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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-3486
Madison Mosaic Tax-Free Trust
(Exact name of registrant as specified in charter)
550 Science Drive, Madison, WI 53711
(Address of principal executive offices)(Zip code)
W. Richard Mason
Madison/Mosaic Legal and Compliance Department
8777 N. Gainey Center Drive, Suite 220
Scottsdale, AZ 85258
(Name and address of agent for service)
Registrant's telephone number, including area code: 608-274-0300
Date of fiscal year end: September 30
Date of reporting period: September 30, 2006
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspoection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. s 3507.
Item 1. Report to Shareholders.
ANNUAL REPORT
September 30, 2006
Madison Mosaic Tax-Free Trust*
- Virginia Tax-Free Fund
- Tax-Free National Fund
*Mosaic Tax-Free Trust prior to November 1, 2006
(Madison Mosaic logo)
Madison Mosaic Funds
www.mosaicfunds.com
Contents
Mosaic Tax-Free Trust September 30, 2006
Management's Discussion of Fund Performance
(Photo of Michael J. Peters)
The annual period ended September 30, 2006 saw positive returns for Mosaic Virginia Tax-Free Fund (hereafter referred to as "Tax-Free Virginia" or "Virginia Fund") and Mosaic Tax-Free National Fund (hereafter referred to as "Tax-Free National" or "National Fund").* One-year total returns were: 2.98% for Tax-Free Virginia and 2.56% for Tax-Free National. Rising short-term interest rates helped boost the funds' yield, as the 30-day SEC yield for Tax-Free Virginia rose across the period from 2.57% to 2.93% while Tax-Free National rose from 2.54% to 2.88%. Over the same period, the Lipper General Municipal Debt Index was up 4.75% and the Lipper Municipal Debt Virginia Index was up 3.89%. The most important factors in the performance gap were duration and quality, as longer bonds outperformed the intermediate holdings in the Mosaic Tax Frees, while the best performing area of the municipal bond market was the higher-risk, high-yield area. We have always focused on high-quality issuance.
The period was also one of changes in our fund line-up, as we consolidated the funds in Tax-Free Trust. Tax-Free Missouri and Tax-Free Arizona funds were merged into the more diversified Tax-Free National Fund, where shareholders will continue to receive the benefit of income free from federal taxation.
Economic Overview
As the annual period began, our expectations were for rising interest rates fueled by additional Fed tightening, and solid economic growth leading to upward pressure on inflation. As the period unfolded, these expectations played out as the Fed increased the Federal Funds Rate six times, from an initial 3.75% to 5.25%. Despite challenges from rising rates, and a tragic hurricane season, the economic expansion continued, and CPI inflation trended higher.
Economic growth was particularly strong in the first quarter of 2006. While much of this growth can be attributed to a snap-back from the hurricane depressed levels seen in the fourth quarter of 2005, the economy has settled into a growth rate in line with historic averages of 2.5-3.0%. Much of the slowing has been driven by a weakening housing market. However, the consumer began to breathe new life during the third quarter as interest rates fell, leading to more mortgage refinancing, and oil plummeted, leading to lower gas prices and less pain at the pump. Given the slice of the gross domestic product pie represented by consumers, they will remain key to economic growth going forward.
Outlook
More recent market activity does create a dilemma for the Fed. In looking at the economy, the Fed's course of action looks to have been very successful: housing is slowing not crashing, growth has slowed to a more moderate pace, job growth is solid and unemployment is near a cycle low. However, the recent rally in Treasuries means lower interest rates, injecting new liquidity into the marketplace. Coupled with a strong
*Madison Mosaic Tax-Free Trust is subsequently referred to as Mosaic Tax-Free Trust as it was known prior to November 1, 2006.
Mosaic Tax-Free Trust 1
Management’s Discussion of Fund Performance • September 30, 2006 (continued)
stock market and lower commodity prices, both consumer and business spending could exhibit renewed vigor. The Fed will have to weigh just how much the economy is actually cooling as a result of prior rate hikes.
Inflation, however, is the Fed's primary challenge. Although commodity prices have eased in recent months, preferred inflation indicators continue to show strength. The Consumer Price Index has advanced over 3.8% in the last twelve months. Excluding food and energy, it has increased 2.8%. Capacity utilization remains tight, unemployment remains low and Fed policymakers continue to monitor these potential pressures. The Fed's job from here will be to balance the need to stem increased inflation expectations while allowing trend-like growth in the economy. Elevated inflation remains the biggest risk to bond prices at this point in the interest rate cycle.
VIRGINIA FUND
The Commonwealth of Virginia maintains an AAA general obligation bond rating based on a well-diversified economy that emphasizes services and government. The Fund had a total return of 2.98% for the annual period and the 30-day SEC yield was 2.93% as of September 30, 2006. The duration of the portfolio was 5.94 years while the average credit quality was maintained at AA. Purchases during the period included Newport News Economic Development Authority and Fairfax County Economic Development Authority for the Joint Uses Complex project. Virginia ranked 23rd in the country in terms of issuance on a year-to-date basis.
2 Annual Report • September 30, 2006
Management’s Discussion of Fund Performance • September 30, 2006 (concluded)
NATIONAL FUND
The National Fund had a total return of 2.56% for the annual period and the 30-day SEC yield was 2.88% as of September 30, 2006. The duration of the portfolio was 5.70 years while 67.59% of the portfolio held Moody's top Aaa rating. Purchases made during the period included Winnebago County, Illinois Public Safety projects and Camden, Missouri School district certificates of participation bonds. The United States and its territories have issued $261.6 billion in municipal bonds year-to-date through the end of September which represents a 15.6% decrease in volume over the same period last year.
We appreciate your confidence in Mosaic Funds and reaffirm our commitment to provide you with competitive returns to meet your investment objectives.
Sincerely,
(signature)
Michael J. Peters, CFA
Vice-President
Mosaic Tax-Free Trust 3
Mosaic Tax-Free Trust September 30, 2006
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF MOSAIC TAX-FREE TRUST
We have audited the accompanying statements of assets and liabilities, including the portfolios of investments of the Mosaic Tax-Free Trust (the "Trust"), including the Mosaic Virginia Tax-Free Fund and Mosaic Tax-Free National Fund (collectively, the "Funds"), as of September 30, 2006 and the related statements of operations for the year then ended and the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial highlights for each of the two years in the period ended September 30, 2003, were audited by other auditors. Those auditors expressed an unqualified opinion on those financial highlights in their report dated November 11, 2003.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2006 by correspondence with the Funds' custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds constituting the Trust as of September 30, 2006, and the results of their operations for the year then ended and the changes in their net assets for each of the two years in the period then ended and financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Grant Thornton LLP
(signature)
Chicago, Illinois
November 9, 2006
4 Annual Report • September 30, 2006
Mosaic Tax-Free Trust September 30, 2006
Virginia Fund - Portfolio of Investments
Credit Rating* | Principal Amount | Market | ||
Moody's | S&P |
|
| |
LONG TERM MUNICIPAL BONDS: 98.7% of net assets |
|
| ||
|
| |||
Economic Development: 3.0% |
|
| ||
Aa2 | AA | Newport News Economic Development Authority Revenue, 5%, 7/1/25 | $745,000 | $794,654 |
|
| |||
EDUCATION: 12.8% |
|
| ||
Aa1 | AA+ | Fairfax County Economic Development Authority, Facilities Revenue, 5%, 4/1/21 | 1,000,000 | 1,075,120 |
A2 | nr | Loudoun County Industrial Development Authority, University Facilities Revenue (George Washington University), 6.25%, 5/15/22 | 500,000 | 500,595 |
nr | A | Roanoke County Industrial Development Authority, (Hollins College), 5.25%, 3/15/23 | 900,000 | 935,757 |
Aaa | AAA | Virginia Polytech Institute & State University Revenue, 5%, 6/1/14 | 775,000 | 844,858 |
|
| |||
GENERAL OBLIGATION: 17.0% |
|
| ||
Aaa | AAA | Alexandria, 5%, 1/1/16 | 200,000 | 220,842 |
Aaa# | AAA | Culpeper County, (Prerefunded 1/15/10 @ 101), 6%, 1/15/21 | 500,000 | 542,205 |
Aaa# | AA+ | Loudoun County, (Prerefunded 5/1/12 @ 100), 5.25%, 5/1/13 | 620,000 | 671,565 |
Aaa | AA+ | Loudoun County, 5%, 10/1/13 | 500,000 | 544,215 |
Aa3 | AA | Lynchburg, 5.7%, 6/1/25 | 1,000,000 | 1,082,250 |
Aaa | AAA | Richmond, 5%, 7/15/23 | 750,000 | 798,128 |
Aa1 | AA+ | Virginia Beach, 5%, 3/1/12 | 540,000 | 578,480 |
|
| |||
HOSPITAL: 8.0% |
|
| ||
Aaa | AAA | Danville Industrial Development Authority, Hospital Revenue (Danville Regional Medical Center) (AMBAC Insured), 5%, 10/1/10 | 250,000 | 263,190 |
Aaa | AAA | Hanover County Industrial Development Authority, Revenue (Bon Secours Health System) (MBIA Insured), 6%, 8/15/10 | 640,000 | 694,432 |
Aaa | AAA | Roanoke Industrial Development Authority, Hospital Revenue (Carilion Health Systems) (MBIA Insured), 5.5%, 7/1/16 | 500,000 | 547,495 |
Aaa | AAA | Roanoke Industrial Development Authority, Hospital Revenue (Roanoke Memorial Hospitals) (MBIA Insured), 6.125%, 7/1/17 | 500,000 | 590,010 |
|
| |||
HOUSING: 7.3% |
|
| ||
nr | AAA | Fairfax County Redevelopment & Housing Authority, Multi-Family Housing Revenue (Castel Lani Project) (FHA Insured), 5.5%, 4/1/28 | 425,000 | 437,206 |
Aa3 | AA | Puerto Rico Housing Finance Authority, 4.5%, 12/1/09 | 150,000 | 154,170 |
nr | AAA | Suffolk Redevelopment & Housing Authority, Multi-Family Housing Revenue, 5.6%, 2/1/33 | 1,250,000 | 1,317,838 |
|
| |||
INDUSTRIAL DEVELOPMENT: 9.8% |
|
| ||
Aaa | nr | Fairfax County Economic Development Authority (National Wildlife Assoc.), 5.25%, 9/1/19 | 1,000,000 | 1,059,280 |
Aaa | AAA | Gloucester County Economic Development Authority, Lease Revenue (Courthouse Project) (MBIA Insured), 4.375%, 11/1/25 | 500,000 | 505,400 |
Aaa | AAA | Stafford County Industrial Development Authority Revenue, Municipal League Association, 4.5%, 8/1/25 | 1,000,000 | 1,013,040 |
|
| |||
LEASING AND OTHER FACILITIES: 13.4% |
|
| ||
Aa1 | AA+ | Arlington County Industrial Development Authority Lease Revenue, 5%, 8/1/14 | 500,000 | 545,205 |
Aa1 | AA+ | Fairfax County Economic Development Authority Lease Revenue, 5%, 5/15/15 | 1,000,000 | 1,089,710 |
Aaa | nr | Prince William County, County Facility (AMBAC Insured), 5%, 6/1/22 | 750,000 | 799,305 |
Aaa | nr | Richmond Industrial Development Authority Government Facilities, 5%, 7/15/13 | 1,000,000 | 1,083,510 |
|
| |||
MUNICIPAL OTHER: 10.1% |
|
| ||
Aaa | AAA | Riverside Regional Jail Authority Revenue, 5%, 7/1/16 | 500,000 | 537,695 |
Aaa | AAA | Southeastern Public Service Authority Revenue, 5%, 7/1/15 | 1,000,000 | 1,093,160 |
Aa1 | AA+ | Virginia State Public Building Authority, Public Facilities Revenue, 5%, 8/1/18 | 1,000,000 | 1,026,430 |
|
| |||
TRANSPORTATION: 7.7% |
|
| ||
Aaa | AAA | Richmond Metropolitan Authority Expressway Revenue, (FGIC Insured), 5.25%, 7/15/12 | 350,000 | 380,639 |
Aa2 | AA | Virginia Commonwealth Transportation Board, 5%, 9/27/12 | 750,000 | 807,293 |
Aa2 | AA | Virginia State Resources Authority Infrastructure Revenue, 4.75%, 5/1/17 | 800,000 | 836,200 |
|
| |||
WATER & WASTE: 9.6% |
|
| ||
Aaa | AAA | Frederick Regional Sewer System Revenue, (AMBAC), 5%, 10/1/15 | 570,000 | 625,780 |
Aaa | AAA | Henry County Water & Sewer Revenue, (FSA Insured), 5.25%, 11/15/13 | 700,000 | 770,973 |
Aaa | AAA/A-1 | Upper Occoquan Sewer, Regional Sewer Revenue, (MBIA Insured), 5.15%, 7/1/20 | 1,000,000 | 1,127,390 |
|
| |||
TOTAL INVESTMENTS (Cost $25,039,030) |
| $25,894,020 | ||
|
| |||
CASH AND RECEIVABLES LESS LIABILITIES: 1.3% of net assets |
| 330,536 | ||
|
| |||
NET ASSETS: 100% |
| $26,224,556 |
The Notes to Financial Statements are an integral part of these statements.
Mosaic Tax-Free Trust 7
Mosaic Tax-Free Trust September 30, 2006
National Fund - Portfolio of Investments
Credit Rating* | Principal Amount | Market | ||
Moody's | S&P |
|
| |
LONG TERM MUNICIPAL BONDS: 98.2% of net assets |
|
| ||
|
| |||
ARIZONA: 14.2% |
|
| ||
Aaa | AAA | Arizona Board of Regents Certificate Participation, (AMBAC Insured), 5.5%, 6/1/13 | $ 320,000 | $ 345,702 |
Aaa# | AAA | Arizona Health Facilities Authority, Hospital Revenue (Phoenix Baptist Hospital) (MBIA Insured), 6.25%, 9/1/11 | 125,000 | 129,695 |
Baa1 | nr | Arizona Tourism & Sports Authority Tax Revenue Bond, 5%, 7/1/16 | 100,000 | 103,166 |
Aa3 | AA- | Arizona Transportation Board, Grant Antic, 5%, 7/1/13 | 135,000 | 145,630 |
Aa1 | AAA | Arizona Transportation Board, Highway Revenue Tolls, 5.25%, 7/1/19 | 215,000 | 234,513 |
Aa3 | AA | Buckeye Water and Sewer Improvements, 5.45%, 1/1/10 | 235,000 | 246,195 |
A1 | A+ | Greater Arizona Development Authority Infrastructure Revenue Bond, 4.85%, 8/1/20 | 300,000 | 310,011 |
Aaa | nr | Maricopa County Public Corp. Lease Revenue Bond, (AMBAC Insured), 5.5%, 7/1/10 | 245,000 | 261,675 |
Aaa | nr | Maricopa County Public Corp. Lease Revenue Bond, (AMBAC Insured), 5.5%, 7/1/10 | 35,000 | 37,382 |
Aaa | nr | Maricopa County Stadium Revenue Bond, (AMBAC Insured), 5.25%, 6/1/12 | 250,000 | 270,935 |
Aaa | AAA | Maricopa County Unified School District #41 (Gilbert), 5.8%, 7/1/14 | 250,000 | 285,225 |
Baa2 | nr | Maricopa County, Unified School District #090 Saddle Mountain, 5%, 7/1/14 | 75,000 | 76,874 |
Aaa | AAA | Mohave County Elementary School District #16 (Mohave Valley) (MBIA Insured), 5.375%, 7/1/13 | 100,000 | 101,377 |
Aaa | AAA | Northern Arizona University, 5%, 9/1/23 | 150,000 | 160,446 |
Aaa | AAA | Phoenix Civic Improvement Corp. Excise Tax, 4.5%, 7/1/08 | 100,000 | 101,654 |
Aaa | AAA | Phoenix Street and Highway User Revenue Bond (FGIC Insured), 5.25%, 7/1/10 | 50,000 | 52,969 |
Aaa | AAA | Pima County Industrial Development Authority Revenue (Refunding Bonds), 5.625%, 4/1/14 | 250,000 | 257,270 |
Aaa# | AAA | Pima County Unified School District #10 (Amphitheater), (Prerefunded 7/1/09 @100) (FGIC Insured), 5.1%, 7/1/11 | 190,000 | 197,771 |
Aa2 | AAA | Tempe Excise Tax Revenue, 5%, 7/1/20 | 225,000 | 241,792 |
Aa3# | AA | Tucson Recreational Facility Improvements (Prerefunded 7/1/09 @100), 5.25%, 7/1/19 | 250,000 | 260,863 |
Aa3# | AA | Tucson Recreational, (Prerefunded 7/1/09 @ 100), 5.25%, 7/1/18 | 100,000 | 104,345 |
Aaa# | AAA | University of Arizona Board of Regents (Prerefunded 12/1/09 @100)(FGIC Insured), 5.8%, 6/1/24 | 275,000 | 293,573 |
Aaa | AAA | University of Arizona, (AMBAC Insured) 5%, 6/1/17 | 125,000 | 132,370 |
|
| |||
FLORIDA: 6.5% |
|
| ||
Aaa | AAA | Palm Beach County Solid Waste Authority Revenue Bond (AMBAC Insured), 6%, 10/1/10 | 1,100,000 | 1,195,634 |
Aaa | AAA | Peace River, Manasota Regional Water Supply Authority Revenue Bond (FSA Insured), 5%, 10/1/23 | 750,000 | 802,665 |
|
| |||
ILLINOIS: 9.1% |
|
| ||
Aaa# | AAA | Chicago Board of Education (Prerefunded 12/1/07 @ 102), 5.8%, 12/01/17 | 300,000 | 313,620 |
Aaa | AAA | Regional Illinois Transportation Authority, Transit Revenue (AMBAC Insured), 7.2%, 11/1/20 | 300,000 | 375,009 |
Aaa | AAA | University of Illinois Certificates, Utility Infrastructure Projects (MBIA Insured), 5.75%, 8/15/09 | 1,000,000 | 1,058,800 |
Aaa | nr | Winnebago County, Public Safety Sales Tax Revenue (MBIA Insured), 5% 12/30/24 | 1,000,000 | 1,059,450 |
|
| |||
KANSAS: 1.8% |
|
| ||
Aa2 | AAA | Kansas State Department of Transportation, Hwy Revenue, 6.125%, 9/1/09 | 500,000 | 535,690 |
|
| |||
MARYLAND: 0.3% |
|
| ||
Aaa# | AAA | Maryland State Transportation Authority Transportation Facilities Project Revenue, 6.8%, 7/1/16 | 85,000 | 97,199 |
|
| |||
MASSACHUSETTS: 3.8% |
|
| ||
Aa2 | AA | Massachusetts Bay Transportation Authority, Transit Revenue, 7%, 3/1/14 | 1,000,000 | 1,178,040 |
|
| |||
MICHIGAN: 4.0% |
|
| ||
Aaa | AAA | Redford United School District (AMBAC Insured), 5%, 5/1/22 | 410,000 | 456,166 |
Aaa | AAA | Charles Stewart Mott Community College (MBIA Insured) 5%, 5/1/18 | 720,000 | 776,146 |
|
| |||
MISSISSIPPI: 4.1% |
|
| ||
Aaa | AAA | Harrison County Wastewater Management District, Sewer Revenue (Wastewater Treatment Facilities) (FGIC Insured), 7.75%, 2/1/14 | 500,000 | 624,485 |
Aaa | AAA | Harrison County Wastewater Management District, Sewer Revenue (Wastewater Treatment Facilities) (FGIC Insured), 8.5%, 2/1/13 | 500,000 | 631,625 |
|
| |||
MISSOURI: 22.4% |
|
| ||
nr | AAA | Camden County Reorg School District Nor-III, Certificate Participation (FSA Insured), 5%, 3/1/20 | 500,000 | 529,740 |
A1 | nr | Greene County Certificate Participation, 5.25%, 7/1/11 | 300,000 | 317,274 |
Aa3# | nr | Jackson County Public Building Corp. Leasehold Revenue (Prerefunded 11/1/08 @101), 5.1%, 11/1/12 | 200,000 | 208,248 |
Aaa | AAA | Jackson County Reorg School District #7, Lees Summit, (FSA Insured), 5.25%, 3/1/14 | 300,000 | 324,273 |
Aaa | nr | Jefferson County Public Water Supply District Number C-1 (AMBAC Insured), 5.25%, 12/1/16 | 130,000 | 141,597 |
Aa2 | nr | Jefferson County School District, 6.7%, 3/1/11 | 200,000 | 214,900 |
Aa1 | nr | Lees Summit, 4.7%, 4/1/21 | 325,000 | 337,516 |
Aaa | AAA | Mehlville School District R-9, Certificate Participation, (FSA Insured), 5%, 9/1/19 | 300,000 | 316,284 |
Aaa | AAA | Missouri Development Financial Board Cultural Facilities Revenue Bond (MBIA Insured), 5.25%, 12/1/17 | 350,000 | 375,925 |
Aa1 | AA+ | Missouri State Board Public Buildings, 4%, 12/1/10 | 75,000 | 76,408 |
Aa1 | AA+ | Missouri State Board Public Buildings, 5.5% 10/15/13 | 300,000 | 334,926 |
Aa1 | AA+ | Missouri State Health & Educational Facilities Authority Revenue Bond, 5%, 11/1/09 | 500,000 | 521,820 |
Aaa | AAA | Missouri State Highway & Transportation, Street & Road Revenue, 5.25%, 2/1/20 | 250,000 | 266,063 |
nr | AA+ | Normandy School District General Obligation, 5.4%, 3/1/18 | 325,000 | 333,313 |
Aa1 | AA+ | North Kansas City School District, 4.25%, 3/1/16 | 300,000 | 308,466 |
Aa1 | AA+ | Platte County School District Park Hill, 5.5%, 3/1/14 | 300,000 | 302,406 |
nr | AA+ | Polk County School District R-1 Bolivar, 5%, 3/1/21 | 110,000 | 118,083 |
Aaa | AAA | Springfield Public Building Corp. Leasehold Revenue Bond, 5.8%, 6/1/13 | 275,000 | 295,355 |
nr | AAA | St Louis County, Mortgage Revenue Bond (subject to AMT), 5.65%, 2/1/20 | 500,000 | 575,590 |
A1 | A+ | St Louis Industrial Development Authority Pollution Control Revenue, 6.65%, 5/1/16 | 200,000 | 238,994 |
Aaa# | nr | St Louis Municipal Finance Corporation, Leasehold Revenue Bond (Prerefunded 2/15/10 @ $101) (AMBAC Insured), 5.75%, 2/15/17 | 300,000 | 323,505 |
Aaa | AAA | St Louis Parking Facilities Revenue (MBIA Insured), 5.375%, 12/15/21 | 375,000 | 383,715 |
|
| |||
NEW JERSEY: 3.2% |
|
| ||
Aaa# | AAA | New Jersey State Turnpike Authority Revenue, 6.5%, 1/1/16 | 850,000 | 996,922 |
|
| |||
NORTH CAROLINA: 12.8% |
|
| ||
Aaa | nr | Broad River, Water Authority, Water System Revenue Bond, 5%, 6/1/22 | 900,000 | 953,775 |
Aaa | AAA | Lincolnton Enterprise Systems Revenue Bond, 5%, 5/1/17 | 800,000 | 866,016 |
Aaa | AAA | Macon County, 5%, 6/1/13 | 500,000 | 541,400 |
Aa2 | AA+ | Raleigh, Certificate Participation, Leasing Revenue, 4.75%, 6/1/25 | 590,000 | 610,249 |
Aaa | AAA | University North Carolina Systems (AMBAC Insured), 5.25%, 4/1/21 | 890,000 | 964,689 |
|
| |||
NORTH DAKOTA: 1.8% |
|
| ||
Baa2 | nr | Grand Forks Health Care Systems Revenue Bond, 7.125%, 8/15/24 | 500,000 | 554,755 |
|
| |||
PENNSYLVANIA: 3.9% |
|
| ||
Aaa | AAA | Lehigh County General Obligation (Lehigh Valley Hospital) (MBIA Insured), 7%, 7/1/16 | 1,000,000 | 1,178,430 |
|
| |||
PUERTO RICO: 0.5% |
|
| ||
Aa3 | AA | Puerto Rico Housing Finance Authority, 4.5%, 12/1/09 | 150,000 | 154,170 |
|
| |||
TEXAS: 3.1% |
|
| ||
Aaa | AAA | Lower Colorado River Authority, Utility Revenue (AMBAC Insured), 6%, 1/1/17 | 305,000 | 360,900 |
nr | AAA | New Braunfels Independent School, 5%, 2/1/20 | 570,000 | 600,244 |
|
| |||
VIRGINIA: 3.5% |
|
| ||
Aaa | AAA | Hanover County Industrial Development Authority Hospital (Bon Secours Health Systems) (MBIA Insured), 6%, 8/15/10 | 500,000 | 542,525 |
Aaa | AAA | Riverside Regional Jail Authority Revenue, 5%, 7/1/16 | 500,000 | 537,695 |
|
| |||
WASHINGTON: 3.2% |
|
| ||
Aaa | AAA | Grays Harbor County Public Utility #001, Electric Revenue Bond, 5.25%, 7/1/24 | 605,000 | 654,259 |
Aaa | AAA | King County School District #415 Kent (FSA Insured), 5.5%, 6/1/16 | 300,000 | 339,597 |
|
| |||
TOTAL INVESTMENTS (Cost $28,841,099) |
| $30,155,989 | ||
|
| |||
CASH AND RECEIVABLES LESS LIABILITIES: 1.8% of net assets |
| 565,016 | ||
|
| |||
NET ASSETS: 100% |
| $30,721,005 |
Notes to Portfolios of Investments:
# | Refunded or escrowed to maturity |
AMBAC | American Municipal Bond Assurance Corporation |
AMT | Subject to Alternative Minimum Tax |
FGIC | Financial Guaranty Insurance Company |
FHA | Federal Housing Administration |
FSA | Federal Security Assistance |
MBIA | Municipal Bond Investors Assurance Corporation |
Moody's | Moody's Investors Service, Inc. |
nr | Not rated |
S&P | Standard & Poor's Corporation |
* | Credit ratings are unaudited |
The Notes to Financial Statements are an integral part of these statements.
12 Annual Report • September 30, 2006
Mosaic Tax-Free Trust September 30, 2006
Statements of Assets and Liabilities
Virginia Fund | National Fund | |
ASSETS |
|
|
Investment securities, at value* (Note 1) | $25,894,020 | $30,155,989 |
Cash | 15,884 | 168,196 |
Receivables |
|
|
Interest | 357,241 | 415,032 |
Capital shares sold | -- | 9,250 |
Total assets | 26,267,145 | 30,748,467 |
|
| |
LIABILITIES |
|
|
Payables |
|
|
Dividends | 4,781 | 13,760 |
Capital shares redeemed | 30,058 | 5,909 |
Independent trustee and auditor fees | 7,750 | 7,793 |
Total liabilities | 42,589 | 27,462 |
|
| |
NET ASSETS | $26,224,556 | $30,721,005 |
|
| |
Net assets consists of: |
|
|
Paid in capital | $25,250,858 | $29,330,959 |
Accumulated net realized gains | 118,708 | 75,156 |
Net unrealized appreciation on investments | 854,990 | 1,314,890 |
Net assets | $26,224,556 | $30,721,005 |
|
| |
CAPITAL SHARES OUTSTANDING |
|
|
An unlimited number of capital shares, without par value, are authorized (Note 6) | 2,254,884 | 2,804,864 |
NET ASSET VALUE PER SHARE | $11.63 | $10.95 |
* INVESTMENT SECURITIES, AT COST | $25,039,030 | $28,841,099 |
The Notes to Financial Statements are an integral part of these statements.
Mosaic Tax-Free Trust 13
Mosaic Tax-Free Trust
Statements of Operations
For the year ended September 30, 2006
Virginia Fund | National Fund | |
INVESTMENT INCOME (Note 1) |
|
|
Interest income | $1,187,443 | $1,052,373 |
EXPENSES (Notes 2 and 3) |
|
|
Investment advisory fees | 170,498 | 145,355 |
Other expenses | 98,207 | 92,547 |
Independent trustee and auditor fees | 10,000 | 10,000 |
Total expenses | 278,705 | 247,902 |
NET INVESTMENT INCOME | 908,738 | 804,471 |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS |
|
|
Net realized gain on investments | 118,708 | 141,768 |
Change in net unrealized depreciation of investments | (246,497) | (121,761) |
NET GAIN (LOSS) ON INVESTMENTS | (127,789) | 20,007 |
TOTAL INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $780,949 | $824,478 |
The Notes to Financial Statements are an integral part of these statements.
14 Annual Report • September 30, 2006
Mosaic Tax-Free Trust
Statements of Changes in Net Assets
Virginia Fund | National Fund | |||
Year Ended Sept. 30, | Year Ended Sept. 30, | |||
2006 | 2005 | 2006 | 2005 | |
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
|
|
|
|
Net investment income | $ 908,738 | $ 904,512 | $ 804,471 | $ 735,603 |
Net realized gain on investments | 118,708 | 39,856 | 141,768 | 107,954 |
Change in net unrealized depreciation on investments | (246,497) | (408,050) | (121,761) | (573,777) |
Total increase in net assets resulting from operations | 780,949 | 536,318 | 824,478 | 269,780 |
|
|
|
| |
DISTRIBUTION TO SHAREHOLDERS |
|
|
|
|
From net investment income | (908,738) | (904,512) | (804,471) | (735,603) |
From net realized gains | (29,699) | (179,348) | (110,965) | -- |
Total distributions | (938,437) | (1,083,860) | (915,436) | (735,603) |
|
|
|
| |
CAPITAL SHARE TRANSACTIONS (Note 6) | (1,266,680) | 39,592 | 9,235,720 | (483,527) |
|
|
|
| |
TOTAL INCREASE (DECREASE) IN NET ASSETS | (1,424,168) | (507,950) | 9,144,762 | (949,350) |
|
|
|
| |
NET ASSETS |
|
|
|
|
Beginning of year | $27,648,724 | $28,156,674 | $21,576,243 | $22,525,593 |
End of year | $26,224,556 | $27,648,724 | $30,721,005 | $21,576,243 |
The Notes to Financial Statements are an integral part of these statements.
Mosaic Tax-Free Trust 15
Mosaic Tax-Free Trust
Financial Highlights
Selected data for a share outstanding for the years indicated.
VIRGINIA FUND
Year Ended September 30, | ||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||
Net asset value, beginning of year | $11.69 | $11.92 | $12.06 | $12.16 | $11.70 | |
Investment operations: |
|
|
|
|
| |
Net investment income | 0.39 | 0.38 | 0.41 | 0.45 | 0.48 | |
Net realized and unrealized gain (loss) on investments | (0.05) | (0.15) | -- | (0.05) | 0.46 | |
Total from investment operations | 0.34 | 0.23 | 0.41 | 0.40 | 0.94 | |
Less distribution from: |
|
|
|
|
| |
net investment income | (0.39) | (0.38) | (0.41) | (0.45) | (0.48) | |
net realized gains | (0.01) | (0.08) | (0.14) | (0.05) | -- | |
Total distributions | (0.40) | (0.46) | (0.55) | (0.50) | (0.48) | |
Net asset value, end of year | $11.63 | $11.69 | $11.92 | $12.06 | $12.16 | |
Total return (%) | 2.98 | 1.94 | 3.46 | 3.35 | 8.22 | |
Ratios and supplemental data |
|
|
|
|
| |
Net assets, end of year (in thousands) | $26,225 | $27,649 | $28,157 | $29,681 | $30,080 | |
Ratio of expenses to average net assets (%) | 1.02 | 1.02 | 1.02 | 1.01 | 1.01 | |
Ratio of net investment income to average net assets (%) | 3.33 | 3.22 | 3.41 | 3.72 | 4.05 | |
Portfolio turnover (%) | 21 | 12 | 16 | 31 | 27 | |
NATIONAL FUND
Year Ended September 30, | |||||
2006 | 2005 | 2004 | 2003 | 2002 | |
Net asset value, beginning of year | $11.11 | $11.35 | $11.45 | $11.53 | $10.97 |
Investment operations: |
|
|
|
|
|
Net investment income | 0.38 | 0.37 | 0.38 | 0.38 | 0.41 |
Net realized and unrealized loss on investments | (0.10) | (0.24) | (0.27) | (0.10) | (0.08) |
Total from investment operations | 0.28 | 0.13 | 0.28 | 0.30 | 0.97 |
Less distribution from: |
|
|
|
|
|
net investment income | (0.38) | (0.37) | (0.38) | (0.38) | (0.41) |
net realized gains | (0.06) | -- | -- | -- | -- |
Total distributions | (0.44) | (0.37) | (0.38) | (0.38) | (0.41) |
Net asset value, end of year | $10.95 | $11.11 | $11.35 | $11.45 | $11.53 |
Total return (%) | 2.56 | 1.19 | 2.47 | 2.72 | 9.08 |
Ratios and supplemental data |
|
|
|
|
|
Net assets, end of year (in thousands) | $30,721 | $21,576 | $22,526 | $23,489 | $24,274 |
Ratio of expenses to average net assets (%) | 1.06 | 1.07 | 1.07 | 1.07 | 1.07 |
Ratio of net investment income to average net assets (%) | 3.45 | 3.31 | 3.31 | 3.37 | 3.70 |
Portfolio turnover (%) | 34 | 9 | 28 | 21 | 56 |
The Notes to Financial Statements are an integral part of these statements.
16 Annual Report • September 30, 2006
Mosaic Tax-Free Trust
1. Summary of Significant Accounting Policies. Mosaic Tax-Free 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 maintains two separate funds, the Virginia Tax-Free Fund ("Virginia Fund") and the Tax-Free National Fund (the "National Fund") which invest principally in securities exempt from federal income taxes, commonly known as "municipal" securities. The Virginia Fund invests solely in securities exempt from both federal and state income taxes. The National Fund invests in securities exempt from federal taxes. Both Funds invest in intermediate and long-term securities. Because the Trust is 100% no-load, the shares of each Fund are offered and redeemed at the net asset value per share.
Securities Valuation: The Funds value securities having maturities of 60 days or less at amortized cost, which approximates fair market value. Securities having longer maturities, for which market quotations are readily available are valued at the mean between their bid and ask prices. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith under procedures approved by the Board of Trustees.
Investment Transactions: Investment transactions are recorded on a trade date basis. The cost of investments sold is determined on the identified cost basis for financial statement and Federal income tax purposes.
Investment Income: Interest income is recorded on an accrual basis. Bond premium is amortized and original issue discount and market discount are accreted over the expected life of each applicable security using the effective interest method.
Distribution of Income and Gains: Distributions are recorded on the ex-dividend date. Net investment income, determined as gross investment income less total expenses, is declared as a regular dividend and distributed to shareholders monthly. Capital gain distributions, if any, are declared and paid annually at calendar year-end. Additional distributions may be made if necessary. Distributions paid during the years ended September 30, 2006 and 2005 were identical for book purposes and tax purposes.
The tax character of distributions paid for the Virginia Fund was $0 short-term and $29,699 long-term for the year ended September 30, 2006 and $10,506 short-term and $168,842 long-term the year ended September 30, 2005. The tax character of distributions paid for the National Fund was $0 short-term and $110,965 long-term for the year ended September 30, 2006 and had no distributable short-term or long-term capital gains the year ended September 30, 2005.
As of September 30, 2006 the components of distributable earnings on a tax basis were as follows:
Virginia Fund: |
|
Accumulated net realized gains | $118,708 |
Net unrealized appreciation on investments | 854,990 |
$973,698 | |
National Fund: |
|
Accumulated net realized gains | $ 75,156 |
Net unrealized appreciation on investments | 1,314,890 |
$1,390,046 |
Net realized gains or losses may differ for financial and tax reporting purposes as a result of loss deferrals related to wash sales and post-October transactions.
Mosaic Tax-Free Trust 17
Notes to Financial Statements (continued)
Income Tax: No provision is made for Federal income taxes since it is the intention of the Funds to comply with the provisions of the Internal Revenue Code available to investment companies and to make the requisite distribution to shareholders of taxable income which will be sufficient to relieve it from all or substantially all Federal Income Taxes.
Use of Estimates: The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Such estimates 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. 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 the Funds. The fees are accrued daily and are paid monthly.
3. Other Expenses. Under a separate Services Agreement, the Advisor will provide or arrange for each Fund to have all necessary operational and support services for a fee based on a percentage of average net assets, other than the expenses of the Trust's Independent Trustees and auditor ("Independent Service Providers") which are paid directly based on cost. For the year ended September 30, 2006, the services fee was based on the following percentage of average net assets: 0.36% for the Virginia Fund and 0.40% for the National Fund. Effective upon the mergers of the Tax-Free Missouri and Tax-Free Arizona Funds into the Tax-Free National Fund (see footnote 8), this rate was reduced to 0.36% for all assets greater than $25 million. The amount paid by each Fund directly for Independent Service Providers fees for the year was $10,000. The Funds use US Bancorp Fund Services LLC as their transfer agent and US Bank as their custodian. The transfer agent and custodian fees are paid by the Advisor and allocated to the Funds pursuant to a services agreement and are included in other expenses.
4. Aggregate Cost and Unrealized Appreciation. The aggregate cost for federal income tax purposes and the net unrealized appreciation (depreciation) are stated as follows as of September 30, 2006:
Virginia Fund | National Fund | |
Aggregate Cost | $25,039,030 | $28,841,099 |
Gross unrealized appreciation | 880,343 | 1,331,902 |
Gross unrealized depreciation | (25,353) | (17,012) |
Net unrealized appreciation | $ 854,990 | $ 1,314,890 |
5. Investment Transactions. Purchases and sales of securities (excluding short-term securities) for the year ended September 30, 2006, were as follows:
Purchases | Sales | |
Virginia Fund | $5,540,851 | $6,252,407 |
National Fund | $7,846,356 | $9,656,265 |
6. Capital Share Transactions. An unlimited number of capital shares, without par value, are authorized. Transactions in capital shares were as follows:
18 Annual Report • September 30, 2006
Notes to Financial Statements (continued)
Year Ended Sept. 30, | ||
Virginia Fund | 2006 | 2005 |
In Dollars |
|
|
Shares sold | $ 2,522,906 | $1,373,983 |
Shares issued in reinvestment of dividends | 868,044 | 995,479 |
Total shares issued | 3,390,950 | 2,369,462 |
Shares redeemed | (4,657,630) | (2,329,870) |
Net increase (decrease) | $(1,266,680) | $ 39,592 |
|
| |
In Shares |
|
|
Shares sold | 216,999 | 116,204 |
Shares issued in reinvestment of dividends | 75,204 | 84,338 |
Total shares issued | 292,203 | 200,542 |
Shares redeemed | 402,719 | (197,078) |
Net increase (decrease) | (110,516) | 3,464 |
Year Ended Sept. 30, | ||
National Fund | 2006 | 2005 |
In Dollars |
|
|
Shares sold | $ 943,806 | $ 1,637,027 |
Additional shares issued in connection with Tax-Free Missouri merger | 6,479,539 | -- |
Additional shares issued in connection with Tax-Free Arizona merger | 4,584,854 | -- |
Shares issued in reinvestment of dividends | 818,096 | 673,013 |
Total shares issued | 12,826,295 | 2,310,040 |
Shares redeemed | (3,590,575) | (2,793,567) |
Net increase (decrease) | $ 9,235,720 | $ (483,527) |
|
| |
In Shares |
|
|
Shares sold | 86,205 | 145,494 |
Additional shares issued in connection with Tax-Free Missouri merger | 604,480 | -- |
Additional shares issued in connection with Tax-Free Arizona merger | 425,682 | -- |
Shares issued in reinvestment of dividends | 74,985 | 59,904 |
Total shares issued | 1,191,352 | 205,398 |
Shares redeemed | (329,078) | (247,832) |
Net increase (decrease) | 862,274 | (42,434) |
7. Line of Credit. The Virginia Fund has a $7.5 million and the National Fund has an $8 million revolving credit facility with a bank for temporary emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The interest rate on the outstanding principal amount is equal to the prime rate less 1/2%. During the year ended September 30, 2006, neither Fund borrowed on their lines of credit.
8. Discussion of Business Combinations. Effective June 22, 2006, the Mosaic Tax-Free Missouri Fund (the "Missouri Fund") series of the Trust merged into the National Fund series of the Trust as a tax-free reorganization pursuant to Internal Revenue Code Section 368(a)(1)(C). As of the date of the merger, shareholders of Missouri Fund received approximately 0.982844 shares of beneficial interest of the National Fund for each share they held of the Missouri Fund. A total of 615,031 shares of the Missouri Fund were outstanding as of the date of the reorganization, resulting in the issuance of 604,480 shares of beneficial interest. The Missouri Fund's net assets on June 22, 2006 of $6,479,539 (including $230,251 of net unrealized appreciation and
Mosaic Tax-Free Trust 19
Notes to Financial Statements (continued)
$23,153 of accumulated net realized losses) were combined with those of the National Fund. The Missouri Fund had net investment income of $187,785 which was distributed to its shareholders immediately prior to the reorganization.
Effective July 20, 2006, the Mosaic Tax-Free Arizona Fund (the "Arizona Fund") series of the Trust merged into the National Fund series of the Trust as a tax-free reorganization pursuant to Internal Revenue Code Section 368(a)(1)(C). As of the date of the merger, shareholders of Arizona Fund received approximately 0.943309 shares of beneficial interest of the National Fund for each share they held of the Arizona Fund. A total of 451,265 shares of the Arizona Fund were outstanding as of the date of the reorganization, resulting in the issuance of 425,682 shares of beneficial interest. The Arizona Fund's net assets on July 20, 2006 of $4,584,854 (including $96,090 of net unrealized appreciation and $0 of accumulated net realized gains or losses) were combined with those of the National Fund. The Arizona Fund had net investment income of $150,869 which was distributed to its shareholders immediately prior to the reorganization.
9. New Accounting Pronouncement. In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.
On September 15, 2006, the Financial Accounting Standards Board issued Standard No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 addresses how companies should measure fair value when specified assets and liabilities are measured at fair value for either recognition or disclosure purposes under generally accepted accounting principles (GAAP). FAS 157 is intended to make the measurement of fair value more consistent and comparable and improve disclosures about those measures. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. At this time, management believes the adoption of FAS 157 will have no material impact on the financial statements of the Fund.
10. Subsequent Event. On November 1, 2006, the Trust changed its name from Mosaic Tax-Free Trust to Madison Mosaic Tax-Free Trust.
20 Annual Report • September 30, 2006
Notes to Financial Statements (continued)
Example: This Example is intended to help you understand your costs (in dollars) of investing in a Fund and to compare these costs with the costs of investing in other mutual funds. See footnotes 2 and 3 above for an explanation of the types of costs charged by the funds. This Example is based on an investment of $1,000 invested on April 1, 2006 and held for the six-months ended September 30, 2006.
Actual Expenses
The table below titled "Based on Actual Total Return" provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,500 ending account valued divided by $1,000 = 8.5), then multiply the result by the number under the heading entitled "Expenses Paid During the Period."
Based on Actual Total Return1 | |||||
Actual Total Return2 | Beginning Account Value | Ending Account Value | Annualized Expense Ratio3 | Expenses Paid During the Period3 | |
Virginia Fund | 2.95% | $1,000.00 | $1,029.54 | 1.02% | $5.17 |
National Fund | 2.60% | $1,000.00 | $1,026.04 | 1.06% | $5.36 |
1For the six months ended September 30, 2006. 2Assumes reinvestment of all dividends and capital gains distributions, if any, at net asset value. 3Expenses are equal to the respective Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365. |
Hypothetical Example for Comparison Purposes
The table below titled "Based on Hypothetical Total Return" provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not any fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in a Mosaic Tax-Free Trust Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Mosaic Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Mosaic Tax-Free Trust 21
Notes to Financial Statements (concluded)
Based on Hypothetical Total Return1 | |||||
Hypothetical Annualized Total Return | Beginning Account Value | Ending Account Value | Annualized Expense Ratio2 | Expenses Paid During the Period2 | |
Virginia Fund | 5.00% | $1,000.00 | $1,025.33 | 1.02% | $5.19 |
National Fund | 5.00% | $1,000.00 | $1,025.33 | 1.06% | $5.39 |
1For the six months ended September 30, 2006. 2Expenses are equal to the respective Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365. |
22 Annual Report • September 30, 2006
Mosaic Tax-Free Trust
Independent Trustees | |||||
Name, Address and Age | Position(s) Held with Fund | Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held |
Philip E. Blake 550 Science Drive Madison, WI 53711 Born 1944 | Trustee | Indefinite Term since May 2001 | Retired investor; formerly Vice President - Publishing, Lee Enterprises, Inc. | All 11 Mosaic Funds | Madison Newspapers, Inc. of Madison, WI; Trustee of the Madison Claymore Covered Call Fund and Madison Strategic Sector Premium Fund; Nerites Corp. |
James R. Imhoff, Jr. 550 Science Drive Madison, WI 53711 Born 1944 | Trustee | Indefinite Term since July 1996 | Chairman and CEO of First Weber Group, Inc. (real estate brokers) of Madison, WI. | All 11 Mosaic Funds | Trustee of the Madison Claymore Covered Call Fund and Madison Strategic Sector Premium Fund; Park Bank, FSB |
Lorence D. Wheeler550 Science Drive Madison, WI 53711 Born 1938 | Trustee | Indefinite Term since July 1996 | Retired investor; formerly Pension Specialist for CUNA Mutual Group (insurance) and President of Credit Union Benefits Services, Inc. (a provider of retirement plans and related services for credit union employees nationwide). | All 11 Mosaic Funds | Trustee of the Madison Claymore Covered Call Fund and Madison Strategic Sector Premium Fund; Grand Mountain Bank, FSB |
Interested Trustees* | |||||
Frank E. Burgess 550 Science Drive Madison, WI 53711 Born 1942 | Trustee and Vice President | Indefinite Terms since July 1996 | Founder, President and Director of Madison Investment Advisors, Inc. | All 11 Mosaic Funds | Trustee of the Madison Claymore Covered Call Fund and Madison Strategic Sector Premium Fund; Capitol Bank, FSB |
Katherine L. Frank 550 Science Drive Madison, WI 53711 Born 1960 | Trustee and President | Indefinite Terms President since July 1996, Trustee since May 2001 | Principal and Vice President of Madison Investment Advisors, Inc. and President of Madison Mosaic, LLC | President of all 11 Mosaic Funds, Trustee of all Mosaic Funds except Mosaic Equity Trust | None |
Mosaic Tax-Free Trust 23
Management Information (continued)
Officers* | |||||
Jay R. Sekelsky 550 Science Drive Madison, WI 53711 Born 1959 | Vice President | Indefinite Term since July 1996 | Principal and Vice President of Madison Investment Advisors, Inc. and Vice President of Madison Mosaic, LLC | All 11 Mosaic Funds | None |
Christopher Berberet 550 Science Drive Madison, WI 53711 Born 1959 | Vice President | Indefinite Term since July 1996 | Principal and Vice President of Madison Investment Advisors, Inc. and Vice President of Madison Mosaic, LLC | All 11 Mosaic Funds | None |
W. Richard Mason 8777 N. Gainey Center Drive, #220 Scottsdale, AZ 85258Born 1960 | Secretary, General Counsel and Chief Compliance Officer | Indefinite Terms since November 1992 | Principal of Mosaic Funds Distributor, LLC; General Counsel for Madison Investment Advisors, Madison Scottsdale, LC and Madison Mosaic, LLC | All 11 Mosaic Funds | None |
Greg Hoppe 550 Science Drive Madison, WI 53711 Born 1969 | Chief Financial Officer | Indefinite Term since August 1999 | Vice President of Madison Mosaic, LLC. | All 11 Mosaic Funds | None |
*All interested Trustees and Officers of the Trust are employees and/or owners of Madison Investment Advisors, Inc. Since Madison Investment Advisors, Inc. serves as the investment advisor to the Trust, each of these individuals is considered an "interested person" of the Trust as the term is defined in the Investment Company Act of 1940.
The Statement of Additional Information contains more information about the Trustees and is available upon request. To request a free copy, call Mosaic Funds at 1-800-368-3195.
Forward-Looking Statement Disclosure. One of our most important responsibilities as mutual fund managers is to communicate with shareholders in an open and direct manner. Some of our comments in our letters to shareholders are based on current management expectations and are considered "forward-looking statements." Actual future results, however, may prove to be different from our expectations. You can identify forward-looking statements by words such as "estimate," "may," "will," "expect," "believe," "plan" and other similar terms. We cannot promise future returns. Our opinions are a reflection of our best judgment at the time this report is compiled, and we disclaim any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise.
Proxy Voting Information. The Trust only invests in non-voting securities. Nevertheless, the Trust adopted policies that provide guidance and set forth parameters for the voting of proxies relating to securities held in the Trust's portfolios. These policies are available to you upon request and free of charge by writing to Mosaic Funds, 550 Science Drive, Madison,
24 Annual Report • September 30, 2006
Management Information (concluded)
WI 53711 or by calling toll-free at 1-800-368-3195. The Trust's proxy voting policies may also be obtained by visiting the Securities and Exchange Commission web site at www.sec.gov. The Trust will respond to shareholder requests for copies of our policies within two business days of request by first-class mail or other means designed to ensure prompt delivery.
N-Q Disclosure. The Trust files its complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission (the "Commission") for the first and third quarters of each fiscal year on Form N-Q. The Trust's Forms N-Q are available on the Commission's website. The Trust's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC. Information about the operation of the Public Reference Room may be obtained by calling the Commission at 1-202-942-8090. Form N-Q and other information about the Trust are available on the EDGAR Database on the Commission's Internet site at http://www.sec.gov. Copies of this information may also be obtained, upon payment of a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the Commission's Public Reference Section, Washington, DC 20549-0102. Finally, you may call Mosaic at 800-368-3195 if you would like a copy of Form N-Q and we will mail one to you at no charge.
Mosaic Tax-Free Trust 25
The Madison Mosaic Family of Mutual Funds
Madison Mosaic Equity Trust
Investors Fund
Balanced Fund
Mid-Cap Fund
Foresight Fund
Madison Institutional Equity Option Fund
Madison Mosaic Income Trust
Government Fund
Intermediate Income Fund
Institutional Bond Fund
Madison Mosaic Tax-Free Trust
Virginia Tax-Free Fund
Tax-Free National Fund
Madison Mosaic Government Money Market
For more complete information on any Madison 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. Madison Mosaic Funds were known as Mosaic Funds prior to November 1, 2006. Mosaic Funds Distributor, LLC.
TRANSER AGENT
Madison Mosaic Funds
c/o US Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
TELEPHONE NUMBERS
Shareholder Service
Toll-free nationwide: 888-670-3600
Mosaic Tiles (24 hour automated information)
Toll-free nationwide: 800-336-3600
550 Science Drive
Madison, Wisconsin 53711
Madison Mosaic Funds
www.mosaicfunds.com
SEC File Number 811-3486
Item 2. Code of Ethics.
(a) The Trust has adopted a code of ethics that applies to the Trust’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, regardless of whether these individuals are employed by the Trust or a third party. The code was first adopted during the fiscal year ended September 30, 2003.
(c) The code has not been amended since it was initially adopted.
(d) The Trust granted no waivers from the code during the period covered by this report.
(f) Any person may obtain a complete copy of the code without charge by calling Madison Mosaic Funds at 800-368-3195 and requesting a copy of the Madison Mosaic Funds Sarbanes Oxley Code of Ethics.
Item 3. Audit Committee Financial Expert.
In July 2006, James Imhoff, Jr., an “independent” Trustee and a member of the Trust’s audit committee, was elected to serve as the Trust’s audit committee financial expert among the three Mosaic independent Trustees who so qualify to serve in that capacity. He succeeded Mr. Lorence Wheeler who served in that capacity from October 2005 through July 2006.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. Note that fees are accrued pursuant to the Services Agreement, but are paid directly to the accountants. Total audit fees paid (or to be paid) to the registrant's principal accountant for the fiscal years ended September 30, 2005 and 2006, respectively, out of the Services Agreement fees collected from all Madison Mosaic Funds were $73,500 (not including typical expenses in connection with the audit such as postage, photocopying, etc.) and $82,000, (including out of pocket expenses). Of these amounts, approximately $21,000 and $14,000, respectively, was or will be attributable to the registrant and the remainder was or will be attributable to audit services provided to other Madison Mosaic Funds registrants.
(b) Audit-Related Fees. Not applicable.
(c) Tax-Fees. Not applicable.
(d) All Other Fees. Not applicable.
(e) (1) Before any accountant is engaged by the registrant to render audit or non-audit services, the engagement must be approved by the audit committee as contemplated by paragraph (c)(7)(i)(A) of Rule 2-01of Regulation S-X.
(2) Not applicable.
(f) Not applicable.
(g) Not applicable.
(h) Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments
Schedule included as part of the report to shareholders filed under Item 1 of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
The Trust does not normally hold shareholder meetings. There have been no changes to the Trust's procedures during the period covered by this report.
Item 11. Controls and Procedures.
(a) The Trust’s principal executive officer and principal financial officer determined that the Trust’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) are effective, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 within 90 days of the date of this report. There were no significant changes in the Trust’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. The officers identified no significant deficiencies or material weaknesses.
(b) There were no changes in the Trust's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Trust's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics referred to in Item 2 (no change from the previously filed Code).
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Act.
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Act.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Madison Mosaic Tax-Free Trust
By: (signature)
W. Richard Mason, Secretary
Date: November 21, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: (signature)
Katherine L. Frank, Chief Executive Officer
Date: November 21, 2006
By: (signature)
Greg Hoppe, Chief Financial Officer
Date: November 21, 2006