OMB APPROVAL
OMB Number: 3235-0570
Expires: August 31, 2010
Estimated average burden hours per response...18.9
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)
Pamela M. Krill
Madison Funds Legal and Compliance Department
550 Science Drive
Madison, WI 53711
(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, 2010
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, 100 F Street, NE, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. s 3507.
Item 1. Reports to Shareholders.
SEMI-ANNUAL REPORT (unaudited)
June 30, 2010
Core Bond Fund
Government Fund
(mosaic logo)
www.mosaicfunds.com
Contents
Review of Period | |
Economic Overview | 1 |
Outlook | 1 |
Government Fund | 2 |
Core Bond Fund | 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 |
Other Information | 15 |
Madison Mosaic Income Trust
Review of Period
ECONOMIC OVERVIEW
As we began 2010 we experienced a period of welcome calm in the bond markets, characterized by a relatively stable yield curve, lower market volatility, and range bound long-term yields. As a result, investors turned their attention to debating economic fundamentals while weighing the sustainability of the recent economic upturn. While the economy grew at a brisk pace in the final quarter of 2009 and inflation remained tame, this image of resurgent growth belied persistent fundamental challenges. The housing market continued to struggle, unemployment was persistently high, and European governments came under pressure. Despite these clouds, higher risk U.S. bonds continued to lead the market through the first quarter of 2010.
Fear reemerged in the financial markets during the second quarter of 2010. After nearly a year of consistent gains from risk sectors (stocks, corporate bonds), turmoil in the European Union among sovereign bond issuers and the banks that finance them caused investors to seek the relative safety of the highest quality investments. In the U.S., that meant a sharp rally in Treasury yields, widening risk premiums on corporate bonds and declines in the broad equity indices.
The situation in Europe worsened despite efforts of the European Central Bank. A large fund, similar in size, scope, and purpose to the TARP Fund in the U.S. was created to take the pressure off of the short-term liquidity needs of countries such as Greece. While the liquidity facility proved welcome, the fundamental problem facing European sovereigns -- fiscal discipline -- remained unresolved. Returning the budgets of Europe’s large deficit countries to something approaching "discipline" will require a sharp dose of higher taxes and reduced spending on social programs including pension entitlements.
Here in the U.S., the financial system appeared somewhat insulated from direct effects of Europe’s debt problems. U.S. banks seemed to have manageable exposures to European sovereign bonds and similarly manageable exposures to European banks. However, the effects on our economy bear watching. Despite the muted economic growth outlook, inflation concerns remain hotly debated. Events in Europe suggest potential deflation in the Eurozone. China has applied the monetary brakes to its economy in an attempt to cool an over-heated property market. Yet stimulative monetary and fiscal policies in the U.S. continue. As a result, we now believe U.S. inflation will likely remain low for longer than we had been expecting and we have pushed out our forecast of higher inflation until late 2011.
OUTLOOK
Against this backdrop of anemic growth and low inflation, we expect the Fed, despite its recent saber-rattling, to keep short-term interest rates low for at least the rest of this year. The yield curve should retain its steep slope and investors will likely continue to shy away from low-yielding cash equivalents in favor of better returns farther out the curve. We continue to favor intermediate bonds over the price risk inherent in longer maturities. We expect volatility to remain elevated as multiple cross-currents continue to buffet the market. We believe managing interest rate risk in this volatile environment will continue to be a key source of relative return, as will a healthy allocation to high-quality corporate bonds in Mosaic Core Bond Fund and agency bonds in Mosaic Government Bond Fund.
Semi-Annual Report 1
Madison Mosaic Income Trust | Review of Period | continued
MADISON MOSAIC GOVERNMENT FUND
INVESTMENT STRATEGY HIGHLIGHTS
Madison Mosaic Government Fund invests primarily in short to intermediate term government and government agency bonds. The fund concentrates on the intermediate portion of the yield curve with a recognition that the ten-year Treasury bond has offered approximately 90% of the return of a 30-year Treasury with less risk. The fund is actively managed for duration, meaning that when we believe interest rates are falling, we lengthen duration to take advantage of the increased returns that should be available as rates drop. Likewise, when rates appear low and we believe interest rates will rise, we shorten portfolio maturities with the goal of limiting potential declines.
![](https://capedge.com/proxy/N-CSRS/0000310407-10-000193/incncsrs06104.jpg)
PERFORMANCE DISCUSSION
Madison Mosaic Government Fund returned 3.30% for the semi-annual period ended June 30, 2009. This return exceeded the fund’s Morningstar Short Government peer group, which had a category return of 2.47% for the period. This relative return reflects the fund’s duration posture which tends towards a more intermediate stance in a period in which intermediate bonds outperformed short bonds. The fund’s 30-day SEC yield at period end was 1.72%, with an effective duration of 2.56 years.
The Government Fund began the period with 33.2% in Treasuries and 46.3% in government agency notes, with the remainder in mortgage-backed securities and short-term notes. Over the course of the six months, management increased the Treasury position to 35.1% and held the agency position steady with a 47.0% weighting. We also trimmed the fund’s holdings in high-quality mortgage-backed securities, decreasing exposure from 16.6% of the fund to 13.9%. 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 STOCK HOLDINGS AS OF JUNE 30, 2010 | |
% of net assets | |
US Treasury Note, 4.75%, 5/31/12 | 6.82% |
Freddie Mac, 5.5%, 9/15/11 | 6.70% |
US Treasury Note, 4%, 11/15/12 | 5.67% |
US Treasury Note, 3.75%, 11/15/18 | 5.11% |
US Treasury Note, 5.125%, 6/30/11 | 4.74% |
US Treasury Note, 4.25%, 8/15/14 | 4.68% |
Fannie Mae, 4.625%, 10/15/13 | 4.66% |
FNMA MBS #745147, 4.5%, 12/1/35 | 3.87% |
Freddie Mac, 4.5%, 7/15/13 | 3.48% |
Fannie Mae, 4.75%, 2/21/13 | 3.46% |
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 6/30/10 | |
Mortgage Backed Securities | 13.9% |
U.S. Agency Notes | 47.0% |
U.S. Treasury Notes | 35.1% |
Cash and Other | 4.0% |
MADISON MOSAIC CORE BOND FUND
INVESTMENT STRATEGY HIGHLIGHTS
Madison Mosaic Core Bond Fund invests primarily in intermediate term corporate, government and mortgage-backed bonds. The fund is actively managed in terms of duration, asset mix and yield curve positioning. When we believe interest rates are falling, we lengthen duration to take advantage of the increased returns that should be available as rates drop. Likewise, when rates appear low and we believe interest rates will rise, we shorten portfolio maturities with the goal of limiting potential declines.
![](https://capedge.com/proxy/N-CSRS/0000310407-10-000193/incncsrs06105.jpg)
Semi-Annual Report 2
Madison Mosaic Income Trust | Review of Period • Core Bond Fund | concluded
PERFORMANCE DISCUSSION
Mosaic Core Bond Fund rose 4.58% for the six months ended June 30, 2010. Over the same period, its Morningstar peer group in the Intermediate Term Bond category averaged 5.21%. Almost all this performance gap occurred in the first half of the period, as the market continued to favor higher-risk, lower-quality securities. The fund showed better relative returns in the second quarter of 2010 as investors shifted to a more defensive posture. Core Bond had a relatively light 6.2% exposure to Baa/BBB bonds (the lowest investment-grade rating) at the beginning of the period and ended the period holding 8.7%. We believe that if the fund had allocated a greater percentage of its portfolio to lower-rated securities throughout the period, its performance relative to its peer group would have been closer. As of June 30, 2010 Core Bond had a 30-day S EC yield of 2.90% and a duration of 3.66 years.
TOP TEN STOCK HOLDINGS AS OF JUNE 30, 2010 | |
% of net assets | |
US Treasury Note, 3.75%, 11/15/18 | 10.87% |
US Treasury Note, 4.25%, 8/15/14 | 7.94% |
US Treasury Note, 1.875%, 2/28/14 | 3.43% |
GNMA MBS #698089, 4%, 4/15/39 | 3.03% |
FNMA MBS #889260, 5%, 4/1/38 | 2.47% |
US Treasury Note, 3.875%, 5/15/18 | 2.43% |
Freddie Mac, 5%, 2/16/17 | 2.40% |
FHLMC MBS #J07302, 4.5%, 4/1/23 | 2.10% |
Freddie Mac, 5.5%, 9/15/11 | 2.09% |
FNMA MBS #745355, 5%, 3/1/36 | 2.03% |
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 6/30/10 | |
Consumer Discretionary | 6.5% |
Consumer Staples | 4.5% |
Energy | 4.0% |
Financials | 11.8% |
Health Care | 2.8% |
Industrials | 1.0% |
Information Technology | 3.9% |
Materials | 0.9% |
Telecommunication Services | 0.9% |
Urilities | 1.6% |
Mortgage Backed Securities | 24.5% |
U.S. Government and Agency Obligations | 34.6% |
Cash and Other | 3.0% |
Semi-Annual Report 3
Madison Mosaic Income Trust | June 30, 2010
Government Fund • Portfolio of Investments (unaudited)
Principal Amount | Value | |
MORTGAGE BACKED SECURITIES - 13.9% | ||
Fannie Mae - 8.2% | ||
5.5%, 2/1/18 Pool # 555345 | $ 28,740 | $ 31,117 |
5.0%, 6/1/18 Pool # 555545 | 55,430 | 59,626 |
6.5%, 5/1/32 Pool # 636758 | 13,697 | 15,295 |
6.5%, 6/1/32 Pool # 254346 | 12,957 | 14,469 |
6.0%, 8/1/32 Pool # 254405 | 24,009 | 26,486 |
4.5%, 12/1/35 Pool # 745147 | 175,443 | 183,508 |
5.5%, 1/1/38 Pool # 953589 | 54,912 | 59,031 |
Freddie Mac - 2.4% | ||
5.5%, 8/1/17 Pool # E90778 | 23,581 | 25,602 |
4.5%, 11/1/23 Pool # G13342 | 67,388 | 71,271 |
6.5%, 6/1/32 Pool # C01364 | 14,221 | 15,822 |
Ginnie Mae - 3.3% | ||
7.0%, 9/20/27 Pool # 2483 | 8,336 | 9,324 |
6.0%, 2/15/38 Pool # 676516 | 47,305 | 51,648 |
4.0%, 4/15/39 Pool # 698089 | 94,499 | 96,271 |
Total Mortgage Backed Securities (Cost $629,575) | 659,470 | |
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 82.1% | ||
Fannie Mae - 24.0% | ||
Fannie Mae, 6.625%, 11/15/10 | 105,000 | 107,547 |
Fannie Mae, 6.0%, 5/15/11 | 100,000 | 104,916 |
Fannie Mae, 6.125%, 3/15/12 | 100,000 | 109,206 |
Fannie Mae, 4.875%, 5/18/12 | 100,000 | 107,775 |
Fannie Mae, 3.625%, 2/12/13 | 150,000 | 160,256 |
Fannie Mae, 4.75%, 2/21/13 | 150,000 | 164,455 |
Fannie Mae, 4.375%, 7/17/13 | 150,000 | 164,429 |
Fannie Mae, 4.625%, 10/15/13 | 200,000 | 221,246 |
Federal Home Loan Bank - 5.7% | ||
Federal Home Loan Bank, 4.0%, 9/6/13 | 150,000 | 162,425 |
Federal Home Loan Bank, 3.125%, 12/13/13 | 100,000 | 105,774 |
Freddie Mac - 17.3% | ||
Freddie Mac, 5.0%, 10/18/10 | 155,000 | 157,127 |
Freddie Mac, 3.125%, 10/25/10 | 50,000 | 50,465 |
Freddie Mac, 5.5%, 9/15/11 | 300,000 | 318,043 |
Freddie Mac, 4.5%, 7/15/13 | 150,000 | 165,121 |
Freddie Mac, 2.875%, 2/09/15 | 125,000 | 130,355 |
Principal Amount | Value | |
U.S. Treasury Notes - 35.1 | ||
US Treasury Note, 5.125%, 6/30/11 | $215,000 | $ 225,154 |
US Treasury Note, 1.0%, 7/31/11 | 125,000 | 125,801 |
US Treasury Note, 4.75%, 5/31/12 | 300,000 | 323,883 |
US Treasury Note, 4.0%, 11/15/12 | 250,000 | 269,316 |
US Treasury Note, 4.25%, 8/15/14 | 200,000 | 222,328 |
US Treasury Note, 3.125%, 10/31/16 | 150,000 | 157,371 |
US Treasury Note, 4.5%, 5/15/17 | 90,000 | 102,403 |
US Treasury Note, 3.75%, 11/15/18 | 225,000 | 242,473 |
Total U.S. Government and Agency Obligations (Cost $3,732,761) | 3,897,869 | |
REPURCHASE AGREEMENT - 3.2% | ||
With U.S. Bank National Association issued 6/30/10 at 0.01%, due 7/1/10, collateralized by $156,548 in Freddie Mac MBS #G11649 due 2/1/20. Proceeds at maturity are $153,478 (Cost $153,478) | 153,478 | |
TOTAL INVESTMENTS - 99.2% (Cost $4,515,814) | 4,710,817 | |
NET OTHER ASSETS AND LIABILITIES - 0.8% | 35,967 | |
TOTAL NET ASSETS - 100.0% | $4,746,784 |
See accompanying Notes to Financial Statements.
Semi-Annual Report 4
Madison Mosaic Income Trust | June 30, 2010
Core Bond Fund • Portfolio of Investments (unaudited)
Principal Amount | Value | |
CORPORATE DEBT SECURITIES - 37.9% | ||
Consumer Discretionary - 6.5% | ||
Comcast Corp., 5.3%, 1/15/14 | $100,000 | $109,852 |
Costco Wholesale Corp., 5.5%, 3/15/17 | 100,000 | 115,264 |
McDonald’s Corp., 5.35%, 3/1/18 | 100,000 | 114,712 |
Target Corp., 5.875%, 3/1/12 | 100,000 | 107,896 |
Wal-Mart Stores Inc., 4.75%, 8/15/10 | 100,000 | 99,233 |
Walt Disney Co./The, 6.375%, 3/1/12 | 100,000 | 108,431 |
YUM! Brands Inc., 6.25%, 3/15/18 | 100,000 | 114,998 |
Consumer Staples - 4.5% | ||
Bottling Group LLC, 4.625%, 11/15/12 | 100,000 | 108,150 |
Kellogg Co., 6.6%, 4/1/11 | 100,000 | 104,234 |
Kraft Foods Inc., 5.625%, 11/1/11 | 100,000 | 105,262 |
Sysco Corp., 5.25%, 2/12/18 | 100,000 | 112,083 |
Walgreen Co., 4.875%, 8/1/13 | 100,000 | 110,048 |
Energy - 4.0% | ||
Conoco Funding Co., 6.35%, 10/15/11 | 100,000 | 106,704 |
Devon Energy Corp., 6.3%, 1/15/19 | 125,000 | 145,055 |
Marathon Oil Corp., 6.5%, 2/15/14 | 100,000 | 112,688 |
Valero Energy Corp., 6.875%, 4/15/12 | 100,000 | 107,708 |
Financials - 11.8% | ||
Allstate Corp., 6.2%, 5/16/14 | 100,000 | 113,534 |
American Express Credit Corp., 5.875%, 5/2/13 | 100,000 | 109,485 |
BP Capital Markets PLC., 3.875%, 3/10/15 | 52,000 | 44,358 |
Bank of America, 4.875%, 9/15/12 | 100,000 | 104,135 |
Berkshire Hathaway Inc., 4.85% , 1/15/15 | 100,000 | 109,940 |
General Electric Capital Corp., 4.8%, 5/1/13 | 100,000 | 106,678 |
Goldman Sachs Group Inc./The, 5.75%, 10/1/16 | 100,000 | 105,669 |
JP Morgan Chase & Co., 5.25%, 5/1/15 | 100,000 | 106,809 |
Markel Corp., 6.8%, 2/15/13 | 75,000 | 80,412 |
Morgan Stanley, 5.375%, 10/15/15 | 150,000 | 152,104 |
US Bancorp, 4.2%, 5/15/14 | 100,000 | 107,064 |
Wells Fargo & Co., 4.375%, 1/31/13 | 150,000 | 158,672 |
Wells Fargo & Co., 4.95%, 10/16/13 | 100,000 | 106,439 |
Health Care - 2.8% | ||
Abbott Laboratories, 5.6%, 11/30/17 | 100,000 | 116,256 |
Eli Lilly & Co., 4.2%, 3/6/14 | 100,000 | 108,746 |
Pfizer Inc., 5.35%, 3/15/15 | 100,000 | 113,416 |
Industrials - 1.0% | ||
United Parcel Service, 5.5%, 1/15/18 | 100,000 | 114,615 |
Principal Amount | Value | |
Information Technology - 3.9% | ||
Cisco Systems Inc., 5.5%, 2/22/16 | $100,000 | $ 115,341 |
Hewlett-Packard Co., 5.5%, 3/1/18 | 100,000 | 115,357 |
IBM Corp, 4.75%, 11/29/12 | 100,000 | 108,313 |
Oracle Corp., 4.95%, 4/15/13 | 100,000 | 109,456 |
Materials - 0.9% | ||
EI Du Pont De Nemour, 4.75%, 11/15/12 | 100,000 | 107,881 |
Telecommunication Services - 0.9% | ||
AT&T Broadband, 8.375%, 3/15/13 | 27,000 | 31,285 |
Verizon New England, 6.5%, 9/15/11 | 75,000 | 79,230 |
Utilities - 1.6% | ||
Dominion Resources Inc., 5.7%, 9/17/12 | 75,000 | 81,109 |
National Rural Utilities, 4.75%, 3/1/14 | 100,000 | 109,748 |
Total Corporate Debt Securities (Cost $4,233,625) | 4,498,372 | |
MORTGAGE BACKED SECURITIES - 24.5% | ||
Fannie Mae - 14.5% | ||
5.0%, 2/1/19 Pool # 725341 | 43,051 | 46,310 |
6.0%, 3/1/21 Pool # 745406 | 63,854 | 69,636 |
5.5%, 3/1/21 Pool # 837199 | 77,979 | 84,406 |
6.5%, 5/1/32 Pool # 636758 | 18,263 | 20,393 |
4.5%, 12/1/35 Pool # 745147 | 175,443 | 183,508 |
5.0%, 2/1/36 Pool # 745275 | 171,644 | 182,218 |
5.0%, 3/1/36 Pool # 745355 | 227,840 | 241,876 |
5.5%, 5/1/36 Pool # 745516 | 74,376 | 80,040 |
6.0%, 12/1/36 Pool # 256514 | 89,942 | 97,902 |
6.0%, 12/1/36 Pool # 902070 | 71,446 | 77,769 |
6.0%, 12/1/36 Pool # 903002 | 77,951 | 84,849 |
6.0%, 12/1/36 Pool # 905805 | 134,890 | 145,036 |
5.5%, 1/1/38 Pool # 953589 | 54,912 | 59,031 |
6.0%, 1/1/38 Pool # 965649 | 57,794 | 62,801 |
5.0%, 4/1/38 Pool # 889260 | 277,518 | 294,122 |
Freddie Mac - 7.0% | ||
5.0%, 2/1/21 Pool # G11911 | 101,317 | 108,734 |
4.5%, 4/1/23 Pool # J07302 | 235,958 | 249,551 |
4.5%, 11/1/23 Pool # G13342 | 134,777 | 142,540 |
6.0%, 8/1/36 Pool # A51727 | 83,449 | 90,795 |
6.5%, 11/1/36 Pool # C02660 | 79,637 | 87,556 |
5.0%, 9/1/38 Pool # G04815 | 147,843 | 156,642 |
Ginnie Mae - 3.0% | ||
4.0%, 4/15/39 Pool # 698089 | 354,373 | 361,017 |
Total Mortgage Backed Securities (Cost $2,783,769) | 2,926,732 |
See accompanying Notes to Financial Statements.
Semi-Annual Report 5
Madison Mosaic Income Trust | Core Bond • Portfolio of Investments | June 30, 2010 | concluded
Principal Amount | Value | |
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 34.6% | ||
Freddie Mac - 6.6% | ||
5.0%, 10/18/10 | $150,000 | $ 152,058 |
5.5%, 9/15/11 | 235,000 | 249,134 |
2.5%, 4/8/13 | 100,000 | 101,552 |
5.0%, 2/16/17 | 250,000 | 285,744 |
U.S. Treasury Bonds - 1.5% | ||
5.375%, 2/15/31 | 150,000 | 184,570 |
U.S. Treasury Notes - 26.5% | ||
5.125%, 6/30/11 | 100,000 | 104,723 |
1.875%, 2/28/14 | 400,000 | 407,688 |
4.25%, 8/15/14 | 850,000 | 944,895 |
4.25%, 11/15/17 | 100,000 | 112,352 |
3.875%, 5/15/18 | 265,000 | 289,678 |
3.75%, 11/15/18 | 1,200,000 | 1,293,187 |
Total U.S. Government & Agency Obligations (Cost $3,923,418) | 4,125,581 | |
REPURCHASE AGREEMENT - 2.0% | ||
With U.S. Bank National Association issued 6/30/10 at 0.01%, due 7/1/10, collateralized by $238,105 in Freddie Mac MBS #G11649 due 2/1/20. Proceeds at maturity are $233,436 (Cost $233,436) | 233,436 | |
TOTAL INVESTMENTS - 99.0% (Cost $11,174,248) | 11,784,121 | |
NET OTHER ASSETS AND LIABILITIES - 1.0% | 116,242 | |
TOTAL NET ASSETS - 100.0% | $11,900,363 |
See accompanying Notes to Financial Statements.
Semi-Annual Report 6
Madison Mosaic Income Trust | June 30, 2010
Statements of Assets and Liabilities (unaudited)
Government Fund | Core Bond Fund | |
ASSETS | ||
Investments, at value (Notes 1 and 2) | ||
Investment securities | $ 4,557,339 | $11,550,685 |
Repurchase agreements | 153,478 | 233,436 |
Total investments* | 4,710,817 | 11,784,121 |
Receivables | ||
Interest | 38,516 | 112,722 |
Capital shares sold | – | 11,818 |
Total assets | 4,749,333 | 11,908,661 |
LIABILITIES | ||
Payables | ||
Dividends | 329 | 1,362 |
Capital shares redeemed | 220 | 4,436 |
Auditor fees | 1,750 | 2,250 |
Independent trustee fees | 250 | 250 |
Total liabilities | 2,549 | 8,298 |
NET ASSETS | $ 4,746,784 | $11,900,363 |
Net assets consists of: | ||
Paid in capital | $ 4,548,965 | $11,588,461 |
Accumulated net realized gain (loss) | 2,816 | (297,971) |
Net unrealized appreciation on investments | 195,003 | 609,873 |
Net Assets | $ 4,746,784 | $11,900,363 |
CAPITAL SHARES OUTSTANDING | ||
An unlimited number of capital shares, without par value, are authorized. (Note 7) | 437,838 | 1,708,720 |
NET ASSET VALUE PER SHARE | $10.84 | $6.96 |
*INVESTMENT SECURITIES, AT COST | $ 4,515,814 | $11,174,248 |
See accompanying Notes to Financial Statements.
Semi-Annual Report 7
Madison Mosaic Income Trust | June 30, 2010
Statements of Operations (unaudited)
For the six-months ended June 30, 2010
Government Fund | Core Bond Fund | |
INVESTMENT INCOME (Note 1) | ||
Interest income | $ 74,754 | $236,398 |
EXPENSES (Notes 3 and 5) | ||
Investment advisory fees | 9,062 | 24,662 |
Other expenses: | ||
Service agreement fees | 4,094 | 15,747 |
Auditor fees | 1,750 | 2,250 |
Independent trustee fees | 500 | 500 |
Total other expenses | 6,344 | 18,497 |
Total expenses | 15,406 | 43,159 |
NET INVESTMENT INCOME | 59,348 | 193,239 |
REALIZED AND UNREALIZED GAIN ON INVESTMENTS | ||
Net realized gain (loss) on investments | 2,999 | (1,585) |
Change in net unrealized appreciation of investments | 87,920 | 371,644 |
NET GAIN ON INVESTMENTS | 90,919 | 370,059 |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $150,267 | $563,298 |
See accompanying Notes to Financial Statements.
Semi-Annual Report 8
Madison Mosaic Income Trust
Statements of Changes in Net Assets
For the period indicated
Government Fund | Core Bond Fund | |||
(unaudited) Six-Months Ended June 30, | Year Ended December 31, | (unaudited) Six-Months Ended June 30, | Year Ended December 31, | |
2010 | 2009 | 2010 | 2009 | |
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | ||||
Net investment income | $ 59,348 | $ 114,194 | $ 193,239 | $ 323,880 |
Net realized gain (loss) on investments | 2,999 | 28,453 | (1,585) | (10,178) |
Net unrealized appreciation (depreciation) on investments | 87,920 | (96,261) | 371,644 | 76,240 |
Net increase in net assets resulting from operations | 150,267 | 46,386 | 563,298 | 389,942 |
DISTRIBUTION TO SHAREHOLDERS | ||||
From net investment income | (59,348) | (114,194) | (193,239) | (323,880) |
From net capital gains | – | (13,052) | – | – |
Total distributions | (59,348) | (127,246) | (193,239) | (323,880) |
CAPITAL SHARE TRANSACTIONS (Note 7) | 356,219 | (690,825) | (970,821) | 7,247,526 |
NET INCREASE (DECREASE) IN NET ASSETS | 447,138 | (771,685) | (600,762) | 7,313,588 |
NET ASSETS | ||||
Beginning of period | $4,299,646 | $5,071,331 | $12,501,125 | $5,187,537 |
End of period | $4,746,784 | $4,299,646 | $11,900,363 | $12,501,125 |
See accompanying Notes to Financial Statements.
Semi-Annual Report 9
Madison Mosaic Income Trust | June 30, 2010
Financial Highlights
Selected data for a share outstanding for the periods indicated
GOVERNMENT FUND
(unaudited) Six-Months Ended June 30, | Year Ended December 31, | |||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |
Net asset value, beginning of period | $10.63 | $10.81 | $10.30 | $9.94 | $9.95 | $10.16 |
Investment operations: | ||||||
Net investment income | 0.14 | 0.27 | 0.32 | 0.33 | 0.31 | 0.28 |
Net realized and unrealized gain (loss) on investments | 0.21 | (0.15) | 0.51 | 0.36 | (0.01) | (0.21) |
Total from investment operations | 0.35 | 0.12 | 0.83 | 0.69 | 0.30 | 0.07 |
Less distributions: | ||||||
From net investment income | (0.14) | (0.27) | (0.32) | (0.33) | (0.31) | (0.28) |
From net capital gains | – | (0.03) | – | – | – | -- |
Total distribution | (0.14) | (0.30) | (0.32) | (0.33) | (0.31) | (0.28) |
Net asset value, end of period | $10.84 | $10.63 | $10.81 | $10.30 | $9.94 | $9.95 |
Total return (%) | 3.30 | 1.19 | 8.17 | 7.10 | 3.07 | 0.69 |
Ratios and supplemental data | ||||||
Net assets, end of period (in thousands) | $4,747 | $4,300 | $5,071 | $2,986 | $3,055 | $3,248 |
Ratio of expenses to average net assets (%) | 0.671 | 0.69 | 0.78 | 1.15 | 1.19 | 1.19 |
Ratio of net investment income to average net assets (%) | 2.601 | 2.55 | 3.00 | 3.30 | 3.11 | 2.75 |
Portfolio turnover (%) | 5 | 38 | 67 | 18 | 41 | 43 |
CORE BOND FUND
(unaudited) Six-Months Ended June 30, | Year Ended December 31, | |||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |
Net asset value, beginning of period | $6.76 | $6.74 | $6.58 | $6.44 | $6.46 | $6.64 |
Investment operations: | ||||||
Net investment income | 0.11 | 0.21 | 0.27 | 0.26 | 0.24 | 0.23 |
Net realized and unrealized gain (loss) on investments | 0.20 | 0.02 | 0.16 | 0.14 | (0.02) | (0.18) |
Total from investment operations | 0.31 | 0.23 | 0.43 | 0.40 | 0.22 | 0.05 |
Less distributions from net investment income | (0.11) | (0.21) | (0.27) | (0.26) | (0.24) | (0.23) |
Net asset value, end of period | $6.96 | $6.76 | $6.74 | $6.58 | $6.44 | $6.46 |
Total return (%) | 4.58 | 3.43 | 6.80 | 6.41 | 3.48 | 0.77 |
Ratios and supplemental data | ||||||
Net assets, end of period (in thousands) | $11,900 | $12,501 | $5,188 | $4,523 | $4,610 | $5,602 |
Ratio of expenses to average net assets (%) | 0.691 | 0.70 | 0.80 | 1.12 | 1.10 | 1.08 |
Ratio of net investment income to average net assets (%) | 3.111 | 3.13 | 4.18 | 4.05 | 3.70 | 3.49 |
Portfolio turnover (%) | 4 | 16 | 36 | 41 | 60 | 60 |
1Annualized.
Net asset value figures are based on average daily shares outstanding during the year.
See accompanying Notes to Financial Statements.
Semi-Annual Report 10
Madison Mosaic Income Trust | June 30, 2010 (unaudited)
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 Government Fund and the Madison Mosaic Core Bund Fund (collectively, 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: The Funds adopted Financial Accounting Standards Board ("FASB") guidance on fair value measurements. Fair value is defined as the price that the Funds would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. The Funds utilize a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assump tions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes.
Various inputs as noted above 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 table represents the Funds’ investments carried on the Statements of Assets and Liabilities by caption and by level within the fair value hierarchy as of June 30, 2010 (unaudited):
Fund | Level 1 | Level 2 | Level 3 | Value at 6/30/2010 |
Government | ||||
Mortgage Backed Securities | $ -- | $ 659,470 | $ -- | $ 659,470 |
U.S. Government and Agency Obligations | -- | 3,897,869 | -- | 3,897,869 |
Repurchase Agreement | -- | 153,478 | -- | 153,478 |
Total | $ -- | $ 4,710,817 | $ -- | $ 4,710,817 |
Core Bond | ||||
Corporate Debt Securities | $ -- | $ 4,498,372 | $ -- | $ 4,498,372 |
Mortgage Backed Securities | -- | 2,926,732 | -- | 2,926,732 |
U.S. Government and Agency Obligations | -- | 4,125,581 | -- | 4,125,581 |
Repurchase Agreement | -- | 233,436 | -- | 233,436 |
Total | $ -- | $11,784,121 | $ -- | $11,784,121 |
Please see the Portfolio of Investments for each Fund for a listing of all securities within each caption. |
Semi-Annual Report 11
Madison Mosaic Income Trust | Notes to Financial Statements | continued
In March 2008, FASB issued guidance regarding enhanced disclosures about funds’ derivative and hedging activities. Management has determined that there is no impact on the Funds’ financial statements as the Funds currently do not hold derivative financial instruments.
In January 2010, amended guidance was issued by FASB for fair value measurement disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation, inputs and valuation techniques used to measure fair value. The amended guidance is effective for financial statements for fiscal years and interim periods beginning after December 15, 2009 except for disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. For the six-months ended June 30, 2010, neither fund had securities that transferred between clas sification levels.
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 invest-ment 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.
The tax character of distributions paid during 2009 and 2008 was as follows:
2009 | 2008 | |
Government Fund: | ||
Distributions paid from: | ||
Ordinary income | $114,194 | $110,824 |
Long-term capital gains | 13,052 | -- |
Core Bond Fund: | ||
Distributions paid from ordinary income | $323,880 | $190,251 |
As of June 30, 2010, the components of distributable earnings on a tax basis were as follows (unaudited):
Government Fund: | |
Accumulated net realized gains | $ 2,816 |
Net unrealized appreciation on investments | 195,003 |
$197,819 | |
Core Bond Fund: | |
Accumulated net realized losses | $(297,971) |
Net unrealized appreciation on investments | 609,873 |
$311,902 |
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 FASB guidance on accounting for uncertainty in income taxes. The implementation of this guidance resulted in no material liability for unrecognized tax benefits and no material change to the beginning net asset value of the Funds.
As of and during the six-months ended June 30, 2010, the Funds did not have a liability for any unrecognized tax benefits. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the Funds did not incur any interest or penalties.
As of December 31, 2009, the Core Bond Fund had available for federal income tax purposes the following unused capital loss carryovers:
Semi-Annual Report 12
Madison Mosaic Income Trust | Notes to Financial Statements | continued
Expiration Date | Core Bond Fund |
December 31, 2010 | $243,364 |
December 31, 2013 | 20,428 |
December 31, 2014 | 22,383 |
December 31, 2017 | 10,131 |
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. The Trust, along with other registered investment companies having Advisory and Services Agreements with the same investment adviser, 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, 2010, the Government Fund had a 0.6% interest and the Core Bond Fund had a 0.9% interest in the consolidated repurchase agreement of $25,674,778 collateralized by $26,188,339 in Freddie Mac Mortgaged Backed Security Notes. Proceeds at maturity were $25,674,785.
3. Investment Advisory Fees. For the period covered by this report, the investment adviser to the Funds, Madison Investment Advisors, Inc. ("MIA") and Madison Mosaic, LLC, a wholly owned subsidiary of MIA (together, the "Adviser"), earned an advisory fee equal to 0.40% per annum of the average net assets of each 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, 2010 were as follows (unaudited):
Purchases | Sales | |
Government Fund: | ||
U.S. Gov’t securities | $560,228 | $203,809 |
Core Bond Fund: | ||
U.S. Gov’t securities | – | $992,020 |
Other | $424,847 | 173,769 |
5. Other Expenses. Under a separate Services Agreement, the Adviser will provide or arrange for each Fund to have all other necessary operational and support services for a fee based on a percentage of average net assets. These fees are accrued daily and paid monthly. This fee was 0.28% for the Government Fund and 0.30% for the Core Bond Fund. 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, 2010, 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 of securities for federal income tax purposes and the net unrealized appreciation (depreciation) are stated as follows as of June 30, 2010 (unaudited):
Government Fund | Core Bond Fund | |
Aggregate Cost | $4,515,814 | $11,174,248 |
Gross unrealized appreciation | 195,003 | 621,866 |
Gross unrealized depreciation | – | (11,993) |
Net unrealized appreciation | $ 195,003 | $ 609,873 |
Semi-Annual Report 13
Madison Mosaic Income Trust | Notes to Financial Statements | concluded
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) Six-Months Ended June 30, | Year Ended December 31, | |
Government Fund | 2010 | 2009 |
In Dollars | ||
Shares sold | $ 611,390 | $1,645,312 |
Shares issued in reinvestment of dividends | 57,308 | 122,057 |
Total shares issued | 668,698 | 1,767,369 |
Shares redeemed | (312,479) | (2,458,194) |
Net increase (decrease) | $ 356,219 | $ (690,825) |
In Shares | ||
Shares sold | 57,107 | 152,832 |
Shares issued in reinvestment of dividends | 5,339 | 11,384 |
Total shares issued | 62,446 | 164,216 |
Shares redeemed | (29,156) | (228,740) |
Net increase (decrease) | 33,290 | (64,524) |
(unaudited) Six-Months Ended June 30, | Year Ended December 31, | |
Core Bond Fund | 2010 | 2009 |
In Dollars | ||
Shares sold | $ 1,380,886 | $11,222,498 |
Shares issued in reinvestment of dividends | 184,756 | 307,135 |
Total shares issued | 1,565,642 | 11,529,633 |
Shares redeemed | (2,536,463) | (4,282,107) |
Net increase (decrease) | $ (970,821) | $ 7,247,526 |
In Shares | ||
Shares sold | 202,186 | 1,669,385 |
Shares issued in reinvestment of dividends | 26,910 | 45,482 |
Total shares issued | 229,096 | 1,714,867 |
Shares redeemed | (370,286) | (634,993) |
Net increase (decrease) | (141,190) | 1,079,874 |
8. Line of Credit. The Government Fund has a $1 million and the Core Bond Fund has a $3.5 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, 2010, neither Fund borrowed on their respective lines of credit.
9. Subsequent Events. Management has evaluated the impact of all subsequent events on the Funds’ financial statements through August 23, 2010, the date the financial statements were issued, and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.
Semi-Annual Report 14
Madison Mosaic Income Trust
Other Information
Fund Expenses
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 fund 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 Notes 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, 2010 and held for the six-months ended June 30, 2010.
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 | $1,032.95 | 0.67% | $3.39 |
Core Bond Fund | $1,000.00 | $1,045.82 | 0.69% | $3.52 |
1For the six-months ended June 30, 2010. 2Expenses are equal to the respective Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365. |
Hypothetical Example for Comparison Purposes
The table below titled "Based on Hypothetical Total Return" provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is 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 Account Value | Ending Account Value | Annualized Expense Ratio | Expenses Paid During the Period2 | |
Government Fund | $1,000.00 | $1,025.05 | 0.67% | $3.38 |
Core Bond Fund | $1,000.00 | $1,025.05 | 0.69% | $3.49 |
1For the six-months ended June 30, 2010. | ||||
2Expenses are equal to the respective Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365. |
Madison Mosaic Income Trust | Other Information | concluded
Forward-Looking Statement Disclosure. One of our most important responsibilities as investment company managers is to communicate with shareholders in an open and direct manner. Some of our comments in our letters to shareholders are based on current management expectations and are considered "forward-looking statements." Actual future results, however, may prove to be different from our expectations. You can identify forward-looking statements by words such as "estimate," "may," "will," "expect," "believe," "plan" and other similar terms. We cannot promise future returns. Our opinions are a reflection of our best judgment at the time this report is compiled, and we disclaim any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise.
Proxy Voting Information. The Trust only invests in non-voting securities. Nevertheless, the Trust adopted policies that provide guidance and set forth parameters for the voting of proxies relating to securities held in the Trust’s portfolios. These policies are available to you upon request and free of charge by writing to 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 may also be obtained by visiting the Securities and Exchange Commission ("SEC") web site at www.sec.gov. The Trust will respond to shareholder requests for copies of our policies within two business da ys of request by first-class mail or other means designed to ensure prompt delivery.
N-Q Disclosure. The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Trust’s Forms N-Q are available on the SEC’s website. The Trust’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information about the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Form N-Q and other information about the Trust are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. Copies of this information may also be obtained, upon payment of a duplicating fe e, by electronic request at the following email address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, DC 20549-0102. Finally, you may call Madison Mosaic at 800-368-3195 if you would like a copy of Form N-Q and we will mail one to you at no charge.
Semi-Annual Report 15
The Madison Mosaic Family of Mutual Funds
Madison Mosaic Equity Trust
Investors Fund
Balanced Fund
Mid-Cap Fund
Small/Mid-Cap Fund
Disciplined Equity 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, 2010
Institutional Bond Fund
COINS Fund
Contents
Review of Period | |
Economic Overview | 1 |
Outlook | 1 |
Institutional Bond Fund | 2 |
Corporate Income Shares (COINS) Fund | 3 |
Portfolio of Investments | |
Institutional Bond Fund | 4 |
Corporate Income Shares (COINS) Fund | 5 |
Statements of Assets and Liabilities | 6 |
Statements of Operations | 7 |
Statements of Changes in Net Assets | 8 |
Financial Highlights | 9 |
Notes to Financial Statements | 10 |
Other Information | 14 |
Madison Mosaic Income Trust
Review of Period
ECONOMIC OVERVIEW
As we began 2010 we experienced a period of welcome calm in the bond markets, characterized by a relatively stable yield curve, lower market volatility, and range bound long-term yields. As a result, investors turned their attention to debating economic fundamentals while weighing the sustainability of the recent economic upturn. While the economy grew at a brisk pace in the final quarter of 2009 and inflation remained tame, this image of resurgent growth belied persistent fundamental challenges. The housing market continued to struggle, unemployment was persistently high, and European governments came under pressure. Despite these clouds, higher risk U.S. bonds continued to lead the market through the first quarter of 2010.
Fear reemerged in the financial markets during the second quarter of 2010. After nearly a year of consistent gains from risk sectors (stocks, corporate bonds), turmoil in the European Union among sovereign bond issuers and the banks that finance them caused investors to seek the relative safety of the highest quality investments. In the U.S., that meant a sharp rally in Treasury yields, widening risk premiums on corporate bonds and declines in the broad equity indices.
The situation in Europe worsened despite efforts of the European Central Bank. A large fund, similar in size, scope, and purpose to the TARP Fund in the U.S. was created to take the pressure off of the short-term liquidity needs of countries such as Greece. While the liquidity facility proved welcome, the fundamental problem facing European sovereigns — fiscal discipline — remained unresolved. Returning the budgets of Europe’s large deficit countries to something approaching "discipline" will require a sharp dose of higher taxes and reduced spending on social programs including pension entitlements.
Here in the U.S., the financial system appeared somewhat insulated from direct effects of Europe’s debt problems. U.S. banks seemed to have manageable exposures to European sovereign bonds and similarly manageable exposures to European banks. However, the effects on our economy bear watching. Despite the muted economic growth outlook, inflation concerns remain hotly debated. Events in Europe suggest potential deflation in the Eurozone. China has applied the monetary brakes to its economy in an attempt to cool an over-heated property market. Yet stimulative monetary and fiscal policies in the U.S. continue. As a result, we now believe U.S. inflation will likely remain low for longer than we had been expecting, and we have pushed out our forecast of higher inflation until late 2011.
OUTLOOK
Against this backdrop of anemic growth and low inflation, we expect the Fed, despite its recent saber-rattling, to keep short-term interest rates low for at least the rest of this year. The yield curve should retain its steep slope and investors will likely continue to shy away from low-yielding cash equivalents in favor of better returns farther out the curve. We continue to favor intermediate bonds over the price risk inherent in longer maturities. We expect volatility to remain elevated as multiple cross-currents continue to buffet the market. We believe managing interest rate risk in this volatile environment will continue to be a key source of relative return, as will a healthy allocation to high-quality corporate and agency bonds in Institutional Bond Fund.
Semi-Annual Report 1
Madison Mosaic Income Trust | Portfolio Manager Review | continued
Madison Mosaic Institutional Bond Fund
INVESTMENT STRATEGY HIGHLIGHTS
Madison Institutional Bond Fund invests primarily in short to intermediate term government, government agency and investment-grade corporate bonds. The fund concentrates on the intermediate portion of the yield curve with a recognition that the ten-year Treasury bond has offered approximately 90% of the return of a 30-year Treasury with less risk over time. The fund is actively managed for duration, meaning that when we believe interest rates are falling, we lengthen duration to take advantage of the increased returns that should be available as rates drop. Likewise, when rates appear low and we believe interest rates will rise, we shorten portfolio maturities with the goal of limiting potential declines.
![](https://capedge.com/proxy/N-CSRS/0000310407-10-000193/incncsrs06106.jpg)
PERFORMANCE DISCUSSION
Madison Mosaic Institutional Bond Fund returned 3.24% for the semi-annual period ended June 30, 2010. Over the same period, its Morningstar peer group in the Intermediate Term Bond category averaged 5.21%. Almost all this performance gap occurred in the first half of the period, as the market continued to favor higher-risk, lower-quality securities. The fund showed better relative returns in the second quarter of 2010 as investors shifted to a more defensive posture. Institutional Bond Fund does not maintain exposure to Baa/BBB bonds (the lowest investment-grade rating) or lower rated bonds. Lower-rated bonds had a large performance advantage in the first quarter of 2010 and showed higher returns than the highest rated AAA bonds over the six-month period. As of June 30, 2010 Institutional Bond had a 30-day SEC yield of 1.83% and a duratio n of 3.05 years.
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 6/30/10 | |
Consumer Discretionary | 5.9% |
Consumer Staples | 9.6% |
Energy | 3.3% |
Financials | 15.6% |
Health Care | 2.8% |
Industrials | 1.4% |
Information Technology | 7.4% |
Materials | 1.8% |
Utilities | 0.9% |
U.S. Government & Agency Obligations | 44.7% |
Cash & Other | 6.6% |
TOP TEN HOLDINGS AS OF JUNE 30, 2010
% of net assets | |
US Treasury Note, 4.25%, 8/15/14 | 4.32% |
Freddie Mac, 4.5%, 7/15/13 | 4.28% |
US Treasury Note, 4.875%, 2/15/12 | 4.26% |
Freddie Mac, 5.125%, 7/15/12 | 4.24% |
US Treasury Note, 4.5%, 2/28/11 | 4.08% |
Fannie Mae, 3.625%, 8/15/11 | 4.02% |
US Treasury Note, 4%, 11/15/12 | 3.72% |
Federal Home Loan Bank, 3.625%, 5/29/13 | 3.70% |
US Treasury Note, 2%, 11/30/13 | 3.55% |
US Treasury Note, 1.375%, 1/15/13 | 3.50% |
Semi-Annual Report 2
Madison Mosaic Income Trust | Portfolio Manager Review | concluded
Corporate Income Shares (COINS)
COINS is a corporate bond portfolio designed for exclusive use within separately managed accounts. COINS had a return of 4.27% for the six-month period ended June 30, 2010. This was behind the 4.82% return of the Barclay’s Capital Intermediate Investment Grade Index, the fund’s benchmark over this same six months. This underperformance was largely a matter of quality, as COINS held less exposure to lower-rated bonds than its benchmark. Over this period, lower-rated bonds had a performance advantage over the highest-rated AAA category.
![](https://capedge.com/proxy/N-CSRS/0000310407-10-000193/incncsrs06107.jpg)
At the end of the period, the portfolio held a diversified portfolio of 50 corporate bonds with a composite quality rating of A2. The portfolio had an effective duration of 3.78. Eighty-one percent of the portfolio was rated A or higher by Standard and Poor’s, with approximately 19% rated BBB.
TOP TEN HOLDINGS AS OF JUNE 30, 2010
% of net assets | |
Abbott Laboratories, 5.875%, 5/15/16 | 2.78% |
Cisco Systems Inc., 5.5%, 2/22/16 | 2.74% |
YUM! Brands Inc., 6.25%, 3/15/18 | 2.73% |
Coca-Cola Co., 5.35%, 11/15/17 | 2.72% |
Pfizer Inc., 5.35%, 3/15/15 | 2.69% |
Sysco Corp., 5.25%, 2/12/18 | 2.66% |
National Rural Utilities, 4.75%, 3/1/14 | 2.61% |
EI Du Pont De Nemour, 4.75%, 11/15/12 | 2.56% |
US Bancorp, 4.2%, 5/15/14 | 2.54% |
American Express Co., 4.875%, 7/15/13 | 2.54% |
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 6/30/10 | |
Consumer Discretionary | 12.8% |
Consumer Staples | 19.9% |
Energy | 6.9% |
Financials | 22.1% |
Health Care | 7.0% |
Industrials | 4.7% |
Information Technology | 12.2% |
Materials | 2.6% |
Telecommunication Services | 2.5% |
Utilities | 3.6% |
Cash & Other | 5.7% |
Semi-Annual Report 3
Madison Mosaic Income Trust | June 30, 2010
Institutional Bond Fund • Portfolio of Investments (unaudited)
Principal Amount | Value | |
CORPORATE DEBT SECURITIES - 48.7% | ||
Consumer Discretionary - 5.9% | ||
Costco Wholesale Corp., 5.3%, 3/15/12 | $1,000,000 | $1,072,228 |
McDonald’s Corp., 5.35%, 3/1/18 | 1,000,000 | 1,147,116 |
Target Corp., 5.875%, 3/1/12 | 1,000,000 | 1,078,964 |
Wal-Mart Stores Inc., 4.55%, 5/1/13 | 125,000 | 136,051 |
Consumer Staples - 9.6% | ||
Coca-Cola Co./The, 4.875%, 3/15/19 | 1,000,000 | 1,109,746 |
Pepsico Inc., 4.65%, 2/15/13 | 1,000,000 | 1,087,025 |
Proctor & Gamble Co., 4.7%, 2/15/19 | 1,000,000 | 1,097,746 |
Sysco Corp., 5.25%, 2/12/18 | 1,000,000 | 1,120,830 |
Walgreen Co., 4.875%, 8/1/13 | 125,000 | 137,560 |
Walgreen Co., 5.25%, 1/15/19 | 875,000 | 994,268 |
Energy - 3.3% | ||
Conoco Funding Co., 6.35%, 10/15/11 | 1,000,000 | 1,067,040 |
ConocoPhillips, 4.6%, 1/15/15 | 750,000 | 820,179 |
Financials - 15.6% | ||
Allstate Corp., 6.2%, 5/16/14 | 450,000 | 510,902 |
American Express Co., 4.875%, 7/15/13 | 1,000,000 | 1,068,447 |
Bank of America, 4.875%, 9/15/12 | 1,000,000 | 1,041,352 |
Berkshire Hathaway Inc., 4.85%, 1/15/15 | 450,000 | 494,730 |
BP Capital Markets PLC, 3.875%, 3/10/15 | 518,000 | 441,871 |
General Electric Capital Corp., 4.25%, 6/15/12 | 170,000 | 176,992 |
General Electric Capital Corp., 4.8%, 5/1/13 | 830,000 | 885,431 |
Goldman Sachs Group Inc./The, 6.6%, 1/15/12 | 1,000,000 | 1,058,029 |
Household Finance Co., 6.375%, 10/15/11 | 70,000 | 73,177 |
JP Morgan Chase & Co., 5.25%, 5/1/15 | 1,000,000 | 1,068,096 |
Merrill Lynch & Co. Inc., 5.77%, 7/25/11 | 125,000 | 129,695 |
Morgan Stanley, 5.375%, 10/15/15 | 1,000,000 | 1,014,027 |
US Bancorp, 4.2%, 5/15/14 | 1,000,000 | 1,070,645 |
Health Care - 2.8% | ||
Abbott Laboratories, 5.6%, 11/30/17 | 1,000,000 | 1,162,557 |
Eli Lilly & Co., 4.2%, 3/6/14 | 450,000 | 489,357 |
Industrials - 1.4% | ||
United Parcel Service, 5.5%, 1/15/18 | 705,000 | 808,034 |
Information Technology -7.4% | ||
Cisco Systems Inc., 5.25%, 2/22/11 | 1,000,000 | 1,027,351 |
Hewlett-Packard Co., 5.25%, 3/1/12 | 1,000,000 | 1,070,462 |
IBM Corp, 4.75%, 11/29/12 | 1,000,000 | 1,083,131 |
Oracle Corp., 4.95%, 4/15/13 | 1,000,000 | 1,094,563 |
Principal Amount | Value | |
Materials - 1.8% | ||
EI Du Pont De Nemour, 3.25%, 1/15/15 | $1,000,000 | $ 1,044,323 |
Utilities - 0.9% | ||
National Rural Utilities, 4.75%, 3/1/14 | 450,000 | 493,872 |
Total Corporate Debt Securities (Cost $27,509,788) | $28,175,797 | |
US GOVERNMENT & AGENCY OBLIGATIONS - 44.7% | ||
Fannie Mae - 6.4% | ||
3.625%, 8/15/11 | 2,250,000 | 2,329,351 |
4.625%, 10/15/14 | 1,250,000 | 1,395,816 |
Federal Home Loan Bank - 3.7% | ||
3.625%, 5/29/13 | 2,000,000 | 2,143,590 |
Freddie Mac - 8.5% | ||
5.125%, 7/15/12 | 2,250,000 | 2,454,469 |
4.5%, 7/15/13 | 2,250,000 | 2,476,818 |
U.S. Treasury Notes - 26.1% | ||
4.5%, 2/28/11 | 2,300,000 | 2,364,508 |
4.875%, 2/15/12 | 2,300,000 | 2,464,416 |
4%, 11/15/12 | 2,000,000 | 2,154,532 |
1.375%, 1/15/13 | 2,000,000 | 2,027,188 |
2%, 11/30/13 | 2,000,000 | 2,053,438 |
4.25%, 8/15/14 | 2,250,000 | 2,501,192 |
3.125%, 5/15/19 | 1,500,000 | 1,531,524 |
Total US Government & Agency Obligations (Cost $25,382,728) | $25,896,842 | |
REPURCHASE AGREEMENT - 5.7% | ||
With U.S. Bank National Association issued 6/30/10 at 0.01%, due 7/1/10, collateralized by $3,371,049 in Freddie Mac MBS #G11649 due 2/1/20. Proceeds at maturity are $3304,943 (Cost $3,304,942) | 3,304,942 | |
TOTAL INVESTMENTS - 99.1% (Cost $56,197,458) | $57,377,581 | |
NET OTHER ASSETS AND LIABILITIES - 0.9% | 535,882 | |
TOTAL NET ASSETS - 100.0% | $57,913,463 |
See accompanying Notes to Financial Statements.
Semi-Annual Report 4
Madison Mosaic Income Trust | June 30, 2010
COINS Fund • Portfolio of Investments (unaudited)
Principal Amount | Value | |
CORPORATE DEBT SECURITIES - 94.3% | ||
Consumer Discretionary - 12.8% | ||
Comcast Corp., 5.9%, 3/15/16 | $15,000 | $16,925 |
Costco Wholesale Corp., 5.3%, 3/15/12 | 20,000 | 21,445 |
McDonald’s Corp., 5.8%, 10/15/17 | 20,000 | 23,388 |
Target Corp., 5.875%, 7/15/16 | 20,000 | 23,475 |
Walt Disney Co., 5.7%, 7/15/11 | 20,000 | 21,012 |
YUM! Brands Inc., 6.25%, 3/15/18 | 25,000 | 28,749 |
Consumer Staples - 19.9% | ||
Bottling Group LLC, 4.625%, 11/15/12 | 20,000 | 21,630 |
Coca Cola Co., 5.35%, 11/15/17 | 25,000 | 28,634 |
Coca Cola Enterprises, 7.375%, 3/03/14 | 10,000 | 11,929 |
General Mills Inc., 5.65%, 2/15/19 | 20,000 | 22,765 |
Kellogg Co., 6.6%, 4/1/11 | 15,000 | 15,635 |
Kimberly-Clark, 6.125%, 8/1/17 | 10,000 | 11,854 |
Kraft Foods Inc., 6.5%, 8/11/17 | 20,000 | 23,264 |
Proctor & Gamble Co., 4.95%, 8/15/14 | 20,000 | 22,436 |
Sysco Corp., 5.25%, 2/12/18 | 25,000 | 28,021 |
Walgreen Co., 5.25%, 1/15/19 | 20,000 | 22,726 |
Energy - 6.9% | ||
Conoco Funding Co., 6.35%, 10/15/11 | 20,000 | 21,341 |
Devon Energy Corp., 5.625%, 1/15/14 | 15,000 | 16,664 |
Marathon Oil Corp., 6.5%, 2/15/14 | 10,000 | 12,011 |
Marathon Oil Corp., 7.5%, 2/15/19 | 10,000 | 11,269 |
Valero Energy Corp., 6.875%, 4/15/12 | 10,000 | 10,771 |
Financials - 22.1% | ||
American Express Co., 4.875%, 7/15/13 | 25,000 | 26,711 |
BP Capital Markets PLC, 3.875%, 3/10/15 | 13,000 | 11,090 |
Bank of America, 4.875%, 9/15/12 | 20,000 | 20,827 |
Bank One Corp., 7.875%, 8/1/10 | 20,000 | 20,044 |
Berkshire Hathaway Inc., 4.85%, 1/15/15 | 20,000 | 21,988 |
General Electric Capital Corp., 5.4%, 2/15/17 | 25,000 | 26,591 |
Goldman Sachs Group Inc./The, 5.125%, 1/15/15 | 20,000 | 21,030 |
JP Morgan Chase & Co., 5.125%, 9/15/14 | 5,000 | 5,341 |
Merrill Lynch & Co. Inc., 6.4%, 8/28/17 | 15,000 | 15,663 |
Morgan Stanley, 5.375%, 10/15/15 | 10,000 | 10,140 |
US Bancorp, 4.2%, 5/15/14 | 25,000 | 26,766 |
Wells Fargo & Co., 4.95%, 10/16/13 | 15,000 | 15,966 |
Wells Fargo & Co., 5.625%, 12/11/17 | 10,000 | 10,949 |
Health Care - 7.0% | ||
Abbott Laboratories, 5.875%, 5/15/16 | 25,000 | 29,284 |
Eli Lilly & Co., 6%, 3/15/12 | 15,000 | 16,343 |
Pfizer, Inc., 5.35%, 3/15/15 | 25,000 | 28,354 |
Principal Amount | Value | |
Industrials - 4.7% | ||
3M Company, 4.5%, 11/1/11 | $25,000 | $ 26,201 |
United Parcel Service, 5.5%, 1/15/18 | 20,000 | 22,923 |
Information Technology - 12.2% | ||
Cisco Systems Inc., 5.5%, 2/22/16 | 25,000 | 28,835 |
Hewlett-Packard Co., 5.25%, 3/1/12 | 20,000 | 21,409 |
IBM Corp., 4.75%, 11/29/12 | 20,000 | 21,663 |
Intuit Inc., 5.4%, 3/15/12 | 10,000 | 10,621 |
Oracle Corp., 5.75%, 4/15/18 | 20,000 | 23,190 |
Western Union Co., 5.93%, 10/01/16 | 20,000 | 22,472 |
Materials - 2.6% | ||
EI Du Pont De Nemour, 4.75%, 11/15/12 | 25,000 | 26,970 |
Telecommunication Services - 2.5% | ||
Bellsouth Corp., 6%, 10/15/11 | 15,000 | 15,929 |
Verizon New England, 6.5%, 9/15/11 | 10,000 | 10,564 |
Utilities - 3.6% | ||
Dominion Resources, 5.7%, 9/17/12 | 10,000 | 10,815 |
National Rural Utilities, 4.75%, 3/1/14 | 25,000 | 27,436 |
Total Corporate Debt Securities (Cost $914,133) | $ 992,059 | |
REPURCHASE AGREEMENT - 4.3% | ||
With U.S. Bank National Association issued 6/30/10 at 0.01%, due 7/1/10, collateralized by $46,590 in Freddie Mac MBS #G11649 due 2/1/20. Proceeds at maturity are $45,676 (Cost $45,676) | 45,676 | |
TOTAL INVESTMENTS - 98.6% (Cost $959,809) | $1,037,735 | |
NET OTHER ASSETS AND LIABILITIES - 1.4% | 15,204 | |
TOTAL NET ASSETS - 100.0% | $1,052,939 |
See accompanying Notes to Financial Statements.
Semi-Annual Report 5
Madison Mosaic Income Trust | June 30, 2010
Statements of Assets and Liabilities (unaudited)
Institutional Bond Fund | COINS Fund | |
ASSETS | ||
Investments, at value (Notes 1 and 2) | ||
Investment securities | $54,072,569 | $ 992,059 |
Repurchase agreements | 3,304,942 | 45,676 |
Total investments* | 57,377,511 | 1,037,735 |
Receivables | ||
Interest | 702,737 | 15,204 |
Capital shares sold | 61,247 | – |
Total assets | 58,141,495 | 1,052,939 |
LIABILITIES (Notes 3 and 5) | ||
Payables | ||
Dividends | 202,726 | – |
Capital shares redeemed | 21,806 | – |
Auditor fees | 3,250 | – |
Independent trustee fees | 250 | – |
Total liabilities | 228,032 | – |
NET ASSETS | $57,913,463 | $1,052,939 |
Net assets consists of: | ||
Paid in capital | $56,704,208 | $976,937 |
Accumulated net realized losses | 29,202 | (1,924) |
Net unrealized appreciation on investments | 1,180,053 | 77,926 |
Net assets | $57,913,463 | $1,052,939 |
CAPITAL SHARES OUTSTANDING An unlimited number of capital shares, without par value, are authorized (Note 7) | ||
5,300,359 | 96,813 | |
NET ASSET VALUE PER SHARE | ||
$10.93 | $10.88 | |
*INVESTMENT SECURITIES, AT COST | $56,197,458 | $ 959,809 |
See accompanying Notes to Financial Statements.
Semi-Annual Report 6
Madison Mosaic Income Trust
Statements of Operations (unaudited)
For the six-months ended June 30, 2010
Institutional Bond Fund | COINS Fund | |
INVESTMENT INCOME (Note 1) | ||
Interest income | $ 644,938 | $23,674 |
EXPENSES (Notes 3 and 5) | ||
Investment advisory fees | 85,102 | – |
Other expenses: | ||
Service agreement fees | 50,147 | – |
Auditor fees | 3,250 | – |
Independent trustee fees | 500 | – |
Total other expenses | 53,897 | – |
Total expenses | 138,999 | – |
NET INVESTMENT INCOME | 505,939 | 23,674 |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||
Net realized gain (loss) on investments | 34,188 | (469) |
Change in net unrealized appreciation of investments | 1,144,009 | 19,039 |
NET GAIN ON INVESTMENTS | $1,178,197 | $18,570 |
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $1,684,136 | $42,244 |
See accompanying Notes to Financial Statements.
Semi-Annual Report 7
Madison Mosaic Income Trust
Statements of Changes in Net Assets
For the period indicated
Institutional Bond Fund | COINS Fund | |||
(unaudited) Six-Months Ended June 30, | Year Ended December 31, | (unaudited) Six-Months Ended June 30, | Year Ended December 31, | |
2010 | 2009 | 2010 | 2009 | |
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | ||||
Net investment income | $ 505,939 | $ 173,320 | $ 23,674 | $ 47,935 |
Net realized gain (loss) on investments | 34,188 | (4,986) | (469) | (1,455) |
Net unrealized appreciation (depreciation) on investments | 1,144,009 | (21,031) | 19,039 | 48,022 |
Net increase in net assets resulting from operations | 1,684,136 | 147,303 | 42,244 | 94,502 |
DISTRIBUTIONS TO SHAREHOLDERS | ||||
From net investment income | (505,939) | (173,320) | (23,674) | (47,935) |
From net capital gains | – | -- | – | -- |
Total distributions | (505,939) | (173,320) | (23,674) | (47,935) |
CAPITAL SHARE TRANSACTIONS (Note 7) | 30,353,355 | 24,253,096 | 47,709 | (8,090) |
NET INCREASE IN NET ASSETS | 31,531,552 | 24,227,079 | 66,279 | 38,477 |
NET ASSETS | ||||
Beginning of period | $26,381,911 | $ 2,154,832 | $ 986,660 | $948,183 |
End of period | $57,913,463 | $26,381,911 | $1,052,939 | $986,660 |
See accompanying Notes to Financial Statements.
Semi-Annual Report 8
Madison Mosaic Income Trust
Financial Highlights
Selected data for a share outstanding throughout each period indicated
INSTITUTIONAL BOND FUND
(unaudited) Six-Months Ended June 30, | Year Ended December 31, | |||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |
Net asset value, beginning of period | $10.68 | $10.47 | $10.41 | $10.08 | $10.11 | $10.34 |
Investment operations: | ||||||
Net investment income | 0.09 | 0.20 | 0.48 | 0.44 | 0.41 | 0.36 |
Net realized and unrealized gain (loss) on investments | 0.25 | 0.21 | 0.16 | 0.33 | (0.03) | (0.23) |
Total from investment operations | 0.34 | 0.41 | 0.64 | 0.77 | 0.38 | 0.13 |
Less distributions: | ||||||
From net investment income | (0.09) | (0.20) | (0.48) | (0.44) | (0.41) | (0.36) |
From net capital gains | -- | -- | (0.10) | -- | -- | -- |
Total distributions | (0.09) | (0.20) | (0.58) | (0.44) | (0.41) | (0.36) |
Net asset value, end of period | $10.93 | $10.68 | $10.47 | $10.41 | $10.08 | $10.11 |
Total return (%) | 3.24 | 3.99 | 6.30 | 7.77 | 3.93 | 1.24 |
Ratios and supplemental data | ||||||
Net assets, end of period (in thousands) | $57,913 | $26,382 | $2,155 | $6,413 | $6,511 | $7,672 |
Ratio of expenses to average net assets (%) | 0.481 | 0.49 | 0.56 | 0.47 | 0.46 | 0.45 |
Ratio of net investment income to average net assets (%) | 1.761 | 2.21 | 3.70 | 4.21 | 3.97 | 3.48 |
Portfolio turnover (%) | 12 | 11 | 73 | 42 | 34 | 39 |
COINS FUND
(unaudited) Six-Months Ended June 30, | Year Ended December 31, | |||
2010 | 2009 | 2008 | 2007* | |
Net asset value, beginning of period | $10.68 | $10.16 | $10.26 | $10.00 |
Investment operations: | ||||
Net investment income | 0.25 | 0.53 | 0.52 | 0.27 |
Net realized and unrealized gain (loss) on investments | 0.20 | 0.52 | (0.09) | 0.26 |
Total from investment operations | 0.45 | 1.05 | 0.43 | 0.53 |
Less distributions: | ||||
From net investment income | (0.25) | (0.53) | (0.52) | (0.27) |
From net capital gains | -- | -- | (0.01) | -- |
Total distributions | (0.25) | (0.53) | (0.53) | (0.27) |
Net asset value, end of period | $10.88 | $10.68 | $10.16 | $10.26 |
Total return (%) | 4.27 | 10.58 | 4.29 | 5.37 |
Ratios and supplemental data | ||||
Net assets, end of period (in thousands) | $1,053 | $987 | $948 | $637 |
Ratio of expenses to average net assets (%) | -- | -- | -- | -- |
Ratio of net investment income to average net assets (%) | 4.681 | 5.05 | 5.21 | 5.29 |
Portfolio turnover (%) | 6 | 18 | 5 | 3 |
1Annualized.
* For the period July 1, 2007 (commencement of operations) through December 31, 2007
Net asset value figures are based on average daily shares outstanding during the year.
See accompanying Notes to Financial Statements.
Madison Mosaic Income Trust | June 30, 2010
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 (collectively, the "Funds"). Their objectives and strategies are detailed in their prospectuses. The remaining Trust portfolios present their financial information in a separate report.
Securities Valuation: The Funds adopted Financial Accounting Standards Board (‘FASB") guidance on fair value measurements. Fair value is defined as the price that the Funds would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. The Funds utilize a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity 217;s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes.
Various inputs as noted above 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 table represents the Funds’ investments carried on the Statement of Assets and Liabilities by caption and by level within the fair value hierarchy as of June 30, 2010 (unaudited):
Fund | Level 1 | Level 2 | Level 3 | Value at 6/30/2010 |
Institutional Bond | ||||
Corporate Debt Securities | $ -- | $28,175,797 | $ -- | $28,175,797 |
U.S. Government & Agency Notes | -- | 25,896,842 | -- | 25,896,842 |
Repurchase Agreement | -- | 3,304,942 | -- | 3,304,942 |
Total | $ -- | $57,377,581 | $ -- | $57,377,581 |
COINS | ||||
Corporate Debt Securities | -- | $ 992,059 | $ -- | $ 992,059 |
Repurchase Agreement | -- | 45,676 | -- | 45,676 |
Total | $ -- | $ 1,037,735 | $ -- | $ 1,037,735 |
Please see the Portfolio of Investments for each Fund for a listing of all securities within each caption. |
Semi-Annual Report 9
Madison Mosaic Income Trust | Notes to Financial Statements | continued
In March 2008, FASB issued guidance regarding enhanced disclosures about funds’ derivative and hedging activities. Management has determined that there is no impact on the Funds’ financial statements as the Funds currently do not hold derivative financial instruments.
In January 2010, amended guidance was issued by FASB for fair value measurement disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation, inputs and valuation techniques used to measure fair value. The amended guidance is effective for financial statements for fiscal years and interim periods beginning after December 15, 2009 except for disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. For the six-months ended June 30, 2010, neither fund had securities that transferred between clas sification levels.
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 quarterly for the Institutional Bond Fund and monthly for the COINS Fund. Capital gain distributions, if any, are declared and paid annually at year-end for both Funds.
The tax character of distributions paid during 2009 and 2008 was as follows:
2009 | 2008 | |
Institutional Bond Fund: | ||
Distributions paid from: | ||
Ordinary income | $173,320 | $122,678 |
Long-term capital gains | -- | 19,610 |
COINS Fund: | ||
Distributions paid from: | ||
Ordinary income | $47,935 | $42,472 |
Short-term capital gains | -- | 579 |
As of June 30, 2010, the components of distributable earnings on a tax basis were as follows (unaudited):
Institutional Bond Fund: | |
Net realized gain on investments | $ 29,202 |
Net unrealized appreciation on investments | 1,180,053 |
$1,209,255 | |
COINS Fund: | |
Net realized loss on investments | $ (1,924) |
Net unrealized appreciation on investments | 77,926 |
$76,002 |
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 FASB guidance on accounting for uncertainty in income taxes. The implementation of this guidance resulted in no material liability for unrecognized tax benefits and no material change to the beginning net asset value of the Funds.
As of and during the six-months ended June 30, 2010, the Funds did not have a liability for any unrecognized tax benefits. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the Funds did not incur any interest or penalties.
Semi-Annual Report 10
Madison Mosaic Income Trust | Notes to Financial Statements | continued
As of December 31, 2009, the Institutional Bond Fund and COINS Fund had $4,986 and $1,455, respectively, of unused capital loss carryovers that will expire December 31, 2017.
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 Funds’ 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 custodian bank. The Funds, along with other registered investment companies having Advisory and Services Agreements with the same investment adviser, transfers uninvested cash balances into a joint trading account. The aggregate balance in this joint trading account is invest ed in one or more consolidated repurchase agreements whose underlying securities are U.S. Treasury or federal agency obligations. As of June 30, 2010, the Institutional Bond Fund had a 12.9% interest and the COINS Fund had a 0.2% interest in the consolidated repurchase agreement of $25,674,778 collateralized by $26,188,339 in Freddie Mac Mortgage Backed Security Notes. Proceeds at maturity were $25,674,785.
3. Investment Advisory Fees. For the period covered by this report, the investment adviser to the Funds, Madison Investment Advisors, Inc. ("MIA") and Madison Mosaic, LLC, a wholly owned subsidiary of MIA (together the "Adviser"), earned 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 to the Adviser. Instead the Adviser is compensated for managing the fund through payments it receives from fees paid 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 year ended June 30, 2010 were as follows (unaudited):
Purchases | Sales | |
Institutional Fund: | ||
U.S. Gov’t securities | $18,491,074 | $5,464,301 |
Other | 16,321,177 | 416,327 |
COINS Fund: | ||
U.S. Gov’t securities | $ – | $ – |
Other | 105,589 | 61,461 |
5. Other Expenses. Under a separate Services Agreement, the Adviser 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. For the Institutional Bond Fund, this percentage is 0.19%.
The Institutional Bond Fund also pays the expenses of its Independent Trustees and auditors directly. For the six-months ended June 30, 2010, the amounts expensed for these fees were $500 and $3,250, respectively. These expenses are included as part of the fees described in the prior paragraph.
The COINS Fund pays no expenses. Instead, the Adviser 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 of securities for federal income tax purposes and the net unrealized appreciation (depreciation) are as follows as of June 30, 2010 (unaudited):
Institutional Bond Fund | COINS Fund | |
Aggregate Cost | $56,197,458 | $959,809 |
Gross unrealized appreciation | 1,293,043 | 80,402 |
Gross unrealized depreciation | (112,990) | (2,476) |
Net unrealized appreciation | $ 1,180,053 | $ 77,926 |
Semi-Annual Report 11
Madison Mosaic Income Trust | Notes to Financial Statements | concluded
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 June 30, | Year Ended December 31 | |
Institutional Bond Fund | 2010 | 2009 |
In Dollars | ||
Shares sold | $35,044,156 | $27,206,566 |
Shares issued in reinvestment of dividends | 303,008 | 172,265 |
Total shares issued | 35,347,164 | 27,378,831 |
Shares redeemed | (4,993,809) | (3,125,735) |
Net increase | $30,353,355 | $24,253,096 |
In Shares | ||
Shares sold | 3,264,456 | 2,539,877 |
Shares issued in reinvestment of dividends | 28,095 | 16,240 |
Total shares issued | 3,292,551 | 2,556,117 |
Shares redeemed | (461,369) | (292,714) |
Net increase | 2,831,182 | 2,263,403 |
(unaudited) Six-Months Ended June 30, | Year Ended December 31 | |
COINS Fund | 2010 | 2009 |
In Dollars | ||
Shares sold | $ 24,035 | $100,000 |
Shares issued in reinvestment of dividends | 23,674 | 47,935 |
Total shares issued | 47,709 | 147,935 |
Shares redeemed | – | (156,025) |
Net increase (decrease) | $ 47,709 | $ (8,090) |
In Shares | ||
Shares sold | 2,228 | 9,756 |
Shares issued in reinvestment of dividends | 2,192 | 4,586 |
Total shares issued | 4,420 | 14,342 |
Shares redeemed | – | (15,281) |
Net increase (decrease) | 4,420 | (939) |
8. Line of Credit. The Institutional Bond Fund has a $3 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, 2010, the Fund did not borrow on its line of credit.
9. Subsequent Events. Management has evaluated the impact of all subsequent events on the Funds’ financial statements through August 23, 2010, the date the financial statements were issued, and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.
Semi-Annual Report 12
Madison Mosaic Income Trust
Other Information
Fund Expenses
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 fund 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 Notes 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, 2010 and held for the six-months ended
June 30, 2010.
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 | |
Institutional Bond Fund | $1,000.00 | $1,032.35 | 0.48% | $2.44 |
COINS Fund | $1,000.00 | $1,042.71 | 0% | $0 |
1For the six-months ended June 30, 2010. 2Expenses are equal to the respective Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365. |
Hypothetical Example for Comparison Purposes
The table below titled "Based on Hypothetical Total Return" provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not 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 During the Period2 | |
Institutional Bond Fund | $1,000.00 | $1,025.05 | 0.48% | $2.43 |
COINS Fund | $1,000.00 | $1,025.05 | 0% | $0 |
1For the six-months ended June 30, 2010. 2Expenses are equal to the respective Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365. |
Semi-Annual Report 13
Madison Mosaic Income Trust | Other Information | concluded
Forward-Looking Statement Disclosure. One of our most important responsibilities as investment company managers is to communicate with shareholders in an open and direct manner. Some of our comments in our letters to shareholders are based on current management expectations and are considered "forward-looking statements." Actual future results, however, may prove to be different from our expectations. You can identify forward-looking statements by words such as "estimate," "may," "will," "expect," "believe," "plan" and other similar terms. We cannot promise future returns. Our opinions are a reflection of our best judgment at the time this report is compiled, and we disclaim any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise.
Proxy Voting Information. The Trust only invests in non-voting securities. Nevertheless, the Trust adopted policies that provide guidance and set forth parameters for the voting of proxies relating to securities held in the Trust’s portfolios. These policies are available to you upon request and free of charge by writing to 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 may also be obtained by visiting the Securities and Exchange Commission ("SEC") web site at www.sec.gov. The Trust will respond to shareholder requests for copies of our policies within two business days of request by first-class mail or other means designed to ensure prompt delivery.
N-Q Disclosure. The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Trust’s Forms N-Q are available on the SEC’s website. The Trust’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information about the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Form N-Q and other information about the Trust are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. Copies of this information may also be obtained, upon payment of a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the SEC’s P ublic 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.
Semi-Annual Report 14
The Madison Mosaic Family of Mutual Funds
Madison Mosaic Equity Trust
Investors Fund
Balanced Fund
Mid-Cap Fund
Small/Mid-Cap Fund
Disciplined Equity 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)
Holly Baggot, Secretary
Date: August 24, 2010
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 24, 2010
By: (signature)
Greg Hoppe, Chief Financial Officer
Date: August 24, 2010