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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-3616
Mosaic Income Trust
(Exact name of registrant as specified in charter)
550 Science Drive, Madison, WI 53711
(Address of principal executive offices)(Zip code)
W. Richard Mason
Madison/Mosaic Legal and Compliance Department
8777 N. Gainey Center Drive, Suite 220
Scottsdale, AZ 85258
(Name and address of agent for service)
Registrant's telephone number, including area code: 608-274-0300
Date of fiscal year end: December 31
Date of reporting period: June 30, 2003
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMN has reviewed this collection of information under the clearance requirements of 44 U.S.C. s 3507.
SEMI-ANNUAL REPORT
(Unaudited)
June 30, 2003
Mosaic Income Trust
Mosaic Government Fund
Mosaic Intermediate Income Fund
Mosaic Funds
www.mosaicfunds.com
Contents
Letter to Shareholders | 1 |
mReview of Period | 2 |
mOutlook | 2 |
mFund Overview | 2 |
Portfolio of Investments | |
mGovernment Fund | 4 |
mIntermediate Income Fund | 5 |
Statements of Assets and Liabilities | 7 |
Statements of Operations | 8 |
Statements of Changes in Net Assets | 9 |
Financial Highlights | 10 |
Notes to Financial Statements | 11 |
Not too many months ago most investors were looking enviously at the returns of bond investors. Fund flows showed a steady movement of assets from stocks to bonds. Many of our conversations with shareholders and clients revolved around negatives: the multiple months of stock market losses, global uncertainties, fear of deflation and a weak economy. As is often the case, the pessimism was far greater than the ultimate reality and today a sense of calm has been restored.
Although bonds put in another strong six-months of performance, as the ensuing report details, improving economic reports likely mean the bond market rally is nearing an end. We see many positives around us: major military action in Iraq has ended, the war on terror appears to be progressing, headlines on accounting fraud and corporate scandal have faded, and the economy is showing signs of life. Behind this general optimism lies considerable risk in the bond market. A confluence of factors that can push interest rates higher is gaining momentum. In fact, after falling to 58-year lows, interest rates have begun to rise as the six-month period draws to a close. Higher interest rates spell losses for holders of existing bonds, as higher-yielding, more attractive bonds come to market. Long-term bonds are particularly sensitive to rising rates, which is why we have shortened duration in the funds in Income Trust.
A healthy allocation to bonds has been a boost for investors over the past three years, a very tough period for the stock market. If indeed we are witnessing a shift in investor sentiment, it is especially important to stay focused. It is all too easy to get caught up in the prevailing mood and lose perspective. Our answer is to stay grounded in our philosophy. We believe in active bond management: reducing risk at times like these when bonds have the potential to lose ground, and protecting principal until more attractive yields become available. We believe that this approach matches the goals of our shareholders.
While reducing risk can dampen performance over the short-run, it is a position that will be rewarded if rates move sharply higher. We believe we are well positioned for such a scenario, and we thank you for your continued confidence as we move into the rest of 2003 and beyond.
Sincerely,
(signature)
Katherine Frank
President
The period began with war worries, mixed economic signals and the stock market headed downwards once again. Amidst these concerns, investors continued to favor bonds, even with the Fed Funds rate at a historically low 1.25%. Among the weights on the economic mood were the weaknesses in the labor market and increased energy prices. Most sectors of the domestic bond market were slightly positive for the first quarter of 2003, results that looked even better when compared with the fate of stocks.
By the second quarter of 2003 positive military news from Iraq and hopes for an improving economy were boosting the stock market. Still, not all news was positive, as labor markets continued to weaken and manufacturing activity showed only slight signs of increasing. In late June, the Federal Reserve Board lowered rates another quarter point, to 1%, a precipitous drop from the 6.5% rate of just 30 months ago. Combined with the new Federal budget package and tax reductions, the period ended with a considerable amount of economic stimulus in the works. Dropping rates helped boost bonds, and all sectors of the domestic bond market had positive results for the second quarter and six-month period, ranging from miniscule returns from the shortest bonds (money markets), to double-digit gains for high-yield "junk" bonds.
Outlook
The economy’s near-term future outlook remains choppy. Some reports lead one to believe that we are in the early stages of a recovery, while others tend to suggest the economy is still struggling from the excesses of the late 1990s. On the positive side, in June the Fed provided the thirteenth interest rate cut for this economic down cycle, and Congress passed meaningful tax cuts. These are strong stimulative measures that many economists believe will provide the impetus for an economic recovery and, indeed, we have seen some positive data points supporting their assertion. On the other hand, the employment data is not encouraging, consumer and corporate debt levels are still high and there is little indication of a significant pickup in corporate spending. The excess capacity created by the misallocation of capital during the stock market bubble still exists. For the long term, we are bullish on the U.S. economy. In addition to considerable economic stimulus, increased Federal spending and tax cuts are likely to expand budget deficits, putting upward pressure on interest rates. As a result, we remain very cautious on the outlook for bonds at this time, and believe that after three solid years in the bond market, a short duration posture will protect principal in the months ahead.
Mosaic Government Fund
Mosaic Government Fund returned 1.78% for the semiannual period ended June 30, 2003. This return was lower than the fund’s peers, as the Lipper Intermediate Government Fund Index advanced 2.81%. This reflects management’s defensive positioning of the portfolio at a shorter duration. While this positioning was not a plus over this six-month period, it does reflect Mosaic’s concerns about the prospects of interest rate increases. If interest rates rise over the ensuing months, shareholders will see the benefits, since shorter bonds will retain their value far better than longer bonds.
The period continued to see strong positive flows into bond funds, as the Federal Reserve Board pushed rates to historic lows with a quarter-point cut in late June.
Mosaic Government was heavily weighted towards government agency notes, whose added yields over Treasuries (spreads) continued to appeal to management. The fund’s largest positions during this six-month period were short to intermediate duration bonds issued by Freddie Mac and Fannie Mae.
Mosaic Intermediate Income Fund
Mosaic Intermediate Income Fund returned 3.96% for the six months ended June 30, 2003. Over the same period, the Lipper Intermediate Investment Grade Index was up 4.84%. The performance gap was largely a duration story, as the fund’s shorter maturity was not additive over this six-month period, as interest rates continued to drop, despite growing evidence of an economic recovery. However, should rates ramp up over the ensuing months, shareholders will benefit, since shorter bonds will outperform longer bonds in such an environment.
The bulk of the fund was invested in high-quality, intermediate corporate bonds throughout the period, with much of the remainder in government agency securities. Intermediate Income can invest as much as 35% in lower-rated securities. Promises of an improved economy and a rising stock market made high-yield bonds one of the hot spots in the market, and the fund benefited from its exposure to BBB and BB bonds. However, BB bonds, the lowest rated bonds in the portfolio, were less than 10% of holdings through the period, reflecting management’s continued concern over taking excessive risks in an uncertain economy.
Looking forward, we continue to believe that a recovering economy will be a positive for corporate bonds. Corporate bond yields retain a yield advantage as well, which we expect will help overall returns and mitigate the effect of rising rates on our holdings. A rebounding economy will also buoy the prospects of lower-rated bonds, which we foresee playing a larger role in the fund’s portfolio in the future.
Government Fund • Portfolio of Investments (unaudited)
Credit Rating* | ||||
Moody’s | S&P | Principal Amount | Value | |
U.S. GOVERNMENT & AGENCY OBLIGATIONS: 97.5% of net assets | ||||
US TREASURY NOTES: 12.5% | ||||
Aaa | AAA | US Treasury Notes, 5.875%, 11/15/05 | 400,000 | $441,516 |
Aaa | AAA | US Treasury Notes, 4.625%, 5/15/06 | 250,000 | 271,084 |
U.S. GOVERNMENT AGENCY NOTES: 64.1% | ||||
Aaa | AAA | Fannie Mae, 6.5%, 8/15/04 | 250,000 | 264,944 |
Aaa | AAA | Fannie Mae, 7.125%, 2/15/05 | 400,000 | 437,615 |
Aaa | AAA | Fannie Mae, 5.75%, 6/15/05 | 350,000 | 379,610 |
Aaa | AAA | Fannie Mae, 6%, 12/15/05 | 300,000 | 331,885 |
Aaa | AAA | Fannie Mae, 6.42%, 3/9/09 | 300,000 | 310,711 |
Aaa | AAA | Fannie Mae, 6.375%, 6/15/09 | 175,000 | 207,515 |
Aaa | AAA | Federal Home Loan Bank, 6.08%, 7/10/12 | 350,000 | 350,392 |
Aaa | AAA | Freddie Mac, 6.875%, 1/15/05 | 230,000 | 249,623 |
Aaa | AAA | Freddie Mac, 3.5%, 9/15/07 | 350,000 | 366,255 |
Aaa | AAA | Freddie Mac, 5.125%, 10/15/08 | 250,000 | 279,652 |
Aaa | AAA | Freddie Mac, 5.5%, 9/15/11 | 425,000 | 482,644 |
MORTGAGE BACKED SECURITIES: 20.9% | ||||
Aaa | AAA | Fannie Mae, Mortgage Pool #555345, 5.5%, 2/1/18 | 251,829 | 261,715 |
Aaa | AAA | Fannie Mae, Mortgage Pool #636758, 6.5%, 5/1/32 | 166,104 | 173,271 |
Aaa | AAA | Fannie Mae, Mortgage Pool #254346, 6.5%, 6/1/32 | 161,723 | 168,701 |
Aaa | AAA | Fannie Mae, Mortgage Pool #254405, 6%, 8/1/32 | 221,177 | 230,005 |
Aaa | AAA | Freddie Mac, Mortgage Pool, Gold Pass Through Certificates #E57247, 6.5%, 3/1/09 | 105,575 | 111,604 |
Aaa | AAA | Freddie Mac, Mortgage Pool, Gold Pass Through Certificates #C01364, 6.5%, 6/1/32 | 161,450 | 168,063 |
Aaa | AAA | Government National Mortgage Association II, Guaranteed Pass Through Certificates #2483, 7%, 9/20/27 | 79,354 | 83,681 |
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (cost $5,337,739) | $5,570,486 | |||
REPURCHASE AGREEMENT: | ||||
A 1.4% interest in Morgan Stanley and Company issued 6/30/03 at 0.82%, due 7/1/03, collateralized by $24,765,932 in United States Treasury Notesdue 2/15/12. Proceeds at maturity are $79,002. (cost $79,000) | 79,000 | |||
TOTAL INVESTMENTS: 98.9% of net assets (cost $5,416,739) | $5,649,486 | |||
CASH AND RECEIVABLES LESS LIABILITIES: 1.1% of net assets | 65,290 | |||
NET ASSETS: 100% | $5,714,776 |
Intermediate Income Fund • Portfolio of Investments (unaudited)
Credit Rating* | ||||
Moody’s | S&P | Principal Amount | Value | |
CORPORATE DEBT SECURITIES: 64.4% of net assets | ||||
CONSUMER STAPLES: 8.6% | ||||
A | A2 | Coca-Cola Enterprise, 5.25%, 5/15/07 | 150,000 | $163,810 |
A3 | BBB+ | Kraft Foods Inc, 4.625%, 11/1/06 | 200,000 | 212,580 |
Baa2 | BBB | Safeway Inc, 4.8%, 7/16/07 | 200,000 | 209,349 |
ENERGY: 1.7% | ||||
Baa3 | BBB | Oryx Energy Company, 8.125%, 10/15/05 | 100,000 | 112,039 |
FINANCIALS: 15.4% | ||||
A3 | BBB | Ford Motor Credit, 6.875%, 2/1/06 | 150,000 | 159,184 |
A3 | BBB | GMAC, 5.75%, 11/10/03 | 200,000 | 202,774 |
A1 | A | Household Finance Co, 7.875%, 3/1/07 | 200,000 | 235,915 |
A1 | AA- | International Lease Finance, 5.75%, 10/15/06 | 200,000 | 218,919 |
Aa3 | A+ | Morgan Stanley & Company, 6.875%, 3/1/07 | 200,000 | 229,400 |
HEALTH CARE: 2.0% | ||||
Ba2 | BB+ | Amerisourcebergen Co, 8.125%, 9/1/08 | 125,000 | 138,125 |
INDUSTRIAL: 16.4% | ||||
Ba2 | BB+ | American Standard, 7.375%, 2/1/08 | 175,000 | 194,250 |
Baa1 | BBB+ | Chevron Phillips, 5.375%, 6/15/07 | 200,000 | 215,924 |
A3 | BBB+ | Daimler Chrysler, 6.4%, 5/15/06 | 150,000 | 163,913 |
Baa1 | A- | Equifax, 6.3%, 7/1/05 | 200,000 | 213,863 |
Ba1 | BBB- | Watson Pharmaceutical, 7.125%, 5/15/08 | 150,000 | 165,750 |
Ba1 | BB | YUM! Brands Inc, 8.5%, 4/15/06 | 150,000 | 168,750 |
INSURANCE: 5.6% | ||||
Baa3 | BBB- | Markel Corp, 6.8%, 2/15/13 | 150,000 | 163,465 |
A1 | A+ | MGIC Investment Corp, 6%, 3/15/07 | 200,000 | 216,333 |
RETAILERS-APPAREL: 3.1% | ||||
A3 | A- | Kohl’s Corporation, 6.7%, 2/1/06 | 185,000 | 207,020 |
TECHNOLOGY: 7.8% | ||||
A2 | A | Computer Sciences Co, 7.5%, 8/8/05 | 175,000 | 195,137 |
Baa1 | BBB | Lexmark International, 6.75%, 5/15/08 | 200,000 | 226,026 |
Baa2 | BBB | Motorola Inc., 6.75%, 2/1/06 | 100,000 | 109,500 |
TELECOMMUNICATIONS: 3.4% | ||||
Baa3 | BBB | AT&T Broadband, 8.375%, 3/15/13 | 181,000 | $227,162 |
UTILITIES: 0.4% | ||||
A2 | BBB+ | Wisconsin Power & Light, 7.625%, 3/1/10 | 25,000 | 29,956 |
TOTAL CORPORATE DEBT SECURITIES (cost $4,041,806) | $4,379,144 | |||
COLLATERALIZED MORTGAGE OBLIGATIONS: 3.6% of net assets | ||||
Aaa | AAA | Federal National Mortgage Association, Mortgage Pool #636758, 6.5%, 5/1/32 | 221,473 | 231,028 |
Aaa | AAA | Ryland Acceptance Corp., Class Four, Series 76, 9%, 8/1/18 | 15,632 | 15,691 |
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (cost $239,257) | $ 246,719 | |||
U.S. GOVERNMENT & AGENCY OBLIGATIONS: 27.1% of net assets | ||||
Aaa | AAA | Federal Home Loan Bank, 6.08%, 7/10/12 | 250,000 | 250,280 |
Aaa | AAA | Fannie Mae, 7.125%, 2/15/05 | 250,000 | 273,509 |
Aaa | AAA | Fannie Mae, 6.0%, 12/15/05 | 300,000 | 331,886 |
Aaa | AAA | Fannie Mae, 6.04%, 2/25/09 | 500,000 | 515,615 |
Aaa | AAA | Freddie Mac, 6.25%, 7/15/04 | 450,000 | 473,877 |
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (cost $1,801,437) | $1,845,167 | |||
REPURCHASE AGREEMENT: | ||||
A 2.9% interest in Morgan Stanley and Company issued 6/30/03 at 0.82%, due 7/1/03, collateralized by $24,765,932 in United States Treasury Notes due 2/15/12. Proceeds at maturity are $195,004. (cost $195,000) | 195,000 | |||
TOTAL INVESTMENTS: 98.0% of net assets (cost $6,277,500) | $6,666,030 | |||
CASH AND RECEIVABLES LESS LIABILITIES: 2.0% of net assets | 134,250 | |||
NET ASSETS: 100% | $6,800,280 |
Notes to the Portfolio of Investments:
* – Unaudited;
Moody’s – Moody’s Investors Services, Inc.
S&P – Standard & Poor’s Corporation
Statements of Assets and Liabilities (unaudited)
GOVERNMENT FUND | INTERMEDIATE INCOME FUND | |
ASSETS | ||
mInvestments, at value (Note 1 and 2) | ||
mInvestment securities | $5,570,486 | $6,471,030 |
mRepurchase agreements | 79,000 | 195,000 |
mTotal investments* | 5,649,486 | 6,666,030 |
Cash | 72 | 105 |
Receivables | ||
mInterest | 66,339 | 114,490 |
mCapital shares sold | 100 | 42,000 |
Total assets | $5,715,997 | $6,822,625 |
LIABILITIES | ||
Payables | ||
mDividends | 1,047 | 2,573 |
mCapital shares redeemed | 174 | 19,772 |
Total liabilities | 1,221 | 22,345 |
NET ASSETS (Note 7) | $5,714,776 | $6,800,280 |
CAPITAL SHARES OUTSTANDING | 539,944 | 1,000,944 |
NET ASSETS VALUE PER SHARE | $10.58 | $6.79 |
*INVESTMENT SECURITIES, AT COST | $5,416,739 | $6,277,500 |
Statements of Operations (unaudited)
For the six-months ended June 30, 2003
GOVERNMENT FUND | INTERMEDIATE INCOME FUND | |
INVESTMENT INCOME (Note 1) | ||
mInterest income | $128,791 | $168,927 |
EXPENSES (Notes 3 and 5) | ||
mInvestment Advisory Fees | 17,152 | 21,138 |
mOther expenses | 14,271 | 15,219 |
Total expenses | 31,423 | 36,357 |
NET INVESTMENT INCOME | $97,368 | $132,570 |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||
mNet realized gain on investments | 34,498 | 74,695 |
mChange in net unrealized appreciation (depreciation) of investments | (33,767) | 61,041 |
NET GAIN ON INVESTMENTS | $731 | $135,736 |
TOTAL INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $98,099 | $268,306 |
Statements of Changes in Net Assets
For the period indicated
GOVERNMENT FUND | INTERMEDIATE INCOME FUND | |||
(unaudited) | Year Ended | (unaudited) | Year Ended | |
INCREASE (DECREASE) IN NET ASSETS | ||||
RESULTING FROM OPERATIONS | ||||
mNet investment income | $97,368 | $218,496 | $132,570 | $309,712 |
mNet realized gain (loss) on investments | 34,498 | 121,793 | 74,695 | (243,364) |
mNet unrealized appreciation (depreciation) on investments | (33,767) | 57,851 | 61,041 | 234,731 |
Total increase in net assets resulting from operations | 98,099 | 398,140 | 268,306 | 301,079 |
DISTRIBUTION TO SHAREHOLDERS | ||||
mFrom net investment income | (97,368) | (218,496) | (132,570) | (309,712) |
CAPITAL SHARE TRANSACTIONS (Note 8) | (224,887) | 477,058 | (174,820) | 580,526 |
TOTAL INCREASE (DECREASE) IN NET ASSETS | (224,156) | 656,702 | (39,084) | 571,893 |
NET ASSETS | ||||
Beginning of period | $5,938,932 | $5,282,230 | $6,839,364 | $6,267,471 |
End of period | $5,714,776 | $5,938,932 | $6,800,280 | $6,839,364 |
(Selected data for a share outstanding throughout each period indicated)
GOVERNMENT FUND
(unaudited) | Year Ended December 31, | ||||
2003 | 2002 | 2001 | 2000 | 1999 | |
Net asset value, beginning of period | $10.58 | $10.24 | $9.97 | $9.54 | $10.22 |
Investment operations: | |||||
mNet investment income | 0.19 | 0.41 | 0.48 | 0.51 | 0.48 |
mNet realized and unrealized gain (loss) on investments | .-- | 0.34 | 0.27 | 0.43 | (0.68) |
Total from investment operations | 0.19 | 0.75 | 0.75 | 0.94 | (0.20) |
mLess distributions from net investment income | (0.19) | (0.41) | (0.48) | (0.51) | (0.48) |
Net asset value, end of period | $10.58 | $10.58 | $10.24 | $9.97 | $9.54 |
Total return (%) | 1.78 | 7.45 | 7.62 | 10.19 | (1.99) |
Ratios and supplemental data | |||||
Net assets, end of period (thousands) | $5,715 | $5,939 | $5,282 | $5,149 | $5,206 |
mRatio of expenses to average net assets (%) | 1.141 | 1.14 | 1.15 | 1.15 | 1.14 |
mRatio of net investment income to average net assets (%) | 3.521 | 3.92 | 4.67 | 5.31 | 4.86 |
mPortfolio turnover (%) | .21 | .44 | .34 | .33 | .12 |
INTERMEDIATE INCOME FUND
(unaudited) | Year Ended December 31, | ||||
2003 | 2002 | 2001 | 2000 | 1999 | |
Net asset value, beginning of period | $6.66 | $6.67 | $6.48 | $6.31 | $6.92 |
Investment operations: | |||||
mNet investment income | 0.13 | 0.30 | 0.37 | 0.40 | 0.46 |
mNet realized and unrealized gain (loss) on investments | 0.13 | (0.01) | 0.19 | 0.17 | (0.61) |
Total from investment operations | 0.26 | 0.29 | 0.56 | 0.57 | (0.15) |
mLess distributions from net investment income | (0.13) | (0.30) | (0.37) | (0.40) | (0.46) |
Net asset value, end of period | $6.79 | $6.66 | $6.67 | $6.48 | $6.31 |
Total return (%) | 3.96 | 4.56 | 8.81 | 9.49 | (2.20) |
Ratios and supplemental data | |||||
Net assets, end of period (thousands) | $6,800 | $6,839 | $6,267 | $4,286 | $5,195 |
mRatio of expenses to average net assets (%) | 1.071 | 1.07 | 1.07 | 1.08 | 1.11 |
mRatio of net investment income to average net assets (%) | 3.891 | 4.61 | 5.61 | 6.43 | 6.97 |
mPortfolio turnover (%) | .23 | .54 | .28 | .18 | .63 |
1Annualized.
1. Summary of Significant Accounting Policies. Mosaic Income Trust (the "Trust") is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 as an open-end, diversified investment management company. This report contains information about two separate funds (the "Funds") whose objective is to receive and distribute bond income. The Government Fund invests in securities of the U. S. Government and its agencies. The Intermediate Income Fund invests in investment grade corporate, government and government agency fixed income securities. The Intermediate Income Fund may also invest a portion of its assets in securities rated as low as "B" by Moody’s Investors Service, Inc. or Standard & Poor’s Corporation. A third Mosaic Income Trust portfolio, available to certain institutional investors (as defined in the fund’s prospectus) presents its financial information in a separate report.
Securities Valuation: Repurchase agreements and other securities having maturities of 60 days or less are valued at amortized cost, which approximates market value. Securities having longer maturities, for which market quotations are readily available, are valued at the mean between their bid and asked prices. Securities for which current market quotations are not readily available are valued at their fair value as determined in good faith by the Board of Trustees.
Investment Transactions: Investment transactions are recorded on a trade date basis. The cost of investments sold is determined on the identified cost basis for financial statement and federal income tax purposes.
Investment Income: Interest income is recorded on an accrual basis. Bond premium is amortized and original issue discount is accreted over the expected life of each applicable security. Other income is accrued as earned.
Distribution of Income and Gains: Net invest-ment income, determined as gross investment income less total expenses, is declared as a regular dividend and distributed to shareholders monthly. Capital gains distributions, if any, are declared and paid annually at year end.
The tax character of distributions paid during 2002 and 2001 was as follows:
2002 | 2001 | |
Government Fund: | ||
Distributions paid from Ordinary Income | $218,496 | $242,517 |
Intermediate Income Fund: | ||
Distributions paid from Ordinary Income | $309,712 | $303,242 |
As of December 31, 2002, the components of distributable earnings on a tax basis were as follows:
Government Fund: | |
Accumulated net realized losses | $(205,626) |
Net unrealized appreciation on investments | 259,860 |
$ 54,234 | |
Intermediate Income Fund: | |
Accumulated net realized losses | $(1,166,454) |
Net unrealized appreciation on investments | 327,489 |
$ (838,965) |
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 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. As of December 31, 2002, the Government and Intermediate Income Funds had available for federal income tax purposes the following unused capital loss carryovers:
Expiration Date | Government Fund | Intermediate Income Fund |
December 31, 2003 | $81,483 | $ 94,831 |
December 31, 2004 | 44,628 | -- |
December 31, 2005 | 64,210 | 293 |
December 31, 2006 | -- | 239,050 |
December 31, 2007 | 9,847 | 486,268 |
December 31, 2008 | 5,458 | 89,747 |
December 31, 2009 | -- | 12,901 |
December 31, 2010 | -- | 243,364 |
A portion of the Intermediate Income Fund’s capital loss carryovers were acquired through its merger with Mosaic Bond Fund on July 1, 1999, and are subject to certain limitations.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Such estimates affect the reported amounts of assets and liabilities and reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
2. Investments in Repurchase Agreements. When the Trust purchases securities under agreements to resell, the securities are held for safekeeping by the Trust’s custodian bank as collateral. Should the market value of the securities purchased under such an agreement decrease below the principal amount to be received at the termination of the agreement plus accrued interest, the counterparty is required to place an equivalent amount of additional securities in safekeeping with the Trust’s custodian bank. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Trust, along with other registered investment companies having Advisory and Services Agreements with the same advisor, transfers uninvested cash balances into a joint trading account. The aggregate balance in this joint trading account is invested in one or more consolidated repurchase agreements whose underlying securities are U.S. Treasury or federal agency obligations.
3. Investment Advisory Fees and Other Transactions with Affiliates. The investment advisor to the Trust, Madison Mosaic, LLC, a wholly owned subsidiary of Madison Investment Advisors, Inc., (collectively "the Advisor"), earns an advisory fee equal to 0.625% per annum of the average net assets of each of the Funds; the fees are accrued daily and are paid monthly.
4. Investment Transactions. Purchases and sales of securities (excluding short-term securities) for the six-months ended June 30, 2003 were as follows:
Purchases | Sales | |
Government Fund: | ||
U.S. Gov’t Securities | $1,111,063 | $1,225,101 |
Other | -- | -- |
Intermediate Income Fund: | ||
U.S. Gov’t Securities | $520,879 | $632,701 |
Other | $ 962,172 | $859,581 |
5. Other Expenses. Under a separate Services Agreement, the Advisor will provide or arrange for each Fund to have all other necessary operational and support services for a fee based on a percentage of average net assets. This percentage is 0.52% for the Government Fund and 0.45% for the Intermediate Income Fund. These fees are accrued daily and paid monthly.
The Advisor is also responsible for the fees and expenses of Trustees and for certain promotional expenses.
6. Aggregate Cost and Unrealized Appreciation (Depreciation). The aggregate cost for federal income tax purposes and the net unrealized appreciation (depreciation) are stated as follows as of June 30, 2003:
Government Fund | Intermediate Income Fund | |
Aggregate Cost | $5,416,739 | $6,277,500 |
Gross unrealized appreciation | 237,658 | 390,396 |
Gross unrealized depreciation | (4,911) | (1,866) |
Net unrealized appreciation | $ 232,747 | $ 388,530 |
7. Net Assets. At June 30, 2003, net assets include the following:
Government Fund | Intermediate Income Fund | |
Net paid in capital on shares of beneficial interest | $5,659,811 | $7,503,509 |
Accumulated net realized losses | (177,782) | (1,091,759) |
Net unrealized appreciation on investments | 232,747 | 388,530 |
Total net assets | $5,714,776 | $6,800,280 |
8. Capital Share Transactions. An unlimited number of capital shares, without par value, are authorized. Transactions in capital shares for the following periods were:
(unaudited) | Year Ended | |
Government Fund | 2003 | 2002 |
In Dollars | ||
Shares sold | $470,696 | $742,989 |
Shares issued in reinvestment of dividends | 90,652 | 203,056 |
Total shares issued | 561,348 | 946,045 |
Shares redeemed | (786,235) | (468,987) |
Net increase (decrease) | $(224,887) | $477,058 |
In Shares | ||
Shares sold | 51,696 | 71,612 |
Shares issued in reinvestment of dividends | 8,572 | 19,563 |
Total shares issued | 60,268 | 91,175 |
Shares redeemed | (81,823) | (45,294) |
Net increase (decrease) | (21,555) | 45,881 |
(unaudited) | Year Ended | |
Intermediate Income Fund | 2003 | 2002 |
In Dollars | ||
Shares sold | $473,544 | $1,614,253 |
Shares issued in reinvestment of dividends | 114,908 | 265,769 |
Total shares issued | 588,452 | 1,880,022 |
Shares redeemed | (763,272) | (1,299,496) |
Net increase(decrease) | $(174,820) | $580,526 |
In Shares | ||
Shares sold | 72,974 | 244,360 |
Shares issued in reinvestment of dividends | 17,100 | 40,452 |
Total shares issued | 90,074 | 284,812 |
Shares redeemed | (116,090) | (197,486) |
Net increase(decrease) | (26,016) | 87,326 |
9. 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. These policies are available to you upon request and free of charge by writing to Mosaic Funds, 550 Science Drive, Madison, WI 53711 or by calling toll-free at 1-800-368-3195. Beginning next year, the Trust’s proxy voting policies and procedures may also be obtained by visiting the Securities and Exchange Commission web site at www.sec.gov. The Trust will respond to shareholder requests for copies of our policies within two business days of request by first-class mail or other means designed to ensure prompt delivery.
The Mosaic Family of Mutual Funds
Mosaic Equity Trust
Mosaic Investors Fund
Mosaic Balanced Fund
Mosaic Mid-Cap Fund
Mosaic Foresight Fund
Mosaic Income Trust
Mosaic Government Fund
Mosaic Intermediate Income Fund
Mosaic Institutional Bond Fund
Mosaic Tax-Free Trust
Mosaic Arizona Tax-Free Fund
Mosaic Missouri Tax-Free Fund
Mosaic Virginia Tax-Free Fund
Mosaic Tax-Free National Fund
Mosaic Tax-Free Money Market
Mosaic Government Money Market
For more complete information on any Mosaic fund, including charges and expenses, request a prospectus by calling 1-800-368-3195. Read it carefully before you invest or send money. This document does not constitute an offering by the distributor in any jurisdiction in which such offering may not be lawfully made. Mosaic Funds Distributor, LLC.
TRANSER AGENT
Mosaic Funds
c/o US Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
TELEPHONE NUMBERS
Shareholder Service
Toll-free nationwide: 888-670-3600
Mosaic Tiles (24 hour automated information)
Toll-free nationwide: 800-336-3600
550 Science Drive
Madison, Wisconsin 53711
Mosaic Funds
www.mosaicfunds.com
SEC File Number 811-3616
Semi-Annual Report (unaudited)
June 30, 2003
Mosaic Income Trust
Mosaic Institutional Bond Fund
Mosaic Funds
www.mosaicfunds.com
Contents
Letter to Shareholders | 1 |
| 2 |
2 | |
3 | |
Portfolio of Investments | 4 |
Statement of Assets and Liabilities | 5 |
Statement of Operations | 5 |
Statements of Changes in Net Assets | 6 |
Financial Highlights | 7 |
Notes to Financial Statements | 7 |
Letter to Shareholders
Not too many months ago most investors were looking enviously at the returns of bond investors. Fund flows showed a steady movement of assets from stocks to bonds. Many of our conversations with shareholders and clients revolved around negatives: the multiple months of stock market losses, global uncertainties, fear of deflation and a weak economy. As is often the case, the pessimism was far greater than the ultimate reality and today a sense of calm has been restored.
Although bonds put in another strong six-months of performance, as the ensuing report details, improving economic reports likely mean the bond market rally is nearing an end. We see many positives around us: major military action in Iraq has ended, the war on terror appears to be progressing, headlines on accounting fraud and corporate scandal have faded, and the economy is showing signs of life. Behind this general optimism lies considerable risk in the bond market. A confluence of factors that can push interest rates higher is gaining momentum. In fact, after falling to 58-year lows, interest rates have begun to rise as the six-month period draws to a close. Higher interest rates spell losses for holders of existing bonds, as higher-yielding, more attractive bonds come to market. Long-term bonds are particularly sensitive to rising rates, which is why we have shortened duration in the funds in Income Trust.
A healthy allocation to bonds has been a boost for investors over the past three years, a very tough period for the stock market. If indeed we are witnessing a shift in investor sentiment, it is especially important to stay focused. It is all too easy to get caught up in the prevailing mood and lose perspective. Our answer is to stay grounded in our philosophy. We believe in active bond management: reducing risk at times like these when bonds have the potential to lose ground, and protecting principal until more attractive yields become available. We believe that this approach matches the goals of our shareholders.
While reducing risk can dampen performance over the short-run, it is a position that can be exceedingly welcome if rates take a sharp rise. We believe we are well prepared for such a scenario, and we thank you for your continued confidence as we move into the rest of 2003 and beyond.
Sincerely,
(signature)
Katherine Frank
President
Review of Period
The period began with war worries, mixed economic signals and the stock market headed downwards once again. Amidst these concerns, investors continued to favor bonds, even with the Fed Funds rate at a historically low 1.25%. Among the weights on the economic mood were the weaknesses in the labor market and increased energy prices. Most sectors of the domestic bond market were slightly positive for the first quarter of 2003; results that looked even better when compared with the fate of stocks.
By the second quarter of 2003 positive military news from Iraq and hopes for an improving economy were boosting the stock market. Still, not all news was positive, as labor markets continued to weaken and manufacturing activity showed only slight signs of increasing. In late June, the Federal Reserve Board lowered rates another quarter point, to 1%, a precipitous drop from the 6.5% rate of just 30 months ago. Combined with the new Federal budget package and tax reductions, the period ended with a considerable amount of economic stimulus in the works. Dropping rates helped boost bonds, and all sectors of the domestic bond market had positive results for the second quarter and six-month period, ranging from miniscule returns from the shortest bonds (money markets), to double-digit gains for high-yield "junk" bonds.
Despite recent soft economic numbers, the economy’s near-term future is uncertain. Some reports lead one to believe that we are in the early stages of a recovery, while others tend to suggest the economy is still struggling from the excesses of the late 1990s. On the positive side, in June the Fed provided the thirteenth interest rate cut for this economic down cycle and Congress passed meaningful tax cuts. These are strong stimulative measures that many economists believe will provide the impetus for an economic recovery and, indeed, we have seen some positive data points supporting their assertion. On the other hand, employment data is not encouraging, consumer and corporate debt levels are still high and there is little indication of a significant pickup in corporate spending. The excess capacity created by the misallocation of capital during the stock market bubble still exists. For the long term, we are bullish on the U.S. economy. In addition to considerable economic stimulus, increased Federal spending and tax cuts are likely to expand budget deficits, putting upward pressure on interest rates over the next several years. As a result, we remain very cautious on the outlook for bonds at this time and believe that after three solid years in the bond market, a short duration posture will protect principle in the months ahead.
Mosaic Institutional Bond Fund returned 3.04% for the semiannual period ended June 30, 2003. Over the same period, the Lipper Intermediate Investment Grade Index was up 4.84%. The performance gap was largely a duration story, as the fund’s shorter maturity was not additive over this six-month period, as interest rates continued to drop, despite growing evidence of an economic recovery. However, should rates ramp up over the ensuing months, our goal is for shareholders to benefit, since shorter bonds will outperform longer bonds in such an environment.
The Fund favored high-quality, short/intermediate corporate bonds throughout the period, with much of the remainder in government agency securities. Corporate bonds provide higher yield when compared with similar maturity Treasuries, while holding the potential for positive returns should the spreads (price gap between similar maturity corporate and Treasury bonds) tighten. This scenario would be likely in an improving economy. This combination can help the fund’s overall returns in a rising rate environment, which we feel is the most likely scenario going forward.
Portfolio of Investments (unaudited)
Credit Rating* | ||||
Moody’s | S&P | Principal Amount | Value | |
DEBT INSTRUMENTS: 96.3% of net assets | ||||
CORPORATE OBLIGATIONS: 54.0% | ||||
A1 | A+ | American Express, 5.50%, 9/12/06 | 155,000 | $171,199 |
Aa1 | AA- | Associates Corp, 5.75%, 11/1/03 | 220,000 | 223,330 |
Aa3 | A | Bank One Corp, 7.625%, 8/1/05 | 150,000 | 168,158 |
A2 | A | Coca-Cola Enterprise, 5.25%, 5/15/07 | 200,000 | 218,413 |
A2 | A | Computer Sciences Co, 7.5%, 8/8/05 | 185,000 | 206,288 |
A3 | A- | CONOCO Inc, 6.35%, 4/15/09 | 205,000 | 239,906 |
A3 | BBB | Ford Motor Credit, 6.875%, 2/1/06 | 150,000 | 159,184 |
A3 | BBB | GMAC, 5.75%, 11/10/03 | 220,000 | 223,052 |
A1 | A | Household Finance Co, 7.875%, 3/1/07 | 185,000 | 218,222 |
A1 | AA- | International Lease Finance, 5.75%, 10/15/06 | 200,000 | 218,919 |
A3 | A- | Kohl’s Corporation, 6.7%, 2/1/06 | 190,000 | 212,615 |
Aa3 | NA | Merrill Lynch, 7%, 10/15/05 | 200,000 | 232,974 |
A1 | A+ | MGIC Investment Corp, 7.5%, 10/15/05 | 175,000 | 193,738 |
Aa3 | A+ | Morgan Stanley Dean Witter, 6.875%, 3/1/07 | 170,000 | 194,990 |
Aa3 | A | Nationsbank Corp, 7.5%, 9/15/06 | 200,000 | 232,206 |
A1 | A+ | SBC Communication, 5.75%, 5/2/06 | 185,000 | 204,478 |
Aa3 | AA | Texaco Capital Inc, 5.5%, 1/15/09 | 150,000 | 169,751 |
A2 | A | Texas Instruments, 6.125%, 2/1/06 | 160,000 | 175,935 |
Aa3 | A | Wells Fargo & Co, 6.875%, 4/1/06 | 200,000 | 226,493 |
Aa3 | A | WPS Resources Corp, 7%, 11/1/09 | 100,000 | 120,278 |
U.S. GOVERNMENT & AGENCY OBLIGATIONS: 42.3% | ||||
Aaa | AAA | Federal Home Loan Bank, 5.375%, 1/5/04 | 300,000 | 306,619 |
Aaa | AAA | Federal Home Loan Bank, 6.08%, 7/10/12 | 300,000 | 300,336 |
Aaa | AAA | Fannie Mae, 6.375%, 11/15/03 | 630,000 | 642,647 |
Aaa | AAA | Fannie Mae, 7.125%, 2/15/05 | 290,000 | 317,271 |
Aaa | AAA | Fannie Mae, 5.25%, 4/15/07 | 300,000 | 333,703 |
Aaa | AAA | Freddie Mac, 6.25%, 7/15/04 | 560,000 | 589,714 |
Aaa | AAA | US Treasury Notes, 4.625%,5/15/06 | 600,000 | 650,602 |
TOTAL DEBT INSTRUMENTS (cost $6,804,870) | $7,151,021 | |||
REPURCHASE AGREEMENT: | ||||
A 2.0% interest in Morgan Stanley and Company issued 6/30/03 at 0.82%, due 7/1/03, collateralized by $24,765,932 in United States Treasury Notes due 2/15/12. Proceeds at maturity are $149,003 (cost $149,000). | 149,000 | |||
TOTAL INVESTMENTS: 98.3% of net assets (cost $6,953,870) | $7,300,021 | |||
CASH AND RECEIVABLES LESS LIABILITIES: 1.7% of net assets | 122,349 | |||
NET ASSETS: 100% | $7,422,370 |
Notes to the Portfolio of Investments:
* – Unaudited
Moody’s – Moody’s Investors Services, Inc.
S&P – Standard & Poor’s Corporation
Statement of Assets and Liabilities (unaudited)
ASSETS | |
Investments, at value (Notes 1 and 2) | |
mInvestment securities | $7,151,021 |
mRepurchase agreements | 149,000 |
mTotal investments* | 7,300,021 |
Cash | 375 |
Dividends and interest receivable | 121,974 |
Total assets | $7,422,370 |
NET ASSETS (Note 7) | $7,422,370 |
CAPITAL SHARES OUTSTANDING | 696,589 |
NET ASSETS VALUE PER SHARE | $10.66 |
*INVESTMENT SECURITIES, AT COST | $6,953,870 |
Statement of Operations (unaudited)
For the six-months ended June 30, 2003
INVESTMENT INCOME (Note 1) | |
mInterest income | $151,101 |
EXPENSES (Notes 3 and 5) | |
mInvestment Advisory Fees | 10,711 |
mOther expenses | 5,356 |
Total Expenses | 16,067 |
NET INVESTMENT INCOME | 135,034 |
REALIZED AND UNREALIZED GAIN ON INVESTMENTS | |
mNet realized gain on investments | 70,827 |
mChange in net unrealized appreciation of investments | 6,186 |
NET GAIN ON INVESTMENTS | 77,013 |
TOTAL INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $212,047 |
Statements of Changes in Net Assets
For the period indicated
(unaudited) Six-Months Ended June 30, 2003 | Year Ended December 31, 2002 | |
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | ||
mNet investment income | $135,034 | $284,094 |
mNet realized gain (loss) on investments | 70,827 | (116,347) |
mNet unrealized appreciation on investments | 6,186 | 153,718 |
Total increase in net assets resulting from operations | 212,047 | 321,465 |
DISTRIBUTIONS TO SHAREHOLDERS | ||
mFrom net investment income | (135,034) | (284,094) |
mFrom net capital gains | -- | (27,926) |
Total distributions | (135,034) | (312,020) |
CAPITAL SHARE TRANSACTIONS (Note 8) | 347,236 | 664,053 |
TOTAL INCREASE IN NET ASSETS | 424,249 | 673,498 |
NET ASSETS | ||
Beginning of period | $6,998,121 | $6,324,623 |
End of period | $7,422,370 | $6,998,121 |
Financial Highlights
Selected data for a share outstanding throughout each period indicated
(unaudited) Six-Months Ended | Year Ended Dec. 31, | Year Ended Dec. 31, | Period May 1, 2000 (date of | |
2003 | 2002 | 2001 | 2000 | |
Net asset value, beginning of period | $10.54 | $10.54 | $10.22 | $10.00 |
Investment operations: | ||||
mNet investment income | 0.20 | 0.45 | 0.60 | 0.39 |
mNet realized and unrealized gain on investments | 0.12 | 0.04 | 0.35 | 0.23 |
Total from investment operations | 0.32 | 0.49 | 0.95 | 0.62 |
mLess distributions: | ||||
mmFrom net investment income | (0.20) | (0.45) | (0.60) | (0.39) |
mmFrom net capital gains | .— | (0.04) | (0.03) | (0.01) |
Total distributions | (0.20) | (0.49) | (0.63) | (0.40) |
Net asset value, end of period | $10.66 | $10.54 | $10.54 | $10.22 |
Total return (%) | 3.04 | 4.79 | 9.47 | 6.24 |
Ratios and supplemental data | ||||
Net assets, end of period (thousands) | $7,422 | $6,998 | $6,325 | $5,528 |
mRatio of expenses to average net assets (%) | 0.451 | 0.45 | 0.45 | 0.45 |
mRatio of net investment income to average net assets (%) | 3.751 | 4.28 | 5.68 | 6.74 |
mPortfolio turnover (%) | .16 | 30 | 68 | 36 |
1Annualized.
Notes to Financial Statements
1. Summary of Significant Accounting Policies. Mosaic Income Trust (the "Trust") is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 as an open-end, diversified investment management company. The Trust currently offers three portfolios, each of which is a diversified mutual fund. This report contains information about one of these portfolios, the Mosaic Institutional Bond Fund (the "Fund"), which commenced operations May 1, 2000. Its objectives and strategies are detailed in its prospectus. The remaining two Trust portfolios present their financial information in a separate report.
Securities Valuation: Repurchase agreements and other securities having maturities of 60 days or less are valued at amortized cost, which approximates market value. Securities having longer maturities, for which quotations are readily available, are valued at the mean between their bid and asked prices. Securities for which current market quotations are not readily available are valued at their fair value as determined in good faith by the Board of Trustees.
Investment Transactions: Investment transactions are recorded on a trade date basis. The cost of investments sold is determined on the identified cost basis for financial statement and federal income tax purposes.
Investment Income: Interest income is recorded on an accrual basis. Bond premium is amortized and original issue discount is accreted over the expected life of each applicable security. Other income is accrued as earned.
Distribution of Income and Gains: Net investment income, determined as gross investment income less total expenses, is declared as a regular dividend and distributed to shareholders quarterly. Capital gains distributions, if any, are declared and paid annually at year end.
The tax character of distributions paid during 2002 and 2001 was as follows:
2002 | 2001 | |
Distributions paid from: | ||
mOrdinary Income | $284,094 | $342,591 |
mLong-term capital gains | 17,452 | 19,811 |
mShort-term capital gains | 10,474 | -- |
As of December 31, 2002, the components of distributable earnings on a tax basis were as follows:
Accumulated net realized losses | $(116,347) |
Net unrealized appreciation on investments | 339,965 |
$223,618 |
Net realized gains or losses may differ for financial and tax reporting purposes as a result of loss deferrals related to wash sales and post-October transactions.
Income Tax: No provision is made for Federal income taxes since it is the intention of the Fund to comply with the provisions of the Internal Revenue Code available to investment companies and to make the requisite distribution to shareholders of taxable income which will be sufficient to relieve it from all or substantially all Federal income taxes. As of December 31, 2002, the Fund had available for federal income tax purposes an unused capital loss carryover of $116,347 which expires on December 31, 2010.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Such estimates affect the reported amounts of assets and liabilities and reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
2. Investments in Repurchase Agreements. When the Fund purchases securities under agreements to resell, the securities are held for safekeeping by the Fund’s custodian bank as collateral. Should the market value of the securities purchased under such an agreement decrease below the principal amount to be received at the termination of the agreement plus accrued interest, the counterparty is required to place an equivalent amount of additional securities in safekeeping with the Fund’s custodian bank. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having Advisory and Services Agreements with the same advisor, transfers uninvested cash balances into a joint trading account. The aggregate balance in this joint trading account is invested in one or more consolidated repurchase agreements whose underlying securities are U.S. Treasury or federal agency obligations.
3. Investment Advisory Fees and Other Transactions with Affiliates. The investment advisor to the Fund, Madison Mosaic, LLC, a wholly owned subsidiary of Madison Investment Advisors, Inc., (collectively "the Advisor"), earns an advisory fee equal to 0.30% per annum of the average net assets of the Fund. The fees are accrued daily and are paid monthly.
4. Investment Transactions. Purchases and sales of securities (excluding short-term securities) for the six-months ended June 30, 2003 were as follows:
Purchases | Sales | |
U. S. Gov’t Securities | $975,344 | $11,550 |
Other | $860,944 | $1,009,395 |
5. Other Expenses. Under a separate Services Agreement, the Advisor will provide or arrange for the Fund to have all other necessary operational and support services for a fee based on a percentage (0.15%) of average net assets. These fees are accrued daily and paid monthly.
The Advisor is also responsible for the fees and expenses of Trustees and for certain promotional expenses.
6. Aggregate Cost and Unrealized Appreciation (Depreciation). The aggregate cost for federal income tax purposes and the net unrealized appreciation (depreciation) are as follows as of June 30, 2003:
Aggregate Cost | $6,953,870 |
Gross unrealized appreciation | 346,151 |
Gross unrealized depreciation | -- |
Net unrealized appreciation | $ 346,151 |
7. Net Assets. At June 30, 2003, net assets include the following:
Net paid in capital on shares of beneficial interest | $7,121,739 |
Accumulated net realized loss | (45,520) |
Net unrealized appreciation on investments | 346,151 |
Total Net Assets | $7,422,370 |
8. Capital Share Transactions. An unlimited number of capital shares, without par value, are authorized. Transactions in capital shares were as follows:
(unaudited) Six-Months Ended June 30, | Year Ended Dec. 31, | |
2003 | 2002 | |
In Dollars | ||
Shares sold | $219,897 | $356,576 |
Shares issued in reinvestment of dividends | 135,029 | 312,020 |
Total shares issued | 354,926 | 668,596 |
Shares redeemed | (7,690) | (4,543) |
Net increase | $347,236 | $664,053 |
In Shares | ||
Shares sold | 20,682 | 34,158 |
Shares issued in reinvestment of dividends | 12,723 | 29,843 |
Total shares issued | 33,405 | 64,001 |
Shares redeemed | (726) | (431) |
Net increase | 32,679 | 63,570 |
9. 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. These policies are available to you upon request and free of charge by writing to Mosaic Funds, 550 Science Drive, Madison, WI 53711 or by calling toll-free at 1-800-368-3195. Beginning next year, the Trust’s proxy voting policies and procedures may also be obtained by visiting the Securities and Exchange Commission web site at www.sec.gov. The Trust will respond to shareholder requests for copies of our policies within two business days of request by first-class mail or other means designed to ensure prompt delivery.
The Mosaic Family of Mutual Funds
Mosaic Equity Trust
Mosaic Investors Fund
Mosaic Balanced Fund
Mosaic Mid-Cap Fund
Mosaic Foresight Fund
Mosaic Income Trust
Mosaic Government Fund
Mosaic Intermediate Income Fund
Mosaic Institutional Bond Fund
Mosaic Tax-Free Trust
Mosaic Arizona Tax-Free Fund
Mosaic Missouri Tax-Free Fund
Mosaic Virginia Tax-Free Fund
Mosaic Tax-Free National Fund
Mosaic Tax-Free Money Market
Mosaic Government Money Market
For more complete information on any Mosaic fund, including charges and expenses, request a prospectus by calling 1-800-368-3195. Read it carefully before you invest or send money. This document does not constitute an offering by the distributor in any jurisdiction in which such offering may not be lawfully made. Mosaic Funds Distributor, LLC.
TRANSER AGENT
Mosaic Funds
c/o US Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
TELEPHONE NUMBERS
Shareholder Service
Toll-free nationwide: 888-670-3600
Mosaic Tiles (24 hour automated information)
Toll-free nationwide: 800-336-3600
550 Science Drive
Madison, Wisconsin 53711
Mosaic Funds
www.mosaicfunds.com
SEC File Number 811-3616
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Mosaic Income Trust
By: (signature)
W. Richard Mason, Secretary
Date: August 25, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: (signature)
Katherine L. Frank, Chief Executive Officer
Date: August 25, 2003
By: (signature)
Greg Hoppe, Chief Financial Officer
Date: August 25, 2003