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Mosaic Income Trust
Semi-Annual Report (unaudited)
June 30, 2000
Intermediate Income Fund
Government Fund
Mosaic Funds
www.mosaicfunds.com
Contents
| Letter to Shareholders | 1 |
| Message from Lead Portfolio Manager Chris Berberet | |
| Period in Review | 2 |
| Economic Outlook | 2 |
| Fund Overview | 2 |
| Portfolio of Investments | |
| Government Fund | 4 |
| Intermediate Income Fund | 5 |
| Statements of Assets and Liabilities | 7 |
| Statements of Operations | 8 |
| Statements of Changes in Net Assets | 9 |
| Financial Highlights | 10 |
| Notes to Financial Statements | 12 |
MOSAIC INCOME TRUST June 30, 2000
Letter to Shareholders
(photograph of) Katherine Frank
The six-month period ended June 30, 2000 was a solid period for bond investors. The funds in Income Trust showed positive results, with Mosaic Intermediate Income up 2.48% and Mosaic Government up 2.80%. The 30-day yields on the funds at the end of the period were 6.49% for Intermediate Income and 5.35% for the Government Fund.
A key component of our bond discipline is active management of durations. The first half of 2000 was one of those pivotal periods of change where we believe action can bring real value. We saw aggressive tightening by the Federal Reserve and by the end of the period, growing evidence of a slowing economy. As a result, we were able to make a calculated move from a defensive position at the beginning of the year towards a longer bond position by the end of the six-month period.
Our experience in active bond management dates back to the advisor’s founding in 1974. In addition to the bond funds in Income Trust, your portfolio team has gained a national reputation for bond management of private and institutional accounts, which now add up to some $4 billion in assets under management.
As we keep an eye on the economy and the investment environment, we’ve observed with some concern the general public’s move away from bond investments. This trend was particularly pronounced over the past year. The typical individual investor is taking on more portfolio risk than ever. While it is impossible to predict the absolute or relative return of stocks against bonds into the future, we do feel very positive about the prospects for bond investors over the near term. We’ve always been a proponent of balanced portfolios: ones which have an appropriate mix of investments. It is our goal in Income Trust to provide you with bond portfolios that can help you achieve the investment balance that is right for you.
Sincerely,
(signature)
Katherine Frank
President
Message from lead portfolio manager Chris Berberet
We are pleased to report solid performance in your portfolios this past six-months and to update you on some important recent changes. It’s been an eventful period for Federal Reserve watchers and bond investors, and the period has seen meaningful changes in the management of your fund.
Period in Review
We entered the period in the wake of a year of steadily rising interest rates and steadily eroding bond valuations. While some bond investors were discouraged, we were hopeful that we would see a turn during the year 2000. We knew the Federal Reserve was determined to slow the economy; the question was when their actions would get traction.
Over the course of the period we finally began to see evidence of an economic slowdown. As we completed the period, housing and auto sales were sliding, consumer spending was softening, and inflation in most areas outside of energy appeared under control. The recent, and on-going, volatility in the stock market seems to have taken a bit of the wind out of consumer confidence, while flat and negative returns dampen the real buying power of stockholders. The end result is a softening of the "wealth effect," one of Federal Reserve Chairman Greenspan's major concerns. Still, we are aware that the Fed could continue to tighten as they did in 1994, when rates continued to rise long after the economy signaled a slowing.
Economic Outlook
All in all, we believe that rates are near their peak. After playing defense for over a year we are quite optimistic about the near-term future. We believe the higher-rate interest environment and very high cost of energy will eventually slow the economy. As such, we are confident the Fed will win the battle against the "over-heated economy." The market is currently pricing-in no more increases in the Fed Funds rate in the next six months. That may be too complacent given the underlying strength the economy has demonstrated thus far. As a result, the path to lower interest rates may be a volatile one, but the next year should be quite favorable for bond investors.
Government Fund
The major story here was the gradual lengthening of bond durations. As the period began we retained our defensive position with bonds on the shorter side of our historical holding range. Holding shorter bonds is prudent in an environment of rising interest rates, since their value will be less adversely affected than longer bonds. This had been the story for much of 1999, when long-term bonds lost double-digit value, and even the more defensive shorter-term intermediate bonds we held were slightly negative over the course of the year.
As evidence of a slowing economy becomes clearer and the likelihood of aggressive tightening by the Federal Reserve Board dims, the prospects for lower rates and higher valuations for bonds brightens. In such an environment it will pay to hold longer bonds, which will show greater increase of value than shorter bonds. This is the basis of our active bond management discipline.
In terms of holdings, we have found greater value in Government agency bonds than Treasuries. The gap, or spread, between these two types of bonds has widened due to concerns over the preferential status of some of the major issuers, such as Freddie Mac. The status of these agencies have periodically been questioned in Congress, and in the wake of such criticism, their bonds have suffered. We do not believe that there will be a meaningful change in status over the short term, and as a result, find these bonds especially attractive.
Intermediate Income Fund
In addition to lengthening durations, we increased the percentage of corporate bonds in the fund’s portfolio. Why corporate bonds? As interest rates rose throughout much of the second quarter, the gap between corporate bond yields and Treasury bond yields expanded to the greatest margin in a decade. For example, by May a 10-year A-rated financial corporate bond was yielding about 8.4% while the same maturity Treasury yielded only 6.5%. The combination of higher overall rates and wider yield spreads made corporate bonds a tremendous value relative to other sectors of the bond market.
The advantage of a higher corporate bond exposure is twofold. First of all, as of this report, intermediate corporate bonds yield between 7.2% and 8.0% depending on their maturity; far more attractive than the 5.5% that was available only a year-and-a-half ago. Historically, these kinds of spreads have signaled an on-coming recession. With the economy still showing real strength and corporate balance sheets in solid condition, we do not think this will be the case. Assuming the spreads tighten, the market value of corporate bonds will outpace Treasuries. As a result of these factors, we believe that over the next few quarters these bonds possess the best risk/reward opportunity.
We were also pleased that our generally conservative approach to the high-yield component of the portfolio paid off over the period. While the average high-yield bond fund was off -1.91% during the period according to the Lipper High Yield Fund Index, our high-yield holdings were actually positive.
When we designed the Intermediate Income Fund we wanted to be able to take full advantage of our core expertise in corporate and government bond management and to have the flexibility to move across bond classes in the pursuit of value. This past six months demonstrated this freedom, as we actively rotated to longer durations and into corporate positions.
Government Fund - Portfolio
of Investments (unaudited)
Credit Rating* |
Principal |
Value |
||
Moody’s |
S&P |
|||
| U.S. GOVERNMENT & AGENCY OBLIGATIONS: 97.4% of net assets | ||||
| U.S. TREASURY NOTES: 36.0% | ||||
| Aaa | AAA | U.S. Treasury Notes, 7.75%, 2/15/01 | 350,000 |
$352,951 |
| Aaa | AAA | U.S. Treasury Notes, 6.25%, 4/30/01 | 250,000 |
249,607 |
| Aaa | AAA | U.S. Treasury Notes, 7.25%, 5/15/04 | 450,000 |
464,062 |
| Aaa | AAA | U.S. Treasury Notes, 5.875%, 11/15/05 | 500,000 |
491,560 |
| Aaa | AAA | U.S. Treasury Notes, 6.5%, 10/15/06 | 300,000 |
303,345 |
| U.S. GOVERNMENT AGENCY NOTES: 52.1% | ||||
| Aaa | AAA | Federal Home Loan Mortgage Corp, 6.875%, 1/15/05 | 230,000 |
228,802 |
| Aaa | AAA | Federal Home Loan Mortgage Corp, 5.75%, 4/15/08 | 250,000 |
229,575 |
| Aaa | AAA | Federal Home Loan Mortgage Corp, 7.625%, 9/09/09 | 200,000 |
196,576 |
| Aaa | AAA | Federal National Mortgage Association, 5.75%, 4/15/03 | 550,000 |
533,280 |
| Aaa | AAA | Federal National Mortgage Association, 7.125%, 2/15/05 | 250,000 |
251,108 |
| Aaa | AAA | Federal National Mortgage Association, 5.75%, 6/15/05 | 350,000 |
332,003 |
| Aaa | AAA | Federal National Mortgage Association, 6.65%, 3/08/06 | 325,000 |
314,025 |
| Aaa | AAA | Federal National Mortgage Association, 7.125%, 3/15/07 | 275,000 |
276,166 |
| Aaa | AAA | Federal National Mortgage Association, 6.375%, 6/15/09 | 350,000 |
332,234 |
| MORTGAGE BACKED SECURITIES: 9.3% | ||||
| Aaa | AAA | Freddie Mac, Mortgage Pool,
Gold Pass Through Certificates #E57247, 6.5%, 3/01/09 |
223,945 |
216,315 |
| Aaa | AAA | Government National Mortgage
Association II, Guaranteed Pass Through Certificates #2483, 7%, 9/20/27 |
275,284 |
266,337 |
| TOTAL U.S. GOVERNMENT
& AGENCY OBLIGATIONS (cost $5,118,054) |
5,037,946 |
|||
| REPURCHASE AGREEMENT:
1.2% of net assets With Donaldson, Lufkin & Jenrette Securities Corporation issued 6/30/00 at 5.25%, due 7/03/00, collateralized by $62,228 in United States Treasury Notes due 11/15/08. Proceeds at maturity are $61,027. (cost $61,000) |
61,000 |
|||
| TOTAL INVESTMENTS: 98.6%
of net assets (cost $5,179,054) |
5,098,946 |
|||
| CASH AND RECEIVABLES LESS
LIABILITIES: 1.4% of net assets |
71,032 |
|||
| NET ASSETS: 100% | $5,169,978 |
|||
See the Notes to Portfolio of Investments.
Intermediate Income Fund - Portfolio of
Investments (unaudited)
Credit Rating* |
Principal |
Value |
||
Moody’s |
S&P |
|||
| CORPORATE DEBT SECURITIES: 77.1% of net assets | ||||
| CABLE TELEVISION: 4.6% | ||||
| B1 | BB- | CSC Holdings, Incorporated,
Senior Subordinated Debentures, 9.875%, 2/15/13 |
200,000 |
$206,000 |
| CAPITAL GOODS: 3.6% | ||||
| Ba3 | BB- | American Standard,
Incorporated, Senior Notes, 7.375%, 2/1/08 |
175,000 |
159,250 |
| CELLULAR COMMUNICATIONS: 3.6% | ||||
| Baa3 | BBB+ | Sprint Spectrum, L.P., Senior Notes, 11%, 8/15/06 | 150,000 |
161,438 |
| ENERGY: 6.6% | ||||
| Baa3 | BBB | Occidental Petroleum, Senior Notes, 7.375%, 11/15/08 | 200,000 |
193,750 |
| Ba1 | BB+ | Oryx Energy Company, Notes, 8.125%, 10/15/05 | 100,000 |
102,250 |
| FINANCE: 11.3% | ||||
| A3 | A- | Equifax, 6.3%, 7/01/05 | 100,000 |
94,500 |
| A1 | A | Ford Motor Credit Company, Notes, 5.8%, 1/12/09 | 100,000 |
87,125 |
| A1 | A+ | Goldman Sachs Company, Notes, 7.35%, 10/01/09 | 140,000 |
134,400 |
| AA3 | A+ | Morgan Stanley Dean Witter Discover & Company, Notes, 6.875%, 3/01/07 | 200,000 |
188,750 |
| FOREST & PAPER PRODUCTS: 4.5% | ||||
| A3 | BBB+ | International Paper Company, Notes, 7%, 6/01/01 | 200,000 |
199,250 |
| HEALTHCARE: 11.8% | ||||
| A2 | A | Cardinal Health Incorporated, Notes, 6.25%, 7/1/08 | 200,000 |
182,500 |
| Ba2 | BBB- | HealthSouth Corporation, Senior Subordinated Notes, 9.5%, 4/01/01 | 150,000 |
150,750 |
| Ba3 | BB- | Tenet Healthcare Corporation, Senior Subordinated Notes, 8.625%, 1/15/07 | 200,000 |
192,000 |
| RETAIL: 12.5% | ||||
| A2 | A | GAP Incorporated, 6.9%, 9/15/07 | 200,000 |
193,500 |
| Baa2 | BBB | JC Penney, 7.25%, 4/01/02 | 100,000 |
97,250 |
| A3 | BBB+ | Kohls Corporation, Notes, 6.7%, 2/01/06 | 140,000 |
134,750 |
| Baa3 | BBB- | Tommy Hilfiger USA, Incorporated, Senior Notes, 6.85%, 6/01/08 | 200,000 |
129,000 |
| TECHNOLOGY: 11.9% | ||||
| Baa2 | BBB- | Lexmark International, Notes, 6.75%, 5/15/08 | 190,000 |
174,088 |
| A1 | A+ | Motorola Incorporated, Notes, 5.8%, 10/15/08 | 140,000 |
127,225 |
| Ba1 | BBB | Seagate Technology, Incorporated, Senior Notes, 7.37%, 3/01/07 | 250,000 |
231,250 |
| UTILITIES: 6.7% | ||||
| Ba3 | BB | CMS Energy Corporation, Notes, 8.125%, 5/15/02 | 150,000 |
146,812 |
| Ba3 | BB- | Toledo Edison Company, Debentures, 8.7%, 9/01/02 | 150,000 |
150,188 |
| TOTAL CORPORATE DEBT
SECURITIES (cost $3,605,646) |
3,436,026 |
|||
| COLLATERALIZED MORTGAGE
OBLIGATIONS: 0.9% of net assets |
||||
| Aaa | AAA | Ryland Acceptance Corporation, Class Four, Series 76, 9%, 8/01/18 | 40,651 |
41,747 |
| TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (cost $41,111) | 41,747 |
|||
| U.S. GOVERNMENT & AGENCY OBLIGATIONS: 18.1% of net assets | ||||
| Aaa | AAA | Federal Home Loan Mortgage Corp, 6.25%, 6/15/04 | 500,000 |
484,685 |
| Aaa | AAA | Federal Home Loan Mortgage Corp, 6.25%, 7/15/04 | 250,000 |
243,437 |
| Aaa | AAA | U.S. Treasury Notes, 6.25%, 4/30/01 | 80,000 |
79,874 |
| TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (cost $826,432) | 807,996 |
|||
| REPURCHASE AGREEMENT:
2.3% of net assets With Donaldson, Lufkin & Jenrette
Securities |
103,000 |
|||
| TOTAL INVESTMENTS: 98.4%
of net assets (cost $4,576,189) |
4,388,769 |
|||
| CASH AND RECEIVABLES LESS
LIABILITIES: 1.6% of net assets |
72,681 |
|||
| NET ASSETS: 100% | $4,461,450 |
|||
Notes to the Portfolio of Investments:
* - Unaudited
Moody’s - Moody’s Investors Services, Inc.
S&P - Standard & Poor’s Corporation
Statements of Assets and Liabilities(unaudited)
For the six months ended June 30, 2000
GOVERNMENT |
INTERMEDIATE |
|
| ASSETS | ||
| Investments, at value (Notes 1 and 2) | ||
| ---Investment securities* | $5,037,946 |
$4,285,769 |
| ---Repurchase agreements | 61,000 |
103,000 |
| ------Total investments | 5,098,946 |
4,388,769 |
| Cash | 490 |
336 |
| Receivables | ||
| ---Investment securities sold | -- |
180,314 |
| ---Interest | 72,989 |
93,092 |
| ---Capital shares sold | -- |
2,000 |
| ------Total assets | 5,172,425 |
4,664,511 |
| LIABILITIES | ||
| Payables | ||
| ---Investment securities purchased | -- |
197,358 |
| ---Dividends | 1,934 |
5,065 |
| ---Capital shares redeemed | 513 |
638 |
| ------Total liabilities | 2,447 |
203,061 |
| NET ASSETS (Note 6) | $5,169,978 |
$4,461,450 |
| CAPITAL SHARES OUTSTANDING | 541,524 |
713,223 |
| NET ASSET VALUE PER SHARE | $9.55 |
$6.26 |
| *INVESTMENT SECURITIES, AT COST | $5,118,054 |
$4,473,189 |
Statements of Operations(unaudited)
For the six months ended June 30, 2000
GOVERNMENT |
INTERMEDIATE |
|
| INVESTMENT INCOME (Note 1) | ||
| ---Interest income | $168,619 |
$179,832 |
| ---Other income | -- |
-- |
| ------Total investment income | 168,619 |
179,832 |
| EXPENSES (Notes 3 and 5) | ||
| ---Investment advisory fees | 16,240 |
14,758 |
| ---Transfer agent, administrative, ---registration and professional fees |
13,511 |
10,626 |
| ------Total expenses | 29,751 |
25,384 |
| NET INVESTMENT INCOME | 138,868 |
154,448 |
| REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS |
||
| ---Net realized loss on investments | (23,295) |
(91,407) |
| ---Change in net unrealized appreciation ---of investments |
25,036 |
39,392 |
| ------Net realized and unrealized gain ------(loss) on investments |
1,741 |
(52,015) |
| TOTAL INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS |
$140,609 |
$102,433 |
Statements of Changes in Net Assets
For the period indicated
GOVERNMENT FUND |
INTERMEDIATE |
|||
(unaudited) |
Year |
(unaudited) |
Year |
|
| INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS |
||||
| ---Net investment income | $138,868 |
$265,931 |
$154,448 |
$397,629 |
| ---Net realized loss on investments | (23,295) |
(8,554) |
(91,407) |
(486,268) |
| ---Change in net unrealized appreciation ---(depreciation) on investments |
25,036 |
(369,810) |
39,392 |
(191,049) |
| ------Total increase (decrease) in net ------assets resulting from operations |
140,609 |
(112,433) |
102,433 |
(279,688) |
| DISTRIBUTIONS TO SHAREHOLDERS | ||||
| ---From net investment income | (138,868) |
(265,931) |
(154,448) |
(397,691) |
| CAPITAL SHARE
TRANSACTIONS (Note 8) |
(37,317) |
(178,901) |
(681,100) |
(439,112) |
| CAPITAL CONTRIBUTION | -- ( |
-- ( |
-- ( |
156,750 |
| TOTAL DECREASE IN NET ASSETS | (35,576) |
(557,265) |
(733,115) |
(959,741) |
| NET ASSETS | ||||
| Beginning of period | $5,205,554 |
$5,762,819 |
$5,194,565 |
$6,154,306 |
| End of period | $5,169,978 |
$5,205,554 |
$4,461,450 |
$5,194,565 |
Financial Highlights
(Selected data for a share outstanding throughout
each period indicated)
GOVERNMENT FUND
Six Months Ended June 30, |
|
Nine Months Ended Dec. 31, |
|
|||
2000 |
1999 |
1998 |
1997 |
1997 |
1996-2 |
|
| Net asset value
beginning of period |
$9.54 |
$10.22 |
$9.89 |
$9.43 |
$9.71 |
9.55 |
| Investment operations: | ||||||
| ---Net investment income | 0.25 |
0.48 |
0.49 |
0.38 |
0.49 |
0.47 |
| ---Net realized and ---unrealized gain ---(loss) on investments |
0.01 |
(0.68) |
0.33 |
0.46 |
(0.28) |
0.16 |
| Total from investment operations | 0.26 |
(0.20) |
0.82 |
0.84 |
0.21 |
0.63 |
| ---Less distributions from ---net investment income |
(0.25) |
(0.48) |
(0.49) |
(0.38) |
(0.49) |
(0.47) |
| Net asset value,
end of period |
$9.55 |
$9.54 |
$10.22 |
$9.89 |
$9.43 |
$9.71 |
| Total return (%) | 5.60-1 |
(1.99) |
8.52 |
9.07 |
2.29 |
6.56 |
| Ratios and
supplemental data |
||||||
| Net assets, end of period (thousands) | $5,170 |
$5,206 |
$5,763 |
$5,499 |
$5,792 |
$6,856 |
| ---Ratio of expenses to ---average net assets (%) |
1.15-1 |
1.14 |
1.15 |
1.16-1 |
1.43 |
1.59 |
| ---Ratio of net investment ---income to average ---net assets (%) |
5.37-1 |
4.86 |
4.93 |
5.26-1 |
5.09 |
4.77 |
| ---Portfolio turnover (%) | 14 |
12 |
46 |
37 |
17 |
190 |
1 Annualized.
2 Effective July 31, 1996, investment advisory
services transferred to Madison Mosaic, LLC from Bankers Finance Investment Management
Corp.
INTERMEDIATE INCOME FUND
Six Months Ended June 30, |
Year Ended |
Nine
|
Year Ended |
|||
2000 |
1999 |
1998 |
1997 |
1997 |
1996-2 |
|
| Net asset value
beginning of period |
$6.31 |
$6.92 |
$7.21 |
$7.01 |
$7.16 |
$6.94 |
| Investment operations: | ||||||
| ---Net investment income | 0.20 |
0.46 |
0.58 |
0.43 |
0.57 |
0.61 |
| ---Net realized and ---unrealized gain ---(loss) on investments |
(0.05) |
(0.61) |
(0.29) |
0.20 |
(0.15) |
0.22 |
| Total from investment operations | 0.15 |
(0.15) |
0.29 |
0.63 |
0.42 |
0.83 |
| ---Less distributions from ---net investment income |
(0.20) |
(0.46) |
(0.58) |
(0.43) |
(0.57) |
(0.61) |
| Net asset value,
end of period |
$6.26 |
$6.31 |
$6.92 |
$7.21 |
$7.01 |
$7.16 |
| Total return (%) | 4.96-1 |
(2.20) |
4.07 |
9.12 |
6.06 |
12.32 |
| Ratios and
supplemental data |
||||||
| Net assets, end of period (thousands) | $4,461 |
$5,195 |
$6,154 |
$6,516 |
$6,254 |
$6,790 |
| ---Ratio of expenses to ---average net assets (%) |
1.08-1 |
1.11 |
1.16 |
1.20-1 |
1.44 |
1.60 |
| ---Ratio of net investment ---income to average ---net assets (%) |
6.58-1 |
6.97 |
8.11 |
7.90-1 |
8.07 |
8.47 |
| ---Portfolio turnover (%) | 9 |
63 |
43 |
38 |
95 |
237 |
1 Annualized.
2 Effective July 31, 1996, investment advisory
services transferred to Madison Mosaic, LLC from Bankers Finance Investment Management
Corp.
Notes to Financial Statements
June 30, 2000
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 management company. This report contains information about two separate funds whose principal objectives are to obtain high current income. The Government Fund invests in securities of the U. S. Government and its agencies. The Intermediate Income Fund invests in investment grade corporate, government and government agency fixed income securities. The Intermediate Income Fund may also invest a portion of its assets in securities rated as low as "B" by Moody’s Investors Service, Inc. or Standard & Poor’s Corporation. A third Mosaic Income Trust portfolio, available to certain institutional investors (as defined in the fund’s prospectus) presents its financial information in a separate report.
Securities Valuation: Securities having maturities of 60 days or less are valued at amortized cost, which approximates 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 Board of 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 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 gains 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,
substantially all of the taxable income of each Fund is distributed to its shareholders
and therefore, no income tax provision is required. As of June 30, 2000, the Government
and Intermediate Income Funds had available for federal income tax purposes the following
unused capital loss carryovers:
Expiration Date |
Government |
Intermediate Income |
| December 31, 2002 | -- |
$928,917 |
| December 31, 2003 | $268,589 |
94,831 |
| December 31, 2004 | 44,628 |
-- |
| December 31, 2005 | 64,210 |
293 |
| December 31, 2006 | -- |
239,050 |
| December 31, 2007 | 8,554 |
486,268 |
A portion of the Intermediate Income Fund’s capital loss carryovers were acquired through its merger with Mosaic Bond Fund on July 1, 1999, and are subject to certain limitations.
Use of Estimates: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
2. Investments in Repurchase Agreements. When the Trust purchases securities under agreements to resell, the securities are held for safekeeping by the Trust’s custodian bank as collateral. Should the market value of the securities purchased under such an agreement decrease below the principal amount to be received at the termination of the agreement plus accrued interest, the counterparty is required to place an equivalent amount of additional securities in safekeeping with the Trust’s custodian bank. Repurchase agreements may be terminated within seven days. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Trust, along with other registered investment companies having Advisory and Services Agreements with the same advisor, transfers uninvested cash balances into a joint trading account. The aggregate balance in this joint trading account is invested in one or more consolidated repurchase agreements whose underlying securities are U.S. Treasury or federal agency obligations.
3. Investment Advisory Fees and Other Transactions with Affiliates. The Investment Advisor to the Trust, Madison Mosaic, LLC, a wholly owned subsidiary of Madison Investment Advisors, Inc., ("the Advisor"), earns an advisory fee equal to 0.625% per annum of the average net assets of each of the Funds; the fees are accrued daily and are paid monthly.
4. Aggregate Cost and Unrealized Appreciation
(Depreciation). The aggregate cost for federal income tax purposes and the net unrealized
appreciation (depreciation) are stated as follows as of June 30, 2000:
Government
|
Intermediate
Income |
|
| Aggregate Cost) | $5,179,054 |
$4,576,189 |
| Gross unrealized appreciation | 12,404 |
26,197 |
| Gross unrealized depreciation | (92,512) |
(213,617) |
| Net unrealized depreciation | $(80,108) |
$(187,420) |
5. Other Expenses. All support services are provided by the Advisor under a Service Agreement for a fee based on a percentage of average net assets. This percentage is 0.52% for the Government Fund and 0.45% for the Intermediate Income Fund; the fees are accrued daily and paid monthly.
The Advisor is also responsible for the fees and expenses of Trustees who are affiliated with the Advisor and for certain promotional expenses.
6. Net Assets. At June 30, 2000, net assets include the following:
Government
|
Intermediate
Income |
|
| Net paid in capital on
shares of beneficial interest |
$5,659,362 |
$6,489,636 |
| Accumulated net realized losses | (409,276) |
(1,840,766) |
| Net unrealized depreciation
on investments |
(80,108) |
(187,420) |
| Total net assets | $5,169,978 |
$4,461,450 |
7. Investment Transactions. Purchases and sales of securities other than short-term securities
for the six months ended June 30, 2000 were as follows:
Government
|
Intermediate
Income |
|
| Purchases | $950,528 |
$383,599 |
| Sales | 680,609 |
773,002 |
8. Capital Share Transactions. An unlimited number of capital shares, without par value, are
authorized. Transactions in capital shares for the following periods were:
GOVERNMENT FUND |
(unaudited) |
Year |
| In Dollars | ||
| Shares sold | $302,401 |
$438,511 |
| Shares issued in
reinvestment of dividends |
123,419 |
240,936 |
| Total shares issued | 425,820 ) |
679,447 ) |
| Shares redeemed | (463,137) |
(858,348) |
| Net decrease | $(37,317) |
$(178,901) |
| In Shares | ||
| Shares sold | 31,740 |
44,407 |
| Shares issued in
reinvestment of dividends |
13,016 |
24,621 |
| Total shares issued | 44,756 |
69,028 |
| Shares redeemed | (48,818) |
(87,176) |
| Net decrease | (4,062) |
(18,148) |
| INTERMEDIATE INCOME FUND |
(unaudited)
|
Year
|
| In Dollars | ||
| Shares sold | $224,041 |
$629,448 |
| Additional shares
in connection with merged fund |
-- |
640,045 |
| Shares issued in
reinvestment of dividends |
121,001 |
287,048 |
| Total shares issued | 345,042 |
1,556,541 |
| Shares redeemed | (1,026,142) |
(1,995,653) |
| Net decrease | $(681,100) |
$(439,112) |
| In Shares | ||
| Shares sold | 35,911 ) |
91,338 ) |
| Additional shares
in connection with merged fund |
-- |
97,859 |
| Shares issued in
reinvestment of dividends |
19,413 |
47,214 |
| Total shares issued | 55,324 ) |
236,411 ) |
| Shares redeemed | (164,696) |
(302,625) |
| Net decrease | (109,372) |
(66,214) |
Mosaic Equity Trust
Mosaic Focus Fund
Mosaic Income Trust
Mosaic Tax-Free Trust
Mosaic Government Money Market
For more complete information on any Mosaic Fund, including charges and expenses, request a prospectus by calling 1-800-368-3195. Read it carefully before you invest or send money. This document does not constitute an offering by the distributor in any jurisdiction in which such offering may not be lawfully made. Mosaic Funds Distributor, LLC.
Transfer Agent
Mosaic Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
888-670-3600
Telephone Numbers
Shareholder Service
Toll-free nationwide: 888 670 3600
Mosaic Tiles (24 hour automated information)
Toll-free nationwide: 800 336 3063
Mosaic Funds
www.mosaicfunds.com
Mosaic Income Trust
Institutional Bond Fund
Semi-Annual Report 6/30/00 (unaudited)
Contents
| Portfolio of Investments | 1 |
| Statement of Assets and Liabilities | 2 |
| Statement of Operations | 3 |
| Statement of Changes in Net Assets | 4 |
| Financial Highlights | 5 |
| Notes to Financial Statements | 6 |
Mosaic Institutional Bond Fund June 30, 2000
Portfolio of Investments (unaudited)
Credit Rating* |
|
|
||
| Moody’s | S&P | |||
| U.S. GOVERNMENT & AGENCY OBLIGATIONS: 87.4% of net assets | ||||
| Aaa | AAA | Federal Home Loan Mortgage Corp, 7.375%, 5/15/03 | 10,000 |
$10,100 |
| Aaa | AAA | Federal National Mortgage Association, 7.125%, 2/15/05 | 10,000 |
10,044 |
| Aaa | AAA | Federal National Mortgage Association, 7.125%, 3/15/07 | 10,000 |
10,042 |
| Aaa | AAA | Federal National Mortgage Association, 6.375%, 6/15/09 | 15,000 |
14,239 |
| TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (cost $44,126) | 44,425 |
|||
| REPURCHASE AGREEMENT:
9.9% of net assets With Donaldson, Lufkin & Jenrette Securities Corporation issued 6/30/00 at 5.25%, due 7/03/00, collateralized by $5,101 in United States Treasury Notes due 11/15/08. Proceeds at maturity are $5,002. (cost $5,000) |
5,000 |
|||
| TOTAL INVESTMENTS: 97.3% of net assets (cost $49,126) | 49,425 |
|||
| CASH AND RECEIVABLES LESS LIABILITIES: 2.7% of net assets | 1,388 |
|||
| NET ASSETS: 100% | $50,813 |
|||
Notes to the Portfolio of Investments:
* - Unaudited
Moody’s - Moody’s Investors Services, Inc.
S&P - Standard & Poor’s Corporation
The Notes to Financial Statements are an integral part
of these statements.
Statement of Assets and Liabilities (unaudited)
June 30, 2000
| ASSETS | |
| Investments, at value (Notes 1 and 2) | |
| ---Investment securities* | $44,425 |
| ---Repurchase agreements | 5,000 |
| ------Total investments | 49,425 |
| Cash | 766 |
| Receivables | |
| ---Investment securities sold | -- |
| ---Interest | 622 |
| ---Capital shares sold | -- |
| ------Total assets | 50,813 |
| NET ASSETS (Note 6) | $50,813 |
| CAPITAL SHARES OUTSTANDING | 5,051 |
| NET ASSET VALUE PER SHARE | $10.06 |
| *INVESTMENT SECURITIES, AT COST | $44,126 |
Statement of Operations (unaudited)
For the six months ended June 30, 2000
| INVESTMENT INCOME (Note 1) | |
| ---Interest income | $552 |
| ---Other income | -- |
| ------Total investment income | 552 |
| EXPENSES (Notes 3 and 5) | |
| ---Investment advisory fees | 25 |
| ---Transfer agent, administrative, ---registration and professional ---fees |
13 |
| ------Total expenses | 38 |
| NET INVESTMENT INCOME | 514 |
| REALIZED AND UNREALIZED GAIN ON INVESTMENTS | |
| ---Net realized gain on ---investments |
-- |
| ---Change in net unrealized ---appreciation of investments |
299 |
| ------Net realized and unrealized ------gain on investments |
299 |
| TOTAL INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $813 |
Statement of Changes in Net Assets (unaudited)
For the six months ended June 30, 2000
| INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | |
| ---Net investment income | $514 |
| ---Net realized gain on ---investments |
-- |
| ---Change in net unrealized ---appreciation on investments |
299 |
| ------Total increase in net ------assets resulting from ------operations |
813 |
| DISTRIBUTIONS TO SHAREHOLDERS (Note 6) | |
| ---From net investment income | (514) |
| ---From net capital gains | -- |
| ------Total distributions | (514) |
| CAPITAL SHARE TRANSACTIONS (Note 8) | 50,514 |
| TOTAL INCREASE IN NET ASSETS | 50,813 |
| NET ASSETS | |
| ---Beginning of period | $ -- |
| ---End of period | $50,813 |
Financial Highlights
(Selected data for a share outstanding throughout
each period indicated)
Two Months Ended June 30, 2000 |
|
| Net asset value, beginning of period | $10.00 |
| Investment operations: | |
| ---Net investment income | -- |
| ---Net realized and unrealized gain ---on investments |
0.16 |
| Total from investment operations | 0.16 |
| ---Less distributions from net ---investment income |
(0.10) |
| Net asset value, end of period | $10.06 |
| Total return (%) | 1.63-2 |
| Ratios and supplemental data | |
| Net assets, end of period (thousands) | $51 |
| ---Ratio of expenses to average net ---assets (%) |
0.45-1 |
| ---Ratio of net investment income ---to average net assets (%) |
6.16-1 |
| ---Portfolio turnover (%) | -- |
1 Annualized.
2 Not annualized.
Notes to Financial Statements
June 30, 2000
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 management company. The Trust currently offers three portfolios, each of which is a diversified mutual fund. This report contains information about one of these portfolios, the Institutional Bond Fund. Its objective is total return within the policy limitations of investing only in intermediate term securities rated at least "A" by Moody’s Investors Service, Inc. or Standard & Poor’s Corporation. The remaining two Trust portfolios present their financial information in a separate report.
Securities Valuation: Securities having maturities of 60 days or less are valued at amortized cost, which approximates 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 Board of 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 is accrued as earned.
Dividends: Net investment income, determined as gross investment income less expenses, is declared as a regular dividend quarterly. Dividends are distributed to shareholders or reinvested in additional shares as of the close of business at the end of each quarter. Capital gains 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, substantially all of the taxable income of each Fund is distributed to its shareholders and therefore, no income tax provision is required.
Use of Estimates: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
2. Investments in Repurchase Agreements. When the Trust purchases securities under agreements to resell, the securities are held for safekeeping by the Trust’s custodian bank as collateral. Should the market value of the securities purchased under such an agreement decrease below the principal amount to be received at the termination of the agreement plus accrued interest, the counterparty is required to place an equivalent amount of additional securities in safekeeping with the Trust’s custodian bank. Repurchase agreements may be terminated within seven days. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Trust, along with other registered investment companies having Advisory and Services Agreements with the same advisor, transfers uninvested cash balances into a joint trading account. The aggregate balance in this joint trading account is invested in one or more consolidated repurchase agreements whose underlying securities are U.S. Treasury or federal agency obligations.
3. Investment Advisory Fees and Other Transactions with Affiliates. The Investment Advisor to the Trust, Madison Mosaic, LLC, a wholly owned subsidiary of Madison Investment Advisors, Inc. ("the Advisor"), earns an advisory fee equal to 0.30% per annum of the average net assets of each of the Funds; the fees are accrued daily and are paid monthly.
4. Aggregate Cost and Unrealized Appreciation (Depreciation). The aggregate cost for federal income tax purposes and the net unrealized
appreciation (depreciation) are stated as follows as of June 30, 2000:
| Aggregate Cost) | $49,126 |
| Gross unrealized appreciation | 333 |
| Gross unrealized depreciation | (34) |
| Net unrealized appreciation | $299 |
5. Other Expenses. All support services are provided by the Advisor under a Service Agreement for a fee based on a percentage of average net assets. This percentage is 0.15%; the fees are accrued daily and paid monthly.
The Advisor is also responsible for the fees and expenses of Trustees who are affiliated with the Advisor and for certain promotional expenses.
6. Net Assets. At June 30,
2000, net assets include the following:
| Net paid in capital on shares of beneficial interest | $50,514 |
| Accumulated net realized (gains) losses | -- |
| Net unrealized appreciation on investments | 299 |
| Total net assets | $50,813 |
7. Investment Transactions.
Purchases and sales of securities other than short-term securities for the six months
ended June 30, 2000 were as follows:
| Purchases | $44,109 |
| Sales | -- |
8. Capital Share Transactions.
An unlimited number of capital shares, without par value, are authorized. Transactions in
capital shares for the following periods were:
(unaudited) Two Months Ended June 30, 2000 |
|
| In Dollars | |
| Shares sold | $50,000 |
| Shares issued in reinvestment of dividends | 514 |
| Total shares issued | 50,514 |
| Shares redeemed | -- |
| Net increase | $50,514 |
| In Shares | |
| Shares sold | 5,000 |
| Shares issued in reinvestment of dividends | 51 |
| Total shares issued | 5,051 |
| Shares redeemed | -- |
| Net increase | 5,051 |
Mosaic Equity Trust
Mosaic Focus Fund
Mosaic Income Trust
Mosaic Tax-Free Trust
Mosaic Government Money Market
For more complete information on any Mosaic Fund, including charges and expenses, request a prospectus by calling 1-800-368-3195. Read it carefully before you invest or send money. This document does not constitute an offering by the distributor in any jurisdiction in which such offering may not be lawfully made. Mosaic Funds Distributor, LLC.
Transfer Agent
Mosaic Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
888-670-3600
Telephone Numbers
Shareholder Service
Toll-free nationwide: 888 670 3600
Mosaic Tiles (24 hour automated information)
Toll-free nationwide: 800 336 3063
Mosaic Funds
www.mosaicfunds.com
|
|