section 2. Definitions. Wherever used herein, unless otherwise required
by the context or specifically provided:
I
(a) The "1940 Act" refers to the Investment Company Act of 1940, as
amended from time to time;
(b ) The "Commission" refers to the Commission described in the 1940
Act and to any succeeding governmental authority;
(c ) The terms "affiliated person," "assignment," "interested person,"
and "principal underwriter" shall have the meanings given them in the
1940 Act. A "Majority Shareholder Vote" shall have the same meaning as
"the vote of a majority of the outstanding voting securities," as used
in the 1940 Act, and shall apply to either the 50% or 67% requirement
described therein, Whichever may be applicable;
(d) The "Trust" refers to GIT Tax-Free Trust;
(e) "Accumulated Net Income" means the accumulated
net income of the Trust determined in the manner provided or authorized
in Article X, Section 3;
(f ) The "Trustees" refers to the individual trustees in their capacity
as trustees of the Trust hereunder and their successor or successors for
the time in office as such Trustees;
(g) "Shares" means the equal proportionate units of interest into
which the beneficial interest in the Trust shall be divided from time to
time and includes fractions of shares as well as whole Shares;
(h) "Shareholder" means a record owner of Shares of the Trust; and
(i) A "business day" means a day when the New York Stock Exchange is
open for trading and the Trustees have not determined that the Trust
shall be closed for business in observance of a holiday observed
generally by banks in New York City, Washington, D. C. , or the State of
Virginia, or by the offices of the Federal Government in Washington,
D.C.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to provide investors a continuous source of
managed investments primarily in securities.
ARTICLE III
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest. The beneficial
interest in the Trust shall at all times be divided into transferable
Shares, without par value, each of which shall represent an equal
proportionate interest in the Trust with each other Share outstanding,
none having priority or preference over another, except to the extent
modified by the Trustees under the provisions of this section. The
number of Shares which may be issued is unlimited. The Trustees may
from time to time divide or combine the outstanding Shares into a
greater or lesser number without thereby changing the proportionate
beneficial interest in the Trust. Contributions to the Trust may be
accepted for, and Shares shall be redeemed as, whole Shares and/or
fractions. Shares may be represented by certificates or by suitable
entries in the books of the Trust.
From time to time as they deem appropriate, the Trustees may create
additional Classes and/or Series of Shares in addition to the single
Series and Class of Shares created under this instrument, which shall be
deemed the original Series of Shares and may be designated by any other
name the Trustees determine. References in this Declaration of
Trust to Shares shall apply to each such Series of Shares and (to the
extent not inconsistent with the rights and restrictions of a Class) to
each Class of Shares.
Any additional Series of Shares created hereunder shall represent the
beneficial interest in the assets (and related liabilities) allocated by
the Trustees to such Series of Shares and acquired by the Trust only
after creation of the respective Series of Shares and only on the
account of such Series. Upon creation of each Series of Shares, the
Trustees may designate it appropriately and determine the investment
policies with respect to the assets allocated to such Series of Shares,
redemption rights, dividend policies, conversion rights, liquidation
rights, voting rights, and such other rights and restrictions as the
Trustees deem appropriate, to the extent not inconsistent with the
provisions of this Declaration of Trust.
The Trustees may divide any Series (including the original Series) into
more than one Class of Shares. Upon any creation of an additional
Class of Shares, the Trustees may designate it appropriately and
determine its rights and restrictions (including redemption rights,
dividend rights, conversion rights, liquidation rights, voting rights,
and such other rights and restrictions as the Trustees deem
appropriate).
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded in the books of the Trust or a transfer agent. The Trustees
may make such rules as they consider appropriate for the transfer of
shares and similar matters. The record books of the Trust or any
transfer agent, as the case may be, shall be conclusive as to who are
the holders of Shares and as to the number of Shares held from time to
time by each.
Section 3. Investment in the Trust. The Trustees may accept
investments in the Trust from such persons and on such terms as they may
from time to time authorize and may cease offering Shares to the public
at any time. After the date of the initial contribution of capital to
the Trust, the number of Shares determined by the Trustees to represent
the initial contribution shall be considered as outstanding and the
amount received by the Trustees on account of the contribution shall be
treated as an asset of the Trust. Subsequent to such initial
contribution of capital, Shares (including Shares which may have been
redeemed or repurchased by the Trust) may be issued or sold at a price
which will net the Trust, before paying any taxes in connection with
such issue or sale, not less than the net asset value (as defined in
Article X, Section 4) thereof; provided, however, that the Trustees may
in their discretion impose a sales charge upon investments in the Trust.
Section 4. No Pre-emptive Rights. Shareholders shall have no
pre-emptive or other right to subscribe to any additional Shares or
other securities issued by the Trust or the Trustees.
Section 5. Provisions Relating to Series of Shares.
Whenever no Shares of a Series are outstanding, then the Trustees may
abolish such Series (or any Class of Shares of a Series for which there
are no outstanding Shares). Whenever more than one Series or Class
of Shares is outstanding, then the following provisions shall apply:
(a) Assets Belonging to Each Series. All consideration received by
the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or
reinvested, all income, earnings, and proceeds thereof, and any funds
derived from any reinvestment of such proceeds, shall irrevocably belong
to that Series for all purposes, subject only to the rights of
creditors, and shall be so recorded upon the books of the Trust. In the
event there are assets, income, earnings, and proceeds thereof which are
not readily identifiable as belonging to a particular Series, then the
Trustees shall allocate such items to the various Series then existing,
in such manner and on such basis as they, in their sole discretion, deem
fair and equitable. The amount of each such item allocated to
a particular Series by the Trustees shall then belong to that Series,
and each such allocation shall be conclusive and binding upon the
Shareholders of all Series for all purposes.
(b) Liabilities Belonging to Each Series. The assets belonging to
each particular series shall be charged with the liabilities, expenses,
costs and reserves of the Trust attributable to that Series; and any
general liabilities, expenses, costs and reserves of the Trust which are
not readily identifiable as attributable to a particular Series shall be
allocated by the Trustees to the various Series then existing, in such
manner and on such basis as they, in their sole discretion, deem fair
and equitable. Each such allocation shall be conclusive and binding
upon the Shareholders of all Series for all purposes.
(c) Series Shares, Dividends, and Liquidation. Each
Share of a Class within a Series shall have the same rights and pro-rata
beneficial interest in the assets and earnings of the Series as any
other Share of the same Class, but the rights and interests of the
Classes within a Series may differ as the Trustees provide. Any
dividends paid on the Shares within a Series shall only be payable from
and to the extent of the assets (net of liabilities) belonging to that
Series. In the event of liquidation of a Series, only the assets
(less provision for liabilities) of that Series shall be distributed to
holders of the Shares of that Series.
(d) Voting by Series. Except as provided in this section or as
limited by the rights of any Class, each Share of the Trust may vote
with and in the same manner as any other Share on matters submitted to a
vote of the Shareholders, without differentiation among votes from the
separate Series and/or Classes; provided, however, that (i) as to any
matter with respect to which a separate vote of any Series or Class is
required by the 1940 Act or would be required under Massachusetts
Business Corporation Law if the Trust were a Massachusetts business
corporation, such requirements as to the separate vote by the Series or
Class shall apply in lieu of the voting described immediately above;
(ii) in the event that the separate vote requirements referred to in (i)
above apply with respect to one or more Series or Classes, then, subject
to (iii) below, the Shares of all other Series and Classes shall vote
without differentiation among their votes; and (iii) as to any matter
which does not affect the interest of a particular Series or Class, only
the holders of Shares of the one or more affected Series or Classes
shall be entitled to vote.
ARTICLE IV
THE TRUSTEES
Section 1. Management of the Trust. The business and affairs of
the Trust shall be managed by the Trustees, and they shall have all
powers necessary and desirable to carry out that responsibility. The
Trustees first named above (or their successors appointed hereunder)
shall serve until the election of Trustees at the first meeting of
Shareholders of the Trust.
Section 2. Election of Trustees. During the year following the end of
the Trust's first fiscal year subsequent to its initial public offering
of Shares, the Shareholders shall elect, at a meeting called by the
initial Trustees of the Trust, the Trustees who will serve for such
regular terms as may be provided in the By-Laws of the Trust.
The Shareholders of the Trust shall thereafter elect, at Shareholder
meetings called for the purpose in the manner provided herein, Trustees
to succeed those Trustees whose terms expired since the last such
meeting. If re-elected, a Trustee may succeed himself.
Section 3. Term of Office of Trustees. The Trustees shall hold office
during the lifetime of this Trust, and until the expiration of the term
of office for which each was elected; except (a) that any Trustee may
resign his trust by written instrument signed by him and delivered to
the other Trustees, which shall take effect upon such delivery or upon
such later date as is specified therein; (b) that any Trustee may be
removed at any time by written instrument signed by at least two-thirds
of the number of Trustees prior to such removal, specifying the date
when such removal shall become effective; (c) that any Trustee who
requests in writing to be retired or who has become mentally or
physically incapacitated may be retired by written instrument signed by
a majority of the other Trustees, specifying the date of his retirement;
and (d) a Trustee may be removed at any special meeting of Shareholders
of the Trust by a vote of two-thirds of the outstanding Shares.
Section 4. Termination of Services and Appointment of Trustees. In case
of the death, resignation, retirement, removal or mental or physical
incapacity of any of the Trustees, or in case a vacancy shall by reason
of an increase in number, or for any other reason, exist, the remaining
Trustees shall fill such vacancy by appointing for the remaining term of
the predecessor Trustee such other person as they in their discretion
shall see fit. Such appointment shall be effected by the signing of
a written instrument by the majority of the Trustees in office. Within
three months of such appointment, the Trustees shall cause notice of
such appointment to be mailed to each Shareholder at his address as
recorded on the books of the Trust. An appointment of a Trustee may be
made by the Trustees then in office and notice thereof mailed to
Shareholders as aforesaid in anticipation of a vacancy to occur by
reason of retirement, resignation or increase in number of Trustees
effective only at or after the effective date of said retirement,
resignation or increase in the number of Trustees. As soon as any
Trustee so appointed shall have accepted this Trust, the Trust estate
shall vest in the new Trustee or Trustees, together with the continuing
Trustees, without any further act or conveyance, and he shall be deemed
a Trustee hereunder. Any appointment authorized by this Section 4 is
subject to the provisions of Section 16 (a) of the 1940 Act.
Section 5. Temporary Absence of Trustees. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six
months at any one time to any other Trustee or Trustees, provided that
in no case shall less than two of the Trustees personally exercise their
power hereunder except as herein otherwise expressly provided.
Section 6. Number of Trustees. The number of Trustees serving
hereunder at any time shall be determined by the Trustees themselves,
but shall not be less than three (3) nor more than fifteen (15).
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled or while any Trustee is absent from the Commonwealth
of Massachusetts or, if not a domiciliary of Massachusetts, is absent
from his state of domicile, or is physically or mentally incapacitated,
the other Trustees shall have all the powers hereunder and the
certificates signed by a majority of the other Trustees of such vacancy,
absence or incapacity, shall be conclusive, provided, however, that no
vacancy which reduces the number of Trustees below three (3) shall
remain unfilled for a period longer than six calendar months.
Section 7. Effect of Death, Resignation, Etc., of a Trustee.
The death, resignation, retirement, removal, or mental or
physical incapacity of the Trustees, or any one of them, shall not
operate to annul the Trust or to revoke any existing agency created
pursuant to the terms of this Declaration of Trust.
Section 8. Ownership of the Trust. The assets of the Trust shall be
held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or by any
successor Trustee. All of the assets of the Trust shall at all times be
considered as vested in the Trustees. No Shareholder shall be deemed to
have a severable ownership in any individual asset of the Trust or any
right of partition or possession thereof, but each Shareholder shall
have a proportionate undivided beneficial interest in the Trust.
ARTICLE V
POWERS OF THE TRUSTEES
Section 1. Powers. The Trustees in all instances shall act
as principals , and are and shall be free from the control of the
Shareholders. The Trustees shall have full power and authority to do
any and all acts and to make and execute any and all contracts and
instruments that they may consider necessary or appropriate in
connection with the management of the Trust. The Trustees shall not
be bound or limited by present or future laws or customs in regard to
investment by trustees or fiduciaries, but shall have full authority and
power to make any and all investments which they, in their uncontrolled
discretion, shall deem proper to accomplish the purpose of this Trust.
Without limiting the foregoing, the Trustees shall have the following
specific powers and authority, subject to any applicable limitation in
the Declaration of Trust or in the By-Laws of the Trust:
(a ) To buy, and invest funds of the Trust in, securities including,
but not limited to, common stocks, preferred stocks, bonds, debentures,
warrants and rights to purchase securities, certificates of beneficial
interest, money market instruments, notes or other evidences of
indebtedness issued by corporations, trusts, associations, or banking
institutions, domestic or foreign, or issued or guaranteed by the United
States of America or any agency or instrumentality thereof, by the
government of any foreign country, by any State of the United States, or
by any political subdivision or agency or instrumentality of any State
or foreign country, or in "when-issued" or "delayed-delivery" contracts
for any such securities, or in any repurchase agreement (agreements
under which the seller agrees at the time of sale to repurchase the
security at an agreed time and price); or retain Trust assets in cash,
and from time to time change the investments constituting the assets of
the Trust;
(b) To adopt By-Laws not inconsistent with the Declaration of Trust and
to amend and repeal them to the extent that they do not reserve that
right to the Shareholders;
(c) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;
(d) To appoint or otherwise engage one or more banks or trust
companies or member firms of any national securities exchange registered
under the Securities Exchange Act of 1934 as custodian of any assets of
the Trust, subject to any conditions set forth in this Declaration of
Trust or in the By-Laws;
(e) To appoint or otherwise engage custodial agents, transfer agents,
dividend distributing agents, Shareholder servicing agents, investment
advisers, sub-investment advisers, principal underwriters,
administrative service agents, and such other agents as the Trustees may
from time to time appoint or otherwise engage;
(f) To provide for the distribution of interests of the Trust either
through a principal underwriter in the manner hereinafter provided for
or by the Trust itself or both;
(g) To set record dates in the manner hereinafter provided for;
(h) To delegate such authority as they consider Desirable to a
committee or committees composed of Trustees, including without
limitation, an Executive Committee, or to any officers of the Trust and
to any agent, custodian or underwriter;
(i ) To sell or exchange any or all of the assets of the Trust, subject
to the provisions of Article XII, Section 4 (b) hereof;
(j ) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver powers of attorney to such person or persons as the Trustees
shall deem proper, granting to such person or persons such powers and
discretion with relation to securities or property as the Trustees shall
deem proper;
(k) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities;
(l) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or
either in its own name or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the
usual practice of Massachusetts trust companies or investment companies;
(m) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of
which is held in the Trust; to consent to any contract, lease, mortgage,
purchase, or sale of property by such corporation or concern, and to pay
calls or subscriptions with respect to any security held in the Trust;
(n) To engage in and to prosecute, compound, compromise, abandon, or
adjust, by arbitration, or otherwise, any actions, suits, proceedings,
disputes, claims, demands, and things relating to the Trust; and out of
the assets of the Trust to pay, or to satisfy, any debts, claims or
expenses incurred in connection therewith, including those of
litigation, upon any evidence that the Trustees may deem sufficient
(such powers shall include without limitation any actions, suits,
proceedings, disputes, claims, demands and things relating to the Trust
wherein any of the Trustees may be named individually and the subject
matter of which arises by reason of business for or on behalf of the
Trust);
(o) To make distribution of income and of capital gains to
Shareholders in the manner hereinafter provided for;
(p) To borrow money and enter into reverse repurchase agreements
(agreements in which the Trust sells assets concurrently with agreeing
to repurchase such assets at a later date at a specific price) for the
purposes of the Trust, if in the opinion of the Trustees such
transactions may be advantageously made to increase the earning power of
the Trust, but only up to twenty-five percent of the gross assets of the
Trust taken at market value as determined by the Trustees at the time
the transactions are entered into. The Trustees may also borrow
if such borrowings are made temporarily for extraordinary or emergency
purposes or to permit redemptions of Shares without selling portfolio
securities, but only to an amount that the aggregate of all borrowings
and reverse Repurchase agreements of the Trust shall not exceed one-
third of the gross assets of the Trust taken at market value as
determined by the Trustees at the time the transactions are entered
into. Any borrowings hereunder may be made with or without collateral
security and the Trustees may, in their discretion, pledge, mortgage,
charge or hypothecate or otherwise encumber the gross assets of the
Trust as security for any loans or reverse repurchase agreements,
subject to the limitations provided herein;
(q) To lend portfolio securities of the Trust, provided that such
loans are made according to the guidelines of the Commission and
pursuant to policies established by the Trustees and provided that such
loans are fully secured by the maintenance of collateral satisfactory to
the Trustees at all times at least equal to the market value of the
securities loaned;
(r) To invest in securities having legal or contractual restrictions
on their resale or for which no readily available market exists;
(s) From time to time to issue and sell the Shares of the Trust either
for cash or for property whenever and in such amounts as the Trustees
may deem desirable, but subject to the limitations set forth in Section
3 of Article III;
(t ) To purchase insurance of any kind, including, without limitation,
insurance on behalf of any person who is or was a Trustee, officer,
employee or agent of the Trust, or is or was serving at the request of
the Trust as a Trustee, Director, officer, agent or employee of another
corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any
such capacity or arising out of his status as such;
(u) To purchase, hold or sell commodities or contracts for the
purchase or sale of commodities, including contracts for the purchase or
sale of financial assets or contracts denominated in terms of a
financial index, which are traded on a commodities exchange or
otherwise; and
(v) To use any of the assets of the Trust to finance activities
primarily intended to result in the sale or distribution of its Shares.
No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees
or upon their order.
Section 2. Principal Transactions. The Trustees shall not on
behalf of the Trust buy any securities (other than Shares of the Trust)
from or sell any securities (other than Shares of the Trust) to, or lend
any assets of the Trust to, any Trustee or officer or employee of the
Trust or any firm of which such Trustee or officer is a member acting as
principal unless permitted by the 1940 Act, but the Trust may employ any
such other party or any such person or firm or company in which any such
person is an interested person in any capacity not prohibited by the
1940 Act.
Section 3. Trustees and Officers as Shareholders. Any Trustee, officer
or other agent of the Trust may acquire, own and dispose of shares of
the Trust to the same extent as if he were not a Trustee, officer or
agent; and the Trustees may issue and sell or cause to be issued or sold
Shares of the Trust to and buy such Shares from any such person or any
firm or company in which he is an interested person subject only to the
general limitations herein contained as to the sale and purchase of such
Shares; and all subject to any restrictions which may be contained in
the By-Laws.
Section 4. Parties to' Contracts. The Trustees may enter into
any contract of the character described in Section 1, 2, 3, or 4 of
Article VII or in Article IX hereof or any other capacity not prohibited
by the 1940 Act with any corporation, firm, trust, or association,
although one or more of the Shareholders, Trustees, officers, employees
or agents of the Trust or their affiliates may be an officer, director,
trustee, shareholder or interested person of such other party to the
contract, and no such contract shall be invalidated or rendered voidable
by reason of the existence of any such relationship, nor shall any
person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by reason of
said contract or accountable for any profit realized directly or
indirectly therefrom, in the absence of actual fraud. The same
person (including a firm, corporation, trust or association) may be the
other party to contracts entered into pursuant to Sections 1, 2, 3, and
4 of Article VII or Article IX or in any other capacity deemed legal
under the 1940 Act, and any individual person may be financially
interested or otherwise an interested person of persons who are parties
to any or all of the contracts mentioned in this Section 4.
ARTICLE VI
TRUSTEES' EXPENSES AND COMPENSATION
Section 1. Trustee Reimbursement. The Trustees shall be
reimbursed from the Trust estate for all of their expenses and
disbursements not otherwise reimbursed, including, without limitation,
expenses of organizing the Trust and continuing its existence; fees and
expenses of Trustees and officers of the Trust; fees for investment
advisory services, administrative services and principal underwriting
services provided for in Article VII, Sections 1, 2 and 3; fees and
expenses for preparing and printing its Registration Statements under
the Securities Act of 1933 and the Investment Company Act of 1940 and
any amendments thereto; expenses of registering and qualifying the Trust
and its shares under Federal and state laws and regulations; expenses of
preparing, printing and distributing prospectuses and any amendments
thereof sent to Shareholders, underwriters, broker-dealers and to
investors who may be considering the purchase of shares; expenses of
registering, licensing or other authorization of the Trust as a broker-
dealer and of its officers as agents and salesmen under Federal and
state laws and regulations; interest expenses, taxes, fees and
commissions of every kind; expenses of issue (including cost of share
certificates), repurchase and redemption of shares, including expenses
attributable to a program of periodic issue; charges and expenses of
custodians, transfer agents, dividend disbursing agents, shareholder
servicing agents and registrars; printing and mailing costs; auditing,
accounting and legal expenses; reports to Shareholders and governmental
officers and commissions; expenses of meetings of Shareholders and proxy
solicitations therefor; insurance expenses; association membership dues;
expenses incurred in connection with the financing of activities
intended primarily to result in the sale or distribution of the Trust's
shares; and such nonrecurring items as may arise, including all losses
and liabilities by them incurred in administering the Trust, including
expenses incurred in connection with litigation, proceedings and claims
and the obligations of the Trust under Article XI hereof to indemnify
its Trustees, officers, employees, Shareholders and agents; and for the
payment of such expenses, disbursements, losses and liabilities, the
Trustees shall have a lien on the Trust estate prior to any rights or
interests of the Shareholders thereto. This section shall not
preclude the Trust from directly paying any of the aforementioned fees
and expenses.
Section 2. Trustee Compensation. The Trustees shall be
entitled to compensation from the Trust f6-r their respective services
as Trustees, to be determined from time to time by vote of the Trustees,
and the Trustees shall also determine the compensation of all officers,
consultants and agents whom they may elect or appoint. The Trust may
pay any Trustee or any corporation, firm, trust or association of which
a Trustee is an interested person for services rendered to the Trust in
any capacity not prohibited by the 1940 Act, and such payments shall not
be deemed compensation for services as a Trustee under the first
sentence of this Section 2 of Article VI.
ARTICLE VII
INVESTMENT ADVISER, ADMINISTRATIVE SERVICES,
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
Section 1 . Investment Adviser. Subject to a Majority
Shareholder Vote as required by Section 15 of the 1940 Act, the Trustees
may in their discretion from time to time enter into an investment
advisory contract whereby the other party to such contract shall
undertake to furnish the Trustees investment advisory services upon such
terms and conditions and for such compensation as the Trustees may in
their discretion determine. Subject to a Majority Shareholder
Vote, the investment adviser may enter into a sub-investment advisory
contract to receive investment advice, statistical and factual
information from the sub-investment adviser upon such terms and
conditions and for such compensation as the Trustees may in their
discretion agree to. Notwithstanding any provisions of this Declaration of
Trust, the Trustees may authorize the investment adviser or sub-investment
adviser or any person furnishing administrative personnel and services as set
forth in Article VII, Section 2 (subject to such general or specific
instructions as the Trustees may from time to time adopt) to effect
purchases, sales or exchanges of portfolio securities of the Trust on
behalf of the Trustees or may authorize any officer or Trustee to effect
such purchases, sales, or exchanges pursuant to recommendations of the
investment adviser (and all without further action by the Trustees).
Any such purchases, sales and exchanges shall be deemed to have been
authorized by the Trustees. The Trustees may also authorize the
investment adviser to determine what firms shall be employed to effect
transactions in securities for the account of the Trust and to determine
what firms shall participate in any such transactions or shall share in
commissions or fees charged in connection with such transactions.
Section 2. Administrative Services. The Trustees may in their
discretion from time to time contract for administrative personnel and
services whereby the other party shall agree to provide the Trustees
administrative personnel and services to operate the Trust on a daily
basis, on such terms and conditions as the Trustees may in their
discretion determine. Such services may be provided by one or more
entities.
Section 3. Principal Underwriter. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
contract or contracts providing for the sale of the Shares of the Trust
to net the Trust not less than the amount provided in Article III,
Section 3 hereof, whereby the Trust may either agree to sell its Shares
to the other party to the contract or appoint such other party its sales
agent for such Shares. In either case, the contract shall be on such
terms and conditions as the Trustees may in their discretion determine
not inconsistent with the provisions of this Article VII; and such
contract may also provide for the repurchase or sale of Shares of the
Trust by such other party as principal or as agent of the Trust and may
provide that the other party may maintain a market for Shares of the
Trust.
Section 4. Transfer Agent. The Trustees may in their
discretion from time to time enter into transfer agency and shareholder
services contracts whereby the other party shall undertake to furnish
the Trustees transfer agency and shareholder services. The contracts
shall be on such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this
Declaration of Trust or of the By-Laws. Such services may be
provided by one or more entities.
Section 5. Provisions and Amendments. Any contract entered
into pursuant to Sections 1 or 3 of this Article VII shall be consistent
with and subject to the requirements of Section 15 of the 1940 Act
(including any amendments thereof or other applicable Acts of Congress
hereafter enacted) with respect to its continuance in effect, its
termination, and the method of authorization and approval of such
contract, or renewal thereof.
ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. The Shareholders shall have power to vote:
(i) for the election of Trustees as provided in Article IV, Section 2;
(ii) for the removal of Trustees as provided in Article IV, Section
3(d); (iii) with respect to any investment adviser or sub-investment
adviser as provided in Article VII, Section 1; (iv) with respect to the
amendment of this Declaration of Trust as provided in Article XII,
Section 7; (v) to the same extent as the Shareholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or
claim should be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders; and (vi) with respect to
such additional matters relating to the Trust as may be required by law,
by this Declaration of Trust, or the By-Laws of the Trust or any
regulation of the Trust by the Commission or any State, or as the
Trustees may consider desirable. Each whole Share shall be entitled
to one vote as to any matter on which it is entitled to vote, and each
fractional Share shall be entitled to a proportionate fractional vote.
There shall be no cumulative voting in the election of Trustees. If the
Trust issues more than one Series or Class of Shares, the Shareholders
of each Series and Class shall vote separately to the extent provided in
Article III, Section 5; in the election of Trustees all Shareholders
shall vote without differentiation among votes from the separate Series
and Classes of Shares. Until Shares are issued, the Trustees may
exercise all rights of Shareholders and may take any action required or
permitted by law, this Declaration of Trust or any By-Laws of the Trust
to be taken by Shareholders.
Section 2. Meetings. Shareholder meetings shall be held as
specified in Section 2 of Article IV and in the By-Laws at the principal
office of the Trust or at such other place as the Trustees may
designate. Special meetings of the Shareholders may be called by the
Trustees or by officers of the Trust given such authority in the By-
Laws, and shall be called by the Trustees at a place designated by them
upon the written request of Shareholders owning at least one-tenth of
the outstanding Shares entitled to vote. Shareholders shall be
entitled to at least fifteen days' notice of any meeting.
Section 3. Quorum and Required Vote. Except as otherwise
provided by law, to constitute a quorum for the transaction of any
business at any meeting of Shareholders there must be present, in person
or by proxy, holders of one-fourth of the total number of Shares of the
Trust then outstanding and entitled to vote at such meeting. If a
quorum, as above defined, shall not be present for the purpose of any
vote that may properly come before the meeting, the Shareholders present
in person or by proxy and entitled to vote at such meeting on such
matter holding a majority of the Shares present entitled to vote on such
matter may by vote adjourn the meeting from time to time to be held at
the same place without further notice than by announcement to be given
at the meeting, until a quorum, as above defined , entitled to vote on
such matter shall be present, whereupon any such matter may be voted
upon at the meeting as though held when originally convened.
Subject to any applicable requirement of law or of this Declaration of
Trust or the By-Laws, a plurality of the votes cast shall elect a
Trustee and all other matters shall be decided by a majority of the
votes cast entitled to vote thereon.
Section 4. Proxies. Any vote by a Shareholder of the Trust may be made
in person or by proxy, provided that no proxy shall be voted at any
meeting unless it shall have been placed on file with the Trustees or
their designate prior to the time the vote is taken. Pursuant
to a resolution of a majority of the Trustees, proxies may be solicited
in the name of one or more Trustees or one or more officers of the
Trust. Only Shareholders of record shall be entitled to vote. A proxy
purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise, and the
burden or proving invalidity shall rest on the challenger.
Section 5. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE IX
CUSTODIANS
Section 1. Appointment of Custodian and Duties. The Trustees
shall appoint or otherwise engage a bank or trust company having an
aggregate capital, surplus and undivided profits (as shown in its last
published report) of at least two million dollars ($2,000,000) as its
Custodian with authority as its agent, but subject to such restrictions,
limitations and other requirements, if any, as may be contained in the
By-Laws of the Trust:
(1) To receive and hold securities owned by the Trust and deliver the
same upon written order;
(2) To receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustee may
direct;
(3) To disburse such funds upon orders or vouchers;
(4) To keep the books and accounts of the Trust and furnish clerical
and accounting services; and
(5 ) To compute , if authorized to do so by the Trustees, the
Accumulated Net Income of the Trust and the net asset value of the
Shares in accordance with the provisions hereof; all upon such basis of
compensation as may be agreed upon between the Trustees and the
Custodian. If so directed by a Majority Shareholder Vote, the
Custodian shall deliver and pay over the property of the Trust held by
it as specified in such vote.
The Trustees may also authorize the Custodian to employ one or ore sub-
custodians from time to time to perform such of the acts and services of
the Custodian and upon such terms and conditions, as may be agreed upon
between the Custodian and such sub-custodian and approved by the
Trustees, provided that in every case such sub-custodian shall be a bank
or trust company organized under the laws of the United States or one of
the States thereof and having an aggregate capital, surplus and
undivided profits (as shown in its last published report) of at least
two million dollars ($2,000,000) or a member firm of a national
securities exchange registered under the Securities Exchange Act of
1934.
Section 2. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees
may direct the Custodian to deposit all or any part of the securities
owned by the Trust in a system for the central handling of securities
established by a national securities exchange or a national securities
association registered with the Commission under the Securities Exchange
Act of 1934, or such other person as may be permitted by the Commission
or otherwise in accordance with the 1940 Act as from time to time
amended, pursuant to which system all securities of any particular class
s or series of any issuer deposited within the system are treated as
fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of such securities, provided that all such deposits
shall be subject to withdrawal only upon the order of the Custodian at
the direction of the Trustees.
Section 3. Special Custodians. The Trustees may appoint or
otherwise engage any institution which would be permitted to act as
a sub-custodian hereunder to act as a Special Custodian of the Trust.
Any Special Custodian shall have custody only of securities owned by the
Trust and shall not hold any of its cash. Special Custodians shall be
appointed pursuant to a written agreement approved and thereafter at
least annually ratified by the Trustees, and any such written agreement
shall also require that the Special Custodian shall deliver to the
Custodian its receipt, evidencing that it holds the specific securities
in question on behalf of the Trust in its safekeeping, before any
payment can be made for such securities by the Trust. Special
Custodians shall be used by the Trust only for purposes of safekeeping
specialized kinds of securities for periods of limited duration in cases
where, in the opinion of the Trustees, officers of the Trust, its
investment adviser or other authorized agent, such safekeeping services
would be more appropriate or convenient to the Trust than the
safekeeping of such securities with the Custodian.
Section 4. Special Depositories. The Trustees may by resolution
appoint as Special Depositories any commercial banks insured by the
Federal Deposit Insurance Corporation having aggregate capital, surplus
and undivided profits (as shown in their respective last published
reports) of at least two million dollars ($2,000,000). The Trust may
maintain with a Special Depository only demand deposit accounts and shall
not permit the aggregate balances in such accounts to exceed the
amount of any fidelity bond covering any officer of the -.rust
authorized by the Trustees to have signature authority over such demand
deposit accounts.
ARTICLE X
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions.
(a) The Trustees may from time to time declare and pay dividends, and
the amount of such dividends and the payment of them shall be wholly in
the discretion of the Trustees.
(b) The Trustees may, on each day Accumulated Net Income of the Trust
(as defined in Section 3 of this Article X) is determined, declare such
Accumulated Net Income as a dividend to Shareholders of record at such
time as the Trustees shall designate, payable in additional full and
fractional Shares or in cash. The Trustees may, if they deem it
advisable, declare a negative dividend on any day when the Accumulated
Net Income of the Trust is negative and deduct such amount from the
previously accumulated dividends of each Shareholder or from such
Shareholder's interest in the Trust.
(c) The Trustees may distribute in respect of any fiscal year as
ordinary dividends and as capital gains distributions, respectively,
amounts sufficient to enable the Trust as a regulated investment company
to avoid any liability for federal income taxes in respect of that year.
(d) The decision of the Trustees as to what, in accordance with good
accounting practice, is income and what is principal shall be final, and
except as specifically provided herein the decision of the Trustees as
to what expenses and charges of the Trust shall be charged against
principal and what against the income shall be final. In the event more
than one Series or Class of Shares is outstanding, the Trustees shall
separately allocate income and expense to each such Series and Class as
they, in their discretion, deem fair and equitable, and their decisions
as to such allocations shall be conclusive and binding upon all
Shareholders. Any income not distributed in any year may be invested
from time to time in the same manner as the principal funds of the
Trust.
(e) The Trustees shall have power, to the fullest extent permitted by
the laws of Massachusetts, at any time, or from time to time, to declare
and cause to be paid dividends, which dividends, at the election of the
Trustees, may be accrued, automatically reinvested in additional Shares
(or fractions thereof) of the Trust or paid 'in cash or in additional
Shares, all upon such terms and conditions as the Trustees may
prescribe.
(f) Anything in this instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute a dividend consisting of
shares of the Trust.
Section 2. Redemptions and Repurchases.
(a) In case any Shareholder of record of the Trust at any time
desires or authorizes the disposition of Shares recorded in his name, he
or his authorized agent may deposit a written request (or such other
form of request as the Trustees may from time to time authorize)
requesting that the Trust purchase his Shares, together with such other
instruments or authorizations to effect the transfer as the Trustees may
from time to time require, at the principal office of the Trust, or at
the office of the Custodian if authorized by the Trustees, and the Trust
shall purchase his said Shares, but only at the net asset value of such
Shares (as defined in Section 4 of this Article X) determined by or on
behalf of the Trustees next after said request is received in the form
and manner prescribed by the Trustees. Payment for such Shares shall be
made by the Trust to the Shareholder of record under procedures
determined from time to time by the Trustees.
(b) The Trust may purchase Shares of the Trust by agreement with the
owner thereof (1) at a price not exceeding the net asset value per share
determined next after the purchase or contract of purchase is made or
(2) at a price not exceeding the net asset value per Share determined at
some later time.
(c) Shares purchased by the Trust either pursuant to paragraph
(a) or paragraph (b) of this Section 2 shall be deemed treasury Shares
and may be resold by the Trust, unless the Trustees determine to
extinguish such shares.
(d) If the Trustees determine that economic conditions would make it
seriously detrimental to the best interests of the remaining
Shareholders of the Trust to make payment wholly or partly in cash, the
Trust may pay the redemption price in whole or in part by a distribution
in kind of securities and other assets from the portfolio or portfolios
of the Trust, in lieu of cash, in conformity with applicable rules of
the Securities and Exchange Commission, taking such securities and other
assets at the same value employed in determining net asset value, and
selecting the securities in such manner as the Trustees may deem fair
and equitable.
Section 3. Determination of Accumulated Net Income. The
Accumulated Net Income of the Trust shall be determined by or on behalf
of the Trustees daily or more frequently at the discretion of the
Trustees, on each business day at such time as the Trustees shall in
their discretion determine. Such determination shall be made in
accordance with generally accepted accounting principles and practices
and the accounting policies established by the Trustees, and may include
realized and/or unrealized gains from the sale or other disposition of
securities or other property of the Trust. The power and duty to
determine Accumulated Net Income may be delegated by the Trustees from
time to time to one or more of the Trustees or officers of the Trust, to
the other party to any contract entered into pursuant to Section 1 or 2
of Article VII, or to the Custodian or to a transfer agent.
Section 4. Net Asset Value of Shares. The net asset value of
each Share of the Trust outstanding shall be determined at least once on
each business day by or on behalf of the Trustees. The power and duty
to determine net asset value may be delegated by the Trustees from time
to time to one or more of the Trustees or officers of the Trust, to the
other party to any contract entered into pursuant to Section 1 or 2 of
Article ,I, or to the Custodian or to a transfer agent.
The net asset value of each Share of the Trust as of any particular time
shall be the quotient (adjusted to the number of significant digits
determined by the Trustees) obtained by dividing the value, as of such
time, of the net assets of the respective portfolio of the Trust ( i e .
, the value of the assets of the Trust , less its liabilities exclusive
of capital and surplus, applicable to such Shares) by the total number
of such Shares outstanding (exclusive of treasury Shares) at such time
in accordance with the requirements of the 1940 Act and applicable
provisions of the By-Laws of the Trust in conformity with generally
accepted accounting practices and principles.
The Trustees may declare a suspension of the determination of net asset
value for the whole or any part of any period (a) during which the New
York Stock Exchange 'is closed other than customary weekend and holiday
closings, (b) during which trading on the New York Stock Exchange is
restricted, (c) during which an emergency exists as a result of which
disposal by the Trust of securities owned by it is not reasonably
practicable, or it is not reasonably practicable for the -Trust fairly
to determine the value of its net assets, or (d) during such other
periods as the Commission may by order permit for the protection of
security holders of the Trust; provided that applicable rules and
regulations of the Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist. Such suspension shall take effect at
such times as the Trustees shall specify but not later than the close of
business on a business day next following the declaration, and
thereafter there shall be no determination of net asset value until the
Trustees shall declare the suspension at an end, except that the
suspension shall terminate in any event on the first day on which said
stock exchange shall have reopened or the period specified in (b) or (c)
shall have expired (as to which, in the absence of an official ruling by
the Commission, the determination of the Trustees shall be conclusive).
Section 5. Suspension of the Right of Redemption. The Trustees may
declare a suspension of the right of redemption or postpone the date
of payment for the whole or any part of any period (i) during which the
New York Stock Exchange is closed other than customary weekend and
holiday closings, (ii) during which trading on the New York Stock
Exchange is restricted, (iii) during which an emergency exists as a
result of which disposal by the Trust of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Trust
fairly to determine the value of its net assets, or (iv) during any
other period when the Commission may by order permit for the protection
of security holders of the Trust suspension of the right of redemption
or postponement of the date of payment on redemption; provided that
applicable rules and regulations of the Commission shall govern as to
whether the conditions prescribed in (ii) or (iii) exist. Such
suspension shall take effect at such time as the Trustees shall specify
but not later than the close of business on the business day next
following the declaration of suspension, and thereafter there shall be
no right of redemption or payment until the Trustees shall declare the
suspension at an end, except that the suspension shall terminate in any
event on the first day on which said stock exchange shall have reopened
or the period specified in (ii) or (iii) shall have expired (as to
which, in the absence of an official ruling by the Commission, the
determination of the Trustees shall be conclusive).
Section 6. Trust's Right to Redeem Shares. The Trust shall
have the right to cause the redemption of Shares in any Shareholder's
account for their then current net asset value (which will be promptly
paid to the Shareholder in cash) if at any time the total investment in
the Shareholder's account with the Trust does not have a minimum dollar
value determined from time to time by the Trustees in their sole
discretion. Shares of the Trust are also redeemable at the option of
the Trust if, in the opinion of the Trustees, ownership of Trust Shares
has or may become concentrated to an extent which would cause the Trust
to be a personal holding company within the meaning of the federal
Internal Revenue Code (and thereby disqualified under Sub-chapter M of
said Code); in such circumstances the Trust may compel the redemption of
Shares, reject any order for the purchase of Shares or refuse to give
effect to the transfer of Shares.
ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Personal Liability and Indemnification of
Shareholders. The Trustees, officers, employees or agents of the Trust
shall have no power to bind any Shareholder personally or to call upon
any Shareholder for the payment of any sum of money or assessment
whatsoever, other than such as the Shareholder may at any time agree to
pay by way of subscription to any Shares or otherwise.
No Shareholder or former Shareholder of the Trust shall be liable solely
by reason of his being or having been a Shareholder for any debt, claim,
action, demand, suit, proceeding, judgment, decree, liability or
obligation of any kind, against, or with respect to the Trust arising
out of any action taken or omitted for or on behalf of the Trust, and
the Trust shall be solely liable therefor ' and resort shall be had
solely to the Trust property for the payment or performance thereof.
Each Shareholder or former Shareholder of the Trust (or their heirs,
executors, administrators or other legal representatives or, in case of
a corporate entity, its corporate or general successor) shall be
entitled to indemnity and reimbursement out of the Trust property to the
full extent of such liability and the costs of any litigation or other
proceedings in which such liability shall have been determined,
including, without limitation, the fees and disbursements of counsel if,
contrary to the provisions hereof, such Shareholder or former
Shareholder of the Trust shall be held to personal liability.
The Trust shall, upon request by the Shareholder or former Shareholder,
assume the defense of any claim made against any Shareholder for any act
or obligation of the Trust and satisfy any judgment thereon.
Section 2. Limitation of Personal Liability of Trustees, Officers,
Employees or Agents of the Trust. No Trustee, officer, employee )r
agent of the Trust shall have the power to bind any other Trustee,
officer, employee or agent of the Trust personally. The Trustees,
officers, employees or agents of the Trust incurring any debts,
liabilities or obligations, or in taking or omitting any other actions
for or in connection with the Trust are, and each shall be deemed to be,
acting as Trustee, officer, employee or agent of the Trust and not in
his own individual capacity.
Provided they have acted under the belief that their actions are in the
best interest of the Trust, the Trustees and officers shall not be
responsible for or liable in any event for neglect or wrongdoing by them
or any officer, agent, employee, investment adviser or principal
underwriter of the Trust or of any entity providing administrative
services for the Trust, but nothing herein contained shall protect any
Trustee or officer against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Section 3. Express Exculpatory Clauses and Instruments. The
Trustees shall Use every reasonable means to assure that all persons
having dealings with the Trust shall be informed that the property of
the Shareholders and the Trustees, officers, employees and agents of the
Trust shall not be subject to claims against or obligations of the Trust
to any extent whatsoever. The Trustees shall cause to be inserted in
any written agreement, undertaking or obligation made or issued on
behalf of the Trust (including certificates for Shares of the Trust) an
appropriate reference to this Declaration, providing that neither the
Shareholders, the Trustees, the officers, the employees nor any agent of
the Trust shall be liable thereunder, and that the other parties to such
instrument shall look solely to the Trust property for the payment of
any claim thereunder or for the performance thereof; but the omission of
such provisions from any such instrument shall not render any
Shareholder, Trustee, officer, employee or agent liable, nor shall any
Trustee, or any officer, agent or employee of the Trust be liable to
anyone for such omission. If, notwithstanding this
provision, any Shareholder, Trustee, officer, employee or agent shall be
held liable to any other person by reason of the omission of such
provision from any such agreement, undertaking or obligation, the
Shareholder, Trustee, officer, employee or agent shall be entitled to
indemnity and reimbursement out of the Trust property, as provided in
this Article XI.
Section 4. Mandatory Indemnification.
(a) Subject only to the provisions hereof , every person who is or has
been a Trustee, officer, employee or agent of the Trust and every person
who serves at the Trust's request as director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall be indemnified by the Trust to the fullest extent
permitted by law against all liabilities and against all expenses
reasonably incurred or paid by him in connection with any debt, claim,
action, demand, suit, proceeding, judgment, decree, liability or
obligation of any kind in which he becomes involved as a party or
otherwise or is threatened by virtue of his being or having been a
Trustee, officer, employee or agent of the Trust or of another
corporation, partnership, joint venture, trust or other enterprise at
the request of the Trust, and against amounts paid or incurred by him in
the compromise or settlement thereof.
(b) The words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal,
administrative, legislative, investigative or other, including appeals),
actual or threatened, and the words "liabilities" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts
paid in settlement, fines, penalties and other liabilities.
(c) No indemnification shall be provided hereunder against any
liabilities to the Trust or its Shareholders adjudicated to have been
incurred by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of a
person's office.
(d) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not affect any other rights to which any Trustee, officer, employee or
agent may now or hereafter be entitled, shall continue as to a person
who has ceased to be such Trustee, officer, employee, or agent and shall
inure to the benefit of the heirs, executors and administrators of such
a person; provided, however, that no person may satisfy any right of
indemnity or reimbursement granted herein except out of the property of
the Trust, and no other person shall be personally liable to provide
indemnity or reimbursement hereunder (except an insurer or surety or
person otherwise bound by contract).
(e ) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in paragraph (a) of this Section 4 may be paid by the Trust
prior to final disposition thereof upon receipt of a written undertaking
by or on behalf of the Trustee, officer, employee or agent to reimburse
to the Trust if it is ultimately determined under this Section 4 that he
is not entitled to indemnification.
ARTICLE XII
MISCELLANEOUS
Section 1. Trust is not a Partnership. It is hereby expressly
declared that a trust and not a partnership is created hereby.
Section 2. Trustees' Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions
hereunder in good faith and with reasonable care under the circumstances
then prevailing, shall be binding upon everyone interested. Subject to
the provisions of Article XI, the Trustees shall not be liable for
errors of judgment or mistakes of fact or law. The Trustees may take
advice of counsel or other experts with respect to the meaning and
operation of this Declaration of Trust, and subject to the provisions of
Article XI, shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor any surety
if a bond is required.
Section 3. Establishment of Record Dates. The Trustees may
close the Share transfer books of the Trust for a period not exceeding
sixty (60) days preceding the date of any meeting of Shareholders, or
the date for the payment of any dividend or the making of any
distribution to Shareholders, or the date for the allotment of rights,
or the date when any change or conversion or exchange of Shares shall go
into effect; or in lieu of closing the Share transfer books as
aforesaid, the Trustees may f ix in advance a date, not exceeding sixty
(60) days preceding the date of any meeting of Shareholders, or the date
for the payment of any dividend or the making of any distribution to
Shareholders, or the date for the allotment of rights, or the date when
any change or conversion or exchange of Shares shall go into effect, or
the last day on which the consent or dissent of Shareholders may be
effectively expressed for any purpose, as a record date for the
determination of the Shareholders entitled to notice of, and, to vote
at, any such meeting and any adjournment thereof, or entitled to receive
payment of any such dividend or distribution, or to any such allotment
or rights, or to exercise the rights in respect of any such change,
conversion or exchange of shares, or to exercise the right to give such
consent or dissent, and in such case such Shareholder and only such
Shareholder as shall be Shareholders of record on the date so fixed
shall be entitled to such notice of, and to vote at, such meeting, or to
receive payment of such dividend or distribution, or to receive such
allotment or rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any Shares on the books of the Trust
after any such date fixed as aforesaid.
Section 4. Termination of Trust.
(a) This Trust shall continue without limitation of time but subject
to the provisions of paragraphs (b) , (c) and (d) of this Section 4.
(b) The Trustees, with the approval of a Majority Shareholder Vote,
may by unanimous action, merge, consolidate, or sell and convey the
assets of the Trust including its good will to another trust or
corporation organized under the laws of any state of the United States,
which is a diversified open-end management investment company as defined
in the 1940 Act, for an adequate consideration which may include the
assumption of all outstanding obligations, taxes and other liabilities,
accrued or contingent, of the Trust and which may include shares of
beneficial interest or stock of such trust or corporation. Upon making
provision for the payment of all such liabilities, by such assumption or
otherwise, the Trustees shall distribute the net proceeds of the
transaction ratably among the holders of the Shares of the Trust then
outstanding.
(c) Subject to a Majority Shareholder Vote, the Trustees may at any
time sell and convert into money all the assets of the Trust. Upon
making provision for the payment of all outstanding obligations, taxes
and other liabilities, accrued or contingent, of the Trust, the Trustees
shall distribute the remaining assets of the Trust ratably among the
holders of the outstanding Shares.
(d) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in paragraphs (b) and (c), the Trust
shall terminate and the Trustees shall be discharged of any and all
further liabilities and duties hereunder and the right, title and
interest of all parties shall be canceled and discharged.
Section 5. Offices of the Trust, Filing of Copies, References,
Headings. The Trust shall maintain, a usual place of business in
Massachusetts, which, initially, shall be One Post office Square,
Boston, Massachusetts, and shall continue to maintain an office at such
address unless changed by the Trustees, or by their representative, to
another location in Massachusetts. The Trust may maintain other
offices as the Trustees may from time to time determine. The original
or a copy of this instrument and of each declaration of trust
supplemental hereto shall be kept at the office of the Trust where it
may be inspected by any Shareholder. A copy of this instrument and
of each supplemental declaration of trust shall be filed by the Trustees
with the Massachusetts Secretary of State and the Boston City Clerk, as
well as any other governmental office where such filing may from time to
time be required. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any such
supplemental declaration of trust has been made and as to any matters in
connection with the Trust hereunder, and with the same effect as if it
were the original, may rely on a copy certified by an office of the
Trust to be a copy of this instrument or of any such supplemental
declaration of trust. In this instrument or in any such supplemental
declaration of trust, references to this instrument, and all expressions
like "herein," "hereof" and "hereunder," shall be deemed to refer to
this instrument as amended or affected by any such supplemental
declaration of trust. Headings are placed herein for convenience of
reference only and in case of any conflict, the text of this instrument,
rather than the headings, shall control. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 6. Applicable Law. The Trust set forth in this
instrument is created under and is to be governed by and construed and
administered according to the laws of the Commonwealth of Massachusetts.
The Trust shall be of the type commonly called a Massachusetts business
trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
Section 7. Amendments. Prior to the initial issuance of Shares pursuant
to the second sentence of Section 3 of Article III, a majority of the
Trustees then in office may amend or otherwise supplement this
instrument by making a Declaration of Trust supplemental hereto, which
thereafter shall form a part hereof. Subsequent to such initial
issuance of Shares, if authorized by a majority of the Trustees then in
office and by a Majority Shareholder Vote, or by any larger vote which
may be required by applicable law or this Declaration of Trust in any
particular case, the Trustees shall amend or otherwise supplement this
instrument, by making a declaration of trust supplemental hereto, which
thereafter shall form a part hereof. Any such supplemental
declaration of trust shall be signed by at least a majority of the
Trustees then in office. Copies of the supplemental declaration of
trust shall be filed as specified in Section 5 of this Article XII.
Section 8. Conflicts with Law or Regulations-
(a) The provisions of this Declaration of Trust are severable, and if
the Trustees determine, with the advice of counsel, that any such
provision is in unresolvable conflict with the 1940 Act, with the
provisions of the Internal Revenue Code relating to the tax exemption or
other matters concerning regulated investment companies, or with other
applicable laws or regulations, the conflicting provision shall be
deemed never to have constituted a part of this Declaration of Trust;
provided, however, that such determination shall not affect any of the
remaining provisions hereof nor render invalid or improper any action
taken or omitted prior to such determination.
(b) If any provision of this Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not attach to such provision in any other
jurisdiction or any other provision hereof in any jurisdiction.
Section 9. Use of Name. The Trustees of the Trust acknowledge that,
in consideration of its assumption of certain expenses of formation of
the Trust, Bankers Finance Investment Management Corp. has reserved for
itself the rights to the name "GIT Tax-Free Trust' (or any similar name),
that the Trust's rights to use the "GIT" portion of its name are non-
exclusive, and that use by the Trust of such name shall continue only
with the continuing consent of Bankers Finance Investment Management
Corp., which consent may be withdrawn at any time, effective immediately
or at a specified time, upon written notice thereof to the Trust.
IN WITNESS WHEREOF, the undersigned have executed this
instrument on this date first written above.
(signature)
A. Bruce Cleveland
(signature)
Michael D. Goth
(signature).
Robert W. Dudley
(signature)
Thomas S. Kleppe
(signature)
Gerald W. Nensel
<PAGE>
GIT TAX-FREE TRUST
SUPPLEMENTAL DECLARATION OF TRUST
Amendment No. 1 to Declaration of Trust
This SUPPLEMENTAL DECLARATION OF TRUST is made 1983, by A. Bruce
Cleveland, Michael D. Goth, Robert W. Dudley, Thomas S. Kleppe, and
Gerald W. Nensel, as Trustees.
WHEREAS the Trustees desire to amend the Declaration of Trust of GIT
Tax-Free Trust as provided below;
WHEREAS the Shareholders of record of all outstanding Shares of the
Trust have consented to such amendment;
NOW, THEREFORE, the Trustees declare that the Article IV, Section 3, of
the Declaration of Trust of GIT Tax-Free Trust shall be amended and
restated as herein set forth below.
ARTICLE IV
THE TRUSTEES
Section 3. Term of Office of Trustees. The Trustees shall hold off ice
during the lifetime of this Trust and until any expiration of the term
of office for which each was elected; except that: (a) a Trustee may
resign his trust by written instrument signed by him and delivered to
the other Trustees, which shall take effect upon such delivery or upon
such later date as is specified therein; (b) a Trustee may be removed at
any time by written instrument signed by at least two-thirds of the
number of Trustees prior to such removal, specifying the date when such
removal shall become effective; (c) a Trustee who requests in writing to
be retired or who has become mentally or physically incapacitated may be
retired by written instrument signed by a majority of the other
Trustees, specifying the date of and reason for his retirement; and (d)
a Trustee may be removed either by filing with the Trust's Custodian
written declarations by two-thirds of the outstanding Shares after
solicitation of such declarations by a Shareholder in the same manner as
proxies are solicited, or by a vote of two-thirds of the outstanding
Shares cast in person or by proxy at a special meeting of Shareholders
called for the purpose.
The Trustees shall promptly call a meeting of Shareholders for the
purpose of voting on the removal of a Trustee, if requested to do so in
writing by the record holders of at least 10% of the Trust's outstanding
Shares. Ten or more persons who have been Shareholders for at least six
months and who hold Shares with an aggregate net asset value of at least
$25,000 or, if less, with a net asset value of 1% of the Trust's
aggregate net assets, may apply to the Trustees in writing for the
purpose of communicating with other Shareholders to solicit their
signatures requesting such a Shareholder meeting to remove a Trustee;
provided, that a copy of the proposed form of communication to
Shareholders and accompanying signature request is submitted by such
Shareholders with such application to the Trustees. Within five (5)
business days of the receipt of such an application the Trustees shall
either: (a) provide the applicants access to a list of the names and
addresses of all Shareholders as shown on the books of the Trust, or (b)
inform the applicants as to the approximate number of Shareholders of
record and the approximate cost of mailing to them the proposed form of
communication and signature request. If the Trustees act pursuant to
the course described in clause (b) immediately above, the applicants may
thereafter request in writing that the Trustees mail the proposed
communication and signature request to Shareholders, provided such
request is accompanied by delivery to the Trustees of all materials to
be so mailed and payment to the Trust of the amount reasonably estimated
by the Trustees as the cost of the mailing.
Upon receipt of any such request, delivery and payment, the Trustees
shall either mail such materials with reasonable promptness to all
Shareholders of record at their addresses as shown on the books of the
Trust or within five (5) business days thereafter mail to the applicants
and file with the Commission copies of the tendered materials and a
written statement, signed by at least a majority of the Trustees, to the
effect that in the opinion of such Trustees such materials contain
untrue statements of fact, omit to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, together with a statement by such Trustees of the basis
of their opinion as stated therein and any other related information
they deem appropriate. If, subsequent to the submission of such
statement and full consideration thereof by the Commission, the
Commission declines to issue an order sustaining the Trustee's
objections or otherwise preventing mailing of the tendered materials,
then the Trustees shall mail such materials to Shareholders as
aforesaid.
IN WITNESS WHEREOF, the undersigned have executed this instrument on
this date first written above.
(signature)
A. Bruce Cleveland
(signature)
Michael D. Goth
(signature)
Robert W. Dudley
(signature)
Thomas S. Kleppe
(signature)
Gerald W. Nensel
<PAGE>
Supplemental Declaration of Trust of
GIT Tax-Free Trust
WHEREAS, Section 1 of the Declaration of Trust states the name of the
Trust and provides that the Trustees may hold the property of the Trust
and conduct its business under another name of their choosing; and
WHEREAS, effective May 12, 1997, the Trustees have chosen to hold the
property of the Trust and conduct its business under the name Mosaic
Equity Trust:
NOW THEREFORE, the first sentence of Section 1 of the Declaration of
Trust shall be and hereby is revised to read as follows:
This Trust shall be known as "Mosaic Tax-Free Trust."
In Witness Whereof, the undersigned have executed this instrument
effective as of the date first written above.
(Signature)
Frank Burgess
(signature)
James Imhoff
(signature)
Thomas Kleppe
(signature)
Lorence Wheeler
GIT TAX-FREE TRUST
BY-LAWS
ARTICLE I
SHAREHOLDER MEETINGS
Section 1. Annual Meetings. The Trustees shall call an annual
meeting of the Shareholders of the Trust at least once, after the close
of the Trust's first fiscal year, to review the results of the previous
fiscal year, to elect the Trustees to serve until the next annual
meeting of Shareholders, if any, and to transact such other business as
may be brought before the meeting. Thereafter, the Trustees shall
review at least annually after the close of each fiscal year whether
there is sufficient business to be brought before an annual meeting of
Shareholders, in their judgment, to justify an annual meeting for that
year. In the event the Trustees determine to hold such a meeting,
they shall by resolution call an annual meeting for the fiscal year then
ended.
Section 2. Special Meetings. A special meeting of the Shareholders
shall be called by the Secretary whenever ordered by the Trustees, the
Chairman, the President, or requested in writing by the holders of
at least one-tenth of the outstanding shares entitled to vote. If the
Secretary, when so ordered or requested, refuses or neglects for more
than two days to call such special meeting, the Trustees, Chairman,
President or the Shareholders so requesting may, in the name of the
Secretary, call the meeting by giving notice thereof in the manner
required when notice is given by the Secretary.
Section 3. Notices. Except as above provided, notices of all
meetings of the Shareholders shall be given by the Secretary by
delivering or mailing, postage prepaid, to each Shareholder entitled to
vote at said meeting, a written or printed notification of such meeting,
at least fifteen days before the meeting, to such address as may be
registered with the Trust by the Shareholder. No notice need be
given to a Shareholder who has failed to inform the Trust of his current
address or if a written waiver of notice is executed before or after the
meeting by the Shareholder or his authorized representative and filed
with the records of the meeting. Any adjourned meeting may be held
as adjourned without further notice.
Section 4. Place of Meeting. Meetings of the Shareholders of the
Trust shall be held in Arlington, Virginia, at the principal offices of
the Trust, or another place designated by the Trustees, or at such place
within or without the Commonwealth of Massachusetts as may be fixed
from time to time by resolution of the Trustees.
Section 5. Chairman. The Chairman, if any, shall act as chairman
at all meetings of the Shareholders; in his absence, the President
shall act as chairman; and in the absence of the Chairman and
the President, the Trustee or Trustees present at each meeting may elect
a temporary chairman for the meeting, who may be one of themselves.
Section 6. Proxies; Voting. Shareholders may vote either in person or
by duly executed proxy. No proxy shall be valid after
eleven (11) months from the date of its execution, unless a longer
period is expressly stated in such proxy. Any proxy shall be deemed
valid unless challenged before its exercise and proven otherwise.
Any share held jointly may be voted by any joint owner, but may not be
voted at all if the joint owners notify the meeting that they disagree
as to how the vote shall be cast.
Section 7. Closing of Transfer Books and Fixing Record Dates. For
the purpose of determining the Shareholders who are entitled to notice
of or to vote or act at any meeting, including any adjournment thereof,
or who are entitled to participate in any dividends, or for any other
proper purpose, the Trustees may from time to time close the transfer
books or fix a record date. If the Trustees do not prior to any
meeting of Shareholders so fix a record date or close the transfer
books, then the date of mailing notice of the meeting or the date upon
which the dividend resolution is adopted, as the case may be, shall be
the record date. No record date for a meeting of Shareholders shall be
more than sixty (60) days preceding the date of the meeting.
Section 8. Inspectors of Election. In advance of any meeting
of Shareholders, the Trustees may appoint Inspectors of Election to act
at the meeting or any adjournment thereof. If Inspectors of Election
are not so appointed, the chairman, if any, of any meeting of
shareholders may, and on the request of any Shareholder or his proxy
shall, appoint Inspectors of Election of the meeting. The number of
Inspectors shall be either one or three. If appointed at the meeting on
the request of one or more Shareholders or proxies, a majority of shares
present (in person or by proxy) shall determine whether one or three
Inspectors are to be appointed, but failure to allow such determination
by the Shareholders shall not affect the validity of the appointment of
Inspectors of Election. In case any person appointed as Inspector
fails to appear or fails or refuses to act, the vacancy may be filled by
appointment made by the Trustees in advance of the convening of the
meeting or at the meeting by the person acting as chairman. The
Inspectors of Election shall determine the number of shares outstanding,
the shares represented at the meeting, the existence of a quorum, the
authenticity, validity and effect of proxies, shall receive votes,
ballots or consents, shall hear and determine all challenges and
questions in any way arising in connection with the right to vote, shall
count and tabulate all votes or consents, determine the results, and do
such other acts as may be proper to conduct the election or vote with
fairness to all Shareholders. If there are three Inspectors of
Election, the decision, act or certificate of a majority is effective in
all respects as the decision, act or certificate of all. on request of
the chairman, if any, of the meeting, or of any Shareholder or of his
proxy, the Inspectors of Election shall make a report in writing of any
challenge or question or matter determined by them and shall execute a
certificate of any facts found by them.
Section 9. Action by Consent. Any action required or permitted to be
taken at any meeting of Shareholders may be taken without a meeting, if
a consent in writing, setting forth such action, is signed
by all the Shareholders entitled to vote on the subject matter thereof,
and such consent is filed with the records of the Trust.
ARTICLE II
TRUSTEES
Section 1. The Trustees. The Trust shall have five (5) Trustees, unless
such number be changed by amendment of the By-Laws or by resolution of
the Trustees. The Trustees shall be responsible for the management of
the Trust; they may retain such authority to direct the business affairs
of the Trust as they deem advisable, but they may delegate any of the
various functions involved in the management of the Trust to its
officers and/or agents as they deem fit. The term of office of each
Trustee shall expire upon the election of a successor Trustee at any
annual meeting of Shareholders of the Trust subsequent to the
commencement of the Trustee's term of office. All persons to serve as
Trustees of the Trust shall be elected at each annual meeting of
Shareholders held by the Trust.
Section 2. Meetings of Trustees. The Trustees shall hold at least
one meeting annually or the transaction of such business as may come
before the meeting. Regular meetings of the Trustees may be held without
call or notice at such place or places and times as the Trustees may
provide from time to time by resolution.
Section 3. Special Meetings. Special meetings of the Trustees
shall be held upon the call of the Chairman, if any, the President, the
Secretary or any two Trustees, at such time, on such day, and at such
place, as shall be designated in the notice of the meeting.
Section 4. Notice. Notice of a meeting shall be given by mail or by
telegram (which Term shall include a cablegram or mailgram) or delivered
personally. If notice is given by mail, it shall be mailed not later
than 48 hours preceding the meeting and if given by telegram or
personally, such telegram shall be sent or delivery made not later than
48 hours preceding the meeting. Notice by telephone shall constitute
personal delivery for these purposes. Notice of a meeting of Trustees
may be waived before or after any meeting by signed written waiver.
Neither the business to be transacted at, nor the purpose of, any
meeting of the Trustees need be stated in the notice or waiver of notice
of such meeting, and no notice need be given of action proposed to be
taken by unanimous written consent. The attendance of a Trustee
at a meeting shall constitute a waiver of notice of such meeting except
where a Trustee attends a meeting for the express purpose of objecting
to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
Section 5. Chairman; Records. The Chairman, if any, shall act as
chairman at all meetings of the Trustees; in his absence the President
(if a Trustee) shall act as chairman; and, in the absence of the
Chairman and the President, the Trustees present shall elect one of
their number to act as temporary chairman. The results of all actions
taken at a meeting of the Trustees, or by unanimous written consent
of the Trustees, shall be recorded by the Secretary, or by an Assistant
Secretary in the absence of the Secretary or at his direction.
Section 6. Quorum and Vote. A majority of the Trustees shall
constitute a quorum for the transaction of business. The act of a
majority of the Trustees present at any meeting at which a quorum is
present shall be the act of the Trustees unless a greater proportion is
required by the Declaration of Trust or these By-Laws or applicable law.
In the absence of a quorum, a majority of the Trustees present may
adjourn the meeting from time to time until a quorum shall be present.
Notice of any adjourned meeting need not be given.
Section 7. Place of Meeting. Meetings of the Trustees shall be held at
the principal place of business of the Trust in Arlington, Virginia, or
at such place within or without the Commonwealth of Massachusetts
as fixed from time to time by resolution of the Trustees, or as the
person or persons requesting said meeting to be called may designate, or
as designated in the notice of the meeting, but any meeting may
adjourn to any other place.
Section 8. Telephonic Meetings. Subject to compliance with
Sections 15 and 32 of the Investment Company Act of 1940, if it is
impractical for the Trustees to meet in person, the Trustees may meet by
means of a telephone conference circuit to which all Trustees who
constitute the meeting are connected, which meeting shall be deemed a
valid meeting of the Trustees to the same degree as if it were held in
person. Such a telephonic meeting shall be deemed to have been held at
a place designated by the Trustees at the meeting, or if there be no
such designation, at the principal place of business of the Trust
in Arlington, Virginia.
Section 9. Special Action. When all the Trustees shall be present at
any meeting, however called, or whenever held, or shall assent to the
holding of the meeting without notice, or after the meeting shall sign
a written assent thereto on the record of such meeting, the acts of such
meeting shall be valid as if such meeting had been regularly held. When
by a motion duly made, seconded and adopted the Trustees approve the
minutes of a prior Trustees' meeting, the acts of such meeting as
recorded in the minutes shall be deemed valid whether or not the meeting
was regularly held.
Section 10. Action by Consent. Any action by the Trustees may be
taken without a meeting in which a written consent thereto is signed by
all the Trustees and filed with the records of the Trustees' meetings.
Such consent shall be treated as a vote of the Trustees for all
purposes.
Section 11. Compensation of Trustees. The Trustees may receive a
stated salary for their services as Trustees, and by resolution of
Trustees a fixed fee and expense of attendance may also be allowed for
attendance at each meeting. Nothing herein contained shall be construed
to preclude any Trustee from serving the Trust in any other capacity, as
an officer, agent or otherwise, and receiving compensation therefor.
ARTICLE III
OFFICERS
Section 1. Officers of the Trust. The officers of the Trust shall
consist of a Chairman, President, a Secretary, a Treasurer and such
other officers or assistant officers, including Vice-Presidents, as may
be elected by the Trustees. Any two or more of the offices may be held
by the same person, except that the same person may not be both
President and Secretary. The Trustees may designate any Vice-President
as an Executive Vice-President, or as a Senior Vice Presidents, and may
designate the order in which the Vice-Presidents may act. The Chairman,
or if none, the President shall be a Trustee, but no other officer of
the Trust need be a Trustee.
Section 2. Election and Tenure. At the initial organization meeting
and thereafter when they deem appropriate, the Trustees shall elect the
Chairman, if any, President, Secretary, Treasurer and such other
officers as the Trustees shall deem necessary or appropriate in order to
carry out the business of the Trust. Such officers shall hold office
until their successors have been duly elected and qualified. The
Trustees may fill any vacancy in office or add any additional officers
at any time.
Section 3. Removal of officers. Any officer may be removed at any
time, with or without cause, by action of a majority of the Trustees.
This provision shall not prevent the making of a contract of employment
for a definite term with any officer and shall have no effect upon any
cause of action which any officer may have as a result of removal in
breach of a contract of employment. Any officer may resign at any time
by notice in writing signed by such officer and delivered or mailed to
the Chairman, if any, President, or Secretary, and such resignation
shall take effect immediately upon receipt by the Chairman, if any,
President, or Secretary, or at a later date according to the terms of
such notice in writing.
Section 4. Bonds and Surety. Any officer may be required by the
Trustees to be bonded for the faithful performance of his duties in such
amount and with such sureties as the Trustees may determine.
Section 5. Chairman, President, and Vice-Presidents. The Chairman,
if any, if present, preside at all meetings of the Shareholders and of
the Trustees and shall exercise and perform such other powers and duties
as may be from time to time assigned to him by the Trustees. Subject to
such supervisory powers, as may be given by the Trustees to the
Chairman, if any, the President shall be the chief executive officer of
the Trust, unless the Trustees have by resolution designated the
Chairman as chief executive officer, and, subject to the control of the
Trustees, the President shall have general supervision, direction and
control of the business of the Trust and of its employees and shall
exercise such general powers of management as are usually vested in the
office of President of a corporation. In the absence of the Chairman, if
any, the President shall preside at all meetings of the Shareholders
and, if he is a Trustee, of the Trustees. Subject to the direction of
the Trustees, the Chairman, if any, and the President shall each have
power in the name and on behalf of the Trust to execute any and all loan
documents, contracts, agreements, deeds, mortgages, and other
instruments in writing, and to employ and discharge employees and agents
of the Trust. Unless otherwise directed by the Trustees, the Chairman,
if any, and the President shall each have full authority and power, on
behalf of all of the Trustees, to attend and to act and to vote, on
behalf of the Trust at any meetings of business organizations in which
the Trust holds an interest, or to confer such powers upon any other
persons, by executing any proxies duly authorizing such persons. The
Chairman, if any, and the President shall have such further authorities
and duties as the Trustees shall from time to time determine.
In the absence or disability of the President , the Vice-Presidents in
order of their rank as provided in these By-Laws or as fixed by the
Trustees, or otherwise the Vice-President designated by the Trustees,
shall perform all of the duties of the President, and when so acting
shall have all the powers of and be subject to all of the restrictions
upon the President. Subject to the direction of the Trustees, of the
Chairman, if any, and of the President, each Vice-President shall have
the power in the name and on behalf of the Trust to execute any and all
loan documents, contracts, agreements, deeds, mortgages and other
instruments in writing, and, in addition, shall have such other duties
and powers as shall he designated from time to time by the Trustees or
by the Chairman, if any, or by the President. Officers of the Trust
shall have rank or precedence in the following declining order: the
Chairman, the President, Executive Vice Presidents, Senior Vice
Presidents, Vice Presidents, and Assistant Vice Presidents; unless
otherwise directed by the Trustees, or by a higher ranking officer,
officers of the same rank shall have precedence in order of their
seniority with the Trust or with any of its affiliates.
Section 6. Secretary. The Secretary shall keep the minutes of all
meetings of, and record all votes of, Shareholders, Trustees and the
Executive Committee, if any. He shall be custodian of the seal of the
Trust, if any, and he (and any other person so authorized by the
Trustees) shall affix the seal or, if permitted, a facsimile thereof, to
any instrument executed by the Trust and shall attest the seal and the
signature or signatures of the officer or officers executing such
instrument on behalf of the Trust. The Secretary shall have such other
authorities and duties as the Trustees may from time to time determine.
Any Assistant Secretary shall have full authority to perform the
functions of the Secretary in his absence or as he may direct.
Section 7. Treasurer. Except as otherwise directed by the Trustees, the
Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable assets of the
Trust, and shall have and exercise under supervision of the Trustees and
of the President all powers and duties normally incident to his office.
He may endorse for deposit or collection all notes, checks and other
instruments payable to the Trust or to its order. He shall deposit all
funds of the Trust in such depositories as the Trustees shall designate.
He shall be responsible for such disbursement of the funds of the Trust
as may be ordered by the Trustees or the President. He shall keep
accurate account of the books of the Trust's transactions which shall be
tile property of the Trust, and which, together with all other property
of the Trust in his possession, shall be subject at all times to the
inspection and control of the Trustees. Unless the Trustees shall
otherwise determine, the Treasurer shall be the principal accounting
officer of the Trust and shall also be the principal financial officer
of the Trust. He shall have such other duties and authorities as the
Trustees shall from time to time determine.
Section 8. Minor Positions. Unless otherwise provided by the
Trustees, the President shall have authority to designate persons as
Assistant Treasurers and as Account Officers of the Trust; these
persons, despite their titles, shall not be deemed officers of the
Trust. Such persons shall be authorized to represent the Trust to
members of the public in connection with the sale of its securities, and
subject to the direction of the Trustees and officers of the Trust; but
neither they nor any Assistant Secretary shall have any other authority,
except as otherwise directed or provided herein, over the affairs of the
Trust or any of its officers and employees.
Section 9. Other Officers and Duties. The Trustees may elect such
other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business
of the Trust. Assistant officers, except as otherwise provided herein
or by the Trustees, shall act generally in the absence of the officer
whom they assist and shall assist that officer in the duties of his
office. Each officer, employee and agent of the Trust shall have such
other duties and authority as may be conferred upon him by the Trustees
or delegated to him by the President.
Section 10. Salaries. The salaries of the officers shall
be fixed from time to time by the Trustees. No officer shall be
prevented from receiving such salary by reason of the fact that
he is also a Trustee.
ARTICLE IV
POWERS AND DUTIES OF THE
EXECUTIVE AND OTHER COMMITTEES
Section 1. Executive, Nominating and Other Committees. The Trustees
may elect from their own number an Executive Committee to consist of not
less than three members, which number shall include either the Chairman
or, if a Trustee, the President. The Executive Committee shall be
elected by a resolution passed by a vote of at least a majority of the
Trustees then in office. Each of the Trustees who is not an "interested
person" as that term is defined in the Investment Company Act of 1940
shall be a member of the Nominating Committee of the Trust. The
selection and nomination of those future Trustees who are not
"interested persons" shall be committed to the discretion of the
Nominating Committee. The Trustees may also elect from their own number
other committees from time to time, the number composing such committees
and the powers conferred upon the same to be determined by vote of
the Trustees.
Section 2. Vacancies in Executive Committee. Vacancies occurring in the
Executive Committee shall be filled by the Trustees by a resolution
passed by the vote of at least a majority of the Trustee then in office.
Section 3. Executive Committee to Report to Trustees. All action by the
Executive Committee shall be reported to the Trustees at their meeting
next succeeding such action.
Section 4. Procedure of Executive Committee. The Executive Committee
shall fix its own rules of procedure not inconsistent with these By-Laws
or with any directions of the Trustees. It shall meet at such times and
places and upon such notice as shall be provided by such rules or by
resolution of the Trustees. The presence of a majority shall constitute
a quorum for the transaction of business, and in every case an
affirmative vote of a majority of all the members of the Committee
present shall be necessary for the taking of any action.
Section 5. Powers of Executive Committee. During the intervals between
the meetings of the Trustees, the Executive Committee, except as limited
by the By-Laws of the Trust or by specific directions of the Trustees,
shall possess and may exercise all the powers of the Trustees in the
management and direction of the business and conduct of the affairs of
the Trust in such manner as the Executive Committee shall deem for the
best interests of the Trust, and shall have power to authorize the seal
of the Trust to be affixed to all instruments and documents requiring
the same. Notwithstanding the foregoing, the Executive Committee shall
not have the power to elect Trustees, increase or decrease the number of
Trustees, elect or remove any officer, declare dividends, issue shares,
take action required by law to be taken at a meeting of all of the
Trustees, or to recommend to Shareholders any action requiring
Shareholder approval.
Section 6. Compensation. The members of any duly appointed committee
of the Trustees shall receive such additional compensation and/or fees,
if any, as from time to time may be fixed by the Trustees.
Section 7. Informal Action by Executive Committee or Other Committee.
Any action required or permitted to be taken at any meeting of the
Executive Committee or any other duly appointed committee may be taken
without a meeting if a consent in writing setting forth such action is
signed by all members of such committee and such consent is filed with
the records of the Trust.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 1. Beneficial Interest. The beneficial interest in the Trust
shall at all times be divided into an unlimited number of shares without
par value. The shares of beneficial interest shall have one vote per
share at any meeting of the Shareholders and a fractional vote for each
fraction of a share. The net asset value of each share shall be
determined according to regular procedures adopted by the Trustees.
Section 2. Series and Classes of Shares. The Trust shall have at
least one series of its shares of beneficial interest of a single class,
which, unless provided otherwise by the Trustees, shall be called the
Original Series of shares. By resolution the Trustees may create any
number of additional series of shares, which, unless provided otherwise
by the Trustees, shall all be of the same class, each having the same
rights as any other share within the same series. By resolution the
Trustees may create any number of separate classes of shares within any
series, each having such rights and privileges with respect to that
series as the Trustees provide. By resolution the Trustees may
designate the name of any series or class of the Trust's shares.
Each series of shares shall .represent the beneficial interest in a
separate, independently managed portfolios of securities, within which
all proceeds of the sale of the series of shares shall be managed.
Section 3. Book Entry Shares. Unless specifically requested over the
signature of the Shareholder, no certificates will be issued to
represent shares in the Trust. The Trust shall maintain adequate
records to determine the holdings of each Shareholder of record, and
such records shall be deemed the equivalent of a certificate
representing the shares for all purposes.
Section 4. Certificates. All certificates for shares shall be
signed by the Chairman, President or any Vice-President and by the
Treasurer or Secretary or any Assistant Secretary and sealed with the
seal of the Trust. The signatures may be either manual or facsimile
signatures and the seal may be either facsimile or any other form of
seal. Certificates for shares for which the Trust has appointed an
independent transfer agent and registrar shall not be valid unless
countersigned by such transfer agent and registered by such registrar.
In case any officer who has signed any certificate ceases to be an
officer of the Trust before the certificate is issued, the certificate
may nevertheless be issued by the Trust with the same effect as if the
officer had not ceased to be such officer as of the date of its
issuance. Share certificates shall be in such form not inconsistent with
law or the Declaration of Trust or these By-Laws as may be determined by
the Trustees.
Section S. Transfer of Shares. The shares of the Trust shall be
transferable, so as to affect the rights of the Trust, only by transfer
recorded on the books of the Trust, in person or by attorney.
Section 6. Equitable Interest not Recognized. The Trust shall be
entitled to treat the holder of record of any share or shares as the
absolute owner thereof and shall not be bound to recognize any equitable
or other claim or interest in such share or shares on the part of any
other person except as may be otherwise expressly provided by law.
Section 7. Lost, Destroyed or Mutilated Certificates. In case any
certificate for shares is lost, mutilate or destroyed, the Trustees may
issue a new certificate in place thereof upon indemnity to the Trust
against loss and upon such other terms and conditions as the Trustees
may deem advisable.
Section 8. Transfer Agent and Registrar; Regulations. The Trustees
shall have power and authority to make all such rules and regulations as
they may deem expedient concerning the issuance, transfer and
registration of certificates for shares and may appoint a transfer agent
and/or registrar of certificates for shares, and may require all such
share certificates to bear the signature of such transfer agent and/or
of such registrar.
ARTICLE VI
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what
extent, and at what times and places, and under what conditions and
regulations the accounts and books of the Trust or any of them shall be
open to the inspection of the Shareholders; and no Shareholder shall
have any right of inspecting an account or book or document of the
Trust, except as conferred by laws or authorized by the Trustees or
by resolution of the Shareholders.
ARTICLE VII
AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.
Section 1. Agreement, Etc. The Trustees or the Executive Committee
may authorize any officer or officers, or agent or agents of the Trust
to enter into any agreement or execute and deliver any instrument in the
name of and on behalf of the Trust, and such authority may he general or
confined to specific instances; and, unless so authorized by the
Trustees or by the Executive Committee or by these By-Laws, no officer,
agent or employees shall have any power or authority to bind the Trust
by any agreement or engagement or to pledge its credit or to render it
liable pecuniarily for any purpose or to any amount.
Section 2. Checks, Drafts, Etc. All checks, drafts, or orders
for the payment of money, notes and other evidences of indebtedness
shall be signed by such officer or officers, employee or employees, or
agent or agents, as shall from time to time be designated by the
Trustees or the Executive Committee, or as may be specified in or
pursuant to the agreement between the Trust and any bank or trust
company appointed as custodian or depository pursuant to the provisions
of the Declaration of Trust.
Section 3. Endorsements , Assignments and Transfer of Securities.
All endorsements, assignments and instruments of transfer of securities
standing in the name of the Trust or its nominee or directions for
the transfer of securities belonging to the Trust shall be made by such
officer or officers, employee or employees, or agent or agents as may be
authorized by the Trustees or the Executive Committee.
Section 4. Evidence of Authority. Anyone dealing with the Trust shall
be fully justified in relying on a copy of a resolution of the Trustees
or of any committee thereof empowered to act in the circumstances,
which is certified as true by the Secretary or an Assistant Secretary
under the seal of the Trust.
ARTICLE XVIII
SEAL
The seal of the Trust shall be circular in form, bearing the
inscription: GIT Tax-Free Trust - 1982 - Massachusetts
ARTICLE IX
FISCAL YEAR
The fiscal year of the Trust shall be the period of twelve calendar
months ending with the last day of a calendar quarter which is
designated as the end of the fiscal year by resolution of the Trustees.
ARTICLE X
AMENDMENTS
These By-Laws may be amended by a majority vote of all of the Trustees.
ARTICLE XI
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given under the
provisions of any statute of the Commonwealth of Massachusetts, or under
the provisions of the Declaration of Trust or these By-Laws, a waiver
thereof in writing, signed by the person or persons entitled to said
notice whether before or after the time stated therein, shall be deemed
equivalent thereto. Notice shall be deemed to have been given if
telegraphed, cabled, or sent by wireless or mailgram when it has been
delivered to a representative of any telegraph, cable, wireless or
electronic mail company with' instructions that it be telegraphed,
cabled or sent by wireless or mailgram. Any notice shall be deemed to
be given if mailed at the time when the same shall be deposited in the
mail.
ARTICLE XII
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by
independent certified public accountants selected pursuant to Section 32
of the Investment Company Act of 1940.
ARTICLE XIV
BOOKS AND RECORDS
The books and records of the Trust, including the share transfer ledger
or ledgers, may be kept in or outside the Commonwealth of Massachusetts
at such office or agency of the Trust as may be from time to time
determined by the Trustees.
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
Mosaic Tax-Free Trust:
We consent to the incorporation by reference in this Post-Effective
Amendment No. 22 to Registration Statement No. 2-77986 of Mosaic Tax-
Free Trust of our report dated November 21, 1997 appearing in the Annual
Report to Shareholders for the year ended September 30, 1997 and to the
references to us under the headings "Financial Highlights" in the
Prospectus and "Legal Matters and Independent Auditors" and "Financial
Statements and Report of Independent Auditors" in the Statement of
Additional Information, both of which are part of such Registration
Statement.
(signature)
DELOITTE & TOUCHE LLP
Princeton, New Jersey
January 27, 1998
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption
"Financial Highlights" in the Prospectus and to the incorporation
by reference in this Post-Effective Amendment Number 22 to
Registration Statement Number 2-77986 (Form N-1A) of
Mosaic Tax-Free Trust of our report dated November 7, 1996,
included in the September 30, 1996 Annual Report to shareholders.
(signature)
Ernst & Young LLP
Washington, DC
January 27, 1998
Computation of Performance Data
<TABLE>
<C> <C> <C> <C> <C>
Arizona Maryland Missouri Virginia National
30-Day Yield
Income 41,054.82 9,473.83 50,310.24 156,168.01 133,330.45
Expenses 9,071.23 2,101.52 11,164.56 31,475.38 24,906.73
Avg Daily Shares O/S 893,364.627 212,151.816 1,111,643.649 2,983,747.572 2,843,812.915
Max Offering Price 10.15 9.71 10.22 11.21 10.29
30-Day Yield 4.27% 4.33% 4.17% 4.52% 4.49%
Federal Tax Rate 36% 36% 36% 36% 36%
State Tax Rate 5.60% 8.00% 6.00% 5.75%
Combined Tax Rate 39.58% 41.12% 39.84% 39.68% 36.00%
30-Day Tax Equiv Yield 7.07% 7.36% 6.93% 7.49% 7.01%
Total Return
9/30/96 Factor 1,515.345 1,140.268 1,500.654 1,944.212 2,978.157
9/30/95 Factor 1,445.239 1,096.781 1,425.895 1,842.800 2,831.704
9/30/91 Factor 1,144.744 1,138.527 1,450.885 2,236.107
9/30/86 Factor 1,647.577
Inception Factor 1,000.000 1,000.000 1,000.000 1,000.000 1,000.000
Days Since Inception 2544 1328 2545 3275 5021
Aggregate Returns
One-Year Return 4.85% 3.96% 5.24% 5.50% 5.17%
Five-Year Return 32.37% 31.81% 34.00% 33.18%
Ten-Year Return 80.76%
Since Inception 51.53% 14.03% 50.07% 94.42% 197.82%
Annualized Returns
Five-Year Return 5.77% 5.68% 6.03% 5.90%
Ten-Year Return 6.10%
Since Inception 6.15% 3.68% 6.00% 7.70% 8.26%
What if no waiver of fee
30-Day Yield (what if)
Income 9,473.83
Expenses plus waived fees 2,564.81
Avg Daily Shares O/S 212,151.816
Max Offering Price 9.71
30-Day Yield 4.06%
Federal Tax Rate 36%
State Tax Rate 8.00%
Combined Tax Rate 41.12%
30-Day Tax Equiv Yield 6.89%
Total Return (what if)
9/30/96 Factor 1,466.428 1,115.400 1,452.773 1,931.781
9/30/95 Factor 1,079.058
One-Year Return 3.37%
Since Inception 46.64% 11.54% 45.28% 93.18%
Since Inception (annualized)5.65% 3.05% 5.51% 7.62%
</TABLE>
Money Market
Seven-Day Yield
Cumulative Income 4,099.21
Cumulative Net Assets 52,124,916.72
Seven-Day Yield 2.87%
Effective Annual Yield 2.91%
Federal Tax Rate 36%
Taxable Equivalent Yield 4.49%
