Mosaic Equity Trust
Letter to Shareholders
December 31, 1997
Dear Shareholder:
The annual period ended December 31, 1997 was an eventful one for three
of the funds in Equity Trust: Mosaic Investors, Mosaic Balanced and
Mosaic Mid-Cap. In June all three funds experienced consolidations
under the Mosaic name, and annual periods were unified with the calendar
year. Along with the name change came some restructuring of our equity
portfolios, as we positioned the funds for future capital appreciation
through concentration on solid, fairly valued growth companies.
Mosaic's inaugural year was an auspicious one for the funds in Equity
Trust, as Investors surged ahead 34.84%, Balanced returned 25.49% and
Mid-Cap showed a total return of 17.02% for the year. Mosaic Investors
was among the elite 10% of all diversified equity funds that beat the
S&P 500's 1997 return of 33.36%. Balanced finished the year as the
number seven balanced fund among the over 300 in the land, as reported
by the Wall Street Journal using Lipper Analytical figures. Mid-Cap had
a solid return of 17.02% (while underperforming the average Mid-Cap fund
which returned 19.67%) as it transitioned from an investment emphasis on
very small micro-cap stocks, to more established companies with market
capitalizations in the $1-$5 billion "mid-cap" range.
The Trust's performance did not go unnoticed by the investment world.
In addition to the recognition mentioned in the Wall Street Journal,
reporters from Nation's Business, Barron's, Dow Jones News Service,
Mutual Perspectives radio show, and numerous daily newspapers contacted
Mosaic in regard to 1997 performance.
Going forward, your management team is pleased to have the funds
reorganized and well-positioned for their first full year of operation
under the Mosaic banner. As we head into a new year following three
outstanding years of market advances, we are confident that our risk-
conscious investment strategy is right for all seasons. We continue to
seek the absolute best companies in America, and purchase them only when
we feel they are fairly valued. As 1997 demonstrated, this strategy can
work well in an up market. We also feel confident that we can out-
perform the market in more trying environments as well.
As "charter members" of the Mosaic family, we thank you for your support
and confidence. We are looking forward to many more years together.
Sincerely,
(signature)
Katherine Frank
President
Mosaic Funds
The Period in Review
In 1997 the United States' economy continued its expansion with few
inflationary signs, while the equity and fixed income markets rewarded
investors once again. Meanwhile, global markets were stirred late in
1997 by widening concerns over Southeast Asia's financial condition.
Over the last quarter of 1997 the situation in Asia deteriorated with
effects spreading to other financial markets, including our own. The
Asian collapse clearly bled into domestic markets, yet overall the
American economy remained exceptionally robust, with inflation at
minimal levels. Corporate earnings continued to show broad improvement,
while thanks to low interest rates and increased productivity, profit
margins were at twenty year highs.
As we reported in our fall issue of our shareholder newsletter, Mosaic
Update, domestic stock markets were roiling and showing no signs of
settling down. This general environment of volatility continued
through the end of 1997. When we discussed this issue in the fall, we
cautioned that market volatility was not an effective signal for either
a market top or bottom. When the Dow Jones Industrial Average (DJIA)
tumbled 554 points on October 27 to 7498, it was tempting to think that
the bottom was falling out of the market. The Mosaic perspective is
calculated to be calm and reasoned, and it was our assessment that the
fundamentals did not warrant undue concern. The market, as measured by
the DJIA ended the year at 7908, having recovered most of the October 27
tumble.
While the major stock averages tell a story of a great year for the
markets, this isn't the entire picture. Many individual stocks and
sectors had a difficult year. This was reflected in the overall
performance of stock mutual funds, with 90% of diversified equity funds
unable to beat the benchmark S&P 500. In general, larger companies
outperformed smaller companies in 1997, as investors continued to seek
safety from market volatility and international problems in companies
with a well-established franchise and name recognition.
Fund Overview
Mosaic Investors Fund
The 34.84% return for the Investors Fund in 1997 was the highest annual
performance in the 20-year history of the Fund. Many factors
contributed to this excellent result. First of all, the stock market
enjoyed a great year. Secondly, the Fund benefited from excellent stock
picking throughout the year.
All sectors in which the Fund invested contributed to the positive
results, with the financial sector leading the way. In particular, the
financial sector did well due to strong growth and lower interest rates.
The financial sector's results were paced by Federal Home Mortgage Corp,
Norwest Corp, and MGIC Investment Corp.
Many other stocks in the Fund also produced strong gains including Tele-
communications Inc., Compaq Computer, Schering Plough and Pitney Bowes.
Each of these companies demonstrates the desirable characteristics that
we are looking for, namely, strong, consistent growth at a reasonable
valuation.
Technology stocks were major contributors to the Fund's progress,
particularly during the first three quarters. Due to our perception
that these stocks were approaching full valuation, we then lightened our
holdings in the summer, prior to the broad fourth quarter decline in
this sector.
Top Ten Holdings
% of net assets
Norwest 5.1%
Tele-communications Inc. 5.1%
Pitney Bowes 4.7%
Safeway 4.6%
McDonalds 4.6%
Compaq 4.1%
Johnson & Johnson 4.1%
Merck 4.0%
Computer Associates International 4.0%
Nabisco Holdings Corporation, CLA 3.9%
Fund-at-a-Glance
Objective: Mosaic Investors seeks long-term capital appreciation through
investments in large growth companies.
Net Assets: $25.2 million
Date of Inception: November 1, 1978
Ticker: MINVX
Mosaic Balanced Fund
The Mosaic Balanced Fund produced very impressive results in 1997,
achieving a total return of 25.49%. For the year the Fund had on
average about 65% of its assets invested in common stocks with the
remainder in bonds and cash. For 1998, we expect to keep the exposure
to stocks in the 60-65% range on average. For comments about the stocks
held in the Balanced Fund please see the discussion on the Investors
Fund.
The bond portion of the portfolio positively contributed to the
excellent 1997 results. In general, the bond market benefited from a
declining interest rate environment due to declining inflation
expectations and a "flight to quality" by investors in the wake of
turmoil in Asia. The bond portion of Balanced also benefited from a
reasonable exposure to corporate bonds relative to U.S. Treasury
securities.
Top TEN Holdings
% of net assets
Top Five Stock Holdings (66.65%)
Norwest 3.6%
Tele-communications, Inc. 3.5%
McDonalds 3.2%
Pitney-Bowes 3.2%
Safeway 2.9%
Top Five Fixed-Income Holdings (30.16%)
U.S. Treasury Note 6.125% , 8/31/98 4.8%
U.S. Treasury Note 5.625%, 1/31/98 4.2%
U.S. Treasury Note 6.25%, 5/31/00 3.6%
U.S. Treasury Note 5.875%, 10/31/98 2.4%
Seagate Technology, Inc. 7.37%, 3/1/07 1.6%
Fund-at-a-Glance
Objective: Mosaic Balanced seeks to provide substantial current dividend
income while providing opportunity for capital appreciation by investing
in a combination of mid-to-large companies and bonds.
Net Assets: $17.4 million
Date of Inception: December 18,1986
Ticker: BHBFX
Mosaic Mid-Cap Growth
1997 was a transition year for the Mosaic Mid-Cap Growth Fund, which
completed its new annualized schedule with a nine-month period ended
December 31, 1997. At the start of 1997 the Fund was positioned as a
small-cap fund, investing in tiny emerging growth companies, a strategy
that tends to be boom or bust. By mid-year we had successfully
repositioned the Fund to invest in medium sized companies, applying the
same stock picking philosophies that we use for the Investors Fund.
Performance also began to improve with the fund producing a 9.7% return
over the final six months of the year compared to 6.3% generated over
the first half of the year. During 1997 the strongest sector for this
fund was health care. Top performing stocks in the health care area
included Watson Pharmaceutical and Express Scripts. Other stocks that
had meaningful contri-butions to performance were EMC Corp, Allied Group
and Fiserv. On the other hand, a small handful of stocks had an adverse
impact on results, including IKOS Systems and Leasing Solutions. In
general, the stocks that did well were the more mid-sized companies,
while those that did poorly were smaller companies that we were in the
process of selling. We are en-couraged by the Fund's restructuring and
look forward to 1998.
Top TEN Holdings
% of net assets
Hillenbrand Industries 5.2%
Dentsply International 4.7%
Watson Pharmaceutical 4.5%
R.P. Scherer 4.5%
Alberto Culver 4.5%
Petco 4.4%
Morton International 4.3%
Fiserv 4.3%
Lexmark 4.3%
Tommy Hilfinger 4.1%
Fund-at-a-Glance
Objective: Mosaic Mid-Cap Growth seeks long-term capital appreciation
through the investment in small-to-mid sized growth companies.
Net Assets: $11.5 million
Date of Inception: July 21, 1983
Ticker: GTSGX
COMPARISON OF CHANGES IN THE VALUE
OF A $10,000 INVESTMENT
Depicted herein are the graphic comparisons described above. The relevant
data points are as follows:
Balanced Fund
Balanced Value Line Geometric Lipper Balanced
Year Fund Value Index Value Fund Index Value
Beginning $10,000 $10,000 $10,000
1988 10,775 11,541 11,792
1989 12,080 12,834 14,102
1990 11,197 9,715 14,280
1991 14,008 12,358 17,662
1992 15,184 13,226 19,350
1993 15,823 14,664 21,663
1994 16,004 13,764 21,220
1995 19,446 16,418 26,501
1996 22,647 18,614 29,948
1997 28,420 22,533 35,370
Average Annual Returns:
1 Year: 25.5% 5 Years: 13.4% 10 Years: 11.0%
Mid-Cap Growth Fund
Mid-Cap Grth Value Line Geometric Lipper Mid-Cap
Year Fund Value Index Value Fund Index Value
Beginning $10,000 $10,000 $10,000
1988 12,468 11,541 11,122
1989 15,605 12,834 14,295
1990 13,130 9,715 13,654
1991 16,503 12,358 21,030
1992 17,612 13,226 22,841
1993 20,229 14,664 26,349
1994 19,428 13,764 25,817
1995 23,813 16,418 34,358
1996 25,275 18,614 39,951
1997 29,577 22,533 46,969
Average Annual Returns:
1 Year: 17.0% 5 Years: 10.9% 10 Years: 11.4%
Investors Fund
Investors S&P 500 Lipper Growth
Year Fund Value Index Value Fund Index Value
Beginning $10,000 $10,000 $10,000
1978 10,360 10,420 10,692
1979 12,337 12,369 13,823
1980 15,191 16,376 19,170
1981 17,277 15,508 17,863
1982 23,068 18,842 22,156
1983 27,159 23,101 26,886
1984 27,000 24,556 25,920
1985 35,505 32,365 33,733
1986 41,293 38,417 38,992
1987 41,751 40,453 40,261
1988 47,080 47,156 45,951
1989 54,644 62,105 58,574
1990 46,858 60,179 55,403
1991 61,881 78,534 75,530
1992 68,671 84,503 81,295
1993 70,684 93,012 91,033
1994 73,441 94,230 89,603
1995 91,529 129,642 118,860
1996 112,910 159,395 139,635
1997 152,248 212,569 178,842
Average Annual Returns:
1 Year: 34.8% 5 Years: 17.1% 10 Years: 13.8% Since Inception: 15.24%
Past performance is not predictive of future performance.
<PAGE>
Interview with lead equity manager Jay Sekelsky
Q. How would you characterize performance in the Mosaic Equity
funds for this annual period?
A. We were quite pleased with our overall performance. Our large-
cap growth fund, Mosaic Investors, outperformed the vast majority of its
peers, as well as the benchmark S&P 500. Mosaic Balanced, which carries
a minimum of 30% bonds, is designed to provide growth with less
volatility than the overall market. Balanced's return of 25.49%
actually outperformed many of the nation's largest and best-known all-
stock funds. Our Mid-Cap fund was undergoing significant transition in
1997 from investing in very small stocks to mid-sized companies. The
fund showed a solid gain of 17.02%, and we feel it is now well-
positioned for future performance.
Q. What was it about Mosaic's stock picking that powered Mosaic
Investor's outperformance?
A. One of the keys is the confidence we place in our stock picks.
Since the fund's inception we have owned 25-30 stocks in our portfolios,
rather than the 100-plus that is typical for mutual funds. Recently
there has been considerable concern regarding over-diversification--a
concern that we've shared for close to 20 years. We feel that
concentration allows us to focus on our best ideas, and to reap real
rewards when these stocks perform well. All of our stock picking is
characterized by a search for high-quality growth companies that we feel
are temporarily undervalued. This style is often referred to as Growth
at A Reasonable Price (GARP). What makes us different from many others
who profess this style is our emphasis on the "ARP"--the valuation side
of the equation. We add an extra layer of value with our concern over
the price we pay for a great company. In other words, we are always
aware of the risk versus reward ratio in every company we buy or hold.
This style really kept us on course in 1997, steering us away from high-
risk areas of the market, and allowing us to take advantage of
undervalued sectors.
Q. What were some of the portfolio shifts that worked for you in
1997?
A. Our focus is always on companies first, sectors second. As a
bottom-up stock picker, we are attracted to sectors where growth
prospects are sound, while valuations are relatively low. For example,
last spring there was a general sell-off in technology companies. We
were able to find some very sound, bell-weather technology companies
such as Intel and Compaq selling at attractive prices. As a result,
technology reached about 30% of the portfolio in Investors and 25% in
Mid-Cap. But by the Fall, valuations were once again high, and we
trimmed our technology position back to 15% in both Investors and Mid-
Cap. This is a great case of how our concern for valuations helped us
avoid some of the pitfalls of a notoriously volatile segment of the
market as evident in the fourth quarter.
Q. Besides technology, what other sectors did you find appealing?
A. Our focus on growth companies keeps us concentrated in four
general sectors: technology, consumer, healthcare and financials. Over
a long period, we would expect to have approximate equal weightings in
these sectors, although at any given point in time you'll see decided
biases in favor of one sector over another. Financials were actually
our top performing group for 1997.
Q. How about examples of decisions that didn't work out?
A. Like any money manager, we know that some stock picks will not
pan out. This past year we saw disappointing results from Seagate
Technologies, a holding in Mosaic Investors. Second and third quarter
earnings for this maker of data-storage systems and software dipped due
to manufacturing problems and softening demand for high-end data-storage
devices. Upon reassessing the company's risk-return profile, we decided
that our money would best be invested elsewhere, and we sold our holding
at a loss. In Mid-Cap we saw a similar story with Pep Boys, a
successful chain of auto parts stores which stumbled in the wake of
aggressive expansion. We sold our position in August, although we
continue to follow the company.
Q. What can we expect in 1998?
A. We see a continuation of the anxieties evident in late 1997,
sparked in part by the financial crises in Asia, and a natural
consequence of three exceptionally strong years of market performance.
In terms of the overall economy, we see many positives, but expect
corporate earnings to be weakening. Pricing power will be diminished by
the lower cost of Asian products, while relatively full employment will
be a force for higher wages and as a result, higher production costs.
We have every expectation that the double-digit earnings growth rate of
the past few years will drop into single digits. This environment
should be one that favors stock pickers, and we are optimistic as we
look toward 1998.
<PAGE>
Independent Auditor's Report
To the Board of Trustees and Shareholders of Mosaic Equity Trust:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Investors, Balanced, and
Mid-Cap Growth Funds (the "Funds") of the Mosaic Equity Trust as of
December 31, 1997, and the related statements of operations, changes in
net assets and the financial highlights for the periods then ended.
These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits. The financial statements of the
Investors Fund (formerly known as Bascom Hill Investors, Inc.) and
Balanced Fund (formerly known as Bascom Hill Balanced Fund, Inc.) for
the year ended December 31, 1996 and the financial highlights for each
of the years in the four-year period then ended were audited by other
auditors whose report, dated January 24, 1997, expressed an unqualified
opinion on those financial statements and financial highlights. The
financial statements of the Mid-Cap Growth Fund for the year ended March
31, 1997 and the financial highlights for each of the years in the five-
year period then ended were audited by other auditors whose report,
dated May 2, 1997, expressed an unqualified opinion on those financial
statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1997, by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the
Investors, Balanced and Mid-Cap Growth Funds of the Mosaic Equity Trust
as of December 31, 1997, the results of their operations, the changes in
their net assets, and their financial highlights for the periods then
ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
(signature)
Princeton, New Jersey
February 13, 1998
Investors Fund
Portfolio of Investments -- December 31, 1997
Number
of
Shares Value
COMMON STOCKS: 97.03% of net assets
BASIC INDUSTRY: 3.59%
Morton International, Inc. 26,350 $905,781
CONSUMER PRODUCTS - CYCLICAL: 14.36%
McDonalds Corporation 24,100 1,150,775
Pitney Bowes, Inc. 13,250 1,191,672
Tele-communications, Inc.* 45,700 1,276,743
CONSUMER PRODUCTS - FOOD & BEVERAGE: 9.63%
Conagra, Inc. 19,800 649,688
Nabisco Holdings Corporation, CLA 20,450 990,547
Sara Lee Corp. 13,950 785,559
CONSUMER PRODUCTS - HOUSEHOLD PRODUCTS/OTHER: 3.20%
Kimberly-Clark Corporation 16,350 806,259
CONSUMER PRODUCTS - RETAIL: 8.50%
Federated Department Stores, Inc. 22,700 977,519
Safeway Inc. 18,400 1,163,800
FINANCIAL - BANKS: 8.64%
First Union Corp. 17,400 891,750
Norwest Corporation 33,300 1,286,213
FINANCIAL - INSURANCE: 2.80%
MGIC Investment Corporation 10,600 704,900
FINANCIAL - SERVICES: 8.57%
American Express Company 9,350 834,487
Federal Home Loan
Mortgage Corporation 19,450 815,684
Green Tree Financial Corporation 19,450 509,347
HEALTHCARE - DRUGS: 15.24%
Abbot Laboratories 15,050 986,715
Johnson & Johnson 15,675 1,032,591
Merck & Co., Inc. 9,450 1,004,063
R.P. Scherer 13,400 817,400
HEALTHCARE - HOSPITALS/OTHER: 5.89%
Dentsply International, Inc. 27,900 850,950
United Healthcare Corp. 12,750 633,516
TECHNOLOGY - HARDWARE: 6.32%
Compaq Computer Corporation* 18,400 1,038,450
Hewlett-Packard Company 8,850 553,125
TECHNOLOGY - SEMICONDUCTOR/ELECTRONICS: 3.37%
Arrow Electronics, Inc. 26,200 849,863
TECHNOLOGY - SOFTWARE: 6.92%
Adobe Systems, Inc. 18,050 744,562
Computer Assoc International, Inc. 18,900 999,338
TOTAL COMMON STOCKS
(Cost $18,563,454) $24,451,297
SHORT TERM INVESTMENTS: 5.71% of net assets
REPURCHASE AGREEMENT
With Donaldson, Lufkin & Jenrette Securities
Corporation issued 12/31/97 at 6.00%, due
1/2/98, collateralized by $1,467,924 in
United States Treasury Notes due 2/29/00.
Proceeds at maturity are $1,440,480.
(Cost $1,440,000) $1,440,000
TOTAL INVESTMENTS
(Cost $20,003,454) $25,891,297
LIABILITIES LESS CASH
AND RECEIVABLES: (2.74%) of net assets $(689,368)
NET ASSETS: 100% $25,201,929
*Non-income producing
Balanced Fund
Portfolio of Investments -- December 31, 1997
Number
of
Shares Value
COMMON STOCKS: 66.65% of net assets
BASIC INDUSTRY: 2.52%
Morton International, Inc. 12,750 $438,281
CONSUMER PRODUCTS - CYCLICAL: 9.87%
McDonalds Corporation 11,600 553,900
Pitney Bowes, Inc. 6,150 553,116
Tele-communications, Inc.* 21,850 610,433
CONSUMER PRODUCTS - FOOD & BEVERAGE: 6.58%
Conagra, Inc. 8,850 290,391
Nabisco Holdings Corporation, CLA 9,850 477,109
Sara Lee Corp. 6,700 377,294
CONSUMER PRODUCTS - HOUSEHOLD PRODUCTS/OTHER: 2.23%
Kimberly-Clark Corporation 7,900 389,569
CONSUMER PRODUCTS - RETAIL: 5.62%
Federated Department Stores, Inc. 10,950 471,534
Safeway Inc. 8,000 506,000
FINANCIAL - BANKS: 6.08%
First Union Corp. 8,450 433,063
Norwest Corporation 16,200 625,725
FINANCIAL - INSURANCE: 1.97%
MGIC Investment Corporation 5,150 342,475
FINANCIAL - SERVICES: 5.99%
American Express Company 4,500 401,625
Federal Home Loan
Mortgage Corporation 9,400 394,213
Green Tree Financial Corporation 9,400 246,163
HEALTHCARE - DRUGS: 10.32%
Abbot Laboratories 7,150 468,771
Johnson & Johnson 7,450 490,769
Merck & Co., Inc. 4,200 446,250
R.P. Scherer 6,400 390,400
HEALTH CARE - HOSPITALS/OTHER: 4.02%
Dentsply International, Inc. 13,000 396,500
United Healthcare Corp. 6,100 303,094
TECHNOLOGY - HARDWARE: 4.39%
Compaq Computer Corporation* 8,875 500,883
Hewlett-Packard Company 4,200 262,500
TECHNOLOGY - SEMICONDUCTOR/
ELECTRONICS: 2.31%
Arrow Electronics, Inc. 12,400 402,225
TECHNOLOGY - SOFTWARE: 4.75%
Adobe Systems, Inc. 8,500 350,625
Computer Associates Intl Inc. 9,000 475,875
TOTAL COMMON STOCKS (Cost $8,787,639) $11,598,783
DEBT INSTRUMENTS: 30.16% of net assets
Corporate Obligations: 13.41%
Coca-Cola Enterprises, Inc.,
7.875%, 2/1/02 265,000 $281,562
Walt Disney Co., Senior Note,
6.75%, 3/30/06 275,000 284,281
Ford Motor Credit Corporation,
7.75%, 3/15/05 205,000 220,375
International Leasing Finance
Corporation, 8.375%, 12/15/04 75,000 83,156
Kohls Corporation, 6.7%, 2/1/06 230,000 231,150
Lucent Technologies, Inc., 6.90%,
7/15/01 270,000 277,088
Marshall & Ilsley Corp., Subordin-
ated Note, 6.375%, 7/15/03 100,000 100,250
Merrill Lynch & Company, Inc.,
7.375%, 5/15/06 50,000 53,375
Morgan Stanley Dean Witter
Discover Card, 6.875%, 3/1/07 225,000 231,188
Norwest Corporation, Subordinated
Note, 6.625%, 3/15/03 90,000 91,913
Seagate Technology, Inc., Senior
Note, 7.37%, 3/1/07 275,000 287,030
Texas Instruments, Inc., 6.125%,
2/1/06 195,000 192,806
Treasury Obligations: 16.75%
US Treasury Note, 5.625%, 1/31/98 725,000 725,109
US Treasury Note, 6.125%, 8/31/98 830,000 832,872
US Treasury Note, 5.875%, 10/31/98 425,000 425,859
US Treasury Note, 6.25%, 5/31/00 625,000 632,881
US Treasury Note, 5.25%, 1/31/01 250,000 247,193
US Treasury Note, 5.625%, 2/28/01 50,000 49,888
TOTAL DEBT INSTRUMENTS
(Cost $5,163,021) $5,247,976
SHORT TERM INVESTMENTS: 4.39% of net assets
REPURCHASE AGREEMENT
With Donaldson, Lufkin & Jenrette Securities
Corporation issued 12/31/97 at 6.00%, due
1/2/98, collateralized by $778,815 in
United States Treasury Notes due 2/29/00.
Proceeds at maturity are $764,255.
(Cost $764,000) $764,000
TOTAL INVESTMENTS
(Cost $14,714,660) $17,610,759
LIABILITIES LESS CASH
AND RECEIVABLES: (1.20)% of net assets $(208,140)
NET ASSETS: 100% $17,402,619
*Non-income producing
Mid-Cap Growth Fund
Portfolio of Investments - December 31, 1997
Number
of
Shares Value
COMMON STOCKS: 87.82% of net assets
BASIC INDUSTRY: 4.32%
Morton International, Inc. 14,400 $495,000
CONSUMER PRODUCTS - CYCLICAL: 9.55%
Callaway Golf Company 12,750 364,171
Clayton Homes, Inc. 14,750 265,500
Tommy Hilfiger Corporation 13,250 465,406
CONSUMER STAPLES - FOOD & BEVERAGE: 7.93%
Alberto Culver Company, Class A 18,950 511,650
Richfood Holdings, Inc. 14,100 398,325
CONSUMER STAPLES - RETAIL: 12.24%
American Stores 13,100 269,369
Officemax, Inc.* 20,550 292,838
Petco Animal Supplies 21,100 506,400
Ross Stores, Inc. 9,200 335,225
FINANCIAL - SERVICES: 8.28%
A.G. Edwards Inc. 10,750 427,313
Green Tree Financial Corporation 8,650 226,522
United Asset Management Corporation 12,100 295,694
HEALTHCARE - DRUGS: 8.99%
R.P. Scherer 8,400 512,400
Watson Pharmaceutical, Inc.* 16,000 519,000
HEALTHCARE - HOSPITALS/OTHER: 4.72%
Dentsply International, Inc. 17,500 540,859
INDUSTRIAL: 8.80%
Hillenbrand Industries, Inc. 11,650 596,334
U.S. Industries Inc. 13,700 412,713
INFORMATION SERVICES: 3.77%
Cognizant Corp. 9,700 432,256
TECHNOLOGY - HARDWARE: 7.39%
American Power Conversion Corp. 15,100 $357,681
Lexmark International Group Inc. 12,900 490,200
TECHNOLOGY - SEMICONDUCTOR/ELECTRONICS: 3.78%
Arrow Electronics, Inc.* 13,350 433,041
TECHNOLOGY - SOFTWARE: 8.05%
Adobe Systems, Inc. 10,450 430,409
Fiserv, Inc.* 10,000 492,500
TOTAL COMMON STOCKS
(Cost $8,937,327) $10,070,806
SHORT TERM INVESTMENTS: 13.58% of net assets
REPURCHASE AGREEMENT
With Donaldson, Lufkin & Jenrette Securities
Corporation issued 12/31/97 at 6.00%, due
1/2/98, collateralized by $1,587,193 in
United States Treasury Notes due 2/29/00.
Proceeds at maturity are $1,557,519.
(Cost $1,557,000) $1,557,000
TOTAL INVESTMENTS
(Cost $10,494,327) $11,627,806
LIABILITIES LESS CASH
AND RECEIVABLES: (1.40%) of net assets $(160,215)
NET ASSETS: 100% $11,467,591
*Non-income producing
<PAGE>
Statement of Assets and Liabilities
December 31, 1997
Mid-Cap
Investors Balanced Growth
Fund Fund Fund
ASSETS
Investments, at value (Notes 1 and 2)
Investment securities $24,451,297 $16,846,759 $10,070,806
Repurchase agreement 1,440,000 764,000 1,557,000
Total investments $25,891,297 $17,610,759 $11,627,806
Cash 925 325 739
Receivables
Dividends and interest 22,001 115,608 8,329
Capital shares sold 7,357 -- 16,430
Total assets $25,921,580 $17,726,692 $11,653,304
LIABILITIES
Payables
Dividends $104,240 $59,974 $44,163
Investment securities purchased 544,535 264,099 --
Capital shares redeemed 70,876 -- 141,550
Total liabilities $719,651 $324,073 $185,713
NET ASSETS (Note 6) $25,201,929 $17,402,619 $11,467,591
CAPITAL SHARES OUTSTANDING 1,126,654 893,277 1,239,656
NET ASSET VALUE PER SHARE $22.37 $19.48 $9.25
Statements of Operations
For the period indicated
Investors Fund Balanced Fund Mid-Cap Growth Fund
Year Ended Year Ended 9 Months Ended Year Ended
12/31/1997 12/31/1997 12/31/1997 3/31/1996
INVESTMENT INCOME (Note 1)
Interest income $113,957 $339,034 $34,670 $103,594
Dividend income 194,215 99,488 48,345 123,284
Other income 13,906 13,221 436 --
Total investment
income $322,078 $451,743 $83,451 $226,878
EXPENSES (Notes 3 and 5)*
Investment advisory
fees $151,861 $112,110 $67,925 $113,760
Transfer agent and
administrative fees 51,912 57,564 30,843 96,652
Registration and
professional fees 22,575 23,778 16,071 34,269
Total expenses 226,348 193,452 114,839 244,681
NET INVESTMENT
INCOME (LOSS) $95,730 $258,291 $(31,388) $(17,803)
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain
on investments $3,209,113 $2,051,649 $1,579,590 $4,734,760
Change in net unrealized appreciation
of investments 2,336,334 889,817 1,250,952 (5,199,869)
NET GAIN (LOSS) ON
INVESTMENTS 5,545,447 2,941,466 2,830,542 (465,109)
TOTAL INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $5,641,177 $3,199,757 $2,799,154 $(482,912)
* Certain reclassifications have been made to prior year end information to
conform to current year presentation.
Statements of Changes in Net Assets
For the period indicated
<TABLE>
<CAPTION>
Investors Fund Balanced Fund Mid-Cap Growth Fund
Year Year Year Year Nine Year Year
Ended Ended Ended Ended Months Ended Ended Ended
December December December December December March March
31, 1997 31, 1996 31, 1997 31, 1996 31, 1997 31, 1997 31, 1996
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS
Net investment income (loss) $95,730 $149,156 $258,291 $221,615 $(31,388) $(17,803) $163,647
Net realized gain on
investments 3,209,113 2,420,310 2,051,649 1,558,337 1,579,590 4,734,760 7,936,809
Net unrealized appreciation
(depreciation) of
investments 2,336,334 5,172 889,817 (146,758) 1,250,952 (5,199,869) (2,310,916)
Total increase (decrease) in net assets
resulting from operations $5,641,177 $2,574,638 $3,199,757 $1,633,194 $2,799,154 $(482,912) $5,789,540
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income (104,054) (153,894) (287,828) (221,362) -- (15,133) (148,514)
From net capital gains (2,972,340) (2,421,537) (1,921,318) (1,554,066) (3,057,678) (9,039,372) (1,629,234)
Total distributions (3,076,394) (2,575,431) (2,209,146) (1,775,428) (3,057,678) (9,054,505) (1,777,748)
CAPITAL SHARE
TRANSACTIONS (Note 8) 9,525,594 1,251,895 5,394,249 303,122 761,629 3,410,899 18,510,504
TOTAL INCREASE (DECREASE)
IN NET ASSETS 12,090,377 1,251,102 6,384,860 160,888 503,105 (6,126,518)(14,498,712)
NET ASSETS
Beginning of period $13,111,552 $11,860,450 $11,017,759 $10,856,871 $10,964,486 $17,091,004 $31,589,716
End of period $25,201,929 $13,111,552 $17,402,619 $11,017,759 $11,467,591 $10,964,486 $17,091,004
</TABLE>
Financial Highlights
Selected data for a share outstanding throughout each period:
<TABLE>
Ratio of
Net Ratio of net
Net realized & Distri- Net Net expenses investment
asset Net unrealized butions asset assets to income
value invest. gain Total from from netDist. value end of average (loss) Port. Average
begin income (loss) on invest. invest. fm. cap.Total end of Total period net to average turnover commn
period (loss) invest's operat's income gains dist'ions period return (1000s) assets net assets rate rate paid
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors Fund - Fiscal Years Ended December 31
19971$19.16 $0.135 $6.388 $6.523$(0.136)3$(3.180)3$(3.316)3$22.37 34.84%$25,202 1.15% 0.49% 78% $0.0800
1996 18.03 0.240 3.910 4.150 (0.250) (4.010) (4.260) 17.92 22.75 13,112 1.17 1.20 81 0.0800
1995 15.84 0.420 3.450 3.870 (0.420) (1.260) (1.680) 18.03 24.63 11,860 1.17 2.44 58 0.0819
1994 16.73 0.390 0.260 0.650 (0.390) (1.150) (1.540) 15.84 4.09 10,009 1.20 2.28 54 --
1993 18.15 0.190 0.340 0.530 (0.190) (1.760) (1.950) 16.73 3.16 10,207 1.20 1.00 80 --
Balanced Fund - Fiscal Years Ended December 313
19971$18.09 $0.404 $4.042 $4.446$(0.409)3$(2.640)3$(3.049)3$19.48 25.49%$17,403 1.35% 1.80% 78% $0.0800
1996 22.44 0.500 3.200 3.700 (0.500) (3.610) (4.110) 22.03 17.00 11,018 1.42 2.06 86 0.0800
1995 20.16 0.750 3.530 4.280 (0.740) (1.260) (2.000) 22.44 21.51 10,857 1.36 3.36 66 0.0818
1994 22.36 0.720 (0.460) 0.260 (0.720) (1.740) (2.460) 20.16 1.31 10,588 1.34 3.03 76 --
1993 23.65 0.620 0.370 0.990 (0.620) (1.660) (2.280) 22.36 4.35 15,107 1.24 2.53 76 --
Mid-Cap Growth Fund - Nine Month Period Ended December 31
1997 $9.88$(0.025) $1.911 $1.885 -- $(2.514) $(2.514) $9.25 26.06%$11,468 1.27%4 (0.035)%4 80% $0.0790
Mid-Cap Growth Fund - Fiscal Years Ended March 31
19972 $20.49$(0.016)$(0.469) $(0.485)$(0.018)$10.103)$(10.121) $9.88 (5.59)%$10,964 1.62% (0.12)% 127% $0.0729
1996 18.09 0.133 3.621 3.754 (0.115) (1.243) (1.358) 20.49 21.22 17,091 1.41 0.56 21 --
1995 21.11 0.152 0.190 0.342 (0.152) (3.208) (3.360) 18.09 2.27 31,590 1.30 0.76 4 --
1994 19.97 0.171 2.125 2.296 (0.170) (0.986) (1.156) 21.11 11.57 34,931 1.45 0.75 7 --
1993 19.10 0.092 1.031 1.123 (0.121) (0.131) (0.252) 19.97 5.90 38,911 1.35 0.44 13 --
</TABLE>
1 All data reflect share price adjustment due to fund merger on June 13,
1997. See Notes 1 and 9.
2 Data prior to June 13, 1997 represents the Bascom Hill Investors, Inc.
3 Data prior to June 13, 1997 represents the Bascom Hill BALANCED Fund,
Inc.
4 Effective 7/31/96, the investment advisory services transferred to
Madison Investment Advisors, Inc./Bankers Finance Advisors, LLC from
Bankers Finance Investment Management Corp.
5 Includes distribution attributable to net investment income and net
realized gain from Mosaic Equity Income Fund and Mosaic Equity
Investors. (See Note 1)
6 See Note 7.
7 Annualized.
Mosaic Equity Trust
Notes to Financial Statements
For the period ended December 31, 1997
1. Summary of Significant Accounting Policies. Mosaic Equity 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 offers shares in four separate
portfolios which invest in differing securities. The Investors Fund,
the surviving economic entity of the merger between Mosaic Equity Trust
Investors Fund and Bascom Hill Investors, Inc., which occurred on June
13, 1997, is invested in established companies that may be undervalued
or may offer good management and significant growth potential. The
Balanced Fund, the surviving economic entity of the merger between
Mosaic Equity Trust Equity Income Fund and Bascom Hill BALANCED Fund,
Inc., which occurred on June 13, 1997, is invested in a combination of
investment grade fixed-income securities and equity securities of
established companies. All financial information presented prior to the
effective date of the merger represents activity of the Bascom Hill
Investors, Inc. and the Bascom Hill BALANCED Fund, Inc. The Mid-Cap
Growth Fund, formerly known as the Special Growth Portfolio, is invested
primarily in smaller "mid-cap" companies that may offer rapid growth
potential. The Worldwide Growth Fund, now known as the Foresight Fund
(effective January 1, 1998), moves in and out of the stock and bond
markets when these markets appear unusually over-or-under valued. The
Foresight Fund issues separate semi-annual and annual financial reports
to shareholders.
Share Price Adjustment Due to Merger: On June 13, 1997, the Balanced
Fund shares were adjusted pursuant to the merger as discussed above by
approximately the following factors: adjustment to shares, 1.218;
adjustment to net asset value per share, 0.821. Similarly, the
Investors Fund shares were adjusted as follows: adjustment to shares,
0.935; adjustment to net asset value per share, 1.0699.
Fiscal Year: Beginning April 1, 1997, the Trust's fiscal year will end
on December 31. The predecessors of the Investors and Balanced Funds
had previously maintained December 31 fiscal years and this report
represents a full twelve-month Annual Report for such funds. With
regard to the Mid-Cap Growth Fund, this Report is the second of two
financial statements the Trust has provided for its short fiscal year
beginning April 1, 1997 and ending December 31, 1997.
Securities Valuation: Securities traded on a national securities
exchange are valued at their closing sale price, if available, and if
not available such securities are valued at the mean between their bid
and asked prices. Other securities, for which current 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 statements and federal income tax
purposes. Repurchase agreements are valued at amortized cost which
approximates market value.
Investment Income: Interest and other income (if any) is accrued as
earned. Dividend income is recorded on the ex-dividend date.
Dividends: Substantially all of the Trust's accumulated net investment
income, if any, determined as gross investment income less accrued
expenses, is declared as a regular dividend and distributed to
shareholders at fiscal year end. The Trust intends to declare and pay
regular dividends quarterly on the Balanced Fund. Capital gain
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 portfolio is distributed to its
shareholders, and therefore no federal income tax provision is required.
Use of Estimates: The preparation of 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 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, Madison Investment Advisors,
Inc./Bankers Finance Advisors, LLC ("the Advisor"), earns an advisory
fee equal to 0.75% per annum of the average net assets of each of the
Investors, Balanced and Mid-Cap Growth Funds; 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 is responsible for the fees and expenses of trustees who are
affiliated with the Advisor and certain promotional expenses. For the
year ended December 31, 1997, outside trustee fees were $3,200 for
Investors, $2,700 for Balanced and for the nine months ended December
31, 1997 were $2,250 for Mid-Cap Growth.
4. Aggregate Cost and Unrealized Appreciation (Depreciation). The
aggregate cost for federal income tax purposes and the net unrealized
appreciation are stated as follows as of December 31, 1997:
Mid-Cap
Investors Fund Balanced Fund Growth Fund
Aggregate cost $20,003,454 $14,714,660 $10,494,327
Gross unrealized
appreciation $6,146,692 $3,013,821 $1,394,989
Gross unrealized
depreciation (258,849) (117,722) (261,510)
Net unrealized
appreciation $5,887,843 $2,896,099 $1,133,479
5. Other Expenses. Effective November 1, 1997, all expenses and
support services are provided by the Advisor under Services Agreement
for fees based on a percentage of average net assets. This percentage
is 0.40% for the Investors Fund, 0.45% for the Balanced Fund and 0.50%
for the Mid-Cap Growth Fund. Prior to November 1, 1997, the Trust
reimbursed the Advisor under a Services Agreement for all the Trust's
direct expenses, namely fees for blue sky, SEC registration, custody,
legal and accounting, printing, insurance and the independent trustees.
All remaining support services were provided by the Advisor for a fee
equal to a percentage of average net assets. For the period from June
13, 1997 through October 31, 1997, such direct and other expenses (not
including advisory fees) were capped at .40% for the Investors Fund and
.55% for the Balanced Fund. For the period from April 1, 1997, such
direct and other expenses (not including advisory fees) were .52% for
the Mid-Cap Growth Fund. For the year ended December 31, 1997, such
expenses paid by the Investors Fund were $74,487 and by the Balanced
Fund were $81,342. For the nine-months ended December 31, 1997, such
expenses paid by the Mid-Cap Growth Fund were $46,914.
6. Net Assets. At December 31, 1997, net assets included the
following:
Investors Balanced Mid-Cap Growth
Fund Fund Fund
Net paid in capital on shares
of beneficial interest $19,012,658 $14,052,416 $9,809,242
Distribution in excess of
net income (217) (130) --
Accumulated net realized gains 301,645 454,234 524,870
Net unrealized appreciation of
investments 5,887,843 2,896,099 1,133,479
Total net assets $25,201,929 $17,402,619 $11,467,591
7. Investment Transactions. Purchases and sales of securities other
than short-term securities were as follows:
Investors Fund Balanced Fund Mid-Cap Growth Fund
Year Ended Year Ended Nine Months Ended
December 31, 1997 December 31, 1997 December 31, 1997
Purchases $14,768,544 $10,361,527 $8,708,687
Sales 13,498,729 10,486,373 11,565,553
For purposes of determining portfolio turnover, the transfer of
securities pursuant to the merger on June 13, 1997 are not considered
for the Investors Fund and the Balanced Fund.
8. Capital Share Transactions. An unlimited number of capital shares,
without par value, are authorized. Transactions in capital shares for
the following periods were:
<TABLE>
<CAPTION>
Investors Fund Balanced Fund Mid-Cap Growth Fund
Year Year Year Year Nine Year
Ended Ended Ended Ended Months Ended Ended
December December December December December March
31, 1997 31, 1996 31, 1997 31, 1996 31, 1997 31, 1996
<S> <C> <C> <C> <C> <C> <C>
In Dollars
Shares sold $6,367,150 $717,580 $506,400 $190,147 $23,964,062 $31,470,896
Additional shares in connection with
merged funds 8,167,826 -- 5,629,050 -- -- --
Shares issued in reinvestment
of dividends 2,936,288 2,404,639 2,111,666 1,699,086 2,971,370 8,494,283
Total shares issued 17,471,264 3,122,219 8,247,116 1,889,233 26,935,432 39,965,179
Shares redeemed (7,945,670) (1,870,324)(2,852,867)(1,586,111)(26,173,803) (36,554,280)
Net increase $9,525,594 $1,251,895 $5,394,249 $303,122 $761,629 $3,410,899
In Shares
Shares sold 271,938 37,333 24,140 7,944 2,599,323 2,675,134
Additional shares in connection with
merged funds, net 332,755 -- 400,072 -- -- --
Shares issued in reinvestment
of dividends 134,417 132,406 103,505 75,908 353,118 693,789
Total shares issued 739,110 169,739 527,717 83,852 2,952,441 3,368,923
Shares redeemed (344,210) (95,706) (134,580) (67,635) (2,822,303) (3,093,601)
Net increase 394,900 74,033 393,137 16,217 130,138 275,322
</TABLE>
9. Discussion of Business Combinations. Effective June 13, 1997,
Bascom Hill Investors, Inc. merged with Mosaic Equity Trust Investors
Fund series, the combined fund being known as Mosaic Investors Fund.
Also on such date, Bascom Hill BALANCED Fund, Inc. merged with Mosaic
Equity Trust Equity Income Fund series, whereupon it was renamed Mosaic
Equity Trust Balanced Fund. Both reorganizations were designed to be
accomplished as tax-free reorganizations pursuant to Internal Revenue
Code Section 368(a)(1)(C). The respective Equity Trust series are the
legal survivors of such reorganizations. However, the respective Bascom
Hill funds are the economic survivors of the reorganizations. As of the
date of the merger, shareholders of Bascom Hill Investors, Inc.
received approximately 0.94 shares of beneficial interest of Mosaic
Investors Fund for each share they held of Bascom Hill Investors, Inc.
A total of 740,680 shares of Bascom Hill Investors, Inc. were
outstanding as of the date of the reorganization, resulting in the
issuance of 692,292 shares of beneficial interest. As of the date of
the merger, shareholders of Bascom Hill BALANCED Fund, Inc. received
approximately 1.22 shares of beneficial interest of Mosaic Balanced Fund
for each share they held of Bascom Hill BALANCED Fund, Inc. A total of
481,364 shares of Bascom Hill BALANCED Fund, Inc. were outstanding as
of the date of the reorganization, resulting in the issuance of 586,377
shares of beneficial interest. The Mosaic Investors Fund's net assets
on June 13, 1997 ($8,167,826), including $1,884,859 of unrealized
appreciation, $7,375 of undistributed income and $64,764 of
undistributed capital gains, were combined with those of Bascom Hill
Investors, Inc. The Mosaic Equity Income Fund's net assets on June 13,
1997 ($5,629,050), including $1,029,300 of unrealized appreciation,
$26,399 of undistributed income and $315,781 of undistributed capital
gains, were combined with those of Bascom Hill BALANCED Fund, Inc. The
separate and combined aggregate net assets as of the date of the
reorganization are as follows:
FINANCIAL POSITION FOR MERGED FUNDS AS OF 6/13/1997
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
MOSAIC INVESTORS FUND MOSAIC BALANCED FUND
Pre-Merger Combined Bascom Hill Pre-Merger Combined
Bascom Hill Mosaic Mosaic Balanced Equity Mosaic
Investors, Investors Investors Fund, Income Balanced
Inc. Fund Fund Inc. Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Investment in securities at cost $10,088,329 $6,006,064 $16,094,393 $8,772,123 $4,170,293 $12,942,416
Investment in securities at value $13,273,544 $7,890,923 $21,164,467 $10,356,474 $5,199,593 $15,556,067
Short-term investments 1,617,831 275,000 1,892,831 819,675 404,000 1,223,675
Other assets (23,807) 5,798 (18,010) 67,969 28,242 96,211
14,867,568 8,171,720 23,039,288 11,244,118 5,631,835 16,875,953
Liabilities 32,616 3,895 36,511 56,476 2,785 59,261
Net assets $14,834,952 $8,167,826 $23,002,777 $11,187,642 $5,629,050 $16,816,692
Shares outstanding 740,680 381,143 1,073,435 481,364 295,059 881,436
Net asset value per share $20.03 $21.43 $21.43 $23.24 $19.08 $19.08
</TABLE>
<PAGE>
Telephone Numbers
Shareholder Service
Washington, DC area: 703 528-6500
Toll-free nationwide: 1 888 670-3600
Mosaic Tiles (24 hour automated information)
Toll-free nationwide: 1 800 336-3063
The Mosaic Family of Mutual Funds
Mosaic Equity Trust
Mosaic Investors Fund
Mosaic Balanced Fund
Mosaic Mid-Cap Growth Fund
Mosaic Foresight Fund
Mosaic Income Trust
Mosaic High Yield Fund
Mosaic Government Fund
Mosaic Bond Fund
Mosaic Tax-Free Trust
Mosaic Tax-Free Arizona Fund
Mosaic Tax-Free Maryland Fund
Mosaic Tax-Free Missouri Fund
Mosaic Tax-Free Virginia Fund
Mosaic Tax-Free National Fund
Mosaic Tax-Free Money Market
Mosaic Government Money Market
For more complete information on any Mosaic Fund, including charges and
expenses, request a prospectus by calling the numbers above. Read it
carefully before you invest or send money.
1655 Ft. Myer Drive, 10th floor
Arlington, Virginia 22209-3108
http://www.mosaicfunds.com
<PAGE>
Mosaic Equity Trust
Worldwide Growth Fund
Annual Report
December 31, 1997
Management's Discussion of Fund Performance
On January 1, 1998, the name, investment objectives and policies of
Mosaic's Worldwide Growth Fund changed. The Fund entered the new year
known as Mosaic Foresight Fund, no longer investing in foreign equity
securities. This discussion describes the Fund's performance during its
final fiscal period as a foreign emerging markets fund.
For the year ending December 31, 1997, the Worldwide Growth Fund
returned 2.48%, surpassing the Europe Australia Far East (EAFE) Index's
0.24% and the Lipper Emerging Markets Index's -11.05%. For the Fund's
nine-month fiscal year beginning April 1, 1997, its total return was -
4.60%. This contrasts with the Fund's three-month total return of
13.37% through June 30, 1997 as reported in its Interim Report for that
period. The Fund's performance for the fiscal year was adversely
affected by the worldwide decline in the emerging markets set off by the
meltdown in the Far East in October. While the markets in the United
States and the developed world have seen a recovery from the tremors
caused by the decline of the markets in Asia, the smaller emerging
markets in which the Fund invested did not experience the same type of
recovery by year end.
For example, from April 1, 1997 through year end, the market indices in
Poland and South Africa were down 15.28% and 10.95%, respectively,
despite their distance from the turmoil in the Far East. A relative
bright spot in the Far East was Hong Kong, down only 15.83%, compared
with the markets in Malaysia, Thailand and Korea, all down between 40%
and 50%. Even usually stable Singapore saw its market decline by
approximately 24%. The markets in Latin America were mixed, with bright
spots such as Mexico (up over 50%) and Brazil (up approximately 12%)
offset by Argentina (12%) and Chile (2.52%).
Although 1997 was a dismaying year for emerging markets' investors, the
Worldwide Growth Fund far out-performed the index of diversified
emerging markets funds measured by Lipper Analytical Services, Inc.,
which was down 20.29% for the nine-month period. The Worldwide Growth
Fund's losses during the last calendar quarter were tempered by the
Fund's minimal exposure to the Asian markets. Nevertheless, for the
first time in over four years, many Far Eastern market "blue chip"
stocks had begun trading at a discount to the S&P 500. As a result, the
Fund did not eliminate its exposure to the Asian markets completely when
the October crash occurred.
Our performance relative to other emerging markets funds can also be
attributed to the temporary defensive measures we began taking shortly
before the October crash. By December, the Fund was primarily invested
in domestic fixed-income securities. This positioned the Fund to avoid
further declines in the emerging markets in anticipation of the Fund's
change of investment policies effective January 1, 1998.
MOSAIC EQUITY TRUST
WORLDWIDE GROWTH FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
MOSAIC EQUITY TRUST WORLDWIDE GROWTH FUND AND THE
MORGAN STANLEY EUROPEAN AUSTRALIAN FAR EAST INDEX
Worldwide Growth Fund
4.1%
Average Annual Total
Return Since Inception
(April 16, 1993 to
December 31, 1997)
2.5%
One-Year
Total Return
Depicted herein is the graphic comparison described above. The relevant
data points are as follows:
Worldwide Growth Fund EAFE Index
Year Growth of 10,000
Beginning Point $10,000 $10,000
1993 (8 months) $14,892 $10,705
1994 $11,315 $11,373
1995 $10,783 $12,444
1996 $11,782 $12,991
1997 $12,079 $13,022
Due to the change in the investment strategy, the EAFE will no longer be
an appropriate comparison.
Past performance is not predictive of future performance.
<PAGE>
Report of Independent Auditors
To the Board of Trustees and Shareholders of Worldwide Growth Fund,
Mosaic Equity Trust:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the Worldwide Growth Fund
(the "Fund"), one of the four Funds of the Mosaic Equity Trust, as of
December 31, 1997 and the related statements of operations and changes
in net assets and the financial highlights for nine-month period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audit. The financial statements of the Fund for
the year ended March 31, 1997 and and the financial highlights for each
of the years in the four-year period ended March 31, 1997 were audited
by other auditors whose report, dated May 2, 1997, expressed an
unqualified opinion on those financial statements and financial
highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1997, by correspondence
with the custodian and broker. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the
Worldwide Growth Fund as of December 31, 1997, the results of its
operations, the changes in its net assets, and its financial highlights
for the nine-month period then ended in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
(signature)
Princeton, New Jersey
February 13, 1998
<PAGE>
Worldwide Growth Fund
Portfolio of Investments - December 31, 1997
Principal
Amount Value
U.S. GOVERNMENT AGENCY OBLIGATIONS: 92.35% of Net Assets
Federal Home Loan Mortgage Corp.
Discount Note, 5.70%, 1/06/98 $125,000 $124,921
Federal Home Loan Mortgage Corp.
Discount Note, 5.70%, 1/09/98 200,000 199,778
Federal Home Loan Mortgage Corp.
Discount Note, 5.76%, 1/16/98 345,000 344,227
Federal National Mortgage Assoc.
Discount Note, 5.70%, 1/02/98 200,000 200,000
Federal National Mortgage Assoc.
Discount Note, 5.71%, 1/07/98 300,000 299,762
Federal National Mortgage Assoc.
Discount Note, 5.70%, 1/08/98 300,000 299,715
Federal National Mortgage Assoc.
Discount Note, 5.76% 1/15/98 300,000 299,376
TOTAL GOVERNMENT AGENCY OBLIGATIONS
Proceeds at maturity are
$1,770,000. (Cost $1,767,779) 1,767,779
REPURCHASE AGREEMENT: 8.83% of Net Assets
With Donaldson, Lufkin & Jenrette Securities Corporation issued 12/31/97
at 6%, due 1/02/98, collateralized by $172,277 in United States Treasury
Notes due 2/29/00. Proceeds at maturity are $169,056. (Cost $169,000)
169,000
TOTAL INVESTMENTS (Cost $1,936,779)+ $1,936,779
LIABILITIES, LESS CASH AND RECEIVABLES: (1.18%)%
of Net Assets (22,651)
TOTAL NET ASSETS: 100% $1,914,128
+ Equals aggregate cost for federal income tax purposes.
Worldwide Growth Fund
Statement of Assets and Liabilities
December 31, 1997
ASSETS
Investments, at value (Notes 1 and 2)
Investment securities $1,767,779
Repurchase agreement 169,000
Total investments 1,936,779
Cash 801
Interest receivable 57
Total Assets 1,937,637
LIABILITIES
Capital shares redeemed 23,509
NET ASSETS (Note 5) $1,914,128
CAPITAL SHARES OUTSTANDING 182,966
NET ASSET VALUE PER SHARE $10.46
Worldwide Growth Fund
Statements of Operations
For the period indicated
Nine Months Ended Year Ended
December 31, 1997 March 31, 1997
INVESTMENT INCOME (Note 1)
Interest income $20,311 $15,623
Dividend income (net of foreign taxes
of $2,155 and $4,816, respectively) 24,782 58,150
Total income 45,093 73,773
EXPENSES (Notes 3 and 4)*
Investment advisory fee 19,204 28,352
Transfer agent and administrative expenses 17,659 22,676
Securities registration and blue sky expenses 6,505 9,873
Custodian fees 9,418 18,587
Registration and professional fees 2,892 5,566
Investment advisory fees waived (9,602) (14,176)
Total expenses 46,076 70,878
NET INVESTMENT INCOME (LOSS) $(983) $2,895
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments $127,653 $60,864
Net realized loss on foreign currency
transactions (21,582) (6,455)
Net unrealized appreciation (depreciation)
of investments (175,233) 225,620
Net unrealized appreciation on foreign
currency transactions -- 3,044
NET GAIN (LOSS) ON INVESTMENTS (69,162) 283,073
TOTAL INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $(70,145) $285,968
*Certain reclassifications have been made to prior year end information
to conform to current year presentation.
<PAGE>
Worldwide Growth Fund
Statements of Changes in Net Assets
For the period indicated
Nine Months Year Year
Ended Ended Ended
December 31, March 31, March 31,
1997 1997 1996
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
Net investment income (loss) $(983) $2,895 $14,830
Net realized gain (loss) on investments 127,653 60,864 (577,927)
Net realized loss on foreign currency
transactions (21,582) (6,455) (3,488)
Net unrealized appreciation
(depreciation) of investments (175,233) 225,620 1,103,450
Net unrealized appreciation
(depreciation) on foreign currency
transactions -- 3,044 (3,053)
Total increase (decrease) in net assets
resulting from operations (70,145) 285,968 533,812
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income -- -- (22,834)
CAPITAL SHARE TRANSACTIONS (Note 7) (597,912) (819,492) (714,253)
TOTAL DECREASE IN NET ASSETS (668,057) (533,524) (203,275)
NET ASSETS
Beginning of period 2,582,185 3,115,709 3,318,984
End of period $1,914,128 $2,582,185 $3,115,709
Worldwide Growth Fund
Financial Highlights
Selected data for a share outstanding throughout each period:
<TABLE>
Ratio of
Net Ratio of net
Net realized & Distri- Net Net expenses investment
asset Net unrealized butions asset assets to income
value invest. gain Total from from netDist. value end of average (loss) Port. Average
begin income (loss) on invest. invest. fm. cap.Total end of Total period net to average turnover commn
period (loss) invest's operat's income gains dist'ions period return (1000s) assets net assets rate rate paid
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19975$10.968$(0.005) $(0.501) $(0.506)--- --- --- $10.462 (4.60)% $1,914 2.41%2 0.05%2 2% $0.0010
19976 9.862 0.012 1.094 1.106 --- --- --- 10.968 11.21 2,582 2.50 0.10 47 0.0035
19966 8.501 0.044 1.387 1.431 (0.070)--- (0.070) 9.862 16.88 3,116 2.38 0.43 78 --
19956 12.511 0.022 (2.491) (2.469)(0.025)(1.516) (1.541) 8.501(22.20) 3,319 2.05 0.21 65 --
19941 10.000 (0.035) 2.546 2.511 --- --- --- 12.511 26.192 3,526 1.812 (0.48)2 83 --
</TABLE>
1 For the period from April 16, 1993 (inception) to March 31, 1994
2 Annualized
3 Had the Advisor not waived advisory fees, the Fund's annualized ratios
of expenses and net investment loss to average net assets would have been
2.92% and (0.56)%, respectively, for the nine-month period ended
December 31, 1997; 3.00% and (0.40)%, respectively, for the year ended
March 31, 1997; 2.97% and (0.17)%, respectively, for the year ended
March 31, 1996; and 3.05% and (0.79)%, respectively, for the year ended
March 31, 1995. Had the Advisor not waived the advisory fee and
deferred a portion of the operating expenses, the Fund's annualized
ratios of expenses and net investment loss to average net assets would
have been 4.24% and (2.92)%, respectively, for the period from inception
to March 31, 1994. Ratio of expenses to average net assets includes
fees paid indirectly for the year ended March 31, 1996 and thereafter.
4 Required disclosure for fiscal years beginning after September 1,
1995 pursuant to SEC regulations
5 For the nine month period ended December 31, 1997
6 For the year ended March 31
Notes:
Effective July 31, 1996, the investment advisory services transferred to
Bankers Finance Advisors, LLC from Bankers Finance Investment Management
Corp. (See Note 3).
<PAGE>
Worldwide Growth Fund
Notes to Financial Statements
December 31, 1997
1. Summary of Significant Accounting Policies. Mosaic Equity Trust
(the "Trust"), formerly known as GIT Equity 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 offers shares in four separate funds which invest in differing
securities. The Worldwide Growth Fund (the "Fund") invested primarily
in foreign equity securities, emphasizing companies that are likely to
benefit from the growth of the world's smaller and emerging capital
markets. Effective January 1, 1998, this Fund is being managed as a
strategic asset allocation domestic equity fund. Accordingly, it has
been renamed the "Foresight Fund." The Mid-Cap Growth, Investors and
Balanced Funds are managed independently from the Worldwide Growth Fund
and issue separate semi-annual and annual financial reports to
shareholders.
Fiscal year: Beginning April 1, 1997, the Trust's fiscal year will end
on December 31.
Securities Valuation: Securities traded on a securities exchange are
valued at their closing sale price, if available, and if not available,
such securities are valued at the mean between their bid and asked
prices. Other 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 whose prices are quoted in foreign currency
are normally translated into U.S. dollars based on exchange rates at 4
p.m., London, England time. 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. Short-term and repurchase agreements are valued at amortized
cost, which approximates market value.
Foreign Currency Translations: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on the following basis:
(i) market value of investment securities, assets and liabilities at
the daily rates of exchange on the reporting date and
(ii) purchase and sales of investment securities, dividend and
interest income and certain expenses at the rates of exchange prevailing
on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Reported net realized gains or losses from foreign currency transactions
arise from sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade
and settlement dates on securities transactions, the difference between
the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books, and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized gains and losses from
foreign currency transactions arise from changes in the value of assets
and liabilities other than investments in securities at the end of the
period, caused by changes in exchange rates.
Forward Foreign Currency Contracts: The Fund may enter into forward
foreign currency contracts in order to hedge against foreign currency
risk. Such contracts have been used solely to establish a rate of
exchange for settlement of transactions. Forward foreign currency
contracts are valued at the forward rate and are marked-to-market daily.
The change in market value is recorded by the Fund as an unrealized gain
or loss. Realized gains or losses are recognized when contracts settle.
Although forward foreign currency contracts limit the risk of loss due
to a decline in the value of the hedged currency, they also limit any
potential gain that might result should the value of the currency
increase. In addition, the Fund could be exposed to risks if the
counter parties to the contracts are unable to meet the terms of their
contracts.
Investment Income: Interest and other income (if any) is accrued as
earned. Dividend income is recorded on the ex-dividend date.
Dividends: Substantially all of the Trust's net investment
income, determined as gross investment income less expenses, if
any, is declared as a regular dividend and distributed to shareholders
at calendar and fiscal year end. 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 portfolio is distributed to its
shareholders, and therefore no federal income tax provision is required.
As of December 31, 1997 the Fund had available for federal income tax
purposes unused capital loss carryovers of $411,508 expiring December
31, 2003.
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 equal to 1.00% per annum of the average
net assets of the Fund; the fee is accrued daily and 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 assets of Bankers Finance Investment
Management Corp. ("BFIMC"), the Trust's previous advisor, effective July
31, 1996. For the nine months ended December 31, 1997, the Advisor
waived $9,602 of such fee from the Fund.
The Advisor is responsible for the fees and expenses of trustees who are
affiliated with the Advisor and certain promotional expenses. For the
nine months ended December 31, 1997, independent Trustees fees of $750
were paid by the Fund.
4. Other Expenses. Effective November 1, 1997, all expenses and
support services are provided by the Advisor under Services Agreement
for fees based on a percentage of average net assets. This percentage
was 1.90% for the Fund through December 31, 1997. Prior to November 1,
1997, the Trust reimbursed the Advisor under a Services Agreement for
all the Trust's direct expenses, namely fees for blue sky, SEC
registration, custody, legal and accounting, printing, insurance and the
independent trustees. All remaining support services were provided by
the Advisor for a fee equal to a percentage of average net assets. For
the nine month ended December 31, 1997, operating expenses of $36,474
have been reimbursed to the Advisor, under the Service Agreement.
5. Net Assets. At December 31, 1997, net assets include the following:
Net paid in capital on shares of beneficial interest $2,348,202
Accumulated net investment loss (983)
Accumulated net realized loss (433,091)
Total net assets $1,914,128
6. Investment Transactions. Purchases and sales of securities other
than short-term securities for the nine months ended December 31, 1997
were $51,031 and $2,230,436, respectively.
7. Capital Share Transactions. An unlimited number of capital shares,
without par value, are authorized. Transactions in capital shares for
the periods presented were as follows:
<TABLE>
<CAPTION>
Nine Months
ended Year ended Year ended
December 31, 1997 March 31, 1997 March 31, 1996
<S> <C> <C> <C>
In Dollars
Shares sold $560,174 $561,455 960,967
Shares issued in reinvestment of dividends -- -- 18,767
Total shares issued 560,174 561,455 979,734
Shares redeemed (1,158,086) (1,380,947) (1,693,987)
Net decrease $(597,912) $(819,492) $(714,253)
In Shares
Shares sold 47,038 52,876 100,911
Shares issued in reinvestment of dividends -- -- 2,009
Total shares issued 47,038 52,876 102,920
Shares redeemed (99,499) (133,392) (177,403)
Net decrease (52,461) (80,516) (74,483)
</TABLE>