Prospectus/May 1, 1999
1655 Fort Myer Drive, Arlington, Virginia 22209-3108
Mosaic Equity Trust
Investors Fund, Balanced Fund, Mid-Cap Growth Fund and Foresight Fund
Mosaic Equity Trust offers shares of four separate funds. Each fund invests
in different types of securities, as described below.
Investors Fund. For long-term investing to obtain capital appreciation. We
select common stocks primarily of large companies that we believe offer growth
at a reasonable price. The fund is designed for investors who can assume the
market and other risks of common stock investment.
Mid-Cap Growth Fund. Also for long-term investing to obtain capital
appreciation. This fund invests in common stocks of smaller, "mid-cap"
companies that may offer rapid growth potential. The fund is designed for
investors who are willing to assume above-average stock investment risk.
Balanced Fund. A balanced portfolio with two primary investment objectives:
(1) production of current income and (2) long-term growth of capital. To
achieve its objectives, the fund will hold a mix of common stocks and U.S.
government bonds and investment grade corporate bonds. The fund is designed
for investors who can assume moderate investment risks in search of income and
long-term growth.
Foresight Fund. For long-term investing to obtain capital appreciation, with
the additional objective of being sensitive to potential major market advances
and declines. This fund may hold substantial cash reserves or bonds at times
when we believe the stock market is vulnerable and subject to a meaningful
decline. The fund is designed for investors who want their investment manager
to make asset allocation decisions among common stocks, bonds and money market
instruments.
Features
* No commissions or sales charges
* $1,000 minimum initial investment
* No "12b-1" expenses
* Invest or withdraw funds by phone or by mail or electronic funds transfer
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
Madison Mosaic, LLC
Investment Advisor
Table of Contents
Risk/Return Summary: Investments, Risks and Performance 3
Fund Investment Objectives/Goals 3
Principal Investment Strategies of Each Fund 3
Principal Risks of Investing in the Trust 4
Risk/Return Bar Chart and Table 5
Fees and expenses of the Trust 7
Investment Objectives 8
Implementation of Investment Objectives 9
Principal Risks 13
Management 15
Pricing of Fund Shares 16
Dividends and Distributions 16
Taxes 17
Financial Highlights 18
Risk/Return Summary: Investments, Risks and Performance
Fund Investment Objectives/Goals
Mosaic Equity Trust (the "Trust") offers shares of four separate funds:
Mosaic Investors
The Investors Fund seeks long-term growth.
Mosaic Mid-Cap Growth
The Mid-Cap Growth Fund seeks long-term growth.
Mosaic Balanced
The Balanced Fund seeks (1) to produce current income and (2) to provide an
opportunity for capital appreciation.
Mosaic Foresight
The Foresight Fund seeks (1) long-term growth and (2) capital preservation.
Principal Investment Strategies of Each Fund
Fund-Specific Strategies:
Mosaic Investors
The Investors Fund invests primarily in the common stock of established, larger
growth companies. Generally, the companies the Investors Fund buys have a
market capitalization (the value of all of a company's stock on the market) of
$5 billion or more. The Fund may buy a number of mid-sized growth companies,
as well (market capitalizations between $1 and $5 billion).
Mosaic Mid-Cap Growth
The Mid-Cap Growth Fund invests primarily in the common stock of mid-sized
growth companies. Generally, the companies the Mid-Cap Growth Fund buys have a
market capitalization between $1 and $5 billion.
Mosaic Balanced
The Balanced Fund invests in a combination of common stocks and investment
grade bonds. Its stock component will consist of the same companies as the
Investors Fund. However, it never holds more than 70% of its assets in common
stocks. The rest of the Balanced Fund (generally, 30% to 50%) is invested in
investment grade corporate bonds and U.S. government bonds. In general, we
anticipate that 25-50% of the Balanced Fund's total net assets will be invested
in debt securities that have an average weighted maturity of less than 10
years.
Mosaic Foresight
The Foresight Fund is an asset allocation fund. Based on our assessment of
market and economic conditions, this fund has the flexibility to move in or out
of the stock and bond markets when these markets appear unusually over-or-under
valued. However, it may have significant holdings in cash, money market
instruments or investment grade bonds at times when we feel that the market is
vulnerable to a meaningful decline. The common stocks selected for the
Foresight Fund are generally larger companies of the type selected for the
Investors Fund, but it may also invest in smaller companies such as those
selected for the Mid-Cap Growth Fund. The bonds selected have a maturity of 10
years or less.
General Strategies:
Focused Portfolios
To the extent invested in common stocks, each fund invests in only 20 - 30
companies. This reflects our belief that your money should be in our top
investment ideas, not our 75th or 125th best idea.
Growth and Value: GARP
We select companies that we believe show steady, sustainable growth and
reasonable valuation, rather than "hot" stocks or "trendy" growth companies
with high share prices. Instead, we will invest in the stocks of issuers that
we believe have a blend of both value and growth potential: What we call
"GARP" for "growth at a reasonable price."
Principal Risks of Investing in the Trust
All Funds
Market Risk. The share price of each fund reflects the value of the
securities it holds. If a stock's price falls, the share price of the fund
will go down (unless another stock's price rises by an offsetting amount).
If the fund's share price falls below the price you paid for your shares,
you could lose money when you redeem your shares. This is generally known
as "market risk."
Fund Specific Risks
Mid-Cap Growth Fund Specific Risks
The smaller companies held by the Mid-Cap Growth Fund have greater market risk
than stocks of more established companies.
Balanced Fund Risks
Bonds held by the Balanced Fund are subject to call risk. If a bond issuer
"calls" a bond (pays it off at a specified price before it matures), the
Balanced Fund would have to reinvest the proceeds at a lower interest rate. It
may also experience a loss if the bond is called at a lower prince than what we
paid.
Balanced and Foresight Fund Specific Risks
The Balanced Fund always invests in bonds and the Foresight Fund may invest in
bonds. When interest rates go up, bond prices tend to go down. The value of
bonds in the Balanced Fund are likely to fall as interest rates rise, causing
the fund's share price to fall as well. The Foresight Fund will react the
same way if it holds bonds during a period of rising interest rates. This is
generally known as "interest rate risk."
The greater the percentage of a fund's investment in bonds, the greater its
interest rate risk. On the other hand, the more bonds a fund holds, the
lesser its market risk. You should also understand that the longer the maturity
of any bond, the greater the effect will be on its price when interest rates
change. The Balanced Fund may have long average maturities, while the average
maturity of the Foresight Fund may be shorter at 10 years or less.
Foresight Fund Specific Risks
When changing its allocation of stocks and fixed-income securities, the Fund
may incur increased brokerage costs. Also, short-term trading may generate
capital gains.
Risk/Return Bar Chart and Performance Table
The following bar charts illustrate the risks of each fund by showing changes
in each fund's performance from year to year over a 10-year period (or for the
life of the fund, if less). After the bar chart for each fund is a table that
compares the fund's average annual total returns with those of a broad-based
securities market index that is not subject to the fees and expenses typical of
mutual funds. Remember, however, that how any fund performed in the past is
not necessarily an indication of how it will perform in the future.
Investors Fund
Year Return
1998 18.66%
1997 34.84%
1996 22.75%
1995 24.63%
1994 4.09%
1993 3.16%
1992 10.98%
1991 32.05%
1990 (14.25)%
1989 16.25%
During the period shown in the bar chart, the highest return for a quarter was
23.11% (quarter ending December 31, 1998) and the lowest return for a quarter
was -14.12% (quarter ending September 30, 1991).
Average Annual Total Past One Year Past 5 Years Past 10 Years
Returns
(for the periods ending
December 31, 1998)
Investors Fund 18.66% 20.52% 14.34%
S&P 500 Index* 28.58% 24.03% 19.17%
Mid-Cap Growth Fund
Year Return1998 6.81%
1997 17.02%
1996 6.14%
1995 22.17%
1994 (3.96)%
1993 14.86%
1992 6.72%
1991 25.69%
1990 (15.86)%
1989 25.16%
During the period shown in the bar chart, the highest return for a quarter was
21.54% (quarter ending December 31, 1998) and the lowest return for a quarter
was -20.66% (quarter ending September 30, 1990).
Average Annual Total Past One Year Past 5 Years Past 10 Years
Returns
(for the periods ending
December 31, 1998)
Mid-Cap Growth Fund 6.81% 9.25% 9.71%
Russell 2000* -3.45% 10.28% 11.08%
Balanced Fund
Year Return
1998 15.15%
1997 25.49%
1996 17.00%
1995 21.51%
1994 1.31%
1993 4.35%
1992 8.43%
1991 25.10%
1990 (7.30)%
1989 12.14%
During the period shown in the bar chart, the highest return for a quarter was
13.60% (quarter ending March 31, 1991) and the lowest return for a quarter was
- -7.84% (quarter ending September 30, 1990).
Average Annual Total Past One Year Past 5 Years Past 10 Years
Returns
(for the periods ended
December 31, 1998)
Balanced Fund 15.15% 15.64% 11.75%
S&P 500 Index* 28.58% 24.03% 19.17%
Foresight Fund
1998 16.36%
During the period shown in the bar chart, the highest return for a quarter was
17.52% (quarter ending December 31, 1998) and the lowest return for a quarter
was -4.43% (quarter ending September 30, 1998).
Average Annual Total Past One Year
Returns Since Inception on December 31, 1997
(for the period ending
December 31, 1998)
Foresight Fund 16.36%
S&P 500 Index* 28.58%
*The S&P 500 is the Standard & Poor's Composite Index of 500 stocks, a widely
recognized, unmanaged index of common stock prices, while the Russell 2000
Index of 2000 stocks includes smaller companies including those of the type
held by the Mid-Cap Growth Fund.
Fees and Expenses of the Trust
This table describes the fees and expenses that you may pay if you buy and
hold shares of any fund offered by Mosaic Equity Trust.
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Redemption Fee None
Exchange Fee None
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
<TABLE>
<S> <C> <C> <C> <C>
Investors Mid-Cap Growth Balanced Foresight
Fund Fund Fund Fund
Management Fees........................ 0.75% 0.75% 0.75% 0.75%
Distribution (12b-1) Fees.............. None None None None
Other Expenses......................... 0.41% 0.51% 0.45% 0.55%
Total Annual Fund Operating Expenses 1.16% 1.26% 1.20% 1.30%
</TABLE>
Example:
This Example is intended to help you compare the cost of investing in a fund
offered by Mosaic Equity Trust with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<S> <C> <C> <C> <C>
Investors Mid-Cap Growth Balanced Foresight
Fund Fund Fund Fund
1 year......................... $118 $128 $122 $132
3 years........................ $368 $400 $381 $412
5 years........................ $638 $692 $660 $713
10 years....................... $1,409 $1,523 $1,455 $1,568
</TABLE>
Additional fees and transaction charges described in Mosaic's "Guide to Doing
Business," if applicable, will increase the level of expenses that can be
incurred. (For example, fees are charged for certain wire transfers, stop
payments on checks, bounced investment checks, and retirement plans). In
addition, shareholders that purchase or redeem shares in the Trust through a
securities broker may be charged a transaction fee by the broker for handling
of the transaction. The Trust does not receive these fees. Shareholders may
engage in any transaction directly with the Trust to avoid such charges.
Investment Objectives
Mosaic Equity Trust (the "Trust") offers shares of four separate funds:
Investors
The Investors Fund seeks long-term growth.
Mid-Cap Growth
The Mid-Cap Growth Fund seeks long-term growth.
Balanced
The Balanced Fund seeks to (1) produce current income while (2) providing an
opportunity for capital appreciation. By investing a portion of its assets in
bonds, the fund seeks to lessen its exposure to market risk.
Foresight
The Foresight Fund's objectives are (1) to provide capital growth through
investments in stocks and (2) capital preservation through active management of
market exposure. Together, these objectives make this an asset allocation
fund. As a result, the fund may have significant holdings in cash, money
market instruments or bonds at times when we feel that the market is vulnerable
to a meaningful decline.
Achieving the Foresight Fund's investment objectives will depend on our
ability to assess the effects of market and economic indicators on stock
market trends and our stock selection capabilities.
Although it is an asset allocation fund, the Foresight Fund does not seek to
maintain a minimum percentage of its assets invested in stocks or bonds. For
this reason, it is considered a "flexible" fund.
All Funds
The investment objective of any fund offered by Mosaic Equity Trust may be
changed without shareholder approval. Shareholders will, however, receive
prior written notice of any material change. There can be no assurance that
any fund's investment objectives will be achieved.
Implementation of Investment Objectives
All Funds
How do we select stocks for the funds?
We screen for both growth and value when seeking investments for each fund.
We look for a pattern of consistent, sustainable earnings growth. We compare
the valuation of the stock, based on the projected growth rate of the
company's earnings, to the market in general (looking for an attractive ratio
between growth and price) and to the company's historic valuations.
Our goal is to acquire companies when they are at the low end of their
historical valuations. By avoiding overpriced issues, we attempt to avoid the
most volatile and risky segments of the market. Instead, we will invest in the
stocks of issuers that we believe have a blend of both value and growth
potential: What we call "GARP" for "growth at a reasonable price."
Why do we sell stocks in the funds?
We sell stocks for a number of reasons: (1) the valuation target we set for
them is achieved; (2) the fundamental business prospects for the company have
materially changed; or (3) we find a more attractive alternative.
How many stocks will the funds hold?
We want each stock to represent a meaningful commitment. Therefore, to the
extent invested in common stocks, each fund invests in only 20 - 30 companies.
We believe this offers the benefits of diversification, yet focuses the funds
enough to allow for superior performance. It also reflects our belief that
your money should be in our top investment ideas, not our 75th or 125th best
idea.
Do the funds hold much cash?
In order to meet day to day shareholder transaction requirements, each fund
will hold a certain amount of uninvested cash. We will normally invest this
cash overnight in a repurchase agreement. Repurchase agreements involve the
sale of securities to a fund by a financial institution or securities dealer,
simultaneous with an agreement by that seller to repurchase the securities at
the same price, plus interest, at a later date. Each fund will limit the
parties with which it will engage in repurchase agreements to those financial
institutions and securities dealers that are deemed creditworthy pursuant to
guidelines adopted by the Trust's Board of Trustees.
Can a fund adopt a temporary defensive strategy?
If we determine that it would be appropriate to adopt a temporary defensive
investment position by reducing exposure in the equity markets, up to 100
percent of any fund could be invested in short-term, fixed-income investments.
Of course, the Balanced Fund is expected to have a substantial non-stock
position. On the other hand, to the extent more than 35% of the Investors or
Mid-Cap Growth Fund is so invested, it would not be invested in accordance
with policies designed to achieve its stated investment objectives. Also, to
the extent the Balanced Fund or Foresight Fund takes a temporary defensive
strategy that eliminates its opportunity to achieve its capital appreciation
objective, it too would not be invested in accordance with policies designed
to achieve its stated investment objectives.
Fund-Specific Strategies:
Investors
The Investors Fund principally invests in the common stocks of established,
larger growth companies. Generally, the companies the Investors Fund buys have
a market capitalization (the value of all of a company's stock on the market)
of $5 billion or more. However, the Fund may buy a number of mid-sized growth
companies, as well (market capitalizations between $1 and $5 billion) if they
meet our investment criteria.
The fund will normally be at least 65% invested in common stocks.
Mid-Cap Growth
The Mid-Cap Growth Fund invests primarily in the common stocks of mid-sized
growth companies. These companies generally consist of those with a market
capitalization between $1 and $5 billion.
Like the Investors Fund, the Mid-Cap Growth Fund will normally be at least 65%
invested in common stocks.
Balanced
The equity component of the Balanced Fund invests in the same common stocks as
the Investors Fund.
The percentage of the Balanced Fund's assets that may be invested at any
particular time in equities and bonds will depend on our judgment regarding
general market risk. The fund will not invest more than 70% in equity
securities (stocks). It will maintain at least 25% of its assets in fixed
income senior securities (bonds), not including any convertible securities.
To determine the balance between stocks and bonds, we monitor many factors
affecting the market outlook, including economic and monetary trends, market
momentum, institutional psychology and historical similarities to current
conditions. We carefully review the equity market's relationship to the bond
market and interest rate trends.
To achieve income, the Balanced Fund invests in corporate debt securities and
U.S. Government bonds. Eligible corporate debt securities must be accorded
one of the four highest quality ratings by Standard & Poor's or Moody's
("investment grade") or, if unrated, judged by the Advisor to be a comparable
quality. Bonds rated A, AA, or AAA by Standard & Poor's indicate strong to
high capacity of the company to pay interest and repay principal. However,
the fourth highest rating, BBB, indicates adequate capacity to pay interest
and repay principal but suggests that adverse economic conditions may weaken
the company's ability to meet these obligations. Therefore, bonds rated BBB
are more speculative and reflect a higher level of risk. The fund may also
invest in direct obligations of the United States government, its agencies and
instrumentalities.
Through appreciation, the total market value of the Balanced Fund's stock
holdings may grow beyond 70% of its total net assets. If this happens, we
will take necessary actions to reduce total stocks to less than 70% of total
net assets within the following 60 days.
Foresight Fund
Our allocation among stocks, bonds and money market instruments held by the
Foresight Fund changes significantly. To illustrate, we expect to make
changes in the fund's exposure to equities in increments of about 25% at
appropriate times. We desire to make shifts from 100% (or as close to 100% as
is reasonably possible) in equities to 75%, 50%, 25% or 0% in stocks, rather
than making smaller percentage changes. But it is possible that the actual
percentages may differ from such percentages due to the time needed to trade
and reposition the fund, as well as due to market-related changes in the value
of securities.
How will we make decisions on what percentage of the fund will be invested in
stocks? Much of our research will involve a study of the history of market
turns and shifts in direction. Technical analysis will be employed to spot
such changes and to identify market trends and their momentum. Trend analysis
will assist us by determining whether markets are overbought or oversold or
overextended in their recent trading trend. Interrelationships between
markets are important.
We believe that changes in direction in the bond market, interest rates and
credit conditions give important signals of upcoming stock market movements.
Our analysis will include changes in estimated and reported earnings and
earnings growth rates in order to determine the trend toward raising or
lowering earnings estimates on key companies.
Stocks selected will represent primarily well-established companies that have a
demonstrated pattern of consistent growth. To a lesser extent, the Foresight
Fund may invest in smaller "mid-cap" companies that may offer more rapid growth
potential.
When we believe that an investment in bonds will provide greater potential for
capital appreciation and preservation than an investment in stocks, money
market funds or short-term instruments, the fund may own government,
government agency or corporate bonds rated BAA or higher by either Standard &
Poor's or Moody's. Bonds may not exceed 10 years in maturity.
Principal Risks of Investing in the Trust
All Funds
Market Risks
Each fund's holdings will be subject to the economic, business and market
risks associated with common stock investing. (This includes any "Year 2000"
problems experienced by companies any fund holds.) As a result, your
investment in any fund, when redeemed, may be worth more or less than the
price you originally paid for it.
While each fund is a diversified mutual fund, we intend to limit the common
stock portion of each portfolio to 20 - 30 companies, with each company
representing no more than 5% of the portfolio at cost. As a result, any fund's
daily net asset value may be more volatile than a fund with greater portfolio
diversification.
In the event a fund experiences more redemptions than sales, we may be
required to sell securities in order to raise cash to meet the redemptions.
Such sales may cause capital gains to be realized for tax purposes. Any such
gains must be distributed to shareholders. (See "Taxes" below.)
Additional Fund-Specific Risks
Mid-Cap Growth Fund
The Mid-Cap Growth Fund invests in comparably smaller companies and may invest
in new companies or in the securities of companies in emerging industries. As
a result, the Mid-Cap Growth Fund may involve an above-average level of market
risk and should be only one part of an overall balanced investment program.
Balanced Fund
Because of its investments in bonds, an investment in the Balanced Fund
carries interest rate risk in that as interest rates rise, the value of the
bonds in its fund will generally fall. The greater the percentage of the
fund's investment in bonds, the greater its interest rate risk. On the other
hand, the more bonds the fund holds, the lesser its market risk.
While bond investing is often referred to as "fixed-income" investing, prices
of the underlying bonds fluctuate on a daily basis. Mere investment in
government or corporate bonds provides no assurance that you can be protected
from certain risks in bond investing (including increasing price fluctuation
as bond maturities become longer).
We may buy "callable bonds" for the Balanced Fund. This means that the issuer
can redeem the bond before maturity. An issuer may want to call a bond after
interest rates have gone down. If an issuer calls a bond we own, we would have
to reinvest the proceeds at a lower interest rate. Also, if the price we paid
for the bond was higher than the call price, the effect is the same as if the
Balanced Fund sold the bond at a loss.
Foresight Fund
In light of the Foresight Fund's policies of changing its allocation of stocks
and fixed-income securities, the fund's annual portfolio turnover rate may
exceed 100%. If the fund engages in short-term trading in order to achieve
its objectives, it may increase portfolio turnover and incur larger brokerage
commissions and other expenses than might otherwise be the case. This could
lower investment performance, especially if our assessment of market
performance is incorrect.
In addition, short-term trading may generate capital gains to the extent such
trading involves the sale of appreciated securities.
Management
The Advisor
We are Madison Mosaic, LLC (of the same address as the Trust), a wholly-owned
subsidiary of Madison Investment Advisors, Inc., 6411 Mineral Point Road,
Madison, Wisconsin ("Madison"). We manage approximately $200 million in
assets in the Mosaic family of mutual funds, which includes stock, bond and
money market portfolios. Madison, a registered investment advisory firm for
over 24 years, provides professional portfolio management services to a number
of clients and has approximately $3.5 billion under management.
We are responsible for the day-to-day administration of the Trust's
activities. Investment decisions regarding each of the Trust's funds can be
influenced in various manners by a number of individuals.
Generally, with the exception of the Foresight Fund, all management decisions
are the primary responsibility of Madison's investment policy committee. The
investment policy committee is made up of the top officers and managers of
Madison.
With regard to the Foresight Fund, the investment policy committee determines
the individual stocks and bonds that the fund will purchase. However,
decisions regarding what percentage of the fund's assets will be invested in
stock are primarily the responsibility of Frank E. Burgess. Mr. Burgess is
the President and founder of Madison where he has been managing all varieties
of securities portfolios since 1973. He has been making the Foresight Fund's
asset allocation decisions since its inception.
Compensation
Advisory Fee. We receive a fee for our services under our Investment Advisory
Agreement with the Trust. For the Trust's last fiscal year, the fee was
calculated as 0.75% of the average daily net assets of each fund. This fee is
deducted automatically from all accounts and is reflected in the daily price of
each fund.
Administrative and Services Fee. Under a separate Services Agreement with the
Trust, we provide or arrange for each fund to have all other operational and
other support services it needs. We receive a fee calculated as a percentage
of the average daily net assets of each fund for these services. For the
Trust's most recent fiscal year, this fee was set at the following rates:
Investors Fund -- 0.40%; Mid-Cap Growth Fund -- 0.50%; Balanced Fund -- 0.45%;
and Foresight Fund -- 0.50%. These fees are also deducted automatically from
all accounts and are reflected in the daily price of each fund.
Managing for the Year 2000
We are monitoring developments as they relate to the so-called "Millennium
Bug": the computer problem that may cause errors when the calendar reaches
January 1, 2000. The Millennium Bug may cause disruption in securities and
other markets that affect the national and global economy.
At Mosaic Funds, we are taking appropriate measures to help ensure that the
Millennium Bug does not interrupt our own portfolio and shareholder accounting
or our fund management operations. For example, we requested and received
written assurances of Year 2000 compliance from the mission critical companies
we use to manage fund records and information. Also, we plan to test all our
systems before the end of 1999 to help ensure that our operations will not be
compromised by the Millenium Bug.
Pricing of Fund Shares
The price of each fund share is based on its net asset value (or "NAV"). This
equals the total daily value of the respective fund's investments, minus its
expenses and liabilities, divided by the total number of outstanding shares.
Each fund's NAV is calculated at the close of the New York Stock Exchange each
day that it is open for trading.
We use the market value of the securities in the Fund in order to determine
NAV. We obtain the market value from one or more established pricing
services.
When you purchase or redeem shares, your transaction will be priced based on
the next calculation of NAV after your order is received in proper form. This
may be higher, lower or the same as the NAV from the previous day.
Dividends and Distributions
For the Investors, Mid-Cap Growth and Foresight Funds, each fund's net income,
if any, is declared as dividends and distributed to shareholders annually,
usually at the end of the calendar year. Any net realized capital gains will
also be paid to shareholders at least annually as capital gains distributions.
For the Balanced Fund, dividends are distributed quarterly and capital gains,
if any, are distributed annually.
Distributions will be paid in the form of additional shares credited to your
account, unless you elect in writing to receive dividend checks or payments by
electronic funds transfer. (Please refer to Mosaic's "Guide to Doing Business"
for more information about dividend distribution options.)
Taxes
Federal Tax Considerations
Each fund offered by the Trust will distribute to shareholders 100 percent of
its net income and net capital gains, if any. The capital gain distribution is
determined as of October 31 each year and distributed annually.
All dividend and capital gain distributions, if any, will be taxable to you.
In January each year, the Trust will send you an annual notice of dividends
and other distributions paid during the prior year. Capital gains
distributions can be taxed at different rates depending on the length of time
the securities were held.
Because the share price fluctuates for each fund, if you redeem shares in such
funds, you will create a capital gain or loss that has tax consequences. It
is your responsibility to calculate the cost basis of shares purchased. You
must retain all statements received from the Trust to maintain accurate
records of your investments.
An exchange of any fund's shares for shares of another fund will be
treated as a sale of the fund's shares. As a result, any gain on the
transaction may be subject to federal, state or local income tax.
If you do not provide a valid social security or tax identification number,
you may be subject to federal withholding at a rate of 31% of dividends, any
capital gain distributions and redemption proceeds. Any fine assessed against
the Trust that results from your failure to provide a valid social security or
tax identification number will be charged to your account.
State and Local
At the federal as well as state and local levels, dividend income and
capital gains are generally considered taxable income.
Financial Highlights
The following financial highlights table is intended to help you understand
each fund's financial performance for the past 5 years. Certain information
reflects financial results for a single fund share. The total returns in the
table represent the rate that an investor would have earned on an investment
in each fund (assuming reinvestment of all dividends and distributions). This
information for periods after March 31, 1997 has been audited by Deloitte &
Touche LLP, whose most current report, along with the Trust's financial
statements, are included in the annual report, which is available upon
request. Other independent auditors audited information for periods before
April 1, 1997.
<TABLE>
<CAPTION>
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 rate
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors Fund-2
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
1994 16.73 0.39 0.26 0.65 (0.39) (1.15) (1.54) 15.84 4.09 10,009 1.20 2.28 54
Balanced Fund-3
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
1994 22.36 0.72 (0.46) 0.26 (0.72) (1.74) (2.46) 20.16 1.31 10,588 1.34 3.03 76
Mid-Cap Growth Fund-4
1998 $9.25$(0.01) $0.64 $0.63 -- $(1.14) $(1.14) $8.74 6.81% $10,207 1.26% (0.09)% 88%
1997-8 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
1997-9 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
1996-9 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
1995-9 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
1994-9 19.97 0.17 2.13 2.30 (0.17) (0.99) (1.16) 21.11 11.57 34,931 1.45 0.75 7
Foresight Fund
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
1997-8 10.97 (0.01) (0.50) (0.51) -- -- -- 10.46 (4.60) 1,914 2.41-7 0.05-7 2
1997-9 9.86 0.01 1.10 1.11 -- -- -- 10.97 11.21 2,582 2.50 0.10 47
1996-9 8.50 0.04 1.39 1.43 (0.07) -- (0.07) 9.86 16.88 3,116 2.38 0.43 78
1995-9 12.51 0.02 (2.48) (2.46) (0.03) $(1.52) (1.55) 8.50 (22.20) 3,319 2.05 0.21 65
1994-10 10.00 (0.04) 2.55 2.51 -- -- -- 12.51 26.19-7 3,526 1.81-7(0.48)-7 83
</TABLE>
1 All data reflect share price adjustment due to fund merger on June 13,
1997.
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.
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 nine month period ended December 31, 1997.
9 For the years ended March 31.
10 For the period from April 16, 1993 (inception) to March 31, 1994.
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. 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 years ended March 31, 1996 and 1997.
<PAGE>
Mosaic Equity Trust has a Statement of Additional Information that includes
additional information about each Mosaic Equity Trust fund. Additional
information about each fund's investments is available in the Trust's annual
and semi-annual reports to shareholders. In the Trust's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the performance of the Fund during its last fiscal
year. The Statement of Additional Information and the Trust's annual and semi-
annual reports are available without charge by calling the Trust at the
shareholder service phone number below.
Information on how to purchase and sell shares in any Mosaic Fund is provided
in a separate brochure entitled, "Guide to Doing Business." Mosaic's "Guide
to Doing Business" is incorporated by reference into this prospectus.
Please call our shareholder service department if you have any questions about
any Mosaic Equity Trust fund or if you would like a copy of any written fund
information. Additional information is also available at the Mosaic Funds
Internet Investment Center at http://www.mosaicfunds.com.
Finally, you can review and copy information about Mosaic Equity Trust at the
SEC's Public Reference Room in Washington, DC. Information about the
operation of the Public Reference Room may be obtained by calling the SEC at
800-SEC-0330. The SEC maintains a Worldwide Web site that contains reports,
proxy information statements and other information regarding the Trust at
http://www.sec.gov. Copies of this information may also be obtained, upon
payment of a duplicating fee, by writing the SEC's Public Reference Section,
Washington, DC 20549-6009.
Telephone Numbers
Shareholder Service
Washington, DC area: 703 528-6500
Toll-free nationwide: 888 670-3600
Mosaic Tiles (24 hour automated information)
Toll-free nationwide: 800 336-3063
Mosaic Funds, 1655 Fort Myer Drive, 10th Floor, Arlington, Virginia
22209-3108
SEC File Number 811-3615
<PAGE>
Mosaic's Guide to Doing Business
The information disclosed in this Guide is part of and incorporated in, the
prospectuses of Mosaic Government Money Market, Mosaic Tax-Free Trust, Mosaic
Equity Trust, Mosaic Income Trust and Mosaic Focus Fund.
Mosaic Funds
http://www.mosaicfunds.com
<PAGE>
An Introduction to Mosaic Services
This brochure is your guide to taking advantage of the many transaction
choices available to Mosaic shareholders.
Mosaic's flagship fund, Mosaic Investors, was launched in 1978. Since that
time, Mosaic Funds has grown to provide a wide range of investment options,
including stock, bond, tax-free and money market funds.
If any of the information in this Guide prompts questions, please call a
Mosaic account executive. Our toll-free nationwide number is 888-670-3600 and
our local number in the Washington, DC area is 703-528-6500. Account
executives are available Monday through Friday, from 9:00 am to 6:00 p.m.
Eastern time.
Mosaic Tiles, our 24-hour automated information line, can be reached at 800-
336-3063. Visit our Internet Investment Center for additional information,
including daily share prices: http://www.mosaicfunds.com.
Table of Contents
Shareholder Account Transactions
Confirmations and Statements
Changes to an Account
How to Open An Account
Minimum Initial Investment
By Check
By Wire
By Exchange
How to Purchase Additional Shares
By Check
By Wire
By Automatic Investment Plan
How to Redeem Shares
By Telephone or By Mail
By Wire
By Exchange
By Customer Check
By Systematic Withdrawal Plan
Special Redemption Rules for IRAs
How to Close an Account
Other Fees
Returned Investment Check Fee
Minimum Balance
Broker Fees
Other Fees
Retirement Plans
Traditional IRAs
Roth IRAs
Conversion Roth IRAs
Education IRAs
Employer Plans
Shareholder Account Transactions Confirmations and Statements
Daily Transaction Confirmation.
All purchases and redemptions (unless systematic) are confirmed in writing
with a transaction confirmation. Transaction confirmations are usually mailed
on the same day a transaction is posted to your account. Therefore, you
should receive the confirmation in the mail within a few days of your
transaction.
Quarterly Statement.
Quarterly statements are mailed at the end of each calendar quarter. The
statements reflect account activity for the most recent quarter. At the end
of the calendar year, the statement will reflect account activity for the
entire year.
We strongly recommend that you retain all daily transaction confirmations
until you receive your quarterly statements. Likewise, you should keep all of
your quarterly statements until you receive your year-end statement showing
the activity for the entire year.
Changes to an Account
To make any changes to an account, we recommend that you call an account
executive to discuss the changes to be made and ask about any documentation
that you may need to provide us. Though some changes may be made by phone,
generally, in order to make any changes to an account, Mosaic may require a
written request signed by all of the shareholders with their signatures
guaranteed.
Telephone Transactions.
Mosaic Funds has a number of telephone transaction options. You can exchange
your investment among the funds in the family, request a redemption and obtain
account balance information by telephone. Mosaic will employ reasonable
security procedures to confirm that instructions communicated by telephone are
genuine; and if it does not, it may be liable for losses due to unauthorized
or fraudulent transactions. These procedures can include, among other things,
requiring one or more forms of personal identification prior to acting upon
your telephone instructions, providing written confirmations of your
transaction and recording all telephone conversation with shareholders.
Certain transactions, including some account registration changes, must be
authorized in writing.
Certificates.
Certificates will not be issued to represent shares in any Mosaic fund.
How to Open a New Account
Minimum Initial Investment
o $1,000 for a regular account
o $500 for an IRA account*
o $100 for an Education IRA Plus account*
*Not available to Mosaic Tax-Free Trust accounts.
By Check
Open your new account by completing an application and sending it along with a
check payable to Mosaic Funds to:
Mosaic Funds
1655 Fort Myer Drive, Suite 1000
Arlington, VA 22209-3108
By Wire
Please call Mosaic before you wire money to ensure proper and timely
credit to your account.
When you open a new account by wire, you must promptly send us a signed
application. We cannot send any redemption proceeds from your account until
we have your signed application in proper form. Please wire money to:
Star Bank, NA
Cinti/Trust
ABA # 0420-0001-3
Credit Mosaic Acct # 48038-8883
(Shareholder name and account number)
<I>Wire Fee.</I>
There may be a charge of $6.00 for processing incoming wires of less than
$1,000.
By Exchange
You may open a new account by exchange from an existing account when your new
account will have the same registration and tax identification number as the
existing account. A new account application is required only when the account
registration or tax identification number will be different from the
application for the existing account. Exchanges may only be made into funds
that are sold in the shareholder's state of residence.
How to Purchase Additional Shares
Purchase Price.
Share prices (net asset values or "NAV") are determined every day that the New
York Stock Exchange is open. Purchases are priced at the next share price
determined after the purchase request is received in proper form by Mosaic.
Purchases and Uncollected Funds.
Sometimes a shareholder investment check or electronic transfer is returned to
Mosaic Funds unpaid. In other words, we sometimes get checks that bounce.
Mosaic has a procedure to protect you and other shareholders from loss
resulting from these items. We may delay paying the proceeds of any redemption
for 10 days or more until we can be determine that the check or other deposit
item (including purchases by Electronic Funds Transfer "EFT") used for
purchase of the shares has cleared. Such deposit items are considered
"uncollected" until Mosaic determines that they have actually been paid by the
bank on which they were drawn.
Purchases made by federal funds wire or U.S. Treasury check are considered
collected when received and not subject to the 10 day hold. All purchases
earn dividends from the day after the day of credit to a shareholder's
account, even while not collected.
Minimum Subsequent Investment
Subsequent investments may be made for $50 or more.
By Check
Please make your check payable to Mosaic Funds. Mail it along with an
investment slip or, if you don't have one, please write your fund and account
number (and the name of the fund) on your check. Mail it to:
Mosaic Funds
PO Box 640393
Cincinnati, OH 45264-0393
By Wire
You should call Mosaic before you wire money to ensure proper and timely
credit.
Please wire money to:
Star Bank, NA
Cinti/Trust
ABA # 0420-0001-3
Credit Mosaic Acct # 48038-8883
(Shareholder name and account number)
<I>Wire Fee.</I>
There may be a charge of $6.00 for processing incoming wires of less than
$1,000.
By Automatic Investment Plan
You can elect to have a monthly (or less frequent) automatic investment plan.
Mosaic will automatically credit your Mosaic account and debit the bank
account you designate with the amount of your automatic investment. The
automatic investment is processed as an electronic funds transfer (EFT).
To establish an automatic investment plan, complete the appropriate section of
the application or call an Account Executive for information. The minimum
monthly amount for an EFT is $100. You may change the amount or discontinue
the automatic investment plan any time. Mosaic does not charge for this
service.
How to Redeem Shares
Redemption Price.
Share prices (net asset values or "NAVs") are determined every day that the
New York Stock Exchange is open. Redemptions are priced at the next share
price determined after the redemption request is received in proper form by
Mosaic.
Signature Guarantees.
To protect your investments, Mosaic requires signature guarantees for certain
redemptions.
What is a signature guarantee? It is a certification by a financial
institution that knows you and recognizes your signature that your signature
on a document is genuine.
A signature guarantee helps Mosaic ensure the identity of the authorized
shareholder(s). If you anticipate the need to redeem large amounts of money,
we encourage you to establish pre-authorized bank wire instructions on your
account. Redemptions by wire to a pre-authorized bank and account may be in
any amount and do not require a signature guarantee. You can pre-authorize
bank wire instructions by completing the appropriate section of a new
application or by calling an Account Executive to inquire about any necessary
documents. A signature guarantee may be required to add or change bank wire
instruction on an account.
A signature guarantee is required for any redemption when:
(1) the proceeds are to be greater than $50,000 (unless proceeds are being
wired to a pre-authorized bank and account),
(2) the proceeds are to be delivered to someone other than you, as shareholder
of record,
(3) the proceeds are to be delivered to an address other than your address of
record, or
(4) you made any change to your registration or account privileges within the
last 15 days.
Mosaic accepts signature guarantees from banks with FDIC insurance, certain
credit unions, trust companies, and members of a domestic stock exchange. A
guarantee from a notary public is not an acceptable signature guarantee.
Redemptions and Uncollected Funds.
We may delay paying the proceeds of any redemption for 10 days or more until
we can determine that the check or other deposit item (including purchases by
Electronic Funds Transfer "EFT") used for purchase of the shares has cleared.
Such deposit items are considered "uncollected," until Mosaic determines that
the bank on which they were drawn has actually paid them. Purchases made with
federal funds wire or U.S. Treasury check are considered collected when
received and not subject to the 10-day hold.
By Telephone or By Mail
Upon request by telephone or in writing, we will send a redemption check up to
$50,000 to you, the shareholder, at your address of record only. A redemption
request for more than $50,000 or for proceeds to be sent to anyone or anywhere
other than the shareholder at the address of record must be made in writing,
signed by all shareholders with their signatures guaranteed. See section
"Signature Guarantees" above. Redemption requests in proper form received by
mail and telephone are normally processed within one business day.
Stop Payment Fee.
To stop payment on a check issued by Mosaic, call our Shareholder Service
department immediately.
Normally, Mosaic Funds charges a fee of $28.00, or the cost of stop payment,
if greater, for stop payment requests on a check issued by Mosaic on behalf of
a shareholder. Certain documents may be required before such a request can be
processed.
By Wire
With one business day's notice, we can send funds by wire transfer to the bank
and account designated on the account application or by subsequent written
authorization. If you anticipate the need to redeem large amounts of money, we
encourage you to establish pre-authorized bank wire instructions on your
account. Redemptions by wire to a pre-authorized bank and account may be in
any amount and do not require a signature guarantee. You can pre-authorize
bank wire instructions by completing the appropriate section of a new
application or by calling an Account Executive to inquire about any necessary
documents. A signature guarantee may be required to add or change bank wire
instruction on an account.
Redemptions by wire can be arranged by calling the telephone numbers on the
back page of your prospectus and this Guide to Doing Business. Requests for
wire transfer must be made by 4:00 p.m. Eastern time the day before the wire
will be sent.
Wire Fee.
There will be a $10 fee for redemptions by wire to domestic banks. Wire
transfers sent to a foreign bank for any amount will be processed for a fee of
$30 or the cost of the wire if greater.
By Exchange
You can redeem shares from one Mosaic account and concurrently invest the
proceeds in another Mosaic account by telephone when your account registration
and tax identification number are the same. There is no charge for this
service.
By Customer Check
If you requested check writing privileges and submitted a signature card, you
can write checks in any amount payable to anyone. Check writing privileges
are not available from Mosaic Equity Trust or Mosaic Focus Fund accounts.
A confirmation statement showing the amount and number of each check you write
will be sent to you. Mosaic does not return canceled checks, but will provide
copies of specifically requested checks. Mosaic charges a fee of $1.00 per
copy for frequent requests or a request for numerous copies.
<I>Stop Payment Fee.</I>
To stop payment on a customer check that you wrote, call an Account Executive
immediately.
Mosaic will honor stop payment requests on unpaid checks that you wrote for a
fee of $5.00. Oral stop payment requests are effective for 14 calendar days.
Unless you confirm your oral stop order in writing, it will be canceled after
14 calendar days.
Written stop payment orders are effective for six months. You can extend
their effectiveness for another six months by written request.
Ordering Customer Checks.
When you complete a signature card for check writing privileges an initial
supply of preprinted checks will be sent free of charge. The cost of check
reorders (currently $2.00) and of printing special checks will be charged to
the shareholder's account.
By Systematic Withdrawal Plan
You can elect to have a systematic withdrawal plan whereby Mosaic will
automatically redeem shares in your Mosaic account and send the proceeds to a
designated recipient. To establish a systematic withdrawal plan, complete the
appropriate section of the application or call an Account Executive for
information. The minimum amount for a systematic withdrawal is $100.
Shareholders may change the amount or discontinue the systematic withdrawal
plan anytime.
Electronic Funds Transfer Systematic Withdrawal.
A systematic withdrawal can be processed as an electronic funds transfer,
commonly known as EFT, to credit a bank account or financial institution.
Check Systematic Withdrawal.
Or it can be processed as a check that is mailed to anyone you designate.
Special Redemption Rules for IRAs
Because IRA owners must make a written withholding election for income tax
purposes when they redeem shares from their IRA, you must request IRA
redemptions in writing. Before you think you may need to redeem funds from
your IRA at Mosaic, call us for a form that contains the required tax election
provisions.
How to Close an Account
To close an account, you should call an Account Executive and request that
your account be closed. You cannot close your account by writing a check.
When you close your account, shares will be redeemed at the next determined
net asset value. You can close your account by telephone, wire transfer or by
mail as explained above in the section "How To Redeem Shares."
Other Fees
Returned Investment Check Fee.
Your account will be charged (by redemption of shares) $10.00 for items
deposited for investment that are returned unpaid for any reason.
Minimum Balance.
Mosaic reserves the right to involuntarily redeem accounts with balances of
less than $700. Prior to closing any such account, Mosaic will give you 30
days written notice, during which time you may increase the balance to avoid
having the account closed.
Broker Fees.
If you purchase or redeem shares through a securities broker, your broker may
charge you a transaction fee. This charge is kept by the broker and not
transmitted to Mosaic Funds. However, you can engage in any transaction
directly with Mosaic Funds to avoid such charges.
Other Fees.
Mosaic reserves the right to impose additional charges, upon 30 days written
notice, to cover the costs of unusual transactions. Services for which
charges could be imposed include, but are not limited to, processing items
sent for special collection, international wire transfers, research and
processes for retrieval of documents or copies of documents.
Retirement Plans
All Mosaic Funds except Mosaic Tax-Free Trust can be used for retirement plan
investments, including IRAs.
<I>Annual IRA Fee. </I>
Mosaic currently charges an annual fee of $12 per shareholder (not per IRA
account) invested in an IRA of any type at Mosaic. You can prepay this fee.
Traditional IRAs
Traditional Individual Retirement Accounts ("Traditional IRAs") may be opened
with a reduced minimum investment of $500. Even though they may be
nondeductible or partially deductible, traditional IRA contributions up to the
allowable annual limits may be made, and the earnings on such contributions
will accumulate tax-free until distribution. Traditional IRA contributions
that you deducted from your income taxes and the earnings on such
contributions will be taxable when distributed.
Mosaic Funds will provide you with an IRA disclosure statement with an IRA
application. The disclosure statement explains various tax rules that apply
to traditional IRAs. A separate application is required for IRA accounts.
Roth IRAs
Roth IRA may be opened with a reduced minimum investment of $500. Roth IRAs
are nondeductible; however, the earnings on such contributions will accumulate
and are distributed tax-free as long as you meet the Roth IRA requirements.
Mosaic Funds will provide you with an IRA disclosure statement with an IRA
application. The disclosure statement explains various tax rules that apply
to Roth IRAs. A separate application is required for IRA accounts.
Conversion Roth IRAs
You may convert all or part of your Traditional IRA into a Roth IRA at Mosaic.
Please call an Account Executive for a Conversion Roth IRA form if you want to
accomplish this conversion. You will be required to pay taxes on some or all
of the amounts converted from a traditional IRA to a Conversion Roth IRA. You
should consult your tax advisor and your IRA disclosure statement before you
accomplish this conversion.
Education IRAs
Mosaic Funds offers Education IRAs. Eligible investors may establish
Education IRAs with a reduced minimum investment of $100 as long as the
shareholder establishes and maintains an "Education IRA Plus" automatic
investment plan of at least $100 monthly.
The "Education IRA Plus" is designed to invest $41.66 each month into an
Education IRA, with the remaining $58.34 (or more) invested in another account
established by the parent or guardian of the Education IRA beneficiary. As a
result, each Education IRA Plus that is open for a full year will reach, but
not exceed, the annual $500 Education IRA limit. If you establish an
Education IRA Plus program in the middle of the year, you can make an
additional investment during the year to the Education IRA to make up for any
months you missed before your automatic monthly investments started.
Mosaic Funds will provide ybo with an Education IRA disclosure document with
an Education IRA application. The disclosure document explains various tax
rules that apply to Education IRAs. A separate application is required for
Education IRA accounts.
<I>Education IRA Fee.</I> Mosaic does not charge an annual fee on Education
IRA Plus accounts that have an active automatic investment plan of at
least $100 monthly or on Education IRA accounts of $5,000 or greater. All
other Education IRA accounts may be charged an annual fee of $12 for each
Education IRA beneficiary (not for each Education IRA account). You can
prepay this fee.
Employer Plans
Mosaic also offers SEP IRAs, SIMPLEs, 401(k) and 403(b) retirement plans.
Further information on the retirement plans available through Mosaic,
including minimum investments, may be obtained by calling Mosaic's
shareholder service department.
<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 Focus 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
This guide does not constitute an offering by the distributor in any
jurisdiction in which such offering may not be lawfully made.
1655 Fort Myer Drive, 10th Floor
Arlington, Virginia 22209-3108
mosgtdb199
<PAGE>
Statement of Additional Information
Dated May l, 1999
For use with the prospectus of Mosaic Equity Trust
dated May 1, 1999
Mosaic Equity Trust
Investors Fund
Mid-Cap Growth Fund
Balanced Fund
Foresight Fund
1655 Fort Myer Drive
Arlington, VA 22209-3108
(888) 670-3600 or (703) 528-6500
This Statement of Additional Information is not a Prospectus. You should read
this Statement of Additional Information with the Prospectus of Mosaic Equity
Trust bearing the date indicated above (the "Prospectus"). You can
obtain a copy of the Prospectus from Mosaic Funds at the address and telephone
numbers shown above.
Audited Financial Statements for the Trust for the fiscal year ended December
31, 1998 appear in the Trust's Annual Report to shareholders for that period.
The Report is incorporated herein by reference. You can get a copy of the
Report at no charge by writing or calling Mosaic Funds at the address and
telephone numbers shown above.
Table of Contents
TRU.S.T HISTORY............................................... 2
DESCRIPTION OF THE TRU.S.T ("Investment Objectives"
and "Implementation of Investment Policies")............. 2
Classification.............................................. 2
Investment Strategies and Risks............................. 2
Fund Policies............................................... 8
Fundamental Policies........................................ 10
Temporary Defensive Position................................ 12
MANAGEMENT OF THE FUNDS ("Management")
Board of Trustees..................................... 12
Management Information................................ 12
Compensation.......................................... 13
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES......... 14
INVESTMENT ADVISORY AND OTHER SERVICES ("Fees and
Expenses of the Funds" and "Management")................. 14
BROKERAGE ALLOCATION AND OTHER PRACTICES.................... 17
CAPITAL STOCK AND OTHER SECURITIES.......................... 18
PURCHASE, REDEMPTION AND PRICING OF SHARES ("Guide
to Doing Business," "Pricing of Fund Shares"
and "Dividends and Distributions")........................ 19
TAXATION OF THE TRU.S.T ("Taxes").............................. 22
CALCULATION OF PERFORMANCE DATA ("Risk/Return Summary")...... 24
FINANCIAL STATEMENTS AND OTHER ADDITIONAL INFORMATION
("Financial Highlights") ................................. 26
Note: The items appearing in parentheses above are cross references to
sections in the Prospectus that correspond to the sections of this Statement
of Additional Information.
TRUST HISTORY
Mosaic Equity Trust ("the Trust") is organized as a Massachusetts business
trust under a Declaration of Trust dated November 18, 1982. Its has four
funds:
* the Investors Fund, continuing the operations of Bascom Hill Investors, Inc.
which merged into the Investors Fund in June 1997. Before the merger, it
was known as the Select Growth Fund;
* the Mid-Cap Growth Fund (known as the "Special Growth Fund" before May 12,
1997);
* the Balanced Fund, continuing the operations of Bascom Hill Balanced Fund,
Inc. which merged into what was then known as the Equity Income Fund in June
1997; and
* the Foresight Fund, which adopted its current investment objectives and
policies on January 1, 1998. Before then, it was an international emerging
markets fund called the Worldwide Growth Fund.
Throughout this Statement of Additional Information, we sometimes refer to the
Trust or to the funds when describing matters that affect all four funds.
The Trust was originally known as GIT Equity Trust. The Trust changed its
name in May 1997. The name change followed the 1996 change in the Trust's
advisor from Bankers Finance Investment Management Corp. to Madison Mosaic,
LLC.
DESCRIPTION OF THE TRUST
Classification
The Trust is a diversified open-end management investment company, commonly
known as a mutual fund.
The Trust issues four series of shares: Investors Fund shares, Mid-Cap Growth
Fund shares, Balanced Fund shares and Foresight Fund shares.
Investment Strategies and Risks
The Investors, Mid-Cap Growth and Foresight Funds seek to achieve their
investment objectives through diversified investments principally in equity
securities, while the Balanced Fund seeks to achieve its investment objective
through diversified investment in a combination of equity and fixed-income
securities. The Foresight Fund follows a flexible approach to investing
in equity securities in that the fund may be invested up to 100% in
fixed-income securities when we believe the equity markets may
decline.
The investment objectives of the Funds are described in the Prospectus. You
should also read the Prospectus for information about each funds' principal
investment strategies and risks.
In addition to the principal investment strategies described in the
Prospectus, the following describes additional investment strategies. Also
discussed are the risks associated with such strategies that you should
understand.
1. Covered Call Options.
We may write "covered call options" for each fund against any of its portfolio
securities. These options contracts are sold on a national options exchange
or in the over-the-counter market allowing the purchaser of the contract to
buy specified underlying securities at a specified price (the "strike price")
prior to a specified expiration date. Writing covered call options may
increase the fund's income, because a fee (the "premium") is received by the
fund for each option contract written. However, unless the option contract is
exercised, it has no other ultimate impact on the fund.
The premium received, plus the strike price of the option, will always be
greater than the value of the underlying securities at the time the option is
written.
When an option contract is "covered" it means that the Trust, as the
writer of the option contract, holds in its portfolio the underlying
securities described in the contract or securities convertible into such
securities. Thus, if the holder of the option decides to exercise his
purchase rights, the fund may sell at the strike price securities it
already holds in the portfolio or may obtain by conversion (rather than
risking having to first buy the securities in the open market at an
undetermined price). However, an option contract would not normally be
exercised unless the market price for the underlying securities
specified were greater than the strike price. Thus, when an option is
exercised, we will normally be (1) forced to sell portfolio securities
at a price below their current market value or (2) required to buy
a corresponding call contract at a price reflecting this price
differential to offset the call contract previously written (such an
offsetting call contract purchase is called a "closing purchase
transaction").
To the extent we write covered call options for the Fund, we will be foregoing
any opportunity for appreciation on the underlying securities above the
strike price during the period before the option contract expires. We may
close out call option contracts written at any time in closing purchase
transactions, but there is no assurance that we will be able to effect such
transactions at any particular time or at an acceptable price. We will select
all of the Fund's investments on a basis consistent with its investment
policies, notwithstanding the potential for additional premium income from
option writing.
Options and Futures Risks
If we misgauge market values or other economic factors when engaging in a
defensive strategy of investing in options or futures contracts, the fund may
be worse off than had it not employed the defensive strategy. While defensive
strategies can reduce the risk of loss, they can also reduce the opportunity
for gain since they offset favorable price movements. The use of defensive
strategies may result in a disadvantage to the fund if the it is not able to
purchase or sell a portfolio holding at an optimal time. This can happen if
it needs to cover its position or if there is no market for its position.
2. When-Issued Securities.
We may purchase and sell securities for any fund on a when-issued or delayed
delivery basis. When-issued and delayed delivery transactions happen when
securities are bought or sold with payment for and delivery of the securities
scheduled to take place at a date later than normal settlement.
Fluctuations in the value of securities we agree to buy or sell on a when-
issued basis may increase changes in a fund's value. This is because the
fluctuations in value must be added to changes in the values of securities
actually held in the Fund during the same period.
When engaging in when-issued or delayed delivery transactions, we must rely on
the seller or buyer to complete the transaction at the scheduled time. If the
other party fails to do so, we might lose an opportunity for a more
advantageous purchase or sale. If the transaction is completed, intervening
changes in market conditions or the issuer's financial condition could make it
less advantageous than investment alternatives available at the time of
settlement.
While we will only commit to security purchases we intend to complete on
behalf of a fund, we may sell any securities purchase contracts before
settlement of the transaction. If this occurs, the fund could realize a gain
or loss despite the fact that the original transaction was never completed.
When we purchase when-issued securities, we will take certain actions to
protect the Trust. We will maintain in a segregated account a combination of
designated liquid investments and cash sufficient in value to provide adequate
funds to complete the scheduled purchase.
3. Repurchase and Reverse Repurchase Agreement Transactions.
Repurchase Agreements. A repurchase agreement involves acquiring securities
from a financial institution, such as a bank or securities dealer, with the
right to resell the same securities to the financial institution on a future
date at a fixed price.
Repurchase agreements are a highly flexible medium of investment. This is
because they may be made for very short periods, including maturities of only
one day. Under the Investment Company Act of 1940, repurchase agreements are
considered loans and the securities involved may be viewed as collateral.
If we invest in repurchase agreements, the Trust could be subject to the risk
that the other party may not complete the scheduled repurchase. In that case,
we would be left holding securities we did not expect to retain in the Trust.
If those securities decline in price to a value of less than the amount due at
the scheduled time of repurchase, then the Trust could suffer a loss of
principal or interest.
In the event of insolvency or bankruptcy of the other party to a repurchase
agreement, the Trust could encounter restrictions on the exercise of its
rights under the repurchase agreement.
Reverse Repurchase Agreements. If any fund requires cash to meet redemption
requests and we determine that it would not be advantageous to sell portfolio
securities to meet those requests, then we may sell the fund's securities to
another investor with a simultaneous agreement to repurchase them. Such a
transaction is commonly called a "reverse repurchase agreement." It has the
practical effect of constituting a loan to the fund, the proceeds would be
used to meet cash requirements for redemption requests.
During the period of any reverse repurchase agreement, the affected fund would
recognize fluctuations in value of the underlying securities to the same
extent as if those securities were held by the fund outright. If we engage in
reverse repurchase agreement transactions for any fund, we will take steps to
protect the fund. We will maintain in a segregated account a combination of
designated liquid securities and cash that is sufficient in aggregate value to
provide adequate funds to complete the repurchase.
4. Loans of Fund Securities.
In certain circumstances, we may be able to earn additional income for the
Trust by loaning portfolio securities to a broker-dealer or financial
institution. We may make such loans only if cash or U.S. Government
securities, equal in value to 100% of the market value of the securities
loaned, are delivered to the Trust by the borrower and maintained in a
segregated account at full market value each business day.
During the term of any securities loan, the borrower must pay us all dividend
and interest income earned on the loaned securities. At the same time, we
will also be able to invest any cash portion of the collateral or otherwise
charge a fee for making the loan, thereby increasing the fund's overall
potential return.
If we make a loan of securities, the Trust would be exposed to the possibility
that the borrower of the securities might be unable to return them when
required. This would leave the Trust with the collateral maintained against
the loan. If the collateral were of insufficient value, the Trust could
suffer a loss.
Any loans by the Trust of portfolio securities will be made in
accordance with applicable guidelines established by the Securities and
Exchange Commission and under procedures adopted by the Trustees. In
determining whether to lend securities to a particular broker, dealer or other
financial institution, we will consider the creditworthiness of the
borrowing institution. We will not enter into any securities
lending agreement having a duration of greater than one year.
5. American Depository Receipts.
We may invest in American Depository Receipts ("ADRs"). These instruments are
negotiable receipts for a given number of shares of securities in a foreign
corporation. The foreign stock certificates remain in the custody of a
foreign bank. ADRs are issued by large commercial U.S. banks and traded in
U.S. markets or on U.S. exchanges. The ADR represents the depository bank's
guarantee that it holds the underlying securities.
We may invest in an ADR in lieu of trading in the underlying shares on a
foreign market. ADRs are subject to a degree of U.S. regulation and are
denominated in U.S. dollars.
6. Convertible Securities. In addition to other equity securities, we
may invest in "convertible securities." Securities convertible into
common stocks and securities having equity characteristics are bonds
that are convertible into a specific number of shares of the common
stock of the issuer either at any time or usually at a specific future
date at a determined price per share of common stock. Such bonds tend
to participate in a substantial portion of the price appreciation of the
underlying common stock. At the same time, they often enjoying some
protection against depreciation due to higher interest rates afforded most
bonds and because of the anticipation of the bond's maturity.
We anticipate that convertible securities will represent less than 25% of any
fund's total assets. All convertible bonds must meet the same quality
ratings required of corporate bonds, as described for commercial paper below.
The risks involved in investment in convertible securities are similar
to the risks of investment in the underlying common stocks.
7. Financial Futures Contracts.
We may use financial futures contracts, including contracts traded on a
regulated commodity market or exchange, to purchase or sell securities for the
Trust. A futures contract on a security is a binding contractual commitment
that, if held to maturity, will result in an obligation to make or accept
delivery, during a particular month, of securities having a standardized face
value and rate of return. By purchasing a futures contract, we will obligate
the Trust to make delivery of the security against payment of the agreed
price.
We will use financial futures contracts only when we intend to take or make
the required delivery of securities. However, if it is economically more
advantageous to do so, we may acquire or sell the same securities in the open
market instead and concurrently liquidate the corresponding futures position
by entering into another futures transaction that precisely offsets the
original futures position.
A financial futures contract for a purchase of securities is called a "long"
position, while a financial futures contract for a sale of securities is
called a "short" position. A short futures contract acts as a hedge against a
decline in the value of an investment. This is because it locks in a future
sale price for the securities specified for delivery against the contract. A
long futures contract acts to protect against a possible decline in interest
rates. Hedges may be implemented by futures transactions for either the
securities held or for comparable securities that are expected to parallel the
price movements of the securities being hedged.
Customarily, most futures contracts are liquidated prior to the required
settlement date by disposing of the contract. This transaction may result in
either a gain or loss. When part of a hedging transaction, this gain or loss
is expected to offset corresponding losses or gains on the hedged securities.
If we use financial futures contracts, we would do so as a defense, or hedge,
against anticipated interest rate changes and not for speculation. A futures
contract sale is intended to protect against an expected increase in interest
rates and a futures contract purchase is intended to offset the impact of an
interest rate decline. By means of futures transactions, we may arrange a
future purchase or sale of securities under terms fixed at the time the
futures contract is made.
The Trust will incur brokerage fees in connection with any futures
transactions. Also, the Trust will be required to deposit and maintain cash
or Government securities with brokers as margin to guarantee performance of
its futures obligations. When purchasing securities by means of futures
contracts, we take steps to protect the Trust. We will maintain in a
segregated account (including brokerage accounts used to maintain the margin
required by the contracts) a combination of liquid High Grade investments and
cash that is sufficient in aggregate value to provide adequate funds to
complete the purchase.
While we may use futures to reduce the risks of interest rate fluctuations,
futures trading itself entails certain other risks. Thus, while the Trust may
benefit from using financial futures contracts, unanticipated changes in
interest rates may result in a poorer overall performance than if the Fund
had not entered into any such contracts.
8. Foreign Securities. We may invest a portion of a Trust's assets in
securities of foreign issuers that are listed on a recognized domestic or
foreign exchange.
Foreign investments involve certain special considerations not typically
associated with domestic investments. Foreign investments may be denominated
in foreign currencies and may require the Fund to hold temporary foreign
currency bank deposits while transactions are completed. The Trust might
benefit from favorable currency exchange rate changes, but it could also be
affected adversely by changes in exchange rates. Other risks include currency
control regulations and costs incurred when converting between various
currencies. Furthermore, foreign issuers may not be subject to the uniform
accounting, auditing and financial reporting requirements applicable to
domestic issuers, and there may be less publicly available information about
such issuers.
In general, foreign securities markets have substantially less volume
than comparable domestic markets and therefore foreign investments may
be less liquid and more volatile in price than comparable domestic
investments. Fixed commissions in foreign securities markets may result
in higher commissions than for comparable domestic transactions, and
foreign markets may be subject to less governmental supervision and
regulation than their domestic counterparts.
Foreign securities transactions are subject to documentation and delayed
settlement risks arising from difficulties in international communications.
Moreover, foreign investments may be adversely affected by diplomatic,
political, social or economic circumstances or events in other countries,
including civil unrest, expropriation or nationalization, unanticipated taxes,
economic controls, and acts of war. Individual foreign economies may
also differ from the United States economy in such measures as growth,
productivity, inflation, national resources and balance of payments
position.
9. Securities with Variable Interest Rates.
Some of the securities we purchase for the Balanced Fund or the Foresight Fund
may carry variable interest rates. Securities with variable interest rates
normally are adjusted periodically to pay an interest rate that is a fixed
percentage of some base rate, such as the "prime" interest rate of a specified
bank. The rate adjustments may be specified either to occur on fixed dates,
such as the beginning of each calendar month, or to occur whenever the base
rate changes.
Certain of these variable rate securities may be payable by the issuer upon
demand of the holder, generally within seven days of the date of demand.
Others may have a fixed stated maturity with no demand feature. Variable rate
securities may offer higher yields than are available from shorter-term
securities. When interest rates generally are falling, the yields of variable
rate securities will tend to fall. Likewise, when rates are generally rising,
variable rate yields will tend to rise.
What are other risks of some variable rate securities? Variable rate
securities may not always be rated and may not have a readily available
secondary market. Our ability to obtain payment after the exercise of demand
rights could be adversely affected by subsequent events prior to repayment of
the investment at par. We will monitor on an ongoing basis the revenues and
liquidity of issuers of variable rate securities and the ability of such
issuers to pay principal and interest pursuant to any demand feature.
10. Short-Term Investments.
The "short-term investments" we may buy for the Trust are limited to the
following U.S. dollar denominated investments:
(1) U.S. Government securities;
(2) obligations of banks having total assets of $750 million or more;
(3) commercial paper having one of the top three quality ratings described
below;
(4) other corporate and foreign government obligations of investment
grade issued and sold publicly within the United States; and
(5) repurchase agreements secured by any of the foregoing securities.
"U.S. Government securities" are obligations issued or guaranteed by
the United States Government, its agencies and instrumentalities. U.S.
Government securities include direct obligations of the United States
issued by the U.S. Treasury, such as Treasury bills, notes and bonds.
Also included are obligations of the various federal agencies and
instrumentalities, such as the Government National Mortgage Association,
the Federal Farm Credit System, the Federal Home Loan Mortgage
Corporation and the Federal Home Loan Banks, the Small Business
Administration and the Student Loan Marketing Association. Except for
Treasury securities, all of which are full faith and credit obligations,
U.S. Government securities may either be agency securities backed by
the full faith and credit of the United States, such as those issued by
the Government National Mortgage Association, or only by the credit of
the particular federal agency or instrumentality which issues them, such
as those issued by the Federal Farm Credit System and the Federal Home
Loan Mortgage Corporation; some such agencies have borrowing authority
from the U.S. Treasury, while others do not.
Bank obligations eligible as short-term investments are certificates of
deposit ("CDs"), bankers acceptances ("BAs") and other obligations of
banks having total assets of $750 million or more (including assets of
affiliates). CDs are generally short-term interest-bearing negotiable
certificates issued by banks against funds deposited with the issuing
bank for a specified period of time. Such CDs may be marketable or may
be redeemable upon demand of the holder. Some redeemable CDs may have
penalties for early withdrawal, while others may not. Federally insured
bank deposits are presently limited to $100,000 of insurance per
depositor per bank, so the interest or principal of CDs may not be fully
insured if we purchase a CD greater than $100,000. BAs are time drafts drawn
against a business, often an importer, and "accepted" by a bank, which agrees
unconditionally to pay the draft on its maturity date. BAs are negotiable and
trade in the secondary market.
We will not invest in non-transferable time deposits that have penalties for
early withdrawal if such time deposits mature in more than seven calendar
days, and such time deposits maturing in two business days to seven calendar
days will be limited to 10% of the respective Fund's total assets.
"Commercial paper" describes the unsecured promissory notes issued by
major corporations to finance short-term credit needs. Commercial paper
is issued in maturities of nine months or less and usually on a discount
basis. Commercial paper may be rated A-1, P-1, A-2, P-2, A-3 or P-3
(see "Quality Ratings" at the end of this Statement of Additional Information).
Fund Policies
1. Derivatives
We may invest in financial futures contracts, repurchase agreements and
reverse repurchase agreements (as described in the Investment Strategies and
Risks section above). However, we have not purchased financial futures
contracts for the Trust or engaged in any reverse repurchase agreement
transaction for the Trust since assuming management of the Trust.
It is our policy never to invest in any other type of so-called "derivative"
securities (including, but not limited to, options on futures contracts,
swaptions, caps, floors and other synthetic securities). The Trustees must
provide advance approval for any deviation from this policy.
2. Options Contracts
We will not sell the securities covering an option contract written prior to
its expiration date unless we purchase substitute covering securities or
unless the contract written is first offset in a closing purchase transaction.
We will not write additional option contracts if more than 25% of the Fund's
assets would then be required to cover the options written.
3. Securities Loans.
If we loan any Trust securities, it is our policy to have the option to
terminate any loan at any time upon 7 days' notice to the borrower. The Trust
may pay fees for the placement, administration and custody of securities
loans, as appropriate.
4. Assets as Collateral
We will not pledge, mortgage or hypothecate in excess of 10% of any Trust's
net assets at market value.
5. Repurchase and Reverse Repurchase Agreements.
We require delivery of repurchase agreement collateral to the Fund's
Custodian. Alternatively, in the case of book-entry securities held by the
Federal Reserve System, we require that such collateral be registered in the
Custodian's name or in negotiable form. In the event of insolvency or
bankruptcy of the other party to a repurchase agreement, we could encounter
restrictions on the exercise of the Trust's rights under the repurchase
agreement. It is our policy to limit the financial institutions with which we
engage in repurchase agreements to banks, savings and loan associations and
securities dealers meeting financial responsibility standards prescribed in
guidelines adopted by the Trustees.
Our current operating policy is not to engage in reverse repurchase agreements
for any purpose, if reverse repurchase agreements in the aggregate would
exceed five percent of a Fund's total assets.
6. Bond Quality Classifications.
We only purchase "investment grade" securities for the Balanced and Foresight
Funds. Investment grade securities are those with the top four quality
ratings given by nationally recognized statistical rating organizations for
that type of security. (For example, a top rated long-term security will be
rated AAA by Standard & Poor's Corporation while a top rated short-term
security will be rated A-1 by Standard & Poor's.)
Investment grade securities can be further classified as either "High Grade"
or "Medium Grade." As used in this Statement of Additional Information, "High
Grade" securities include U.S. Government securities and those municipal
securities which are rated AAA, AA, A-1; SP-1 by Standard & Poor's
Corporation; Aaa, Aa, P-1, MIG-1, MIG-2, VMIG-1; or VMIG-2 by Moody's
Investors Service, Inc. "Medium Grade" municipal securities are those rated
A, BBB, A-2, A-3, SP-2 or SP-3 by Standard & Poor's; A, Baa, P-2, P-3, MIG-3;
or VMIG-3 by Moody's.
For unrated securities, we may make our own determinations of those
investments we classify as "High Grade" or "Medium Grade," as a
part of the exercise of our investment discretion. However, we make such
determinations by reference to the rating criteria followed by recognized
rating agencies. Our quality classification procedure is subject
to review by the Trustees.
Within the established quality parameters, we are free to select investments
for each fund in any quality rating mix we deem appropriate. We will base the
mix on our evaluation of the desirability of each investment in light of its
relative yield and credit characteristics.
7. Policy Review.
If, in the judgment of a majority of the Trustees of the Trust, it becomes
inadvisable to continue any Trust or individual fund policy, then the Trustees
may change any such policies without shareholder approval. Before any such
changes are made, you will receive 30 days' written notice.
Except for the fundamental investment limitations placed upon the
Trust's activities, the Trustees can review and change the other investment
policies and techniques employed by the Trust. In the event of some policy
changes, a change in the Trust's or a fund's name might be required. There
can be no assurance that the Trust's present objectives will be achieved.
Fundamental Policies
The Trust has a number of limitations on its investment activities designated
as "Fundamental Policies." These limitations are described below. By
designating these policies as fundamental, we cannot change them without a
majority vote of the Trust's shareholders.
1. Illiquid Investments.
With respect to any fund, we will not invest in securities for which there is
no readily available market if at the time of acquisition more than 15% of the
Fund's net assets would be invested in such securities.
2. Restricted Investments.
We will not invest more than 5% of the value of the total assets of a fund
(determined as of the date of purchase) in the securities of any one issuer
(other than securities issued or guaranteed by the United States Government or
any of its agencies or instrumentalities and excluding bank deposits). We
will not purchase any securities when, as a result, more than 10% of the
voting securities of the issuer would be held by a fund. For purposes of
these restrictions, the issuer is deemed to be the specific legal entity
having ultimate responsibility for payment of the obligations evidenced by the
security and whose assets and revenues principally back the security.
3. Seasoned Issuers.
We will not purchase any security when the entity responsible for repayment
has been in operation for less than three years if the purchase would result
in more than 5% of the total assets of a fund being invested in such security.
This restriction does not apply to any security that has a government
jurisdiction or instrumentality ultimately responsible for its repayment.
4. Industry Concentration.
In purchasing securities for any fund (other than obligations issued or
guaranteed by the United States Government or its agencies and
instrumentalities), we will limit such investments so that not more than 25%
of the assets of each fund is invested in any one industry.
5. Financial Futures Contracts.
We will not purchase or sell futures contracts for any fund if immediately
afterward the sum of the amount of margin deposits of the fund's existing
futures positions and premiums paid for related options would exceed 5% of the
market value of the fund's total assets.
6. Borrowing and Lending.
We will not obtain bank loans for any fund except for extraordinary or
emergency purposes. We will not borrow for the purpose of making investments
except as described in the next paragraph.
We may enter into reverse repurchase agreements for any fund in amounts up to
25% of the fund's total assets (including the proceeds of the reverse
repurchase transactions) for purposes of purchasing other securities. We will
not obtain loans or enter into reverse repurchase agreements in total amounts
exceeding one-third of total assets for any purpose.
We will not mortgage, pledge or hypothecate any assets to secure bank loans,
except in amounts up to 15% of a fund's net assets taken at cost, and only for
extraordinary or emergency purposes.
We will not loan more than two thirds of a fund's securities (calculated as a
percentage of gross assets). For any portfolio securities loaned, we will
require the fund to be provided collateral satisfactory to the Trustees. The
collateral must be continuously maintained in amounts equal to or greater than
the value of the securities loaned.
7. Other Prohibited Activities.
* The Trust may not act as an underwriter.
* We will not make short sales or maintain a short position except in limited
circumstances. Specifically, the applicable fund must own at least an equal
amount of securities (or securities convertible or exchangeable into such
securities). Furthermore, not more than 25% of a fund's net assets may be
held as collateral for such sales).
* We will not purchase securities on margin (except for customary credit used
in transaction clearance) for the Trust.
* We will not invest in oil, gas or other mineral exploration or development
programs.
* We will not invest in commodities. This prohibition does not prevent us
from using financial futures contracts to make purchases or sales of
securities, provided the transactions would otherwise be permitted under the
Trust's investment policies.
* We will not invest in real estate for any fund. This does not prevent us
from buying securities for any fund that are secured by real estate.
* We will not acquire shares of other investment companies for any fund. This
restriction does not apply to any investment in any money market mutual fund
or unit investment trust under limited circumstances: (1) such
investment by any one issuer cannot exceed 5% of net assets; (2) such
investments in the aggregate cannot exceed 10% of net assets. Also, this
restriction will not apply in connection with an investment company merger,
consolidation, acquisition or reorganization.
* We will not knowingly take any investment action that has the effect of
eliminating any fund's tax qualification as a registered investment
company under applicable provisions of the Internal Revenue Code.
* We will not purchase any security for purposes of exercising management
control of the issuer, except in connection with a merger, consolidation,
acquisition or reorganization of an investment company.
* We will not purchase or retain the securities of any issuer if, to our
knowledge, the holdings of those of the Trust's officers, Trustees and
officers of the Advisor who beneficially hold one-half percent or more of
such securities, together exceed 5% of such outstanding securities.
* We will only purchase put options or write call options (and purchase
offsetting call options in closing purchase transactions) if the put option
purchased or call option written is covered by fund securities, whether
directly or by conversion or exchange rights.
MANAGEMENT OF THE FUNDS
Board of Trustees.
Under the terms of the Declaration of Trust, which is governed by the laws of
the Commonwealth of Massachusetts, the Trustees are ultimately responsible for
the conduct of the Fund's affairs. As such, they meet at least quarterly to
review our operation and management of the Trust. In addition to the
information we provide the Trustees, they also meet with the Trust's
independent auditors at least annually to discuss any accounting or internal
control issues that the auditors may raise.
The Trustees serve indefinite terms of unlimited duration and they appoint
their own successors, provided that always at least two-thirds of the Trustees
have been elected by shareholders. The Declaration of Trust provides that a
Trustee may be removed at any special meeting of shareholders by a vote of
two-thirds of the Trust's outstanding shares.
Management Information.
Trustees and executive officers of the Trust and their principal occupations
during the past five years are shown below:
<TABLE>
<C> <C> <C>
Name, Address and Age Positions Held with Trust Principal Occupation During
Past 5 Years
Frank E. Burgess+ Trustee and Vice President President and Director of
6411 Mineral Point Road Madison Investment Advisors,
Madison, WI 53705 Inc.; Trustee and Vice
Born 08/04/1942 President of each Mosaic fund
and Vice President of Madison
Mosaic.
Thomas S. Kleppe* Trustee Trustee of each Mosaic fund;
7100 Derby Road Chairman of the Board of
Bethesda, MD 20817 Presidential Savings Bank, FSB;
Born 07/01/1919 Retired U.S. Congressman and
Presidential Cabinet Secretary.
James R. Imhoff, Jr.* Trustee Trustee of each Mosaic fund;
429 Gammon Place Chairman and CEO of First Weber
Madison, WI 53719 Group, Inc. (residential real
Trustee estate brokers) of Madison, WI.
Born 05/20/1944
Lorence D. Wheeler* Trustee Trustee of each Mosaic fund;
4905 W. 60th Avenue Pension Specialist for CUNA
Arvada, CO 80003 Mutual Group (insurance); formerly
Born 01/31/1938 President of Credit Union Benefits
Services, Inc. (a provider of
retirement plans and related
services for credit union
employees nationwide).
Katherine L. Frank+ President President of each Mosaic Fund;
6411 Mineral Point Road Vice Pres and Principal of Madison
Madison, WI 53705 Investment Advisors, Inc.;
Born 11/27/1960 President of Madison Mosaic.
Julia M. Nelson+,** Vice President Vice President and Chief
1655 Fort Myer Drive Operating Officer of each Mosaic
Arlington, VA 22209 fund; Principal of Mosaic Funds
Born 05/17/1958 Distributor, LLC; Vice
President of Madison Mosaic.
Jay R. Sekelsky+,** Vice President Vice Pres. of each Mosaic fund;
6411 Mineral Point Road Vice President and Principal of
Madison, WI 53705 Madison Investment Advisors, Inc;
Born 9/14/1959 Vice President of Madison Mosaic.
Christopher C. Berberet+,**Vice President Vice Pres. of each Mosaic fund;
6411 Mineral Point Road Vice President and Principal of
Madison, WI 53705 Madison Investment Advisors, Inc;
Born 07/31/1959 Vice President of Madison Mosaic.
W. Richard Mason+,** Secretary Secretary and General Counsel of
1655 Ft. Myer Drive each Mosaic fund; Principal of
Arlington, VA 22209 Mosaic Funds Distributor, LLC;
Born 05/13/1960 Genl. Counsel of Madison Mosaic.
</TABLE>
+An "interested person" of the Trust as the term is defined in the Investment
Company Act of 1940. Only those persons named in the above table of Trustees
and officers who are not interested persons of the Trust are eligible to be
compensated by the Trust.
*Member of the Audit Committee of the Trust. The Audit Committee is
responsible for reviewing the results of each audit of the Trust by its
independent auditors and for recommending the selection of independent
auditors for the coming year.
**Member of the Pricing Committee of the Trust. The Pricing Committee is
responsible for reviewing the accuracy of the Trust's daily net asset value
determinations. It reports to the Trustees at least quarterly and makes any
recommendations for pricing of Trust securities in the event pricing cannot be
determined in accordance with established written pricing procedures approved
by the Trustees.
Compensation.
The compensation of each non-interested Trustee has been fixed at $4,000 per
year, to be pro-rated according to the number of regularly scheduled meetings
each year. Four Board meetings are currently scheduled to take place each
year. In addition to such compensation, those Trustees who may be compensated
by the Trust will be reimbursed for any out-of-pocket expenses incurred by
them in connection with the affairs of the Trust, such as travel to any Board
meetings.
During the last fiscal year of the Trust, the Trustees were compensated as
follows:
Aggregate Total Compensation from
Compensation Trust and Fund Complex*
from Trust Paid to Trustees
Frank E. Burgess 0 0
Thomas S. Kleppe $4,000 $15,000
James R. Imhoff, Jr. $4,000 $15,000
Lorence D. Wheeler $4,000 $15,000
*The Mosaic Funds complex is comprised of 5 trusts with a total of 15 funds
and/or series.
Under the Declaration of Trust, the Trustees can be indemnified by the Trust
for certain matters. For example, they can be indemnified against all
liabilities and expenses reasonably incurred by them by virtue of their
service as Trustees. However, they will not be indemnified for liabilities
incurred by reason of their willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of their office.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of January 29, 1999, the shareholders of record that held five percent or
more of the Trust were: For the Investors Fund -- None; for the Mid-Cap Growth
Fund -- Charles Schwab & Co for the benefit of customers, 101 Montgomery
Street, San Francisco, CA 94104 (6%); for the Balanced Fund -- Norwest Bank,
Trustee for Fabco Equipment, 510 Marquette, Minneapolis, MN 55479 (26%); and
for the Foresight Fund -- D & M Maxwell, 7711 Midtown Road, Verona, WI 53593
(20%), Charles Schwab & Co for the benefit of customers, 101 Montgomery
Street, San Francisco, CA 94104 (9%) and Frank E. Burgess, 7686 Midtown Road,
Verona, WI 53593 (6%).
By virtue of owning more than 25% of the Balanced Fund, the shareholder
referenced above is considered to control the fund. The shareholder is a
national bank headquartered in Minnesota that is acting in a fiduciary
capacity for a corporate pension plan and is not otherwise related to us or
the Trust. It does not beneficially own the shares it controls.
As of January 29, 1999, the Frank E. Burgess, a Trustees and Vice President of
the Trust, owned 6% of the Foresight Fund and the remaining Trustees and
officers of the Trust directly or indirectly owned as a group less than 1% of
the outstanding shares of the remaining funds.
INVESTMENT ADVISORY AND OTHER SERVICES
1. Investment Advisors.
We are Madison Mosaic, LLC (known as Bankers Finance Advisors, LLC prior to
April 1998), 1655 Fort Myer Drive, Arlington, Virginia 22209-3108, the
investment advisor to the Trust.
We are a wholly owned subsidiary of Madison Investment Advisors, Inc.
("Madison"), 6411 Mineral Point Road, Madison, Wisconsin. Madison is a
registered investment advisor and has numerous advisory clients. Madison was
founded in 1973 and has no business affiliates other than those described in
the Prospectus and this Statement of Additional Information. Madison operates
Madison Scottsdale in Scottsdale, Arizona. We share our investment management
personnel with Madison.
Frank E. Burgess is President, Treasurer and Director of Madison. Mr. Burgess
owns a majority of the controlling interest of Madison, which, in turn, owns
and controls Madison Mosaic (see "Management Information" above).
Madison formed us in 1996 for the purpose of providing investment management
services to the Mosaic family of mutual funds, including the Trust. We
purchased the investment management assets of the former advisor to the Trust,
Bankers Finance Investment Management Corp., on July 31, 1996. As a result,
any references in this Statement of Additional Information and in the
Prospectus to advisory or management activities during periods prior to July
31, 1996 may refer to Bankers Finance Investment Management Corp. We also
serve as the investment advisor to Mosaic Income Trust, Mosaic Tax-Free Trust,
Mosaic Focus Fund Trust and Mosaic Government Money Market Trust.
For the fiscal year ending December 31, 1998, aggregate advisory fees paid
were as follows: Investors Fund - $202,302, Mid-Cap Growth Fund - $81,764,
Balanced Fund - $154,798 and Foresight Fund - $17,118.
During the short fiscal period ended December 31, 1997, aggregate advisory
fees paid were as follows: Mid-Cap Growth Fund - $67,925 and Worldwide Growth
Fund (predecessor to Foresight) - $9,602.
For the fiscal years ended March 31, 1997 and 1996, aggregate advisory fees
paid were as follows: Mid-Cap Growth Fund - $113,760 and $219,111,
respectively, and Worldwide Growth Fund (predecessor to Foresight) -- $14,176
and $14,252, respectively.
For the fiscal years ended December 31, 1997 and 1996, aggregate advisory fees
paid were as follows: Investors Fund -- $151,861 and $99,818, respectively,
and Balanced Fund -- $112,110 and $91,311, respectively.
2. Principal Underwriter.
Mosaic Funds Distributor, LLC, 1655 Ft. Myer Drive, Suite 1000, Arlington,
Virginia 22209, acts as the Trust's broker-dealer Distributor pursuant to a
Distribution Agreement dated July 30, 1998 between it and all Mosaic Funds.
The Distributor does not engage in underwriting activities and receives no
compensation for its services (see the "Distribution Agreement" section
below). The Distributor is a wholly owned subsidiary of Madison.
3. Services Provided by Each Investment Advisor and Fund Expenses Paid by
Third Parties.
Together, we (Madison Mosaic) and Madison are responsible for the investment
management of the Trust. We are authorized to execute each Fund's portfolio
transactions, to select the methods and firms with which such transactions are
executed, to oversee the Trust's operations, and otherwise to administer the
affairs of each Fund as we deem advisable.
We provide or arrange for all the Trust's required services through three main
contracts: An investment advisory agreement; a services agreement and a
distribution agreement. These contracts are described below. No Fund
expenses are paid by third parties.
Investment Advisory Contract.
The Investment Advisory Agreement between us and the Trust is subject to
annual review and approval by the Trustees, including a majority of those
Trustees who are not "interested persons," as defined in the Investment
Company Act of 1940. The agreement was approved by Trust shareholders for an
initial two year term at a special meeting of shareholders held in July 1996
and most recently renewed for another year last July.
The Investment Advisory Agreement may be terminated at any time, without
penalty, by the Trustees or by the vote of a majority of the outstanding
voting securities, or by us, upon sixty days' written notice to the other
party. We cannot assign the agreement and it will automatically terminate
upon any assignment.
Advisory Fee and Expense Limitations. For our services under the Investment
Advisory Agreement, we receive a fee calculated as 0.75% per year of average
daily net assets for each Fund. Such percentage does not decrease as net
assets increase. We can waive or reduce this fee during any period. We can
also reduce our fee on a permanent basis, without any requirement for consent
by the affected Fund or its shareholders, under such terms as we may
determine, by written notice to the Trust.
We agreed to be responsible for the fees and expenses of the Trustees and
officers of the Trust who are affiliated with us. We are also responsible for
the Trust's various promotional expenses (including distributing Prospectuses
to potential shareholders).
Payments to Third Parties. We can make payments out of our investment
advisory fee to other persons, including broker-dealers that make one or more
of the Trust's funds available to investors pursuant to any "no transaction
fee" network or service they provide. Under regulations of the Securities and
Exchange Commission, such arrangements are permissible in connection with
distributing investment company shares, if the payments of the shared fee
amounts are made out of our own resources.
Services Contract.
The Trust does not have any officers or employees who are paid directly by the
Trust. The Trust entered into a Services Agreement with us for operational
and other services required by its Funds. Such services may include:
* The functions of shareholder servicing agent and transfer agent.
* Bookkeeping and portfolio accounting.
* Handling telephone inquiries, cash withdrawals and other customer service
functions (including monitoring wire transfers).
* Providing appropriate supplies, equipment and ancillary services necessary
to conduct of its affairs.
* Calculating net asset value.
* Arranging for and paying the Custodian.
* Arranging for and paying the Trust's independent accountants.
* Arranging for and paying the Trust's legal counsel.
* Registering the Trust and its shares with the Securities and Exchange
Commission and notifying any applicable state securities commissions of its
sale in their jurisdiction.
* Printing and distributing prospectuses and periodic financial reports to
current shareholders.
* Trade association membership.
* Preparing shareholder reports, proxy materials and holding shareholder
meetings.
We provide all these services to each fund for a fee calculated as a
percentage of average daily net assets. This fee is reviewed and approved at
least annually by the Trustees and is compared with the fee paid by other
mutual funds of similar size and investment objective to determine if it is
reasonable. The current fees are stated in the Trust's Prospectus.
Our payment under the Services Agreement is in addition to and independent of
payments made pursuant to the Investment Advisory Agreement. We also provide
such services to Mosaic Income Trust, Mosaic Tax-Free Trust, Mosaic Focus Fund
Trust and Mosaic Government Money Market Trust.
The Trust remains responsible for any extraordinary or non-recurring expenses
it incurs.
Distribution Agreement.
Mosaic Funds Distributor, LLC, is the Distributor of Mosaic Funds. It
receives no compensation for its services under the Distribution Agreement.
The agreement has an initial term of two years beginning July 30, 1998 and may
continue in effect after that term only if approved annually by the Trustees,
including a majority of those who are not "interested persons," as defined in
the Investment Company Act of 1940.
The Distribution Agreement provides for distribution of the Trust's shares
without a sales charge to the investor. The Distributor may act as the
Trust's agent for any sales of its shares, but the Trust may also sell its
shares directly to any person. The Distributor makes each Fund's shares
continuously available to the general public in those States where it has
given notice that it will do so. However, the Distributor has no obligation
to purchase any of the Trust's shares.
The Distributor is wholly owned by Madison Investment Advisors, Inc. and we
share our personnel.
4. Other Service Providers.
We arrange for Trust securities to be held in custody by the Trust's
Custodian, for the Trust to be audited annually by independent accountants and
for the Trust and the Independent Trustees to be represented by outside
counsel. The Trust does not pay any separate fees for the services of these
third parties because the cost of these services is included in the advisory
and service fees we receive to manage the Trust.
Transfer Agent and Dividend-Paying Agent.
The Trust is registered with the Securities and Exchange Commission as the
transfer agent for its shares and acts as its own dividend-paying agent.
While transfer agent personnel and facilities are included among those
services provided to the Trust under the Services Agreement between us and the
Trust (see above), the Trust itself is ultimately responsible for its transfer
agent and dividend payment functions and for supervising those functions by
its officers.
Custodian.
Firstar Bank, N.A., 425 Walnut Steet, Cincinnati, OH 45202, is Custodian for
the cash and securities of the Trust. The Custodian maintains custody of the
Trust's cash and securities, handles its securities settlements and performs
transaction processing for cash receipts and disbursements in connection with
the purchase and sale of the Trust's shares.
From time to time, the Trust may appoint as Special Custodians certain banks,
trust companies, and firms that are members of the New York Stock Exchange and
trade for their own account in the types of securities purchased by the Trust.
Such Special Custodians will be used by the Trust only for the purpose of
providing custody and safekeeping services in limited circumstances. First,
custody would be of relatively short duration. Second, custody would be for
designated types of securities that, in our opinion or in the opinion of the
Trustees, would most suitably be held by such Special Custodians rather than
by the Custodian.
In the event any such Special Custodian is used, it shall serve the Trust only
in accordance with a written agreement with the Trust. The agreement must
meet the requirements of the Securities and Exchange Commission for mutual
fund custodians and be approved and reviewed at least annually by the
Trustees. If the Special Custodian is a securities dealer, it must deliver to
the Custodian its receipt for the safekeeping of each lot of securities
involved prior to payment by the Trust for such securities.
The Trust may also maintain deposit accounts for the handling of cash balances
of relatively short duration with various banks, as we or the Trustees deem
appropriate, to the extent permitted by the Investment Company Act of 1940.
Independent Public Accountant.
Deloitte & Touche LLP, 117 Campus Drive, Princeton, NJ 08540, serves as
independent public accountants to the Trust. The independent accountant
audits the Trust's annual reports and annually reviews the internal controls
of the Trust both as a mutual fund and as a transfer agent.
BROKERAGE ALLOCATION AND OTHER PRACTICES
We make all decisions regarding the purchase and sale of securities and
executing of these transactions. This includes selecting market, broker or
dealer and negotiating commissions. Our decisions are subject to review by
the Trustees.
During its most recent fiscal years the Trust paid aggregate brokerage
commissions as follows: $141,364 for the fiscal year ending December 31, 1998;
$103,868 for the period ending December 31, 1997; $132,000 for the fiscal year
ending March 31, 1997; and $156,680 for the fiscal year ending March 31, 1996.
In general, we seek to obtain prompt and reliable execution of orders at the
most favorable prices or yields when purchasing and selling Trust securities.
In determining the best price and execution, we may take into account a
dealer's operational and financial capabilities, the type of transaction
involved, the dealer's general relationship with us and any statistical,
research or other services the dealer provides us including payment
for our use of electronic research services. Such research and statistical
information regarding securities may be used by us for the benefit of all
members of the Mosaic family of mutual funds and by other clients of Madison.
Therefore, the Trust may not be our only client that benefits from our receipt
of research from the brokers and dealers the Trust uses for its trading needs.
However, as a policy matter, we will not "pay up" for any such research or
statistical information by paying higher commissions than we would pay from
any other institutional broker that did not provide such information. In the
unlikely event that any such non-price factors are taken into account and the
execution price paid is increased, it would only be in reasonable relation to
the benefit of such non-price factors to the Trust as we determine in good
faith.
Brokers or dealers who execute portfolio transactions for the Trust may also
sell its shares; however, any such sales will not be either a qualifying or
disqualifying factor in selecting brokers or dealers.
In addition to transactions on which we pay commissions, we may also engage in
portfolio transactions directly with a dealer acting as a principal. As a
result, the transaction will not involve payment of commissions. However, any
purchases from an underwriter or selling group could involve payments of fees
and concessions to the underwriting or selling group.
Affiliated Transactions. We can purchase portfolio securities through an
affiliated broker if we decide it is in the Trust's interests. If we trade
through an affiliated broker, we will observe four requirements: (1) the
transaction must be in the ordinary course of the broker's business; (2) the
transaction cannot involve a purchase from another broker or dealer; (3)
compensation to the broker in connection with the transaction cannot be in
excess of one percent of the cost of the securities purchased; and (4) the
terms to the Trust for purchasing the securities, including the cost of any
commissions, must be as favorable to the Trust as the terms concurrently
available from other sources. Any compensation paid in connection with such a
purchase will be in addition to fees payable to us under the Investment
Advisory Agreement.
We do not anticipate that any such purchases through affiliates will ever
represent a significant portion of the Trust's trading activity. No
such transactions are anticipated currently.
Portfolio Turnover. We do not expect to engage in short-term trading for the
any fund other than the Foresight Fund, but securities may be purchased and
sold in anticipation of market interest rate changes, as well as for other
reasons. We anticipate that annual portfolio turnover for these funds will
generally not exceed 100%, but actual turnover rate will not be a limiting
factor if we believe it is desirable to make purchases or sales. Risks and
considerations regarding portfolio turnover in the Foresight Fund are
described in the Prospectus.
CAPITAL STOCK AND OTHER SECURITIES
Summary.
The Declaration of Trust, dated November 18, 1982, was filed with the
Secretary of State of the Commonwealth of Massachusetts and the Clerk of the
City of Boston, Massachusetts. Under the terms of the Declaration of Trust,
the Trustees may issue an unlimited number of whole and fractional shares of
beneficial interest without par value for each series of shares they have
authorized. All shares issued will be fully paid and nonassessable and will
have no preemptive or conversion rights. Under Massachusetts law, the
shareholders, under certain circumstances, may be held personally liable for
the Trust's obligations. The Declaration of Trust, however, provides
indemnification out of Trust property of any shareholder held personally
liable for obligations of the Trust.
Shares and Classes of Shares.
Four series of the Trust's shares are currently authorized: Investors Fund
shares, Mid-Cap Growth Fund shares, Balanced Fund shares and Foresight Fund
shares. Each share has one vote and fractional shares have fractional votes.
Except as otherwise required by applicable regulations, any matter submitted
to a shareholder vote will be voted upon by all shareholders without regard to
series or class. For matters where the interests of separate series or
classes are not identical, the question will be voted on separately by each
affected series or class.
For example, shareholder votes relating to the election of Trustees or
approval of the Trust's selection of independent public accountants, as well
as any other matter in which the interests of all shareholders are identical,
will be voted on without regard to series or classes of shares. Matters that
affect a particular series or class of shares will not be voted upon by the
unaffected shareholders. On the other hand, required shareholder approval of
the Investment Advisory Agreement and any change in a Fund's fundamental
investment policies will be submitted to a separate vote by each series and
class of shares. When a matter is voted upon separately by more than one
series or class of shares, it may be approved with respect one series or class
even if it is rejected by the shareholders of another series or class.
The Trustees may authorize at any time creating additional series of shares.
The proceeds of the new series would be invested in separate, independently
managed portfolios. The Trustees can also authorize additional classes of
shares within any series (which would be used to distinguish among the rights
of different categories of shareholders, as might be required by future
regulations or other unforeseen circumstances). These classes can have such
preferences, privileges, limitations, and voting and dividend rights as the
Trustees may determine.
All money received by the Trust for shares of any additional series or class,
and all assets in which such consideration is invested, would belong to that
series or class (but classes may represent proportionate undivided interests
in a series), and would be subject to its own related liabilities.
Share Splits and Liquidation Rights.
The Trustees may divide or combine the Trust's shares into a greater or lesser
number of shares as long as the action will not change your proportionate
interest in the Trust. In the event of unforeseen gains or losses, the
Trustees might use this authority to maintain the price of Money Market shares
at $1.00. Any assets, income and expenses of the Trust that we cannot readily
identify as belonging to a particular series will be allocated by or under the
direction of the Trustees as they deem fair and equitable. Upon any
liquidation of the Trust or any of its Funds, you would be entitled to share
pro-rata in the liquidation proceeds available for distribution.
Shareholder Meetings.
Because there is no requirement for annual elections of Trustees, the Trust
does not anticipate having regular annual shareholder meetings. Shareholder
meetings will be called as necessary to consider questions requiring a
shareholder vote. The selection of the Trust's independent accountants will
be submitted to a ratification vote by the shareholders at any meetings held
by the Trust.
Any change in the terms of the Declaration of Trust (except for immaterial
changes like a name change), in the Investment Advisory Agreement (except for
reductions of the Advisor's fee) or in the fundamental investment limitations
of a Fund must be approved by a majority of the shareholders before it can
become effective.
Shareholder inquiries can be made to the offices of the Trust at the address
on the cover of this document.
Voting Rights.
The voting rights of shareholders are not cumulative. As a result, holders of
more than 50 percent of the shares voting can, if they choose, elect all
Trustees being selected, while the holders of the remaining shares would be
unable to elect any Trustees.
A "majority" is constituted by either 50 percent of all shares of the Fund or
67 percent of the shares voted at an annual meeting or special meeting of
shareholders at which at least 50 percent of the shares are present or
represented by proxy.
The Declaration of Trust provides that two-thirds of the holders of record of
the Trust's shares may remove a Trustee from office by votes cast in person or
by proxy at a meeting called for the purpose. A Trustee may also be removed
from office provided two-thirds of the holders of record of the Trust's shares
file declarations in writing with the Trust's Custodian. The Trustees are
required to promptly call a meeting of shareholders for the purpose of voting
on removal of a Trustee if requested to do so in writing by the record holders
of at least 10% of the Trust's outstanding shares.
Ten or more persons who have been shareholders for at least six months and who
hold shares with a total value of at least $25,000 (or 1% of the Trust's net
assets, if less) may require the Trust to assist a shareholder solicitation
with the purpose of calling a shareholder meeting. Such assistance could
include providing a shareholder mailing list or an estimate of the number of
shareholders and approximate cost of the shareholder mailing. In the latter
case, unless the Securities and Exchange Commission determines otherwise, the
shareholders desiring the solicitation may require the Trustees to undertake
the mailing if those shareholders provide the materials to be mailed and
assume the cost of the mailing.
Shareholder Liability.
Under Massachusetts law, the shareholders of an entity such as the Trust may,
under certain circumstances, be held personally liable for its obligations.
The Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust. The Declaration of Trust
provides for indemnification out of Trust property of any shareholder held
personally liable for the obligations of the Trust. The Declaration of Trust
also provides that the Trust shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the Trust and
satisfy any judgment against a shareholder under such a claim. The risk of a
shareholder incurring financial loss as a result of being a shareholder is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
Liability of Trustees and Others.
The Declaration of Trust provides that the officers and Trustees of the Trust
will not be liable for any neglect, wrongdoing, errors of judgment, or
mistakes of fact or law. However, they are not protected from liability
arising out of willful misfeasance, bad faith, gross negligence, or reckless
disregard of their duties to the Trust. Similar protection is provided to the
Advisor under the terms of the Investment Advisory Agreement and the Services
Agreement. In addition, protection from personal liability for the
obligations of the Trust itself, similar to that provided to shareholders, is
provided to all Trustees, officers, employees and agents of the Trust.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Mosaic's "Guide to Doing Business" describes the basic procedures for
investing in the Trust. The following information concerning other investment
procedures is presented to supplement the information contained in the Guide.
Offering Price.
We calculate the net asset value (NAV) of each fund every day the New York
Stock Exchange is open for trading. NAV is not calculated on New Year's Day,
the observance of Martin Luther King, Jr.'s Birthday, Presidents Day, Good
Friday, the observance of Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day, and on other days the New York Stock Exchange
is closed for trading. The NAV calculation for each fund is made at the time
of the close of the New York Stock Exchange.
NAV is determined by adding the value of all securities and other assets of a
fund, subtracting its liabilities and dividing the result by the total number
of outstanding shares of that fund. Since the Trust does not charge a "sales
load," its shares are both offered and redeemed at NAV.
Market Value. We determine the market value of each fund's securities in a
number of ways. If current market quotations are readily available for a
security, we value it at the mean between its bid and asked prices. For
securities for which current market quotations are not readily available, we
value them at their fair market value as determined in good faith by the
Trustees. We value securities having a remaining effective maturity of 60
days or less at amortized cost, which approximates market value.
Valuation of Covered Call Options. If we write call options for a fund, the
premium received is reflected on the Trust's books as a cash asset offset by a
deferred credit liability, so the premium has no impact on net asset value at
that time. The deferred credit amount is then marked to the market value of
the outstanding option contract daily. If the option contract is exercised,
the Trust reflects a sale of the appropriate securities (which may be either
the underlying portfolio securities or corresponding securities purchased in
the open market to deliver against the option contract) at a price equal to
the option strike price plus the option premium received. The deferred credit
liability is then extinguished. If the option expires without being exercised
(or if it is offset by a closing purchase transaction), then the Trust
recognizes the deferred credit as a gain (reduced by the cost of any closing
purchase transaction).
The Trustees authorized using independent pricing services to obtain daily
securities prices when required.
Shares in all funds are priced by rounding to the nearest penny. NAV of
shares in each fund is expected to fluctuate daily, and we will make no
attempt to stabilize the value of these shares.
Shareholder Service Policies.
Our policies concerning shareholder services are subject to change from time
to time. In the event of a material change, you will receive an updated
"Guide to Doing Business."
Minimum Initial Investment and Minimum Balance.
We can change the minimum account size below which an account is subject to a
monthly service charge or to involuntary closing. We may change the Trust's
minimum amount for subsequent investments by 30 days written notice. The
notice may be provided in Mosaic's quarterly shareholder newsletter.
Special Service Charges.
We may impose special service charges for services that are not regularly
afforded to shareholders. In order to do this, we must give 30 days written
notice to you or to shareholders in general. These special charges may
include, but are not limited to, fees for excessive exchange activity or
unusual historical account research and copying requests. Mosaic's standard
service charges are also subject to adjustment from time to time.
Share Certificates.
The Trust will not issue share certificates.
Subaccounting Services.
The Trust can provide subaccounting services to institutions. The Trustees
reserve the right to determine from time to time such guidelines as they deem
appropriate to govern the level of subaccounting service that can be provided
to individual institutions in differing circumstances. Normally, the Trust's
minimum initial investment to open an account will not apply to subaccounts.
However, we reserve the right to impose the same minimum initial investment
requirement that would apply to regular accounts if it seems that the cost of
carrying a particular subaccount or group of subaccounts is likely to be
excessive.
The Trust may provide and charge for subaccounting services that we determine
exceed those services that can be provided without charge. The availability
and cost of such additional services will be determined in each case by
negotiation between Mosaic and the parties requesting the additional services.
We are not presently aware of any such services for which a charge will be
imposed.
Crediting of Investments.
We can reject any investment in the Trust for any reason and may at any time
suspend all new investment in any fund. We may also, in our discretion,
decline to recognize an investment by funds wired for credit until such funds
are actually received by the Trust. This is because we may be responsible for
any losses resulting from changes in a fund's net asset value that happen
because we failed to receive funds from a shareholder to whom recognition for
investment was given in advance of receipt of payment.
If shares are purchased by wire and the wire is not received or if shares are
purchased by a check that, after deposit, is returned unpaid or proves
uncollectible, then the share purchase may be canceled immediately. The
shareholder that gave notice of the intended wire or submitted the check will
be held fully responsible for any losses incurred by us, the Trust or the
Distributor.
Foreign Checks.
Checks drawn on foreign banks will not be considered received until we have
actual receipt of payment in immediately available U.S. dollars after
submitting the check for collection. Collection of such checks through the
international banking system may require 30 days or more. We will pass the
cost of such collection to you if you invest using a foreign check.
Purchase Orders from Brokers.
An order to purchase shares that we receive from a securities broker will be
considered received in proper form for the net asset value per share
determined as of the close of business of the New York Stock Exchange on the
day of the order. However, the broker must assure us that it received the
order from its customer prior to that time.
Shareholders who invest in the Trust through a broker may be charged a
commission for handling the transaction. A shareholder may deal directly with
us anytime to avoid the fee.
Redemptions.
Redemptions will take place at the NAV for the day we receive the redemption
order in proper form. A redemption request may not be in proper form unless
we have a signed account application from you or your application is submitted
with the withdrawal request.
Unusual Circumstances Resulting in Suspension of Payments.
We will use our best efforts in normal circumstances to handle redemptions
timely. However, we may for any reason we deem sufficient suspend the right
of redemption or postpone payment for any shares in the Trust for any period
up to seven days.
Our sole responsibility with regard to redemptions shall be to process timely
redemption requests in proper form. Neither the Trust, its affiliates, nor
the Custodian can accept responsibility for any act or event which has the
effect of delaying or preventing timely transfers of payment to or from
shareholders.
Payment for shares in any fund may be suspended or delayed for more than seven
days only in limited circumstances. These occur (1) during any period when
the New York Stock Exchange is closed, other than customary weekend and
holiday closings; (2) when trading on such Exchange is restricted, as
determined by the Securities and Exchange Commission; or (3) during any period
when the Securities and Exchange Commission has by order permitted such
suspension.
Final Payments on Closed Accounts.
The redemption payment you receive when you close your account will normally
have all accrued dividends included. However, when an account is closed, we
may make payment by check of any final dividends declared but not yet paid to
the date of the redemption that closed the account. The payment may be made
on the same day such dividends are paid to other shareholders, rather than at
the time the account is closed.
Identification Required.
We reserve the right, when we deem such action necessary to protect the
interests of Trust shareholders, to refuse to honor redemption requests made
by anyone purporting to act with the authority of another person or on behalf
of a corporation or other legal entity. Each such individual must provide a
corporate resolution or other appropriate evidence of his or her authority or
satisfactory identity. We reserve the right to refuse any third party
redemption requests.
Payments in Kind.
If, in the opinion of the Trustees, extraordinary conditions exist which make
cash payments undesirable, payments for any shares redeemed may be made in
whole or in part in securities and other property of the Trust. However, the
Trust elected, pursuant to rules of the Securities and Exchange Commission, to
permit any shareholder of record to make redemptions wholly in cash to the
extent the shareholder's redemptions in any 90-day period do not exceed the
lesser of 1% of the aggregate net assets of the Trust or $250,000.
Any property of the Trust distributed to shareholders will be valued at fair
value. In disposing of any such property received from the Trust, a
shareholder might incur commission costs or other transaction costs. There is
no assurance that a shareholder attempting to dispose of any such property
would actually receive the full net asset value for it. Except as described
herein, however, we intend to pay for all share redemptions in cash.
Address Changes and Lost Shareholder Accounts.
It is your obligation to inform us of address changes.
We will exercise reasonable care to ascertain your correct address if you
become "lost" in our records. We will conduct two database searches for you
and use at least one information database service. The search will be
conducted at no cost to you. We will not, however, perform such searches if
your account is less than $25, if you are not a natural person or we receive
documentation that you are deceased. If we cannot locate you after such
procedures, your account may be escheated to the State of your last residence
in our records.
No interest will accrue on amounts represented by uncashed distribution or
redemption checks.
Dividend Payments.
Dividends are payable to you at the time they are determined. They are not
actually paid in the form of additional shares of the Trust credited to your
account until the end of each calendar month (or normally when the account is
closed, if sooner), unless you make a written election to receive dividends in
cash.
Substantially all of each fund's accumulated net income is declared as
dividends each business day. We calculate accumulated net income for each
fund just prior to calculating the fund's net asset value. The amount of such
net income reflects interest income (plus any original discount earned less
premium amortized) and expenses accrued by the fund since the previously
declared dividend.
Realized capital gains and losses and unrealized appreciation and depreciation
are reflected as changes in NAV per share of each fund. Premium on securities
purchased is amortized daily as a charge against income.
You will receive notice of payment of dividends quarterly. For tax purposes,
you will also receive an annual summary of dividends paid by your fund and the
extent to which they constitute capital gains dividends. If you purchase
shares as of a particular net asset value determination (the close of the New
York Stock Exchange) on a given day, you will not be considered a shareholder
of record for the dividend declaration made that day. If you withdraw as of
such determination you will be considered a shareholder of record with respect
to the shares withdrawn. A "business day" will be any day the New York Stock
Exchange is open for trading.
TAXATION OF THE TRUST
Federal Income Tax Requirements.
To qualify as a "regulated investment company" and avoid fund-level federal
income tax under the Internal Revenue Code (the "Code"), each fund must, among
other things, distribute its net income and net capital gains in the fiscal
year in which it is earned. The Code also requires each fund to distribute at
least 98% of undistributed net income for the calendar year and capital gains
determined as of October 31 each year before the calendar year-end in order to
avoid a 4% excise tax. We intend to distribute all taxable income to the
extent it is realized to avoid federal excise taxes.
To qualify as a regulated investment company under the Code, each fund must
also derive at least 90% of its gross income from dividends, interest, gains
from the sale or disposition of securities and certain other types of income.
Should any fund fail to qualify as a "regulated investment company" under the
Code, it would be taxed as a corporation with no allowable deduction for
distributing dividends.
Tax Consequences to Shareholders.
Federal Income Tax.
As a shareholder, you will be subject to federal income tax on any ordinary
net income and net capital gains realized by your fund and distributed to you
as regular or capital gains dividends. It does not matter whether the
dividend is distributed in cash or in the form of additional shares.
Generally, dividends declared by your fund during October, November or
December of any calendar year and paid to you before February 1 of the
following year will be treated for tax purposes as received in the year the
dividend was declared.
We can sell any securities held by a fund or which we have committed to
purchase. Since profits realized from such sales are classified as capital
gains, they would be subject to capital gains taxes.
Wash Sales.
If you receive dividends on shares held for less than six months, any loss on
the sale or exchange of such shares will be disallowed up to the value of such
dividends.
Dividends Received Deduction.
Since normally at least 65% of the Investors and Mid-Cap Growth Fund's assets
will be invested in equity securities, some of which may pay eligible
dividends, a substantial portion of the regular dividends paid by each Fund
is expected to be eligible for the dividends received deduction for
corporate shareholders (70% of dividends received). A percentage of the
dividends paid by the Balanced and Foresight Funds may also be eligible for
this deduction.
31% Withholding.
You may be subject to a 31% withholding requirement on transactions with the
Trust in certain circumstances: (1) if you fail to comply with the interest
and dividends "back-up" withholding provisions of the Code (by accurately
filing Form W-9 or its equivalent, when required); or (2) if the Internal
Revenue Service determined that you failed to properly report dividend or
interest income.
Personal Holding Company.
We reserve the right to involuntarily redeem shares if ownership has or may
become concentrated as to make a fund a personal holding company under the
Code.
CALCULATION OF PERFORMANCE DATA
So that you can compare the Trust's funds with similar funds (and to market
indices and other investment or savings vehicles) we calculate total returns
for each fund.
How are Total Returns Calculated? We calculate annual total return and
average annual total returns for the funds. Annual total return is based on
the change in share price from the beginning to the end of the year, plus any
distributions. We calculate average annual total return by finding the
compounded annual rate of return over a given period that would be required to
equal the return on an assumed initial investment in the fund to the ending
redeemable value this investment would have had at the end of the period.
This is done by taking into account the effect of the changes in the fund's
share price during the period and any recurring fees charged to shareholder
accounts. We also assume all dividends and other distributions are reinvested
at the applicable share price when they were paid.
We may also calculate non-annualized aggregate total returns by computing the
simple percentage change in value that equals an assumed initial investment in
a fund with its redeemable value at the end of a given period, determined in
the same manner as for average annual total return calculations.
Total return quotations as of the end of the Trust's most recent fiscal year
are presented in the Prospectus. The one year, five year average annualized
and ten year average annualized total returns for the funds as of December 31,
1998 are: Investors Fund -- 18.66%, 20.52% and 14.34%, respectively; Mid-Cap
Growth Fund --6.81%, 9.25% and 9.71%, respectively; Balanced Fund -- 15.15%,
15.64% and 11.75%, respectively; Foresight Fund -- 16.36% (one year total
return/total return since inception).
Performance Comparisons.
From time to time, in advertisements or in reports to shareholders and others,
we may compare the performance of the Trust to that of recognized market
indices. We may cite the ranking or performance of any fund as reported in
recognized national periodicals, financial newsletters, reference
publications, radio and television news broadcasts, or by independent
performance measurement firms.
We may also compare the performance of any Fund to that of other funds we
manage, if appropriate. We may compare our performance to that of other types
of investments, substantiated by representative indices and statistics for
those investments.
Market indices that we may use include those compiled by major securities
firms. Other indices compiled by securities rating or valuation services,
such as Standard and Poor's Corporation, may also be used. Periodicals that
report market averages and indices, performance information, and/or rankings
may include: The Wall Street Journal, Investors Business Daily, The New York
Times, The Washington Post, Barron's, Forbes Magazine, Money Magazine, Mutual
Funds Magazine, Kiplinger's Personal Finance and the Bank Rate Monitor.
Independent performance measurement firms include Lipper Analytical Services,
Inc. and Morningstar.
In addition, a variety of newsletters and reference publications provide
information on the performance of mutual funds, such as the Donoghue's Money
Fund Report. Financial news is broadcast by various radio and television
media.
We may also disclose the contents of each of the Trust's portfolios as
frequently as daily in advertisements and elsewhere.
Lipper Analytical Services, Inc. compares the performance of the Investors
Fund to mutual funds categorized as "Growth and Income funds"; the performance
of the Balanced Fund is compared to mutual funds categorized as "Balanced
funds"; the Mid-Cap Growth Fund is compared to mutual funds categorized as
"Mid-Cap Company Growth funds"; and the Foresight Fund is compared to
mutual funds categorized as "Equity Flexible funds." If any of these
categories should be changed by Lipper Analytical Services, Inc.,
we will make comparisons based on the revised categories.
Average Maturities. We do not calculate average maturity information for the
Trust.
FINANCIAL STATEMENTS AND OTHER ADDITIONAL INFORMATION
Audited Financial Statements for the Trust, together with the Report of
Deloitte & Touche LLP, Independent Auditors for the fiscal year ended
December 31, 1998, appear in the Trust's Annual Report to shareholders for
the fiscal year ended December 31, 1998. That report is incorporated herein
by reference. The Report was filed with the Securities and Exchange
Commission.
Statements contained in this Statement of Additional Information and in the
Prospectus regarding the contents of contracts and other documents are not
necessarily complete. You should refer to the documents themselves for
definitive information on their provisions. We will supply copies of the
Trust's important documents and contracts to interested persons upon request,
or you can obtain them from the SEC's Internet site at www.sec.gov.
The Trust registered with the Securities and Exchange Commission in
Washington, DC, by the filing a Registration Statement. The Registration
Statement contains certain additional information not included in the
Prospectus or this Statement of Additional Information. This information is
available from the SEC or its Internet site. (See the back cover of the
Prospectus for information about obtaining this information.)
