As Filed with the
Commission on July 31, 1997
Registration No. 2-80808
SEC File No. 811-3616
Securities and Exchange Commission
Washington, D.C.
Form N-1A
Registration Statement Under The Securities Act of 1933 X
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 18 X
Registration Statement Under The Investment Company Act
of 1940 X
Amendment No. 20
Mosaic Income Trust
(Exact Name of Registrant as Specified in Charter)
1655 Fort Myer Drive, Arlington, Virginia 22209
Registrant's Telephone Number: (703) 528-3600
W. Richard Mason, Secretary
Mosaic Income Trust
1655 Fort Myer Drive
Arlington, Virginia 22209
(Name and Address of Agent for Service)
Copy to:
John Rashke, Esquire
DeWitt Ross & Stevens, SC
8000 Excelsior Drive
Madison, Wisconsin
Approximate Date of Proposed Public Offering
It is proposed that this filing will become effective:
__X__ immediately upon filing pursuant to Rule 485(b)
_____ on _____________ pursuant to Rule 485(b)
______60 days after filing pursuant to Rule 485(a)(1)
_____ on _____________ pursuant to Rule 485(a)(1)
_____ 75 days after filing pursuant to Rule 485(a)(2)
_____ on _____________ pursuant to Rule 485(a)(2)
The Registrant has registered an indefinite number of
its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Registrant's Notice under Rule
24f-2 for the fiscal year ended March 31, 1997 was filed on
May 28, 1997.
<PAGE>
Cross-Reference Sheet
Form N1-A
Part A, Information Required in a Prospectus
Item 1 Inside cover Page
Item 2 Expense Summary
Item 3 Financial Highlights
Item 4 Inside cover, About Tax-Free Trust
Investment Objective, Investment
Policies (including Investment
Considerations, Portfolio-Specific
Considerations and Specialized
Investment Techniques)
Item 5 Management of the Trust
Item 5A Incorporated by reference in the
Registrant's annual report
Item 6 The Trust and Its Shares, Dividends,
Performance Information, Taxes
(including Federal Tax Considerations
and State Tax Considerations), Net
Asset Value, Shareholder Account
Transactions and rear cover page
Item 7 Shareholder Account Transactions, How to
Open a New Account, How to Purchase
Additional Shares
Item 8 How to Redeem Shares, Other Fees and
Services
Item 9 Not applicable
Part A applicable to the Trust's other portfolio,
effective June 13, 1997, was previously filed and
is incorporated herein by reference.
Part B, Items Required in a Statement of
Additional Information
Item 10 Cover page
Item 11 Table of Contents (Cover page)
Item 12 Introductory Information
Item 13 Supplemental Investment Policies,
Investment Limitations
Item 14 The Investment Advisor, Trustees and
Officers
Item 15 Organization of the Trust, Trustees and
Officers
Item 16 The Investment Advisor, Administrative
and Other Expenses, Custodians and
Special Custodians,
Item 17 Fund Transactions
Item 18 Organization of the Trust
Item 19 Share Purchases, Share Redemptions,
Declaration of Dividends, Determination
of Net Asset Value
Item 20 Additional Tax Matters
Item 21 Not applicable
Item 22 Yield and Total Return Calculations
Item 23 Annual and Semi-Annual Reports are
incorporated by reference and discussed
in Financial Statements and Independent
Auditors' Report, Legal Matters & Inde-
pendent Auditors, Additional Information
Part C, Other Information
Items 24 through 32 follow Part B
<PAGE>
Mosaic Income Trust
Government Fund
High Yield Fund
Prospectus
July 31, 1997
Mosaic Funds
Prospectus/July 31, 1997
1655 Fort Myer Drive, Arlington, Virginia 22209-3108
Mosaic Income Trust
Government Fund
High Yield Fund
Mosaic Income Trust is a mutual fund whose goal is to provide monthly
dividends to its shareholders by investing in bonds and other debt
securities in accordance with the investment quality policies of each of
its portfolios. The Trust offers shares of three separate portfolios:
the Government Fund, the High Yield Fund, and the Mosaic Bond Fund.
Mosaic Bond Fund is offered pursuant to a separate prospectus.
The Government Fund invests solely in U.S. Government securities and
emphasizes safety of principal and interest for its portfolio
investments.
The High Yield Fund invests in corporate debt securities expected to
provide the highest yields.
This policy of seeking high yields carries a high risk that an
investor's shares in the fund could lose value.
The High Yield Fund may be entirely invested in lower-rated securities,
including those commonly referred to as "junk" bonds. Investors should
carefully consider the greater risks, including default, that these
bonds entail than those found in higher rated securities, discussed at
the references to this portfolio on pages five and six.
Features
No commissions or sales charges
$1,000 minimum initial investment
Invest or withdraw funds by mail, wire transfer or by phone
Dividends accrue every day and can be paid by
check, electronic fund transfer, or reinvested
No "12b-1" expenses
Checking privileges
This Prospectus is intended to be a concise statement of information
which investors should know before investing. After reading the
Prospectus, it should be retained for future reference. For investors
who received an electronic copy of the Prospectus, a paper copy of the
prospectus is available without charge by calling or writing the Trust.
A Statement of Additional Information concerning the Trust, bearing the
same date as this Prospectus, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. It is
available without charge by calling or writing the Trust. The
Commission maintains a Worldwide Web site that contains reports, proxy
information statements and other information regarding the Trust at
http://www.sec.gov.
Shares of the Trust are not deposits or obligations of, or guaranteed or
endorsed by, any bank. Shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
These securities have not been approved or disapproved by the Securities
and Exchange Commission, nor has the Commission passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
Bankers Finance advisors, llc
Investment Advisor
<PAGE>
TABLE OF CONTENTS
About Mosaic Income Trust 3
Expense Summary 3
Financial Highlights 4
Investment Objective 4
Investment Policies 4
Management of the Trust 7
The Trust and Its Shares 8
Dividends 9
Performance Information 9
Taxes 9
Net Asset Value 10
Shareholder Account Transactions 10
How to Open a New Account 10
How to Purchase Additional Shares 11
How to Redeem Shares 12
Other Fees and Servies 13
CUSTODIAN
Star Bank, N.A.
Cincinnati, OH 45202
INDEPENDENT AUDITORS
Ernst & Young LLP
TELEPHONE NUMBERS
Shareholder Services
Washington, DC area: 703-528-6500
Toll-free nationwide: 888-670-3600
Mosaic Tiles (24-hour automated information)
Toll-free nationwide: 800-336-3063
About Mosaic Income Trust
Mosaic Income Trust (the "Trust") is a diversified, open-end management
investment company, commonly known as a mutual fund. The Trust was
organized as a Massachusetts business trust under a Declaration of Trust
dated November 18, 1982. The Trust is managed by Bankers Finance
Advisors, LLC (the "Advisor") of the same address as the Trust.
This Prospectus offers shares of two separate portfolios: the Government
Fund and the High Yield Fund. The Trust also offers the Mosaic Bond Fund
which is managed independently and offered pursuant to a separate
prospectus.
Expense Summary
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor will bear directly or
indirectly (see also "Management of the Trust").
Government High Yield
Fund Fund
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None None
Redemption Fee None None
Exchange Fee None None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees 0.625% 0.625%
Other expenses 0.805% 0.815%
Total Fund Operating Expenses 1.430% 1.440%
EXAMPLE 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $1,000
investment, assuming: (1) a five percent annual return
and (2) redemption at the end of each time period
Government Fund $15 $45 $78 $171
High Yield Fund $15 $46 $79 $172
The hypothetical example shown above is based on the expense levels
listed under the caption "Annual Fund Operating Expenses" and is
intended to provide the investor with an understanding of the level of
expenses that might be incurred in the future. The five percent return
used in the example is arbitrary and is for illustrative purposes only.
It should not be considered representative of the Trust's past or future
performance, nor should the expenses in the example be considered
representative of future expenses, which may actually be greater or less
than those shown. Additional fees and transaction charges described
elsewhere in this prospectus, if applicable, will increase the level of
expenses that can be incurred (fees for certain wire redemptions, stop
payments on checks, bounced investment checks, and retirement plans are
described on pages 10-14).
Financial Highlights
The financial highlights data for a share outstanding and other
performance information for the fiscal year ended March 31, 1997
appearing below is derived from the financial statements audited by
Ernst & Young LLP, independent auditors, whose report appears in the
Annual Report to Shareholders. This report is incorporated by reference
in the Statement of Additional Information and is available by calling
the Trust. The tabulation below of information for the fiscal years
ended March 31, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995 and 1996
has also been derived from the financial statements audited by Ernst &
Young LLP.
<TABLE>
Government Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997* 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net asset
value
beginning
of period $ 9.705 9.551 9.695 10.621 10.300 10.119 9.867 9.891 10.180 11.391
Net
investment
income $0.489 0.472 0.391 0.363 0.501 0.654 0.710 0.783 0.794 0.862
Net
realized &
unrealized
gains
(losses) on
securities $(0.271) 0.154 (0.144)(0.151) 0.854 0.222 0.292 (0.024)(0.289)(0.743)
Total from
investment
operations $0.218 0.626 0.247 0.212 1.355 0.876 1.002 0.759 0.505 0.119
Distributions
from net
investment
income $(0.489)(0.472)(0.391)(0.363)(0.501)(0.654)(0.710)(0.783)(0.794)(0.862)
Distributions
from capital
gains $ -- -- -- (0.775)(0.533)(0.041)(0.040) -- -- (0.468)
Total
Distributions$(0.489)(0.472)(0.391)(1.138)(1.034)(0.695)(0.750)(0.783)(0.794)(1.330)
Net asset
value end
of period $ 9.434 9.705 9.551 9.695 10.621 10.300 10.119 9.867 9.891 10.180
Total
Return 2.29% 6.56% 2.67% 1.95% 13.96% 8.84% 10.57% 7.78% 5.19% 1.47%
Net assets
at end of
period
(thousands) $ 5,792 6,856 7,653 8,576 9,734 7,375 6,059 6,119 6,542 6,283
Ratio of
expenses to
average net
assets 1.43% 1.59% 1.52% 1.54% 1.52% 1.53% 1.65% 1.51% 1.50% 1.47%
Net
investment
income to
average
net assets 5.09% 4.77% 4.12% 3.53% 4.78% 6.28% 7.13% 7.76% 7.94% 8.18%
Portfolio
turnover 17% 190% 318% 287% 357% 123% 116% 86% 45% 36%
High Yield Fund
Net asset
value
beginning
of period $ 7.162 6.938 7.285 7.455 7.255 6.775 7.181 8.129 8.427 9.657
Net
investment
income $ 0.574 0.608 0.597 0.606 0.674 0.689 0.781 0.873 0.866 0.928
Net
realized &
unrealized
gains
(losses) on
securities $(0.153) 0.224 (0.347)(0.170) 0.200 0.480 (0.406)(0.948)(0.298)(1.230)
Total from
investment
operations $0.421 0.832 0.250 0.436 0.874 1.169 0.375 (0.075) 0.568 (0.302)
Distributions
from net
investment
income $(0.574) (0.608)(0.597)(0.606)(0.674)(0.689)(0.781)(0.873)(0.866)(0.928)
Distributions
from capital
gains $ -- -- -- -- -- -- -- -- -- --
Total
Distributions$(0.574) (0.608)(0.597)(0.606)(0.674)(0.689)(0.781)(0.873)(0.866)(0.928)
Net asset
value end
of period $ 7.009 7.162 6.938 7.285 7.455 7.255 6.775 7.181 8.129 8.427
Total
Return 6.06% 12.32% 3.75% 5.89% 12.69% 18.08% 5.91% (1.27)% 7.09% (3.06)%
Net assets
at end of
period
(thousands) $6,254 6,790 6,726 7,702 7,329 6,456 5,405 6,988 9,542 11,132
Ratio of
expenses to
average net
assets 1.44% 1.60% 1.52% 1.54% 1.52% 1.54% 1.66% 1.51% 1.50% 1.45%
Net
investment
income to
average
net assets 8.07% 8.47% 8.56% 8.02% 9.26% 9.95% 11.57% 11.16% 10.45% 10.48%
Portfolio
turnover 95% 237% 243% 251% 73% 124% 54% 93% 80% 78%
1 For the year ended March 31, 1996 and thereafter, ratio reflects
custodian fees paid indirectly.
* Effective July 31, 1996, the investment advisory services transferred
to Bankers Finance Advisors, LLC/Madison Investment Advisors, Inc.
from Bankers Finance Investment Management Corp.
Investment Objective
The objective of each fund is to provide monthly dividends to investors
by investing in bonds and other debt securities according to the
investment quality policies described in this prospectus.
Although the investment objective of a fund may be changed without
shareholder approval, shareholders will be notified in writing prior to
any material change. There can be no assurance that the objective of
either portfolio will be achieved.
Investment Policies
The Government Fund invests solely in U.S. Government securities and
emphasizes safety of principal and interest for its portfolio
investments. The High Yield Fund invests in debt securities expected to
provide the highest yields and may include lower-rated securities,
including those commonly referred to as "high yield" or "junk" bonds.
Government Fund. Government Fund investments are limited to U.S.
Government securities, which include a variety of securities issued or
guaranteed by the U.S. Treasury, various agencies of the federal
government and various instrumentalities which have been established or
sponsored by the U.S. Government, and certain interests in these types
of securities. Treasury securities include notes, bills and bonds.
Obligations of the Government National Mortgage Association, the Federal
Home Loan Banks, the Federal Farm Credit System, the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, the
Small Business Association and the Student Loan Marketing Association
are also considered to be U.S. Government securities. Except for
Treasury securities, these obligations may or may not be backed by the
"full faith and credit" of the United States.
Some federal agencies have authority to borrow from the U.S. Treasury
while others do not. In the case of securities not backed by the full
faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assess a claim against the
United States itself in the event the agency or instrumentality does not
meet its commitments.
High Yield Fund. The High Yield Fund may invest in corporate bonds,
notes and debentures (including corporate debt securities convertible
into other securities), as well as U.S. Government securities. The High
Yield Fund invests principally in Lower Medium Grade and Low Grade
corporate debt securities, commonly known as "high yield" or "junk"
bonds. The lowest-grade securities in which this fund may invest are
those rated "Caa" or "CCC." The Advisor may vary the quality rating mix
of this portfolio based on its evaluation of each investment in light of
its yield and credit characteristics.
Other Policies. In order to ensure diversification, the Trust's
fundamental investment policies stipulate certain restrictions. No more
than five percent of each portfolio's assets may be invested in the
securities of one issuer (excluding U.S. Government securities) as of
the date of purchase. No more than 10 percent of any portfolio's assets
may be invested in illiquid securities, including restricted securities,
other securities for which no readily available market exists and
repurchase agreements that cannot be terminated within seven days. No
more than 25 percent of the total assets of a portfolio may be invested
in the securities of issuers in a single industry.
The funds will be invested in debt securities with maturities which, in
the judgment of the Advisor, will provide the highest yields available
from debt securities over the life of the investment. This means that
the average effective maturity of each portfolio may be 20 years or
more, depending on market conditions. The Advisor may adjust this
maturity, however, and may sell securities prior to maturity. Such sales
may result in realized capital gains or losses. The Trust does not
intend, however, to engage in extensive short-term trading.
The Trust reserves the right to invest a portion of its assets in short-
term debt securities (those with maturities of one year or less) and to
maintain a portion of its assets in uninvested cash. However, it does
not intend to hold more than 35 percent of either fund in such
investments unless it determines market conditions warrant a temporary
defensive investment position. Under such circumstances, up to 100
percent of either portfolio may be so invested. To the extent that a
fund is so invested, it is not invested in accordance with policies
designed to achieve its stated investment objective. Short-term
investments may include certificates of deposit, commercial paper and
repurchase agreements.
SPECIALIZED INVESTMENT TECHNIQUES
To achieve its objectives, each fund may use certain specialized
investment techniques, including investment in "when-issued"
securities, securities with variable interest rates, loans of portfolio
securities, financial futures contracts, foreign securities and
repurchase agreements.
"When-issued" securities are purchased or sold with payment and delivery
scheduled to take place at a future time, usually 15 to 45 days from the
date the transaction is arranged. When investing in "when-issued"
securities, the Trust relies on the other party to complete the
transaction. Should the other party fail to do so, the Trust might lose
a more advantageous investment opportunity.
Repurchase agreements involve a sale of securities to the Trust by a
financial institution or securities dealer, simultaneous with an
agreement by that institution to repurchase the same securities at the
same price, plus interest, at a later date. The Trust will limit
repurchase agreements to those financial institutions and securities
dealers who are considered creditworthy under guidelines adopted by the
Trustees. The Advisor will follow a procedure designed to ensure that
all repurchase agreements acquired by the Trust are always at least 100
percent collateralized as to principal and interest. When investing in
repurchase agreements, the Trust relies on the other party to complete
the transaction on the scheduled date by repurchasing the securities.
Should the other party fail to do so, the Trust would hold securities it
did not intend to own. Were it to sell such securities, the Trust might
incur a loss. In the event of insolvency or bankruptcy of the other
party to a repurchase agreement, the Trust could encounter difficulties
and might incur losses upon the exercise of its rights under the
repurchase agreement.
INVESTMENT SELECTION CRITERIA FOR High Yield Fund
The High Yield Fund invests principally in securities commonly known as
"high yield" or "junk" bonds. Although this portfolio may invest in
securities with ratings as low as "CCC" or "Caa," it follows certain
policies intended to mitigate some of the risks associated with
investment in such securities. Included among such policies are the
following: (1) bonds acquired at the time of their initial public
offering must be rated at least "B" by either Standard & Poor's
Corporation or Moody's Investors Services, Inc.; (2) bonds rated "BB" or
"Ba" or lower must have more than one market maker at the time of
acquisition; and (3) unrated bonds, privately placed bonds and bonds of
issuers in bankruptcy are not purchased. In addition, no zero coupon
bonds or bonds having interest paid in the form of additional securities
(commonly called "payment-in-kind" or "PIK" bonds) will be acquired, if
immediately after the investment more than 15 percent of the value of
this portfolio would be invested in such bonds.
Investment selection criteria apply at the time an investment is made.
An adverse change in the quality rating or other characteristics of an
investment may not necessarily result in disposition of that investment,
because the impact of such changes is often already reflected in market
prices before the investment can be liquidated.
The weighted average portions of the investment assets of the High Yield
Fund invested in each of the quality ratings identified below for the
fiscal year ending March 31, 1997 were as follows:
Ratings by Moody's Ratings by Standard
Investors Service Inc. & Poor's Corporation
Ba1 17.25% BBB- 3.54%
Ba2 5.21% BB+ 2.68%
Ba3 10.16% BB 17.13%
B1 12.65% BB- 12.65%
B2 25.28% B+ 22.75%
B3 23.59% B 13.58%
Caa 5.86% B- 19.99%
CCC+ 2.23%
NR 5.45%
A description of the ratings assigned to High Yield Fund securities is
contained in the appendix to this prospectus.
INVESTMENT RISK CONSIDERATIONS
The investment policies of the Trust involve certain risks. For example,
the market value of bonds and other debt securities tends to rise when
prevailing interest rates decline and fall when prevailing interest
rates rise. Longer maturities increase the magnitude of these changes.
Investments with the highest yields may have longer maturities and lower
credit ratings than other securities, increasing the possibility of
fluctuations in value per share. Investments with lower credit ratings
may have limited marketability, making it difficult for the Trust to
dispose of such securities advantageously, and may present the risk of
default, which could result in a loss of principal and interest.
ADDITIONAL INVESTMENT RISK CONSIDERATIONS FOR High Yield Fund
The High Yield Fund may invest in securities rated Caa or CCC, which may
have highly speculative characteristics, may be of poor standing and may
present other elements of immediate danger to payment of principal and
interest or could even be in default (although the fund will not
purchase securities in default).
Investors should consider certain risks associated with the kinds of
securities held by the High Yield Fund. These risks include the
following:
Youth and Growth of the High Yield Bond Market. The high yield bond
market is relatively young and its major growth occurred during a long
period of economic expansion. This market in its present size and form
has been affected by an economic downturn. The economic downturn has
resulted in large price swings in the value of high yield bonds. This
has also adversely affected the value of outstanding bonds and the
ability of the issuers to repay principal and interest.
Sensitivity to Interest Rates and Economic Changes. Changes in the
economy and interest rates may affect high yield securities differently
from other securities. Prices of high yield bonds may be less sensitive
to interest rate fluctuations than investment grade securities, but more
sensitive to adverse economic changes or individual corporate
developments. An economic downturn or a period of rising interest rates
could adversely affect the ability of highly leveraged issuers to make
required principal and interest payments, to meet financial projections
or to obtain additional financing. Periods of economic decline or
uncertainty may increase the price volatility of high yield bonds, and
therefore, magnify changes in the High Yield Fund's net asset value.
Zero coupon bonds and payment-in-kind securities may be affected to a
greater extent by such developments and thereby tend to be more volatile
than securities which pay interest periodically in cash.
Market Expectations. High yield bond values are very sensitive to market
expectations about the credit worthiness of the issuing companies. If
events produce a sudden concern in the marketplace about the ability of
high yield bond issuers to service their debts, investors might try to
liquidate significant amounts of high yield bonds within a short period
of time. If shareholders in the High Yield Fund were also making
significant redemptions at the same time, the fund might be forced to
sell some of its holdings under adverse market conditions, without
regard to their investment merits, thereby possibly realizing capital
losses and decreasing the asset base upon which expenses can be spread.
Rising interest rates can adversely affect the value of high yield
bonds, both by lowering the perceived credit worthiness of the issuers
and by lowering bond prices generally. However, when interest rates are
falling or the credit worthiness of the issuer improves, early
redemption or call features of the bonds may limit their potential for
increased value.
Liquidity and Valuation. Adverse publicity about or public perceptions
of high yield securities and their market, whether or not based on
fundamental analysis, may cause the bonds to lose value and liquidity.
Since the high yield market is an over-the-counter market, there may be
"thin" trading during times of market distress, meaning there is a
limited number of buyers and sellers in the market.
Congressional Proposals. Various proposals have been considered by
Congress in the past that would restrict or adversely impact the market
for high yield bonds. Federally insured savings and loan associations
have been required to divest investments in high yield bonds. Any such
legislation may have had or may in the future have an adverse impact on
the net asset value of the High Yield Fund or its investment
flexibility.
Taxation. Interest income is recognized on zero coupon and payment-in-
kind securities and is passed through to shareholders for income tax
purposes, even though payment of such interest is not received in cash.
Credit Ratings. The quality ratings of debt securities are considered
when investments are selected. However, changes in credit ratings by the
major credit rating agencies may lag changes in the credit worthiness of
the issuer. The Advisor monitors the issuers of high yield bonds to
anticipate whether the issuer will have sufficient cash flow to meet
required principal and interest payments and to assess the bonds'
liquidity, but it may not always be able to foresee adverse
developments. Furthermore, credit ratings attempt to evaluate the safety
of principal and interest payments and may not accurately reflect the
market value risks of high yield bonds.
Management of the Trust
The 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 Trust's affairs. They
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.
The Advisor. Bankers Finance Advisors, LLC is a division of Madison
Investment Advisors, Inc., 6411 Mineral Point Road, Madison, Wisconsin,
53705. Bankers Finance Advisors, LLC manages assets of approximately
$200 million in the Mosaic family of mutual funds, which includes stock,
bond and money market portfolios. Madison Investment Advisors, Inc., a
registered investment advisory firm for over 23 years, provides
professional portfolio management services to a number of clients,
including stock and bond mutual funds, and has approximately $3 billion
under management.
The Advisor is 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.
The individuals primarily responsible for the management of the Trust's
funds are Chris Berberet and Jay Sekelsky. Mr. Berberet, vice
president, has served as vice president of Madison since 1992. Prior to
joining Madison, he was the Director of Fixed Income Management for the
ELCA Board of Pensions in Minneapolis, Minnesota. Mr. Sekelsky, vice
president, has served as a principal of Madison since 1990. Prior to
joining Madison, he was vice president for Wellington Management Group
of Boston, Massachusetts. Messrs. Berberet and Sekelsky began managing
the Trust's Portfolios in 1996.
The Advisor is controlled by Madison Investment Advisors, Inc. The
Advisor purchased the investment management assets of Bankers Finance
Investment Management Corp. effective July 31, 1996. The Advisor has
the same address as the Trust.
Compensation. For its services under its Investment Advisory Agreement
with the Trust, the Advisor receives a fee, payable monthly, calculated
as 5/8 percent per annum of the average daily net assets of each fund
offered by this prospectus. The Advisor may, in turn, compensate certain
financial organizations for services resulting in purchases of Trust
shares.
Distributor. GIT Investment Services, Inc. of the same address as the
Trust acts as the Trust's distributor.
Services Agreement. Under a separate Services Agreement with the Trust, the
Advisor provides certain operational and other support services for which it
receives a fee intended to be at or below the cost of providing such
services. Such fee is subject to review and approval at least annually by
the Trustees (see "Expense Summary").
Transfer Agent and Dividend Paying Agent. The Trust acts as its own
transfer agent and dividend paying agent.
Expenses. The Trust is responsible for all expenses not assumed by the
Advisor, including the costs of the following: shareholder services;
legal, custodian and audit fees; trade association memberships;
accounting; certain Trustees' fees and expenses; fees for registering
the Trust's shares; the preparation of prospectuses, proxy materials and
reports to shareholders; and the expense of holding shareholder
meetings. For the fiscal year ending March 31, 1997, the expenses paid
by each fund, including advisory fees and reimbursable expenses paid to
the Advisor, were as follows: $90,445 for the Government Fund, and
$92,967 for the High Yield Fund.
The Trust and Its Shares
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 may, under certain circumstances, 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 in three funds are authorized by the Trustees: the Government
Fund, the High Yield Fund, and the Mosaic Bond Fund. Shares of each
fund are of a single class, each representing an equal proportionate
share in the assets, liabilities, income and expense of the respective
fund, and each having the same rights as any other share within the
series.
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 effected series or class. Voting is not
cumulative.
The Trust does not intend to have regular shareholder meetings.
Shareholder inquiries can be made to the offices of the Trust at the
address on the cover of this prospectus.
Dividends
Each fund's net income is declared as dividends each business day.
Dividends are paid in the form of additional shares credited to investor
accounts at the end of each calendar month, unless a shareholder elects
in writing to receive a monthly dividend payment by check or direct
deposit. Any net realized capital gains will be distributed at least
annually.
Performance Information
From time to time, each fund advertises its yield and total return. Both
figures are based on historical data and are not intended to indicate
future performance.
For advertising purposes, the yield is calculated according to a
standard formula prescribed by the Securities and Exchange Commission.
This formula divides the theoretical net income per share during a 30-
day period by the share price on the last day of the period.
While yield calculations ignore changes in share price, total return
takes such changes into account, assuming that dividends and other
distributions are reinvested when paid.
In addition to average annual total return, each fund may quote total
return over various periods and may quote the aggregate total return for
a period. Each fund may also cite the ranking or performance of a
portfolio as reported in the public media or by independent performance
measurement firms.
Further information on the methods used to calculate each portfolio's
yield and total return may be found in the Trust's Statement of
Additional Information. The Trust's Annual Report contains additional
performance information. A copy of the Annual Report may be obtained
without charge by calling or writing the Trust at the telephone number
and address on the cover of this prospectus.
Taxes
Federal
For federal income tax purposes, each fund intends to maintain its
status under Subchapter M of the Internal Revenue Code (the "Code") as a
regulated investment company by distributing to shareholders 100% of its
net income and net capital gains, if any, by the end of its fiscal year.
The Code also requires each fund to distribute at least 98% of its net
income and capital gains realized from the sale of investments by
calendar year-end in order to avoid a 4% excise tax. The capital gain
distribution is determined as of October 31 each year. Capital gain
distributions, if any, are taxable to the shareholder. The Trust will
send shareholders an annual notice of dividends and other distributions
paid during the year.
State and Local
At the state and local level, dividend income and capital gains are
generally considered taxable income. Interest on certain U.S.
Government securities held by the Trust would be exempt from state and
local income taxes if held directly by the shareholder. Because tax laws
vary from state to state, shareholders should consult their tax advisers
concerning the impact of mutual fund ownership in their own tax
jurisdictions.
Certification of Tax Identification Number
Shareholders who fail to provide a valid social security or tax
identification number may be subject to federal withholding at a rate of
31% of dividends and capital gain distributions. Investors are advised
to retain all statements received from the Trust and to maintain
accurate records of their investments.
Net Asset Value
The net asset value per share of each portfolio is calculated as of the
close of the New York Stock Exchange each day it is open for trading.
Net asset value per share is determined by adding the value of all
securities and other assets, subtracting liabilities and dividing the
result by the total number of outstanding shares for the portfolio.
For purposes of calculating net asset value, securities for which
current market quotations are readily available are valued at the mean
between their bid and asked prices. Securities for which current
quotations are not readily available are valued at their fair value as
determined by the Trustees. Securities having a remaining effective
maturity of 60 days or less are valued at amortized cost, subject to the
Trustees' determination that this method reflects their fair value. The
Trustees may use an independent pricing service for determination of
security values.
Shareholder Account Transactions
Please call a Mosaic Account Executive if you have any questions. Our
local number in the Washington, DC area is (703) 528-6500 and our
toll-free nationwide number is (888) 670-3600.
Confirmations and Statements
Daily Transaction Confirmation. All purchases and redemptions are confirmed
in writing with a transaction confirmation. Transaction confirmations are
usually mailed within a day or two after the transaction is posted to the
account.
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.
It is strongly recommended that shareholders retain all daily transaction
confirmations until they receive their quarterly statements. Likewise,
shareholders should retain all of the quarterly statements until they
receive the year-end statement showing the activity for the entire year.
Changes to an Account
To make any changes to an account, it is recommended that shareholders call an
Account Executive to discuss the changes to be made and inquire about any
necessary documentation. 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. The options to initiate exchanges and certain
redemptions and to obtain account balance information by telephone are
available automatically to all shareholders. 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 telephone instructions, providing written confirmations
and recording all telephone transactions. Certain transactions, including
account registration changes, must be authorized in writing.
Certificates. Certificates will not be issued to represent shares in the
Funds.
How to Open a New Account
Minimum Initial Investment
$1,000 for a regular account
$500 for an IRA account
By Check
New accounts may be opened by completing an application and forwarding 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 money is wired to ensure proper and timely credit.
When a new account is opened by wire, the shareholder is required to submit a
signed application promptly thereafter. Payment of redemption proceeds is
not permitted until a signed application is received in proper form by
Mosaic. Please wire money to:
Star Bank, NA
Cinti/Trust
ABA # 0420-0001-3
Credit Mosaic Acct # 48038-8883
(Shareholder name and account number)
Wire Fee. There may be a charge of $6.00 for processing incoming wires of
less than $1,000.
By Exchange
Shareholders may open a new account by exchange from an existing account
when the account registration and tax identification number will remain the
same. A new account application is required only when the account
registration or tax identification number will differ from that on the
application for the original 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) are determined every day
that the NY 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. To protect shareholders from loss or
dilution resulting from deposit items that are returned unpaid, the proceeds
of any redemption may be delayed 10 days or more until it can be determined
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 has determined 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.
By Check
Subsequent investments may be made for $50 or more. Please make check
payable to Mosaic Funds and mail it along with an investment slip or an
indication as to which fund and account it should be credited.
Mosaic Funds
PO Box 640393
Cincinnati, OH 45264-0393
By Wire
Shareholders should call Mosaic before the money is wired 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)
Wire Fee. There may be a charge of $6.00 for processing incoming wires of
less than $1,000.
By Automatic Investment Plan
Shareholders may elect to have an automatic investment plan whereby Mosaic
will automatically initiate a credit to their Mosaic account and debit the
bank account they designate each month. 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. Shareholders may change the amount or discontinue the automatic
investment plan at any time.
How to Redeem Shares
Redemption Price. Share prices (net asset values) are determined every day
that the NY 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 shareholder investments, Mosaic requires
signature guarantees for certain redemptions. A signature guarantee helps
Mosaic ensure the identity of the authorized shareholder(s). Shareholders
who anticipate the need to transact large amounts of money are encouraged to
establish pre-authorized bank wire instructions on their account.
Redemptions by wire to a pre-authorized bank and account may be in any
amount and do not require a signature guarantee. Pre-authorized bank wire
instructions can be established 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 the
shareholder of record, (3) the proceeds are to be delivered to an address
other than the address of record, or (4) there has been any change to the
registration or account privilege 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.
<i> A guarantee from a notary public is not an acceptable signature
guarantee.</i>
Redemptions and Uncollected Funds. To protect shareholders from loss or
dilution resulting from deposit items that are returned unpaid, the
proceeds of any redemption may be delayed 10 days or more until it can be
determined that the check or other deposit item (including EFT) used for
purchase of the shares has cleared. Such deposited items are considered
"uncollected," until Mosaic has determined that they have actually been
paid by the bank on which they were drawn. Purchases made with cash,
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, a redemption check up to $50,000
may be sent to the shareholder and 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 and address of record, must be made in
writing, signed by all shareholders with their signatures guaranteed. See
section <i>Signature Guarantees</i> 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. Normally, the Fund 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, funds can be sent by wire transfer to the
bank and account designated on the account application or by subsequent
written authorization.
Shareholders who anticipate the need to transact
large amounts of money are encouraged to establish pre-authorized bank wire
instructions on their account. Redemptions by wire to a pre-authorized bank
and account may be in any amount and do not require a signature guarantee.
Pre-authorized bank wire instructions can be established 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 change bank wire instructions on an account.
Redemption by wires can be arranged by calling the telephone numbers on
the cover of this prospectus. 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
Shareholders may redeem shares from one Mosaic account and concurrently
invest the proceeds in another Mosaic account by telephone when the account
registration and tax identification number remain the same. There is no
charge for this service.
By Customer Check
A shareholder who has requested check writing privileges and submitted a
signature card may write checks in any amount payable to anyone.
A confirmation statement showing the amount and number of each check written
is sent to the shareholder. Mosaic does not return canceled checks, but will
provide copies of specifically requested checks. A fee of $1.00 per copy is
charged for frequent requests or a request for numerous copies.
Stop Payment Fee. To stop payment on a customer check that you have written,
call an Account Executive. Mosaic will honor stop payment requests on unpaid
customer checks written by shareholders for a fee of $5.00. Oral stop
payment requests are effective for 14 calendar days, at which time they will
be canceled unless confirmed in writing. Written stop payment orders are
effective for six months and may be extended by written request for another
six months.
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 and of printing special checks will
be charged to the shareholder's account.
By Systematic Withdrawal Plan
Shareholders may elect to have a systematic withdrawal plan whereby Mosaic
will automatically redeem share in their Mosaic account and send 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 which is
mailed to anyone designated by the shareholder
How to Close an Account
To close an account, shareholders should call an Account Executive and
request that the account be closed. Shareholders cannot close their account
by writing a check. When an account is closed, shares will be redeemed at
the next determined net asset value. An account may be closed by
telephone, wire transfer or by mail as explained above in the section
"How To Redeem Shares."
Other Fees and Services
Returned Investment Check Fee. Shareholders 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, the
shareholder will be given 30 days written notice, during which time the
shareholder may increase the balance to avoid having the account closed.
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
IRAs
Individual Retirement Accounts ("IRAs") may be opened with a reduced minimum
investment of $500. Even though they may be nondeductible or partially
deductible, IRA contributions up to the allowable annual limits may be made,
and the earnings on such contributions will accumulate tax-free until
distribution.
Annual IRA Fee. Mosaic currently charges an annual fee of $12 per
shareholder (not per IRA account) invested in an IRA at Mosaic. This fee
may be prepaid by the shareholder. A separate application is required for
IRA accounts.
Keogh Plans
Mosaic also offers Keogh (or H.R. 10) plans for self-employed individuals
and their employees, which enable them to obtain tax-sheltered retirement
benefits similar to those available to employees covered by other qualified
retirement plans.
Annual Keogh Fee. Currently Mosaic charges an annual fee of $15 per
shareholder (not per Keogh account) invested in a Keogh at Mosaic.
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.
Telephone Numbers
Shareholder Service
Washington, DC area: 703/528-6500
Toll-free nationwide: 888/670-3600
The Mosaic Family of Mutual Funds
Mosaic Equity Trust
Investors Fund
Balanced Fund
Mid-Cap Growth Fund
Worldwide Growth Fund
Mosaic Income Trust
High Yield Fund
Government Fund
Mosaic Bond Fund
Mosaic Tax-Free Trust
Arizona Fund
Maryland Fund
Missouri Fund
Virginia Fund
National Fund
Money Market
Mosaic Government Money Market
For more complete information on any Mosaic Fund,
including charges and expenses, request a prospectus by
calling the numbers above. Read it carefully before you
invest or send money. This prospectus does not constitute an
offering by the distributor in any jurisdiction in which such
offering may not be lawfully made.
Mosaic Funds
1655 Fort Myer Drive
Arlington Virginia 22209
http://www.mosaicfunds.com
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Dated July 31, 1997
For use with Government Fund and High Yield Fund Prospectus dated July
31, 1997 and with Mosaic Bond Fund Prospectus dated June 13, 1997.
Mosaic Income Trust
1655 Fort Myer Drive
Arlington, VA 22209-3108
(800) 336-3063
(703) 528-6500
This Statement of Additional Information is not a Prospectus. It should
be read in conjunction with the Prospectuses of Mosaic Income Trust
bearing the dates indicated above (the "Prospectuses"). A copy
of the Prospectuses may be obtained from the Trust at the address and
telephone numbers shown.
Table of Contents
Introductory Information
("About Mosaic Income Trust") 2
Supplemental Investment Policies
("Investment Objectives" and "Investment Policies") 2
Investment Limitations
("Investment Policies") 5
The Investment Advisor
("Management of the Trust") 6
Organization of the Trust
("The Trust and Its Shares") 7
Trustees and Officers
("Management of the Trust") 8
Administrative and Other Expenses
("Management of the Trust") 9
Fund Transactions
("Management of the Trust") 10
Shareholder Transactions
("How to Purchase Shares") 10
Redemptions
("How to Redeem Shares") 11
Retirement Plans
("Other Fees and Services") 12
Declaration of Dividends
("Dividends") 12
Determination of Net Asset Value
("Net Asset Value") 13
Additional Tax Matters
("Taxes") 13
Yield and Total Return Calculations
("Performance Information") 14
Custodians and Special Custodians 15
Legal Matters and Independent Auditors
("Financial Highlights") 16
Additional Information 16
Financial Statements and Report of Independent Auditors
("Financial Highlights") 16
Quality Ratings
("Investment Policies") 16
Note: The items appearing in parentheses above are cross
references to sections in the Prospectuses which correspond to the
sections of this Statement of Additional Information.
Introductory Information
Mosaic Income Trust (the "Trust") issues three series of shares:
Government Fund shares, High Yield Fund shares
and Mosaic Bond Fund shares.
Government Fund shares represent interests in a portfolio of
Government Securities (the "Government Fund"). High Yield
Fund shares represent interests in a portfolio of
lower-grade debt securities, rated not lower than CCC or Caa or
of equivalent quality (the "High Yield Fund"). Before May 12,
1997, the High Yield Fund was known as the Maximum
Income Portfolio.
Mosaic Bond Fund shares represent interests in a
portfolio of investment grade corporate debt securities, Government
Securities and short-term fixed income securities. These
Funds are described more fully below (see "Supplemental
Investment Policies").
Supplemental Investment Policies
The investment objectives of the Trust are described in the
Prospectus (see "Investment Objective"). Reference should also be
made to the Prospectus for general information concerning the
Trust's investment policies for each of its Funds (see
"Investment Policies"). The Trust seeks to achieve its investment
objectives through diversified investment by each of its
Funds, principally in debt securities.
Unless described herein or in the Prospectus, the Trust will
not invest in what are generally considered to be "derivative"
securities. Any deviation from this policy must be approved
by the Trustees in advance.
The quality rating classifications for debt securities of "High
Grade," "Upper Medium Grade," "Lower Medium Grade" and "Low
Grade" are defined below (see "Quality Ratings"). For unrated
debt securities the Advisor may make its own determinations of
those investments it assigns to each quality rating
classification, as part of the exercise of its investment
discretion on behalf of the Trust, but such determinations will
be made by reference to the rating criteria followed by
recognized rating agencies (see "Quality Ratings"). Any unrated
securities purchased for the High Yield Fund will be of
comparable quality to the rated securities that may be purchased
for the same Fund. The Advisor's quality classification
procedures will be subject to review by the Trustees.
Basic Investment Policies. The Government Fund seeks to
invest solely in U.S. Government securities. The High Yield
Fund seeks to invest in debt securities offering the highest
yields, subject to the minimum quality rating for this Fund
described below. To the extent the investments selected for this
Fund have higher yields than alternative investments, they
may be less liquid, have lower-quality ratings and entail more
risk that their value could fall than comparable investments with
lower yields. (See "Quality Ratings" for the investment
characteristics of lower-rated securities.)
The Madison Bond Fund invests in corporate debt securities and
obligations of the U.S. Government and its Agencies. Eligible corporate
debt securities must be accorded one of the four highest
quality ratings by Standard & Poor's or Moody's or, if
unrated, judged by the Advisor to be of comparable
quality. Bonds rated A, AA, or AAA by Standard & Poor's or
Aaa, Aa, or A by Moody's indicate strong to high capacity
of the company to pay interest and repay principal.
However, the fourth highest rating, BBB, or Baa 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. Securities
rated Baa are regarded by Moody's as having some
speculative characteristics.
Other Policies. The Trust will not invest more than 25% of the
assets of a Fund in any one industry. Although the
investment policies of the Trust contemplate that each of its
Funds will be principally invested in longer-term debt
securities, investment management considerations will mean that a
portion of each Fund will normally be invested in short-term
investments. The short-term investments in which the Trust may
invest are described below. The Trust also reserves the right to
maintain a portion of the assets of any Fund in uninvested
cash when deemed advisable.
During defensive periods the Trust may also invest up to 100% of
its assets in short-term investments, including without
limitation in U.S. Government securities and the money market
obligations of domestic banks, their branches and other domestic
depository institutions (see "Investment Limitations").
Short-Term Investments. The "short-term investments" in which the
Trust may invest 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 a quality rating appropriate to the
respective Fund of the Trust; and (4) repurchase agreements
involving any of the foregoing securities or long-term debt
securities of the type in which the respective Fund of the
Trust could invest directly.
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. 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.
The Trust will not invest in non-transferable time deposits
having 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").
Specialized Investment Techniques. In order to achieve its
investment objective, the Trust may use, when the Advisor deems
appropriate, certain specialized investment techniques. Such
specialized investment techniques principally include those
identified in the Prospectus (see "Investment Policies"), which
are described more fully below:
1. When-Issued Securities. The Trust may purchase and sell
securities on a when-issued or delayed delivery basis. When-
issued and delayed delivery transactions arise when securities
are bought or sold with payment for and delivery of the
securities scheduled to take place at a future time. Frequently
when newly issued debt securities are purchased, payment and
delivery may not take place for 15 to 45 days after the Trust
commits to the purchase. Fluctuations in the value of securities
contracted for future purchase settlement may increase changes in
the value of the respective Fund, because such value changes
must be added to changes in the values of those securities
actually held in the Fund during
the same period. When-issued transactions represent a form of
leveraging; the Trust will be at risk as soon as the when-issued
purchase commitment is made, prior to actual delivery of the
securities purchased.
When engaging in when-issued or delayed delivery transactions,
the Trust must rely upon the buyer or seller to complete the
transaction at the scheduled time; if the other party fails to do
so, then the Trust might lose a purchase or sale opportunity that
could be more advantageous than alternative opportunities
available at the time of the failure. If the transaction is
completed, intervening changes in market conditions or the
issuer's financial condition could make it less advantageous than
investment alternatives otherwise available at the time of
settlement.
While the Trust will only commit to securities purchases that it
intends to complete, it reserves the right, if deemed advisable,
to sell any securities purchase contracts before settlement of
the transaction; in any such case the Trust could realize either
a gain or a loss, despite the fact that the original transaction
was never completed. When fixed yield contracts are made for the
purchase of when-issued securities, the Trust will maintain in a
segregated account designated investments which are liquid or
mature prior to the scheduled settlement and cash sufficient in
aggregate value to provide adequate funds for completion of the
scheduled purchase.
2. Securities with Variable Interest Rates. Some of the
securities purchased by the Trust may carry variable interest
rates. Securities with variable interest rates normally are
adjusted periodically to pay an interest rate which 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, but less risk of market
value fluctuations than longer-term securities having fixed
interest rates. When interest rates generally are falling, the
yields of variable rate securities will tend to fall, while when
rates are generally rising variable rate yields will tend to
rise.
Variable rate securities may not be rated and may not have a
readily available secondary market. To the extent these
securities are illiquid, they will be subject to the Trust's 10%
limitation on investments in illiquid securities (see "Investment
Limitations"). The Trust's 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.
The Advisor 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.
3. Repurchase Agreement Transactions. A repurchase agreement
involves the acquisition of 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, in that they may be for very short
periods, including frequently 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. It is the Trust's policy to limit the financial
institutions with which it engages in repurchase agreements to
banks, savings and loan associations and securities dealers
meeting financial responsibility standards prescribed in
guidelines adopted by the Trustees.
When investing in repurchase agreements, the Trust could be
subject to the risk that the other party may not complete the
scheduled repurchase and the Trust would then be left holding
securities it did not expect to retain. If those securities
decline in price to a value less than the amount due at the
scheduled time of repurchase, then the Trust could suffer a loss
of principal or interest. The Advisor will follow procedures
designed to assure that repurchase agreements acquired by the
Trust are always at least 100% collateralized as to principal and
interest. It is the Trust's policy to require delivery of
repurchase agreement collateral to its Custodian or, in the case
of book entry securities held by the Federal Reserve System, that
such collateral is 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, the Trust could encounter
difficulties and might incur losses upon the exercise of its
rights under the repurchase agreement.
To the extent the Trust requires cash to meet redemption requests
and determines that it would not be advantageous to sell
Fund securities to meet those requests, or to the extent the
Trust wishes to obtain cash for a more advantageous investment,
then it may sell its Fund securities to another investor
with a simultaneous agreement to repurchase them. Such a
transaction is commonly called a "reverse repurchase agreement."
It would have the practical effect of constituting a loan to the
Trust, the proceeds of which would be used either for other
investments or to meet cash requirements from redemption
requests. If the Trust engages in reverse repurchase agreement
transactions, it will either maintain in a segregated account
designated High Grade investments which are liquid or mature
prior to the scheduled repurchase and cash sufficient in
aggregate value to provide adequate funds for completion of the
repurchase. It is the Trust's current operating policy not to
engage in reverse repurchase agreements for any purpose, if as a
result reverse repurchase agreements in the aggregate would
exceed 5% of the Trust's total assets.
4. Loans of Fund Securities. The Trust, in certain
circumstances, may be able to earn additional income by loaning
Fund securities to a broker-dealer or financial institution.
The Trust 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 will pay to the Trust all interest income earned on the
loaned securities; at the same time the Trust will also be able
to invest any cash portion of the collateral or otherwise will
charge a fee for making the loan, thereby increasing its overall
return. It is the Trust's policy that it shall have the option to terminate any
loan of Fund securities at any time upon seven days' notice
to the borrower. In making 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, which would leave
the Trust with the collateral maintained against the loan; if the
collateral were of insufficient value, the Trust could suffer a
loss. The Trust may pay fees for the placement, administration
and custody of securities loans, as it deems appropriate.
Any loans by the Trust of Fund securities will be made in
accordance with applicable guidelines established by the
Securities and Exchange Commission or the Trustees. In
determining whether to lend securities to a particular broker,
dealer or other financial institution, the Advisor will consider
the creditworthiness of the borrowing institution. The Trust will
not enter into any securities lending agreement having a duration
of greater than one year.
5. Financial Futures Contracts. The Trust may use financial
futures contracts, including contracts traded on a regulated
commodity market or exchange, to purchase or sell securities
which the Trust would be permitted to purchase or sell by other
means. A futures contract on a security is a binding contractual
commitment which, 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, the Trust will legally
obligate itself to accept delivery of the underlying securities
and pay the agreed price; by selling a futures contract it will
legally obligate itself to make delivery of the security against
payment of the agreed price. The Trust will use financial futures
contracts only where it intends to take or make the required
delivery of securities; however, if it is economically more
advantageous to do so, the Trust may acquire or sell the same
securities in the open market prior to the time the purchase or
sale would otherwise take place according to the contract 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. Short futures
contracts may be used as a hedge against a decline in the value
of an investment by locking in a future sale price for the
securities specified for delivery against the contract. Long
futures contracts may be used 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; such transactions may result in either a gain or
a loss, which when part of a hedging transaction, would be
expected to offset corresponding losses or gains on the hedged
securities.
The Trust intends to use financial futures contracts 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, the
Trust 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 its
futures transactions, and it will be required to deposit and
maintain cash or U.S. Government securities with brokers as
margin to guarantee performance of its futures obligations. When
purchasing securities by means of futures contracts the Trust
will maintain in separate accounts (including brokerage accounts
used to maintain the margin required by the contracts) High Grade
investments which are liquid or which mature prior to the
scheduled purchase and cash sufficient in aggregate value to
provide adequate funds for completion of the purchase. While
futures will be utilized to reduce the risks of interest rate
fluctuations, futures trading itself entails certain other risks.
Thus, while the Trust may benefit from the use of financial
futures contracts, unanticipated changes in interest rates may
result in a poorer overall performance than if the Trust had not
entered into any such contracts.
6. Foreign Securities. The Trust may invest a portion of a
Fund's assets in securities of foreign issuers that are
listed on a recognized domestic or foreign exchange without
restriction. Foreign investments involve certain special
considerations not typically associated with domestic
investments. Foreign investments may be denominated in foreign
currencies and may require the Trust to hold temporary foreign
currency bank deposits while transactions are completed; although
the Trust might therefore benefit from favorable currency
exchange rate changes, it could also be affected adversely by
changes in exchange rates, by currency control regulations and by
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.
Maturities. As used in this Statement of Additional Information
and in the Prospectus, the term "effective maturity" means either
the actual stated maturity of the investment, the time between
its scheduled interest rate adjustment dates (for variable rate
securities), or the time between its purchase settlement and
scheduled future resale settlement pursuant to a resale or
optional resale under fixed
terms arranged in connection with the purchase, whichever period
is shorter. A "stated maturity" means the time scheduled for
final repayment of the entire principal amount of the investment
under its terms. "Short-term" means a maturity of one year or
less, while "long-term" means a longer maturity.
Policy Review. If, in the judgment of a majority of the Trustees
of the Trust, unanticipated future circumstances make inadvisable
continuation of the Trust's policy of seeking high current income
from investment principally in long-term debt securities, or
continuation of the more specific policies of each Fund,
then the Trustees may change any such policies without
shareholder approval, subject to the limitations provided
elsewhere in this Statement of Additional Information (see
"Investment Limitations") and after giving 30 days' written
notice to the Trust's shareholders affected by the change.
Except for the fundamental investment limitations placed upon the
Trust's activities, the Trustees reserve the right to review and
change the other investment policies and techniques employed by
the Trust, from time to time as they deem appropriate, in
response to market conditions and other factors. Reference should
be made to "Investment Limitations" for a description of those
fundamental investment policies which may not be changed without
shareholder approval. Such fundamental policies would permit the
Trust, after notice to shareholders but without a shareholder
vote, to adopt policies permitting a wide variety of investments,
including money market instruments, all types of common and
preferred equity securities, all types of long-term debt
securities, convertible securities, and certain types of option
contracts. In the event of such a policy change, a change in the
Trust's name might be required. There can be no assurance that
the Trust's present objectives will be achieved.
Investment Limitations
The Trust has adopted as fundamental policies the following
limitations on its investment activities, which apply to each of
its Funds; these fundamental policies may not be changed
without a majority vote of the Trust's shareholders, as defined
in the Investment Company Act of 1940 (see "Organization of the
Trust").
1. Permissible Investments. Subject to the investment policies
from time to time adopted by the Trustees, the Trust may purchase
any type of securities under such terms as the Trust may
determine; and any such securities may be acquired pursuant to
repurchase agreements with financial institutions or securities
dealers or may be purchased from any person, under terms and
arrangements determined by the Trust, for future delivery. Any of
these securities may have limited markets and may be purchased
with restrictions on transfer; however, the Trust may not make
any investment (including repurchase agreements) for which there
is no readily available market and which may not be redeemed,
terminated or otherwise converted into cash within seven days,
unless after making the investment not more than 10% of the
Trust's net assets would be so invested. Securities of foreign
issuers not listed on a recognized domestic or foreign exchange
are considered to be illiquid securities and fall within this 10%
limitation.
2. Restricted Investments. Not more than 5% of the value of the
total assets of a Fund of the Trust may be invested 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 cash and cash items); nor may
securities be purchased when as a result more than 10% of the
voting securities of the issuer would be held by the Trust. To
the extent the Trust purchases securities other than obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities, obligations which provide income exempt from
federal income taxes, and short-term obligations of domestic
banks, their branches, and other domestic depository
institutions, the Trust will limit its investments so that not
more than 25% of the assets of each of its Funds are
invested in any one industry. For purposes of these restrictions,
the issuer is deemed to be the specific legal entity having
ultimate responsibility for performance of the obligations
evidenced by the security and whose assets and revenues
principally back the security. Any security that does not have a
governmental jurisdiction or instrumentality ultimately
responsible for its repayment may not be purchased by the Trust
when the entity responsible for such repayment has been in
operation for less than three years, if such purchase would
result in more than 5% of the total assets of the respective
Fund of the Trust being invested in such securities.
The Trust may not purchase the securities of other investment
companies, except for shares of unit investment trusts holding
securities of the type purchased by the Trust itself and then
only if the value of such shares of any one investment company
does not exceed 5% of the value of the total assets of the
Trust's Fund in which the shares are included and the
aggregate value of all such shares does not exceed 10% of the
value of such total assets, except in connection with an
investment company merger, consolidation, acquisition or
reorganization. The Trust may not purchase any security for
purposes of exercising management or control of the issuer,
except in connection with a merger, consolidation, acquisition or
reorganization of an investment company. The Trust may not
purchase or retain the securities of any issuer if, to the
knowledge of the Trust's management, the holdings of those of the
Trust's officers, Trustees and officers of its Advisor who
beneficially hold one-half percent or more of such securities,
together exceed 5% of such outstanding securities.
3. Borrowing and Lending. It is a fundamental policy of the Trust
that it may borrow (including engaging in reverse repurchase
agreement transactions) in amounts not exceeding 25% of its total
assets for investment purposes. The Trust may not otherwise issue
senior securities representing indebtedness and may not pledge,
mortgage or hypothecate any assets to secure bank loans, except
in amounts not exceeding 15% of its net assets taken at cost.
The Trust may loan its Fund securities in an amount not in
excess of one-third of the value of the Trust's gross assets,
provided collateral satisfactory to the Trust's Advisor is
continuously maintained in amounts not less than the value of the
securities loaned. The Trust may not lend money (except to
governmental units), but is not precluded from entering into
repurchase agreements or purchasing debt securities.
4. Other Activities. The Trust may not act as an underwriter
(except for activities in connection with the acquisition or
disposition of securities intended for or held by one of the
Trust's Funds), make short sales or maintain a short
position (unless the Trust owns at least an equal amount of such
securities, or securities convertible or exchangeable into such
securities, and not more than 25% of the Trust's net assets is
held as collateral for such sales). Nor may the Trust purchase
securities on margin (except for customary credit used in
transaction clearance), invest in commodities, purchase interests
in real estate, real estate limited partnerships or invest in
oil, gas or other mineral exploration or development programs or
oil, gas or mineral leases. However, the Trust may purchase
securities secured by real estate or interests therein and may
use financial futures contracts, including contracts traded on a
regulated commodity market or exchange, to purchase or sell
securities which the Trust would be permitted to purchase or sell
by other means and where the Trust intends to take or make the
required delivery. The Trust may acquire put options in
conjunction with a purchase of Fund securities; it may also
purchase put options and write call options covered by securities
held in the respective Fund (and purchase offsetting call
options in closing purchase transactions), provided that the put
option purchased or call option written at all times remains
covered by Fund securities, whether directly or by
conversion or exchange rights; but it may not otherwise invest in
or write puts and calls or combinations thereof. Investments in
warrants, valued at the lower of cost or market, may not exceed
5% of the Trust's net assets and included within that amount, but
not to exceed 2% of the value of the Trust's assets, may be
warrants which are not listed on the New York or American Stock
Exchanges.
Except as otherwise specifically provided, the foregoing
percentage limitations need only be met when the investment is
made or other relevant action is taken. As a matter of operating
policy in order to comply with certain applicable state
restrictions, but not as a fundamental policy, the Trust will not
pledge, mortgage or hypothecate in excess of 10% of a Fund's
total assets taken at market value. Although permitted to do so
by its fundamental policies, it is the Trust's current policy not
to acquire put options or write call options for the Government
and High Yield Funds.
Notwithstanding the Trust's fundamental policies, it does not
presently intend to borrow (including engaging in reverse
repurchase agreement transactions) for investment purposes nor to
borrow (including engaging in reverse repurchase agreement
transactions) for any purpose in amounts in excess of 5% of its
total assets. If the Trust were to borrow for the purpose of
making additional investments, such borrowing and investment
would constitute "leverage." Leverage would exaggerate the impact
of increases or decreases in the value of a Fund's total
assets on its net asset value, and thus increase the risk of
holding the Trust's shares. Furthermore, if bank borrowings by
the Trust for any purpose exceeded one-third of the value of the
Trust's total assets (net of liabilities other than the bank
borrowings), then the Investment Company Act of 1940 would
require the Trust, within three business days, to liquidate
assets and commensurately reduce bank borrowings until the
borrowing level was again restored to such one-third level. Funds
borrowed for leverage purposes would be subject to interest costs
which might not be recovered by interest, dividends or
appreciation from the respective securities purchases. The Trust
might also be required to maintain minimum bank balances in
connection with such borrowings or to pay line-of-credit
commitment fees or other fees to continue such borrowings; either
of these requirements would increase the cost of the borrowing.
In connection with the Trust's limitation on the industry
concentration of its investments, domestic banks and their
branches may include the domestic branches of foreign banks, to
the extent such domestic branches are subject to the same
regulation as United States banks; but they will not include the
foreign branches of domestic banks unless the obligations of such
foreign branches are unconditionally guaranteed by the domestic
parent.
If the Trust alters any of the foregoing current operating
policies (relating to financial futures contracts, options,
warrants or borrowing), it will notify shareholders of the policy
revision at least 30 days prior to its implementation and
describe the new investment techniques to be employed. In the
implementation of its investment policies the Trust will not
consider securities to be readily marketable unless they have
readily available market quotations.
The Investment Advisor
Bankers Finance Advisors, LLC, 1655 Fort Myer
Drive, Arlington, Virginia 22209-3108, is the investment Advisor
to the Trust and is called the "Advisor" throughout this
Statement of Additional Information and the Prospectus. The
Advisor is responsible for the investment management of the Trust
and is authorized to execute the Trust'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 the Trust as it deems
advisable. In the execution of these responsibilities, the
Advisor is subject to the investment policies and limitations of
the Trust described in the Prospectus and this Statement of
Additional Information, to the terms of the Declaration of Trust
and the Trust's By-Laws, and to written directions given from
time to time by the Trustees.
The Advisor is a Wisconsin limited liability company owned by
Madison Investment Advisors, Inc. ("Madison"), whose
principal offices are at 6411 Mineral Point Road, Madison,
Wisconsin. Madison is a registered investment Advisor which
has numerous advisory clients. Madison was founded in 1973 and
has no other business affiliations other than those described
in the Prospectus and this Statement of Additional Information.
This investment advisory agreement between the Trust, on behalf
of the portfolios, and the Advisor is subject to annual review
and approval by the Trustees, including a majority of those who
are not "interested persons," as defined in the Investment
Company Act of 1940. The investment advisory agreement was
approved by shareholders for an initial two year term at a special
meeting of the Government and High Yield Fund's
shareholders held in July 1996 and by the initial shareholder of
the Mosaic Bond Fund in 1997.
The investment advisory agreement may be terminated at any time,
without penalty, by the Trustees or, with respect to any series
or class of the Trust's shares, by the vote of a majority of the
outstanding voting securities of that series or class (see
"Organization of the Trust"), or by the Advisor, upon sixty days'
written notice to the other party. The investment advisory
agreement may not be assigned by the Advisor, and will
automatically terminate upon any assignment.
Background of the Advisor. The Advisor was formed in 1996 by
Madison for the purpose of providing investment management
services to the Mosaic family of mutual funds, including the Trust.
The Advisor purchased the investment management assets of the
former Advisor to the Trust, Bankers Finance Investment
Management Corp. on July 31, 1996. With respect to the
Government Fund and the High Yield Fund,
for periods prior to July 31, 1996, references in this
Statement of Additional Information and in the Prospectus
to the "Advisor" refer to Bankers Finance Investment Management
Corp. The Advisor also serves as the investment Advisor to
Government Investors Trust, Mosaic Equity Trust and Mosaic Tax-Free
Trust.
Management. Frank E. Burgess is President, Treasurer and
Director of Madison and Vice President of the Advisor.
Mr. Burgess owns a majority of the common stock of Madison,
which, in turn, controls the Advisor. Mr. Burgess is also a Trustee and
Vice President of the Trust. Mr. Burgess holds the same positions
with Government Investors Trust, Mosaic Equity Trust and
Mosaic Tax-Free Trust. Katherine L. Frank is President and Treasurer
of the Advisor and Vice President of Madison. Ms. Frank holds the
same positions with Government Investors Trust, Mosaic Equity Trust and
Mosaic Tax-Free Trust.
Advisory Fee and Expense Limitations. For its services under the
Investment Advisory Agreement, the Advisor receives a fee,
payable monthly, calculated as 5/8 percent per annum of the
average daily net assets of the Government and High Yield
Funds and 1/2 percent per annum of the
average daily net assets of the Mosaic Bond Fund during
the month. The Advisor may waive or reduce such fee during any
period. The Advisor may also reduce such fee on a permanent
basis, without any requirement for consent by the Trust or its
shareholders, under such terms as it may determine, by written
notice thereof to the Trust.
The Advisor has agreed, in any event, to be
responsible for the fees and expenses of the Trustees and
officers of the Trust who are affiliated with the Advisor, the
rent expenses of the Trust's principal executive office premises,
and its various promotional expenses (including the distribution
of Prospectuses to potential shareholders). Other than investment
management and the related expenses, and the foregoing items, the
Advisor is not obligated to provide or pay for any other services
to the Trust, although it has discretion to elect to do so. The
Investment Advisory Agreement permits the Advisor to make
payments out of its fee to other persons.
During the fiscal year ended March 31, 1997, the Advisor received
advisory fees of $39,438 with respect to the Government Fund
and $40,413 with respect to the High Yield Fund. During
the fiscal year ended March 31, 1996, the Advisor received
advisory fees of $46,093 with respect to the Government Fund
and $42,986 with respect to the High Yield Fund. During
the fiscal year ended March 31, 1995, the Advisor received
advisory fees of $48,356 with respect to the Government Fund
and $44,235 with respect to the High Yield Fund.
During the fiscal years ended December 31, 1996, 1995 and
1994, Madison, as the Advisor to Madison Bond Fund, Inc.,
the predecessor to the Mosaic Bond Fund, received
advisory fees of $23,878, $30,159 and $41,658, respectively.
Organization of The Trust
The Trust's Declaration of Trust, dated November 18, 1982, has
been filed with the Secretary of State of the Commonwealth of
Massachusetts and the Clerk of the City of Boston, Massachusetts.
The Prospectus contains general information concerning the
Trust's form of organization and its shares, including the series
of shares currently authorized (see "The Trust and Its Shares").
Series and Classes of Shares. The Trustees may authorize at any
time the creation of additional series of shares (the proceeds of
which would be invested in separate, independently managed
Funds) and 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, methods of share distribution or other unforeseen
circumstances) with such preferences, privileges, limitations,
and voting and dividend rights as the Trustees may determine. All
consideration 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 the liabilities related thereto. The
Investment Company Act of 1940 would require the Trust to submit
for the approval of the shareholders of any such additional
series or class, any adoption of an investment advisory contract
or any changes in the Trust's fundamental investment policies
related to the series or class.
The Trustees may divide or combine the shares of any series into
a greater or lesser number of shares without thereby changing the
proportionate interests in the series. Any assets, income and
expenses of the Trust not readily identifiable as belonging to a
particular series are allocated by or under the direction of the
Trustees in such a manner as they deem fair and equitable. Upon
any liquidation of the Trust or of a series of its shares, the
shareholders are entitled to share pro-rata in the liquidation
proceeds available for distribution. Shareholders of each series
have an interest only in the assets allocated to that series.
Voting Rights. The voting rights of shareholders are not
cumulative, so that 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. As of June 27, 1997, Firstcinco, Trustee,
P.O. Box 118, Cincinnati, Ohio 45201 held 9% of the Government
Fund. No shareholders owned more than five percent of the
High Yield or Mosaic Bond Funds.
Shareholder votes relating to the election of Trustees, approval
of the Trust's selection of independent public auditors and any
contract with a principal underwriter, as well as any other
matter in which the interests of all shareholders are
substantially identical, will be voted upon without regard to
series or classes of shares. Matters that do not affect any
interest of a series or class of shares will not be voted upon by
the unaffected shareholders. Certain other matters in which the
interests of more than one series or class of shares are
affected, but where such interests are not substantially
identical, will be voted upon separately by each series or class
affected and will require a majority vote of each such series or
class to be approved by it. When a matter is voted upon
separately by more than one series or class of shares, it may be
approved with respect to a series or class even if it fails to receive a
majority vote of any other series or class or fails to receive a
majority vote of all shares entitled to vote on the matter.
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 matters requiring votes by the shareholders. The
selection of the Trust's independent auditors will be submitted
to a vote of ratification at any annual meeting held by the
Trust. Any change in the Declaration of Trust, in the Investment
Advisory Agreement (except for reductions of the Advisor's fee)
or in the fundamental investment policies of the Trust
must be approved by a majority of the affected shareholders
before it can become effective. For this purpose, a "majority"
of the shares of the Trust means either the vote, at an annual
or special meeting of the shareholders, of 67 percent or more
of the shares present at such meeting if the holders of more
than 50 percent of the outstanding shares of the Trust are
present or represented by proxy or the vote of 50 percent
of the outstanding shares of the Trust, whichever is less.
Voting groups will be comprised of separate series and
classes of shares or of all of the Trust's shares, as appropriate
to the matter being voted upon.
The Declaration of Trust provides that two-thirds of the holders
of record of the Trust's shares may remove a Trustee from office
either by declarations in writing filed with the Trust's
Custodian or by votes cast in person or by proxy at a meeting
called for the purpose. 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
Trustees to assist a shareholder solicitation to call such a
meeting by providing either a shareholder mailing list or an
estimate of the number of shareholders and approximate cost of
the shareholder mailing, in which 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 and requires that notice of such
disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The
Declaration of Trust provides for indemnification out of the
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 thereof. Thus, the risk of a
shareholder incurring financial loss on account of status as 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, except that they shall not be 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.
Trustees and Officers
The Trustees and executive officers of the
Trust and their principal occupations during the past five years
are shown below:
Frank E. Burgess ##
6411 Mineral Point Road, Madison, WI 53705
Trustee and Vice President
President and Director of Madison Investment Advisors, Inc.,
the advisor to Bascom Hill Investors, Inc., Bascom Hill
BALANCED Fund, Inc. and Madison Bond Fund, Inc.; director of
such funds since their inception. Prior to founding Madison
Investment Advisors, Inc. in 1973, he was Assistant Vice
President and Trust Officer of M&I Bank of Madison,
Wisconsin. He is a member of the State Bar of Wisconsin. b.
8/4/42.
James R. Imhoff, Jr.***
429 Gammon Place, Madison, WI 53719
Trustee
Chairman and CEO of First Weber Group, Inc. of Madison, WI,
a residential real estate company; Chairman of the Wisconsin
Real Estate Board of the Department of Regulation and
Licensing; Director to the University of Wisconsin School of
Business, Center for Urban Land Economics Research; Director
of the Park Bank, Wisconsin; formerly President of the
Wisconsin Realtors Association and the Greater Madison Board
of Realtors and Director of the National Association of
Realtors. An alumnus of the Marquette University School of
Business. b. 5/20/44.
Thomas S. Kleppe***
7100 Darby Road, Bethesda, MD 20817
Trustee
Private Investor; formerly Visiting Professor at the
University of Wyoming, Secretary of the U.S. Department of
the Interior, Administrator of the U.S. Small Business
Administration, U.S. Congressman from North Dakota, Vice
President and Director of Dain, Kalman & Quail, investment
bankers, and President of Gold Seal Co., manufacturers of
household cleaning products. Attended Valley City State
College of North Dakota. b. 7/1/19.
Lorence D. Wheeler***
PO Box 431, Madison, WI 53701
Trustee
President of Credit Union Benefits Services, Inc., a
provider of retirement plans and related services for credit
union employees nationwide. Previously a shareholder of the
law firm of Bell, Metzner & Gierart, SC. Mr. Wheeler
received his law degree from the University of Wisconsin.
b. 1/31/38.
Katherine L. Frank
6411 Mineral Point Road, Madison, WI 53705
President
President of Mosaic Investment Funds, Vice President
of Madison Investment Advisors, Inc. A graduate
of Macalester College, St. Paul, Minnesota.
Julia M. Nelson
1655 Fort Myer Drive, Arlington, VA 22209-3108
Vice President
Vice President of Mosaic Investment Funds.
Jay R. Sekelsky
6411 Mineral Point Road, Madison, WI 53705
Vice President
Vice President of Mosaic Investment Funds and of
Madison Investment Advisors, Inc. Formerly Vice President
of Wellington Management Group of Boston, MA.
Mr. Sekelsky holds a BBA in Accounting and an MBA in
Finance from the University of Wisconsin.
Christopher C. Berberet
6411 Mineral Point Road, Madison, WI 53705
Vice President
Vice President of Mosaic Investment Funds and of
Madison Investment Advisors, Inc. Formerly the
Director of Fixed Income Management for the
ELCA Board of Pensions, Minneapolis, MN. A
graduate of the University of Wisconsin.
W. Richard Mason
1655 Ft. Myer Drive, Arlington, VA 22209
Secretary
Secretary of Mosaic Investment Funds, Mosaic Investment
Services, Inc., Presidential Savings Bank, FSB and
Presidential Service Corporation. Formerly Assistant
General Counsel for the Investment Company
Institute. Mr. Mason holds a BS in Foreign Service
from Georgetown University and received his law
degree from The George Washington University. He is
a member of the District of Columbia and Texas bars.
## Trustee deemed to be an "interested person" of the Trust as the
term is defined in the Investment Company Act of 1940. Only those
persons named in the table of Trustees and officers who are not
interested persons of the Trust are eligible to be compensated by
the Trust.
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 Trustees' meetings are currently scheduled to take
place each year. The Trustees have stipulated that their compensation
will be at 25% of the regular rate until the net assets of the Trust reach
$25 million and 50% of the regular rate until the net assets of the
Trust reach $50 million. In addition to such compensation, those Trustees
who may be compensated by the Trust shall be reimbursed for any
out-of-pocket expenses incurred by them in connection with the
affairs of the Trust. Mr. Kleppe will receive annual compensation
from the Trust and from the other investment companies managed
by the Advisor or Madison (see "the Investment Advisor") totaling
$15,000.
Mr. Imhoff and Mr. Wheeler will receive annual
compensation from the Trust and from other investment companies
managed by the Advisor or Madison totaling $18,000 through June 13,
1997, and thereafter will be compensated the same as Mr. Kleppe.
During the last fiscal year of the Trust, the Trustees were compensated
as follows:
Total
Pension or Compensation
Retirement from
Aggregate Benefits Estimated Portfolios
Compensa- Accrued as Annual and Fund
tion part of Benefits Complex
from Portfolios Upon Paid to
Portfolios Expense Retirement Trustees(a)
Frank E. Burgess 0 0 0 0
Thomas S. Kleppe 1,000 0 0 15,000
James R. Imhoff, Jr.(b) 750 0 0 18,000
Lorence D. Wheeler(b) 750 0 0 18,000
(a) Prior to June 13, 1997, the complex was comprised of 4 trusts and three
corporations with a total of 16 funds and/or series. As of the
effective date of this Statement of Additional Information,
the complex is comprised of 4 trusts with a total of 15 funds
and/or series.
(b) Messrs. Imhoff and Wheeler joined the Board of Trustees on
July 31, 1996.
***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.
Under the Declaration of Trust, the Trustees are entitled to be
indemnified by the Trust to the fullest extent permitted by law
against all liabilities and expenses reasonably incurred by them
in connection with any claim, suit or judgment or other liability
or obligation of any kind in which they become involved by virtue
of their service as Trustees of the Trust, except 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.
As of June 27, 1997, the Trustees and officers of the Trust
directly or indirectly owned as a group less than 10% of the
Government Fund and less than 1% of the High Yield
Fund.
Administrative and Other Expenses
Except for certain expenses assumed by the Advisor (see "The
Investment Advisor"), the Trust is responsible for payment from
its assets of all of its expenses. These expenses can include any
of the business or other expenses of organizing, maintaining and
operating the Trust. Certain expense items which may represent
significant costs to the Trust include the payment of the
Advisor's fee; the expense of shareholder accounting, customer
services, and calculation of net asset value; the fees of the
Custodian; of the Trust's independent auditors; and of legal
counsel to the Trust; the expense of registering the Trust and
its shares; of printing and distributing prospectuses and
periodic financial reports to current shareholders; of trade
association membership; and the expense of preparing shareholder
reports, proxy materials and of holding shareholder meetings of
the Trust. The Trust is also responsible for any extraordinary or
non-recurring expenses it may incur.
Services Agreement. The Trust does not have any officers or
employees who are paid directly by the Trust. The Trust has
entered into a Services Agreement with the Advisor for the
provision of operational and other services required by the
Trust. Such services may include the functions of shareholder
servicing agent and transfer agent; bookkeeping and portfolio
accounting services; the handling of telephone inquiries, cash
withdrawals and other customer service functions including
monitoring wire transfers; and providing to the Trust appropriate
supplies, equipment and ancillary services necessary to the
conduct of its affairs. 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 provided
to the Trust under the Services Agreement, the Trust itself is
solely responsible for its transfer agent and dividend payment
functions and for the supervision of those functions by its
officers.
All such services provided to the Trust by the Advisor are
rendered at a flat fee reviewed and approved annually
by the Trustees. Such fee is expected to approximate
the cost of providing such services. The term "cost"
includes both direct expenditures and the related overhead
costs, such as depreciation, employee supervision, rent and the like;
reimbursements to the Advisor pursuant to the Services Agreement
are in addition to and independent of payments made pursuant to
the Investment Advisory Agreement. The Advisor provides
such services to Mosaic Equity Trust, Mosaic Tax-Free Trust and
Mosaic Government Money Market.
The Trust will also pay certain direct expenses (including
custody, brokerage, bluesky, legal and audit). To the extent that costs
must be allocated among the Trust and other activities of the Advisor,
such allocations may be made on the basis of reasonable approximations
calculated by the Advisor and periodically reviewed by the Trustees.
Distribution Agreement. GIT Investment Services, Inc. acts as the
Trust's Distributor and principal underwriter under a
Distribution Agreement, dated January 11, 1983, as amended and
restated as of July 3, 1985. The Distribution Agreement had an
initial term of two years and may thereafter continue in effect
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 Distributor may act as the
Trust's agent for any sales of its shares. The Trust may also
sell its shares directly to any party. The Distributor makes the
Trust's shares continuously available to the general public in those
States where it has qualified to do so, but has assumed no
obligation to purchase any of the Trust's shares. The Distributor
is wholly owned by A. Bruce Cleveland, its President.
Fund Transactions
Decisions as to the purchase and sale of securities for the
Trust, and decisions as to the execution of these transactions,
including selection of market, broker or dealer and the
negotiation of commissions are, where applicable, to be made by
the Advisor, subject to review by the officers and Trustees of
the Trust.
In general, in the purchase and sale of Fund securities the
Trust will seek to obtain prompt and reliable execution of orders
at the most favorable prices or yields. In determining the best
price and execution, the Advisor may take into account a dealer's
operational and financial capabilities, the type of transaction
involved, the dealer's general relationship with the Advisor, and
any statistical, research or other services provided by the
dealer to the Advisor. To the extent such non-price factors are
taken into account the execution price paid may be increased, but
only in reasonable relation to the benefit of such non-price
factors to the Trust as determined in good faith by the Advisor.
Brokers or dealers who execute Fund transactions for the
Trust may also sell its shares; however, any such sales will not
be either a qualifying or disqualifying factor in the selection
of brokers or dealers. During its three most recent fiscal years,
the Trust paid no aggregate brokerage commissions.
Owing to the nature of the market for debt securities, the Trust
expects that most Fund transactions will be made directly
with an underwriter, issuer or dealer acting as a principal, and
thus will not involve the payment of commissions, although
purchases from an underwriter will involve payments of fees and
concessions by the issuer to the underwriting group. The Trust
also reserves the right to purchase Fund securities through
an affiliated broker, when deemed in the Trust's best interests
by the Advisor, provided that: (1) the transaction is in the
ordinary course of the broker's business; (2) the transaction
does not involve a purchase from another broker or dealer; (3)
compensation to the broker in connection with the transaction is
not 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, are not less
favorable to the Trust than terms concurrently available from
other sources. Any compensation paid in connection with such a
purchase will be in addition to fees payable to the Advisor under
the Investment Advisory Agreement. The Trust does not anticipate
that any such purchases through affiliates will represent a
significant portion of its total activity; no such transactions
took place during the Trust's three most recent fiscal years.
The Trust does not expect to engage in a significant amount of
short-term trading, but securities may be purchased and sold in
anticipation of market fluctuations, as well as for other
reasons. The Trust anticipates that annual Fund turnover for
each of its Funds generally will not exceed 100%. The actual
turnover rate, however, will not be a limiting factor if the
Trust deems it desirable to conduct purchases and sales of
Fund securities. Reference should be made to the Prospectus
for actual rates of portfolio turnover (see "Financial Highlights").
In valuing brokerage services, the Advisor makes a judgment
of the usefulness of research and other information and
services provided by a broker to the Advisor in managing the
Fund's investment portfolio. In some cases, the
information, e.g. data or recommendations concerning
particular securities, relates to the specific transaction
placed with the broker, but, for the greater part, the
research and services consist of a wide variety of
information concerning companies, industries, investment
strategy and economic, financial and political conditions
and prospects, some of which may be provided by
means of payment for the use of electronic services
providing such information, useful to the Advisor in
advising the Fund and other clients of the Advisor.
In compensating brokers for their services, the Advisor
takes into account the value of the information received for
use in advising the Fund. It is understood by the
Fund that other clients of the advisor might also
benefit from the information and services obtained. Where
the Fund and one or more clients of the Advisor are
simultaneously engaged in the purchase or sale of the same
security, the transactions will, to the extent possible, be averaged
as to price and allocated equitably. In most
cases, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of
the Fund.
Shareholder Transactions
The Prospectuses describe the basic procedures for investing in
the Trust (see "How to Purchase and Redeem Shares"). The
following information concerning other investment procedures is
presented to supplement the information contained in the
Prospectuses.
Shareholder Service Policies. The Trust's policies concerning
shareholder services are subject to change from time to time.
Minimum Initial Investment and Minimum Balance.
The Trust reserves the right to change the minimum account size below
which an account is subject to a monthly service charge or to
involuntary closing by the Trust. The Trust may also institute a
minimum amount for subsequent investments by 30 days written
notice to its shareholders.
Special Service Charges. The Trust further reserves the right,
after 30 days written notice to shareholders, to impose special
service charges for services that are not regularly afforded to
shareholders, such service charges may include but are not limited
to fees for stop payment orders and returned checks. The Trust's
standard service charges are also subject to adjustment from time
to time.
Share certificates will not be issued.
Subaccounting Services. The Trust offers 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, the Trust reserves the right to
impose the same minimum initial investment requirement that would
apply to regular accounts, if it deems that the cost of carrying
a particular subaccount or group of subaccounts is otherwise
likely to be excessive. The Trust may provide and charge for
subaccounting services which it determines exceed those services
which can be provided without charge; the availability and cost
of such additional services will be determined in each case by
negotiation between the Trust and the parties requesting the additional
services. The Trust is not presently aware of any such services for
which a charge will be imposed.
Crediting of Investments. The Trust reserves the right to reject
any investment in the Trust for any reason and may at any time suspend
all new investment in the Trust. The Trust may also, in its discretion or
at the instance of the Advisor, decline to give recognition as an
investment to funds wired for credit to either type of account,
until such funds are actually received by the Trust. Under
present federal regulatory guidelines, the Advisor may be
responsible for any losses resulting from changes in the Trust's
net asset value which are incurred by the Trust as a result of
failure to receive funds from a shareholder to whom recognition for
investment was given in advance of receipt of payment.
If shares are purchased to be paid for by wire and the wire is
not received by the Trust or if shares are purchased by a check
which, after deposit, is returned unpaid or proves uncollectible,
then the share purchase may be canceled immediately or the
purchased shares may be immediately redeemed. The shareholder that
gave notice of the intended wire or submitted the check will be
held fully responsible for any losses so incurred by the Trust,
the Advisor or the Distributor.
As a condition of the Trust's public offering (which the investor
will be deemed to have accepted by submitting an order for the
purchase of the Trust's shares) the Distributor shall have the
investor's power of attorney coupled with an interest,
authorizing the Distributor to redeem sufficient shares from any
fund of the shareholder for which it acts as a principal underwriter
or distributor, or to liquidate sufficient other assets held in
any brokerage account of the shareholder with the Distributor, and
to apply the proceeds thereof to the payment of all amounts due
to the Trust from the shareholder arising from any such losses. Any
such redemptions or liquidations will be limited to the amount of
the actual loss incurred by the Trust at the time the share
purchase is canceled and will be preceded by notice to the
shareholder and an opportunity for the shareholder to make restitution
of the amount of the loss. The Trust will retain any profits
resulting from such cancellations or redemptions and, if the
purchase payment was by a check actually received, will absorb
any such losses unless they prove recoverable.
Checks. Checks drawn on foreign banks will not be considered
received in federal funds until the Trust has actual receipt of
payment in immediately available U.S. dollars after submission of
the check for collection; collection of such checks through the
international banking system may require 30 days or more.
Wire. Funds received by wire are normally converted into shares in the
Trust at the net asset value next determined.
Purchase Orders from Brokers. An order to purchase shares
which is received by the Trust 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,
provided the broker received the order from its customer
prior to that time and transmitted it to the Trust prior to
4 p.m. EST. Shareholders who invest in the Trust through a
broker may be charged a commission for handling the
transaction. A shareholder may deal directly with the Trust
anytime to avoid the fee.
Redemptions
The value of shares redeemed will
be determined according to the share net asset value next
calculated after the request has been received in proper form.
(See "Determination of Net Asset Value.") Thus, any such request
received in proper form prior to 4 p.m. Washington, DC time on a
business day will reflect the net asset value calculated at that
time; later withdrawal requests will be processed to reflect the
share net asset value figure calculated on the next day the
calculation is made. The Trust calculates net asset values each
day the New York Stock Exchange is open for trading.
Net asset value determinations will apply as of the day the
redemption order is submitted in proper form. A redemption
request may not be deemed to be in proper form unless a signed
account application has been properly submitted to the Trust by
the shareholder or such an application is submitted with the
withdrawal request.
A shareholder draft check drawn against an account will not be
considered in proper form unless sufficient collected funds are
available in the account on the day the check is presented for
payment.
The "day of withdrawal" for share redemptions refers to the day
on which corresponding funds are paid out by the Trust, whether
by wire transfer, exchange between accounts, check, or debit of
the investor's account to cover a customer checks presented for
payment.
Shareholders should be aware that it is possible, should the share
net asset value of the respective Fund fall as a result of
normal market value changes, that amounts available for
withdrawal from an account could be less than the amount of the
original investment. All redemptions from the Trust will be
affected by the redemption of the appropriate number of whole and
fractional shares having a net asset value equal to the amount
withdrawn.
The Trust will use its best efforts in normal circumstances to
handle withdrawals within the times previously given. However, it
may for any reason it deems sufficient suspend the right of
redemption or postpone payment for any shares in the Trust for
any period up to seven days. The Trust's sole responsibility with
regard to withdrawals shall be to process, within the
aforementioned time period, 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. By law, payment for shares in the Trust may be
suspended or delayed for more than seven days only during any
period when the New York Stock Exchange is closed, other than
customary weekend and holiday closings; when trading on such
Exchange is restricted, as determined by the Securities and
Exchange Commission; or during any period when the Securities and
Exchange Commission has by order permitted such suspension.
Unless the shareholder's current address is on file with the
Trust in the original account Application or by means of
subsequent written notice signed by the authorized signers for
the account, then the Trust may require signed written
instructions to process withdrawals and account closings. In
response to verbal requests, however, redemption proceeds will
normally be mailed to the shareholder at the address shown on the
Trust's records, provided an original signed Application has been
received.
When an account is closed, the Trust reserves the right
to make payment by check of any final dividends declared to the
date of the redemption to close the account, but not yet paid, on
the same day such dividends are paid to other shareholders,
rather than at the time the account is closed.
Inter Fund Exchange. Funds exchanged between shareholder
accounts will earn its final days dividend on the day of exchange.
Same-day exchanges can only be made in circumstances that
would permit same-day wire redemptions from the account
being debited. All exchanges will be effected at the net asset
value per share of the respective accounts next determined after
the exchange request is received in proper form. If an
exchange is to be made between shareholder accounts that are
not held in the same name and tax identification number or do not
have the same mailing address or signatories, then the Trust may
require any transfer between them to be made by making a
redemption from one account and a corresponding investment in the
other using the same procedures that would apply to any other
withdrawal or investment.
The Trust reserves the right, when it deems such action necessary
to protect the interests of its shareholders, to refuse to honor
withdrawal 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 identity satisfactory to the Trust. The Trust reserves the
right to refuse any third party redemption requests.
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; except, however, that the Trust has
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, the Trust intends to pay for all share redemptions in
cash.
Retirement Plans
General information on retirement plans offered by the Trust is
provided in the Prospectus (see "Retirement Plans"). Additional
information concerning these retirement plans is provided below.
IRAs. The minimum initial contribution for an IRA plan with the
Trust is $500. Spousal IRAs are accepted by creating two
accounts, one for each spouse. For IRAs opened in connection with
a payroll deduction or SEP plan, the Trust may waive the initial
investment minimum on a case-by-case basis.
The Trust's annual account maintenance fee is deducted from the
account at the end of each year or at the time of the account's
closing unless prepaid by the shareholder.
Other Retirement Plans or Retirement Plan Accounts. The Trust
does not intend to impose any monthly minimum balance charge with
respect to IRA, Keogh or 403(b) accounts. The Trust offers
prototype Keogh, SEP IRA, SIMPLE, 401(k) and 403(b) retirement
plans. The Trust may waive the initial investment minimum for
prototype or other retirement plan accounts on a case by case
basis.
Declaration of Dividends
Substantially all of the Trust's accumulated net income is
declared as dividends, when calculated, each business day.
Calculation of accumulated net income for each of the Trust's
portfolios will be made just prior to calculation of the
portfolio's net asset value (see "Determination of Net Asset
Value"). The amount of such net income will reflect the interest
income (plus any discount earned less premium amortized), and
expenses accrued by the Fund reflected since the previously
declared dividends.
Realized capital gains and losses and unrealized appreciation and
depreciation are reflected as changes in net asset value per
share of the Trust's portfolios. Premium on securities purchased
is amortized daily as a charge against income.
Dividends are payable to shareholders of record at the time as of
which they are determined. Dividends are paid in the form of
additional shares of the Trust credited to the respective investor
account at the end of each calendar month (or normally when the
account is closed, if sooner), unless the shareholder makes a
written election to receive dividends in cash.
Notice of payment of dividends will be mailed to each shareholder
quarterly. For tax purposes each shareholder will also receive an
annual summary of dividends paid by the Trust and the extent to
which they constitute capital gains dividends (see "Additional
Tax Matters"). Any investor purchasing shares in an account of
the Trust as of a particular net asset value determination (4
p.m., Washington, DC time) on a given day will not be considered a
shareholder of record for the dividend declaration made that day;
but an investor withdrawing as of such determination 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.
Net realized capital gains, if any, will be distributed to
shareholders at least annually as capital gains dividends.
Determination of Net Asset Value
The net asset value of each portfolio of the Trust, and of the
respective shares, is calculated each day the New York Stock
Exchange is open for trading. Net asset value is not calculated
on New Year's Day, the observance of Washington's Birthday
(President's 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 net asset value calculation is made as of a specific time
of day, as described in the Prospectus.
Net asset value per share of each portfolio is determined by
adding the value of all its securities and other assets,
subtracting its liabilities and dividing the result by the total
number of outstanding shares that represent an interest in the
portfolio. These calculations are performed by the Trust and for
its account, pursuant to the Services Agreement (see
"Administrative and Other Expenses"). The Trust's shares are
redeemed at net asset value. Shares of the Trust are offered at
net asset value.
Securities for which current market quotations are readily
available are valued at the mean between their bid and ask
prices; securities for which current market quotations are not
readily available are valued at their fair value as determined in
good faith by the Trustees. Securities having a remaining
effective maturity of 60 days or less are valued at their
amortized cost, subject to the Trustees' determination that this
method reflects their fair value. The Trustees may authorize
reliance upon an independent pricing service for the
determination of securities values. An independent pricing
service may price securities with reference to market
transactions in comparable securities and to historical
relationships among the prices of comparable securities; such
prices may also reflect an allowance for the impact upon prices
of the larger transactions typical of trading by institutions.
The Trust's shares are priced by rounding their value to the
nearest one-tenth of one cent.
Valuation of Futures Contracts. Although initial margin must be
posted when financial futures contracts are acquired and a
maintenance margin may be required as the value of the contracts
changes, such margin deposits remain an asset of the respective
portfolio. Any financial futures contracts held by the portfolio
will be marked to the market each business day, so that the
difference between the contract price of the futures contracts
and their corresponding current market price will be reflected
daily as unrealized gains or losses. When a futures contract is
liquidated by acquiring an offsetting contract, then either a
gain or a loss will be realized, reflecting the difference
between the prices of the original and the offsetting contracts.
If a futures contract is held until delivery and settlement is
made, then the transaction will be treated as a purchase or sale
of the underlying securities at the contract price.
Futures contracts are valued at the daily settlement price
determined by the commodity exchange where they are traded, if
available, or otherwise at fair value, taking into account the
most recent settlement, bid or asked prices available, as
determined in good faith by the Trustees or by the Advisor
according to procedures approved by the Trustees.
Valuation of Options Held or Written. Options held by a Fund
and liabilities for options written by a portfolio are valued in
the same manner as futures contracts, if they are traded on a
commodity exchange. Other options are valued at the last reported
sale price of the options, or if no sales are reported, at the
mean between the last reported bid and asked prices for the
current day, if available, or otherwise at fair value as
determined in good faith by the Trustees or by the Advisor
according to procedures approved by the Trustees.
When put or call options are written, the premium received is
reflected on the portfolio's books as a cash asset that is offset
by a deferred credit liability, so that the premium received 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 an option contract on securities is
exercised, then the Trust will reflect, as appropriate, either a
purchase or sale of the securities (when a call is exercised, the
securities may be either held by the Fund or purchased for
delivery in the open market). The purchase or sale price for the
securities will be equal to the exercise price of the option,
adjusted by the amount of the option premium previously received;
the previously established deferred credit liability will then be
extinguished. If an option contract on financial futures is
exercised, the portfolio will acquire either a long or a short
position in the underlying futures contract; a gain or loss will
then be recognized equal to the option premium previously
received, reduced by the difference between the option exercise
price and the current market value of the futures contract, and
the previously established deferred credit liability will be
extinguished. If an option expires without being exercised (or if
it is offset by a closing purchase transaction), then the
portfolio will recognize the deferred credit as a gain (reduced
by the cost of any closing purchase transaction).
Additional Tax Matters
To qualify as a "regulated investment company" and avoid Trust-
level federal income tax under the Internal Revenue Code (the "Code"), the
Trust must, among other things, distribute 100% of its net income and net
capital gains in the fiscal year in which it is earned. The Code
also requires the distribution of at least 98% of 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.
Each portfolio intends to distribute all taxable income to the extent
it is realized and avoid imposition of Federal income and excise taxes.
To qualify as a regulation investment company under the Code, each Trust
portfolio must 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, and derive less
than 30% of its gross income from the sale or disposition of
securities held for less than three months. Should a portfolio fail to
qualify as a "regulated investment company" under the Code, the
portfolio would be taxed as a corporation with no allowable deduction
for the distribution of dividends.
Shareholders of the Trust, however, will be subject to federal
income tax on any ordinary net income and net capital gains
realized by the Trust and distributed to shareholders as regular
or capital gains dividends, whether distributed in cash or in the
form of additional shares. Generally, dividends declared by the
Trust during October, November or December of any calendar year
and paid to shareholders before February 1 of the following year
will be treated for tax purposes as received in the year the
dividend was declared. No portion of the regular dividends paid
by the Trust is expected to be eligible for the dividends
received deduction for corporate shareholders (70% of dividends
received).
Shareholders who fail to comply with the interest and dividends
"back-up" withholding provisions of the Code (by filing Form W-9
or its equivalent, when required) or who have been determined by
the Internal Revenue Service to have failed to properly report
dividend or interest income may be subject to a 31% withholding
requirement on transactions with the Trust.
For tax purposes, the Trust will send shareholders an annual
notice of dividends paid during the prior year. Investors are
advised to retain all statements received from the Trust to
maintain accurate records of their investment. Shareholders of
each portfolio of the Trust will be subject to federal income tax
on the net capital gains, if any, realized by each portfolio and
distributed to shareholders as capital gains dividends.
Shareholders should carefully consider the tax implications of
buying the Trust's shares just prior to declaration of a regular
or capital gains dividend. Prior to the declaration, the value of
the distribution will be reflected in net asset value per share
and thus will be paid for by the shareholder when the shares are
purchased; when the dividend is declared the amount to be
distributed will be deducted from net asset value, lowering the
value of the shareholder's investment by the same amount, but the
shareholder will nevertheless be taxed on the amount of the
dividend without any offsetting deduction for the drop in share
value until the shares are ultimately redeemed. A loss on the
sales of shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gains
dividend received.
Special rules apply to the taxation of financial futures
contracts and options that may be acquired or written by the
Trust. The holding period of securities purchased may be affected
by hedging transactions, such as the purchase of puts or the sale
of calls against those securities. Hedging transactions involving
debt securities and either futures or options contracts are
considered "mixed straddles" under the Code, meaning that any
losses realized from one part of the transaction may only be
deducted to the extent that they exceed any unrecognized gains in
offsetting positions.
The Trust reserves the right to involuntarily redeem any of its
shares if, in its judgment, ownership of the Trust's shares has
or may become so concentrated as to make the Trust a personal
holding company under the Code.
State and Local Taxes. Dividends paid by the Trust are generally
expected to be subject to any state or local taxes on income.
Interest on U.S. Government securities may be entitled to an
exemption from State and local income taxes that is otherwise
available to the shareholder if he had purchased U.S. Government
securities directly. Shareholders should consult their tax
Advisors about the status of distributions from the Trust in
their own tax jurisdictions.
Yield and Total Return Calculations
In order to provide a basis for comparisons of the Trust's
portfolios with similar funds, with comparable market indices,
and with investments such as savings accounts, savings
certificates, taxable and tax-free bonds, money market funds and
money market instruments, the Trust calculates yields and total
return for each of its portfolios.
Standardized Yield. For advertising and certain other purposes,
the yield of each portfolio is calculated according to a
standardized formula prescribed by the Securities and Exchange
Commission. Such standardized yields are calculated by adding one
to the respective Fund's total daily theoretical net income
per share during a given 30-day period divided by the portfolio's
maximum offering price per share on the last day of the period,
raising the result to the sixth power, subtracting one, and
multiplying the result by two. Such standardized yields may be
calculated daily; weekly, as of each Friday; and monthly, as of
the last day of each month.
For purposes of such yield calculations, the daily theoretical
gross income of each obligation in a portfolio is determined as
1/360 of the obligation's yield to maturity (or put or call date
in certain cases), based upon its current value (defined as the
obligation's closing market value that day, plus any accrued
interest), multiplied by such current value. A portfolio's daily
theoretical gross income is the sum of the daily theoretical
gross income amounts computed for each of the obligations in the
portfolio. A portfolio's total daily theoretical net income per
share during a given 30-day period is the portfolio's daily
theoretical gross income, less daily expenses accrued (as reduced
by any expenses waived or reimbursed by the Advisor), totaled
for each day in the period and divided by the average number of
shares outstanding during the period.
Total Return. Average annual total return is calculated by
finding the compounded annual rate of return over a given period
that would be required to equate an assumed initial investment in
the portfolio to the ending redeemable value the investment would
have had at the end of the period, taking into account the effect
of the changes in the portfolio's share price during the period
and any recurring fees charged to shareholder accounts, and
assuming the reinvestment of all dividends and other
distributions at the applicable share price when they were paid.
Non-annualized aggregate total returns may also be calculated by
computing the simple percentage change in value that equates an
assumed initial investment in the portfolio with its redeemable
value at the end of a given period, determined in the same manner
as for average annual total return calculations.
Representative Yield and Total Return Quotations. As of June 30,
1997, the standardized 30-day yield of the Government Fund
was 5.31% per annum and of the High Yield Fund was 7.66%
per annum.
For the year ended June 30, 1997, the average annualized total
return of the Government Fund was 6.18% and of the High Yield
Fund was 9.31%. For the calendar quarter ending June 30
1997, the non-annualized aggregate total return of the
Government Fund was 3.30% and of the High Yield Fund
was 4.15%.
For the five years ended June 30, 1997, the average annualized
total return of the Government Fund was 5.43% and its non-
annualized aggregate total return was 20.26%.
For the five years ended June 30, 1997, the average annualized
total return of the High Yield Fund was 8.46% and its
non-annualized aggregate total return was 50.07%.
For the ten years ended June 30, 1997, the average annualized
total return of the Government Fund was 6.73% and its non-
annualized aggregate total return was 91.79%.
For the ten years ended through June 30, 1997, the average
annualized total return of the High Yield Fund was 7.18%
and its non-annualized aggregate total return was 99.97%.
As of June 30, 1997, the one year total return of
Mosaic Bond Fund was 5.87%. The five year average
annualized total return and average annualized
total return since inception on April 23, 1990 was 4.91% and
6.26%, respectively. For the calendar quarter ended
June 30, 1997, the non-annualized aggregate total return
was 2.63%. The non-annualized aggregate total return
since inception was 52.72%. Its 30-day yield as of July
28, 1997 was 5.49%.
Performance Comparisons. From time to time, in advertisements or
in reports to shareholders and others, the Trust may compare the
performance of its portfolios to that of recognized market
indices or may cite the ranking or performance of its portfolios
as reported in recognized national periodicals, financial
newsletters, reference publications, radio and television news
broadcasts, or by independent performance measurement firms.
The Trust may also compare the performance of its portfolios to
that of other funds managed by the same Advisor. It may compare
its performance to that of other types of investments,
substantiated by representative indices and statistics for those
investments.
Market indices which may be used include those compiled by major
securities firms, such as Solomon Brothers, Shearson Lehman
Hutton, the First Boston Corporation, and Merrill Lynch; other
indices compiled by securities rating or valuation services, such
as Ryan Financial Corporation and Standard and Poor's
Corporation, may also be used. Periodicals which report market
averages and indices, performance information, and/or rankings
may include: The Wall Street Journal, Investors Daily, The New
York Times, The Washington Post, Barron's, Financial World
Magazine, Forbes Magazine, Money Magazine, Kiplinger's Personal
Finance, and the Bank Rate Monitor. Independent performance
measurement firms include Lipper Analytical Services, Inc., Frank
Russel Company, SCI and CDA Investment Technologies.
When the Trust uses Lipper Analytical Services, Inc. in making
performance comparisons in advertisements or in reports to
shareholders or others, the performance of the Government
Fund will be compared to mutual funds categorized as
"General U.S. Government Funds", the performance of the
High Yield Fund will be compared to mutual funds
categorized as "High Current Yield Funds" and the performance
of the Mosaic Bond Fund will be compared to
mutual funds categorized as "Intermediate Corporate Debt
Funds". If any of these categories should be changed by
Lipper Analytical Services, Inc., comparisons will be made
thereafter based on the revised categories.
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, No-Load Fund Investor,
Wiesenberger Investment Companies Service, the Mutual Fund Source
Book, the Mutual Fund Directory, the Switch Fund Advisory, Mutual
Fund Investing, the Mutual Fund Observer, Morningstar, the Bond
Fund Survey. Financial news is broadcast by the Financial News
Network, Cable News Network, Public Broadcasting System, and the
three major television networks, NBC, CBS and ABC, as well as by
numerous independent radio and television stations.
The Trust may also disclose the contents of each of its portfolios as
frequently as daily in advertisements and elsewhere.
Average Maturities. The Trust also calculates average maturity
information for each of its portfolios. The "average maturity" of
a Fund on any day is determined by multiplying the number of
days then remaining to the effective maturity (see "Supplemental
Investment Policies") of each investment in the Fund by the
value of that investment, summing the results of these
calculations, and dividing the total by the aggregate value of
the portfolio that day (determined as of 4 p.m. Washington, DC
time). Thus, the average maturity represents a dollar-weighted
average of the effective maturities of portfolio investments. The
"mean average maturity" of a portfolio over some period, such as
seven days, a month or a year, represents the arithmetic mean
(i.e., simple average) of the daily average maturity figures for
the portfolio during the respective period.
It should be noted that the investment results of the Trust's
portfolios will tend to fluctuate over time, and so historical
yields and total returns should not be considered representations
of what an investment may earn in any future period. Actual
distributions to shareholders will tend to reflect changes in
market interest rates, and will also depend upon the level of the
Trust's expenses, realized or unrealized investment gains and
losses, and the relative results of the Trust's investment
policies. Thus, at any point in time future yields and total
returns may be either higher or lower than past results, and
there is no assurance that any historical performance record will
continue.
Custodians and Special Custodians
Star Bank, N.A., 425 Walnut Street, 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.
The Trust may appoint as Special Custodians, from time to time,
certain banks, trust companies, and firms which 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 of relatively short
duration for designated types of securities which, in the opinion
of the Trustees or of the Advisor 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
meeting the requirements of the Securities and Exchange
Commission for custodians and approved and reviewed at least
annually by the Trustees, and, if a securities dealer, only if it
delivers 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
the Trustees or officers of the Trust deem appropriate, to the
extent permitted by the Investment Company Act of 1940.
Legal Matters and Independent Auditors
DeWitt Ross and Stevens, S.C., 8000 Excelsior Drive,
Madison, Wisconsin 53717-1914, acts as legal counsel to
the Trust. Sullivan & Worcester LLP, 1025 Connecticut
Avenue, NW, Washington, DC 20036, serves as review
counsel to the Trust's independent Trustees.
Ernst & Young LLP, 1225 Connecticut Avenue, NW, Washington,
DC 20036 serves as independent auditors to the Trust.
From time to time the Trust may be or become involved in
litigation in the ordinary conduct of its business. Material
items of litigation having consequences of possible or
unspecified damages, if any, are disclosed in the notes to the
Trust's financial statements (see "Financial Statements and
Report of Independent Auditors'").
Additional Information
The Trust issues semi-annual and annual reports to its
shareholders and may issue other reports, such as quarterly
reports, as it deems appropriate; the annual reports are audited
by the Trust's independent auditors.
Statements contained in this Statement of Additional Information
and in the Prospectus as to the contents of contracts and other
documents are not necessarily complete. Investors should refer to
the documents themselves for definitive information as to their
detailed provisions. The Trust will supply copies of its
Declaration of Trust and By-Laws to interested persons upon
request.
The Trust and shares in the Trust have been registered with the
Securities and Exchange Commission in Washington, DC, by the
filing of a Registration Statement. The Registration Statement
contains certain information not included in the Prospectus or
not included in this Statement of Additional Information and is
available for public inspection and copying at the offices of
such Commission.
Financial Statements and Report of Independent Auditors
Audited Financial Statements for the Trust, together with the
Report of Ernst & Young LLP, Independent Auditors for the fiscal
year ended March 31, 1997, appear in the Trust's Annual Report to
shareholders for the fiscal year ended March 31, 1997, which is
incorporated herein by reference. Such report has been filed with
the Securities and Exchange Commission and is furnished to
investors with this Statement of Additional Information.
Additional copies of such Report are available upon request at no
charge by writing or calling the Trust at the address and
telephone number shown on the cover page above.
Audited Financial Statements for Madison Bond Fund, Inc., the
economic predecessor to the Mosaic Bond Fund,
together with the Report of Williams, Young & Associates, LLC,
Independent Auditors for its fiscal year ended December 31, 1996,
appear in Madison Bond Fund, Inc.'s Annual Report to
shareholders for the fiscal year ended December 31, 1996, which is
incorporated herein by reference. Such report has been filed with
the Securities and Exchange Commission and is furnished to
investors with this Statement of Additional Information.
Additional copies of such report are available upon request at no
charge by writing or calling the Trust at the address and
telephone number shown on the cover page above.
Quality Ratings
All U.S. Government securities that may be acquired by the Trust
are expected to be classified as "High Grade" investments. Any
obligation of a bank or savings and loan association having total
assets of at least $750 million (or the foreign currency
equivalent) as of the end of its most recent fiscal year,
provided it earned a profit during that year, is eligible to be
classified "High Grade"; but the actual classification of such
obligations will be subject to such additional liquidity,
profitability and other tests as the Advisor deems appropriate in
the circumstances.
The Trust will determine the grade or credit quality of other
securities it may acquire principally by reference to the ratings
assigned by the two principal private organizations which rate
Municipal Securities: Moody's Investors Service, Inc. ("Moody's")
and Standard and Poor's Corporation ("S&P"). In cases where both
Moody's and S&P rate an issue, it will be graded according to
whichever of the assigned ratings the Advisor deems appropriate;
in cases where neither organization rates the issue it will be
graded by the Advisor following standards which, in its judgment,
are comparable to those followed by Moody's and S&P. All grading
procedures followed by the Advisor will be subject to review by
the Trustees.
Corporate Obligations. For corporate obligations, Moody's uses
ratings Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C; S&P uses ratings
AAA, AA, A, BBB, BB, B, CCC, CC and C. Notes and bonds rated Aaa
or AAA are judged to be of the best quality; interest and
principal are secure and prices respond only to market rate
fluctuations. Notes and bonds rated Aa or AA are also judged to
be of high quality, but margins of protection for interest and
principal may not be quite as good as for the highest rated
securities.
Notes and bonds rated A are considered upper medium grade by each
organization; protection for interest and principal is deemed
adequate but susceptible to future impairment, and market prices
of such obligations, while moving primarily with market rate
fluctuations, also may respond to economic conditions and issuer
credit factors.
Notes and bonds rated Baa or BBB are considered medium grade
obligations; protection for interest and principal is adequate
over the short term, but these bonds may have speculative
characteristics over the long term and therefore may be more
susceptible to changing economic conditions and issuer credit
factors than they are to market rate fluctuations.
Notes and bonds rated Ba or BB are considered to have immediate
speculative elements and their future can not be considered well
assured; protection of interest and principal may be only
moderate and not secure over the long term; the position of these
bonds is characterized as uncertain.
Notes and bonds rated B or lower by each organization are
generally deemed to lack desirable investment characteristics;
there may be only small assurance of payment of interest and
principal or adherence to the original terms of issue over any
long period.
Issues rated Caa or CCC and below may also be highly speculative,
of poor standing and may even be in default or present other
elements of immediate danger to payment of interest and
principal.
Obligations rated Baa or above by Moody's or rated BBB or above
by S&P are considered "investment grade" securities, whereas
lower rated obligations are considered "speculative grade"
securities.
Commercial Paper. Commercial paper is rated by Moody's with
"Prime" or "P" designations, as P-1, P-2 or P-3, all of which are
considered investment grades. In assigning its rating, Moody's
considers a number of credit characteristics of the issuer,
including: (1) industry position; (2) rates of return; (3)
capital structure; (4) access to financial markets; and (5)
backing by affiliated companies. P-1 issuers have superior
repayment capacity and credit characteristics; P-2 issuers have
strong repayment capacity but more variable credit
characteristics; while P-3 issuers have acceptable repayment
capacity, but highly variable credit characteristics and may be
highly leveraged.
S&P rates commercial paper as A-1, A-2 or A-3. To receive a
rating from S&P the issuer must have adequate liquidity to meet
cash requirements, long-term senior debt rated A or better
(except for occasional situations in which a BBB rating is
permitted), and at least two additional channels of borrowing.
The issuer's basic earnings and cashflow must have an upward
trend (except for unusual circumstances) and, typically, the
issuer's industry is well established and it has a strong
position within the industry. S&P assigns the individual ratings
A-1, A-2 and A-3 based upon its assessment of the issuer's
relative strengths and weaknesses within the group of ratable
companies.
For purposes of its investment criteria, the Trust considers only
commercial paper rated A-1, P-1, or of a credit standing deemed
equivalent by the Advisor, to be "High Grade."
<PAGE>
Part C
July 31, 1997
Mosaic Income Trust
Cross Reference Sheet Page 1
Pursuant to Rule 495(a)
24(a) Financial Statements
Included in Part A: Financial Highlights
Included in Part B: Filed with the Securities and Exchange
Commission pursuant to Section 30 of the Investment Company
Act of 1940 on June 5, 1997 and incorporated herein by
reference is the Trust's Annual Report to Shareholders for the
fiscal year ended March 31, 1997, as well as the Annual Report to
shareholders of the Madison Bond Fund, predecessor to the
Mosaic Bond Fund, filed on March 3, 1997, for its fiscal year
ended December 31, 1996.
Included in such Annual Report to Shareholders are: Statement
of Assets and Liabilities, Statement of Operations, Statement
of Changes in Net Assets, Financial Highlights, Portfolio of
Investments, Notes to Financial Statements and Report of Ernst
& Young LLP, Independent Auditors.
Included in Part C: Consent of Independent Auditors
24(b) Exhibits
Exhibit No. Description of Exhibit
1 Declaration of Trust*
2 By-Laws*
3 Not Applicable
4 Not Applicable
5 Investment Advisory Agreement*
6 Distribution Agreement*
7 Not Applicable
8 Custodian Agreement with Fee Schedule*
9 Services Agreement*
10 Consent of Counsel*
11 Consent of Independent Auditors (Filed herewith)
12 Not Applicable
13 Not Applicable
14 Prototype Retirement Plan*
15 Not Applicable
16 Computation of Performance Data (Filed herewith)
17 Financial Data Schedules (Filed herewith)
18 Not Applicable
* Previously filed by Mosaic Income Trust.
25. Persons Controlled by or Under Common Control with Registrant.
None
26. Number of Holders of Securities.
The number of holders of record of securities of the
Registrant as of July 22, 1997 is as follows:
Title of Class Number of Holders of Record
Shares of Beneficial Interest 901
27. Indemnification
Previously Filed
28. Business and Other Connections of Investment Advisor effective
July 22, 1997.
Name Position with Other Business
Advisor
Frank E. Burgess Director President and Director of
Madison Investment Advisors,
Inc., 6411 Mineral Point
Road, Madison, WI 53705
Katherine L. Frank President Vice President of Madison
Investment Advisors, Inc.
6411 Mineral Point
Road, Madison, WI 53705
Jay R. Sekelsky Vice President Vice President of Madison
Investment Advisors, Inc.
6411 Mineral Point
Road, Madison, WI 53705
Chris Berberet Vice President Vice President of Madison
Investment Advisors, Inc.
6411 Mineral Point
Road, Madison, WI 53705
W. Richard Mason Secretary Secretary of Presidential
Savings Bank, FSB and
Presidential Service
Corporation, 4600 East-West
Highway, Bethesda, MD
20814; Secretary of Mosaic
Investment Services, Inc.
of the same
address as the Trust.
Julia M. Nelson Vice President None
29. Principal Underwriters
(a) GIT Investment Services, Inc., the principal underwriter
of the Trust, also acts as principal underwriter to Mosaic Equity Trust,
Mosaic Tax-Free Trust and Government Investors Trust.
(b)
Name and Principal Position and Offices Position and Offices
Business Address with Underwriters with Registrant
A. Bruce Cleveland Chairman, President None
1655 Ft. Myer Dr.
Arlington, VA 22209
W. Richard Mason Secretary Secretary
1655 Ft. Myer Dr.
Arlington, VA 22209
(c) Not Applicable
30. Location of Accounts and Records
The books, records and accounts of the Registrant will be
maintained at 1655 Ft. Myer Drive, Arlington, VA 22209, at
which address are located the offices of the Registrant and
of Bankers Finance Advisors, LLC. Additional
records and documents relating to the affairs of the
Registrant are maintained by the Star Bank, N.A. of
Cincinnati, OH, the Registrant's Custodian, at the
Custodian's offices located at 425 Walnut Street,
Cincinnati, OH 45202. Pursuant to the Custodian Agreement
(see Article IX, Section 12), such materials will remain the
property of the Registrant and will be available for
inspection by the Registrant's officers and other duly
authorized persons. Certain records may be maintained at
the offices of the Advisor's parent, Madison Investment
Advisors, Inc., 6411 Mineral Point Road, Madison, WI 53705.
31. Management Services
Previously Filed and discussed in Parts A and B. See item 28 above.
32. Undertakings
(a) Not Applicable
(b) Not Applicable
(c) The Registrant shall furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest
Annual Report to shareholders upon such person's request and
without charge.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has
duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the County of
Arlington, Commonwealth of Virginia, on July 31,
1997.
Mosaic Income Trust
By: (signature)
Katherine L. Frank
President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment to the Registration Statement
has been signed below by the following persons in the
capacities and on the date indicated.
Trustee (Date)
Frank E. Burgess*
Trustee
Lorence Wheeler* (Date)
Trustee
Thomas S. Kleppe * (Date)
Trustee
James Imhoff* (Date)
(Signature), * Attorney-In-Fact 7/31/97
John Rashke, Esquire
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's current form NSAR, annual report, and prospectus and is qualified
in its entirety by reference to such source documents.
</LEGEND>
<CIK> 0000710978
<NAME> MOSAIC INCOME TRUST
<SERIES>
<NUMBER> 1
<NAME> HIGH YIELD FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 5,954
<INVESTMENTS-AT-VALUE> 5,833
<RECEIVABLES> 434
<ASSETS-OTHER> 51
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,268
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14
<TOTAL-LIABILITIES> 14
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,703
<SHARES-COMMON-STOCK> 892
<SHARES-COMMON-PRIOR> 948
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,238)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (121,108)
<NET-ASSETS> 6,254
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 612
<OTHER-INCOME> 4
<EXPENSES-NET> 93
<NET-INVESTMENT-INCOME> 523
<REALIZED-GAINS-CURRENT> 9
<APPREC-INCREASE-CURRENT> (149)
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 523
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,219
<NUMBER-OF-SHARES-REDEEMED> 2,047
<SHARES-REINVESTED> 432
<NET-CHANGE-IN-ASSETS> (396)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,563)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 40
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 93
<AVERAGE-NET-ASSETS> 6,477
<PER-SHARE-NAV-BEGIN> 7.162
<PER-SHARE-NII> 0.574
<PER-SHARE-GAIN-APPREC> (0.153)
<PER-SHARE-DIVIDEND> 0.574
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.009
<EXPENSE-RATIO> 1.439
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's Forms NSAR, Annual Report, and prospectus and is qualified in its
entirety by reference to such source documents.
</LEGEND>
<CIK> 0000710978
<NAME> MOSAIC INCOME TRUST
<SERIES>
<NUMBER> 2
<NAME> GOVERNMENT FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 5,927
<INVESTMENTS-AT-VALUE> 5,719
<RECEIVABLES> 80
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,800
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8
<TOTAL-LIABILITIES> 8
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,357
<SHARES-COMMON-STOCK> 614
<SHARES-COMMON-PRIOR> 706
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (358)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (208)
<NET-ASSETS> 5,792
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 412
<OTHER-INCOME> 0
<EXPENSES-NET> 90
<NET-INVESTMENT-INCOME> 322
<REALIZED-GAINS-CURRENT> (45)
<APPREC-INCREASE-CURRENT> (129)
<NET-CHANGE-FROM-OPS> (174)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 322
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 518
<NUMBER-OF-SHARES-REDEEMED> 1,708
<SHARES-REINVESTED> 299
<NET-CHANGE-IN-ASSETS> (891)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (313)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 39
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 91
<AVERAGE-NET-ASSETS> 6,319
<PER-SHARE-NAV-BEGIN> 9.705
<PER-SHARE-NII> 0.489
<PER-SHARE-GAIN-APPREC> (0.271)
<PER-SHARE-DIVIDEND> 0.489
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.434
<EXPENSE-RATIO> 1.435
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus (Mosaic Income Trust dated July 31, 1997) and
"Legal Matters and Independent Auditors" and "Financial Statements and
Report of Independent Auditors" in the Statement of Additional
Information and to the incorporation by reference in this Post-Effective
Amendment Number 18 to Registration Statement Number 2-80808 (Form N-1A)
of our report dated May 2, 1997, on the financial statements and
financial highlights of Mosaic Income Trust (formerly GIT Income Trust)
for the year ended March 31, 1997, included in the 1997 Annual Report to
Shareholders.
(signature)
Ernst and Young, LLP
Washington, DC
July 28, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of
Mosaic Income Trust, a Massachusetts business trust, does
hereby constitute and appoint JOHN RASHKE and CHRISTOPHER DANIELS, and
each of them, his true and lawful attorney and agent to do any and all
acts and things and to execute any and all instruments which said
attorney and agent may deem necessary or advisable: (1) to enable the
said Trust to comply with the Securities Act of 1933, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under
said Securities Act of the shares of beneficial interest of said Trust
(the "Securities"), including, specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to a Registration Statement or to any amendment thereto filed with
the Securities and Exchange Commission in respect of said Securities and
to any instrument or document filed as part of, an exhibit to or in
connection with said Registration Statement or amendment; (2) to enable
said Trust to comply with the Investment Company Act of 1940, as
amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the
registration under said Investment Company Act of the Trust, including
specifically, but without limiting the generality of the foregoing, the
power an authority to sign for and on behalf of the undersigned the name
of the undersigned as Trustee of said Trust to a Registration Statement
or of any amendment thereto filed with the Securities and Exchange
Commission in respect of said Trust and to any instrument or document
filed as part of, as an exhibit to or in connection with said
Registration Statement or amendment; and (3) to register or qualify said
Securities for sale and to register or license said Trust as a broker or
dealer in said Securities under the securities or Blue Sky laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said Securities as contemplated by said
Registration Statement, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any
exhibit filed as a part thereof or in connection therewith, which is
required to be signed by the undersigned and to be filed with the public
authority or authorities administering said securities or Blue Sky laws
for the purpose of so registering or qualifying said Securities or
registering or licensing said Trust, and the undersigned does hereby
ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
22 day of July, 1997.
(signature)
Thomas S. Kleppe
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of
Mosaic Income Trust, a Massachusetts business trust, does
hereby constitute and appoint JOHN RASHKE and CHRISTOPHER DANIELS, and
each of them, his true and lawful attorney and agent to do any and all
acts and things and to execute any and all instruments which said
attorney and agent may deem necessary or advisable: (1) to enable the
said Trust to comply with the Securities Act of 1933, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under
said Securities Act of the shares of beneficial interest of said Trust
(the "Securities"), including, specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to a Registration Statement or to any amendment thereto filed with
the Securities and Exchange Commission in respect of said Securities and
to any instrument or document filed as part of, an exhibit to or in
connection with said Registration Statement or amendment; (2) to enable
said Trust to comply with the Investment Company Act of 1940, as
amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the
registration under said Investment Company Act of the Trust, including
specifically, but without limiting the generality of the foregoing, the
power an authority to sign for and on behalf of the undersigned the name
of the undersigned as Trustee of said Trust to a Registration Statement
or of any amendment thereto filed with the Securities and Exchange
Commission in respect of said Trust and to any instrument or document
filed as part of, as an exhibit to or in connection with said
Registration Statement or amendment; and (3) to register or qualify said
Securities for sale and to register or license said Trust as a broker or
dealer in said Securities under the securities or Blue Sky laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said Securities as contemplated by said
Registration Statement, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any
exhibit filed as a part thereof or in connection therewith, which is
required to be signed by the undersigned and to be filed with the public
authority or authorities administering said securities or Blue Sky laws
for the purpose of so registering or qualifying said Securities or
registering or licensing said Trust, and the undersigned does hereby
ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
22 day of July, 1997.
(signature)
Frank E. Burgess
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of
Mosaic Income Trust, a Massachusetts business trust, does
hereby constitute and appoint JOHN RASHKE and CHRISTOPHER DANIELS, and
each of them, his true and lawful attorney and agent to do any and all
acts and things and to execute any and all instruments which said
attorney and agent may deem necessary or advisable: (1) to enable the
said Trust to comply with the Securities Act of 1933, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under
said Securities Act of the shares of beneficial interest of said Trust
(the "Securities"), including, specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to a Registration Statement or to any amendment thereto filed with
the Securities and Exchange Commission in respect of said Securities and
to any instrument or document filed as part of, an exhibit to or in
connection with said Registration Statement or amendment; (2) to enable
said Trust to comply with the Investment Company Act of 1940, as
amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the
registration under said Investment Company Act of the Trust, including
specifically, but without limiting the generality of the foregoing, the
power an authority to sign for and on behalf of the undersigned the name
of the undersigned as Trustee of said Trust to a Registration Statement
or of any amendment thereto filed with the Securities and Exchange
Commission in respect of said Trust and to any instrument or document
filed as part of, as an exhibit to or in connection with said
Registration Statement or amendment; and (3) to register or qualify said
Securities for sale and to register or license said Trust as a broker or
dealer in said Securities under the securities or Blue Sky laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said Securities as contemplated by said
Registration Statement, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any
exhibit filed as a part thereof or in connection therewith, which is
required to be signed by the undersigned and to be filed with the public
authority or authorities administering said securities or Blue Sky laws
for the purpose of so registering or qualifying said Securities or
registering or licensing said Trust, and the undersigned does hereby
ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
22 day of July, 1997.
(signature)
James R. Imhoff, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of
Mosaic Income Trust, a Massachusetts business trust, does
hereby constitute and appoint JOHN RASHKE and CHRISTOPHER DANIELS, and
each of them, his true and lawful attorney and agent to do any and all
acts and things and to execute any and all instruments which said
attorney and agent may deem necessary or advisable: (1) to enable the
said Trust to comply with the Securities Act of 1933, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under
said Securities Act of the shares of beneficial interest of said Trust
(the "Securities"), including, specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to a Registration Statement or to any amendment thereto filed with
the Securities and Exchange Commission in respect of said Securities and
to any instrument or document filed as part of, an exhibit to or in
connection with said Registration Statement or amendment; (2) to enable
said Trust to comply with the Investment Company Act of 1940, as
amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the
registration under said Investment Company Act of the Trust, including
specifically, but without limiting the generality of the foregoing, the
power an authority to sign for and on behalf of the undersigned the name
of the undersigned as Trustee of said Trust to a Registration Statement
or of any amendment thereto filed with the Securities and Exchange
Commission in respect of said Trust and to any instrument or document
filed as part of, as an exhibit to or in connection with said
Registration Statement or amendment; and (3) to register or qualify said
Securities for sale and to register or license said Trust as a broker or
dealer in said Securities under the securities or Blue Sky laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said Securities as contemplated by said
Registration Statement, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as Trustee of said
Trust to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any
exhibit filed as a part thereof or in connection therewith, which is
required to be signed by the undersigned and to be filed with the public
authority or authorities administering said securities or Blue Sky laws
for the purpose of so registering or qualifying said Securities or
registering or licensing said Trust, and the undersigned does hereby
ratify and confirm as his own act and deed all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
22 day of July, 1997.
(signature)
Lorence D. Wheeler
Performance Calculation Data
High Yield Fund Government Fund
Total Return
6/30/97 Factor 3,023.532 3,104.073648
3/31/97 Factor 2,903.009 3,004.984
6/30/96 Factor 2,766.134 2,923.390
6/30/92 Factor 2,014.764 2,382.944
6/30/87 Factor 1,512.015 1,618.495
Inception Factor 1,000.000 1,000.000
Aggregate Returns
Quarterly Return 4.15% 3.30%
One-Year Return 9.31% 6.18%
Ten-Year Return 99.97% 91.79%
Since Inception 202.35% 210.41%
Annualized Returns
Five-Year Return 8.46% 5.43%
Ten-Year Return 7.18% 6.73%
