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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
Madison 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, 2008
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspoection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. s 3507.
SEMI-ANNUAL REPORT
(Unaudited)
June 30, 2008
Madison Mosaic Income Trust
Government Fund
Core Bond Fund
Madison Mosaic Funds
www.mosaicfunds.com
Contents
Portfolio Manager Review | |
Market Review | 1 |
Outlook | 1 |
Fund Overview | 2 |
Portfolio of Investments | |
Government Fund | 4 |
Core Bond 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 |
Madison Mosaic Income Trust - June 30, 2008
Portfolio Manager Review
Market Review
The first six months of 2008 rewarded the risk-adverse fixed-income investor, as a variety of forces sent stocks and higher-risk bonds spiraling downward. In the world of bonds, positive returns were generally restricted to areas investors consider havens from risk, most notably shorter-term government securities.
Three key areas created problems for investors: high commodity prices, with gasoline leading the way; the continuing distress in the housing market; and the related progress of the already well-established credit crisis. Bond investors who had stretched for yield by purchasing risky securities found these securities’ downside as many of them, particularly those associated with lower-quality mortgages, had deep losses. The credit crisis which emerged in late 2007 worsened as the year began, and in response the Federal Reserve made a surprise rate cut on January 22, lowering its federal funds rate from 4.25% to 3.5%. This rate cut was followed by others at the end of January, in mid-March, and at the end of April, bringing the Fed Funds rate to 2.00%, a drop of 3.25% in a period of four months. The Fed also continued their campaign to increase liquidity through its Term Auction Facility by injecting a total of some $1.2 trillion into the financial markets through June.
Despite these cuts and liquidity efforts, the stock market sunk in March as one of the nation’s largest investment banks, Bear Stearns, stumbled into what looked like dissolution until the Federal Reserve and J.P. Morgan worked out a rescue. This gave hope to many that the credit crisis might have bottomed, but the subsequent rally rolled over in June in the face of surging oil prices, concerns over inflation and a recognition that credit problems would continue to emerge. Higher energy and ramping inflation at a time when the economy was slowing brought the term “stagflation” back into circulation. Stagflation is generally a poor environment for longer-term bond and stock investors.
Outlook
This was a period in which we witnessed extensive disruptions in the financial markets and a decided slowdown in the economy. As inflation heated up and energy and food costs remained high, the consumer was under a lot of pressure. By the end of the period we were beginning to see the labor markets soften. We continue to see this as an extended period of below average economic growth, but are not yet convinced that it will roll into the kind of negative growth that defines an official recession. Federal Reserve moves take some time to work their way through the economy and we have not yet seen all of the positive effects of the Fed’s dramatic easings that took place during this reporting period. In terms of future Fed moves, we currently believe the next move will be a response to inflation concerns, which means a rate increase, but the Fed has historically never tightened rates while employment was weakening. As a result, we see the Fed holding steady, with the next move not likely until some time in 2009 when there may be evidence that the employment trends have leveled.
Madison Mosaic Income Trust 1
Portfolio Manager Review (continued)
Fund Overview
MADISON MOSAIC GOVERNMENT FUND
Madison Mosaic Government Fund returned 1.86% for the semi-annual period ended June 30, 2008. This return was superior to the fund’s peers, as the Lipper Intermediate Government Fund Index rose only 1.58%. This return difference largely reflects management’s defensive positioning of the portfolio in terms of duration and the performance advantage that our period-opening overweighting in Treasuries showed over other types of government securities, such as mortgage-backed bonds, where we had a lighter weighting. The fund’s 30-day SEC yield at period end was 2.90%, with an effective duration of 3.00 years.
Mosaic Government began the period with 40.5% in Treasuries and 45.7% in government agency notes, with the remainder in mortgage-backed securities and short-term notes. Over the course of the six months, management trimmed the Treasury position to 29.4% and increased the agency position to 51.4%. The fund’s largest positions during this six-month period were short to intermediate duration bonds issued by the U.S. Treasury, Fannie Mae and Freddie Mac.
TOP TEN HOLDINGS AS OF JUNE 30, 2008
FOR MADISON MOSAIC GOVERNMENT FUND
% of net assets | |
Freddie Mac, 5.5%, 9/15/11 | 10.12% |
US Treasury Note, 4%, 11/15/12 | 8.27% |
Freddie Mac, 5.125%, 10/15/08 | 8.06% |
US Treasury Note, 5.125%, 6/30/11 | 5.61% |
Freddie Mac, 5%, 10/18/10 | 5.14% |
Freddie Mac, 4.5%, 7/15/13 | 4.88% |
US Treasury Note, 4%, 6/15/09 | 4.87% |
Fannie Mae, 3.15%, 4/1/11 | 4.75% |
Fannie Mae, 3.625%, 2/12/13 | 4.71% |
Fannie Mae, 6.625%, 11/15/10 | 3.61% |
2 Semi-annual Report • June 30, 2008
Portfolio Manager Review (concluded)
MOSAIC CORE BOND FUND
Mosaic Core Bond Fund (formerly known as Intermediate Income Fund) rose 1.42% for the six months ended June 30, 2008. Over the same period, the Lipper Intermediate Investment Grade Index fell -0.98%. At period end, the fund’s duration was 4.19 years, while its 30-day SEC yield was 4.15%.
The fund began the period with 27.0% invested in corporate bonds. Over the course of the six months this was increased to 29.3% while we reduced our Treasury exposure. This move reflects our belief that Treasury bonds became fully priced towards the middle of this past period, and high-quality corporate bonds were oversold. Core Bond ended the period with 43.0% in mortgage-backed securities. While low-quality, subprime mortgage backed loans have proved to be highly suspect investments, our portfolio has avoided these kinds of notes entirely and is focused on high-quality government agency-issued mortgage-backed bonds. We believe that the credit crisis drove down mortgage-backed valuations across the board, creating opportunities to add carefully selected mortgage-backs at very attractive valuations.
Looking forward, we continue to believe the Federal Reserve will likely remain on hold for the near term, although we acknowledge that a major economic surprise on either the up or down side could change that posture. As a result, we are carefully monitoring the indicators and are prepared to reposition the portfolio should conditions warrant.
TOP TEN HOLDINGS AS OF JUNE 30, 2008
FOR MADISON MOSAIC CORE BOND FUND
% of net assets | |
US Treasury Note, 3.125%, 10/15/08 | 9.60% |
Freddie Mac, 5.5%, 9/15/11 | 5.57% |
FNMA MBS #745275, 5%, 2/1/36 | 5.34% |
FHLMC MBS #A51727, 6%, 8/1/36 | 5.01% |
FNMA MBS #905805, 6%, 1/1/37 | 4.81% |
FHLMC MBS #G11911, 5%, 2/1/21 | 3.97% |
US Treasury Note, 5.375%, 2/15/31 | 3.75% |
Freddie Mac, 5%, 10/18/10 | 3.50% |
FHLMC MBS #C02660, 6.5%, 11/1/36 | 3.35% |
FNMA MBS #837199, 5.5%, 3/1/21 | 2.96% |
Madison Mosaic Income Trust 3
Madison Mosaic Income Trust June 30, 2008
Government Fund - Portfolio of Investments (unaudited)
CREDIT RATING* | PRINCIPAL |
| ||
MOODY’S | S&P | |||
US GOVERNMENT & AGENCY OBLIGATIONS: 93.6% of net assets | ||||
US GOVERNMENT AGENCY NOTES: 51.4% | ||||
Aaa | AAA | Fannie Mae, 6.625%, 11/15/10 | $105,000 | $112,828 |
Aaa | AAA | Fannie Mae, 3.15%, 4/1/11 | 150,000 | 148,631 |
Aaa | AAA | Fannie Mae, 6%, 5/15/11 | 100,000 | 106,555 |
Aaa | AAA | Fannie Mae, 6.125%, 3/15/12 | 100,000 | 107,587 |
Aaa | AAA | Fannie Mae, 4.875%, 5/18/12 | 100,000 | 103,481 |
Aaa | AAA | Fannie Mae, 3.625%, 2/12/13 | 150,000 | 147,164 |
Aaa | AAA | Freddie Mac, 5.125%, 10/15/08 | 250,000 | 251,917 |
Aaa | AAA | Freddie Mac, 5%, 10/18/10 | 155,000 | 160,571 |
Aaa | AAA | Freddie Mac, 5.5%, 9/15/11 | 300,000 | 316,278 |
Aaa | AAA | Freddie Mac, 4.5%, 7/15/13 | 150,000 | 152,486 |
US TREASURY NOTES: 29.4% | ||||
Aaa | AAA | US Treasury Note, 3.125%, 10/15/08 | 60,000 | 60,253 |
Aaa | AAA | US Treasury Note, 4%, 6/15/09 | 150,000 | 152,332 |
Aaa | AAA | US Treasury Note, 5.125%, 6/30/11 | 165,000 | 175,416 |
Aaa | AAA | US Treasury Note, 4%, 11/15/12 | 250,000 | 258,477 |
Aaa | AAA | US Treasury Note, 4.25%, 8/15/14 | 60,000 | 62,705 |
Aaa | AAA | US Treasury Note, 4.5%, 2/15/16 | 75,000 | 78,920 |
Aaa | AAA | US Treasury Note, 4.5%, 5/15/17 | 90,000 | 93,769 |
Aaa | AAA | US Treasury Note, 4.25%, 11/15/17 | 35,000 | 35,763 |
MORTGAGE BACKED SECURITIES: 12.8% | ||||
Aaa | AAA | Fannie Mae, Mortgage Pool #555345, 5.5%, 2/1/18 | 51,662 | 52,557 |
Aaa | AAA | Fannie Mae, Mortgage Pool #555545, 5%, 6/1/18 | 89,197 | 89,099 |
Aaa | AAA | Fannie Mae, Mortgage Pool #636758, 6.5%, 5/1/32 | 21,269 | 22,083 |
Aaa | AAA | Fannie Mae, Mortgage Pool #254346, 6.5%, 6/1/32 | 20,066 | 20,834 |
Aaa | AAA | Fannie Mae, Mortgage Pool #254405, 6%, 8/1/32 | 39,003 | 39,618 |
Aaa | AAA | Fannie Mae, Mortgage Pool #953589, 5.5%, 1/1/38 | 93,989 | 92,778 |
Aaa | AAA | Freddie Mac, Mortgage Pool #E57247, 6.5%, 3/1/09 | 3,986 | 4,075 |
Aaa | AAA | Freddie Mac, Mortgage Pool #E90778, 5.5%, 8/1/17 | 41,448 | 42,012 |
Aaa | AAA | Freddie Mac, Mortgage Pool #C01364, 6.5%, 6/1/32 | 22,858 | 23,761 |
Aaa | AAA | Government National Mortgage Association, Mortgage Pool #2483, 7%, 9/20/27 | 11,541 | 12,293 |
TOTAL US GOVERNMENT & AGENCY OBLIGATIONS (Cost $2,884,419) | $2,924,243 | |||
REPURCHASE AGREEMENT: 5.7% of net assets | ||||
With Morgan Stanley and Company issued 6/30/08 at 1.5%, due 7/1/08, collateralized by | $179,000 | |||
TOTAL INVESTMENTS: 99.3% of net assets (Cost $3,063,419) | $3,103,243 | |||
CASH AND RECEIVABLES LESS LIABILITIES: 0.7% of net assets | 23,092 | |||
NET ASSETS: 100% | $3,126,335 |
The Notes to Financial Statements are an integral part of these statements.
4 Semi-annual Report • June 30, 2008
Madison Mosaic Income Trust June 30, 2008
Core Bond Fund - Portfolio of Investments (unaudited)
CREDIT RATING* | PRINCIPAL AMOUNT |
| ||
MOODY’S | S&P | |||
CORPORATE DEBT SECURITIES: 29.3% of net assets | ||||
BANKS: 2.2% | ||||
Aa2 | AA | Wells Fargo & Co., 4.95%, 10/16/13 | $100,000 | $98,794 |
CONSUMER DISCRETIONARY: 4.6% | ||||
A2 | A | Costco Wholesale Corp., 5.5%, 3/15/17 | 100,000 | 101,685 |
Aa2 | AA | Wal-Mart Stores, Inc., 4.75%, 8/15/10 | 100,000 | 102,649 |
CONSUMER STAPLES: 2.3% | ||||
A1 | A+ | Sysco Corp., 5.25%, 2/12/18 | 100,000 | 100,435 |
FINANCIALS: 6.5% | ||||
Aa3 | AA- | Goldman Sachs, 5.75%, 10/1/16 | 100,000 | 97,148 |
Aa3 | AA- | HSBC Finance Corp., 5.5%, 1/19/16 | 100,000 | 96,209 |
A1 | A+ | International Lease Finance, 4.875%, 9/1/10 | 100,000 | 96,555 |
HEALTH CARE: 2.1% | ||||
Baa1 | A- | UnitedHealth Group, 5%, 8/15/14 | 100,000 | 94,606 |
INDUSTRIAL: 1.7% | ||||
Baa3 | BBB- | Lubrizol Corp., 4.625%, 10/1/09 | 75,000 | 74,670 |
INSURANCE: 1.7% | ||||
Baa2 | BBB | Markel Corp., 6.8%, 2/15/13 | 75,000 | 77,196 |
TECHNOLOGY: 2.3% | ||||
A1 | A+ | Cisco Systems, Inc., 5.5%, 2/22/16 | 100,000 | 101,047 |
TELECOMMUNICATIONS: 3.6% | ||||
Baa2 | BBB+ | AT&T Broadband, 8.375%, 3/15/13 | 75,000 | 82,638 |
Baa1 | A | Verizon New England, 6.5%, 9/15/11 | 75,000 | 77,141 |
UTILITIES: 2.3% | ||||
Baa2 | A- | Dominion Resources Inc., 5.7%, 9/17/12 | 75,000 | 76,221 |
A2 | A- | Wisconsin Power & Light, 7.625%, 3/1/10 | 25,000 | 26,278 |
TOTAL CORPORATE DEBT SECURITIES (Cost $1,305,191) | $1,303,272 |
The Notes to Financial Statements are an integral part of these statements.
Madison Mosaic Income Trust 5
Core Bond Fund • Portfolio of Investments • June 30, 2008 (concluded)
CREDIT RATING* | PRINCIPAL AMOUNT |
| ||
MOODY’S | S&P | |||
MORTGAGE BACKED SECURITIES: 43.0% of net assets | ||||
Aaa | AAA | Fannie Mae, Mortgage Pool #725341, 5%, 2/1/19 | 69,827 | 69,750 |
Aaa | AAA | Fannie Mae, Mortgage Pool #745406, 6%, 3/1/21 | 116,344 | 119,685 |
Aaa | AAA | Fannie Mae, Mortgage Pool #837199, 5.5%, 3/1/21 | 130,522 | 131,642 |
Aaa | AAA | Fannie Mae, Mortgage Pool #636758, 6.5%, 5/1/32 | 28,359 | 29,445 |
Aaa | AAA | Fannie Mae, Mortgage Pool #745275, 5%, 2/1/36 | 246,719 | 237,356 |
Aaa | AAA | Fannie Mae, Mortgage Pool #745516, 5.5%, 5/1/36 | 119,626 | 118,296 |
Aaa | AAA | Fannie Mae, Mortgage Pool #902070, 6%, 12/1/36 | 121,170 | 122,436 |
Aaa | AAA | Fannie Mae, Mortgage Pool #903002, 6%, 12/1/36 | 128,265 | 129,606 |
Aaa | AAA | Fannie Mae, Mortgage Pool #905805, 6%, 12/1/36 | 216,576 | 213,899 |
Aaa | AAA | Fannie Mae, Mortgage Pool #953589, 5.5%, 1/1/38 | 93,989 | 92,777 |
Aaa | AAA | Fannie Mae, Mortgage Pool #965649, 6%, 1/1/38 | 96,217 | 97,202 |
Aaa | AAA | Freddie Mac, Mortgage Pool #G11911, 5%, 2/1/21 | 177,711 | 176,436 |
Aaa | AAA | Freddie Mac, Mortgage Pool #A51727, 6%, 8/1/36 | 220,279 | 222,856 |
Aaa | AAA | Freddie Mac, Mortgage Pool #C02660, 6.5%, 11/1/36 | 144,479 | 149,149 |
TOTAL MORTGAGE BACKED SECURITIES (Cost $1,908,278) | $1,910,535 | |||
US GOVERNMENT & AGENCY OBLIGATIONS: 24.7% of net assets | ||||
Aaa | AAA | Freddie Mac, 5%, 10/18/10 | $150,000 | $155,391 |
Aaa | AAA | Freddie Mac, 5.5%, 9/15/11 | 235,000 | 247,751 |
Aaa | AAA | US Treasury Note, 3.125%, 10/15/08 | 425,000 | 426,793 |
Aaa | AAA | US Treasury Note, 4.25%, 11/15/17 | 100,000 | 102,180 |
Aaa | AAA | US Treasury Note, 5.375%, 2/15/31 | 150,000 | 166,711 |
TOTAL US GOVERNMENT & AGENCY OBLIGATIONS (Cost $1,072,152) | $1,098,826 | |||
REPURCHASE AGREEMENT: 4.3% of net assets | ||||
With Morgan Stanley and Company issued 6/30/08 at 1.5%, due 7/1/08, collateralized | $191,000 | |||
TOTAL INVESTMENTS: 101.3% of net assets (Cost $4,476,621) | $4,503,633 | |||
LIABILITIES LESS CASH AND RECEIVABLES: (1.3%) of net assets | (57,671) | |||
NET ASSETS: 100% | $4,445,962 |
Notes to the Portfolio of Investments:
* – Unaudited; Moody’s – Moody’s Investor Services, Inc.; S&P – Standard & Poor’s Corporation
The Notes to Financial Statements are an integral part of these statements.
6 Semi-annual Report • June 30, 2008
Madison Mosaic Income Trust June 30, 2008
Statements of Assets and Liabilities (unaudited)
Government Fund | Core Bond Fund | |
ASSETS | ||
Investments, at value (Notes 1 and 2) | ||
Investment securities | $2,924,243 | $4,312,633 |
Repurchase agreements | 179,000 | 191,000 |
Total investments* | 3,103,243 | 4,503,633 |
Cash | 164 | 539 |
Receivables | ||
Interest | 26,344 | 44,279 |
Capital shares sold | -- | 710 |
Total assets | 3,129,751 | 4,549,161 |
LIABILITIES | ||
Payables | ||
Investment securities purchased | -- | 96,832 |
Dividends | 695 | 1,562 |
Capital shares redeemed | 225 | 1,434 |
Independent trustee fees | 250 | 250 |
Auditor fees | 1,750 | 2,250 |
Other | 496 | 871 |
Total liabilities | 3,416 | 103,199 |
NET ASSETS | $3,126,335 | $4,445,962 |
Net assets consists of: | ||
Paid in capital | $3,118,525 | $4,777,499 |
Accumulated net realized losses | (32,014) | (358,549) |
Net unrealized appreciation on investments | 39,824 | 27,012 |
Net Assets | $3,126,335 | $4,445,962 |
CAPITAL SHARES OUTSTANDING | ||
An unlimited number of capital shares, without par value, are authorized. (Note 7) | 302,617 | 679,385 |
NET ASSETS VALUE PER SHARE | $10.33 | $6.54 |
*INVESTMENT SECURITIES, AT COST | $3,063,419 | $4,476,621 |
The Notes to Financial Statements are an integral part of these statements.
Madison Mosaic Income Trust 7
Madison Mosaic Income Trust
Statements of Operations (unaudited)
For the six-months ended June 30, 2008
Government Fund | Core Bond Fund | |
INVESTMENT INCOME (Note 1) | ||
Interest income | $70,333 | $113,622 |
EXPENSES (Notes 3 and 5) | ||
Investment advisory fees | 8,814 | 11,733 |
Other expenses: | ||
Service agreement fees | 4,438 | 6,233 |
Independent trustee fees | 500 | 500 |
Auditor fees | 1,750 | 2,250 |
Total other expenses | 6,688 | 8,983 |
Total expenses | 15,502 | 20,716 |
NET INVESTMENT INCOME | 54,831 | 92,906 |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||
Net realized gain on investments | 22,972 | 30,274 |
Change in net unrealized depreciation of investments | (23,387) | (54,765) |
NET LOSS ON INVESTMENTS | (415) | (24,491) |
TOTAL INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $54,416 | $68,415 |
The Notes to Financial Statements are an integral part of these statements.
8 Semi-annual Report • June 30, 2008
Madison Mosaic Income Trust
Statements of Changes in Net Assets
For the period indicated
Government Fund | Core Bond Fund | |||
(unaudited) Six-Months Ended | Year | (unaudited) Six-Months Ended | Year | |
2008 | 2007 | 2008 | 2007 | |
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | ||||
Net investment income | $54,831 | $98,925 | $92,906 | $183,286 |
Net realized gain on investments | 22,972 | 25 | 30,274 | 18,781 |
Net unrealized appreciation (depreciation) on investments | (23,387) | 103,158 | (54,765) | 78,093 |
Total increase in net assets resulting from operations | 54,416 | 202,108 | 68,415 | 280,160 |
DISTRIBUTION TO SHAREHOLDERS | (54,831) | (98,925) | (92,906) | (183,286) |
CAPITAL SHARE TRANSACTIONS (Note 7) | 140,466 | (172,261) | (52,374) | (183,572) |
TOTAL INCREASE (DECREASE) IN NET ASSETS | 140,051 | (69,078) | (76,865) | (86,698) |
NET ASSETS | ||||
Beginning of period | $2,986,284 | $3,055,362 | $4,522,827 | $4,609,525 |
End of period | $3,126,335 | $2,986,284 | $4,445,962 | $4,522,827 |
The Notes to Financial Statements are an integral part of these statements.
Madison Mosaic Income Trust 9
Madison Mosaic Income Trust
Financial Highlights
Selected data for a share outstanding for the periods indicated
GOVERNMENT FUND
(unaudited) Six-Months Ended | Year Ended December 31, | ||||
2008 | 2007 | 2006 | 2005 | 2004 | |
Net asset value, beginning of period | $10.30 | $9.94 | $9.95 | $10.16 | $10.36 |
Investment operations: | |||||
Net investment income | 0.16 | 0.33 | 0.31 | 0.28 | 0.29 |
Net realized and unrealized gain (loss) on investments | 0.03 | 0.36 | (0.01) | (0.21) | (0.20) |
Total from investment operations | 0.19 | 0.69 | 0.30 | 0.07 | 0.09 |
Less distributions from net investment income | (0.16) | (0.33) | (0.31) | (0.28) | (0.29) |
Net asset value, end of period | $10.33 | $10.30 | $9.94 | $9.95 | $10.16 |
Total return (%) | 1.86 | 7.10 | 3.07 | 0.69 | 0.89 |
Ratios and supplemental data | |||||
Net assets, end of period (in thousands) | $3,126 | $2,986 | $3,055 | $3,248 | $5,132 |
Ratio of expenses to average net assets (%) | 0.89-1 | 1.15 | 1.19 | 1.19 | 1.15 |
Ratio of net investment income to average net assets (%) | 3.14-1 | 3.30 | 3.11 | 2.75 | 2.83 |
Portfolio turnover (%) | 29 | 18 | 41 | 43 | 55 |
CORE BOND FUND
(unaudited) Six-Months Ended | Year Ended December 31, | ||||
2008 | 2007 | 2006 | 2005 | 2004 | |
Net asset value, beginning of period | $6.58 | $6.44 | $6.46 | $6.64 | $6.71 |
Investment operations: | |||||
Net investment income | 0.13 | 0.26 | 0.24 | 0.23 | 0.22 |
Net realized and unrealized gain (loss) on investments | (0.04) | 0.14 | (0.02) | (0.18) | (0.07) |
Total from investment operations | 0.09 | 0.40 | 0.22 | 0.05 | 0.15 |
Less distributions from net investment income | (0.13) | (0.26) | (0.24) | (0.23) | (0.22) |
Net asset value, end of period | $6.54 | $6.58 | $6.44 | $6.46 | $6.64 |
Total return (%) | 1.42 | 6.41 | 3.48 | 0.77 | 2.30 |
Ratios and supplemental data | |||||
Net assets, end of period (in thousands) | $4,446 | $4,523 | $4,610 | $5,602 | $6,041 |
Ratio of expenses to average net assets (%) | 0.90-1 | 1.12 | 1.10 | 1.08 | 1.07 |
Ratio of net investment income to average net assets (%) | 4.04-1 | 4.05 | 3.70 | 3.49 | 3.32 |
Portfolio turnover (%) | 22 | 41 | 60 | 60 | 46 |
1 - Annualized.
The Notes to Financial Statements are an integral part of these statements.
10 Semi-annual Report • June 30, 2008
Madison Mosaic Income Trust June 30, 2008
Notes to Financial Statements
1. Summary of Significant Accounting Policies. Madison 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”) each of whose objective is to receive and distribute bond income. The Government Fund invests in securities of the U.S. Government and its agencies. The Core Bond Fund invests in investment grade corporate, government and government agency fixed income securities. The Core Bond 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. Two additional 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 market quotations are readily available, are valued at the mean between their closing bid and ask prices. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith under procedures approved by the Board of Trustees.
Valuation Measurements: Various inputs are used in determining the value of the Funds’ investments and other financial instruments. These inputs are summarized in the three broad levels listed below.
- Level 1: Quoted prices in active markets for identical securities
- Level 2: Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
- Level 3: Significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Funds’ assets as of June 30, 2008 (unaudited):
Investments in Securities | ||
Valuation Inputs | Government Fund | Core Bond |
Level 1: Quoted prices | $-- | $-- |
Level 2: Other significant observable inputs | $3,103,243 | $4,503,633 |
Level 3: Significant unobservable inputs | -- | -- |
Total | $3,103,243 | $4,503,633 |
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. 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 monthly. Capital gain distributions, if any, are declared and paid annually at year-end.
Madison Mosaic Income Trust 11
Notes to Financial Statements (continued)
The tax character of distributions paid during 2007 and 2006 were as follows:
2007 | 2006 | |
Government Fund: | ||
Distributions paid from ordinary income | $98,925 | $98,636 |
Core Bond Fund: | ||
Distributions paid from ordinary income | $183,286 | $191,388 |
As of June 30, 2008, the components of distributable earnings on a tax basis were as follows (unaudited):
Government Fund: | |
Accumulated net realized losses | $(32,014) |
Net unrealized appreciation on investments | 39,824 |
$7,810 | |
Core Bond Fund: | |
Accumulated net realized losses | $(358,549) |
Net unrealized appreciation on investments | 27,012 |
$(331,537) |
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 Funds adopted the provisions of Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” on June 29, 2007. The implementation of FIN 48 resulted in no material liability for unrecognized tax benefits and no material change to the beginning net asset value of the fund.
As of and during the six-months ended June 30, 2008, the Funds did not have a liability for any unrecognized tax benefits. The fund recognizes 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.
As of December 31, 2007, the Funds had available for federal income tax purposes the following unused capital loss carryovers:
Expiration Date | Government | Core Bond |
December 31, 2008 | 5,458 | 89,747 |
December 31, 2009 | -- | 12,901 |
December 31, 2010 | -- | 243,364 |
December 31, 2013 | 33,544 | 20,428 |
December 31, 2014 | 15,880 | 22,383 |
December 31, 2015 | 104 | -- |
Use of Estimates: The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Such estimates affect the reported amounts of assets and liabilities and reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
2. Investments in Repurchase Agreements. When the 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. As of June 30, 2008, the Government Fund had a 1.8% interest and the Core Bond Fund had a 1.9% interest in the consolidated
12 Semi-annual Report • June 30, 2008
Notes to Financial Statements (continued)
repurchase agreement of $10,063,000 collateralized by $10,317,966 in United States Treasury Notes. Proceeds at maturity were $10,063,419.
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”), earned an advisory fee equal to 0.625% per annum of the average net assets of the Funds through April 30, 2008. Effective May 1, 2008, this fee was reduced to 0.40% for 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, 2008 were as follows (unaudited):
Purchases | Sales | |
Government Fund: | ||
U.S. Gov’t securities | $961,383 | $945,601 |
Other | -- | -- |
Core Bond Fund: | ||
U.S. Gov’t securities | $825,039 | $977,307 |
Other | 101,178 | -- |
5. Other Expenses. Under a separate Services Agreement, the Advisor will provide or arrange for each Fund to have all other necessary operational and support services for a fee based on a percentage of average net assets. These fees are accrued daily and paid monthly. This percentage was 0.365% for both the Government Fund and the Core Bond Fund, respectively through April 30, 2008. Effective May 1, 2008, this fee was reduced to 0.28% for the Government Fund and 0.30% for the Core Bond Fund, respectively. The direct expenses paid by the Funds and referenced below come out of this fee.
The Funds pay the expenses of the Funds’ Independent Trustees and auditors directly. For the six-months ended June 30, 2008, these fees amounted to $500 and $1,750, respectively for the Government Fund and $500 and $2,250, respectively for the Core Bond Fund.
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, 2008 (unaudited):
Government Fund | Core Bond Fund | |
Aggregate Cost | $3,063,419 | $4,476,621 |
Gross unrealized appreciation | 51,752 | 55,900 |
Gross unrealized depreciation | (11,928) | (28,888) |
Net unrealized appreciation | $39,824 | $27,012 |
7. 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 | |
Government Fund | 2008 | 2007 |
In Dollars | ||
Shares purchased | $973,634 | $119,646 |
Shares issued in reinvestment of dividends | 49,188 | 87,325 |
Total shares issued | 1,022,822 | 206,971 |
Shares redeemed | (882,356) | (379,232) |
Net increase (decrease) | $140,466 | $(172,261) |
In Shares | ||
Shares purchased | 92,933 | 11,925 |
Shares issued in reinvestment of dividends | 4,712 | 8,700 |
Total shares issued | 97,645 | 20,625 |
Shares redeemed | (84,971) | (37,920) |
Net increase (decrease) | 12,674 | (17,295) |
Madison Mosaic Income Trust 13
Notes to Financial Statements (continued)
Core Bond Fund | (unaudited) | Year |
2008 | 2007 | |
In Dollars | ||
Shares purchased | $261,455 | $201,762 |
Shares issued in reinvestment of dividends | 83,064 | 163,019 |
Total shares issued | 344,519 | 364,781 |
Shares redeemed | (396,893) | (548,353) |
Net decrease | $(52,374) | $(183,572) |
In Shares | ||
Shares purchased | 39,449 | 31,266 |
Shares issued in reinvestment of dividends | 12,551 | 25,251 |
Total shares issued | 52,000 | 56,517 |
Shares redeemed | (60,243) | (85,058) |
Net decrease | (8,243) | (28,541) |
8. Line of Credit. The Government Fund has a $1 million and the Core Bond Fund has a $1.25 million revolving credit facility with a bank for temporary emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The interest rate on the outstanding principal amount is equal to the prime rate less 1/2%. During the six-months ended June 30, 2008, neither Fund borrowed on their respective lines of credit.
Fund Expenses (unaudited)
Example: As a shareholder 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 the Funds and to compare these costs with the ongoing costs of investing in other mutual funds. See footnotes 3 and 5 above for an explanation of the types of costs charged by the Funds. This Example is based on an investment of $1,000 invested on January 1, 2008 and held for the six-months ended June 30, 2008.
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 Account Value | Ending Account Value | Annualized Expense Ratio | Expenses Paid During the Period2 | |
Government Fund | $1,000.00 | $1,018.55 | 0.89% | $4.49 |
Core Bond Fund | $1,000.00 | $1,014.23 | 0.90% | $4.54 |
1For the six-months ended June 30, 2008. |
14 Semi-annual Report • June 30, 2008
Notes to Financial Statements (concluded)
Hypothetical Example for Comparison Purposes
The table on the next page titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is neither 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 either 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.
Based on Hypothetical Total Return1 | ||||
Beginning | Ending Account Value | Annualized Expense Ratio | Expenses Paid | |
Government Fund | $1,000.00 | $1,025.12 | 0.89% | $4.46 |
Core Bond Fund | $1,000.00 | $1,025.12 | 0.90% | $4.53 |
1For the six-months ended June 30, 2008 |
Forward-Looking Statement Disclosure. One of our most important responsibilities as mutual fund managers is to communicate with shareholders in an open and direct manner. Some of our comments in our letters to shareholders are based on current management expectations and are considered “forward-looking statements.” Actual future results, however, may prove to be different from our expectations. You can identify forward-looking statements by words such as “estimate,” “may,” “will,” “expect,” “believe,” “plan” and other similar terms. We cannot promise future returns. Our opinions are a reflection of our best judgment at the time this report is compiled, and we disclaim any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise.
Proxy Voting Information. The Trust only invests in non-voting securities. Nevertheless, the Trust adopted policies that provide guidance and set forth parameters for the voting of proxies relating to securities held in the Trust’s portfolios. Additionally, information regarding how the Trust voted proxies related to portfolio securities for the period ended June 30, 2008 is available. These policies and voting information are available to you upon request and free of charge by writing to Madison Mosaic Funds, 550 Science Drive, Madison, WI 53711 or by calling toll-free at 1-800-368-3195. The Trust’s proxy voting policies and voting information may also be obtained by visiting the Securities and Exchange Commission web site at www.sec.gov. The Trust will respond to shareholder requests for copies of our policies and voting information within two business days of request by first-class mail or other means designed to ensure prompt delivery.
N-Q Disclosure. The Trust files its complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission (the “Commission”) for the first and third quarters of each fiscal year on Form N-Q. The Trust’s Forms N-Q are available on the Commission’s website. The Trust’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC. Information about the operation of the Public Reference Room may be obtained by calling the Commission at 1-202-551-8090. Form N-Q and other information about the Trust are available on the EDGAR Database on the Commission’s Internet site at http://www.sec.gov. Copies of this information may also be obtained, upon payment of a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the Commission’s Public Reference Section, Washington, DC 20549-0102. Finally, you may call Madison Mosaic at 800-368-3195 if you would like a copy of Form N-Q and we will mail one to you at no charge.
Madison Mosaic Income Trust 15
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16 Semi-annual Report • June 30, 2008
The Madison Mosaic Family of Mutual Funds
Madison Mosaic Equity Trust
Investors Fund
Balanced Fund
Mid-Cap Fund
Foresight Fund
Madison Institutional Equity Option Fund
Madison Mosaic Income Trust
Government Fund
Intermediate Income Fund
Institutional Bond Fund
Corporate Income Shares (COINS)
Madison Mosaic Tax-Free Trust
Virginia Tax-Free Fund
Tax-Free National Fund
Madison Mosaic Government Money Market
For more complete information on any Madison Mosaic fund, including charges and expenses, request a prospectus by calling 1-800-368-3195. Read it carefully before you invest or send money. This document does not constitute an offering by the distributor in any jurisdiction in which such offering may not be lawfully made. Mosaic Funds Distributor, LLC.
TRANSER AGENT
Madison Mosaic Funds
c/o US Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Shareholder Service
Toll-free nationwide: 888-670-3600
550 Science Drive
Madison, Wisconsin 53711
Madison Mosaic Funds
www.mosaicfunds.com
SEC File Number 811-03616
SEMI-ANNUAL REPORT
(Unaudited)
June 30, 2008
Madison Mosaic
Income Trust
Institutional Bond Fund
Corporate Income Shares (COINS) Fund
(logo) Madison Mosaic Funds (TM)
www.mosaicfunds.com
Contents
Portfolio Manager Review | |
Market Review | 1 |
Outlook | 1 |
Fund Overview | 2 |
Portfolio of Investments | |
Institutional Bond Fund | 4 |
Corporate Income Shares (COINS) Fund | 6 |
Statements of Assets and Liabilities | 9 |
Statements of Operations | 10 |
Statements of Changes in Net Assets | 11 |
Financial Highlights | 12 |
Notes to Financial Statements | 13 |
Madison Mosaic Income Trust - June 30, 2008
Portfolio Manager Review
Market Review
The first six months of 2008 rewarded the risk-adverse fixed-income investor, as a variety of forces sent stocks and higher-risk bonds spiraling downward. In the world of bonds, positive returns were generally restricted to areas investors consider havens from risk, most notably shorter-term government securities.
Three key areas created problems for investors: high commodity prices, with gasoline leading the way; the continuing distress in the housing market; and the related progress of the already well-established credit crisis. Bond investors who had stretched for yield by purchasing risky securities found these securities’ downside as many of them, particularly those associated with lower-quality mortgages, had deep losses. The credit crisis which emerged in late 2007 worsened as the year began, and in response the Federal Reserve made a surprise rate cut on January 22, lowering its federal funds rate from 4.25% to 3.5%. This rate cut was followed by others at the end of January, in mid-March, and at the end of April, bringing the Fed Funds rate to 2.00%, a drop of 3.25% in a period of four months. The Fed also continued their campaign to increase liquidity through its Term Auction Facility by injecting a total of some $1.2 trillion into the financial markets through June.
Despite these cuts and liquidity efforts, the stock market sunk in March as one of the nation’s largest investment banks, Bear Stearns, stumbled into what looked like dissolution until the Federal Reserve and J.P. Morgan worked out a rescue. This gave hope to many that the credit crisis might have bottomed, but the subsequent rally rolled over in June in the face of surging oil prices, concerns over inflation and a recognition that credit problems would continue to emerge. Higher energy and ramping inflation at a time when the economy was slowing brought the term “stagflation” back into circulation. Stagflation is generally a poor environment for longer-term bond and stock investors.
Outlook
This was a period in which we witnessed extensive disruptions in the financial markets and a decided slowdown in the economy. As inflation heated up and energy and food costs remained high, the consumer was under a lot of pressure. By the end of the period we were beginning to see the labor markets soften. We continue to see this as an extended period of below average economic growth, but are not yet convinced that it will roll into the kind of negative growth that defines an official recession. Federal Reserve moves take some time to work their way through the economy and we have not yet seen all of the positive effects of the Fed’s dramatic easings that took place during this reporting period. In terms of future Fed moves, we currently believe the next move will be a response to inflation concerns, which means a rate increase, but the Fed has historically never tightened rates while employment was weakening. As a result, we see the Fed holding steady, with the next move not likely until some time in 2009 when there may be evidence that the employment trends have leveled.
Madison Mosaic Income Trust 1
Portfolio Manager Review (continued)
Fund Overview
INSTITUTIONAL BOND FUND
Madison Mosaic Institutional Bond Fund returned 1.77% for the semi-annual period ended June 30, 2008. This return was superior to the fund’s peers, as the Lipper Intermediate Investment Grade Fund Index lost -0.98%. The Fund’s benchmark, the Lehman Intermediate Government/Credit Index returned 1.43% over the six months. This return difference largely reflects management’s defensive positioning of the portfolio in terms of duration and the performance advantage that our period-opening overweighting in Treasuries showed over other types of government securities, such as mortgage-backed bonds, where we had a lighter weighting. The fund’s 30-day SEC yield at period end was 3.06%, with an effective duration of 3.19 years.
At period end Institutional Bond held 42.4% in government bonds and 48.3% in corporate bonds. The largest shift was in the portfolio’s allocation to Treasuries, which was 32.8% at the beginning of the period, but reduced to 27.7% at period end, as we reduced our exposure to what we felt were overbought Treasuries. The fund’s largest positions during this six-month period were short to intermediate duration bonds issued by the U.S. Treasury, Freddie Mac and Fannie Mae.
TOP TEN HOLDINGS AS OF JUNE 30, 2008
FOR MADISON MOSAIC INSTITUTIONAL BOND FUND
% of net assets | |
US Treasury Note, 3.625%, 1/15/10 | 7.77% |
Freddie Mac, 4.5%, 7/15/13 | 6.46% |
US Treasury Note, 4.5%, 2/28/11 | 6.18% |
Fannie Mae, 4.625%, 10/15/14 | 5.18% |
US Treasury Note, 4%, 11/15/12 | 4.82% |
US Treasury Note, 4.875%, 2/15/12 | 4.49% |
Fannie Mae, 4.625%, 12/15/09 | 3.04% |
Conoco Funding Co., 6.35%, 10/15/11 | 2.69% |
Household Finance Co., 6.375%, 10/15/11 | 2.60% |
Pepsico Inc., 4.65%, 2/15/13 | 2.58% |
2 Semi-annual Report • June 30, 2008
Portfolio Manager Review (concluded)
CORPORATE INCOME SHARES (COINS) FUND
COINS is a corporate bond portfolio designed for exclusive use within separately managed accounts. COINS had a return of 1.53% for the six-month period ended June 30, 2008. This compares to the 0.27% return of the Lehman Intermediate Credit Bond Index, the Fund’s benchmark over this same six months. This outperformance was largely a matter of quality, as COINS held significantly less exposure to lower-rated triple-B bonds than its benchmark. The managers of COINS also kept exposure to longer-term financial bonds at a minimum, while overweighting industrials, an active management decision that added value through this period.
At the end of the period, the portfolio held a diversified portfolio of 47 corporate bonds with a composite quality rating of A1. The portfolio had an effective duration of 4.02, up slightly from the period start’s 3.85 years, with a yield-to-maturity of 4.83 years. Ninety-two percent of the portfolio was rated A or higher by Standard and Poor’s, with approximately 8% rated triple-B.
TOP TEN HOLDINGS AS OF JUNE 30, 2008
FOR COINS FUND
% of net assets | |
Lowes Companies, 8.25%, 6/1/10 | 2.68% |
Bank One Corp., 7.875%, 8/1/10 | 2.65% |
Conoco Funding Co., 6.35%, 10/15/11 | 2.65% |
Walt Disney Co., 5.7%, 7/15/11 | 2.62% |
Allstate Corp., 7.2%, 12/1/09 | 2.61% |
Costco Wholesale Corp., 5.3%, 3/15/12 | 2.59% |
Proctor & Gamble Co, 4.95%, 8/15/14 | 2.59% |
Wal-Mart Stores Inc., 4.75%, 8/15/10 | 2.57% |
Hewlett-Packard Co., 5.25%, 3/1/12 | 2.57% |
Goldman Sachs, 6.65%, 5/15/09 | 2.55% |
Madison Mosaic Income Trust 3
Madison Mosaic Income Trust June 30, 2008
Institutional Bond Fund - Portfolio of Investments (unaudited)
CREDIT RATING* | PRINCIPAL AMOUNT | VALUE | ||
MOODY’S | S&P | |||
CORPORATE DEBT SECURITIES: 48.3% of net assets | ||||
BANKS: 2.5% | ||||
Aa2 | AA | Bank of America, 4.875%, 9/15/12 | $30,000 | $29,490 |
COMPUTERS & PERIPHERALS: 3.0% | ||||
A2 | A | Hewlett-Packard Co., 5.25%, 3/1/12 | 15,000 | 15,380 |
A1 | A+ | IBM Corp, 4.75%, 11/29/12 | 20,000 | 20,297 |
CONSUMER DISCRETIONARY: 3.9% | ||||
A2 | A+ | Target Corp., 5.875%, 3/1/12 | 25,000 | 26,076 |
Aa2 | AA | Wal-Mart Stores, Inc., 4.55%, 5/1/13 | 20,000 | 20,114 |
CONSUMER STAPLES: 4.3% | ||||
Aa2 | A+ | Pepsico Inc., 4.65%, 2/15/13 | 30,000 | 30,477 |
A1 | A+ | Sysco Corp., 5.25%, 2/12/18 | 20,000 | 20,087 |
ENERGY: 4.4% | ||||
A1 | A | Conoco Funding Co., 6.35%, 10/15/11 | 30,000 | 31,750 |
Aa1 | AA | Texaco Capital Inc., 5.5%, 1/15/09 | 20,000 | 20,156 |
FINANCIALS: 19.5% | ||||
A1 | A+ | American Express, 4.75%, 6/17/09 | 25,000 | 24,912 |
Baa1 | A- | CIT Group Inc., 4.125%, 11/3/09 | 20,000 | 17,625 |
Aa3 | AA- | Citigroup Inc., 4.25%, 7/29/09 | 20,000 | 19,890 |
Aaa | AAA | General Electric Capital Corp., 4.25%, 6/15/12 | 30,000 | 29,274 |
Aa3 | AA- | Goldman Sachs, 6.65%, 5/15/09 | 20,000 | 20,398 |
Aa3 | AA- | Household Finance Co., 6.375%, 10/15/11 | 30,000 | 30,705 |
A1 | A+ | International Lease Finance, 4.875%, 9/1/10 | 30,000 | 28,967 |
Aa3 | A+ | JP Morgan Chase, 5.25%, 5/1/15 | 30,000 | 29,130 |
A1 | A | Merrill Lynch & Co., Inc., 5.77%, 7/25/11 | 30,000 | 29,927 |
HEALTH CARE: 1.7% | ||||
A1 | AA | Abbott Laboratories, 5.6%, 11/30/17 | 20,000 | 20,210 |
INDUSTRIAL: 1.7% | ||||
Aa2 | AA- | United Parcel, 5.5%, 1/15/18 | 20,000 | 20,289 |
TECHNOLOGY: 4.8% | ||||
A1 | A+ | Cisco Systems, Inc., 5.25%, 2/22/11 | 25,000 | 25,756 |
A2 | A | Oracle Corp., 4.95%, 4/15/13 | 30,000 | 30,322 |
The Notes to Financial Statements are an integral part of these statements.
4 Semi-annual Report • June 30, 2008
Institutional Bond Fund • Portfolio of Investments (concluded)
CREDIT RATING* | PRINCIPAL AMOUNT | VALUE | ||
MOODY’S | S&P | |||
UTILITIES: 2.5% | ||||
A1 | A+ | National Rural Utilities, 4.75%, 3/1/14 | 30,000 | 29,053 |
TOTAL CORPORATE DEBT SECURITIES (Cost $576,330) | $570,285 | |||
US GOVERNMENT & AGENCY OBLIGATIONS: 42.4% of net assets | ||||
Aaa | AAA | Fannie Mae, 4.625%, 12/15/09 | 35,000 | 35,834 |
Aaa | AAA | Fannie Mae, 4.625%, 10/15/14 | 60,000 | 61,088 |
Aaa | AAA | Freddie Mac, 4.5%, 7/15/13 | 75,000 | 76,243 |
Aaa | AAA | US Treasury Note, 3.625%, 1/15/10 | 90,000 | 91,730 |
Aaa | AAA | US Treasury Note, 4.5%, 2/28/11 | 70,000 | 72,997 |
Aaa | AAA | US Treasury Note, 4.875%, 2/15/12 | 50,000 | 53,031 |
Aaa | AAA | US Treasury Note, 4%, 11/15/12 | 55,000 | 56,865 |
Aaa | AAA | US Treasury Note, 4.25%, 8/15/14 | 25,000 | 26,127 |
Aaa | AAA | US Treasury Note, 4.5%, 2/15/16 | 25,000 | 26,308 |
TOTAL US GOVERNMENT & AGENCY OBLIGATIONS (Cost $486,707) | $500,223 | |||
TOTAL DEBT INSTRUMENTS (Cost $1,063,037) | $1,070,508 | |||
REPURCHASE AGREEMENT: 8.2% of net assets | ||||
With Morgan Stanley and Company issued 6/30/08 at 1.5%, due 7/1/08, | 97,000 | |||
TOTAL INVESTMENTS: 98.9% of net assets (Cost $1,160,037) | $1,167,508 | |||
CASH AND RECEIVABLES LESS LIABILITIES: 1.1% of net assets | 12,924 | |||
NET ASSETS: 100% | $1,180,432 |
The Notes to Financial Statements are an integral part of these statements.
Madison Mosaic Income Trust 5
Madison Mosaic Income Trust June 30, 2008
COINS Fund - Portfolio of Investments (unaudited)
CREDIT RATING* | PRINCIPAL AMOUNT | VALUE | ||
MOODY’S | S&P | |||
CORPORATE DEBT SECURITIES: 97.0% of net assets | ||||
BANKS: 8.8% | ||||
Aa2 | AA | Bank of America, 4.875%, 9/15/12 | $20,000 | $19,660 |
Aa3 | A+ | Bank One Corp., 7.875%, 8/1/10 | 20,000 | 21,180 |
Aa3 | AA- | Wachovia Corp., 3.625%, 2/17/09 | 15,000 | 14,832 |
Aa2 | AA | Wells Fargo & Co., 4.95%, 10/16/13 | 15,000 | 14,819 |
CHEMICALS: 1.9% | ||||
A2 | A | DuPont, 4.75%, 11/15/12 | 15,000 | 15,108 |
COMPUTERS & PERIPHERALS: 5.1% | ||||
A2 | A | Hewlett-Packard Co., 5.25%, 3/1/12 | 20,000 | 20,507 |
A1 | A+ | IBM Corp., 4.75%, 11/29/12 | 20,000 | 20,297 |
CONSUMER DISCRETIONARY: 13.0% | ||||
Baa2 | BBB+ | Comcast Cable, 5.9%, 3/15/16 | 10,000 | 9,786 |
A2 | A | Costco Wholesale Corp., 5.3%, 3/15/12 | 20,000 | 20,703 |
A1 | A+ | Lowe’s Companies, Inc., 8.25%, 6/1/10 | 20,000 | 21,435 |
A2 | A+ | Target Corp., 5.875%, 7/15/16 | 20,000 | 20,346 |
Aa2 | AA | Wal-Mart Stores Inc., 4.75%, 8/15/10 | 20,000 | 20,530 |
Baa2 | BBB- | YUM! Brands Inc., 7.7%, 7/1/12 | 10,000 | 10,744 |
CONSUMER STAPLES: 15.3% | ||||
Aa2 | A+ | Bottling Group LLC, 4.625%, 11/15/12 | 20,000 | 20,243 |
Aa3 | A+ | Coca Cola Co., 5.35%, 11/15/17 | 15,000 | 15,148 |
A3 | A | Coca Cola Enterprises, 4.375%, 9/15/09 | 15,000 | 15,193 |
A3 | BBB+ | Kellogg Co., 6.6%, 4/1/11 | 10,000 | 10,527 |
A2 | A+ | Kimberly-Clark, 6.125%, 8/1/17 | 10,000 | 10,402 |
Baa2 | BBB+ | Kraft Foods Inc., 6.5%, 8/11/17 | 10,000 | 10,030 |
AA3 | AA- | Proctor & Gamble Co., 4.95%, 8.15/14 | 20,000 | 20,682 |
A1 | A+ | Sysco Corp., 5.25%, 2/12/18 | 20,000 | 20,087 |
ENERGY: 4.0% | ||||
A1 | A | Conoco Funding Co., 6.35%, 10/15/11 | 20,000 | 21,167 |
Baa3 | BBB | Valero Energy Corp., 6.875%, 4/15/12 | 10,000 | 10,389 |
The Notes to Financial Statements are an integral part of these statements.
6 Semi-annual Report • June 30, 2008
COINS Porttfolio of Investments (continued)
CREDIT RATING* | PRINCIPAL AMOUNT | VALUE | ||
MOODY’S | S&P | |||
FINANCIALS: 19.2% | ||||
A1 | A+ | American Express, 4.875%, 7/15/13 | $20,000 | 19,280 |
Baa1 | A- | CIT Group Inc., 4.125%, 11/3/09 | 15,000 | 13,219 |
A1 | A+ | Citigroup Inc., 5.5%, 2/15/17 | 20,000 | 18,270 |
Aaa | AAA | General Electric Capital Corp., 5.4%, 2/15/17 | 20,000 | 19,446 |
Aa3 | AA- | Goldman Sachs, 6.65%, 5/15/09 | 20,000 | 20,398 |
Aa3 | AA- | Household Finance Co., 6.375%, 10/15/11 | 15,000 | 15,352 |
A1 | A+ | International Lease Finance, 4.875%, 9/1/10 | 20,000 | 19,311 |
A1 | A | Merrill Lynch & Co., Inc., 6.4%, 8/28/17 | 15,000 | 13,923 |
Aa3 | A+ | Morgan Stanley & Co., 4.25%, 5/15/10 | 15,000 | 14,561 |
HEALTH CARE: 6.9% | ||||
A1 | AA | Abbott Laboratories, 5.875%, 5/15/16 | 15,000 | 15,457 |
Aa3 | AA | Eli Lilly & Co., 6%, 3/15/12 | 15,000 | 15,905 |
Baa1 | A- | UnitedHealth Group, 5%, 8/15/14 | 15,000 | 14,191 |
Baa1 | A- | Wellpoint Inc., 5%, 1/15/11 | 10,000 | 9,889 |
INDUSTRIAL: 2.5% | ||||
Aa2 | AA- | United Parcel, 5.5%, 1/15/18 | 20,000 | 20,288 |
INSURANCE: 5.1% | ||||
A1 | A+ | Allstate Corp., 7.2%, 12/1/09 | 20,000 | 20,824 |
Aaa | AAA | Berkshire Hathaway Inc., 4.85%, 1/15/15 | 20,000 | 19,727 |
LEISURE & TOURISM: 2.6% | ||||
A2 | A | Walt Disney Co., 5.7%, 7/15/11 | 20,000 | 20,907 |
TECHNOLOGY: 6.3% | ||||
A1 | A+ | Cisco Systems, Inc., 5.5%, 2/22/16 | 20,000 | 20,209 |
Baa2 | BBB | Intuit Inc., 5.4%, 3/15/12 | 10,000 | 9,916 |
A2 | A | Oracle Corp., 5.75%, 4/15/18 | 20,000 | 20,020 |
TELECOMMUNICATIONS: 3.2% | ||||
A2 | A | Bellsouth Corp., 6%, 10/15/11 | 15,000 | 15,461 |
Baa1 | A | Verizon New England, 6.5%, 9/15/11 | 10,000 | 10,285 |
UTILITIES: 3.1% | ||||
Baa2 | A- | Dominion Resources, 5.7%, 9/17/12 | 10,000 | 10,163 |
A1 | A+ | National Rural Utilities, 4.75%, 3/1/14 | 15,000 | 14,527 |
TOTAL CORPORATE DEBT SECURITIES (Cost $770,847) | $775,344 |
The Notes to Financial Statements are an integral part of these statements.
Madison Mosaic Income Trust 7
COINS Portfolio of Investments (concluded)
CREDIT RATING* | PRINCIPAL AMOUNT | VALUE | ||
MOODY’S | S&P | |||
REPURCHASE AGREEMENT: 1.0% of net assets | ||||
With Morgan Stanley and Company issued 6/30/08 at 1.5%, due 7/1/08, collateralized by | $8,000 | |||
TOTAL INVESTMENTS: 98.0% of net assets (Cost $778,847) | $783,344 | |||
CASH AND RECEIVABLES LESS LIABILITIES: 2.0% of net assets | 16,052 | |||
NET ASSETS: 100% | $799,396 |
Notes to the Portfolio of Investments:
* – Unaudited; Moody’s – Moody’s Investor Services, Inc.; S&P – Standard & Poor’s Corporation
The Notes to Financial Statements are an integral part of these statements.
8 Semi-annual Report • June 30, 2008
Madison Mosaic Income Trust June 30, 2008
Statements of Assets and Liabilities (unaudited)
Institutional Bond Fund | COINS Fund | |
ASSETS | ||
Investments, at value (Notes 1 and 2) | ||
Investment securities | $1,070,508 | $775,344 |
Repurchase agreements | 97,000 | 8,000 |
Total investments* | 1,167,508 | 783,344 |
Cash | 483 | 836 |
Receivables | ||
Investment securities sold | -- | 42,273 |
Interest | 14,918 | 12,586 |
Total assets | 1,182,909 | 839,039 |
LIABILITIES | ||
Investment securities purchased | -- | 39,643 |
Independent trustee fees | 250 | -- |
Auditor fees | 2,227 | -- |
Total liabilities | 2,477 | 39,643 |
NET ASSETS | $1,180,432 | $799,396 |
Net assets consists of: | ||
Paid in capital | 1,158,478 | $794,321 |
Accumulated net realized gains | 14,483 | 578 |
Net unrealized appreciation on investments | 7,471 | 4,497 |
Net Assets | $1,180,432 | $799,396 |
CAPITAL SHARES OUTSTANDING | 115,025 | 78,658 |
NET ASSETS VALUE PER SHARE | $10.26 | $10.16 |
*INVESTMENT SECURITIES, AT COST | $1,160,037 | $778,847 |
The Notes to Financial Statements are an integral part of these statements.
Madison Mosaic Income Trust 9
Madison Mosaic Income Trust
Statements of Operations (unaudited)
For the six-months ended June 30, 2008
Institutional Bond Fund | COINS Fund | |
INVESTMENT INCOME (Note 1) | ||
Interest income | $105,020 | $20,054 |
EXPENSES (Notes 3 and 5) | ||
Investment advisory fees | 7,259 | -- |
Other expenses: | ||
Service agreement fees | 1,936 | -- |
Independent trustee fees | 500 | -- |
Auditor fees | 2,227 | -- |
Total other expenses | 4,663 | -- |
Total expenses | 11,922 | -- |
NET INVESTMENT INCOME | 93,098 | 20,054 |
REALIZED AND UNREALIZED GAIN ON INVESTMENTS | ||
Net realized gain on investments | 91,210 | 578 |
Change in net unrealized depreciation of investments | (158,053) | (10,358) |
NET LOSS ON INVESTMENTS | (66,843) | (9,780) |
TOTAL INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $26,255 | $10,274 |
The Notes to Financial Statements are an integral part of these statements.
10 Semi-annual Report • June 30, 2008
Madison Mosaic Income Trust
Statements of Changes in Net Assets
For the period indicated
Institutional Bond Fund | COINS Fund | |||
(unaudited) Six-Months Ended | Year | (unaudited) Six-Months Ended | Period* | |
2008 | 2007 | 2008 | 2007 | |
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | ||||
Net investment income | $93,098 | $271,319 | $20,054 | $15,978 |
Net realized gain (loss) on investments | 91,210 | (257) | 578 | 108 |
Net unrealized appreciation (depreciation) on investments | (158,053) | 207,859 | (10,358) | 14,855 |
Total increase in net assets resulting from operations | 26,255 | 478,921 | 10,274 | 30,941 |
DISTRIBUTIONS TO SHAREHOLDERS | ||||
From net investment income | (93,098) | (271,319) | (20,054) | (15,978) |
From net capital gains | -- | -- | -- | (108) |
Total distributions | (93,098) | (271,319) | (20,054) | (16,086) |
CAPITAL SHARE TRANSACTIONS (Note 7) | (5,165,254) | (305,828) | 172,537 | 621,784 |
TOTAL INCREASE (DECREASE) IN NET ASSETS | (5,232,097) | (98,226) | 162,757 | 636,639 |
NET ASSETS | ||||
Beginning of period | $6,412,529 | $6,510,755 | $636,639 | $-- |
End of period | $1,180,432 | $6,412,529 | $799,396 | $636,639 |
* For the period July 1, 2007 (commencement of operations) through December 31, 2007
The Notes to Financial Statements are an integral part of these statements.
Madison Mosaic Income Trust 11
Madison Mosaic Income Trust
Financial Highlights
Selected data for a share outstanding throughout each period indicated
INSTITUTIONAL BOND FUND
(unaudited) | Year Ended December 31, | ||||
2008 | 2007 | 2006 | 2005 | 2004 | |
Net asset value, beginning of period | $10.41 | $10.08 | $10.11 | $10.34 | $10.50 |
Investment operations: | |||||
Net investment income | 0.34 | 0.44 | 0.41 | 0.36 | 0.35 |
Net realized and unrealized gain (loss) on investments | (0.15) | 0.33 | (0.03) | (0.23) | (0.16) |
Total from investment operations | 0.19 | 0.77 | 0.38 | 0.13 | 0.19 |
Less distributions: | |||||
From net investment income | (0.34) | (0.44) | (0.41) | (0.36) | (0.35) |
From net capital gains | -- | -- | -- | -- | -- |
Total distributions | (0.34) | (0.44) | (0.41) | (0.36) | (0.35) |
Net asset value, end of period | $10.26 | $10.41 | $10.08 | $10.11 | $10.34 |
Total return (%) | 1.77 | 7.77 | 3.93 | 1.24 | 1.84 |
Ratios and supplemental data | |||||
Net assets, end of period (in thousands) | $1,180 | $6,413 | $6,511 | $7,672 | $7,508 |
Ratio of expenses to average net assets (%) | 0.49-1 | 0.47 | 0.46 | 0.45 | 0.45 |
Ratio of net investment income to average net assets (%) | 3.86-1 | 4.21 | 3.97 | 3.48 | 3.35 |
Portfolio turnover (%) | 42 | 42 | 34 | 39 | 24 |
COINS FUND*
(unaudited) | Period* | |
2008 | 2007 | |
Net asset value, beginning of period | $10.26 | $10.00 |
Investment operations: | ||
Net investment income | 0.26 | 0.27 |
Net realized and unrealized gain (loss) on investments | (0.10) | 0.26 |
Total from investment operations | 0.16 | 0.53 |
Less distributions: | ||
From net investment income | (0.26) | (0.27) |
From net capital gains | -- | -2 |
Total distributions | (0.26) | (0.27) |
Net asset value, end of period | $10.16 | $10.26 |
Total return (%) | 1.53 | 5.37 |
Ratios and supplemental data | ||
Net assets, end of period (in thousands) | $799 | $637 |
Ratio of expenses to average net assets (%) | -- | -- |
Ratio of net investment income to average net assets (%) | 5.09-1 | 5.29 |
Portfolio turnover (%) | 6 | 3 |
*For the period July 1, 2007 (commencement of operations) through December 31, 2007
1 - Annualized
2 - Greater than zero but less than a penny
The Notes to Financial Statements are an integral part of these statements.
12 Semi-annual Report • June 30, 2008
Madison Mosaic Income Trust June 30, 2008
Notes to Financial Statements
1. Summary of Significant Accounting Policies. Madison 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 four portfolios, each of which is a diversified mutual fund. This report contains information about two of these portfolios, the Madison Mosaic Institutional Bond Fund and the Madison Mosaic Corporate Income Shares (COINS) Fund (the “Funds”). Their objectives and strategies are detailed in their prospectus. The remaining 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 closing bid and ask prices. Securities for which current market quotations are not readily available are valued at their fair value as determined in good faith under procedures approved by the Board of Trustees.
Investment Transactions: Investment transactions are recorded on a trade date basis. The cost of investments sold is determined on the identified cost basis for financial statement and federal income tax purposes.
Valuation Measurements: Various inputs are used in determining the value of the Funds’ investments and other financial instruments. These inputs are summarized in the three broad levels listed below.
- Level 1: Quoted prices in active markets for identical securities
- Level 2: Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
- Level 3: Significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Funds’ assets as of June 30, 2008 (unaudited):
Investments in Securities | ||
Valuation Inputs | Institutional Bond Fund | COINS |
Level 1: Quoted prices | $-- | $-- |
Level 2: Other significant observable inputs | $1,167,508 | $783,344 |
Level 3: Significant unobservable inputs | -- | -- |
Total | $1,167,508 | $783,344 |
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. 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 quarterly for the Institutional Bond Fund and monthly for the Corporate Income Shares Fund. Capital gain distributions, if any, are declared and paid annually at year-end for both funds.
The tax character of distributions paid during 2007 and 2006 were as follows:
2007 | 2006 | |
Institutional Bond Fund: | ||
Distributions paid from: | ||
Ordinary income | $271,319 | $277,825 |
COINS Fund: | ||
Distributions paid from: | ||
Ordinary income | $15,978 | N/A |
Short-term capital gains | $108 | N/A |
Madison Mosaic Income Trust 13
Notes to Financial Statements (continued)
As of June 30, 2008, the components of distributable earnings on a tax basis were as follows (unaudited):
Institutional Bond Fund: | |
Accumulated net realized gains | $14,483 |
Net unrealized appreciation on investments | 7,471 |
$21,954 | |
COINS Fund: | |
Accumulated net realized gains | $578 |
Net unrealized appreciation on investments | 4,497 |
$5,075 |
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 Funds adopted the provisions of Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” on June 29, 2007. The implementation of FIN 48 resulted in no material liability for unrecognized tax benefits and no material change to the beginning net asset value of the fund.
As of and during the six-months ended June 30, 2008, the Funds did not have a liability for any unrecognized tax benefits. The fund recognizes 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.
As of December 31, 2007, the Institutional Bond Fund had the following unused capital loss carryover available for federal income tax purposes:
Expiration Date | Institutional Bond Fund |
December 31, 2010 | $3,426 |
December 31, 2014 | 73,044 |
December 31, 2015 | 257 |
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 Funds purchase 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 Funds, along with other registered investment companies having Advisory and Services Agreements with the same Advisor, transfers uninvested cash balances into a joint trading account. The aggregate balance in this joint trading account is invested in one or more consolidated repurchase agreements whose underlying securities are U.S. Treasury or federal agency obligations. As of June 30, 2008, the Institutional Bond Fund had a 1.0% interest and the COINS Fund had a 0.1% interest in the consolidated repurchase agreement of $10,063,000 collateralized by $10,317,966 in United States Treasury Notes. Proceeds at maturity were $10,063,419.
3. Investment Advisory Fees and Other Transactions with Affiliates. The investment advisor to the Funds, 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 Institutional Bond Fund. This fee is accrued daily and is paid monthly.
The COINS Fund pays no advisory fees. Instead the Advisor is compensated for managing the fund through payments it receives from fees paid
14 Semi-annual Report • June 30, 2008
Notes to Financial Statements (continued)
on accounts in wrap programs whose clients are permitted to invest in COINS.
4. Investment Transactions. Purchases and sales of securities (excluding short-term securities) for the six-months ended June 30, 2008 were as follows (unaudited):
Purchases | Sales | |
Institutional Fund: | ||
U.S. Gov’t securities | $491,820 | $3,374,209 |
Other | 716,860 | 3,103,796 |
COINS Fund: | ||
U.S. Gov’t securities | $-- | $-- |
Other | 208,963 | 41,341 |
Included in proceeds of sales for the Institutional Bond Fund is $4,969,177 representing the value of securities distributed as in-kind payment of redemptions.
5. Other Expenses. Under a separate Services Agreement, the Advisor will provide or arrange for the Funds to have all other necessary operational and support services for a fee based on a percentage of average net assets. These fees are accrued daily and paid monthly. This percentage is 0.08% for the Institutional Bond Fund.
The Institutional Bond Fund also pays the expenses of its Independent Trustees and auditors directly. For the six-months ended June 30, 2008, the amounts accrued for these fees were $500 and $2,227, respectively.
The COINS Fund pays no expenses. Instead, the Advisor is compensated for administering the fund through payments it receives from fees paid on accounts in wrap programs whose clients are permitted to invest in COINS.
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, 2008 (unaudited):
Institutional Bond Fund | COINS Fund | |
Aggregate Cost | $1,160,037 | $778,847 |
Gross unrealized appreciation | 17,311 | 10,053 |
Gross unrealized depreciation | (9,840) | (5, 556) |
Net unrealized appreciation | $7,471 | $4,497 |
7. 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 | Year | |
Institutional Bond Fund | 2008 | 2007 |
In Dollars | ||
Shares sold | $1,328,435 | $42,187 |
Shares issued in reinvestment of dividends | 93,098 | 271,320 |
Total shares issued | 1,421,533 | 313,507 |
Shares redeemed | (6,691,236) | (619,335) |
Net decrease | $(5,269,703) | $(305,828) |
In Shares | ||
Shares sold | 124,597 | 4,081 |
Shares issued in reinvestment of dividends | 8,850 | 26,619 |
Total shares issued | 133,447 | 30,700 |
Shares redeemed | (634,296) | (60,439) |
Net decrease | (500,849) | (29,739) |
(unaudited) Six-Months Ended | Period* | |
COINS Fund | 2008 | 2007 |
In Dollars | ||
Shares sold | $152,483 | $605,698 |
Shares issued in reinvestment of dividends | 20,054 | 16,086 |
Total shares issued | 172,537 | 621,784 |
Shares redeemed | -- | -- |
Net increase | $172,537 | $621,784 |
Madison Mosaic Income Trust 15
Notes to Financial Statements (continued)
(unaudited) Six-Months Ended | Period* | |
COINS Fund continued | 2008 | 2007 |
In Shares | ||
Shares sold | 14,640 | 60,493 |
Shares issued in reinvestment of dividends | 1,943 | 1,582 |
Total shares issued | 16,583 | 62,075 |
Shares redeemed | -- | -- |
Net increase | 16,583 | 62,075 |
* For the period July 1, 2007 (commencement of operations) through December 31, 2007
8. Line of Credit. The Institutional Bond Fund has a $1.75 million revolving credit facility with a bank for temporary emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The interest rate on the outstanding principal amount is equal to the prime rate less 1/2%. During the six-months ended June 30, 2008, the Fund did not borrow on its line of credit.
Fund Expenses (unaudited)
Example: As a shareholder 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 your Fund and to compare these costs with the ongoing costs of investing in other mutual funds. See footnotes 3 and 5 above for an explanation of the types of costs charged by the Fund.
This Example is based on an investment of $1,000 invested on January 1, 2008 and held for the six-months ended June 30, 2008.
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 Account Value | Ending Account Value | Annualized Expense Ratio | Expenses Paid | |
Institutional Bond Fund | $1,000.00 | $1,017.65 | 0.49% | $2.51 |
COINS Fund | $1,000.00 | $1,015.33 | 0% | $0 |
1For the six-months ended June 30, 2008. |
16 Semi-annual Report • June 30, 2008
Notes to Financial Statements (concluded)
Hypothetical Example for Comparison Purposes
The table on the next page titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not your 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 your Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Based on Hypothetical Total Return1 | ||||
Beginning Account Value | Ending Account Value | Annualized Expense Ratio | Expenses Paid | |
Institutional Bond Fund | $1,000.00 | $1,025.12 | 0.49% | $2.49 |
COINS Fund | $1,000.00 | $1,025.12 | 0% | $0 |
1For the six-months ended June 30, 2008. |
Forward-Looking Statement Disclosure. One of our most important responsibilities as mutual fund managers is to communicate with shareholders in an open and direct manner. Some of our comments in our letters to shareholders are based on current management expectations and are considered “forward-looking statements.” Actual future results, however, may prove to be different from our expectations. You can identify forward-looking statements by words such as “estimate,” “may,” “will,” “expect,” “believe,” “plan” and other similar terms. We cannot promise future returns. Our opinions are a reflection of our best judgment at the time this report is compiled, and we disclaim any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise.
Proxy Voting Information. The Trust only invests in non-voting securities. Nevertheless, the Trust adopted policies that provide guidance and set forth parameters for the voting of proxies relating to securities held in the Trust’s portfolios. Additionally, information regarding how the Trust voted proxies related to portfolio securities for the period ended June 30, 2008 is available. These policies and voting information are available to you upon request and free of charge by writing to Madison Mosaic Funds, 550 Science Drive, Madison, WI 53711 or by calling toll-free at 1-800-368-3195. The Trust’s proxy voting policies and voting information may also be obtained by visiting the Securities and Exchange Commission web site at www.sec.gov. The Trust will respond to shareholder requests for copies of our policies and voting information within two business days of request by first-class mail or other means designed to ensure prompt delivery.
N-Q Disclosure. The Trust files its complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission (the “Commission”) for the first and third quarters of each fiscal year on Form N-Q. The Trust’s Forms N-Q are available on the Commission’s website. The Trust’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC. Information about the operation of the Public Reference Room may be obtained by calling the Commission at 1-202-551-8090. Form N-Q and other information about the Trust are available on the EDGAR Database on the Commission’s Internet site at http://www.sec.gov. Copies of this information may also be obtained, upon payment of a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the Commission’s Public Reference Section, Washington, DC 20549-0102. Finally, you may call Madison Mosaic at 800-368-3195 if you would like a copy of Form N-Q and we will mail one to you at no charge.
Madison Mosaic Income Trust 17
The Madison Mosaic Family of Mutual Funds
Madison Mosaic Equity Trust
Investors Fund
Balanced Fund
Mid-Cap Fund
Foresight Fund
Madison Institutional Equity Option Fund
Madison Mosaic Income Trust
Government Fund
Intermediate Income Fund
Institutional Bond Fund
Corporate Income Shares (COINS)
Madison Mosaic Tax-Free Trust
Virginia Tax-Free Fund
Tax-Free National Fund
Madison Mosaic Government Money Market
For more complete information on any Madison Mosaic fund, including charges and expenses, request a prospectus by calling 1-800-368-3195. Read it carefully before you invest or send money. This document does not constitute an offering by the distributor in any jurisdiction in which such offering may not be lawfully made. Mosaic Funds Distributor, LLC.
TRANSER AGENT
Madison Mosaic Funds
c/o US Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Shareholder Service
Toll-free nationwide: 888-670-3600
550 Science Drive
Madison, Wisconsin 53711
Madison Mosaic Funds
www.mosaicfunds.com
SEC File Number 811-03616
Item 2. Code of Ethics.
Not applicable in semi-annual report.
Item 3. Audit Committee Financial Expert.
Not applicable in semi-annual report.
Item 4. Principal Accountant Fees and Services.
Not applicable in semi-annual report.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments
Included in report to shareholders (Item 1) above.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
No changes. The Trust does not normally hold shareholder meetings.
Item 11. Controls and Procedures.
(a) The Trust’s principal executive officer and principal financial officer determined that the Trust’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) are effective, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 within 90 days of the date of this report. There were no significant changes in the Trust’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. The officers identified no significant deficiencies or material weaknesses.
(b) There were no changes in the Trust's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Trust's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics referred to in Item 2 (no change from the previously filed Code).
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Act.
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Act.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Madison Mosaic Income Trust
By: (signature)
W. Richard Mason, Secretary
Date: August 15, 2008
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 15, 2008
By: (signature)
Greg Hoppe, Chief Financial Officer
Date: August 15, 2008