LIQUID ASSETS FUND
MUNICIPAL ASSETS FUND
INTERIM FINANCIAL REPORT
DECEMBER 31, 1996
<PAGE>
LETTER TO SHAREHOLDERS
- ----------------------
We are pleased to present the semi-annual financial report for your Liquid
Assets Fund ("Liquid Assets") and Municipal Assets Fund ("Municipal Assets"),
for the six-months ended December 31, 1996.
As explained more fully in the Management Discussion which follows, over the
last six months interest rates have declined somewhat from early 1996 levels.
Still, short-term rates remain attractive. And, given current disagreements
among analysts over the direction of the economy, it does not appear that the
Federal Reserve will be moving to reduce short-term yields in the near future.
All of this has meant a very favorable return for shareholders of Liquid Assets
and Municipal Assets. During the period July 1 through December 31, 1996, yields
on Liquid Assets and Municipal Assets averaged 4.45% and 2.76% (for "Sweep
Shares") respectively.
The last six months have been a period of change and growth for your Funds. In
October shareholders voted to split each Fund into three classes of shares:
"Sweep Shares", "Trust Shares", and "Institutional Shares". Sweep Shares
continue the original mission of the Funds - to provide a competitive "sweep
account" vehicle to bank clients offering Investment Checking to their
customers. Trust Shares offer a more attractive fee structure for accounts
established through bank trust departments. Institutional Shares are the lowest
fee class and are well suited to institutional shareholders.
Across the United States, bank sweep account programs continue to grow. Your
Funds have shared in that growth. The number of banks offering the Funds through
our Investment Checking sweep service has increased by nine since July 1, 1996.
We are pleased to report that our Funds are now offered by twenty-seven banks in
five states, including seven banks in California!
As we approach the fifteenth anniversary of Liquid Assets in June 1997, the
directors and officers of the Funds continue to work to improve the performance
and operations of your Funds. Toward that end, in October 1996 the maximum
annual fees on Municipal Assets were reduced 0.25%. This change resulted in a
direct increase of 0.25% in the yield to Municipal Assets shareholders. We
anticipate more positive changes over the next few months.
Thanks for your investment in the Funds. If you wish to contact us, please write
or call IMG directly at (800)798-1819, or contact your financial institution
through which you made your investment.
DAVID W. MILES, PRESIDENT
LIQUID ASSETS FUND
MUNICIPAL ASSETS FUND
January 17, 1997
<PAGE>
MANAGEMENT DISCUSSION
- ---------------------
During the six month period ending December 31, 1996, the bond market enjoyed a
strong rally as interest rates declined due to a slower economy. One year
treasury rates declined during the period from a 5.73 percent yield to a 5.48
percent yield. Six month and three month bills showed little change during the
six month period.
The past six months showed a marked change from the first half of 1996, during
which rates were driven by a strong economy. By mid August the GDP number for
the third quarter had already indicated signs of slowing. This slowdown in
economic activity reduced inflation fears and brought interest rates lower
across the maturity curve.
While interest rates have already declined con-siderably during the last six
months, we expect long term rates to decline further into 1997. Contradictory
economic reports support two views for future economic growth. One view focuses
on potential inflationary pressures in the cost of labor. Recent tightness in
the labor market has pushed hourly earnings higher. A continued tightness could
further inflate wage pressures. The second view, which we subscribe to,
anticipates a slower economy with weaker corporate profits. We believe profits
will weaken into the first half of 1997. Future earnings growth will rely
predominantly on top line revenue growth rather than from bottom line expense
reduction, and revenue growth has been sluggish. Capital spending and
productivity are near record levels suggesting the supply of goods entering the
market is greater than the demand. Under this scenario, material goods price
inflation should stay under control. Despite some pressure in the labor market,
we expect the overall level of inflation to remain low and with economic growth
trending lower, bond yields should decline. With this in mind, we believe the
market is poised for stable short term interest rates and lower long term
interest rates. We are posturing the port-folio to capture as much yield as
possible, while remaining flexible to react toward current market conditions. In
the Liquid Assets Fund we favor agency securities to boost yield over treasury
bills or notes. Recently, discount notes have provided better value versus
coupon agencies on a money market equivalent basis. Our view toward short term
interest rates is neutral for the near term and for that reason our target range
for average days will be that of the IBC Taxable Money Fund Average. In the
Municipal Assets Fund we have continued to add municipal notes rated AA or
higher by a nationally recognized statistical rating organization. We utilize
variable rate demand notes to provide the liquidity for the portfolio. These are
overnight and weekly investment vehicles within the tax-exempt bond market. We
are also targeting the average days to maturity to that of the IBC Tax Free
Money Fund Average. As always, in both portfolios, we strive to provide a high
yielding product without sacrificing the safety of principal. We appreciate your
continued investment in the Liquid Assets Fund and Municipal Assets Fund.
JEFFREY D. LORENZEN
MANAGING DIRECTOR
<PAGE>
LIQUID ASSETS FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
(SHOWING PERCENTAGE OF NET ASSETS)
- ----------------------------------
<TABLE>
<CAPTION>
YIELD AT
PAR TIME OF DUE AMORTIZED
VALUE DESCRIPTION PURCHASE DATE COST
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DISCOUNTED GOVERNMENT SECURITIES -- 33.9%
$ 4,500,000 Fed Agricultural Mtge Corp Disc Note 5.38% 02-Jan-97 $ 4,499,346
3,000,000 Fed Home Loan Mtge Corp Disc Note 5.43% 03-Jan-97 2,999,122
5,000,000 Fed Home Loan Mtge Corp Disc Note 5.36% 03-Jan-97 4,998,550
3,000,000 Federal Home Loan Bank Disc Note 5.41% 06-Jan-97 2,997,812
5,000,000 Federal Home Loan Bank Disc Note 5.42% 07-Jan-97 4,995, 617
5,000,000 Student Loan Mtge Assn Disc Note 5.42% 08-Jan-97 4,994,847
5,000,000 Federal National Mtge Assn Disc Note 5.61% 16-Jan-97 4,988,708
10,000,000 Fed Home Loan Mtge Corp Disc Note 5.41% 31-Jan-97 9,956,000
6,670,000 Federal National Mtge Assn Disc Note 5.39% 02-Feb-97 6,634,916
2,300,000 Federal National Mtge Assn Disc Note 5.53% 18-Feb-97 2,283,440
5,000,000 Fed Home Loan Mtge Corp Disc Note 5.48% 20-Feb-97 4,962,917
1,600,000 Fed Home Loan Mtge Corp Disc Note 5.54% 25-Feb-97 1,586,800
2,185,000 Fed Home Loan Mtge Corp Disc Note 5.39% 26-Feb-97 2,166,884
5,000,000 Federal National Mtge Assn Disc Note 5.36% 04-Mar-97 4,955,050
2,618,000 Fed Home Loan Mtge Corp Disc Note 5.36% 05-Mar-97 2,594,085
6,525,000 Federal National Mtge Assn Disc Note 5.39% 13-Mar-97 6,457,439
-------------
TOTAL (cost - $72,071,533) $ 72,071,533
-------------
COUPON SECURITIES -- 0.6%
$ 1,000,000 Federal Home Loan Bank Float 5.66% 18-April-97 $ 1,002,657
250,000 Federal Home Loan Bank, 6.99% 5.72% 25-April-97 250,948
-------------
TOTAL (cost - $1,253,605) $ 1,253,605
-------------
LOAN CERTIFICATES* FmHA GUARANTEED LOAN CERTIFICATES -- 5.3%
$ 13,727,550 Guaranteed Loan Trust 6.00%* 01-Jun-97 to 19-Dec-34 $ 11,316,487
-------------
TOTAL (cost - $11,316,487) $ 11,316,487
-------------
*Interest rate fluctuates daily, monthly, or quarterly with Prime rate.
Put option subject to no longer than 7-day settlement.
See Notes to Financial Statements.
<PAGE>
LIQUID ASSETS FUND
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1996
(SHOWING PERCENTAGE OF NET ASSETS)
- ----------------------------------
YIELD AT
PAR TIME OF DUE AMORTIZED
VALUE DESCRIPTION PURCHASE DATE COST
- ----------------------------------------------------------------------------------------------------------
TRUST CERTIFICATES* U.S. GOVT. GUARANTEED STUDENT LOANS -- 41.1%
$ 87,435,000 Iowa Student Loan Trust 5.97%* 08-Jan-97 to 30-Dec-97 $ 87,435,000
-------------
TOTAL (cost - $87,435,000) $ 87,435,000
-------------
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL -- 18.8%
$ 39,919,690 Swiss Bank Repurchase Agreement 6.70% 02-Jan-97 $ 39,919,690
-------------
TOTAL (cost - $39,919,690) $ 39,919,690
-------------
TOTAL INVESTMENTS-- 99.7% $ 211,996,315
EXCESS OF OTHER ASSETS OVER TOTAL LIABILITIES-- 0.3% $ 712,191
(Includes $44,638 payable to investment advisor and $755,879 -------------
dividends payable to shareholders)
NET ASSETS -- 100%
Applicable to 212,708,506 outstanding shares of $.001 par value
common stock (5,000,000,000 shares authorized) $ 212,708,506
=============
NET ASSET VALUE:
Offering and redemption price per share ($212,708,506
divided by 212,708,506 shares outstanding) $ 1.00
=============
*Interest rate fluctuates with 3-month U.S. Treasury Bill rate.
Put option subject to no longer than 7-day settlement.
See Notes to Financial Statements.
</TABLE>
<PAGE>
MUNICIPAL ASSETS FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
(SHOWING PERCENTAGE OF NET ASSETS)
- ----------------------------------
<TABLE>
<CAPTION>
YIELD AT
PAR TIME OF DUE AMORTIZED
VALUE DESCRIPTION PURCHASE DATE COST
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT BONDS -- 14.2%
$ 66,156 Iowa HFA (Gayman Project) 4.97%** 15-Aug-99 $ 66,156
424,135 Vinton, IA (Twin City Concrete) 4.94%** 15-Jun-02 424,135
1,116,486 Sioux City, IA. (Handy Partnership Proj) 4.97%** 15-Sep-04 1,116,486
220,666 Iowa HFA (Starr-Terry Project) 5.47%** 15-May-05 220,666
-------------
TOTAL (cost - $1,827,443) $ 1,827,443
-------------
VARIABLE RATE DEMAND OBLIGATIONS -- 57.6%
$ 300,000 Massachusetts State G.O. Ser B DTN 4.80%* 01-Dec-97 $ 300,000
600,000 Illinois Educational Facility Auth 7-Day 4.20%** 01-May-00 600,000
300,000 North Alabama PCR DTN 4.95%* 01-Dec-00 300,000
600,000 Harris Co., TX HFC, Ser 88A 7-Day 4.20%** 01-Jun-05 600,000
500,000 Phoenix, AZ IDR Multi-Family Hsg 7-Day 4.15%** 15-Oct-06 500,000
300,000 Portland, OR PCR (Reynolds Metals) DTN 4.95%* 01-Dec-09 300,000
400,000 Hawaii Housing Auth 7-Day 4.15%** 01-Aug-10 400,000
600,000 Metro Nashville Airport Auth, TN Ser A DT 4.95%* 01-Oct-12 600,000
400,000 Lone Star, TX Airport Ser A2 DTN 4.95%* 01-Dec-14 400,000
600,000 Chicago, IL O'Hare Airport 7-Day 4.15%** 01-Jan-15 600,000
400,000 Hampton Roads, VA Jail Auth 7-Day 4.15%** 01-Jul-16 400,000
300,000 So. Caroling Jobs Econ Dev Auth DTN 4.95%* 01-Jul-22 300,000
300,000 Dearborn, MI Economic Dev 7-Day 4.30%** 01-Mar-23 300,000
600,000 Burke Co., GA Dev Auth DTN 4.90%* 01-Jul-24 600,000
500,000 Martin Co., FL PCR DTN 4.00%* 01-Sep-24 500,000
100,000 Putnam Co., FL PCR DTN 4.00%* 01-Sep-24 100,000
100,000 Grapevine, TX IDR Ser A3 DTN 4.95%* 01-Dec-24 100,000
400,000 Grapevine, TX IDR Ser A4 DTN 4.95%* 01-Dec-24 400,000
100,000 Grapevine, TX IDR Ser B2 DTN 4.95%* 01-Dec-24 100,000
-------------
TOTAL (cost - $7,400,000) $ 7,400,000
-------------
*Variable rate, put option subject to next business day settlement.
**Variable rate, put option subject to no longer than 7-day settlement.
See Notes to Financial Statements.
<PAGE>
MUNICIPAL ASSETS FUND
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1996
(SHOWING PERCENTAGE OF NET ASSETS)
- ----------------------------------
YIELD AT
PAR TIME OF DUE AMORTIZED
VALUE DESCRIPTION PURCHASE DATE COST
- ----------------------------------------------------------------------------------------------------------
MUNICIPAL NOTES -- 27.3%
$ 200,000 Minneapolis & St. Paul, MN Airport, 4.00% 3.85% 01-Jan-97 $ 200,000
100,000 New Jersey State, 5.10% 3.75% 01-Jan-97 100,003
100,000 Pennsylvania State Higher Ed Fac, 6.625 3.75% 01-Jan-97 100,007
75,000 Salt River Prof, AZ Agric Impr Dist, 5.70% 3.85% 01-Jan-97 75,003
85,000 Snohomish Co, WA Pub Util Dist, 7.375% 3.85% 01-Jan-97 86,707
75,000 Univ of Nebraska Med Center, 6.70% 3.81% 01-Jan-97 75,006
285,000 New Prairie School Bldg Corp, IN, 4.10% 3.80% 05-Jan-97 285,009
125,000 Kootenai Co., ID Solid Waste Fac, 6.40% 3.80% 01-Feb-97 126,527
105,000 St. Louis Co, MO, 3.50, 3.50% 3.70% 01-Feb-97 104,978
200,000 St. Louis, MO Convention Center, 6.50% 3.70% 01-Feb-97 200,460
100,000 York, PA City School Dist, 6.50% 3.88% 01-Feb-97 100,226
100,000 Bergen Co., NJ School, 4.40% 3.75% 01-Mar-97 100,100
100,000 Lakeshore, WI Tech College Dist, 4.70% 3.55% 01-Mar-97 100,186
100,000 New Hampshire State, 3.40% 3.98% 01-Mar-97 99,905
150,000 New Jersey State, 7.00% 3.65% 15-Apr-97 152,145
100,000 DuPage Water Comm, IL Water Rev, 6.50% 3.75% 01-May-97 102,862
200,000 Maricopa Co., AZ Series A, 4.50% 3.80% 01-Jul-97 200,681
360,000 New Jersey State Ed Fac Auth Rev, 5.50% 3.72% 01-Jul-97 363,119
200,000 Sandy City, UT Motor Fuel, 3.75% 3.75% 15-Jul-97 200,000
200,000 Albuquerque, NM SD#12, 4.45% 3.85% 01-Aug-97 200,674
100,000 Illinois Development Finance Auth, 5.00% 3.80% 24-Aug-97 100,751
200,000 Shreveport, LA Certificates, 4.40% 3.87% 01-Sep-97 200,679
225,000 Honolulu, HI City & County, 4.20% 3.90% 01-Oct-97 225,481
-------------
TOTAL (cost - $3,500,511) $ 3,500,511
-------------
TOTAL INVESTMENTS-- 99.1% $ 12,727,954
EXCESS OF OTHER ASSETS OVER TOTAL LIABILITIES -- .9%
(Includes $0 payable to investment advisor and $29,370
dividends payable to shareholders) $ 116,844
-------------
NET ASSETS -- 100%
Applicable to 12,844,798 outstanding shares of $.001 par value
common stock (5,000,000,000 shares authorized) $ 12,844,798
=============
NET ASSET VALUE:
Offering and redemption price per share ($12,844,798
divided 12,884,798 shares outstanding) $ 1.00
=============
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JULY 1, 1996 TO DECEMBER 31, 1996
- ------------------------------------------------------
Liquid Assets Fund Municipal Assets Fund
------------------ ---------------------
INVESTMENT INCOME:
Interest $ 5,521,119 $ 193,093
EXPENSES:
Advisory and service fees (Note 2) 245,802 3,901
Shareholder servicing costs 17,307 5,828
Directors' fees 6,653 986
Custodian fees and expenses 112,460 10,378
Portfolio accounting fees (Note 2) 34,429 480
Distribution fees (Note 3) 737,753 28,666
Legal and auditing fees 8,449 3,888
Printing and postage 6,563 1,465
Registration fees 4,247 750
Miscellaneous Expenses 3,078 (79)
----- ---
TOTAL EXPENSES 1,176,741 56,263
--------- ------
NET INVESTMENT INCOME $ 4,344,378 $ 136,830
============= ===========
See Notes to Financial Statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM JULY 1 TO DECEMBER 31
- -----------------------------------------
<TABLE>
<CAPTION>
LIQUID ASSETS FUND MUNICIPAL ASSETS FUND
1996 1995 1996 1995
------------------------- --------------------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income and amounts
distributed to shareholders (Note 1) $ 4,344,378 $ 4,429,881 $ 136,830 $ 263,066
============== ============== ============= =============
FROM SHARE TRANSACTIONS:
(at constant net asset value of $1 per share)
Shares sold $ 521,271,916 $ 596,413,643 $ 25,695,881 $ 48,973,509
Shares issued in reinvestment of
dividends from net investment income 13,500 100,359 0 715
-------------- -------------- ------------- -------------
521,285,416 596,514,002 25,695,881 48,974,224
Shares redeemed 488,209,725 567,491,318 22,996,846 44,002,343
-------------- -------------- ------------- -------------
Net increase (decrease) in net assets
derived from share transactions 33,075,691 29,022,684 2,699,035 4,971,881
NET ASSETS:
Beginning of period 179,632,815 167,084,935 10,145,763 16,129,890
-------------- -------------- ------------- -------------
End of period $ 212,708,506 $ 196,107,619 $ 12,844,798 $ 21,101,771
============== ============== ============= =============
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE OF
EACH FUND OUTSTANDING
THROUGHOUT EACH PERIOD 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------------
LIQUID ASSETS FUND -- SWEEP SHARES
FOR THE PERIOD FROM JULY 1, 1996 TO DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
Net Investment Income .044 .049 .042 .025 .028 .050 .069 .075 .070 .057
Dividends Distributed (.044) (.049) (.042) (.025) (.028) (.050) (.069) (.075) (.070) (.057)
--------------------------------------------------------------------------------------------
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
============================================================================================
Total Return 4.42% 4.89% 4.20% 2.50% 2.80% 5.00% 6.90% 7.50% 7.00% 5.70%
Ratio of Expenses to
Average Net Assets 1.20% 1.20% 1.20% 1.20% 1.20% 1.10% 1.10% 1.20% 1.20% 1.10%
Ratio of Net Income to
Average Net Assets 4.42% 4.89% 4.20% 2.50% 2.80% 5.00% 6.90% 7.50% 7.00% 5.70%
Net Assets
End of Period (000 Omitted) $212,696 196,108 171,595 150,182 115,319 112,628 116,963 101,815 84,206 77,886
</TABLE>
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE OF
EACH FUND OUTSTANDING
THROUGHOUT EACH PERIOD 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------------------------
LIQUID ASSETS FUND -- INSTITUTIONAL SHARES
FOR THE PERIOD FROM OCTOBER 29, 1996 TO DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of Period $ 1.000
Net Investment Income .052
Dividends Distributed (.052)
-------------------------------------------------------------------------------------------
Net Asset Value
End of Period $ 1.000
===========================================================================================
Total Return 5.17%
Ratio of Expenses to
Average Net Assets 0.44%
Ratio of Net Income to
Average Net Assets 5.17%
Net Assets
End of Period (000 Omitted) $ 12,058
</TABLE>
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE OF
EACH FUND OUTSTANDING
THROUGHOUT EACH PERIOD 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL ASSETS FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
Net Investment Income .028 .028 .022 .015 .019 .036 .049 .050 .046 .038
Dividends Distributed (.028) (.028) (.022) (.015) (.019) (.036) (.049) (.050) (.046) (.038)
--------------------------------------------------------------------------------------------
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
============================================================================================
Total Return 2.76% 2.77% 2.20% 1.50% 1.90% 3.60% 4.90% 5.00% 4.60% 3.80%
Ratio of Expenses to
Average Net Assets 1.14% 1.48% 1.40% 1.30% 1.30% 1.40% 1.40% 1.70% 1.60% 1.50%
Ratio of Net Income to
Average Net Assets 2.76% 2.77% 2.20% 1.50% 1.90% 3.60% 4.90% 5.00% 4.60% 3.80%
Net Assets
End of Period (000 Omitted) $ 12,844 21,102 22,528 23,672 26,728 24,415 17,385 14,096 15,871 13,193
</TABLE>
See Notes to Financial Statements.
<PAGE>
LIQUID ASSETS FUND
MUNICIPAL ASSETS FUND
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES.
-------------------------------------------------
The Liquid Assets Fund and the Municipal Assets Fund (the Funds) are
registered under the Investment Company Act of 1940 (the Act), as open-end,
diversified investment companies, established as Iowa corporations.
Investors Management Group ("Adviser"), through an affiliated company (IMG
Financial Services, Inc.), acts as the exclusive distributor of the Funds'
shares which are sold to the public without a sales charge.
It is each Fund's policy to maintain a continuous net asset value per share
of $1.00; the Funds have adopted certain investment portfolio valuation and
dividend and distribution policies to enable them to do so.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
recorded on a trade date basis. Realized gains or losses, if any, from
securities transactions are recorded on the identified cost basis. Interest
income is recorded on the accrual basis. Cost of investments represents
amortized cost.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. It is the policy of the Funds
to declare and accrue dividends from net investment income on each business
day.
FEDERAL INCOME TAXES. The Funds intend to comply with requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute taxable income to shareholders in amounts which avoid or
minimize federal income or excise taxes for the Funds.
INVESTMENT VALUATION. The investments are valued at amortized cost pursuant
to Rule 2a-7 of the act. This involves valuing a portfolio security at its
cost and thereafter assuming a constant amortization to maturity of any
discount or premium.
REPURCHASE AGREEMENTS. The Funds may engage in repurchase agreements with
banks and broker dealers whereby independent custodians receive delivery of
the underlying securities. The market value of these securities (including
accrued interest) on acquisition date is required to be an amount equal to
102% of the resale price, and will not be less than 100% of the resale
price over the term of the agreement. At December 31, 1996, the securities
purchased under overnight agreements to resell were collateralized by
Government Agency mortgage backed securities with a market value of
$40,843,837 for the Liquid Assets Fund.
LOAN CERTIFICATES. FmHA Guaranteed Loan Certificates represent interests in
the guaranteed portion of Farmer's Home Administration ("FmHA") loans
issued by one or more guaranteed loan trusts subject to repurchase on no
more than five business days' written notice. The Loan Certificates are
diversified through limitations on certificates sold by any one individual
bank.
TRUST CERTIFICATES. U. S. Government Guaranteed Student Loans (the Trust)
represent interests in student loans sold by certain Iowa banks subject to
repurchase, on no more than seven days written notice. The Trust and,
accordingly, the Trust Certificates are diversified through limitations on
certificates sold by any individual bank. Each individual bank may not sell
more than 5 percent of the outstanding Trust Certificates.
(2) ADVISORY AND SERVICE FEES.
--------------------------
Under its management and investment advisory agreement, the Adviser
provides the Fund with investment supervision, office space, management and
other personnel, and will pay the costs of computing the Fund's net asset
value and related bookkeeping expenses. For these services, the Fund pays a
fee computed daily and payable monthly at an annual rate of 0.25% of
average daily assets up to $200 million and at a sliding rate from 0.24% to
0.20% of average daily net assets exceeding $200 million. For the period
ended December 31, 1996, Liquid Assets Fund and Municipal Assets Fund paid
$245,802 (approximately 0.25% of average daily net assets) and $3,901
(approximately 0.08% of average net assets due to voluntary fee waiver by
Advisor for period from September 1, 1996 through January 15, 1997),
respectively, to the Advisor for advisory and service fees.
The Funds have also entered into an administrative services agreement with
the Advisor to provide portfolio fund accounting services to the Funds. For
these services, each Fund pays a fee computed daily and payable monthly at
an annual rate of 0.035 percent of average daily assets to a maximum of
$50,000 per year.
Certain officers of the Fund are also officers of the Adviser. At December
31, 1996, the Adviser owned 476,163 shares in Liquid Assets Fund.
IMG also acts as transfer agent and dividend paying agent for the Funds,
and maintains all shareholder records. Fees for such services are based
upon the number of accounts and are reflected as shareholder servicing
costs in the accompanying statement of operations.
(3) DISTRIBUTION EXPENSE PLAN.
--------------------------
Under distribution expense plans (the "Plans") adopted January 1, 1987
pursuant to Rule 12b-1 under the Act, and amended effective January 8, 1991
the Fund may make payments to IMG Financial Services, Inc. ("IFS") for the
reimbursement of expenses related to marketing or distribution of the
Funds. Aggregate payments by each Fund under the Plans in any month cannot
exceed the annual rate of 0.75% of Liquid Asset Fund's average daily net
asset value and 0.50% of Municipal Asset Fund's average daily net asset
value. For the period ended December 31, 1996, amounts payable under the
Plans used by IFS to compensate financial institutions for automated
processing of Fund transactions and for other services relating to the
distribution of the Funds' shares totaled $737,753 and $28,666 for Liquid
Assets Fund, and Municipal Assets Fund, respectively, and Rule 12b-1 fees
payable at December 31, 1996, were $134,176 and $5,014, respectively.
<PAGE>
INVESTMENT ADVISOR, TRANSFER AND UNDERWRITER
DIVIDEND DISBURSING AGENT IMG Financial Services, Inc.
Investors Management Group 2203 Grand Avenue
2203 Grand Avenue Des Moines, IA 50312-5338
Des Moines, Iowa 50312-5338
AUDITORS
CUSTODIAN KPMG Peat Marwick LLP
Mercantile Bank of Polk County 2500 Ruan Center
East 5th & Locust Streets Des Moines, Iowa 50309
Des Moines, Iowa 50307
COUNSEL
Cline, Williams, Wright, Johnson
& Oldfather
1900 FirsTier Bank Building
Lincoln, Nebraska 68508
LIQUID ASSETS FUND
MUNICIPAL ASSETS FUND
2203 GRAND AVENUE
DES MOINES, IOWA 50312-5338
