Core Bond Fund
Institutional Bond Fund
Investment Grade Corporate Bond Fund
www.mosaicfunds.com
Madison Mosaic Income Trust | December 31, 2012
CONTENTS
Management’s Discussion of Fund Performance | ||
2012 in Review | 2 | |
Outlook | 2 | |
Government Fund | 3 | |
Core Bond Fund | 4 | |
Institutional Bond Fund | 5 | |
Investment Grade Corporate Bond Fund | 6 | |
Notes to Management’s Discussion of Fund Performance | 7 | |
Portfolio of Investments | ||
Government Fund | 8 | |
Core Bond Fund | 9 | |
Institutional Bond Fund | 11 | |
Investment Grade Corporate Bond Fund | 13 | |
Statements of Assets and Liabilities | 15 | |
Statements of Operations | 16 | |
Statements of Changes in Net Assets | 17 | |
Financial Highlights | 18 | |
Notes to Financial Statements | 21 | |
Report of Independent Registered Public Accounting Firm | 26 | |
Other Information | 27 | |
Trustees and Officers | 31 |
1
Madison Mosaic Income Trust | December 31, 2012
Management’s Discussion of Fund Performance
2012 in Review
The old adage that markets climb “a wall of worry” was demonstrated by domestic and international stock and bond markets in 2012. Despite signs of below trend economic growth in the U.S., a recession in Europe, and slowing growth in the emerging markets, investors in both stocks and bonds saw positive returns. These positive results were supported by continued aggressive monetary policy worldwide, exemplified by the Federal Reserve’s announcement in December that it would maintain low interest rates as long as unemployment exceeded 6.5% and inflation remained under 2.5%.
Bond investors across the board enjoyed positive returns, with the most conservative short-term government issuance producing minor advances, while riskier long-term and lower-quality bonds produced notably positive results. The bond market was led by the high-yield corporate sector, which tends to move in tandem with the stock markets. The domestic stock market advanced 16.0% in 2012 as measured by the S&P 500. The Barclays High-Yield Bond Index was up 15.8%, the broader Barclay’s Corporate Bond Index advanced 9.8%, while U.S. Treasuries showed a more modest 2.0% gain, as measured by Barclays U.S. Treasury Bond Index.
While investment returns were generally heartening to investors, the journey was uneven. Headlines seemed to provide an endless stream of uncertainties from around the world. The most potent of these influences was the sovereign debt crisis in Europe. Early year optimism over the U.S. economy and European debt crisis took the bellwether 10-year Treasury to a year-high yield of 2.38% in mid-March as investors showed willingness to step away from the safest bonds. This trend ended as worries increased over the possible default of debt by the most economically troubled countries in southern Europe. The ensuing flight to safety drove the yield on the 10-year Treasury to its annual low of 1.39% on July 24th. Confidence in a positive resolution began to subsequently rise, fueled by European Central bank President Mario Draghi’s July statement that he would do “whatever it takes” to hold the Eurozone together. As the year progressed the nation’s attention turned away from Europe to the presidential election and only late in the period did investors begin to focus on the so-called fiscal cliff. The fiscal cliff’s automatic shifts to higher taxes and lower spending were partially fended off with a late December, last-minute compromise. The yield on the 10-year Treasury ended the year at 1.76%, slightly lower than the opening yield for the year, producing Treasury returns that were a bit higher than the coupon return for the annual period.
OUTLOOK
While optimism generally prevailed in 2012, our perspective suggests that the bond market may be overlooking the wide variety of risks that remain unresolved. These include worldwide credit issues, the upcoming battle over the domestic debt ceiling, and the possibility that the Fed’s long-standing policy of aggressive monetary easing may become less accommodative. In addition, the “risk on” trade that prevailed in 2012 has caused many of the investment grade bond sectors to become aggressively priced. Our focus on reducing risk to this investment grade sector should not suggest that we recommend shifting sensible asset allocation strategies. We anticipate the 10-year Treasury yield may fluctuate in a much wider range than experienced in 2012 and volatility will increase. We believe the exceptionally high corporate bond valuations have largely run their course and anticipate increased volatility in 2013 as demand for corporate bonds transitions to more normal levels, especially if investors begin to rebalance their portfolios to a more normal stock allocation. We estimate investment-grade bond returns in 2013 may equal the yield to maturity, and at worst believe a moderate increase in rates could challenge returns in 2013. As a result, we encourage investors to look beyond the broad classification such as “bond” to see what sort of interest-rate and credit risks are in their current bond allocation. Our outlook suggests that risk-averse investors with an interest in capital preservation should focus on higher-quality, and lower to intermediate maturity issues to mitigate the potential damages of rising rates and lower valuations on corporate bonds.
2
Madison Mosaic Income Trust | Management’s Discussion of Fund Performance | continued
FUND-AT-A-GLANCE | |
Objective: Madison Mosaic Government Fund provides investors with monthly dividends by investing in bonds and other securities issued or guaranteed by the U.S. Government. | |
Net Assets: $6.1 million | |
Date of Inception: July 21, 1983 | |
Ticker: MADTX |
Madison 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 intermediate area of the yield curve has offered approximately 90% of the return of the long Treasury with less risk. The fund is actively managed for duration, meaning that when we believe interest rates will fall, we lengthen duration to take advantage of the increased returns that should be available as rates drop. Likewise, we believe when rates appear likely to rise, we shorten portfolio maturities with the goal of limiting potential declines.
Madison Mosaic Government Fund (Class Y) returned 1.44% for the annual period ended December 31, 2012. This return exceeded the fund’s Morningstar Short Government peer group, which had a category return of 1.06%, but trailed the Barclays Capital Intermediate Government Bond Index, which returned 1.73%. These relative returns against the peer group were primarily driven by the fund’s overweight to spread product (bonds which typically yield more than comparable U.S. Treasuries). The fund had an overweight allocation to mortgage backed securities that performed well in 2012. In addition, the fund was overweight government agencies which added additional yield to the portfolio. The unmanaged Barclays Index, which has no expenses associated with it, held an average duration of 3.62 years at year-end, compared to the fund’s 2.91 years. This was a drag on performance against the Index, as rates fell slightly during the period. As mentioned above, Madison Mosaic Government Fund favored the yield advantage in U.S. Government Agency and Mortgaged Backed bonds throughout the year over Treasury securities. In the end Agencies held a slight outperformance edge over Treasuries as seen by the relative returns of the Barclays Intermediate U.S. Agency Index, which was up 1.78%, while the Barclays Intermediate U.S. Treasury Index advanced 1.71%. The Barclays U.S. Mortgage Backed Securities Index advanced 2.59% for the year. At year-end the Government Bond Fund held 58.2% in U.S. Government agency bonds, 29.9% in Treasuries, 9.4% in mortgage-backed bonds, and 2.5% in cash. The fund was invested in 39 positions and had a 30-day SEC yield of 0.19%.
TOP TEN STOCK HOLDINGS AS OF 12/31/12 | |||
% of net assets | |||
U.S. Treasury Note, 3.125%, 10/31/16 | 10.77 | % | |
Fannie Mae, 1.25%, 1/30/17 | 8.38 | % | |
U.S. Treasury Note, 2.625%, 11/15/20 | 6.27 | % | |
Freddie Mac, 2.5%, 5/27/16 | 6.10 | % | |
U.S. Treasury Note, 0.5%, 11/15/13 | 5.73 | % | |
Freddie Mac, 1.25%, 5/12/17 | 5.02 | % | |
Federal Home Loan Bank, 3.375%, 6/12/20 | 4.92 | % | |
Fannie Mae, 2.375%, 4/11/16 | 4.34 | % | |
Federal Home Loan Bank, 1.375%, 5/28/14 | 4.15 | % | |
Fannie Mae, 2.375%, 7/28/15 | 3.44 | % |
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 12/31/12 | ||||
Mortgage Backed Securities | 9.4 | % | ||
U.S. Agency Notes | 58.2 | % | ||
U.S. Treasury Notes | 29.9 | % | ||
Cash and Other | 2.5 | % |
![](https://capedge.com/proxy/N-CSR/0001209286-13-000081/page3.jpg)
Average Annual Total Return | |||||||||
1-Year | 5-Year | 10-Year | |||||||
Government Fund, Class Y | 1.44 | % | 3.54 | % | 3.05 | % | |||
Barclays Capital Intermediate Gov’t Bond Index | 1.73 | % | 4.51 | % | 4.10 | % |
See accompanying Notes to Management’s Discussion of Fund Performance.
3
Madison Mosaic Income Trust | Management’s Discussion of Fund Performance | continued
FUND-AT-A-GLANCE | |
Objective: Madison Mosaic Core Bond Fund provides relatively higher income by investing in a mix of higher, medium and lower-rated corporate bonds. | |
Net Assets: $9.3 million | |
Date of Inception: July 21, 1983 | |
Ticker: MADBX |
Madison 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.
Mosaic Core Bond Fund (Class Y) rose 2.79% for the year ended December 31, 2012. Over the same period, its Morningstar Intermediate Term Bond Category peer group averaged 7.01%, while the Bank of America Merrill Lynch U.S. Corporate Government & Mortgage Index rose 4.43%. In 2012 long duration bonds outperformed short bonds and riskier junk bonds outperformed high-quality bonds. The fund’s relative performance suffered due to its higher quality bias. With intermediate corporate bonds showing an annual return disparity of 3.2% from top-rated AAA to 18.4% for CAA, and 27.6% for the lowest rated CA-D, quality was the major driver of relative returns. The fund had no exposure to the lowest rated bonds, while having an 82.6% exposure to bonds rated A or higher. This created a performance gap against peers who held a greater exposure to higher-performing junk bonds. A secondary factor was the fund’s shorter duration posture, 4.53 years as compared to the Barclays Index duration of 5.06 years. The duration effect can be seen in these three Morningstar Category bond annual returns: Short-Term 3.67%; Intermediate Term 7.01% and Long-Term 12.97%. In terms of peer performance, one other disadvantage was the fund’s decision to favor industrial corporate bonds over bonds issued by financial firms in a year in which the bonds of credit-sensitive banks had a banner, double-digit year. At year-end, the fund held 48.5% in corporate bonds, 23.4% in Treasuries, 18.4% in mortgage-backed bonds, 4.4% in government agency notes, and 5.3% in cash. The credit quality of its corporate bonds was high, with 51.0% sporting a Standard & Poor’s rating of AAA, 8.5% AA, 23.1% A, 17.4% BBB, with no exposure to lower-rated bonds. The fund ended the period with a 30-day SEC yield of 1.14%.
TOP TEN STOCK HOLDINGS AS OF 12/31/12 | |||
% of net assets | |||
U.S. Treasury Note, 3.125%, 5/15/19 | 6.41 | % | |
U.S. Treasury Bond, 5.375%, 2/15/31 | 5.39 | % | |
U.S. Treasury Note, 2.625%, 11/15/20 | 5.32 | % | |
Freddie Mac, 5%, 2/16/17 | 4.45 | % | |
U.S. Treasury Bond, 3.75%, 8/15/41 | 4.43 | % | |
Fannie Mae AP6568, 3%, 9/1/42 | 2.30 | % | |
Ginnie Mae 698089, 4%, 4/15/39 | 2.11 | % | |
Freddie Mac J17506, 3%, 12/1/26 | 2.03 | % | |
Kimberly-Clark Corp., 6.125%, 8/1/17 | 1.98 | % | |
Valero Energy Corp., 6.125%, 2/1/20 | 1.97 | % |
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 12/31/12 | ||||
Consumer Discretionary | 3.8 | % | ||
Consumer Staples | 8.8 | % | ||
Energy | 7.3 | % | ||
Financials | 13.2 | % | ||
Health Care | 5.2 | % | ||
Industrials | 2.5 | % | ||
Information Technology | 6.5 | % | ||
Materials | 1.2 | % | ||
Mortgage Backed Securities | 18.4 | % | ||
U.S. Government and Agency Obligations | 27.8 | % | ||
Cash and Other | 5.3 | % |
![](https://capedge.com/proxy/N-CSR/0001209286-13-000081/page4.jpg)
Average Annual Total Return | ||||||||||||
1-Year | 5-Year | 10-Year | Since 2/29/12 Inception | |||||||||
Core Bond Fund, Class Y | 2.79 | % | 4.93 | % | 4.21 | % | – | |||||
Core Bond Fund, Class R6 | – | – | – | 2.39 | % | |||||||
Bank of America Merrill Lynch US Corp. Govt & | ||||||||||||
Mtg Index | 4.43 | % | 6.03 | % | 5.26 | % | 3.57 | % |
See accompanying Notes to Management’s Discussion of Fund Performance.
4
Madison Mosaic Income Trust | Management’s Discussion of Fund Performance | continued
FUND-AT-A-GLANCE | |
Objective: The Madison Mosaic Institutional Bond Fund seeks total investment return through a combination of intermediate corporate and government bonds. | |
Net Assets: $109.7 million | |
Date of Inception: May 1, 2000 | |
Ticker: MIIBX |
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 intermediate part of the yield curves historically offers 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 we believe that interest rates appear high, we shorten portfolio maturities with the goal of limiting potential declines.
Madison Mosaic Institutional Bond Fund returned 2.04% for the annual period ended December 31, 2012. Over the same period, its Morningstar peer group in the Short Term Bond category averaged 3.67% while the Barclays Capital Intermediate Government Credit Index returned 3.89%. Over the one-year period the market favored lower-quality issues, while corporate bonds soundly outperformed Treasuries of a similar maturity. With the fund holding about half of its allocation to government bonds, it faced relative performance challenges. The fund finished the year with a duration of 2.85 years, as compared to the Barclays Capital Intermediate Government Credit Index’s 3.89 years. The advantage of longer bonds can clearly be seen in the returns of the various Morningstar category returns: Short-Term Bond 3.67%; Intermediate Term Bond 7.01% and Long-Term Bond 12.97%. We believe that the fund’s conservative, relatively short duration posture was a major disadvantage over this period when compared to our benchmark, and to peers whose duration was closer to the benchmark’s. As of December 31, 2012 Institutional Bond had an asset allocation of 51.3% corporates, 20.5% government agencies, and 24% Treasuries, and a 30-day SEC yield of 0.30%.
TOP TEN HOLDINGS AS OF 12/31/12 | |||
% of net assets | |||
U.S. Treasury Note, 4.25%, 8/15/14 | 4.85 | % | |
U.S. Treasury Note, 2%, 11/30/13 | 4.63 | % | |
U.S. Treasury Note, 1.375%, 1/15/13 | 4.56 | % | |
U.S. Treasury Note, 3%, 2/28/17 | 4.01 | % | |
Freddie Mac, 2.875%, 2/9/15 | 3.84 | % | |
U.S. Treasury Note, 0.75%, 9/15/13 | 3.66 | % | |
Freddie Mac, 2.5%, 5/27/16 | 3.65 | % | |
Fannie Mae, 1.375%, 11/15/16 | 3.53 | % | |
Fannie Mae, 4.625%, 10/15/14 | 3.19 | % | |
Fannie Mae, 1.25%, 1/30/17 | 2.34 | % |
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 12/31/12 | ||||
Consumer Discretionary | 3.0 | % | ||
Consumer Staples | 8.4 | % | ||
Energy | 2.0 | % | ||
Financials | 19.2 | % | ||
Health Care | 2.4 | % | ||
Industrials | 3.2 | % | ||
Information Technology | 9.8 | % | ||
Materials | 1.4 | % | ||
Telecommunication Services | 1.9 | % | ||
U.S. Government & Agency Obligations | 44.5 | % | ||
Cash & Other | 4.2 | % |
![](https://capedge.com/proxy/N-CSR/0001209286-13-000081/page5.jpg)
Average Annual Total Return | |||||||||
1-Year | 5-Year | 10-Year | |||||||
Institutional Bond Fund, Class Y | 2.04 | % | 4.03 | % | 3.80 | % | |||
Barclays Capital Intermediate Govt Credit Bond Index | 3.89 | % | 5.18 | % | 4.62 | % | |||
Barclays Capital Intermediate Govt Credit A+ Bond Index | 3.14 | % | 4.78 | % | 4.32 | % |
See accompanying Notes to Management’s Discussion of Fund Performance.
5
Madison Mosaic Income Trust | Management’s Discussion of Fund Performance | continued
FUND-AT-A-GLANCE | |
Objective: The Madison Mosaic Investment Grade Corporate Bond Fund provides investors with monthly income by investing in investment grade corporate securities. | |
Net Assets: $19.8 million | |
Date of Inception: July 1, 2007 | |
Ticker: COINX |
Madison Mosaic Investment Grade Corporate Bond Fund provides investors with regular, monthly income through investments in bonds issued by corporations. The fund will generally invest in corporate securities with an average maturity of 10 years or less. The result is a fund designed for investors who seek regular income from an actively managed bond fund.
Madison Mosaic Investment Grade Corporate Bond Fund returned 5.72% for the annual period ended December 31, 2012, during a strong year for corporate bonds. Over this same period, the fund’s Morningstar peer group, Intermediate Bond, returned 5.86%, while the Barclays Capital Credit Bond Index returned 8.39%. We believe the main source of underperformance against the Barclays Index was more conservative allocation to financials and the lowest quality tier of the investment grade market. As reported by Barclays, AAA corporate bonds returned 3.2% for the year, while CAA were up 18.4% and CA-D rose 27.6%. With corporate bonds outperforming similar maturity government bonds, we believe the fund’s full exposure to the corporate sector helped it keep up with its broader Morningstar peer group, even though management preferred shorter, more defensive bonds. A secondary factor in our underperformance against the Barclay’s Index was the fund’s shorter maturity stance, with the fund ending the year with a duration of 6.00 years, while the Index was at 7.05 years. At year-end, the fund’s quality exposure according the Standard and Poor’s was 4.5% AAA, 10.7% AA, 41.2% A, and 43.6% BBB. The fund held 65 issues and had a 30-day SEC yield of 1.39%.
TOP TEN HOLDINGS AS OF 12/31/12 | |||
% of net assets | |||
General Electric Capital Corp., 6.75%, 3/15/32 | 2.79 | % | |
Comcast Corp., 6.45%, 3/15/37 | 2.73 | % | |
Oracle Corp., 5.75%, 4/15/18 | 2.58 | % | |
Valero Energy Corp., 6.625%, 6/15/37 | 2.56 | % | |
Walgreen Co., 5.25%, 1/15/19 | 2.49 | % | |
Wells Fargo & Co., 5.625%, 12/11/17 | 2.47 | % | |
Cisco Systems Inc., 5.5%, 2/22/16 | 2.45 | % | |
American Express Co., 6.15%, 8/28/17 | 2.44 | % | |
Mondelez International Inc., 5.375%, 2/10/20 | 2.44 | % | |
Berkshire Hathaway Finance Corp., 5.4%, 5/15/18 | 2.43 | % |
SECTOR ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 12/31/12 | ||||
Consumer Discretionary | 10.6 | % | ||
Consumer Staples | 16.0 | % | ||
Energy | 13.4 | % | ||
Financials | 24.9 | % | ||
Health Care | 4.4 | % | ||
Industrials | 2.5 | % | ||
Information Technology | 15.3 | % | ||
Materials | 5.6 | % | ||
Utilities | 2.0 | % | ||
Cash & Other | 5.3 | % |
![](https://capedge.com/proxy/N-CSR/0001209286-13-000081/page6.jpg)
Average Annual Total Return | |||||||||
1-Year | 5-Year | Since Inception | |||||||
Investment Grade Corporate Bond Fund, Class Y | 5.72 | % | 6.82 | % | 7.21 | % | |||
Barclays Capital Credit Bond Index | 9.37 | % | 7.65 | % | 7.70 | % |
See accompanying Notes to Management’s Discussion of Fund Performance.
6
Madison Mosaic Income Trust | Management’s Discussion of Fund Performance | concluded
1 | This chart compares a $10,000 investment made in the fund to a $10,000 investment made in the index. |
2 | Past performance is not predictive of future performance. The above graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares and assumes all dividends have been reinvested. The comparative Indices noted do not reflect any investment management fees or transaction expenses, nor the effects of taxes, fees or other changes. For current performance information, visit www.mosaicfunds.com. |
3 | The primary benchmark is changing from the Barclays Capital Intermediate Government Credit Bond Index to the Barclays Capital Intermediate Government Credit A+ Bond Index. |
BENCHMARK DESCRIPTIONS
Barclays Capital Intermediate Government Bond Index
The Barclays Capital U.S. Intermediate Government Bond Index is a market-value-weighted index for government fixed-rate debt issues with maturities between one and 10 years.
Bank of America Merrill Lynch U.S. Corporate Government & Mortgage Index
The Bank of America Merrill Lynch U.S. Corporate, Government & Mortgage Index is a broad-based measure of the total rate of return performance of the U.S. investment-grade bond markets. The index is a capitalization-weighted aggregation of outstanding U.S. treasury, agency and supranational mortgage pass-through, and investment-grade corporate bonds meeting specified selection criteria.
Barclays Capital Intermediate Government Credit Bond Index
This index measures the performance of U.S. dollar denominated U.S. Treasuries, government related and investment grade U.S. corporate securities with maturities between one and 10 years.
Barclays Capital Intermediate Government Credit A+ Bond Index
This index measures the performance of U.S. dollar denominated U.S. Treasuries, government related and investment grade U.S. corporate securities with quality ratings of A3/A- or better and maturities between one and 10 years.
Barclays Capital Credit Bond Index
The Barclays Capital Credit Bond Index is an unmanaged, market capitalization weighted index that covers the U.S. dollar denominated fixed-rate, taxable bond market, with maturities of one year or more.
7
Madison Mosaic Income Trust | December 31, 2012
Government Fund • Portfolio of Investments
Par Value | Value (Note 1) | ||||||||
MORTGAGE BACKED SECURITIES - 9.4% | |||||||||
Fannie Mae - 2.5% | |||||||||
5.5%, 2/1/18 Pool # 555345 | $ | 11,102 | $ | 11,925 | |||||
5%, 6/1/18 Pool # 555545 | 23,461 | 25,499 | |||||||
6.5%, 5/1/32 Pool # 636758 | 5,235 | 6,195 | |||||||
6.5%, 6/1/32 Pool # 254346 | 7,269 | 8,602 | |||||||
6%, 8/1/32 Pool # 254405 | 12,072 | 13,486 | |||||||
4.5%, 12/1/35 Pool # 745147 | 64,257 | 69,534 | |||||||
5.5%, 1/1/38 Pool # 953589 | 19,188 | 20,854 | |||||||
156,095 | |||||||||
Freddie Mac - 5.6% | |||||||||
5.5%, 8/1/17 Pool # E90778 | 8,564 | 9,212 | |||||||
4.5%, 11/1/23 Pool # G13342 | 19,622 | 20,890 | |||||||
3%, 12/1/26 Pool # J17506 | 89,578 | 94,228 | |||||||
3%, 1/1/27 Pool # G18420 | 71,573 | 75,289 | |||||||
6.5%, 6/1/32 Pool # C01364 | 7,212 | 8,326 | |||||||
4%, 10/1/40 Pool # A94362 | 124,985 | 133,585 | |||||||
341,530 | |||||||||
Ginnie Mae - 1.3% | |||||||||
7%, 9/20/27 Pool # E2483 | 4,895 | 5,833 | |||||||
6%, 2/15/38 Pool # 676516 | 17,360 | 19,383 | |||||||
4%, 4/15/39 Pool # 698089 | 47,361 | 52,137 | |||||||
77,353 | |||||||||
Total Mortgage Backed Securities (Cost $543,544) | 574,978 | ||||||||
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 88.1% | |||||||||
Fannie Mae - 29.1% | |||||||||
3.625%, 2/12/13 | 150,000 | 150,042 | |||||||
4.75%, 2/21/13 | 150,000 | 150,379 | |||||||
4.375%, 7/17/13 | 150,000 | 153,405 | |||||||
4.625%, 10/15/13 | 125,000 | 129,398 | |||||||
2.375%, 7/28/15 | 200,000 | 210,403 | |||||||
1.625%, 10/26/15 | 200,000 | 207,045 | |||||||
2.375%, 4/11/16 | 250,000 | 265,913 | |||||||
1.25%, 1/30/17 | 500,000 | 513,093 | |||||||
1,779,678 | |||||||||
Par Value | Value (Note 1) | ||||||||
Federal Home Loan Bank - 13.3% | |||||||||
4%, 9/6/13 | $ | 150,000 | $ | 153,916 | |||||
3.125%, 12/13/13 | 100,000 | 102,810 | |||||||
1.375%, 5/28/14 | 250,000 | 254,363 | |||||||
3.375%, 6/12/20 | 265,000 | 301,387 | |||||||
812,476 | |||||||||
Freddie Mac - 15.8% | |||||||||
4.5%, 7/15/13 | 150,000 | 153,538 | |||||||
2.875%, 2/9/15 | 125,000 | 131,768 | |||||||
2.5%, 5/27/16 | 350,000 | 373,740 | |||||||
1.25%, 5/12/17 | 300,000 | 307,276 | |||||||
966,322 | |||||||||
U.S. Treasury Note - 29.9% | |||||||||
0.625%, 1/31/13 | 50,000 | 50,015 | |||||||
0.5%, 11/15/13 | 350,000 | 351,026 | |||||||
4.25%, 8/15/14 | 100,000 | 106,492 | |||||||
3.125%, 10/31/16 | 600,000 | 659,578 | |||||||
4.5%, 5/15/17 | 90,000 | 105,124 | |||||||
3.75%, 11/15/18 | 150,000 | 174,692 | |||||||
2.625%, 11/15/20 | 350,000 | 384,180 | |||||||
1,831,107 | |||||||||
Total U.S. Government and Agency Obligations (Cost $5,247,766) | 5,389,583 | ||||||||
Shares | |||||||||
INVESTMENT COMPANY - 2.0% | |||||||||
Invesco Short Term Investments Treasury | 125,718 | 125,718 | |||||||
Total Investment Company (Cost $125,718) | 125,718 | ||||||||
TOTAL INVESTMENTS - 99.5% (Cost $5,917,028) | 6,090,279 | ||||||||
NET OTHER ASSETS AND LIABILITIES - 0.5% | 32,967 | ||||||||
TOTAL NET ASSETS - 100.0% | $ | 6,123,246 | |||||||
See accompanying Notes to Financial Statements.
8
Madison Mosaic Income Trust | Portfolio of Investments | December 31, 2012 | continued
Core Bond Fund • Portfolio of Investments
Par Value | Value (Note 1) | ||||||||
CORPORATE NOTES AND BONDS - 48.5% | |||||||||
Consumer Discretionary - 3.8% | |||||||||
Comcast Cable Communications Holdings Inc., 8.375%, 3/15/13 | $ | 27,000 | $ | 27,428 | |||||
Comcast Corp., 5.3%, 1/15/14 | 100,000 | 104,945 | |||||||
DIRECTV Holdings LLC. / DIRECTV Financing Co. Inc., 3.5%, 3/1/16 | 100,000 | 106,020 | |||||||
Time Warner Cable Inc., 4%, 9/1/21 | 100,000 | 109,969 | |||||||
348,362 | |||||||||
Consumer Staples - 8.8% | |||||||||
Bottling Group LLC., 5.125%, 1/15/19 | 100,000 | 118,232 | |||||||
Costco Wholesale Corp., 5.5%, 3/15/17 | 100,000 | 118,005 | |||||||
CVS Caremark Corp., 5.75%, 6/1/17 | 49,000 | 58,641 | |||||||
Kellogg Co., 4.45%, 5/30/16 | 100,000 | 110,711 | |||||||
Kimberly-Clark Corp., 6.125%, 8/1/17 | 150,000 | 184,155 | |||||||
Sysco Corp., 5.25%, 2/12/18 | 100,000 | 119,345 | |||||||
Walgreen Co., 4.875%, 8/1/13 | 100,000 | 102,482 | |||||||
811,571 | |||||||||
Energy - 7.3% | |||||||||
BP Capital Markets PLC, 3.875%, 3/10/15 | 52,000 | 55,427 | |||||||
ConocoPhillips, 4.6%, 1/15/15 | 150,000 | 162,184 | |||||||
Devon Energy Corp., 6.3%, 1/15/19 | 125,000 | 155,317 | |||||||
Enterprise Products Operating LLC., 5.2%, 9/1/20 | 100,000 | 119,554 | |||||||
Valero Energy Corp., 6.125%, 2/1/20 | 150,000 | 182,667 | |||||||
675,149 | |||||||||
Financials - 13.2% | |||||||||
Allstate Corp./The, 6.2%, 5/16/14 | 100,000 | 107,430 | |||||||
American Express Credit Corp., 5.875%, 5/2/13 | 150,000 | 152,721 | |||||||
Bank of New York Mellon Corp./The, 4.3%, 5/15/14 | 150,000 | 157,698 | |||||||
Berkshire Hathaway Finance Corp., 4.85%, 1/15/15 | 100,000 | 108,542 | |||||||
General Electric Capital Corp., 4.8%, 5/1/13 | 100,000 | 101,465 | |||||||
JPMorgan Chase & Co., 3.7%, 1/20/15 | 150,000 | 158,011 | |||||||
Markel Corp., 6.8%, 2/15/13 | 75,000 | 74,745 | |||||||
National Rural Utilities Cooperative Finance Corp., 4.75%, 3/1/14 | 100,000 | 104,835 | |||||||
US Bancorp, 4.2%, 5/15/14 | 100,000 | 105,024 | |||||||
Wells Fargo & Co., 4.375%, 1/31/13 | 150,000 | 150,234 | |||||||
1,220,705 | |||||||||
Health Care - 5.2% | |||||||||
AbbVie Inc., 2%, 11/6/18 | 100,000 | 101,432 | |||||||
Eli Lilly & Co., 4.2%, 3/6/14 | 100,000 | 104,358 | |||||||
Merck & Co. Inc., 4%, 6/30/15 | 150,000 | 162,897 | |||||||
Pfizer Inc., 5.35%, 3/15/15 | 100,000 | 110,188 | |||||||
478,875 | |||||||||
Par Value | Value (Note 1) | ||||||||
Industrials - 2.5% | |||||||||
Danaher Corp., 3.9%, 6/23/21 | $ | 100,000 | $ | 112,716 | |||||
United Parcel Service Inc., 5.5%, 1/15/18 | 100,000 | 120,285 | |||||||
233,001 | |||||||||
Information Technology - 6.5% | |||||||||
Cisco Systems Inc., 5.5%, 2/22/16 | 100,000 | 114,389 | |||||||
Google Inc., 3.625%, 5/19/21 | 100,000 | 111,487 | |||||||
Hewlett-Packard Co., 5.5%, 3/1/18 | 100,000 | 108,279 | |||||||
Intuit Inc., 5.75%, 3/15/17 | 100,000 | 115,463 | |||||||
Texas Instruments Inc., 2.375%, 5/16/16 | 150,000 | 157,117 | |||||||
606,735 | |||||||||
Materials - 1.2% | |||||||||
Dow Chemical Co./The, 4.125%, 11/15/21 | 100,000 | 109,753 | |||||||
Total Corporate Notes and Bonds | |||||||||
(Cost $4,277,322) | 4,484,151 | ||||||||
MORTGAGE BACKED SECURITIES - 18.4% | |||||||||
Fannie Mae - 10.1% | |||||||||
5%, 2/1/19 Pool # 725341 | 19,616 | 21,321 | |||||||
6%, 3/1/21 Pool # 745406 | 28,773 | 30,953 | |||||||
5.5%, 3/1/21 Pool # 837199 | 33,526 | 36,327 | |||||||
6.5%, 5/1/32 Pool # 636758 | 6,980 | 8,260 | |||||||
4.5%, 12/1/35 Pool # 745147 | 64,257 | 69,534 | |||||||
5%, 2/1/36 Pool # 745275 | 68,381 | 74,255 | |||||||
5%, 3/1/36 Pool # 745355 | 91,183 | 99,016 | |||||||
5.5%, 5/1/36 Pool # 745516 | 29,854 | 32,629 | |||||||
6%, 12/1/36 Pool # 256514 | 34,150 | 37,393 | |||||||
6%, 12/1/36 Pool # 902070 | 37,200 | 40,732 | |||||||
6%, 12/1/36 Pool # 903002 | 41,288 | 45,209 | |||||||
5.5%, 1/1/37 Pool # 905805 | 73,792 | 80,281 | |||||||
5.5%, 1/1/38 Pool # 953589 | 19,188 | 20,854 | |||||||
6%, 1/1/38 Pool # 965649 | 20,685 | 22,650 | |||||||
5%, 4/1/38 Pool # 889260 | 97,772 | 105,926 | |||||||
3%, 9/1/42 Pool # AP6568 | 203,285 | 213,285 | |||||||
938,625 | |||||||||
Freddie Mac - 6.2% | |||||||||
5%, 2/1/21 Pool # G11911 | 34,563 | 37,229 | |||||||
4.5%, 4/1/23 Pool # J07302 | 69,311 | 73,790 | |||||||
4.5%, 11/1/23 Pool # G13342 | 39,243 | 41,780 | |||||||
3%, 12/1/26 Pool # J17506 | 179,155 | 188,456 | |||||||
3%, 1/1/27 Pool # G18420 | 107,360 | 112,934 | |||||||
6%, 8/1/36 Pool # A51727 | 21,166 | 23,070 | |||||||
6.5%, 11/1/36 Pool # C02660 | 40,506 | 46,077 | |||||||
5%, 9/1/38 Pool # G04815 | 45,840 | 49,333 | |||||||
572,669 |
See accompanying Notes to Financial Statements.
9
Madison Mosaic Income Trust | Core Bond Fund • Portfolio of Investments | December 31, 2012 | continued
Par Value | Value (Note 1) | ||||||||
MORTGAGE BACKED SECURITIES (continued) | |||||||||
Ginnie Mae - 2.1% | |||||||||
4%, 4/15/39 Pool # 698089 | $ | 177,603 | $ | 195,512 | |||||
Total Mortgage Backed Securities | 1,706,806 | ||||||||
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 27.8% | |||||||||
Freddie Mac - 4.4% | |||||||||
5%, 2/16/17 | 350,000 | 412,713 | |||||||
U.S. Treasury Bills - 1.9% | |||||||||
0.06%, 4/25/13 | 175,000 | 174,962 | |||||||
U.S. Treasury Bond - 9.8% | |||||||||
5.375%, 2/15/31 | 350,000 | 499,679 | |||||||
3.75%, 8/15/41 | 350,000 | 411,414 | |||||||
911,093 | |||||||||
U.S. Treasury Note - 11.7% | |||||||||
3.125%, 5/15/19 | 525,000 | 594,645 | |||||||
2.625%, 11/15/20 | 450,000 | 493,945 | |||||||
1,088,590 | |||||||||
Total U.S. Government and Agency Obligations | 2,587,358 | ||||||||
Shares | Value (Note 1) | ||||||||
INVESTMENT COMPANY - 4.3% | |||||||||
Invesco Short Term Investments Treasury | 403,494 | $ | 403,494 | ||||||
Total Investment Company (Cost $403,494) | 403,494 | ||||||||
TOTAL INVESTMENTS - 99.0% (Cost $8,725,185) | 9,181,809 | ||||||||
NET OTHER ASSETS AND LIABILITIES - 1.0% | 97,108 | ||||||||
TOTAL NET ASSETS - 100.0% | $ | 9,278,917 | |||||||
LLC Limited Liability Company
PLC Public Limited Company
See accompanying Notes to Financial Statements.
10
Madison Mosaic Income Trust | Portfolio of Investments | December 31, 2012 | continued
Institutional Bond Fund • Portfolio of Investments
Par Value | Value (Note 1) | ||||||||
CORPORATE NOTES AND BONDS - 51.3% | |||||||||
Consumer Discretionary - 3.0% | |||||||||
McDonald’s Corp., 5.35%, 3/1/18 | $ | 1,000,000 | $ | 1,207,571 | |||||
Target Corp., 2.9%, 1/15/22 | 2,000,000 | 2,124,070 | |||||||
3,331,641 | |||||||||
Consumer Staples - 8.4% | |||||||||
Coca-Cola Co./The, 4.875%, 3/15/19 | 2,000,000 | 2,388,878 | |||||||
PepsiCo Inc., 4.65%, 2/15/13 | 1,500,000 | 1,505,650 | |||||||
Procter & Gamble Co./The, 4.7%, 2/15/19 | 1,500,000 | 1,774,600 | |||||||
Sysco Corp., 5.25%, 2/12/18 | 1,000,000 | 1,193,453 | |||||||
Wal-Mart Stores Inc., 4.55%, 5/1/13 | 125,000 | 126,732 | |||||||
Wal-Mart Stores Inc., 4.5%, 7/1/15 | 2,000,000 | 2,191,682 | |||||||
9,180,995 | |||||||||
Energy - 2.0% | |||||||||
BP Capital Markets PLC, 3.875%, 3/10/15 | 518,000 | 552,142 | |||||||
ConocoPhillips, 4.6%, 1/15/15 | 1,500,000 | 1,621,839 | |||||||
2,173,981 | |||||||||
Financials - 19.2% | |||||||||
Allstate Corp./The, 6.2%, 5/16/14 | 2,000,000 | 2,148,608 | |||||||
American Express Co., 4.875%, 7/15/13 | 1,500,000 | 1,535,108 | |||||||
Bank of New York Mellon Corp./The, 4.3%, 5/15/14 | 1,500,000 | 1,576,980 | |||||||
Berkshire Hathaway Finance Corp., 4.85%, 1/15/15 | 1,450,000 | 1,573,860 | |||||||
General Electric Capital Corp., 5.625%, 9/15/17 | 2,000,000 | 2,361,930 | |||||||
John Deere Capital Corp., 1.4%, 3/15/17 | 2,000,000 | 2,021,174 | |||||||
JPMorgan Chase & Co., 3.7%, 1/20/15 | 2,000,000 | 2,106,808 | |||||||
National Rural Utilities Cooperative Finance Corp., 4.75%, 3/1/14 | 1,450,000 | 1,520,102 | |||||||
Simon Property Group LP, 4.125%, 12/1/21 | 2,000,000 | 2,225,300 | |||||||
US Bancorp, 4.2%, 5/15/14 | 1,500,000 | 1,575,363 | |||||||
Wells Fargo & Co., 5.625%, 12/11/17 | 2,000,000 | 2,388,034 | |||||||
21,033,267 | |||||||||
Health Care - 2.4% | |||||||||
Eli Lilly & Co., 4.2%, 3/6/14 | 450,000 | 469,610 | |||||||
Pfizer Inc., 5.35%, 3/15/15 | 2,000,000 | 2,203,770 | |||||||
2,673,380 | |||||||||
Industrials - 3.2% | |||||||||
Caterpillar Inc., 3.9%, 5/27/21 | 1,500,000 | 1,685,882 | |||||||
United Parcel Service Inc., 5.5%, 1/15/18 | 1,500,000 | 1,804,275 | |||||||
3,490,157 | |||||||||
Par Value | Value (Note 1) | ||||||||
Information Technology - 9.8% | |||||||||
Cisco Systems Inc., 5.5%, 2/22/16 | $ | 2,000,000 | $ | 2,287,784 | |||||
Google Inc., 3.625%, 5/19/21 | 1,500,000 | 1,672,302 | |||||||
Intel Corp., 1.95%, 10/1/16 | 2,000,000 | 2,068,076 | |||||||
Microsoft Corp., 3%, 10/1/20 | 1,500,000 | 1,621,539 | |||||||
Oracle Corp., 4.95%, 4/15/13 | 1,000,000 | 1,012,905 | |||||||
Texas Instruments Inc., 2.375%, 5/16/16 | 2,000,000 | 2,094,890 | |||||||
10,757,496 | |||||||||
Materials - 1.4% | |||||||||
EI du Pont de Nemours & Co., 3.25%, 1/15/15 | 1,500,000 | 1,579,711 | |||||||
Telecommunication Services - 1.9% | |||||||||
AT&T Inc., 1.6%, 2/15/17 | 2,000,000 | 2,025,496 | |||||||
Total Corporate Notes and Bonds (Cost $54,283,683) | 56,246,124 | ||||||||
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 44.5% | |||||||||
Fannie Mae - 9.1% | |||||||||
4.625%, 10/15/14 | 3,250,000 | 3,502,996 | |||||||
1.375%, 11/15/16 | 3,750,000 | 3,866,858 | |||||||
1.25%, 1/30/17 | 2,500,000 | 2,565,465 | |||||||
9,935,319 | |||||||||
Federal Home Loan Bank - 1.8% | |||||||||
3.625%, 5/29/13 | 2,000,000 | 2,028,814 | |||||||
Freddie Mac - 9.6% | |||||||||
4.5%, 7/15/13 | 2,250,000 | 2,303,069 | |||||||
2.875%, 2/9/15 | 4,000,000 | 4,216,592 | |||||||
2.5%, 5/27/16 | 3,750,000 | 4,004,359 | |||||||
10,524,020 | |||||||||
U.S. Treasury Note - 24.0% | |||||||||
1.375%, 1/15/13 | 5,000,000 | 5,001,582 | |||||||
0.75%, 9/15/13 | 4,000,000 | 4,017,344 | |||||||
2%, 11/30/13 | 5,000,000 | 5,083,205 | |||||||
4.25%, 8/15/14 | 5,000,000 | 5,324,610 | |||||||
3%, 2/28/17 | 4,000,000 | 4,400,624 | |||||||
2.625%, 11/15/20 | 2,250,000 | 2,469,726 | |||||||
26,297,091 | |||||||||
Total U.S. Government and Agency Obligations | 48,785,244 |
See accompanying Notes to Financial Statements.
11
Madison Mosaic Income Trust | Institutional Bond Fund • Portfolio of Investments | December 31, 2012 | continued
Shares | Value (Note 1) | |||||||
INVESTMENT COMPANY - 3.4% | ||||||||
Invesco Short Term Investments Treasury | 3,730,782 | $ | 3,730,782 | |||||
Total Investment Company (Cost $3,730,782) | 3,730,782 | |||||||
TOTAL INVESTMENTS - 99.2% (Cost $105,996,939) | 108,762,150 | |||||||
NET OTHER ASSETS AND LIABILITIES - 0.8% | 931,580 | |||||||
TOTAL NET ASSETS - 100.0% | $ | 109,693,730 | ||||||
LP - Limited Partnership |
PLC-Public Limited Company |
See accompanying Notes to Financial Statements.
12
Madison Mosaic Income Trust | Portfolio of Investments | December 31, 2012 | continued
Investment Grade Corporate Bond Fund • Portfolio of Investments
Par Value | Value (Note 1) | ||||||||
CORPORATE NOTES AND BONDS - 94.7% | |||||||||
Consumer Discretionary - 10.6% | |||||||||
Comcast Corp., 6.45%, 3/15/37 | $ | 420,000 | $ | 540,777 | |||||
DIRECTV Holdings LLC. / DIRECTV Financing Co. Inc., 5%, 3/1/21 | 400,000 | 449,474 | |||||||
McDonald’s Corp., 5.8%, 10/15/17 | 20,000 | 24,325 | |||||||
Target Corp., 5.875%, 7/15/16 | 20,000 | 23,613 | |||||||
Target Corp., 5.375%, 5/1/17 | 400,000 | 471,310 | |||||||
Time Warner Cable Inc., 4%, 9/1/21 | 250,000 | 274,923 | |||||||
Time Warner Inc., 6.25%, 3/29/41 | 250,000 | 309,810 | |||||||
2,094,232 | |||||||||
Consumer Staples - 16.0% | |||||||||
Coca-Cola Refreshments USA Inc., 7.375%, 3/3/14 | 10,000 | 10,798 | |||||||
CVS Caremark Corp., 5.75%, 6/1/17 | 195,000 | 233,369 | |||||||
General Mills Inc., 5.65%, 2/15/19 | 380,000 | 462,624 | |||||||
Kellogg Co., 1.875%, 11/17/16 | 400,000 | 411,242 | |||||||
Kimberly-Clark Corp., 6.125%, 8/1/17 | 10,000 | 12,277 | |||||||
Mondelez International Inc., 6.5%, 8/11/17 | 20,000 | 24,453 | |||||||
Mondelez International Inc., 5.375%, 2/10/20 | 400,000 | 483,635 | |||||||
PepsiCo Inc., 5.5%, 1/15/40 | 275,000 | 348,158 | |||||||
Sysco Corp., 0.55%, 6/12/15 | 200,000 | 200,068 | |||||||
Sysco Corp., 5.25%, 2/12/18 | 25,000 | 29,836 | |||||||
Walgreen Co., 5.25%, 1/15/19 | 420,000 | 493,274 | |||||||
Wal-Mart Stores Inc., 3.25%, 10/25/20 | 420,000 | 458,069 | |||||||
3,167,803 | |||||||||
Energy - 13.4% | |||||||||
BP Capital Markets PLC, 3.875%, 3/10/15 | 13,000 | 13,857 | |||||||
ConocoPhillips, 4.6%, 1/15/15 | 420,000 | 454,115 | |||||||
Devon Energy Corp., 5.625%, 1/15/14 | 15,000 | 15,786 | |||||||
Devon Energy Corp., 5.6%, 7/15/41 | 400,000 | 476,952 | |||||||
Enterprise Products Operating LLC., 4.45%, 2/15/43 | 200,000 | 203,337 | |||||||
Marathon Oil Corp., 6%, 10/1/17 | 400,000 | 481,290 | |||||||
Marathon Petroleum Corp., 5.125%, 3/1/21 | 250,000 | 294,711 | |||||||
Occidental Petroleum Corp., 1.5%, 2/15/18 | 200,000 | 202,813 | |||||||
Valero Energy Corp., 6.625%, 6/15/37 | 410,000 | 506,816 | |||||||
2,649,677 | |||||||||
Financials - 24.9% | |||||||||
Allstate Corp./The, 5%, 8/15/14 | 400,000 | 427,962 | |||||||
American Express Co., 4.875%, 7/15/13 | 25,000 | 25,585 | |||||||
American Express Co., 6.15%, 8/28/17 | 400,000 | 482,489 | |||||||
Bank of New York Mellon Corp./The, 4.3%, 5/15/14 | 325,000 | 341,679 | |||||||
Par Value | Value (Note 1) | ||||||||
Berkshire Hathaway Finance Corp., 4.85%, 1/15/15 | $ | 20,000 | $ | 21,708 | |||||
Berkshire Hathaway Finance Corp., 5.4%, 5/15/18 | 400,000 | 481,723 | |||||||
General Electric Capital Corp., 6.75%, 3/15/32 | 425,000 | 553,595 | |||||||
JPMorgan Chase & Co., 4.75%, 3/1/15 | 20,000 | 21,588 | |||||||
JPMorgan Chase & Co., 4.25%, 10/15/20 | 400,000 | 445,595 | |||||||
KeyCorp, 5.1%, 3/24/21 | 250,000 | 291,751 | |||||||
National Rural Utilities Cooperative Finance Corp., 4.75%, 3/1/14 | 425,000 | 445,547 | |||||||
Simon Property Group LP, 4.125%, 12/1/21 | 400,000 | 445,060 | |||||||
US Bancorp, 4.2%, 5/15/14 | 25,000 | 26,256 | |||||||
US Bancorp, 2.2%, 11/15/16 | 400,000 | 417,142 | |||||||
Wells Fargo & Co., 5.625%, 12/11/17 | 410,000 | 489,547 | |||||||
Wells Fargo & Co., 4.6%, 4/1/21 | 15,000 | 17,284 | |||||||
4,934,511 | |||||||||
Health Care - 4.4% | |||||||||
AbbVie Inc., 2%, 11/6/18 | 400,000 | 405,727 | |||||||
Merck & Co. Inc., 3.875%, 1/15/21 | 400,000 | 449,682 | |||||||
Pfizer Inc., 5.35%, 3/15/15 | 25,000 | 27,547 | |||||||
882,956 | |||||||||
Industrials - 2.5% | |||||||||
Caterpillar Inc., 5.2%, 5/27/41 | 20,000 | 24,484 | |||||||
CSX Corp., 6.15%, 5/1/37 | 20,000 | 25,373 | |||||||
Norfolk Southern Corp., 3.25%, 12/1/21 | 400,000 | 419,384 | |||||||
United Parcel Service Inc., 5.5%, 1/15/18 | 20,000 | 24,057 | |||||||
493,298 | |||||||||
Information Technology - 15.3% | |||||||||
Cisco Systems Inc., 5.5%, 2/22/16 | 425,000 | 486,154 | |||||||
eBay Inc., 1.35%, 7/15/17 | 200,000 | 202,551 | |||||||
Hewlett-Packard Co., 4.75%, 6/2/14 | 400,000 | 417,104 | |||||||
Hewlett-Packard Co., 3.75%, 12/1/20 | 25,000 | 24,263 | |||||||
Intel Corp., 1.95%, 10/1/16 | 300,000 | 310,212 | |||||||
Intel Corp., 3.3%, 10/1/21 | 20,000 | 21,248 | |||||||
International Business Machines Corp., 1.95%, 7/22/16 | 400,000 | 416,066 | |||||||
Intuit Inc., 5.75%, 3/15/17 | 200,000 | 230,927 | |||||||
Oracle Corp., 5.75%, 4/15/18 | 420,000 | 511,739 | |||||||
Texas Instruments Inc., 1.375%, 5/15/14 | 400,000 | 405,442 | |||||||
3,025,706 | |||||||||
Materials - 5.6% | |||||||||
Alcoa Inc., 5.95%, 2/1/37 | 250,000 | 242,252 | |||||||
Dow Chemical Co./The, 4.125%, 11/15/21 | 400,000 | 439,011 | |||||||
EI du Pont de Nemours & Co., 3.25%, 1/15/15 | 400,000 | 421,256 | |||||||
1,102,519 |
See accompanying Notes to Financial Statements.
13
Madison Mosaic Income Trust | Investment Grade Corporate Bond Fund • Portfolio of Investments | December 31, 2012 | concluded
Par Value | Value (Note 1) | ||||||||
CORPORATE NOTES AND BONDS (continued) | |||||||||
Utilities - 2.0% | |||||||||
Dominion Resources Inc., 2.75%, 9/15/22 | $ | 400,000 | $ | 404,387 | |||||
Total Corporate Notes and Bonds | 18,755,089 | ||||||||
Shares | |||||||||
INVESTMENT COMPANY - 4.5% | |||||||||
Invesco Short Term Investments Treasury | 899,646 | 899,646 | |||||||
Total Investment Company | 899,646 | ||||||||
TOTAL INVESTMENTS - 99.2% (Cost $18,833,473) | 19,654,735 | ||||||||
NET OTHER ASSETS AND LIABILITIES - 0.8% | 157,806 | ||||||||
TOTAL NET ASSETS - 100.0% | $ | 19,812,541 | |||||||
LLC-Limited Liability Company |
LP - Limited Partnership |
PLC-Public Limited Company |
See accompanying Notes to Financial Statements.
14
Madison Mosaic Income Trust | December 31, 2012
Statements of Assets and Liabilities | For the period ended December 31, 2012
Government Fund | Core Bond Fund | Institutional Bond Fund | Investment Grade Corporate Bond Fund | |||||||||||||
ASSETS | ||||||||||||||||
Investments, at value (Notes 1 and 2) | ||||||||||||||||
Investment securities | $ | 5,964,561 | $ | 8,778,315 | $ | 105,031,368 | $ | 18,755,089 | ||||||||
Investment companies | 125,718 | 403,494 | 3,730,782 | 899,646 | ||||||||||||
Total investments* | 6,090,279 | 9,181,809 | 108,762,150 | 19,654,735 | ||||||||||||
Receivables | ||||||||||||||||
Interest | 33,631 | 87,323 | 974,951 | 203,943 | ||||||||||||
Capital shares sold | 8,168 | 21,870 | 285,193 | – | ||||||||||||
Total assets | 6,132,078 | 9,291,002 | 110,022,294 | 19,858,678 | ||||||||||||
LIABILITIES | ||||||||||||||||
Payables | ||||||||||||||||
Dividends | 148 | 880 | 228,477 | 30,663 | ||||||||||||
Capital shares redeemed | 2,543 | 1,863 | 49,600 | 49 | ||||||||||||
Management fees | 2,103 | 3,135 | 27,849 | 6,723 | ||||||||||||
Service fees | 4,564 | 6,207 | 22,638 | 8,702 | ||||||||||||
Waived fees | (526 | ) | – | – | – | |||||||||||
Net management and service fees | 6,141 | 9,342 | 50,487 | 15,425 | ||||||||||||
Total liabilities | 8,832 | 12,085 | 328,564 | 46,137 | ||||||||||||
NET ASSETS | $ | 6,123,246 | $ | 9,278,917 | $ | 109,693,730 | $ | 19,812,541 | ||||||||
Net assets consists of: | ||||||||||||||||
Paid in capital | $ | 5,950,656 | $ | 8,782,998 | $ | 106,700,064 | $ | 18,952,475 | ||||||||
Accumulated net realized gain (loss) | (661 | ) | 39,295 | 228,456 | 38,804 | |||||||||||
Net unrealized appreciation on investments | 173,251 | 456,624 | 2,765,210 | 821,262 | ||||||||||||
Net Assets | $ | 6,123,246 | $ | 9,278,917 | $ | 109,693,730 | $ | 19,812,541 | ||||||||
CLASS Y SHARES | ||||||||||||||||
Net Assets | $ | 6,123,246 | $ | 9,268,679 | $ | 109,693,730 | $ | 19,812,541 | ||||||||
Shares of beneficial interest outstanding | 566,982 | 1,302,152 | 9,788,677 | 1,697,185 | ||||||||||||
Net Asset Value and redemption price per share | $ | 10.80 | $ | 7.12 | $ | 11.21 | $ | 11.67 | ||||||||
CLASS R6 SHARES | ||||||||||||||||
Net Assets | $ | 10,238 | ||||||||||||||
Shares of beneficial interest outstanding | 1,438 | |||||||||||||||
Net Asset Value and redemption price per share | $ | 7.12 | ||||||||||||||
*INVESTMENT SECURITIES, AT COST | $ | 5,917,028 | $ | 8,725,185 | $ | 105,996,940 | $ | 18,833,473 | ||||||||
See accompanying Notes to Financial Statements.
15
Madison Mosaic Income Trust
Statements of Operations | For the period ended December 31, 2012
Government Fund | Core Bond Fund | Institutional Bond Fund | Investment Grade Corporate Bond Fund | |||||||||||||
INVESTMENT INCOME (Note 1) | ||||||||||||||||
Interest income | $ | 113,639 | $ | 290,191 | $ | 1,800,126 | $ | 512,098 | ||||||||
EXPENSES (Notes 2 and 3) | ||||||||||||||||
Investment advisory fees | 22,795 | 35,999 | 329,901 | 75,349 | ||||||||||||
Service agreement fees | 15,023 | 24,684 | 208,937 | 51,536 | ||||||||||||
Total expenses | 37,818 | 60,683 | 538,838 | 126,885 | ||||||||||||
Waived fees | (3,112 | ) | – | – | – | |||||||||||
Net expenses | 34,706 | 60,683 | 538,838 | 126,885 | ||||||||||||
NET INVESTMENT INCOME | 78,933 | 229,508 | 1,261,288 | 385,213 | ||||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||||||||||||||
Net realized gain on investments | 11,280 | 99,473 | 667,181 | 47,118 | ||||||||||||
Change in net unrealized appreciation (depreciation) of investments | (9,925 | ) | (83,204 | ) | 264,756 | 606,580 | ||||||||||
NET GAIN ON INVESTMENTS | 1,355 | 16,269 | 931,937 | 653,698 | ||||||||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 80,288 | $ | 245,777 | $ | 2,193,225 | $ | 1,038,911 | ||||||||
See accompanying Notes to Financial Statements.
16
Madison Mosaic Income Trust
Statements of Changes in Net Assets | For the period indicated
Government Fund | Core Bond Fund | |||||||||||||||
Year Ended December 31, | Year Ended December 31, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | ||||||||||||||||
Net investment income | $ | 78,933 | $ | 93,158 | $ | 229,508 | $ | 248,028 | ||||||||
Net realized gain on investments | 11,280 | 47,196 | 99,473 | 12,197 | ||||||||||||
Change in net unrealized appreciation (depreciation) on investments | (9,925 | ) | 44,311 | (83,204 | ) | 261,165 | ||||||||||
Total increase in net assets resulting from operations | 80,288 | 184,665 | 245,777 | 521,390 | ||||||||||||
DISTRIBUTION TO SHAREHOLDERS | ||||||||||||||||
From net investment income | ||||||||||||||||
Class Y | (78,933 | ) | (93,158 | ) | (229,274 | ) | (248,028 | ) | ||||||||
Class R6 | – | – | (234 | ) | – | |||||||||||
From net capital gains | ||||||||||||||||
Class Y | (14,284 | ) | (44,407 | ) | (31,662 | ) | – | |||||||||
Class R6 | – | – | (34 | ) | – | |||||||||||
Total distributions | (93,217 | ) | (137,565 | ) | (261,204 | ) | (248,028 | ) | ||||||||
CAPITAL SHARE TRANSACTIONS(Note 6) | ||||||||||||||||
Class Y | 807,811 | 233,715 | 438,527 | (523,472 | ) | |||||||||||
Class R6 | – | – | 10,269 | – | ||||||||||||
Total capital share transactions | 807,811 | 233,715 | 448,796 | (523,472 | ) | |||||||||||
NET INCREASE (DECREASE) IN NET ASSETS | 794,882 | 280,815 | 433,369 | (250,110 | ) | |||||||||||
NET ASSETS | ||||||||||||||||
Beginning of period | $ | 5,328,364 | $ | 5,047,549 | $ | 8,845,548 | $ | 9,095,658 | ||||||||
End of period | $ | 6,123,246 | $ | 5,328,364 | $ | 9,278,917 | $ | 8,845,548 | ||||||||
Investment Grade | ||||||||||||||||
Institutional Bond Fund | Coporate Bond Fund | |||||||||||||||
Year Ended December 31, | Year Ended December 31, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | ||||||||||||||||
Net investment income | $ | 1,261,288 | $ | 1,034,945 | $ | 385,213 | $ | 68,187 | ||||||||
Net realized gain (loss) on investments | 667,181 | (52,876 | ) | 47,118 | 20,796 | |||||||||||
Change in net unrealized appreciation on investments | 264,756 | 1,255,427 | 606,580 | 147,554 | ||||||||||||
Total increase in net assets resulting from operations | 2,193,225 | 2,237,496 | 1,038,911 | 236,537 | ||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||||||||||
From net investment income | ||||||||||||||||
Class Y | (1,261,288 | ) | (1,034,945 | ) | (385,213 | ) | (68,187 | ) | ||||||||
From net capital gains | ||||||||||||||||
Class Y | (385,849 | ) | (59,296 | ) | (8,314 | ) | (23,110 | ) | ||||||||
Total distributions | (1,647,137 | ) | (1,094,241 | ) | (393,527 | ) | (91,297 | ) | ||||||||
CAPITAL SHARE TRANSACTIONS, CLASS Y (Note 6) | 4,299,006 | 51,317,599 | 1,616,703 | 16,336,110 | ||||||||||||
NET INCREASE IN NET ASSETS | 4,845,094 | 52,460,854 | 2,262,087 | 16,481,350 | ||||||||||||
NET ASSETS | ||||||||||||||||
Beginning of period | $ | 104,848,636 | $ | 52,387,782 | $ | 17,550,454 | $ | 1,069,104 | ||||||||
End of period | $ | 109,693,730 | $ | 104,848,636 | $ | 19,812,541 | $ | 17,550,454 | ||||||||
See accompanying Notes to Financial Statements.
17
Madison Mosaic Income Trust
Financial Highlights | Selected data for a share outstanding for the periods indicated
Year Ended December 31, | ||||||||||||||||||||
CLASS Y | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value, beginning of period | $ | 10.82 | $ | 10.72 | $ | 10.63 | $ | 10.81 | $ | 10.30 | ||||||||||
Investment operations: | ||||||||||||||||||||
Net investment income1 | 0.15 | 0.20 | 0.26 | 0.27 | 0.32 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.01 | 0.19 | 0.10 | (0.15 | ) | 0.51 | ||||||||||||||
Total from investment operations | 0.16 | 0.39 | 0.36 | 0.12 | 0.83 | |||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | (0.15 | ) | (0.20 | ) | (0.26 | ) | (0.27 | ) | (0.32 | ) | ||||||||||
From net capital gains | (0.03 | ) | (0.09 | ) | (0.01 | ) | (0.03 | ) | – | |||||||||||
Total distribution | (0.18 | ) | (0.29 | ) | (0.27 | ) | (0.30 | ) | (0.32 | ) | ||||||||||
Net asset value, end of period | $ | 10.80 | $ | 10.82 | $ | 10.72 | $ | 10.63 | $ | 10.81 | ||||||||||
Total return (%) | 1.44 | 3.65 | 3.40 | 1.19 | 8.17 | |||||||||||||||
Ratios and supplemental data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 6,123 | $ | 5,328 | $ | 5,048 | $ | 4,300 | $ | 5,071 | ||||||||||
Ratio of expenses to average net assets before fee waiver (%) | 0.61 | 0.69 | 0.68 | 0.69 | 0.78 | |||||||||||||||
Ratio of expenses to average net assets after fee waiver (%) | 0.61 | N/A | N/A | N/A | N/A | |||||||||||||||
Ratio of net investment income to average net assets before fee waiver (%) | 1.38 | 1.81 | 2.39 | 2.55 | 3.00 | |||||||||||||||
Ratio of net investment income to average net assets after fee waiver (%) | 1.38 | N/A | N/A | N/A | N/A | |||||||||||||||
Portfolio turnover2 (%) | 23 | 45 | 20 | 38 | 67 | |||||||||||||||
CORE BOND FUND | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
CLASS Y | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value, beginning of period | $ | 7.13 | $ | 6.89 | $ | 6.76 | $ | 6.74 | $ | 6.58 | ||||||||||
Investment operations: | ||||||||||||||||||||
Net investment income1 | 0.18 | 0.21 | 0.21 | 0.21 | 0.27 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.01 | 0.24 | 0.13 | 0.02 | 0.16 | |||||||||||||||
Total from investment operations | 0.19 | 0.45 | 0.34 | 0.23 | 0.43 | |||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | (0.18 | ) | (0.21 | ) | (0.21 | ) | (0.21 | ) | (0.27 | ) | ||||||||||
From net capital gains | (0.02 | ) | – | – | – | – | ||||||||||||||
Total distribution | (0.20 | ) | (0.21 | ) | (0.21 | ) | (0.21 | ) | (0.27 | ) | ||||||||||
Net asset value, end of period | $ | 7.12 | $ | 7.13 | $ | 6.89 | $ | 6.76 | $ | 6.74 | ||||||||||
Total return (%) | 2.79 | 6.60 | 5.11 | 3.43 | 6.80 | |||||||||||||||
Ratios and supplemental data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 9,269 | $ | 8,846 | $ | 9,096 | $ | 12,501 | $ | 5,188 | ||||||||||
Ratio of expenses to average net assets (%) | 0.67 | 0.70 | 0.70 | 0.70 | 0.80 | |||||||||||||||
Ratio of net investment income to average net assets (%) | 2.55 | 2.94 | 3.04 | 3.13 | 4.18 | |||||||||||||||
Portfolio turnover2 (%) | 27 | 21 | 32 | 16 | 36 |
1 | Based on average daily shares outstanding during the year. | |
2 | Portfolio Turnover is calculated at the fund level and represents the entire period. |
See accompanying Notes to Financial Statements.
18
Madison Mosaic Income Trust | December 31, 2012
Financial Highlights | Selected data for a share outstanding for the periods indicated (continued)
Year Ended December 31, | ||||||||||||||||||||
CLASS R61 | 2012 | |||||||||||||||||||
Net asset value, beginning of period | $ | 7.13 | ||||||||||||||||||
Investment operations: | ||||||||||||||||||||
Net investment income2 | 0.17 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.01 | |||||||||||||||||||
Total from investment operations | 0.18 | |||||||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | (0.17 | ) | ||||||||||||||||||
From net capital gains | (0.02 | ) | ||||||||||||||||||
Total distributions | (0.19 | ) | ||||||||||||||||||
Net asset value, end of period | $ | 7.12 | ||||||||||||||||||
Total return (%) | 2.39 | |||||||||||||||||||
Ratios and supplemental data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 10 | ||||||||||||||||||
Ratio of expenses to average net assets (%) | 0.44 | 3 | ||||||||||||||||||
Ratio of net investment income to average net assets (%) | 2.76 | 3 | ||||||||||||||||||
Portfolio turnover4 (%) | 27 | |||||||||||||||||||
INSTITUTIONAL BOND FUND | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
CLASS Y | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value, beginning of period | $ | 11.15 | $ | 10.94 | $ | 10.68 | $ | 10.47 | $ | 10.41 | ||||||||||
Investment operations: | ||||||||||||||||||||
Net investment income2 | 0.13 | 0.16 | 0.19 | 0.20 | 0.48 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.10 | 0.22 | 0.27 | 0.21 | 0.16 | |||||||||||||||
Total from investment operations | 0.23 | 0.38 | 0.46 | 0.41 | 0.64 | |||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | (0.13 | ) | (0.16 | ) | (0.19 | ) | (0.20 | ) | (0.48 | ) | ||||||||||
From net capital gains | (0.04 | ) | (0.01 | ) | (0.01 | ) | – | (0.10 | ) | |||||||||||
Total distributions | (0.17 | ) | (0.17 | ) | (0.20 | ) | (0.20 | ) | (0.58 | ) | ||||||||||
Net asset value, end of period | $ | 11.21 | $ | 11.15 | $ | 10.94 | $ | 10.68 | $ | 10.47 | ||||||||||
Total return (%) | 2.04 | 3.53 | 4.35 | 3.99 | 6.30 | |||||||||||||||
Ratios and supplemental data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 109,694 | $ | 104,849 | $ | 52,388 | $ | 26,382 | $ | 2,155 | ||||||||||
Ratio of expenses to average net assets (%) | 0.49 | 0.49 | 0.49 | 0.49 | 0.56 | |||||||||||||||
Ratio of net investment income to average net assets (%) | 1.15 | 1.48 | 1.76 | 2.21 | 3.70 | |||||||||||||||
Portfolio turnover4 (%) | 29 | 9 | 21 | 11 | 73 |
1 | Share class launched on February 29, 2012. | |
2 | Based on average daily shares outstanding during the year. | |
3 | Annualized. | |
4 | Portfolio Turnover is calculated at the fund level and represents the entire period. |
See accompanying Notes to Financial Statements.
19
Madison Mosaic Income Trust | December 31, 2012
Financial Highlights | Selected data for a share outstanding for the periods indicated (concluded)
INVESTMENT GRADE CORPORATE BOND FUND | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
CLASS Y | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||
Net asset value, beginning of period | $ | 11.27 | $ | 10.81 | $ | 10.68 | $ | 10.16 | $ | 10.26 | ||||||||||
Investment operations: | ||||||||||||||||||||
Net investment income1 | 0.24 | 0.22 | 0.48 | 0.53 | 0.52 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.39 | 0.61 | 0.13 | 0.52 | (0.09 | ) | ||||||||||||||
Total from investment operations | 0.63 | 0.83 | 0.61 | 1.05 | 0.43 | |||||||||||||||
Less distributions: | ||||||||||||||||||||
From net investment income | (0.23 | ) | (0.36 | ) | (0.48 | ) | (0.53 | ) | (0.52 | ) | ||||||||||
From net capital gains | (0.00 | )2 | (0.01 | ) | – | – | (0.01 | ) | ||||||||||||
Total distributions | (0.23 | ) | (0.37 | ) | (0.48 | ) | (0.53 | ) | (0.53 | ) | ||||||||||
Net asset value, end of period | $ | 11.67 | $ | 11.27 | $ | 10.81 | $ | 10.68 | $ | 10.16 | ||||||||||
Total return (%) | 5.72 | 7.83 | 5.81 | 10.58 | 4.29 | |||||||||||||||
Ratios and supplemental data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 19,813 | $ | 17,550 | $ | 1,069 | $ | 987 | $ | 948 | ||||||||||
Ratio of expenses to average net assets (%) | 0.67 | 0.69 | 0.06 | – | – | |||||||||||||||
Ratio of net investment income to average net assets (%) | 2.04 | 1.98 | 4.44 | 5.05 | 5.21 | |||||||||||||||
Portfolio turnover3 (%) | 11 | 10 | 14 | 18 | 5 |
1 | Based on average daily shares outstanding during the year. | |
2 | Greater than zero but less than a penny. | |
3 | Portfolio Turnover is calculated at the fund level and represents the entire period. |
See accompanying Notes to Financial Statements.
20
Madison Mosaic Income Trust | December 31, 2012
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 maintains four separate funds: Madison Mosaic Government Fund, Madison Mosaic Core Bond Fund, Madison Mosaic Institutional Bond Fund and the Madison Mosaic Investment Grade Corporate Bond Fund (collectively, the “Funds”). Each Fund offers Class Y shares and is a diversified mutual fund with its objectives and strategies detailed in its prospectus.
Effective February 29, 2012, the Trust launched an additional share class for the Core Bond Fund. The Class, named R6 shares, are only available to participating retirement plans, corporations and other institutions, such as trusts, endowments and foundations.
Portfolio Valuation: Securities having maturities of 60 days or less are valued at amortized cost, which approximates market value. Securities having longer maturities, for which quotations are readily available, are valued at the mean between their closing bid and ask prices. Mutual funds are valued at their Net Asset Value. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith under procedures approved by the Board of Trustees.
Each Fund has adopted the Financial Accounting Standards Board (“FASB”) applicable guidance on fair value measurements. Fair value is defined as the price that each Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data “inputs” and minimize the use of unobservable “inputs” and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk (for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique). Inputs may be observable or unobservable.
Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
• | Level 1 – quoted prices in active markets for identical investments |
• | Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rate volatilities, prepayment speeds, credit risk, benchmark yields, transactions, bids, offers, new issues, spreads and other relationships observed in the markets among comparable securities, underlying equity of the issuer; and proprietary pricing models such as yield measures calculated using factors such as cash flows, financial or collateral performance and other reference data, etc.) |
• | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The valuation techniques used by the Funds to measure fair value for the period ended December 31, 2012 maximized the use of observable inputs and minimized the use of unobservable inputs.
The following is a summary of the inputs used as of December 31, 2012 in valuing the Fund’s investments carried at fair value:
21
Madison Mosaic Income Trust | Notes to Financial Statements | continued
Fund | Level 1 | Level 2 | Level 3 | Value at 12/31/12 | ||||||||||||
Government | ||||||||||||||||
Mortgage Backed Securities | $ | – | $ | 574,978 | $ | – | $ | 574,978 | ||||||||
U.S. Government and Agency Obligations | – | 5,389,583 | – | 5,389,583 | ||||||||||||
Investment Companies | 125,718 | – | – | 125,718 | ||||||||||||
Total | $ | 125,718 | $ | 5,964,561 | $ | – | $ | 6,090,279 | ||||||||
Core Bond | ||||||||||||||||
Corporate Notes and Bonds | $ | – | $ | 4,484,151 | $ | – | $ | 4,484,151 | ||||||||
Mortgage Backed Securities | – | 1,706,806 | – | 1,706,806 | ||||||||||||
U.S. Government and Agency Obligations | – | 2,587,358 | – | 2,587,358 | ||||||||||||
Investment Companies | 403,494 | – | – | 403,494 | ||||||||||||
Total | $ | 403,494 | $ | 8,778,315 | $ | – | $ | 9,181,809 | ||||||||
Institutional Bond | ||||||||||||||||
Corporate Notes and Bonds | $ | – | $ | 56,246,124 | $ | – | $ | 56,246,124 | ||||||||
U.S. Government and Agency Obligations | – | 48,785,244 | – | 48,785,244 | ||||||||||||
Investment Companies | 3,730,782 | – | – | 3,730,782 | ||||||||||||
Total | $ | 3,730,782 | $ | 105,031,368 | $ | – | $ | 108,762,150 | ||||||||
Investment Grade Corporate Bond Fund | ||||||||||||||||
Corporate Notes and Bonds | $ | – | $ | 18,755,089 | $ | – | $ | 18,755,089 | ||||||||
Investment Companies | 899,646 | – | – | 899,646 | ||||||||||||
Total | $ | 899,646 | $ | 18,755,089 | $ | – | $ | 19,654,735 | ||||||||
Please see the Portfolio of Investments for each Fund for a listing of all securities within each caption. |
There were no transfers between classification levels during the period ended December 31, 2012. As of and during the year ended December 31, 2012, none of the Funds held securities deemed as a Level 3.
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, modifying Topic 820, Fair Value Measurements and Disclosures. At the same time, the International Accounting Standards Board (“IASB”) issued International Financial Reporting Standard (“IFRS”) 13, Fair Value Measurement. The objective by the FASB and IASB is convergence of their guidance on fair value measurements and disclosures. The effective date of the ASU is for Interim and annual periods beginning after December 15, 2011. The Funds have adopted the disclosures required by this update.
In December 2011, the IASB and the FASB issued ASU 2011-11 “Disclosures about Offsetting Assets And Liabilities.” These common disclosure requirements are intended to help investors and other financial statement users to better assess the effect or potential effect of offsetting arrangements on a portfolio’s financial position. They also intend to improve transparency in the reporting of how companies mitigate credit risk, including disclosure of related collateral pledged or received. In addition, ASU 2011-11 facilitates comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. ASU 2011-11 requires entities to disclose both gross and net information about both instruments and transactions eligible for offset in the financial position; and disclose instruments and transactions subject to an agreement similar to a master netting agreement. ASU 2011-11 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. Management is currently evaluating the implications of ASU 2011-11 and its impact on financial statements disclosures.
Investment Transactions: Investment transactions are recorded on a trade date basis. The cost of investments sold is determined on the identified cost basis for financial statement and federal income tax purposes.
Investment Income: Interest income is recorded on an accrual basis. Bond premium is amortized and original issue discount and market discount are accreted over the expected
22
Madison Mosaic Income Trust | Notes to Financial Statements | continued
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.
The tax character of distributions paid during 2012 and 2011 was as follows:
2012 | 2011 | |||||||
Government Fund: | ||||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 85,814 | $ | 106,536 | ||||
Long-term capital gains | 7,403 | 31,029 | ||||||
Core Bond Fund: | ||||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 229,508 | $ | 248,028 | ||||
Long-term capital gains | 31,696 | – | ||||||
Institutional Bond Fund: | ||||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 1,341,079 | $ | 1,073,254 | ||||
Long-term capital gains | 306,058 | 20,987 | ||||||
Investment Grade Corporate Bond Fund: | ||||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 391,445 | $ | 69,098 | ||||
Long-term capital gains | 2,082 | 22,199 |
As of December 31, 2012, the components of distributable earnings on a tax basis were as follows:
Government Fund: | ||||
Net unrealized appreciation on investments | $ | 172,590 | ||
$ | 172,590 | |||
Core Bond Fund: | ||||
Accumulated net realized gains | $ | 39,295 | ||
Net unrealized appreciation on investments | 456,624 | |||
$ | 495,919 | |||
Institutional Bond Fund: | ||||
Accumulated net realized gains | $ | 228,456 | ||
Net unrealized appreciation on investments | 2,765,210 | |||
$ | 2,993,666 | |||
Investment Grade Corporate Bond Fund: | ||||
Accumulated net realized gains | $ | 38,804 | ||
Net unrealized appreciation on investments | $ | 821,262 | ||
$ | 860,066 | |||
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.
As of and during the year ended December 31, 2012, the Funds did not have a liability for any unrecognized tax benefits. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the Funds did not incur any interest or penalties.
Tax years open to examination by tax authorities under the statute of limitations include 2009 through 2012.
The Regulated Investment Company (“RIC”) Modernization Act of 2010 (the “Modernization Act”) modernizes several of the federal income and excise tax provisions related to RICs. The Modernization Act contains simplification provisions effective for taxable years beginning after December 22, 2010, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act allows capital losses to be carried forward indefinitely, and retain the character of the original loss, exempts RICs from the preferential dividend rule, and repealed the 60-day designation requirement for certain types of pay-through income and gains.
Cash Concentration: At times, the Funds maintain cash balances at financial institutions in excess of federally insured limits. The Funds monitor this credit risk and have not experienced any losses related to this risk.
Use of Estimates: The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Such estimates affect the reported amounts of assets and liabilities and reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
2. Investment Advisory Fees. The investment adviser to the Funds, Madison Investment Advisors, LLC (the
23
Madison Mosaic Income Trust | Notes to Financial Statements | continued
“Adviser”), earned an advisory fee equal to 0.40% per annum of the average net assets of the Government Fund, Core Bond Fund and Investment Grade Corporate Bond Fund and 0.30% per annum for the Institutional Bond Fund. Effective June 29, 2012, 0.10% of this fee for the Government Fund is waived through June 30, 2013.
3. 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. Through June 28, 2012, this fee for Class Y shares was 0.28% for the Government Fund, 0.30% for the Core Bond Fund, 0.19% for the Institutional Bond Fund and 0.30% for the Investment Grade Corporate Bond Fund. Effective June 29, 2012, these fees were reduced to 0.25% for the Government Fund, 0.25% for the Core Bond Fund and 0.25% for the Investment Grade Corporate Bond Fund. The Institutional Bond Fund’s fee remained the same at 0.19%. The Class R6 shares fees for the Core Bond Fund was 0.02% from inception of those shares through year ended December 31, 2012. The Independent Trustees fees and the expenses of the Funds’ independent registered public accountants are paid out of these fees. These fees are accrued daily and paid monthly.
4. Investment Transactions. Purchases and sales of securities (excluding short-term securities) for the year ended December 31, 2012 were as follows:
Purchases | Sales | |||||||
Government Fund: | ||||||||
U.S. Gov’t securities | $ | 2,138,022 | $ | 1,271,421 | ||||
Other | – | – | ||||||
Core Bond Fund: | ||||||||
U.S. Gov’t securities | $ | 1,527,872 | $ | 1,425,838 | ||||
Other | 952,639 | 906,169 | ||||||
Institutional Fund: | ||||||||
U.S. Gov’t securities | $ | 19,441,671 | $ | 19,310,181 | ||||
Other | 15,841,280 | 10,355,064 | ||||||
Investment Grade Corporate Bond Fund: | ||||||||
U.S. Gov’t securities | $ | – | $ | – | ||||
Other | 3,170,498 | 1,892,951 |
5. Aggregate Cost and Unrealized Appreciation (Depreciation). The aggregate cost of securities for federal income tax purposes and the net unrealized appreciation (depreciation) were as follows as of December 31, 2012:
Government | Core Bond | |||||||
Fund | Fund | |||||||
Aggregate Cost | $ | 5,917,689 | $ | 8,725,185 | ||||
Gross unrealized appreciation | 172,590 | 457,019 | ||||||
Gross unrealized depreciation | – | (395 | ) | |||||
Net unrealized appreciation | $ | 172,590 | $ | 456,624 | ||||
Institutional Bond Fund | Investment Grade Corporate Bond Fund | |||||||
Aggregate Cost | $ | 105,996,940 | $ | 18,833,473 | ||||
Gross unrealized appreciation | 2,765,210 | 826,582 | ||||||
Gross unrealized depreciation | – | (5,320 | ) | |||||
Net unrealized appreciation | $ | 2,765,210 | $ | 821,262 | ||||
6. Capital Share Transactions. An unlimited number of capital shares, without par value, are authorized. Transactions in capital shares for the following periods were:
Year Ended December 31, | ||||||||
Government Fund | 2012 | 2011 | ||||||
Class Y Shares | ||||||||
In Dollars | ||||||||
Shares sold | $ | 2,333,762 | $ | 2,417,691 | ||||
Shares issued in reinvestment of dividends | 90,774 | 133,374 | ||||||
Total shares issued | 2,424,536 | 2,551,065 | ||||||
Shares redeemed | (1,616,725 | ) | (2,317,350 | ) | ||||
Net increase | $ | 807,811 | $ | 233,715 | ||||
In Shares | ||||||||
Shares sold | 215,243 | 223,668 | ||||||
Shares issued in reinvestment of dividends | 8,377 | 12,353 | ||||||
Total shares issued | 223,620 | 236,021 | ||||||
Shares redeemed | (149,294 | ) | (214,360 | ) | ||||
Net increase | 74,326 | 21,661 | ||||||
Core Bond Fund | 2012 | 2011 | ||||||
Class Y Shares | ||||||||
In Dollars | ||||||||
Shares sold | $ | 2,531,700 | $ | 4,239,259 | ||||
Shares issued in reinvestment of dividends | 246,112 | 234,467 | ||||||
Total shares issued | 2,777,812 | 4,473,726 | ||||||
Shares redeemed | (2,339,285 | ) | (4,997,198 | ) | ||||
Net increase (decrease) | $ | 438,527 | $ | (523,472 | ) | |||
In Shares | ||||||||
Shares sold | 352,758 | 597,435 | ||||||
Shares issued in reinvestment of dividends | 34,336 | 33,525 | ||||||
Total shares issued | 387,094 | 630,960 | ||||||
Shares redeemed | (326,387 | ) | (709,623 | ) | ||||
Net increase (decrease) | 60,707 | (78,663 | ) | |||||
24
Madison Mosaic Income Trust | Notes to Financial Statements | concluded
Year Ended December 31, | ||||||||
Core Bond Fund | 2012 | |||||||
Class R6 Shares | ||||||||
In Dollars | ||||||||
Shares sold | $ | 10,024 | ||||||
Shares issued in reinvestment of dividends | 245 | |||||||
Total shares issued | 10,269 | |||||||
Shares redeemed | – | |||||||
Net increase | $ | 10,269 | ||||||
In Shares | ||||||||
Shares sold | 1,404 | |||||||
Shares issued in reinvestment of dividends | 34 | |||||||
Total shares issued | 1,438 | |||||||
Shares redeemed | – | |||||||
Net increase | 1,438 | |||||||
Institutional Bond Fund | 2012 | 2011 | ||||||
Class Y Shares | ||||||||
In Dollars | ||||||||
Shares sold | $ | 31,070,711 | $ | 57,572,393 | ||||
Shares issued in reinvestment of dividends | 429,590 | 187,051 | ||||||
Total shares issued | 31,500,301 | 57,759,444 | ||||||
Shares redeemed | (27,201,295 | ) | (6,441,845 | ) | ||||
Net increase | $ | 4,299,006 | $ | 51,317,599 | ||||
In Shares | �� | |||||||
Shares sold | 2,766,242 | 5,176,600 | ||||||
Shares issued in reinvestment of dividends | 38,279 | 16,928 | ||||||
Total shares issued | 2,804,521 | 5,193,528 | ||||||
Shares redeemed | (2,418,194 | ) | (580,883 | ) | ||||
Net increase | 386,327 | 4,612,645 | ||||||
Investment Grade Corporate Bond Fund | 2012 | 2011 | ||||||
Class Y Shares | ||||||||
In Dollars | ||||||||
Shares sold | $ | 1,595,553 | $ | 17,067,503 | ||||
Shares issued in reinvestment of dividends | 21,405 | 33,583 | ||||||
Total shares issued | 1,616,958 | 17,101,086 | ||||||
Shares redeemed | (255 | ) | (764,976 | ) | ||||
Net increase | $ | 1,616,703 | $ | 16,336,110 | ||||
In Shares | ||||||||
Shares sold | 138,008 | 1,525,450 | ||||||
Shares issued in reinvestment of dividends | 1,852 | 3,068 | ||||||
Total shares issued | 139,860 | 1,528,518 | ||||||
Shares redeemed | (22 | ) | (70,047 | ) | ||||
Net increase | 139,838 | 1,458,471 | ||||||
7. Discussion of Risks. Please see the most current version of each Fund’s prospectus for a discussion of risks associated with investing in the Funds. While investments in stocks and bonds have been keystones in wealth building and management for a hundred years, at times they have produced surprises. Those who enjoyed growth and income of their investments were typically rewarded for the risks they took by investing in the markets. Although the Adviser seeks to appropriately address and manage the risks identified and disclosed to you in connection with the management of the securities in the Funds, you should understand that the very nature of the securities markets includes the possibility that there are additional risks that we did not contemplate for any number of reasons. We seek to identify all applicable risks and then appropriately address them, take appropriate action to reasonably manage them and, of course, to make you aware of them so you can determine if they exceed your risk tolerance. Nevertheless, the often volatile nature of the securities markets and the global economy in which we work suggests that the risk of the unknown is something you must consider in connection with your investments in securities. Unforeseen events could, in a worst-case scenario produce the material loss of the value of some or all of the securities we manage for you in the Funds.
8. Subsequent Events. Management has evaluated the impact of all subsequent events on the Trust through the date the financial statements were available for issue.
At a meeting held on November 6, 2012, the Board of Trustees of the Madison Mosaic Income Trust approved the reorganization of the Madison Mosaic Government Fund, Madison Mosaic Core Bond Fund, Madison Mosaic Institutional Bond Fund and the Madison Mosaic Investment Grade Corporate Bond Fund with and into a corresponding series and class of Madison Funds® (f/k/a MEMBERS® Mutual Funds)(the “Reorganization”). The shareholders of the Madison Mosaic Funds are expected to vote on the proposed Reorganization on March 27, 2013. If approved, it is expected that the Reorganization will occur after the close of business on April 29, 2013. In conjunction with the Reorganization, the Transfer Agent would change from U.S. Bancorp Fund Services, LLC to Boston Financial Data Services, Inc.
No other events have taken place that meet the definition of a subsequent event that requires adjustment to, or disclosure in the financial statements.
25
Madison Mosaic Income Trust | December 31, 2012
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Madison Mosaic Income Trust
We have audited the accompanying statements of assets and liabilities, including the portfolios of investments of the Madison Mosaic Income Trust (the “Trust”), including the Government Fund, Core Bond Fund, Institutional Bond Fund and Investment Grade Corporate Bond Fund (collectively, the “Funds”), as of December 31, 2012 and the related statements of operations for the year then ended and the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2012 by correspondence with the Funds’ custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds constituting the Trust as of December 31, 2012, and the results of their operations for the year then ended and the changes in their net assets for each of the two years in the period then ended and financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
![](https://capedge.com/proxy/N-CSR/0001209286-13-000081/page26.jpg)
Chicago, Illinois
February 26, 2013
26
Madison Mosaic Income Trust | December 31, 2012
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 4 above for an explanation of the types of costs charged by the Funds. This Example is based on an investment of $1,000 invested on July 1, 2012 and held for the six-months ended December 31, 2012.
Actual Expenses
The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,500 ending account valued divided by $1,000 = 8.5), then multiply the result by the number under the heading entitled “Expenses Paid During the Period.”
Based on Actual Total Return1 | ||||
Beginning | Ending | Annualized | Expenses Paid | |
Account Value | Account Value | Expense Ratio | During the Period2 | |
Government Fund, Class Y | $1,000.00 | $1,006.08 | 0.61% | $3.07 |
Core Bond Fund, Class Y | $1,000.00 | $1,007.37 | 0.67% | $3.42 |
Core Bond Fund, Class R6 | $1,000.00 | $1,008.44 | 0.44% | $3.09 |
Institutional Bond Fund, Class Y | $1,000.00 | $1,009.20 | 0.49% | $2.48 |
Investment Grade Corporate Bond Fund, Class Y | $1,000.00 | $1,031.70 | 0.67% | $3.47 |
1For the six-months ended December 31, 2012. 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 366. |
Hypothetical Example for Comparison Purposes
The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not any Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in a Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the applicable Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Based on Hypothetical Total Return1 | ||||
Beginning | Ending | Annualized | Expenses Paid | |
Account Value | Account Value | Expense Ratio | During the Period2 | |
Government Fund, Class Y | $1,000.00 | $1,025.40 | 0.61% | $3.10 |
Core Bond Fund, Class Y | $1,000.00 | $1,025.40 | 0.67% | $3.43 |
Core Bond Fund, Class R6 | $1,000.00 | $1,025.40 | 0.44% | $2.22 |
Institutional Bond Fund, Class Y | $1,000.00 | $1,025.40 | 0.49% | $2.49 |
Investment Grade Corporate Bond Fund, Class Y | $1,000.00 | $1,025.40 | 0.67% | $3.43 |
1For the six-months ended December 31, 2012. 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 366. |
27
Madison Mosaic Income Trust | Other Information | continued
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 1-202-551-8090. Form N-Q and other information about the Trust are available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. Copies of this information may also be obtained, upon payment of a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, DC 20549-0102. Finally, you may call Madison Mosaic at 800-368-3195 if you would like a copy of Form N-Q and we will mail one to you at no charge.
Discussion of Contract Renewal (Unaudited). The Board reviewed a variety of matters in connection with the renewal of the Trust’s investment advisory contract with the Adviser. The following description of the Board’s considerations summarizes the process:
With regard to the nature, extent and quality of the services to be provided by the Adviser, the Board reviewed the biographies and tenure of the personnel involved in Trust management and the experience of the Adviser and its affiliates as investment manager to other investment companies with similar investment strategies or to individual clients or institutions with similar investment strategies. They recognized the wide array of investment professionals employed by the respective firm or firms. Representatives of the Adviser discussed the firm’s ongoing investment philosophies and strategies intended to provide performance consistent with the Trust portfolio’s investment objectives under various market scenarios. The Trustees also noted their familiarity with the Adviser and its affiliates due to the Adviser’s history of providing advisory services to its proprietary investment company clients.
The Board also discussed the quality of services provided to the Trust by its transfer agent, fund administrator and custodian as well as the various administrative services provided directly by the Adviser. Such services included arranging for third party service providers to provide all necessary administration to Trust portfolios.
With regard to the investment performance of the Trust and the investment adviser, the Board reviewed current performance information provided in the written Board materials. They discussed the reasons for both outperformance and underperformance compared with peer groups and applicable indices and benchmarks. They reviewed both long-term and short-term performance. They also considered whether any relative underperformance was appropriate to the Adviser’s conservative investment philosophy.
A comprehensive discussion of Fund performance and market conditions occurred during the course of the Board’s review. Representatives of the Adviser discussed with the
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Madison Mosaic Income Trust | Other Information | continued
Board the methodology for arriving at peer groups and indices used for performance comparisons.
With regard to the costs of the services to be provided and the profits to be realized by the investment adviser and its affiliates from the relationship with the Trust, the Board reviewed the expense ratios for a variety of other funds in each Trust portfolio’s peer group with similar investment objectives.
The Board noted that the Adviser or its affiliates provided investment management services to other investment company and/or non-investment company clients and considered the fees charged by the Adviser to such Funds and clients for purposes of determining whether the given advisory fee was disproportionately large under the so-called Gartenberg standard traditionally used by investment company boards in connection with contract renewal considerations. The Board took those fees into account and considered the differences in services and time required by the various types of funds and clients to which the Adviser provided services. The Board recognized that significant differences may exist between the services provided to one type of fund or client and those provided to others, such as those resulting from a greater frequency of shareholder redemptions in a mutual fund and the higher turnover of mutual fund assets. The Board gave such comparisons the weight that they merit in light of the similarities and differences between the services that the various Funds require and were wary of “inapt comparisons.” They considered that, if the services rendered by the Adviser to one type of fund or client differed significantly from others, then the comparison should not be used. In the case of non-investment company clients for which the Adviser may act as either investment adviser or subadviser, the Board noted that the fee may be lower than the fee charged to the Trust. The Board noted too the various administrative, operational, compliance, legal and corporate communication services required to be handled by the Adviser which are performed for investment company clients but are not performed for other institutional clients.
The Trustees reviewed each Fund’s fee structure based on total Fund expense ratio as well as by comparing Fund advisory fees to other Fund advisory fees. The Board noted the simple expense structure maintained by the Trust: an advisory fee and a capped administrative “services” expense. The Board noted the total expense ratios paid by other funds with similar investment objectives, recognizing that such a comparison, while not dispositive, was an important consideration.
The Trustees sought to ensure that fees paid by the Trust were appropriate. The Board reviewed materials demonstrating that although the Adviser is compensated for a variety of the administrative services it provides or arranges to provide to the Trust pursuant to its administrative services agreements with the Trust, such compensation does not always cover all costs due to the cap on administrative expenses. Administrative, operational, compliance and legal fees and costs in excess of the Services Agreement fees are paid by the Adviser from the investment advisory fees earned. In this regard, the Trustees noted that examination of each Trust portfolio’s total expense ratio compared to those of other investment companies was more meaningful than a simple comparison of basic “investment management only” fee schedules.
In reviewing costs and profits, the Board noted that for some smaller portfolios, the salaries of all portfolio management personnel, trading desk personnel, corporate accounting personnel and employees of the Adviser who serve as Trust officers, as well as facility costs (rent), could not be supported by fees received from such portfolios alone. However, the Board recognized that the Trust, as part of a mutual fund family, is profitable to the Adviser because such salaries and fixed costs are already paid in whole or in part from revenue generated by management of other client assets managed by the Adviser. The Trustees noted that total assets managed by the Adviser and its affiliates approximated $16 billion at the time of the meeting. As a result, although the fees paid by each Trust portfolio at its present size might not be sufficient to profitably support a stand-alone fund, the Trust is reasonably profitable to the Adviser as part of its larger, diversified organization. In sum, the Trustees recognized that the Trust is important to the Adviser and is managed with the attention given to its other clients.
With regard to the extent to which economies of scale would be realized as each Trust portfolio grows, the Trustees recognized that at their current sizes, it was premature to discuss any economies of scale not already factored into existing advisory and services agreements. Also, the
29
Madison Mosaic Income Trust | Other Information | concluded
Board recognized that the Adviser recommended that the Board approve a reduction in the services fee paid by the Government, Core Bond and Investment Grade Corporate Bond Funds of the Trust.
During the course of the review, counsel to the Independent Trustees confirmed that the Trusts’ Independent Trustees met previously in executive session and reviewed the written contract renewal materials provided by the Adviser. He noted that the Independent Trustees had considered such materials in light of the aforementioned Gartenberg standards as well as criteria either set forth or discussed in the recent Supreme Court decision in Jones v. Harris regarding the investment company contract renewal process under Section 15(c) of the Investment Company Act of 1940, as amended. The Independent Trustees made a variety of additional inquiries regarding such written materials to the Adviser and representatives of the Adviser discussed each matter raised.
After further discussion, analysis and review of the totality of the information presented, including the information set forth above and the other information considered by the Board of Trustees, the Trustees, including the Independent Trustees, concluded that the Trusts’ advisory fees are fair and reasonable for each respective portfolio and that renewal of their respective Advisory and Services Agreements are in the best interests of each respective Trust portfolio and its shareholders.
Finally, the Board also reviewed the Trust’s distribution agreements and the information provided in the written materials regarding the distributor as well as applicable Codes of Ethics.
Based on the above, the Board renewed the Trust’s contracts for another year.
30
Madison Mosaic Income Trust | December 31, 2012
Trustees and Officers
The address of each trustee and officer of the funds is 550 Science Drive, Madison, WI 53711, except that Mr. Mason’s address is 8777 N. Gainey Center Drive, #220, Scottsdale, AZ, 85258. The Statement of Additional Information, which includes additional information about the trustees and officers, is available at no cost on the SEC’s website at
www.sec.gov or by calling Madison Mosaic Funds at 1-800-368-3195.
Interested Trustees and Officers
Position(s) | ||||||
Name and | and Length of | Principal Occupation(s) | Other Directorships/ | |||
Year of Birth | Time Served | During Past Five Years | Trusteeships | |||
Katherine L. Frank1 1960 | President, 1996 - Present, and Trustee, 2001 - Present | Madison Investment Holdings, Inc. (“MIH”) (affiliated investment advisory firm of the Adviser), Executive Director and Chief Operating Officer, 2010 - Present; Managing Director and Vice President, 1986 - 2010 Madison Asset Management, LLC (“MAM”) (affiliated investment advisory firm of the Adviser), Executive Director and Chief Operating Officer, 2010 - Present; Vice President, 2004 - 2010 Madison Investment Advisors, LLC (“Madison” or the “Adviser”), Executive Director and Chief Operating Officer, 2010 - Present; President, 1996 - 2010 Madison Mosaic Funds (12 funds, including the Funds), President, 1996 - Present; Madison Strategic Sector Premium Fund (closed end fund), President, 2005 - Present; Madison Covered Call & Equity Strategy Fund (closed end fund), President, 2013 - Present; Madison Funds (13) and Ultra Series Fund (16) (mutual funds), President, 2009 - Present | Madison Mosaic Funds (all but Equity Trust), 2001 - Present; Madison Strategic Sector Premium Fund, 2005 - Present; Madison Funds (13) and Ultra Series Fund (16), 2009 - Present | |||
1 “Interested person” as defined in the 1940 Act. Considered an interested Trustee because of the position held with the investment adviser of the Funds.
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Madison Mosaic Income Trust | Trustees and Officers | continued
Position(s) | ||||||
Name and | and Length of | Principal Occupation(s) | Other Directorships/ | |||
Year of Birth | Time Served | During Past Five Years | Trusteeships | |||
Frank E. Burgess1 1942 | Trustee, 1996 - Present | MIH, Founder; Chairman of the Board, 2012 - Present; Executive Director and President, 2010 - 2012; Managing Director and President, 1973 - 2010 MAM, Executive Director and President, 2010 - 2012; President, 2004 - 2010 Madison, Executive Director and President, 2010 - 2012 Madison Mosaic Funds (12 funds, including the Funds), Vice President, 1996 - 2012; Madison Strategic Sector Premium Fund, Vice President, 2005 - 2012; Madison Funds (13) and Ultra Series Fund (16), Vice President, 2009 - 2012 | Madison Mosaic Funds (12), 1996 - Present; Madison Strategic Sector Premium Fund, 2005 - Present; Capitol Bank of Madison, WI, 1995 - Present; American Riviera Bank of Santa Barbara, CA, 2006 - Present | |||
Jay R. Sekelsky 1959 | Vice President, 1996 - Present | MIH, Executive Director and Chief Investment Officer, 2010 - Present; Managing Director and Vice President, 1990 - 2010 MAM, Executive Director and Chief Investment Officer, 2010 - Present Madison, Executive Director and Chief Investment Officer, 2010 - Present; Vice President, 1996 - 2010 Madison Mosaic Funds (12 funds, including the Funds), Vice President, 1996 - Present; Madison Strategic Sector Premium Fund, Vice President, 2005 - Present; Madison Covered Call & Equity Strategy Fund, 2013 - Present; Madison Funds (13) and Ultra Series Fund (16), Vice President, 2009 - Present | N/A | |||
1 “Interested person” as defined in the 1940 Act. Considered an interested Trustee because of the position held with the investment adviser of the Funds.
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Madison Mosaic Income Trust | Trustees and Officers | continued
Position(s) | ||||||
Name and | and Length of | Principal Occupation(s) | Other Directorships/ | |||
Year of Birth | Time Served | During Past Five Years | Trusteeships | |||
Paul A. Lefurgey 1964 | Vice President, 2009 - Present | MIH, Managing Director and Head of Fixed Income Investments, 2005 - Present MAM and Madison, Managing Director and Head of Fixed Income Investments, 2010 - Present MEMBERS Capital Advisors, Inc. (“MCA”) (investment advisory firm), Madison, WI, Vice President 2003 - 2005 Madison Mosaic Funds (12 funds, including the Funds), Vice President, 2009 - Present; Madison Strategic Sector Premium Fund, Vice President, 2010 - Present; Madison Covered Call & Equity Strategy Fund, 2013 - Present; Madison Funds (13) and Ultra Series Fund (16), Vice President, 2009 - Present | N/A | |||
Greg D. Hoppe 1969 | Treasurer, 2009 - Present; Chief Financial Officer, 1999 - 2009 | MIH and Madison, Vice President, 1999 - Present; MAM, Vice President, 2009 - Present; Madison Mosaic Funds (12 funds, including the Funds), Treasurer, 2009 - Present; Chief Financial Officer, 1999 - 2009 Madison Strategic Sector Premium Fund, Treasurer, 2005 - Present; Chief Financial Officer, 2005 - 2009; MCN, Treasurer, 2013 - Present Madison Covered Call & Equity Strategy Fund, Vice President, 2008 - Present; Madison Funds (13) and Ultra Series Fund (16), Treasurer, 2009 - Present | N/A | |||
Holly S. Baggot 1960 | Secretary and Assistant Treasurer, 2009 - Present | MIH and Madison, Vice President, 2010 - Present; MAM, Vice President, 2009 - Present Madison Mosaic Funds (12 funds, including the Funds), Secretary and Assistant Treasurer, 2009 - Present; Madison Strategic Sector Premium Fund, Secretary and Assistant Treasurer, 2010 - Present; Madison Covered Call & Equity Strategy Fund, Vice President, 2013 - Present Madison Funds (13) and Ultra Series Fund (16), Assistant Treasurer, 2009 - Present; Secretary, 1999 - Present; Treasurer, 2008 - 2009; Assistant Treasurer, 1997 - 2007 | N/A | |||
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Madison Mosaic Income Trust | Trustees and Officers | continued
Position(s) | ||||||
Name and | and Length of | Principal Occupation(s) | Other Directorships/ | |||
Year of Birth | Time Served | During Past Five Years | Trusteeships | |||
Holly S. Baggot (continued) | MFD Distributor, LLC (an affiliated brokerage firm of MIA) (“MFD”), Vice President, 2012 - Present MCA, Director-Mutual Funds, 2008 - 2009; Director-Mutual Fund Operations, 2006 - 2008; Operations Officer-Mutual Funds, 2005 - 2006; Senior Manager-Product & Fund Operations, 2001 - 2005 | |||||
W. Richard Mason 1960 | Chief Compliance Officer, 1992 - Present; Corporate Counsel and Assistant Secretary, 2009 - Present; General Counsel and Secretary, 1992 - 2009 | MIH, MAM, Madison, and Madison Scottsdale, LC (an affiliated investment advisory firm of Madison), Chief Compliance Officer and Corporate Counsel, 2009 - Present; General Counsel and Chief Compliance Officer, 1996 - 2009 MFD, Principal, 1998 - Present; Concord Asset Management, LLC (“Concord”) (an affiliated investment advisory firm of Madison), General Counsel, 1996 - 2009; NorthRoad Capital Management LLC (“NorthRoad”) (an affiliated investment advisory firm of Madison), Chief Compliance Officer and Corporate Counsel, 2011 - Present Madison Mosaic Funds (12 funds, including the Funds), Chief Compliance Officer, Corporate Counsel, and Assistant Secretary, 2009 - Present; Secretary, General Counsel, Chief Compliance Officer, 1992 - 2009 Madison Strategic Sector Premium Fund, Chief Compliance Officer, Corporate Counsel and Assistant Secretary, 2009 - Present; Secretary, General Counsel and Chief Compliance Officer, 2005 - 2009 Madison Covered Call & Equity Strategy Fund, Chief Compliance Officer, Corporate Counsel and Assistant Secretary, 2013 - Present Madison Funds (13) and Ultra Series Fund (16), Chief Compliance Officer, Corporate Counsel and Assistant Secretary, 2009 - Present | N/A | |||
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Madison Mosaic Income Trust | Trustees and Officers | continued
Position(s) | ||||||
Name and | and Length of | Principal Occupation(s) | Other Directorships/ | |||
Year of Birth | Time Served | During Past Five Years | Trusteeships | |||
Pamela M. Krill 1966 | General Counsel, Chief Legal Officer and Assistant Secretary, 2009 - Present | MIH, MAM, Madison, Madison Scottsdale, LC, MFD, and Concord, General Counsel and Chief Legal Officer, 2009 - Present NorthRoad, General Counsel & Chief Legal Officer, 2011 - Present Madison Mosaic Funds (12 funds, including the Funds), General Counsel, Chief Legal Officer and Assistant Secretary, 2009 - Present; Madison Strategic Sector Premium Fund, General Counsel, Chief Legal Officer and Assistant Secretary, 2010 - Present Madison Covered Call & Equity Strategy Fund, General Counsel, Chief Legal Officer and Assistant Secretary, 2013 - Present; Madison Funds (13) and Ultra Series Fund (16), General Counsel, Chief Legal Officer and Assistant Secretary, 2009 - Present CUNA Mutual Insurance Society (insurance company with affiliated investment advisory, brokerage and mutual fund operations), Madison, WI, Managing Associate General Counsel-Securities & Investments, 2007 - 2009 Godfrey & Kahn, S.C. (law firm), Madison and Milwaukee, WI, Shareholder, Securities Practice Group, 1994-2007 | N/A | |||
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Madison Mosaic Income Trust | Trustees and Officers | concluded
Independent Trustees
Position(s) | Portfolios | |||||||
Name and | and Length of | Principal Occupation(s) | Overseen in | Other Directorships/ | ||||
Year of Birth | Time Served | During Past Five Years | Fund Complex2 | Trusteeships | ||||
Philip E. Blake 1943 | Trustee, 2001 - Present | Retired investor; Lee Enterprises, Inc (news and advertising publisher), Madison, WI, Vice President, 1998 - 2001; Madison Newspapers, Inc., Madison, WI, President and Chief Executive Officer, 1993 - 2000 | 43 | Edgewood College, 2003 - Present; Chairman of the Board, 2010 - 2012; Nerites Corporation (technology company), 2004 - Present; Madison Mosaic Funds (12 funds, including the Funds), 2001 - Present; Madison Strategic Sector Premium Fund, 2005 - Present; Madison Covered Call & Equity Strategy Fund, 2012 - Present; Madison Funds (13) and Ultra Series Fund (16), 2009 - Present | ||||
James R Imhoff, Jr. 1944 | Trustee, 1996 - Present | First Weber Group (real estate brokers), Madison, WI, Chief Executive Officer, 1996 - Present | 43 | Park Bank, 1978 - Present; Madison Mosaic Funds (12 funds, including the Funds), 1996 - Present; Madison Strategic Sector Premium Fund, 2005 - Present; Madison Covered Call & Equity Strategy Fund, 2005 - Present; Madison Funds (13) and Ultra Series Fund (16), 2009 - Present | ||||
Lorence D. Wheeler 1938 | Trustee, 1996 - Present | Retired investor; Credit Union Benefits Services, Inc. (a provider of retirement plans and related services for credit union employees nationwide), Madison, WI, President, 1986 - 1997 | 43 | Grand Mountain Bank FSB and Grand Mountain Bancshares, Inc. 2003 - Present; Madison Mosaic Funds (12 funds, including the Funds), 1996 - Present; Madison Strategic Sector Premium Fund. 2005 - Present; Madison Covered Call & Equity Strategy Fund, 2005 - Present; Madison Funds (13) and Ultra Series Fund (16), 2009 - Present | ||||
1 Independent Trustees serve in such capacity until the Trustee reaches the age of 76, unless retirement is waived by unanimous vote of the remaining Trustees on an annual basis.
2 As of the date of this report, the fund complex consists of the Trust with 4 portfolios, the Madison Funds (f/k/a MEMBERS® Mutual Funds) with 13 portfolios, the Ultra Series Fund with 16 portfolios, the Madison Strategic Sector Premium Fund (a closed-end fund), the Madison Covered Call & Equity Strategy Fund (a closed end fund), and the Madison Mosaic Equity, Tax-Free and Government Money Market Trusts, which together have 8 portfolios, for a grand total of 43 separate portfolios in the fund complex.
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The Madison Mosaic Family of Mutual Funds
Equity Trust
Investors Fund
Mid-Cap Fund
Disciplined Equity Fund
Dividend Income Fund
NorthRoad International Fund
Income Trust
Government Fund
Core Bond Fund
Institutional Bond Fund
Investment Grade Corporate Bond Fund
Tax-Free Trust
Virginia Tax-Free Fund
Tax-Free National Fund
Government Money Market
For more complete information on any Madison Mosaic fund, including charges and expenses, request a prospectus by calling 1-800-368-3195. Read it carefully before you invest or send money. This document does not constitute an offering by the distributor in any jurisdiction in which such offering may not be lawfully made. MFD Distributors, LLC.
An investment in any Madison Mosaic fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Government Money Market fund seeks to preserve the value of the investment at $1.00 per share, it is possible to lose money by investing in the fund.
Transfer Agent
Madison Mosaic® Funds
c/o US Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Telephone Numbers
Shareholder Service
Toll-free nationwide: 888-670-3600
550 Science Drive
Madison, Wisconsin 53711
SEC File Number 811-03616
Madison Mosaic® Funds
www.mosaicfunds.com