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Mosaic Funds
Mosaic Equity Trust
Management's Discussion of Fund Performance
June 30, 1999
The first half of 1999 was another positive period for major market indices, with the Standard and Poor's 500 advancing 12.39% through June 30, 1999 and the Dow Jones Industrial Average advancing 20.48%. As suggested by the disparity in these two measures of market performance, this was not a market tide which lifted all ships equally. Once again, larger stocks tended to do better than mid-sized stocks, which in turn did better than small stocks. However, this trend was much less pronounced than in past periods, largely due to a reversal of fortunes for smaller issues in the month of April.
All of the four Mosaic Equity Trust funds posted positive returns for the six-month period, with Investors advancing 10.10%, Balanced up 5.96%, Foresight up 1.42% while the smaller stocks in Mid-Cap Growth gained 1.26%. Our discipline in seeking reasonably valued, steady growth stocks kept us away from the hottest segments of the market in the first quarter of the year: certain high-priced, but favored technology and Internet stocks which exceeded our valuation parameters. The funds also had minimal exposure to the market leaders of the second quarter: cyclicals, which as their name implies, have fortunes that rise and fall with economic conditions. These fluctuations typically keep them from meeting our steady growth criteria. It is this price and consistency consciousness which underpins our risk management and which keeps us away from the most speculative issues, such as Internet stocks, some of which lost close to half their value during the first half of 1999.
Over the past year we've made numerous observations on the narrowness of the market. In other words, markets in which a few large stocks make disproportionate advances, leading the indices ahead at a far faster clip than the average stock. This was once again true for the first part of the period, but became less a factor over the latter part of the six month period covered by this report.
Much of this shift in market temperament can be explained by changing views of the overall economy. Many observers expected to see signs of an economic slowdown early in 1999, but instead, as 1999 unfolded, domestic and global economies(showed signs of faster growth. This, in turn, led to fears of inflation, the specter of Federal Reserve rate hikes and subsequent higher interest rates. In anticipation of these trends, rates continued to rise throughout the quarter, reaching the 6% territory as measured by 10-year Treasuries. This robust economic environment helped trigger the market rotation to cyclicals. As a group, these companies typically show higher earnings when commodity prices and the economy are on an upswing. High priced stocks, such as technology issues with exorbitant Price/Earnings ratios, are typically soft in a rising interest rate environment, and suffered accordingly during this past quarter. Many of the stocks that the hottest funds and managers have been relying upon (and which have not been among Mosaic's holdings) turned south over the last half of the period, including negative returns from AOL, Dell and Pfizer.
TOP TEN HOLDINGS
% of net assets
Bristol Myers Squibb
5.11%
MGIC Inveytment Corp. 5.10%
Computer Sciences
5.02%
Wells Fargo Co
5.01%
Johnson & Johnson
4.70%
Pepsico, Inc.
4.64%
Federal Home Loan
4.60%
Kroger Company
4.10%
BMC Software
4.02%
Intel Corp.
3.98%
Fund-at-a-Glance
Objective: Mosaic Investors seeks long-term capital appreciation through investments in large growth companies.
Net Assets: $32.6 million
Date of Inception: November 1, 1978
Ticker: MINVX
Total Return 12/31/98–6/30/99: 10.10%
TOP TEN HOLDINGS
% of net assets
Top Five Stock Holdings (58.6% of total assets in stocks)
Computer Sciences Corp
3.49%
Bristol Myers Squibb
3.47%
MGIC Investment Corp.
3.47%
Johnson & Johnson
3.34%
Federal Home Loan Mortgage
3.13%
Top Five Fixed Income Holdings
US Treasury Notes 6.25%, 4/30/01
3.93%
Federal National Mortgage Assoc. 6.00%, 5/15/08 2.17%
US Treasury Notes 5.25%, 1/31/01
1.95%
GMAC 5.875%, 1/31/03
1.64%
Associates Corp 6%, 4/30/03
1.63%
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: $25.6 million
Date of Inception: December 18,1986
Ticker: BHBFX
Total Return 12/31/98–6/30/99: 5.96%
TOP TEN HOLDINGS
% of net assets
MGIC
5.2%
Computer Sciences Corporation
5.1%
Telephone & Data Systems
4.8%
Kroger
4.7%
American Power Conversion
4.5%
Office Max
4.4%
US Cellular Corp.
4.2%
Regions Financial
4.2%
BMC Software
4.1%
Summit Bancorp
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: $9.1 million
Date of Inception: July 21, 1983
Ticker: GTSGX
Total Return 12/31/98–6/30/99: 1.26%
Top Five Stock Holdings
(24.9% of total assets in stocks)
% of net assets
Associates First Cap. 4.8%
Marshall & Ilsley
4.0%
Tommy Hilfiger
3.5%
MBIA Inc.
3.0%
Officemax, Inc.
2.8%
Fund-at-a-Glance
Objective: Mosaic Foresight seeks long-term capital appreciation through investments in large growth companies while pursuing capital preservation through active management of market exposure.
Net Assets: $3.8 million
Date of Inception: December 31, 1997
Ticker: GEWWX
Total Return 12/31/98–6/30/99: 1.42%
Interview with lead equity manager Jay Sekelsky
Q. Can you describe the performance of the funds in light of the overall market?
A. Over the past years I feel we've done a good job in balancing the risk and rewards in our equity funds. This is reflected in the 5-Star Morningstar rating we hold for Investors for three years and a 4-Star rating for Balanced for the same period. Only the top 10% of funds among all domestic equity funds receive 5 Stars.* Over the past six months our funds have underperformed the major indices--only slightly in the case of Investors. In light of the types of stocks that have been leading the market, this is perfectly understandable. We simply have little exposure, due to our investment style, to the hottest technology companies or industrial cyclicals.
Q. Did you make any significant changes in holdings since December 31, 1998?
A. Probably the most significant shift came in the wake of the technology sell off which occurred in April and May. We took advantage of the dropping prices of many quality companies. We added printer-maker Lexmark, a holding in Mid-Cap Growth, to Investors and Balanced, as the company's size entered the border between a mid-sized and large-sized company. We also added a familiar name to many: computer chip maker Intel. This bell-weather technology stock became attractive as it dropped some 30% from its yearly high of 71 into the low 50s.
Q. What holdings were the strongest contributors to fund performance?
A. We had strong results from quite a few different companies. Nike, a holding in Investors and Balanced, was up close to 50% for the period. Another consumer name, Dayton Hudson, owner of the Target store chain, had strong double-digit returns for the period. Our investment in MediaOne Group, one of top cable TV companies in the country, was rewarded with a 50% gain. In Mid-Cap Growth we had a boost from clothing designer Tommy Hilfiger, which was up about 25%, and telephone and internet provider TDS, up more than 50%.
Q. What holdings were the largest constraints on performance?
A. Our biggest disappointment for the period was computer maker Compaq. Despite its established position of sales leadership, the company announced disappointing earnings and a cloudy business future. The company is no longer owned by any Mosaic funds. In general, our defensive consumer holdings, which had major run-ups at the end of 1998, showed price weakness, although no significant business difficulties. Supermarket chains Safeway and Kroger and drugstore operator CVS were all down for the period. We still have great faith in their businesses and expect that they will reward our patience. In Mid-Cap we saw technology disappointments in Cadence Systems, which we still hold and Network Associates, which we sold.
Q. What is your outlook for the remainder of 1999?
A. We think that the economy will reach its long-anticipated slowdown by the end of the year. We expect to see the Federal Reserve raise rates once or twice. Once these raises have been digested, we expect interest rates to settle back down to lower levels. In this environment we should see investors gravitate towards some of the more defensive names in our portfolios, such as the supermarkets and Freddie Mac. Still, with our technology holdings we feel confident in our ability to participate in the sort of growth-oriented economy that has been evident so far this year.
*Of course, past performance is no guarantee of future results. Morningstar proprietary ratings reflect historical risk-adjusted performance as of 5/31/99 in the category of domestic equity. These ratings may change monthly and are calculated from the funds' 3-year, 5-year and 10-year average annual returns in excess of 90-day treasury bill returns with appropriate fee adjustments and a risk factor that reflects fund performance below 90-day Treasury bill returns. Mosaic Investors received 5 stars for three years, 4 stars for 5 years and 3 stars for 10 years, and a 4-star overall rating. Mosaic Balanced received 4-stars for three years, 3 stars for 5 years, 3 stars for 10 years and 3 stars overall. The 3-year rating is among 2,545 funds, 5-year among 1,462 funds and 10-year rating among 707 funds. 10% of the funds in an investment category receive 5 stars; the next 22.5% receive four stars and the next 35% receive 3 stars.
Portfolio of Investments – June 30, 1999 (unaudited)
Number
of
Shares Value
COMMON STOCKS: 97.41% of net assets
CAPITAL GOODS: 4.16%
Tyco International, LTD 14,325 $ 1,357,294
CAPITAL GOODS - MANUFACTURING: 2.53%
US Industries, Inc. 48,550 825,350
CONSUMER CYCLICALS: 5.30%
Dayton Hudson Corporation 11,850 770,250
Nike, Inc 15,150 959,184
CONSUMER SERVICES - TELECOMMUNICATIONS: 3.12%
MCI Woldcom, Inc.* 11,800 1,017,750
CONSUMER STAPLES - BROADCAST MEDIA: 3.24%
Mediaone Group, Inc.* 14,225 1,057,984
CONSUMER STAPLES - FOOD & BEVERAGE: 11.49%
Heinz Company 21,350 1,070,169
Nabisco Holdings Corporation 26,900 1,163,425
PepsiCo, Inc. 39,150 1,514,616
CONSUMER STAPLES - RETAIL: 11.59%
CVS Corporation 24,350 1,235,762
Kroger Company 48,000 1,341,000
Safeway, Inc.* 24,350 1,205,325
FINANCIAL - BANKS: 8.34%
National City Corporation 16,550 1,084,025
Wells Fargo & Company 38,300 1,637,325
FINANCIAL - INSURANCE: 5.10%
MGIC Investment Corporation 34,225 1,664,191
FINANCIAL - SERVICES: 11.18%
American Express Company 6,825 888,103
Associates First Capital Corporation 28,350 1,256,259
Freddie Mac 25,915 1,503,070
HEALTHCARE: 12.68%
Abbot Laboratories 20,450 $ 930,475
Bristol Myers Squibb Company 23,700 1,669,369
Johnson & Johnson 15,675 1,536,150
TECHNOLOGY: 18.68%
BMC Software, Inc.* 24,325 1,313,550
Computer Sciences Corporation* 23,675 1,638,014
Hewlett-Packard Company 8,850 889,425
Intel Corporation 21,850 1,300,075
Lexmark International * 14,440 953,943
TOTAL COMMON STOCKS (Cost $24,264,398) $31,782,083
SHORT TERM INVESTMENTS: 2.54% of net assets
REPURCHASE AGREEMENT:
With Donaldson, Lufkin & Jenrette Securities Corporation issued 6/30/99 at 4.7%, due 7/1/99, collateralized by $844,772 in United States Treasury Bonds due 2/15/20. Proceeds at maturity are $828,108.
(Cost $828,000) $ 828,000
TOTAL INVESTMENTS
(Cost $25,092,398) $32,610,083
CASH AND RECEIVABLES LESS LIABILITIES: 0.05% of net assets $ 11,862
NET ASSETS: 100% $32,621,945
*Non-income producing
Balanced Fund
Portfolio of Investments – June 30, 1999 (unaudited)
Number
of
Shares Value
COMMON STOCKS: 67.06% of net assets
CAPITAL GOODS: 2.87%
Tyco International, LTD 7,750 $ 734,312
CAPITAL GOODS - MANUFACTURING: 1.77%
US Industries, Inc. 26,700 453,900
CONSUMER CYCLICALS: 4.60%
Dayton Hudson Corporation 10,100 656,500
Nike, Incorporated 8,250 522,328
CONSUMER SERVICES - TELECOMMUNICATIONS: 2.21%
MCI Woldcom, Inc.* 6,550 564,937
CONSUMER STAPLES - BROADCAST MEDIA: 2.25%
Mediaone Group, Inc.* 7,750 576,406
CONSUMER STAPLES - FOOD & BEVERAGE: 7.87%
Heinz Company 11,900 596,488
Nabisco Holdings Corporation 14,450 624,963
PepsiCo, Inc. 20,500 793,094
CONSUMER STAPLES - RETAIL: 7.98%
CVS Corporation 12,800 649,600
Kroger Company 27,200 759,900
Safeway, Inc.* 12,800 633,600
FINANCIAL - BANKS: 5.44%
National City Corporation 9,200 602,600
Wells Fargo & Company 18,500 790,875
FINANCIAL - INSURANCE: 3.46%
MGIC Investment Corporation 18,225 886,191
FINANCIAL - SERVICES: 7.55%
American Express Company 3,625 471,703
Associates First Capital Corporation 14,950 662,472
Federal Home Loan Mortgage 13,790 799,820
HEALTHCARE: 8.37%
Abbot Laboratories 8,850 402,675
Bristol Myers Squibb Company 12,600 887,513
Johnson & Johnson 8,700 852,600
TECHNOLOGY: 12.69%
BMC Software,Inc.* 13,275 716,850
Computer Sciences Corporation* 12,900 892,519
Hewlett-Packard Company 4,200 422,100
Intel Corporation 11,730 697,935
Lexmark International Group, Inc.* 7,880 520,572
TOTAL COMMON STOCKS
(Cost $13,272,059) $17,172,453
Principal
Amount Value
DEBT INSTRUMENTS: 29.58% of net assets
Corporate Obligations: 18.80%
AT&T Corporation, 5.625, 3/15/04 350,000 $ 339,500
Associates Corp of North America, 6, 4/15/03 425,000 418,094
Walt Disney Company, Senior Notes, 6.375, 3/30/01 355,000 357,219
Ford Motor Credit Company, 7.75, 3/15/05 325,000 340,437
Gap, Inc., 6.9, 9/15/07 345,000 350,606
General Motors Acceptance Corporation, 5.875, 1/22/03 430,000 420,325
Tommy Hilfiger USA, Inc., 6.5, 6/1/03 340,000 328,525
International Lease Finance Corporation, 8.375, 12/15/04 315,000 334,687
Kohls Corporation, 6.7, 2/1/06 280,000 273,700
Merrill Lynch & Company, Inc., 7, 1/15/07 300,000 300,000
Morgan Stanley Dean Witter & Co., 6.375, 8/1/02 355,000 354,556
Motorola, Inc., 5.8, 10/15/08 430,000 400,975
Seagate Technology, Inc., Senior Notes, 7.37, 3/1/07 275,000 259,531
Xerox Corporation, 5.5, 11/15/03 345,000 334,219
US Agency Obligations: 3.06%
Fannie Mae Notes, 6, 5/15/08 570,000 554,690
Fannie Mae Notes, 6.375, 6/15/09 230,000 229,236
US Treasury Obligations: 7.72%
US Treasury Notes, 6.25, 8/31/02 170,000 172,608
US Treasury Notes, 6.25, 5/31/00 300,000 302,574
US Treasury Notes, 5.25, 1/31/01 500,000 498,775
US Treasury Notes, 6.25, 4/30/01 990,000 1,003,019
TOTAL DEBT INSTRUMENTS
(Cost $7,741,034) $ 7,573,276
TOTAL INVESTMENT SECURITIES $24,745,729
SHORT TERM INVESTMENTS: 2.84% of net assets
REPURCHASE AGREEMENT
With Donaldson, Lufkin & Jenrette Securities Corporation issued 6/30/99 at 4.7%, due 7/1/99, collateralized by $741,726 in United States Treasury Bonds due 2/15/20. Proceeds at maturity are $727,095. (Cost $727,000)
$ 727,000
TOTAL INVESTMENTS (Cost $21,740,093) $25,472,729
CASH AND RECEIVABLES
LESS LIABILITIES: .52% of net assets $ 129,415
NET ASSETS: 100% $25,602,144
*Non-income producing
Portfolio of Investments – June 30, 1999 (unaudited)
Number
of
Shares Value
COMMON STOCKS: 90.75% of net assets
CAPITAL GOODS - ELECTRICAL EQUIPMENT: 4.48%
American Power Conversion Corporation* 20,500 $ 411,922
CAPITAL GOODS - MANUFACTURING: 3.08%
US Industries, Inc. 16,650 283,050
CONSUMER CYCLICALS: 12.56%
Tommy Hilfiger Corporation* 3,850 282,975
Callaway Golf Company 12,750 186,469
Nike, Inc 4,350 275,409
Officemax, Inc.* 34,100 409,200
CONSUMER SERVICES - TELECOMMUNICATIONS: 8.98%
Telephone & Data Systems, Inc.* 6,000 438,375
US Cellular Corporation 7,230 386,805
CONSUMER STAPLES: 2.78%
Rogers Communication, Inc.* 15,805 255,843
CONSUMER STAPLES - RETAIL: 4.74%
Kroger Company 15,600 435,825
FINANCIALS - BANKS: 12.26%
Regions Financial Corporation 10,000 384,375
Southtrust Corporation 9,525 365,522
Summit Bancorp 9,000 376,313
FINANCIALS - INSURANCE: 9.15%
MBIA, Inc. 5,575 360,981
MGIC Investment Corporation 9,875 480,172
FINANCIALS - SERVICES: 3.67%
Finova Group, Inc. 6,400 336,800
HEALTHCARE: 3.45%
Dentsply International, Inc. 10,940 $ 316,576
INDUSTRIAL: 3.74%
Martin Marietta Materials, Inc. 5,825 343,675
TECHNOLOGY: 19.65%
BMC Software, Inc.* 6,975 376,432
Cadence Design Systems, Inc.* 13,550 172,762
Computer Sciences Corporation* 6,800 470,475
Fiserv, Inc.* 6,725 210,787
Lexmark International Group, Inc.* 4,140 273,499
Sterling Commerce, Inc.* 8,260 301,490
TRANSPORTATION: 2.21%
Expiditors International of Washington, Inc. 7,450 203,013
TOTAL COMMON STOCKS
(Cost $7,721,818) $8,338,745
SHORT TERM INVESTMENTS: 15.27% of net assets
REPURCHASE AGREEMENT
With Donaldson, Lufkin & Jenrette Securities Corporation issued 6/30/99 at 4.7%, due 7/1/99, collateralized by $1,431,419 in United States Treasury Bonds due 2/15/20. Proceeds at maturity are $1,403,183.
(Cost $1,403,000) $1,403,000
TOTAL INVESTMENTS (Cost $9,124,818) $ 9,741,745
CASH AND RECEIVABLES LESS LIABILITIES: (6.02%) of net assets $ (552,832)
NET ASSETS: 100% $ 9,188,913
*Non-income producing
Portfolio of Investments – June 30, 1999 (unaudited)
Number
of
Shares Value
COMMON STOCKS: 20.62% of net assets
CONSUMER CYCLICALS: 6.35%
Tommy Hilfiger Corporation* 1,500 $ 110,250
Officemax, Inc.* 7,500 90,000
FINANCIALS - INSURANCE: 5.40%
MBIA, Inc. 1,500 97,125
MGIC Investment Corporation 1,500 72,938
FINANCIAL - BANKS: 4.09%
Marshall & Ilsley Corporation 2,000 128,750
FINANCIAL- SERVICES: 4.78%
Associates First Capital Corporation 3,400 150,662
TOTAL COMMON STOCKS
(Cost $448,265) $ 649,725
Principal
Amount Value
US GOVERNMENT AGENCY
OBLIGATIONS: 75.72% of net assets
Freddie Mac Discount Notes, 5.03%, 8/3/99 500,000 $ 497,694
Freddie Mac Discount Notes, 4.79%, 9/2/99 500,000 495,580
Fannie Mae Discount Notes, 4.67%, 7/20/99 500,000 498,768
Fannie Mae Discount Notes, 4.78%, 8/26/99 500,000 496,282
Federal Farm Credit Discount Notes, 5%, 8/19/99 400,000 397,278
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $2,385,831) $2,385,602
REPURCHASE AGREEMENT: 3.65% of net assets
With Donaldson, Lufkin & Jenrette Securities Corporation issued 6/30/99 at 4.7%, due 7/1/99, collateralized by $117,329 in United States Treasury Bonds due 2/15/20. Proceeds at maturity are $115,015. (Cost $115,000)
$ 115,000
TOTAL INVESTMENTS
(Cost $2,949,096) $ 3,150,327
CASH AND RECEIVABLES LESS LIABILITIES: 0.01% of net assets $ (404)
NET ASSETS: 100% $ 3,150,731
*Non-income producing
June 30, 1999 (unaudited)
Mid-Cap
Investors Balanced Growth Foresight
Fund Fund Fund Fund
ASSETS
Investments, at value (Note 1 and 2)
Investment securites $31,782,083 $24,745,729 $ 8,338,745 $ 3,032,507
Repurchase agreements 828,000 727,000 1,403,000 117,820
Total investments 32,610,083 25,472,729 9,741,745 3,150,327
Cash 145 985 586 89
Receivables
Dividends and interest 20,070 128,852 8,887 315
Capital shares sold 550 5,088 10,357 --
Total assets 32,630,848 25,607,654 9,761,575 3,150,731
LIABILITIES
Payables
Investment securities purchased -- -- 572,475 --
Dividends (3) 5,399 (2) --
Capital shares redeemed 8,906 111 189 --
Total liabilities 8,903 5,510 572,662 --
NET ASSETS (Note 6) $32,621,945 $25,602,144 $9,188,913 $3,150,731
CAPITAL SHARES OUTSTANDING 1,221,436 1,188,929 1,038,784 259,910
NET ASSET VALUE PER SHARE $26.71 $21.53 $8.85 $12.12
For the six month period ended June 30, 1999 (unaudited)
Mid-Cap
Investors Fund Balanced Fund Growth Fund Foresight Fund
INVESTMENT INCOME (Note 1)
Interest income $ 138,372 $ 258,246 $ 16,775 $ 57,857
Dividend income 38,199 73,807 32,769 1,866
Other income -- 256 -- --
Total investment income 176,571 332,309 49,544 59,723
EXPENSES (Notes 3 and 5)
Investment advisory fees 112,500 90,936 34,263 11,610
Transfer agent, administrative, registration and
professional fees
60,000
54,561
22,845 7,740
Total expenses 172,500 145,497 57,108 19,350
NET INVESTMENT INCOME (LOSS) 4,071 186,812 (7,564) 40,373
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain on investments 2,942,032 1,297,779 709,135 56,134
Change in net unrealized appreciation of investments 94,222 (28,145) (656,984) (50,996)
NET GAIN ON INVESTMENTS 3,036,254 1,269,634 52,151 5,138
TOTAL INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS
$3,040,325
$1,456,446 $ 44,587
$ 45,511
For the period indicated
Investors Fund Balanced Fund Six Months Year Ended Six Months Year Ended Ended June December Ended June December 30, 1999 31, 1998 30, 1999 31, 1998 (unaudited) (unaudited) INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Net investment income $ 4,071 $ 46,671 $ 186,812 $ 376,437 Net realized gain on investments 2,942,032 3,052,185 1,297,779 1,728,871 Net unrealized appreciation (depreciation) of investments 94,222 1,535,620 (28,145) 864,681 Total increase in net assets resulting from operations 3,040,325 4,634,476 1,456,446 2,969,989 DISTRIBUTIONS TO SHAREHOLDERS From net investment income -- (46,454) (186,812) (376,307) From net capital gains -- (2,505,125) -- (1,761,206) Total distributions -- (2,551,579) (186,812) (2,137,513) CAPITAL SHARE TRANSACTIONS (Note 8) 53,856 2,242,938 (402,900) 6,500,315 TOTAL INCREASE IN NET ASSETS 3,094,181 4,325,835 866,734 7,332,791 NET ASSETS Beginning of period $29,527,764 $25,201,929 $24,735,410 $17,402,619 End of period $32,621,945 $29,527,764 $25,602,144 $24,735,410 Mid-Cap Growth Fund Foresight Fund Six Months Year Ended Six Months Year Ended Ended June December Ended June December 30, 1999 31, 1998 30, 1999 31, 1998 INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Net investment income (loss) $ (7,564) $ (9,781) $ 40,373 $ 59,250 Net realized gain on investments 709,135 574,775 56,134 127,562 Net unrealized appreciation (depreciation) of investments (656,984) 140,432 (50,996) 252,227 Total increase (decrease) in net assets resulting from operations 44,587 705,426 45,511 439,039 DISTRIBUTIONS TO SHAREHOLDERS From net investment income -- -- -- (59,250) From net capital gains -- (1,192,307) -- -- Total distributions -- (1,192,307) -- (59,250) CAPITAL SHARE TRANSACTIONS (Note 8)(1,062,568) (773,816) (188,396) 999,699 TOTAL INCREASE (DECREASE) IN NET ASSETS (1,017,981) (1,260,697) (142,885) 1,379,488 NET ASSETS Beginning of period $10,206,894 $11,467,591 $3,293,616 $1,914,128 End of period $ 9,188,913 $10,206,894 $3,150,731 $3,293,616Selected data for a share outstanding throughout each period indicated:
Ratio of Net Ratio of net Net realized & Distri- Net Net expenses investment Year asset Net unrealized butions asset assets to income ended value invest. gain Total from from netDist. value end of average (loss) Port. Dec. begin income (loss) on invest. invest. fm. cap.Total end of Total period net to average turnover 31 period (loss) invest's operat's income gains dist'ions period return (1000s) assets net assets-11 rate-11 Investors Fund-2 1999-8 $24.26 $0.00 $2.45 $2.45 -- -- -- $26.71 20.2%-7 $32,622 1.125%-7 0.03%-7 31% 1998 22.37 0.04 4.13 4.17 $(0.04) $(2.24) $(2.28) 24.26 18.66 29,528 1.16 0.17 85 1997-1 19.16 0.14 6.39 6.53 (0.14)-5(3.18)-5 (3.32)-5 22.37 34.84 25,202 1.15 0.49 78-6 1996 18.03 0.24 3.91 4.15 (0.25) (4.01) (4.26) 17.92 22.75 13,112 1.17 1.20 81 1995 15.84 0.42 3.45 3.87 (0.42) (1.26) (1.68) 18.03 24.63 11,860 1.17 2.44 58 Balanced Fund-3 1999-8 $20.47 $0.16 $0.97 $1.13 $(0.07) -- $(0.07) $21.53 11.92%-7 $25,602 1.17%-7 1.50%-7 23% 1998 19.48 0.37 2.56 2.93 (0.37) $(1.57) (1.94) 20.47 15.15 24,735 1.20 1.83 94 1997-1 18.09 0.40 4.04 4.44 (0.41)-5(2.64)-5 (3.05)-5 19.48 25.49 17,403 1.35 1.80 78-6 1996 22.44 0.50 3.20 3.70 (0.50) (3.61) (4.11) 22.03 17.00 11,018 1.42 2.06 86 1995 20.16 0.75 3.53 4.28 (0.74) (1.26) (2.00) 22.44 21.51 10,857 1.36 3.36 66 Mid-Cap Growth Fund-4 1999-8 8.74 $(0.01) $0.12 $0.11 -- -- -- $8.85 2.52%-7 $ 9,189 1.22%-7 (0.16)%-7 27% 1998 $9.25 (0.01) 0.64 0.63 -- $(1.14) $(1.14) 8.74 6.81 10,207 1.26 (0.09) 88 1997-9 9.88 (0.03) 1.91 1.88 -- (2.51) (2.51) 9.25 26.06 11,468 1.27-7 (0.35)-7 80 1997-10 20.49 (0.02) (0.47) (0.49) $(0.02) (10.10) (10.12) 9.88 (5.59) 10,964 1.62 (0.12) 127 1996-10 18.09 0.13 3.63 3.76 (0.12) (1.24) (1.36) 20.49 21.22 17,091 1.41 0.56 21 1995-10 21.11 0.15 0.19 0.34 (0.15) (3.21) (3.36) 18.09 2.27 31,590 1.30 0.76 4 Foresight Fund 1999-8 $11.95 $0.15 $0.02 $0.17 -- -- -- $12.12 2.84%-7 $3,151 1.22%-7 2.54%-7 5% 1998 10.46 0.22 1.49 1.71 $(0.22) -- $(0.22) 11.95 16.36 3,294 1.30 2.59 185 (Formerly) Worldwide Growth Fund-4 1997-9 10.97 (0.01) (0.50) (0.51) -- -- -- 10.46 (4.60) 1,914 2.41-7 0.05-7 2 1997-10 9.86 0.01 1.10 1.11 -- -- -- 10.97 11.21 2,582 2.50 0.10 47 1996-10 8.50 0.04 1.39 1.43 (0.07) -- (0.07) 9.86 16.88 3,116 2.38 0.43 78 1995-10 12.51 0.02 (2.48) (2.46) (0.03) $(1.52) (1.55) 8.50 (22.20) 3,319 2.05 0.21 651 All data reflect share price adjustment due to fund merger on June 13, 1997. (See note 1).
2 Data prior to June 13, 1997 represents Bascom Hill Investors, Inc.
3 Data prior to June 13, 1997 represents Bascom Hill BALANCED Fund, Inc.
4 Effective July 31, 1996, the investment advisory services transferred to Madison Mosaic, LLC from Bankers Finance Investment Management Corp.
5 Includes distribution attributable to net investment income and net realized gain from Mosaic Investors Fund and Mosaic Equity Income Fund. (See note 1).
6 For purposes of determining portfolio turnover, the transfer of securities pursuant to the merger on June 13, 1997 are not considered.
7 Annualized.
8 For the six month period ended June 30, 1999.
9 For the nine month period ended December 31, 1997.
10 For the years ended March 31.
11 Had the Advisor not waived advisory fees, the Worldwide Growth Fund's 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 ending December 13, 1997; 3.00% and (0.40)% 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. Ratio of expenses to average net assets includes fees paid indirectly for the years ended March 31, 1996 and 1997.
Notes to Financial Statements
For the six-month period ended June 30, 1999 (unaudited)
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 is invested primarily in "mid-cap" companies that may offer rapid growth potential. The Foresight Fund moves in and out of the stock and bond markets when these markets appear unusually over-or-under valued. Prior to January 1, 1998, the Foresight Fund had different investment policies and objectives and was called Worldwide Growth Fund: It's entire portfolio was liquidated prior to July 1, 1998.
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 and Accountants: Beginning April 1, 1997, the Trust's fiscal year changed to December 31 and the Trust changed its Independent Auditors to Deloitte & Touche LLP.
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. Short-term securities (maturing within 60 days) are valued at amortized cost which approximates market value. Securities with maturities in excess of 60 days are valued at 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. As of December 31, 1998, the Mid-Cap Growth and Foresight Funds had available for federal income tax purposes unused capital loss carryovers of $133,830, expiring December 31, 2006, and $283,947, expiring December 31, 2003, respectively.
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 Mosaic, LLC ("the Advisor"), earns an advisory fee equal to 0.75% per annum of the average net assets of each of the Investors, Balanced, Mid-Cap Growth and Foresight 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 Trustees approved a permanent reduction in the fee payable with respect to the Foresight Fund from 1.00% to 0.75% effective January 1, 1998.
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 June 30, 1999:
Investors Fund Balanced Fund Mid-Cap Growth Fund Foresight Fund
Aggregate Cost $25,092,398 $21,740,093 $ 9,124,818 $ 2,949,096
Gross unrealized appreciation $ 7,959,176 $ 4,125,389 $ 1,333,134 $ 201,460
Gross unrealized depreciation (441,491) (392,753) (716,207) (229)
Net unrealized appreciation $ 7,517,685 $ 3,732,636 $ 616,927 $ 201,231
5. Other Expenses. 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 and Foresight Fund.
The Advisor is also responsible for the fees and expenses of Trustees who are affiliated with the Advisor and certain promotional expenses.
6. Net Assets. At June 30, 1999, net assets included the following:
Investors Fund Balanced Fund Mid-Cap Growth Fund Foresight Fund
Net paid in capital on shares of beneficial interest $21,309,452 $20,149,830 $ 8,004,245 $ 3,136,940
Undistributed net investment income (loss) 4,071 -- (7,562) 40,373
Accumulated net realized gains (losses) 3,790,737 1,719,678 575,303 (227,813)
Net unrealized appreciation on investments 7,517,685 3,732,636 616,927 201,231
Total Net Assets $32,621,945 $25,602,144 $ 9,188,913 $ 3,150,731
7. Investment Transactions. Purchases and sales of securities other than short-term securities for the six months ended June 30, 1999 were as follows:
Investors Fund Balanced Fund Mid-Cap Growth Fund Foresight Fund
Purchases $11,555,709 $6,211,154 $2,604,453 $169,811
Sales 9,749,711 5,720,634 3,643,504 345,949
8. Capital Share Transactions. An unlimited number of capital shares, without par value, are authorized. Transactions in capital shares for the following periods were:
Investors Fund
Balanced Fund
Six Months Ended Year Ended Six Month Ended Year Ended
6/30/1999
12/ 31/1998 6/30/1999
12/31/1998
In Dollars
Shares sold $10,835,228 $14,539,477 $ 1,229,208 $ 8,104,834
Shares issued in reinvestment of dividends -- 2,455,089 175,230 2,018,298
Total shares issued 10,835,228 16,994,566 1,404,438 10,123,132
Shares redeemed (10,781,372) (14,751,628) (1,807,338) (3,622,817)
Net increase (decrease) $ 53,856 $ 2,242,938 $ (402,900) $ 6,500,315
In Shares
Shares sold 436,599 622,680 58,967 395,961
Shares issued in reinvestment of dividends -- 101,199 8,344 98,882
Total shares issued 436,599 723,879 67,311 494,843
Shares redeemed (432,290) (633,406) (86,785) (179,717)
Net increase (decrease) 4,309 90,473 (19,474) 315,126
Mid-Cap Growth Fund
Foresight Fund
Six Months Ended Year Ended
Six Months Ended
Year Ended
6/30/1999
12/3/1998
6/30/1999
12/31/1998
In Dollars
Shares sold $ 5,451,621 $ 6,985,781 $ 275,828 $1,588,929
Shares issued in reinvestment of dividends -- 1,151,393 -- 57,264
Total shares issued 5,451,621 8,137,174 275,828 1,646,193
Shares redeemed (6,514,189) (8,910,990) (464,224) (646,494)
Net increase (decrease) $(1,062,568) $ (773,816) $ (188,396) $ 999,699
In Shares
Shares sold 646,202 747,858 23,190 147,745
Shares issued in reinvestment of dividends -- 131,738 -- 4,792
Total shares issued 646,202 879,596 23,190 152,537
Shares redeemed (774,911) (951,759) (38,925) (59,858)
Net increase (decrease) (128,709) (72,163) (15,735) 92,679
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: 1 888 336-3063
The Mosaic Family of Mutual Funds
Mosaic Equity Trust
Mosaic Investors Fund
Mosaic Balanced Fund
Mosaic Mid-Cap Growth Fund
Mosaic Foresight Fund
Mosaic Focus Fund
Mosaic Income Trust
Mosaic Government Fund
Mosaic Intermediate Income 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 Fort Myer Drive, 10th floor
Arlington, Virginia 22209-3108
http://www.mosaicfunds.com
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