Mosaic Income Trust
<I>Mosaic High Yield Fund
Mosaic Government Fund
Mosaic Bond Fund</I>
Semiannual Report
June 30, 1998
(unaudited)
Mosaic Funds
<PAGE>
Mosaic Income Trust
Letter to Shareholders
June 30, 1998
Period in Review
The semi-annual period ended June 30, 1998 was generally positive for domestic
bond holders. While the U.S. bond markets provided stability for investors
from around the world, all eyes were focused on the economic and financial
situation in Southeast Asia, particularly Japan. Asian woes hit home during
the second quarter when the manufacturing sector of the U.S. economy slowed
noticeably. The slowdown could be largely attributed to a decrease in exports
due to the strength of the U.S. dollar, which makes U.S.-made products
relatively expensive and Asian products cheaper. This trade drag was offset by
a healthy domestic economy which sparked demand and produced accumulating
inventories which, together, allowed the overall economy to continue to grow
at a healthy clip. At the same time, price competition from cheap imports
kept a lid on domestic pricing power, with inflation registering under 2% for
the first six months of this year. Against this largely disinflationary
backdrop, U.S. interest rates were able to grind lower despite strong
economic growth, with long-term Treasury yields falling 0.30%, and short-term
Treasury rates down 0.25%.
As the balance of 1998 unfolds, we see a continued slowdown in U.S.
manufacturing and softness in most commodities indices. These factors relieve
much of the near-term pressure on the Federal Reserve to raise interest rates,
which would lower the value of bonds and bond funds. This optimism, however,
is tempered by concerns over the labor market, where the unemployment rate
remains near multi-decade lows and wage inflation continues to expand at a
pace in excess of 4%. We fully expect the economic woes in Southeast Asia
to continue to affect the U.S. economy and remain watchful for any turn of
events, which could signal a change in the direction of the dollar/yen relation-
ship. Such a change from yen weakness to sustainable strength could have a
profound impact on the near-term direction of U.S. interest rates.
Fund Performance
The total return for the Mosaic Government Fund for the six months ended June
30, 1998 was 3.03% including income and market value appreciation. Mosaic
Government Fund's 30-day yield declined only nine basis points from 4.87% at
December 31, 1997 to 4.78% at June 30, 1998, despite the overall decline in
market interest rates during the period. Over the last 12 months, the
Government Fund's total return (income plus price) stands at 8.79%.
Mosaic Bond Fund's total return for the six month period was 2.55%, including
income and market value appreciation, while the total return over the last
twelve months was 6.84%. The Bond Fund's 30-day yield declined from 5.17% on
December 31, 1997 to 5.03% on June 30, 1998.
The high yield market has posted exceptionally strong results for the past
seven years. That trend continued in the first half of 1998, albeit at a
slower pace. This is not surprising given the continued strength of the
stock market, to which the high yield market most closely correlates. The
Mosaic High Yield Fund produced a total return of 4.19% during the first half
of 1998 and 9.16% for the past twelve months. Merger and acquisition activity
involving companies this fund is invested in had a positive impact on per-
formance. In particular, results were enhanced by our investment in Digital
Equipment Company, which was acquired by Compaq and by Sprint Corp. announcing
that they will be assuming ownership and management control of Sprint Spectrum.
On the down side was Golden Books Family Entertainment, whose operating results
were below expectations. This strong market environment has driven the high
yield market to all-time high valuation levels. With our outlook for a slower
economy and building corporate earnings pressures, we feel that the market
environment will be more difficult in the second half of 1998. Accordingly,
we have chosen to position the portfolio in a somewhat more cautious and
defensive posture, while still maintaining an attractive yield. We believe that
this strategy should serve our shareholders well for the remainder of 1998.
We appreciate your confidence in Mosaic Income Trust, and reaffirm our
commitment to providing you with competitive yields and total returns to be
consistent with your investment objectives.
Sincerely,
(signature)
Christopher C. Berberet, CFA
Vice President
(signature)
Jay R. Sekelsky, CFA
Vice President
<PAGE>
High Yield Fund
Portfolio of Investments - June 30, 1998 (unaudited)
Credit Rating Principal
Moody's S&P Amount Value
CORPORATE DEBT SECURITIES: 93.7% of Net Assets
AIRLINES:
Ba2 BB Northwest Airlines, 8.7%, 3/15/07 $100,000 $106,250
CABLE TELEVISION:
B1 BB- CSC Holdings, Inc, Senior Subordinated
Debenture, 9.875%, 2/15/13 200,000 222,000
Ba3 BB- Century Communications Corporation, Senior
Notes, 8.875%, 1/15/07 200,000 212,500
Baa3 BBB- TCI Communications Inc., Senior Notes, 8%,
8/1/05 100,000 109,750
CHEMICALS:
Ba2 B Harris Chemical North America, Inc., 10.75%,
10/15/03 100,000 105,875
B3 B+ Sterling Chemical Inc., Senior Subordinated
Notes, 11.75%, 8/15/06 150,000 149,625
CONSUMER PRODUCTS:
B1 CCC+ Golden Books Publications Inc., Senior Notes,
7.65%, 9/15/02 200,000 156,500
B3 B Outboard Marine, Notes Series A, 8.625%,
3/15/01 100,000 98,000
B2 B Revlon Consumer Products Corporation, Senior
Notes, 8.125%, 2/1/06 100,000 99,625
FINANCIAL:
Ba2 BB+ Korea Development Bank, 7.25%, 5/15/06 150,000 122,062
Ba3 BB- Navistar Financial Corp., Senior
Subordinated Notes, 8.875%, 11/15/98 150,000 151,313
B1 B Trump Atlantic Assoc, 11.25%, 5/1/06 150,000 146,250
FOREST AND PAPER PRODUCTS:
B1 B+ Container Corporation, Senior Notes, 9.75%,
4/1/03 100,000 107,750
B3 B Crown Paper, Senior Subordinated Notes, 11%,
9/1/05 175,000 190,750
B3 B- Stone Container, Corp., Senior Subordinated
Debentures, 10.75%, 4/1/02 100,000 101,750
HOMEBUILDING:
Ba3 BB D R Horton Inc., 10%, 4/15/06 156,000 168,870
B1 B+ Ryland Group, Inc., Senior Subordinated
Notes, 10.5%, 7/15/02 100,000 104,000
HOSPITAL MANAGEMENT:
Ba3 BB- Tenet Healthcare Corporation, Senior
Subordinated Notes, 8.625%, 1/15/07 200,000 208,000
INDUSTRIAL:
Ba3 B Advanced Micro Devices, Senior Notes, 11%,
8/1/03 150,000 159,375
Ba3 B+ Apple South Inc., Senior Notes, 9.75%,6/1/06 200,000 214,500
B3 B+ Globalstar LP, Senior Notes, 11.25%, 6/15/04 100,000 97,500
Ba1 BB Westinghouse Electric Corporation, Debentures,
8.625%, 8/1/12 200,000 220,000
MANUFACTURING:
Ba3 BB- American Standard Company, 7.375%, 2/1/08 175,000 172,375
B1 NR Exide Corporation, Senior Notes, 10%,4/15/05 100,000 104,000
OIL & GAS:
Ba3 BB Clark Oil & Refining Corp, Senior Notes,
9.5%, 9/15/04 200,000 205,750
Ba1 BB+ Oryx Energy Comp, Notes, 8.125%, 10/15/05 100,000 108,125
RADIO & TV BROADCASTING:
B3 NR SFX Broadcasting, Inc., Senior Subordinated
Notes, 11.375%, 10/1/00 250,000 $ 264,062
B1 BB- Viacom, Inc, Subordinated Debentures, 8%,
7/7/06 200,000 206,500
RETAIL-FOOD:
B1 B+ Chiquita Brands International Inc., Senior
Notes, 10.25%, 11/1/06 100,000 108,750
Caa3 CCC+ Super Markets General Holding Co.,
Subordinated Notes, 11.625%, 6/15/02 200,000 201,000
RETAIL-SPECIALTY STORES:
Ba2 BB- Michael's Stores, Inc., Senior Notes, 10.875%,
6/15/06 131,000 145,410
TECHNOLOGY:
Ba1 NR Digital Equipment Corporation, Debentures,
8.625%, 11/1/12 200,000 251,500
Ba1 BBB Seagate Technology Inc, Senior Notes, 7.37%,
3/1/07 250,000 248,125
TELECOMMUNICATIONS:
C D CAI Wireless Systems, Inc., Senior Notes,
12.25%, 9/15/02 256,000 56,320
Caa1 CCC Dictaphone Corp., Senior Subordinated Notes,
11.75%, 8/1/05 100,000 101,500
B3 B- Iridium LLC/CAP, 13%, 7/15/05 100,000 107,250
B2 B Paging Network, Senior Subordinated Notes,
10.125%, 8/1/07 100,000 104,500
Ba2 B+ Sprint Spectrum, L.P., Senior Notes, 11%,
8/15/06 200,000 230,500
UTILITIES:
Ba3 BB CMS Energy, Senior Notes, 8.125%, 5/15/02 150,000 154,688
Ba3 BB- Toledo Edison, Debentures, 8.7%, 9/1/02 150,000 159,562
TOTAL CORPORATE DEBT SECURITIES (Cost $6,229,340) $6,182,162
REPURCHASE AGREEMENT: 3.9% of Net Assets
With Donaldson, Lufkin & Jenrette Securities
Corporation issued 6/30/98 at
5.50%, due 7/1/98 collateralized by $260,815
in United States Treasury Notes due
7/31/98. Total proceeds at maturity are
$254,039. (Cost $254,000) 254,000
TOTAL INVESTMENTS (Cost $6,483,340)+ $6,436,162
CASH AND RECEIVABLES LESS LIABILITIES: 2.4% of Net Assets 160,484
TOTAL NET ASSETS: 100% $6,596,646
<PAGE>
Government Fund
Portfolio of Investments - June 30, 1998 (unaudited)
Credit Rating Principal
Moody's S&P Amount Value
U.S. GOVERNMENT OBLIGATIONS: 95.3% of Net Assets
U.S. TREASURY NOTES:
Aaa AAA United States Treasury Note, 7.25%, 5/15/04 $450,000 $488,318
Aaa AAA United States Treasury Note, 7.125%, 2/29/00 150,000 153,779
Aaa AAA United States Treasury Note, 5.875%, 11/15/05 775,000 789,531
Aaa AAA United States Treasury Note, 5.625%, 2/15/06 250,000 250,980
Aaa AAA United States Treasury Note, 6.25%, 4/30/01 500,000 509,395
Aaa AAA United States Treasury Note, 7.75%, 2/15/01 350,000 368,774
Aaa AAA United States Treasury Note, 6.5%, 10/15/06 300,000 318,489
MORTGAGE BACKED SECURITIES:
Aaa AAA Federal Home Loan Mortgage Corporation,6.5%,3/1/09 315,366 317,731
Aaa NR Federal Home Loan Mortgage Corporation, 5.75%,
4/15/08 250,000 249,068
Aaa NR Federal National Mortgage Association, 5.75%,
2/15/08 250,000 248,703
Aaa NR Federal National Mortgage Association, 5.75%,
4/15/03 550,000 550,852
Aaa NR Federal National Mortgage Association, 5.75%,
6/15/05 350,000 350,182
Aaa NR Federal National Mortgage Association, 6.65%,
3/8/06 325,000 329,245
Aaa AAA Government National Mortgage Association, 7.00%,
9/20/27 390,675 395,432
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $5,210,371) 5,320,479
REPURCHASE AGREEMENT: 3.5% of Net Assets
With Donaldson, Lufkin & Jenrette Securities
Corporation issued 6/30/98 at 5.50%,
due 7/1/98, collaterized by $204,339 in United
States Treasury Notes due 7/31/98. Total proceeds
at maturity are $199,000. (Cost $199,000) 199,000
TOTAL INVESTMENTS (Cost $5,409,371)+ $5,519,479
CASH AND RECEIVABLES LESS LIABILITIES:
1.2% of Net Assets 65,133
TOTAL NET ASSETS: 100% $5,584,612
<PAGE>
Bond Fund
Portfolio of Investments - June 30, 1998 (unaudited)
Credit Rating Principal
Moody's S&P Amount Value
COLLATERALIZED MORTGAGE BACKED SECURITIES: 8.8% of Net Assets
Aaa AAA Ryland Acceptance Corporation Series 76 Class B,
9%, 8/1/18 $ 85,689 $90,489
TOTAL COLLATERALIZED MORTGAGE BACKED SECURITIES (Cost $86,809) 90,489
CORPORATE DEBT SECURITIES: 38.1% of Net Assets
CONSUMER PRODUCTS-CYCLICAL:
A2 A Disney (Walt), Senior Notes, 6.75%, 3/30/01 $40,000 $40,600
Baa3 BBB- Tommy Hilfiger, 6.5%, 6/1/03 40,000 39,900
CONSUMER PRODUCTS-FOOD & BEVERAGE:
A3 A+ Coca-Cola Enterprises, Inc., Notes, 7.875%, 2/1/02 20,000 21,225
CONSUMER RETAIL:
A2 A GAP Inc., Notes, 6.9%, 9/15/07 40,000 42,000
Baa1 BBB Kohls Corporation, Notes, 6.7%, 2/1/06 40,000 40,700
FINANCIALS:
A1 A Ford Motor Credit Corporation, Notes,7.75%,3/15/05 40,000 43,350
Aa3 AA- Merrill Lynch & Company, Inc., Notes, 7%, 1/15/07 40,000 41,900
A1 A+ Morgan Stanley Group Dean Witter, Notes, 6.375%,
8/1/02 40,000 40,450
TECHNOLOGY-HARDWARE:
Baa2 BBB- Lexmark International, 6.75%, 5/15/08 40,000 40,100
TECHNOLOGY-SEMICONDUCTORS/ELECTRONICS:
A2 A- Arrow Electronics, Inc., Senior Notes,7.0%,1/15/07 40,000 42,300
TOTAL CORPORATE DEBT SECURITIES (Cost $387,297) 392,525
U.S. GOVERNMENT OBLIGATIONS: 40.4% of Net Assets
Aaa AAA Federal National Mortgage Assoc., 5.75%, 6/15/05 75,000 75,039
Aaa AAA US Treasury Note, 6.25%, 5/31/00 140,000 141,850
Aaa AAA US Treasury Note, 6.25%, 4/30/01 155,000 157,911
Aaa AAA US Treasury Note, 6.25%, 8/31/02 40,000 41,040
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $415,451) 415,840
REPURCHASE AGREEMENT: 11.4% of Net Assets
With Donaldson, Lufkin & Jenrette Securities
Corporation issued 6/30/98 at 5.50%,
due 7/1/98, collaterized by $120,139 in United
States Treasury Notes due 7/31/98. Total proceeds
at maturity are $117,018. (Cost $117,000) 117,000
TOTAL INVESTMENTS (Cost $1,006,556)+ $1,015,854
CASH AND RECEIVABLES LESS LIABILITIES: 1.3% of Net Assets 13,679
TOTAL NET ASSETS: 100% $1,029,533
Notes to the Portfolio of Investments:
+ Equals aggregate cost for federal income tax purposes (See Note 4.)
Moody's Moody's Investors Services, Inc.
S&P Standard & Poor's Corporation
NR Not Rated
<PAGE>
Statement of Assets and Liabilities
June 30, 1998 (unaudited)
High Yield Government Bond
Fund Fund Fund
ASSETS
Investments, at value (Notes 1 and 2)
Investment securities $6,182,162 $5,320,479 $898,854
Repurchase agreements 254,000 199,000 117,000
Total investments $6,436,162 $5,519,479 $1,015,854
Cash 2,091 1,317 451
Receivables
Dividends and interest 169,990 66,972 13,542
Total Assets $6,608,243 $5,587,768 $1,029,847
LIABILITIES
Payables
Dividends $8,785 $1,871 $314
Capital shares redeemed 2,812 1,261 --
Total liabilities $11,597 $3,132 $314
NET ASSETS (Note 6) $6,596,646 $5,584,636 $1,029,533
CAPITAL SHARES OUTSTANDING 915,246 561,700 49,575
NET ASSET VALUE PER SHARE $7.21 $9.94 $20.77
<PAGE>
Statement of Operations
Six Months Ended June 30, 1998 (unaudited)
High Yield Fund Government Fund Bond Fund
INVESTMENT INCOME (Note 1)
Interest income $294,469 $171,415 $31,028
Other income 12,500 -- --
Total investment income $306,969 $171,415 $31,028
EXPENSES (Notes 3 and 5)
Investment advisory fee $20,297 $17,188 $2,559
Transfer agent, administrative,
registration and professional expenses 17,212 14,301 3,070
Total expenses $37,509 $31,489 $5,629
NET INVESTMENT INCOME $269,460 $139,926 $25,399
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments$38,215 $43,894 $268
Net unrealized appreciation
(depreciation) of investments (38,953) (15,830) 1,203
NET GAIN (LOSS) ON INVESTMENTS (738) 28,064 1,471
TOTAL INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $268,722 $167,990 $26,870
<PAGE>
Statements of Changes in Net Assets
For the period indicated
<TABLE>
<CAPTION>
High Yield Fund Government Fund Bond Fund
Six Nine Six Nine Six
Months Months Months Months Months Year
Ended Ended Ended Ended Ended Ended
June December June December June December
30, 1998 31, 1997 30, 1998 31, 1997 30, 1998 31, 1997
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
Net investment income $269,460 $399,808 $139,926 $223,044 $25,399 $108,414
Net realized gain (loss) on
investments 38,215 80,365 43,894 (64,210) 268 4,737
Net unrealized appreciation
(depreciation) of investments (38,953) 112,883 (15,830) 333,544 1,203 (273)
Total increase in net assets
resulting from operations $268,722 $593,056 $167,990 $492,378 $26,870 $112,878
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income(269,460) (399,808) (139,926) (223,044) (25,399) (109,872)
CAPITAL SHARE TRANSACTIONS
(Note 8) 80,933 69,342 57,529 (561,940) (98,470) (2,964,462)
TOTAL INCREASE (DECREASE) IN
NET ASSETS 80,195 262,590 85,593 (292,606) (96,999) (2,961,456)
NET ASSETS
Beginning of period $6,516,451 $6,253,861 $5,499,019 $5,791,625 $1,126,532 $4,087,988
End of period $6,596,646 $6,516,451 $5,584,612 $5,499,019 $1,029,533 $1,126,532
</TABLE>
Financial Highlights
Selected data for a share outstanding throughout each period:
<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> <C>
High Yield Fund
19985 $7.208 $0.247 -- $0.247 $(0.247) -- $(0.247) $7.210 6.40% $6,597 1.15%4 8.26%4 22%
19972 7.009 0.428 $0.199 0.627 (0.428) -- (0.428) 7.208 9.12 6,516 1.204 7.904 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
Government Fund
19985 $9.892 $0.208 $0.048 $0.256 $(0.208) -- $(0.208) $9.940 2.63% $5,585 1.14%4 5.07%4 46%
19972 9.434 0.384 0.458 0.842 (0.384) -- (0.384) 9.892 9.07 5,499 1.164 5.264 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
Bond Fund1
19985$20.75 $0.42 $0.02 $0.44 $(0.42) -- $(0.42) $20.77 2.75% $1,030 1.08%4 4.89%4 55%
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) (1.03) 21.21 6.04 9,064 1.19 4.92 68
</TABLE>
1 Data prior to June 13, 1997 represents the Madison Bond Fund.
2 For the nine-month period ended June 30, 1998.
3 For the year ended March 31.
4 Annualized.
5 For the six month period ended June 30, 1998.
Note:
Effective July 31, 1996, the investment advisory services transferred to
Madison Mosaic, LLC from Bankers Finance Investment Management Corp.
(See Note 3).
<PAGE>
Mosaic Income Trust
Notes to Financial Statements
June 30, 1998
1. Summary of Significant Accounting Policies. Mosaic Income Trust (the
"Trust") is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 as an open-end, diversified investment manage-
ment company. The Trust maintains three separate funds whose principal objec-
tives are to obtain high current income. The High Yield Fund invests in long-
term debt securities which may include securities rated as low as "Caa" or "CCC"
by Moody's Investors Service, Inc. or Standard & Poor's Corporation, respec-
tively. The Government Fund invests in securities of the U. S. Government and
its agencies. The Bond Fund invests in investment grade corporate and govern-
ment fixed-income securities. Data for the Bond Fund prior to June 13, 1997
represents the former Madison Bond Fund, Inc.
Securities Valuation: Securities having maturities of 60 days or less are
valued at amortized cost, if determined to approximate market value.
Securities having longer maturities, for which market quotations are readily
available, are valued at the mean between their bid and asked prices.
Securities for which market quotations are not readily available are valued
at their fair value as determined in good faith by the Trustees. Investment
transactions are recorded on the trade date. The cost of investments sold is
determined on the identified cost basis for financial statement and federal
income tax purposes. Repurchase Agreements are valued at amortized cost,
which approximates market value.
Investment Income: Interest income, net of amortization of premium or discount,
and other income (if any) is accrued as earned.
Dividends: Net investment income, determined as gross investment income less
expenses, is declared as a regular dividend each business day. Dividends are
distributed to shareholders or reinvested in additional shares as of the close
of business at the end of each month. Capital gain distributions, if any, are
declared and paid annually at calendar year end. Additional distributions may
be made if necessary.
Income Tax: In accordance with the provisions of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies, all of the taxable
income of each fund is distributed to its shareholders, and therefore no
federal income tax provision is required. As of June 30, 1998, the High Yield,
Government and Bond Funds had available for federal income tax purposes unused
capital loss carryovers of $1,591,956, expiring from December 31, 1998 through
December 31, 2002, and $378,370, expiring December 31, 2003 through December 31,
2005, and $293,304, expiring December 31, 2002 through December 31, 2005,
respectively.
Share Subscriptions: Shares purchased by check or otherwise not paid for in
immediately available funds are accounted for as share subscriptions receivable
and shares reserved for subscriptions.
Use of Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ
from those estimates.
Fiscal Year: Beginning April 1, 1997, the Trust changed its fiscal year end to
December 31.
2. Investments in Repurchase Agreements. When the Trust purchases securities
under agreements to resell, the securities are held for safekeeping by the
Trust's custodian bank as collateral. Should the market value of the securi-
ties purchased under such an agreement decrease below the principal amount to be
received at the termination of the agreement plus accrued interest, the
counterparty is required to place an equivalent amount of additional securities
in safekeeping with the Trust's custodian bank. Repurchase agreements may be
terminated within seven days. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Trust, along with other registered
investment companies having Advisory and Services Agreements with the same
advisor, transfers uninvested cash balances into a joint trading account. The
aggregate balance in this joint trading account is invested in one or more
consolidated repurchase agreements whose underlying securities are U.S. Treasury
or federal agency obligations.
3. Investment Advisory Fees and Other Transactions with Affiliates. The
Investment Advisor to the Trust, Madison Mosaic, LLC ("the Advisor"), earns an
advisory fee equal to 0.625% per annum of the average net assets of the Trust's
High Yield and Government Funds and 0.50% per annum of the average net assets of
the Bond Fund; the fees are accrued daily and are paid monthly. The Advisory
Agreement between the Trust and the Advisor was approved at the special meeting
of the Trust's shareholders on July 29, 1996. The Advisor purchased the
investment management assets of Bankers Finance Investment Management Corp.
("BFIMC"), the Trust's previous investment advisor, effective July 31, 1996.
The Advisor is responsible for the fees and expenses of Trustees who are
affiliated with the Advisor and certain promotional expenses. For the six month
period ended June 30, 1998, outside Trustee fees were $1,500 for the Trust.
4. Aggregate Cost and Unrealized Appreciation (Depreciation). The aggregate
cost for federal income tax purposes and the net unrealized appreciation are
stated as follows as of June 30, 1998:
High Yield Government Bond
Fund Fund Fund
Aggregate cost $6,483,340 $5,409,371 $1,006,556
Gross unrealized appreciation $ 245,855 $ 112,574 $ 10,336
Gross unrealized depreciation (293,033) (2,466) (1,038)
Net unrealized appreciation
(depreciation) $(47,178) $110,108 $ 9,298
5. Other Expenses. Effective November 1, 1997, all expenses and support
services are provided by the Advisor under a Services Agreement for a fee based
on a percentage of average net assets. This percentage is 0.53% for the High
Yield Fund, 0.52% for the Government Fund and 0.60% for the Bond Fund. Prior to
November 1, 1997, with the exception of certain expenses of the Trust payable by
it directly, all support services were provided to the Trust under a services
agreement between the Trust and the Advisor, pursuant to which such services
were provided for amounts not exceeding the cost to the Advisor. For the period
ended June 30, 1998, operating expenses of $17,212 for the High Yield Fund,
$14,301 for the Government Fund and $3,070 for the Bond Fund have been paid to
the Advisor under the Services Agreement.
6. Net Assets. At June 30, 1998, net assets include the following:
High Yield Government Bond
Fund Fund Fund
Net paid in capital on shares of
beneficial interest $8,235,780 $5,852,874 $1,313,587
Distribution in excess of net
investment income -- -- (48)
Accumulated net realized losses (1,591,956) (378,370) (293,304)
Net unrealized appreciation
(depreciation) of investments (47,178) 110,108 9,298
Total net assets $6,596,646 $5,584,612 $1,029,533
6. Investment Transactions. Purchases and sales of securities other than
short-term securities for the six month period ended June 30, 1998 were as
follows:
High Yield Fund Government Fund Bond Fund
Purchases $1,377,527 $2,468,984 $512,273
Sales $1,518,599 $2,501,311 $627,119
7. Capital Share Transactions. An unlimited number of capital shares, without
par value, are authorized. Transactions in capital shares for the following
periods were:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
High Yield Fund Government Fund Bond Fund
Six Months Nine Months Six Months Nine Months Six Months Year
Ended Ended Ended Ended Ended Ended
June 30, December June 30, December June 30, December
1998 31, 1997 1998 31, 1997 1998 31, 1997
In Dollars
Shares sold $946,317 $1,756,590 $372,930 $500,312 $20,980 $80,744
Shares issued in
reinvestment of
dividends 214,336 326,962 128,306 205,143 23,198 83,381
Total shares issued 1,160,653 2,083,552 501,236 705,455 44,178 164,125
Shares redeemed (1,079,720) (2,014,210) (443,707) (1,267,395) (142,648) (3,128,587)
Net increase
(decrease) $80,933 $69,342 $57,529 $(561,940) $(98,470) $(2,964,462)
In Shares
Shares sold 130,355 245,860 37,555 51,880 1,010 6,491
Shares issued in
reinvestment of
dividends 29,505 45,466 12,933 21,075 1,117 1,490
Total shares issued 159,860 291,326 50,488 72,955 2,127 7,981
Shares redeemed (148,646) (279,507) (44,699) (130,825) (6,832) (151,880)
Net increase (decrease) 11,214 11,819 5,789 (57,870) (4,705) (143,899)
</TABLE>
<PAGE>
Telephone Numbers
Shareholder Service
Washington, DC area: 703 528-6500
Toll-free nationwide: 1 888 670-3600
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Toll-free nationwide: 1 800 336-3063
The Mosaic Family of Mutual Funds
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charges and expenses, request a prospectus by calling the numbers
above. Read it carefully before you invest or send money.
1655 Ft. Myer Drive, 10th floor
Arlington, Virginia 22209-3108
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