December 31, 2012
Madison Mosaic
Equity Trust
Investors Fund
Mid-Cap Fund
Disciplined Equity Fund
Dividend Income Fund
NorthRoad International Fund
Madison Mosaic® Funds
www.mosaicfunds.com
CONTENTS
Management’s Discussion of Fund Performance | 1 | |
2012 in Review | 1 | |
Outlook | 1 | |
Interview with Jay Sekelsky | 1 | |
Investors Fund | 2 | |
Mid-Cap Fund | 4 | |
Disciplined Equity Fund | 6 | |
Dividend Income Fund | 7 | |
NorthRoad International Fund | 8 | |
Notes to Management’s Discussion of Fund Performance | 10 | |
Portfolio of Investments | ||
Investors Fund | 11 | |
Mid-Cap Fund | 12 | |
Disciplined Equity Fund | 13 | |
Dividend Income Fund | 14 | |
NorthRoad International Fund | 15 | |
Statement of Assets and Liabilities | 16 | |
Statement of Operations | 17 | |
Statements of Changes in Net Assets | 18 | |
Financial Highlights | 20 | |
Notes to Financial Statements | 24 | |
Report of Independent Registered Public Accounting Firm | 31 | |
Other Information | 32 | |
Trustees and Officers | 36 | |
Madison Mosaic Equity Trust | December 31, 2012
Management’s Discussion of Fund Performance
2012 IN REVIEW
The old adage that markets climb “a wall of worry” was demonstrated by domestic and international stock markets in 2012. Despite signs of sluggish economic growth in the U.S., a recession in Europe, and slowing growth in the emerging markets, investors generally were rewarded for holding stocks. The domestic stock market, as measured by the S&P 500, was up 16.0%, while the broad international market, as measured by the MSCI EAFE Index Net advanced 17.3%. The Russell Emerging Markets Index advanced 19.2%, and even investors in Europe found enough good news in the midst of a still uncertain sovereign debt crisis to push stock valuations up. The Morningstar Europe Stock Category showed mutual funds specializing in this region up 20.9% for the year. We believe the largest reason for these positive returns was the continued, unprecedented stimulus from the Federal Reserve and central banks around the world.
Despite the impressive returns in the broad indices, stocks were not uniformly positive for the year, with a wide disparity of returns among U.S. Sectors. The Utilities Sector trailed with a loss of -2.9%, while the Financial Sector led the market with a 26.3% return, followed by the Consumer Discretionary Sector, with a 21.9% return. In general, more economically sensitive and lower-quality stocks rallied, while the more defensive sectors such as Utilities and Consumer Staples lagged the broader market. Lower demand and increased energy production, particularly in domestic natural gas, dampened commodity returns, with the S&P Energy Sector up just 2.3% for the year. In general, small and mid-cap stocks advanced in the same range as large stocks, while value stocks had a slight advantage over similarly sized stocks classified as growth.
While year-end investment returns were heartening to investors, the journey was uneven. Headlines seemed to provide an endless stream of uncertainties from around the world. The most potent of these influences was the sovereign debt crisis in Europe. Worries over the possible default of debt by the most economically troubled countries in southern Europe took the steam out of the year’s first quarter rally, as the S&P 500 dipped -9.6% between April 2 and June 1. Over the summer months, perceived progress on resolving Greece’s debt crisis fueled a rally. The S&P rose 15.4% between June 1 and September 14, as confidence rose for a positive resolution, supported by European Central bank President Mario Draghi’s July statement that he would do “whatever it takes” to hold the Eurozone together. As the year progressed, the nation’s attention turned away from Europe to the presidential election. Late in the period investors began to focus on the so-called fiscal cliff. The January 2013 deadline for automatic shifts to higher taxes and lower spending was partially fended off with a late-December, last-minute compromise which came too late to make up for December stock market losses which resulted from the nervousness regarding the pending cliff.
OUTLOOK
While optimism prevailed in 2012, our perspective suggests that the market may be overlooking the wide variety of risks that remain unresolved. These include worldwide credit issues, the upcoming battle over the domestic debt ceiling, and the possibility that the Federal Reserve’s long-standing policy of low rates may shift to higher rates. A sure sign that the “risk on” trade prevailed in 2012 was the rally in the stocks of speculative and highly leveraged companies, matched in the bond market by the preference for long-term and low-quality issuance. This risk awareness should not suggest that we recommend shifting sensible asset allocation strategies. Instead, we believe investors should consider rebalancing portfolios and examining the underlying risks of their holdings. In stocks, we remain convinced that fundamentals continue to count, and investors will be best served by owning solid companies with the ability to produce strong results in all kinds of environments.
INTERVIEW WITH LEAD EQUITY MANAGER JAY SEKELSKY
Can you summarize the performance of the funds in Equity Trust in 2012?
In a year in which broad domestic and international indices returns were up in the teens, we produced solid real
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returns, even as the funds in Equity Trust slightly trailed our benchmarks. This is not unusual or unexpected, since across funds we seek high-quality, dependable companies which may lag when the market is rising sharply. The strength of the market was surprising in light of how economic growth moderated throughout the year as revenue growth slowed for S&P 500 companies relative to their expectations. Madison Mosaic Equity Trust’s Class Y annual returns ranged from Mid-Cap’s 15.69% to Dividend Income’s 10.86% return. Mosaic Investors returned 14.05%, NorthRoad International was up 13.76%, and Disciplined Equity advanced 12.25% over the year. The S&P 500, a large-stock index, was up 16.00%, the Russell Midcap® Index rose 17.28%, while international markets were also strong, as shown by the MSCI EAFE Index Net, which had a simple price appreciation of 17.32%.
The best way to appreciate the relative performance gap is to look at the quality gap. As measured by Bank of America’s Quality Indices, the highest rated stocks were the weakest performers, with A+ rated stocks returning 10.4% and A rated stocks also at 10.4%, while B- stocks were up 18.9% and the lowest rated C&D stocks rose 25.3%. This indicates a speculative market in which highly leveraged companies outpace steady, consistent companies with strong balance sheets.
MADISON MOSAIC INVESTORS FUND (MINVX)
FUND-AT-A-GLANCE | ||
Objective: Madison Mosaic Investors seeks long-term capital appreciation through investments in large growth companies. | ||
Net Assets: $35.2 million | ||
Date of Inception: November 1, 1978 | ||
Ticker: MINVX |
Madison Mosaic Investors Fund invests primarily in the common stocks of large-sized U.S. corporations. The fund typically owns 25-40 securities which are selected using our long-held investment discipline of seeking the highest-quality, proven companies and purchasing them when valuations appear advantageous. We follow a rigorous three-step process when evaluating companies. We consider the business model, the management team and the valuation of each potential investment. We strive to purchase securities trading at a discount to their intrinsic value as determined by discounted cash flows. We corroborate this valuation work with additional valuation methodologies. The fund typically sells a stock when the fundamental expectations for the purchase no longer apply, the price exceeds its perceived value or other stocks appear more attractively priced relative to its prospects.
How did the fund perform in 2012?
The Investors Fund Class Y ended the year with a gain of 14.05%, trailing its S&P 500 benchmark’s 16.00% return and its Morningstar peer group, Large Growth, which showed an average return of 15.34%. The Large Growth category was the strongest of the three Morningstar large-cap categories with Large-Cap Value up 14.57% and Large-Cap Blend up 14.96%. Since we apply a rigorous valuation screen along with seeking growing companies, we believe fund performance was more aligned with the “Blend” and “Value” categories.
All in all we feel buoyed by the portfolio’s positive results in a market rally that we believe was in large part boosted by the Federal Reserve’s quantitative easing, a condition under which we feel risks are not fully contemplated by other market participants. One of the challenges for our management in 2012 was the way in which stocks tended to move on the macro factors, often global in nature, rather than on the underlying fundamentals we typically emphasize.
Have you made any significant changes to the portfolio since December 31, 2011?
Early in 2012 we increased our weight in consumer discretionary stocks, specifically those that were U.S.-centric, a sector which performed well during the year. Late in the year we trimmed or sold some of these well-performing stocks. As evidence accumulated that the global economy was slowing we found some opportunities to add to some consumer and information technology stocks that were more global in nature, where we thought that the valuations were compressed more than they deserved. The valuation tradeoff looked positive in selling some
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U.S.-centric names for much cheaper names with broader global exposure.
We believe it may be illustrative to highlight a couple of the larger holdings in the portfolio. One is 3M, a global industrial company that has been around since the early 1900s but is still often voted one of the most innovative companies in the world. It has a centralized research group that we believe is an unmatched asset in fostering new product development and product leadership. Over the past decade 3M has grown its organic sales at one and a half times the pace of global industrial production while maintaining very strong profitability. Sales are recurrent in nature and are often consumed in local markets. In fact, over a third of sales are now in developing markets growing faster than the developed world. 3M has also been in those markets for a long time. For instance, 3M’s been in Latin America since 1946. We’ve found the management actions are consistent with strengthening and upholding the company’s competitive advantages.
Another representative stock is Berkshire Hathaway, a collection of businesses that Warren Buffet has accumulated over the years. One of the beauties of Berkshire is how profits generated from these businesses do not have to go back into the same company or industry. Profits can be redeployed where the best returns on capital appear available. During periods of stress or distress Berkshire has been an opportunistic investor that’s been able to deploy cash to achieve great returns. In the past, the company has actually been strengthened during periods of economic distress. The results are impressive. Berkshire’s book value has outperformed the S&P 500’s total return for every five-year rolling period since 1965 and has never lost value over a five-year period. Finally, we also believe that there’s good value in Berkshire Hathaway at today’s price. In fact, Warren Buffet bought back stock in the fourth quarter.
What factors were the strongest contributors to fund performance?
Economically sensitive sectors like Consumer Discretionary and Financials were strong performers in 2012 as the U.S. housing market continued its slow improvement. In fact, we over-weighted the portfolio in Consumer Discretionary and Financials in early 2012, and those moves were rewarded. Overall, we had the strongest contribution to the fund’s positive returns from Financials, Consumer Discretionary and Technology Sectors. The only S&P 500 sector with negative returns was Utilities, where the fund had no exposure, a relative boost for it. The best performing individual securities in the portfolio were Visa, Target, Franklin Resources and Diageo.
What factors were the largest constraints on performance?
While Health Care was a strong sector in 2012, the companies the fund held trailed their sector average. The fund was underweight the large pharmaceutical and biotechnology companies that led the sector. Energy was a weak sector overall in 2012 as demand for oil and gas was not strong enough to offset new supply. The fund’s exposure to producers caused it to underperform the overall sector as worldwide demand remained soft. As always, any cash holdings in a sharply rising market are a relative drag. In terms of individual securities we saw the worst performance from technology holding FLIR, which we sold in the third quarter, and energy holding Canadian Natural Resources, also sold in the third quarter.
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 12/31/12 | |||
Consumer Discretionary | 14.1 | % | |
Consumer Staples | 11.0 | % | |
Energy | 6.2 | % | |
Financials | 19.3 | % | |
Health Care | 9.8 | % | |
Industrials | 14.2 | % | |
Information Technology | 19.3 | % | |
U.S. Government and Agency Obligations | 1.6 | % | |
Cash & Other | 4.5 | % |
TOP TEN STOCK HOLDINGS AS OF 12/31/12 | |||
% of net assets | |||
Johnson & Johnson | 4.72 | % | |
Berkshire Hathaway Inc., Class B | 4.17 | % | |
3M Co. | 4.12 | % | |
Oracle Corp. | 3.75 | % | |
PepsiCo Inc. | 3.48 | % | |
NIKE Inc., Class B | 3.44 | % | |
Markel Corp. | 3.37 | % | |
Becton Dickinson & Co. | 3.32 | % | |
Omnicom Group Inc. | 3.32 | % | |
CH Robinson Worldwide Inc. | 3.31 | % |
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Average Annual Total Return | |||||||||
1-Year | 5-Year | 10-Year | |||||||
Investors Fund, Class Y | 14.05 | % | 2.32 | % | 5.62 | % | |||
S&P 500 Index | 16.00 | % | 1.66 | % | 7.10 | % |
See accompanying Notes to Management’s Discussion of Fund Performance.
FUND-AT-A-GLANCE | ||
Objective: Madison Mosaic Mid-Cap seeks long-term capital appreciation through the investment in mid-sized growth companies. | ||
Net Assets: $173.3 million | ||
Date of Inception: July 21, 1983 | ||
Ticker: GTSGX |
Madison Mosaic Mid-Cap Fund invests primarily in the common stocks of mid-sized U.S. corporations. The fund typically owns 25-40 securities which are selected using our long-held investment discipline of seeking the highest-quality, proven companies and purchasing them when valuations appear advantageous. We follow a rigorous three-step process when evaluating companies. We consider the business model, the management team and the valuation of each potential investment. We strive to purchase securities trading at a discount to their intrinsic value as determined by discounted cash flows. We corroborate this valuation work with additional valuation methodologies. The fund typically sells a stock when the fundamental expectations for the purchase no longer apply, the price exceeds its perceived value or other stocks appear more attractively priced relative to its prospects.
How would you characterize the performance of Madison Mosaic Mid-Cap in 2012?
For the full year the fund trailed the benchmark slightly while beating its Morningstar peer group. Overall, we were content with performance for the year, considering the market environment which favored riskier stocks over fundamentally strong ones. Madison Mosaic Mid-Cap Class Y was up 15.69% for the year, while the Russell Mid-Cap® Index advanced 17.28% and our Morningstar Mid-Cap Growth peer group averaged 14.07%. Looking back over the year, the fund performed as we would like, protecting capital during periods of market contraction, while largely participating in the strong up market which characterized most of the year.
Did you make any significant changes to the portfolio since December 31, 2011?
The fund’s turnover was 28% for the year, suggesting an average holding period of close to four years. We did find some new opportunities over the course of the one-year period. Expeditors International is a stock we purchased early in the fall and is a good example of the sort of company we like to hold when valuations are attractive. We had an opportunity to purchase the company at 15 times forward earnings, excluding the cash on the balance sheet. Expeditors is a global logistics company. We think of the company as a travel agent for freight movement across the globe. In addition to shipping goods it provides other services such as distribution management, cargo insurance, and customs clearance. The business model is asset light since there’s very little need for capital expenditures. The company has what we believe a solid balance sheet, with over six dollars a share in net cash, and a highly capable management team. Recent valuation has been compressed due to concerns over global growth and weak air and ocean volumes. We believe these are temporary issues and conditions will improve once the global macro-economy and global trade improve. Since we’ve bought the stock
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its price has moved up somewhat, but we still think it is attractive at year-end levels.
Another addition of the portfolio early in the fourth quarter was Crown Holding. It is a manufacturer of aluminum cans which are used for beverages, food products and other consumer products. The industry in which it participates has just a few players. We believe Crown has a stable, defensive end market. Management is shareholder friendly and it has a track record of wise allocation of capital. Crown has invested to build capacity in developing markets, particularly China and Brazil. These markets generate much higher returns on invested capital than developed markets, and future growth should be stronger. We believe these investments will pay off going forward. We were able to purchase the stock at what we calculated to be about eight and a half times future normalized free cash flow, which was an attractive multiple in our view. As a result, we’re optimistic on this stock going forward.
What factors were the strongest contributors to fund performance?
The fund had its best relative strength in its energy holdings, where it had strong results from Enso PLC, EOG Resources and Noble Corporation. It also did well with its Materials Sector stocks, with Valspar Corporation leading the way. Other top performers included Discovery Communications and Brookfield Asset Management.
What factors were the largest constraints on performance?
Our biggest disappointment was technology holding FLIR Systems, which suffered from declining defense spending. We sold FLIR in the third quarter. The fund also had what we feel is a temporary setback in long-time financial holding Markel. The insurer made a late-year acquisition which was not favored by the market, even though we believe it will add value over time.
What do you see for Mid-Cap looking ahead to 2013?
I feel stocks offer very good long-term opportunity at this juncture. I’d encourage people to take a long-term view. Look beyond the current financial headlines and concerns. The fund is invested in companies we believe have business models that possess durable competitive advantages, and this should allow them to compound earnings through economic cycles in a wide range of business environments. Owning these kinds of companies, in my view, is the key to wealth creation over time.
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 12/31/12 | |||
Consumer Discretionary | 21.0 | % | |
Consumer Staples | 3.1 | % | |
Energy | 7.4 | % | |
Financials | 23.6 | % | |
Health Care | 8.3 | % | |
Industrials | 19.5 | % | |
Information Technology | 4.0 | % | |
Materials | 6.7 | % | |
U.S. Government and Agency Obligations | 3.8 | % | |
Cash & Other | 2.6 | % |
TOP TEN STOCK HOLDINGS AS OF 12/31/12 | |||
% of net assets | |||
Markel Corp. | 4.92 | % | |
Brookfield Asset Management Inc. | 4.02 | % | |
Copart Inc. | 3.88 | % | |
CH Robinson Worldwide Inc. | 3.55 | % | |
WR Berkley Corp. | 3.47 | % | |
Laboratory Corp. of America Holdings | 3.22 | % | |
TJX Cos. Inc. | 3.16 | % | |
CarMax Inc. | 3.03 | % | |
Omnicom Group Inc. | 3.01 | % | |
Wabtec Corp. | 2.87 | % |
Average Annual Total Return | ||||||||||||
1-Year | 5-Year | 10-Year | Since 2/29/12 Inception | |||||||||
Mid-Cap Fund, Class Y | 15.69 | % | 3.06 | % | 8.48 | % | – | |||||
Mid-Cap Fund, Class R6 | – | – | – | 7.34 | % | |||||||
Russell Midcap® Index | 17.28 | % | 3.57 | % | 10.65 | % | 6.17 | % | ||||
S&P 500 Index | 16.00 | % | 1.66 | % | 7.10 | % | 6.43 | % |
See accompanying Notes to Management’s Discussion of Fund Performance.
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MADISON MOSAIC DISCIPLINED EQUITY (MADEX)
FUND-AT-A-GLANCE | ||
Objective: Madison Mosaic Disciplined Equity seeks long-term growth with diversification among all equity market sectors. | ||
Net Assets: $148.5 million | ||
Date of Inception: December 31, 1997 | ||
Ticker: MADEX |
Madison Mosaic Disciplined Equity Fund invests primarily in the common stocks of large-sized U.S. corporations. The fund seeks to maintain an overall sector weighting in line with the broader market, with monthly rebalancing. The fund typically owns 50-70 securities which are selected using our long-held investment discipline of seeking the highest-quality, proven companies and purchasing them when valuations appear advantageous. We follow a rigorous three-step process when evaluating companies. We consider the business model, the management team and the valuation of each potential investment. We strive to purchase securities trading at a discount to their intrinsic value as determined by discounted cash flows. We corroborate this valuation work with additional valuation methodologies. The fund typically sells a stock when the fundamental expectations for the purchase no longer apply, the price exceeds its perceived value or other stocks appear more attractively priced relative to its prospects.
How would you characterize the performance of the Disciplined Equity Fund for the period?
Against the fund’s benchmark S&P 500’s return of 16.00%, Disciplined Equity’s Class Y shares showed a gain of 12.25%. The fund also trailed its Morningstar Large Blend peer group which had a return of 14.96%. With the portfolio currently allocated across S&P 500 sectors, the relative results against the S&P 500 were largely a function of our stock selection. In a market environment which favored riskier, highly leveraged companies, our emphasis on high-quality holdings was a detriment to returns across the year.
Have you made any significant changes to the portfolio since December 31, 2011?
As in the past, the fund’s 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. The fund’s turnover ratio was 29%, representing an average holding period of greater than three years. This is an indication that we are finding solid companies that have retained their attractive valuation over the years. By our measures, large, high-quality companies remain the best valued area of the market.
Although our team’s objective is to maintain relative sector neutrality against the broader market, we are dedicated to actively managing a select group of stocks within each of these sectors. At the beginning of the period, the fund had 51 holdings and at the end of the period it held 52. Our goal is to own the highest quality companies we can in each sector of the market, a judgment made on an array of business metrics that boil down to a combination of attractive valuation and the ability to produce consistent, predictable earnings going forward. In many cases, this means selling a stock and replacing it with another we feel has greater potential.
This is what we did, for example, in the Consumer Discretionary Sector as we sold Staples on disappointing business projections and added McDonald’s. In Technology over the course of the year we sold Cisco, Western Union and FLIR Systems and added Oracle and Micros Systems,
What factors had the largest impact on this period’s performance?
The year saw quite a bit of disparity in S&P 500 sector returns, with Utilities losing -2.9%, while Financials rose 26.3%. The fund’s results were similarly diverse, with above S&P 500 Index returns in Materials, Financials and Consumer Discretionary Sectors, negative returns in its Energy Sector holdings and below-market returns in Health Care.
In terms of individual holdings, the strongest contributors were Discovery Communications, a stock which was up more than 55% for the period, and NextEra Energy, which had above-index results for the year, well ahead of its S&P 500 Utility Sector, which was negative for the period. The
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most disappointing results came from technology holding FLIR Systems, which we sold in the third quarter, and from the second-weakest S&P sector, Energy, where we saw losses in Canadian Natural Resources and Chevron. We sold Canadian Natural Resources in the third quarter.
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 12/31/12 | |||
Consumer Discretionary | 11.6 | % | |
Consumer Staples | 10.1 | % | |
Energy | 11.0 | % | |
Financials | 15.2 | % | |
Health Care | 12.4 | % | |
Industrials | 10.0 | % | |
Information Technology | 19.8 | % | |
Materials | 4.0 | % | |
Telecommunication Services | 2.3 | % | |
Utilities | 2.5 | % | |
Cash & Other | 1.1 | % |
TOP TEN STOCK HOLDINGS AS OF 12/31/12 | |||
% of net assets | |||
Microsoft Corp. | 3.54 | % | |
Johnson & Johnson | 3.39 | % | |
Berkshire Hathaway Inc., Class B | 3.38 | % | |
3M Co. | 2.74 | % | |
PepsiCo Inc. | 2.73 | % | |
QUALCOMM Inc. | 2.68 | % | |
Markel Corp. | 2.61 | % | |
Accenture PLC, Class A | 2.60 | % | |
NextEra Energy Inc. | 2.53 | % | |
Apple Inc. | 2.49 | % |
Average Annual Total Return | ||||||||||||
1-Year | 5-Year | 10-Year | Since 2/29/12 Inception | |||||||||
Disciplined Equity Fund, Class Y | 12.25 | % | 1.75 | % | 5.40 | % | – | |||||
Disciplined Equity Fund, Class R6 | – | – | – | 5.64 | % | |||||||
S&P 500 Index | 16.00 | % | 1.66 | % | 7.10 | % | 6.43 | % |
See accompanying Notes to Management’s Discussion of Fund Performance.
FUND-AT-A-GLANCE | ||
Objective: Beginning March 1, 2012, Madison Mosaic Dividend Income seeks to provide substantial current dividend income while providing opportunity for capital appreciation by investing in dividend paying stocks. | ||
Net Assets: $13.3 million | ||
Date of Inception: December 18, 1986 | ||
Ticker: BHBFX |
Dividend Income Fund invests in a diversified portfolio of dividend-paying stocks, with the goal of producing current income while providing an opportunity for capital appreciation. It invests primarily in the common stocks of large-sized U.S. corporations. The fund typically owns 40-60 securities which are chosen for having a current yield exceeding the S&P 500’s average yield, strong fundamentals including an attractive balance sheet and reasonable valuations at the time of purchase. A key attraction for management is a company with a history of increasing dividend payments and a business model which supports the possibility of continuing these increases in the future.
How did the Dividend Income Fund perform for the year?
The Dividend Income Fund was in transition during the first quarter of 2012 from its former strategy as a Balanced Fund to its current allocation. This change was effective March 1, 2012. The Dividend Income Fund Classs Y shares
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rose 10.86% for the year, compared to the S&P 500’s return of 16.00% and its Morningstar category of Large Value which rose 14.57%. This one-year period was one which saw strong returns from a broad range of domestic and international market indices. We were pleased to be able to produce double-digit returns in this transition year, as we shifted the holdings from a mix of stocks and bonds to a pure stock portfolio.
The fund’s return compared to its peer group and benchmark, both representing stock portfolios, was hampered by a combination of weak stock selection and the inclusion of bonds in the early part of the year as the portfolio transitioned from a balanced strategy to a dividend income strategy. The primary source of underperformance was the overall weakness of established, dividend-paying stocks in a market which preferred more leveraged and speculative companies, compounded by disappointing results in a number of our holdings.
The main shift was the strategy reorientation as reflected in the name change from Balanced to Dividend Income. Once we established our full portfolio of dividend-paying stocks in March, the portfolio was generally stable. Over the course of the year we did add some new names, including Automated Data Processing, Microchip Technology and Exxon Mobile. Sales including First Energy, Lockheed Martin, Norfolk Southern and Paychex.
COMMON STOCK ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 12/31/12 | |||
Consumer Discretionary | 9.7 | % | |
Consumer Staples | 13.6 | % | |
Energy | 11.6 | % | |
Financials | 18.6 | % | |
Health Care | 17.8 | % | |
Industrials | 12.9 | % | |
Information Technology | 9.5 | % | |
Materials | 1.5 | % | |
Telecommunication Services | 2.4 | % | |
Cash & Other | 2.4 | % |
TOP TEN STOCK HOLDINGS AS OF 12/31/12 | |||
% of net assets | |||
Pfizer Inc. | 4.84 | % | |
Chevron Corp. | 4.65 | % | |
Johnson & Johnson | 4.60 | % | |
Travelers Cos. Inc. | 3.95 | % | |
ConocoPhillips | 3.80 | % | |
Merck & Co. Inc. | 3.73 | % | |
3M Co. | 3.22 | % | |
PepsiCo Inc. | 3.20 | % | |
Microsoft Corp. | 3.00 | % | |
United Technologies Corp. | 2.72 | % |
Average Annual Total Return | |||||||||
1-Year | 5-Year | 10-Year | |||||||
Dividend Income Fund, Class Y | 10.86 | % | 4.02 | % | 5.46 | % | |||
S&P 500 Index | 16.00 | % | 1.66 | % | 7.10 | % |
See accompanying Notes to Management’s Discussion of Fund Performance.
NORTHROAD INTERNATIONAL FUND (NRIEX)
FUND-AT-A-GLANCE | ||
Objective: NorthRoad International seeks capital appreciation through investments in common stocks based outside the United States. | ||
Net Assets: $28.9 million | ||
Date of Inception: December 31, 2008* | ||
Ticker: NRIEX |
NorthRoad International is an international stock fund that invests in high-quality companies with sustainable, high returns on capital that trade at attractive valuations.
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NorthRoad International Class Y returned 13.76% for 2012, while the MSCI EAFE Index Net was up 17.32% and the fund’s Morningstar Foreign Large Blend peer group averaged 18.29%. As with the Equity Trust’s domestic funds, the fund was fighting a low-quality over high-quality trend in the international markets. For instance, even with its fragile sovereign debt issues unresolved, the Greek stock market was up nearly 40% in U.S. dollars for the year. The fund also suffered from underexposure to banks, particularly European banks, the strongest area in the market’s highest performing sector. On average the portfolio’s holdings in the more defensive areas of the market, Consumer Staples and Health Care, delivered positive returns for the period, but did not keep pace with the overall market. Uncertainty regarding the macroeconomic environment will likely remain in place in 2013. Responding to an uncertain outlook, investors continued to be wary of equities through 2012, while central banks maintained easy money policies, driving U.S. Treasury and German government 10-year bond yields below 2%. In contrast to these historic low bond yields, the securities held in NorthRoad International Equity are high-quality, profitable, global businesses and generated an average annual yield of approximately 3.9% as of December 31, 2012. While recognizing the current macroeconomic risks, we believe value opportunities exist in global equity markets. Our disciplined, bottom-up focus and long-term horizon provide the framework to make sensible investments in an uncertain world that we believe will result in strong risk-adjusted performance over time. We believe the portfolio is attractively valued at about 11.6 times forward earnings with high and sustainable levels of profitability.
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 12/31/12 | |||
Consumer Discretionary | 6.9 | % | |
Consumer Staples | 18.8 | % | |
Energy | 10.9 | % | |
Financials | 11.7 | % | |
Health Care | 15.5 | % | |
Industrials | 7.9 | % | |
Information Technology | 9.6 | % | |
Materials | 13.3 | % | |
Telecommunication Services | 5.3 | % | |
Cash & Other | 0.1 | % |
TOP TEN STOCK HOLDINGS AS OF 12/31/12 | |||
% of net assets | |||
Novartis AG, ADR | 4.42 | % | |
Unilever PLC, ADR | 3.47 | % | |
SAP AG, ADR | 3.44 | % | |
Roche Holding AG, ADR | 3.38 | % | |
Nestle S.A., ADR | 3.34 | % | |
Akzo Nobel NV, ADR | 3.20 | % | |
Sanofi, ADR | 3.10 | % | |
Syngenta AG, ADR | 3.09 | % | |
ENI SpA, ADR | 3.05 | % | |
HSBC Holdings PLC, ADR | 3.01 | % |
Average Annual Total Return | ||||||||||||
1-Year | 3-Year | Since Inception 12/31/08 | Since 2/29/12 Inception | |||||||||
NorthRoad International Fund, Class Y | 13.76 | % | 8.02 | % | 13.07 | % | – | |||||
NorthRoad International Fund, Class R6 | – | – | – | 6.70 | % | |||||||
MSCI EAFE Index (Net) | 17.32 | % | 3.56 | % | 9.99 | % | 5.33 | % |
See accompanying Notes to Management’s Discussion of Fund Performance.
9
Madison Mosaic Equity Trust | Management’s Discussion of Fund Performance | concluded
NOTES TO MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE
1 | This chart compares a $10,000 investment made in the fund to a $10,000 investment made in the fund’s comparative index. |
2 | Past performance is not predictive of future performance. The above graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares and assumes all dividends have been reinvested. The comparative Indices noted do not reflect any investment management fees or transaction expenses, nor the effects of taxes, fees or other changes. For current performance information, visit www.mosaicfunds.com. |
3 | Prior to March 1, 2012, the Dividend Income Fund was known as the Balanced Fund and had different investment objectives and strategies. Its fixed income holdings were liquidated prior to March 1, and the fund began implementing its new investment objectives and strategies thereafter. |
BENCHMARK DESCRIPTIONS
The S&P 500 Index is an unmanaged index of 500 of the largest companies in the United States as measured by market capitalization. The index does not reflect any investment management fees or transaction expenses, nor the effects of taxes, fees or other charges.
The Russell Midcap® Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap Index is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The S&P 500 Index is an unmanaged index of 500 of the largest companies in the United States as measured by market capitalization. Neither index reflects any investment management fees or transaction expenses, nor the effects of taxes, fees or other charges.
The MSCI EAFE Index (net) (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada. The Index does not reflect any investment management fees or transaction expenses, nor the effect of taxes, fees or other charges.
10
Madison Mosaic Equity Trust | December 31, 2012
Investors Fund • Portfolio of Investments
Shares | Value (Note 1) | ||||||||
COMMON STOCK - 93.9% | |||||||||
Consumer Discretionary - 14.1% | |||||||||
CarMax Inc.* | 22,975 | $ | 862,481 | ||||||
McDonald’s Corp. | 8,175 | 721,117 | |||||||
NIKE Inc., Class B | 23,436 | 1,209,298 | |||||||
Omnicom Group Inc. | 23,390 | 1,168,564 | |||||||
Target Corp. | 16,690 | 987,547 | |||||||
4,949,007 | |||||||||
Consumer Staples - 11.0% | |||||||||
Coca-Cola Co. | 18,132 | 657,285 | |||||||
Diageo PLC, ADR | 4,109 | 479,027 | |||||||
Mondelez International Inc., Class A | 27,481 | 699,941 | |||||||
Nestle S.A., ADR | 12,670 | 825,704 | |||||||
PepsiCo Inc. | 17,880 | 1,223,529 | |||||||
3,885,486 | |||||||||
Energy - 6.2% | |||||||||
Apache Corp. | 8,343 | 654,926 | |||||||
Occidental Petroleum Corp. | 8,240 | 631,266 | |||||||
Schlumberger Ltd. | 12,754 | 883,725 | |||||||
2,169,917 | |||||||||
Financials - 19.3% | |||||||||
Berkshire Hathaway Inc., Class B* | 16,371 | 1,468,479 | |||||||
Brookfield Asset Management Inc. | 21,320 | 781,378 | |||||||
Franklin Resources Inc. | 5,305 | 666,839 | |||||||
M&T Bank Corp. | 8,903 | 876,678 | |||||||
Markel Corp.* | 2,732 | 1,184,103 | |||||||
Northern Trust Corp. | 17,257 | 865,611 | |||||||
US Bancorp | 29,404 | 939,164 | |||||||
6,782,252 | |||||||||
Health Care - 9.8% | |||||||||
Becton Dickinson & Co. | 14,922 | 1,166,751 | |||||||
Johnson & Johnson | 23,708 | 1,661,931 | |||||||
Laboratory Corp. of America Holdings* | 7,300 | 632,326 | |||||||
3,461,008 | |||||||||
Industrials - 14.2% | |||||||||
3M Co. | 15,619 | 1,450,224 | |||||||
CH Robinson Worldwide Inc. | 18,425 | 1,164,829 | |||||||
Copart Inc.* | 33,955 | 1,001,672 | |||||||
Jacobs Engineering Group Inc.* | 17,215 | 732,843 | |||||||
United Parcel Service Inc., Class B | 8,791 | 648,160 | |||||||
4,997,728 | |||||||||
Shares | Value (Note 1) | ||||||||
Information Technology - 19.3% | |||||||||
Accenture PLC, Class A | 16,550 | $ | 1,100,576 | ||||||
Google Inc., Class A* | 1,486 | 1,054,124 | |||||||
MICROS Systems Inc.* | 19,265 | 817,607 | |||||||
Microsoft Corp. | 39,898 | 1,066,473 | |||||||
Oracle Corp. | 39,620 | 1,320,138 | |||||||
QUALCOMM Inc. | 14,909 | 924,656 | |||||||
Visa Inc., Class A | 3,351 | 507,945 | |||||||
6,791,519 | |||||||||
Total Common Stocks | |||||||||
(Cost $28,128,720) | 33,036,917 | ||||||||
INVESTMENT COMPANY - 3.2% | |||||||||
Invesco Short Term Investments Treasury | 1,113,112 | 1,113,112 | |||||||
Total Investment Company | |||||||||
(Cost $1,113,112) | 1,113,112 | ||||||||
Par Value | |||||||||
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 1.6% | |||||||||
U.S. Treasury Bills - 1.6% | |||||||||
0.06%, 4/25/13 | $575,000 | 574,874 | |||||||
Total U.S. Government and Agency Obligations (Cost $574,874) | 574,874 | ||||||||
TOTAL INVESTMENTS - 98.7% (Cost $29,816,706) | 34,724,903 | ||||||||
NET OTHER ASSETS AND LIABILITIES - 1.3% | 450,632 | ||||||||
TOTAL ASSETS - 100.0% | $ | 35,175,535 | |||||||
* | Non-income producing | |
ADR | American Depository Receipt | |
PLC | Public Limited Company |
See accompanying Notes to Financial Statements.
11
Madison Mosaic Equity Trust | December 31, 2012
Mid-Cap Fund • Portfolio of Investments
Shares | Value (Note 1) | ||||||||
COMMON STOCK - 93.6% | |||||||||
Consumer Discretionary - 21.0% | |||||||||
Advance Auto Parts Inc. | 44,525 | $ | 3,221,384 | ||||||
Bed Bath & Beyond Inc.* | 87,569 | 4,895,983 | |||||||
CarMax Inc.* | 139,881 | 5,251,133 | |||||||
Discovery Communications Inc., Class C* | 61,386 | 3,591,081 | |||||||
Liberty Global Inc., Class C* | 74,534 | 4,378,872 | |||||||
Omnicom Group Inc. | 104,321 | 5,211,877 | |||||||
Tiffany & Co. | 75,378 | 4,322,175 | |||||||
TJX Cos. Inc. | 128,958 | 5,474,267 | |||||||
36,346,772 | |||||||||
Consumer Staples - 3.1% | |||||||||
Brown-Forman Corp., Class B | 25,710 | 1,626,158 | |||||||
McCormick & Co. Inc. | 60,182 | 3,823,362 | |||||||
5,449,520 | |||||||||
Energy - 7.4% | |||||||||
Ensco PLC, ADR | 58,494 | 3,467,524 | |||||||
EOG Resources Inc. | 21,890 | 2,644,093 | |||||||
Noble Corp. | 82,010 | 2,855,588 | |||||||
World Fuel Services Corp. | 91,875 | 3,782,494 | |||||||
12,749,699 | |||||||||
Financials - 23.6% | |||||||||
Arch Capital Group Ltd.* | 102,720 | 4,521,734 | |||||||
Brookfield Asset Management Inc. | 190,232 | 6,972,003 | |||||||
Brown & Brown Inc. | 141,181 | 3,594,468 | |||||||
Glacier Bancorp Inc. | 184,786 | 2,718,202 | |||||||
Leucadia National Corp. | 167,963 | 3,995,840 | |||||||
M&T Bank Corp. | 46,435 | 4,572,454 | |||||||
Markel Corp.* | 19,654 | 8,518,437 | |||||||
WR Berkley Corp. | 159,493 | 6,019,266 | |||||||
40,912,404 | |||||||||
Health Care - 8.3% | |||||||||
DENTSPLY International Inc. | 101,664 | 4,026,911 | |||||||
Laboratory Corp. of America Holdings* | 64,325 | 5,571,831 | |||||||
Techne Corp. | 70,478 | 4,816,467 | |||||||
14,415,209 | |||||||||
Industrials - 19.5% | |||||||||
CH Robinson Worldwide Inc. | 97,360 | 6,155,099 | |||||||
Copart Inc.* | 227,652 | 6,715,734 | |||||||
Expeditors International of Washington Inc. | 116,470 | 4,606,388 | |||||||
IDEX Corp. | 78,661 | 3,660,096 | |||||||
Jacobs Engineering Group Inc.* | 86,677 | 3,689,840 | |||||||
Ritchie Bros Auctioneers Inc. | 191,122 | 3,992,539 | |||||||
Wabtec Corp. | 56,840 | 4,975,774 | |||||||
33,795,470 | |||||||||
Shares | Value (Note 1) | ||||||||
Information Technology - 4.0% | |||||||||
Amphenol Corp., Class A | 48,555 | $3,141,508 | |||||||
MICROS Systems Inc.* | 90,020 | 3,820,449 | |||||||
6,961,957 | |||||||||
Materials - 6.7% | |||||||||
Crown Holdings Inc.* | 116,012 | 4,270,402 | |||||||
Ecolab Inc. | 55,400 | 3,983,260 | |||||||
Valspar Corp. | 53,535 | 3,340,584 | |||||||
11,594,246 | |||||||||
Total Common Stocks | |||||||||
(Cost $123,162,101) | 162,225,277 | ||||||||
INVESTMENT COMPANY - 0.7% | |||||||||
Invesco Short Term Investments Treasury | 1,235,470 | 1,235,470 | |||||||
Total Investment Company | |||||||||
(Cost $1,235,470) | 1,235,470 | ||||||||
Par Value | |||||||||
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 3.8% | |||||||||
U.S. Treasury Bill - 3.8% | |||||||||
0.06%, 4/25/13 | $6,625,000 | 6,623,552 | |||||||
Total U.S. Government and Agency Obligations (Cost $6,623,552) | 6,623,552 | ||||||||
TOTAL INVESTMENTS - 98.1% (Cost $131,021,123) | 170,084,299 | ||||||||
NET OTHER ASSETS AND LIABILITIES - 1.9% | 3,199,079 | ||||||||
TOTAL ASSETS - 100.0% | $ | 173,283,378 | |||||||
* | Non-income producing | |
ADR | American Depository Receipt | |
PLC | Public Limited Company |
See accompanying Notes to Financial Statements.
12
Madison Mosaic Equity Trust | December 31, 2012
Disciplined Equity Fund • Portfolio of Investments
Shares | Value (Note 1) | ||||||||
COMMON STOCK - 98.9% | |||||||||
Consumer Discretionary - 11.6% | |||||||||
CarMax Inc.* | 44,865 | $ | 1,684,232 | ||||||
Discovery Communications Inc., Class C* | 33,000 | 1,930,500 | |||||||
McDonald’s Corp. | 22,265 | 1,963,996 | |||||||
NIKE Inc., Class B | 50,690 | 2,615,604 | |||||||
Omnicom Group Inc. | 56,222 | 2,808,851 | |||||||
Target Corp. | 47,000 | 2,780,990 | |||||||
TJX Cos. Inc. | 37,770 | 1,603,337 | |||||||
Walt Disney Co. | 38,265 | 1,905,214 | |||||||
17,292,724 | |||||||||
Consumer Staples - 10.1% | |||||||||
Coca-Cola Co. | 50,460 | 1,829,175 | |||||||
Costco Wholesale Corp. | 19,705 | 1,946,263 | |||||||
Diageo PLC, ADR | 15,780 | 1,839,632 | |||||||
Mondelez International Inc., Class A | 100,000 | 2,547,000 | |||||||
Nestle S.A., ADR | 43,065 | 2,806,546 | |||||||
PepsiCo Inc. | 59,295 | 4,057,557 | |||||||
15,026,173 | |||||||||
Energy - 11.0% | |||||||||
Apache Corp. | 39,929 | 3,134,427 | |||||||
Chevron Corp. | 26,809 | 2,899,125 | |||||||
ConocoPhillips | 60,000 | 3,479,400 | |||||||
Occidental Petroleum Corp. | 44,000 | 3,370,840 | |||||||
Schlumberger Ltd. | 50,376 | 3,490,553 | |||||||
16,374,345 | |||||||||
Financials - 15.2% | |||||||||
Berkshire Hathaway Inc., Class B* | 55,980 | 5,021,406 | |||||||
Brookfield Asset Management Inc. | 62,550 | 2,292,458 | |||||||
Franklin Resources Inc. | 22,601 | 2,840,946 | |||||||
M&T Bank Corp. | 29,795 | 2,933,914 | |||||||
Markel Corp.* | 8,950 | 3,879,109 | |||||||
Northern Trust Corp. | 59,965 | 3,007,844 | |||||||
US Bancorp | 79,510 | 2,539,549 | |||||||
22,515,226 | |||||||||
Health Care - 12.4% | |||||||||
Becton Dickinson & Co. | 44,300 | 3,463,817 | |||||||
Johnson & Johnson | 71,855 | 5,037,036 | |||||||
Laboratory Corp. of America Holdings* | 30,176 | 2,613,845 | |||||||
Novartis AG, ADR | 44,030 | 2,787,099 | |||||||
Stryker Corp. | 35,416 | 1,941,505 | |||||||
UnitedHealth Group Inc. | 48,210 | 2,614,910 | |||||||
18,458,212 | |||||||||
Shares | Value (Note 1) | ||||||||
Industrials - 10.0% | |||||||||
3M Co. | 43,798 | $ | 4,066,644 | ||||||
CH Robinson Worldwide Inc. | 31,950 | 2,019,879 | |||||||
Copart Inc.* | 68,160 | 2,010,720 | |||||||
Emerson Electric Co. | 40,625 | 2,151,500 | |||||||
Jacobs Engineering Group Inc.* | 47,500 | 2,022,075 | |||||||
United Parcel Service Inc., Class B | 35,665 | 2,629,580 | |||||||
14,900,398 | |||||||||
Information Technology - 19.8% | |||||||||
Accenture PLC, Class A | 58,000 | 3,857,000 | |||||||
Apple Inc. | 6,941 | 3,699,761 | |||||||
Automatic Data Processing Inc. | 26,225 | 1,495,087 | |||||||
Google Inc., Class A* | 5,000 | 3,546,850 | |||||||
MICROS Systems Inc.* | 52,880 | 2,244,227 | |||||||
Microsoft Corp. | 196,625 | 5,255,786 | |||||||
Oracle Corp. | 99,400 | 3,312,008 | |||||||
QUALCOMM Inc. | 64,175 | 3,980,134 | |||||||
Visa Inc., Class A | 13,079 | 1,982,515 | |||||||
29,373,368 | |||||||||
Materials - 4.0% | |||||||||
Ecolab Inc. | 22,000 | 1,581,800 | |||||||
International Flavors & Fragrances Inc. | 37,500 | 2,495,250 | |||||||
Praxair Inc. | 16,680 | 1,825,626 | |||||||
5,902,676 | |||||||||
Telecommunication Services - 2.3% | |||||||||
AT&T Inc. | 99,170 | 3,343,021 | |||||||
Utilities - 2.5% | |||||||||
NextEra Energy Inc. | 54,245 | 3,753,212 | |||||||
Total Common Stocks | |||||||||
(Cost $129,989,176) | 146,939,355 | ||||||||
INVESTMENT COMPANY - 2.5% | |||||||||
Invesco Short Term Investments Treasury | 3,727,120 | 3,727,120 | |||||||
Total Investment Company | |||||||||
(Cost $3,727,120) | 3,727,120 | ||||||||
TOTAL INVESTMENTS - 101.4% | |||||||||
(Cost $133,716,296) | 150,666,475 | ||||||||
NET OTHER ASSETS AND LIABILITIES - (1.4%) | (2,139,479 | ) | |||||||
TOTAL ASSETS - 100.0% | $ | 148,526,996 | |||||||
* | Non-income producing | |
ADR | American Depository Receipt | |
PLC | Public Limited Company |
See accompanying Notes to Financial Statements.
13
Madison Mosaic Equity Trust | December 31, 2012
Dividend Income Fund • Portfolio of Investments
Shares | Value (Note 1) | ||||||||
COMMON STOCK - 97.6% | |||||||||
Consumer Discretionary - 9.7% | |||||||||
McDonald’s Corp. | 3,350 | $ | 295,504 | ||||||
Omnicom Group Inc. | 4,100 | 204,836 | |||||||
Target Corp. | 4,445 | 263,011 | |||||||
Time Warner Inc. | 7,300 | 349,159 | |||||||
Viacom Inc., Class B* | 3,200 | 168,768 | |||||||
1,281,278 | |||||||||
Consumer Staples - 13.6% | |||||||||
Coca-Cola Co. | 5,600 | 203,000 | |||||||
Diageo PLC, ADR | 1,869 | 217,888 | |||||||
Nestle S.A., ADR | 3,400 | 221,578 | |||||||
PepsiCo Inc. | 6,200 | 424,266 | |||||||
Philip Morris International Inc. | 1,750 | 146,370 | |||||||
Procter & Gamble Co. | 4,200 | 285,138 | |||||||
Sysco Corp. | 4,700 | 148,802 | |||||||
Wal-Mart Stores Inc. | 2,300 | 156,929 | |||||||
1,803,971 | |||||||||
Energy - 11.6% | |||||||||
Chevron Corp. | 5,700 | 616,398 | |||||||
ConocoPhillips | 8,700 | 504,513 | |||||||
Exxon Mobil Corp. | 2,300 | 199,065 | |||||||
Occidental Petroleum Corp. | 2,800 | 214,508 | |||||||
1,534,484 | |||||||||
Financials - 18.6% | |||||||||
Axis Capital Holdings Ltd. | 6,300 | 218,232 | |||||||
Bank of New York Mellon Corp. | 6,207 | 159,520 | |||||||
BlackRock Inc. | 1,560 | 322,468 | |||||||
M&T Bank Corp. | 2,000 | 196,940 | |||||||
Northern Trust Corp. | 3,347 | 167,886 | |||||||
PartnerRe Ltd. | 3,100 | 249,519 | |||||||
Travelers Cos. Inc. | 7,300 | 524,286 | |||||||
US Bancorp | 8,600 | 274,684 | |||||||
Wells Fargo & Co. | 10,400 | 355,472 | |||||||
2,469,007 | |||||||||
Health Care - 17.8% | |||||||||
Becton Dickinson & Co. | 2,000 | 156,380 | |||||||
Johnson & Johnson | 8,700 | 609,870 | |||||||
Medtronic Inc. | 5,700 | 233,814 | |||||||
Merck & Co. Inc. | 12,100 | 495,374 | |||||||
Novartis AG, ADR | 3,635 | 230,096 | |||||||
Pfizer Inc. | 25,600 | 642,048 | |||||||
2,367,582 | |||||||||
Shares | Value (Note 1) | ||||||||
Industrials - 12.9% | |||||||||
3M Co. | 4,594 | $ | 426,553 | ||||||
Boeing Co. | 3,700 | 278,832 | |||||||
Emerson Electric Co. | 4,100 | 217,136 | |||||||
United Parcel Service Inc., Class B | 3,700 | 272,801 | |||||||
United Technologies Corp. | 4,400 | 360,844 | |||||||
Waste Management Inc. | 4,500 | 151,830 | |||||||
1,707,996 | |||||||||
Information Technology - 9.5% | |||||||||
Accenture PLC, Class A | 2,500 | 166,250 | |||||||
Automatic Data Processing Inc. | 3,800 | 216,638 | |||||||
Intel Corp. | 6,700 | 138,221 | |||||||
Linear Technology Corp. | 5,200 | 178,360 | |||||||
Microchip Technology Inc. | 4,900 | 159,691 | |||||||
Microsoft Corp. | 14,900 | 398,277 | |||||||
1,257,437 | |||||||||
Materials - 1.5% | |||||||||
Air Products & Chemicals Inc. | 2,400 | 201,647 | |||||||
Telecommunication Services - 2.4% | |||||||||
AT&T Inc. | 9,400 | 316,873 | |||||||
Total Common Stocks | |||||||||
(Cost $11,613,948) | 12,940,275 | ||||||||
INVESTMENT COMPANY - 2.5% | |||||||||
Invesco Short Term Investments Treasury | 329,855 | 329,855 | |||||||
Total Investment Company | |||||||||
(Cost $329,855) | 329,855 | ||||||||
TOTAL INVESTMENTS - 100.1% (Cost $11,943,803) | 13,270,130 | ||||||||
NET OTHER ASSETS AND LIABILITIES - (0.1%) | (7,025 | ) | |||||||
TOTAL ASSETS - 100.0% | $ | 13,263,105 | |||||||
* | Non-income producing | |
ADR | American Depository Receipt | |
PLC | Public Limited Company |
See accompanying Notes to Financial Statements.
14
Madison Mosaic Equity Trust | December 31, 2012
NorthRoad International Fund • Portfolio of Investments
Shares | Value (Note 1) | ||||||||
COMMON STOCK - 99.9% | |||||||||
Consumer Discretionary - 6.9% | |||||||||
Compass Group PLC, ADR | 49,900 | $ | 597,802 | ||||||
Reed Elsevier PLC, ADR | 16,060 | 675,162 | |||||||
WPP PLC, ADR | 10,030 | 731,187 | |||||||
2,004,151 | |||||||||
Consumer Staples - 18.8% | |||||||||
Carrefour S.A., ADR | 74,096 | 381,594 | |||||||
Diageo PLC, ADR | 7,459 | 869,570 | |||||||
Imperial Tobacco Group PLC, ADR | 8,161 | 632,396 | |||||||
Kao Corp., ADR | 28,408 | 737,756 | |||||||
Nestle S.A., ADR | 14,787 | 963,669 | |||||||
Tesco PLC, ADR | 51,561 | 854,881 | |||||||
Unilever PLC, ADR | 25,862 | 1,001,377 | |||||||
5,441,243 | |||||||||
Energy - 10.9% | |||||||||
ENI SpA, ADR | 17,905 | 879,852 | |||||||
Petroleo Brasileiro S.A., ADR | 31,474 | 612,799 | |||||||
Royal Dutch Shell PLC, ADR | 12,424 | 856,635 | |||||||
Total S.A., ADR | 15,046 | 782,542 | |||||||
3,131,828 | |||||||||
Financials - 11.7% | |||||||||
Allianz SE, ADR | 48,574 | 671,293 | |||||||
AXA S.A., ADR | 28,587 | 520,855 | |||||||
Credit Suisse Group AGon, ADR | 24,560 | 603,194 | |||||||
HSBC Holdings PLC, ADR | 16,373 | 868,915 | |||||||
Mitsubishi UFJ Financial Group Inc., ADR | 133,251 | 722,220 | |||||||
3,386,477 | |||||||||
Health Care - 15.5% | |||||||||
GlaxoSmithKline PLC, ADR | 19,156 | 832,711 | |||||||
Novartis AG, ADR | 20,142 | 1,274,989 | |||||||
Roche Holding AG, ADR | 19,335 | 976,418 | |||||||
Sanofi, ADR | 18,895 | 895,245 | |||||||
Teva Pharmaceutical Industries Ltd., ADR | 12,969 | 484,262 | |||||||
4,463,625 | |||||||||
Industrials - 7.9% | |||||||||
ABB Ltd.-Spon, ADR | 36,125 | 751,039 | |||||||
Schneider Electric S.A., ADR | 58,215 | 861,000 | |||||||
Secom Co. Ltd., ADR | 52,890 | 663,240 | |||||||
2,275,279 | |||||||||
Shares | Value (Note 1) | ||||||||
Information Technology - 9.6% | |||||||||
Canon Inc., ADR | 17,570 | $ | 688,920 | ||||||
Infosys Ltd.-Sp, ADR | 11,827 | 500,282 | |||||||
SAP AG, ADR | 12,370 | 994,301 | |||||||
Telefonaktiebolaget LM Ericsson, ADR | 57,591 | 581,669 | |||||||
2,765,172 | |||||||||
Materials - 13.3% | |||||||||
Akzo Nobel NV, ADR | 41,091 | 924,548 | |||||||
BHP Billiton Ltd.-Spon, ADR | 8,525 | 668,701 | |||||||
CRH PLC, ADR | 31,916 | 649,171 | |||||||
Givaudan S.A., ADR | 34,021 | 717,843 | |||||||
Syngenta AG, ADR | 11,048 | 892,678 | |||||||
3,852,941 | |||||||||
Telecommunication Services - 5.3% | |||||||||
France Telecom S.A., ADR | 41,221 | 455,492 | |||||||
NTT DoCoMo Inc., ADR | 36,150 | 520,922 | |||||||
Vodafone Group PLC-Sp, ADR | 21,700 | 546,623 | |||||||
1,523,037 | |||||||||
Total Common Stocks | |||||||||
(Cost $26,980,268) | 28,843,753 | ||||||||
INVESTMENT COMPANY - 1.5% | |||||||||
Invesco Short Term Investments Treasury | 431,804 | 431,804 | |||||||
Total Investment Company | |||||||||
(Cost $431,804) | 431,804 | ||||||||
TOTAL INVESTMENTS - 101.4% (Cost $27,412,072) | 29,275,557 | ||||||||
NET OTHER ASSETS AND LIABILITIES - (1.4%) | (408,524 | ) | |||||||
TOTAL ASSETS - 100% | $ | 28,867,033 | |||||||
* | Non-income producing | |
ADR | American Depository Receipt | |
PLC | Public Limited Company |
See accompanying Notes to Financial Statements.
15
Madison Mosaic Equity Trust | December 31, 2012
Statements of Assets and Liabilities | For the period ended December 31, 2012
Disciplined | Dividend | Northroad | ||||||||||||||||||||||
Investors | Mid-Cap | Equity | Income | International | ||||||||||||||||||||
ASSETS | Fund | Fund | Fund | Fund1 | Fund | |||||||||||||||||||
Investments, at value (Note 1) | ||||||||||||||||||||||||
Investment securities | $ | 33,036,916 | $ | 162,225,277 | $ | 146,939,355 | $ | 12,940,275 | $ | 28,843,753 | ||||||||||||||
Short-term investments | 1,687,987 | 7,859,022 | 3,727,120 | 329,855 | 431,804 | |||||||||||||||||||
Total investments* | 34,724,903 | 170,084,299 | 150,666,475 | 13,270,130 | 29,275,557 | |||||||||||||||||||
Receivables | ||||||||||||||||||||||||
Investment securities sold | 482,403 | 4,319,884 | – | – | – | |||||||||||||||||||
Dividends and interest | 23,029 | 57,168 | 95,052 | 16,467 | 32,157 | |||||||||||||||||||
Capital shares sold | 4,882 | 762,942 | 154,337 | 307 | 3,000 | |||||||||||||||||||
Total assets | 35,235,217 | 175,224,293 | 150,915,864 | 13,286,904 | 29,310,714 | |||||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||
Payables | ||||||||||||||||||||||||
Investment securities purchased | – | 769,710 | – | – | – | |||||||||||||||||||
Dividends | 18,778 | – | 1,574,174 | 3,126 | 408,047 | |||||||||||||||||||
Capital shares redeemed | 6,142 | 982,467 | 676,358 | 5,130 | 934 | |||||||||||||||||||
Management fees | 22,509 | 112,853 | 99,033 | 8,521 | 19,793 | |||||||||||||||||||
Service fees | 16,754 | 75,885 | 58,730 | 8,726 | 14,907 | |||||||||||||||||||
Waived fees | (4,501 | ) | – | (19,427 | ) | (1,704 | ) | – | ||||||||||||||||
Net Management and Service fees | 34,762 | 188,738 | 138,336 | 15,543 | 34,700 | |||||||||||||||||||
Total liabilities | 59,682 | 1,940,915 | 2,388,868 | 23,799 | 443,681 | |||||||||||||||||||
NET ASSETS | $ | 35,175,535 | $ | 173,283,378 | $ | 148,526,996 | $ | 13,263,105 | $ | 28,867,033 | ||||||||||||||
Net assets consists of: | ||||||||||||||||||||||||
Paid in capital | 31,578,047 | $ | 130,850,532 | $ | 130,074,912 | 11,961,290 | $ | 27,069,772 | ||||||||||||||||
Accumulated net realized gains (losses) | (1,310,709 | ) | 3,369,670 | 1,501,905 | (24,512 | ) | (66,224 | ) | ||||||||||||||||
Net unrealized appreciation on investments | 4,908,197 | 39,063,176 | 16,950,179 | 1,326,327 | 1,863,485 | |||||||||||||||||||
Net assets | $ | 35,175,535 | $ | 173,283,378 | $ | 148,526,996 | $ | 13,263,105 | $ | 28,867,033 | ||||||||||||||
CLASS Y SHARES | ||||||||||||||||||||||||
Net Assets | $ | 35,175,535 | $ | 168,427,745 | $ | 145,519,620 | $ | 13,263,105 | $ | 28,856,363 | ||||||||||||||
Shares of beneficial interest outstanding | 1,894,975 | 12,967,144 | 10,874,913 | 741,005 | 2,776,395 | |||||||||||||||||||
Net Asset Value and redemption price per share | $ | 18.56 | $ | 12.99 | $ | 13.38 | �� | $ | 17.90 | $ | 10.39 | |||||||||||||
CLASS R6 SHARES2 | ||||||||||||||||||||||||
Net Assets | $ | 4,855,633 | $ | 3,007,376 | $ | 10,670 | ||||||||||||||||||
Shares of beneficial interest outstanding | 372,784 | 224,836 | 1,027 | |||||||||||||||||||||
Net Asset Value and redemption price per share | $ | 13.03 | $ | 13.38 | $ | 10.39 | ||||||||||||||||||
*INVESTMENT SECURITIES, AT COST | $ | 29,816,706 | $ | 131,021,123 | $ | 133,716,296 | $ | 11,943,803 | $ | 27,412,072 | ||||||||||||||
1 | Prior to March 1, 2012, the fund was known as the Balanced Fund. | |
2 | The Investors and Dividend Income Funds do not offer Class R6 shares. |
See accompanying Notes to Financial Statements.
16
Madison Mosaic Equity Trust | December 31, 2012
Statements of Operations | For the period ended December 31, 2012
Disciplined | Dividend | NorthRoad | ||||||||||||||||||||||||
Investors | Mid-Cap | Equity | Income | International | ||||||||||||||||||||||
Fund | Fund | Fund1 | Fund | Fund | ||||||||||||||||||||||
INVESTMENT INCOME (Note 1) | ||||||||||||||||||||||||||
Interest income | $ | 215 | $ | 1,390 | $ | 863 | $ | 18,594 | $ | 151 | ||||||||||||||||
Dividend income | 620,934 | 2,118,139 | 3,275,761 | 361,831 | 736,721 | |||||||||||||||||||||
Total investment income | 621,149 | 2,119,529 | 3,276,624 | 380,425 | 736,872 | |||||||||||||||||||||
EXPENSES (Notes 2 and 3) | ||||||||||||||||||||||||||
Investment advisory fees | 270,608 | 1,326,185 | 1,164,725 | 93,769 | 190,018 | |||||||||||||||||||||
Service agreement fees | 106,553 | 787,027 | 444,751 | 52,444 | 83,107 | |||||||||||||||||||||
Total expenses | 377,161 | 2,113,212 | 1,609,476 | 146,213 | 273,125 | |||||||||||||||||||||
Waived fees | (27,216 | ) | – | (130,332 | ) | (10,069 | ) | – | ||||||||||||||||||
Net expenses | 349,945 | 2,113,212 | 1,479,144 | 136,144 | 273,125 | |||||||||||||||||||||
NET INVESTMENT INCOME | 271,204 | 6,317 | 1,797,480 | 244,281 | 463,747 | |||||||||||||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||||||||||||||||||||||||
Net realized gain (loss) on investments | 2,058,621 | 10,532,602 | 7,145,805 | 235,265 | (65,728 | ) | ||||||||||||||||||||
Change in net unrealized appreciation of investments | 2,486,753 | 14,509,191 | 9,954,955 | 781,331 | 2,035,365 | |||||||||||||||||||||
NET GAIN ON INVESTMENTS | 4,545,374 | 25,041,793 | 17,100,760 | 1,016,596 | 1,969,637 | |||||||||||||||||||||
TOTAL INCREASE IN NET ASSETS | ||||||||||||||||||||||||||
RESULTING FROM OPERATIONS | $ | 4,816,578 | $ | 25,048,110 | $ | 18,898,240 | $ | 1,260,877 | $ | 2,433,384 | ||||||||||||||||
1 | Prior to March 1, 2012, the fund was known as the Balanced Fund. |
See accompanying Notes to Financial Statements.
17
Madison Mosaic Equity Trust | December 31, 2012
Statements of Changes in Net Assets | For the period indicated
Investors Fund | Mid-Cap Fund | |||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||||||||||||||
RESULTING FROM OPERATIONS | ||||||||||||||||||||
Net investment income (loss) | $ | 271,204 | $ | 330,669 | $ | 6,317 | $ | (312,288) | ||||||||||||
Net realized gain on investments | 2,058,621 | 2,427,210 | 10,532,602 | 13,451,723 | ||||||||||||||||
Net unrealized appreciation (depreciation) on investments | 2,486,753 | (2,846,126 | ) | 14,509,191 | (4,808,581 | ) | ||||||||||||||
Net increase (decrease) in net assets resulting from operations | 4,816,578 | (88,247 | ) | 25,048,110 | 8,330,854 | |||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||||||||||||||
From net investment income | ||||||||||||||||||||
Class Y | (271,204 | ) | (330,669 | ) | – | – | ||||||||||||||
Class R62 | – | – | (6,317 | ) | – | |||||||||||||||
From net capital gains | ||||||||||||||||||||
Class Y | – | – | (6,194,230 | ) | (6,784,343 | ) | ||||||||||||||
Class R62 | – | – | (173,726 | ) | – | |||||||||||||||
Total distributions | (271,204 | ) | (330,669 | ) | (6,374,273 | ) | (6,784,343 | ) | ||||||||||||
CAPITAL SHARE TRANSACTIONS (Note 6) | ||||||||||||||||||||
Class Y | (5,708,658 | ) | (6,123,944 | ) | (10,692,239 | ) | (632,136 | ) | ||||||||||||
Class R62 | – | – | 4,974,012 | – | ||||||||||||||||
Total capital share transactions | (5,708,658 | ) | (6,123,944 | ) | (5,718,227 | ) | (632,136 | ) | ||||||||||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | (1,163,284 | ) | (6,542,860 | ) | 12,955,610 | 914,375 | ||||||||||||||
NET ASSETS | ||||||||||||||||||||
Beginning of period | $ | 36,338,819 | $ | 42,881,679 | $ | 160,327,768 | $ | 159,413,393 | ||||||||||||
End of period | $ | 35,175,535 | $ | 36,338,819 | $ | 173,283,378 | $ | 160,327,768 | ||||||||||||
Disciplined Equity Fund | Dividend Income Fund1 | ||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS | |||||||||||||||||||||
RESULTING FROM OPERATIONS | |||||||||||||||||||||
Net investment income | $ | 1,797,480 | $ | 1,581,978 | $ | 244,281 | $ | 128,629 | |||||||||||||
Net realized gain on investments | 7,145,805 | 2,888,003 | 235,265 | 949,897 | |||||||||||||||||
Net unrealized appreciation (depreciation) on investments | 9,954,955 | (2,766,220 | ) | 781,331 | (868,837 | ) | |||||||||||||||
Net increase in net assets resulting from operations | 18,898,240 | 1,703,761 | 1,260,877 | 209,689 | |||||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS | |||||||||||||||||||||
From net investment income | |||||||||||||||||||||
Class Y | (1,755,531 | ) | (1,581,978 | ) | (244,281 | ) | (128,629 | ) | |||||||||||||
Class R62 | (41,949 | ) | – | – | – | ||||||||||||||||
From net capital gains | |||||||||||||||||||||
Class Y | (7,483,283 | ) | (1,169,811 | ) | (555,330 | ) | (276,130 | ) | |||||||||||||
Class R62 | (145,634 | ) | – | – | – | ||||||||||||||||
Total distributions | (9,426,397 | ) | (2,751,789 | ) | (799,611 | ) | (404,759 | ) | |||||||||||||
CAPITAL SHARE TRANSACTIONS (Note 6) | |||||||||||||||||||||
Class Y | (28,419,945 | ) | 66,296,492 | 1,612,849 | (872,159 | ) | |||||||||||||||
Class R62 | 3,245,294 | – | – | – | |||||||||||||||||
Total capital share transactions | (25,174,651 | ) | 66,296,492 | 1,612,849 | (872,159 | ) | |||||||||||||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | (15,702,808 | ) | 65,248,464 | 2,074,115 | (1,067,229 | ) | |||||||||||||||
NET ASSETS | |||||||||||||||||||||
Beginning of period | $ | 164,229,804 | $ | 98,981,340 | $ | 11,188,990 | $ | 12,256,219 | |||||||||||||
End of period | $ | 148,526,996 | $ | 164,229,804 | $ | 13,263,105 | $ | 11,188,990 | |||||||||||||
1 | Prior to March 1, 2012, the fund was known as the Balanced Fund. | |
2 | The Investors and Dividend Income Funds do not offer Class R6 shares. |
See accompanying Notes to Financial Statements.
18
Madison Mosaic Equity Trust | December 31, 2012
Statements of Changes in Net Assets | For the period indicated (concluded)
NorthRoad International Fund | ||||||||||
Year Ended December 31, | ||||||||||
2012 | 2011 | |||||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||||
RESULTING FROM OPERATIONS | ||||||||||
Net investment income | $ | 463,747 | $ | 6,986 | ||||||
Net realized gain (loss) on investments | (65,728 | ) | 361,522 | |||||||
Net unrealized appreciation (depreciation) on investments | 2,035,365 | (454,433 | ) | |||||||
Net increase (decrease) in net assets resulting from operations | 2,433,384 | (85,925 | ) | |||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||||
From net investment income | ||||||||||
Class Y | (463,551 | ) | (6,986 | ) | ||||||
Class R6 | (196 | ) | – | |||||||
From net capital gains | ||||||||||
Class Y | – | (380,990 | ) | |||||||
Class R6 | – | – | ||||||||
Total distributions | (463,747 | ) | (387,976 | ) | ||||||
CAPITAL SHARE TRANSACTIONS (Note 6) | ||||||||||
Class Y | 25,266,346 | 331,449 | ||||||||
Class R6 | 10,196 | – | ||||||||
Total capital share transactions | $ | 25,276,542 | 331,449 | |||||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | 27,246,179 | (142,452 | ) | |||||||
NET ASSETS | ||||||||||
Beginning of period | $ | 1,620,854 | $ | 1,763,306 | ||||||
End of period | $ | 28,867,033 | $ | 1,620,854 | ||||||
See accompanying Notes to Financial Statements.
19
Madison Mosaic Equity Trust | December 31, 2012
Financial Highlights | Selected data for a share outstanding for the periods indicated.
Year Ended December 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
CLASS Y | ||||||||||||||||||||
Net asset value, beginning of period | $ | 16.40 | $ | 16.55 | $ | 15.07 | $ | 11.31 | $ | 18.44 | ||||||||||
Investment operations: | ||||||||||||||||||||
Net investment income1 | 0.13 | 0.15 | 0.09 | 0.05 | 0.08 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.17 | (0.15 | ) | 1.48 | 3.76 | (6.28 | ) | |||||||||||||
Total from investment operations | 2.30 | – | 1.57 | 3.81 | (6.20 | ) | ||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | (0.14 | ) | (0.15 | ) | (0.09 | ) | (0.05 | ) | (0.08 | ) | ||||||||||
From net capital gains | – | – | – | – | (0.85 | ) | ||||||||||||||
Total distributions | (0.14 | ) | (0.15 | ) | (0.09 | ) | (0.05 | ) | (0.93 | ) | ||||||||||
Net asset value, end of period | $ | 18.56 | $ | 16.40 | $ | 16.55 | $ | 15.07 | $ | 11.31 | ||||||||||
Total return (%) | 14.05 | 0.00 | 10.44 | 33.73 | (33.40 | ) | ||||||||||||||
Ratios and supplemental data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 35,176 | $ | 36,339 | $ | 42,882 | $ | 39,684 | $ | 28,030 | ||||||||||
Ratio of expenses to average net assets before fee waiver (%) | 1.05 | 0.99 | 0.99 | 1.00 | 1.05 | |||||||||||||||
Ratio of expenses to average net assets after fee waiver (%) | 0.97 | N/A | N/A | N/A | N/A | |||||||||||||||
Ratio of net investment income to average net assets before fee waiver (%) | 0.68 | 0.82 | 0.60 | 0.40 | 0.47 | |||||||||||||||
Ratio of net investment income to average net assets after fee waiver (%) | 0.75 | N/A | N/A | N/A | N/A | |||||||||||||||
Portfolio turnover2 (%) | 47 | 36 | 41 | 74 | 47 | |||||||||||||||
MID-CAP FUND | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
CLASS Y | ||||||||||||||||||||
Net asset value, beginning of period | ||||||||||||||||||||
Investment operations: | $ | 11.65 | $ | 11.57 | $ | 9.55 | $ | 7.67 | $ | 12.87 | ||||||||||
Net investment income1 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | – | (0.02 | ) | (0.03 | ) | (0.03 | ) | (0.03 | ) | |||||||||||
Total from investment operations | 1.82 | 0.61 | 2.05 | 1.91 | (4.71 | ) | ||||||||||||||
Less distributions from capital gains | 1.82 | 0.59 | 2.02 | 1.88 | (4.74 | ) | ||||||||||||||
Net asset value, end of period | (0.48 | ) | (0.51 | ) | – | – | (0.46 | ) | ||||||||||||
Total return (%) | $ | 12.99 | $ | 11.65 | $ | 11.57 | $ | 9.55 | $ | 7.67 | ||||||||||
Ratios and supplemental data | 15.69 | 5.10 | 21.15 | 24.51 | (36.61 | ) | ||||||||||||||
Net assets, end of period (in thousands) | ||||||||||||||||||||
Ratio of expenses to average net assets (%) | $ | 168,428 | $ | 160,328 | $ | 159,413 | $ | 140,548 | $ | 88,964 | ||||||||||
Ratio of net investment income to average net assets (%) | 1.20 | 1.25 | 1.25 | 1.26 | 1.26 | |||||||||||||||
Portfolio turnover2 (%) | 0.00 | (0.20 | ) | (0.26 | ) | (0.36 | ) | (0.33 | ) | |||||||||||
28 | 32 | 57 | 63 | 76 | ||||||||||||||||
1 | Based on average daily shares outstanding during the year. | |
2 | Portfolio Turnover is calculated at the fund level and represents the entire period. |
See accompanying Notes to Financial Statements.
20
Madison Mosaic Equity Trust | December 31, 2012
Financial Highlights | Selected data for a share outstanding for the periods indicated.
Year Ended | ||||||||||||||||||||
December 31, | ||||||||||||||||||||
2012 | ||||||||||||||||||||
CLASS R61 | ||||||||||||||||||||
Net asset value, beginning of period | $ | 11.65 | ||||||||||||||||||
Investment operations: | ||||||||||||||||||||
Net investment income2 | 0.13 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.75 | |||||||||||||||||||
Total from investment operations | 1.88 | |||||||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | (0.02 | ) | ||||||||||||||||||
From net capital gains | (0.48 | ) | ||||||||||||||||||
Total distributions | (0.50 | ) | ||||||||||||||||||
Net asset value, end of period | $ | 13.03 | ||||||||||||||||||
Total return (%) | 7.34 | |||||||||||||||||||
Ratios and supplemental data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 4,856 | ||||||||||||||||||
Ratio of expenses to average net assets (%) | 0.76 | 3 | ||||||||||||||||||
Ratio of net investment income to average net assets (%) | 1.19 | 3 | ||||||||||||||||||
Portfolio turnover4 (%) | 28 | |||||||||||||||||||
DISCIPLINED EQUITY FUND | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
CLASS Y | ||||||||||||||||||||
Net asset value, beginning of period | $ | 12.68 | $ | 12.68 | $ | 11.66 | $ | 8.81 | $ | 13.78 | ||||||||||
Investment operations: | ||||||||||||||||||||
Net investment income2 | 0.16 | 0.12 | 0.07 | 0.01 | 0.09 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.39 | 0.09 | 1.05 | 2.85 | (4.80 | ) | ||||||||||||||
Total from investment operations | 1.55 | 0.21 | 1.12 | 2.86 | (4.71 | ) | ||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | (0.16 | ) | (0.12 | ) | (0.07 | ) | (0.01 | ) | (0.09 | ) | ||||||||||
From net capital gains | (0.69 | ) | (0.09 | ) | (0.03 | ) | – | (0.17 | ) | |||||||||||
Total distributions | (0.85 | ) | (0.21 | ) | (0.10 | ) | (0.01 | ) | (0.26 | ) | ||||||||||
Net asset value, end of period | $ | 13.38 | $ | 12.68 | $ | 12.68 | $ | 11.66 | $ | 8.81 | ||||||||||
Total return (%) | 12.25 | 1.68 | 9.58 | 32.50 | (34.20 | ) | ||||||||||||||
Ratios and supplemental data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 145,520 | $ | 164,230 | $ | 98,981 | $ | 41,450 | $ | 3,072 | ||||||||||
Ratio of expenses to average net assets before fee waiver (%) | 1.04 | 0.98 | 1.09 | 1.06 | 1.14 | |||||||||||||||
Ratio of expenses to average net assets after fee waiver (%) | 0.95 | 0.96 | 0.99 | 0.96 | 1.06 | |||||||||||||||
Ratio of net investment income to average net assets before fee waiver (%) | 1.07 | 0.93 | 0.68 | 0.49 | 0.72 | |||||||||||||||
Ratio of net investment income to average net assets after fee waiver (%) | 1.16 | 0.96 | 0.78 | 0.60 | 0.80 | |||||||||||||||
Portfolio turnover4 (%) | 29 | 57 | 40 | 62 | 63 | |||||||||||||||
1 | Share class launched on February 29, 2012. | |
2 | Based on average daily shares outstanding during the period. | |
3 | Annualized. | |
4 | Portfolio Turnover is calculated at the fund level and represents the entire period. |
See accompanying Notes to Financial Statements.
21
Madison Mosaic Equity Trust | December 31, 2012
Financial Highlights | Selected data for a share outstanding for the periods indicated.
Year Ended | ||||||||||||||||||||
December 31, | ||||||||||||||||||||
20121 | ||||||||||||||||||||
CLASS R61 | ||||||||||||||||||||
Net asset value, beginning of period | $ | 12.68 | ||||||||||||||||||
Investment operations: | ||||||||||||||||||||
Net investment income2 | 0.22 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.36 | |||||||||||||||||||
Total from investment operations | 1.58 | |||||||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | (0.19 | ) | ||||||||||||||||||
From net capital gains | (0.69 | ) | ||||||||||||||||||
Total distributions | (0.88 | ) | ||||||||||||||||||
Net asset value, end of period | $ | 13.38 | ||||||||||||||||||
Total return (%) | 5.64 | |||||||||||||||||||
Ratios and supplemental data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 3,007 | ||||||||||||||||||
Ratio of expenses to average net assets (%) | 0.77 | 3 | ||||||||||||||||||
Ratio of net investment income to average net assets (%) | 1.86 | 3 | ||||||||||||||||||
Portfolio turnover4 (%) | 29 | |||||||||||||||||||
DIVIDEND INCOME FUND5 | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
CLASS Y | ||||||||||||||||||||
Net asset value, beginning of period | $ | 17.17 | $ | 17.50 | $ | 16.39 | $ | 13.29 | $ | 17.62 | ||||||||||
Investment operations: | ||||||||||||||||||||
Net investment income2 | 0.36 | 0.20 | 0.19 | 0.17 | 0.25 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.50 | 0.10 | 1.11 | 3.10 | (3.72 | ) | ||||||||||||||
Total from investment operations | 1.86 | 0.30 | 1.30 | 3.27 | (3.47 | ) | ||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | (0.35 | ) | (0.20 | ) | (0.19 | ) | (0.17 | ) | (0.25 | ) | ||||||||||
From net capital gains | (0.78 | ) | (0.43 | ) | – | – | (0.61 | ) | ||||||||||||
Total distributions | (1.13 | ) | (0.63 | ) | (0.19 | ) | (0.17 | ) | (0.86 | ) | ||||||||||
Net asset value, end of period | $ | 17.90 | $ | 17.17 | $ | 17.50 | $ | 16.39 | $ | 13.29 | ||||||||||
Total return (%) | 10.86 | 1.73 | 8.02 | 24.82 | (19.92 | ) | ||||||||||||||
Ratios and supplemental data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 13,263 | $ | 11,189 | $ | 12,256 | $ | 12,119 | $ | 10,139 | ||||||||||
Ratio of expenses to average net assets before fee waiver (%) | 1.17 | 1.25 | 1.24 | 1.25 | 1.24 | |||||||||||||||
Ratio of expenses to average net assets after fee waiver (%) | 1.09 | N/A | N/A | N/A | N/A | |||||||||||||||
Ratio of net investment income to average net assets before fee waiver (%) | 1.87 | 1.10 | 1.16 | 1.19 | 1.49 | |||||||||||||||
Ratio of net investment income to average net assets after fee waiver (%) | 1.95 | N/A | N/A | N/A | N/A | |||||||||||||||
Portfolio turnover4 (%) | 61 | 56 | 39 | 57 | 50 |
1 | Share class launched on February 29, 2012. | |
2 | Based on average daily shares outstanding during the period. | |
3 | Annualized. | |
4 | Portfolio Turnover is calculated at the fund level and represents the entire period. | |
5 | Prior to March 1, 2012, the fund was known as the Balanced Fund. |
See accompanying Notes to Financial Statements.
22
Madison Mosaic Equity Trust | December 31, 2012
Financial Highlights | Selected data for a share outstanding for the periods indicated. (concluded)
Year Ended December 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | |||||||||||||||||
CLASS Y | ||||||||||||||||||||
Net asset value, beginning of year | $ | 9.28 | $ | 13.30 | $ | 11.92 | $ | 10.00 | ||||||||||||
Investment operations: | ||||||||||||||||||||
Net investment income (loss)3 | 0.19 | 0.04 | 0.00 | 2 | (0.03 | ) | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.09 | (1.03 | ) | 2.20 | 3.01 | |||||||||||||||
Total from investment operations | 1.28 | (0.99 | ) | 2.20 | 2.98 | |||||||||||||||
Less distribution: | ||||||||||||||||||||
From net investment income | (0.17 | ) | (0.04 | ) | 0.00 | 2 | – | |||||||||||||
From net capital gains | – | (2.99 | ) | (0.82 | ) | (1.06 | ) | |||||||||||||
Total distributions | (0.17 | ) | (3.03 | ) | (0.82 | ) | (1.06 | ) | ||||||||||||
Net asset value, end of year | $ | 10.39 | $ | 9.28 | $ | 13.30 | $ | 11.92 | ||||||||||||
Total return (%) | 13.76 | (6.43 | ) | 18.42 | 29.66 | |||||||||||||||
Ratios and supplemental data | ||||||||||||||||||||
Net assets, end of year (in thousands) | $ | 28,856 | $ | 1,621 | $ | 1,763 | $ | 1,056 | ||||||||||||
Ratio of expenses to average net assets (%) | 1.15 | 1.20 | 1.25 | 1.24 | ||||||||||||||||
Ratio of net investment income (loss) to average net assets (%) | 1.94 | 0.43 | 0.02 | (0.31 | ) | |||||||||||||||
Portfolio turnover5 (%) | 12 | 129 | 61 | 74 | ||||||||||||||||
Year Ended | ||||||||||||||||||||
December 31, | ||||||||||||||||||||
2012 | ||||||||||||||||||||
CLASS R66 | ||||||||||||||||||||
Net asset value, beginning of year | $ | 9.28 | ||||||||||||||||||
Investment operations: | ||||||||||||||||||||
Net investment income3 | 0.19 | |||||||||||||||||||
Net realized and unrealized gain on investments | 1.11 | |||||||||||||||||||
Total from investment operations | 1.30 | |||||||||||||||||||
Less distribution: | ||||||||||||||||||||
From net investment income | (0.19 | ) | ||||||||||||||||||
From net capital gains | – | |||||||||||||||||||
Total distributions | (0.19 | ) | ||||||||||||||||||
Net asset value, end of year | $ | 10.39 | ||||||||||||||||||
Total return (%) | 6.70 | |||||||||||||||||||
Ratios and supplemental data | ||||||||||||||||||||
Net assets, end of year (in thousands) | $ | 11 | ||||||||||||||||||
Ratio of expenses to average net assets (%) | 0.83 | 4 | ||||||||||||||||||
Ratio of net investment income (loss) to average net assets (%) | 2.33 | 4 | ||||||||||||||||||
Portfolio turnover5 (%) | 12 |
1 | Prior to June 30, 2011, the NorthRoad International Fund was known as the Small/Mid-Cap Fund. Inception of the fund was December 31, 2008 with an effective date of January 1, 2009. | |
2 | Greater than zero but less than a penny. | |
3 | Based on average daily shares outstanding during the period. | |
4 | Annualized. | |
5 | Portfolio Turnover is calculated at the fund level and represents the entire fiscal year. | |
6 | Share class launched on February 29, 2012. |
See accompanying Notes to Financial Statements.
23
Madison Mosaic Equity Trust | December 31, 2012
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, diversified investment management company. This report contains information about five separate funds included within the Trust (each a “Fund” and together the “Funds”): the Investors Fund, Mid-Cap Fund, Disciplined Equity Fund, Dividend Income Fund and NorthRoad International Fund, each offers Y Class shares and each of whose objectives and strategies are described in the Funds’ prospectus. Prior to March 1, 2012, the Dividend Income Fund was known as the Balanced Fund and had different investment policies.
Effective February 29, 2012, the Trust launched an additional share class for the Midcap Fund, Disciplined Equity Fund and the NorthRoad International Fund. The Class, named R6 shares, are only available to participating retirement plans, corporations and other institutions, such as trusts, endowments and foundations.
Portfolio Valuation: Securities traded on a national securities exchange are valued at their closing sale price, except for securities traded on NASDAQ which are valued at the NASDAQ official closing price (“NOCP”). 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. Mutual funds are valued at their Net Asset Value. 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.
Each Fund has adopted the Financial Accounting Standards Board (“FASB”) applicable guidance on fair value measurements. Fair value is defined as the price that each Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data “inputs” and minimize the use of unobservable “inputs” and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk (for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique). Inputs may be observable or unobservable.
Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
• | Level 1 – quoted prices in active markets for identical investments |
• | Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rate volatilities, prepayment speeds, credit risk, benchmark yields, transactions, bids, offers, new issues, spreads and other relationships observed in the markets among comparable securities, underlying equity of the issuer; and proprietary pricing models such as yield measures calculated using factors such as cash flows, financial or collateral performance and other reference data, etc.) |
• | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The valuation techniques used by the Funds to measure fair value for the period ended December 31, 2012 maximized the use of observable inputs and minimized the use of unobservable inputs.
24
Madison Mosaic Equity Trust | Notes to Financal Statements | continued
The following is a summary of the inputs used as of December 31, 2012 in valuing the Funds’ investments carried at fair value:
Fund | Level 1 | Level 2 | Level 3 | Value at 12/31/12 | ||||||||||||
Investors | ||||||||||||||||
Common Stocks | $ | 33,036,917 | $ | – | $ | – | $ | 33,036,917 | ||||||||
Investment Companies | 1,113,112 | – | – | 1,113,112 | ||||||||||||
U.S. Government & Agency Obligations | – | 574,874 | – | 574,874 | ||||||||||||
Total | $ | 34,150,029 | $ | 574,874 | $ | – | $ | 34,724,903 | ||||||||
Mid-Cap | ||||||||||||||||
Common Stocks | $ | 162,225,277 | $ | – | $ | – | $ | 162,225,277 | ||||||||
Investment Companies | 1,235,470 | – | – | 1,235,470 | ||||||||||||
U.S. Government & Agency Obligations | – | 6,623,552 | – | 6,623,552 | ||||||||||||
Total | $ | 163,460,747 | $ | 6,623,552 | $ | – | $ | 170,084,299 | ||||||||
Disciplined Equity | ||||||||||||||||
Common Stocks | $ | 146,939,355 | $ | – | $ | – | $ | 146,939,355 | ||||||||
Investment Companies | 3,727,120 | – | – | 3,727,120 | ||||||||||||
Total | $ | 150,666,475 | $ | – | $ | – | $ | 150,666,475 | ||||||||
Dividend Income | ||||||||||||||||
Common Stocks | $ | 12,940,275 | $ | – | $ | – | $ | 12,940,275 | ||||||||
Investment Companies | 329,855 | – | – | 329,855 | ||||||||||||
Total | $ | 13,270,130 | $ | – | $ | – | $ | 13,270,130 | ||||||||
NorthRoad International Fund | ||||||||||||||||
Common Stocks | $ | 28,843,753 | $ | – | $ | – | $ | 28,843,753 | ||||||||
Investment Companies | 431,804 | – | – | 431,804 | ||||||||||||
Total | $ | 29,275,557 | $ | – | $ | – | $ | 29,275,557 | ||||||||
Please see the Portfolio of Investments for each respective Fund for a listing of all securities within each caption.
During the year ended December 31, 2012, the Funds changed the valuation methodology for ADR’s from an evaluated price (Level 2) to a closing price on primary exchange (Level 1). The table below shows the amounts of securities transferred from Level 2 to Level 1 as a result of this change in pricing methodology based on the beginning year fair values.
Transfer to (from) | |||||
Level 1 | Level 2 | ||||
Investors | $2,227,032 | ($2,227,032 | ) | ||
Disciplined Equity | 3,697,823 | (3,697,823 | ) | ||
Dividend Income | 436,735 | (436,735 | ) |
The Funds recognize transfers between levels based on the beginning of the reporting period balances.
As of and during the year ended December 31, 2012, none of the Funds held securities deemed as a Level 3.
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, modifying Topic 820, Fair Value Measurements and Disclosures. At the same time, the International Accounting Standards Board (“IASB”) issued International Financial Reporting Standard (“IFRS”) 13, Fair Value Measurement. The objective by the FASB and IASB is convergence of their guidance on fair value measurements and disclosures. The effective date of the ASU is for Interim and annual periods beginning after December 15, 2011. The Funds have adopted disclosures required by this update.
In December 2011, the IASB and the FASB issued ASU 2011-11 “Disclosures about Offsetting Assets And Liabilities.” The disclosure requirements contained in ASU 2011-11 are intended to help investors and other financial statement users to better assess the effect or potential effect of offsetting arrangements on a portfolio’s financial position. They also intend to improve transparency in the reporting of how companies mitigate credit risk, including disclosure of related collateral pledged or received. In addition, ASU 2011-11 facilitates comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. ASU 2011-11 requires entities to disclose both gross and net information about both instruments and transactions eligible for offset
25
Madison Mosaic Equity Trust | Notes to Financal Statements | continued
in the financial position; and disclose instruments and transactions subject to an agreement similar to a master netting agreement. ASU 2011-11 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. The Funds’ investment adviser is currently evaluating the implications of ASU 2011-11 and its impact on financial statements disclosures.
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 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, Disciplined Equity and NorthRoad International Funds. The Trust intends to declare and pay regular dividends quarterly on the Dividend Income Fund. Capital gain distributions, if any, are normally declared and paid annually at year-end.
The tax character of distributions paid during 2012 and 2011 was as follows:
2012 | 2011 | ||||||
Investors Fund: | |||||||
Distributions paid from ordinary income | $ | 271,204 | $ | 330,669 | |||
Mid-Cap Fund: | |||||||
Distributions paid from: | |||||||
Ordinary income | $ | 106,702 | – | ||||
Long-term capital gains | 6,267,571 | $ | 6,784,343 | ||||
Disciplined Equity Fund: | |||||||
Distributions paid from: | |||||||
Ordinary income | $ | 2,394,473 | $ | 1,709,118 | |||
Long-term capital gains | 7,031,924 | 1,042,671 | |||||
Dividend Income Fund:* | |||||||
Distributions paid from: | |||||||
Ordinary income | $ | 244,281 | $ | 128,629 | |||
Long-term capital gains | $ | 555,330 | $ | 276,130 | |||
NorthRoad International Fund: | |||||||
Distributions paid from: | |||||||
Ordinary income | $ | 463,747 | $ | 76,813 | |||
Long-term capital gains | – | 311,163 |
*Prior to March 1, 2012, the Fund was known as the Balanced Fund.
The Investors Fund, Disciplined Equity Fund, Dividend Income Fund and NorthRoad International Fund designate 100%, 100%, 100% and 100%, respectively, of dividends declared from net investment income and short-term capital gains during the fiscal year ended December 31, 2012 as qualified income under the Jobs and Growth Tax Relief Reconciliation Act of 2003.
As of December 31, 2012, the components of distributable earnings on a tax basis were as follows:
Investors Fund: | ||||
Accumulated net realized losses | $ | (1,284,692 | ) | |
Net unrealized appreciation on investments | 4,882,180 | |||
$ | 3,597,488 | |||
Mid-Cap Fund: | ||||
Accumulated net realized gains | $ | 3,467,172 | ||
Net unrealized appreciation on investments | 38,965,674 | |||
$ | 42,432,846 |
Disciplined Equity Fund: | |||
Accumulated net realized gains | $ | 1,558,734 | |
Net unrealized appreciation on investments | 16,893,350 | ||
$ | 18,452,084 | ||
Dividend Income Fund: | |||
Net unrealized appreciation on investments | $ | 1,301,815 | |
$ | 1,301,815 | ||
NorthRoad International Fund: | |||
Accumulated net realized losses | $ | (33,877 | ) |
Net unrealized appreciation on investments | 1,831,138 | ||
$ | 1,797,261 |
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 Trust to comply with the provisions of Subchapter M of the Internal Revenue Code available to investment companies and to make the requisite distribution to shareholders of taxable income which will be sufficient to relieve it from all or substantially all federal income taxes.
The Regulated Investment Company (“RIC”) Modernization Act of 2010 (the “Modernization Act”) modernizes several of the federal income and excise tax provisions related to RICs. The Modernization Act contains simplification provisions effective for taxable years beginning after December 22, 2010, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization
26
Madison Mosaic Equity Trust | Notes to Financal Statements | continued
Act allows capital losses to be carried forward indefinitely, and retain the character of the original loss, exempts RICs from the preferential dividend rule, and repealed the 60-day designation requirement for certain types of pay-through income and gains.
For the year ended December 31, 2012, for federal income tax purposes, the Investors Fund utilized $1,663,536 of capital loss carryforward (“CLCF”). The Investors Fund had a remaining CLCF of $1,284,692 which can be used to offset future capital gains. These CLCF will expire on December 31, 2017. The NorthRoad International Fund had $28,227 of short-term and $5,650 of long-term CLCFs which will not expire. Per the Regulated Investment Company Modernization Act of 2010, CLCFs generated in taxable years beginning after December 22, 2010 must be fully used before CLCFs generatd in taxable years prior to December 22, 2010; therefore, under circumstances, CLCF available as of the report date may expire unused.
As of and for the year ended December 31, 2012, the Funds did not have a liability for any unrecognized tax benefits. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the Funds did not incur any interest or penalties.
Tax years open to examination by tax authorities under the statute of limitations include 2009 through 2012.
Cash Concentration: At times, the Funds maintain cash balances at financial institutions in excess of federally insured limits. The Funds monitor this credit risk and have not experienced any losses related to this risk.
Use of Estimates: The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Such estimates affect the reported amounts of assets and liabilities and reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
2. Investment Advisory Fees. The investment adviser to the Funds, Madison Investment Advisors, LLC, (the “Adviser”), earned an advisory fee equal to 0.75% per annum of the average net assets of the Mid-Cap, Disciplined Equity and Dividend Income 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. Effective June 29, 2012, 0.10% of this fee for the Dividend Income and Investors Funds, respectively, is waived through June 30, 2013. NorthRoad International pays an advisory fee of 0.80%. The fees are accrued daily and are paid monthly.
3. Service Agreement Fees. Under a separate Services Agreement, the Adviser 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. Through June 28, 2012, this percentage for the Class Y shares was: 0.35% for the Investors Fund limited due to a total expense cap (including the management fee) of 0.99% for the Fund; 0.50% on the first $150 million and 0.47% on all assets greater than $150 million for the Mid-Cap Fund; 0.50% for the Dividend Income Fund; and 0.24% for the Disciplined Equity Fund on the first $100 million of net assets and 0.20% on all assets greater than $100 million. Additionally, for the Disciplined Equity Fund, the Adviser agreed to waive 0.03% of this fee on assets greater than $100 million which expires on April 30, 2013. This percentage was 0.35% for the NorthRoad International Fund.
Effective June 29, 2012, these percentages were changed for the Class Y shares to: 0.35% with a 0.05% waiver for the Investors Fund; 0.40% for the Midcap Fund; 0.35% with a 0.05% waiver for the Dividend Income Fund; and 0.35% with a 0.15% waiver for the Disciplined Equity Fund. NorthRoad International Fund’s fees did not change. The waivers are effective through June 30, 2013. The Class R6 shares fees for the Midcap Fund, Disciplined Equity Fund and NorthRoad International Fund were each 0.02%, respectively.
Independent Trustees fees and the expenses of the Funds’ independent registered public accountants are paid out of these fees. These fees are accrued daily and paid monthly.
4. Investment Transactions. Purchases and sales of securities (excluding short-term securities) for the year ended December 31, 2012 were as follows :
27
Madison Mosaic Equity Trust | Notes to Financal Statements | continued
Purchases | Sales | |||||||
Investors Fund: | ||||||||
U. S. Gov’t Securities | – | – | ||||||
Other | $ | 16,119,461 | $ | 21,477,321 | ||||
Mid-Cap Fund: | ||||||||
U. S. Gov’t Securities | – | – | ||||||
Other | $ | 46,165,349 | $ | 59,446,123 | ||||
Disciplined Equity Fund: | ||||||||
U. S. Gov’t Securities | – | – | ||||||
Other | $ | 43,254,155 | $ | 73,252,130 | ||||
Dividend Income Fund: | ||||||||
U. S. Gov’t Securities | – | $ | 1,605,570 | |||||
Other | $ | 8,161,746 | 5,565,150 | |||||
NorthRoad International Fund: | ||||||||
U. S. Gov’t Securities | – | – | ||||||
Other | $ | 27,976,194 | $ | 2,648,665 |
5. Aggregate Cost and Unrealized Appreciation (Depreciation). The aggregate cost of securities for federal income tax purposes and the net unrealized appreciation (depreciation) were as follows as of December 31, 2012:
Investors | Mid-Cap | |||||||
Fund | Fund | |||||||
Aggregate Cost | $ | 29,842,723 | $ | 131,118,625 | ||||
Gross unrealized appreciation | 5,032,255 | 39,642,763 | ||||||
Gross unrealized depreciation | (150,075 | ) | (677,089 | ) | ||||
Net unrealized appreciation | $ | 4,882,180 | $ | 38,965,674 | ||||
Disciplined Equity Fund | Dividend Income Fund | |||||||
Aggregate Cost | $ | 133,773,125 | $ | 11,968,315 | ||||
Gross unrealized appreciation | 17,976,269 | 1,442,842 | ||||||
Gross unrealized depreciation | (1,082,919 | ) | (141,027 | ) | ||||
Net unrealized appreciation | $ | 16,893,350 | $ | 1,301,815 | ||||
NorthRoad International Fund | ||||
Aggregate Cost | $27,444,419 | |||
Gross unrealized appreciation | 2,676,858 | |||
Gross unrealized depreciation | (845,720 | ) | ||
Net unrealized appreciation | $ 1,831,138 | |||
6. Capital Share Transactions. An unlimited number of capital shares, without par value, are authorized. Transactions in capital shares were as follows:
Year Ended December 31, | ||||||||
Investors Fund | 2012 | 2011 | ||||||
Class Y Shares | ||||||||
In Dollars | ||||||||
Shares sold | $ | 1,414,571 | $ | 2,916,555 | ||||
Issued to shareholder in reinvestment of distributions | 252,425 | 298,924 | ||||||
Total shares issued | 1,666,996 | 3,215,479 | ||||||
Shares redeemed | (7,375,654 | ) | (9,339,423 | ) | ||||
Net decrease | $ | (5,708,658 | ) | $ | (6,123,944 | ) | ||
In Shares | ||||||||
Shares sold | 79,305 | 174,182 | ||||||
Issued to shareholder in reinvestment of distributions | 13,601 | 18,171 | ||||||
Total shares issued | 92,906 | 192,353 | ||||||
Shares redeemed | (413,818 | ) | (567,726 | ) | ||||
Net decrease | (320,912 | ) | (375,373 | ) | ||||
Mid-Cap Fund | 2012 | 2011 | ||||||
Class Y Shares | ||||||||
In Dollars | ||||||||
Shares sold | $ | 45,976,991 | $ | 45,366,790 | ||||
Issued to shareholder in reinvestment of distributions | 4,420,424 | 5,638,474 | ||||||
Total shares issued | 50,397,415 | 51,005,264 | ||||||
Shares redeemed | (61,089,654 | ) | (51,637,400 | ) | ||||
Net decrease | $ | (10,692,239 | ) | $ | (632,136 | ) | ||
In Shares | ||||||||
Shares sold | 3,647,804 | 3,775,539 | ||||||
Issued to shareholder in reinvestment of distributions | 342,403 | 482,333 | ||||||
Total shares issued | 3,990,207 | 4,257,872 | ||||||
Shares redeemed | (4,789,291 | ) | (4,270,190 | ) | ||||
Net decrease | (799,084 | ) | (12,318 | ) | ||||
Mid-Cap Fund | 2012 | |||||||
Class R6 Shares | ||||||||
In Dollars | ||||||||
Shares sold | $ | 4,793,969 | ||||||
Issued to shareholder in reinvestment of distributions | 180,043 | |||||||
Total shares issued | 4,974,012 | |||||||
Shares redeemed | – | |||||||
Net increase | $ | 4,974,012 | ||||||
In Shares | ||||||||
Shares sold | 358,895 | |||||||
Issued to shareholder in reinvestment of distributions | 13,889 | |||||||
Total shares issued | 372,784 | |||||||
Shares redeemed | – | |||||||
Net increase | 372,784 | |||||||
28
Madison Mosaic Equity Trust | Notes to Financal Statements | continued
Year Ended December 31, | ||||||||
Disciplined Equity Fund | 2012 | 2011 | ||||||
Class Y Shares | ||||||||
In Dollars | ||||||||
Shares sold | $ | 22,929,830 | $ | 111,168,962 | ||||
Issued to shareholder in reinvestment of distributions | 924,899 | 191,757 | ||||||
Total shares issued | 23,854,729 | 111,360,719 | ||||||
Shares redeemed | (52,274,674 | ) | (45,064,227 | ) | ||||
Net increase (decrease) | $ | (28,419,945 | ) | $66,296,492 | ||||
In Shares | ||||||||
Shares sold | 1,663,701 | 8,711,757 | ||||||
Issued to shareholder in reinvestment of distributions | 68,590 | 15,099 | ||||||
Total shares issued | 1,732,291 | 8,726,856 | ||||||
Shares redeemed | (3,813,583 | ) | (3,574,466 | ) | ||||
Net increase (decrease) | (2,081,292 | ) | 5,152,390 | |||||
Disciplined Equity Fund | 2012 | |||||||
Class R6 Shares | ||||||||
In Dollars | ||||||||
Shares sold | $ | 3,057,711 | ||||||
Issued to shareholder in reinvestment of distributions | 187,583 | |||||||
Total shares issued | 3,245,294 | |||||||
Shares redeemed | – | |||||||
Net increase | $ | 3,245,294 | ||||||
In Shares | ||||||||
Shares sold | 210,937 | |||||||
Issued to shareholder in reinvestment of distributions | 13,899 | |||||||
Total shares issued | 224,836 | |||||||
Shares redeemed | – | |||||||
Net increase | 224,836 | |||||||
Dividend Income Fund | 2012 | 2011 | ||||||
Class Y Shares | ||||||||
In Dollars | ||||||||
Shares sold | $ | 2,158,121 | $ | 430,035 | ||||
Issued to shareholder in reinvestment of distributions | 766,208 | 381,752 | ||||||
Total shares issued | 2,924,329 | 811,787 | ||||||
Shares redeemed | (1,311,480 | ) | (1,683,946 | ) | ||||
Net increase (decrease) | $ | 1,612,849 | $ | (872,159 | ) | |||
In Shares | ||||||||
Shares sold | 118,437 | 24,388 | ||||||
Issued to shareholder in reinvestment of distributions | 42,399 | 22,148 | ||||||
Total shares issued | 160,836 | 46,536 | ||||||
Shares redeemed | (71,446 | ) | (95,334 | ) | ||||
Net increase (decrease) | 89,390 | (48,798 | ) | |||||
Year Ended December 31, | ||||||||
NorthRoad International Fund | 2012 | 2011 | ||||||
Class Y Shares | ||||||||
In Dollars | ||||||||
Shares sold | $ | 26,932,428 | $ | 466,822 | ||||
Issued to shareholder in reinvestment of distributions | 55,504 | 387,975 | ||||||
Total shares issued | 26,987,932 | 854,797 | ||||||
Shares redeemed | (1,721,586 | ) | (523,348 | ) | ||||
Net increase | $ | 25,266,346 | $ | 331,449 | ||||
In Shares | ||||||||
Shares sold | 2,766,606 | 39,794 | ||||||
Issued to shareholder in reinvestment of distributions | 5,342 | 42,087 | ||||||
Total shares issued | 2,771,948 | 81,881 | ||||||
Shares redeemed | (170,139 | ) | (39,827 | ) | ||||
Net increase | 2,601,809 | 42,054 | ||||||
NorthRoad International Fund | 2012 | |||||||
Class R6 Shares | ||||||||
In Dollars | ||||||||
Shares sold | $ | 10,000 | ||||||
Issued to shareholder in reinvestment of distributions | 196 | |||||||
Total shares issued | 10,196 | |||||||
Shares redeemed | – | |||||||
Net increase | $ | 10,196 | ||||||
In Shares | ||||||||
Shares sold | 1,008 | |||||||
Issued to shareholder in reinvestment of distributions | 19 | |||||||
Total shares issued | 1,027 | |||||||
Shares redeemed | – | |||||||
Net increase | 1,027 | |||||||
7. Discussion of Risks. Please see the most current version of the Funds’ prospectus for a discussion of risks associated with investing in each Fund. While investments in stocks and bonds have been keystones in wealth building and management for a hundred years, at times they’ve produced surprises. Those who enjoyed growth and income of their investments were rewarded for the risks they took by investing in the markets. Although the Adviser seeks to appropriately address and manage the risks identified and disclosed to you in connection with the management of the securities in the Funds, you should understand that the very nature of the securities markets includes the possibility that there are additional risks that we did not contemplate for any number of reasons. We seek to identify all applicable
29
Madison Mosaic Equity Trust | Notes to Financal Statements | concluded
risks and then appropriately address them, take appropriate action to reasonably manage them and, of course, to make you aware of them so you can determine if they exceed your risk tolerance. Nevertheless, the often volatile nature of the securities markets and the global economy in which we work suggests that the risk of the unknown is something you must consider in connection with your investments in securities. Unforeseen events could, in a worst-case scenario produce the material loss of the value of some or all of the securities we manage for you in the Funds.
8. Subsequent Events. Management has evaluated the impact of all subsequent events on the Trust through the date the financial statements were available for issue.
At a meeting held on November 6, 2012, the Board of Trustees of the Madison Mosaic Equity Trust approved the reorganization of the Madison Mosaic Investors Fund, Madison Mosaic Mid-Cap Fund, Madison Mosaic Disciplined Equity Fund, Madison Mosaic Dividend Income Fund and the Madison Mosaic NorthRoad International Fund with and into a corresponding series and class of Madison Funds® (f/k/a MEMBERS® Mutual Funds) (the “Reorganization”). The shareholders of the Madison Mosaic Funds are expected to vote on the proposed Reorganization on March 27, 2013. If approved, it is expected that the Reorganization will occur after the close of business on April 29, 2013. In conjunction with the Reorganization, the Transfer Agent would change from U.S. Bancorp Fund Services, LLC to Boston Financial Data Services, Inc.
No other events have taken place that meet the definition of a subsequent event that requires adjustment to, or disclosure in the financial statements.
30
Madison Mosaic Equity Trust | December 31, 2012
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Madison Mosaic Equity Trust
We have audited the accompanying statements of assets and liabilities, including the portfolios of investments of the Madison Mosaic Equity Trust (the “Trust”), including the Investors Fund, Dividend Income Fund (formerly the Balanced Fund), Mid-Cap Fund, NorthRoad International Fund and Disciplined Equity Fund (collectively, the “Funds”), as of December 31, 2012 and the related statements of operations for the year then ended and the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended and for each of the four years in the period then ended for the NorthRoad International Fund. These financial statements and financial highlights are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2012 by correspondence with the Funds’ custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds constituting the Trust as of December 31, 2012, and the results of their operations for the year then ended and the changes in their net assets for each of the two years in the period then ended and financial highlights for each of the five years in the period then ended and for each of the four years in the period then ended for the NorthRoad International Fund, in conformity with accounting principles generally accepted in the United States of America.
Chicago, Illinois
February 26, 2013
31
Madison Mosaic Equity Trust
Other Information
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 Notes 3 and 4 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 July 1, 2012 and held for the six-months ended December 31, 2012.
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 | |||||||||||||||||
Beginning | Ending | Annualized | Expenses Paid | ||||||||||||||
Account Value | Account Value | Expense Ratio | During the Period2 | ||||||||||||||
Investors Fund, Class Y | $ | 1,000.00 | $ | 1,070.64 | 0.97 | %* | $ | 5.08 | |||||||||
Mid-Cap Fund, Class Y | $ | 1,000.00 | $ | 1,077.36 | 1.20 | % | $ | 6.26 | |||||||||
Mid-Cap Fund, Class R6 | $ | 1,000.00 | $ | 1,079.35 | 0.76 | % | $ | 5.58 | |||||||||
Disciplined Equity Fund, Class Y | $ | 1,000.00 | $ | 1,051.20 | 0.95 | %* | $ | 4.96 | |||||||||
Disciplined Equity Fund, Class R6 | $ | 1,000.00 | $ | 1,053.32 | 0.77 | % | $ | 5.61 | |||||||||
Dividend Income Fund, Class Y | $ | 1,000.00 | $ | 1,043.34 | 1.09 | %* | $ | 5.64 | |||||||||
NorthRoad International Fund, Class Y | $ | 1,000.00 | $ | 1,129.12 | 1.15 | % | $ | 6.10 | |||||||||
NorthRoad International Fund, Class R6 | $ | 1,000.00 | $ | 1,130.84 | 0.83 | % | $ | 6.17 |
*After fee waiver. See Notes 2 and 3. |
1 For the six-months ended December 31, 2012. |
2 Expenses are equal to each 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 366. |
Hypothetical Example for Comparison Purposes
The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not any Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in a Fund 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.
32
Madison Mosaic Equity Trust | Other Information | continued
Based on Hypothetical Total Return1 | |||||||||||||||||
Beginning | Ending | Annualized | Expenses Paid | ||||||||||||||
Account Value | Account Value | Expense Ratio | During the Period2 | ||||||||||||||
Investors Fund, Class Y | $ | 1,000.00 | $ | 1,025.40 | 0.97 | %* | $ | 4.94 | |||||||||
Mid-Cap Fund, Class Y | $ | 1,000.00 | $ | 1,025.40 | 1.20 | % | $ | 6.10 | |||||||||
Mid-Cap Fund, Class R6 | $ | 1,000.00 | $ | 1,025.40 | 0.76 | % | $ | 3.88 | |||||||||
Disciplined Equity Fund, Class Y | $ | 1,000.00 | $ | 1,025.40 | 0.95 | %* | $ | 4.85 | |||||||||
Disciplined Equity Fund, Class R6 | $ | 1,000.00 | $ | 1,025.40 | 0.77 | % | $ | 3.92 | |||||||||
Dividend Income Fund, Class Y | $ | 1,000.00 | $ | 1,025.40 | 1.09 | %* | $ | 5.54 | |||||||||
NorthRoad International Fund, Class Y | $ | 1,000.00 | $ | 1,025.40 | 1.15 | % | $ | 5.83 | |||||||||
NorthRoad International Fund, Class Y | $ | 1,000.00 | $ | 1,025.40 | 0.83 | % | $ | 4.22 |
*After fee waiver. See Notes 2 and 3. |
1 For the six-months ended December 31, 2012. |
2 Expenses are equal to each 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 366. |
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 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, if applicable, during the period ended June 30, 2012 is 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 (“SEC”) web site at www.sec.gov. The Trust will respond to shareholder requests for copies of our policies within two business days of request by first-class mail or other means designed to ensure prompt delivery.
N-Q Disclosure. The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Trust’s Forms N-Q are available on the SEC’s website. The Trust’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information about the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-8090. Form N-Q and other information about the Trust are available on the EDGAR Database on the SEC’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 SEC’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.
Discussion of Contract Renewal (Unaudited). The Board reviewed a variety of matters in connection with renewal of the Trust’s investment advisory contract with the Adviser and the subadviser to the NorthRoad International Fund. The following description of the Board’s considerations summarizes the process:
With regard to the nature, extent and quality of the services to be provided by the Adviser and the subadviser, the Board reviewed the biographies and tenure of the personnel involved in Trust management and the experience of the Adviser (and subadviser) and its affiliates as investment manager to other investment companies with similar investment strategies or to individual clients or institutions
33
Madison Mosaic Equity Trust | Other Information | continued
with similar investment strategies. They recognized the wide array of investment professionals employed by the respective firm or firms. Representatives of the Adviser and the subadviser discussed their firms’ ongoing investment philosophies and strategies intended to provide performance consistent with the Trust portfolio’s investment objectives under various market scenarios. The Trustees also noted their familiarity with the Adviser and its affiliates due to the Adviser’s history of providing advisory services to its proprietary investment company clients.
The Board also discussed the quality of services provided to the Trust by its transfer agent, fund administrator and custodian as well as the various administrative services provided directly by the Adviser. Such services included arranging for third party service providers to provide all necessary administration as well as supervising the subadviser to Trust portfolios.
With regard to the investment performance of the Trust and the investment adviser, the Board reviewed current performance information provided in the written Board materials. They discussed the reasons for both outperformance and underperformance compared with peer groups and applicable indices and benchmarks. They reviewed both long-term and short-term performance. They also considered whether any relative underperformance was appropriate to the Adviser’s conservative investment philosophy. The Board performed this review in connection with the Adviser and the subadviser to the NorthRoad International Fund portfolio.
A comprehensive discussion of Fund performance and market conditions occurred during the course of the Board’s review. Representatives of the Adviser and the subadviser discussed with the Board the methodology for arriving at peer groups and indices used for performance comparisons.
With regard to the costs of the services to be provided and the profits to be realized by the investment adviser and its affiliates from the relationship with the Trust, the Board reviewed the expense ratios for a variety of other funds in each Trust portfolio’s peer group with similar investment objectives. Again, the Board reviewed these matters in connection with the Adviser and the subadviser that manages a subadvised Fund portfolio.
The Board noted that the Adviser or its affiliates, and, as applicable, the subadviser, provided investment management services to other investment company and/or non-investment company clients and considered the fees charged by the Adviser (and respective subadviser) to such Funds and clients for purposes of determining whether the given advisory fee was disproportionately large under the so-called Gartenberg standard traditionally used by investment company boards in connection with contract renewal considerations. The Board took those fees into account and considered the differences in services and time required by the various types of funds and clients to which the Adviser (or subadviser, if applicable) provided services. The Board recognized that significant differences may exist between the services provided to one type of fund or client and those provided to others, such as those resulting from a greater frequency of shareholder redemptions in a mutual fund and the higher turnover of mutual fund assets. The Board gave such comparisons the weight that they merit in light of the similarities and differences between the services that the various Funds require and were wary of “inapt comparisons.” They considered that, if the services rendered by the Adviser (or subadviser, if applicable) to one type of fund or client differed significantly from others, then the comparison should not be used. In the case of non-investment company clients for which the Adviser (or subadviser, if applicable) may act as either investment adviser or subadviser, the Board noted that the fee may be lower than the fee charged to the Trust. The Board noted too the various administrative, operational, compliance, legal and corporate communication services required to be handled by the Adviser (or subadviser, if applicable) which are performed for investment company clients but are not performed for other institutional clients.
The Trustees reviewed each Fund’s fee structure based on total Fund expense ratio as well as by comparing advisory fees to other advisory fees. The Board noted the simple expense structure maintained by the Trust: an advisory fee and a capped administrative “services” expense. The Board noted the total expense ratios paid by other funds with similar investment objectives, recognizing that such a comparison, while not dispositive, was an important consideration.
34
Madison Mosaic Equity Trust | Other Information | concluded
The Trustees sought to ensure that fees paid by the Trust were appropriate. The Board reviewed materials demonstrating that although the Adviser is compensated for a variety of the administrative services it provides or arranges to provide to the Trust pursuant to its administrative services agreements with the Trust (or series, as the case may be), such compensation does not always cover all costs due to the cap on administrative expenses. Administrative, operational, regulatory and compliance fees and costs in excess of the Services Agreement fees are paid by the Adviser from the investment advisory fees earned. In this regard, the Trustees noted that examination of each Trust portfolio’s total expense ratio compared to those of other investment companies was more meaningful than a simple comparison of basic “investment management only” fee schedules.
In reviewing costs and profits, the Board noted that for some smaller portfolios, the salaries of all portfolio management personnel, trading desk personnel, corporate accounting personnel and employees of the Adviser who serve as Trust officers, as well as facility costs (rent), could not be supported by fees received from such portfolios alone. However, the Board recognized that the Trust, as part of a mutual fund family, is profitable to the Adviser because such salaries and fixed costs are already paid in whole or in part from revenue generated by management of other client assets managed by the Adviser. The Trustees noted that total assets managed by the Adviser and its affiliates approximated $16 billion at the time of the meeting. As a result, although the fees paid by each Trust portfolio at its present size might not be sufficient to profitably support a stand-alone fund, the Trust is reasonably profitable to the Adviser as part of its larger, diversified organization. In sum, the Trustees recognized that the Trust is important to the Adviser and the subadviser to the NorthRoad International Fund and is managed with the attention given to their other clients.
With regard to the extent to which economies of scale would be realized as each Trust portfolio grows, the Trustees recognized that at their current sizes, it was premature to discuss any economies of scale not already factored into existing advisory and services agreements. In addition, the Trustees recognized that the Adviser was currently waiving fees with regard to the Disciplined Equity Fund series of the Trust. Also, the Board recognized that the Adviser recommended that the Board approve a reduction in the services fee paid by the Mid-Cap and Dividend Income Funds of the Trust. Finally, they also recognized the fee caps applicable to the Investors Fund series of the Trust.
During the course of the review, counsel to the Independent Trustees confirmed that the Trusts’ Independent Trustees met previously in executive session and reviewed the written contract renewal materials provided by the Adviser. He noted that the Independent Trustees had considered such materials in light of the aforementioned Gartenberg standards as well as criteria either set forth or discussed in the recent Supreme Court decision in Jones v. Harris regarding the investment company contract renewal process under Section 15(c) of the Investment Company Act of 1940, as amended. The Independent Trustees made a variety of additional inquiries regarding such written materials to the Adviser and the subadviser and representatives of the Adviser and subadviser, respectively, discussed each matter raised.
After further discussion, analysis and review of the totality of the information presented, including the information set forth above and the other information considered by the Board of Trustees, the Trustees, including the Independent Trustees, concluded that the Trusts’ advisory fees (including applicable subadvisory fees) are fair and reasonable for each respective portfolio and that renewal of their respective Advisory, Subadvisory and Services Agreements are in the best interests of each respective Trust portfolio and its shareholders.
Finally, the Board also reviewed the Trust’s distribution agreements and the information provided in the written materials regarding the distributor as well as applicable Codes of Ethics.
Based on the above, the Board renewed the Trust’s contracts for another year.
35
Madison Mosaic Equity Trust | December 31, 2012
Trustees and Officers
The address of each trustee and officer of the Trusts is 550 Science Drive, Madison, WI 53711, except that Mr. Mason’s address is 8777 N. Gainey Center Drive, #220, Scottsdale, AZ, 85258. The Statement of Additional Information, which includes additional information about the trustees and officers, is available at no cost on the SEC’s website at www.sec.gov or by calling Madison Mosaic Funds at 1-800-368-3195.
Interested Trustees and Officers
Name and Year of Birth | Position(s) and Length of Time Served | Principal Occupation(s) During Past Five Years | Other Directorships/Trusteeships |
Katherine L. Frank1 1960 | President, 1996 - Present | Madison Investment Holdings, Inc. (“MIH”) (affiliated investment advisory firm of the Adviser), Executive Director and Chief Operating Officer, 2010 - Present; Managing Director and Vice President, 1986 - 2010; Madison Asset Management, LLC (“MAM”) (affiliated investment advisory firm of the Adviser), Executive Director and Chief Operating Officer, 2010 - Present; Vice President, 2004 - 2010; Madison Investment Advisors, LLC (“Madison” or the “Adviser”), Executive Director and Chief Operating Officer, 2010 - Present; President, 1996 - 2010; Madison Mosaic Funds (12 funds, including the Funds), President, 1996 - Present; Madison Strategic Sector Premium Fund (closed end fund), President, 2005 - Present; Madison Covered Call and Equity Strategy Fund (closed end fund), Vice President, 2013 - Present; Madison Funds (13) and Ultra Series Fund (16) (mutual funds), President, 2009 - Present | Madison Mosaic Funds (all but Equity Trust), 2001 - Present; Madison Strategic Sector Premium Fund, 2005 - Present; Madison Funds (13) and Ultra Series Fund (16), 2009 - Present |
Frank E. Burgess1 1942 | Trustee and Vice President, 1996 - Present | MIH, Chairman of the Board, 2012 - Present; Former Executive Director and President, 2010 - 2012; Managing Director and President, 1973 - 2010; MAM, Former Executive Director and President, 2010 - 2012; President, 2004 - 2010; Madison, Former Executive Director and President, 2010 - 2012; Madison Mosaic Funds (12 funds, including the Funds), Vice President, 1996 - Present; Madison Strategic Sector Premium Fund, Vice President, 2005 - Present; Madison Funds (13) and Ultra Series Fund (16), Vice President, 2009 - Present | Madison Mosaic Funds (12), 1996 - Present; Madison Strategic Sector Premium Fund, 2005 - Present; Capitol Bank of Madison, WI, 1995 - Present; American Riviera Bank of Santa Barbara, CA, 2006 - Present |
1 “Interested person” as defined in the 1940 Act. Considered an interested Trustee because of the position held with the investment adviser of the Funds.
36
Madison Mosaic Equity Trust | Trustees and Officers | continued
Name and Year of Birth | Position(s) and Length of Time Served | Principal Occupation(s) During Past Five Years | Other Directorships/Trusteeships |
Jay R. Sekelsky 1959 | Vice President, 1996 - Present | MIH, Executive Director and Chief Investment Officer, 2010 - Present; Managing Director and Vice President, 1990 - 2010; MAM, Executive Director and Chief Investment Officer, 2010 - Present; Madison, Executive Director and Chief Investment Officer, 2010 - Present; Vice President, 1996 - 2010; Madison Mosaic Funds (12 funds, including the Funds), Vice President, 1996 - Present; Madison Strategic Sector Premium Fund, 2005 - Present; Madison Covered Call and Equity Strategy Fund, Vice President, 2013 - Present; Madison Funds (13) and Ultra Series Fund (16), Vice President, 2009 - Present | N/A |
Paul Lefurgey 1964 | Vice President, 2009 - Present | MIH, Managing Director and Head of Fixed Income Investments, 2005 - Present; MAM and Madison, Managing Director and Head of Fixed Income Investments, 2010 - Present; MEMBERS Capital Advisors, Inc. (“MCA”) (investment advisory firm), Madison, WI, Vice President 2003 - 2005; Madison Mosaic Funds (12 funds, including the Funds), Vice President, 2009 - Present; Madison Strategic Sector Premium Fund, Vice President, 2010 - Present; MCN, Vice President, 2013 - Present; Madison Funds (13) and Ultra Series Fund (16), Vice President, 2009 - Present | N/A |
Greg D. Hoppe 1969 | Treasurer, 2009 - Present; Chief Financial Officer, 1999 - 2009 | MIH and Madison, Vice President, 1999 - Present; MAM, Vice President, 2009 - Present; Madison Mosaic Funds (12 funds, including the Funds), Treasurer, 2009 - Present; Chief Financial Officer, 1999 - 2009; Madison Strategic Sector Premium Fund, Treasurer, 2005 - Present; Chief Financial Officer, 2005 - 2009; Madison Covered Call and Equity Strategy Fund, Vice President, 2008 - Present; MCN, Treasurer, 2013 - Present; Madison Funds (13) and Ultra Series Fund (16), Treasurer, 2009 - Present | N/A |
37
Madison Mosaic Equity Trust | Trustees and Officers | continued
Name and Year of Birth | Position(s) and Length of Time Served | Principal Occupation(s) During Past Five Years | Other Directorships/Trusteeships |
Holly S. Baggot 1960 | Secretary and Assistant Treasurer, 2009 - Present | MIH and Madison, Vice President, 2010 - Present; MAM, Vice President, 2009 - Present; MFD Distributor, LLC (“MFD”) (an affiliated brokerage firm of Madison), Vice President, 2012 - Present; Madison Mosaic Funds (12 funds, including the Funds), Secretary and Assistant Treasurer, 2009 - Present; Madison Strategic Sector Premium Fund, Secretary and Assistant Treasurer, 2010 - Present; MCN, Secretary and Assistant Treasurer, 2013 - Present; Madison Funds (13) and Ultra Series Fund (16), Assistant Treasurer, 2009 - Present; Secretary, 1999 - Present; Treasurer, 2008 - 2009; Assistant Treasurer, 1997 - 2007; MCA, Director-Mutual Funds, 2008 - 2009; Director-Mutual Fund Operations, 2006 - 2008; Operations Officer- Mutual Funds, 2005 - 2006; Senior Manager-Product & Fund Operations, 2001 - 2005 | N/A |
W. Richard Mason 1960 | Chief Compliance Officer, 1992 - Present; Corporate Counsel and Assistant Secretary, 2009 - Present; General Counsel and Secretary, 1992 - 2009 | MIH, MAM, Madison, and Madison Scottsdale, LC (an affiliated investment advisory firm of Madison), Chief Compliance Officer and Corporate Counsel, 2009 - Present; General Counsel and Chief Compliance Officer, 1996 - 2009; MFD, Principal, 1998 - Present; Concord Asset Management, LLC (“Concord”) (an affiliated investment advisory firm of Madison), General Counsel, 1996 - 2009; NorthRoad Capital Management LLC (“NorthRoad”) (an affiliated investment advisory firm of Madison), Chief Compliance Officer and Corporate Counsel, 2011 - Present; Madison Mosaic Funds (12 funds, including the Funds), Chief Compliance Officer, Corporate Counsel, and Assistant Secretary, 2009 - Present; Secretary, General Counsel, Chief Compliance Officer, 1992 - 2009; Madison Strategic Sector Premium Fund, Chief Compliance Officer, Corporate Counsel and Assistant Secretary, 2009 - Present; Secretary, General Counsel and Chief Compliance Officer, 2005 - 2009; MCN, Chief Compliance Officer, Corporate Counsel and Assistant Secretary, 2013 - Present; Madison Funds (13) and Ultra Series Fund (16), Chief Compliance Officer, Corporate Counsel and Assistant Secretary, 2009 - Present | N/A |
38
Madison Mosaic Equity Trust | Trustees and Officers | continued
Name and Year of Birth | Position(s) and Length of Time Served | Principal Occupation(s) During Past Five Years | Other Directorships/Trusteeships |
Pamela M. Krill 1966 | General Counsel, Chief Legal Officer and Assistant Secretary, 2009 - Present | MIH, MAM, Madison, Madison Scottsdale, LC, MFD, and Concord, General Counsel and Chief Legal Officer, 2009 - Present; NorthRoad, General Counsel & Chief Legal Officer, 2011 - Present; Madison Mosaic Funds (12 funds, including the Funds), General Counsel, Chief Legal Officer and Assistant Secretary, 2009 - Present; Madison Strategic Sector Premium Fund, General Counsel, Chief Legal Officer and Assistant Secretary, 2010 - Present; MCN, General Counsel, Chief Legal Officer and Assistant Secretary, 2013 - Present; Madison Funds (13) and Ultra Series Fund (16), General Counsel, Chief Legal Officer and Assistant Secretary, 2009 - Present; CUNA Mutual Insurance Society (insurance company with affiliated investment advisory, brokerage and mutual fund operations), Madison, WI, Managing Associate General Counsel- Securities & Investments, 2007 - 2009; Godfrey & Kahn, S.C. (law firm), Madison and Milwaukee, WI, Shareholder, Partner, Securities Practice Group, 1994-2007 | N/A |
Independent Trustees | ||||
Name and Year of Birth | Position(s) and Length of Time Served1 | Principal Occupation(s) During Past Five Years | Portfolios Overseen in Fund Complex2 | Other Directorships/Trusteeships |
Philip E. Blake 1943 | Trustee, 2001 - Present | Retired investor; Lee Enterprises, Inc (news and advertising publisher), Madison, WI, Vice President, 1998 - 2001; Madison Newspapers, Inc., Madison, WI, President and Chief Executive Officer, 1993 - 2000 | 43 | Edgewood College, 2003 - Present; Chairman of the Board, 2010-2012; Nerites Corporation (technology company), 2004 - Present; Madison Mosaic Funds (12 funds, including the Funds), 2001 - Present; Madison Strategic Sector Premium Fund, 2005 - Present; MCN, 2012 - Present; Madison Funds (13) and Ultra Series Fund (16), 2009 - Present |
39
Madison Mosaic Equity Trust | Trustees and Officers | concluded
Name and Year of Birth | Position(s) and Length of Time Served1 | Principal Occupation(s) During Past Five Years | Portfolios Overseen in Fund Complex2 | Other Directorships/Trusteeships |
James R Imhoff, Jr. 1944 | Trustee, 1996 - Present | First Weber Group (real estate brokers), Madison, WI, Chief Executive Officer, 1996 - Present | 43 | Park Bank, 1978 - Present; Madison Mosaic Funds (12 funds, including the Funds), 1996 - Present; Madison Strategic Sector Premium Fund, 2005 - Present; Madison Covered Call and Equity Strategy Fund, 2005 - Present; Madison Funds (13) and Ultra Series Fund (16), 2009 - Present |
Lorence D. Wheeler 1938 | Trustee, 1996 - Present | Retired investor; Credit Union Benefits Services, Inc. (a provider of retirement plans and related services for credit union employees nationwide), Madison, WI, President, 1986 - 1997 | 43 | Grand Mountain Bank FSB and Grand Mountain Bancshares, Inc. 2003 - Present; Madison Mosaic Funds (12 funds, including the Funds), 1996 - Present; Madison Strategic Sector Premium Fund. 2005 - Present; Madison Covered Call and Equity Strategy Fund, 2005 - Present; Madison Funds (13) and Ultra Series Fund (16), 2009 - Present |
1 Independent Trustees serve in such capacity until the Trustee reaches the age of 76, unless retirement is waived by unanimous vote of the remaining Trustees on an annual basis.
2 As of the date of this report, the fund complex consists of the Trust with 5 portfolios, the Madison Funds (f/k/a MEMBERS(r) Mutual Funds with 13 portfolios, the Ultra Series Fund with 16 portfolios, the Madison Strategic Sector Premium Fund (a closed-end fund), the Madison Covered Call & Equity Strategy Fund (a closed-end fund) and the Madison Mosaic Income, Tax-Free and Government Money Market Trusts, which together have 7 portfolios, for a grand total of 43 separate portfolios in the fund complex. Not every Trustee is a member of the Board of Trustees of every fund in the fund complex, as noted above.
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The Madison Mosaic Family of Mutual Funds |
Equity Trust |
Investors Fund |
Mid-Cap Fund |
Disciplined Equity Fund |
Dividend Income Fund |
NorthRoad International Fund |
Income Trust |
Government Fund |
Core Bond Fund |
Institutional Bond Fund |
Investment Grade Corporate Bond Fund |
Tax-Free Trust |
Virginia Tax-Free Fund |
Tax-Free National Fund |
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. MFD Distributors, LLC. |
An investment in any Madison Mosaic fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Government Money Market fund seeks to preserve the value of the investment at $1.00 per share, it is possible to lose money by investing in the fund. |
TRANSFER 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 |
SEC File Number 811-03615 |
Madison Mosaic® Funds
www.mosaicfunds.com