Supplement to be affixed to the
current Prospectus
Prospective investors in IMG Tax Exempt Liquid Assets Fund, Inc. (the "Fund"),
should note the following change in Annual Fund Operating Expenses:
Effective September 1, 1996, the Fund's Adviser agreed to
voluntarily waive all of its advisory fees for the Fund and
the Distributor agreed to voluntarily cap the 12b-1 fees
at 0.50 percent and to reimburse certain expenses of the
Fund. The Advisor or Distributor each reserves the right to
terminate its waiver or reimbursement at any time in its
sole discretion.
The date of this Supplement is
August 1, 1996
<PAGE>
IMG GOVERNMENT ASSETS FUND AND
IMG TAX EXEMPT LIQUID ASSETS FUND, INC.
2203 Grand Avenue, Des Moines, Iowa 50312-5338
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PROSPECTUS MARCH 18, 1996
- --------------------------------------------------------------------------------
IMG Government Assets Fund and IMG Tax Exempt Liquid Assets Fund, Inc.,
(collectively, the "Funds") are money market mutual funds designed to enable
investors to meet short-term goals. Investors choose whichever Fund best suits
their needs and may, without charge, exchange Funds as their investment outlook
or goals change.
o IMG GOVERNMENT ASSETS FUND, ("Government Assets") seeks maximum current
income consistent with safety of principal and maintenance of liquidity. IMG TAX
EXEMPT LIQUID ASSETS FUND, INC., ("Tax Exempt") seeks maximum current income
exempt from federal income tax, consistent with safety of principal and
maintenance of liquidity. The shares of the Funds are offered and redeemed at
$1.00 per share under rules which allow the Funds to use the amortized cost
method of valuing the Funds' assets. UNDER EXTRAORDINARY CIRCUMSTANCES THE VALUE
OF SHARES MAY VARY FROM $1.00 AND CONSEQUENTLY, THERE CAN BE NO ASSURANCE THAT
THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
AN INVESTMENT IN SHARES OF THE FUNDS IS NOT INSURED OR GUARANTEED BY THE UNITED
STATES, ANY STATE OR BY THE FDIC, IS NOT A DEPOSIT OR OTHER OBLIGATION OF THE
UNITED STATES, ANY STATE OR BANK OR GUARANTEED BY A BANK, AND INVOLVE INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth basic information about each Fund investors
should know before investing and should be retained for future reference.
Statements of Additional Information (dated March 18, 1996) which contain more
detailed information about each Fund have been filed with the Securities and
Exchange Commission and are hereby incorporated by reference. The Statements of
Additional Information are available free upon request from IMG Financial
Services, Inc.
- --------------------------------------------------------------------------------
IMG FINANCIAL SERVICES, INC.......................................1-800-798-1819
515-244-5426
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
SEE PAGE 24 FOR TABLE OF CONTENTS.
<PAGE>
SUMMARY OF FUND EXPENSES
The expense summary table is provided to assist you in understanding the various
costs and expenses that may be incurred directly or indirectly as a shareholder
of either Fund.
Government Assets Tax Exempt
----------------- ----------
A. SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchase............. None None
Sales Load on Reinvested Dividends......... None None
Deferred Sales Load on Redemptions......... None None
Exchange Fees.............................. None None
B. ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fees............................ 0.25% 0.25%
12b-1 Fees................................. 0.75% 0.75%
Other Expenses............................. 0.20% 0.38%
Total Fund Operating Expenses.............. 1.20% 1.38%
C. EXAMPLE
You would pay the following expenses on a $1,000 investment in each Fund
assuming, (1) a five percent annual return and (2) redemption at the end of
each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Government Assets $12 $38 $66 $146
Tax Exempt $14 $44 $75 $166
EXPLANATION OF TABLE
A. SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell
shares of a fund. There are none for these Funds.
B. ANNUAL FUND OPERATING EXPENSES are based on each Fund's historical expenses.
Management Fees are paid by each Fund to Investors Management Group, for
managing its investments and business affairs. 12b-1 fees are fees related to
distribution and marketing expenses, principally shareholder services
provided by institutions who are Participating Organizations. 12b-1 Fees
include all distribution or other expenses incurred during the most recent
fiscal year under a plan adopted pursuant to Rule 12b-1 under the 1940 Act.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers. Each Fund incurs Other Expenses in maintaining
shareholder records, furnishing shareholders' reports, for custodial fees and
other services. All Fund Operating Expenses have already been reflected in
each Fund's share price and are not charged directly to individual
shareholder accounts. Wire transfers may be used to transfer federal funds
directly to/from the Funds' custodian bank. A $15.00 fee will be charged to
an individual shareholder account for redemption by wire. Please refer to
"Management and Fees" on page 15 for further information.
C. EXAMPLE. The hypothetical example illustrates the expenses directly or
indirectly associated with a $1,000 investment in each Fund over periods of
1, 3, 5 and 10 years, based on the annual Fund operating expenses shown above
and an assumed annual rate of return of five percent. The return of five
percent and the expenses should not be considered indications of actual or
expected fund performance or expenses. Actual expenses and performance may be
higher or lower than those shown.
HIGHLIGHTS
The INVESTMENT OBJECTIVE of Government Assets is maximum current income
consistent with safety of principal and maintenance of liquidity. The Fund
invests in short-term debt obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities and repurchase agreements
collateralized by such obligations including, primarily, redeemable Trust
Certificates backed by federally insured student loans.
The INVESTMENT OBJECTIVE of Tax Exempt is maximum current income exempt from
federal income tax, consistent with safety of principal and maintenance of
liquidity. The Fund invests primarily in high quality short-term municipal
securities which mature or have a demand feature exercisable in one year or less
from the date of acquisition. See "Investment Objectives, Policies and
Restrictions" on page 7.
The NET ASSET VALUE, that is, the price at which shares of the Funds are sold
and redeemed, will be $1.00 per share, except under extraordinary circumstances.
See "Opening an Account -- Share Price" on page 15.
SHARES OF EITHER FUND MAY BE PURCHASED at the next determined net asset value
per share, without a sales charge, with an initial investment of at least $250
and subsequent purchases of at least $25. Purchases may be made by check, wire,
electronic funds transfer and/or through Participating Organizations. See
"Purchasing Shares" on page 16.
SHARES MAY BE REDEEMED at their next determined net asset value by exchange,
check, wire, electronic funds transfer and/or through Participating
Organizations. See "Redeeming Shares" on page 20.
The INVESTMENT ADVISOR of the Funds is Investors Management Group, (the
"Advisor"), 2203 Grand Avenue, Des Moines, Iowa 50312-5338, a registered
investment advisor incorporated in Iowa in June 1982. See "Management and Fees"
on page 14. The Advisor is also the transfer agent for the Funds.
The FUNDS' DISTRIBUTOR is IMG Financial Services, Inc., a wholly owned
subsidiary of the Advisor. IMG Financial Services, Inc., is a registered
broker/dealer and was incorporated in Iowa in May, 1992.
The INVESTMENT ADVISORY FEE to be paid to the Advisor by the Funds will be a
monthly fee equal to a maximum annual rate of 0.25 of one percent of each Fund's
daily net assets up to $200,000,000, declining to 0.20 of one percent of average
daily net assets in excess of $600,000,000. See "Management and Fees" on page
14.
DISTRIBUTION FEES are paid by the Funds to the Distributor and to certain
Participating Organizations pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), up to a maximum of 0.75 of one percent of the average
daily net asset value of all shareholder accounts of the respective Fund.
DIVIDENDS are declared daily and paid monthly (see "Distributions and Taxes" on
page 13) and will be automatically reinvested unless the shareholder elects
otherwise.
RETIREMENT ACCOUNTS may be opened by qualified shareholders of Government
Assets. Retirement accounts are available for pension, profit sharing, employee
benefit and deferred compensation plans. See "Shareholder Services" on page 19.
FINANCIAL HIGHLIGHTS
The tables on the following pages gives you information about each Fund's
financial history. The Funds' fiscal year has been since the inception July 1
through June 30. The tables express investment and distribution information in
terms of a single share outstanding throughout each period as indicated.
The tables presented for the years 1986 through 1995 have been examined by KPMG
Peat Marwick LLP, independent auditors, whose unqualified report covering the
year ending June 30, 1995, is included in the Annual Report to shareholders of
each Fund. The information for the period July 1, 1995 through December 31, 1995
is unaudited and is contained in the Fund's Semi Annual Report. The Annual and
Semi Annual Reports are included in each Fund's Statement of Additional
Information and will be provided upon request without charge.
<PAGE>
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE OF EACH FUND OUTSTANDING THROUGHOUT EACH PERIOD
1995* 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IMG GOVERNMENT ASSETS FUND
Net Asset Value
Beginning
of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net Investment
Income .049 .047 .027 .027 .044 .063 .074 .076 .057 .051 .065
Dividends
Distributed (.049) (.047) (.027) (.027) (.044) (.063) (.074) (.076) (.057) (.051) (.065)
--------------------------------------------------------------------------------------------------------------
Net Asset Value
End of
Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
==============================================================================================================
Total Return 4.89% 4.66% 2.66% 2.72% 4.37% 6.31% 7.40% 7.62% 5.74% 5.13% 6.53%
Ratio of Expenses
to Average
Net Assets 1.20% 1.20% 1.18% 1.16% 1.16% 1.15% 1.16% 1.17% 1.15% 1.17% 1.17%
Ratio of Net
Income to Average
Net Assets 4.89% 4.66% 2.66% 2.72% 4.37% 6.31% 7.40% 7.62% 5.74% 5.13% 6.53%
Net Assets
End of Period
(000 Omitted) $196,108 $167,085 $141,018 $123,949 $117,238 $111,405 $104,014 $ 93,335 $ 73,525 $ 67,020 $ 77,373
*For the Period 7/1/95 to 12/31/95, unaudited.
<PAGE>
<CAPTION>
SELECTED DATA FOR A SHARE OF EACH FUND OUTSTANDING THROUGHOUT EACH PERIOD
1995* 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IMG TAX EXEMPT LIQUID ASSETS FUND, INC.
Net Asset Value
Beginning
of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net Investment
Income .028 .025 .015 .017 .030 .044 .050 .051 .039 .035 .046
Dividends
Distributed (.028) (.025) (.015) (.017) (.030) (.044) (.050) (.051) (.039) (.035) (.046)
---------------------------------------------------------------------------------------------------
Net Asset Value
End
of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
===================================================================================================
Total Return 2.77% 2.53% 1.53% 1.69% 3.06% 4.40% 4.96% 5.10% 3.94% 3.45% 4.56%
Ratio of Expenses
to Average
Net Assets 1.48% 1.38% 1.35% 1.35% 1.37% 1.39% 1.63% 1.50% 1.52% 1.46% 1.50%
Ratio of Net
Income to Average
Net Assets 2.77% 2.53% 1.53% 1.69% 3.06% 4.40% 4.96% 5.10% 3.94% 3.45% 4.56%
Net Assets
End of Period
(000 Omitted) $ 21,102 $ 16,130 $ 21,355 $ 23,764 $ 29,670 $ 26,683 $ 15,077 $ 12,619 $ 14,528 $ 14,560 $ 21,426
*For the Period 7/1/95 to 12/31/95, unaudited.
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
GOVERNMENT ASSETS
The investment objective of Government Assets is maximum current income
consistent with safety of principal and maintenance of liquidity. The Fund only
invests in the following types of government issued or backed money market
instruments maturing in one year or less from time of investment, as defined
herein.
(1) Obligations issued or guaranteed by the U.S. government or any agency or
instrumentality thereof. Such securities will include those supported by
the full faith and credit of the United States Treasury or the right of
the agency or instrumentality to borrow from the Treasury as well as
those supported only by the credit of the issuing agency or
instrumentality.
(2) Repurchase agreements involving securities in the immediately foregoing
categories. A repurchase agreement involves the sale of such securities
to the Fund with the concurrent agreement of the seller to repurchase
them at a specified time and price to yield an agreed upon rate of
interest. Repurchase agreements may involve certain risks which are
described in greater detail in the Statement of Additional Information.
(3) Redeemable interest-bearing Trust Certificates (the "Trust Certificates")
issued by the Iowa Student Loan Trust (the "Trust"), for which Mercantile
Bank of Polk County, Des Moines, Iowa, is trustee, created for the sole
purpose of purchasing from Iowa banks federally insured student loans
originated by such banks. The Trust Certificates, which will be issuable
only to the Fund (except in extraordinary circumstances), will have
original maturities of 364 days but will be redeemable by the Fund at
their face amount upon not more than five days' written notice to the
Trust. Further details concerning the Trust and the Fund's investments in
Trust Certificates are found in the Statement of Additional Information.
(4) Redeemable interest-bearing ownership certificates (the "Certificates")
issued by one or more guaranteed loan trusts (the "Trusts"), each created
for the purpose of acquiring participation interests in the guaranteed
portion of Farmer's Home Administration ("FmHA") guaranteed loans. The
Certificates, which will be issuable only to the Fund (except in
extraordinary circumstances), will have original maturities of 364 days
but will be redeemable by the Fund at their face amount upon not more
than five days' written notice to the Trust. Further details concerning
the Trusts and the Fund's investment in Certificates and FmHA guaranteed
loans are found in the Statement of Additional Information.
In accordance with procedures adopted pursuant to Rule 2a-7 under the 1940 Act,
the Fund limits its investments to those U.S. dollar-denominated instruments
determined by the Board of Directors to present minimal credit risk and which
are "Eligible Securities" as that term is defined by Rule 2a-7. Pursuant to Rule
2a-7, the Fund shall not have invested more than five percent of its total
assets in securities issued by a single issuer. For additional requirements of
Rule 2a-7, see "Opening an Account -- Share Price". Assets of the Fund will
consist of securities with maturities of one year or less at date of purchase
or, if maturing beyond one year, will be backed by Liquidity and Servicing
Agreements or Guaranteed Funding Agreements and will have variable interest
rates adjustable at least semiannually. In determining whether particular
variable rate investments backed by Liquidity and Servicing Agreements or
Guaranteed Funding Agreements may be made, the period remaining until maturity
will be deemed to be the longer of the demand notice period required before the
Fund is entitled to receive payment of the principal amount or the period
remaining until the next interest adjustment. The dollar-weighted average
maturity of Fund investments will be 90 days or less, determined in the same
manner. While the underlying security in a repurchase agreement may have a
maturity of more than one year, the repurchase agreement itself will terminate
in less than one year, and typically within a few days. The Fund intends to
invest at least 25 percent of its total assets in Trust Certificates, and/or
Certificates, except when such investments are either not available in
sufficient quantity or do not carry yields competitive with alternative
investments.
It is the policy of the Fund that any illiquid securities (including repurchase
agreements of more than seven days duration) may not constitute, at the time of
purchase or at any time, more than 10 percent of the value of the total net
assets of the Fund.
As a fundamental policy the Fund does not intend to concentrate its investments
in any one industry and pursuant to Section 18(f) of the 1940 Act, the Fund may
not issue senior securities. As a general policy, it is the Fund's intention to
hold investments until they mature. However, in an effort to increase portfolio
yields the Fund may periodically trade securities to take advantage of perceived
disparities between markets for various short-term money market instruments. It
is also possible that redemptions of Fund shares could necessitate the sale of
portfolio investments prior to maturity and at times when such sale would be
undesirable because of unfavorable market conditions.
While investments by the Fund will be confined to high quality financial
instruments, the complete elimination of risk is not possible. Under certain
circumstances described in more detail in the Statement of Additional
Information, the net asset value of Fund shares could decrease. It is also
possible Participating Banks or borrowers will default on the provisions of
their agreements with the Fund or that banks originating student loans will
default on repurchase agreements with the Trust, which could cause the net asset
value per share to decrease.
In light of these various contingencies, there can be no assurances the Fund
will achieve its investment objectives.
The Fund has adopted a number of investment policies and restrictions, some of
which can be changed by the Board of Directors. Others may be changed only by
holders of a majority of the outstanding shares and include the following:
Without shareholder approval the Fund may not: (1) purchase any securities other
than those described above; (2) invest more than 80 percent of its total assets
in Certificates and/or Trust Certificates; (3) purchase or sell real estate
(other than short-term loans secured by real estate or interests therein or
loans to companies which invest in or engage in other activities related to real
estate), commodities or commodity contracts, interests in oil, gas or other
mineral exploration or development programs; (4) make short sales of securities
or maintain a short position or write, purchase, or sell puts (excluding
repayment and guarantee arrangements on loan participations purchased from
Participating Banks), calls, straddles, spreads or combinations thereof; (5)
make loans to other persons, provided the Fund may invest up to 80 percent of
its total assets in Trust Certificates, as described in (2) above, and may make
the investments and enter into repurchase agreements as described above; (6)
invest in securities with legal or contractual restrictions on resale (except
for repurchase agreements and Trust Certificates) or for which no ready market
exists; (7) enter into repurchase agreements if, as a result thereof, more than
5 percent of the Fund's total assets (taken at market value at the time of such
investment) would be subject to repurchase agreements maturing in more than
seven days.
The foregoing investment restrictions are considered fundamental policies which
cannot be changed without the approval of a "majority" of the Fund's outstanding
voting securities, that is, by (a) 67 percent or more of the securities voting
at a special or annual meeting if more than 50 percent of the outstanding shares
of Common Stock are represented at such meeting in person or by proxy; or (b)
more than 50 percent of the outstanding Common Stock, whichever is less. The
Statement of Additional Information includes discussion of certain other
investment policies and restrictions, some of which are also considered
fundamental and may not be changed without shareholder approval.
TAX EXEMPT
The investment objective of Tax Exempt is maximum current income exempt from
federal income tax, consistent with safety of principal and maintenance of
liquidity. The Fund invests in the following types of money market instruments
maturing in one year or less from time of investment, as defined herein:
(1) Tax-exempt debt obligations issued by state and municipal governmental
units and public authorities within the United States and participation
interests therein. With few exceptions such obligations will be nonrated
and of limited marketability. However, they will be backed by demand
repurchase commitments of the issuers thereof and irrevocable bank
letters of credit or guarantees (collectively referred to herein as
"Liquidity Agreements"). The Liquidity Agreements will permit the holder
of the securities to demand payment of the unpaid principal balance plus
accrued interest upon a specified number of days' notice either from the
issuer or by drawing on an irrevocable bank letter of credit or
guarantee. In addition, all obligations with maturities longer than one
year from date of purchase will, by their terms, bear rates of interest
that are adjusted upward or downward no less frequently than semiannually
by means of a formula intended to reflect market changes in interest
rates. Certain types of industrial development bonds issued by public
bodies to finance the construction of industrial and commercial
facilities and equipment are also purchased. The Statement of Additional
Information contains further details concerning the Fund's policies and
procedures with respect to investments in such tax-exempt obligations and
participation interests.
(2) High quality tax-exempt debt obligations issued by state and municipal
governments and by public authorities, including issues sold as interim
financing in anticipation of tax collections, revenue receipts or bond
sales, and tax-exempt Project Notes secured by the full faith and credit
of the United States. Such obligations will be purchased only if backed
by the full faith and credit of the United States or rated Aaa, Aa,
MIG-1, MIG-2 or Prime-1 by Moody's Investors Service, Inc., or AAA, AA,
or A-1 by Standard & Poor's Corporation. Nonrated securities may also be
purchased if determined by the Fund's board of directors to be of
comparable quality to the rated securities in which the Fund may invest.
(3) Taxable obligations issued or guaranteed by agencies or instrumentalities
of the U.S. Government may be acquired from time to time on a temporary
basis for defensive purposes.
(4) Repurchase agreements involving securities in the immediate foregoing
category. A repurchase agreement involves the sale of such securities to
the Fund with the concurrent agreement of the seller to repurchase them
at a specified time and price, to yield an agreed upon rate of interest.
Repurchase agreements may involve certain risks which are described in
greater detail in the Statement of Additional Information.
In accordance with procedures adopted pursuant to Rule 2a-7 under the 1940 Act,
the Fund limits its investments to those U.S. dollar denominated instruments
determined by the Board of Directors to present minimal credit risk and which
are "Eligible Securities" as that term is defined by Rule 2a-7. Pursuant to Rule
2a-7, the Fund shall not have invested more than five percent of its total
assets in securities issued by a single issuer. For additional requirements of
Rule 2a-7, see "Opening an Account -- Share Price". Assets of the Fund will
consist of securities with maturities of one year or less at date of purchase
or, if maturing beyond one year, securities which are backed by Liquidity
Agreements and which have variable interest rates adjustable at least
semiannually and upon the adjustment of the interest rate the value of the
securities will be approximately equal to par. In determining whether particular
variable rate investments backed by Liquidity Agreements may be made, the period
remaining until maturity will be deemed to be the longer of the demand notice
period required before the Fund is entitled to receive payment of the principal
amount or the period remaining until the next interest adjustment. The
dollar-weighted average maturity of Fund investments will be 90 days or less,
determined in the same manner.
Under normal market conditions, the Fund as a matter of fundamental policy, will
invest at least 80 percent of its total net assets in tax-exempt securities, the
interest on which is exempt from regular federal income taxes. This fundamental
policy may not be changed without the approval of a majority of the Fund's
outstanding voting securities.
It is the policy of the Fund that any illiquid securities may not constitute, at
the time of purchase or at anytime, more than ten percent of the value of the
total net assets of the Fund. The Fund does not intend to concentrate its
investments in any one industry and pursuant to Section 18(f) of the 1940 Act
may not issue senior securities.
As a general policy, it is the Fund's intention to hold investments until they
mature or until immediately prior to the expiration of an applicable Liquidity
Agreement. However, in an effort to increase portfolio yields, the Fund may
periodically trade securities to take advantage of perceived disparities between
markets for various short-term money market instruments. It is also possible
that redemptions of Fund shares could necessitate the sale of portfolio
investments prior to maturity and at times when such sale would be undesirable
because of unfavorable market conditions.
New issues of tax-exempt debt obligations are usually offered on a when-issued
basis with the securities to be delivered and paid for approximately 45 days
following the initial purchase commitment. The Fund may occasionally enter into
such commitments, subject to certain limitations and procedures discussed in the
Statement of Additional Information.
While investments by the Fund will be confined to high-quality financial
instruments, the complete elimination of risk is not possible. Under certain
circumstances, described in more detail in the Statement of Additional
Information, the net asset value of Fund shares could decrease. It is also
possible an issuer or bank will default on the provisions of their Liquidity
Agreements, which could cause the net asset value per share to decrease. In
light of these various contingencies, there can be no assurances the Fund will
achieve its investment objectives.
The Fund has adopted a number of investment policies and restrictions, some of
which can be changed by the Board of Directors. Others may be changed only by
holders of a majority of the outstanding shares and include the following:
Without shareholder approval the Fund may not: (1) purchase any securities other
than those described under "Investment Policy"; (2) invest more than 80 percent
of its total assets in tax-exempt fixed and variable rate debt obligations (or
participation interests therein) issued by state and local governmental units
within the United States which are backed by Liquidity Agreements; (3) invest
more than 5 percent of its total assets in tax-exempt obligations or
participation interests therein subject to Liquidity Agreements issued by any
one bank; (4) purchase or sell real estate, commodities or commodity contracts,
interests in oil, gas or other mineral exploration or development programs; (5)
make short sales of securities or maintain a short position or write, purchase,
or sell puts (excluding Liquidity Agreements covering certain tax-exempt
obligations purchased by the Fund), calls, straddles, spreads or combinations
thereof; (6) make loans to other persons, provided the Fund may make investments
and enter into repurchase agreements as described above; (7) invest in
securities with legal or contractual restrictions on resale (except for
tax-exempt debt obligations subject to Liquidity Agreements) or for which no
ready market exists; (8) enter into a Liquidity Agreement with any bank unless
such bank is a United States bank which has a record, together with
predecessors, of at least five years of continuous operations; (9) enter into
repurchase agreements if, as a result thereof, more than 5 percent of the Fund's
total assets (taken at market value at the time of such investment) would be
subject to repurchase agreements maturing in more than seven days; and (10)
enter into Liquidity Agreements with any bank if 5 percent or more of the
securities of such bank are owned by the Advisor or by directors and officers of
the Fund or the Advisor, or if any director or officer of the Fund or the
Advisor owns more than 1/2 percent of the voting securities of such bank.
The foregoing investment restrictions are considered fundamental policies which
cannot be changed without the approval of a "majority" of the Fund's outstanding
voting securities, that is, by (1) 67 percent or more of the securities voting
at a special or annual meeting if more than 50 percent of the outstanding shares
of Common Stock are represented at such meeting in person or by proxy; or (2)
more than 50 percent of the outstanding Common Stock, whichever is less. The
Statement of Additional Information includes discussion of certain other
investment policies and restrictions, some of which are also considered
fundamental and may not be changed without shareholder approval.
PERFORMANCE
Performance of each Fund may be quoted in advertising in terms of current yield
and effective yield. CURRENT YIELD refers to the income generated by an
investment in either Fund over a seven day period, expressed as an annual
percentage rate. EFFECTIVE YIELD is calculated similarly but assumes that income
earned from the investment is reinvested. Effective yield will be slightly
higher than current yield because of the compounding effect of this assumed
reinvestment.
The current and effective yields for the seven-day period ended December 31,
1995, for Government Assets and Tax Exempt were 4.64 percent and 4.74 percent,
and 3.07 percent and 3.12 percent respectively.
Performance of the Funds may also be compared to other mutual funds with similar
investment objectives, relevant indices or rankings prepared by independent
services or other financial publications, or yields on deposits at financial
institutions. Unlike the Funds, deposit accounts at financial institutions are
generally FDIC insured and do not fluctuate to the extent of the Funds.
Additionally, Tax Exempt may quote a taxable-equivalent yield based on a stated
income tax rate. Please see each Fund's Statement of Additional Information for
further discussion of the manner in which yields are calculated and the
comparative performance data which may be used.
Of course, the Funds' yields are not fixed nor is principal guaranteed.
Performance will fluctuate and any quotation should not be considered as
representative of the future performance of either Fund.
DISTRIBUTIONS AND TAXES
The daily net income of each Fund is declared as a dividend each business day to
holders of record immediately before 3:00 p.m. Des Moines time. Dividends are
credited to shareholders' accounts each business day and are automatically
reinvested in Fund shares unless cash payment has been requested. Cash payments,
if requested, will be made monthly. If a shareholder redeems the entire amount
in his account during the month, dividends credited to the account from the
beginning of the month through the date of redemption are paid with the
redemption proceeds.
Each Fund intends to qualify as a regulated investment company by distributing
substantially all of its taxable net income, including any realized capital
gains, and thus will not incur any Federal income taxes. Shareholders will
receive taxable dividend income, tax-exempt dividend income and/or capital
gains, as the case may be, from distributions whether paid in cash or received
in the form of additional shares.
Dividends derived from interest on federally tax-exempt debt obligations owned
by the Tax Exempt Fund are intended to constitute "exempt-interest dividends"
which are generally not Federally taxable to shareholders. Dividends derived
from other interest and the realization of capital gains are taxable to
shareholders whether or not reinvested.
Tax Exempt Fund expenses will be allocated between tax-exempt and taxable income
in the same proportion as the Fund's tax-exempt income bears to the total of
such exempt income and its gross income (excluding from gross income the excess
of capital gains over capital losses).
Promptly after the end of each calendar year, each shareholder will receive a
statement of the Federal income tax status of all dividends and distributions
paid during the year. This discussion is only a summary and relates solely to
Federal tax matters. Further discussion of the Federal Income Tax consequences
of an investment in the Fund is provided in the Statement of Additional
Information. Dividends may also be subject to local taxation. Shareholders are
encouraged to consult with their personal tax Advisors.
ORGANIZATION AND CAPITAL STRUCTURE
The Funds are open-end, diversified management investment companies organized as
Iowa corporations. Government Assets was incorporated in June 1982 under the
name Iowa Liquid Assets Fund, Inc., and changed its name to IMG Liquid Assets
Fund, Inc., in October 1987. As of the date of this Prospectus, the Fund has
adopted the fictitious name IMG Government Assets Fund and has registered the
name with the State of Iowa. Tax Exempt was incorporated under the name Iowa Tax
Free Liquid Assets Fund, Inc., in January 1983, and changed its name to IMG Tax
Exempt Liquid Assets Fund, Inc., in October 1987. Management of the affairs of
each Fund is legally vested in its board of directors, which meets periodically
to review activities of the Fund and the Advisor and to consider other policy
matters pertaining to the Fund. Government Assets Fund has authorized capital of
1 billion shares of Common Stock, par value of $.001 per share and the Tax
Exempt Fund has an authorized capital of 200,000,000 shares of Common Stock, par
value $.001 per share. All shares have equal rights and privileges and each
share is entitled to one vote in the election of directors and on other matters
presented to shareholders and to participate equally in the net distributable
assets of the respective Fund on liquidation. The shares are non-assessable, and
have no preemptive, subscription or conversion rights. The shares have no
sinking fund provisions but are redeemable upon request of the holders and are
transferable.
MANAGEMENT AND FEES
Investors Management Group, ("IMG") manages the investments and business affairs
of the Funds. IMG is a registered investment Advisor located at 2203 Grand
Avenue, Des Moines, Iowa 50312-5338. IMG Financial Services, Inc., a wholly
owned subsidiary of IMG, is a registered broker/dealer and serves as the Funds'
Underwriter. Since IMG was founded in 1982, its principal business has been
providing continuous investment management to pension and profit-sharing plans,
insurance companies, public agencies, banks, endowments and charitable
institutions, other mutual funds, individuals and others. As of June 30, 1995,
IMG had approximately $1.1 billion in equity, fixed income and money market
assets under management. David W. Miles, Mark A. McClurg, and James W. Paulsen
are principal shareholders of IMG.
The Funds are managed by Jeffrey D. Lorenzen, CFA, Managing Director. Mr.
Lorenzen is a fixed income strategist and is a member of IMG's Investment Policy
Committee. Prior to joining IMG in 1992, his experience includes serving as a
securities analyst and corporate fixed income analyst for The Statesman Group
from 1989 to 1992. He received his Masters of Business Administration degree
from Drake University and his Bachelor of Business Administration degree from
the University of Iowa.
Under a management contract between each Fund and IMG, a fee is paid to IMG for
investment advisory services. Each Fund is responsible for paying operating
expenses not assumed by IMG.
The management fee for each Fund is calculated daily and paid monthly. The
maximum management fee for each Fund is 0.25 of 1 percent of each Fund's average
daily net assets up to $200,000,000. The management fee declines to 0.20 of 1
percent of average daily net assets in excess of $600,000,000. For the fiscal
year ended June 30, 1995, fees paid by Government Assets and Tax Exempt to IMG
amounted to approximately 0.25 of 1 percent of each Fund's average net assets,
or $374,373 and $52,311 respectively.
IMG also acts as transfer agent and dividend paying agent for the Funds, and
maintains all shareholder records. Each Fund pays fees based upon asset size and
number of accounts.
Expenses of operating each Fund include fees of directors not affiliated with
the Investment Advisor, custodial fees, taxes, auditing and legal expenses,
Securities and Exchange Commission fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to shareholders, certain insurance premiums, transfer agent fees,
the publishing of reports to shareholders, and other expenses relating to the
operation of each Fund which are not expressly assumed by the Investment
Advisor.
Each Fund pays certain distribution fees related to marketing, selling and
distribution of fund shares, including, but not limited to, preparation and
distribution of promotional materials for the Fund, compensation to sales
personnel employed by the Underwriter, and for payment to institutions,
including banks ("Participating Organizations"), who render assistance in
distributing or promoting the sale of each Fund's shares under plans (the
"Plans") adopted pursuant to Rule 12b-1 under the Act. The maximum fees payable
under the Plans are 0.75 of 1 percent, computed monthly on the basis of the
average net asset value of all shareholder accounts in each Fund. For fiscal
year ended June 30, 1995, fees paid under the plan for Government Assets and Tax
Exempt were $1,176,124 and $156,932 respectively. The directors of each Fund
review quarterly a written report of the costs incurred associated with the
Plans and the purposes for which such costs were incurred. The directors believe
that the Plans are in compliance with Rule 12b-1 and are in the best interests
of the Funds.
The Glass-Steagall Act and other applicable laws prohibit banks from engaging in
the business of underwriting, selling, or distributing securities. Insofar as
Participating Organizations (including banks) are compensated under the Plans,
their only function will be to perform administrative and shareholder services
for their clients who wish to invest in the Funds. If a Participating
Organization at a future date is prohibited from acting in this capacity, the
shareholder may lose the services provided by the Participating Organization;
however, it is not expected that the shareholders would incur any adverse
financial consequences. It is intended that none of the services provided by
such Participating Organizations other than through registered brokers will
involve the solicitation or sale of shares of the Funds.
Mercantile Bank of Polk County, Des Moines, Iowa, acts as custodian for the
Funds' cash and investments.
OPENING AN ACCOUNT
The Funds require a completed and signed application (which is attached), at the
time you open each new account. Additional paperwork may be required from
corporations, associations and certain fiduciaries. IF YOU HAVE QUESTIONS CALL
IMG AT 1-800-798-1819 FROM 8:00 - 4:30 CST.
SHARE PRICE
The shares of each Fund are sold without a sales charge. The price of one share
is its "net asset value" or NAV (generally $1.00). NAV is computed by adding the
value of each Fund's investments, plus cash and other assets, deducting
liabilities and then dividing the result by the number of shares outstanding.
The NAV of each Funds' shares is determined twice each business day, at 10:00
a.m. Des Moines time and at the close of the New York Stock Exchange (normally
3:00 p.m. Des Moines time). The Funds are open for business each day the New
York Stock Exchange is open.
Your purchase will be processed at the next NAV calculated after your investment
has been converted to federal funds. If you invest by check, the Funds must
generally allow one or more days for conversion into federal funds before
accepting your purchase.
Rule 2a-7 under the Investment Company Act of 1940 permits the Funds to compute
net asset value per share using the amortized cost method of valuing portfolio
securities. As a condition for using the amortized cost method of valuation, the
Board of Directors established procedures to stabilize each Fund's net asset
value at $1.00 per share. These procedures are described in more detail in each
Fund's Statement of Additional Information.
Under the amortized cost method of valuation, a security is initially valued at
cost on the date of purchase and, thereafter, any discount or premium is
amortized on a straight-line basis to maturity, regardless of the effect of
fluctuating interest rates on the market value of the security. U.S. government
obligations; commercial and industrial loans, and participation interests
therein acquired from Participating Banks under Liquidity and Servicing
Agreements; Trust Certificates and Certificates, which are subject to mandatory
repurchase at their original purchase price; commercial paper; bank obligations;
short-term corporate obligations; investments in taxable and tax-exempt debt
obligations rated by a recognized bond rating agency and regularly traded in the
secondary market; and nonrated fixed and variable rate tax-exempt obligations
and participation interests therein, not regularly traded in the secondary
market but subject to Liquidity Agreements; will be valued at amortized cost.
Other assets are valued at a fair value determined in good faith by the board of
directors of each Fund.
PURCHASING SHARES
Shares of each Fund may be purchased directly from IMG Financial Services, Inc.,
as the distributor. Shares may also be purchased by customers of qualified
banks, savings and loan associations, broker/dealers, investment advisory firms,
and other organizations ("Participating Organizations") that have entered into
servicing agreements with the Distributor. A Participating Organization may
elect to hold record ownership of shares for its customers and to show
beneficial ownership of shares on the account statements it provides to them. In
the alternative, a Participating Organization may elect to establish its
customers' accounts of record with IMG as transfer agent for the Funds.
Generally all shares purchased through Participating Organizations will be held
by the Participating Organization as shareholder of record.
Shares of each Fund are offered without any purchase or redemption charge
imposed by the Fund. The minimum initial investment that may be made in each
Fund is $250. Subsequent investments in each Fund must be made in amounts of not
less than $25. Participating Organizations may aggregate their customers'
purchases to satisfy the required minimums.
While the Funds themselves do not presently levy sales, redemption or account
service charges, Participating Organizations may elect to do so and the Funds
may elect to do so in the future. Investors should inquire regarding the nature
and costs of services provided by Participating Organizations and determine if
such services are desired, because the costs thereof will reduce the Funds'
yields to the investor below that obtainable by investing in the Funds directly.
Customers wishing to purchase shares through their Participating Organization
should contact such entity directly for appropriate instructions. (For a list of
the Participating Organizations in your area, call IMG Financial Services, Inc.,
at 1-800-798-1819 or 515-244-5426.) Direct investors may purchase shares in
accordance with the procedures described below, "Purchase Procedures".
Certificates representing Fund shares purchased will not be issued. However, all
purchases are confirmed in writing to the investor and credited to their account
in the shareholder records maintained by the Transfer Agent. Investors will have
the same rights to their shares as if certificates had been issued. A
shareholder may obtain a certificate representing whole shares by specifically
requesting it in a letter addressed to the Fund.
<PAGE>
PURCHASE PROCEDURES
-----------------------------------------------------------------------------
| METHOD | INITIAL INVESTMENT | ADDITIONAL INVESTMENT |
- --------------------------------------------------------------------------------
| | | |
| BY MAIL | $250 (minimum) | $25 (minimum) |
| | Please make your check pay- | Please make your check pay-|
| | able to the Fund selected and | able to the Fund selected, |
| | mail to the address indicated | with your account number on|
| | on the application. | the check and mail to the |
| | printed on your account | address |
| | statement. | |
| | | |
| | | |
| BY WIRE | Please call IMG Financial | See instructions below. |
| | Services, Inc., for an account| |
| | number before initial invest- | |
| | ment at 1-800-798-1819 or | |
| | 515-244-5426. | |
| | | |
| |
| Federal Funds should be wired to: Federal Reserve Bank of Chicago for |
| Hawkeye Bank of Des Moines, together with the name of the Fund, your |
| account number and names. |
| |
| Please note that when accounts are opened by wire you must send a completed |
| application at your earliest convenience. Your application must be received |
| by the Fund before any instructions for redemption will be accepted. |
|-----------------------------------------------------------------------------|
| | | |
| BY ELECTRONIC | Not available for initial | Shareholders who have an |
| FUNDS TRANSFER | purchase. | account with an institution|
| (ACH) | | which is a member of the |
| | | Automated Clearing House, |
| | | may elect to purchase Fund |
| | | shares via electronic funds|
| | | transfer. Select this |
| | | service on your application|
| | | or call the Fund. |
-----------------------------------------------------------------------------
<PAGE>
SHAREHOLDER SERVICES
Some shareholder services may not be available if shares are purchased through
Participating Organizations. Call IMG Financial Services, Inc., at
1-800-798-1819 for more information.
EXCHANGE PRIVILEGE. You may exchange shares of either Fund for shares in any
other fund managed by IMG. An exchange involves a redemption of the shares of
the fund being liquidated and a purchase of the shares of the fund in which the
redemption proceeds are to be invested. The exchange privilege is offered as a
convenience to shareholders and is not intended to be a means of speculating on
short-term movements in securities prices by transactions involving frequent
purchases and sales of shares. Each Fund reserves the right at any time and
without prior notice, to suspend, limit, modify or terminate exchange privileges
or their use by individual shareholders in order to prevent transactions
considered to be disadvantageous to existing shareholders.
TELEPHONE TRANSFERS. This service allows you to authorize transfers of money to
purchase or sell shares. Using Telephone Transfer you can move money between
your bank account and your account in the Funds with one phone call. Moneys may
be transferred either by wire or electronic funds transfer with an institution
which is a member of the Automated Clearing House ("ACH").
Wire transfers may be used to transfer federal funds directly to/from the Funds'
custodian bank. A $15.00 fee will be charged to your account for redemptions by
wire.
Allow two (2) days after the call for electronic funds transfer via ACH to move
moneys between your bank account and your account with either Fund.
For moneys recently invested, allow normal clearing time before redemption
proceeds are sent to your bank. In order to change the financial institution
account designated to receive redemption proceeds, it will be necessary to send
a written request to the Fund with a signature guarantee from a national or
state bank, a trust company or a federal savings and loan association, or a
member firm of the New York, American, Boston, Midwest or Pacific Stock
Exchange.
You can also arrange SYSTEMATIC PERIODIC INVESTMENTS (minimum $50) into your
Fund account. Simply select the regular investment schedule you would like when
completing your account application. Your bank account will automatically be
debited to purchase shares of the Fund you select. You will receive confirmation
of each transaction.
Your bank must be a member of ACH and you must have a checking or NOW/Money
Market Deposit account to use electronic funds transfer or systematic investing.
Please allow 20 days after receipt of your application to activate the Telephone
Transfer capability.
RETIREMENT PLANS. Through its custodian bank, Government Assets offers a number
of retirement plans, including Individual Retirement Accounts, Keogh Plans and
others. Please contact IMG for more information concerning plans available,
their benefits, provisions and fees. The Funds recommend that you consult a
qualified tax advisor or retirement specialist before establishing a retirement
plan.
STATEMENTS AND REPORTS. You will receive a statement of your account listing
every transaction that affects your share balance no less than once per month.
At least twice a year you will receive the financial statements of the Fund in
which you have invested with a summary of that Fund's portfolio composition and
performance. Each Fund's Annual Report is reported on by the Funds' independent
auditors, KPMG Peat Marwick LLP.
REDEEMING SHARES
Shareholders may redeem (sell back) their shares on any day on which the New
York Stock Exchange is open for trading or on which the Fund is required to
compute its net asset value. Shares will be redeemed at their net asset value as
next determined after a redemption request in good order is received by the Fund
at its offices in Des Moines. If a redemption request is received before 10:00
a.m. Des Moines time the shares will be redeemed as of 10:00 a.m. and will earn
dividends through the previous day. Shares redeemed after 10:00 a.m. will earn
dividends through the day of redemption.
If you purchase shares through a Participating Organization, you may redeem
shares in accordance with that Organization's rules regarding redemption
requests. Direct shareholders may redeem shares in accordance with the
procedures described on page 20 under "How to Redeem Shares".
The Funds intend to pay redemption proceeds within two business days and in no
event will payment be made later than seven days after receipt of a redemption
request in good order. Payments to investors who request to redeem shares within
a few days after a purchase paid for by check may be delayed until the Funds can
verify the check has been collected.
The Funds reserve the right to suspend redemptions or to postpone the payment
therefor when: (a) trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission, or the Exchange is closed
for other than customary weekend and holiday closings; (b) the Securities and
Exchange Commission has permitted such suspension; or (c) an emergency, as
determined by the Securities and Exchange Commission, exists, making sale of
portfolio securities or valuations of the Funds' net assets not reasonably
practicable.
A shareholder may not reduce the value of the shares in his account to less than
$100 by writing checks and the checkwriting and Telephone Transfer privileges
will automatically terminate when a shareholder requests the issuance of share
certificates. The Funds and the Custodian reserve the right to terminate the
checkwriting service or to institute charges for the service.
If an investor's account drops below $250 due to redemptions, the Funds reserve
the right to redeem any remaining shares if after 30 days' notice additional
investments to bring the account value to $250 are not made.
<PAGE>
HOW TO REDEEM SHARES
-----------------------------------------------------------------------------
| BY MAIL-- Send a "letter of instruction": a letter|
| TO: 2203 GRAND AVENUE specifying the name of the Fund, |
| DES MOINES, IA 50312-5338 the number of shares to be sold, your |
| name, your account number, and the |
| additional requirements listed below |
| that apply to your particular account. |
| |
| TYPE OF REGISTRATION REQUIREMENTS |
| ---------------------------------- --------------------------------------- |
| Individual, Joint Tenants, Sole Letter of instruction signed by all |
| Proprietorship, Custodial (Uniform persons required to sign for the |
| Gifts or Transfers To Minors Act), account, exactly as it is registered, |
| General Partners accompanied by signature guarantee(s). |
| |
| Corporation, Association Letter of instruction and a corporate |
| signed by person(s) authorized to act |
| on the account, accompanied by |
| signature guarantee(s). |
| |
| Trust A letter of instruction signed by the |
| Trustee(s) (as Trustee), with a |
| signature guarantee. (If the Trustee's |
| name is not registered on your account, |
| also provide a copy of the trust |
| document, certified within the last |
| 60 days.) |
| |
| If you do not fall into any of these registration categories (e.g., |
| Executors, Administrators, Conservators or Guardians) please call for |
| further instructions. |
| |
| A signature guarantee is designed to protect you and the Fund against |
| fraudulent transactions by unauthorized persons. A signature guarantee is |
| required for all persons registered on an account. A signature guarantee |
| may be obtained from an eligible guarantor institution, as defined by the |
| Securities and Exchange Commission. These institutions include banks, |
| savings and loan associations, credit unions, brokerage firms, and others. |
| The words, "SIGNATURE GUARANTEED" must be stamped or typed near each |
| person's signature and appear with the printed name, title, and signature |
| of an officer and the name of the guarantor institution. PLEASE NOTE THAT |
| A NOTARY PUBLIC STAMP OR SEAL IS NOT A SIGNATURE GUARANTEE. |
|-----------------------------------------------------------------------------|
| BY CHECK-- You must have applied for the |
| (minimum $250 checkwriting feature on your account |
| maximum $100,000) application. You may redeem provided |
| that the signatures you designated are |
| on the check. (There is no charge for |
| this service and you may write an |
| unlimited number of checks.) |
|-----------------------------------------------------------------------------|
| FOR ALL OPTIONS BELOW, PLEASE CALL 1-800-798-1819 |
|-----------------------------------------------------------------------------|
| BY EXCHANGE-- You must meet the minimum investment |
| requirement of the other fund. You can |
| only exchange between accounts with |
| identical names, addresses, and |
| taxpayer identification numbers. |
|-----------------------------------------------------------------------------|
| BY ELECTRONIC FUNDS You must have applied for the Telephone |
| TRANSFER (ACH) OR WIRE-- Transfer feature on your application. |
| Allow two days via ACH. Call before |
| 10:00 a.m. for same day wire. |
| $15.00 fee for bank wires. |
-----------------------------------------------------------------------------
<PAGE>
Table of Contents
Summary of Fund Expenses................................................2
Highlights..............................................................3
Financial Highlights....................................................4
Investment Objectives, Policies and Restrictions........................7
Government Assets.......................................................7
Tax Exempt..............................................................9
Performance............................................................12
Distributions and Taxes................................................13
Organization and Capital Structure.....................................13
Management and Fees....................................................14
Opening an Account.....................................................15
Share Price........................................................15
Purchasing Shares..................................................16
Shareholder Services...................................................19
Redeeming Shares.......................................................20
NO SALESMAN, OR OTHER PERSON, HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUNDS OR BY IMG FINANCIAL SERVICES, INC. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY IMG FINANCIAL SERVICES, INC., IN ANY STATE IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
IMG FINANCIAL SERVICES, INC.
IMG INVESTMENT CHECKING
2203 Grand Avenue
Des Moines, Iowa 50312-5338
<PAGE>
Supplement to be affixed to the
current Statement of Additional Information
Prospective investors in IMG Tax Exempt Liquid Assets Fund, Inc. (the "Fund"),
should note the following change in Annual Fund Operating Expenses:
Effective September 1, 1996, the Fund's Adviser agreed to
voluntarily waive all of its advisory fees for the Fund and
the Distributor agreed to voluntarily cap the 12b-1 fees
at 0.50 percent and to reimburse certain expenses of the
Fund. The Advisor or Distributor each reserves the right to
terminate its waiver or reimbursement at any time in its
sole discretion.
The date of this Supplement is
August 1, 1996
<PAGE>
IMG TAX EXEMPT LIQUID ASSETS FUND, INC. 2203 GRAND AVENUE
DES MOINES, IA 50312-5338
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION MARCH 18, 1996
- --------------------------------------------------------------------------------
This statement is not a prospectus but should be read in conjunction with the
Fund's current Prospectus (dated March 18, 1996). Please retain this Statement
for future reference. The Annual Report of the Fund for the fiscal period ended
June 30, 1995 and the Semi Annual Report for the period ended December 31, 1995,
is incorporated herein by reference. To obtain an additional copy of the Annual
Report, Semi annual Report or Prospectus please call IMG Financial Services,
Inc.
- --------------------------------------------------------------------------------
IMG Financial Services, Inc.......................................1-800-798-1819
1-515-244-5426
- --------------------------------------------------------------------------------
Table of Contents:
Investment Objectives, Policies and Restrictions...............2
Purchases of Fund Shares.......................................5
Valuing the Fund's Shares......................................6
Calculation of Yield...........................................7
Dividends......................................................8
Taxation ......................................................8
Management.....................................................9
The Investment Management Agreement...........................11
Other Information.............................................12
Federal Holidays...........................................12
Portfolio Transactions.....................................12
Organization and Capital Structure.........................12
Reports to Shareholders....................................12
Principal Shareholders and Control Persons.................13
Custodian, Transfer Agent and Dividend Paying Agent........13
Legal Opinions.............................................13
Independent Auditors.......................................13
Appendix A....................................................14
Appendix B....................................................15
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
IMG Tax Exempt Liquid Assets Fund, Inc. ("Tax Exempt") seeks to provide
maximum current income, free of Federal income taxes, consistent with safety of
principal and maintenance of liquidity. In order to accomplish this goal, assets
of the Fund will be invested in the following types of securities maturing in
one year or less from time of investment:
(1) Tax-exempt debt obligations issued by state and municipal
governmental units and public authorities within the United States
and participation interests therein. With few exceptions, such
obligations will be non-rated and of limited marketability. However,
they will be backed by demand repurchase commitments of the issuers
thereof and irrevocable bank letters of credit or guarantees
(collectively referred to herein as "Liquidity Agreements"). The
Liquidity Agreements will permit the holder of the securities to
demand payment of the unpaid principal balance plus accrued interest
upon a specified number of days notice either from the issuer or by
drawing on an irrevocable bank letter of credit or guarantee. The
issuer of the security may have a corresponding right to prepay the
principal and accrued interest. In addition, all obligations with
maturities longer than one year from date of purchase will, by their
terms, bear rates of interest that are adjusted upward or downward no
less frequently than semiannually by means of a formula intended to
reflect market changes in interest rates.
The time period covered by Liquidity Agreements may be shorter than
the final maturity of the obligations covered thereby. At or before
the expiration of such Liquidity Agreements, the Fund will seek to
obtain either extensions thereof or replace them with new agreements
and if unable to do so the Fund will exercise its rights under
existing Liquidity Agreements to require that the obligations be
purchased. Thus, at no time will the Fund's investments include
obligations with maturities longer than one year unless the
obligations bear interest rates subject to periodic adjustment at
least semiannually and are subject to sale on seven calendar days
notice under existing Liquidity Agreements.
The only banks (the "Participating Banks") which will be permitted to
sell participations in fixed and variable rate tax-exempt debt
obligations of United States governmental units to the Fund (or to
provide irrevocable letters of credit or guarantees to back the
demand repurchase commitments of the issuers of such obligations)
will be United States banks which have entered into irrevocable
written agreements with respect thereto and have agreed to furnish to
the Fund whatever financial information may be requested for purposes
of evaluating the Participating Banks financial condition and
capacity to fulfill its obligations to the Fund and to perform such
servicing duties as may be mutually agreed to by the parties.
The Fund's investments may include participation interests, purchased
from Participating Banks, in fixed and variable rate tax-exempt debt
obligations (including industrial development bonds hereinafter
described) owned by the banks. A participation interest gives the
Fund an undivided interest in the tax-exempt obligation in the
proportion that the Fund's participation interest bears to the total
principal amount of the obligation and carries a demand repurchase
feature. Each participation is backed by an irrevocable letter of
credit or guarantee of the Participating Bank which issued the
participation. The Fund has the right to liquidate the participation,
in whole or in part, by drawing on the letter of credit or guarantee
of the Participating Bank which issued the participation. The Fund
has the right to liquidate the participation, in whole or in part, by
drawing on the letter of credit on demand, after seven calendar days'
notice, for all or any part of the principal amount of the Fund's
participation, plus accrued interest.
The Fund intends to exercise its rights under Liquidity Agreements
only: (1) upon default in the terms of the tax-exempt debt
obligations covered thereby; (2) to provide the Fund with needed
liquidity to cover redemptions of Fund shares; or (3) to insure that
the value of the Fund's investment portfolio does not vary materially
from the amortized cost thereof. Participating Banks have no
contractual obligation to offer participations to the Fund, and the
Fund is not obligated to purchase or resell any participations
offered or sold by Participating Banks. The Liquidity Agreements
govern the obligations of the parties as to securities or
participations actually purchased by the Fund.
The financial condition and investment and loan loss record of all
banks seeking to sell participations in fixed and variable rate
tax-exempt debt obligations to the Fund (or to provide letters of
credit or guarantees to back the demand repurchase commitments of the
issuers of such obligations) will be carefully evaluated by the
Advisor, based upon guidelines established by the Board of Directors,
prior to the execution of a Liquidity Agreement by a Participating
Bank and periodically thereafter. Purchased obligations will bear
interest at or above current market rates and the rates borne by
obligations with maturities longer than one year will be adjustable
at least semi-annually to reflect changes in market rates subsequent
to issuance of the securities. It is anticipated that the tax-exempt
debt obligations purchased or participated in by the Fund will be
those traditionally acquired by United States banks. These include
both general obligation and revenue bonds issued for a variety of
public purposes such as the construction of a wide range of
facilities including schools, streets, water and sewer works,
highways, bridges, and housing. Also included are bonds issued to
refund outstanding obligations, to obtain funds for general operating
purposes and to lend to other public institutions and facilities.
Certain types of industrial development bonds issued by public bodies
to finance the construction of industrial and commercial facilities
and equipment are also purchased. Revenue generating facilities such
as parking garages, airports, sports and convention complexes and
water supply, gas, electricity, and sewage treatment and disposal
systems are financed through issuance of tax-exempt debt obligations
as well.
Tax-exempt debt obligations are normally categorized as "general
obligation" or "revenue" issues. General obligations are secured by a
pledge of the full taxing power of the issuer while revenue
obligations are payable only from revenues generated by a facility or
facilities, a specified source of tax or other revenues or, in the
case of industrial development bonds, from lease rental or loan
payments made by a commercial or industrial user of the facilities.
Revenue obligations do not generally carry the pledge of the credit
of the issuer.
Short-term tax-exempt debt obligations usually mature in less than
two years, are typically general obligations of the issuer and most
often issued in anticipation of receipts to be realized from tax
collections or the sale of long-term bonds. Project Notes are issued
by local agencies under a program administered by the United States
Department of Housing and Urban Development and are secured by the
full faith and credit of the United States.
From time to time the Fund may invest 25 percent or more of its
assets in tax-exempt debt obligations, or participations therein,
sufficiently similar in character that an economic, business or
political development or change affecting one such security would
also affect the other securities. Examples might be securities whose
principal and interest payments are dependent upon revenues derived
from similar projects or whose issuers are located in the same state.
In addition, investments in tax-exempt debt obligations of issuers
may from time to time become concentrated within a single state, and
the Fund may also invest 25 percent or more of its assets in
industrial development bonds or participations therein.
For entering into a Liquidity Agreement, a Participating Bank will
retain a service and letter of credit fee in an amount equal to the
excess of the interest paid on the tax-exempt obligations above the
negotiated yield at which the instruments were purchased by the Fund.
Such fees may be adjusted if adjustments are made in the interest
rate paid on the tax-exempt obligations. Each Participating Bank
executing a Liquidity Agreement must be approved by the Board of
Directors of the Fund prior to, or at the next quarterly Board
meeting following, such executions. See "The Investment Management
Agreement" on page 10 for a discussion of the criteria to be used in
selecting Participating Banks. The Board of Directors will review all
Participating Banks and Liquidity Agreements quarterly in an effort
to assure continued liquidity and high quality in the Fund's
portfolio.
(2) High quality tax-exempt debt obligations issued by state and
municipal governments and by public authorities, including issues
sold as interim financing in anticipation of tax collections, revenue
receipts or bond sales, and tax-exempt Project Notes secured by the
full faith and credit of the United States. Such obligations will be
purchased only if backed by the full faith and credit of the United
States or rated Aaa, Aa, MIG-1, MIG-2 or Prime-1 by Moody's Investors
Service, Inc. ("Moody's") or AAA, AA, or A-1 by Standard & Poor's
Corporation ("S & P"). See "Appendix A" on page 13. Following
purchase of a rated obligation by the Fund the rating may be
withdrawn or reduced below the Fund's minimum requirement. This will
not require sale of the issue by the Fund but the Advisor will take
such changes into consideration in determining whether the issue
should be retained by the Fund. Non-rated securities may also be
purchased if determined by the Fund's Board of Directors to be of
comparable quality to the rated securities in which the Fund may
invest.
(3) Taxable obligations issued or guaranteed by agencies or
instrumentalities of the United States Government may be acquired
from time to time on a temporary basis for defensive purposes. Such
agencies and instrumentalities include, for example, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National
Mortgage Association and Farmers Home Administration. Such securities
will include those supported by the full faith and credit of the
United States Treasury or the right of the agency or instrumentality
to borrow from the Treasury as well as those supported only by the
credit of the issuing agency or instrumentality.
(4) Repurchase agreements involving securities in the immediately
foregoing category. A repurchase agreement involves the sale of such
securities to the Fund with the concurrent agreement of the seller to
repurchase them at a specified time and price, to yield an agreed
upon rate of interest. The Fund will enter into repurchase agreements
with brokers and banks. Thus, the Fund must initially rely upon the
credit of a particular broker or bank for completion of the
repurchase agreement. Such repurchase agreements are intended to be
fully collateralized, in an amount equal to at least the principal
amount of the transaction plus accrued interest earned thereon, by
the underlying Government or agency securities valued at their fair
market value each day. Although the Fund will normally have legal
title to and constructive possession of the collateral, it cannot
eliminate the risk of a default by a broker or bank which could
result in a loss to the Fund on the sale of the underlying securities
or delays in obtaining the collateral because of bankruptcy or
insolvency proceedings. Repurchase agreements may be deemed to be
loans under the Investment Company Act of 1940. Only in the event the
Fund has adopted a temporary defensive investment policy will the
aggregate investment in repurchase agreements and taxable obligations
as described herein exceed 20 percent of the Fund's net assets.
Assets of the Fund will consist of securities with maturities of one year or
less at date of purchase or, if maturing beyond one year, securities which are
backed by Liquidity Agreements and which have variable interest rates adjustable
at least semiannually. In determining whether particular variable rate
obligations backed by Liquidity Agreements may be purchased, the period
remaining until maturity will be deemed to be the longer of the demand notice
period required before the Fund is entitled to receive payment of the principal
amount or the period remaining until the next interest adjustment. For purposes
of Rule 2a-7 and the diversification requirements thereunder, the unconditional
commitments are limited in amounts necessary to keep any one bank from being
obligated to purchase more than 5 percent of the total assets held by the Fund.
The dollar weighted average maturity of Fund investments will be 90 days or
less, determined in the same manner. In attempting to provide its shareholders
with the highest income consistent with preservation of capital, the Fund will
not necessarily purchase investments bearing the highest interest rates
available as such investments may also involve a higher degree of risk.
The Fund does not intend to concentrate its investments in any one industry and
will not issue senior securities.
As a general policy, it is the Fund's intention to hold investments until they
mature or until immediately prior to the expiration of an applicable Liquidity
Agreement. However, in an effort to increase portfolio yields, the Fund may
periodically trade securities to take advantage of perceived disparities between
markets for various short-term money market instruments. It is also possible
that redemptions of Fund shares could necessitate the sale of portfolio
investments prior to maturity and at times when such sale would be undesirable.
While investments by the Fund will be confined to high-quality financial
instruments which, in the case of tax-exempt obligations covered by Liquidity
Agreements, will be backed by demand repurchase commitments of the issuers
thereof and by irrevocable bank letters of credit or guarantees, the complete
elimination of risk is not possible. Under certain circumstances (see "Valuing
the Fund's Shares" on page 6 and "Dividends" on page 8), the net asset value of
the Fund's shares could decrease. It is also possible a Participating Bank or an
issuer will default on the provisions of their Liquidity Agreements which could
cause the net asset value per share to decrease. In light of these various
contingencies, there can be no assurance the Fund will achieve its investment
objectives.
New issues of tax-exempt debt obligations are usually offered on a when-issued
basis with the securities to be delivered and paid for approximately 45 days
following the initial commitment to purchase. The terms of the commitment
establish the price to be paid and the yield of the securities to be purchased.
Such commitments will only occasionally be entered into by the Fund and only
with the intention of actually acquiring the securities. It is possible that
market yields at time of delivery may exceed the negotiated yield on when-issued
securities. The Fund will maintain a separate account consisting of cash or
liquid securities, valued at market or fair value daily, equal to its
outstanding when-issued commitments. Settlement on when-issued securities may be
made by using available cash, selling securities or, though not expected,
selling the when-issued securities themselves (which may have a value greater or
lesser than the Fund's commitment). Sale of securities to meet such commitments
may result in realization of capital gains or losses which are not exempt from
Federal income tax. When-issued commitments outstanding at any one time will not
exceed 10 percent of the Fund's net assets.
Yields on tax-exempt debt obligations are dependent on a variety of factors
including general economic and money market conditions as well as supply and
demand factors within the market for tax-exempt obligations. Yields actually
realized by Fund investors will be reduced by the management fees, operating
expenses and fees received by Participating Banks and Participating
Organizations.
The Fund has adopted a number of investment policies and restrictions, some of
which can be changed by the board of directors. Others may be changed only by
holders of a majority of the outstanding shares and include the following:
Without shareholder approval the Fund may not: (1) purchase any securities other
than those described under "Investment Objectives, Policies and Restrictions";
(2) invest more than 80 percent of its total assets in tax-exempt fixed and
variable rate debt obligations (or participation interests therein) issued by
state and local governmental units within the United States which are backed by
Liquidity Agreements; (3) invest more than 5 percent of its total assets in
tax-exempt obligations or participation interests therein subject to Liquidity
Agreements issued by any one Participating Bank; (4) invest with a view to
exercising control or influencing management; (5) purchase securities of other
investment companies, except in connection with a merger, acquisition,
consolidation or reorganization; (6) purchase or sell real estate, commodities
or commodity contracts, interests in oil, gas or other mineral exploration or
development programs; (7) purchase any securities on margin, except for the
clearing of occasional purchases or sales of portfolio securities; (8) make
short sales of securities or maintain a short position or write, purchase, or
sell puts (excluding Liquidity Agreements covering certain tax-exempt
obligations purchased by the Fund), calls, straddles, spreads or combinations
thereof; (9) make loans to other persons, provided the Fund may make investments
and enter into repurchase agreements as described under "Investment Objectives,
Policies, and Restrictions"; (10) borrow money, except to meet extraordinary or
emergency needs for funds, and then only from banks in amounts not exceeding 10
percent of its total assets, nor purchase securities at any time borrowings
exceed 5 percent of its total assets; (11) mortgage, pledge, hypothecate, or in
any manner transfer, as security for indebtedness, any securities owned by the
Fund except as may be necessary in connection with borrowings outlined in (10)
above and then securities mortgaged, hypothecated or pledged may not exceed 5
percent of the Fund's total assets taken at market value; (12) invest in
securities with legal or contractual restrictions on resale (except for
tax-exempt debt obligations subject to Liquidity Agreements) or for which no
ready market exists; (13) enter into a Liquidity Agreement with any bank unless
such bank is a United States bank which has a record, together with its
predecessors, of at least five years of continuous operation; (14) act as an
underwriter of securities; (15) enter into repurchase agreements if, as a result
thereof, more than 5 percent of the Fund's total assets (taken at market value
at the time of such investment) would be subject to repurchase agreements
maturing in more than seven calendar days; and (16) enter into Liquidity
Agreements with any Participating Bank if 5 percent or more of the securities of
such Bank are owned by the Advisor or by directors and officers of the Fund or
the Advisor, or if any director or officer of the Fund or the Advisor owns more
than 1/2 percent of the voting securities of such Bank.
The foregoing investment restrictions are considered fundamental policies which
cannot be changed without the approval of a "majority" of the Fund's outstanding
voting securities, that is, by (a) 67 percent or more of the securities voting
at a special or annual meeting if more than 50 percent of the outstanding shares
of Common Stock are represented at such meeting in person or by proxy; or (b)
more than 50 percent of the outstanding Common Stock, whichever is less.
The Fund intends to invest at least 25 percent of its total assets in tax-exempt
debt obligations or participation interests therein subject to Liquidity
Agreements, except when such investments are either not available in sufficient
quantity or do not carry yields competitive with alternative investments.
PURCHASES OF FUND SHARES
See "Opening An Account - Purchasing Shares" in the Prospectus for basic
information on how to purchase shares of the Fund.
An order to purchase shares of the Fund is accepted when the Fund's Custodian
Bank receives payment in Federal funds (funds available for immediate
investment). This will occur upon receipt of the purchase price by Federal funds
wire or electronic funds transfer via the ACH system from the purchaser's bank,
or when a check or other negotiable bank draft received by the Fund has been
converted into Federal funds (normally one to two business days after its
receipt by the Fund).
An investor will become a shareholder when the net asset value applicable to his
order is determined. Net asset value of the Fund's shares is determined twice
each day at 10:00 a.m. Des Moines time and at the close of the New York Stock
Exchange (3:00 p.m. Des Moines time). If Federal funds are available to the Fund
before 10:00 a.m. Des Moines time, an order will be effective the same day, the
investor will become a shareholder of record that day, and shares will commence
earning dividends the day the order becomes effective. If Federal funds are
available after 10:00 a.m. but before 3:00 p.m. Des Moines time the shares will
not commence earning dividends until the day after the order becomes effective.
Investments in the Fund may be made through transactions directly with the
Fund's Underwriter (IMG Financial Services, Inc.) and through qualified banks,
savings and loan associations, broker/dealers, investment advisory firms, and
other organizations ("Participating Organizations") selected by the Advisor and
approved by the Board of Directors of the Fund, based upon the Participating
Organization's capacity to provide processing of Fund transactions for its
customers in conjunction with other customer account relationships.
Participating Organizations will be required to enter into agreements with the
Fund's Underwriter to provide certain services to persons ("Participating
Investors") who invest in the Fund through Participating Organizations. These
will include: distributing copies of the Prospectus and sales literature to
prospective investors who request it; furnishing Participating Investors with
periodic account statements containing information regarding Fund share
purchases and redemptions, income earned and Fund investment balances; and
forwarding to Participating Investors periodic reports and proxy material mailed
by the Fund to its shareholders. Participating Organizations may satisfy the
Fund's required minimum, initial and subsequent purchase amounts by aggregating
investments on behalf of customers whose individual investments are less than
the Fund's required minimums. Participating Investors may, if they so elect,
authorize their Participating Organizations to purchase and redeem Fund shares
by means of special investment arrangements offered by the Participating
Organization.
The Fund adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under
the Investment Company Act of 1940 on December 20, 1986, effective January 1,
1987. The Plan continues in force only if approved annually by the Board of
Directors and by a majority of directors who are not parties to the Plan or
interested persons of any party to the Plan, cast in person at a meeting called
for the purpose of voting on such approval, or by a majority of the outstanding
securities of the Fund. In adopting the Plan, the directors considered various
factors and determined that the Plan would benefit the Fund and its
shareholders. On November 21, 1990, the Fund's shareholders approved an
Amendment to the Plan, effective January 1, 1991, to allow for payments to
reimburse the Fund's Underwriter for direct and indirect expenses related to the
marketing, selling, and distribution of Fund shares, including but not limited
to, preparation and distribution of brochures, advertisements, and other
promotional materials for the Fund, compensation to sales personnel employed by
the Underwriter, and payment to any securities dealer, financial institution or
any other Person (a "Participating Organization") who renders assistance in
distributing or promoting the sale of the Fund's shares pursuant to a written
agreement with the Underwriter; and to increase the maximum fee payable under
the Plan from 0.50 of 1 percent to 0.75 of 1 percent of the average net asset
value of the Fund. Participating Organizations make available to their customers
transaction services and provide monthly shareholder account reporting and
related ministerial duties with respect to customer accounts. Except as to
securities dealers, none of the compensation paid to such Participating
Organizations constitute expenses related to advertising, distribution of
prospectuses to other than current shareholders, underwriter's compensation or
compensation to dealers, or compensation of sales personnel, and payments made
are related solely to the cost of the Participating Organization's services in
providing the shareholder account services and shareholder account reporting.
Participating Organizations are not authorized to actually make sales of shares
of the Fund. All orders to purchase shares are subject to acceptance by the
Fund's Underwriter on behalf of the Fund. While the Fund itself does not
presently levy sales, redemption or account service charges, Participating
Organizations may elect to do so and the Fund may elect to do so in the future.
Investors should inquire regarding the nature and costs of services provided by
Participating Organizations and determine if such services are desired because
the costs thereof will reduce the Fund's yield to the investor below that
obtainable by investing in the Fund directly. While the Fund may purchase
portfolio securities from Participating Organizations, it will not give any
preference to them in selecting their investments.
No director or officer of the Fund, or the Advisor has any direct or indirect
financial interest in the Plan. The Fund's Plan results in an efficient system
of customer investment in the Fund thereby potentially increasing the Fund's
ability to attract shareholders. The services rendered by the Participating
Organizations with respect to shareholder reporting are more efficient and
direct than that which the Fund might otherwise provide. The Fund believes that
the Plan and agreements with the Participating Organizations actually reduce
expenses for shareholder account reporting thereby reducing costs of the Funds
and increasing yields. For the year ened June 30, 1995 the Fund paid out a total
of $156,932 under the Plan and all payments were made to Participating
Organizations. As of July 31, 1995, there were 39 Participating Organizations
under the Plan.
The Plan and any agreements related thereto will automatically terminate if
assigned and may be terminated by either party on 60 days notice. The Plan may
be terminated by a majority of noninterested directors who have no direct or
indirect financial interest in the Plan or it may be terminated by a majority of
the outstanding voting shares of the Fund. Any changes in the Plan that would
materially increase the distribution costs require shareholder approval;
otherwise, the directors, including a majority of the noninterested directors,
may amend the Plan. The directors review quarterly a written report of
distribution costs incurred pursuant to the Plan.
The Glass-Steagall Act and other applicable laws prohibit banks from engaging in
the business of underwriting, selling, or distributing securities. Since the
only function of banks who may be engaged as Participating Organizations is to
perform administrative and shareholder servicing functions, the Fund believes
that such laws should not preclude banks from acting as Participating
Organizations; however, future changes in either Federal or State statutes or
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as judicial or administrative decisions or
interpretations of statutes or regulations, could prevent a bank from continuing
to perform all or part of its shareholder servicing activities. If a bank were
prohibited from so acting, its shareholder customers would be permitted to
remain shareholders in the Fund, and alternative means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of the Fund might occur, and shareholders serviced by such bank might
no longer be able to avail themselves of any investment or other services then
being provided by the bank. It is not expected that shareholders would incur any
adverse financial consequences as a result of any of these occurrences. It is
intended that none of the services provided by Participating Organizations other
than registered broker-dealers will involve the solicitation or sale of shares
of the Fund.
The Fund has received an opinion from Cline, Williams, Wright, Johnson &
Oldfather to the effect that, while the matter may not be entirely free from
doubt, the services to be performed by banks acting as Participating
Organizations are essentially ministerial in nature and not in violation of the
Glass-Steagall Act.
The Fund reserves the right to reject any purchase order and to modify
investment minimums from time to time. All purchase orders are subject to
acceptance by authorized officers of the Fund in Des Moines, Iowa, and are not
binding until so accepted. Once a purchase order has been accepted by the Fund
it may not be cancelled or revoked by the investor although the purchased shares
may be redeemed.
VALUING THE FUND'S SHARES
The net asset value of the Fund's shares is determined twice each day, at 10:00
a.m. Des Moines time and at the close of the New York Stock Exchange (currently
3:00 p.m. Des Moines time). The Fund is required to compute its net asset value
on each day (except days on which no purchase or redemption orders are received)
on which the New York Stock Exchange is open for trading or during which there
is a sufficient degree of trading in its portfolio securities that its net asset
value might be materially affected. Net asset value is computed by adding the
value of all securities and other assets (including accrued interest),
subtracting liabilities (including dividends payable) and dividing by the number
of shares outstanding.
Rule 2a-7 under the Investment Company Act of 1940 permits the Fund to compute
its net asset value per share using the amortized cost method of valuing
portfolio securities. As a condition for using the amortized cost method of
valuation, the Board of Directors of the Fund established procedures to
stabilize the Fund's net asset value at $1.00 per share. These procedures
include a review by the Board of Directors as to the extent of any deviation of
net asset value based on available market quotations from the Fund's $1.00
amortized cost value per share. If such deviation exceeds $.005, the Board of
Directors will consider what action, if any, should be initiated to reasonably
eliminate or reduce material dilution or other unfair results to shareholders.
Such action may include redemption of shares in kind; selling portfolio
securities prior to maturity; withholding dividends or utilizing a net asset
value per share as determined by using available market quotations. In addition,
the Fund must maintain a dollar-weighted average portfolio maturity appropriate
to its investment objective; but in any event not longer than 90 days, must
limit portfolio investments to those instruments which the Board of Directors
determines present minimal credit risks, and must observe certain other
reporting and recordkeeping procedures.
Under the amortized cost method of valuation, a security is initially valued at
cost on the date of purchase and, thereafter, any discount or premium is
amortized on a straight-line basis to maturity, regardless of the effect of
fluctuating interest rates on the market value of the security.
Accordingly, the Fund's investments in taxable and tax-exempt debt obligations
rated by a recognized bond rating agency and regularly traded in the secondary
market, and non-rated fixed and variable rate tax-exempt obligations and
participation interests therein, not regularly traded in the secondary market,
but subject to Liquidity Agreements, will be valued at amortized cost. Other
assets are valued at a fair value determined in good faith by the Board of
Directors of the Fund.
CALCULATION OF YIELD
"Current yield" (a seven-calendar-day historical yield) is calculated by first
dividing the average daily net investment income per share for that seven-day
period by the average daily net asset value per share for the same period. This
return is then annualized by multiplying the result times 365/7. Net investment
income does not include realized or unrealized gains or losses. "Effective
yield" is based on current yield and the distribution of dividends monthly.
Yield on shares of the Fund may fluctuate daily and does not provide a basis for
determining future yields. Yield is not guaranteed nor is the principal of the
Fund insured. In comparing the Fund's yield with those of alternative
investments (such as savings accounts, various types of bank deposits and other
money market funds), investors should consider differences between the Fund and
the alternative investments, including differences in the periods and methods
used in calculating the yields being compared.
The following are examples for purposes of illustration only, of the current
yield calculations and the effective yield calculations for the seven-day period
ended December 31, 1995:
Assumptions:
Value of a hypothetical pre-existing account
with exactly one share at the beginning of the period: $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven day period: $1.000589549
Calculation:
Ending account value $1.000589549
Less beginning account value $1.000000000
Net change in account value $ .000589549*
Base period return:
(change/beginning account value)
.000589549/1.000000000 = .000589549
Current yield = .000589549 (365/7) = 3.07%
Effective yield = (1 + .030740750) 12-1 = 3.12%
Weighted Average life to maturity of the portfolio on December 31, 1995 was
77.16 days.
*There are no monthly account charges.
The Prospectus may be in use for up to a full year and accordingly, it can be
expected that yields will fluctuate substantially from the example shown above.
From time to time the Fund may quote its yield in advertisements or in reports
and other communications to shareholders. The Fund's yield changes in response
to fluctuations in interest rates and in the Fund's expenses. Consequently, any
given yield quotations should not be considered as representative of what the
Fund's yields may be for any specified period in the future.
Yield information may be useful in reviewing performance of the Fund and for
providing a basis for comparison with other investment alternatives. However,
the Fund's yields will fluctuate, unlike other investments which may pay a fixed
yield for a stated period of time.
Investors should recognize that in periods of declining interest rates the
Fund's yield will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates, the Fund's yield will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money to the
Fund from the continuous sale of it shares will likely be invested in
instruments producing lower yields in the balance of the Fund's holdings,
thereby reducing the current yields of the Fund. In periods of rising interest
rates, the opposite can be expected to occur.
Advertisements and other sales literature may from time to time include
comparative performance information including data relating to the yield on
deposits at banking and savings and loan institutions (including savings
accounts, interest bearing checking accounts, NOW accounts and money market
deposit accounts). Yields are compiled periodically by the Advisor from a survey
of banking and savings and loan institutions and from reports published by major
newspapers. Additionally, such advertisements and other sales literature may
include references to yield information compiled by IBC/Donoghue's MONEY FUND
REPORT, The Bank Rate Monitor, Banxquote and other recognized industry sources.
Demand and savings deposit accounts at banking and savings and loan institutions
are generally FDIC-insured and such yields generally do not fluctuate to the
extent of the Fund.
DIVIDENDS
The daily net income of the Fund is declared as a dividend each business day to
holders of record immediately before 3:00 p.m. Des Moines time. Dividends are
credited to shareholders' accounts each business day and distributed monthly. If
a shareholder redeems the entire amount in his account during the month,
dividends credited to the account from the beginning of the month through the
date of redemption are paid with the redemption proceeds.
For purposes of calculating dividends, daily net income consists of interest
earned, including the amortization of any discount or premium to the date of
maturity, less accrued expenses of the Fund since the previous business day.
Monthly dividend distributions are reinvested in additional shares unless the
shareholder has requested payment in cash. A statement summarizing account
activity and a check for the amount of any dividends the shareholder may have
requested to be paid in cash are normally mailed monthly.
The Fund attempts to maintain its net asset value at $1.00 per share. See
"Valuing the Fund's Shares" on page 6. While this is expected to be possible
under most conditions, should the Fund incur or anticipate any unusual expenses,
loss, depreciation, gain or appreciation which would affect either net asset
value per share or income, the Board of Directors of the Fund will consider
whether to adhere to the dividend policy previously described or revise it in
light of the existing circumstances.
If the Fund's net asset value per share were reduced, or was expected to be
reduced, below $.995, the Board of Directors might temporarily suspend or reduce
dividend payments in order to maintain a net asset value of $1.00 per share. As
a result of such suspension or reduction of dividends, an investor might receive
less income during a given period than he might otherwise. Such expenses, losses
or depreciation might therefore result in an investor receiving no dividends for
the period he held his shares and receiving upon redemption a price per share
lower than the price he paid.
In its endeavor to maintain net asset value at $1.00 per share, the Fund is
required to adhere to certain conditions of Rule 2a-7 promulgated by the
Securities and Exchange Commission which permits the Fund to value its assets at
their amortized cost. These conditions require that: (1) the Fund seek to
maintain a dollar-weighted average portfolio maturity appropriate to its
objective of maintaining a stable net asset value and, in no event, longer than
90 days; (2) the board of directors of the Fund undertake to assure, to the
extent reasonably practicable, when taking into account current market
conditions affecting its investment objective, that the Fund's market-based net
asset value per share (that is, its net asset value computed on the basis of
available market quotations and estimates) will not deviate from $1.00; and (3)
the Board of Directors consider reducing or suspending dividend payments if the
market-based net asset value per share declines below $.995.
TAXATION
The Fund has qualified as a regulated investment company under Subchapter M of
the Internal Revenue Code since its inception, and intends to qualify as a
regulated investment company in the current fiscal year by meeting certain
requirements relating to the sources of its income, diversification of its
assets and distributing substantially all of its taxable net income, including
any realized capital gains, and thus will not incur any Federal income taxes.
Shareholders will receive taxable dividend income or capital gains, as the case
may be, from distributions whether paid in cash or received in the form of
additional shares. Promptly after the end of each calendar year, each
shareholder will receive a statement of the Federal income tax status of all
dividends and distributions paid during the year.
Dividends derived from interest on tax-exempt debt obligations owned by the Fund
are intended to constitute "exempt-interest dividends" which are generally not
Federally taxable to Fund shareholders. Dividends derived from other interest
and the realization of capital gains are taxable to shareholders whether or not
reinvested. The Fund will elect to qualify as a "regulated investment company,"
and will distribute annually substantially all of its tax-exempt interest and
other income, including realized capital gains, and will thus not be liable for
Federal income taxes. Fund expenses will be allocated between tax-exempt and
taxable income in the same proportion as the Fund's tax-exempt income bears to
the total of such exempt income and its gross income (excluding from gross
income the excess of capital gains over capital losses).
The Fund has received an opinion from Cline, Williams, Wright, Johnson &
Oldfather to the effect that the Fund will be deemed the "owner", for federal
income tax purposes, of fixed and variable rate tax-exempt obligations purchased
by the Fund which are subject to Liquidity Agreements, provided that such
obligations are purchased in arm's-length transactions, that the Fund is not
obligated in any way to resell such obligations to any party, and that the
Liquidity Agreements are obtained from a party normally in the business of
making such commitments for a separately bargained-for arm's-length
consideration. The Fund has represented that it intends to purchase such fixed
and variable rate obligations in accordance with the criteria described in the
opinion of its counsel.
The Fund has received an additional opinion from Cline, Williams, Wright,
Johnson & Oldfather to the effect that the Fund should be deemed the "owner,"
for federal income tax purposes, of participation interests purchased by the
Fund in fixed and variable rate tax-exempt obligations, which participation
interests are subject to Liquidity Agreements, provided that such participation
interests are purchased in arm's-length transactions, that the Fund is not
obligated in any way to resell such participation interests to the seller to any
third party and that the Liquidity Agreements are obtained from a party normally
in the business of making such commitments for a separately bargained-for
arm's-length consideration. However, counsel has noted that the Internal Revenue
Service has not issued a published or private ruling as to the ownership, for
Federal income tax purposes, of such participation interests, and has further
noted that, under Rev. Proc. 83-55 promulgated in August 1983, the Internal
Revenue Service has indicated that it will no longer issue private rulings as to
the ownership of tax-exempt obligations. Thus, it is possible that the Internal
Revenue Service could reach a conclusion different from that reached by counsel.
In that event, Fund shareholders could be taxed on dividends paid on Fund shares
to the extent such dividends resulted from receipt of income by the Fund on
tax-exempt obligations not deemed to be "owned" by the Fund. The Fund intends to
purchase participation interests in fixed and variable rate tax-exempt
obligations in accordance with the criteria described in the opinion of its
counsel.
In the event that the Internal Revenue Service reached a conclusion different
from that reached by counsel for the Fund, the Fund might need to reevaluate its
investment policies and seek shareholder approval of any necessary changes.
The Fund may realize short-term or long-term capital gains or losses from its
portfolio transactions. In the event the Fund creates additional portfolios in
the future, the income, capital gains and losses of each portfolio will be
treated separately for Federal income tax purposes. Short-term capital gains
will be taxable to shareholders as ordinary income when they are distributed.
Any net capital gains (the excess of its net realized long-term capital gain
over its net realized short-term capital loss) will be distributed annually to
the Fund's shareholders. The net income of a portfolio may not be offset by
losses in other portfolios. Distributions will be designated as a capital gain
dividend in a written notice mailed to the Fund's shareholders after the close
of the taxable year.
Promptly after the end of each year, each shareholder will receive a statement
setting forth the dollar amount of income exempt from Federal tax and the dollar
amount, if any, subject to Federal tax. Daily dividends derived from taxable
interest will be designated as taxable in the same percentage as the actual
taxable income earned bears to total income earned on that day.
In accordance with the Internal Revenue Code, interest on indebtedness incurred,
or continued, to purchase or carry shares of the Fund is not deductible.
Dividends may also be subject to state and local taxation. The Fund may not be a
suitable investment for any person who is a "principal user" or "related
person," as defined in Section 144 of the Internal Revenue Code, of certain
facilities if qualified small issue bonds used to finance such facilities are
owned by the Fund.
This discussion of the Fund's tax matters is only a summary and relates
principally to Federal tax matters. Thus, shareholders are encouraged to consult
with their personal tax advisors.
MANAGEMENT
OFFICERS AND DIRECTORS OF THE FUND. The following table sets forth certain
information with respect to the officers and directors of the Funds:
Robert F. Galligan Business Administration Department Chairman,
Director Associate Professor, Grand View College; Director,
IMG Liquid Assets Fund, Inc.
Chad L. Hensley Retired President and CEO, Preferred Risk Mutual
Director Insurance Company; Director, IMG Liquid Assets
Fund, Inc.
Fred Lorber Chairman of Board, Lortex Inc., a manufacturer of
Chairman and Director textiles; Chairman and Director, IMG Liquid Assets
Fund, Inc.
Darwin T. Lynner, Jr. President, Darwin T. Lynner, Co., Inc., a property
Director management company; Director, IMG Liquid Assets
Fund, Inc.
Mark A. McClurg* Vice President, Secretary and Senior Managing Director
Treasurer and Director of Investors Management Group and IMG Financial
Services, Inc.; Treasurer and Director, IMG Liquid
Assets Fund, Inc.
David W. Miles* President, Treasurer and Senior Director of Investors
President and Director Management Group, and IMG Financial Services, Inc.;
President and Director, IMG Liquid Assets Fund, Inc.
Richard A. Miller Vice President & General Counsel, Farmers Casualty
Director Company Mutual, Director, IMG Liquid Assets Fund, Inc.
James W. Paulsen* Senior Managing Director of Investors Management
Vice President Group and IMG Financial Services, Inc.; Vice President
and Director and Director, IMG Liquid Assets Fund, Inc.
Ruth L. Prochaska* Controller/Compliance Officer of Investors Management
Secretary Group, and IMG Financial Services, Inc.; Vice
President and Secretary, IMG Liquid Assets Fund, Inc.
William E. Timmons Partner in Patterson, Lorentzen, Duffield, Timmons,
Director Irish & Becker; Director, IMG Liquid Assets Fund, Inc.
Steven E. Zumbach Attorney at Belin, Harris, Lamson, McCormick;
Director Director, IMG Liquid Assets Fund, Inc.
*Messrs. McClurg, Miles, Paulsen, and Ms. Prochaska are deemed to be
"interested persons" (as that term is defined in the Investment Company Act of
1940) of the Fund and the Advisor.
The mailing address of all officers and directors of the Fund is 2203 Grand
Avenue, Des Moines, Iowa 50312-5338.
The Fund pays a fee of $250 per Board meeting and $100 per committee meeting to
directors who are not interested persons of the Advisor. Under the Management
Agreement other remuneration, if any, of officers and directors is paid by the
Advisor.
<TABLE>
COMPENSATION TABLE
<CAPTION>
(1) (2) (3) (4) (5)
Aggregate Pension or Retirement Estimated Annual Total Compensation From
Name of Compensation Benefits Accrue As Benefits Upon Registrant and Fund
Person, Position From Registrant Part of Fund Expenses Retirement Complex Paid to Director
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert F. Galligan $ 1,000 $ 0 $ 0 $ 1,000
Director
Chad L. Hensley 1,000 0 0 1,000
Director
Fred Lorber 1,000 0 0 1,000
Director
Darwin T. Lynner 750 0 0 750
Director
Mark A. McClurg 0 0 0 0
Treasurer and Director
David W. Miles 0 0 0 0
President and Director
Richard A. Miller 1,000 0 0 1,000
Director
James W. Paulsen 0 0 0 0
Vice President
and Director
William E. Timmons 1,000 0 0 1,000
Director
Steven E. Zumbach 0 0 0 0
Director
</TABLE>
MANAGEMENT OF THE ADVISOR. David W. Miles and Mark A. McClurg, are control
persons of the Advisor and each beneficially own more than 10 percent of the
outstanding voting securities of the Advisor. Senior Managing Directors of
Investors Management Group, are Mark A. McClurg, David W. Miles, and James W.
Paulsen. They intend to devote substantially all their time to the operation of
the Advisor.
THE INVESTMENT MANAGEMENT AGREEMENT
See "Management and Fees" in the Prospectus for certain information
concerning Investors Management Group.
The Advisor furnishes continuous investment supervision to the Fund under a
Management and Investment Advisory Agreement (the "Management Agreement"). For
its services the Advisor receives a fee, computed and accrued daily and payable
monthly, at the following rate on the average daily closing net asset value of
the Fund:
Net Assets Annual Rate
---------- -----------
For assets up to $200,000,000 .25%
For assets in excess of
$200,000,000 to $300,000,000 .24%
For assets in excess of
$300,000,000 to $400,000,000 .23%
For assets in excess of
$400,000,000 to $500,000,000 .22%
For assets in excess of
$500,000,000 to $600,000,000 .21%
Over $600,000,000 .20%
The above stated rates were voluntarily reduced by the Advisor from a maximum of
0.50 percent effective January 1, 1991.
Under the Management Agreement, the Advisor is responsible for selecting
the Fund's portfolio securities, including the solicitation and approval of Iowa
commercial banks selected as Participating Banks from which the Fund may
purchase participation interests in tax-exempt debt obligations subject to
Liquidity and Servicing Agreements or which may issue irrevocable letters of
credit to back the demand repayment commitments of the issuers of such
obligations. A careful review of the financial condition and loan loss record of
a prospective bank will be undertaken prior to the bank being approved to enter
into a Liquidity and Servicing Agreement and, once approved, a Participating
Bank's financial condition and loan loss record will be reviewed at least
annually thereafter.
The principal criteria which the Advisor will consider in approving,
rejecting or terminating Liquidity and Servicing Agreements with Participating
Banks will include a bank's (a) ratio of capital to deposits; (b) ratio of loan
charge offs to average loans outstanding; (c) ratio of loan loss reserves to net
loans outstanding and (d) ratio of capital to total assets. Ordinarily, the
Advisor will recommend that the Fund not enter into or continue a Liquidity and
Servicing Agreement with any bank whose ratios (as described above) are less
favorable than the average of all Iowa banks. The Advisor will also consider a
bank's classified loan experience, historical and current earnings and growth
trends, quality and liquidity of investments and stability of management and
ownership. Typically, the Advisor will utilize a variety of information sources,
including annual audited financial statements, unaudited interim financial
statements, quarterly reports of condition and income filed with regulatory
agencies and periodic examination reports (if available) and reports of
federally insured banks concerning past-due-loans, renegotiated loans and other
loan problems.
The Advisor also provides office space and management and other personnel
to the Fund and pays the costs of computing the net asset value of the Fund and
related bookkeeping expenses. The Advisor will bear any sales or promotional
costs incurred in connection with the sale of the Fund's shares.
The Fund pays all expenses of operations not specifically assumed by the
Advisor. These include: custodian, transfer agent and shareholder recordkeeping
charges; charges for the services of legal counsel and independent public
accountants; compensation of directors other than those affiliated with the
Advisor and expenses incurred by them in connection with their services to the
Fund; certain insurance premiums; expenses of printing and distributing to
shareholders notices, proxy solicitation material, prospectuses and reports;
brokers' commissions; taxes; interest; and expenses of complying with Federal,
state and other laws.
The Advisor has also agreed to reimburse the Fund, up to the amount of the
advisory fees paid to the Advisor, to the extent that the total annual expenses
of the Fund, exclusive of all taxes, interest, brokers' commissions and other
related charges, but including fees paid to the Advisor, exceed the most
restrictive limits prescribed by any state in which the Fund's shares may
eventually be offered for sale. The Fund believes that it presently is not
subject to any such restrictions. The Fund paid $66,425, $59,835, and $52,311 in
management fees to the Advisor in fiscal 1993, 1994, and 1995 respectively.
The Management Agreement approved by the sole shareholder of the Fund on
July 14, 1983, for an initial term expiring September 30, 1984, will continue in
effect as long as it is approved annually by a majority of those directors who
are not parties to the Management Agreement or "interested persons" of such
parties and by either the board of directors of the Fund or a majority of the
outstanding voting securities of the Fund. The Management Agreement for the Fund
which was last approved by the Fund's directors, as described above, on July 18,
1995, may be terminated by either party without penalty on 60 days' written
notice and will automatically terminate in the event of its assignment.
The Management Agreements provide that neither the Advisor nor any of its
officers or directors, agents or employees will have any liability to the Funds
or its shareholders for any error of judgement, mistake of law or any loss
arising out of any investments or for any other act or omission in the
performance of its duties as investment advisor under the Management Agreement,
except for liability resulting from willful misfeasance, bad faith or gross
negligence on the part of the Advisor in the performance of its duties or from
reckless disregard by the Advisor of its obligations under the Management
Agreement.
OTHER INFORMATION
FEDERAL HOLIDAYS. The Fund will be closed for business and, therefore, will
not accept purchase or redemption orders nor calculate net asset value, on all
Federal Holidays -- currently New Year's Day, Martin Luther King, Jr. Day,
President's Day, Memorial Day, Independence Day, Labor Day, Columbus Day,
Thanksgiving Day, Veterans Day and Christmas Day.
PORTFOLIO TRANSACTIONS. Subject to policies set forth by the board of
directors of the Fund, the Advisor is authorized to determine, consistent with
the Fund's investment objectives and policies, which securities will be
purchased, sold and held by the Fund. Most of the Fund's portfolio securities
will be purchased on a principal basis directly from the issuer, from banks,
underwriters or market makers and, thus, will not involve payment of a brokerage
commission. There were no "agency" transactions in the last three fiscal years
and hence, no brokerage commissions paid. Such purchases may include a discount,
concession or mark-up retained by an underwriter or dealer. The Advisor is
authorized to select the brokers or dealers that will execute the purchases and
sales of portfolio securities and is directed to use its best efforts to obtain
the best available price and most favorable execution on brokerage transactions.
Some of the portfolio transactions may be directed to brokers who furnish
special research and statistical information or services rendered in the
execution of orders which are of benefit to the Adviser. These may include
advice or information with respect to particular securities or issuers,
information concerning general market or economic conditions and the obtaining
of information from brokers, underwriters or market makers. While no dollar
value can be placed on such information or services, it allows the Adviser to
supplement its own research and analysis activities which can reduce its costs
but not those of the Fund.
ORGANIZATION AND CAPITAL STRUCTURE. The Fund is an open-ended diversified
management investment company organized as an Iowa corporation in January 1983,
under the name Iowa Tax Free Liquid Assets Fund, Inc. On October 13, 1987, the
Fund changed its name to IMG Tax Exempt Liquid Assets Fund, Inc. The Fund has an
authorized capital of 200,000,000 shares of Common Stock, par value $.001 per
share. All shares have equal rights and privileges and each share is entitled to
one vote in the election of directors and other matters presented to
shareholders and to participate equally in the net distributable assets of the
Fund on liquidation. The shares are nonassessable, have no preemptive,
subscription or conversion rights. The shares have no sinking fund provisions
but are redeemable upon request of the holders and are transferable.
REPORTS TO SHAREHOLDERS. Semiannual and annual reports will include
financial statements which, in the case of the annual report, will be reported
upon by the Fund's independent auditors, KPMG Peat Marwick LLP. The Annual
Report and the Semi Annual Report for the Period July 1, 1995 to December 31,
1995 is incorporated herein by reference into the Fund's Statement of Additional
Information and is available upon request without charge be calling the number
on the cover page of this Statement of Additional Information.
PRINCIPAL SHAREHOLDERS AND CONTROL PERSONS. As of August 15, 1995, Townsend
Engineering Co., 2425 Hubbell, Des Moines, Iowa, 50317; and Ted Townsend, 13031
NW 29th Drive, West Des Moines, Iowa, 50265; directly or indirectly, owned
approximately 34.6 percent, and 24.0 percent respectively, of the Fund's
outstanding shares. No other person is believed to own as much as 5 percent of
the Fund's shares and the Fund's officers and directors as a group owned less
than 1 percent of the Fund's shares.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT. The Fund has a
Custodian Agreement with Mercantile Bank of Polk County, Des Moines, Iowa (the
"Custodian"), which holds cash for the purchase and redemption of the Fund's
shares. The Custodian will hold the Fund's portfolio investments which may, in
part, be deposited in central depository systems as permitted by Federal law.
The Fund has also contracted with IMG to provide certain accounting services
including transfer of shares, disbursement of dividends and the maintenance of
shareholder accounting records.
LEGAL OPINION. Messrs Cline, Williams, Wright, Johnson & Oldfather have
rendered an opinion to the Fund with respect to legality of the shares offered
in the Prospectus, tax matters, and Glass-Steagall Act matters.
INDEPENDENT AUDITORS. KPMG Peat Marwick LLP, 2500 Ruan Center, Des Moines,
Iowa 50309, has been selected unanimously by the members of the board of
directors of the Fund who are not interested persons of the Fund as the Fund's
independent auditors to examine the books and securities of the Fund and to
report upon the financial statements of the Fund.
APPENDIX A
DESCRIPTION OF BOND RATINGS. The Fund invests in tax-exempt debt
obligations, including both bonds and notes, rated in the top two grades by
Moody's and S & P. These ratings have to do with the financial strength of the
issuer of the obligations at the time they are first issued. The ratings do not
reflect opinions regarding the market value or the marketability of the
obligations. Both could be affected by a change in rating, however. Moody's four
highest ratings are Aaa, Aa, A and Baa. S & P's are AAA, AA, A and BBB.
Bonds rated Aaa or AAA are judged to be of the best quality. Interest
and principal are secure with market prices responsive to changes in interest
rates.
Bonds rated Aa or AA are also judged to be of high quality although
interest and principal do not enjoy the margin of safety that would be true of
bonds rated Aaa or AAA. Long-term risks would be somewhat greater also, with
price fluctuations primarily the result of interest rate changes.
Bonds rated A by the two rating agencies are considered to be of upper
medium grade. While interest and principal protection is judged to be adequate,
it could be susceptible to future impairment. While the price of such
obligations will be affected principally by interest rate fluctuations, economic
conditions will also have an impact.
Bonds rated Baa or BBB are considered medium grade obligations.
Interest and principal are adequately secure over the short-term but the
obligations may be somewhat speculative. Changing economic conditions may also
impact the security of the indebtedness resulting in market prices being more
affected by changes therein than by interest rate fluctuations.
TAX-EXEMPT NOTE AND COMMERCIAL PAPER RATINGS. Ratings for tax-exempt
notes are designated "MIG" (Moody's Investment Grade) by Moody's. Notes rated
MIG-1 are the highest quality and enjoy excellent protection by virtue of
established cash flows available for debt service or ready access to the market
for refinancing, or both.
Notes rated MIG-2 are high quality with ample cash flow protection
although less than available to obligations bearing the top rating.
Notes rated MIG-3 are of good quality as measured by the relevant
factors associated with credit-worthiness. However, the unquestioned financial
strength ascribed to issues in the two preceding rating categories is lacking
and ready access to the market for refinancing is less well established.
Tax-exempt commercial paper rated Prime-1 (P-1) by Moody's is supported
by the issuer's superior capacity to repay, while commercial paper rated Prime-2
(P-2) is backed by strong repayment capacity.
S & P's commercial rating A-1 indicates the obligations enjoy extremely
strong credit backing in terms of the issuer's capacity to repay, while an A-2
rating indicates strong issuer repayment capacity exists.
<PAGE>
APPENDIX B
TAX-EXEMPT VS. TAXABLE YIELDS. Set forth below is a table which may be used to
compare equivalent taxable yields to tax-exempt rates of return based upon the
investor's level of taxable income. The rates shown are those in effect under
the Internal Revenue Code as of January 1, 1995 through December 31, 1995.
<TABLE>
<CAPTION>
________________________________________________________
Marginal The following TAX-EXEMPT INTEREST RATES:
TAXABLE INCOME* Single Income 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
Joint Return Return Tax ________________________________________________________
Bracket Equal the TAXABLE INTEREST RATES shown below:
_______________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,400 - $43,050 $ 2,600 - $24,750 15.0% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
43,050 - 86,550 24,750 - 51,950 28.0% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
86,550 - 147,650 51,950 - 119,350 31.0% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
147,650 - 260,550 119,350 - 257,900 36.0% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
Over 260,550 Over 257,900 39.6% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
Maximum Corporate Rate 34.0% 5.30% 6.06% 6.82% 7.58% 8.33% 9.09% 9.85%
_______________________________________________________________________________________________________________
*Net amount subject to Federal income tax after deductions and exemptions. Assumes alternative minimum tax is
not applicable and receipt of tax-exempt interest does not cause any portion of social security benefits
received to become taxable to the taxpayer. State tax considerations are excluded.
</TABLE>
