As Filed with the
Commission on April 30, 1998
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. 19 X
Registration Statement Under The Investment Company Act
of 1940 X
Amendment No. 21
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:
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Title of Securities Being Registered: Mosaic Income Trust --
High Yield Fund
Government Fund
Bond Fund
<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 Mosaic Income Trust
Investment Objective, Investment
Policies (including Investment
Selection Criteria for Bond Funds,
Investment Risk Considerations,
Additional Investment Risk Considerations
for High Yield Fund 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, State and Local, Cost
Basis and Certification of Tax Identification
Number), 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 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 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>
Prospectus/May 1, 1998
1655 Fort Myer Drive, Arlington, Virginia 22209-3108
Mosaic Income Trust
High Yield Fund Government Fund Bond 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 High Yield Fund, the Government Fund, and the Bond Fund.
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 Government Fund invests solely in U.S. Government securities and
emphasizes safety of principal and interest for its portfolio
investments.
The Bond Fund has two investment objectives: (1) Production of current
income consistent with its quality standards and (2) Preservation of
capital. To achieve its objectives, the Fund will invest in investment
grade bonds with an average dollar weighted maturity not to exceed 10
years.
<i>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.</i>
Features
o No commissions or sales charges
o $1,000 minimum initial investment
o Invest or withdraw funds by mail, wire transfer
or in person
o Dividends accrue every day and can be paid by
check, electronic fund transfer, or reinvested
o No "12b-1" expenses
o 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.
MADISON MOSAIC, LLC
Investment Advisor
<PAGE>
TABLE OF CONTENTS
About Mosaic Income Trust 3
Expense Summary 3
Financial Highlights 4
Investment Objective 5
Investment Policies 5
Management of the Trust 10
The Trust and Its Shares 11
Dividends 11
Performance Information 11
Taxes 11
Net Asset Value 12
Shareholder Account Transactions 12
How to Open a New Account 13
How to Purchase Additional Shares13
How to Redeem Shares 14
Other Fees and Services 16
Quality Ratings 17
CUSTODIAN
Star Bank, N.A.
Cincinnati, OH 45202
INDEPENDENT AUDITORS
Deloitte & Touche 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 Madison Mosaic, LLC
(the "Advisor") of the same address as the Trust.
This Prospectus offers shares of three separate portfolios: the High
Yield Fund, the Government Fund and the Bond Fund.
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").
High Yield Government Bond
Fund Fund Fund
Shareholder Transaction Expenses
Maximum Sales Load Imposed
on Purchases None None None
Redemption Fee None None None
Exchange Fee None None None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees 0.625% 0.625% 0.500%
Other expenses 0.575% 0.535% 1.150%
Total Fund Operating Expenses 1.200% 1.160% 1.650%
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
High Yield Fund $12 $38 $66 $145
Government Fund $12 $37 $64 $141
Bond Fund $17 $52 $90 $195
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 13-16).
Financial Highlights
The financial highlights data for a share outstanding and other
performance information for the period ended December 31, 1997 appearing
below is derived from the financial statements audited by Deloitte &
Touche 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 tabulations of information for the fiscal years of the High
Yield and Government Funds prior to December 31, 1997 have been derived
from financial statements audited by Ernst & Young LLP and the
information for the fiscal years of the Bond Fund prior to December 31,
1997 has been derived from financial statements audited by Williams,
Young & Associates, LLC.
<TABLE>
Ratio of
Net Ratio of net
Net realized & Distri- Net Net expenses investment
asset Net unrealized butions asset assets to income
value invest. gain Total from from netDist. value end of average (loss) Port.
begin income (loss) on invest. invest. fm. cap.Total end of Total period net to average turnover
period (loss) invest's operat's income gains dist'ions period return (1000s) assets net assets rate
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund
19972 $7.009 $0.428 $0.199 $0.627 $(0.428) --- $(0.428) $7.208 9.12% $6,516 1.20%4 7.90%4 38%
19973 7.162 0.574 (0.153) 0.421 (0.574) --- (0.574) 7.009 6.06 6,254 1.44 8.07 95
19963 6.938 0.608 0.224 0.832 (0.608) --- (0.608) 7.162 12.32 6,790 1.60 8.47 237
19953 7.285 0.597 (0.347) 0.250 (0.597) --- (0.597) 6.938 3.75 6,726 1.52 8.56 243
19943 7.455 0.606 (0.170) 0.436 (0.606) --- (0.606) 7.285 5.89 7,702 1.54 8.02 251
19933 7.255 0.674 0.200 0.874 (0.674) --- (0.674) 7.455 12.69 7,329 1.52 9.26 73
19923 6.775 0.689 0.480 1.169 (0.689) --- (0.689) 7.255 18.08 6,456 1.54 9.95 124
19913 7.181 0.781 (0.406) 0.375 (0.781) --- (0.781) 6.775 5.91 5,405 1.66 11.57 54
19903 8.129 0.873 (0.948) (0.075) (0.873) --- (0.873) 7.181 (1.27) 6,988 1.51 11.16 93
19893 8.427 0.866 (0.298) 0.568 (0.866) --- (0.866) 8.129 7.09 9,542 1.50 10.45 80
19883 9.657 0.928 (1.230) (0.302) (0.928) --- (0.928) 8.427 (3.06) 11,132 1.45 10.48 78
GOVERNMENT FUND
19972 $9.434 $0.384 $0.458 $0.842 $(0.384) --- $(0.384) $9.892 9.07% $5,499 1.16%4 5.26%4 37%
19973 9.705 0.489 (0.271) 0.218 (0.489) --- (0.489) 9.434 2.29 5,792 1.43 5.09 17
19963 9.551 0.472 0.154 0.626 (0.472) --- (0.472) 9.705 6.56 6,856 1.59 4.77 190
19953 9.695 0.391 (0.144) 0.247 (0.391) --- (0.391) 9.551 2.67 7,653 1.52 4.12 318
19943 10.621 0.363 (0.151) 0.212 (0.363)$(0.775) (1.138) 9.695 1.95 8,576 1.54 3.53 287
19933 10.300 0.501 0.854 1.355 (0.501) (0.533) (1.034) 10.621 13.96 9,734 1.52 4.78 357
19923 10.119 0.654 0.222 0.876 (0.654) (0.041) (0.695) 10.300 8.84 7,375 1.53 6.28 123
19913 9.867 0.710 0.292 1.002 (0.710) (0.040) (0.750) 10.119 10.57 6,059 1.65 7.13 116
19903 9.891 0.783 (0.024) 0.759 (0.783) --- (0.783) 9.867 7.78 6,119 1.51 7.76 86
19893 10.180 0.794 (0.289) 0.505 (0.794) --- (0.794) 9.891 5.19 6,542 1.50 7.94 45
19883 11.391 0.862 (0.743) 0.119 (0.862) (0.468) (1.330) 10.180 1.47 6,283 1.47 8.18 36
BOND FUND1
1997 $20.63 $1.08 $0.121 $1.20 $(1.08) --- $(1.08) $20.75 6.04% $1,127 1.65% 4.79% 49%
1996 21.17 1.07 (0.55) 0.52 (1.06) --- (1.06) 20.63 2.55 4,088 1.51 4.86 94
1995 19.62 1.17 1.55 2.72 (1.17) --- (1.17) 21.17 14.11 5,792 1.35 5.49 58
1994 21.21 1.15 (1.59) (0.44) (1.15) --- (1.15) 19.62 (2.11) 7,166 1.18 5.50 78
1993 21.14 1.03 0.24 1.27 (1.03) $(0.17) (1.60)5 21.21 6.04 9,064 1.19 4.92 68
1992 21.87 1.08 (0.21) 0.87 (1.04) (0.15) (1.19) 21.14 4.08 6,902 1.51 5.4 96
1991 20.55 1.22 1.58 2.80 (1.27) (0.21) (1.40) 21.87 14.01 2,998 1.54 6.36 56
1990 20.00 0.51 0.55 1.06 (0.51) --- (0.51) 20.55 5.35 1,081 1.57 3.65 --
</TABLE>
1 Data prior to June 13, 1997 represents the Madison Bond Fund.
2 For the nine-months period ended December 31, 1997.
3 For the year ended March 31.
4 Annualized.
5 Includes (0.41) return of capital.
Notes:
Effective July 31, 1996, the investment advisory services of the High Yield
and Government Funds transferred to Madison Mosaic, LLC (previously
known as Bankers Finance Advisors, LLC) from Bankers Finance
Investment Management Corp.
Investment Objective
The objective of the High Yield and Government funds 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.
The investment objectives of the Bond Fund are (1) production of current
income consistent with its quality standards and (2) preservation of
capital. The Fund seeks to achieve its objectives by investing in
corporate debt securities, obligations of the U.S. Government and its
agencies and instrumentalities and money market instruments. The Fund
will invest at least 65% of its assets in bonds with the total portfolio
having an average dollar weighted maturity of ten years or less.
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
any portfolio will be achieved.
Investment Policies
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. The Government
Fund invests solely in U.S. Government securities and emphasizes safety
of principal and interest for its portfolio investments. The Bond Fund
intends to invest in corporate debt securities and obligations of the
U.S. Government and its agencies.
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.
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.
Bond Fund. The Advisor believes that capital preservation can best be
achieved through flexibility of investment strategies. Although the
careful selection of bonds and money market instruments is the primary
factor affecting the investment return of the Bond Fund, the percentage
of the Bond Fund's assets which may be invested at any particular time
in corporate bonds, U.S. Government and Government Agency bonds and
money market instruments, and the average weighted maturity of the total
portfolio will depend on management's judgment regarding the risks in
the general market. The Bond Fund's advisor monitors many factors affecting
the market outlook, including economic, monetary and interest rate
trends, market momentum, institutional psychology and historical
similarities to current conditions.
The Bond Fund will normally invest at least 65% of its assets in bonds
with the total portfolio having an average dollar weighted maturity of
10 years or less. If the Advisor believes that market risks are high
and bond prices in general are vulnerable to decline, the Bond Fund may
take certain temporary defensive actions such as reducing the average
maturity of the Bond Fund's bond holdings and increasing the Bond Fund's
cash reserves. Such "cash reserves" are defined as short-term
investments such as U.S. Treasury Bills, high-grade commercial paper,
(rated in the top two rating classes by Standard & Poor's or Moody's)
bank certificates of deposit or repurchase agreements. The objective of
shortening maturities and holding substantial cash reserves, as defined
above, is to reduce the Bond Fund's exposure to bond price depreciation
during period of rising interest rates, and to maintain desired
liquidity while awaiting more attractive investment conditions in the
bond market.
The Advisor believes that the ability and willingness to shorten
maturities and hold substantial cash reserves during periods of market
vulnerability is the most distinguishing feature in comparing the Bond
Fund's investment philosophy and strategies with those of most mutual
funds with similar investment objectives. In the Advisor's opinion,
such other mutual funds generally do not shorten maturities dramatically
during volatile times. When the Advisor anticipates that interest rates
will be stable or falling, the Advisor intends to maintain the average
dollar weighted maturity in the 5-10 year range. During periods when
interest rates are rising or the Advisor anticipates rising interest
rates, the average dollar weighted maturity may be shortened
dramatically to 1-2 years.
The willingness to make these strategic shifts differentiates the Bond
Fund's strategy from most other funds. It is the general intention of
the Bond Fund to maintain such defensive positions temporarily or until
the Advisor perceives that a period of market vulnerability has passed.
Adoption or maintenance of a defensive posture may, however, cause the
Bond Fund to underperform the general market during particular periods.
In addition, such action will affect portfolio turnover and purchase and
sale activity which can increase Bond Fund expenses. Significant
portfolio turnover may generate greater capital gains to investors.
Other Policies. In order to ensure diversification, the Trust's
fundamental investment policies stipulate certain restrictions. No more
than five percent of any 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 High Yield and Government 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 such
fund 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 any fund in such
investments unless it determines market conditions warrant a temporary
defensive investment position. Under such circumstances, up to 100
percent of any 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 issued by an unrated company,
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
period ended December 31, 1997 were as follows:
Ratings by Moody's Ratings by Standard
Investors Service Inc. & Poor's Corporation
Ba1 13.81% BBB 4.12%
Ba2 8.17% BBB- 3.38%
Ba3 18.93% BB+ 3.44%
B1 26.96% BB 16.53%
B2 10.37% BB- 12.59%
B3 13.83% B+ 34.93%
Baa3 3.81% B 10.32%
Caa 3.81% B- 7.52%
CCC+ 1.13%
NR 6.04%
A description of the ratings assigned to High Yield Fund securities is
contained in the appendix to this prospectus.
INVESTMENT SELECTION CRITERIA FOR BOND FUND
Corporate Debt Securities. The Bond Fund may invest in corporate debt
securities accorded one of the four highest quality ratings by Standard
& Poor's or Moody's or, if unrated, judged by the Advisor to be a
comparable quality. Bonds rated AAA, AA, or A by Standard & Poor's or
Aaa, Aa, or A by Moody's indicate strong to high capacity of the issuer
to pay interest and repay principal. The fourth highest rating, (e.g.
BBB by Standard & Poor's or Baa by Moody's) indicates adequate capacity
to pay interest and repay principal, but suggests that adverse economic
conditions may weaken the issuer's ability to meet these obligations.
Securities rated Baa by Moody's and BBB by Standard & Poor's are
regarded as having some speculative characteristics. These bonds are
also more sensitive to economic changes than higher grade bonds. If a
BBB or Baa bond held in the Bond Fund is downgraded by Standard and
Poor's or by Moody's, the bond will be sold within twelve months
following the downgrade.
U.S. Government Securities. The Bond Fund may invest in securities
guaranteed by the U.S. Government, including direct obligations of the
U.S. Treasury (Treasury bills, notes and bonds) and certain federal
agency obligations. The payment of principal and interest on these
securities is unconditionally guaranteed by the U.S. Government, and
thus they are considered the highest quality rated debt security.
Securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by,
the Treasury. However, they generally involve federal sponsorship in
one way or another. These agencies and instrumentalities include, but
are not limited to, Federal Land Banks, Federal Home Administration,
Federal Home Loan Mortgage Corporation, Federal Home Loan Banks, Federal
National Mortgage Association and Government National Mortgage
Association.
Money Market Securities. The Bond Fund may invest in money market
securities which include a) commercial paper (including variable rate
master demand notes) rated at least A-2 by Standard and Poor's
Corporation or Prime-2 by Moody's, or if not so rated, issued by a
corporation which has outstanding debt obligations rated at least in the
top two ratings by Standard and Poor's and Moody's; b) debt obligations
(other than commercial paper) of corporate issuers which obligations are
rated at least AA by Standard or Poor's or Aa by Moody's; and c)
obligations of or guaranteed by the U.S. government, its agencies or
instrumentalities. Money market securities are subject to the
limitation that they mature within one year of the date of their
purchase. Government money market securities include treasury bills,
notes and bonds issued by the U.S. government and backed by the full
faith and credit of the United States, as well as securities issued or
guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. government.
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.
Limiting the average weighted maturity of the Bond Fund's portfolio to
ten years and shortening the average maturity during periods of rising
interest rates tend to reduce the extent to which the value of Bond Fund
shares will fluctuate. The shorter the maturity of a bond, generally
the less volatile its market price will be.
In accordance with its investment objectives, the Advisor is monitoring
developments as they relate to the so-called "Millennium Bug": The
computer problem that may cause errors when the calendar reaches January
1, 2000. The Millennium Bug may cause disruption in securities and
other markets that affect the national and global economy. The Trust is
taking appropriate measures to help ensure that the Millennium Bug does
not interrupt its own portfolio and shareholder accounting or the
Advisor's management operations.
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. Madison Mosaic, LLC (formerly known as Bankers Finance
Advisors, LLC) is a wholly owned subsidiary of Madison Investment
Advisors, Inc., 6411 Mineral Point Road, Madison, Wisconsin, 53705.
Madison Mosaic, 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 24 years, provides professional
portfolio management services to a number of clients 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 High Yield and Government Funds in 1996 and have managed the Bond
Fund since inception.
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 the High
Yield and Government Funds and 1/2 percent per annum of the average
daily net assets of the Bond Fund. 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. Artisan Investment Services,
LLC, a wholly owned subsidiary of Madison and of the same address as the
Trust, is expected to assume the role of the Trust's distributor during
1998.
Services Agreement. Under a separate Services Agreement with the Trust,
the Advisor provides certain operational and other support services for
which it receives a fixed fee calculated as a percentage of the average
daily net assets of each respective Trust Portfolio. The 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. Such
fee pays for the Trust's expenses, 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.
Transfer Agent and Dividend Paying Agent. The Trust acts as its own
transfer agent and dividend paying agent.
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. It does this by distributing to
shareholders 100% of its net income and net capital gains, if any, for
each Fund by the end of its fiscal year. The Code also requires each
fund to distribute at least 98% of undistributed net income and capital
gains realized from the sale of investments by calendar year-end. 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. 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.
Cost Basis
Because each fund's share price fluctuates, a redemption of shares by
the shareholder creates a capital gain or loss which has tax
consequences. It is the shareholder's responsibility to calculate the
cost basis of shares purchased. Shareholders are advised to retain all
statements received from the Trust and to maintain accurate records of
their investments.
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
$100 for an Education IRA Plus 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 New York Stock Exchange is open. Purchases are priced at the
next share price determined after the purchase request is received in
proper form by Mosaic.
Purchases and Uncollected Funds. 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 any time.
How to Redeem Shares
Redemption Price. Share prices (net asset values) are determined every
day that the New York Stock Exchange is open. Redemptions are priced at the
next share price determined after the redemption request is received in
proper form by Mosaic.
Signature Guarantees. To protect 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. A guarantee from a notary
public is not an acceptable signature guarantee.
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 Signature Guarantees above.
Redemption requests in proper form received by mail and telephone are
normally processed within one business day.
Stop Payment Fee. To stop payment on a check issued by Mosaic, call our
Shareholder Service department. 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 add or
change bank wire instruction 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.
Education IRAs
The Trust offers Education IRAs. Education IRAs may be established with
a reduced minimum investment of $100 as long as the shareholder
establishes and maintains an "Education IRA Plus" automated investment
plan of at least $100 monthly. The "Education IRA Plus" will be
invested to reach the annual $500 Education IRA limit, with the
remainder invested in another account established by the parent or
guardian of the Education IRA beneficiary.
Education IRA Fee. Mosaic does not charge an annual fee on Education
IRA Plus accounts that have an active automatic investment plan of at
least $100 monthly or on Education IRA accounts of $5,000 or greater.
All other Education IRA accounts may be charged an annual fee of $12 per
shareholder (not per Education IRA account). This fee may be prepaid by
the shareholder.
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 $12 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.
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 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.
Bond ratings may be further enhanced by the motation "+" or "-." For
purposes of the Trust and its investment policies and restructions, such
notations shall be disregarded in general. Thus, for example, bonds
rated BBB- are considered investment grade while bonds rated BB+ are
not.
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."
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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
Foresight 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 May 1, 1998
For use with Mosaic Income Trust Prospectus dated May 1, 1998
Mosaic Income Trust
1655 Fort Myer Drive, 10th Floor
Arlington, VA 22209-3108
(888) 670-3600
(703) 528-6500
This Statement of Additional Information is not a Prospectus. It should
be read in conjunction with the Prospectus of Mosaic Income Trust
bearing the date indicated above (the "Prospectus"). Copies of the
Prospectus 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") 6
The Investment Advisor ("Management of the Trust") 7
Organization of the Trust ("The Trust and Its Shares") 8
Trustees and Officers ("Management of the Trust") 9
Administrative and Other Expenses ("Management of the Trust") 11
Fund Transactions ("Management of the Trust") 12
Shareholder Transactions ("How to Purchase Additional Shares") 12
Redemptions ("How to Redeem Shares") 13
Retirement Plans ("Other Fees and Services") 15
Declaration of Dividends ("Dividends") 15
Determination of Net Asset Value ("Net Asset Value") 15
Additional Tax Matters ("Taxes") 16
Yield and Total Return Calculations ("Performance Information")17
Custodians and Special Custodians 19
Legal Matters and Independent Auditors ("Financial Highlights")19
Additional Information 19
Financial Statements and Report of Independent Auditors
("Financial Highlights") 19
Quality Ratings ("Investment Policies") 20
Note: The items appearing in parentheses above are cross references
to sections in the Prospectus 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 Mosaic 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
Madison Mosaic, LLC (formerly known as 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 wholly 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 Mosaic Government Money Market 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 Mosaic Government Money Market
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 period ended December 31, 1997, the Advisor received advisory
fees of $26,628 with respect to the Government Fund and $31,741 with
respect to the High Yield Fund.
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, 1997, 1996 and 1995 the
Advisor and Madison, as the Advisor to Madison Bond Fund, Inc., the
predecessor to the Mosaic Bond Fund, received advisory fees of $12,598,
$23,878 and $30,159, 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 March 31,
1998, the shareholders who held five percent or more of the Bond Fund
were: Donald L. McConaghy, IRA, 505 16th St., Baraboo, WI 53913 (9%),
Middletown Acute Core Specialists Profit Sharing Plan, 15 The Alameda
Cir., Middletown, OH 45044 (8%), Madison Investment Advisory Profit
Sharing Plan, 6411 Mineral Point Rd., Madison, WI 53705 (8%) and Peter
De Cicco, 2000 N. Court St., #AF, Fairfield, IA 52556 (6%); and of the
Government Fund: BFIMC Money Purchase Pension Plan, P.O. Box 1118,
Cincinnati, OH 45201-1118 (11%) and Star Bank, Trustee for Geraldine
Schaeffer Keough, 2201 L St., NW, Suite 109, Washington, DC 20037-1410
(6%).
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.
## 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.
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***
4905 W. 60th Avenue, Arvada, CO 80003
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.
***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.
Katherine L. Frank
6411 Mineral Point Road, Madison, WI 53705
President
President of Mosaic 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 Funds.
Jay R. Sekelsky
6411 Mineral Point Road, Madison, WI 53705
Vice President
Vice President of Mosaic 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 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 Funds, GIT 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.
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 received
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 have been compensated in the same amount as Mr.
Kleppe.
During the twelve months ending December 31, 1997, the Trustees were
compensated as follows:
Total Compensation
Aggregate from Funds and
Compensation Mosaic Complex
from Funds Paid to Trustees(a)
Frank E. Burgess $0 $0
Thomas S. Kleppe $1,000 $15,000
James R. Imhoff, Jr. $1,000 $18,000
Lorence D. Wheeler $1,000 $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.
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 malfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
As of March 31, 1998, the Trustees and officers of the Trust directly or
indirectly owned as a group less than 10% of the Bond Fund and less than
5% of the High Yield and Government Funds.
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 percentage fee calculated as a percentage of average daily net
assets, reviewed and approved annually by the Trustees. Such fee is
expected to approximate or be below 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's costs will also include certain direct expenses
(including custody, brokerage, blue sky, legal and audit).
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. The
Trust has entered into a proposed Distribution Agreement under the same
general terms as its current Distribution Agreement with Artisan
Investment Services, LLC to be effective upon the admission by Artisan
to membership in the National Association of Securities Dealers, Inc.
Artisan is a wholly owned subsidiary of Madison which has been
established for the sole purpose of serving as the distributor for
Mosaic Funds.
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 Prospectus describes 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 the close of
the New York Stock Exchange. 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 the close of the New York Stock
Exchange 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.
It is the shareholder's obligation to inform the Trust of address
changes. The Trust will exercise reasonable care to ascertain the
correct address of lost shareholders. The Trust will conduct two
database searches and use at least one information database service.
The search will be conducted at no cost to the shareholder. The Trust
will not, however, perform such searches if the shareholder's account is
less than $25, if the shareholder is not a natural person or the Trust
has received documentation that the shareholder is deceased. If a lost
shareholder cannot be located after such procedures, such shareholder's
account may be escheated to the state of the shareholder's last
residence. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
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 (Tradional and Roth).
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
retirement plan accounts. The Trust offers prototype Education IRA,
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 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 Martin Luther King Jr.'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 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
Federal Income Tax. To qualify as a "regulated investment company" and
avoid Trust-level federal income tax under the Internal Revenue Code
(the "Code"), each Trust portfolio 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 excise
taxes.
To qualify as a regulated 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. 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 March 31, 1998,
the standardized 30-day yield of the Government Fund was 4.79% per
annum, of the High Yield Fund was 7.43% per annum, and of the Bond Fund
was 5.08% per annum.
For the year ended March 31, 1998, the average annualized total return
of the Government Fund was 10.40% and of the High Yield Fund was 12.28%.
For the calendar quarter ending March 31, 1998 the non-annualized
aggregate total return of the Government Fund was 1.22% and of the High
Yield Fund was 2.89%.
For the five years ended March 31, 1998, the average annualized total
return of the Government Fund was 4.72%.
For the five years ended March 31, 1998, the average annualized total
return of the High Yield Fund was 8.00%.
For the ten years ended March 31, 1998, the average annualized total
return of the Government Fund was 6.95%.
For the ten years ended through March 31, 1998, the average annualized
total return of the High Yield Fund was 8.15%.
As of March 31, 1998, the one year total return of Mosaic Bond Fund was
8.09%. The five year average annualized total return and average
annualized total return since inception on April 23, 1990 was 4.81% and
6.35%, respectively. For the calendar quarter ended March 31, 1998, the
non-annualized aggregate total return was 1.10%.
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, and 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.
Deloitte & Touche LLP, 117 Campus Drive, Princeton, NJ 08540 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
Deloitte & Touche LLP, Independent Auditors for the period ended
December 31, 1997, appear in the Trust's Annual Report to shareholders
for the period ended December 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.
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.
Bond ratings may be further enhanced by the motation "+" or "-." For
purposes of the Trust and its investment policies and restructions, such
notations shall be disregarded in general. Thus, for example, bonds
rated BBB- are considered investment grade while bonds rated BB+ are
not.
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
May 1, 1998
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 March 5, 1998 and incorporated herein by
reference is the Trust's Annual Report to Shareholders for the
period ended December 31, 1997.
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 Deloitte
& Touche LLP, Independent Auditors.
Included as an Exhibit to Part C: Consent of Independent Auditors
(Because the Statements of Changes in Net Assets involved more than one
fiscal year and were audited by different Independent Accountants,
consents from Williams, Young & Associates, LLC, Ernst & Young LLP and
Deloitte & Touche LLP are included)
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 (Filed herewith)
9 Services Agreement*
10 Consent of Counsel*
11 Consents of Independent Auditors (Filed Herewith)
11.1 Williams, Young & Associates, LLC
11.2 Ernst & Young LLP
11.3 Deloitte & Touche LLP
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 April 2, 1998 is as follows:
Title of Class Number of Holders of Record
Shares of Beneficial Interest 803
27. Indemnification
Previously Filed
28. Business and Other Connections of Investment Advisor effective
April 3, 1998.
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 Mosaic Government Money Market.
(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 May 1,
1998.
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 5/1/98
John Rashke, Esquire
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's current Forms NSAR, financial statement 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 5,283
<INVESTMENTS-AT-VALUE> 5,409
<RECEIVABLES> 92
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,501
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2
<TOTAL-LIABILITIES> 2
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,795
<SHARES-COMMON-STOCK> 556
<SHARES-COMMON-PRIOR> 614
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (422)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 126
<NET-ASSETS> 5,499
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 272
<OTHER-INCOME> 0
<EXPENSES-NET> 49
<NET-INVESTMENT-INCOME> 223
<REALIZED-GAINS-CURRENT> (64)
<APPREC-INCREASE-CURRENT> 333
<NET-CHANGE-FROM-OPS> 492
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 223
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 52
<NUMBER-OF-SHARES-REDEEMED> 131
<SHARES-REINVESTED> 21
<NET-CHANGE-IN-ASSETS> (293)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (358)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 27
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 49
<AVERAGE-NET-ASSETS> 5,632
<PER-SHARE-NAV-BEGIN> 9.434
<PER-SHARE-NII> 0.384
<PER-SHARE-GAIN-APPREC> 0.458
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.384
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.892
<EXPENSE-RATIO> 1.16
<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 current financial statement, form NSAR 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 6,375
<INVESTMENTS-AT-VALUE> 6,366
<RECEIVABLES> 158
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,525
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9
<TOTAL-LIABILITIES> 9
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,155
<SHARES-COMMON-STOCK> 904
<SHARES-COMMON-PRIOR> 892
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,630)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8)
<NET-ASSETS> 6,517
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 460
<OTHER-INCOME> 1
<EXPENSES-NET> 61
<NET-INVESTMENT-INCOME> 400
<REALIZED-GAINS-CURRENT> 80
<APPREC-INCREASE-CURRENT> 113
<NET-CHANGE-FROM-OPS> 593
<EQUALIZATION> 000
<DISTRIBUTIONS-OF-INCOME> 400
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 246
<NUMBER-OF-SHARES-REDEEMED> 280
<SHARES-REINVESTED> 45
<NET-CHANGE-IN-ASSETS> 263
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,238)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 32
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 61
<AVERAGE-NET-ASSETS> 6,717
<PER-SHARE-NAV-BEGIN> 7.009
<PER-SHARE-NII> 0.428
<PER-SHARE-GAIN-APPREC> 0.199
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.428
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.208
<EXPENSE-RATIO> 1.20
<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 current financial statement, form NSAR and prospectus and is
qualified in its entirety by reference to such source documents.
</LEGEND>
<CIK> 0000710978
<NAME> MOSAIC INCOME TRUST
<SERIES>
<NUMBER> 3
<NAME> MOSAIC BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,099
<INVESTMENTS-AT-VALUE> 1,107
<RECEIVABLES> 20
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,127
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1
<TOTAL-LIABILITIES> 1
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,412
<SHARES-COMMON-STOCK> 54
<SHARES-COMMON-PRIOR> 118
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (294)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8
<NET-ASSETS> 1,126
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 146
<OTHER-INCOME> 0
<EXPENSES-NET> 37
<NET-INVESTMENT-INCOME> 108
<REALIZED-GAINS-CURRENT> 5
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 112
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 110
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6
<NUMBER-OF-SHARES-REDEEMED> 152
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> (2,961)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (293)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 37
<AVERAGE-NET-ASSETS> 2,263
<PER-SHARE-NAV-BEGIN> 20.63
<PER-SHARE-NII> 1.08
<PER-SHARE-GAIN-APPREC> 0.12
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.08
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.75
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Revised custody agreement for Mosaic Funds dated April, 1998
Agreement made as of the 14 day of April, 1998 between Mosaic Equity
Trust, Mosaic Income Trust, Mosaic Government Money Market Trust, Mosaic
Focus Fund Trust and Mosaic Tax-Free Trust (the "Trusts"), business
trusts organized under the laws of Massachusetts and having their office
at 1655 Fort Myer Drive, Arlington, Virginia 22209, acting for and on
behalf of all mutual fund portfolios as are currently authorized and
issued by the Trusts or may be authorized and issued by any of the
Trusts subsequent to the date of this Agreement (the "Funds"), which are
operated and maintained by their respective Trusts for the benefit of
the holders of shares of the Funds, and Star Bank, N.A. (the
"Custodian"), a national banking association having its principal office
and place of business at Star Bank Center, 425 Walnut Street,
Cincinnati, Ohio 45202, which Agreement provides for the furnishing of
custodian services to the Funds.
W I T N E S S E T H : that for and in consideration of the mutual
promises hereinafter set forth the Trusts, on behalf of the Funds, and
the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
1. "Authorized Person" shall be deemed to include the Chairman,
President, Secretary, Treasurer, and the Executive Vice President, or
any other person, whether or not any such person is an officer or
employee of the Trusts, duly authorized by the Board of Trustees of the
Trusts to give Oral Instructions and Written Instructions on behalf of
the Funds and listed in the Certificate annexed hereto as Appendix A or
such other Certificate as may be received by the Custodian from time to
time, subject in each case to any limitations on the authority of such
person as set forth in Appendix A or any such Certificate. Authorized
Persons shall also include the President, Executive Vice President,
Secretary and such other officers employed by Bankers Finance Advisors,
L.L.C. (the "Adviser") as are designated in writing by the Adviser
pursuant to the terms of the services agreements between the Trusts and
the Adviser regarding day-to-day management of the Funds.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury book-
entry system for United States and federal agency securities, its
successor or successors and its nominee or nominees, provided the
Custodian has received a certified copy of a resolution of Board of
Trustees of the Trusts specifically approving deposits in the Book-Entry
System.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be
given to the Custodian which is signed on behalf of the Funds by an
Officer of the Trusts and is actually received by the Custodian.
4. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission,
its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person or clearing
agency authorized to act as a depository under the Investment Company
Act of 1940, its successor or successors and its nominee or nominees,
provided that the Custodian has received a certified copy of a
resolution of the Board of Trustees of the Trusts specifically approving
such other person or clearing agency as a depository.
5. "Dividend and Transfer Agent" shall mean the dividend and transfer
agent active, from time to time, in such capacity pursuant to a written
agreement with the Funds, changes in which the Trusts shall immediately
report to the Custodian in writing.
6. "Foreign Equity Securities" include equity securities with issuers
whose principal activities are outside of the United States and includes
common stocks, convertible debt securities, preferred stocks, warrants,
and American Depositories Receipts.
7. "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to principal and/or
interest by the government of the United States or agencies or
instrumentalities thereof, commercial paper, obligations (including
certificates of deposit, bankers' acceptances, repurchase and reverse
repurchase agreements with respect to the same) and bank time deposits
of domestic banks that are members of Federal Deposit Insurance Trust,
and short-term corporate obligations where the purchase and sale of such
securities normally require settlement in federal funds or their
equivalent on the same day as such purchase or sale.
8. "Officers" shall be deemed to include the Chairman, the President,
the Secretary, the Treasurer, and Executive Vice President of the Trusts
listed in the Certificate annexed hereto as Appendix A or such other
Certificate as may be received by the Custodian from time to time.
9. "Oral Instructions" shall mean oral instructions actually received
by the Custodian from an Authorized Person (or from a person which the
Custodian reasonably believes in good faith to be an Authorized Person)
and confirmed by Written Instructions from Authorized Persons in such
manner so that such Written Instructions are received by the Custodian
on the next business day.
10. "Prospectus" or "Prospectuses" shall mean the Funds' currently
effective prospectuses and statements of additional information, as
filed with and declared effective by the Securities and Exchange
Commission.
11. "Security or Securities" shall mean Foreign Equity Securities,
Money Market Securities, common or preferred stocks, options, bonds,
debentures, corporate debt securities, notes, mortgages or other
obligations, and any certificates, receipts, warrants or other
instruments representing rights to receive, purchase or subscribe for
the same, or evidencing or representing any other rights or interest
therein, or any property or assets.
12. "Written Instructions" shall mean communication actually received
by the Custodian from one Authorized Person or from one person which the
Custodian reasonably believes in good faith to be an Authorized Person
in writing, telex or any other data transmission system whereby the
receiver of such communication is able to verify by codes or otherwise
with a reasonable degree of certainty the authenticity of the senders of
such communication.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Trusts, acting for and on behalf of their respective Funds,
hereby constitute and appoint the Custodian as custodian of Securities
and monies owned by the Funds during the period of this Agreement ("Fund
Assets").
2. The Custodian hereby accepts appointment as such Custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
DOCUMENTS TO BE FURNISHED BY THE TRUST
Each Trust hereby agrees to furnish to the Custodian the following
documents within a reasonable time after the effective date of this
Agreement:
1. A copy of its Declaration of Trust (the "Declaration of Trust")
certified by its Secretary.
2. A copy of its By-Laws certified by its Secretary.
3. Copies of the most recent Prospectuses of the Trust.
4. A Certificate of the President and Secretary setting forth the
names and signatures of the present Officers of the Trust.
ARTICLE IV
CUSTODY OF CASH AND SECURITIES
1. Each Trust will deliver or cause to be delivered to the Custodian
Fund Assets, including cash received for the issuance of its shares.
The Custodian will not e responsible for such Fund Assets until actually
received by it. Upon such receipt, the Custodian shall hold in
safekeeping and physically segregate at all times from the property of
any other persons, firms or corporations all Fund Assets received by it
from or for the accounts of the Funds. The Custodian will be entitled
to reverse any credits made on the Funds' behalf where such credits have
been previously made and monies are not finally collected within 90 days
of the making of such credits. The Custodian is hereby authorized by
the Trusts, acting on behalf of the Funds, to actually deposit and Fund
Assets in the Book-Entry System or in a Depository, provided, however,
that the Custodian shall always be accountable to the Trusts for the
Fund Assets so deposited. Funds Assets deposited in the Book-Entry
System or the Depository will be represented in accounts which include
only assets held by the Custodian for customers, including but not
limited to accounts in which the Custodian acts in fiduciary or
representative capacity.
2. The Custodian shall credit to a separate account or accounts in
the name of each respective Fund all monies received by it for the
account of such Fund, and shall disburse the same only:
(a) In payment for Securities purchased for the account of such Fund,
as provided in Article V;
(b) In payment of dividends or distributions, as provided in Article
VI hereof;
(c) In payment of original issue or other taxes, as provided in
Article VII hereof;
(d) In payment for shares of such Fund redeemed by it, as provided in
Article VII hereof;
(e) Pursuant to Certificates (i) directing payment and setting forth
the name and address of the person to whom the payment is to be made,
the amount of such payment and the purpose for which payment is to be
made (the Custodian not being required to questions such direction) or
(ii) if reserve requirements are established for a Fund by law or by
valid regulation, directing the Custodian to deposit a specified amount
of collected funds in the form of U. S. dollars at a specified Federal
Reserve Bank and state the purpose of such deposit; or
(f) In reimbursement of the expenses and liabilities of the Custodian,
as provided in paragraph 10 of Article IX hereof.
3. Promptly after the close of business on each day the Funds are
open and valuing their portfolios, the Custodian shall furnish the
respective Trusts with a detailed statement of monies held for the Funds
under this Agreement and with confirmations and a summary of all
transfers to or from the account of the Funds during said day. Where
Securities are transferred to the account of the Funds without physical
delivery, the Custodian shall also identify as belonging to the Funds a
quantity of Securities in a fungible bulk of Securities registered in
the name of the Custodian (or its nominee) or shown on the Custodian's
account on the books of the Book-Entry System or the Depository. At
least monthly and from time to time, the Custodian shall furnish the
Trusts with a detailed statement of the Securities held for the Funds
under this Agreement.
4. All Securities held for the Funds, which are issued or issuable
only in bearer form, except such Securities as are held in the Book-
Entry System, shall be held by the Custodian in that form; all other
Securities held for the Funds, may be registered in the name of the
Funds, in the name of any duly appointed registered nominee of the
Custodian as the Custodian may from time to time determine, or in the
name of the Book-Entry System or the Depository or their successor or
successors, or their nominee or nominees. Each Trust agrees to furnish
to the Custodian appropriate instruments to enable the Custodian to hold
or deliver in proper form for transfer, or to register in the name of
its registered nominee or in the name of the Book-Entry System or the
Depository, any Securities which it may hold for the account of the
Funds and which may from time to time be registered in the name of the
Funds. The Custodian shall hold all such Securities which are not held
in the Book-Entry System by the Depository or a Sub-Custodian in a
separate account or accounts in the name of the Funds segregated at all
times from those of any other fund maintained and operated by the Trust
and from those of any other person or persons.
5. Unless otherwise instructed to the contrary by a Certificate, the
Custodian shall with respect to all Securities held for the Funds in
accordance with this Agreement:
(a) Collect all income due or payable to the Funds with respect to
each Fund's Assets;
(b) Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed, or retired, or
otherwise become payable;
(c) Surrender Securities in temporary form for definitive Securities;
(d) Execute, as Custodian, any necessary declarations or certificates
of ownership under the Federal income tax laws or the laws or
regulations of any other taxing authority, including any foreign taxing
authority, now or hereafter in effect; and
(e) Hold directly, or through the Book-Entry System or the Depository
with respect to Securities therein deposited, for the account of the
Funds all rights and similar securities issued with respect to any
Securities held by the Custodian hereunder.
6. Upon receipt of Written Instructions and not otherwise, the
Custodian directly or through the use of the Book-Entry System or the
Depository shall:
(a) Execute and deliver to such persons as may be designated in such
Written Instructions proxies, consents, authorizations, and any other
instruments whereby the authority of the Funds as owner of any
Securities may be exercised;
(b) Deliver any Securities held for the Funds in exchange for other
Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization
of any corporation, or the exercise of any conversion privilege;
(c) Deliver any Securities held for the account of the Funds to any
protective committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger, consolidation,
recapitalization or sale of assets of any corporation, and receive and
hold under the terms of this Agreement such certificates of deposit,
interim receipts or other instruments or documents as may be issued to
it to evidence such delivery; and
(d) Make such transfers or exchanges of the assets of the Funds and
take such other steps as shall be stated in a Certificate to be for the
purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Funds.
7. The Custodian shall promptly deliver to each respective Trust all
notices, proxy material and executed but unvoted proxies pertaining to
shareholder meetings of Securities held by the Funds. The Custodian
shall not vote or authorize the voting of any Securities or give any
consent, waiver or approval with respect thereto unless so directed by a
Certificate or Written Instruction.
8. The Custodian shall promptly deliver to the Trusts all material
and notices received by the Custodian and pertaining to Securities held
by the Funds with respect to tender or exchange offers, calls for
redemption or purchase, expiration of rights, name changes, stock splits
and stock dividends, or any other activity involving ownership rights in
such Securities.
9. The Custodian shall conduct such periodic physical inspection of
Securities held by it under this Agreement as it deems advisable to
verify the accuracy of its inventory. The Custodian shall promptly
report to the Trusts any discrepancies or shortages revealed by such
inspections and shall make every effort promptly to remedy such
discrepancies or shortages.
ARTICLE V
PURCHASE AND SALE OF INVESTMENTS OF THE FUNDS
1. Promptly after each purchase of Securities by the Funds, the
respective Trust shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, a
Certificate or Written Instructions, and (ii) with respect to each
purchase of Money Market Securities, Written Instructions, a Certificate
or Oral Instructions, specifying with respect to each such purchase:
(a) the name of the issuer and the title of the Securities, (b) the
principal amount purchased and accrued interest, if nay, (c) the date of
purchase and settlement, (d) the purchase price per unit, (e) the
total amount payable upon such purchase and (f) the name of the person
from whom or the broker through whom the purchase was made. The
Custodian shall upon receipt of Securities purchased by or for the
Funds, pay out of the monies held for the account of the Funds the total
amount payable to the person from whom or the broker through whom the
purchase was made, provided that the same conforms to the total amount
payable as set forth in such Certificate, Written Instructions or Oral
Instructions.
2. Promptly after each sale of Securities by the respective Trust for
the account of the Funds, such Trust shall deliver to the Custodian (i)
with respect to each sale of Securities which are not Money Market
Securities, a Certificate or Written Instructions, and (ii) with respect
to each sale of Money Market Securities, Written Instructions, a
Certificate or Oral Instructions, specifying with respect to each such
sale: (a) the name of the issuer and the title of the Security, (b)
the principal amount sold, and accrued interest, if any, (c) the date
of sale, (d) the sale price per unit, (e) the total amount payable to
the Funds upon such sale and (f) the name of the broker through whom or
the person to whom the sale was made. The Custodian shall deliver the
Securities upon receipt of the total amount payable to the Funds upon
such sale, provided that the same conforms to the total amount payable
as set forth in such Certificate, Written Instructions or Oral
Instructions. Subject to the foregoing, the Custodian may accept
payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs
prevailing among dealers in Securities.
3. Promptly after the time as of which a Trust, on behalf of a Fund,
either -
(a) writes an option on Securities or writes a covered put option in
respect of a Security, or
(b) notifies the Custodian that its obligations in respect of any put
or call option, as described in such Trust's Prospectus, require that
the Fund deposit Securities or additional Securities with the Custodian,
specifying the type and value of Securities required to be so deposited,
or
(c) notifies the Custodian that its obligations in respect of any
other Security, as described in each Fund's respective Prospectus,
require that the Fund deposit Securities or additional Securities with
the Custodian, specifying the type and value of Securities required to
be so deposited, the Custodian will cause to be segregated or identified
as deposited, pursuant to the Fund's obligations as set forth in such
Prospectus, Securities of such kinds and having such aggregate values as
are required to meet the Fund's obligations in respect thereof.
The Trust will provide to the Custodian, as of the end of each trading
day, the market value of each Fund's option liability, if any, and the
market value of its portfolio of common stocks.
4. On contractual settlement date, the account of each respective
Fund will be charged for all purchases settling on that day, regardless
of whether or not delivery is made. On contractual settlement date,
sale proceeds will likewise be credited to the account of such Fund
irrespective of delivery.
In the case of "sale fails", the Custodian may request the assistance of
the Trusts in making delivery of the failed Security.
ARTICLE VI
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. Each Trust shall furnish to the Custodian Written Instructions to
release or otherwise apply cash insofar as available for the payment of
dividends or other distributions to Fund shareholders entitled to
payment as determined by the Dividend and Transfer Agent of the Funds.
The Custodian may rely on any such Written Instructions so received, and
shall be indemnified by the Trust providing such instructions for such
reliance.
2. Upon the payment date specified in such Written Instructions, the
Custodian shall arrange for such payments to be made by the Dividend and
Transfer Agent out of monies held for the accounts of the Funds.
ARTICLE VII
SALE AND REDEMPTION OF SHARES OF THE FUNDS
1. The Custodian shall receive and credit to the account of each Fund
such payments for shares of such Fund issued or sold from time to time
as are received from the distributor for the Fund's shares, from the
Dividend and Transfer Agent of the Fund, or from the Trust.
2. Upon receipt of Written Instructions, the Custodian shall arrange
for payment of redemption proceeds to be made by the Dividend and
Transfer Agent out of the monies held for the account of the respective
Funds in the total amount specified in the Written Instructions.
3. Notwithstanding the above provisions regarding the redemption of
any shares of the Funds, whenever shares of the Funds are redeemed
pursuant to any check redemption privilege which may from time to time
be offered by the Funds, the Custodian, unless otherwise subsequently
instructed by Written Instructions setting forth that the redemption is
in good form for redemption in accordance with the check redemption
procedure, or pursuant to preauthorized Written Instructions or
procedures established with regard thereto, honor the check presented as
part of such check redemption privilege out of the money held in the
account of the Funds for such purposes.
ARTICLE VIII
INDEBTEDNESS
In connection with any borrowings, each Trust, on behalf of its
respective Funds, will cause to be delivered to the Custodian by a bank
or broker (including the Custodian, if the borrowing is from the
Custodian), requiring Securities as collateral for such borrowings, a
notice or undertaking in the form currently employed by any such bank or
broker will loan to the Funds against delivery of a stated amount of
collateral. Each Trust shall promptly deliver to the Custodian a
Certificate specifying with respect to each such borrowing: (a) the
name of the bank or broker, (b) the amount and terms of the borrowing,
which may be set forth by incorporating by reference an attached
promissory note, duly endorsed by the Trust, acting on behalf of a Fund,
or other loan particular Securities to be delivered as collateral by the
Custodian, the Custodian shall not be under any obligation to deliver
any Securities. The Custodian may require such reasonable conditions
with respect to such collateral and its dealings with third-party
lenders as it may deem appropriate.
ARTICLE IX
CONCERNING THE CUSTODIAN
1. Except as otherwise provided herein, the Custodian shall not be
liable for any loss or damage, including counsel fees, resulting from
its action or omission to act or otherwise, except for any such loss or
damage arising out of its own negligence or willful misconduct. Each
Trust, on behalf of its Funds and only from applicable Fund Assets (or
insurance purchased by a Trust with respect to its liabilities on behalf
of its Funds hereunder), shall defend, indemnify and hold harmless the
Custodian, its officers, employees and agents, with respect to any loss,
claim, liability or cost (including reasonable attorneys' fees) arising
or alleged to arise from or relating to each Trust's duties with respect
to its Funds hereunder or any other action or inaction of the respective
Trust or its Trustees, Officers, employees or agents as to the Funds,
except such as may arise from the negligent action, omission or willful
misconduct of the Custodian, its officers, employees or agents. The
Custodian shall defend, indemnify and hold harmless each Trust and its
Trustees, Officers, employees or agents with respect to any loss, claim,
liability or cost (including reasonable attorneys' fees) arising or
alleged to arise from or relating to agreement, (c) the date and time,
if known, on which the loan is to be entered into, (d) the date on
which the loan becomes due and payable, (e) the total amount payable to
the Fund on the borrowing date, (f) the market value of Securities
collateralizing the loan, including the name of the issuer, the title
and the number of shares or the principal amount of any particular
Securities and (g) a statement that such loan is in conformance with
the Investment Company Act of 1940 and the Fund's then current
Prospectus. The Custodian shall deliver on the borrowing date specified
in a Certificate the specified collateral and the executed promissory
note, if any, against delivery by the lending bank or broker of the
total amount payable as set forth in the Certificate. The Custodian
may, at the option of the lending bank or broker, keep such collateral
in its possession, but such collateral shall be subject to all rights
therein given the lending bank or broker, by virtue of any promissory
note or loan agreement. The Custodian shall deliver in the manner
directed by the Trust from time to time such Securities as additional
collateral as may be specified in a Certificate to collateralize further
any transaction described in the paragraph. Such Trust shall cause all
Securities released from collateral status to be returned directly to
the Custodian and the Custodian shall receive from time to time such
return of collateral as may be tendered to it. In the event that a
Trust fails to specify in a Certificate the name of the issuer, the
title and number of shares or the principal amount of any the
Custodian's duties with respect to the Funds hereunder or any other
action or inaction of the Custodian or its Trustees, Officers,
employees, agents, nominees or Sub-Custodians as to the Funds, except
such as may arise from the negligent action, omission or willful
misconduct of the Trust, its Trustees, Officers, employees or agents.
The Custodian may, with respect to questions of law apply for and obtain
the advice and opinion of counsel to the Trusts at the expense of the
Funds, or of its own counsel at its own expense, and shall be fully
protected with respect to anything done or omitted by it in good faith
in conformity with the advice or opinion of counsel to the Trusts, and
shall be similarly protected with respect to anything done or omitted by
it in good faith in conformity with the advice or opinion of its
counsel, unless counsel to the Funds shall, within a reasonable time
after being notified of legal advice received by the Custodian, have a
differing interpretation of such question of law. The Custodian shall
be liable to the Trusts for any proximate loss or damage resulting from
the use of the Book-Entry System or any Depository arising by reason of
any negligence, misfeasance or misconduct on the part of the Custodian
or any of its employees, agents, nominees or Sub-Custodians but not for
any special, incidental, consequential, or punitive damages; provided,
however, that nothing contained herein shall preclude recovery by a
Trust, on behalf of its Funds, of principal and of interest to the date
of recovery on, Securities incorrectly omitted from or included in a
Fund's accounts or penalties imposed on the Trusts, in connection with
the Funds, therefrom or for any failures to deliver Securities.
In any case in which one party hereto may be asked to indemnify the
other or hold the other harmless, the party from whom indemnification is
sought (the "Indemnifying Party") shall be advised of all pertinent
facts concerning the situation in question, and the party claiming a
right to indemnification (the "Indemnified Party") will use a reasonable
care to identify and notify the Indemnifying Party promptly concerning
any situation which presents or appears to present a claim for
indemnification against the Indemnifying Party. The Indemnifying Party
shall have the option to defend the Indemnified Party against any claim
which may be the subject of the indemnification, and in the event the
Indemnifying Party so elects, such defense shall be conducted by counsel
chosen by the Indemnifying Party and satisfactory to the Indemnified
Party and the Indemnifying Party will so notify the Indemnified Party
and thereupon such Indemnifying Party shall take over the complete
defense of the claim and the indemnifying Party shall sustain no further
legal or other expenses in such situation for which indemnification has
been sought under this paragraph, except the expenses of any additional
counsel retained by the Indemnified Party. In no case shall any party
claiming the right to indemnification confess any claim or make any
compromise in any case in which the other party has been asked to
indemnify such party (unless such confession or compromise is made with
such other party's prior written consent).
The Custodian acknowledges the limitation of liability provisions of
Article XI of each Trust's Declaration of Trust and agrees that the
obligations and liabilities of each Trust under this Agreement shall be
limited by and to the extent of the Trust and its assets and that the
Custodian shall not be entitled to seek satisfaction of any such
obligation or liability from the Trusts' shareholders, Trustees,
Officers, employees or agents.
The Custodian acknowledges the limitation of liability provisions of
Article XI of each Trust's Declaration of Trust and agrees that the
obligations and liabilities of each Trust under this Agreement shall be
limited by and to the extent of the Trust and its assets and that the
Custodian shall not be entitled to seek satisfaction of any such
obligation or liability from the Trusts' shareholders, Trustees,
Officers, employees or agents.
The obligations of the parties hereto under this paragraph shall survive
the termination of this Agreement.
2. Without limiting the generality of the foregoing, the Custodian,
acting in the capacity of Custodian hereunder, shall be under not
obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased by or for
the account of the Funds, the legality of the purchase thereof, or the
propriety of the amount paid therefor;
(b) The legality of the sale of any Securities by or for the account
of the Funds, or the propriety of the amount for which the same are
sold;
(c) The legality of the issue or sale of any shares of the Funds, or
the sufficiency of the amount to be received therefor;
(d) The legality of the redemption of any shares of the Funds, or the
propriety of the amount to be paid therefor;
(e) The legality of the declaration or payment of any dividend by the
Trust in respect of shares of the Funds;
(f) The legality of any borrowing by the Trust, on behalf of the
Funds, using Securities as collateral;
(g) The sufficiency of any deposit made pursuant to a Certificate
described in clause (ii) of paragraph 2 (e) of Article IV hereof.
3. The Custodian shall not be liable for any money or collected funds
in U.S. dollars deposited in a Federal Reserve Bank other than the
Custodian in accordance with a Certificate described in clause (ii) of
paragraph 2 (e) of Article IV hereof, nor be liable for or considered to
be the Custodian of any money, whether or not represented by any check,
draft, or other instrument for the payment of money, received by it on
behalf of the Funds until the Custodian actually receives and collects
such money directly or by the final crediting of the account
representing the Funds' interest at the Book-Entry System or Depository.
4. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Funds from the
Dividend and Transfer Agent of the Funds nor to take any action to
effect payment or distribution by the Dividend and Transfer Agent of the
Funds of any amount paid by the Custodian to the Dividend and Transfer
Agent of the Funds in accordance with this Agreement.
5. Income due or payable to the Funds with respect to Funds Assets
will be credited to the account of the Funds as follows:
(a) Dividends will be credited on the first business day following
payable date irrespective of collection.
(b) Interest on fixed rate municipal bonds and debt securities issued
or guaranteed as to principal and/or interest by the government of the
United States or agencies or instrumentalities thereof (excluding
securities issued by the Government National Mortgage Association) will
be credited on payable date irrespective of collection.
(c) Interest on fixed rate corporate debt securities will be credited
on the first business day following payable date irrespective of
collection.
(d) Interest on variable and floating rate debt securities and debt
securities issued by the Government National Mortgage Association will
be credited upon the Custodian's receipt of funds.
(e) Proceeds from options will be credited upon the Custodian's
receipt of funds.
6. Notwithstanding paragraph 5 of this Article IX, the Custodian
shall not be under any duty or obligation to take action to effect
collection of any amount, if the Securities upon which such amount is
payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such
action by a Certificate and (ii) it shall be assured to its satisfaction
or reimbursement of its costs and expenses in connection with any such
action or, at the Custodian's option, prepayment.
7. The Custodian may appoint one or more financial or banking
institutions, as Depository or Depositories or as Sub-Custodian or Sub-
Custodians, including, but not limited to, banking institutions located
in foreign countries, or Securities and monies at any time owned by the
Funds, upon terms and conditions approved in a Certificate. Current
Depository(s) and Sub-Custodians(s) are noted in Appendix B. The
Custodian shall not be relieved of any obligation or liability under
this Agreement in connection with the appointment or activities of such
Depositories or Sub-Custodians.
8. The Custodian shall not be under any duty or obligation to
ascertain whether any Securities at any time delivered to or held by it
for the account of the Funds are such as properly may be held by the
Funds under the provisions of the Declarations of Trust and the Trusts'
By-Laws.
9. The Custodian shall treat all records and other information
relating to the Trusts, the Funds and the Funds' Assets as confidential
and shall not disclose any such records or information to any other
person unless (a) the respective Trust shall have consented thereto in
writing or (b) such disclosure is compelled by law.
10. The Custodian shall be entitled to receive and the Trusts agree to
pay to the Custodian such compensation as shall be determined pursuant
to Appendix C attached hereto, or as shall be determined pursuant to
amendments to such Appendix approved by the Custodian and the Trust, on
behalf of the Funds. The Custodian shall be entitled to charge against
any money held by it for the account of the Funds the amount of any
loss, damage, liability or expense, including counsel fees, for which it
shall be entitled to reimbursement under the provisions of this
Agreement as determined by agreement of the Custodian and the applicable
Trust or by the final order of any court or arbitrator having
jurisdiction and as to which all rights of appeal shall have expired.
The expenses which the Custodian may charge against the accounts of the
Funds include, but are not limited to, the expenses of Sub-Custodians
incurred in settling transactions involving the purchase and sale of
Securities of the Funds.
Notwithstanding the above, to the extent such compensation and expenses
of the Custodian are paid to the Custodian by the Adviser pursuant to
the services agreements between the Trusts and the Adviser, no charges
shall be made against the accounts of the Funds by the Custodian.
11. The Custodian shall be entitled to rely upon any Certificate. The
Custodian shall be entitled to rely upon any Oral Instructions and any
Written Instructions actually received by the Custodian pursuant to
Article IV or V hereof. Each Trust agrees to forward to the Custodian
Written Instructions from Authorized Persons confirming Oral
Instructions in such manner so that such Written Instructions are
received by the Custodian, whether by hand delivery, telex or otherwise,
on the first business day following the day on which such Oral
Instructions are given to the Custodian. Each Trust agrees that the
fact that such confirming instructions are not received by the Custodian
shall in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized by the Trust. Each
Trust agrees that the Custodian shall incur no liability to the Funds in
acting upon Oral Instructions given to the Custodian hereunder
concerning such transactions.
12. The Custodian will (a) set up and maintain proper books of
account and complete records of all transactions in the accounts
maintained by the Custodian hereunder in such manner as will meet the
obligations of the Funds under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31 a-1 and 31 a-2
thereunder, and (b) preserve for the periods prescribed by applicable
Federal statute or regulation all records required to be so preserved.
The books and records of the custodian shall be open to inspection and
audit at reasonable times and with prior notice by officers and auditors
employed by the Trusts.
13. The Custodian and its Sub-Custodians shall promptly send to the
Trusts, for the account of the Funds, any report received on the systems
of internal accounting control of the Book-Entry System or the
Depository and with such reports on their own systems of internal
accounting control as the Trusts may reasonably request from time to
time.
14. The Custodian performs only the services of a custodian and shall
have no responsibility for the management, investment or reinvestment of
the Securities from time to time owned by the Funds. The Custodian is
not a selling agent for shares of the Funds and performance of its
duties as a custodial agent shall not be deemed to be a recommendation
to the Custodian's depositors or others of shares of the Funds as an
investment.
ARTICLE X
TERMINATION
1. The Custodian or any of the Trusts may terminate this Agreement
for any reason by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than
ninety (90) days after the date of giving of such notice. If such
notice is given by any Trust, on behalf of any of its Funds, it shall
state in writing that the Trust is electing to terminate this Agreement
and shall designate a successor custodian or custodians, each of which
shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. In the event such
notice is given by the Custodian, the Trusts shall, on or before the
termination date, deliver to the Custodian a copy of a resolution of
their Board of Trustees, certified by the Secretary or Assistant
Secretary, designating a successor custodian or custodians to act on
behalf of the Funds. In the absence of such designation by the Trusts,
the Custodian may designate a successor custodian which shall be a bank
or trust company having not less than $2,000,000 aggregate capital,
surplus, and undivided profits. Upon the date set forth in such notice
this Agreement shall terminate, and the Custodian, provided that it has
received a notice of acceptance by the successor custodian, shall
deliver, on that date, directly to the successor custodian all
Securities and monies then owned by the Funds and held by it as
Custodian. Upon termination of the Agreement, the Trusts shall pay to
the Custodian on behalf of the Funds such compensation as may be due as
of the date of such termination. The Trusts agree on behalf of the
Funds that the Custodian shall be reimbursed for its reasonable costs in
connection with the termination of this Agreement.
2. If a successor custodian is not designated by the Trusts, on
behalf of the Funds, or by the Custodian in accordance with the
preceding paragraph, or the designated successor cannot or will not
serve, each Trust shall upon the delivery by the Custodian to each Trust
of all Securities (other than Securities held in the Book-Entry System
which cannot be delivered to the Trust) and monies then owned by its
Funds, other than monies deposited with a Federal Reserve Bank pursuant
to a Certificate described in clause (ii) of paragraph 2(e) of Article
IV, be deemed to be the custodian for its Funds, and the Custodian shall
thereby be relieved of all duties and responsibilities pursuant to this
Agreement, other than the duty with respect to Securities held in the
Book-Entry System which cannot be delivered to the Trust to hold such
Securities hereunder in accordance with this Agreement.
ARTICLE XI
MISCELLANEOUS
1. Appendix A sets forth the names and the signatures of all
Authorized Persons. Each Trust agrees to furnish to the Custodian, on
behalf of its Funds, a new Appendix A in form similar to the attached
Appendix A, if any present Authorized Person ceases to be an Authorized
Person or if any other or additional Authorized Persons are elected or
appointed. Until such new Appendix A shall be received, the Custodian
shall be fully protected in acting unde the provisions of this Agreement
upon Oral Instructions or signatures of the present Authorized Persons
as set forth in the last delivered Appendix A.
2. No recourse under any obligation of this Agreement or for any
claim based thereon shall be had against any organizer, shareholder,
Officer, Trustee, past, present or future as such, of the Trusts or of
any predecessor or successor, either directly or through the Trusts or
any such predecessor or successor, whether by virtue of any
constitution, statute or rule of law or equity, or by the enforcement of
any assessment or penalty or otherwise; it being expressly agreed and
understood that this Agreement and the obligations thereunder are
enforceable solely against Fund Assets, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
organizers, shareholders, Officers, Trustees of the Trusts or of any
predecessor or successor, or any of them as such, because of the
obligations contained in this Agreement or implied therefrom and that
any and all such liability is hereby expressly waived and released by
the Custodian as a condition of, and as a consideration for, the
execution of this Agreement.
3. The obligations set forth in this Agreement as having been made by
the Trusts have been made by each Trust for and on behalf of its Funds,
pursuant to the authority vested in the Trusts under the laws of the
Commonwealth of Massachusetts, the Declarations of Trust and the By-Laws
of the Trusts. This Agreement has been executed by Officers of the
Trusts as officers, and not individually, and the obligations contained
herein are not binding upon any of the Trustees, Officers, Agents or
holders of shares, personally, but bind only the Trusts and then only to
the extent of the respective Trust's Fund Assets.
4. Such provisions of the Prospectuses of the Funds and any other
documents (including advertising material) specifically mentioning the
Custodian (other than merely by name and address) shall be reviewed with
the Custodian by the Trust.
5. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at its
offices at Star Bank Center, 425 Walnut Street, M.L. 5127, Cincinnati,
Ohio 45202, attention Mutual Funds Custody Department, or at such
other place as the Custodian may from time to time designate in writing.
6. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to any Trust shall be sufficiently given
if addressed to the Trust and mailed or delivered to it at its office at
1655 Fort Myer Drive, 10th Floor, Arlington, Virginia 22209, or at such
other place as the Trusts may from time to time designate in writing.
7. This Agreement with the exception of Appendices A & B may not be
amended or modified in any manner except by a written agreement executed
by all parties provided that no amendment shall be in contravention of
or inconsistent with any federal or state law or regulation or the
Declarations of Trust or By-Laws of the Trusts.
8. This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Trusts or by
the Custodian, and not attempted assignment by the Trusts or the
Custodian shall be effective without the written consent of the other
party hereto.
9. This Agreement shall be construed in accordance with the laws of
the State of Ohio.
10. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
11. Where applicable and required based upon the context used, the
singular of any term used in this Agreement shall include the plural and
the plural may refer to the singular.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized as of
the day and year first above written.
ATTEST: Mosaic Equity Trust
Mosaic Income Trust
Mosaic Government Money Market Trust
Mosaic Tax-Free Trust
Mosaic Focus Fund Trust
(signature) By: (signature)
W. Richard Mason
Star Bank, N.A.
(signature) By: (signature)
Lynnette C. Gibson Marsha A. Croxton
Senior Vice President
APPENDIX A
AUTHORIZED PERSONS SPECIMEN SIGNATURES
Fund Officers:
Chris Berberet (signature)
Frank E. Burgess (signature)
Katherine L. Frank (signature)
W. Richard Mason (signature)
Jay R. Sekelsky (signature)
Julia M. Nelson (signature)
Adviser Employes:
Rita Bauer* (signature)
Michael Peters* (signature)
See Signature Cards for additional adviser employees authorized to sign
checks on fund accounts.
* Denotes authority restricted to securities trades.
Dated: _____________________________________
APPENDIX B
The following Depository(s) and Sub-Custodian(s) are employed currently
by Star Bank, N.A. for securities processing and control
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bankers Trust Company
16 Wall Street
New York, NY 10005
(For Foreign Securities and certain non-DTC eligible Securities)
SCHEDULE C
Star Bank, N.A., as Custodian, will receive monthly compensation for
services according to the terms of the following Schedule:
Portfolio Transaction Fees:
(a) For each repurchase agreement transaction $7.00
(b) For each portfolio transaction processed through
DTC or Federal Reserve $10
(c) For each portfolio transaction processed through
our New York custodian $25.00
(d) For each GNMA/Amortized Security Purchase $40
(e) For each GNMA Prin/Int Paydown, GNMA Sales $8.00
(f) For each option/future contract written,
exercised or expired $40.00
(g) For each Cedel/Euro clear transaction $100.00
(h) For each Disbursement (Fund expenses only) $5.00
A transaction is a purchase/sale of a security, free receipt/free
delivery (excludes initial conversion), maturity, tender or exchange:
II. Monthly Market Value Fee
Based upon Month-end at a rate of: Million
.0002 Basis Points on First $5
.0001 Basis Point on Next $25
.00075 Basis Points on Next Balance
Out-of-Pocket Expenses
The only out-of-pocket expenses charged to your account will be shipping
fees or transfer fees.
Exhibit 11
Independent Auditors' Consent
We consent to the incorporation by reference in Post-Effective Amendment
No. 19 to Registration Statement No. 2-80808 of Mosaic Income Trust of
our report dated February 13, 1998 appearing in the Annual Report to
Shareholders for the periods ended December 31, 1997 and to the
references to us under the headings "Financial Highlights" in the
Prospectus and "Legal Matters and Independent Auditors" and "Financial
Statements and Report of Independent Auditors" in the Statement of
Additional Information, both of which are part of such Registration
Statement.
(signature)
Deloitte & Touche LLP
Princeton, New Jersey
April 27, 1998
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption
"Financial Highlights" in the Prospectus and to the incorporation
by reference in this Post-Effective Amendment Number 19 to
the Registration Statement Number 2-80808 (Form N-1A) of
Mosaic Income Trust of our reports dated May 2, 1997,
included in the March 31, 1997 Annual Reports to shareholders.
(signature)
Ernst & Young LLP
Philadelphia, PA
April 28, 1998
Mosaic Income Trust
Post-Effective Amendment May 1, 1998
Computation of Performance Data
(As of December 31, 1997)
Bond Fund Government Fund High Yield Fund
30-Day Yield
Income 5,707.21 48,429.93 27,279.10
Expenses 997.49 6,222.88 5,173.32
Average Daily Shares
Outstanding 53,203.07 908,722.43 556,549.48
Maximum Offering Price 20.75 7.21 9.89
30-Day Yield 5.17% 7.86% 4.87%
Total Return
12/31/97 Factor 1,611.89 3,277.43 3,167.85
12/31/96 Factor 1,520.13 3,043.12 2,881.92
12/31/92 Factor 1,250.42 2,508.43 2,104.98
12/31/87 Factor 1,639.01 1,428.32
Inception Factor 1,000.00 1,000.00 1,000.00
Day Since Inception 2,809 5,277 5,277
Aggregate Returns
One-Year 6.04% 7.70% 9.92%
Five-Year 28.91% 30.66% 50.49%
Ten-Year 99.96% 121.79%
Since Inception 61.19% 227.79% 216.79%
Annualized Returns
Five-Year 5.21% 5.49% 8.52%
Ten-Year 7.18% 8.29%
Since Inception 6.40% 8.56% 8.31%
Consent of Williams, Young & Associates, LLC, Independent Auditors
We consent to the reference to our firm under the caption
"Financial Highlights" in the Prospectus and to the incorporation
by reference in this Post-Effective Amendment Number 19 to
Registration Statement Number 2-80808 (Form N-1A) of
Mosaic Equity Trust of our report dated January 24, 1997,
included in the December 31, 1996 Annual Report to shareholders.
(signature)
Williams, Young & Associates, LLC
Madison, WI
April 27, 1998
