Mosaic Income Trust
High Yield Fund
Government Fund
Interim Report
June 30, 1997
(Unaudited)
<PAGE>
Dear Shareholder,
Thanks largely to a softening economy during the second quarter of 1997,
the pressure for the Federal Reserve to raise short-term interest rates
has abated. By most estimates, the economy, which grew at an annual
rate of just under 6% during the first quarter, slowed to an annual
growth rate of under 3% in the second three months of the year. Federal
Reserve policy remained steady and interest rates in general fell across
all maturities as cyclical inflation pressures eased, evidenced by a
leveling off of employment growth (albeit at a high level) and weaker
commodity and gold prices. Longer term Government bond yields declined
about 0.40%, while very short maturity Treasury Bill rates fell 0.14%.
Corporate bonds also turned in a strong showing, with investment grade
corporates outperforming their government counterparts and high yield
bonds outperforming investment grade bonds. All in all, it was a
rewarding quarter for fixed income investors.
Looking ahead, however, we believe that the second quarter's economic
weakness represents but a temporary lull in an ongoing expansion. While
we doubt that the second half of 1997 will witness the vigor of 1997's
first quarter, there is strong reason to believe that a growth rate high
enough to give the Fed pause will emerge. Most market participants
expect no Federal Reserve action for the balance of the year, and
evidence of even a modest acceleration in the rate of economic advance
will likely give the market problems, leading to a renewed expectation
of inflationary pressures and higher interest rates. This complacency
about the risks to the current rosy outlook, combined with a high degree
of bullish psychology in the marketplace, contribute to our cautious
approach for the balance of 1997.
Total return for the Mosaic Government Fund for the three months ended
6/30/97 was 3.30% including income and market value appreciation.
Mosaic Government Fund's 30-day yield declined from 5.88% at March 31,
1997, to 5.31% at June 30, 1997, reflecting the overall decline in
market interest rates during the period. So far this year, the Fund's
total return (income plus price) stands at 2.01%, and for the last
twelve months at 6.18%.
Strong corporate profitability, due to the robust economy, led the high
yield market to continue to generate solid investment results. For
several quarters, high yield investors have benefited from a favorable
economy that has allowed corporate debt issuers to improve the quality
of their balance sheets thereby enhancing the value of their bonds. The
basic backdrop for high yield bonds continues to be good.
Over the past six months, the High Yield Fund's thirty-day yield moved
from 8.16% on December 31, 1996 to 7.66% on June 30, 1997, with a total
return of 4.9% for the six month period. We continue to focus on
upgrading the overall quality of the fund while maintaining an
attractive yield. Over the past six months we have added several new
issues to the fund including Apple South, Digital Equipment, Chiquita
Brands, Golden Books, Viacom, and Westinghouse.
We appreciate your confidence in the Mosaic Income Trust Funds and
reaffirm our commitment to provide you with competitive yields and total
returns to meet your investment objectives.
Sincerely,
(signature)
Christopher C. Berberet, CFA
Vice President
(signature)
Jay R. Sekelsky, CFA
Vice President
<PAGE>
High Yield Fund
Portfolio of Investments - June 30, 1997 (Unaudited)
Credit Rating Principal
Moody's S&P Amount Value
CORPORATE DEBT SECURITIES: 91.2% of Net Assets
BUILDING MATERIALS: 0.6%
Ba3 BB- Johns Manville, Senior Notes, 10.875%, 12/15/04 $ 35,000 $ 39,025
CABLE TELEVISION: 9.4%
B2 B Cablevision Systems Corporation, Senior Subordinated
Debentures, 9.875%, 2/15/13 200,000 211,000
Ba1 BBB- TCI Communications Inc., Senior Notes, 8%, 8/1/05 200,000 201,250
B1 BB Viacom, Inc., Subordinated Debentures, 8%, 7/7/06 250,000 244,375
CHEMICALS: 4.5%
Ba2 BB+ Borden Chemical, 9.5%, 5/1/05 100,000 106,375
B3 B Harris Chemical North America, Senior Subordinated
Notes, 10.75%, 10/15/03 200,000 205,500
COMPUTERS: 2.9%
Ba1 BB+ Digital Equipment Corporation, Debentures,
8.625%, 11/1/12 200,000 204,750
CONSUMER PRODUCTS: 1.5%
B3 B- Revlon Consumer Products, Senior Subordinated
Notes, 10.5%, 2/15/03 100,000 107,000
ELECTRICAL EQUIPMENT: 3.6%
Baa3 BBB Seagate Technology, Senior Notes, 7.37%, 3/1/07 250,000 249,063
FINANCIAL SERVICES: 1.5%
B3 B- UCC Investors, Senior Subordinated Notes, 11%,
5/1/03 100,000 107,000
FOODS: 1.5%
NR NR Chiquita Brands International, Inc., Subordinated
Notes, 9.125%, 2/1/98 100,000 106,750
FOREST AND PAPER PRODUCTS: 4.8%
B1 B+ Container Corporation, 9.75%, 4/1/03 100,000 105,500
B3 B Crown Paper Company, Senior Subordinated Notes,
11%, 9/1/05 125,000 125,937
B1 BB- Stone Container, 1st Mortgage Notes, 10.75%, 10/1/02100,000 104,750
HOMEBUILDING: 5.4%
Ba3 B+ Continental Homes Holding Corporation, 10%, 4/15/06 156,000 163,410
B2 B NVR Inc., Senior Notes, 11%, 4/15/03 200,000 214,750
HOSPITAL MANAGEMENT: 3.1%
Ba3 B+ Tenet Healthcare Corporation, Senior Subordinated
Notes, 10.125%, 3/1/05 200,000 219,000
HOTELS:2.2%
Ba2 BB Prime Hospitality Corporation, 1st Mortgage, 9.25%,
1/15/06 150,000 155,625
INDUSTRIAL: 3.0%
Ba1 BB Westinghouse Electric Corporation, Debentures,
8.625%, 8/1/12 200,000 206,500
MANUFACTURING: 7.4%
B1 B+ American Standard Co., Senior Subordinated Notes,
9.875%, 6/1/01 $ 200,000 $211,500
B1 NR Exide Corporation, Senior Notes, 10%, 4/15/05 200,000 208,000
B1 BB- Outboard Marine, 8.625%, 3/15/01 100,000 100,000
OIL & GAS: 5.9%
Ba3 BB Clark Oil & Refining Corporation, Senior Notes,
9.5%, 9/15/04 200,000 207,750
Ba1 BB Oryx Energy Co., Notes, 8.125%, 10/15/05 200,000 207,250
PUBLISHING: 2.0%
B1 B Golden Books Publishing, Senior Notes, 7.65%,
9/15/02 150,000 141,750
RADIO & TV BROADCASTING: 3.8%
B3 B- SFX Broadcasting, Inc., Senior Subordinated Notes,
11.375%, 10/1/00 250,000 263,125
RETAIL-FOOD: 4.4%
B3 B- Bruno's, Inc., Senior Subordinated Notes,
10.5%, 8/1/05 100,000 101,000
Caa NR Super Markets General Holding Co., Subordinated
Notes, 11.625%, 6/15/02 200,000 204,250
RETAIL-DEPARTMENT STORES: 1.5%
Ba1 BB- Federated Department Stores, Senior Notes, 8.5%,
6/15/03 100,000 106,625
RETAIL-SPECIALTY STORES: 2.0%
Ba2 BB- Michael's Stores, Senior Notes, 10.875%, 6/15/06 131,000 142,135
RESTAURANTS: 3.0%
Ba2 BB- Apple South, Inc, Senior Notes, 9.75%, 6/1/06 200,000 210,000
TELECOMMUNICATIONS: 9.1%
Caa CCC+ CAI Wireless Systems, Inc., Senior Notes, 12.25%,
9/15/02 256,000 81,920
Ba3 BB- Century Communications, Senior Notes, 8.875%,
1/15/07 200,000 196,500
B2 B+ Sprint Spectrum, L.P., Senior Notes, 11%, 8/15/06 200,000 222,500
B1 B Teleport Communications, Senior Notes, 9.875%,
7/1/06 125,000 133,125
TEXILES-APPAREL: 3.0%
B2 B+ WestPoint Stevens, Inc., Senior Subordinated
Debentures, 9.375%, 12/15/05 200,000 210,250
UTILITIES-ELECTRIC: 5.1%
Ba3 BB CMS Energy Corporation, Senior Notes, 8.125%,
5/15/02 150,000 150,938
B1 B+ Toledo Edison Company, 8.7%, 9/1/02 200,000 202,500
TOTAL CORPORATE DEBT SECURITIES (Cost $6,438,044)+ 6,378,678
REPURCHASE AGREEMENT: 0.5% of Net Assets
With Donaldson, Lufkin & Jenrette Securities Corporation issued 6/30/97 at
5.75%, due 7/1/97 collaterized by $35,388 in United States Treasury Notes due
8/31/00. Total proceeds at maturity are $34,005.43. (Cost $34,000)+ 34,000
TOTAL INVESTMENTS (Cost $6,472,044)+ $6,412,678
Government Fund
Portfolio of Investments - June 30, 1997 (Unaudited)
Credit Rating Principal
Moody's S&P Amount Value
U.S. GOVERNMENT OBLIGATIONS: 80.3% of Net Assets
Aaa AAA United States Treasury Bonds, 6.875%, 8/15/25 $ 375,000 $376,590
Aaa AAA United States Treasury Notes, 7.125%, 2/29/00 600,000 613,176
Aaa AAA United States Treasury Notes, 7.75%, 2/15/01 700,000 732,060
Aaa AAA United States Treasury Notes, 6.25%, 2/15/03 450,000 446,805
Aaa AAA United States Treasury Notes, 7.25%, 5/15/04 450,000 469,413
Aaa AAA United States Treasury Notes, 6.5%, 8/15/05 675,000 673,252
Aaa AAA United States Treasury Notes, 5.875%, 11/15/05 775,000 741,628
Aaa AAA United States Treasury Notes, 5.625%, 2/15/06 250,000 234,777
Aaa AAA United States Treasury Notes, 6.5%, 10/15/06 300,000 298,719
TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $4,653,505)+ 4,586,420
U.S. GOVERNMENT AGENCY OBLIGATIONS: 11.9% of Net Assets
Aaa AAA Federal Home Loan Mortgage Corporation Mortgage
Pool, 6.5%, 3/1/09 370,332 363,503
Aaa AAA Federeal National Mortgage Association, 6.65%,
3/8/06 325,000 317,434
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $675,871)+ 680,937
REPURCHASE AGREEMENT: 6.1% of Net Assets
With Donaldson, Lufkin & Jenrette Securities Corporation issued 6/30/97 at
5.75%, due 7/1/97, collateralized by $363,250 in United States Treasury Notes
due 8/31/00. Proceeds at maturity are $349,055.74. (Cost $349,000)+ 349,000
TOTAL INVESTMENTS (Cost $5,678,375)+ $5,616,357
Notes to Portfolios of Investments:
+ Aggregate cost for federal income tax purposes and net unrealized
appreciation of investments as follows:
High Yield Government
Fund Fund
Aggregate cost $ 6,472,044 $ 5,678,375
Gross unrealized appreciation $ 135,334 $ 49,528
Gross unrealized depreciation (194,700) (111,546)
Net unrealized appreciation/(depreciation)$ (59,366) $ (62,018)
Moody's Moody's Investors Services, Inc.
S&P Standard & Poor's Corporation
<PAGE>
Statements of Assets and Liabilities
June 30, 1997 (Unaudited)
High Yield Government
Fund Fund
ASSETS
Investments, at cost $6,472,044 $5,678,375
Investments, at value (Notes 1 and 2)
Investment securities $6,378,678 $5,267,357
Repurchase agreement 34,000 349,000
Total investments 6,412,678 5,616,357
Cash 143 200
Receivables
Investment securities sold 433,708 0
Interest 166,093 99,589
Capital shares sold 56,500 160
Total Assets 7,069,122 5,716,306
LIABILITIES
Payables
Capital shares redeemed 68,370 0
Dividends 7,206 1,709
Other liabilities 2,424 0
Total liabilities 78,000 1,709
NET ASSETS (Note 5) $6,991,122 $5,714,597
CAPITAL SHARES OUTSTANDING 976,663 594,261
NET ASSET VALUE PER SHARE $ 7.158 $ 9.616
Statements of Operations
For the Three Months Ended June 30, 1997 (Unaudited)
High Yield Government
Fund Fund
INVESTMENT INCOME (Note 1)
Interest income $ 152,166 $ 93,659
EXPENSES (Notes 3 and 4)
Investment advisory fee 10,412 8,960
Transfer agent and administrative fees 5,000 3,526
Securities registration and blue sky fees 3,034 2,664
Auditing fees 429 364
Trustees' fees 375 375
Custodian fees 203 154
Printing costs 471 395
Fidelity bond 55 42
Legal fees 138 122
Total expenses 20,117 16,602
NET INVESTMENT INCOME 132,049 77,057
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized gain(loss) on investments 80,351 (36,101)
Net unrealized appreciation of investments 61,742 145,588
NET GAIN ON INVESTMENTS 142,093 109,487
TOTAL INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $274,142 $186,544
Statements of Changes in Net Assets
High Yield Fund Government Fund
3 Months Ended 3 Months Ended
June 30, 1997 Year Ended June 30, 1997 Year Ended
(Unaudited Mar 31, 1997 (Unaudited) Mar 31,1997
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
Net investment income $ 132,049 $ 522,821 $ 77,057 $ 321,769
Net realized gain (loss)
on investments 80,351 8,912 (36,101) (44,628)
Net unrealized appreciation
(depreciation) of investments 61,742 (149,195) 145,588 (128,957)
Total increase in net assets
resulting from operations 274,142 382,538 186,544 148,184
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (132,049) (522,821) (77,057) (321,769)
CAPITAL SHARE TRANSACTIONS
(Note 7) 595,168 (395,943) (186,515) (890,892)
TOTAL INCREASE (DECREASE)
IN NET ASSETS 737,261 (536,226) (77,028) (1,064,477)
NET ASSETS
Beginning of Period 6,253,861 6,790,087 5,791,625 6,856,102
End of Period $6,991,122 $6,253,861 $5,714,597 $5,791,625
Financial Highlights
Selected data for a share outstanding throughout each year:
<TABLE>
Government Fund
Year ended March 31
<C> <C> <C> <C> <C> <C>
1997(3)1997(2)1996 1995 1994 1993
Net asset
value
beginning
of period $ 9.434 9.705 9.551 9.695 10.621 10.300
Net
investment
income $0.128 0.489 0.472 0.391 0.363 0.501
Net
realized &
unrealized
gains
(losses) on
securities $0.182 (0.271) 0.154 (0.144)(0.151) 0.854
Total from
investment
operations $0.310 0.218 0.626 0.247 0.212 1.355
Distributions
from net
investment
income $(0.128)(0.489)(0.472)(0.391)(0.363)(0.501)
Distributions
from capital
gains $ -- - -- -- (0.775)(0.533)
Total
Distributions$(0.128)(0.489)(0.472)(0.391)(1.138)(1.034)
Net asset
value end
of period $ 9.616 9.434 9.705 9.551 9.695 10.621
Total
Return 13.91%4 2.29% 6.56% 2.67% 1.95% 13.96%
Net assets
at end of
period
(thousands) $ 5,715 5,792 6,856 7,653 8,576 9,734
Ratio of
expenses to
average net
assets 1.15%4 1.43% 1.59% 1.52% 1.54% 1.52%
Net
investment
income to
average
net assets 5.34%4 5.09% 4.77% 4.12% 3.53% 4.78%
Portfolio
turnover 17% 17% 190% 318% 287% 357%
High Yield Fund
Net asset
value
beginning
of period $ 7.009 7.162 6.938 7.285 7.455 7.255
Net
investment
income $ 0.140 0.574 0.608 0.597 0.606 0.674
Net
realized &
unrealized
gains
(losses) on
securities $0.149 (0.153) 0.224 (0.347)(0.170) 0.200
Total from
investment
operations $0.289 0.421 0.832 0.250 0.436 0.874
Distributions
from net
investment
income $(0.140)(0.574) (0.608)(0.597)(0.606)(0.674)
Distributions
from capital
gains $ -- -- -- -- -- --
Total
Distributions$(0.140)(0.574) (0.608)(0.597)(0.606)(0.674)
Net asset
value end
of period $ 7.158 7.009 7.162 6.938 7.285 7.455
Total
Return 17.74%4 6.06% 12.32% 3.75% 5.89% 12.69%
Net assets
at end of
period
(thousands) $6,991 6,254 6,790 6,726 7,702 7,329
Ratio of
expenses to
average net
assets 1.22%4 1.44% 1.60% 1.52% 1.54% 1.52%
Net
investment
income to
average
net assets 8.01%4 8.07% 8.47% 8.56% 8.02% 9.26%
Portfolio
turnover 24% 95% 237% 243% 251% 73%
1 For the years ended March 31, 1996 and 1997, ratio reflects custodian
fees paid indirectly.
2 Effective July 31, 1996, the investment advisory services transferred
to Bankers Finance Advisors, LLC from Bankers Finance Investment
Management Corp. (See Note 3).
3 For the three months ended June 30, 1997 (unaudited).
4 Annualized.
Mosaic Income Trust
Notes to Financial Statements
June 30, 1997 (Unaudited)
1. Summary of Significant Accounting Policies. Mosaic Income Trust
(the "Trust"), formerly known as GIT Income Trust, is registered with
the Securities and Exchange Commission under the Investment Company Act
of 1940 as an open-end, diversified investment management company. The
Trust maintains three separate funds, two of which are discussed in
these financial statements and whose principal objectives are to obtain
high current income. The High Yield Fund, formerly known as the
Maximum Income Portfolio, invests in long-term debt securities which may
include securities rated as low as "Caa" or "CCC" by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, respectively. The
Government Fund invests in securities of the U. S. Government and its
agencies. The Trust also maintains the Mosaic Bond Fund, which has
separate financial statements and whose principal objective is to obtain
income consistent with its quality standards and to preserve capital.
Fiscal Year: Beginning April 1, 1997, the Trust's fiscal year will end
on December 31. This Interim Report is the first of the two financial
statements the Trust will provide for the short fiscal year beginning
April 1, 1997 and ending December 31, 1997 and serves to adjust the
Trust's financial reporting schedule. The Trust will not provide a six-
month financial statement for the period ending September 30, 1997, but
will provide an audited financial statement for the short fiscal year.
Securities Valuation: Securities having maturities of 60 days or less
are valued at amortized cost, if determined to approximate market value.
Securities having longer maturities, for which market quotations are
readily available, are valued at the mean between their bid and asked
prices. Securities for which market quotations are not readily
available are valued at their fair value as determined in good faith
by the Trustees. Investment transactions are recorded on the trade
date. The cost of investments sold is determined on the identified cost
basis for financial statement and federal income tax purposes.
Repurchase Agreements are valued at amortized cost which approximates
market value.
Investment Income: Interest income, net of amortization of premium or
discount, and other income (if any) are accrued as earned.
Dividends: Net investment income, determined as gross investment income
less expenses, is declared as a regular dividend each business day.
Dividends are distributed to shareholders or reinvested in additional
shares as of the close of business at the end of each month. Capital
gain distributions, if any, are declared and paid at calendar and fiscal
year end. Additional distributions may be made if necessary.
Income Tax: In accordance with the provisions of Subchapter M of the
Internal Revenue Code applicable to regulated investment companies, all
of the taxable income of each fund is distributed to its shareholders,
and therefore no federal income tax provision is required. As of March
31, 1997, the High Yield and Government Funds had available for federal
income tax purposes unused capital loss carryovers of $2,328,476,
expiring from March 31, 1998 through March 31, 2003, and $358,054,
expiring March 31, 2003 through March 31, 2004, respectively.
Share Subscriptions: Shares purchased by check or otherwise not paid
for in immediately available funds are accounted for as share
subscriptions receivable and shares reserved for subscriptions.
Use of Estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and reported amounts of increases and
decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
2. Investments in Repurchase Agreements. When the Trust purchases
securities under agreements to resell, the securities are held for
safekeeping by the Trust's custodian bank as collateral. Should the
market value of the securities purchased under such an agreement
decrease below the principal amount to be received at the termination of
the agreement plus accrued interest, the counterparty is required to
place an equivalent amount of additional securities in safekeeping with
the Trust's custodian bank. Repurchase agreements may be terminated
within seven days. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Trust, along with other
registered investment companies having Advisory and Services Agreements
with the same advisor, transfers uninvested cash balances into a joint
trading account. The aggregate balance in this joint trading account is
invested in one or more consolidated repurchase agreements whose
underlying securities are U.S. Treasury or federal agency obligations.
3. Investment Advisory Fees and Other Transactions with Affiliates.
The Investment Advisor to the Trust, Bankers Finance Advisors, LLC ("the
Advisor"), earns an advisory fee and administrative fee as agreed to in
the Advisory Agreement. The advisory fee is equal to 0.625% per annum
of the average net assets of each of the Trust's funds described in this
financial statement; the fees are accrued daily and are paid monthly.
The Advisory Agreement between the Trust and the Advisor was approved at
the special meeting of the Trust's shareholders on July 29, 1996. The
Advisor purchased the investment management assets of Bankers Finance
Investment Corp. ("BFIMC"), the Trust's previous investment advisor,
effective July 31, 1996.
The Advisor is responsible for the fees and expenses of trustees who are
affiliated with the Advisor and certain promotional expenses. For the
three months ended June 30, 1997, outside Trustee fees were $375 for
each Fund.
4. Other Expenses. The Trust reimburses the Advisor under a Services
Agreement for all the Trust's direct expenses, namely fees for bluesky,
SEC registration, custody, legal and accounting, printing, insurance and
the independent trustees. All remaining support services are provided
by the Advisor for a fee equal to 0.25% of average net assets of each
particular Trust portfolio up to $10,000,000, which gradually declines
when a portfolio's assets rise above $10,000,000 as follows:
$10,000,001 through $20,000,000, 0.22%; $20,000,001 through $50,000,000,
0.15%; and $50,000,001 through $100,000,000, 0.12%. In addition,
pursuant to the Services Agreement, the High Yield Fund pays an
"activity fee" of 0.05% of average net assets to the Advisor. For the
three months ended June 30, 1997, fees of $5,000 for the High Yield Fund
and $3,526 for the Government Fund have been paid to the Advisor under
the Services Agreement and direct expenses of $4,705 for the High Yield
Fund and $4,116 for the Government Fund have been reimbursed to the
Advisor under the Services Agreement.
5. Net Assets. At June 30, 1997, net assets included the following:
High Yield Government
Fund Fund
Net paid in capital on shares of beneficial interest$9,298,613 6,170,770
Accumulated net realized losses (2,248,125) (394,155)
Net unrealized appreciation(depreciation)
of investments (59,366) (62,018)
Total net assets $6,991,122$5,714,597
6. Investment Transactions. Purchases and sales of securities other
than short-term securities for the three months ended June 30, 1997 were
as follows:
High Yield Government
Fund Fund
Purchases $2,145,703 $916,031
Sales 1,405,812 1,275,352
7. Capital Share Transactions. An unlimited number of capital shares,
without par value, are authorized. Transactions in capital shares for
the following periods were:
High Yield Fund Government Fund
3 Months Ended 3 Months Ended
Jun 30, 1997 Year Ended Jun 30, 1997 Year Ended
(Unaudited) Mar 31, 1997 (Unaudited) Mar 31, 1997
In Dollars
Shares sold $ 917,614 $ 1,219,205 $ 283,172 $ 517,989
Shares issued in
reinvestment of
dividends 109,784 432,108 71,296 298,946
Total shares issued 1,027,398 1,651,313 354,468 816,935
Shares redeemed (432,230) (2,047,256) (540,983) (1,707,827)
Net increase $ 595,168 $ (395,943) $(186,515) $ (890,892)
In Shares
Shares sold 129,978 171,378 29,608 54,150
Shares issued in
reinvestment of
dividends 15,445 60,737 7,453 31,219
Total shares issued 145,423 232,115 37,061 85,369
Shares redeemed (60,973) (287,940) (56,681) (177,975)
Net increase 84,450 (55,825) (19,620) (92,606)
<PAGE>
Telephone Numbers
Shareholder Service
Washington, DC area: 703 528-6500
Toll-free nationwide: 1 888 670-3600
Mosaic Tiles (24 hour automated information)
Toll-free nationwide: 1 800 336-3063
The Mosaic Family of Mutual Funds
Mosaic Equity Trust
Investors Fund
Balanced Fund
Mid-Cap Growth Fund
Worldwide Growth Fund
Mosaic Income Trust
High Yield Fund
Government Fund
Mosaic Bond Fund
Mosaic Tax-Free Trust
Arizona Fund
Maryland Fund
Missouri Fund
Virginia Fund
National Fund
Money Market
Mosaic Government Money Market
For more complete information on any Mosaic Fund,
including charges and expenses, request a prospectus by
calling the numbers above. Read it carefully before you
invest or send money.
1655 Fort Myer Drive
Arlington Virginia 22209-3108
http://www.mosaicfunds.com
<PAGE>
MOSAIC INCOME TRUST
MOSAIC BOND FUND
Semi-Annual Report
June 30, 1997
(Unaudited)
Letter to Shareholders
July 17, 1997
Dear Shareholder,
Thanks largely to a softening economy during the second quarter of 1997,
the pressure for the Federal Reserve to raise short-term interest rates
has abated. By most estimates, the economy, which grew at an annual
rate of just under 6% during the first quarter, slowed to an annual
growth rate of under 3% in the second three months of the year. Federal
Reserve policy remained steady and interest rates in general fell across
all maturities as cyclical inflation pressures eased, evidenced by a
leveling off of employment growth (albeit at a high level) and weaker
commodity and gold prices. Longer term-government bond yields declined
about 0.40%, while very short maturity Treasury Bill rates fell 0.14%.
Corporate bonds also turned in a strong showing, with investment grade
corporates outperforming their government counterparts. All in all, it
was a rewarding quarter for fixed income investors.
The Mosaic Bond Fund, formerly known as the Madison Bond Fund, Inc.,
posted a total return of 2.63% for the quarter including income and
price appreciation. For the last twelve months, the Fund returned
5.87%. On June 30, the Fund was comprised of 60% government bonds, 31%
investment grade corporate bonds, 8% mortgage securities and 1% in cash
equivalents.
Looking ahead, however, we believe that the second quarter's economic
weakness represents but a temporary lull in an ongoing expansion. While
we doubt that the second half of 1997 will witness the vigor of 1997's
first quarter, there is strong reason to believe that a growth rate high
enough to give the Fed pause will emerge. Most market participants
expect no Federal Reserve action for the balance of the year, and
evidence of even a modest acceleration in the rate of economic advance
will likely give the market problems, leading to a renewed expectation
of inflationary pressures and higher interest rates. This complacency
about the risks to the current rosy outlook, combined with a high degree
of bullish psychology in the marketplace, contribute to our cautious
approach for the balance of 1997.
We appreciate your confidence in the Mosaic Bond Fund and reaffirm our
commitment to provide you with competitive yields and total returns to
meet your investment objectives.
Sincerely,
(signature)
Christopher C. Berberet, CFA
Vice President
1655 Ft. Myer Drive . Arlington, Virginia 22209-3108 . Phone: (703)
528-3600 . Toll-Free (888) 670-3600
<PAGE>
Mosaic Bond Fund
Portfolio of Investments - June 30, 1997
(Unaudited)
Credit Rating Principal
Moody's S&P Amount Value
COLLATERALIZED MORTGAGE BACKED SECURITIES: 8.9% of Net Assets
Aaa AAA Ryland Acceptance Corporation Four, 9%, 8/1/18 $111,151 $ 116,303
Aaa AAA Federal National Mortgage Association,
6.75%, 5/25/19 100,000 98,569
TOTAL COLLATERALIZED MORTGAGE BACKED SECURITIES(Cost $211,679)+ 214,872
CORPORATE DEBT SECURITIES: 32.5% of Net Assets
FINANCIALS: 13.8%
A1 A+ Ford Motor Credit Corporation, 7.75%, 3/15/05 130,000 135,038
Aa3 AA- Merrill Lynch & Company, 7%, 1/15/07 140,000 139,650
A1 A+ Morgan Stanley Group, 6.875%, 3/1/07 60,000 59,250
HEALTHCARE: 4.1%
A2 A- Colombia/HCA Healthcare, 6.91%, 6/15/05 100,000 99,000
METAL FABRICATING: 4.5%
Baa1 BBB Reynolds Metals, Debentures, 9%, 8/15/03 100,000 109,750
RETAIL: 6.1%
Baa1 BBB Kohls Corporation, 6.7%, 2/1/06 150,000 145,500
TELECOMMUNICATIONS: 4.1%
Baa1 BBB+ US West Capital Funding, Inc, Company Guarantee,
6.75%, 10/1/05 100,000 97,625
TOTAL CORPORATE DEBT SECURITIES (Cost $805,748)+ 785,813
GOVERNMENT BONDS: 61.5% of Net Assets
Aaa AAA US Treasury Bonds, 5.625%, 1/31/98 410,000 410,008
Aaa AAA US Treasury Bonds, 5.875%, 2/15/04 260,000 252,156
Aaa AAA US Treasury Notes, 6.25%, 5/31/00 300,000 300,213
Aaa AAA US Treasury Notes, 5.625%, 2/8/01 300,000 293,451
Aaa AAA US Treasury Notes, 5.875%, 10/31/98 230,000 229,786
TOTAL GOVERNMENT BONDS (Cost $1,489,313)+ 1,485,614
REPURCHASE AGREEMENT: 4.1% of Net Assets
With Donaldson, Lufkin & Jenrette Securities Corporation issued 6/30/97 at
100,000 5.75%, due 7/1/97 collaterized by $10,408 in United States Treasury
Notes due 8/31/00. Total proceeds at maturity are $10,001.60.
(Cost $10,000)+ 10,000
TOTAL INVESTMENTS (Cost $2,516,740)+ $2,496,299
Notes to the Portfolio of Investments:
+ Aggregate cost for federal income tax purposes is $2,516,740. Net
unrealized depreciation is $20,441, comprised of gross unrealized
appreciation of $6,216 and gross unrealized depreciation of $26,657.
Mosiac Bond Fund
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
ASSETS
Investments, at cost $ 2,516,740
Investments, at value (Notes 1 and 2)
Investment securities 2,486,299
Repurchase agreement 10,000
Total Investments 2,496,299
Cash 123
Receivables
Dividends and interest 49,916
Other assets 87
Total assets 2,546,425
LIABILITIES
Payables
Dividends 880
Capital shares sold 123,686
Other liabilities 6,070
Total Liabilities 130,636
NET ASSETS (Note 5) $ 2,415,789
CAPITAL SHARES OUTSTANDING 118,082
NET ASSET VALUE PER SHARE $20.459
Mosaic Bond Fund
Statement of Operations
For the six months ended June 30, 1997 (Unaudited)
INVESTMENT INCOME
Interest Income $ 100,509
EXPENSES (Notes 3 and 4)
Investment advisory fees 9,025
Distribution fees 3,796
Transfer agent and administrative fees 4,581
Securities registration and blue sky fees 1,019
Auditing fees 3,774
Trustee fees 1,363
Custodian fees 757
Printing costs 3,244
Fidelity bond 224
Legal fees 746
Other fees 1,069
Total Expenses 29,598
NET INVESTMENT INCOME 70,911
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 5,030
Net unrealized depreciation of investments (28,810)
NET LOSS ON INVESTMENTS (23,780)
TOTAL INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 47,131
Mosaic Bond Fund
Statement of Changes in Net Assets
Six months
Ended Year
June 30, 1997 Ended
(Unaudited) December 31, 1996
INCREASE(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
Net investment income $ 70,911 $ 232,121
Net realized gain on investments 5,030 23,073
Net unrealized depreciation of investments(28,810) (155,073)
Total increase in net assets resulting
from operations 47,131 100,121
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (72,369) (230,690)
CAPITAL SHARE TRANSACTIONS (Note 7) (1,646,961) (1,573,347)
TOTAL DECREASE IN NET ASSETS (1,672,199) (1,703,916)
NET ASSETS
Beginning of year 4,087,988 5,791,904
End of year $ 2,415,789 $ 4,087,988
Mosaic Bond Fund
Financial Highlights
Selected data for a share outstanding throughout each period:
</TABLE>
<TABLE>
<CAPTION>
Period Ended December 31,
------------------------
<S> <C> <C> <C> <C> <C> <C>
1997(1) 1996 1995 1994 1993 1992
Net Asset Value beginning of year $20.630 $21.170 $19.620 $21.210 $21.140 $21.870
Net investment income $ 0.601 $ 1.070 $ 1.170 $ 1.150 $ 1.030 $ 1.080
Net realized & unrealized gain
(loss) on securities $(0.241) (0.550) 1.550 (1.590) 0.240 (0.210)
Total from invstmt operations $ 0.360 0.520 2.720 (0.440) 1.270 0.870
Distributions from net inv. income $(0.531) (1.060) (1.170) (1.150) (1.030) (1.040)
Distributions from capital gains -- -- -- -- (0.170) (0.150)
Return of capital -- -- -- -- -- (0.410)
Net Asset Value End of year $20.459 $20.630 $21.170 $19.620 $21.210 $21.140
Total Return 10.97%2 2.55% 14.11% (2.11%) 6.04% 4.08%
Net assets end of year (thousands) $ 2,416 4,088 5,792 7,166 9,064 6,902
Ratio of expenses to
average net assets 1.61%2 1.51% 1.35% 1.18% 1.19% 1.51%
Ratio of net investment income
to average net assets 3.87%2 4.86% 5.49% 5.50% 4.92% 5.40%
Portfolio turnover 22% 94% 58% 78% 68% 96%
</TABLE>
1 For the six months ended June 30, 1997 (unaudited). Madison Bond
Fund, Inc. merged into Mosaic Income Trust Mosaic Bond Fund on or about
June 13, 1997. The Mosaic Bond Fund series was created so that Madison
Bond Fund, Inc. could reorganize as a series of Mosaic Income Trust.
Mosaic Bond Fund had negligible assets prior to the merger.
2 Annualized.
The Notes to Financial Statements are an integral part of these
statements.
<PAGE>
Mosaic Income Trust - Mosaic Bond Fund
Notes to Financial Statements
June 30, 1997
1. Summary of Significant Accounting Policies. Mosaic Income Trust
(the "Trust") is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 as an open-end, diversified
investment management company. The Trust maintains three separate funds,
one of which, the Mosaic Bond Fund (the "Fund") is discussed in these
financial statements and whose principal objectives are to obtain income
consistent with its quality standards and to preserve capital. The
Fund, successor to Madison Bond Fund, Inc., invests in corporate debt
securities, securities of the U.S. Government and its agencies, and
money market instruments. The Trust also maintains two additional funds
which have a separate financial statement and whose principal objectives
are to obtain high current income.
Merger into the Trust: On June 13, 1997, Madison Bond Fund, Inc.
reorganized as a separate series of the Trust known as the Mosaic Bond
Fund. The Fund represents the economic successor to Madison Bond Fund,
Inc. and these financial statements reflect economic activity of the
Fund as if it had been a series of the Trust beginning January 1, 1997.
The reorganization and merger was accomplished as a share-for-share
exchange designed to qualify as a tax-free reorganization under Section
368(a)(1) of the Internal Revenue Code of 1986, as amended.
Securities Valuation: Securities having maturities of 60 days or less
are valued at amortized cost, if determined to approximate market value.
Securities having longer maturities, for which market quotations are
readily available, are valued at the mean between their bid and asked
prices. Securities for which market quotations are not readily
available are valued at their fair value as determined in good faith
by the Trustees. Investment transactions are recorded on the trade
date. The cost of investments sold is determined on the identified cost
basis for financial statement and federal income tax purposes.
Repurchase Agreements are valued at amortized cost, which approximates
market value.
Investment Income: Interest income, net of amortization of premium or
discount, and other income (if any) are accrued as earned.
Dividends: Net investment income, determined as gross investment income
less expenses, is declared as a regular dividend each business day.
Dividends are distributed to shareholders or reinvested in additional
shares as of the close of business at the end of each month. Capital
gains distributions, if any, are declared and paid annually at calendar
year end. Additional distributions may be made if necessary.
Income Tax: In accordance with the provisions of Subchapter M of the
Internal Revenue Code applicable to regulated investment companies, all
of the taxable income of each fund is distributed to its shareholders,
and therefore no federal income tax provision is required. As of
December 31, 1996, the Fund's predecessor had available for federal
income tax purposes unused capital loss carryovers of $298,275, expiring
from December 31, 2002 through December 31, 2003.
Use of Estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and reported amounts of increases and
decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
2. Investments in Repurchase Agreements. When the Trust purchases
securities under agreements to resell, the securities are held for
safekeeping by the Trust's custodian bank as collateral. Should the
market value of the securities purchased under such an agreement
decrease below the principal amount to be received at the termination of
the agreement plus accrued interest, the counterparty is required to
place an equivalent amount of additional securities in safekeeping with
the Trust's custodian bank. Repurchase agreements may be terminated
within seven days. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Trust, along with other
registered investment companies having Advisory and Services Agreements
with the same advisor, transfers uninvested cash balances into a joint
trading account. The aggregate balance in this joint trading account is
invested in one or more consolidated repurchase agreements whose
underlying securities are U.S. Treasury or federal agency obligations.
3. Investment Advisory Fees and Other Transactions with Affiliates.
The Investment Advisor to the Trust, Bankers Finance Advisors, LLC and
Madison Investment Advisors, Inc. ("the Advisor"), earns an advisory fee
as agreed to in the Advisory Agreement. The advisory fee is equal to
0.50% per annum of the average net assets of the Fund; the fees are
accrued daily and are paid monthly. The Advisory Agreement between the
Trust and the Advisor was approved at the special meeting of the Trust's
shareholders on July 29, 1996. The Advisor purchased the investment
management assets of Bankers Finance Investment Corp. ("BFIMC"), the
Trust's previous investment advisor, effective July 31, 1996. The
shareholders of Madison Bond Fund, Inc. approved the merger of such
investment company into the Trust at a meeting of its shareholders on
May 28, 1997.
The Advisor is responsible for the fees and expenses of trustees who are
affiliated with the Advisor and certain promotional expenses. For the
six months ended June 30, 1997, outside Trustee fees were $1,363 for the
Fund, including amounts paid to outside Directors of Madison Bond Fund,
Inc.
4. Other Expenses. The Trust reimburses the Advisor under a Services
Agreement for all the Trust's direct expenses, namely fees for bluesky,
SEC registration, custody, legal and accounting, printing, insurance and
the independent trustees. All remaining support services are provided
by the Advisor for a fee equal to 0.25% of average net assets of each
particular Trust portfolio up to $10,000,000, which gradually declines
when a portfolio's assets rise above $10,000,000 as follows:
$10,000,001 through $20,000,000, 0.22%; $20,000,001 through $50,000,000,
0.15%; and $50,000,001 through $100,000,000, 0.12%. In addition,
pursuant to the Services Agreement, the Fund pays an "activity fee" of
0.05% of average net assets to the Advisor. For the six months ended
June 30, 1997, operating expenses of $20,573 for the Fund have been
reimbursed to the Advisor under the Services Agreement, which includes
expenses paid by Madison Bond Fund, Inc. Pursuant to the Service
Agreement, operating expenses are capped at 0.75% of average net assets
from June 13, 1997 through December 31, 1997.
5. Net Assets. At June 30, 1997, the Fund's net assets included the
following:
Net paid in capital on shares of beneficial interest $2,729,523
Accumulated net realized losses (293,293)
Net unrealized appreciation(depreciation) of investments (20,441)
Total net assets $2,415,789
6. Investment Transactions. The Fund's purchases and sales of
securities other than short-term securities for the six months ended
June 30, 1997 were as follows:
Purchases $ 714,460
Sales 2,034,199
7. Capital Share Transactions. An unlimited number of capital shares,
without par value, are authorized. Transactions in capital shares for
the Fund for the following periods were:
Six Months Ended
June 30, 1997 Year Ended
(Unaudited) Dec. 31, 1996
In Dollars
Shares sold $ 32,886 $ 38,092
Shares issued in reinvestment of dividends 55,874 173,253
Total shares issued 88,760 211,345
Shares redeemed (1,735,721) (1,784,692)
Net increase $(1,646,961) $(1,573,347)
In Shares
Shares sold 1,500 1,799
Shares issued in reinvestment of dividends 1,290 8,436
Total shares issued 2,790 10,235
Shares redeemed (82,886) (85,618)
Net increase (80,096) (75,383)
8. Distribution Agreement. Prior to June 13, 1997, Madison Bond Fund,
Inc. had adopted a Distribution Agreement pursuant to Rule 12b-1 under
the Investment Company Act of 1940 which provided for an annual
distribution fee of .25 of 1% of its average daily net assets remitted
to Madison Investment Advisors, Inc. ("Madison") quarterly. Such fees
were to compensate Madison for its expenses incurred on behalf of such
fund under the Distribution Agreement. The maximum amount payable was
limited to actual expenses incurred. The agreement did not obligate
Madison Bond Fund, Inc. to reimburse Madison for all distribution
expenses. It was likely that the annual distribution fees in the first
few years would not have reimbursed Madison for distribution costs
incurred. In later years if reimbursements based on .25% of net assets
would have exceeded current distribution expenses, then any excess would
have reduced the unreimbursed costs incurred by Madison in earlier
years. This agreement terminated on June 13, 1997, the date Madison
Bond Fund, Inc. merged into the Trust. Any remaining unreimbursed costs
were waived by Madison.
Net Commissions* $ 1,200
Total 1997 distribution expenses incurred by Madison 1,200
Unreimbursed distribution expenses at December 31, 1996 42,218
1997 distribution fees (0.25% of total assets) 2,100
1997 redemption fees and alternative payment plan revenue 5,662
Unreimbursed distribution expenses at June 13, 1997 (waived) 35,656
* Net commission represents commission expense less sales charge
revenue.
9. Sales Charge. Prior to June 13, 1997, Madison Bond Fund, Inc. had a
sales charge of 2.5% of the offering price (2.56% of net amount
invested) on the purchase of its shares. The sales charge was paid to
the broker or dealer at the time of purchase unless the investor chose
the "Alternative Payment Plan."
If the alternative payment plan was elected, the sales charge would have
been deducted from the shareholder's account beginning the following
January 10 after the purchase and on each January 10 for the following
four years. This annual amount was equal to 0.50% of the immediately
preceding December 31 market value of the total original shares of each
purchase. The sales charge was terminated on June 13, 1997, the date
Madison Bond Fund, Inc. merged into the Trust.
10. Other Transactions with Affiliates. Prior to June 13, 1997,
Madison also received all contingent deferred sales charges imposed on
some redemptions of shares held for less than three years. The
cumulative amount of distribution fees and contingent deferred sales
charges paid to Madison was not permitted to exceed the cumulative
amount of reimbursable distribution expenses as set forth in the
Distribution Plan. These transactions were terminated on June 13, 1997,
the date Madison Bond Fund merged into the Trust.
Certain officers and directors of Madison Bond Fund are also officers
and directors of Madison.
11. Contingent Organizational Expenses. Prior to June 13, 1997,
organizational expenses of $15,199 have been paid for by Madison. When
the total of net asset value of Madison Bond Fund, Inc. exceeded
$5,000,000 the expenses were amortized to be reimbursed to Madison over
five years.
On August 31, 1992, the net asset value exceeded $5,000,000 and Madison
Bond Fund, Inc. began amortizing the accumulated organizational costs.
For the period ended June 13, 1997, $1,068 was amortized and paid to
Madison. Any unamortized balance was waived by Madison on the date
Madison Bond Fund, Inc. merged into the Trust.
12. Shareholder Vote Information. On May 28, 1997, an Annual Meeting
of Shareholders of Madison Bond Fund, Inc. was held at 4:00 p.m. in
Madison, Wisconsin. The shareholders were requested to vote on the
merger of their fund with Mosaic Income Trust Mosaic Bond Fund in
accordance with the Prospectus/Proxy Statement dated May 1, 1997. Of
the 153,476.535 outstanding shares of Madison Bond Fund, Inc.,
86,388.271 voted in favor of the merger (56.3%), 6.3% in excess of the
amount required to approve the merger.
