Mosaic Income Trust
High Yield Fund
Government Fund
Annual Report
March 31, 1997
<PAGE>
Mosaic Income Trust
Management's Discussion of Fund Performance
May 15, 1997
Dear Shareholder,
The fiscal year ended March 31, 1997 was yet another
volatile year in the U.S. fixed income markets. The most
commonly quoted bond market bell wether, the 30 year
Treasury Bond, began the fiscal year at a yield of 6.64% and
ended the year at a yield of 7.10% for a net increase in its
rate, point to point, of 46 basis points. This relatively
modest increase by historical standards masks a much larger
and erratic trading pattern which prevailed during this
period. At one point, the 30 year Treasury's yield
approached 7.25% on an intra-day basis, and fell to as low
as 6.35% during last summer. This range of about 90 basis
points in yield (and about 11% in price terms) is in sharp
contrast to the relative quiet observed in very short-term
instruments. Yields on the government's 91 day Treasury
Bill moved in only a 40 basis point range -- less than half
of the yield volatility witnessed in the longer maturity
bond.
The lack of movement in short-term interest rates was
largely due to the absence of the Federal Reserve from the
interest rate markets during the year. It was not until
late in March of 1997 that the Fed reacted to buoyant
economic conditions and perceived inflation pressures by
raising the Fed Funds rate by 25 basis points to 5.50%.
Despite the Fed's absence, longer maturity securities
reacted sharply to the ebb and flow of economic news, mainly
evidenced by growing employment, a lower unemployment rate,
and signs of accelerating wages. Indeed, as the year
progressed, the U.S. unemployment rate fell from 5.6% in
March of 1996 to 5.2% in March of 1997 as an average of
225,000 non-farm jobs were added monthly. Average hourly
earnings, a widely watched gauge of labor costs, rose 4% for
the year ended March 31, up from the 3% readings of a year
ago.
During the fiscal year ended March 31, 1997, the Government
Fund returned 2.29%. This return represents the net of the
$0.4983 of income dividends paid during the period and a
$0.27 decline in the fund's net asset value per share due to
the price erosion caused by rising interest rates. As the
fiscal year began, the fund was positioned at a somewhat
longer average maturity to take advantage of falling
interest rates. When it became apparent that rates were not
poised to fall as expected, the average maturity was
reduced, beginning at mid-year, to minimize the price
erosion caused by rising interest rates. More "yield-
oriented" securities were introduced into the fund to
enhance its income-earning power, including debentures
issued by the Federal National Mortgage Association ("Fannie
Mae") and mortgage-backed securities issued by the Federal
Home Loan Mortgage Corporation ("Freddie Mac"). As a result
of these strategies, the 30-day yield of the Government Fund
increased from 4.62% at the outset of the year to 5.88% at
year's end.
A robust economy and resulting strong corporate
profitability and balance sheet enhancement led the high
yield market to another year of strong invesment results.
For the fiscal year ended March 31, 1997, the High Yield
Fund (formerly known as GIT Maximum Income Portfolio)
generated a total return of 6.1%. Over the past several
months we have been working to gently restructure the
portfolio to increase the overall quality of the portfolio,
while maintaining an attractive yield. Although the High
Yield Fund remains well diversified along economic sectors,
we have emphasized media and consumer companies. Some new
issues we have added over the past few months include
American Standard, Digital Equipment, Federated Department
Stores, Owens-Illinois and Westinghouse.
Looking ahead, the issues of a strong economy and tight
labor markets will continue to be foremost in investor's
minds as they gauge the Fed's future intentions. For many
reasons, however, we doubt that this course of monetary
tightening will be as severe as the 1994-1995 experience,
when short-term interest rates effectively doubled before
the Fed was finished. First, we begin this tightening with
interest rates at a much higher level than the 3% Fed Funds
rate of early 1994. Second, by most measures other than
wages, inflation has remained remarkably tame, and will
likely continue to surprise on the weak side. And finally,
with market interest rates already providing an historically
big "cushion" against future inflation, so-called "real
yields" are quite attractive at today's levels. Given this
generally favorable backdrop of good value and potentially
improving fundamentals, we are optimistic on the prospects
for the Income Trust funds in the period ahead. We
appreciate your confidence in the Mosaic Income Trust
(formerly known as GIT Income Trust), and pledge our
diligence in meeting the challenges of the year ahead.
Sincerely,
(signature)
Christopher C. Berberet, CFA
Vice President
(signature)
Jay R. Sekelsky, CFA
Vice President
Comparison in Changes in the Value of a $10,000 Investment
Depicted herein is a line graph comparing the performance of the
High Yield Fund with the Lehman Aggregate Bond Index and
the Lehman High Yield Corporate Bond Index and a line graph
comparing the performance of the Government Fund with the
Lehman Aggregrate Bond Index. The comparison, in tabular
format, is as follows:
Lehman Aggregate Lehman High Yield Government High Yield
Bond Index Composite Bond Index Fund Fund
3/31/87 $10,000 $10,000 $10,000 $10,000
3/31/88 10,488 10,352 10,147 9,694
3/31/89 11,029 11,165 10,674 10,381
3/31/90 12,391 10,942 11,504 10,249
3/31/91 13,991 12,142 12,720 10,855
3/31/92 15,585 15,792 13,844 12,818
3/31/93 17,657 18,055 15,777 14,444
3/31/94 18,076 20,330 16,085 15,295
3/31/95 18,978 20,905 16,514 15,869
3/31/96 21,024 23,930 17,598 17,824
3/31/97 22,056 26,475 18,001 18,904
Average Annual Total Return
High Yield Fund, 1 year - 6.06%, 5 years - 8.08%, 10 years - 6.57%
Government Fund, 1 year - 2.29%, 5 years - 5.39%, 10 years - 6.05%
Past performance is not predictive of future performance.
INSERT CHART AND DATA
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Board of Trustees and Shareholders, High Yield Fund
(formerly known as Maximum Income Portfolio) and Government
Fund, Mosaic Income Trust (formerly known as GIT Income
Trust):
We have audited the accompanying statements of assets and
liabilities, including the portfolios of investments, of
Mosaic Income Trust (comprised of the High Yield and
Government Funds), as of March 31, 1997, and the related
statements of operations for the year then ended, the
statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These
financial statements and financial highlights are the
responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements and financial
highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation
of securities owned as of March 31, 1997, by correspondence
with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of each of the respective
funds constituting Mosaic Income Trust at March 31, 1997,
the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the
period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with
generally accepted accounting principles.
(signature)
Ernst & Young
Washington, DC
May 2, 1997
<PAGE>
High Yield Fund
Portfolio of Investments - March 31, 1997
Credit Rating* Principal
Moody's S&P Amount Value
CORPORATE DEBT SECURITIES: 88.0% of Net Assets
CABLE TELEVISION: 9.2%
B2 B Cablevision Systems Corporation,
Senior Subordinated Debentures,
9.875%, 2/15/13 $200,000 $190,000
Ba1 BBB- TCI Communications Inc., Senior
Notes, 8%, 8/1/05 200,000 194,874
B1 BB Viacom, Inc., Subordinate
Debentures, 8%, 7/7/06 200,000 186,000
CHEMICALS: 3.2%
B3 B Harris Chemical North America,
Senior Subordinate Notes,
10.75%, 10/15/03 200,000 198,000
COMPUTERS: 2.4%
Ba1 BB+ Digital Equipment Corporation, Debentures,
8.625%, 11/1/12 150,000 147,487
CONSUMER PRODUCTS: 1.7%
B3 B- Revlon Consumer Products, Senior Subordinate
Notes, 10.5%, 2/15/03 100,000 105,500
FINANCIAL SERVICES: 1.7%
B3 B- UCC Investors, Senior Subordinate
Notes, 11%, 5/1/03 100,000 106,000
FOREST AND PAPER PRODUCTS: 7.3%
B1 B+ Container Corporation, 9.75%,
4/1/03 100,000 104,000
B2 B Fort Howard Corporation, Senior Subordinated
Notes, 9%, 2/1/06 250,000 252,500
B1 BB- Stone Container, 1st Mortgage
Notes, 10.75%, 10/1/02 100,000 98,000
HOMEBUILDING: 3.2%
Ba3 B+ Continental Homes Holding Corporation,
10%, 4/15/06 100,000 103,500
B2 B NVR Inc., Senior Notes, 11%,
4/15/03 100,000 106,250
HOSPITAL MANAGEMENT: 3.4%
Ba3 B+ Tenet Healthcare Corporation, Senior Subordinated
Notes, 10.125%, 3/1/05 200,000 214,000
HOTELS: 2.4%
Ba2 BB Prime Hospitality Corporation, 1st Mortgage,
9.25%, 1/15/06 150,000 152,625
INDUSTRIAL: 3.2%
Ba1 BB Westinghouse Electric Corporation, Debentures,
8.625%, 8/1/12 200,000 200,400
MANUFACTURING: 8.9%
B1 B+ American Standard Co., Senior Subordinate Notes,
9.875%, 6/1/01 200,000 208,000
B1 NR Exide Corporation, Senior Notes, 10%,
4/15/05 100,000 100,000
B2 B+ Owens-Illinois Inc., Senior Subordinate Notes,
9.75%, 8/15/04 200,000 210,000
Ba3 BB- Shuller International Group, Senior Notes,
10.875%, 12/15/04 35,000 37,975
OIL & GAS: 9.9%
Ba3 BB Clark Oil & Refining Corporation, Senior Notes,
9.5%, 9/15/04 200,000 203,500
Ba1 BB Oryx Energy Co., Notes, 8.125%,
10/15/05 200,000 199,548
B2 BB- TransTexas Gas Group, Senior Notes, 11.5%,
6/15/02 200,000 219,000
RADIO & TV BROADCASTING: 7.6%
B3 B- Chancellor Radio Co., Senior Subordinated Notes,
12.5%, 10/1/04 188,000 206,800
B3 B- SFX Broadcasting, Inc., Senior Subordinated
Notes, 11.375%, 10/1/00 250,000 266,875
RETAIL-FOOD: 8.3%
B3 B- Bruno's, Inc., Senior Subordinated Notes, 10.5%,
8/1/05 100,000 101,500
B3 B- Smith's Food & Drug Centers, Senior Subordinate
Notes, 11.25%, 5/15/07 200,000 219,000
Caa NR Super Markets General Holding Co., Subordinated
Notes, 11.625%, 6/15/02 200,000 199,500
RETAIL-DEPARTMENT STORES: 3.3%
Ba1 BB- Federated Department Stores, Senior Notes,
8.5%, 6/15/03 200,000 206,570
RETAIL-SPECIALTY STORES: 2.1%
Ba2 BB- Michael's Stores, Senior Notes,
10.875%, 6/15/06 131,000 134,030
TELECOMMUNICATIONS: 6.9%
Caa CCC+ CAI Wireless Systems, Inc., Senior
Notes, 12.25%, 9/15/02 256,000 122,880
B3 B- Mobile Telecommunication Technologies
Corporation, Senior
Notes, 13.5%, 12/15/02 100,000 94,000
B2 B+ Sprint Spectrum, L.P., Senior Notes,
11%, 8/15/06 200,000 212,000
TEXTILES-APPAREL: 3.2%
B2 B+ WestPoint Stevens, Inc., Senior
Subordinate Debentures, 9.375%,
12/15/05 200,000 200,000
TOTAL CORPORATE DEBT SECURITIES
(Cost $5,621,422) 5,500,314
REPURCHASE AGREEMENT: 5.3% of Net Assets
With Donaldson, Lufkin & Jenrette Securities Corporation
issued 3/31/97 at 6.25%, due 4/1/97 collaterized by $342,998
in United States Treasury Notes due 7/31/97. Total proceeds
at maturity are $333,058. (Cost $333,000) 333,000
TOTAL INVESTMENTS (Cost $5,954,422)+ $ 5,833,314
Government Fund
Portfolio of Investments - March 31, 1997
Credit Rating* Principal
Moody's S&P Amount Value
U.S. GOVERNMENT OBLIGATIONS: 83.8% of Net Assets
Aaa AAA United States Treasury Bonds,
6.875%, 8/15/25 $ 750,000 $ 720,705
Aaa AAA United States Treasury Notes,
6.75%, 5/31/97 900,000 901,404
Aaa AAA United States Treasury Notes,
7.125%, 2/29/00 600,000 608,064
Aaa AAA United States Treasury Notes,
7.75%, 2/15/01 700,000 724,388
Aaa AAA United States Treasury Notes,
6.5%, 8/15/05 675,000 656,329
Aaa AAA United States Treasury Notes,
5.875%, 11/15/05 775,000 721,843
Aaa AAA United States Treasury Notes,
5.625%, 2/15/06 250,000 228,360
Aaa AAA United States Treasury Notes,
6.5%, 10/15/06 300,000 290,673
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $5,050,806) 4,851,766
U.S. GOVERNMENT AGENCY OBLIGATIONS: 11.7% of Net Assets
Aaa AAA Federal Home Loan Mortgage Corporation Mortgage
Pool, 6.5%, 3/1/09 382,263 370,504
Aaa AAA Federal National Mortgage Association, 6.65%,
3/8/06 325,000 307,886
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $686,956) 678,390
REPURCHASE AGREEMENT: 3.3% of Net Assets
With Donaldson, Lufkin & Jenrette Securities Corporation
issued 3/31/97 at 6.25%, due 4/1/97, collateralized by
$194,674 in United States Treasury Notes due 7/31/97.
Proceeds at maturity are $189,033.
(Cost $189,000) 189,000
TOTAL INVESTMENTS (Cost $5,926,762)+ $ 5,719,156
Notes to Portfolios of Investments:
* Unaudited
+ Aggregate cost for federal income tax purposes and net
unrealized depreciation of investments as follows:
High Yield Government
Fund Fund
Aggregate cost $ 5,954,422 $ 5,926,762
Gross unrealized appreciation $ 69,036 $ 32,778
Gross unrealized depreciation (190,144) (240,384)
Net unrealized depreciation $ (121,108) $ (207,606)
Moody's Moody's Investors Services, Inc.
S&P Standard & Poor's Corporation
The Notes to Financial Statements are an integral part of
these statements.
<PAGE>
Statements of Assets and Liabilities
March 31, 1997
High Yield Government
Fund Fund
ASSETS
Investments, at cost $5,954,422 $5,926,762
Investments, at value (Notes 1 and 2)
Investment securities $5,500,314 $5,530,156
Repurchase agreement 333,000 189,000
Total investments 5,833,314 5,719,156
Cash 51 230
Receivables
Investment securities sold 262,500 --
Interest 169,913 74,179
Share subscriptions receivable 2,000 6,250
Total Assets 6,267,778 5,799,815
LIABILITIES
Payables
Capital shares redeemed 3,488 --
Dividends 7,265 1,869
Shares reserved for subscription 2,000 6,250
Other liabilities 1,164 71
Total liabilities 13,917 8,190
NET ASSETS (Note 5) $6,253,861 $5,791,625
CAPITAL SHARES OUTSTANDING 892,213 613,881
NET ASSET VALUE PER SHARE $ 7.009 $ 9.434
Statements of Operations
For the Year Ended March 31, 1997
High Yield Government
Fund Fund
INVESTMENT INCOME (Note 1)
Interest income $ 611,764 $ 412,214
Other income 4,024 --
Total investment income 615,788 412,214
EXPENSES (Notes 2 and 3)
Investment advisory fee 40,413 39,438
Transfer agent and administrative
expenses 34,589 32,814
Securities registration and
blue sky expenses 9,490 9,662
Auditing fees 2,556 2,639
Trustees' fees 1,500 1,500
Custodian fees 1,823 1,812
Printing costs 1,507 1,516
Fidelity bond 720 709
Legal fees 602 583
Custodian fees paid indirectly (233) (228)
Total expenses 92,967 90,445
NET INVESTMENT INCOME 522,821 321,769
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on
investments 8,912 (44,628)
Net unrealized depreciation of
investments (149,195) (128,957)
NET LOSS ON INVESTMENTS (140,283) (173,585)
TOTAL INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 382,538 $ 148,184
The Notes to Financial Statements are an integral part of
these statements.
<PAGE>
Statements of Changes in Net Assets
For the Years Ended March 31
High Yield Fund Government Fund
1997 1996 1997 1996
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
Net investment income $ 522,821 $ 584,431 $ 321,769 $ 352,814
Net realized gain (loss)
on investments 8,912 167,400 (44,628) 253,063
Net unrealized appreciation
(depreciation) of
investments (149,195) 53,681 (128,957) (111,252)
Total increase in net assets
resulting from operations 382,538 805,512 148,184 494,625
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (522,821) (584,431) (321,769) (352,814)
CAPITAL SHARE TRANSACTIONS
(Note 7) (395,943) (157,381) (890,892) (938,698)
TOTAL INCREASE (DECREASE)
IN NET ASSETS (536,226) 63,700 (1,064,477) (796,887)
NET ASSETS
Beginning of year 6,790,087 6,726,387 6,856,102 7,652,989
End of year $ 6,253,861 $ 6,790,087$ 5,791,625 $ 6,856,102
Financial Highlights
Selected data for a share outstanding throughout each year:
High Yield Fund
Year ended March 31,
[C] [C] [C] [C] [C] [C]
1997* 1996 1995 1994 1993 1992
Net asset
value
beginning
of period $ 7.162 6.938 7.285 7.455 7.255 6.775
Net
investment
income $0.574 0.608 0.597 0.606 0.674 0.689
Net
realized &
unrealized
gains
(losses) on
securities $(0.153) 0.224 (0.347)(0.170) 0.200 0.480
Total from
investment
operations $0.421 0.832 0.250 0.436 0.874 1.169
Distributions
from net
investment
income $(0.574)(0.608)(0.597)(0.606)(0.674)(0.689)
Distributions
from capital
gains $ -- -- -- -- -- --
Total
Distributions$(0.574)(0.608)(0.597)(0.606)(0.674)(0.689)
Net asset
value end
of period $7.009 7.162 6.938 7.285 7.455 7.255
Total
Return 6.06% 12.32% 3.75% 5.89% 12.69% 18.08%
Net assets
at end of
period
(thousands) $6,254 6,790 6,726 7,702 7,329 6,456
Ratio of
expenses to
average net
assets1 1.44% 1.60% 1.52% 1.54% 1.52% 1.54%
Net
investment
income to
average
net assets 8.07% 8.47% 8.56% 8.02% 9.26% 9.95%
Portfolio
turnover 95% 237% 243% 251% 73% 124%
Government Fund
Year ended March 31,
[C] [C] [C] [C] [C] [C]
1997* 1996 1995 1994 1993 1992
Net asset
value
beginning
of period $ 9.705 9.551 9.695 10.621 10.300 10.119
Net
investment
income $0.489 0.472 0.391 0.363 0.501 0.654
Net
realized &
unrealized
gains
(losses) on
securities $(0.271)0.154 (0.144)(0.151) 0.854 0.222
Total from
investment
operations $0.218 0.626 0.247 0.212 1.355 0.876
Distributions
from net
investment
income $(0.489)(0.472)(0.391)(0.363)(0.501)(0.654)
Distributions
from capital
gains $ -- -- -- (0.775)(0.533)(0.041)
Total
Distributions$(0.489)(0.472)(0.391)(1.138)(1.034)(0.695)
Net asset
value end
of period $ 9.434 9.705 9.551 9.695 10.621 10.300
Total
Return 2.29% 6.56% 2.67% 1.95% 13.96% 8.84%
Net assets
at end of
period
(thousands) $5,792 6,856 7,653 8,576 9,734 7,375
Ratio of
expenses to
average net
assets 1.43% 1.59% 1.52% 1.54% 1.52% 1.53%
Net
investment
income to
average
net assets1 5.09% 4.77% 4.12% 3.53% 4.78% 6.28%
Portfolio
turnover 17% 190% 318% 287% 357% 123%
1For the year ended March 31, 1996 and thereafter, ratio reflects
custodian fees paid indirectly (Note 3).
* Effective July 31, 1996, the investment advisory services transferred
to Bankers Finance Advisors, LLC from Bankers Finance Investment
Management Corp. (See Note 3).
The Notes to Financial Statements are an integral part of these
statements.
<PAGE>
Mosaic Income Trust
Notes to Financial Statements
March 31, 1997
1. Summary of Significant Accounting Policies. Mosaic Income Trust
(the "Trust"), formerly known as GIT Income Trust, is registered with
the Securities and Exchange Commission under the Investment Company Act
of 1940 as an open-end, diversified investment management company. The
Trust maintains two separate funds whose principal objectives are to
obtain high current income. The High Yield Fund, formerly known as the
Maximum Income Portfolio, invests in long-term debt securities which may
include securities rated as low as "Caa" or "CCC" by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, respectively. The
Government Fund invests in securities of the U. S. Government and its
agencies.
Securities Valuation: Securities having maturities of 60 days or less
are valued at amortized cost, if determined to approximate market value.
Securities having longer maturities, for which market quotations are
readily available, are valued at the mean between their bid and asked
prices. Securities for which market quotations are not readily
available are valued at their fair value as determined in good faith
by the Trustees. Investment transactions are recorded on the trade
date. The cost of investments sold is determined on the identified cost
basis for financial statement and federal income tax purposes.
Repurchase Agreements are valued at amortized cost, which approximates
market value.
Investment Income: Interest income, net of amortization of premium or
discount, and other income (if any) are accrued as earned.
Dividends: Net investment income, determined as gross investment income
less expenses, is declared as a regular dividend each business day.
Dividends are distributed to shareholders or reinvested in additional
shares as of the close of business at the end of each month. Capital
gains distributions, if any, are declared and paid twice annually at
calendar and fiscal year end. Additional distributions may be made if
necessary.
Income Tax: In accordance with the provisions of Subchapter M of the
Internal Revenue Code applicable to regulated investment companies, all
of the taxable income of each fund is distributed to its shareholders,
and therefore no federal income tax provision is required. As of March
31, 1997, the High Yield and Government Funds had available for federal
income tax purposes unused capital loss carryovers of $2,328,476,
expiring from March 31, 1998 through March 31, 2003, and $358,054,
expiring March 31, 2003 through March 31, 2004, respectively.
Share Subscriptions: Shares purchased by check or otherwise not paid
for in immediately available funds are accounted for as share
subscriptions receivable and shares reserved for subscriptions.
Use of Estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and reported amounts of increases and
decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
2. Investments in Repurchase Agreements. When the Trust purchases
securities under agreements to resell, the securities are held for
safekeeping by the Trust's custodian bank as collateral. Should the
market value of the securities purchased under such an agreement
decrease below the principal amount to be received at the termination of
the agreement plus accrued interest, the counterparty is required to
place an equivalent amount of additional securities in safekeeping with
the Trust's custodian bank. Repurchase agreements may be terminated
within seven days. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Trust, along with other
registered investment companies having Advisory and Services Agreements
with the same advisor, transfers uninvested cash balances into a joint
trading account. The aggregate balance in this joint trading account is
invested in one or more consolidated repurchase agreements whose
underlying securities are U.S. Treasury or federal agency obligations.
3. Investment Advisory Fees and Other Transactions with Affiliates.
The Investment Advisor to the Trust, Bankers Finance Advisors, LLC ("the
Advisor"), earns an advisory fee equal to 0.625% per annum of the
average net assets of each of the Trust's portfolios; the fees are
accrued daily and are paid monthly. The Advisory Agreement between the
Trust and the Advisor was approved at the special meeting of the Trust's
shareholders on July 29, 1996. The Advisor purchased the investment
management assets of Bankers Finance Investment Management Corp.
("BFIMC"), the Trust's previous investment advisor, effective July 31,
1996.
The Advisor is responsible for the fees and expenses of Trustees who are
affiliated with the Advisor and certain promotional expenses. For the
year ended March 31, 1997, outside Trustee fees were $1,500 for each
Fund.
4. Other Expenses. With the exception of certain expenses of the Trust
payable by it directly, all support services are provided to the Trust
under a services agreement between the Trust and the Advisor, pursuant
to which such services are provided for amounts not exceeding the cost
to the Advisor. Common expenses incurred by the Trust, Mosaic Tax-Free
Trust, Mosaic Government Money Market Trust and Mosaic Equity Trust
("the Trusts") are allocated among the funds based on the ratio of net
assets of each fund to the combined net assets of the Trusts. For the
year ended March 31, 1997, operating expenses of $52,554 for the High
Yield Fund and $51,007 for the Government Fund have been reimbursed to
the Advisor under the Services Agreement. To the extent the Trust had
incurred expenses for which BFIMC, the previous advisor, was not
reimbursed as of July 31, 1996, such expenses from prior years will not
be billed to the Trust by the Advisor.
Fees are reduced under an expense offset arrangement with the Trust's
custodian. The amount of the expense offset for the year ended March 31,
1997 was $233 for the High Yield Fund and $228 for the Government Fund.
5. Net Assets. At March 31, 1997, net assets include the following:
High Yield Government
Fund Fund
Net paid in capital on shares of
beneficial interest $ 8,703,445 $ 6,357,285
Accumulated net realized losses (2,328,476) (358,054)
Net unrealized depreciation
of investments (121,108) (207,606)
Total net assets $ 6,253,861 $ 5,791,625
The High Yield Fund reclassified $225,773 from "accumulated net realized
losses" to "paid in capital" as a result of permanent book and tax
differences relating to expired capital loss carryovers. The
reclassification had no impact on net asset value.
6. Investment Transactions. Purchases and sales of securities other
than short-term securities for the year ended March 31, 1997 were as
follows:
High Yield Government
Fund Fund
Purchases $ 5,626,890 $ 1,011,908
Sales 6,181,685 1,867,633
7. Capital Share Transactions. An unlimited number of capital shares,
without par value, are authorized. Transactions in capital shares for
the years ended March 31 were as follows:
High Yield Fund Government Fund
1997 1996 1997 1996
In Dollars
Shares sold $1,219,205 $1,935,692 $517,989 $754,345
Shares issued
in reinvestment
of dividends 432,108 470,973 298,946 328,159
Total shares
issued 1,651,313 2,406,665 816,935 1,082,504
Shares
redeemed (2,047,256)(2,564,046)(1,707,827)(2,021,202)
Net decrease $(395,943) $(157,381) $(890,892) $(938,698)
In Shares
Shares sold 171,378 270,513 54,150 76,059
Shares issued in
reinvestment of
dividends 60,737 65,664 31,219 33,140
Total shares
issued 232,115 336,177 85,369 109,199
Shares
redeemed (287,940) (357,676) (177,975) (204,022)
Net decrease (55,825) (21,499) (92,606) (94,823)
<PAGE>
Telephone Numbers
Shareholder Service
Washington, DC area: 703 528-6500
Toll-free nationwide: 1 888 670-3600
Mosaic Tiles (24 hours automated information)
Toll-free nationwide: 1 800 336-3063
The Mosaic Family of Mutual Funds
Mosaic Equity Trust
Mosaic Investors Fund
Mosaic Equity Income/Balanced Fund
Mosaic Mid-Cap Growth Fund
Mosaic Worldwide Growth Fund
Mosaic Income Trust
Mosaic High Yield Fund
Mosaic Government Fund
Mosaic Tax-Free Trust
Mosaic Tax-Free Arizona Fund
Mosaic Tax-Free Maryland Fund
Mosaic Tax-Free Missouri Fund
Mosaic Tax-Free Virginia Fund
Mosaic Tax-Free National Fund
Mosaic Tax-Free Money Market
Mosaic Government Money Market
For more complete information on any Mosaic Fund, including charges and
expenses, request a prospectus by calling the numbers above. Read it
carefully before you invest or send money.
1655 Ft. Myer Drive, 10th floor
Arlington, Virginia 22209-3108
http://www.mosaicfunds.com
