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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 811-3615
Madison Mosaic Equity 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: December 31
Date of reporting period: June 30, 2007
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, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. s 3507.
Semi-Annual Report (unaudited)
June 30, 2007
Madison Mosaic Equity Trust
- Investors Fund
- Balanced Fund
- Mid-Cap Fund
- Foresight Fund
Madison Mosaic Funds
(Madison Mosaic Logo)
www.mosaicfunds.com
Contents
Portfolio Manager Review | |
Review of Period | 1 |
Market in Review | 1 |
Outlook | 2 |
Interview with lead equity manager Jay Sekelsky | 2 |
Investors Fund | 2 |
Balanced Fund | 4 |
Foresight Fund | 6 |
Mid-Cap Fund | 7 |
Portfolio of Investments | |
Investors Fund | 10 |
Balanced Fund | 11 |
Foresight Fund | 13 |
Mid-Cap Fund | 15 |
Statements of Assets and Liabilities | 16 |
Statements of Operations | 17 |
Statements of Changes in Net Assets | 18 |
Financial Highlights | 20 |
Notes to Financial Statements | 22 |
Portfolio Manager Review
Review of Period
The six-month period ended June 30, 2007 showed gains for all four funds in Equity Trust. The Investors Fund advanced 1.56% for the six-month period, Mid-Cap was up 10.05%; Balanced 1.36%; and Foresight 7.04%. Over the same period, the S&P 500 Index rose 6.96%. The disparity of these results are an indication of a six-month period in which performance varied widely depending upon market sectors, size of companies, and the underlying characteristics of these companies.
Market in Review
The overall market, as measured by the S&P 500, moved upward as the year began, then dipped into negative territory in March before it proceeded to advance fairly steadily for the remainder of the period, hitting all-time highs in early June. The widely-followed Dow Jones Industrial Average also hit new all-time highs. But underneath the strength of these major indices were a variety of results that were highly dependent upon industry sectors and company size.
Through June 30th, most of the market's gains were concentrated in three volatile and historically cyclical sectors: Energy, Materials and Telecommunications. Over this same period, the Financial Sector was negative while the Consumer Sectors were only marginally positive.
Size was also a factor as mid-cap indices were once again top performers, and small-cap indices also generally outperformed large-caps. Perhaps even more telling was the results of mega-caps, the largest companies in the U.S. The average return of the ten largest firms in the S&P 500 was only 3.6%, well behind the overall Index.
Quality ratings are another market metric that is useful in understanding the wide divergence in stock performance. Standard & Poor's provides quality ratings of companies based upon quantifiable business statistics, with the steadiest and more predictable earners receiving an "A+," while the lower quality companies receive "C and D" ratings. Over this six month period, A+ stocks returned 1.1%, while C&D stocks returned 9.5% and B- stocks gained 14.3%. Clearly, lower quality companies continued to outperform.
These quality and size-related returns reflect the nature of a market which is rife with mergers, acquisitions and private equity buyouts. In general, it is smaller, lower-quality firms which are the beneficiaries of this activity, while the largest companies are either unaffected or, as the acquiring party, may actually see price pressure on their stocks as a result of a transaction.
The general economic conditions of the period closely correlate to the market characteristics cited. The Federal Reserve held interest rates steady throughout the period at a level that continued to support the liquidity needed to fuel acquisitions and buy-outs. Energy prices remained high, supporting the market-leading performance of the Energy Sector stocks, while defaults in low-quality mortgages, widely reported as the subprime loan crisis, put a cloud over the entire Financial Sector, whether or not individual companies were directly exposed to subprime loans. The rising cost of energy and the softness in the housing market were considered negatives for consumer stocks in general, while health care stocks were under the cloud of headline news regarding potential legislative and reform initiatives.
Madison Mosaic Equity Trust 1
Portfolio Manager Review (continued)
Outlook
As we move into the second half of 2007, our outlook for the economy and stock market remain generally positive, recognizing that we are in the fifth year of the second longest bull market in history. After a weak first quarter, economic growth in the second quarter was strong at about 3% real growth. Although the housing industry continues to be weak, it is offset by low unemployment and a robust global economy. For the rest of 2007, profits from foreign operations of domestic companies, likely supported by a weaker dollar, should continue to grow in the mid-to-high teens. This growth, blended with the slower 4-6% growth of domestic operations and a continuation of stock buyback programs, should fuel a healthy increase in corporate profits, even if at a slower rate than the robust growth of the past few years.
Interview with lead equity manager Jay Sekelsky (photo of Jay Sekelsky)
Can you summarize the performance of the funds in Equity Trust for the first six months of 2007?
This period was a tough six months for us. In general, our equity process had numerous headwinds, as the market favored lower-quality and cyclical companies, which tend to fall outside of our investment discipline. On the bright side, the strength of Mid-Cap, which beat its benchmark over the six months, was heartening, and we avoided a share of these disappointments in our sector-neutral strategy in Foresight. Yet Madison Mosaic Investors remains our oldest and largest fund and it is difficult to watch it underperform, even as we gain confidence in the strength of its individual holdings.
MADISON MOSAIC INVESTORS
How did the fund perform for the first six months of 2007?
The Investors Fund advanced 1.56% for the period ended June 30, 2007. This return trailed the broader market as measured by the S&P 500, which was up 6.96%. It also trailed its peer group, represented by the Lipper Large-Cap Core Index, which rose 7.33%.
Have you made any significant changes to the portfolio since December 31, 2007?
We seek to buy a select group of companies that we can hold for long periods. Our last audited report (December 31, 2006) noted that our turnover rate for the fund in 2006 was 52%, well below the average for all domestic equity funds and actually higher than typical for us. Over the course of the first six months of 2007, we sold our holdings in three companies entirely and added three new positions. New names were supplemental insurance leader AFLAC, 3M, and retailer Best Buy. We sold our holdings in Amgen, Home Depot, and Symantec.
2 Semi-annual Report • June 30, 2007
Portfolio Manager Review (continued)
AFLAC is the leader in supplemental insurance in both Japan and United States and has maintained a record of consistent earnings growth. With a strategy of product innovation and an aging population of workers, there is good earnings visibility for the company. Finally, at the time of our purchase, the company's valuation was at the low end of its historical range.
Under 3M's new CEO, the company has reinvested in important infrastructure and has been actively seeking new growth opportunities. We believe at the time of our purchase valuation reflected the previous administration, which had underinvested in these areas. We also like the fact that 3M's highly diversified product line provides some protection in the event of slower global economic growth.
Best Buy has been showing steady increases in same store sales growth, while it has proven to be a leader in the sale of flat-screen TVs. These TVs are dropping in price to the point of becoming a common household purchase across income levels. We believe the escalating complexity of consumer electronics makes the company's Geek Squad the center for continued growth. Finally, the company has strong financials and significant internal stock ownership, aligning the company's interests with its shareholders.
Home Depot was sold primarily on our re-evaluation of the company's prospects. We believed the company's Home Depot Supply business was an important growth vehicle, and were disappointed when this enterprise was sold at what we felt was an inopportune time. When Home Depot announced a stock buy-back, and the stock price showed strength, we decided it was a propitious time to exit. We sold Symantec on the wake of the company's preannouncement of bad news for the fourth quarter of 2006, which exposed weaknesses across its enterprises. Finally, Amgen produced disappointing earnings and negative news on new drug development, leaving only one major product in the near-term pipeline. It was our assessment the company's upside potential was limited.
What holdings were the strongest contributors to fund performance?
We saw positive returns from our holdings in the Industrials, Consumer Discretionary, Consumer Staples, Health Care and Information Technology, with our best relative returns in Consumer Discretionary, where we had solid results from McDonald's and Target. Other strong stocks included Charles River, new holding 3M, and Capital One.
TOP TEN STOCK HOLDINGS AS OF JUNE 30, 2007 FOR MADISON MOSAIC INVESTORS
% of net assets | |
General Electric Co. | 4.65% |
Novartis AG - ADR | 4.62% |
Berkshire Hathaway Inc. - Class B | 4.47% |
Microsoft Corp. | 4.27% |
Cisco Systems Inc. | 4.18% |
Johnson & Johnson | 4.11% |
Citigroup Inc. | 4.08% |
UnitedHealth Group | 3.81% |
Dover Corp. | 3.54% |
Capital One Financial Group | 3.26% |
Madison Mosaic Equity Trust 3
Portfolio Manager Review (continued)
What holdings were the largest constraints on performance?
The leading sector in the market was energy, and our lack of holdings in this cyclical area was a relative negative. We also did not have participation in the Telecommunications and Materials Sectors, which also had double-digit runs. When the market is making a strong upward move, any cash is a weight, and although our cash position averaged single-digits, it was a hindrance when measured against the overall market.
On an individual security basis, our worst performers were Amgen and Symantec, which were sold. Other companies which suffered what we feel were temporary setbacks included Johnson & Johnson, Citigroup and UnitedHealth Group.
MADISON MOSAIC BALANCED
How did the Balanced Fund perform for the six-month period?
Mosaic Balanced advanced 1.36% for the six months, with positive results from the stock holdings dampened by flat returns from the bonds. As with our Investors Fund, we did fight the headwind of having no holdings in the top-performing Energy Sector. Over the course of the six months the Lipper Mixed Asset Allocation Growth Index showed a return of 6.64%,
Have you made any significant changes to the portfolio since December 31, 2006?
The stock holdings of Balanced mirror the holdings of the Investors Fund, as discussed above. These holdings continue to focus on solid, well-established domestic companies that have proven their earning ability through difficult times. One of the factors in our management of Balanced is the mix of stocks and bonds, with 70% being the highest allowable percentage of stocks. We began the period holding 64.8% stocks and finished the period with 61.2% in stocks. On the bond side, we have been gradually increasing the percentage of government issued bonds, and decreasing the weighting in corporate bonds, based on our assessment of relative values. We have also increased the duration of the bonds, from 2.99 years at the beginning of the period to 3.54 years at the end.
4 Semi-annual Report • June 30, 2007
Portfolio Manager Review (continued)
TOP FIVE STOCK AND FIXED INCOME HOLDINGS AS OF JUNE 30, 2007 FOR MADISON MOSAIC BALANCED
% of net assets | |
Top Five Stock Holdings (61.2% of net assets in stocks) | |
Novartis AG - ADR | 3.28% |
Berkshire Hathaway Inc. - Class B | 3.18% |
General Electric Co. | 2.98% |
Johnson & Johnson | 2.94% |
Cisco Systems Inc. | 2.92% |
% of net assets | |
Top Five Fixed Income Holdings (34.0% of net assets in fixed income) | |
US Treasury Note, 4%, 3/15/10 | 3.66% |
US Treasury Note, 5.125%, 6/30/11 | 3.29% |
Fannie Mae, 3.25%, 8/15/08 | 2.66% |
Federal Home Loan Bank, 4.375%, 9/17/10 | 1.99% |
US Treasury Note, 4%, 2/15/14 | 1.61% |
How did the stock holdings in Balanced contribute to overall performance?
The stock holdings in Balanced were positive for the period, even though large, high-quality stocks trailed the overall market. The holdings mirror the stocks held in the Investors Fund, discussed at some length above.
How did the bond holdings in Balanced contribute to overall performance?
Although our bond holdings were positive for the period, these were modest gains when compared to the robust returns of the major stock indices. However, our bond positioning focused on high-quality and intermediate duration which were relative positives for this portion of the portfolio. Since we believe in active bond management for the Balanced Fund, we are carefully following economic reports and Fed posture to be prepared for what we believe will be an eventual shift in the direction of rates.
Madison Mosaic Equity Trust 5
Portfolio Manager Review (continued)
MADISON MOSAIC FORESIGHT
How would you characterize the performance of Foresight for the period?
We were pleased to show a positive return of 7.04% for the period, just ahead of our S&P 500 benchmark, which was up 6.96%. We also were ahead of our historic peer group, as Lipper Flexible Portfolio Fund Index was up 6.79%. However, with the current constitution of the portfolio, a more meaningful comparison can be made with the Lipper Large-Cap Core Index, which gained 7.33%. With our portfolio currently allocated across S&P 500 sectors, the positive results against the S&P 500 were largely a function of stock selection.
Have you made any significant changes to the portfolio since December 31, 2006?
Over the past year we've solidified our holdings into what is now a fully invested, sector-diversified stock strategy. As in the past, our equity positions are concentrated in large-cap companies which retain a leadership position in their industries and have shown the ability to produce predictable earnings over time. Our portfolio turnover during the past six months was 24%. Trading activity involved 12 new securities in the portfolio as of June 30, and 15 securities sold.
Among the notable additions to the portfolio are 3M, AFLAC, Genzyme, Illinois Tool Works, International Game Technology, and Zebra Technologies. Sales include Amgen, Cintas, Exelon, Janus Capital Group, and Tyco International.
What holdings had the largest impact on this period's performance?
Energy, Materials and Telecommunications were the strongest sectors, while Heath Care and Financials were the weakest. In terms of individual holdings, technology holding FLIR Systems was up 45% for the six months, and our Energy Sector holdings were all strong, led by Schlumberger and Transocean, both up over 30% for the period. We also had strong results from McDonald's and Target. Other strong stocks included Charles River, and new holding 3M. Companies with disappointing results included Sysco, Amgen and Symantec.
TOP TEN STOCK HOLDINGS AS OF JUNE 30, 2007 FOR MADISON MOSAIC FORESIGHT
% of net assets | |
General Electric Co. | 3.16% |
Novartis AG - ADR | 2.81% |
Exxon Mobil Corp. | 2.61% |
Microsoft Corp. | 2.41% |
Dover Corp. | 2.40% |
Integrys Energy Group | 2.40% |
Chevron Corp. | 2.31% |
Ball Corp. | 2.21% |
Capital One Financial Group | 2.17% |
Intel Corp. | 2.11% |
6 Semi-annual Report • June 30, 2007
Portfolio Manager Review (continued)
MADISON MOSAIC MID-CAP
An interview with Rich Eisinger, co-manager of Madison Mosaic Mid-Cap. (Photo of Rich Eisinger)
What are some of the key issues you see in today's market?
It's important to recognize that we are in the fifth year of an upswing in the economy, and in the midst of an extended bull market, particularly for small and mid-cap stocks. Over and over again we've seen that investors' awareness of risk tends to fade as a bull market lengthens. We believe we've reached a point where risk isn't sufficiently accounted for in the investment equation or overall market valuations. One of the key underlying factors behind the continued rise in mid-cap stocks has been private equity activity—hardly a day goes by without headline news of an acquisition or buy-out. Three key elements have been driving the LBO activity:
1. Cheap and available credit. In other words, low rates and an appetite among investors to buy the debt required for these transactions.
2. Strong corporate fundamentals. Without strong corporate fundamentals and high margins, these deals don't make economic sense. With profit margins near all-time highs, risk is not always properly being assessed.
3. Strong IPO markets. One of the motivations for taking a company private is the potential for a lucrative initial public offering down the road.
The longer this bull market continues, we believe one or more of these conditions will likely begin to dissipate. We can't predict when this will happen, but we've already seen bond investors shift their risk awareness in the wake of the subprime loan crisis, and this alone could be the start of a drying up of easy credit. If any of the threats to these conditions becomes a reality, we could see meaningful pullbacks in mid-cap stocks that have benefited from takeover speculation. We're also highly conscious of the quality and predictability of the earnings of our companies, because we believe cyclical and speculative companies, many of which have seen tremendous runs, will be most at risk if we see the private equity activity dissipate.
Madison Mosaic Equity Trust 7
Portfolio Manager Review (continued)
How would you characterize the performance of the Mid-Cap Fund so far in 2007?
The Mid-Cap Fund returned 10.05% for the first half of 2007, which outpaced the overall market, as measured by the S&P 500's 6.96%, as well as our benchmark, the Russell Midcap(R) Index, which advanced 9.90%. It was a good period for mid-cap stocks in general, and core strategies in particular, as our peer group, as represented by the Lipper Mid-Cap Core Index, advanced 11.09%. This was a tough period for us to keep up with the market, as cyclicals and lower-quality stocks led the way, and we were quite pleased with our results considering the investment environment.
Did you make any significant changes to the portfolio since December 31, 2006?
We sell a position for one of three main reasons: valuation appears full, a better opportunity exists elsewhere, or our original thesis for holding the stock is no longer intact. Over this period, asset manager Janus was sold on our valuation assessment, as the stock rallied quickly over improving business metrics. In other cases, shifts in the fundamentals caused us to reevaluate our holdings. For instance, Cintas' uniform rental business continues to face significant headwinds as core customers shift their labor forces overseas. Internal changes can also spark a re-evaluation of a holding, and we sold insurer Mercury General over pricing concerns in the highly competitive auto insurance industry.
TOP TEN STOCK HOLDINGS AS OF JUNE 30, 2007 FOR MADISON MOSAIC MID-CAP
% of net assets | |
Clorox Company | 3.97% |
Markel Corp. | 3.87% |
O'Reilly Automotive, Inc. | 3.46% |
White Mountains Insurance Group | 3.42% |
Charles River Laboratories | 3.39% |
Washington Group International, Inc. | 3.26% |
Synovus Financial Corp. | 3.11% |
Brookfield Asset Management | 3.10% |
Iron Mountain Inc.. | 3.10% |
Mohawk Industries Inc. | 3.01% |
8 Semi-annual Report • June 30, 2007
Portfolio Manager Review (concluded)
What holdings were the strongest contributors to fund performance?
In terms of sectors, we saw our best returns from our Consumer Discretionary and Financial holdings followed by Technology. We had particularly strong stock selection in the Consumer Discretionary Sector, fueled by solid performance form Discovery Holding, Liberty Global, Mohawk Industries and Tiffany. Our sole Energy Sector holding, Unit Corporation, was up strongly, and Charles River and Waters were strong Health Care performers. Although the Financial Sector as a whole suffered from the effects of the sub-prime loan crisis, we had very little exposure to firms with direct involvement, and saw strong double-digit returns from Brookfield Asset Management and Odyssey Re Holdings. In technology FLIR Systems had the best returns in our portfolio, while Linear Technology shares benefited from the announcement of a huge share buyback.
What holdings were the largest constraints on performance?
Our underweighting in the leading Energy and Materials Sectors hurt us this period, as cyclicals continued their strong performance. We tend to limit cyclical stocks, because few of them can demonstrate the sort of predictable cash flow we require. Individual holdings which had disappointing six-month results included Sysco Corp., which we sold and Autoliv.
Madison Mosaic Equity Trust 9
Madison Mosaic Equity Trust June 30, 2007
Investors Fund - Portfolio of Investments (unaudited)
NUMBER OF SHARES |
| |
COMMON STOCKS: 90.8% of net assets | ||
CONSUMER DISCRETIONARY: 7.7% | ||
Best Buy Co. Inc. | 96,160 | $ 4,487,787 |
McDonald's Corp. | 85,720 | 4,351,147 |
Target Corp. | 86,640 | 5,510,304 |
CONSUMER STAPLES: 10.7% | ||
Coca-Cola Co. | 114,855 | 6,008,065 |
Sysco Corp. | 111,265 | 3,670,632 |
Walgreen Co. | 104,795 | 4,562,774 |
Wal-Mart Stores Inc. | 116,340 | 5,597,117 |
FINANCIAL SERVICES: 13.5% | ||
Capital One Financial Corp. | 77,095 | 6,047,332 |
Citigroup Inc. | 147,495 | 7,565,019 |
Morgan Stanley | 70,375 | 5,903,055 |
Wells Fargo & Co. | 157,955 | 5,555,277 |
HEALTH CARE: 15.6% | ||
Charles River Laboratories* | 111,000 | 5,729,820 |
Johnson & Johnson | 123,855 | 7,631,945 |
Novartis AG - ADR | 152,755 | 8,564,973 |
UnitedHealth Group | 138,220 | 7,068,571 |
INDUSTRIAL: 14.1% | ||
3M Company | 65,190 | 5,657,840 |
Dover Corp. | 128,365 | 6,565,870 |
General Electric Co. | 225,480 | 8,631,374 |
United Parcel Service - CL B | 72,375 | 5,283,375 |
INSURANCE: 12.4% | ||
AFLAC Inc. | 95,050 | 4,885,570 |
Berkshire Hathaway Inc.- CL B* | 2,300 | 8,291,500 |
MGIC Investment Corp. | 83,095 | 4,724,782 |
Marsh & McLennan Co. | 161,515 | 4,987,583 |
MEDIA & ENTERTAINMENT: 4.4% | ||
Comcast Corp. - Special CL A* | 158,805 | 4,440,188 |
Liberty Media Interactive - CL A* | 166,597 | 3,720,111 |
TECHNOLOGY: 12.4% | ||
Cisco Systems Inc.* | 278,130 | 7,745,921 |
Fiserv Inc.* | 67,360 | 3,826,048 |
Linear Technology Corp. | 96,975 | 3,508,556 |
Microsoft Corp. | 268,480 | 7,912,105 |
TOTAL COMMON STOCKS (Cost $147,674,336) | $168,434,641 | |
REPURCHASE AGREEMENT: 9.1% of net assets With Morgan Stanley and Company issued 6/29/07 at 4.10%, due 7/2/07, collateralized by $17,363,670 in United States Treasury Notes due 11/15/12. Proceeds at maturity are $16,945,788 (Cost $16,940,000). | 16,940,000 | |
TOTAL INVESTMENTS: 99.9% of net assets (Cost $164,614,336) | $185,374,641 | |
CASH AND RECEIVABLES LESS LIABILITIES: 0.1% of net assets | 114,855 | |
NET ASSETS: 100% | $185,489,496 |
*Non-income producing
The Notes to Financial Statements are an integral part of these statements.
10 Semi-annual Report • June 30, 2007
Madison Mosaic Equity Trust June 30, 2007
Balanced Fund - Portfolio of Investments (unaudited)
NUMBER |
| |
COMMON STOCKS: 61.2% of net assets | ||
CONSUMER DISCRETIONARY: 5.2% | ||
Best Buy Co. Inc. | 5,630 | $ 262,752 |
McDonald's Corp. | 4,160 | 211,162 |
Target Corp. | 4,515 | 287,154 |
CONSUMER STAPLES: 7.2% | ||
Coca-Cola Co. | 6,440 | 336,876 |
Sysco Corp. | 5,765 | 190,187 |
Walgreen Co. | 5,795 | 252,314 |
Wal-Mart Stores Inc. | 5,925 | 285,052 |
FINANCIAL SERVICES: 8.9% | ||
Capital One Financial Corp. | 3,910 | 306,700 |
Citigroup Inc. | 7,695 | 394,677 |
Morgan Stanley | 3,505 | 293,999 |
Wells Fargo & Co. | 8,960 | 315,123 |
HEALTH CARE: 10.6% | ||
Charles River Laboratories* | 5,880 | 303,526 |
Johnson & Johnson | 7,020 | 432,572 |
Novartis AG - ADR | 8,620 | 483,323 |
UnitedHealth Group | 6,695 | 342,382 |
INDUSTRIAL: 9.3% | ||
3M Company | 3,905 | 338,915 |
Dover Corp. | 5,400 | 276,210 |
General Electric Co. | 11,452 | 438,383 |
United Parcel Service - CL B | 4,375 | 319,375 |
INSURANCE: 8.6% | ||
AFLAC Inc. | 5,270 | 270,878 |
Berkshire Hathaway Inc.- CL B* | 130 | 468,650 |
MGIC Investment Corp. | 4,650 | 264,399 |
Marsh & McLennan Co. | 8,405 | 259,547 |
MEDIA & ENTERTAINMENT: 3.0% | ||
Comcast Corp. - Special CL A* | 8,802 | 246,104 |
Liberty Media Interactive - CL A* | 8,820 | 196,951 |
TECHNOLOGY: 8.4% | ||
Cisco Systems Inc.* | 15,405 | 429,029 |
Fiserv Inc.* | 3,595 | 204,196 |
Linear Technology Corp. | 5,475 | 198,086 |
Microsoft Corp. | 13,640 | 401,971 |
TOTAL COMMON STOCKS (Cost $7,563,007) | $ 9,010,493 | |
PRINCIPAL AMOUNT | VALUE | |
DEBT INSTRUMENTS: 34.0% of net assets | ||
CORPORATE OBLIGATIONS: 13.2% | ||
CONSUMER GOODS: 2.0% | ||
Costco Wholesale Corp., 5.3%, 3/15/12 | $100,000 | $ 99,353 |
Wal-Mart Stores, Inc., 4.75%, 8/15/10 | 200,000 | 196,502 |
CONSUMER STAPLES: 0.6% | ||
Kraft Foods, Inc., 5.625%, 11/1/11 | 100,000 | 99,311 |
ENERGY: 1.1% | ||
Valero Energy Corp., 6.875%, 4/15/12 | 150,000 | 157,244 |
FINANCIALS: 3.6% | ||
American Express, 4.875%, 7/15/13 | 150,000 | 144,944 |
Goldman Sachs, 7.35%, 10/1/09 | 180,000 | 187,405 |
International Lease Finance, 4.875%, 9/1/10 | 200,000 | 196,211 |
HEALTH CARE: 1.3% | ||
UnitedHealth Group, 5%, 8/15/14 | 200,000 | 191,302 |
MEDIA & ENTERTAINMENT: 1.4% | ||
Comcast Cable, 6.2%, 11/15/08 | 200,000 | 201,652 |
The Notes to Financial Statements are an integral part of these statements.
Madison Mosaic Equity Trust 11
Balanced Fund Portfolio of Investments June 30, 2007 (concluded)
PRINCIPAL AMOUNT | VALUE | |
TECHNOLOGY: 0.7% | ||
Cisco Systems, Inc., 5.25%, 2/22/11 | $100,000 | 99,481 |
TELECOMMUNICATIONS: 2.5% | ||
AT & T Broadband, 8.375%, 3/15/13 | 200,000 | 223,518 |
Verizon New England, 6.5%, 9/15/11 | 150,000 | 154,096 |
US TREASURY & AGENCY OBLIGATIONS: 20.8% | ||
Fannie Mae, 3.25%, 8/15/08 | 400,000 | 391,377 |
Fannie Mae, 6.625%, 11/15/10 | 200,000 | 208,846 |
Fannie Mae, 4.625%, 10/15/13 | 125,000 | 120,265 |
Federal Home Loan Bank, 4.375% 9/17/10 | 300,000 | 293,016 |
Freddie Mac, 4.875%, 11/15/13 | 150,000 | 146,306 |
US Treasury Note, 4.0%, 3/15/10 | 550,000 | 537,926 |
US Treasury Note, 5.125%, 6/30/11 | 480,000 | 483,788 |
US Treasury Note, 4.875%, 2/15/12 | 150,000 | 149,859 |
US Treasury Note, 4.0%, 11/15/12 | 200,000 | 191,797 |
US Treasury Note, 4.0%, 2/15/14 | 250,000 | 236,739 |
US Treasury Note, 4.25%, 8/15/14 | 160,000 | 153,100 |
US Treasury Note, 4.5%, 5/15/17 | 150,000 | 143,859 |
TOTAL DEBT INSTRUMENTS (Cost $5,076,858) | $ 5,007,897 | |
| VALUE | |
REPURCHASE AGREEMENT: 4.3% of net assets With Morgan Stanley and Company issued 6/29/07 at 4.10%, due 7/2/07, collateralized by $642,681 in United States Treasury Notesdue 11/15/12. Proceeds at maturity are $627,214 (Cost $627,000). | 627,000 | |
TOTAL INVESTMENTS: 99.5% of net assets (Cost $13,266,865) | $14,645,390 | |
CASH AND RECEIVABLES LESS LIABILITIES: 0.5% of net assets | 70,705 | |
NET ASSETS: 100% | $14,716,095 |
*Non-income producing
The Notes to Financial Statements are an integral part of these statements.
12 Semi-annual Report • June 30, 2007
Madison Mosaic Equity Trust June 30, 2007
Foresight Fund - Portfolio of Investments (unaudited)
NUMBER OF SHARES |
| |
COMMON STOCKS: 95.0% of net assets | ||
BANKS: 5.0% | ||
Bank of New York Co. | 1,650 | $ 68,376 |
Capital One Financial Corp. | 1,265 | 99,227 |
Synovus Financial Corp. | 2,000 | 61,400 |
CONSUMER DISCRETIONARY: 7.0% | ||
Best Buy Co. Inc. | 2,050 | 95,674 |
Fortune Brands Inc. | 475 | 39,126 |
McDonald's Corp. | 1,015 | 51,521 |
O'Reilly Automotive Inc.* | 1,885 | 68,897 |
Target Corp. | 1,025 | 65,190 |
CONSUMER STAPLES: 8.9% | ||
Clorox Co. | 925 | 57,441 |
Coca-Cola Co. | 1,345 | 70,357 |
Procter & Gamble Co. | 900 | 55,071 |
Sysco Corp. | 1,635 | 53,939 |
Walgreen Co. | 2,025 | 88,169 |
Wal-Mart Stores Inc. | 1,655 | 79,622 |
ENERGY: 10.0% | ||
Apache Corp. | 780 | 63,640 |
Chevron Corp. | 1,250 | 105,300 |
Exxon Mobil Corp. | 1,420 | 119,110 |
Schlumberger LTD | 865 | 73,473 |
Transocean Inc.* | 890 | 94,322 |
FINANCIAL SERVICES: 5.5% | ||
Citigroup Inc. | 1,825 | 93,604 |
Morgan Stanley | 950 | 79,686 |
Wells Fargo & Co. | 2,260 | 79,484 |
HEALTH CARE: 11.4% | ||
Charles River Laboratories* | 1,730 | 89,303 |
Genzyme Corp.* | 1,105 | 71,162 |
Johnson & Johnson | 1,500 | 92,430 |
Novartis AG - ADR | 2,285 | 128,120 |
UnitedHealth Group | 1,650 | 84,381 |
Waters Corp.* | 900 | 53,424 |
INDUSTRIAL: 10.9% | ||
3M Company | 980 | 85,054 |
Dover Corp. | 2,145 | 109,717 |
General Electric Co. | 3,765 | 144,124 |
Illinois Tool Works | 1,620 | 87,788 |
United Parcel Service - CL B | 950 | 69,350 |
INSURANCE: 9.9% | ||
AFLAC Inc. | 1,350 | 69,390 |
American International Group | 1,180 | 82,635 |
Berkshire Hathaway Inc.- CL B* | 25 | 90,125 |
MGIC Investment Corp. | 1,155 | 65,673 |
Markel Corp.* | 135 | 65,416 |
Marsh & McLennan Co. | 2,500 | 77,200 |
MATERIALS: 3.2% | ||
AptarGroup Inc. | 1,250 | 44,450 |
Ball Corp. | 1,900 | 101,023 |
MEDIA & ENTERTAINMENT: 2.8% | ||
Comcast Corp. - Special CL A* | 1,432 | 40,039 |
International Game Technology | 1,190 | 47,243 |
Liberty Media Interactive - CL A* | 1,866 | 41,668 |
TECHNOLOGY: 14.9% | ||
Cisco Systems, Inc.* | 3,195 | 88,981 |
eBay Inc.* | 1,800 | 57,924 |
Fiserv Inc.* | 800 | 45,440 |
FLIR Systems Inc.* | 1,850 | 85,562 |
Intel Corp. | 4,050 | 96,228 |
International Business Machines Corp. | 750 | 78,938 |
Linear Technology Corp. | 1,725 | 62,411 |
Microsoft Corp. | 3,730 | 109,923 |
Zebra Technologies Corp. - CL A* | 1,460 | 56,560 |
TELECOMMUNICATIONS: 3.1% | ||
AT & T Corp. | 2,000 | 83,000 |
America Movil-ADR | 950 | 58,833 |
UTILITIES: 2.4% | ||
Integrys Energy Group | 2,155 | 109,323 |
TOTAL COMMON STOCKS (Cost $3,709,876) | $4,335,467 |
The Notes to Financial Statements are an integral part of these statements.
Madison Mosaic Equity Trust 13
Foresight Fund Portfolio of Investments June 30, 2007 (concluded)
VALUE | ||
REPURCHASE AGREEMENT: 5.0% of net assets With Morgan Stanley and Company issued 6/29/07 at 4.10%, due 7/2/07, collateralized by $232,677 in United States Treasury Notes due 11/15/12. Proceeds at maturity are $227,078 (Cost $227,000). | 227,000 | |
TOTAL INVESTMENTS: 100% of net assets (Cost 3,936,876) | $4,562,467 | |
CASH AND RECEIVABLES LESS LIABILITIES: 0.0% of net assets | 1,968 | |
NET ASSETS: 100% | $4,564,435 |
*Non-income producing
The Notes to Financial Statements are an integral part of these statements.
14 Semi-annual Report • June 30, 2007
Madison Mosaic Equity Trust June 30, 2007
Mid-Cap Fund - Portfolio of Investments (unaudited)
NUMBER OF SHARES |
| |
COMMON STOCKS: 90.4% of net assets | ||
BANKS: 3.1% | ||
Synovus Financial Corp. | 153,197 | $4,703,148 |
CONSUMER DISCRETIONARY: 15.7% | ||
Cabela's Inc. - CL A* | 183,929 | 4,070,349 |
CarMax Inc.* | 86,634 | 2,209,167 |
Discovery Holding Co. - CL A* | 163,971 | 3,769,693 |
Mohawk Industries Inc.* | 45,170 | 4,552,684 |
O'Reilly Automotive Inc.* | 143,228 | 5,234,983 |
Tiffany & Company | 72,863 | 3,866,111 |
CONSUMER STAPLES: 4.0% | ||
Clorox Company | 96,774 | 6,009,665 |
ENERGY: 2.8% | ||
Unit Corp.* | 67,975 | 4,276,307 |
FINANCIAL SERVICES: 5.9% | ||
Brookfield Asset Management | 117,676 | 4,695,272 |
SEI Investments Co. | 145,404 | 4,222,532 |
HEALTH CARE: 16.5% | ||
Charles River Laboratories* | 99,385 | 5,130,254 |
Coventry Health Care Inc.* | 67,653 | 3,900,195 |
Laboratory Corp of America Holdings* | 56,559 | 4,426,307 |
Patterson Companies Inc.* | 114,367 | 4,262,458 |
Techne Corp.* | 50,559 | 2,892,480 |
Waters Corp.* | 72,071 | 4,278,135 |
INDUSTRIAL: 14.5% | ||
Autoliv Inc. | 61,436 | 3,493,865 |
Dover Corp. | 84,085 | 4,300,948 |
Iron Mountain Inc.* | 179,282 | 4,684,639 |
Washington Group International Inc.* | 61,571 | 4,926,296 |
Waste Management Inc. | 116,530 | 4,550,497 |
INSURANCE: 11.7% | ||
Brown & Brown Inc. | 172,242 | 4,330,164 |
Markel Corp.* | 12,097 | 5,861,722 |
Odyssey Reinsurance Holdings Corp. | 55,630 | 2,385,971 |
White Mountains Insurance Group | 8,533 | 5,171,169 |
MEDIA & ENTERTAINMENT: 6.4% | ||
EW Scripps Co. - CL A | 69,787 | 3,188,568 |
International Game Technology | 100,601 | 3,993,860 |
Liberty Global Inc. - Series C* | 65,650 | 2,580,045 |
TECHNOLOGY: 9.8% | ||
Fiserv Inc.* | 63,636 | 3,614,525 |
FLIR Systems Inc.* | 83,726 | 3,872,328 |
Linear Technology Corp. | 76,414 | 2,764,659 |
Zebra Technologies Corp. - CL A* | 117,168 | 4,539,088 |
TOTAL COMMON STOCKS (Cost $108,438,791) | $136,758,084 | |
REPURCHASE AGREEMENT: 9.8% of net assets With Morgan Stanley and Company issued 6/29/07 at 4.10%, due 7/2/07, collateralized by $15,244,974 in United States Treasury Notes due 11/15/12. Proceeds at maturity are $14,878,082 (Cost $14,873,000). | 14,873,0000 | |
TOTAL INVESTMENTS: 100.2% of net assets (Cost 123,311,791) | $151,631,084 | |
LIABILITIES LESS CASH AND RECEIVABLES: (0.2)% of net assets | (342,797) | |
NET ASSETS: 100% | $151,288,287 |
*Non-income producing
The Notes to Financial Statements are an integral part of these statements.
Madison Mosaic Equity Trust 15
Madison Mosaic Equity Trust June 30, 2007
Statements of Assets and Liabilities (unaudited)
Investors Fund | Balanced Fund | Foresight Fund | Mid-Cap Fund | |
ASSETS | ||||
Investments, at value (Notes 1 and 2) | ||||
Investment securities | $168,434,641 | $14,018,390 | $4,335,467 | $136,758,084 |
Repurchase agreements | 16,940,000 | 627,000 | 227,000 | 14,873,000 |
Total investments* | 185,374,641 | 14,645,390 | 4,562,467 | 151,631,084 |
Cash | 226 | 472 | 502 | 107 |
Receivables | ||||
Dividends and interest | 106,044 | 81,459 | 2,465 | 43,537 |
Capital shares sold | 63,461 | 291 | 1,106 | 306,156 |
Total assets | 185,544,372 | 14,727,612 | 4,566,540 | 151,980,884 |
LIABILITIES | ||||
Payables | ||||
Investment securities purchased | -- | -- | -- | 584,682 |
Dividends | -- | 4,534 | -- | -- |
Capital shares redeemed | 42,634 | 3,396 | -- | 94,682 |
Independent trustee fees | 3,875 | 875 | 375 | 3,875 |
Auditor fees | 8,367 | 2,712 | 1,730 | 9,358 |
Total liabilities | 54,876 | 11,517 | 2,105 | 692,597 |
NET ASSETS | $185,489,496 | $14,716,095 | $4,564,435 | $151,288,287 |
Net assets consists of: | ||||
Paid in capital | 162,222,399 | 12,809,753 | 3,780,396 | 113,447,201 |
Undistributed net investment income (loss) | 862,898 | -- | 8,737 | (91,755) |
Accumulated net realized gains | 1,643,894 | 527,817 | 149,711 | 9,613,548 |
Net unrealized appreciation on investments | 20,760,305 | 1,378,525 | 625,591 | 28,319,293 |
Net Assets | $185,489,496 | $14,716,095 | $4,564,435 | $151,288,287 |
CAPITAL SHARES OUTSTANDING | ||||
An unlimited number of capital shares, without par value, are authorized (Note 7) | 8,880,087 | 795,330 | 303,177 | 10,543,871 |
NET ASSET VALUE PER SHARE | $20.89 | $18.50 | $15.06 | $14.35 |
*INVESTMENT SECURITIES, AT COST | $164,614,336 | $13,266,865 | $3,936,876 | $123,311,791 |
The Notes to Financial Statements are an integral part of these statements.
16 Semi-annual Report • June 30, 2007
Madison Mosaic Equity Trust
Statements of Operations (unaudited)
For the six-months ended June 30, 2007
Investors Fund | Balanced Fund | Foresight Fund | Mid-Cap Fund | |
INVESTMENT INCOME (Note 1) | ||||
Interest income | $ 400,048 | $130,713 | $ 5,139 | $ 318,502 |
Dividend income | 1,292,644 | 77,972 | 30,600 | 532,598 |
Other income | 1,981 | -- | -- | 728 |
Total investment income | 1,694,673 | 208,685 | 35,739 | 851,828 |
EXPENSES (Notes 3 and 5) | ||||
Investment advisory fees | 619,182 | 58,374 | 16,133 | 565,155 |
Other expenses: | ||||
Service agreement fees | 196,476 | 31,912 | 8,389 | 361,320 |
Independent trustee fees | 7,750 | 1,750 | 750 | 7,750 |
Auditor fees | 8,367 | 2,712 | 1,730 | 9,358 |
Total other expenses | 212,593 | 36,374 | 10,869 | 378,428 |
Total expenses | 831,775 | 94,748 | 27,002 | 943,583 |
NET INVESTMENT INCOME (LOSS) | 862,898 | 113,937 | 8,737 | (91,755) |
REALIZED AND UNREALIZED GAIN ON INVESTMENTS | ||||
Net realized gain on investments | 1,130,765 | 420,250 | 126,993 | 7,951,606 |
Change in net unrealized appreciation (depreciation) of investments | 969,802 | (330,856) | 160,431 | 4,842,621 |
NET GAIN ON INVESTMENTS | 2,100,567 | 89,394 | 287,424 | 12,794,227 |
TOTAL INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $2,963,465 | $203,331 | $296,161 | $12,702,472 |
The Notes to Financial Statements are an integral part of these statements.
Madison Mosaic Equity Trust 17
Madison Mosaic Equity Trust
Statements of Changes in Net Assets
For the periods indicated
Investors Fund | Balanced Fund | |||
(unaudited) Six-Months Ended | Year Ended December 31, | (unaudited) Six-Months Ended | Year Ended December 31, | |
2007 | 2006 | 2007 | 2006 | |
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | ||||
Net investment income | $ 862,898 | $ 741,396 | $ 113,937 | $ 203,858 |
Net realized gain on investments | 1,130,765 | 8,530,636 | 420,250 | 716,180 |
Net unrealized appreciation (depreciation) on investments | 969,802 | 11,260,609 | (330,856) | 943,368 |
Total increase in net assets resulting from operations | 2,963,465 | 20,532,641 | 203,331 | 1,863,406 |
DISTRIBUTIONS TO SHAREHOLDERS | ||||
From net investment income | -- | (779,092) | (113,937) | (203,858) |
From net capital gains | -- | (10,320,298) | -- | (717,960) |
Total distributions | -- | (11,099,390) | (113,937) | (921,818) |
CAPITAL SHARE TRANSACTIONS (Note 7) | 5,664,568 | 37,089,080 | (1,640,253) | (2,188,704) |
TOTAL INCREASE (DECREASE) IN NET ASSETS | 8,628,033 | 46,522,331 | (1,550,859) | (1,247,116) |
NET ASSETS | ||||
Beginning of period | $176,861,463 | $130,339,132 | $16,266,954 | $17,514,070 |
End of period | $185,489,496 | $176,861,463 | $14,716,095 | $16,266,954 |
The Notes to Financial Statements are an integral part of these statements.
18 Semi-annual Report • June 30, 2007
Statements of Changes in Net Assets (concluded)
Foresight Fund | Mid-Cap Fund | |||
(unaudited) Six-Months Ended | Year Ended December 31, | (unaudited) Six-Months Ended | Year Ended December 31, | |
2007 | 2006 | 2007 | 2006 | |
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | ||||
Net investment income (loss) | $ 8,737 | $ 20,281 | $ (91,755) | $ (252,938) |
Net realized gain on investments | 126,993 | 150,988 | 7,951,606 | 7,043,965 |
Net unrealized appreciation (depreciation) on investments | 160,431 | 431,947 | 4,842,621 | 14,972,935 |
Total increase in net assets resulting from operations | 296,161 | 603,216 | 12,702,472 | 21,763,962 |
DISTRIBUTIONS TO SHAREHOLDERS | ||||
From net investment income | -- | (20,281) | -- | -- |
From net capital gains | -- | (163,253) | -- | (9,583,675) |
Total distributions | -- | (183,534) | -- | (9,583,675) |
CAPITAL SHARE TRANSACTIONS (Note 7) | 186,818 | 53,416 | (8,535,982) | (11,324,454) |
TOTAL INCREASE IN NET ASSETS | 482,979 | 473,098 | 4,166,490 | 855,833 |
NET ASSETS | ||||
Beginning of period | $4,081,456 | $3,608,358 | $147,121,797 | $146,265,964 |
End of period | $4,564,435 | $4,081,456 | $151,288,287 | $147,121,797 |
The Notes to Financial Statements are an integral part of these statements.
Madison Mosaic Equity Trust 19
Madison Mosaic Equity Trust
Financial Highlights
Selected data for a share outstanding for the periods indicated.
INVESTORS FUND
(unaudited) Six-Months Ended | Year Ended December 31, | ||||
2007 | 2006 | 2005 | 2004 | 2003 | |
Net asset value, beginning of year | $20.57 | $18.81 | $20.82 | $18.79 | $15.42 |
Investment operations: | |||||
Net investment income | 0.10 | 0.09 | 0.06 | 0.13 | 0.04 |
Net realized and unrealized gain (loss) on investments | 0.22 | 3.02 | (0.62) | 2.03 | 3.37 |
Total from investment operations | 0.32 | 3.11 | (0.56) | 2.16 | 3.41 |
Less distributions: | |||||
From net investment income | -- | (0.09) | (0.06) | (0.13) | (0.04) |
From net capital gains | -- | (1.26) | (1.39) | -- | -- |
Total distributions | -- | (1.35) | (1.45) | (0.13) | (0.04) |
Net asset value, end of year | $20.89 | $20.57 | $18.81 | $20.82 | $18.79 |
Total return (%) | 1.56 | 16.55 | (2.81) | 11.49 | 22.14 |
Ratios and supplemental data | |||||
Net assets, end of year (in thousands) | $185,490 | $176,861 | $130,339 | $164,121 | $124,963 |
Ratio of expenses to average net assets (%) | 0.911 | 0.95 | 0.94 | 0.88 | 0.88 |
Ratio of net investment income to average net assets (%) | 0.941 | 0.55 | 0.29 | 0.70 | 0.27 |
Portfolio turnover (%) | 15 | 52 | 41 | 40 | 29 |
BALANCED FUND
(unaudited) Six-Months Ended | Year Ended December 31, | ||||
2007 | 2006 | 2005 | 2004 | 2003 | |
Net asset value, beginning of year | $18.39 | $17.40 | $19.51 | $18.22 | $15.98 |
Investment operations: | |||||
Net investment income | 0.14 | 0.23 | 0.18 | 0.20 | 0.19 |
Net realized and unrealized gain (loss) on investments | 0.11 | 1.84 | (0.60) | 1.29 | 2.24 |
Total from investment operations | 0.25 | 2.07 | (0.42) | 1.49 | 2.43 |
Less distributions: | |||||
From net investment income | (0.14) | (0.23) | (0.18) | (0.20) | (0.19) |
From net capital gains | -- | (0.85) | (1.51) | -- | -- |
Total distributions | (0.14) | (1.08) | (1.69) | (0.20) | (0.19) |
Net asset value, end of year | $18.50 | $18.39 | $17.40 | $19.51 | $18.22 |
Total return (%) | 1.36 | 11.96 | (2.16) | 8.19 | 15.29 |
Ratios and supplemental data | |||||
Net assets, end of year (in thousands) | $14,716 | $16,267 | $17,514 | $26,398 | $24,411 |
Ratio of expenses to average net assets (%) | 1.211 | 1.22 | 1.21 | 1.20 | 1.20 |
Ratio of net investment income to average net assets (%) | 0.401 | 1.24 | 0.88 | 1.06 | 1.01 |
Portfolio turnover (%) | 24 | 35 | 34 | 38 | 43 |
The Notes to Financial Statements are an integral part of these statements.
20 Semi-annual Report • June 30, 2007
Financial Highlights (concluded)
Selected data for a share outstanding for the periods indicated.
FORESIGHT FUND
(unaudited) Six-Months Ended | Year Ended December 31, | ||||
2007 | 2006 | 2005 | 2004 | 2003 | |
Net asset value beginning of year | $14.07 | $12.61 | $13.38 | $12.59 | $10.79 |
Investment operations: | |||||
Net investment income | 0.03 | 0.07 | 0.03 | 0.07 | 0.01 |
Net realized and unrealized gain (loss) on investments | 0.96 | 2.05 | (0.35) | 0.79 | 1.80 |
Total from investment operations | 0.99 | 2.12 | (0.32) | 0.86 | 1.81 |
Less distributions: | |||||
From net investment income | -- | (0.07) | (0.03) | (0.07) | (0.01) |
From net capital gains | -- | (0.59) | (0.42) | -- | -- |
Total distributions | -- | (0.66) | (0.45) | (0.07) | (0.01) |
Net asset value, end of year | $15.06 | $14.07 | $12.61 | $13.38 | $12.59 |
Total return (%) | 7.04 | 16.83 | (2.34) | 6.83 | 16.73 |
Ratios and supplemental data | |||||
Net assets, end of year (in thousands) | $4,564 | $4,081 | $3,608 | $4,789 | $4,741 |
Ratio of expenses to average net assets (%) | 1.241 | 1.27 | 1.25 | 1.25 | 1.25 |
Ratio of net investment income to average net assets (%) | 0.401 | 0.54 | 0.24 | 0.54 | 0.04 |
Portfolio turnover (%) | 24 | 54 | 122 | 39 | 7 |
MID-CAP FUND
(unaudited) Six-Months Ended | Year Ended December 31, | ||||
2007 | 2006 | 2005 | 2004 | 2003 | |
Net asset value beginning of year | $13.04 | $11.99 | $12.52 | $11.06 | $ 8.69 |
Investment operations: | |||||
Net investment income (loss) | (0.01) | (0.02) | (0.05) | (0.01) | (0.03) |
Net realized and unrealized gain (loss) on investments | 1.32 | 1.98 | 0.12 | 2.10 | 2.51 |
Total from investment operations | 1.31 | 1.96 | 0.07 | 2.09 | 2.48 |
Less distributions: | |||||
From net investment income | -- | -- | -- | -- | -- |
From net capital gains | -- | (0.91) | (0.60) | (0.63) | (0.11) |
Total distributions | -- | (0.91) | (0.60) | (0.63) | (0.11) |
Net asset value, end of year | $14.35 | $13.04 | $11.99 | $12.52 | $11.06 |
Total return (%) | 10.05 | 16.32 | 0.55 | 18.90 | 28.53 |
Ratios and supplemental data | |||||
Net assets, end of year (in thousands) | $151,288 | $147,122 | $146,266 | $115,809 | $54,675 |
Ratio of expenses to average net assets (%) | 1.241 | 1.25 | 1.25 | 1.24 | 1.25 |
Ratio of net investment income (loss) to average net assets (%) | (0.12)1 | (0.18) | (0.37) | (0.09) | (0.44) |
Portfolio turnover (%) | 19 | 47 | 46 | 38 | 25 |
1Annualized.
The Notes to Financial Statements are an integral part of these statements.
Madison Mosaic Equity Trust 21
Madison Mosaic Equity Trust June 30, 2007
Notes to Financial Statements
1. Summary of Significant Accounting Policies. Madison Mosaic Equity Trust (the "Trust") is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 as an open-end, investment management company. This report contains information about four separate funds (the "Funds"): the Investors Fund, Balanced Fund, Mid-Cap Fund and Foresight Fund whose objectives and strategies are described in the Trust's prospectus for the Funds. A fifth Trust portfolio, available to certain institutional investors (as defined in the portfolio's prospectus) presents its financial information in a separate report.
Securities Valuation: Securities traded on a national securities exchange are valued at their closing sale price. Repurchase agreements and other securities having maturities of 60 days or less are valued at amortized cost, which approximates market value. Securities having longer maturities, for which quotations are readily available, are valued at the mean between their closing 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. Dividend income is recorded net of applicable withholding taxes on the ex-dividend date. Other income is accrued as earned.
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 at year-end for the Investors, Mid-Cap and Foresight Funds. The Trust intends to declare and pay regular dividends quarterly on the Balanced Fund. Capital gain distributions, if any, are declared and paid annually at year-end.
The tax character of distributions paid during 2006 and 2005 were as follows:
2006 | 2005 | |
Investors Fund: | ||
Distributions paid from: | ||
Ordinary income | $ 779,092 | $ 400,000 |
Short-term capital gains | 39,328 | -- |
Long-term capital gains | 10,280,970 | 9,212,618 |
Balanced Fund: | ||
Distributions paid from: | ||
Ordinary income | $ 203,858 | $ 193,338 |
Long-term capital gains | 717,960 | 1,402,398 |
Foresight Fund: | ||
Distributions paid from: | ||
Ordinary income | $ 20,281 | $ 11,531 |
Short-term capital gains | 69,201 | -- |
Long-term capital gains | 94,052 | 149,798 |
Mid-Cap Fund: | ||
Distributions paid from: | ||
Short-term capital gains | $2,809,939 | $1,330,354 |
Long-term capital gains | 6,773,736 | 5,905,494 |
The Investors Fund, Balanced Fund, Mid-Cap Fund and Foresight Fund designate 100%, 65%, 61% and 55%, respectively, of dividends declared from net investment income and short-term capital gains during the fiscal year ended December 31, 2006 as qualified income under the Jobs and Growth Tax Relief Reconciliation Act of 2003.
As of June 30, 2007, the components of distributable earnings on a tax basis were as follows (unaudited):
Investors Fund: | |
Undistributed net investment income | $ 862,898 |
Accumulated net realized gains | 1,667,128 |
Net unrealized appreciation on investments | 20,737,071 |
$23,267,097 |
22 Semi-annual Report • June 30, 2007
Notes to Financial Statements (continued)
Balanced Fund: | |
Accumulated net realized gains | $ 535,626 |
Net unrealized appreciation on investments | 1,370,716 |
$1,906,342 | |
Foresight Fund: | |
Undistributed net investment income | $ 8,737 |
Accumulated net realized gains | 149,711 |
Net unrealized appreciation on investments | 625,591 |
$ 784,039 | |
Mid-Cap Fund: | |
Accumulated net realized gains | $ 9,521,793 |
Net unrealized appreciation on investments | 28,319,293 |
$37,841,086 |
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.
During the six-months ended June 30, 2007, permanent differences due to realized gains on redemptions in kind not recognized for tax purposes resulted in a net decrease in undistributed net realized gains of $2,017,427 with a corresponding increase in paid in surplus.
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 distribu-tion to shareholders of taxable income which will be sufficient to relieve it from all or substantially all income taxes.
As of December 31, 2006, capital loss carryovers available to offset future capital gains for federal income tax purposes is $223,424 for the Investors Fund expiring December 31, 2010. This loss was acquired through its merger with Mosaic Focus Fund on July 1, 2002 and is subject to certain limitations.
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. Investments in Repurchase Agreements. When the Funds purchase securities under agree-ments to resell, the securities are held for safekeeping by the 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. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Funds, 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. As of June 30, 2007, the Investors Fund had approximately a 46.8% interest, the Balanced Fund approximately a 1.7% interest, the Mid-Cap Fund approximately a 41.1% interest and the Foresight Fund approximately a 0.6% interest in the consolidated repurchase agreement of $36,199,000 collateralized by $37,104,338 in United States Treasury Notes. Proceeds at maturity were $36,211,368.
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. (collectively "the Advisor"), earns an advisory fee equal to 0.75% per annum of the average net assets of the Balanced, Mid-Cap and Foresight Funds and the first $100 million in the Investors Fund. The advisory fee paid by the Investors Fund is reduced to 0.60% per annum on assets over $100 million. The fees are accrued daily and are paid monthly.
Madison Mosaic Equity Trust 23
Notes to Financial Statements (continued)
4. Investment Transactions. Purchases and sales of securities (excluding short-term securities) for the six-months ended June 30, 2007 were as follows (unaudited):
Purchases | Sales | |
Investors Fund: | ||
U. S. Gov't Securities | -- | -- |
Other | $31,703,334 | $25,437,016 |
Balanced Fund: | ||
U. S. Gov't Securities | $938,690 | $441,238 |
Other | $1,800,632 | $4,062,882 |
Foresight Fund: | ||
U. S. Gov't Securities | -- | -- |
Other | $1,041,896 | $986,473 |
Mid-Cap Fund: | ||
U. S. Gov't Securities | -- | -- |
Other | $27,108,303 | $44,056,635 |
Included in sales for the Mid-Cap Fund is $10,254,528 representing the value of securities distributed as in-kind payment of redemptions, resulting in realized gains of $2,017,427.
5. Other Expenses. Under a separate Services Agreement, the Advisor will provide or arrange for each Fund to have all other necessary operational and support services for a fee based on a percentage of average net assets. These fees are accrued daily and paid monthly. This percentage is 0.41% for the Balanced Fund and 0.39% for the Foresight Fund. For the Investors Fund, this fee is 0.23% on the first $100 million and 0.20% on all assets greater than $100 million. For the Mid-Cap Fund, this fee is 0.48% on the first $150 million and 0.45% on all assets greater than $150 million.
The Funds pay the expenses of the Funds' Independent Trustees directly. For the six-months ended June 30, 2007, these fees were $7,750, $1,750, $7,750 and $750 for the Investors, Balanced, Mid-Cap and Foresight Funds, respectively.
The Funds also pay the expenses of the Funds' Independent auditors directly. For the six-months ended June 30, 2007, the amounts accrued for these fees were $8,367, $2,712, $9,358 and $1,730 for the Investors, Balanced, Mid-Cap and Foresight Funds, respectively.
6. Aggregate Cost and Unrealized Appreciation (Depreciation). The aggregate cost for federal income tax purposes and the net unrealized appreciation (depreciation) are as follows as of June 30, 2007 (unaudited):
Investors Fund | Balanced Fund | Foresight Fund | Mid-Cap Fund | |
Aggregate Cost | $164,637,570 | $13,274,674 | $3,936,876 | $123,311,791 |
Gross unrealized appreciation | 21,381,198 | 1,484,801 | 647,679 | 28,910,775 |
Gross unrealized depreciation | (644,127) | (114,085) | (22,088) | (591,482) |
Net unrealized appreciation | $ 20,737,071 | $ 1,370,716 | $ 625,591 | $ 28,319,293 |
7. Capital Share Transactions. An unlimited number of capital shares, without par value, are authorized. Transactions in capital shares were as follows:
(unaudited) | Year Ended December 31, | |
Investors Fund | 2007 | 2006 |
In Dollars | ||
Shares purchased | $26,878,853 | $68,763,275 |
Shares issued in reinvestment of dividends | -- | 10,896,065 |
Total shares issued | 26,878,853 | 79,659,340 |
Shares redeemed | (21,214,285) | (42,570,260) |
Net increase | $ 5,664,568 | $37,089,080 |
24 Semi-annual Report • June 30, 2007
Notes to Financial Statements (continued)
(unaudited) | Year Ended December 31, | |
Investors Fund (cont) | 2007 | 2006 |
In Shares | ||
Shares purchased | 1,310,437 | 3,277,120 |
Shares issued in reinvestment of dividends | -- | 530,222 |
Total shares issued | 1,310,437 | 3,807,342 |
Shares redeemed | (1,029,840) | (2,138,503) |
Net increase | 280,597 | 1,668,839 |
(unaudited) | Year Ended December 31, | |
Balanced Fund | 2007 | 2006 |
In Dollars | ||
Shares purchased | $ 403,924 | $ 511,262 |
Shares issued in reinvestment of dividends | 104,574 | 857,035 |
Total shares issued | 508,498 | 1,368,297 |
Shares redeemed | (2,148,751) | (3,557,001) |
Net decrease | $(1,640,253) | $(2,188,704) |
In Shares | ||
Shares purchased | 22,017 | 28,463 |
Shares issued in reinvestment of dividends | 5,736 | 46,763 |
Total shares issued | 27,753 | 75,226 |
Shares redeemed | (116,772) | (197,376) |
Net decrease | (89,019) | (122,150) |
(unaudited) | Year Ended December 31, | |
Foresight Fund | 2007 | 2006 |
In Dollars | ||
Shares purchased | $337,792 | $483,161 |
Shares issued in reinvestment of dividends | -- | 180,907 |
Total shares issued | 337,792 | 664,068 |
Shares redeemed | (150,974) | (610,652) |
Net increase | $186,818 | $ 53,416 |
In Shares | ||
Shares purchased | 23,589 | 37,282 |
Shares issued in reinvestment of dividends | -- | 12,858 |
Total shares issued | 23,589 | 50,140 |
Shares redeemed | (10,442) | (46,397) |
Net increase | 13,147 | 3,743 |
(unaudited) | Year Ended December 31, | |
Mid-Cap Fund | 2007 | 2006 |
In Dollars | ||
Shares purchased | $20,607,342 | $32,552,828 |
Shares issued in reinvestment of dividends | -- | 9,402,993 |
Total shares issued | 20,607,342 | 41,955,821 |
Shares redeemed | (31,160,751) | (53,280,275) |
Net decrease | $(10,553,409) | $(11,324,454) |
In Shares | ||
Shares purchased | 1,509,761 | 2,566,945 |
Shares issued in reinvestment of dividends | -- | 721,642 |
Total shares issued | 1,509,761 | 3,288,587 |
Shares redeemed | (2,248,668) | (4,208,594) |
Net decrease | (738,907) | (920,007) |
Madison Mosaic Equity Trust 25
Notes to Financial Statements (continued)
8. Line of Credit. The Investors Fund, Balanced Fund, Mid-Cap Fund and Foresight Fund have lines of credit of $35 million, $4 million, $35 million and $1 million, respectively. Each line is a revolving credit facility with a bank to be used 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 six-months ended June 30, 2007, none of the Funds borrowed on their respective lines of credit.
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"). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 was effective for the Trust on June 29, 2007. Management has concluded that there was no impact to the Trust's financial statements as a result of implementing 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.
Fund Expenses
Example: As a shareholder of one of the Funds, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including Investment advisory fees and Other expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in any Fund and to compare these costs with the ongoing costs of investing in other mutual funds. See footnotes 3 and 5 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 January 1, 2007 and held for the six-months ended June 30, 2007.
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."
26 Semi-annual Report • June 30, 2007
Notes to Financial Statements (continued)
Based on Actual Total Return1 | |||||
Actual Total Return2 | Beginning Account Value | Ending Account Value | Annualized Expense Ratio3 | Expenses Paid During the Period3 | |
Investors Fund | 1.56% | $1,000.00 | $1,015.56 | 0.91% | $4.51 |
Balanced Fund | 1.36% | $1,000.00 | $1,013.60 | 1.21% | $6.01 |
Mid-Cap Fund | 10.05% | $1,000.00 | $1,100.46 | 1.24% | $6.47 |
Foresight Fund | 7.04% | $1,000.00 | $1,070.36 | 1.24% | $6.34 |
1For the six-months ended June 30, 2007. 2Assumes reinvestment of all dividends and capital gains distributions, if any, at net asset value. 3Expenses are equal to the 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 on the next page 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 fund offered by the Trust and other Funds. To do so, compare the 5.00% hypothetical example relating to the applicable Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Based on Hypothetical Total Return1 | |||||
Hypothetical Annualized Total Return | Beginning Account Value | Ending Account Value | Annualized Expense Ratio2 | Expenses Paid During the Period2 | |
Investors Fund | 5.00% | $1,000.00 | $1,025.05 | 0.91% | $4.56 |
Balanced Fund | 5.00% | $1,000.00 | $1,025.05 | 1.21% | $6.07 |
Mid-Cap Fund | 5.00% | $1,000.00 | $1,025.05 | 1.24% | $6.23 |
Foresight Fund | 5.00% | $1,000.00 | $1,025.05 | 1.24% | $6.24 |
1For the six months ended June 30, 2007. 2Expenses are equal to the 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. |
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.
Madison Mosaic Equity Trust 27
Notes to Financial Statements (concluded)
Proxy Voting Information. 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. Additionally, information regarding how the Trust voted proxies related to portfolio securities for the period ended June 30, 2007 is available. These policies and voting information are available to you upon request and free of charge by writing to Madison Mosaic Funds, 550 Science Drive, Madison, WI 53711 or by calling toll-free at 1-800-368-3195. The Trust's proxy voting policies and voting information 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 and voting information 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 1-202-551-8090. 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 Madison 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.
28 Semi-annual Report • June 30, 2007
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
Corporate Income Shares (COINS)
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. 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
550 Science Drive
Madison, Wisconsin 53711
Madison Mosaic Funds
www.mosaicfunds.com
SEC File Number 811-3615
Semi-Annual Report (unaudited)
June 30, 2007
Madison Institutional Equity Option Fund (MADOX)
Active Equity Management combined with a Covered Call Option Strategy
Madison Investment Advisors, Inc.
www.madisonfunds.com
MADOX | Madison Institutional Equity Option Fund
Table of Contents
Portfolio Manager Review | 1 |
Overview | 1 |
Review of Period | 1 |
Performance | 2 |
Outlook | 2 |
Portfolio of Investments | 3 |
Statement of Assets and Liabilities | 6 |
Statement of Operations | 7 |
Statement of Changes in Net Assets | 8 |
Financial Highlights | 9 |
Notes to Financial Statements | 10 |
MADOX | Madison Institutional Equity Option Fund
Portfolio Manager Review
OVERVIEW
We are pleased to address the progress of Madison Institutional Equity Option Fund (MADOX) for the six month period ending June 30, 2007. The Fund returned 4.92% for the six months, compared to a 3.76% return over the same period for its benchmark, the CBOE Buywrite Monthly Index (BXM).
Introduced on April 1 of 2006, the Fund continues to pursue its investment objectives by investing in high-quality, large-capitalization common stocks that are, in our view, selling at a reasonable price with respect to their long-term earnings growth rates. Our option-writing strategy has provided a steady income return from option premiums which help achieve our goal of providing enhanced risk-adjusted returns with a secondary objective of long-term capital appreciation.
REVIEW OF PERIOD
The overall market, as measured by the S&P 500, moved steadily upward as the year began, headed into negative territory in March, and then proceeded to advance fairly steadily, hitting all-time highs in early June. The widely-followed Dow Jones Industrial Average also hit new highs. But underneath the strength of the major indices were a variety of results that were highly dependent upon industry sectors and company size.
Through June 30th, most of the market's gains were concentrated in three volatile and historically cyclical sectors: Energy, Materials and Telecommunications. Over this same period, the Financial Sector was negative while the Consumer Sectors were in low single digits.
Size was also a factor as mid-cap indices were once again top performers, while small-cap indices generally outperformed large-caps. Perhaps even more telling was the results of mega-caps, the largest companies in the U.S. The average return of the ten largest firms in the S&P 500 was 3.6%, well behind the overall Index.
Quality ratings are another market metric that is useful in understanding the wide divergence in stock performance. Standard & Poor's provides quality ratings of companies based upon quantifiable business statistics, with the steadiest and more predictable earners receive an "A+," while the lower quality companies receive "C and D" ratings. Over this six month period, A+ stocks returned 1.1%, while C&D stocks returned 9.5% and B- stocks were up 14.3%.
These quality and size-related returns reflect the nature of a market which is rife with mergers, acquisitions and private equity buyouts. In general, it is smaller, lower-quality firms which are the beneficiaries of this activity, while the largest companies are either unaffected or, as the acquiring party, may actually see price pressure on their stock as a result of a transaction.
The general economic conditions of the period closely correlate to the market characteristics cited. The Federal Reserve held interest rates steady throughout the period at a level that continued to support the liquidity needed to fuel acquisitions and buy-outs. Energy prices remained high, supporting the market-leading performance of the Energy Sector stocks, while defaults in low-quality mortgages, widely reported as the sub-prime loan crisis, put a cloud over the entire Financial Sector, whether or not a company was directly exposed to sub-prime loans. The rising cost of energy and the softness in the housing market were considered negatives for consumer stocks in general, while health care stocks were under the cloud of headline news regarding legislative and reform initiatives.
MADOX | Madison Institutional Equity Option Fund | Portfolio Manager Review | concluded
PERFORMANCE
We are pleased to report that MADOX had solid results over this period. We continued to find ample opportunities to write calls at attractive premiums. For the first half of 2007, our fund provided investors with a total return of 4.92%.
As of June 30, 2007, the Fund held 39 common stocks. Covered call options were written against 71% of the portfolio on June 30, 2007. During the first half, the Funds' managers wrote option premiums of a little over $860,000. It is the strategy of the Fund to write "out-of-the-money" options, and on June 30, 33 of the 53 active call options were still "out-of-the money." Finally, we had one active "out-of-the-money" put option.
OUTLOOK
As we move into the second half of 2007, our outlook for the economy and stock market remains generally positive, recognizing that we are in the fifth year of the second longest bull market in history. After a weak first quarter, economic growth in the second quarter was strong at about 3% real growth. Although the housing industry continues to be weak, it is offset by low unemployment and a robust global economy. For the rest of 2007, profits from foreign operations of domestic companies, likely supported by a weaker dollar, should continue to grow in the mid-to-high teens. This growth, blended with the slower 4-6% growth of domestic operations and a continuation of stock buyback programs, should fuel a healthy increase in corporate profits, even if at a slower rate than the robust growth of the past few years.
TOP TEN STOCK HOLDINGS AS OF JUNE 30, 2007 FOR MADISON INSTITUTIONAL EQUITY OPTION FUND
% of net assets | |
UnitedHealth Group | 3.45% |
Countrywide Financial Corp. | 3.33% |
Target Corp. | 3.32% |
Merrill Lynch & Co | 3.29% |
Best Buy Co. Inc. | 2.97% |
Cisco Systems Inc. | 2.95% |
Lowe's Cos Inc. | 2.93% |
Citigroup Inc. | 2.91% |
Bed Bath & Beyond Inc | 2.89% |
Intuit Inc. | 2.80% |
MADOX | Madison Institutional Equity Option Fund
Portfolio of Investments - June 30, 2007 - (unaudited)
Number of Shares | Value | |
Common Stocks - 79.5% | ||
Consumer Discretionary - 21.5% | ||
2,000 | Abercrombie & Fitch Co. - CL A | $145,960 |
5,333 | Aeropostale Inc.* | 222,279 |
14,000 | American Eagle Outfitters Inc. | 359,240 |
10,600 | Bed Bath & Beyond Inc.* | 381,494 |
8,400 | Best Buy Co. Inc. | 392,028 |
2,500 | Garmin Ltd. | 184,925 |
5,000 | Home Depot Inc. | 196,750 |
12,600 | Lowe's Cos, Inc. | 386,694 |
6,900 | Target Corp. | 438,840 |
4,300 | William-Sonoma Inc. | 135,794 |
Consumer Services: - 3.6% | ||
8,500 | eBay Inc.* | 273,530 |
7,300 | Yahoo! Inc.* | 198,049 |
Energy - 1.5% | ||
3,200 | Unit Corp.* | 201,312 |
Financials - 15.3% | ||
3,600 | Capital One Financial Corp. | 282,384 |
7,500 | Citigroup Inc. | 384,675 |
12,100 | Countrywide Financial Corp. | 439,835 |
5,000 | MGIC Investment Corp. | 284,300 |
5,200 | Merrill Lynch & Co. | 434,616 |
2,300 | Morgan Stanley | 192,924 |
Health Care - 14.2% | ||
6,400 | Amgen Inc.* | 353,856 |
1,300 | Biogen Idec Inc.* | 69,550 |
3,500 | Genentech Inc.* | 264,810 |
3,600 | Genzyme Corp.* | 231,840 |
8,000 | Pfizer Inc. | 204,560 |
8,900 | UnitedHealth Group | 455,146 |
6,900 | Varian Medical Systems Inc. | 293,319 |
Software - 7.9% | ||
7,000 | Adobe Systems Inc.* | 281,050 |
12,300 | Intuit Inc.* | 369,984 |
8,000 | Symantec Corp.* | 161,600 |
7,000 | Transactions Systems Architects Inc.* | 235,620 |
Technology - 15.5% | ||
14,000 | Cisco Systems Inc.* | $389,900 |
2,500 | Dell Inc.* | 71,375 |
23,900 | Flextronics International Ltd.* | 258,120 |
7,500 | Linear Technology Corp. | 271,350 |
4,000 | Maxim Integrated Products Inc. | 133,640 |
20,000 | QLogic Corp.* | 333,000 |
4,000 | Qualcomm Inc. | 173,560 |
7,300 | Xilinx Inc. | 195,421 |
5,900 | Zebra Technologies Corp. - CL A* | 228,566 |
| Total Long-Term Investments | |
(Cost $10,428,508) | $10,511,896 | |
Short-Term Investments - 26.5% | ||
US Treasury 3.8% | ||
US Treasury Note, 4.25%, 11/30/07 (Cost $498,823) | 498,828 | |
Repurchase Agreement - 22.7% | ||
| With Morgan Stanley and Company issued 6/29/07 at 4.10%, due 7/02/07, collateralized by $3,065,805 in United States Treasury Notes due 11/15/12. Proceeds at maturity are $2,992,022 (Cost $2,991,000). | 2,991,000 |
Total Investments - 106% | ||
(Cost $13,918,331) | 14,001,724 | |
Liabilities less cash and other assets - (0.8%) | (103,555) | |
Total Call Options Written - (5.2%) | (683,255) | |
Total Put Options Written - 0% | (3,995) | |
Net Assets - 100% | $13,201,669 |
*Non-income producing.
MADOX | Madison Institutional Equity Option Fund Portfolio of Investments (continued)
Contracts (100 shares per contract) | Call Options Written – (5.2%) of net assets | Expiration Date | Exercise Price | Market Value |
20 | Abercrombie & Fitch Co. | November 2007 | $ 72.50 | $12,500 |
70 | Adobe Systems Inc. | July 2007 | 40.00 | 7,000 |
53 | Aeropostale Inc. | July 2007 | 35.00 | 35,510 |
100 | American Eagle Outfitters Inc. | August 2007 | 30.00 | 1,250 |
64 | Amgen Inc. | October 2007 | 57.50 | 16,480 |
74 | Bed Bath & Beyond Inc. | November 2007 | 40.00 | 6,475 |
32 | Bed Bath & Beyond Inc. | February 2008 | 37.50 | 8,400 |
84 | Best Buy Co. Inc. | December 2007 | 50.00 | 19,320 |
8 | Biogen Idec Inc. | July 2007 | 50.00 | 3,080 |
5 | Biogen Idec Inc. | October 2007 | 50.00 | 2,850 |
36 | Capital One Financial Corp. | January 2008 | 70.00 | 44,640 |
78 | Cisco Systems Inc. | July 2007 | 27.50 | 5,850 |
62 | Cisco Systems Inc. | October 2007 | 27.50 | 12,090 |
80 | Countrywide Financial Corp. | July 2007 | 40.00 | 2,000 |
6 | Countrywide Financial Corp. | August 2007 | 37.50 | 990 |
35 | Countrywide Financial Corp. | October 2007 | 35.00 | 13,475 |
25 | Dell Inc. | November 2007 | 27.50 | 6,812 |
85 | eBay Inc. | January 2008 | 32.50 | 28,475 |
95 | Flextronics International Ltd. | January 2008 | 12.50 | 5,035 |
25 | Garmin Ltd. | October 2007 | 55.00 | 49,500 |
35 | Genentech, Inc. | December 2007 | 75.00 | 20,650 |
36 | Genzyme Corp. | January 2008 | 65.00 | 20,880 |
50 | Home Depot Inc. | August 2007 | 42.50 | 1,375 |
22 | Intuit Inc. | January 2008 | 30.00 | 6,380 |
101 | Intuit Inc. | January 2008 | 32.50 | 16,918 |
50 | Linear Technology Corp. | August 2007 | 35.00 | 11,000 |
25 | Linear Technology Corp. | November 2007 | 37.50 | 5,125 |
47 | Lowe's Cos Inc. | October 2007 | 32.50 | 5,170 |
79 | Lowe's Cos Inc. | January 2008 | 32.50 | 14,220 |
50 | MGIC Investment Corp. | December 2007 | 60.00 | 20,250 |
40 | Maxim Integrated Products Inc. | August 2007 | 35.00 | 4,300 |
40 | Merrill Lynch & Co. | October 2007 | 85.00 | 20,000 |
5 | Merrill Lynch & Co. | January 2008 | 85.00 | 3,450 |
23 | Morgan Stanley | January 2008 | 90.00 | 10,235 |
54 | QLogic Corp. | October 2007 | 17.50 | 4,860 |
60 | QLogic Corp. | January 2008 | 17.50 | 8,100 |
86 | QLogic Corp. | January 2008 | 20.00 | 4,730 |
40 | Qualcomm Inc. | July 2007 | 37.50 | 24,000 |
30 | Symantec Corp. | July 2007 | 20.00 | 1,725 |
50 | Symantec Corp. | October 2007 | 17.50 | 16,500 |
58 | Target Corp. | October 2007 | 60.00 | 37,990 |
11 | Target Corp. | January 2008 | 65.00 | 5,500 |
MADOX | Madison Institutional Equity Option Fund Portfolio of Investments (concluded)
Contracts (100 shares per contract) | Call Options Written – (5.2%) of net assets | Expiration Date | Exercise Price | Market Value |
70 | Transactions Systems Architects Inc. | November 2007 | $35.00 | $17,150 |
32 | Unit Corp. | September 2007 | 50.00 | 43,680 |
89 | United Health Group Inc. | January 2008 | 55.00 | 26,922 |
69 | Varian Medical Systems Inc. | August 2007 | 45.00 | 6,210 |
43 | William-Sonoma Inc. | November 2007 | 35.00 | 4,838 |
73 | Xilinx Inc. | December 2007 | 27.50 | 14,600 |
42 | Yahoo! Inc. | July 2007 | 30.00 | 945 |
31 | Yahoo! Inc. | October 2007 | 27.50 | 6,510 |
25 | Zebra Technologies Corp. - CL A | August 2007 | 35.00 | 10,750 |
20 | Zebra Technologies Corp. - CL A | August 2007 | 40.00 | 2,150 |
14 | Zebra Technologies Corp. - CL A | February 2008 | 40.00 | 4,410 |
Total Call Options Written(Premiums Received $749,122) | $683,255 | |||
Put Options Written – 0.0% of net assets (Premiums Received $3,478) | ||||
47 | American Eagle Outfitters, Inc. | August 2007 | $45.00 | $3,995 |
Total Options Written (Premiums Received $752,600) | $687,250 |
Semi-annual Report | June 30, 2007 | 5
MADOX | Madison Institutional Equity Option Fund
Statement of Assets and Liabilities - June 30, 2007 - (unaudited)
ASSETS | |
Investments, at value (Notes 1 and 2) | |
Investment securities | $10,511,896 |
Repurchase agreements | 2,991,000 |
Short-term note | 498,828 |
Total investments (cost$13,918,331) | 14,001,724 |
Cash | 771 |
Receivables | |
Investment securities sold | 149,754 |
Dividends and interest | 3,711 |
Total assets | 14,155,960 |
LIABILITIES | |
Options written, at value (premiums received of $752,600) | 687,250 |
Payables | |
Investment securities purchased | 256,422 |
Independent trustee fees | 2,250 |
Auditor fees | 7,000 |
Other expenses | 1,369 |
Total liabilities | 954,291 |
NET ASSETS | $13,201,669 |
Net assets consists of: | |
Paid in capital | 12,430,929 |
Undistributed net investment income (loss) | 43,188 |
Accumulated net realized gain on investments and options transactions | 578,809 |
Net unrealized appreciation on investments and options transactions | 148,743 |
Net Assets | $13,201,669 |
CAPITAL SHARES ISSUED AND OUTSTANDING | |
An unlimited number of capital shares, $.01 par value per share (Note 7) | 621,826 |
NET ASSET VALUE PER SHARE | $21.23 |
MADOX | Madison Institutional Equity Option Fund
Statement of Operations - For the six-months ended June 30, 2007 - (unaudited)
INVESTMENT INCOME (Note 1) | |
Interest income | $ 68,031 |
Dividend income | 31,075 |
Other income | 339 |
Total investment income | 99,445 |
EXPENSES (Notes 3 and 5) | |
Investment advisory fees | 42,634 |
Performance fulcrum fee | 2,254 |
Other expenses: | |
Service agreement fees | 1,369 |
Independent trustee fees | 3,000 |
Auditor fees | 7,000 |
Total other expenses | 11,369 |
Total expenses | 56,257 |
NET INVESTMENT INCOME | 43,188 |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | |
Net realized gain on: | |
Investments | 788,376 |
Options | 170,072 |
Net unrealized appreciation (depreciation) on: | |
Investments | (825,413) |
Options | 380,148 |
NET GAIN ON INVESTMENTS AND OPTIONS TRANSACTIONS | 513,183 |
TOTAL INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $556,371 |
Semi-annual Report | June 30, 2007 | 7
MADOX | Madison Institutional Equity Option Fund
Statement of Changes in Net Assets
(unaudited) | For the period March 31, 2006* through | |
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | ||
Net investment income | $ 43,188 | $ 49,496 |
Net realized gain on investments and options transactions | 958,448 | 288,956 |
Net unrealized depreciation on investments and options transactions | (445,265) | 594,008 |
Total increase in net assets resulting from operations | 556,371 | 932,460 |
DISTRIBUTION TO SHAREHOLDERS | ||
From net investment income | -- | (49,496) |
From net capital gains | (528,745) | (139,850) |
Total distributions | (528,745) | (189,346) |
CAPITAL SHARE TRANSACTIONS (Note 7) | 1,663,242 | 10,767,687 |
TOTAL INCREASE IN NET ASSETS | 1,690,868 | 11,510,801 |
NET ASSETS | ||
Beginning of period | $11,510,801 | $ -- |
End of period | $13,201,669 | $11,510,801 |
* Commencement of operations.
MADOX | Madison Institutional Equity Option Fund
Financial Highlights
Per Share Operating Performance for One Share Outstanding Throughout the Period
(unaudited) | For the period March 31, 2006* through | |
Net Asset Value, Beginning of Period | $21.18 | $20.00 |
Investment Operations | ||
Net investment income | 0.05 | 0.10 |
Net realized and unrealized gain on investments and options transactions | 1.00 | 1.44 |
Total from investment operations | 1.05 | 1.54 |
Less distributions from: | ||
Net investment income | -- | (0.10) |
Capital gains | (1.00) | (0.26) |
Total distributions | (1.00) | (0.36) |
Net Asset Value, End of Period | $21.23 | $21.18 |
Total Investment Return (%) | 4.92 | 7.74 |
Ratios and Supplemental Data | ||
Net assets, end of period (thousands) | $13,202 | $11,511 |
Ratio of expenses to average net assets (%)** | 0.98 | 0.94 |
Ratio of net investment Income to average net assets (%)** | 0.75 | 0.83 |
Portfolio turnover (%) | 86 | 41 |
* Commencement of operations.
**Annualized.
Semi-annual Report | June 30, 2007 | 9
MADOX | Madison Institutional Equity Option Fund
Notes to Financial Statements - June 30, 2007
Note 1 – Summary of Significant Accounting Policies.
Madison Mosaic Equity Trust (the "Trust") is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 as an open-end, investment management company. The Trust currently offers five portfolios, each of which is a diversified mutual fund. This report contains information about one of these portfolios, the Madison Institutional Equity Option Fund (the "Fund"), which commenced operations April 1, 2006. Its objectives and strategies are detailed in its prospectus. The remaining four Trust portfolios present their financial information in a separate report.
Securities Valuation: Securities traded on a national securities exchange are valued at their closing sale price. Repurchase agreements and other securities having maturities of 60 days or less are valued at amortized cost, which approximates market value. Securities having longer maturities, for which quotations are readily available, are valued at the mean between their closing 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. Exchange-traded options are valued at the mean of the best bid and best ask prices across all option exchanges.
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. Dividend income is recorded net of applicable withholding taxes on the ex-dividend date. Other income is accrued as earned.
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 at year-end for the Fund. Capital gain distributions, if any, are declared and paid annually at year-end.
The tax character of distributions paid to shareholders during 2006 was $49,496 of ordinary income and $139,850 of short-term capital gains. The Fund designates 9.93% of dividends declared from net investment income and short-term capital gains during the fiscal year ended December 31, 2006 as qualified income under the Jobs and Growth Tax Relief Reconciliation Act of 2003.
As of June 30, 2007, the components of distributable earnings on a tax basis were as follows (unaudited):
Undistributed net investment income | $43,188 |
Accumulated net realized gains | 580,598 |
Net unrealized appreciation on investments | 146,954 |
$770,740 |
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.
Income Tax: No provision is made for federal income taxes since it is the intention of the Fund 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 income taxes.
Information on the tax components of investments, excluding option contracts, as of June 30, 2007 is as follows (unaudited):
Aggregate Cost | $13,421,297 |
Gross unrealized appreciation | 340,027 |
Gross unrealized depreciation | (258,423) |
Net unrealized appreciation | $ 81,604 |
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.
Note 2 – Investments in Repurchase Agreements.
When the Fund purchases securities under agreements to resell, the securities are held for safekeeping by the 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. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having Advisory and Services Agreements with the same advisor, transfers uninvested
MADOX | Madison Institutional Equity Option Fund | Notes to Financial Statements | continued
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. As of June 30, 2007, the Fund had approximately an 8.3% interest in the consolidated repurchase agreement of $36,199,000 collateralized by $37,104,338 in United States Treasury Notes. Proceeds at maturity were $36,211,368.
Note 3 – Investment Advisory Fees and Other Transactions with Affiliates.
The investment advisor to the Fund, Madison Asset Management, LLC, a wholly owned subsidiary of Madison Investment Advisors, Inc. (collectively "the Advisor"), earns an advisory fee equal to 0.75% per annum of the average net assets of the Fund. The fee is accrued daily and is paid monthly.
Effective April 1, 2007, a fulcrum fee was added/deleted based on certain performance criteria. The Advisor earned a performance adjustment of 0.15% for the performance periods ended April 30, May 31 and June 30.
Note 4 – Investment Transaction.
Purchases and sales, excluding short-term investments for the six-months ended June 30, 2007 were $8,687,930 and $8,133,916, respectively. No U.S. Government securities were purchased or sold during the period.
Note 5 – Other Expenses.
Under a separate Services Agreement, the Advisor will provide or arrange for the Fund to have all other necessary operational and support services for a fee based on a percentage of average net assets. These fees are accrued daily and paid monthly. The Fund also pays the expenses of the Fund's Independent Trustees and auditors directly. For the six-months ended June 30, 2007, these fees amounted to $3,000 and $7,000, respectively. The combined Services Agreement fees paid to the Advisor and Independent Trustees and auditor fees may not exceed 0.20% of average net assets.
Note 6 – Covered Call Options.
The Fund will pursue its primary objective by employing an option strategy of writing (selling) covered call options on common stocks. The number of call options the Fund can write (sell) is limited by the amount of equity securities the Fund holds in its portfolio. The Fund will not write (sell) "naked" or uncovered call options. The Fund seeks to produce a high level of current income and gains generated from option writing premiums and, to a lesser extent, from dividends.
An option on a security is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the security underlying the option at a specified exercise or "strike" price. The writer of an option on a security has the obligation upon exercise of the option to deliver the underlying security upon payment of the exercise price (in the case of a call) or to pay the exercise price upon delivery of the underlying security (in the case of a put).
There are several risks associated with transactions in options on securities. As the writer of a covered call option, the Fund forgoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call but has retained the risk of loss should the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill its obligation as writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise price.
Transactions in option contracts during the six-months ended June 30, 2007 were as follows (unaudited):
Number of Contracts | Premiums Received | |
Options outstanding, beginning of period | 2,517 | $627,212 |
Options written | 2,986 | 860,258 |
Options expired | (677) | (150,063) |
Options closed | (70) | (26,879) |
Options assigned | (2,172) | (557,928) |
Options outstanding at end of period | 2,584 | $752,600 |
Note 7 – Capital Share Transactions.
An unlimited number of capital shares, without par value, are authorized. Transactions in capital shares were as follows (unaudited):
In Dollars | |
Shares purchased | $2,227,271 |
Shares issued in reinvestment of dividends | 528,745 |
Total shares issued | 2,756,016 |
Shares redeemed | (1,092,774) |
Net increase | $1,663,242 |
In Shares | |
Shares purchased | 104,579 |
Shares issued in reinvestment of dividends | 24,731 |
Total shares issued | 129,310 |
Shares redeemed | (50,941) |
Net increase | 78,369 |
Semi-annual Report | June 30, 2007 | 11
MADOX | Madison Institutional Equity Option Fund | Notes to Financial Statements | continued
Note 8 – New Accounting Pronouncements.
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"). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 was effective for the Fund on June 29, 2007. Management has concluded that there was no impact to the Fund's financial statements as a result of implementing 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.
Fund Expenses
Example: As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including Investment advisory fees and Other expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. See footnotes 3 and 5 above for an explanation of the types of costs charged by the Fund. This Example is based on an investment of $1,000 invested on January 1, 2007 and held for the six-months ended June 30, 2007.
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 | |
Madison Institutional Equity Option Fund | 4.92% | $1,000.00 | $1,049.24 | 0.98% | $5.00 |
1For the six-months ended June 30, 2007. 2Assumes reinvestment of all dividends and capital gains distributions, if any, at net asset value. 3Expenses are equal to the 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 on the next page 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 the 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 the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
12 | Semi-annual Report | June 30, 2006
MADOX | Madison Institutional Equity Option Fund | 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 | |
Madison Institutional Equity Option Fund | 5.00% | $1,000.00 | $1,025.05 | 0.98% | $4.93 |
1For the six-months ended June 30, 2007. 2Expenses are equal to the 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. |
Forward-Looking Statement Disclosure.
One of our most important responsibilities as investment company 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 Fund adopted policies that provide guidance and set forth parameters for the voting of proxies relating to securities held in the Fund. Additionally, information regarding how the Fund voted proxies related to portfolio securities, if applicable, during the period ended December 31, 2006 is available to you upon request and free of charge, by writing to Madison Institutional Equity Option Fund, 550 Science Drive, Madison, WI 53711 or by calling toll-free at 1-800-368-3195. The Fund's proxy voting policies and voting information may also be obtained by visiting the Securities and Exchange Commission web site at www.sec.gov. The Fund will respond to shareholder requests for copies of our policies and voting information within two business days of request by first-class mail or other means designed to ensure prompt delivery.
N-Q Disclosure.
The Fund 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 Fund's Forms N-Q are available on the Commission's website. The Fund'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 1-202-551-8090. Form N-Q and other information about the Fund 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 the Fund at 800-368-3195 if you would like a copy of Form N-Q and we will mail one to you at no charge.
Semi-annual Report | June 30, 2007 | 13
Madison Investment Advisors, Inc.
550 SCIENCE DRIVE
MADISON, WI 53711
1-800-767-0300
www.madisonfunds.com
SEC File # 811-03615
Item 2. Code of Ethics.
Not applicable in semi-annual report.
Item 3. Audit Committee Financial Expert.
Not applicable in semi-annual report.
Item 4. Principal Accountant Fees and Services.
Not applicable in semi-annual report.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments
Included in report to shareholders (Item 1) above.
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.
During the period covered by this report, the registrant adopted written procedures by which shareholders may recommend nominees to the registrant’s Board of Trustees.
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 are effective, based on their evaluation of these controls and procedures 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 have been no changes in the registrant's internal control over financial reporting 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 registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable to semi-annual report.
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(a)(3) None (not applicable to open-end funds).
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940.
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 Equity Trust
By: (signature)
W. Richard Mason, Secretary
Date: August 10, 2007
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: August 10, 2007
By: (signature)
Greg Hoppe, Chief Financial Officer
Date: August 10, 2007