As filed with the Securities and Exchange Commission on May 19, 1995
Securities Act File No. 33-91392
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
|X| Pre-Effective Amendment No. 1 |_| Post-Effective Amendment No. _____
(Check appropriate box or boxes)
IMG MUTUAL FUNDS, INC.
(Exact Name of Registrant as specified in Charter)
(515) 244-5426
(Area Code and Telephone Number)
418 Sixth Avenue Suite 720, Des Moines, Iowa 50309-2439
(Address of Principal Executive Offices:
Number, Street, City, State, Zip Code)
Mark A. McClurg
418 Sixth Avenue Suite 720, Des Moines, Iowa 50309-2439
(Name and Address of Agent for Service)
With a copy to:
John C. Miles
Cline, Williams, Wright, Johnson & Oldfather
1900 FirsTier Bank Building
Lincoln, Nebraska 68508
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
Approximate date of proposed public offering: As soon as
practicable after the Registration Statement under the Securities Act of 1933
becomes effective.
<PAGE>
IMG MUTUAL FUNDS, INC.
Cross Reference Sheet
Pursuant to Rule 481(a) Under the Securities Act of 1933
Information Statement
Form N-14 Item No. and Prospectus Caption
Part A
Item 1. Beginning of Registration Prospectus Cover
Statement and Outside Front
Cover Page of Prospectus
Item 2. Beginning and Outside Back Table of Contents
Cover Page of Prospectus
Item 3. Synopsis and Risk Factors Summary; Risk Factors
Item 4. Information About the The Plans; Reasons for the Exchange;
Transaction Tax Consequences; Capitalization
Item 5. Information About the Summary
Registrant
Item 6. Information About the Summary; Equity Trust; Summary;
Company Being Acquired Income Trust; The Trusts
Item 7. Voting Information Introduction; Certain Affiliations
Item 8. Interest of Certain Persons Certain Affiliations
and Experts
Item 9. Additional Information Not Applicable
Required for Reoffering by
Persons Deemed to be
Underwriters
<PAGE>
Statement of Additional
Part B Information Caption
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. Additional Information Statement of Additional Information
About Registrant of IMG Mutual Funds, Inc. dated
May 24, 1995*
Item 13. Additional Information About Not Applicable
the Company Being Acquired
Item 14. Financial Statements Statement of Additional Information
of IMG Mutual Funds, Inc. dated
May 24, 1995*;
Financial Statements of
IMG Income Trust
IMG Equity Trust
Proforma Financial Statements
Part C
The information required in Part C is included therein under the appropriate
heading for the item.
- ------------------
* Incorporated herein by reference to Pre-Effective Amendment No. 2 to
the Registration Statement of Registrant on Form N-1A filed on or about
May 5, 1995 (1933 Act Reg. No. 33-81998; 1940 Act Reg.
No. 811-8910).
<PAGE>
PROSPECTUS/INFORMATION STATEMENT DATED May 24, 1995
Acquisition of the assets of
IMG EQUITY TRUST
and
IMG INCOME TRUST
c/o Investors Management Group, Ltd.
720 Liberty Building
418 Sixth Avenue
Des Moines, Iowa 50309
(515) 244-5426
(800) 798-1819
By and in exchange for the shares of
IMG MUTUAL FUNDS, INC.
IMG CORE STOCK FUND
IMG BOND FUND
720 Liberty Building
418 Sixth Avenue
Des Moines, Iowa 50309
(515) 244-5426
(800) 798-1819
This Prospectus/Information Statement relates to the proposed transfer
of all or substantially all of the assets of IMG Equity Trust (the "Equity
Trust") and IMG Income Trust (the "Income Trust"), each of which are private
revocable grantor trusts existing under the laws of the state of Iowa
(collectively, the Equity Trust and Income Trust are referred to as "Trusts") to
IMG Mutual Funds, Inc. (the "Company"), in exchange for shares of beneficial
interest, par value $.001 per share (the "Shares") in IMG Core Stock Fund (the
"Core Stock Fund") and IMG Bond Fund (the "Bond Fund"), respectively, of the
Company. Collectively, the Core Stock Fund and Bond Fund are referred to as
"Funds." The Shares received in the exchange transactions (the "Exchange") will
be distributed by the respective Trusts to their beneficiaries (the
"Beneficiaries") in liquidation of the Trusts, after which the Trusts will be
terminated. As a result of the Exchange, each Beneficiary of the Trusts will
become a shareholder of the Company, receiving Shares that are expected to have
an initial value of $10 per Share and in the aggregate a value equal to the
value of the Beneficiaries' interest in the Trusts on the business day
immediately preceding the date of the Exchange.
All current Beneficiaries of the Trusts are being asked to approve the
Exchange. We are not asking you or any other Beneficiaries for a proxy and you
are only requested to provide your consent to the Exchange. Please do not send
us any proxy or other document. A consent form accompanies this Prospectus/
Information Statement for this purpose.
The Funds are open-end management investment companies. The Core Stock
Fund invests primarily in Equity Securities with the objective of long-
term capital appreciation. The Bond Fund invests in debt securities with an
objective of income. This Prospectus/Information Statement sets forth concisely
the information about the Funds that Beneficiaries of the Trusts should know
before consenting to the Exchange or investing in the Funds and should be
retained for future reference. The Prospectus and Statement of Additional
Information of the Funds dated May 24, 1995, which accompany this
Prospectus/Information Statement as Exhibits B and C are incorporated by
reference herein. Capitalized terms herein shall have the meanings ascribed to
them herein or as defined in the Prospectus of the Funds.
Additional information about the Exchange, contained in a Statement
of Additional Information, has been filed with the Securities and Exchange
Commission and is available without charge by calling IMG Financial Services,
Inc., the Funds' distributor (the "Distributor" or "IFS"), at either (515) 244-
5426 or (800) 798-1819 or writing the Distributor at 418 6th Avenue, Suite 720,
Des Moines, Iowa 50309-2439. The Statement of Additional Information bears the
same date as this Prospectus/Information Statement and is incorporated by
reference in its entirety into this Prospectus/Information Statement.
This Prospectus/Information Statement and accompanying materials are sent
to Beneficiaries on or about May 24, 1995.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
Introduction.............................................................. 1
Summary................................................................... 1
Risk Factors.............................................................. 12
The Plans................................................................. 12
Tax Consequences.......................................................... 13
Reasons for the Exchange; Benefits to Beneficiaries....................... 14
Differences in Rights..................................................... 15
Capitalization............................................................ 19
The Company and the Funds................................................. 20
The Trusts................................................................ 20
Consents from Beneficiaries............................................... 20
Certain Affiliations...................................................... 21
Expenses.................................................................. 22
Financial Statements and Experts.......................................... 22
Legal Matters............................................................. 22
Exhibit A -- Forms of Agreements and Plan of Exchange
Exhibit B -- Prospectus of the Funds
Exhibit C -- Statement of Additional Information for the Funds
Exhibit D -- Opinion of Counsel
<PAGE>
INTRODUCTION
This Prospectus/Information Statement is being furnished to Beneficiaries
in connection with the solicitation of their consents for the approval or
disapproval of Agreements and Plans of Exchange (the "Plans") between the Trusts
and the Company. The Plans provide for the consummation of the Exchange,
pursuant to which all or substantially all of the assets of the Trusts will be
transferred to the Funds in exchange for Shares at net asset value. The Trusts
intend to distribute Shares received to the Beneficiaries as a step in the
complete liquidation and termination of the Trusts. The terms and conditions
under which the Exchange will be consummated are set forth in the Plans, forms
of which are attached as Exhibit A to this Prospectus/Information Statement.
Approval of the Plan for each Trust requires the consent of Beneficiaries
holding interests which represent fifty percent (50%) or more of the market
value of each Trust's assets. If such approval of the Plan is not received
prior to June 15, 1995 (or such later date as the Trusts and the Company may
agree on), the Trustees intend to continue to operate the Trusts until approval
is received or until June 30, 1995. If approval is not received by such time,
the Trusts will be dissolved. In any event, Beneficiaries who or which do not
consent to the transaction by the closing of the Plans, will receive cash in
complete liquidation and termination of their Trusts.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus/Information Statement or in the attached Exhibits and is
qualified by reference to the more complete information contained in this
Prospectus/Information Statement and those Exhibits.
Significant Differences Between the Trusts and the Funds.
Trusts not regulated.
The Funds are registered investment companies and as such are subject to
considerable regulatory requirements of the Investment Company Act of 1940, the
Securities Act of 1933 and Subchapter M of the Internal Revenue Code. These laws
require the Board of Directors of the Funds to be comprised of a majority of
non-interested persons, require certain annual reviews and approvals of
investment advisory, custodial, distribution, shareholder servicing and related
agreements by the Board of Directors. These laws also require that the Funds be
audited annually by an independent auditor and that financial statements be
provided to shareholders semi-annually. These laws also prescribe certain
diversification and concentration limitations on the make-up of the Funds'
investment portfolios and require certain distributions of income and capital
gains annually. The Trusts are not currently subject to any of these
requirements.
Trusts do not provide daily pricing or redemption.
Unlike the Funds, the Trusts are not offered publicly and do not
technically have to provide daily pricing of their portfolios or provide daily
net asset value computations. Furthermore, Beneficiaries of the Trusts may only
withdraw funds monthly, while shareholders of the Funds have the ability to
withdraw (redeem) funds daily.
Trusts do not incur distribution expenses, but have higher aggregate
expenses than Funds.
As privately offered securities, the Trusts and Beneficiaries do not incur
directly or indirectly any distribution related expenses, such as the Funds'
Investor and Select classes of Shares pay under Rule 12b-1. Nevertheless, total
fees payable by any class of the Funds' Shares and therefore indirectly borne by
shareholders of the class of Shares are lower than the total fees and expenses
of the Trusts.
Different investment objectives and policies.
The Funds have some certain specific fundamental investment objectives and
policies that cannot be changed without shareholder approval, whereas the
investment objectives and policies are less specific for the Trusts. For
instance, the Core Stock Fund has a requirement that at least 65% of the Fund's
investments consists of common and preferred stock. The Equity Trust has no
similar restrictions and can invest in non-equity securities to some extent.
Similarly, the Income Fund has a requirement that at least 65% of the Fund's
investment consist of fixed income securities, 75% of which will be investment
grade. The Income Fund can also invest up to 25% of its assets in "junk bonds",
although it has no present intention of doing so. The Income Trust has no
similar restrictions and has a primary objective of preserving principal. As a
result, the Beneficiaries, by consenting to the Plans, are making investment
decisions that conceptually differ from their present investment. Nevertheless,
insofar as the Trusts are less restrictive than the Funds, and the Trustees have
essentially operated the Trusts in conformity with the Funds' investment
objectives and policies objectives, differences are practically minimal.
Different forms of organization.
The Funds are organized as separate series of a Maryland corporation and
shareholders of the Funds have their rights and preferences relative to their
Share ownership as provided under the Articles of Incorporation of the Company
and otherwise under Maryland law. The Beneficiaries of the Trusts are not
shareholders but rather have appointed the Trustees to tend to the affairs of
the Trusts that they create. As such they may terminate their Trusts according
to the Trust documents. The rights and obligations of the Trustees of the
Trusts are set forth in the Declarations of Trust and are generally governed by
fiduciary laws for Trustees as required under Iowa law.
Shareholders of the Funds are generally not subject to any liability for
the operation of the Funds except to the extent of their investment in the
Funds. Such limitation of liability is provided under Maryland corporate law.
The trusts were organized under the common law of Iowa and do not benefit from
the certainty of corporate statutory law. As a result, liability exposure of
Beneficiaries of the Trusts is less clear.
Trusts Beneficiaries provided limited services.
Unlike Fund shareholders, Trust Beneficiaries do not have shareholder
services such as automatic dividend reinvestment, systematic withdrawal plans,
automatic investment, exchange privileges and telephonic redemption.
Different tax consequences.
Unlike a shareholder in the Funds, Trust Beneficiaries may incur
recognition of taxable gains and losses without a corresponding regular cash
distribution, although Trust Beneficiaries may withdraw amounts monthly.
Furthermore, Trust Beneficiaries may only deduct miscellaneous itemized
investment expenses to the extent that they exceed 2% of their adjusted gross
income. Fund shareholders are only taxed on the net income distributed to them
in the form of dividends and are therefore not subject to the 2% floor. Finally,
unlike Fund shareholders which receive IRS Form 1099DV reports of income which
are used to prepare their individual tax returns, Trust participants receive IRS
Form K-1.
Different Risks.
Unlike the Funds, which as regulated entities are subject to various
restrictions, the Trusts are not regulated and Beneficiaries face limited
liquidity (monthly withdrawal rather than daily redemption), have no voice in
management (although Beneficiaries can clearly terminate a trust at any time
whereas Fund shareholders have shareholder voting rights) and do not benefit
from organizational requirements that limit conflicts of interests. Risks
associated with investment policies are similar to the extent that the Funds can
invest in substantially the same types of securities, but are different
resulting from the specific requirements of the Investment Company Act of 1940
and the Internal Revenue Code and the adoption of fundamental policies and
express percentage limitations on diversification, concentration and type of
securities.
The identified risks of investing in the Funds are as follows.
The Core Stock Fund investments in Equity securities and the Advisor's
policies relating thereto should not expose the Core Stock Fund to risks which
are substantially different than other investment companies with similar
investment objectives and policies, however, as with any investment company
principally investing in Equity including foreign securities and special
situations, there can be no assurance that the Fund will achieve its objectives.
The Bond Fund's investments in Fixed Income securities, including
derivatives and junk bonds (up to 25% of its total assets), and the Advisor's
policies relating thereto should not expose the Bond Fund to risks that are
substantially different than other investment companies with similar investment
objectives and policies, however, the investments in junk bonds and derivative
securities could result in the Bond Fund experiencing some volatility in its net
asset value unrelated to interest rate, if the issuer of the junk bond defaults,
the interest rate trends abruptly move up or down on the indices used to adjust
yield on derivative securities move rapidly up or down. As with any bond fund,
the principal risk of investing in a fund comprised of fixed income securities
is that the net asset value will fluctuate inversely to the rise and fall of
interest rates. This volatility can be reduced to some extent by managing the
average portfolio maturity -- a shorter average portfolio maturity reduces
volatility (which reduces yield) and a longer portfolio maturity increases
volatility (which increases yield). The Advisor intends to manage the portfolio
maturity to minimize the effect of interest rate volatility while maximizing
yield by actively managing the portfolio in light of the Advisor's forecast for
interest rates. There can be no assurance that the Bond Fund will achieve its
objective or that the Advisor's management approach will be successful.
The Company
The Company is a management investment company organized in November 1994
and is registered under the Investment Company Act of 1940 (the "1940 Act").
The Company issues its shares in series, each series representing a distinct
portfolio with its own investment objectives and policies. At present, there are
two series authorized, designated IMG Core Stock Fund and IMG Bond Fund. The
Funds were designed in part to be the successors to the Trusts. The Funds have
had no operations prior to the date of this Prospectus/Information Statement,
other than the sale of 5,000 Shares (1,500 in the Investor and Select classes
and 2,000 in the Institutional class) each, at $10 per Share to Investors
Management Group, Ltd. (the "Adviser" or "IMG"). Shares will be offered to the
public on a continuous basis upon the completion of the Exchange. Shares of the
Funds are offered in three classes -- Investor, Select and Institutional, such
classes differing as to distribution expenses and shareholder servicing fees.
IMG Core Stock Fund--Investment Objective and Policies
The Core Stock Fund's investment objective is to seek long-term capital
appreciation. Realization of income is not a significant investment
consideration and any income realized on the Core Stock Fund's investments,
therefore, will be incidental to the Fund's objective.
The term "Core Stock Fund" indicates an equity investing style which
emphasizes stocks which trade at the lower end of their historical valuation
range. The stocks which pass this valuation requirement are considered to
represent a core group within the broad stock market. The composition of stocks
in this core group can change over time depending on economic and financial
market conditions. Thus, this equity style has the flexibility to emphasize
value stocks or growth stocks depending upon where the most attractive
historical valuations are found.
The Core Stock Fund will seek to achieve its investment objective by
investing primarily (at least 65% and up to 100% of its total assets under
normal conditions) in stocks; i.e., common and preferred stock, but may also
invest in Fixed Income Securities and Short-Term Cash Equivalents. However, the
percentage of the Core Stock Fund's assets that may be invested in Equity
Securities, Fixed Income Securities and/or Short-Term Cash Equivalents at any
time is not fixed. For temporary defensive purposes, when market conditions
dictate a more conservative approach to investing, the Fund may be invested up
to 100% in Cash or Short-Term Equivalents.
Investments will be selected by the Adviser through a "top down"
analysis approach, in which the macroeconomic environment is analyzed in two key
areas: the market's valuation risk (based on fundamental valuation measures such
as price/earnings, price/book and price/dividend ratios), and the underlying
inflation environment. The Adviser's analysis of these two factors will strongly
affect the Adviser's determination of the level of investment in Equity
Securities.
This "top down" analysis also suggests certain market sectors for
emphasis or de-emphasis based upon the sector's correlation to the major market
forces examined. However, sector exposures are monitored closely and positions
will not be concentrated in any sector in excess of 25% of the Fund's total
assets.
Individual stocks are selected on the basis of an evaluation of factors
which indicate the fundamental investment value of the security, such as
sustainable earnings yield, dividend yield, cash flow, price/book value, and
price/sales ratio. The primary goal is to select securities which are
fundamentally undervalued. This approach favors financially strong companies
with ample liquidity and debt capacity.
The Core Stock Fund will also invest in "special situations" from time to
time, when the securities of a particular company exhibit independent signs of
under valuation. A "special situation" arises when, in the opinion of the
Adviser, the securities of a particular company will be accorded market
recognition at an appreciated value solely by reason of a development
particularly or uniquely applicable to that company and regardless of general
business conditions or movements of the stock market as a whole. Developments
creating special situations might involve, among others, the following:
"workouts" such as liquidations, reorganizations, recapitalizations or mergers;
material litigation; technological breakthroughs; and new management or
management policies. Special situations may involve a different type of risk
than is inherent in ordinary investment securities; that is, a risk involving
the likelihood of timing of specific events rather than general economic, market
or industry risks. As with any securities transaction, investment in special
situations may involve the risk of decline or total loss of the value of the
investment. However, the Adviser will not invest in special situations unless,
in its judgment, the risk involved is reasonable in light of the Core Stock
Fund's investment objective, the amount to be invested and the expected
investment results.
Although the Fund's assets normally will be invested primarily in Equity
Securities, the Fund may hold Fixed Income Securities, and Cash Equivalents,
when a defensive position is warranted or so that the Fund may receive a return
on its idle cash. A defensive position may occur when investment opportunities
with desirable risk/reward characteristics are unavailable. While the Core Stock
Fund maintains a defensive position, investment income will increase and may
constitute a large portion of the return on the Core Stock Fund, and the Core
Stock Fund probably will not participate in market advances or declines to the
extent it would if it were fully invested. However, except when the Adviser
determines that adverse market conditions warrant a temporary defensive
position, the Core Stock Fund will limit the investments in Fixed Income
Securities to 35% of its total assets.
See the Prospectus of the Funds for a complete discussion of the Core
Stock Fund's investment policies and restrictions.
Equity Trust--Investment Objective and Policies
Participation in the Equity Trust is intended for individuals and
entities principally seeking capital appreciation. The Equity Trust's primary
investment objective is to invest in a portfolio of equity securities which is
intended to produce a positive real (i.e., inflation adjusted) return over the
course of a full market cycle (generally three to five years). Preservation of
capital is given preference over attempting to outperform any of the widely
followed indices of market performance. Equity Trust participation is intended
primarily for investors subject to high marginal income tax rates. The
maximization of after-tax returns is given preference over minimization of
income tax liability.
Securities acquired by the Trust include common and preferred stocks.
Bonds, debentures, warrants and other securities convertible into or
exchangeable for common stocks may also be purchased. Covered call options may
be sold by the Trust. Trust assets may be invested in short-term liquid
securities, including U.S. Government and Federal Agency securities (or
repurchase agreements secured by such securities entered into with banks or
broker-dealers), commercial paper, bank certificates of deposit, other fixed
income securities or other collective investment funds or money market funds
investing in such securities.
Upon consummation of the Exchange, the Core Stock Fund will acquire those
assets which are consistent with the Core Stock Fund's Investment Objective,
policies and restrictions and it is possible that some assets will be sold
rather than transferred to the Core Stock Fund.
IMG Bond Fund--Investment Objective and Policies
The investment objective of the IMG Bond Fund is to obtain income by
investing in a portfolio of fixed income securities and, secondarily, to seek
capital appreciation consistent with the preservation of capital and prudent
investment risk. The Bond Fund is designed for the investor seeking a more
consistent level of income than typical equity or balanced funds, which is
higher than money market or short- and intermediate-term bond funds usually
provide. The Bond Fund will invest at least 75% of its total assets in
Investment Grade Fixed Income Securities (including Cash Equivalents).
Investments will be made generally upon a long-term basis, but the Bond Fund may
make short-term investments from time to time. Longer maturities typically
provide better yields but will subject the Bond Fund to a greater possibility of
substantial changes in the values of its securities as interest rates change.
Unlike a money market fund which maintains a stable net asset value, the Bond
Fund's net asset value will rise and fall in inverse relationship to changes in
interest rates.
The Bond Fund will invest at least 65% of its total assets in debt
instruments the Adviser considers to be bonds, which include corporate debt
securities, U.S. government securities, bank obligations, commercial paper,
repurchase agreements, variable and floating rate securities, foreign fixed
income securities, mortgage-backed securities, collateralized mortgage
obligations and similar securities.
To meet the objectives of the Bond Fund and to seek additional stability of
principal, the Bond Fund will be managed to adjust the average maturity based on
the interest rate outlook. During periods of rising interest rates and falling
prices, a shorter average maturity may be adopted to cushion the effect of price
declines on the Bond Fund's net asset value. When rates are falling and prices
are rising, a longer average maturity for the Bond Fund may be considered.
Under normal circumstances, the Bond Fund will invest at least 75% of its
total assets in Fixed Income Securities which are considered to be of Investment
Grade. Up to 25% of the Bond Fund's total assets could be invested in below-
Investment Grade securities (commonly known as "junk bonds").
Currently, the Bond Fund does not expect to invest in (i) securities rated
lower than "Ba" by Moody's or "BB" by S&P, or of similar quality by another
NRSRO; and (ii) unrated debt securities of similar quality. Securities of
"BBB/Baa" or lower quality may have speculative characteristics and poor credit
protection.
The Bond Fund's assets may be invested in all types of Fixed Income
Securities in any proportion, including corporate debt securities, bank
obligations, commercial paper, repurchase agreements, private placements,
foreign securities, convertible securities, preferred stocks, U.S. Government
securities, and mortgage-backed and similar securities. Common stocks acquired
through exercise of conversion rights or warrants or acceptance of exchange or
similar offers will normally not be retained by the Bond Fund, but will be
disposed of in an orderly fashion consistent with the best obtainable price.
There is no maximum or anticipated average maturity for the Bond Fund. The
maturities selected will vary depending on the interest rate outlook. See the
Prospectus for the Funds for a complete discussion of the Bond Fund's investment
policies and restrictions.
The Income Trust--Investment Objective and Policies
The Income Trust may invest in the same securities as those permitted to
the Bond Fund. The Trust is not, however, subject to the diversification tests
under the Investment Company Act of 1940 or the Internal Revenue Code of 1986,
as amended (the "Code") for regulated investment companies. Nevertheless, the
Income Trust adopted certain investment restrictions which are generally
consistent with, but somewhat more flexible than those of the Bond Fund.
Unlike the Bond Fund, the Income Trust is not subject to the restrictions
on concentration, exercising control or management, and issuing senior
securities. Nevertheless the Trust has not engaged in any of these activities
over the last two years and all of the securities that the Trust currently owns
can be transferred to the Bond Fund without violating any of the Fund's
investment restrictions.
Although the Trust enjoys greater flexibility than the Bond Fund in making
investments and is not subject to some of these limits, the Trust has followed
investment guidelines in its operations that are similar to those that will be
followed by the Bond Fund. For this reason, the restrictions on the Bond Fund's
investment activities are not expected to affect the Bond Fund's ability to
operate in substantially the same manner as the Income Trust.
Participation in the Income Trust is intended for individuals and entities
principally seeking preservation of principal and consistent income. The Income
Trust's primary investment objective is to invest in a conservative portfolio of
fixed income debt securities which is intended to produce preserve principal and
produce consistent current income. Preservation of capital will be given
preference over attempting to outperform any of the widely followed indices of
market performance. Income Trust participation is intended primarily for
investors subject to high marginal income tax rates. The maximization of after
- -tax returns will be given preference over minimization of income tax liability.
Securities acquired by the Trust include long-term U.S. Government, Federal
Agency and corporate bonds, notes and debentures; mortgage and asset backed debt
securities; and tax-exempt debt obligations issued by states, counties, cities
and other public bodies. Trust assets may be invested in short-term liquid
securities, including U.S. Government and Federal Agency securities (or
repurchase agreements secured by such securities entered into with banks or
broker-dealers), commercial paper, bank certificates of deposit, other fixed
income securities or other collective investment funds or money market funds
investing in such securities.
It is anticipated that all assets held in the Income Trust will be
transferred to the Bond Fund and that the assets upon transfer will conform to
the Bond Fund's investment objectives, policies and restrictions.
Fees and Expenses.
Like the Funds, the Trusts are managed by the Adviser. The Trusts pay the
Adviser a quarterly fee for its services at the annual rate of 1.25% or .75% of
the Market Value of the assets of the Equity Trust and Income Trust,
respectively. The Trustees of the Trusts receive no salary or compensation from
the Trusts. In addition to the advisory fee, the Trusts pay all transaction
costs, including brokers' commissions, transfer and issuance taxes, interest on
borrowed funds, any other taxes and the Trusts' fees payable to governmental
agencies, and all extraordinary legal fees not relating to normal day-to-day
activities. The Trusts also pay all their direct expenses, including custodial
expenses, day-to-day legal fees, auditing costs, reports to Beneficiaries;
provided, however, that any direct expenses of the Trusts which, in the
aggregate, exceed 0.25% of the year-end market value of the Trusts are borne by
the Adviser.
The table below provides information regarding the estimated expenses which
may be incurred by the Funds' classes of Shares and the expenses which have been
incurred by the Trusts during the last fiscal year expressed as annual
percentages of average assets of the respective entities. There are no sales
charges, loads, or maintenance charges of any kind imposed upon the purchase or
redemption of the Funds' Shares or Trusts' interests. "Other Expenses" of the
Funds are estimated and management fees of the Fund are based upon the annual
fees payable to the Adviser. Beneficiaries should note that the Trusts do not
presently incur certain fees, including 12b-1 fees, that the classes of the
Fund's Shares bear.
Core Stock Fund Equity Bond Fund Income
Trust Trust
Share Class Share Class
Investor Select Inst. Investor Select Inst.
Investment .50% .50% .50% 1.25% .30% .30% .30% .75%
Advisory Fee
12b-1 Fees .40% .15% 0.0% 0.0% .25% .15% 0.0% 0.0%
Other Expenses .45% .45% 0.35% .25% .45% .35% 0.30% .25%
======= ====== ====== ====== ===== ===== ===== =====
Total Expenses 1.35% 1.10% .085% 1.50% 1.00% 0.80% 0.60% 1.00%
Multiple Classes of Shares of the Funds
Each Fund offers three classes of Shares to the general public, each with
its own features and expense structure: Investor Shares, Select Shares, and
Institutional Shares. Each class of Shares represents an interest in the same
portfolio of investments of each Fund. Per Share dividends will be highest on
Institutional Shares, then Select Shares, followed by Investor Shares. As a
result of the Exchange, Beneficiaries will be automatically invested in the
lowest fee Share class for which they are eligible.
Investor Shares: The minimum investment for Investor Shares of any of the
Funds is normally $1,000. Investor Shares of the Core Stock Fund and
the Bond Fund each pay an annual distribution fee of up to 0.40% and
0.25% of average daily net assets respectively to IFS. Each Fund also
pays an annual services fee of 0.25% of average daily net assets to IMG
on this class of Shares.
Select Shares: The minimum investment for Select Shares of any of the
Funds is $100,000. Select Shares of each Fund pay an annual
distribution fee of up to 0.15% of average daily net assets to IFS.
Annual services fees paid by Select Shares to IMG are 0.25% and 0.15%
of average daily net assets of the Core Stock Fund and the Bond Fund
respectively.
Institutional Shares: The minimum investment for Institutional Shares of
any of the Funds is $500,000. Institutional Shares of the Core Stock
Fund and the Bond Fund pay a services fee of 0.15% and 0.10% of average
daily net assets respectively. No distribution fee is paid by
Institutional Shares.
Conversion: Investments in each class of Shares are automatically
converted to the lowest fee class of Shares for which the investor is
then eligible based on their last purchase, redemption or transfer in
the Fund. Some brokerage firms offering the Funds, other than IFS, may
not make certain classes of Shares available; however all classes of
Shares are always available through IFS. Eligible shareholders may
transfer their accounts directly to IFS and then convert to the
appropriate class of Shares at no charge from the Fund. A transfer or
other fee may be imposed by the Firm through which the account is held.
Based upon current valuations of the Trusts, the Adviser does not
anticipate that any Beneficiary will pay more expenses for the Shares received
than what they are currently bearing as a Beneficiary in the Trust. Instead,
most Beneficiaries will receive Shares in the "Select" classes of the Funds,
which have estimated total expenses less than the Trusts.
Furthermore, it is hoped that the pro rata portion of the Funds' expenses
will decrease as the amount of the Funds' assets increases as a result of the
public offering of Shares after the Exchange, although it is not possible to
predict whether the Funds will grow in asset size and, if they do, at what rate.
The Trusts do not offer any differing classes of rights with varying
expense ratios to the Beneficiaries.
Distribution and Purchase Procedures and Exchange Rights.
The Trusts
The profits and losses of the Trusts for any calendar quarterly period are
allocated in accordance with the percentage of each Beneficiary determined in
accordance with the Trusts' Master Trust Agreements. Quarterly, at the end of
each calendar quarterly period, each account is adjusted by any increases or
decreases in the market value of the respective assets of the Trusts at that
date, plus any additional capital contributions, less any withdrawals of capital
or income. On a quarterly basis, existing Beneficiaries may contribute
additional capital to the Trusts at the discretion of the General Partner. Any
new investor admitted by the Trustees must initially contribute a minimum of
$100,000 (unless specifically waived by the Trustees). No automatic
distributions of income, dividends, or recognized gains are made to the
Beneficiaries.
The Funds
It is the intention of the Company to distribute any net investment income
and any net realized capital gains of the Funds to their shareholders at such
times as may be required to maintain the status of the Funds as regulated
investment companies under the Code. Dividends will also be automatically
reinvested or distributed in cash when declared. Cash payment of dividends, if
requested, will be mailed within five (5) days of the date declared. The taxable
status of income dividends and/or net capital gains distributions is not
affected by whether they are reinvested in additional Shares or paid in cash.
Shareholders may elect to receive dividends in cash by so directing on the
Company's application form when initially investing or by submitting an amended
application form. The Fund intends to declare capital gains as of October 31 of
each year and pay income and declared capital gains in December of each year.
IFS, an affiliate of the Adviser, is the Company's Distributor. Shares of
the Funds are offered by the Distributor on a continuous basis at net asset
value without any sales load or other charge. For discussion of the calculation
of the Funds' net asset value, see the Funds' Prospectus under the heading
"Determination of Net Asset Value."
Redemption Procedures.
The Trusts
Beneficiaries of the Trusts may withdraw amounts from their capital
accounts on a quarterly basis provided that they give at least thirty (30) days'
written notice and that such withdrawals are in amounts of at least $1,000. The
Trustees will make payment in cash or in kind, as the Trustees shall determine,
within sixty (60) days after the end of the quarterly period. The Trustees have
the right to charge against the amount of withdrawal the reasonable costs and
expenses incurred in connection with such withdrawal and a reserve for certain
Trust liabilities. The Trusts do not offer any exchange rights to Trust
Beneficiaries.
The Funds
The Shares of the Fund may be redeemed, in whole or in part, upon the
Company's receipt of a verbal or written redemption request and, if requested,
any required documents in good order. There is no charge for redemption of the
Shares of the Fund. The redemption price will be the Funds' net asset value per
Share next computed following the receipt of the redemption request. Payment for
Shares redeemed will be made as soon as possible after the date of receipt of
the request for redemption, but in no case later than seven (7) days thereafter,
provided the shareholder has complied with all the requirements applicable to
redemptions. The Company also provides that payment for Shares of the Fund
redeemed may be made directly to a bank account through the automated clearing
system. Investors may select the automatic payment service on the Fund's
Purchase Application by providing the necessary information set forth therein.
Tax Considerations
The Trusts and the Company have an opinion of counsel to the effect, among
other things, that no gain or loss will be recognized by the Trusts, the
Company, or the former Beneficiaries of the Trusts as a result of the Exchange.
See "Tax Consequences."
RISK FACTORS
Because of the similarity in investment objectives and policies between the
Trusts and the Funds, an investment in the Funds involves investment risks that
are substantially the same as those of the Trusts. These investment risks, in
general, are those typically associated with investing in a managed portfolio of
securities. For further information regarding the investment objectives and
policies and investment restrictions of the Funds, as well as information
regarding the investment practices of the Adviser, see the Prospectus of the
Funds accompanying this Exchange Offer.
The risks associated with an investment in the Trusts that are not
associated with an investment in the Funds include the limited liquidity of the
Trusts' interests, the lack of a market for those interests, and the limitations
on transferability of those interests.
In addition, the Trusts are not subject to the same rules on
diversification under the Investment Company Act of 1940 or the Internal Revenue
Code and are not subject to the rules on concentration that the Funds will be
subject to under the Investment Company Act of 1940. Finally, it should be noted
that as the Trusts are not currently subject to the restrictions imposed by the
regulatory scheme of the Investment Company Act of 1940, an investor in the
Trusts does not enjoy all of the statutory and regulatory protections afforded
to regulated investment companies, including record and bookkeeping
requirements, prohibitions against self dealing, composition of the Board of
Directors and other organizational requirements.
THE PLANS
The following summary of the important terms and conditions of the Plans is
qualified in its entirety by reference to the form of the Plans attached as
Exhibit A. The Plans provide that, prior to the general offering of Shares to
the public, the Company will exchange Shares for all or substantially all of the
portfolio securities of the Trusts. The Funds will not acquire securities from
the Trusts if, in the Adviser's opinion, the acquisition would result in a
violation of a Fund's investment objective, policies, or restrictions.
Securities will be acquired and will be valued by the Funds after the Exchange
at their current market prices in accordance with valuation methods adopted by
the Board of Directors of the Company and set forth in the Funds' Prospectus.
The Fund will not acquire or incur any of the actual or contingent liabilities
of the Trusts. Accordingly, the Trusts will retain sufficient assets to pay
their outstanding liabilities which the Adviser expects to be very small or
nonexistent. After the Exchange, the Trusts will dissolve and distribute Shares
along with any cash proceeds received from the sale of portfolio securities not
acquired by the Funds. Beneficiaries will not be liable for any other expense
or liability of the Trusts. The dissolution of the Trusts is expected to occur
on the same day as the Exchange, but will occur in any event as soon as
practicable after the Exchange. Immediately following the Exchange, the former
Beneficiaries of the Trusts will hold the only outstanding Shares of the Fund
(other than Shares representing $100,000 of initial capital contributed by the
Adviser). After the Exchange has been completed, the Company will commence a
continuous offering of Shares of the Funds to the public.
The Plan provides that the Adviser will indemnify the Company against
losses and claims that may arise relating to the Exchange.
The Plan does not provide for any indemnification of the Adviser by the
Company or the Funds. Nevertheless, the Adviser is indemnified by the Company
under the terms of the Investment Advisory Agreement and Administration
Agreement for certain liabilities arising out of the Adviser's services to the
Funds under such Agreements. Nevertheless, the Articles of Incorporation of the
Company prohibit any indemnification for acts which constitute willful
malfeasance, bad faith, gross negligence and reckless disregard of duty.
Unless postponed by the Trusts and the Company, the Exchange is expected
to occur on or before June 30, 1995, on the basis of the net asset value of
interests in the Trusts as of 4:00 p.m., Des Moines time, on the business day of
the Exchange. The Exchange will not be effected until certain conditions are
satisfied, including (1) that the Plan has been properly approved by the
Beneficiaries, and (2) that an order of the Securities and Exchange Commission
(the "Commission") under Section 17(b) of the 1940 Act approving the Exchange
has been received. While the Board of Directors believe that the order will be
granted, no assurance can be given that this will occur. The Company has applied
to the Commission for this order because the acquisition by the Company of Trust
assets for the Fund Shares could be viewed as a sale to the Company of
securities by an affiliated person of the Company in violation of the 1940 Act.
The Plan may be amended at any time prior to the Exchange.
TAX CONSEQUENCES
The Exchange will not be effected unless the Company has received an
opinion of Cline, Williams, Wright, Johnson & Oldfather ("Counsel") that the
Exchange will have the following federal income tax consequences to
Beneficiaries: (1) the distribution of the Shares and cash (if any) from the
Trusts to a Beneficiary, which will be in liquidation of his Trust interest in
the Trusts, will not cause taxable gain or loss to be recognized by the
Beneficiary (Code Section 731(a)); (2) a Beneficiary's basis for Shares will be
equal to the adjusted basis in the Beneficiary's Trust interest minus the amount
of cash received pursuant to the liquidation of the Trust interest (Code Section
732(b)); and (3) a Beneficiary's holding periods with respect to Shares will
include the Trusts' holding periods with respect to Shares (Code Sections 735(b)
and 1223).
To the extent the Company does not acquire certain of the Trusts' portfolio
securities and the Trusts then sell any of these portfolio securities, such
sales may result in a taxable gain or loss being realized by the Beneficiaries.
Any cash received pursuant to these sales and distributed to the Beneficiaries
will not, as a general rule, result in any additional tax liability.
The Exchange may result in adverse tax consequences under certain
circumstances to persons who acquire Fund Shares in continuous offering after
the Exchange. As a result of the Exchange, the Funds may acquire securities that
have appreciated or depreciated in value from the date they were acquired. If
appreciated securities were to be sold by the Funds after the Exchange, the
amount of the gain would be taxable to new shareholders as well as to former
Beneficiaries. New shareholders would be taxed on a distribution that represents
a return of the purchase price of their Shares rather than an increase in the
value of the investment. The effect on former Beneficiaries would be to reduce
their potential liability for tax on capital gains by spreading it over a larger
asset base. The opposite result may occur if the Funds acquire securities having
an unrealized capital loss. In that case, Beneficiaries will be unable to
utilize the loss to offset gains, but, because the Exchange will not result in
any gains, the inability of Beneficiaries to utilize unrealized losses will have
no immediate tax effect. For new shareholders, to the extent that unrealized
losses are realized by the Funds, new shareholders may benefit by any reduction
in net tax liability attributable to the losses. The Adviser cannot predict
whether securities acquired in the Exchange will have unrealized gains or losses
on the date of the Exchange. Consistent with its duties as investment adviser,
the Adviser may, however, take tax consequences to investors into account when
making decisions to sell portfolio assets in connection with the Exchange,
including the impact of realized capital gains on shareholders of the Funds.
REASONS FOR THE EXCHANGE; BENEFITS TO BENEFICIARIES
The effect of the Exchange will be to establish the Funds as successors to
the Trusts.
Reasons for the Exchange. The Exchange is being proposed primarily for two
reasons. First, the Exchange will permit Beneficiaries to pursue as shareholders
of the Funds substantially the same investment objectives and policies in a
larger in vestment vehicle. The Trusts were formed as private investment funds
for a small number of investors, and were not registered as investment companies
under the 1940 Act in reliance on an exemption contained in the 1940 Act for
issuers whose outstanding securities are beneficially owned by not more than 100
persons and which are not making or proposing to make a public offering of
securities. The number of Beneficiaries cannot exceed 100 and the Trustees
believe that they can exceed this number if the Trusts were offered publicly. In
contrast to the Trusts, the Funds, as part of a registered investment company,
are not subject to any limitation on the number of shareholders. Because the
Trusts have proven to be more popular than originally anticipated and because of
continuing investor interest in the Trusts, the Trustees have determined that
the conversion of the Trusts into portfolios of a registered investment company
is desirable. Second, the Funds will be simpler to operate than the Trusts. As
Trusts, the Trusts needed to allocate profits and losses among partners taking
the holding period of Trust assets as well as the holding period of interests in
the Trusts into account. These allocation calculations, which are quite
complicated, would not apply to the Funds of the Company, which could utilize
the simpler allocation rules under Subchapter M of the Code. Operation as
portfolios of a registered investmentcompany would also eliminate the need to
prepare and disseminate tax information on Form K-1 under the Code.
Benefits to Beneficiaries. After the Exchange, Beneficiaries will hold
Shares representing a pro rata interest in substantially the same pool of assets
as they previously had held as Beneficiaries of the Trusts. Of course, the
Funds' assets will change over time due to decisions made by the Adviser and
redemptions and new purchases of Shares. Certain immediate benefits will accrue
to Beneficiaries as shareholders of the Funds, even prior to the general
offering of Shares to the public. First, as shareholders of the Funds,
Beneficiaries will secure the ongoing investment advisory skills of the Adviser.
Second, as shareholders of the Funds, Beneficiaries will enjoy greater liquidity
and ability to transfer their investment than they had as Beneficiaries of the
Trusts. Additional benefits may accrue to Beneficiaries as the Funds' net assets
increase. The expenses of the classes of Shares of the Funds exchanged with
Beneficiaries are expected to be, as a percentage of net assets, about the same
as or lower than the Trusts'. Furthermore, the pro rata portion of the Funds'
expenses to be borne by each Beneficiary may decrease and certain economies may
be realized as fixed costs are spread over a larger asset base as a result of
the public offering of Shares after the Exchange. The conversion to a mutual
fund may also result in some tax savings for some Beneficiaries. No assurance
can be made, however, that any tax benefit will result or be realized as a
result of the Exchange. Presently, Trust expenses are deductible for federal
income tax purposes as "other itemized deductions." However, other itemized
deductions are not deductible unless they exceed an amount equal to 2% of the
taxpayer's adjusted gross income. As a result, some Beneficiaries may not be
presently able to deduct any of the Trusts' expenses. On the other hand, mutual
fund expenses are not subject to the 2% exclusion and are netted against Fund
income before income is distributed to Fund shareholders. As a result, all Fund
expenses are deductible for all shareholders. For a discussion of certain tax
benefits that may accrue to Beneficiaries as a result of the Exchange, see "Tax
Consequences."
DIFFERENCES IN RIGHTS
The Company. The Company is authorized to issue a total of 4 billion Shares
of common stock in series with a par value of $.001 per Share. 1.2 billion of
these Shares have been authorized by the Board of Directors to be issued in two
series of 600 million Shares each, designated IMG Core Stock Fund and IMG Bond
Fund. These series have been further divided into three classes of 200 million
Shares each designated Class A (Investor), Class B (Select) and Class C
(Institutional) Shares.
The purpose of this three class structure is to flexibly meet the needs of
different types of shareholders through a single Fund, thereby minimizing
operating costs to the Fund. The Board of Directors of the Company also believes
that by offering alternative expense structures within the Funds, the Funds will
more effectively compete for investments of different levels. Funds commonly
achieve this objective by offering "clone funds" with lower expense ratios, and
sometimes fewer services, to investors able to meet higher investment minimums.
In the view of the Adviser, investors may benefit more by providing these
alternatives in the context of a single Fund. Multiple classes avoid duplicative
portfolio and fund management costs that are required by "clone funds" which
should lower expenses compared to creation of multiple funds. The Board of
Directors of the Company also believes that by using multiple classes of Shares
the Funds may be able to attract larger asset bases, which would permit the
Funds to spread fixed costs over more Shares and improve portfolio liquidity and
diversification.
Investor Shares are available directly from IFS as the Fund's distributor,
or through broker-dealer firms and other financial service firms executing
selling agreements with the Funds. Investor Shares offer the lowest minimum
initial investment and account values -- $1,000 ($250 for UG/TMA and IRA
accounts). Shareholder services offered are Automatic Dividend Reinvestment;
Telephone Purchase, Exchange and Redemption Privilege; Automatic Investment
Plan; Payroll Direct Deposit Plan; Automatic Exchange Plan; Systematic
Withdrawal Plan; and No Minimum Investment Plan.
Investor Shares pay two class level expenses: (1) an administrative
services fee ("service fee") pursuant to a Shareholder Services Plan adopted by
the Funds at an annual rate of 0.25% on average daily net assets; (2) a
distribution fee ("distribution fee") pursuant to a Distribution Plan adopted by
the IMG Core Stock Fund and the IMG Bond Fund at an annual rate of 0.40% and
0.25% on average daily net assets respectively. The services fee compensates IMG
and broker-dealer firms and other financial services firms IMG executes
administrative services agreements with, for providing information and services
described in the Plan directly to shareholders. The distribution fee is paid to
IFS for its services in marketing the Shares of the Fund.
Select Shares are also available directly from IFS or from other broker-
dealer firms. The minimum investment in Select Shares is $100,000 per portfolio.
All shareholder services available to owners of Investor Shares are also
available to Select Share owners with the exception of the No Minimum Investment
Plan. In addition, owners of Select Shares are invited to periodic meetings
with the Funds' Adviser, and are eligible to receive portfolio investment
related publications from IMG at no cost.
Select Shares are subject to a distribution fee of 0.15%, and pay the
services fee at an annual rate of 0.25% and 0.15% of average daily net assets
for the IMG Core Stock Fund and the IMG Bond Fund respectively.
Institutional Shares require a minimum investment of $500,000. All services
available to owners of Select Shares will be available to owners of
Institutional Shares. It is anticipated the IMG will have a higher degree of
direct contact with owners of Institutional Shares than of other classes.
Institutional Shares pay no distribution fees. Institutional Shares of the
IMG Core Stock Fund and the IMG Bond Fund pay services fees of 0.15% and 0.15%
respectively. Except for the services fee and distribution fee, all other
expenses of the Fund are charged proportionally to all Shares.
Conversion from one class of Shares to another depends upon the minimum
investment requirement of each Fund. Investor Shares of a Fund will
automatically convert to Select Shares upon attaining the $100,000 minimum
investment. The conversion will be made on the relative net asset values of the
two classes without the imposition of any sales load, fee or other charge. The
conversion will occur within three business days following any purchase or
transfer of Shares in the account after which the value of Investor Shares in
the account at the current net asset value reaches $100,000. Identically
registered accounts in more than one Fund are not combined for purposes of
calculating account minimums.
Investor and Select Shares of a Fund will also automatically convert to
Institutional Shares upon meeting the $500,000 minimum investment on the same
terms described above.
Certain other Firms may not offer all classes of Shares to their clients.
Shareholders holding their accounts through such Firms will not be eligible for
automatic conversion. These (or any) shareholders may elect to transfer their
accounts to IFS in order to convert to the lowest fee class of Shares for which
they qualify at no charge or fee from the Fund. A fee or other charge may be
imposed by the other Firm. Shareholders should also consider that other Firms
may offer additional services not otherwise available from the Funds.
Shareholders may also be automatically converted from Institutional Shares
to Select or Investor Shares, and from Select Shares to Investor Shares. The
conversion will occur within three business days following the date of any
transfer or redemption of Shares in the account after which the value of the
remaining Shares in the account at the current net asset value falls below the
required minimum for that class of Shares. The conversion will be to the lowest
fee class of Shares for which the investor is eligible as of the date of
conversion.
Investors will not be converted to another class of Shares solely due to a
change in net asset value of their existing Shares. However, a change in net
asset value together with purchase, redemption, or transfer from the account
could result in a conversion to another class of Shares at a time when the
purchase, redemption, or transfer alone may not have triggered the conversion.
Dividend reinvestment may not result in a conversion to another class of Shares.
An account may be terminated by the Funds on not less than 30 days' notice
if, at the time of any transfer or redemption of Shares in the account, the
value of the remaining Shares in the account falls below $1,000 ($250 for UG/TMA
or IRA accounts).
Each Share of a Fund, whether Investor, Select, or Institutional,
represents an identical interest in the investment portfolio of that Fund and
has the same rights, except as described above. Since Select and Institutional
Shares have progressively lower expense ratios than Investor Shares, they will
pay higher dividends than Investor Shares.
If Shares of any class are converted to another class, all Shares in that
account will be converted, including Shares purchased through the reinvestment
of dividends and other distributions.
The conversion of Shares between classes may be subject to the continuing
availability of an opinion of counsel, ruling by the Internal Revenue Service or
other assurance acceptable to the Funds to the effect that (i) the assessment of
different fees with respect to each class does not result in the Funds'
dividends constituting "preferential dividends" under the Code, and (ii) that
the conversion of Shares from one class to another does not constitute a taxable
event under the Code. The ability to convert from one class to another may be
suspended if such assurance is not available. In that event, no further
conversions would occur, and Shares might continue to be subject to higher fees
for an indefinite period.
All Shares, when issued, will be fully paid and non-assessable and will
be redeemable and freely transferable. All Shares have equal voting rights. They
can be issued as full or fractional Shares. A fractional Share has pro rata the
same kind of rights and privileges as a full Share. The Shares possess no
preemptive or conversion rights.
Each Share of the Company has one vote (with proportionate voting for
fractional Shares) irrespective of the relative net asset value of the Shares.
On some issues, such as the election of directors, if more than one series of
Shares has been designated, all Shares of the Company vote together as one
series. Cumulative voting is not authorized. In the event that the Company
authorizes additional series of Shares of the Company as separate Funds on
issues affecting only a particular Fund, the Shares of the affected Fund vote as
a separate series. An example of such an issue would be a fundamental investment
restriction pertaining only to one Fund.
The Board of Directors of the Company is responsible for managing the
business and affairs of the Company. The Board consists of nine members and
exercises all of the rights and responsibilities required by, or made available
under, Maryland corporate law.
It is possible that the Company will not hold annual or periodically
scheduled regular meetings of shareholders. Annual meetings of shareholders will
not be held unless called by the shareholders pursuant to the Maryland Business
Corporation Act or unless required by the Investment Company Act of 1940 and the
rules and regulations promulgated thereunder. See "Shareholder Reports and
Meetings" in the Prospectus.
It is the intention of the Company to distribute any net investment income
and any net realized capital gains of the Funds to its shareholders at such
times as may be required to maintain the status of the Funds as "regulated
investment companies" under the Code. To maintain status as "regulated
investment companies," the Funds intend to distribute substantially all of their
taxable income, including any realized capital gains and, as a result, will not
incur federal income taxes. Dividends will be automatically reinvested or
distributed in cash when declared. Cash payment of dividends, if requested, will
be mailed within five (5) days of the date declared. The taxable status of
income dividends and/or net capital gains distribution is not affected by
whether they are reinvested in additional Shares or paid in cash. Shareholders
may elect to receive dividends in cash by so directing on the Company's
application form when initially investing or by submitting an amended
application form thereafter. If a shareholder redeems all Shares in his account,
all dividends declared up to and including the date of redemption are paid with
the proceeds of the redemption. Shareholders of the Funds may exchange their
Shares, without a sales charge, for shares in any of the other Funds of the
Company.
The Trusts. Beneficiaries of the Trusts receive, at the end of each
calendar quarter period, an allocation of profits and losses in accordance with
the Trust Agreement. Beneficiaries may terminate their Trusts by giving at least
thirty (30) days' advance written notice. In the event of such a withdrawal, the
Trustee will make payment, in cash or in kind, as the Trustee shall determine,
within sixty (60) days after the end of the quarterly period.
CAPITALIZATION
The following table sets forth (1) the audited net asset value of the Funds
as of May 1, 1995; (2) as of April 30, 1995, the unaudited net asset value
of the Trusts; and (3) the unaudited pro forma capitalization of the Funds as
adjusted showing the effect of the Exchange had it occurred on May 1, 1995
utilizing the Funds' capitalization on May 1, 1995, assuming no changes to the
capitalization of the Trusts.
Core Stock Fund Equity Trust Core Stock Fund as Adjusted
Investor Select Inst. Investor Select Inst.
-------- ------ ----- -------- ------ ----
Total Net Assets $15,000 $15,000 $20,000 $7,931,236 $15,000 $7,946,236 $20,000
Shares of Capital
Stock/Units of
Trusts Interest
Outstanding 1,500 1,500 1,500 N/A 1,500 94,624 2,000
Net Asset Value
Per Share $10 $10 $10 N/A $10 $10 $10
Bond Fund Income Trust Bond Fund as Adjusted
Investor Select Inst. Investor Select Inst.
-------- ------ ----- -------- ------ ----
Total Net Assets $15,000 $15,000 $20,000 $4,341,797 $15,000 $4,346,797 $20,000
Shares of Capital
Stock/Units of
Trusts Interest
Outstanding 1,500 1,500 2,000 N/A 1,500 434,680 2,000
Net Asset Value
Per Share $10 $10 $10 N/A $10 $10 $10
(1) Does not reflect retention by the Trusts of assets to provide for payment
of liabilities.
(2) No assurances can be given as to how many Shares the Trusts will receive in
the Exchange, and the table above should not be relied upon to reflect the
number of Shares that will actually be received in the Exchange for
distribution to partners of the Trusts. Assumes Select Shares only.
THE COMPANY AND THE FUNDS
Information concerning the operations and management of the Company,
including a discussion of the risks associated with investing in the Funds, is
incorporated by reference into this Prospectus/Information Statement from the
Funds' current Prospectus and Statement of Additional Information, which are
attached as Exhibits B and C.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance with those laws files
reports, proxy statements, and other information with the Commission. Reports,
proxy statements, and other information filed by the Company may be inspected
and copied at the public reference facilities of the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. and at the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
THE TRUSTS
The Trusts are a series of common law revocable grantor trusts established
by various persons from time to time which authorize the Trustees to commingle
the assets of the individual grantor trusts in a single account for the purpose
of investing. Each grantor trust holds a beneficial undivided interest in the
commingled account which is represented by and accounted for as Units valued at
fair market net asset value. Trustees of the Trust include David W. Miles, James
W. Paulsen and Richard A. Westcott, all directors and officers of the Adviser
and the Company.
CONSENTS FROM BENEFICIARIES
Consents from Beneficiaries are being solicited by the Trustees. The
Adviser will pay all costs incurred in soliciting consents. The solicitations
will be made primarily by mail, but solicitations may also be made by telephone,
telegraph, or personal interviews conducted by agents or employees of the
Adviser. Approval of the Plans requires the affirmative consent of Beneficiaries
holding interests which represent fifty percent (50%) or more of the market
value of the respective Trusts' assets. Consents must be received on or before
June 15, 1995, and may be revoked by written notice received by the Trustee
before that date.
The Adviser will count the consents and provide the overall supervision of
the Exchange Offer consent process. Beneficiaries returning a consent
indicating that they are abstaining will have the same practical effect as not
consenting to the Exchange Offer. Similarly, the failure to return a consent
will also have the same practical effect as not consenting.
The Adviser as the sole shareholder of the Funds on the date of this
Prospectus/Information Statement, will not vote on the Plans.
CERTAIN AFFILIATIONS
As of the date of this Prospectus/Information Statement, the Adviser held
beneficially and of record all of the outstanding Shares of the Funds. After
consummation of the Exchange, assuming all Beneficiaries approve the Plan, the
Adviser's percentage ownership of the Company is set forth below. The Adviser is
owned by Richard A. Westcott, Mark A. McClurg, David W. Miles and James W.
Paulsen. In addition, the Distributor of the Company's Shares is owned by the
same persons.
After consummation of the Plans, Westcott, Miles, McClurg and Jeffrey
Lorenzen (the Portfolio Manager of the Equity Trust) will own Shares in the Core
Stock Fund and Westcott will own Shares in the Bond Fund. Based upon current
values Todd & Sargent 401(k) Profit Sharing Plan may own approximately 25% of
the Bond Fund and as a result, may be deemed to be a controlling person of the
Bond Fund. Persons owning 5% or more of the Trusts as of the date hereof and who
as a result will own more than 5% of the Funds after consummation of the Plans
are as follows:
EQUITY TRUST
Name Address %
Fred Lorber 5 SW 52nd St. 7.11(1)
Des Moines, IA 50312
Richard A. Westcott IRA 2910 Cayuga Point 5.14(1)
Des Moines, IA 50321
Investors Management 2203 Grand Ave. 8.16(3)
Group, Ltd. Des Moines, IA 50309
INCOME TRUST
Name Address %
Science Center of Iowa- 4500 Grand Avenue 11.47(1)
Endowment Fund Greenwood-Ashworth Park
Des Moines, IA 50312
Donna Flagg 3003 Paddock Plaza 7.85(1)
Apt. 619
Omaha, NE 68124
- -------------------------
1 Of record
2 Beneficially
3 Both of Record and Beneficially
Upon consummation of the Plans, the Directors and officers of the
Company as a group will own 9.10% of the Select class of the Core Stock Fund and
2.69% of the Select class of the Bond Fund.
EXPENSES
The Adviser will pay all of the expenses incurred by the Trusts and the
Company in connection with the Exchange, including the costs of transferring
portfolio securities to the Funds' custodian and costs of issuing Shares (other
than Registration fees) in the Exchange. The Adviser will also assume all the
legal fees and expenses incurred in connection with this Prospectus/Information
Statement.
FINANCIAL STATEMENTS AND EXPERTS
The audited financial statements of the Funds and the Trusts included in
the Statement of Additional Information have been audited by KPMG Peat Marwick
LLP, independent auditors, with principal offices at 2500 Ruan Center, P.O. Box
772, Des Moines, Iowa 50303, for the periods indicated in their reports. The
statements examined by KPMG Peat Marwick LLP have been incorporated herein by
reference in reliance upon their reports given on their authority as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of Shares in the Exchange
will be passed upon for the Company by Cline, Williams, Wright, Johnson &
Oldfather, 1900 FirsTier Bank Building, 13th & "M" Streets, Lincoln, Nebraska
68508. Cline, Williams, Wright, Johnson & Oldfather acts as legal counsel to
IMG, the Trusts, the Adviser, the Company, and the Distributor.
<PAGE>
IMG EQUITY TRUST
CONSENT FORM
This Consent Form relates to the proposal to exchange (the "Exchange") all
or substantially all of the assets of IMG Equity Trust for shares of IMG Mutual
Funds, Inc. - IMG Core Stock Fund.
|_| I consent to the Exchange.
|_| I do not consent to the Exchange.
|_| I abstain, (a vote to abstain is counted as against the
Exchange).
Date: _______________, 1995 _______________________________________
Signature of Beneficiaries
---------------------------------------
Signature of Beneficiaries
PLEASE CHECK ONE BOX, SIGN, DATE AND RETURN THIS CONSENT FORM AS SOON AS
POSSIBLE to Investors Management Group, Ltd. A stamped, return envelope is
enclosed for your convenience.
<PAGE>
IMG INCOME TRUST
CONSENT FORM
This Consent Form relates to the proposal to exchange (the "Exchange") all
or substantially all of the assets of IMG Income Trust for shares of IMG Mutual
Funds, Inc. - IMG Bond Fund.
|_| I consent to the Exchange.
|_| I do not consent to the Exchange.
|_| I abstain, (a vote to abstain is counted as against the
Exchange).
Date: _______________, 1995 _______________________________________
Signature of Beneficiaries
---------------------------------------
Signature of Beneficiaries
PLEASE CHECK ONE BOX, SIGN, DATE AND RETURN THIS CONSENT FORM AS SOON AS
POSSIBLE to Investors Management Group, Ltd. A stamped, return envelope is
enclosed for your convenience.
<PAGE>
REQUEST FOR A STATEMENT OF ADDITIONAL INFORMATION
If you would like a Statement of Additional Information relating to the
proposal to exchange all or substantially all of the assets of the IMG Equity
Trust and IMG Income Trust for shares of IMG Mutual Funds, Inc., kindly print
your name and address below and mail this request to:
Investors Management Group, Ltd.
2203 Grand Avenue
Des Moines, Iowa 50312-5338
A Statement of Additional Information can also be obtained by calling Investors
Management Group, Ltd. at (515) 244-5426 or (800) 798-1819 (toll free) or faxing
your request to (515) 244-2353.
---------------------------------------
Name
---------------------------------------
Address
---------------------------------------
City, State
---------------------------------------
Zip Code
<PAGE>
EXHIBIT "A"
AGREEMENTS AND PLANS OF EXCHANGE
<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
AGREEMENT AND PLAN OF EXCHANGE (the "Agreement"), dated ______ _______,
1995, between IMG Equity Trust (the "Trust"), IMG Mutual Funds, Inc.- IMG Core
Stock Fund, a Maryland corporation (the "Fund"), and Investors Management Group,
Ltd., an Iowa corporation ("Adviser"), each with its principal office and place
of business at 720 Liberty Building, 418 Sixth Avenue, Des Moines, Iowa 50309.
WHEREAS, the Trustees of the Trust and the Board of Directors of the
Fund have determined that it is in the best interests of the Trust and the Fund,
respectively, that substantially all of the assets of the Trust be acquired by
the Fund pursuant to this Agreement; and
WHEREAS, the Trust, the Fund, and the Adviser desire to enter into a
Plan of Exchange; and
WHEREAS, Adviser, as investment adviser to the Fund and the Trust, have
agreed to certain terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the Trust, the Fund, and Adviser agree as follows:
PLAN OF EXCHANGE
The exchange will be comprised of the acquisition by the Fund of
substantially all of the properties and assets of the Trust in exchange for
shares of beneficial interest, par value $.001 per share, of the Fund (the "Fund
Shares"), and the subsequent distribution to the grantors of the Trust
(together, the "Grantors"), in the complete liquidation and dissolution of the
Trust, of all of the Fund Shares received in exchange for their interests in the
Trust ("Trust Interests"), all upon and subject to the terms hereinafter set
forth. Upon such distribution of the Fund Shares, each Grantor will be entitled
to receive that portion of such shares that the Trust Interest owned by such
Grantor prior to the exchange bears to the number of outstanding Trust Interests
of all Grantors on the same date. Any assets retained by the Trust in excess of
amounts needed to pay or provide for its liabilities will be distributed to the
Grantors of record as of the Exchange Date (as defined in Section 6 of the
Agreement set forth below).
<PAGE>
AGREEMENT
In consideration of the covenants and agreements herein contained, the
parties agree as follows:
1. Representations and Warranties of the Trust. The Trust
represents and warrants to and agrees with the Fund that:
(a) The Trust is duly formed and validly existing under the
laws of the State of Iowa and has power to own all of its properties
and assets and, subject to the approval of its Grantors, to carry out
this Agreement.
(b) Except as shown on the financial statements of the Trust
for the years ended December 31, 1994 and 1993, and as incurred in the
ordinary course of the Trust's business, the Trust has no known
liabilities of a material amount, contingent or otherwise, and there
are no material legal, administrative, or other proceedings pending or
threatened against the Trust.
(c) At both the Valuation Time (as defined in Section 3(d)
hereof) and the Exchange Date, the Trust will have full right, power,
and authority to sell, assign, transfer, and deliver the assets and
properties to be transferred by it hereunder. Upon such transfer as
contemplated by this Agreement, the Fund will acquire such assets
subject to no encumbrances, liens, security interests, and without any
restrictions upon the transfer thereof (other than encumbrances, liens,
security interests, or restrictions created by the Fund).
(d) No registration under the Securities Act of 1933, as
amended (the "1933 Act"), of any of the securities to be transferred by
the Trust hereunder would be required if they were, as of the time of
such transfer, the subject of a public distribution by the Trust.
2. Representations and Warranties of the Fund. The Fund
represents and warrants to and agrees with the Trust that:
(a) The Fund is a corporation duly established and validly
existing in conformance with the laws of the State of Maryland and has
power to carry on its business as it is now being conducted and to
carry out this Agreement.
(b) The Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified
management investment company; and such registration has not been
revoked or rescinded and is in full force and effect.
(c) At the Exchange Date, the Fund Shares to be issued to the
Trust will have been duly authorized and, when issued and delivered
pursuant to this Agreement, will be legally and validly issued and will
be fully paid and nonassessable; and no shareholder of the Fund will
have any preemptive right of subscription or purchase in respect
thereof.
3. Transfer of Assets.
(a) Subject to the requisite approval of the Grantors and to the terms
and conditions contained herein, the Fund agrees to acquire from the Trust, and
the Trust agrees to acquire from the Fund, on the Exchange Date all of the
securities and cash of the Trust (subject to the retention by the Trust of
assets sufficient, in the judgment of the Trust, to pay the Trust's debts,
obligations, and liabilities and any assets which the Fund is not permitted, or
which it has reasonably determined to be unsuitable for it, to acquire) in
exchange for that number of the Fund Shares provided in Section 4 hereof. The
Trust, as soon as practicable after the Exchange Date, will distribute all the
Fund Shares received by it to the Partners in exchange for their Trust
Interests. Any assets retained by the Trust, after paying or providing for the
payment of all of its liabilities, shall be distributed by the Trust or its
agent to the Partners of record as of the Exchange Date.
(b) The Trust will pay or cause to be paid to the Fund any interest or
dividends received on or after the Exchange Date with respect to securities
transferred to the Fund hereunder. The Trust will transfer to the Fund any
distributions, rights, stock dividends, or other securities received by the
Trust after the Exchange Date as distributions on or with respect to the
securities transferred, which shall be deemed included in assets transferred to
the Fund on the Exchange Date and shall not be separately valued unless the
securities in respect of which such distribution is made shall have gone "ex"
such distribution prior to the Valuation Time. Notwithstanding the foregoing,
the Fund shall not be entitled to receive any interest or dividends or other
distributions on securities not transferred to the Fund hereunder.
(c) The Fund shall not assume, and shall not be obligated to assume,
any liabilities (absolute or contingent) of the Trust.
(d) The Valuation Time shall be 4:00 p.m., Des Moines, Iowa, time, on
April 30, 1995 (the "Valuation Date"), or such earlier or later date and time as
may be mutually agreed upon by the Trust and the Fund (the "Valuation Time").
4. Shares Issued in Exchange for Assets and Valuation. Full Fund
Shares and, to the extent necessary, a fractional Fund Share of an aggregate net
asset value equal to the value of the assets of the Trust acquired shall be
issued by the Fund in exchange for such assets of the Trust. Value in all cases
shall be determined as of the Valuation Time. The value of the assets of the
Trust to be acquired by the Fund and the net asset value per share of the Fund
Shares shall be determined in accordance with the procedures for determining the
value of the Fund's assets set forth in the Fund's Articles of Incorporation
and in the prospectus that forms part of the Fund's Registration Statement on
Form N-1A under the caption "Net Asset Value." The Fund shall issue the Fund
Shares to the Trust. In lieu of delivering certificates for the Fund Shares,
the Fund shall credit the Fund Shares to the Trust's account on the stock
record books of the Fund and shall deliver a confirmation thereof to the Trust.
The Trust shall then deliver written instructions to the Fund's transfer agent
to set up accounts for the Grantors on the stock record books of the Fund.
5. Grantors' Approval. The Trust agrees, as soon as is
practicable after the effective date of the Fund's Registration Statement on
Form N-14, to solicit the approval of the Grantors of this Agreement and the
transactions contemplated hereby.
6. Delivery of Assets; Exchange Date. Delivery of the assets
of the Trust to be transferred and the Fund Shares to be issued shall be made
on the next full business day following the Valuation Time, or such other date
and time agreed to by the Trust and the Fund, the date and time upon which such
delivery is to take place being referred to herein as the "Exchange Date."
Assets transferred shall be delivered on the Exchange Date to Norwest Bank,
N.A., Minnesota, the Fund's custodian (the "Custodian"), for the account of the
Fund, with all securities not in bearer form duly endorsed, or accompanied by
duly endorsed separate assignments or stock powers, in proper form for transfer,
with signatures guaranteed, and with all necessary state stock transfer stamps,
sufficient to transfer good and marketable title thereto (including all accrued
interest and dividends and rights pertaining thereto) to the Custodian for the
account of the Fund free and clear of all liens, encumbrances, rights,
restrictions, and claims. Securities held at the Depository Trust Company need
not be delivered to the Custodian. All cash delivered shall be in the form of
currency and immediately available funds payable to the order of the Custodian
for the account of the Fund.
7. The Fund's Conditions Precedent. The obligations of the Fund
hereunder shall be subject to the following conditions:
(a) That the Trust shall have furnished to the Fund a
statement of the Trust's net assets, including a list of securities
owned by the Trust with their respective tax costs and values
determined as provided in Section 4 hereof, all as of the Valuation
Time.
(b) That as of the Valuation Time and as of the Exchange Date,
all representations and warranties of the Trust made in this Agreement
are true and correct as if made at and as of each such date, and the
Trust has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to such
dates.
8. The Trust's Conditions Precedent. The obligations of the
Trust hereunder shall be subject to the condition that as of the Valuation Time
and as of the Exchange Date, all representations and warranties of the Fund
made in this Agreement are true and correct as if made at and as of each such
date, and that the Fund has complied with all of the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to such
dates.
9. The Fund's and the Trust's Conditions Precedent. The
obligations of both the Fund and the Trust hereunder shall be subject to the
following conditions:
(a) That this Agreement and the transactions contemplated
hereby shall have been approved by the affirmative vote of the Grantors
as of the close of business on the Valuation Date, holding a majority
of Trust Interests.
(b) That there shall not be any material litigation pending
with respect to the matters contemplated by this Agreement.
(c) That the Fund's Registration Statements on Form N-1A and
Form N-14 (together, the "Registration Statements") shall have become
effective under the 1933 Act, and no stop order suspending such
effectiveness shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Trust,
shall be contemplated by the Commission.
10. Obligations of Adviser. Adviser agrees with the Trust and the
Fund as follows:
(a) Expenses. Whether or not the transactions contemplated
hereby are consummated, Adviser agrees to pay all expenses incurred
(including but not limited to printing expenses, brokerage commissions,
mailing costs, and fees and disbursements of counsel and accountants)
by the Trust and the Fund in connection with the exchange.
(b) Indemnification. Adviser will indemnify and hold harmless
the Fund against any and all expense, losses, claims, damages, and
liabilities at any time imposed upon or reasonably incurred by it in
connection with, arising out of, or resulting from any claim, action,
suit, or proceeding in which it may be involved or threatened by reason
of (i) any additional taxes owing or claimed to be owing to the Fund,
the Trust, or the Grantors as a result of the transactions contemplated
hereby that are not disclosed in the Fund's Registration Statement on
Form N-14; or (ii) any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statements, or any
amendment or supplement thereto, or arising out of or based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, including without limitation any amounts paid by the Fund
in a reasonable compromise or settlement of any such claim, action,
suit, or proceeding or threatened claim, action, suit, or proceeding
made with the consent of Adviser. The Fund will notify Adviser in
writing within ten (10) days of the receipt by the Fund of any notice
of legal process of any suit brought against or claim made against the
Fund as to any matters covered by this Section 10(b). Adviser shall be
entitled to participate at its expense in the defense of any claim,
suit, action, or proceeding covered by this Section 10(b), or, if it so
elects, to assume at its expense by counsel satisfactory to the Fund
the defense of any such claim, suit, action, or proceeding, and if
Adviser elects to assume such defense, the Fund shall be entitled to
participate in the defense of any such claim, suit, action, or
proceeding at its own expense. Adviser's obligation under this Section
10(b) to indemnify and hold harmless the Fund shall constitute a
guarantee of payment so that Adviser will pay in the first instance any
expenses, losses, claims, damages, and liabilities required to be paid
by it under this Section 10(b) without the necessity of the Fund's
first paying the same.
11. Broker or Finder's Fee. The Trust and the Fund each represent
that there is no person who has dealt with it and who by reason of such dealings
is entitled to any finder's or other similar fee or commission arising out of
the transactions contemplated by this Agreement.
12. Termination of Agreement. This Agreement may be terminated
and the exchange contemplated hereby abandoned at any time (whether before or
after the approval thereof by the Grantors) prior to the Exchange Date by mutual
consent of the Trust and the Board of Directors of the Fund evidenced by
appropriate resolutions.
In the event of the termination of this Agreement and abandonment of
the exchange contemplated hereby pursuant to the provisions of Section 3(a)
hereof or of this Section 12, this Agreement shall become void and have no
effect, without any liability on the part of any party hereto or the directors,
officers, or shareholders of the Fund, the Grantors in respect of this
Agreement, except the obligation of Adviser to pay expenses.
13. Restrictions on Transfer. Pursuant to Rule 145 under the 1933
Act, the Fund will, in connection with the issuance of any of the Fund Shares to
any person who at the time of the transaction contemplated hereby is deemed to
be an affiliate of a party to the transaction pursuant to Rule 145(c), cause
to be affixed upon the certificates issued to such person (if any) a
legend as follows:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO IMG
MUTUAL FUNDS, INC. OR ITS PRINCIPAL UNDERWRITER UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (2) IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE FUND SUCH REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to the Fund's
transfer agent with respect to such Fund Shares. The Trust will provide the Fund
on the Exchange Date with the name of any Grantor who is to the knowledge of the
Trust an affiliate of it on such date.
14. Waiver. At any time prior to the Exchange Date, the Trust or
the Board of Directors of the Fund may (a) extend the time for the performance
of any of the obligations or other acts of the other; (b) waive any inaccuracy
in the representations of the other; and (c) waive compliance by the other with
any of the agreements or conditions set forth herein. Any agreement on behalf
of either to any such extension or waiver shall be valid only if set forth in
an instrument in writing duly executed and delivered on behalf of such party.
15. No Survival of Representations. None of the representations
or warranties included or provided for herein shall survive the Exchange Date.
16. Agreement Entire; Governing Law. Except as provided herein,
this Agreement supersedes all previous correspondence or oral communications
between the parties regarding the exchange, constitutes the only understanding
with respect to the exchange, may not be changed except by an agreement signed
by each party, and shall be construed in accordance with and governed by the
laws of the States of Iowa and Maryland; provided, however, that the due
authorization, execution, and delivery of this Agreement with respect to any
party shall be construed in accordance with and governed by the laws of the
jurisdiction of formation, organization, or incorporation of such party.
17. Counterparts. This Agreement may be executed in any number
of counterparts, each of which, when executed and delivered, shall be deemed to
be an original.
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Exchange to be executed and attested on its behalf by its duly authorized
representatives and its seal, if any, to be affixed hereto, all as of the _____
day of _______________, 1995.
IMG EQUITY TRUST
ATTEST: _________________________ By: ________________________________
Title: _____________________________ Title: ________________________________
IMG MUTUAL FUNDS, INC.
ATTEST: _________________________ By: ________________________________
Title: _____________________________ Title: ________________________________
<PAGE>
AGREEMENT AND PLAN OF EXCHANGE
AGREEMENT AND PLAN OF EXCHANGE (the "Agreement"), dated ______ _______,
1995, between IMG Income Trust (the "Trust"), IMG Mutual Funds, Inc.- IMG Bond
Fund, a Maryland corporation (the "Fund"), and Investors Management Group, Ltd.,
an Iowa corporation ("Adviser"), each with its principal office and place of
business at 720 Liberty Building, 418 Sixth Avenue, Des Moines, Iowa 50309.
WHEREAS, the Trustees of the Trust and the Board of Directors of the
Fund have determined that it is in the best interests of the Trust and the Fund,
respectively, that substantially all of the assets of the Trust be acquired by
the Fund pursuant to this Agreement; and
WHEREAS, the Trust, the Fund, and the Adviser desire to enter into a
Plan of Exchange; and
WHEREAS, Adviser, as investment adviser to the Fund and the Trust, have
agreed to certain terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the Trust, the Fund, and Adviser agree as follows:
PLAN OF EXCHANGE
The exchange will be comprised of the acquisition by the Fund of
substantially all of the properties and assets of the Trust in exchange for
shares of beneficial interest, par value $.001 per share, of the Fund (the "Fund
Shares"), and the subsequent distribution to the grantors of the Trust
(together, the "Grantors"), in the complete liquidation and dissolution of the
Trust, of all of the Fund Shares received in exchange for their interests in the
Trust ("Trust Interests"), all upon and subject to the terms hereinafter set
forth. Upon such distribution of the Fund Shares, each Grantor will be entitled
to receive that portion of such shares that the Trust Interest owned by such
Grantor prior to the exchange bears to the number of outstanding Trust Interests
of all Grantors on the same date. Any assets retained by the Trust in excess of
amounts needed to pay or provide for its liabilities will be distributed to the
Grantors of record as of the Exchange Date (as defined in Section 6 of the
Agreement set forth below).
<PAGE>
AGREEMENT
In consideration of the covenants and agreements herein contained, the
parties agree as follows:
1. Representations and Warranties of the Trust. The Trust
represents and warrants to and agrees with the Fund that:
(a) The Trust is duly formed and validly existing under the
laws of the State of Iowa and has power to own all of its properties
and assets and, subject to the approval of its Grantors, to carry out
this Agreement.
(b) Except as shown on the financial statements of the Trust
for the years ended December 31, 1994 and 1993, and as incurred in the
ordinary course of the Trust's business, the Trust has no known
liabilities of a material amount, contingent or otherwise, and there
are no material legal, administrative, or other proceedings pending or
threatened against the Trust.
(c) At both the Valuation Time (as defined in Section 3(d)
hereof) and the Exchange Date, the Trust will have full right, power,
and authority to sell, assign, transfer, and deliver the assets and
properties to be transferred by it hereunder. Upon such transfer as
contemplated by this Agreement, the Fund will acquire such assets
subject to no encumbrances, liens, security interests, and without any
restrictions upon the transfer thereof (other than encumbrances, liens,
security interests, or restrictions created by the Fund).
(d) No registration under the Securities Act of 1933, as
amended (the "1933 Act"), of any of the securities to be transferred by
the Trust hereunder would be required if they were, as of the time of
such transfer, the subject of a public distribution by the Trust.
2. Representations and Warranties of the Fund. The Fund
represents and warrants to and agrees with the Trust that:
(a) The Fund is a corporation duly established and validly
existing in conformance with the laws of the State of Maryland and has
power to carry on its business as it is now being conducted and to
carry out this Agreement.
(b) The Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified
management investment company; and such registration has not been
revoked or rescinded and is in full force and effect.
(c) At the Exchange Date, the Fund Shares to be issued to the
Trust will have been duly authorized and, when issued and delivered
pursuant to this Agreement, will be legally and validly issued and will
be fully paid and nonassessable; and no shareholder of the Fund will
have any preemptive right of subscription or purchase in respect
thereof.
3. Transfer of Assets.
(a) Subject to the requisite approval of the Grantors and to the terms
and conditions contained herein, the Fund agrees to acquire from the Trust, and
the Trust agrees to acquire from the Fund, on the Exchange Date all of the
securities and cash of the Trust (subject to the retention by the Trust of
assets sufficient, in the judgment of the Trust, to pay the Trust's debts,
obligations, and liabilities and any assets which the Fund is not permitted, or
which it has reasonably determined to be unsuitable for it, to acquire) in
exchange for that number of the Fund Shares provided in Section 4 hereof. The
Trust, as soon as practicable after the Exchange Date, will distribute all the
Fund Shares received by it to the Partners in exchange for their Trust
Interests. Any assets retained by the Trust, after paying or providing for the
payment of all of its liabilities, shall be distributed by the Trust or its
agent to the Partners of record as of the Exchange Date.
(b) The Trust will pay or cause to be paid to the Fund any interest or
dividends received on or after the Exchange Date with respect to securities
transferred to the Fund hereunder. The Trust will transfer to the Fund any
distributions, rights, stock dividends, or other securities received by the
Trust after the Exchange Date as distributions on or with respect to the
securities transferred, which shall be deemed included in assets transferred to
the Fund on the Exchange Date and shall not be separately valued unless the
securities in respect of which such distribution is made shall have gone "ex"
such distribution prior to the Valuation Time. Notwithstanding the foregoing,
the Fund shall not be entitled to receive any interest or dividends or other
distributions on securities not transferred to the Fund hereunder.
(c) The Fund shall not assume, and shall not be obligated to assume,
any liabilities (absolute or contingent) of the Trust.
(d) The Valuation Time shall be 4:00 p.m., Des Moines, Iowa, time, on
April 30, 1995 (the "Valuation Date"), or such earlier or later date and time as
may be mutually agreed upon by the Trust and the Fund (the "Valuation Time").
4. Shares Issued in Exchange for Assets and Valuation. Full Fund
Shares and, to the extent necessary, a fractional Fund Share of an aggregate net
asset value equal to the value of the assets of the Trust acquired shall be
issued by the Fund in exchange for such assets of the Trust. Value in all cases
shall be determined as of the Valuation Time. The value of the assets of the
Trust to be acquired by the Fund and the net asset value per share of the Fund
Shares shall be determined in accordance with the procedures for determining the
value of the Fund's assets set forth in the Fund's Articles of Incorporation
and in the prospectus that forms part of the Fund's Registration Statement on
Form N-1A under the caption "Net Asset Value." The Fund shall issue the Fund
Shares to the Trust. In lieu of delivering certificates for the Fund Shares,
the Fund shall credit the Fund Shares to the Trust's account on the stock
record books of the Fund and shall deliver a confirmation thereof to the Trust.
The Trust shall then deliver written instructions to the Fund's transfer agent
to set up accounts for the Grantors on the stock record books of the Fund.
5. Grantors' Approval. The Trust agrees, as soon as is
practicable after the effective date of the Fund's Registration Statement on
Form N-14, to solicit the approval of the Grantors of this Agreement and the
transactions contemplated hereby.
6. Delivery of Assets; Exchange Date. Delivery of the assets
of the Trust to be transferred and the Fund Shares to be issued shall be made
on the next full business day following the Valuation Time, or such other date
and time agreed to by the Trust and the Fund, the date and time upon which such
delivery is to take place being referred to herein as the "Exchange Date."
Assets transferred shall be delivered on the Exchange Date to Norwest Bank,
N.A., Minnesota, the Fund's custodian (the "Custodian"), for the account of the
Fund, with all securities not in bearer form duly endorsed, or accompanied by
duly endorsed separate assignments or stock powers, in proper form for transfer,
with signatures guaranteed, and with all necessary state stock transfer stamps,
sufficient to transfer good and marketable title thereto (including all accrued
interest and dividends and rights pertaining thereto) to the Custodian for the
account of the Fund free and clear of all liens, encumbrances, rights,
restrictions, and claims. Securities held at the Depository Trust Company need
not be delivered to the Custodian. All cash delivered shall be in the form of
currency and immediately available funds payable to the order of the Custodian
for the account of the Fund.
7. The Fund's Conditions Precedent. The obligations of the Fund
hereunder shall be subject to the following conditions:
(a) That the Trust shall have furnished to the Fund a
statement of the Trust's net assets, including a list of securities
owned by the Trust with their respective tax costs and values
determined as provided in Section 4 hereof, all as of the Valuation
Time.
(b) That as of the Valuation Time and as of the Exchange Date,
all representations and warranties of the Trust made in this Agreement
are true and correct as if made at and as of each such date, and the
Trust has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to such
dates.
8. The Trust's Conditions Precedent. The obligations of the
Trust hereunder shall be subject to the condition that as of the Valuation Time
and as of the Exchange Date, all representations and warranties of the Fund
made in this Agreement are true and correct as if made at and as of each such
date, and that the Fund has complied with all of the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to such
dates.
9. The Fund's and the Trust's Conditions Precedent. The
obligations of both the Fund and the Trust hereunder shall be subject to the
following conditions:
(a) That this Agreement and the transactions contemplated
hereby shall have been approved by the affirmative vote of the Grantors
as of the close of business on the Valuation Date, holding a majority
of Trust Interests.
(b) That there shall not be any material litigation pending
with respect to the matters contemplated by this Agreement.
(c) That the Fund's Registration Statements on Form N-1A and
Form N-14 (together, the "Registration Statements") shall have become
effective under the 1933 Act, and no stop order suspending such
effectiveness shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Trust,
shall be contemplated by the Commission.
10. Obligations of Adviser. Adviser agrees with the Trust and the
Fund as follows:
(a) Expenses. Whether or not the transactions contemplated
hereby are consummated, Adviser agrees to pay all expenses incurred
(including but not limited to printing expenses, brokerage commissions,
mailing costs, and fees and disbursements of counsel and accountants)
by the Trust and the Fund in connection with the exchange.
(b) Indemnification. Adviser will indemnify and hold harmless
the Fund against any and all expense, losses, claims, damages, and
liabilities at any time imposed upon or reasonably incurred by it in
connection with, arising out of, or resulting from any claim, action,
suit, or proceeding in which it may be involved or threatened by reason
of (i) any additional taxes owing or claimed to be owing to the Fund,
the Trust, or the Grantors as a result of the transactions contemplated
hereby that are not disclosed in the Fund's Registration Statement on
Form N-14; or (ii) any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statements, or any
amendment or supplement thereto, or arising out of or based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, including without limitation any amounts paid by the Fund
in a reasonable compromise or settlement of any such claim, action,
suit, or proceeding or threatened claim, action, suit, or proceeding
made with the consent of Adviser. The Fund will notify Adviser in
writing within ten (10) days of the receipt by the Fund of any notice
of legal process of any suit brought against or claim made against the
Fund as to any matters covered by this Section 10(b). Adviser shall be
entitled to participate at its expense in the defense of any claim,
suit, action, or proceeding covered by this Section 10(b), or, if it so
elects, to assume at its expense by counsel satisfactory to the Fund
the defense of any such claim, suit, action, or proceeding, and if
Adviser elects to assume such defense, the Fund shall be entitled to
participate in the defense of any such claim, suit, action, or
proceeding at its own expense. Adviser's obligation under this Section
10(b) to indemnify and hold harmless the Fund shall constitute a
guarantee of payment so that Adviser will pay in the first instance any
expenses, losses, claims, damages, and liabilities required to be paid
by it under this Section 10(b) without the necessity of the Fund's
first paying the same.
11. Broker or Finder's Fee. The Trust and the Fund each represent
that there is no person who has dealt with it and who by reason of such dealings
is entitled to any finder's or other similar fee or commission arising out of
the transactions contemplated by this Agreement.
12. Termination of Agreement. This Agreement may be terminated
and the exchange contemplated hereby abandoned at any time (whether before or
after the approval thereof by the Grantors) prior to the Exchange Date by mutual
consent of the Trust and the Board of Directors of the Fund evidenced by
appropriate resolutions.
In the event of the termination of this Agreement and abandonment of
the exchange contemplated hereby pursuant to the provisions of Section 3(a)
hereof or of this Section 12, this Agreement shall become void and have no
effect, without any liability on the part of any party hereto or the directors,
officers, or shareholders of the Fund, the Grantors in respect of this
Agreement, except the obligation of Adviser to pay expenses.
13. Restrictions on Transfer. Pursuant to Rule 145 under the 1933
Act, the Fund will, in connection with the issuance of any of the Fund Shares to
any person who at the time of the transaction contemplated hereby is deemed to
be an affiliate of a party to the transaction pursuant to Rule 145(c), cause
to be affixed upon the certificates issued to such person (if any) a
legend as follows:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO IMG
MUTUAL FUNDS, INC. OR ITS PRINCIPAL UNDERWRITER UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (2) IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE FUND SUCH REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to the Fund's
transfer agent with respect to such Fund Shares. The Trust will provide the Fund
on the Exchange Date with the name of any Grantor who is to the knowledge of the
Trust an affiliate of it on such date.
14. Waiver. At any time prior to the Exchange Date, the Trust or
the Board of Directors of the Fund may (a) extend the time for the performance
of any of the obligations or other acts of the other; (b) waive any inaccuracy
in the representations of the other; and (c) waive compliance by the other with
any of the agreements or conditions set forth herein. Any agreement on behalf
of either to any such extension or waiver shall be valid only if set forth in
an instrument in writing duly executed and delivered on behalf of such party.
15. No Survival of Representations. None of the representations
or warranties included or provided for herein shall survive the Exchange Date.
16. Agreement Entire; Governing Law. Except as provided herein,
this Agreement supersedes all previous correspondence or oral communications
between the parties regarding the exchange, constitutes the only understanding
with respect to the exchange, may not be changed except by an agreement signed
by each party, and shall be construed in accordance with and governed by the
laws of the States of Iowa and Maryland; provided, however, that the due
authorization, execution, and delivery of this Agreement with respect to any
party shall be construed in accordance with and governed by the laws of the
jurisdiction of formation, organization, or incorporation of such party.
17. Counterparts. This Agreement may be executed in any number
of counterparts, each of which, when executed and delivered, shall be deemed to
be an original.
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Exchange to be executed and attested on its behalf by its duly authorized
representatives and its seal, if any, to be affixed hereto, all as of the _____
day of _______________, 1995.
IMG INCOME TRUST
ATTEST: _________________________ By: ________________________________
Title: _____________________________ Title: ________________________________
IMG MUTUAL FUNDS, INC.
ATTEST: _________________________ By: ________________________________
Title: _____________________________ Title: ________________________________
<PAGE>
EXHIBIT "B"
THE FUNDS' PROSPECTUS
<PAGE>
PROSPECTUS
IMG Mutual Funds, Inc.
IMG Financial Services, Inc.
2203 Grand Avenue
Des Moines, IA 50312-5338
1-800-798-1819
IMG Mutual Funds, Inc. (the "Company") is a Maryland corporation organized as an
open-end management investment company issuing its shares in series (each series
referred to as a "Fund" and collectively as "Funds"), representing a diversified
portfolio of investments with its own investment objectives and policies. Two
Funds are currently authorized and offered by this Prospectus.
They are the IMG Core Stock Fund and the IMG Bond Fund.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank and the shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
The IMG Core Stock Fund seeks long-term capital appreciation through a
diversified portfolio of Equity Securities including common stock, convertible
bonds and preferred stock among others.
The IMG Bond Fund seeks to obtain income by investing in a portfolio of fixed
income securities 75% of which at all times will be Investment Grade Fixed
Income Securities and, secondarily, seeks capital appreciation consistent with
the preservation of capital and prudent investment risk.
For a more detailed discussion of the investment objectives and policies of each
of the Funds, see "INVESTMENT OBJECTIVES AND POLICIES", "IMPLEMENTATION OF
POLICIES AND RISKS" and "INVESTMENT RESTRICTIONS".
This Prospectus contains information you should be aware of before investing in
the Funds. Please read this Prospectus carefully and keep it for future
reference. A Statement of Additional Information dated May 24, 1995 for the
Funds has been filed with the Securities and Exchange Commission. This
Statement, which may be revised from time to time, contains further information
about the Funds and is incorporated by reference in this Prospectus. Upon
request, the Funds will provide a copy of the Statement of Additional
Information without charge to each person to whom a Prospectus is delivered.
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 UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is May 24, 1995.
<PAGE>
TABLE OF CONTENTS
Summary............................................................... 4
Expenses............................................................. 6
Investment Objectives and Policies................................... 7
Equity Securities.................................................. 7
Fixed Income Securities............................................ 8
IMG Core Stock Fund................................................ 9
IMG Bond Fund...................................................... 10
Implementation of Policies and Risks................................. 11
Investment Restrictions.............................................. 21
Management........................................................... 21
How to Invest........................................................ 25
Additional Investment Information.................................... 27
How to Redeem Shares................................................. 31
Shareholder Services................................................. 32
Distributions and Taxes.............................................. 35
Capital Stock........................................................ 36
Shareholder Reports and Meetings..................................... 36
Custodian, Fund Accountant, Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent................... 37
Performance Information.............................................. 37
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the
Statement of Additional Information, and if given or made, such information
or representations may not be relied upon as having been authorized by the
Funds. This Prospectus does not constitute an offer to sell securities in any
state or jurisdiction in which such offering may not lawfully be made.
<PAGE>
SUMMARY
Investment Objectives and Policies
The Funds are each managed as separate diversified open-end management
investment companies, with distinct investment objectives and policies.
The IMG Core Stock Fund's investment objective is to seek long-term capital
appreciation. Realization of income is not a significant investment
consideration and any income realized on the Fund's investments, therefore, will
be incidental to the Fund's objective. The IMG Core Stock Fund will seek to
achieve its investment objective by investing primarily in Equity Securities.
(See "INVESTMENT OBJECTIVES AND POLICIES".) The IMG Core Stock Fund is intended
to be an investment alternative for that part of an investor's capital which can
appropriately be exposed to above average risk in anticipation of greater
rewards. It is not designed to offer a complete or balanced investment program
suitable for all investors.
The IMG Bond Fund's investment objective is to obtain income by investing in a
portfolio of fixed income securities and, secondarily, to seek capital
appreciation consistent with the preservation of capital and prudent investment
risk. The Fund will invest at least 75% of its total assets in Investment Grade
Fixed Income Securities at all times. (See "INVESTMENT OBJECTIVES AND
POLICIES".) Because of this emphasis, capital appreciation is not a significant
consideration. The IMG Bond Fund is designed for the investor seeking a
consistent level of income, which is higher than money market or short- and
intermediate-term bond funds usually provide. Unlike money market mutual funds,
the IMG Bond Fund does not seek to maintain a stable net asset value and may not
be able to return dollar-for-dollar the money invested. The IMG Bond Fund seeks
income from a portfolio of fixed income securities and, secondarily, seeks
capital appreciation.
Risks and Investment Practices
The IMG Core Stock Fund investments in Equity Securities and the Advisor's
policies relating thereto should not expose the Core Stock Fund to risks which
are substantially different than other investment companies with similar
investment objectives and policies; however, as with any investment company
principally investing in Equity Securities including foreign securities and
special situations, there can be no assurance that the Fund will achieve its
objectives.
The IMG Bond Fund investments in Fixed Income securities, including derivatives
and junk bonds (up to 25% of its total assets), and the Advisor's policies
relating thereto should not expose the IMG Bond Fund to risks that are
substantially different than other investment companies with similar investment
objectives and policies; however, the investments in junk bonds and derivative
securities could result in the Fund experiencing some volatility in its net
asset value unrelated to interest rate risk, if the issuer of the junk bond
defaults, the interest rate trends abruptly move up or down or the indices used
to adjust yield on derivative securities move rapidly up or down. As with any
bond fund, the principal risk of investing in a fund comprised of fixed income
securities is that the net asset value will fluctuate inversely to the rise and
fall of interest rates. This volatility can be reduced to some extent by
managing the average portfolio maturity -- a shorter average portfolio maturity
reduces volatility (which reduces yield) and a longer portfolio maturity
increases volatility (which increases yield). The Advisor intends to manage the
portfolio maturity to minimize the effect of interest rate volatility while
maximizing yield by actively managing the portfolio in light of the Advisor's
forecast for interest rates. There can be no assurance that the Fund will
achieve its objective or that the Advisor's management approach will be
successful.
For a complete description of the Funds investment practices and risks thereof
see "INVESTMENT OBJECTIVES AND POLICIES," "IMPLEMENTATION OF POLICIES AND
RISKS," herein and "INVESTMENT POLICIES AND TECHNIQUES" in the Statement of
Additional Information.
The Funds may use a variety of hedging techniques to, among other things,
minimize adverse price movements or fluctuations of securities held and hedge
against unfavorable future fluctuations in interest rates. Such techniques
include the use of options, futures and options on futures. The Funds may also
purchase put and sell call options on Fund securities and, within specified
limits, invest in repurchase agreements; illiquid securities; foreign
securities; mortgage- and asset-backed securities; zero coupon, deferred
interest and PIK bonds; collateralized mortgage obligations and multi-class
pass-through securities; stripped mortgage-backed securities; loan
participations; delayed delivery transactions; variable- or floating-rate
securities; and warrants; and may loan their Fund securities. Each Fund may
engage in short-term trading, subject to constraints of remaining qualified
under Subchapter M of the Internal Revenue Code of 1986, as amended. (See
"DISTRIBUTIONS AND TAXES".)
Management
The Funds' investment advisor is Investors Management Group, ("IMG" or the
"Advisor"), an Iowa corporation. IMG provides ongoing investment advisory
services for the Funds. IMG is a registered investment advisor providing
investment management services to mutual funds, financial institutions,
insurance companies, public agencies and individuals, with approximately $1
billion presently under management. IMG's portfolio managers will be responsible
for the day-to-day management of the Funds and their investments.
(See "MANAGEMENT".)
Purchase and Redemption of Shares
Shares of each Fund are available through IMG Financial Services, Inc., as
Distributor to the Funds ("IFS") or from selected broker/dealer firms and other
financial services firms ("Firms") at the net asset value per share of the
Funds. One hundred percent of the dollars invested in the Funds are used to
purchase shares of one or more of the Funds without any deduction or initial
sales charge. Shares of the Funds are redeemable at any time at the
next-determined net asset value per share, without any deduction or deferred
sales charge. Shares of the Funds may be exchanged without charge. The net asset
value per share changes daily with the value of each Fund's holdings. (See "HOW
TO INVEST" and "HOW TO REDEEM SHARES".)
Multiple Classes of Shares
Each Fund offers three classes of shares to the general public, each with its
own features and expense structure: Investor Shares, Select Shares, and
Institutional Shares. Each class of shares represents an interest in the same
portfolio of investments of each Fund. Per share dividends will be highest on
Institutional Shares, then Select Shares, followed by Investor Shares.
Shareholders are automatically invested in the lowest fee share class for which
they are eligible.
Investor Shares: The minimum investment for Investor Shares of any of the
Funds is normally $1,000. Investor Shares of the IMG Core Stock Fund and
the IMG Bond Fund each pay an annual distribution fee of up to 0.40% and
0.25% of average daily net assets respectively to IFS. Each Fund also pays
an annual services fee of 0.25% of average daily net assets to IMG on this
class of shares.
Select Shares: The minimum investment for Select Shares of any of the Funds
is $100,000. Select Shares of each Fund pay an annual distribution fee of
up to 0.15% of average daily net assets to IFS. Annual services fees paid
by Select Shares to IMG are 0.25% and 0.15% of average daily net assets of
the IMG Core Stock Fund and the IMG Bond Fund respectively.
Institutional Shares: The minimum investment for Institutional Shares of
any of the Funds is $500,000. Institutional Shares of the IMG Core Stock
Fund and the IMG Bond Fund pay a services fee of 0.15% and 0.10% of average
daily net assets respectively. No distribution fee is paid by Institutional
Shares.
Conversion: Investments in each class of shares are automatically converted
to the lowest fee class of shares for which the investor is then eligible
based on their last purchase, redemption or transfer in the Fund. Some
Firms may not make certain classes of shares available; however all classes
of shares are always available through IFS. Eligible shareholders may
transfer their accounts directly to IFS and then convert to the appropriate
class of shares at no charge from the Fund. A transfer or other fee may be
imposed by the Firm through which the account is held.
Shareholder Services
Services offered include mail or telephone purchase, exchange and redemption; an
automatic investment plan; and automatic dividend reinvestment. (See
"SHAREHOLDER SERVICES".)
Dividends and Distributions
The policy of the Funds is to distribute substantially all of the net investment
income of each Fund, if any, on a regular basis. Any dividends from the net
income of the IMG Bond Fund normally will be distributed quarterly, and any
dividends from the net income of the IMG Core Stock Fund will normally be
distributed semi-annually. Dividends from net investment income paid by all
classes of shares, to the extent paid, will be calculated in the same manner, at
the same time, on the same day, and will be in the same amounts, except to the
extent that specific share class level expenses are paid by each Fund. Any net
realized capital gains for each Fund will be distributed at least annually. (See
"DISTRIBUTIONS AND TAXES".)
EXPENSES
The following information is provided in order to assist you in understanding
the various costs and expenses that, as an investor in the Funds, you will bear
directly or indirectly.
Shareholder Transaction Expenses
Investor Select Institutional
Shares Shares Shares
Maximum Sales Charge Imposed on Purchases.... None None None
Maximum Sales Charge on Reinvested Dividends. None None None
Exchange Fee................................. None None None
Redemption Fee*.............................. None None None
Maximum Contingent Deferred Sales Charge..... None None None
*There is a $10 charge associated with redemptions payable by wire transfer.
Annual Fund Operating Expenses
(as a percentage of average net assets)
IMG CORE STOCK FUND
Investor Select Institutional
Shares Shares Shares
Management Fee............................... 0.50% 0.50% 0.50%
Rule 12b-1 Fees.............................. 0.40% 0.15% None
Other Expenses............................... 0.45% 0.45% 0.35%
Total Operating Expenses..................... 1.35% 1.10% 0.85%
IMG BOND FUND
Management Fee............................... 0.30% 0.30% 0.30%
Rule 12b-1 Fees.............................. 0.25% 0.15% None
Other Expenses............................... 0.45% 0.35% 0.30%
Total Operating Expenses..................... 1.00% 0.80% 0.60%
From time to time, the Fund's Advisor may also voluntarily waive the management
fee and/or absorb certain expenses for a Fund or class. "Other Expenses" is
estimated. The Management Fee and Rule 12b-1 Fees are based on the maximum
allowable under the Investment Advisory Agreement and Distribution Plan. As a
result "Total Operating Expenses" is also estimated. Rule 12b-1 fees are fees
related to distribution and marketing expenses incurred 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.
Example of Expenses
The example below assumes the purchase of shares of each class with no
conversion to any other class of shares. You would pay the following expenses on
a $1,000 investment, assuming a 5% annual return.
Period in Years
IMG Core Stock Fund 1 year 3 years
Investor Shares $14 $43
Select Shares 11 35
Institutional Shares 9 27
Period in Years
IMG Bond Fund 1 year 3 years
Investor Shares $10 $32
Select Shares 8 26
Institutional Shares 6 19
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly.
Insofar as the Funds are newly organized and as of the date hereof had no
operating history, the Example is based on the estimated "Total Operating
Expenses" specified in the table above. Please remember that the Example should
not be considered as representative of past or future expenses and that actual
expenses may be higher or lower than those shown. For more complete descriptions
of the expenses of each Fund, please see: "MANAGEMENT".
INVESTMENT OBJECTIVES AND POLICIES
The descriptions that follow are designed to help you choose the Fund that best
fits your investment objective. You may want to pursue more than one objective
by investing in more than one of the Funds. Each Fund's investment objectives
are discussed below in connection with the Fund's investment policies.
Each Fund may invest in a diversified portfolio of securities without regard to
criteria such as size, exchange listing, earnings history or other objective
factors. The Advisor will be limited by its best judgment as to what will help
achieve each Fund's investment objective and the policies and restrictions
described below. Because of the risks inherent in all investments there can be
no assurance that the objectives of the Funds will be met.
Equity Securities
Subject to certain restrictions explained more fully below, the IMG Core Stock
Fund may invest in "Equity Securities". Equity Securities consist of (i) common
stocks, (ii) preferred stocks, (iii) warrants to purchase common stocks or
preferred stocks, (iv) securities convertible to common or preferred stocks,
such as convertible bonds and debentures, (v) shares of publicly traded limited
partnerships, and (vi) foreign securities -- equity securities issued by foreign
issuers traded either in foreign markets or in domestic markets through
depository receipts.
Fixed Income Securities
Each Fund may invest in the fixed income investments described below
(collectively "Fixed Income Securities"). A Fund's authority to invest in
certain types of Fixed Income Securities may be restricted or subject to
objective investment criteria. For complete information on these restrictions
see the description of each Fund's investment objectives and policies in this
section.
Fixed Income Securities consist of (i) corporate debt securities, including
bonds, debentures, and notes; (ii) bank obligations, such as certificates of
deposit, bankers' acceptances, and time deposits of domestic banks, foreign
branches and subsidiaries of domestic banks, and domestic and foreign branches
of foreign banks and domestic savings and loan associations (in amounts in
excess of the insurance coverage (currently $100,000 per account) provided by
the Federal Deposit Insurance Corporation); (iii) commercial paper; (iv)
variable and floating rate securities (including variable account master demand
notes); (v) repurchase agreements; (vi) illiquid debt securities (such as
private placements, restricted securities and repurchase agreements maturing in
more than seven days); (vii) foreign securities -- debt securities issued by
foreign issuers traded either in foreign markets or in domestic markets through
depository receipts; (viii) convertible securities -- debt securities of
corporations convertible into or exchangeable for equity securities or debt
securities that carry with them the right to acquire equity securities, as
evidenced by warrants attached to such securities, or acquired as part of units
of the securities; (ix) preferred stocks -- securities that represent an
ownership interest in a corporation and that give the owner a prior claim over
common stock on the company's earnings or assets; (x) U.S. government
securities; (xi) mortgage-backed securities, collateralized mortgage obligations
and similar securities (including corporate asset-backed securities); and (xii)
when issued or delayed delivery securities.
Fixed Income Securities include fixed rate securities and variable or floating
rate securities (income producing debt instruments with interest rates which
change at stated intervals or in relation to a specified interest rate index).
(See "IMPLEMENTATION OF POLICIES AND RISKS -- Variable or Floating Rate
Securities".)
Corporate debt securities, including bonds, debentures, and notes, may be
unsecured or secured by the issuer's assets. They may be senior or subordinate
in right of payment to other creditors of the issuer and may be listed on a
national securities exchange or traded in the over-the-counter market. Each Fund
may invest in the obligations of banks and savings and loan associations.
However, a Fund will only invest in obligations of banks and savings and loan
associations which present minimal credit risks.
"U.S. government securities" include bills, notes, bonds, and other debt
securities differing as to maturity and rates of interest, which are either
issued or guaranteed by the U.S. Treasury or issued or guaranteed by U.S.
government agencies or instrumentalities. U.S. government agency securities
include securities issued by (a) the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration, and the Government National Mortgage Association, whose
securities are supported by the full faith and credit of the United States; (b)
the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
Tennessee Valley Authority, whose securities are supported by the right of the
agency to borrow from the U.S. Treasury; (c) the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, whose securities are
supported by the discretionary authority of the U.S. government to purchase
certain obligations of the agency or instrumentality; and (d) the Student Loan
Marketing Association, the Interamerican Development Bank, and the International
Bank for Reconstruction and Development, whose securities are supported only by
the credit of such agencies. While the U.S. government provides financial
support to U.S. government agencies or instrumentalities, no assurance can be
given that it always will do so. The U.S. government, its agencies, and
instrumentalities do not guarantee the market value of their securities and
consequently, the value of such securities may fluctuate.
Fixed income securities in which the Funds may invest will primarily be
"Investment Grade Fixed Income Securities". Investment-Grade Fixed Income
Securities are considered to be (i) corporate debt securities rated in the four
highest categories by Moody's Investors Service ("Moody's"), Standard & Poor's
Corporation ("S&P"), Duff & Phelps, Inc. ("D&P"), Fitch Investors Services, Inc.
("Fitch"), or of similar quality as determined by another Nationally Recognized
Statistical Rating Organization ("NRSRO") as that term is used in applicable
rules of the Securities and Exchange Commission; (ii) U.S. government securities
(as defined above); (iii) bank obligations (certificates of deposit, bankers'
acceptances, and time deposits) issued by banks with a long-term CD rating in
one of the four highest categories of an NRSRO, with respect to obligations
purchased by a Fund and maturing in more than one year (e.g., BBB or higher by
S&P), and in one of the three highest categories, with respect to obligations
purchased by a Fund and maturing in one year or less (e.g., A-3 or higher by
S&P); (iv) preferred stock rated in one of the four highest categories by an
NRSRO (e.g., BBB or higher by S&P); (v) commercial paper rated in the two
highest categories by S&P, Moody's, D&P, Fitch or another NRSRO (e.g., A-2 or
higher by S&P); (vi) repurchase agreements involving these securities; and (vii)
unrated securities which, in the opinion of the Advisor, are of a quality
comparable to the foregoing. See Appendix A of the Statement of Additional
Information for descriptions of the rating services' bond ratings. The IMG Core
Stock Fund may invest no more than 5% of its total assets in debt securities,
convertible securities and preferred stock rated below investment grade.
The IMG Bond Fund's average maturity represents an average based on the stated
maturity dates of the Fund's Fixed Income Securities, except that (i)
variable-rate securities are deemed to mature at the next interest rate
adjustment date, (ii) debt securities with put features are deemed to mature at
the next put exercise date, and (iii) the maturity of mortgage-backed securities
is determined on an "expected life" basis.
The investment objective for each Fund is described below. Because of the risks
involved in all investments there can, of course, be no assurance that the
objectives of the Fund will be met. Except for the investment objectives of each
Fund, and certain additional limitations listed under "INVESTMENT RESTRICTIONS"
and in the Statement of Additional Information, the investment policies of each
Fund are not fundamental. Accordingly, they may be changed by the Board of
Directors of the Funds without an affirmative vote of a majority of each Fund's
outstanding voting shares.
IMG Core Stock Fund
The IMG Core Stock Fund's investment objective is to seek long-term capital
appreciation. Realization of income is not a significant investment
consideration and any income realized on the Fund's investments, therefore, will
be incidental to the Fund's objective. The IMG Core Stock Fund is intended to be
an investment vehicle for that part of an investor's capital which can
appropriately be exposed to above average risk in anticipation of greater
rewards. It is not designed to offer a complete or balanced investment program
suitable for all investors.
The term "Core Stock Fund" indicates an equity investing style which emphasizes
stocks which trade at the lower end of their historical valuation range. The
stocks which pass this valuation requirement are considered to represent a core
group within the broad stock market. The composition of stocks in this core
group can change over time depending on economic and financial market
conditions. Thus, this equity style has the flexibility to emphasize value
stocks or growth stocks depending upon where the most attractive historical
valuations are found.
The IMG Core Stock Fund will seek to achieve its investment objective by
investing primarily (at least 65% and up to 100% of its total assets under
normal conditions) in stocks; i.e., common and preferred stock, but may also
invest in Fixed Income Securities and Short-Term Cash Equivalents (defined
herein). See ("IMPLEMENTATION OF POLICIES AND RISKS".) However, the percentage
of the IMG Core Stock Fund's assets that may be invested in Equity Securities,
Fixed Income Securities and/or Short-Term Cash Equivalents at any time is not
fixed. For temporary defensive purposes, when market conditions dictate a more
conservative approach to investing, the Fund may be invested up to 100% in Cash
or Short-Term Cash Equivalents.
Investments will be selected by the Advisor through a "top down" analysis
approach, in which the macroeconomic environment is analyzed in two key areas:
the market's valuation risk (based on fundamental valuation measures such as
price/earnings, price/book and price/dividend ratios), and the underlying
inflation environment. The Advisor's analysis of these two factors will strongly
affect the Advisor's determination of the level of investment in Equity
Securities.
This "top down" analysis also suggests certain market sectors for emphasis or
de-emphasis based upon the sector's correlation to the major market forces
examined. However, sector exposures are monitored closely and positions will not
be concentrated in any sector in excess of 25% of the Fund's total assets.
Individual stocks are selected on the basis of an evaluation of factors which
indicate the fundamental investment value of the security, such as sustainable
earnings yield, dividend yield, cash flow, price/book value, and price/sales
ratio. The primary goal is to select securities which are fundamentally
undervalued. This approach favors financially strong companies with ample
liquidity and debt capacity.
The Fund will also invest in "special situations" from time to time, when the
securities of a particular company exhibit independent signs of under valuation.
A "special situation" arises when, in the opinion of the Advisor, the securities
of a particular company will be accorded market recognition at an appreciated
value solely by reason of a development particularly or uniquely applicable to
that company and regardless of general business conditions or movements of the
stock market as a whole. Developments creating special situations might involve,
among others, the following: "workouts" such as liquidations, reorganizations,
recapitalizations or mergers; material litigation; technological breakthroughs;
and new management or management policies. Special situations may involve a
different type of risk than is inherent in ordinary investment securities; that
is, a risk involving the likelihood or timing of specific events rather than
general economic, market or industry risks. As with any securities transaction,
investment in special situations may involve the risk of decline or total loss
of the value of the investment. However, the Advisor will not invest in special
situations unless, in its judgment, the risk involved is reasonable in light of
the Fund's investment objective, the amount to be invested and the expected
investment results.
Although the Fund's assets normally will be invested primarily in Equity
Securities, the Fund may hold Fixed Income Securities (as defined above), and
Cash Equivalents, when a defensive position is warranted or so that the Fund may
receive a return on its idle cash. A defensive position may occur when
investment opportunities with desirable risk/reward characteristics are
unavailable. While the Fund maintains a defensive position, investment income
will increase and may constitute a large portion of the return on the Fund, and
the Fund probably will not participate in market advances or declines to the
extent it would if it were fully invested. However, except when the Advisor
determines that adverse market conditions warrant a temporary defensive
position, the Fund will limit the investments in Fixed Income Securities to 35%
of its total assets.
Since the Fund's assets will normally consist primarily of Equity Securities,
the Fund's net asset value may be subject to greater principal fluctuation than
a Fund containing a substantial amount of fixed income securities. (See
"IMPLEMENTATION OF POLICIES AND RISKS -- Portfolio Turnover".)
IMG Bond Fund
The investment objective of the IMG Bond Fund is to obtain income by investing
in a portfolio of fixed income securities and, secondarily, to seek capital
appreciation consistent with the preservation of capital and purdent investment
risk. The IMG Bond Fund is designed for the investor seeking a more consistent
level of income than typical equity or balanced funds, which is higher than
money market or short- and intermediate-term bond funds usually provide. The
Fund will invest at least 75% of its total assets in Investment Grade Fixed
Income Securities (including Cash Equivalents). Investments will be made
generally upon a long-term basis, but the Fund may make short-term investments
from time to time. Longer maturities typically provide better yields but will
subject the Fund to a greater possibility of substantial changes in the values
of its securities as interest rates change. Unlike a money market fund, the
Fund's net asset value will rise and fall in inverse relationship to changes in
interest rates.
The Fund will invest at least 65% of its total assets in debt instruments which
the advisor considers to be bonds which include corporate debt securities, U.S.
government securities, bank ogligations, commercial paper, repurchase
agreements, variable and floating rate securities, foreign fixed income
securities, mortgage-backed securities, collateralized mortgage obligations and
similar securities.
To meet the objectives of the Fund and to seek additional stability of
principal, the Fund will be managed to adjust the average maturity based on the
interest rate outlook. During periods of rising interest rates and falling
prices, a shorter average maturity may be adopted to cushion the effect of price
declines on the Fund's net asset value. When rates are falling and prices are
rising, a longer average maturity for the Fund may be considered.
Under normal circumstances, the Fund will invest at least 75% of its total
assets in Fixed Income Securities which are considered to be of Investment
Grade. Up to 25% of the Fund's total assets could be invested in
below-Investment Grade securities (commonly known as "junk bonds"). Currently,
the Fund does not expect to invest in (i) securities rated lower than "Ba" by
Moody's or "BB" by S&P, Fitch, D&P, or of similar quality by another NRSRO; and
(ii) unrated debt securities of similar quality. Securities of "BBB/Baa" or
lower quality may have speculative characteristics and poor credit protection.
The ratings services' descriptions of the below-Investment Grade securities
ratings categories in which the Fund may invest are as follows:
Moody's Investors Service, Inc. Bond Ratings: Bonds which are rated "Ba" are
judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
Standard and Poor's Corporation Bond Ratings: Debt rated "BB", "B", "CCC", and
"CC" is regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "CC" the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
Fitch Investors Services, Inc. Bond Ratings: Bonds which are rated "BB" are
considered speculative and of low investment grade. The obligor's ability to
pay interest and repay principal is not strong and is considered likely to
be affected over time by adverse economic changes.
Duff & Phelps, Inc. Long Term Ratings: Bonds which are rated "BB+", "BB", and
"BB-", are below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
See "IMPLEMENTATION OF POLICIES AND RISKS -- Lower Rated Securities" for
information concerning risks associated with investing in below investment grade
bonds.
The Fund's assets may be invested in all types of Fixed Income Securities in any
proportion, including corporate debt securities, bank obligations, commercial
paper, repurchase agreements, private placements, foreign securities,
convertible securities, preferred stocks, U.S. government securities, and
mortgage-backed and similar securities. (See "Fixed Income Securities" above.)
Common stocks acquired through exercise of conversion rights or warrants or
acceptance of exchange or similar offers will normally not be retained by the
Fund, but will be disposed of in an orderly fashion consistent with the best
obtainable price. There is no maximum or anticipated average maturity for the
IMG Bond Fund. The maturities selected will vary depending on the interest rate
outlook.
IMPLEMENTATION OF POLICIES AND RISKS
In addition to the investment policies described above (and subject to certain
additional restrictions described below), the Funds may invest in some or all of
the following securities and employ some or all of the following investment
techniques, some of which may present special risks as described below. A more
complete discussion of these securities and investment techniques and their
associated risks is contained in the Statement of Additional Information.
Repurchase Obligations
Each Fund may enter into repurchase agreements with member banks of the Federal
Reserve System or dealers registered under the Securities and Exchange Act of
1934. In a repurchase agreement, the Fund buys a security at one price and, at
the time of sale, the seller agrees to repurchase the obligation at an agreed
upon time and price (usually within seven days). The repurchase agreement
thereby determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Under each repurchase agreement, the selling institution will be
required to maintain the value of the securities subject to the repurchase
agreement at not less than the repurchase price plus accrued interest.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party to the agreement, including possible delays or
restrictions upon a Fund's ability to dispose of the underlying securities. The
Funds may not enter into repurchase agreements if, as a result, more than 10% of
a Fund's net asset value at the time of the transaction would be invested in the
aggregate in repurchase agreements maturing in more than seven days and other
securities which are not readily marketable. (See "Illiquid Securities" below.)
Each Fund may also enter into reverse repurchase agreements. In a reverse
repurchase agreement, a Fund sells a security to another party, such as a bank
or broker-dealer, in return for cash and agrees to repurchase the instrument at
a particular price and time.
Fixed Income Securities
The net asset value of the shares of open-end investment companies, such as the
IMG Bond Fund, which invest in Fixed Income Securities, changes as the general
levels of interest rates fluctuate. When interest rates decline, the net asset
value of the IMG Bond Fund can be expected to rise. Conversely, when interest
rates rise, the net asset value of the IMG Bond Fund can be expected to decline.
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of shares of the Fund, such changes will not
affect the income received by the Fund from such securities. However, the
dividends paid by the Fund, if any, will increase or decrease in relation to the
income received by the Fund from its investments, which would in any case be
reduced by the Fund's expenses before it is distributed to shareholders.
When and if available, the Funds may purchase Fixed Income Securities at a
discount from face value. However, the Funds do not intend to hold such
securities to maturity for the purpose of achieving potential capital
appreciation, unless current yields on these securities remain attractive.
Lower Rated Securities
Investments in below-Investment Grade Fixed Income Securities by the IMG Bond
Fund, while generally providing greater income and opportunity for gain than
investments in higher rated securities, usually entail greater risk of principal
and income (including the possibility of default or bankruptcy of the issuers of
such securities), and involve greater volatility of price (especially during
periods of economic uncertainty or change) than investments in higher rated
securities and because yields may vary over time, no specific level of income
can ever be assured. In particular, securities rated lower than "Baa" by Moody's
or "BBB" by S&P or comparable securities either rated by another NRSRO or
unrated (commonly known as "junk bonds") are considered speculative. These lower
rated, higher yielding Fixed Income Securities generally tend to reflect
economic changes (and the outlook for economic growth), short-term corporate and
industry developments and the market's perception of their credit quality
(especially during times of adverse publicity) to a greater extent than higher
rated securities which react primarily to fluctuations in the general level of
interest rates (although these lower rated Fixed Income Securities are also
affected by changes in interest rates). In the past, economic downturns or an
increase in interest rates have under certain circumstances caused a higher
incidence of default by the issuers of these securities and may do so in the
future, especially in the case of highly leveraged issuers. During certain
periods, the higher yields on the Fund's lower rated, high yielding Fixed Income
Securities are paid primarily because of the increased risk of loss of principal
and income, arising from such factors as the heightened possibility of default
or bankruptcy of the issuers of such securities. Due to the fixed income
payments of these securities, the Fund may continue to earn the same level of
interest income while its net asset value declines due to Fund losses, which
could result in an increase in the Fund's yield despite the actual loss of
principal.
The prices for these securities may be affected by legislative and regulatory
developments. For example, federal rules require that savings and loan
associations gradually reduce their holdings of high-yield securities. An effect
of such legislation may be to depress the prices of outstanding lower rated,
high yielding Fixed Income Securities.
Changes in the value of securities subsequent to their acquisition will not
affect cash income or yield to maturity of the Fund, but will be reflected in
the net asset value of shares of the Fund. The market for these lower rated
fixed income securities may be less liquid than the market for investment grade
fixed income securities. Furthermore, the liquidity of these lower rated
securities may be affected by the market's perception of their credit quality.
Therefore, the Advisor's judgment may at times play a greater role in valuing
these securities than in the case of Investment Grade Fixed Income Securities,
and it also may be more difficult during times of certain adverse market
conditions to sell these lower rated securities at their fair market value to
meet redemption requests or to respond to changes in the market.
As noted above, the IMG Bond Fund may invest up to 25% of its total assets in
fixed income securities that are rated lower than Investment Grade. See "Fixed
Income Securities" above. To the extent the Fund invests in these lower rated
fixed income securities, the achievement of its investment objective may be more
dependent on the Advisor's own credit analysis than in the case of a fund
investing in higher quality bonds. While the Advisor will refer to ratings
issued by established ratings agencies, it is not a policy of the Fund to rely
exclusively on ratings issued by these agencies, but rather to supplement such
ratings with the Advisor's own independent and ongoing review of credit quality.
The Funds may also invest in Fixed Income Securities rated in the fourth highest
category by one or more NRSROs (e.g., "Baa" by Moody's), and comparable unrated
securities. These securities, while normally exhibiting adequate protection
parameters, may have speculative characteristics and changes in economic
conditions and other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than in the case of higher
grade Fixed Income Securities.
For further discussion, see "INVESTMENT POLICIES AND TECHNIQUES -- Low-Rated and
Comparable Unrated Fixed Income Securities" in the Statement of Additional
Information.
Short-Term Investments for Defensive Purposes
During periods of unusual market conditions when the Advisor believes that
investing for defensive purposes is appropriate, a large portion or all of the
assets of one or more of the Funds may be invested in cash or Short-Term Cash
Equivalents including, but not limited to, obligations of banks (including
certificates of deposit, bankers' acceptances and repurchase agreements), high
quality commercial paper and short-term notes (rated in the two highest
categories by S&P and/or Moody's or any other NRSRO or determined to be of
comparable quality by the Advisor), other money market funds, obligations issued
or guaranteed by the U.S. government or any of its agencies or instrumentalities
and related repurchase agreements.
Illiquid Securities
Each Fund may invest up to 10% of its net assets in illiquid securities. For
purposes of this restriction, illiquid securities include restricted securities
(securities the disposition of which is restricted under the federal securities
laws, such as private placements), other securities without readily available
market quotations (including options traded in the over-the-counter market, and
interest-only and principal-only stripped mortgage-backed securities), and
repurchase agreements maturing in more than seven days. Risks associated with
restricted securities include the potential obligation to pay all or part of the
registration expenses in order to sell certain restricted securities. A
considerable period of time may elapse between the time of the decision to sell
a security and the time a Fund may be permitted to sell it under an effective
registration statement. If, during such a period, adverse conditions were to
develop, the Fund might obtain a less favorable price than that prevailing when
it decided to sell. A complete description of these investment practices and
their associated risks is contained in the Statement of Additional Information.
Futures and Options Activities
The Funds may, subject to certain restrictions, invest in interest rate futures
contracts and index futures contracts. Interest rate futures contracts are
contracts for the future delivery of debt securities, such as U.S. Treasury
bonds, U.S. Treasury bills, U.S. Treasury notes, Government National Mortgage
Association modified pass-through mortgage-backed securities, 90-day commercial
paper, bank certificates of deposit, and Eurodollar certificates of deposit.
Index futures contracts are contracts in which the parties agree to take or make
delivery of an amount of cash equal to the difference between the value of the
index at the close of the last trading day of the contract and the price at
which the futures contract was originally written.
The Funds may also (i) purchase covered spread options which give each Fund the
right to sell a security that it owns at a fixed dollar spread or yield spread
in relationship to another security that the Fund does not own, but which is
used as a benchmark (up to 5% of the Fund's total net assets); (ii) write call
options and purchase put options on interest rate and index futures contracts;
(iii) write covered call options on its portfolio securities and purchase
covered put options on its portfolio securities; and (iv) enter into closing
transactions with respect to these options. The Funds may enter into futures
transactions and options on futures contracts and Fund securities only for
traditional hedging purposes. Premiums may be generated through the use of call
options. However, the premiums which may be generated are not the primary reason
for writing covered call options.
These investment practices will primarily be used to attempt to minimize adverse
principal or price fluctuations and unfavorable fluctuations in interest rates.
They do, however, involve risks that are different in some respects from the
investment risks associated with similar funds which do not engage in these
activities. With respect to futures contracts and options on futures contracts,
the correlation between changes in prices of futures contracts (and options
thereon) and of the securities being hedged can only be approximate.
Consequently, even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or interest rate trends. Because of low
margin deposits required, futures trading involves an extremely high degree of
leverage. As a result, a relatively small price movement in a futures contract
or an option thereon may result in immediate and substantial gain, as well as
loss, to the investor. Therefore, a purchase or sale of a futures contract may
result in gains or losses in excess of the amount initially invested in the
futures contract. Since most U.S. futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day, a
Fund may not be able to close futures positions at favorable prices.
Over-the-counter options are not traded on contract markets regulated by the
CFTC or the SEC, and many of the protections afforded to exchange participants
are not available. These options have no limits on daily price fluctuations, and
pose the risks of inability to find a counterparty to a transaction, lack of a
liquid secondary market, and the risk of default of the counterparty. A complete
description of futures and options investment practices and their associated
risks is contained in the Statement of Additional Information. Each Fund's
transactions in futures, options on futures, and options on Fund securities are
subject to certain restrictions. (See "INVESTMENT RESTRICTIONS".)
Warrants
The IMG Core Stock Fund may invest in warrants; however, not more than 5% of the
Fund's total assets (at the time of purchase) will be invested in warrants other
than warrants acquired in units or attached to other securities. Of such 5%, not
more than 2% of total assets at the time of purchase may be invested in warrants
that are not listed on the New York or American Stock Exchange. An investment in
warrants is pure speculation in that they have no voting rights, pay no
dividends, and have no rights with respect to the assets of the corporation
issuing them. Warrants basically are options to purchase equity securities at a
specific price valid for a specific period of time. They do not represent
ownership of securities but only the right to buy them. Warrants differ from
call options in that warrants are issued by the issuer of the securities which
may be purchased on their exercise, whereas call options may be written by
anyone. (See "Covered Call and Put Options" in the Statement of Additional
Information.) The prices of warrants do not necessarily move parallel to the
prices of the underlying securities.
Variable or Floating Rate Securities
Each Fund may invest in Fixed Income securities which offer a variable or
floating rate of interest. Variable rate securities provide for automatic
establishment of a new interest rate at fixed intervals (e.g., daily, monthly,
semi-annually, etc.). Floating rate securities provide for automatic adjustment
of the interest rate whenever some specified interest rate index changes. The
interest rate on variable or floating rate securities is ordinarily determined
by reference to or is a percentage of a bank's prime rate, the 90-day U.S.
Treasury bill rate, the rate of return on commercial paper or bank certificates
of deposit, an index of short-term interest rates, or some other objective
measure.
Variable or floating rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time on seven days' notice; in other
cases, the demand feature is exercisable at any time on 30 days' notice or on
similar notice at intervals of not more than one year. Securities with a demand
feature exercisable over a period in excess of seven days are considered to be
illiquid. (See "Illiquid Securities" above.) Some securities which do not have
variable or floating interest rates may be accompanied by puts producing similar
results and price characteristics.
Variable rate demand notes include master demand notes which are obligations
that permit a Fund to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Fund, as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments will generally be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, the Fund's right to
redeem is dependent on the ability of the borrower to pay principal and interest
on demand. Such obligations frequently are not rated by credit rating agencies.
If not so rated, a Fund may invest in them only if the Advisor determines that
at the time of investment the obligations are of comparable quality to the other
obligations in which the Fund may invest. The Advisor, on behalf of the Fund,
will consider on an ongoing basis the creditworthiness of the issuers of the
floating and variable rate demand obligations owned by the Fund.
Mortgage-Backed Securities
Mortgage loans made by banks, savings and loan institutions, and other lenders
are often assembled into pools which are issued and guaranteed by an agency or
instrumentality of the U.S. government, though not necessarily backed by the
full faith and credit of the U.S. government itself, or collateralized by U.S.
Treasury obligations or by U.S. government agency securities. Interests in such
pools are described herein as "Mortgage-Backed Securities". These include
securities issued by the Government National Mortgage Association ("GNMA"),
Federal Home Loan Mortgage Corporation ("FHLMC"), and the Federal National
Mortgage Association ("FNMA"). Each Fund may invest in Mortgage-Backed
Securities representing undivided ownership interests in pools of mortgage
loans, including GNMA, FHLMC, and FNMA Certificates and so-called "CMOs" (i.e.,
collateralized mortgage obligations which are issued by nongovernmental entities
but which are collateralized by U.S. Treasury obligations or by U.S. government
agency securities). The Funds may also invest in REMIC Certificates issued by
FNMA. Investors may purchase beneficial interests in REMICs, which are known as
"regular" interests or "residual" interests. The Funds are not presently
permitted to invest in "residual" interests.
GNMA Certificates are Mortgage-Backed Securities which evidence an undivided
interest in a pool of mortgage loans. GNMA Certificates differ from bonds in
that principal is paid monthly by the borrowers over the term of the loan rather
than returned in a lump sum at maturity. GNMA Certificates that the Funds may
purchase are the "modified pass-through" type. "Modified pass-through" GNMA
Certificates entitle the holder to receive a share of all interest and principal
payments paid and owed on the mortgage pool, net of fees paid to the "issuer"
and GNMA, regardless of whether or not the mortgagor actually makes the payment.
GNMA Certificates are backed as to the timely payment of principal and interest
by the full faith and credit of the U.S. government.
FHLMC issues two types of mortgage pass-through securities: mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the underlying
pool. The FHLMC guarantees timely payments of interest on PCs and the full
return of principal. GMCs also represent a pro rata interest in a pool of
mortgages. However, these PCs or GMCs pay interest semi-annually and return
principal once a year in guaranteed minimum payments. This type of security is
guaranteed by FHLMC as to timely payment of principal and interest but it is not
guaranteed by the full faith and credit of the U.S. government.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA Certificates").
FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate
represents a pro rata share of all interest and principal payments made and owed
on the underlying pool. The principal and the timely payment of interest on FNMA
Certificates are guaranteed only by FNMA itself, not by the full faith and
credit of the U.S. government. FNMA also issues REMIC Certificates, which
represent an interest in a trust funded with FNMA Certificates. REMIC
Certificates are guaranteed by FNMA and not by the full faith and credit of the
U.S. government.
Each of the Mortgage-Backed Securities described above is characterized by
periodic payments to the holder, reflecting the monthly payments made by the
borrowers who received the underlying mortgage loans. The payments to the
security holders (such as a Fund), like the payments on the underlying loans,
represent both principal and interest. Although the underlying mortgage loans
are for specified periods of time, such as 20 or 30 years, the borrowers can,
and typically do, pay them off sooner. Thus, the security holders frequently
receive prepayments of principal in addition to the principal which is part of
the regular payments. A borrower is more likely to prepay a mortgage which bears
a relatively high rate of interest. This means that in times of declining
interest rates, some of a Fund's higher-yielding Mortgage-Backed Securities
might be converted to cash, and the Fund will be forced to accept lower interest
rates when that cash is used to purchase additional securities in the
Mortgage-Backed Securities sector or in other investment sectors. Investments in
mortgage-backed securities can be volatile depending upon the makeup of the
mortgage portfolio underlying the particular security and the prepayment
experience on the underlying mortgage. In addition to the foregoing, each Fund
may invest in similar asset-backed securities which are backed not by mortgages
but other assets such as receivables.
Asset-Backed Securities
The Funds may invest in corporate asset-backed securities. These securities,
issued by trusts and special purpose corporations, are backed by a pool of
assets, such as credit card and automobile loan receivables, representing the
obligations of a number of different parties
Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to sell-off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (i.e., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. The Fund
will not pay any additional or separate fees for credit support. The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security.
Zero Coupon Bonds, Deferred Interest Bonds, and PIK Bonds
Each of the Funds may invest in zero coupon bonds, deferred interest bonds and
PIK bonds. Zero coupon bonds are debt obligations which are issued or purchased
at a significant discount from face value. The discount approximates the total
amount of interest the bonds will accrue and compound over the period until
maturity or the first interest payment date at a rate of interest reflecting the
market rate of the security at the time of issuance. While zero coupon bonds do
not require the periodic payment of interest, deferred interest bonds provide
for a period of delay before the regular payment of interest begins. PIK bonds
are debt obligations which provide that the issuer thereof may, at its option,
pay interest on such bonds in cash or in the form of additional debt
obligations. Such investments benefit the issuer by mitigating its need for cash
to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of such cash. Such investments may
experience greater volatility in market value due to changes in interest rates
than debt obligations which make regular payments of interest. A Fund will
accrue income on such investments for tax and accounting purposes, as required,
which is distributable to shareholders and which, because no cash is received at
the time of accrual, may require the liquidation of other Fund securities to
satisfy the Fund's distribution obligations.
Collateralized Mortgage Obligations and Multi-c-lass Pass-Through Securities
Each of the Funds may invest a portion of its assets in Collateralized Mortgage
Obligations ("CMOs"), which are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically CMOs are collateralized by
certificates issued by GNMA, FNMA or FHLMC but also may be collateralized by
whole loans or private mortgage pass-through securities (such collateral
collectively hereinafter referred to as "Mortgage Assets"). Each of the Funds
may also invest a portion of their net assets in multi-class pass-through
securities which are interests in a trust composed of Mortgage Assets. CMOs
(which include multi-class pass-through securities) may be issued by agencies,
authorities or instrumentalities of the U.S. government or by private
originators or investors in mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. Payments of principal and interest on
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs or make scheduled distributions on the multi-class
pass-through securities. In a CMO, a series of bonds or certificates is usually
issued in multiple classes with different maturities. Each class of CMOs, often
referred to as a "tranche", is issued at a specific fixed or floating coupon
rate and has a stated maturity or final distribution date. Principal repayments
on the Mortgage Assets may cause the CMOs to be retired substantially earlier
than their stated maturities or final distribution dates, resulting in a loss of
all or part of the premium if any has been paid. Interest is paid or accrues on
all classes of the CMOs on a monthly, quarterly or semiannual basis. The
principal and interest on the Mortgage Assets may be allocated among the several
classes of a series of a CMO in innumerable ways. In a common structure,
payments of principal, including any principal prepayments, on the Mortgage
Assets are applied to the classes of the series of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class of CMOs until all other classes having an
earlier stated maturity or final distribution date have been paid in full. As a
part of the process of creating more predictable cash flows on most of the
tranches in a series of CMOs, one or more of the tranches generally must be
created to absorb most of the volatility in the cash flows in the underlying
mortgage assets. The yields on these more volatile tranches are generally higher
than prevailing market yields on government asset backed securities with similar
average lives. Because of the uncertainty of the cash flows on these tranches,
and the sensitivity thereof to changes in prepayment rates on the underlying
mortgage assets, the market price of and yield on these tranches tend to be
highly volatile. The same is true for multi-class pass-through securities.
Certain CMOs may be stripped (securities which provide only the principal or
interest factor of the underlying security). See "Stripped Mortgage-Backed
Securities" in the Statement of Additional Information for a discussion of the
risks of investing in classes consisting primarily of interest payments or
principal payments.
The Funds may also invest in parallel pay CMOs and Planned Amortization Class
CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which as with other CMO structures, must be
retired by its stated maturity date or final distribution date but may be
retired earlier. PAC Bonds generally require payments of a specified amount of
principal on each payment date. PAC Bonds are always parallel pay CMOs with the
required principal payment on such securities having the highest priority after
interest has been paid to all classes.
Stripped Mortgage-Backed Securities
Each of the Funds may invest a portion of its assets in stripped mortgage-backed
securities ("SMBS"), which are derivative multi-class mortgage securities
usually structured with two classes that receive different proportions of
interest and principal distributions from an underlying pool of mortgage assets.
For a further description of SMBS and the risks related to transactions therein,
see the Statement of Additional Information.
Loan Participations
Each of the Funds may invest a portion of its assets in "loan participations".
By purchasing a loan participation, each Fund acquires some or all of the
interest of a bank or other lending institution in a loan to a corporate
borrower. Many such loans are secured, and most impose restrictive covenants
which must be met by the borrower. These loans are made generally to finance
internal growth, mergers, acquisitions, stock repurchases, leveraged buyouts and
other corporate activities. Such loans may be in default at the time of
purchase. Each Fund may also purchase trade or other claims against companies,
which generally represent money owed by the company to a supplier of goods and
services. These claims may also be purchased at a time when the company is in
default. Some of the loan participations acquired by the Funds may involve
revolving credit facilities or other standby financing commitments which
obligate the Funds to pay additional cash on a certain date or on demand.
The highly leveraged nature of many such loans makes such loans especially
vulnerable to adverse changes in economic or market conditions. Loan
participations and other direct investments may not be in the form of securities
or may be subject to restrictions on transfer, and only limited opportunities
may exist to resell such instruments. As a result, the Funds may be unable to
sell such investments at an opportune time or may have to resell them at less
than fair market value. To the extent that the Advisor determines that any such
investments are illiquid, the Funds will include them in the investment
limitations on Illiquid Securities described above. For a further discussion of
loan participations and the risks related to transactions therein, see the
Statement of Additional Information.
Derivative Securities
Each of the Funds may invest in securities which are created by combining
transactions in two or more underlying markets, often referred to as "derivative
securities", which have a return that is tied to a formula based upon an index
which may differ from the return of a simple security of the same maturity. A
formula may have a cap or other limitation on the rate of interest to be paid or
the amount of market fluctuation. These securities may have varying degrees of
volatility at different times, or under different market conditions. Allowable
investments are floating rate notes, variable rate notes, and notes whose
maturity value fluctuates.
Lending of Securities
Each Fund may lend its securities, up to 30% of the Fund's total assets, to
broker-dealers or institutional investors. The loans will be secured
continuously by collateral equal at least to the value of the securities lent.
The collateral may consist of cash, government securities, letters of credit, or
other collateral permitted by regulatory agencies. A Fund will continue to
receive the equivalent of the interest or dividends paid by the issuer of the
securities lent. A Fund may also receive interest on the investment of the
collateral or a fee from the borrower as compensation for the loan. Any cash
collateral pursuant to these loans will be invested in short-term liquid debt
securities. A Fund will retain the right to call, upon notice, the securities
lent. While there may be delays in recovery or even loss of rights in the
collateral should the borrower fail financially, the creditworthiness of the
entities to which loans are made is examined to evaluate those risks. Loans will
not be made unless the consideration which can be earned from such loans
justifies the risks. The Funds may pay reasonable custodial and services fees in
connection with the loans. (See "Reverse Repurchase Agreements" and "Securities
Lending" in the Statement of Additional Information.)
Foreign Securities
Each Fund may invest up to 15% of its total assets directly in the securities of
foreign issuers, including the securities of foreign branches and foreign
subsidiaries of domestic banks and domestic and foreign branches of foreign
banks. The Funds may also invest in foreign securities in domestic markets
through sponsored depository receipts without regard to this limitation. Foreign
investments may involve risks which are in addition to the risks inherent in
domestic investments. In many countries, there is less publicly available
information about issuers than is available in the reports and ratings published
about companies in the United States.
Foreign companies may not be subject to uniform accounting, auditing, and
financial reporting standards. The value of foreign investments may rise or fall
because of changes in currency exchange rates, and a Fund may incur certain
costs in converting securities denominated in foreign currencies to U.S.
dollars. Dividends and interest on foreign securities may be subject to foreign
withholding taxes, which would reduce a Fund's income without providing a tax
credit for the Fund's shareholders. Obtaining judgments, when necessary, in
foreign countries may be more difficult and more expensive than in the United
States. Although each Fund intends to invest in securities of foreign issuers
located in developed countries which are considered as having stable and
friendly governments, there is the possibility of expropriation, confiscatory
taxation, nationalization, currency blockage, or political or social instability
which could affect investments in those nations.
In addition, the net asset values of the Funds are determined and shares of the
Funds can be redeemed only on days the New York Stock Exchange ("NYSE") is open
for business. However, foreign securities held by a Fund may be traded on days
and at times when the NYSE is closed. Accordingly the net asset value of a Fund
may be significantly affected on days when the investor is unable to purchase or
redeem shares.
Delayed Delivery Securities
Each Fund may invest up to 15% of its total assets, measured at the time of
purchase, in securities purchased on a when-issued or delayed delivery basis
("Delayed Delivery" or "When-Issued" Securities). Although the payment and
interest terms of these securities are established at the time the purchaser
enters into the commitment, these securities may be delivered and paid for at a
future date, generally within 45 days. Purchasing securities on a when-issued
basis allows the Fund to lock in a fixed price or yield on a security it intends
to purchase. At the time a Fund purchases a When-Issued Security, it records the
transaction and reflects the value of the security in determining its net asset
value (although the Fund will not accrue interest income prior to actual
delivery).
The Funds may also sell securities on a delayed delivery basis. When a Fund has
sold a security on a delayed delivery basis, the Fund does not participate in
further gains or losses with respect to the security.
Delayed Delivery Securities are subject to changes in value based on the market
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Delayed Delivery Securities may
expose a Fund to this risk because they may experience such fluctuation prior to
actual delivery. The greater the Fund's outstanding commitments to purchase
these securities, the greater the Fund's exposure to possible fluctuations in
its net asset value. Purchasing (or selling) Delayed Delivery Securities may
involve the additional risk that the yield available in the market when delivery
occurs may be higher (or lower) than that obtained at the time of commitment.
Although the Fund may be able to sell Delayed Delivery Securities prior to the
delivery date, a Fund will only purchase Delayed Delivery Securities for the
purpose of actually acquiring the securities, unless after entering into the
commitment a sale appears desirable for investment reasons. Each Fund will
segregate and maintain cash, cash-equivalents, or other high-quality, liquid
debt securities in an amount at least equal to the amount of outstanding
commitments for Delayed Delivery Securities at all times. See the Statement of
Additional Information for further discussion of Delayed Delivery Transactions.
Mortgage "Dollar Roll" Transactions
The Funds may enter into "dollar roll" transactions with selected banks and
broker-dealers pursuant to which the Fund sells Mortgaged-Backed Securities for
delivery in the current month and simultaneously contracts with the same
counterparty to repurchase similar (same type, coupon and maturity) but not
identical securities on a specified future date. A Fund will only enter into
covered rolls. A "covered roll" is a specific type of dollar roll for which
there is an offsetting cash position or a cash equivalent security position
which matures on or before the forward settlement date of the dollar roll
transaction. A Fund gives up the right to receive principal and interest paid on
the securities sold. However, a Fund would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation, and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of a Fund. A Fund will hold and maintain in a segregated account until the
settlement date cash or liquid, high grade debt securities in an amount equal to
the forward purchase price. The benefits derived from the use of mortgage dollar
rolls may depend upon the Advisor's ability to correctly predict mortgage
prepayments and interest rates. There is no assurance that mortgage dollar rolls
can be successfully employed.
For financial reporting and tax purposes, each Fund proposes to treat mortgage
dollar rolls as two separate transactions; one involving the purchase of a
security and a separate transaction involving a sale. No Fund currently intends
to enter into mortgage dollar rolls that are accounted for as a financing.
Mortgage dollar rolls are considered illiquid securities. (See "Illiquid
Securities" above.)
Portfolio Turnover
The Funds attempt to increase return by trading to take advantage of short-term
market variations. This policy may lead to higher annual portfolio turnover
rates. It is anticipated that under normal market conditions the rate of
portfolio turnover for the IMG Core Stock Fund is estimated to fall between 50%
and 70%; however, during periods when it is advisable to engage in substantial
short-term trading, the portfolio turnover rate could exceed 200%. The rate of
portfolio turnover for the IMG Bond Fund is estimated to fall between 100% and
300%. These rates should not be considered as limiting factors.
The annual portfolio turnover rate indicates changes in a Fund's securities'
positions. The turnover rate may vary from year to year, as well as within a
year. It may also be affected by sales of Fund securities necessary to meet cash
requirements for redemptions of shares. High turnover in any year will result in
the payment by a Fund of above average amounts of brokerage commissions and
could result in the payment by shareholders of above average amounts of taxes on
realized investment gains. However, to the extent the Funds purchase Fixed
Income Securities, it is not anticipated that high turnover will produce a
negative effect, because Fixed Income Securities will normally be purchased on a
principal basis.
The Funds intend to limit their turnover so that realized short-term gains on
securities held for less than three months do not exceed 30% of gross income.
This enables the Funds to derive the benefits of favorable tax treatment
available under the Internal Revenue Code. (See "DISTRIBUTIONS AND TAXES".)
INVESTMENT RESTRICTIONS
The Funds have adopted certain investment restrictions. Each Fund's
"fundamental" investment restrictions cannot be changed without approval by
holders of a majority of the respective Fund's outstanding voting shares. As
defined in the Investment Company Act of 1940 ("1940 Act"), this means the
lesser of (a) 67% of the shares of the Fund at a meeting where more than 50% of
the outstanding shares are present in person or by proxy, or (b) more than 50%
of the outstanding shares of the Fund. However, except where expressly stated to
be fundamental, the Funds' investment restrictions are not fundamental and may
be changed without shareholder approval. Please refer to the Statement of
Additional Information for a complete list of investment restrictions adopted by
the Funds.
The fundamental investment restrictions provide, among other things, that each
Fund may not:
1. Purchase securities of any company having less than three years of
continuous operation (including operations of any predecessors) if the
purchase would cause the value of a Fund's investments in all such
companies to exceed 5% of the value of its net assets.
2. Purchase the securities of any issuer if such purchase would cause more
than 5% of the value of 75% of the Fund's total assets to be invested in
securities of any one issuer (except securities of the U.S. government or
any instrumentality thereof), or purchase more than 10% of the outstanding
voting securities of any one issuer.
3. Borrow money except for temporary or emergency purposes (but not for the
purpose of purchasing investments) and then, only in an amount not to
exceed 25% of the value of a Fund's net assets at the time the borrowing is
incurred; provided, however, that a Fund may enter into transactions in
options, futures, and options on futures. A Fund may borrow from a bank or
by engaging in a reverse repurchase agreement. A Fund will not purchase
securities when borrowings exceed 5% of its total assets. If a Fund borrows
money, its share price may be subject to greater fluctuation until the
borrowing is paid off. To this extent, purchasing securities when
borrowings are outstanding may involve an element of leverage. See the
Statement of Additional Information for an explanation of reverse
repurchase agreements.
4. Enter into futures contracts or related options if more than 30% of a
Fund's net assets would be represented by futures contracts or more than 5%
of a Fund's total assets would be committed to initial margin and premiums
on futures and related options.
5. Invest in options (options on futures, indexes and securities) if
securities covering these options exceed 25% of a Fund's net assets or the
premiums paid for such options exceed 5% of a Fund's net assets.
MANAGEMENT
Under the laws of the State of Maryland, the property, affairs and business of
the Company and the Funds are managed by the Board of Directors. The Directors
elect officers who are charged with the responsibility for the day-to-day
operation of the Funds and the execution of policies formulated by the
Directors. The Directors and Officers are:
*David W. Miles, Chairman of the Board and Director.
President, Treasurer and Senior Managing Director, Investors Management
Group, and IMG Financial Services, Inc.
*Mark A. McClurg, President and Director.
Secretary and Senior Managing Director, Investors Management Group, and
IMG Financial Services, Inc.
David Lundquist, Director.
Vice Chairman and CFO, New Heritage Association, a cable television
company.
Johnny Danos, Director.
President, Danos, Inc., a personal investment company.
Debra Johnson, Director.
CFO and Treasurer, Business Publications Corporation/Iowa Title Company,
a publishing and abstracting service company.
Robert A. Dee, Director.
Vice Chairman, HMA, Inc., an insurance agency.
Edward J. Stanek, Director.
CEO, Iowa Lottery, a government operated lottery.
*Richard A. Westcott, Director.
Chairman, Investors Management Group, and IMG Financial Services, Inc.
*James, W. Paulsen, Vice President, Treasurer and Director.
Senior Managing Director, Investors Management Group and IMG Financial
Services, Inc.
*Ruth L. Prochaska, Secretary.
Controller / Compliance Officer, Investors Management Group, and IMG
Financial Services, Inc.
*Mr. Miles, Mr. McClurg, Mr. Westcott, Mr. Paulsen and Ms. Prochaska are
deemed to be "interested person", as defined in the Investment Company Act of
1940.
The mailing address of all officers and directors of the Fund is 2203 Grand
Avenue, Des Moines, Iowa 50312-5338.
The Advisor
The Funds have entered into an investment advisory agreement (the "Advisory
Agreement") with Investors Management Group, ("IMG" or the "Advisor"), 2203
Grand Avenue, Des Moines, Iowa 50312-5338, to serve as each Fund's investment
advisor. IMG is a registered investment advisor organized in 1982. Since then,
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. IMG has approximately $800 million in equity, fixed income, and money
market assets under management. David W. Miles and Mark A. McClurg are principal
shareholders of IMG.
Pursuant to the Advisory Agreement with the Fund, IMG provides investment
advisory assistance and the day-to-day management of each Fund's investments,
subject to the supervision and authority of the Board of Directors.
The IMG Core Stock Fund is co-managed by James W. Paulsen, Ph.D. and James T.
Richards. The IMG Bond Fund is co-managed by James W. Paulsen, Ph.D., Jeffrey
D. Lorenzen, CFA, and Kathryn D. Beyer, CFA. The following is certain
biographical information concerning the co-managers:
James W. Paulsen, Ph.D., Senior Managing Director. Dr. Paulsen is
the Advisor's chief portfolio strategist and chairs IMG's Investment
Policy Committee. Prior to joining IMG in 1991, Dr. Paulsen served as
president of a Cedar Rapids, Iowa investment firm managing over $700
million from 1983 to 1991. Dr. Paulsen received his Bachelor of
Science degree in economics and his Doctorate in economics from Iowa
State University.
James T. Richards, Managing Director. Mr. Richards is IMG's chief
equity strategist, and is a member of IMG's Investment Policy
Committee. Prior to joining IMG in 1991, he served as vice
president and managing director--equities, for a Cedar Rapids, Iowa
investment firm from 1985 to 1991. Mr. Richards received his Masters of
Business Administration from the University of Iowa and his Bachelor of
Arts degree in economics from Coe College.
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 from Drake University and his Bachelor of Business
Administration degree from the University of Iowa.
Kathryn D. Beyer, CFA, Managing Director. Ms. Beyer is a fixed
income strategist and is a member of IMG's Investment Policy
Committee. Prior to joining IMG in 1993, her experience includes
serving as a securities analyst and director of mortgage-backed
securities for Central Life Assurance Company from 1988 to 1993.
Ms. Beyer received her Masters of Business Administration from Drake
University and her Bachelor of Science degree in agricultural
engineering from Iowa State University.
Investment Advisory Fees
Under the terms of the Advisory Agreement, each Fund has agreed to pay IMG a
monthly management fee. The IMG Core Stock Fund and the IMG Bond Fund pay IMG a
management fee computed and paid monthly equal to, on an annual basis, 0.50% and
0.30% respectively of each Fund's average daily net assets.
At its expense, IMG provides office space and all necessary office facilities,
equipment, and personnel for servicing the investments of the Funds.
Except for the expenses expressly assumed by IMG as set forth above or as
described below with respect to the distribution of the Funds' shares, each Fund
is responsible for all its other expenses, including, without limitation,
governmental fees, interest charges, taxes if applicable, membership dues in the
Investment Company Institute allocable to the Fund, brokerage commissions, and
other expenses connected with the execution, recording and settlement of Fund
security transactions, expenses of repurchasing and redeeming shares and
expenses of servicing shareholder accounts; expenses for preparing, printing and
distributing periodic reports, notices and proxy statements to shareholders and
to governmental officers and commissions; insurance premiums; fees and expenses
of the Funds' custodian, including safekeeping of funds and securities and
maintaining required books and accounting; expenses of calculating the net asset
value of shares of the Funds; fees and expenses of independent auditors, of
legal counsel, and of any transfer agent, registrar or dividend disbursing agent
of the Funds; compensation and expenses of Directors who are not "interested
persons" of the Advisor; and expenses of shareholder meetings. Expenses relating
to the issuance, registration and qualification of shares of the Funds and the
preparation, printing and mailing of prospectuses to existing shareholders are
borne by the Funds except that the Funds' Distribution Agreement with IFS
requires IFS to pay for prospectuses that are to be used for sales purposes with
persons other than current shareholders.
From time to time, IMG may voluntarily waive all or a portion of the management
fee and/or absorb certain expenses of a Fund without further notification of the
commencement or termination of such waiver or absorption. Any such waiver will
have the effect of lowering the overall expense ratio for that Fund and
increasing the Fund's overall yield to investors at the time any such amounts
are waived and/or absorbed.
Except as voluntarily absorbed by IMG, all expenses incurred in the operation of
the Funds will be borne by the Funds. Expenses attributable to a particular Fund
are charged against the assets of that Fund; other expenses of the Funds are
allocated among the Funds on a reasonable basis determined by the Board of
Directors, including, but not limited to, proportionately in relation to the net
assets of each Fund.
Distributor
IFS serves as distributor and principal underwriter for the Funds pursuant to a
Distribution Agreement and a Rule 12b-1 Plan. IFS bears all its expenses of
providing services pursuant to the agreement, including the payment of any
commissions. Under the Plan, the Fund is not required to reimburse the
distributor for any unreimbursed distribution expenses incurred. IFS provides
for the preparation of advertising or sales literature and bears the cost of
printing and mailing prospectuses to persons other than current shareholders.
The Funds bear the cost of qualifying and maintaining the qualification of
Funds' shares for sale under the securities laws of the various states and the
expense of registering their shares with the Securities and Exchange Commission.
For its services under the Distribution Agreement, IFS receives a fee, payable
monthly, at the annual rate of 0.40% of average daily net assets of Investor
Shares of the IMG Core Stock Fund, 0.25% of average daily net assets of Investor
Shares of the IMG Bond Fund, and 0.15% of Select Shares of each Fund. This fee
is accrued daily as an expense of each Fund. Institutional Shares do not pay a
distribution services fee. (See "ADDITIONAL INVESTMENT INFORMATION".)
IFS may enter into related selling group agreements with various broker-dealer
firms that provide distribution services to investors. IFS does not currently
compensate firms for sales of shares of the Funds but may elect to pay such
compensation solely from its assets. IFS may, from time to time, pay additional
commissions or promotional incentives to firms that sell shares of the Funds. In
some instances, such additional commissions, fees or other incentives may be
offered only to certain firms that sell or are expected to sell during specified
time periods certain minimum amounts of shares of the Funds, or of other funds
distributed by IFS.
Banks and other financial services firms may provide administrative services to
facilitate transactions in shares of the Funds for their clients, and IFS may
pay them a fee up to the level of the distribution fee allowable to dealers as
described above. Banks currently are prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. If the
Glass-Steagall Act should prevent banking firms from acting in any capacity or
providing any of the described services, management will consider what action,
if any, is appropriate in order to provide efficient services for the Funds.
Banks or other financial services firms may be subject to various state laws
regarding the services described above and may be required to register as
dealers pursuant to state law. Presently IFS does not pay distribution fees to
broker-dealers, banks, or other financial services firms. The Funds do not
believe that a termination of such a relationship with a bank would result in
any material adverse consequence to the Funds.
Since the Distribution Agreement provides for fees that are used by IFS to pay
for distribution services, that agreement along with the related selling group
agreements (collectively, the "Plan") is approved and reviewed in accordance
with the Funds' Rule 12b-1 Plan under the 1940 Act, which regulates the manner
in which an investment company may, directly or indirectly, bear the expenses of
distributing its shares.
For further information, see "MANAGEMENT OF THE FUNDS" in the Statement of
Additional Information.
Fees for Shareholder Services
IMG also provides information and administrative services for shareholders of
the Funds pursuant to an Administrative Services Agreement ("Administrative
Services Agreement") under a "Shareholder Services Plan" adopted by the Board of
Directors and reviewed at least annually. Under the Shareholder Services Plan,
IMG may enter into related arrangements with various financial services firms,
such as broker-dealer firms or banks ("Firms"), that provide services and
facilities for their customers or clients who are shareholders of the Funds.
Such administrative services and assistance may include, but are not limited to,
establishing and maintaining shareholder accounts and records, processing
purchase and redemption transactions, answering routine inquiries regarding the
Funds and their special features and such other services as may be agreed upon
from time to time and permitted by applicable statute, rule or regulation. IMG
bears all its expenses of providing services pursuant to the Administrative
Services Agreement, including the payment of any services fees. For services
under the Administrative Services Agreement, the Funds pay IMG a fee, payable
monthly, at the annual rate of up to 0.25% of average daily net assets of the
Investor Shares of either Fund, 0.25% of Select Shares of the IMG Core Stock
Fund, 0.15% of Select Shares of the IMG Bond Fund, 0.15% of Institutional Shares
of the IMG Core Stock Fund, and 0.10% of Institutional Shares of the IMG Bond
Fund. IMG may then pay each Firm a service fee at an annual rate of up to 0.25%
of net assets of IMG Core Stock Fund and the IMG Bond Fund owned by those
accounts in the Funds that the Firm maintains and services. A Firm becomes
eligible for the service fee based on assets in the accounts in the month
following the month of purchase and the fee continues until terminated by IMG or
the Funds. The fees are calculated monthly and paid quarterly.
IMG also may provide some of the above services and may retain any portion of
the fee under the Administrative Services Agreement not paid to Firms to
compensate itself for administrative functions performed for the Funds.
Fund Accounting
IMG provides fund accounting services pursuant to a Fund Accounting Agreement.
Each Fund pays IMG fees equal to an annual rate of 0.10% of average daily net
assets.
HOW TO INVEST
You can purchase shares of the Funds in several ways, each of which is described
below, from IFS as distributor of the Funds' shares. You may also purchase (or
redeem) shares of a Fund through dealers or others who may charge a service or
transaction fee. (See "Financial Services Firms" below.) Please review the
information under "ADDITIONAL INVESTMENT INFORMATION", and "HOW TO REDEEM
SHARES". All purchases are subject to acceptance by the Funds and the Funds may
decline to accept a purchase order upon receipt when it would not be in the best
interest of existing shareholders to accept the order. The purchase price of
your shares will be the net asset value next determined after IFS receives your
investment in proper form. (See "ADDITIONAL INVESTMENT INFORMATION -Determining
Your Share Price".)
By Mail
You can purchase shares of the Funds by sending an application and a check or
money order payable to "IMG Mutual Funds, Inc." to the address on the back cover
of this Prospectus. To make additional purchases, enclose a check payable to IMG
Mutual Funds, Inc. along with the Additional Investment Form provided with your
account statement. Or, you may send a check along with an indication of the
account in which it should be deposited. Please note the minimum investment
requirements for each class of shares of the Funds. (See "ADDITIONAL INVESTMENT
INFORMATION -- Minimum Investments".) If your check does not clear, you will be
charged a $20 service fee. You will also be responsible for any losses suffered
by a Fund as a result. All your purchases must be made by checks payable to IMG
Mutual Funds, Inc. drawn on U.S. banks. Third-party checks are not accepted.
By Wire
You may purchase additional shares by wire. Please call 1-800-798-1819 for
complete wire instructions. The Funds will not be responsible for the
consequences of delays resulting from the banking or Federal Reserve wire
systems.
By Exchange
You can open a new account by exchanging from one Fund account to another.
Exchanges may only be made between identically registered accounts. There is no
charge for this service. You may request an exchange by calling or writing IFS.
Your purchase price will be the offering price next determined after your
exchange request is received in proper form. The telephone exchange minimum is
the lesser of $50 or the balance of your account, with no minimum for written
exchanges. Check the minimum initial investment requirements for the class of
shares of the Fund you are investing in under "ADDITIONAL INVESTMENT INFORMATION
- -- Minimum Investments". Please review the information about this privilege
under "SHAREHOLDER SERVICES -- Telephone Exchange and Redemption Privilege".
By Telephone Purchase
You can make additional investments from $50 to $25,000 into your IMG Funds
account by telephone. Upon your authorization, money from your bank checking or
NOW account will be withdrawn to make the investment. The price you receive will
be the offering price next computed after IFS receives your funds from your
bank, which is normally two banking days after you have initiated the
transaction through IFS. To establish the telephone purchase privilege, request
a form by calling 1-800-798-1819. Neither the Funds nor their transfer agent
will be responsible for the authenticity of purchase instructions received by
telephone. Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact.
No Minimum Investment Program -- Investor Shares
The Funds will waive the minimum initial investment for investors purchasing
Investor Shares using the Automatic Investment Plan or Automatic Exchange. To
establish these options, call 1-800-798-1819 for an application. If the
Automatic Investment Plan or Automatic Exchange is discontinued before the
investor reaches the minimum investment that would otherwise be required, a Fund
reserves the right to close an investor's account. Prior to closing any account
for failure to reach the minimum initial investment, however, the Fund will give
the investor written notice and 60 days in which to reinstate the Automatic
Investment Plan or Automatic Exchange or otherwise reach the minimum initial
investment. Since each Fund has the right to redeem an investor's account for
failure to reach the minimum initial investment, you should consider your
financial ability to continue in this Plan until the minimum initial investment
amount is met, since such a redemption may occur in periods of declining share
prices. Involuntary redemptions will not occur where the investor's account
falls below the minimum because of a decrease in the net asset value of a Fund.
(See "SHAREHOLDER SERVICES -- Automatic Investment Plan" and "-- Automatic
Exchange Plan".)
Financial Services Firms
Shares of the Funds are available through selected financial services firms such
as broker-dealer firms and banks ("Firms"). The purchase price for shares of a
Fund purchased through such Firms will be the net asset value next determined
after receipt of the order to purchase by the Firm. Such Firms are responsible
for the prompt transmission of purchase and redemption orders.
Firms provide varying arrangements for their clients to purchase and redeem Fund
shares. Some may establish higher minimum investment requirements than set forth
above. They may arrange with their clients for other investment or
administrative services. Such Firms may independently establish and charge
additional amounts to their clients for such services, which charges would
reduce the clients' yield or return. Firms may also hold Fund shares positions
in nominee or street name as agent for and on behalf of their customers. In such
instances, the Fund's transfer agent will have no information with respect to or
control over accounts of specific shareholders. Such shareholders may obtain
access to their accounts and information about their accounts only from their
Firms. Some of the Firms may receive compensation from the Fund's Shareholder
Service Agent for recordkeeping and other expenses related to these nominee
accounts. In addition, certain privileges with respect to the purchase and
redemption of shares or the reinvestment of dividends may not be available
through such Firms. Some Firms may participate in a program allowing them access
to their clients' accounts for servicing including, without limitation,
transfers of registration and dividend payee changes; and may perform functions
such as generation of confirmation statements and disbursement of cash
dividends. This Prospectus should be read in connection with such Firms'
material regarding their fees and services. Some Firms may not offer all classes
of shares of each Fund to their clients. A shareholder otherwise eligible for a
class of Shares with a lower fee structure may transfer an account to IFS at no
charge to convert to the appropriate class of shares. A transfer fee or other
charge may be imposed by the transferring firm. Shareholders should also
consider that certain Firms may offer services which may not be available
directly from the Fund.
IFS does not presently compensate Firms for sales of Fund shares. IFS is
compensated by the Fund for services as distributor and principal underwriter. A
salesperson for a Firm or for IFS or any other person entitled to receive
compensation for selling or servicing Fund shares may receive different
compensation for such sales depending on the class of the shares sold.
ADDITIONAL INVESTMENT INFORMATION
The shares of each Fund may be purchased at the net asset value of that Fund's
shares next determined after the Fund receives the order for such purchase. Each
Fund reserves the right to cease offering its shares for sale at any time.
Multiple Classes of Shares and Conversion Feature
The shares of each Fund are divided into "Investor" Shares, "Select" Shares, and
"Institutional" Shares. All shares may be purchased directly, with the following
restrictions:
The purpose of this three class structure is to flexibly meet the needs of
different types of shareholders through a single Fund, thereby minimizing
operating costs to the Fund. It is also believed that by offering alternative
expense structures within the Fund, the Fund will more effectively compete for
investments of different levels. Funds commonly achieve this objective by
offering "clone funds" with lower expense ratios, and sometimes fewer services,
to investors able to meet higher investment minimums. In the view of the
Advisor, investors may benefit more by providing these alternatives in the
context of a single fund. Multiple classes avoid duplicative portfolio and fund
management costs that are required by "clone funds" which should lower expenses
compared to creation of multiple funds. It is also anticipated that by using
multiple classes of shares the Funds may be able to attract larger asset bases,
which would permit the Funds to spread fixed costs over more shares and improve
portfolio liquidity and diversification.
Investor Shares are available directly from IFS as the Fund's distributor, or
through broker dealer firms and other financial service firms executing selling
agreements with the Funds. Investor Shares offer the lowest minimum initial
investment and account values -- $1,000 ($250 for UG/TMA and IRA accounts).
Shareholder services offered are Automatic Dividend Reinvestment; Telephone
Purchase, Exchange and Redemption Privilege; Automatic Investment Plan; Payroll
Direct Deposit Plan; Automatic Exchange Plan; Systematic Withdrawal Plan; and,
No Minimum Investment Plan.
Investor Shares pay two class level expenses: (1) an administrative services fee
("service fee") pursuant to a Shareholder Services Plan adopted by the Fund at
an annual rate of 0.25% on average daily net assets; (2) a distribution fee
("distribution fee") pursuant to a Distribution Plan adopted by the IMG Core
Stock Fund and the IMG Bond Fund at an annual rate of 0.40% and 0.25% on average
daily net assets respectively. The services fee compensates IMG and broker
dealer firms and other financial services firms IMG executes administrative
services agreements with, for providing information and services described in
the Plan directly to shareholders. The distribution fee is paid to IFS for its
services in marketing the shares of the Fund.
Select Shares are also available directly from IFS or from other Firms. The
minimum investment in Select Shares is $100,000 per portfolio. All shareholder
services available to owners of Investor Shares are also available to Select
Share owners with the exception of the No Minimum Investment Plan. In addition,
owners of Select Shares are invited to periodic meetings with the Funds'
Advisor, and are eligible to receive portfolio investment related publications
from IMG at no cost.
Select Shares are subject to a distribution fee of 0.15%, and pay the services
fee at an annual rate of 0.25% and 0.15% of average daily net assets for the IMG
Core Stock Fund and the IMG Bond Fund respectively.
Institutional Shares require a minimum investment of $500,000. All services
available to owners of Select Shares will be available to owners of
Institutional Shares. It is anticipated that IMG will have a higher degree of
direct contact with owners of Institutional Shares than of other classes.
Institutional Shares pay no distribution fees. Institutional Shares of the IMG
Core Stock Fund and the IMG Bond Fund pay services fees of 0.15% and 0.10%
respectively. Except for the services fee and distribution fee, all other
expenses of the Fund are charged proportionally to all shares.
Conversion from one class of shares to another depends upon the minimum
investment requirement of each Fund. Investor Shares of a Fund will
automatically convert to Select Shares upon attaining the $100,000 minimum
investment. The conversion will be made on the relative net asset values of the
two classes without the imposition of any sales load, fee or other charge. The
conversion will occur within three business days following any purchase or
transfer of shares in the account after which the value of Investor Shares in
the account at the current net asset value reaches $100,000. Identically
registered accounts in more than one Fund are not combined for purposes of
calculating account minimums.
Investor and Select Shares of a Fund will also automatically convert to
Institutional Shares upon meeting the $500,000 minimum investment on the same
terms described above.
Certain other Firms may not offer all classes of shares to their clients.
Shareholders holding their accounts through such Firms will not be eligible for
automatic conversion. These (or any) shareholders may elect to transfer their
accounts to IFS in order to convert to the lowest fee class of shares for which
they qualify at no charge or fee from the Fund. A fee or other charge may be
imposed by the other Firm. Shareholders should also consider that other Firms
may offer additional services not otherwise available from the Funds.
Shareholders may also be automatically converted from Institutional Shares to
Select or Investor Shares, and from Select Shares to Investor Shares. The
conversion will occur within three business days following the date of any
transfer or redemption of shares in the account after which the value of the
remaining shares in the account at the current net asset value falls below the
required minimum for that class of shares. The conversion will be to the lowest
fee class of shares for which the investor is eligible as of the date of
conversion.
Investors will not be converted to another class of shares solely due to a
change in net asset value of their existing shares. However, a change in net
asset value together with purchase, redemption, or transfer from the account
could result in a conversion to another class of shares at a time when the
purchase, redemption, or transfer alone may not have triggered the conversion.
Dividend reinvestment may not result in a conversion to another class of shares.
An account may be terminated by the Funds on not less than 30 days' notice if,
at the time of any transfer or redemption of shares in the account, the value of
the remaining shares in the account falls below $1,000 ($250 for UG/TMA or IRA
accounts).
Each share of a Fund, whether Investor, Select, or Institutional, represents an
identical interest in the investment portfolio of that Fund and has the same
rights, except as described above. Since Select and Institutional Shares have
progressively lower expense ratios than Investor Shares, they will pay higher
dividends than Investor Shares.
If shares of any class are converted to another class, all shares in that
account will be converted, including shares purchased through the reinvestment
of dividends and other distributions.
The conversion of shares between classes may be subject to the continuing
availability of an opinion of counsel, ruling by the Internal Revenue Service or
other assurance acceptable to the Funds to the effect that (i) the assessment of
different fees with respect to each class does not result in the Funds'
dividends constituting "preferential dividends" under the Internal Revenue Code
of 1986, as amended (the "Code"), and (ii) that the conversion of shares from
one class to another does not constitute a taxable event under the Code. The
ability to convert from one class to another may be suspended if such assurance
is not available. In that event, no further conversions would occur, and shares
might continue to be subject to higher fees for an indefinite period.
Signature Guarantees
A signature guarantee is designed to protect you and the Funds against
fraudulent transactions by unauthorized persons. A signature guarantee is
required for all persons registered on an account. Some instances in which you
will need a signature guarantee include:
1. when you add the telephone redemption option to your existing account;
2. if you transfer the ownership of your account to another individual or
organization;
3. for a written redemption request over $25,000;
4. when you want redemption proceeds sent to a different name or address
than is registered on your account;
5. if you add/change your name or add/remove an owner on your account; and
6. if you add/change the beneficiary on your retirement account.
A signature guarantee may be obtained from any eligible guarantor institution.
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.
Power of Attorney -- Attorney-in-Fact
If you are investing as attorney-in-fact for another person, please complete the
account application in the name of such person. You should sign the back of the
application in the following form: "[person's name] by [your name],
attorney-in-fact". An affidavit for the Power of Attorney document must be
submitted with the application if you wish to establish telephone or check
writing privileges for the account. You will also be required to provide an
affidavit of the Power of Attorney document to process all redemption requests
from the attorney-in-fact.
The following form of affidavit typed on the Power of Attorney document and
signed is acceptable:
I hereby certify that this affidavit is a true and complete copy of the
original Power of Attorney, still in full force and effect, and that
the maker is still alive and competent.
BY: _________________________________________________________________
(Attorney-in-Fact) (Date)
_________________________________________________________________
(Print Name and Title) (Notary Seal)
This affidavit must be notarized and dated within two weeks of the date it is
received by the Funds.
Corporations and Trusts
If you are investing for a corporation, please include with your account
application a certified copy of your corporate resolution indicating which
officers are authorized to act on behalf of your account. Corporate resolutions
may need to be updated annually. As an alternative, you may complete a
Certification of Authorized Individuals form, which can be obtained from the
Funds. Until a valid corporate resolution or Certification of Authorized
Individuals is received by the Funds, services such as telephone redemption and
wire redemption will not be established. If you are investing as a trustee,
please include the date of the trust and attach a copy of the title and
signature pages of the trust agreement, as well as any pages indicating which
signatures are required to execute transactions. All trustees must sign the
application. If not, then services such as telephone redemptions, wire
redemptions, and check writing (if available) will not be established. All
trustees must sign redemption requests unless proper documentation to the
contrary is provided to the Funds. Failure to provide these documents, or
signatures as required, when you invest may result in delays in processing
redemption requests.
Minimum Investments
Except as provided below, the minimum initial investment in Investor Shares of
each Fund is $1,000. For IRA accounts and Uniform Gifts/Transfers to Minors
accounts, the minimum initial investment in Investor Shares is $250. Minimum
investments into Investor Shares are waived for employee benefit plans qualified
under Section 401, 403(b)(7), or 457 of the Internal Revenue Code. The minimum
initial investment for Select Shares is $100,000. The minimum initial investment
for Institutional Shares is $500,000. These minimums can be changed by the Funds
at any time. Shareholders will be given at least 30 days' notice of any increase
in the minimums. The Funds will waive the minimum initial investment in Investor
Shares for shareholders using the Automatic Investment Plan or Automatic
Exchange. Subsequent investments into every class of all Funds must be at least
$50. (See "HOW TO INVEST -- No Minimum Investment Program".)
Determining Your Share Price
Except as provided herein, when you make investments in a Fund, the purchase
price of your shares will be the net asset value next determined after IFS's
receipt of an order, or exchange request in proper form. Except as provided
below, if IFS receives your order prior to the close of the NYSE on a day in
which the NYSE is open, your price will be the net asset value determined that
day. The method used to calculate the net asset value is described below under
"Calculation of Net Asset Value".
Calculation of Net Asset Value
The net asset value per share is determined as of the close of trading on the
NYSE, currently 3:00 p.m. Central Time, on days the NYSE is open for business.
However, net asset values will not be determined on days during which the Funds
receive no orders to purchase shares and no shares are tendered for redemption.
Net asset value is calculated by taking the fair value of a Fund's total assets,
subtracting all liabilities, and dividing by the total number of outstanding
shares. Expenses are accrued daily and applied when determining the net asset
value. Equity Securities are valued at the last sales price on the national
securities exchange or NASDAQ on which such securities are primarily traded;
however, securities traded on NASDAQ for which there were no transactions on a
given day or securities not listed on an exchange or NASDAQ are valued at the
average of the most recent bid and asked prices. Fixed Income Securities are
valued on the basis of valuations furnished by a pricing service that utilizes
electronic data processing techniques to determine valuations for normal
institutional sized trading units of Fixed Income Securities without regard to
sale or bid prices when such valuations are believed to more accurately reflect
the fair market value of such institutional securities. Otherwise sale or bid
prices are used. Any securities or other assets for which market quotations are
not readily available are valued at fair value as determined in good faith by
the Board of Directors. Fixed Income Securities in a Fund having maturities of
60 days or less are valued by the amortized cost method unless the Board of
Directors believes unusual circumstances indicate another method of determining
fair value should be used. Under this method of valuation, a security is
initially valued at its acquisition cost, and thereafter, amortization of any
discount or premium is assumed each day regardless of the impact of fluctuating
interest rates on the market value of the security.
HOW TO REDEEM SHARES
You may request redemption of your shares at any time. The price you receive
will be the net asset value next determined after the Funds receive your request
in proper form. (See "ADDITIONAL INVESTMENT INFORMATION -- Calculation of Net
Asset Value".) Once your redemption request is received in proper form, each of
the Funds will normally mail you the proceeds the next business day. Proceeds
will ordinarily be mailed no later than seven days after receipt of a redemption
request in proper form. However, the Funds may withhold payment until
investments which were made by check, telephone, or the Automatic Investment
Plan have been collected. (This is a security precaution only and does not
affect your investment. Your money is invested the day your purchase order is
accepted.)
Checks generally are collected in 10 calendar days.
The right of redemption may be suspended during any period, when: (a) trading on
the NYSE is restricted, as determined by the Commission, or such NYSE is closed
for other than weekends and holidays; (b) the Commission has permitted such
suspension by order; or (c) an emergency as determined by the Commission exists,
making disposal of Fund securities or valuation of net assets of a Fund not
reasonably practicable.
If you are exchanging into another Fund, see "SHAREHOLDER SERVICES -- Telephone
Exchange and Redemption Privilege" for a discussion of procedures and certain
tax consequences. Redemptions may also be made through broker-dealers or others
who may charge a commission or other transaction fee. Requests for transfers of
shares of a Fund from or between broker-dealer street name accounts must be made
by the broker-dealer. You should contact the broker in whose account your shares
are held if you want to transfer these shares.
You may redeem shares in any of the following ways:
Written Redemption
To make a written redemption, please send your request to IMG Mutual Funds,
Inc., 2203 Grand Avenue, Des Moines, Iowa 50312-5338, and include:
1. your account number,
2. the number of shares or dollar amount you want to redeem,
3. each owner's name as registered on the account,
4. your street address as registered on the account, and
5. the signature of each owner as the name appears on the account.
Further documentation may be requested from corporations, executors,
administrators, trustees, guardians, agents, or attorneys-in-fact. In addition,
redemptions over $25,000 require a signature guarantee. (See "ADDITIONAL
INVESTMENT INFORMATION -Signature Guarantees".)
Retirement Plan Redemption
To redeem from an Individual Retirement Account (IRA), you may either use the
distribution form which you may request by calling 1-800-798-1819, or you may
send your request which includes the information described under "Written
Redemption" above.
In addition, you must:
1. indicate whether (a) 10% or more of the redemption proceeds
should be withheld for taxes, or (b) no portion of the proceeds
should be withheld for taxes;
2. include the type of distribution (e.g., a normal distribution or
a premature distribution); and
3. write that you certify under penalties of perjury that your
social security number is correct and that you are not subject
to backup withholding.
For redemptions from any other retirement plan, please call IFS for the
appropriate distribution form.
Telephone Redemption
Telephone redemption privileges are only available to those shareholders who
have elected to use the privilege.
Once you authorize the telephone redemption option on your application, you may
redeem shares in amounts of $500 (or the balance of your account) or more by
telephone. If you would like to add the option to your account, you may request
a telephone redemption form from IFS. Each owner's signature must be guaranteed
in order to add the option to existing accounts. (See "ADDITIONAL INVESTMENT
INFORMATION -- Signature Guarantees".)
To place a redemption request by telephone, call IFS at 1-800-798-1819.
Redemption proceeds can be directly deposited by Electronic Funds Transfer
("EFT") or wired only to a commercial bank that you have authorized on your
account application or telephone redemption form. They may also be mailed to the
registered address on your account. Once you place your telephone redemption
request, it cannot be canceled or modified. The Funds and their Transfer Agent
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, including refusing a telephone redemption if they believe
it advisable to do so. The Funds will tape record all telephone redemption
requests and will ask the social security number or other personal identifying
information of the shareholder and will only send redemption proceeds to the
shareholder of record at their address or to a financial account which has been
established by the shareholder pursuant to written authorization. IFS does not
charge a fee for redemptions directly deposited to your bank account by EFT.
However, a $10.00 fee is applicable to each wire redemption. Further
documentation may be requested from corporations, executors, administrators,
trustees, guardians, agents, or attorneys-in-fact. Shareholders may experience
difficulty in implementing a telephone redemption during periods of drastic
economic or market changes.
SHAREHOLDER SERVICES
As an IMG Mutual Funds, Inc. shareholder, you will enjoy the advantages of:
o Automatic Dividend Reinvestment
o Telephone Purchase Privilege
o Telephone Exchange and Redemption Privilege
o Automatic Investment Plan
o Payroll Direct Deposit Plan
o Automatic Exchange Plan
o Dollar Cost Averaging
o Systematic Withdrawal Plan
o No Minimum Investment Program
Automatic Dividend Reinvestment
You can automatically reinvest all dividends and capital gains distributions,
have them directly deposited by EFT to your bank account, or receive them in the
form of a check. If you elect to have them reinvested, your dividends and
capital gains distributions will purchase additional shares at the net asset
value determined on the dividend or capital gains distribution payment date (no
sales charges). Dividend reinvestment may not result in a conversion to another
class of shares. You may change your election at any time by writing IFS. IFS
must receive any such change seven days (15 days for EFT) prior to a dividend or
capital gains distribution payment date in order for the change to be effective
for that payment.
Telephone Purchase Privilege
The Funds offer free telephone purchase privileges. (See "HOW TO INVEST -- By
Telephone Purchase".)
Telephone Exchange and Redemption Privilege
You may exchange shares between identically registered Fund accounts either in
writing or by telephone. Shares are exchanged on the basis of each Fund's
relative net asset value per share next computed following receipt of a properly
executed exchange request. Shares will be exchanged for the lowest fee class of
shares for which the shareholder is eligible in the new Fund. Once an exchange
request is made, either in writing or by telephone, it may not be modified or
canceled. A $50 minimum, or the balance of your account if less, applies to
telephone exchanges. When opening a new account by an exchange, the initial
minimum investment is required. An exchange transaction is a sale and purchase
of shares for federal income tax purposes and may result in a capital gain or
loss.
You may authorize the telephone exchange or redemption privilege by completing
the "telephone authorization" section on your application. If you add the
telephone redemption privilege to your existing account, you must have each
owner's signature guaranteed. (See "ADDITIONAL INVESTMENT INFORMATION --
Signature Guarantees".) By establishing the telephone exchange and redemption
services, you authorize the Funds and their agents to act upon your instruction
by telephone to redeem or exchange shares from any account for which you have
authorized such services. (See "HOW TO REDEEM SHARES -- Telephone Redemption".)
The Funds reserve the right, at any time without prior notice, to suspend,
limit, modify, or terminate the exchange privilege or its use in any manner by
any person or class. In particular, since an excessive number of exchanges may
be disadvantageous to the Funds, each Fund reserves the right to terminate the
exchange privilege of any shareholder who makes more than five exchanges of
shares in a year and/or three exchanges of shares in a calendar quarter.
Automatic Investment Plan
The Automatic Investment Plan allows you to make regular, systematic investments
in a Fund from your bank checking or NOW account. You may choose to make
investments on the fifth and/or twentieth day of each month from your financial
institution in amounts of $50 or more. When used in conjunction with the No
Minimum Investment Program, the initial minimum investment is not required. (See
"HOW TO INVEST -- No Minimum Investment Program".) There is no service fee for
participating in this Plan. You can set up the Automatic Investment Plan with
any financial institution that is a member of the Automated Clearinghouse. For
an application call 1-800-798-1819. The Funds reserve the right to suspend,
modify, or terminate the Automatic Investment Plan or its use by any person
without notice. If the Automatic Investment Plan is discontinued before the
investor reaches the minimum investment that would otherwise be required (see
"ADDITIONAL INVESTMENT INFORMATION -- Minimum Investments"), the Funds reserve
the right to close the investor's account. A service fee of $20 will be deducted
from your account for any Automatic Investment Plan purchase that does not clear
due to insufficient funds or, if prior to notifying IFS in writing to terminate
the Plan, you close your bank account or in any manner prevent withdrawal of
funds from the designated checking or NOW account. (See "Dollar Cost Averaging"
below.)
Payroll Direct Deposit Plan
You may purchase additional shares of the Funds through the Payroll Direct
Deposit Plan. Through this Plan, periodic investments (minimum $50) are made
automatically from your payroll check into your existing Fund account. By
enrolling in the Plan, you authorize your employer or its agents to deposit a
specified amount from your payroll check into the Funds' bank account. In most
cases, your Fund account will be credited the day after the amount is received
by the Fund's bank. In order to participate in the Plan, your employer must have
direct deposit capabilities by EFT available to its employees. The Plan may be
used for other direct deposits, such as social security checks, military
allotments and annuity payments.
This privilege may be selected by completing the Authorization for Direct
Deposit Form, which may be obtained by calling 1-800-798-1819. To enroll in the
Plan, the Authorization Form must be signed by you and given to your employer's
payroll department. You may alter the amount of the deposit, the frequency of
the deposit, or terminate your participation in the Plan by notifying your
employer. Each Fund reserves the right, at any time and without prior notice, to
suspend, limit, or terminate the Automatic Direct Deposit privilege or its use
in any manner by any person. (See "Dollar Cost Averaging" below.)
Automatic Exchange Plan
The Automatic Exchange Plan allows you to make regular, systematic exchanges
(minimum $50) from one Fund account into another Fund account. By establishing
the Automatic Exchange Plan, you authorize the Funds and their agents to redeem
a set dollar amount or number of shares from your first Fund account and
purchase shares of a second Fund. An exchange transaction is a sale and purchase
of shares for federal income tax purposes and may result in a capital gain or
loss. To establish the Automatic Exchange Plan on your account, request a form
by calling 1-800-798-1819. (See "Dollar Cost Averaging" below.)
When used in conjunction with the No Minimum Investment Program, the initial
minimum investment in the second account is not required. An account application
form must be completed and submitted with the Authorization for Automatic
Exchange Form when you establish a new account under the No Minimum Investment
Program. (See "HOW TO INVEST -- No Minimum Investment Program".) If the
Automatic Exchange Plan is discontinued before you reach the minimum initial
investment that would otherwise be required in the second Fund, or the account
balance in the first Fund falls below the minimum initial investment, the Funds
reserve the right to close your account(s). (See "ADDITIONAL INVESTMENT
INFORMATION -- Minimum Investments".)
To participate in the Automatic Exchange Plan, you must have an initial account
balance in the first account of $12,000. Exchanges may be made monthly,
quarterly or annually. If the amount remaining in the first account is less than
the exchange amount you requested, then the remaining amount will be exchanged.
At such time as the first account has a zero balance, the participation in the
Plan will be terminated. The Plan may also be terminated at any time by written
request to the Funds. Once participation in the Plan has been terminated for any
reason, investing additional funds will not reinstate the Plan. Participation in
the Plan may be reinstated only by written request to the Funds. Each Fund
reserves the right, at any time and without prior notice, to modify, suspend, or
terminate the Automatic Exchange Plan privilege or its use in any manner by any
person.
Dollar Cost Averaging
The IMG Mutual Funds' Automatic Investment Plan, Payroll Direct Deposit Plan,
and Automatic Exchange privilege, all discussed above, are methods of
implementing dollar cost averaging. Dollar cost averaging is an investment
strategy that involves investing a fixed amount of money at a regular time
interval. By always investing the same set amount, you'll be purchasing more
shares when the price is low and fewer shares when the price is high.
Ultimately, by using this principle in conjunction with fluctuations in share
price, your average cost per share may be less than the average transaction
price. A program of regular investment cannot ensure a profit or protect against
a loss. Since such a program involves continuous investment regardless of
fluctuating share values, you should consider your financial ability to continue
the program through periods of low share price levels.
Systematic Withdrawal Plan
The owner of $24,000 or more of a Fund's shares may provide for the withdrawal
of a maximum of 10% per year from the owner's account to be paid on a monthly,
quarterly, semi-annual or annual basis. One request will be honored in any 12
month period. The minimum periodic payment is $200. Any income and capital gain
dividends will be automatically reinvested at net asset value. A sufficient
number of full and fractional shares will be redeemed to make the designated
payment.
The right is reserved to amend the Systematic Withdrawal Plan on 30 days'
notice. The Plan may be terminated at any time by the shareholder or the Funds.
No Minimum Investment Program
The Funds offer a No Minimum Investment Program for shareholders investing in
Investor Shares through the Automatic Investment Plan or the Automatic Exchange
Plan. (See "HOW TO INVEST -- No Minimum Investment Program".)
DISTRIBUTIONS AND TAXES
Each Fund will qualify and intends to remain qualified as a "regulated
investment company" under the Internal Revenue Code and intends to take all
other action required to ensure that no federal income taxes will be payable by
the Fund. Any dividends from the net income of the IMG Bond Fund normally will
be distributed quarterly, and any dividends from the net income of the IMG Core
Stock Fund will normally be distributed semi-annually. Any net realized capital
gains will be distributed annually, after using any available capital loss
carry-over. The Funds will attempt to do so in such a manner as to avoid the
Funds paying income tax on their net investment income and net realized capital
gains or being subject to federal excise taxes. Shares purchased on a day on
which the Funds calculate their net asset value will not begin to accrue
dividends until the following day, and redemption orders effected on any
particular day will receive dividends declared through the day of redemption.
Distributions for each Fund are made on a per share basis to shareholders as of
the record date of the distribution of that Fund, regardless of how long the
shares have been held. Such distributions are taxable income and are subject to
federal income tax (except for shareholders exempt from income tax), whether
such distributions are received in cash or are reinvested in additional Fund
shares. After every quarterly or semi-annual distribution, the value of a share
drops by the amount of the distribution, net of any subsequent market
fluctuations. Because the purchase price of shares (particularly those shares
purchased shortly before the semi-annual distribution) may include earned and
undistributed dividend and/or capital gains income, some portion of the purchase
price may be returned to the shareholder in the semi-annual distribution as
taxable dividends and/or capital gains. However, the dividends and capital gains
that are reinvested in additional Fund shares may increase the shareholder's
costs basis. If dividends and capital gains distributions are not automatically
reinvested in additional Fund shares (See "SHAREHOLDER SERVICES--AUTOMATIC
DIVIDEND REINVESTMENT") checks for cash dividends and distributions will be
mailed to shareholders, usually within ten days after the record date of the
distribution or they may be deposited in your bank account by EFT. Full
information regarding income dividends and any capital gains distributions will
be mailed to shareholders for tax purposes on or before January 31st of each
year.
For federal income tax purposes, dividends paid by a Fund and distributions from
net realized short-term capital gains, whether received in cash or reinvested in
additional shares, are taxable as ordinary income. Distributions paid by a Fund
from net realized long-term capital gains, whether received in cash or
reinvested in additional shares, are taxable as long-term capital gains. The
capital gain holding period is determined by the length of time a Fund has held
the instrument and not the length of time you have held shares in the Fund. If
you are not required to pay tax on your income, you will not be required to pay
federal income taxes on the amounts distributed to you. Promptly after the end
of each calendar year, you will receive a statement of the federal income tax
status on all dividends and capital gains distributions paid during the year.
If you do not furnish a Fund with your correct social security number or
employer identification number, such Fund will be required to withhold federal
income tax at a rate of 31% (backup withholding tax) from your distribution and
redemption proceeds. To avoid backup withholding, you must provide a social
security number or employer identification number and state that you are not
subject to such withholding due to the under reporting of your income. This
certification is included as part of your application. You should complete it
when opening your account.
This section is not intended to be a full discussion of present or proposed
federal income tax laws and the effect of such laws on you. There may be other
federal, state or local tax considerations applicable to your particular
investment. You are urged to consult your tax advisor.
CAPITAL STOCK
IMG Mutual Funds, Inc., is a Maryland corporation organized on November 16,
1994, and currently has 4 billion shares authorized capital stock of $.001 par
value each, of which 1.2 billion shares have been further authorized for
issuance in two Funds, with three classes of shares in each Fund as set forth
below:
Institutional
Fund Investor Shares Select Shares Shares
IMG Core Stock Fund 200,000,000 200,000,000 200,000,000
IMG Bond Fund 200,000,000 200,000,000 200,000,000
Each share has one vote, and all shares participate equally in dividends and
other capital gains distributions by the respective Fund and in the residual
assets of the respective Fund in the event of liquidation. Fractional shares
have the same rights proportionately as do full shares. Shares of the Funds have
no preemptive subscription rights. Cumulative voting is not authorized. You are
entitled to redeem shares as set forth under "HOW TO REDEEM SHARES". All shares
are held in uncertificated form and will be evidenced by the appropriate
notation on the books of the transfer agent.
SHAREHOLDER REPORTS AND MEETINGS
Each Fund will confirm all transactions for your account in writing. You will
also receive quarterly Fund information, a semiannual report, and an annual
report containing audited financial statements. If you have questions about your
account, call 1-800-798-1819. You may also write to IFS at the address on the
cover of this Prospectus. You may order statements for the current and preceding
year at no charge. However, there will be a $10.00 fee per statement per year
for statements ordered for other years.
The Funds may operate without an annual meeting of shareholders under specified
circumstances if an annual meeting is not required by the 1940 Act. The Funds
have adopted the appropriate provisions in their Bylaws and may, in their
discretion, not hold annual meetings of shareholders for the election of
Directors unless otherwise required by the 1940 Act. The Funds have also adopted
provisions in their Bylaws for the removal of Directors by the shareholders.
Shareholders may receive assistance in communicating with other shareholders as
provided in Section 16(c) of the 1940 Act.
There normally will be no meetings of shareholders for the purpose of electing
Directors unless and until such time as less than a majority of the Directors
holding office have been elected by shareholders, at which time the Directors
then in office will call a shareholders' meeting for the election of Directors.
Shareholders of the Funds may remove a Director by the affirmative vote of a
majority of the Funds' outstanding voting shares. In addition, the Directors are
required to call a meeting of shareholders for the purpose of voting upon the
question of removal of any such Director or for any other purpose when requested
in writing to do so by the shareholders of record of not less than 10% of the
Funds' outstanding voting securities.
To date, two Funds have been authorized. All consideration received by the Funds
for shares of one of the Funds and all assets in which such consideration is
invested, belong to that Fund (subject only to the rights of creditors of the
Fund) and will be subject to the liabilities related thereto. The income and
expenses attributable to one Fund are treated separately from those of the other
Funds.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
under the provisions of the 1940 Act or applicable state law or otherwise, to
the holders of the outstanding voting securities of an investment company, such
as the Funds, will not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by such matter. Rule 18f-2 further provides that a Fund shall be deemed
to be affected by a matter unless it is clear that the interests of each Fund in
the matter are identical or that the matter does not affect any interest of such
Fund. However, the Rule exempts the selection of independent accountants and the
election of Directors from the separate voting requirements of the Rule.
CUSTODIAN, FUND ACCOUNTANT, TRANSFER AGENT, DIVIDEND
DISBURSING AGENT AND SHAREHOLDER SERVICING AGENT
Norwest Bank Minnesota, N.A., Sixth and Marquette, Minneapolis, Minnesota 55479,
acts as custodian of the Funds' assets. IMG, 2203 Grand Avenue, Des Moines, Iowa
50312-5338, acts as fund accountant, transfer agent, dividend disbursing agent
and shareholder servicing agent for the Funds. IMG is compensated for its
services based on an annual fee as a percent of assets. The fees received and
the services provided as fund accountant, transfer agent, dividend disbursing
agent and shareholder servicing agent are in addition to those received and paid
to IMG under the Advisory Agreement and the Administrative Services Agreement,
or payable to IFS under the Distribution Agreement with the Funds.
PERFORMANCE INFORMATION
From time to time, a Fund may advertise several types of performance
information. Each class of shares of the IMG Core Stock Fund and IMG Bond Fund
may advertise "average annual total return", "total return", and "cumulative
total return". Each class of shares of the IMG Bond Fund may also advertise
"yield". Each of these figures is based upon historical results and is not
necessarily representative of the future performance of a Fund.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a Fund for the
period in question, assuming the reinvestment of all dividends. Thus, these
figures reflect the change in the value of an investment in a Fund during a
specified period. Average annual total return will be quoted for at least the
one, five, and ten year periods ending on a recent calendar quarter (or if such
periods have not elapsed, at the end of the shorter period corresponding to the
life of a Fund). Average annual total return figures are annualized and,
therefore, represent the average annual percentage change over the period in
question. Total return figures are not annualized and represent the aggregate
percentage or dollar value change over the period in question.
Cumulative total return reflects a Fund's performance over a stated period of
time.
Yield refers to the net investment income per share generated by a hypothetical
investment in a Fund over a specific one month, or 30 day period. Returns,
yields, and net asset values will fluctuate. Shares of the Funds are redeemable
by an investor at the then current net asset value per share, which may be more
or less than original cost. Additional information concerning Fund performance
appears in the Statement of Additional Information.
<PAGE>
EXHIBIT "C"
THE FUNDS' STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
IMG MUTUAL FUNDS, INC.
IMG Financial Services, Inc.
2203 Grand Avenue
Des Moines, IA 50312-5338
Telephone: 1-515-244-5426
Toll-Free: 1-800-798-1819
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of IMG Mutual Funds, Inc., (the "Funds"),
dated May 24, 1995. Requests for copies of the Prospectus should be made by
writing to IMG Mutual Funds, Inc., 2203 Grand Avenue, Des Moines, IA 50312-5338;
or by calling one of the numbers listed above.
This Statement of Additional Information is dated May 24, 1995.
<PAGE>
IMG MUTUAL FUNDS, INC.
TABLE OF CONTENTS
Page No.
INVESTMENT POLICIES AND TECHNIQUES................................ 3
Fixed Income Securities.................................... 3
Illiquid Securities........................................ 5
Delayed Delivery Transactions.............................. 5
Stripped Mortgage-Backed Securities........................ 6
Reverse Repurchase Agreements.............................. 6
Securities Lending......................................... 7
Loan Participations and Other Direct Indebtedness.......... 7
Futures Contracts.......................................... 8
Federal Tax Treatment of Futures Contracts................. 12
Stock Index Options........................................ 12
Options on Futures......................................... 14
Covered Call and Put Options............................... 15
Over-The-Counter Options................................... 18
Spread Transactions........................................ 19
Federal Tax Treatment of Options........................... 19
Certain Considerations Regarding Options................... 19
Asset Coverage for Futures and Options Positions........... 20
Low-Rated and Comparable Unrated Fixed Income Securities... 20
INVESTMENT RESTRICTIONS........................................... 22
DIRECTORS AND OFFICERS ........................................... 25
PRINCIPAL SHAREHOLDERS............................................ 26
MANAGEMENT OF THE FUNDS........................................... 26
FUND TRANSACTIONS AND BROKERAGE................................... 31
TAXES ......................................................... 33
DETERMINATION OF NET ASSET VALUE.................................. 33
SHAREHOLDER SERVICES.............................................. 34
Systematic Withdrawal Plan................................. 34
Automatic Investment Plan.................................. 34
General Procedures for Shareholder Accounts................ 35
Telephone Exchange Privilege and Automatic Exchange Plan... 35
SHAREHOLDER MEETINGS.............................................. 36
VALUATION OF FUND SECURITIES...................................... 37
PERFORMANCE INFORMATION........................................... 37
GENERAL INFORMATION............................................... 40
INDEPENDENT AUDITORS.............................................. 40
APPENDIX A........................................................ 41
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated May 24, 1995, and if given or made, such
information or representations may not be relied upon as having been authorized
by the Funds.
This Statement of Additional Information does not constitute an offer to sell
securities.
<PAGE>
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Funds' investment
objectives, policies, and techniques that are described in detail in the
Prospectus under the captions "INVESTMENT OBJECTIVES AND POLICIES" and
"IMPLEMENTATION OF POLICIES AND RISKS".
Fixed Income Securities
The IMG Bond Fund is invested primarily in Fixed Income Securities. In addition
to its investments in Equity Securities, the IMG Core Stock Fund may also
invest, when a more conservative approach is warranted, in Fixed Income
Securities. These include, without limitation, the following:
1. U.S. government securities, including bills, notes, bonds, and other
debt securities differing as to maturity and rates of interest, which
are either issued or guaranteed by the U.S. Treasury or are issued or
guaranteed by U.S. government agencies or instrumentalities. U.S.
government agency securities include securities issued by (a) the
Federal Housing Administration, Farmers Home Administration, Export-
Import Bank of the United States, Small Business Administration, and
the Government National Mortgage Association, whose securities are
supported by the full faith and credit of the United States; (b) the
Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
Tennessee Valley Authority, whose securities are supported by the right
of the agency to borrow from the U.S. Treasury; (c) the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation,
whose securities are supported by the discretionary authority of the
U.S. government to purchase certain obligations of the agency or
instrumentality; and (d) the Student Loan Marketing Association, the
Interamerican Development Bank, and the International Bank for
Reconstruction and Development, whose securities are supported only by
the credit of such agencies. While the U.S. government provides
financial support to such U.S. government-sponsored agencies or
instrumentalities, no assurance can be given that it always will do so
since it is not obligated by law. The U.S. government, its agencies and
instrumentalities do not guarantee the market value of their securities,
and consequently, the value of such securities may fluctuate.
2. Certificates of deposit issued against funds deposited in a bank or
savings and loan association. Such certificates are for a definite period
of time, earn a specified rate of return, and are normally negotiable. If
such certificates of deposit are nonnegotiable, they will be considered
illiquid securities and be subject to each Fund's 10 percent restriction
on investments in illiquid securities. Pursuant to the certificate of
deposit, the issuer agrees to pay the amount deposited plus interest to
the bearer of the certificate on the date specified thereon. Under
current FDIC regulations, the maximum insurance payable as to any one
certificate of deposit is $100,000; therefore, certificates of deposit
purchased by a Fund will not generally be fully insured.
3. Bankers' acceptances which are short-term credit instruments used to
finance commercial transactions. Generally, an acceptance is a time draft
drawn on a bank by an exporter or an importer to obtain a stated amount
of funds to pay for specific merchandise. The draft is then "accepted" by
a bank that, in effect, unconditionally guarantees to pay the face value
of the instrument on its maturity date. The acceptance may then be held
by the accepting bank as an asset or it may be sold in the secondary
market at the going rate of interest for a specific maturity.
4. Repurchase agreements which involve purchases of debt securities. In
such a transaction, at the time a Fund purchases the security, it
simultaneously agrees to resell and redeliver the security to the seller,
who also simultaneously agrees to buy back the security at a fixed price
and time. This assures a predetermined yield for the Fund during its
holding period since the resale price is always greater than the purchase
price and reflects an agreed-upon market rate. Such transactions
afford an opportunity for a Fund to invest temporarily available cash.
A Fund may enter into repurchase agreements only with respect to
obligations of the U.S. government, its agencies or instrumentalities;
certificates of deposit; or bankers' acceptances in which the Fund may
invest. Repurchase agreements may be considered loans to the seller,
collateralized by the underlying securities. The risk to the Fund is
limited to the ability of the seller to pay the agreed-upon sum on the
repurchase date; in the event of default, the repurchase agreement
provides that the Fund is entitled to sell the underlying collateral. If
the value of the collateral declines after the agreement is entered into,
however, and if the seller defaults under a repurchase agreement when
the value of the underlying collateral is less than the repurchase
price, the Fund could incur a loss of both principal and interest. The
value of the collateral is monitored at the time the transaction is
consummated and at all times during the term of the repurchase agreement
to insure that the value of the collateral always equals or exceeds the
agreed-upon repurchase price to be paid to the Fund. If the seller were
to become subject to a federal bankruptcy proceeding, the ability of
the Fund to liquidate the collateral could be delayed or impaired because
of certain provisions of the bankruptcy laws.
5. Bank time deposits, which are monies kept on deposit with banks or
savings and loan associations for a stated period of time at a fixed rate
of interest. There may be penalties for the early withdrawal of such time
deposits, in which case the yields of these investments will be reduced.
6. Commercial paper consists of short-term unsecured promissory notes,
including variable rate and master demand notes issued by corporations to
finance their current operations. Master demand notes are direct lending
arrangements between a Fund and the corporation. There is no secondary
market for the notes. However, they are redeemable by the Fund at any
time. In purchasing commercial paper, the financial condition of the
corporation (e.g., earning power, cash flow, and other liquidity ratios)
will be evaluated and will continuously be monitored because a Fund's
liquidity might be impaired if the corporation were unable to pay
principal and interest on demand. Investments in commercial paper
will be limited to commercial paper rated in the two highest categories
of a nationally recognized statistical rating organization ("NRSRO") or
unrated commercial paper which is of comparable quality.
Illiquid Securities
Each Fund may invest in illiquid securities, which include restricted securities
(privately placed securities) and other securities without readily available
market quotations. However, a Fund will not acquire such securities and other
illiquid securities or securities without readily available market quotations,
such as repurchase agreements maturing in more than seven days, options traded
in the over-the-counter market, and private issuer interest-only and
principal-only stripped mortgage-backed securities, if as a result they would
comprise more than 10 percent of the value of the Fund's net assets.
The Board of Directors has the ultimate authority to determine, to the extent
permissible under the federal securities laws, which securities are liquid or
illiquid for purposes of the 10 percent limitation. Certain securities exempt
from registration or issued in transactions exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), may be considered
liquid. The Board of Directors has delegated to the Advisor the day-to-day
determination of the liquidity of a security, although it has retained oversight
and ultimate responsibility for such determinations. Although no definitive
liquidity criteria are used, the Board of Directors has directed the Advisor to
look to such factors as (i) the nature of the market for a security (including
the institutional private resale market), (ii) the terms of certain securities
or other instruments allowing for the disposition to a third party or the issuer
thereof (e.g., certain repurchase obligations and demand instruments), (iii) the
availability of market quotations, and (iv) other permissible relevant factors.
Certain securities, such as repurchase obligations maturing in more than seven
days and other securities that are not readily marketable, are currently
considered illiquid.
Restricted securities may be sold only in privately negotiated transactions or
in a public offering with respect to which a registration statement is in effect
under the Securities Act. Where registration is required, a Fund may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the Fund
may be permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, the Fund
might obtain a less favorable price than prevailed when it decided to sell.
Restricted securities will be priced at fair value as determined in good faith
by the Board of Directors. If through the appreciation of illiquid securities or
the depreciation of liquid securities, a Fund should be in a position where more
than 10 percent of the value of its net assets are invested in illiquid assets,
including restricted securities which are not readily marketable, the Fund will
take steps as deemed advisable, if any, to protect liquidity.
Delayed Delivery Transactions
The Funds may buy and sell securities on a delayed delivery or when-issued
basis. (See "IMPLEMENTATION OF POLICIES AND RISKS -Delayed Delivery Securities
in the Prospectus.) These transactions involve a commitment by the Funds to
purchase or sell specific securities at a predetermined price and/or yield, with
payment and delivery taking place after the customary settlement period for that
type of security (and more than seven days in the future). Typically, no
interest accrues to the purchaser until the security is delivered. The Funds may
receive fees for entering into delayed delivery transactions.
When purchasing securities on a delayed delivery basis, a Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. Because the Fund is not required to pay for the securities until
the delivery date, these risks are in addition to the risks associated with the
Fund's other investments. If the Fund remains substantially fully invested at a
time when delayed delivery purchases are outstanding, the delayed delivery
purchases may result in a form of leverage. When delayed delivery purchases are
outstanding, the Fund will set aside liquid assets; i.e., readily marketable
debt securities, U.S. government securities and/or cash, in a segregated
custodial account to cover its purchase obligations. When a Fund has sold a
security on a delayed delivery basis, the Fund does not participate in further
gains or losses with respect to the security. If the other party to a delayed
delivery transaction fails to deliver or pay for the securities, the Fund could
miss a favorable price or yield opportunity, or could suffer a loss.
A Fund may dispose of or renegotiate delayed delivery transactions after they
are entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
Stripped Mortgage-Backed Securities
As described in the Prospectus, the Funds may invest a portion of their assets
in stripped mortgage-backed securities ("SMBS") which are derivative multiclass
mortgage securities issued by agencies or instrumentalities of the U.S.
government, or by private originators, or investors in mortgage loans, including
savings and loan institutions, mortgage banks, commercial banks and investment
banks.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions from a pool of Mortgage Assets. A
common type of SMBS will have one class receiving some of the interest and most
of the principal from the Mortgage Assets, while the other class will receive
most of the interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest while the other class will
receive all of the principal. If the underlying Mortgage Assets experience
greater than anticipated prepayments of principal, a Fund may fail to fully
recoup its initial investment in these securities. The market value of the class
consisting primarily or entirely of principal payments generally is unusually
volatile in response to changes in interest rates.
Reverse Repurchase Agreements
In a reverse repurchase agreement, a Fund sells a security to another party,
such as a bank or broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time.
While a reverse repurchase agreement is outstanding, the Fund will maintain cash
and appropriate liquid assets; i.e., readily marketable debt securities and U.S.
government securities, in a segregated custodial account to cover its obligation
under the agreement. The Funds will enter into reverse repurchase agreements
only with parties whose creditworthiness is deemed satisfactory by the Funds'
Advisor, Investors Management Group ("IMG").
Securities Lending
Each of the Funds may seek to increase its income by lending Fund securities.
Such loans will usually be made only to member banks of the Federal Reserve
System and to member firms (and subsidiaries thereof) of the New York Stock
Exchange ("NYSE") and would be required to be secured continuously by collateral
in cash, cash equivalents, or U.S. government securities maintained on a current
basis at an amount at least equal to the market value of the securities loaned.
Investment of the collateral underlying the Funds' securities lending activities
will be limited to short-term, liquid debt securities. A Fund would have the
right to call a loan and obtain the securities loaned at any time on customary
industry settlement notice (which will usually not exceed five days). During the
existence of a loan, a Fund would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned and would also
receive compensation based on investment of the collateral. A Fund would not,
however, have the right to vote any securities having voting rights during the
existence of the loan, but would call the loan in anticipation of an important
vote to be taken among holders of the securities or of the giving or withholding
of their consent on a material matter affecting the investment. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower fail financially. However, the
loans would be made only to firms deemed to be of good standing, and when the
consideration which could be earned currently from securities loans of this type
justifies the attendant risk. The value of the securities loaned will not exceed
30 percent of the value of a Fund's total assets.
Loan Participations and Other Direct Indebtedness
Each of the Funds may purchase loan participations and other direct claims
against a borrower. In purchasing a loan participation, a Fund acquires some or
all of the interest of a bank or other lending institution in a loan to a
corporate borrower. Many such loans are secured, although some may be unsecured.
Such loans may be in default at the time of purchase. Loans that are fully
secured offer the Fund more protection than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no assurance
that the liquidation of collateral from a secured loan would satisfy the
corporate borrower's obligation, or that the collateral can be liquidated.
These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans are typically made by a syndicate of lending
institutions, represented by an agent lending institution which has negotiated
and structured the loan and is responsible for collecting interest, principal
and other amounts due on its own behalf and on behalf of the others in the
syndicate, and for enforcing its and their rights against the borrower.
Alternately, such loans may be structured as a novation, pursuant to which the
Fund would assume all of the rights of the lending institution in a loan, or as
an assignment, pursuant to which the Fund would purchase an assignment of a
portion of a lender's interest in a loan either directly from the lender or
through an intermediary. A Fund may also purchase trade claims or other claims
against companies, which generally represent money owned by the company to a
supplier of goods or services. These claims may also be purchased at a time when
the company is in default.
Certain of the loan participations acquired by a Fund may involve revolving
credit facilities or other standby financing commitments which obligate the Fund
to pay additional cash on a certain date or on demand. These commitments may
have the effect of requiring the Fund to increase its investment in a company at
a time when the Fund might not otherwise decide to do so (including at a time
when the company's financial condition makes it unlikely that such amounts will
be repaid). To the extent that the Fund is committed to advance additional
funds, it will at all times hold and maintain in a segregated account cash or
other high grade debt obligations in an amount sufficient to meet such
commitments.
A Fund's ability to receive payment of principal, interest and other amounts due
in connection with these investments will depend primarily on the financial
condition of the borrower. In selecting the loan participations and other direct
investments which the Funds will purchase, the Advisor will rely upon their own
credit analysis of the borrower (and not that of the original lending
institution). As a Fund may be required to rely upon another lending institution
to collect and pass on to the Fund amounts payable with respect to the loan and
to enforce the Fund's rights under the loan, an insolvency, bankruptcy or
reorganization of the lending institution may delay or prevent the Fund from
receiving such amounts. In such cases, the Fund will evaluate as well the
creditworthiness of the lending institution and will treat both the borrower and
the lending institution as an "issuer" of the loan participation for purposes of
certain investment restrictions pertaining to the diversification of the Fund's
investments. The highly leveraged nature of many such loans may make such loans
especially vulnerable to adverse changes in economic or market conditions.
Investments in such loans may involve additional risk to the Fund. For example,
if a loan is foreclosed, the Fund could become part owner of any collateral, and
would bear the costs and liabilities associated with owning and disposing of the
collateral. In addition, it is conceivable that under emerging legal theories of
lender liability, the Fund could be held liable as a co-lender. It is unclear
whether loans and other forms of direct indebtedness offer securities law
protections against fraud and misrepresentation. In the absence of definitive
regulatory guidance, the Fund relies on the Advisor's research in an attempt to
avoid situations where fraud and misrepresentation could adversely affect the
Fund. In addition, loan participations and other direct investments may not be
in the form of securities or may be subject to restrictions on transfer, and
only limited opportunities may exist to resell such instruments. As a result,
the Fund may be unable to sell such investments at an opportune time or may have
to resell them at less than fair market value. To the extent that the Advisor
determines that any such investments are illiquid, the Fund will include them in
the investment limitations on Illiquid Securities described above.
Futures Contracts
Each Fund may enter into interest rate futures contracts (hereinafter referred
to as "Futures" or "Futures Contracts"), as a hedge against changes in
prevailing levels of interest rates in order to establish more definitely the
effective return on securities held or intended to be acquired by the Fund. A
Fund's hedging may include sales of Futures as an offset against the effect of
expected increases in interest rates or decline in the market value of its
securities and purchases of Futures as an offset against the effect of expected
declines in interest rates.
A Fund will not enter into Futures Contracts for speculation and will, to the
extent required by regulatory authorities, enter only into Futures Contracts
which are traded on national futures exchanges and are standardized as to
maturity date and, if applicable, underlying financial instruments. The
principal futures exchanges in the United States are the Board of Trade of the
City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission (the "CFTC.")
Although techniques other than sales and purchases of Futures Contracts could be
used to reduce a Fund's exposure to interest rate fluctuations, the Fund may be
able to hedge its exposure more effectively, and perhaps at a lower cost,
through using Futures Contracts, since Futures Contracts involve fewer
transaction costs than options on securities transactions.
A Fund will not enter into a Futures Contract if, as a result thereof, (i) more
than 30 percent of the Fund's net assets would be represented by Futures
Contracts (including the then current aggregate Futures market prices of
financial instruments required to be delivered under open Futures Contract sales
plus the then current aggregate purchase prices of financial instruments
required to be purchased under open Futures Contract purchases) or (ii) more
than 5 percent of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to initial margin deposits on
such Futures Contracts and options on Futures Contracts.
An interest rate Futures Contract provides for the future sale by one party and
purchase by another party of a specified amount of a specified instrument (debt
security) for a specified price at a designated date, time, and place.
Transactions costs are incurred when a Futures Contract is bought or sold and
margin deposits must be maintained. A Futures Contract may be satisfied by
delivery or purchase, as the case may be, of the instrument. More commonly,
Futures Contracts are closed out prior to delivery by entering into an
offsetting transaction in a matching Futures Contract. If the offsetting
purchase price is less than the original sale price, the Fund realizes a gain;
if it is more, the Fund realizes a loss. Conversely, if the offsetting sale
price is more than the original purchase price, the Fund realizes a gain; if it
is less, the Fund realizes a loss. The transaction cost must also be included in
these calculations. There can be no assurance, however, that a Fund will be able
to enter into an offsetting transaction with respect to a particular Futures
Contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the Futures Contract.
As an example of an offsetting transaction in which the underlying financial
instrument is not delivered pursuant to an interest rate Futures Contract, the
contractual obligations arising from the sale of one Futures Contract of
September Treasury Bills on an exchange may be fulfilled at any time before
delivery is required (i.e., on a specified date in September, the "delivery
month") by the purchase of one Futures Contract of September Treasury Bills on
the same exchange. In such instance, the difference between the price at which
the Futures Contract was sold and the price paid for the offsetting purchase,
after allowance for transaction costs, represents the profit or loss to the
Fund.
Persons who trade in Futures Contracts may be broadly classified as "hedgers"
and "speculators". Hedgers, such as the Funds, whose business activity involves
investment or other commitments in securities or other obligations, use the
Futures markets primarily to offset unfavorable changes in value that may occur
because of fluctuations in the value of the securities or obligations held or
expected to be acquired by them. Debtors and other obligors may also hedge the
interest cost of their obligations. The speculator, like the hedger, generally
expects neither to deliver nor to receive the financial instrument underlying
the Futures Contract, but, unlike the hedger, hopes to profit from fluctuations
in prevailing interest rates or financial markets.
A public market exists in interest rate Futures Contracts covering primarily the
following financial instruments: U.S. Treasury bonds; U.S. Treasury notes;
Government National Mortgage Association ("GNMA") modified pass-through
mortgage-backed securities; three-month U.S. Treasury bills; 90-day commercial
paper; bank certificates of deposit; and Eurodollar certificates of deposit. It
is expected that Futures Contracts trading in additional financial instruments
will be authorized. The standard contract size is generally $100,000 for Futures
Contracts in U.S. Treasury bonds, U.S. Treasury notes, and GNMA pass-through
securities and $1,000,000 for the other designated Futures Contracts.
Each Fund's Futures transactions will be entered into for traditional hedging
purposes; that is, Futures Contracts will be sold to protect against a decline
in the price of securities that the Fund owns, or Futures Contracts will be
purchased to protect the Fund against an increase in the price of securities it
intends to purchase. As evidence of this hedging intent, the Fund expects that
approximately 75 percent of such Futures Contract purchases will be "completed";
that is, upon the sale of these long Futures Contracts, equivalent amounts of
related securities will have been or are then being purchased by the Fund in the
cash market.
Margin is the amount of funds that must be deposited by a Fund with its
custodian in a segregated account in the name of the futures commission merchant
in order to initiate Futures trading and to maintain the Fund's open positions
in Futures Contracts. A margin deposit is intended to ensure the Fund's
performance of the Futures Contract. The margin required for a particular
Futures Contract is set by the exchange on which the Futures Contract is traded,
and may be significantly modified from time to time by the exchange during the
term of the Futures Contract. Futures Contracts are customarily purchased and
sold on margins that may range upward from less than 5 percent of the value of
the Futures Contract being traded.
If the price of an open Futures Contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the Futures
Contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the Futures
Contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Fund. In computing daily net asset value, the Fund will
mark to market the current value of its open Futures Contracts. The Funds expect
to earn interest income on margin deposits.
The prices of Futures Contracts are volatile and are influenced, among other
things, by actual and anticipated changes in interest rates and fluctuations in
the general level of stock prices, which in turn are affected by fiscal and
monetary policies and national and international political and economic events.
At best, the correlation between changes in prices of the Futures Contracts and
of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances such as: variation in
speculative market demand for Futures and for debt securities, including
technical influences in Futures trading and differences between the financial
instruments being hedged and the instruments underlying the standard Futures
Contracts available for trading. For example, in the case of interest rate
Futures Contracts, the interest rate levels, maturities and creditworthiness of
the issues underlying the Futures Contract may differ from the financial
instruments held in the Fund. A decision of whether, when, and how to hedge
involves skill and judgment, and even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior, interest rate or market
trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10
percent of the value of the Futures Contract is deposited as margin, a
subsequent 10 percent decrease in the value of the Futures Contract would result
in a total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15 percent decrease would result
in a loss equal to 150 percent of the original margin deposit, if the Futures
Contract were closed out. Thus, a purchase or sale of a Futures Contract may
result in losses in excess of the amount initially invested in the Futures
Contract. However, a Fund would presumably have sustained comparable losses if,
instead of the Futures Contract, it had invested in the underlying financial
instrument and sold it after the decline.
Most United States Futures exchanges limit the amount of fluctuation permitted
in Futures Contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a Futures Contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
Futures Contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures Contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of Futures positions
and subjecting some Futures traders to substantial losses.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a Futures or Futures option position. The Fund would continue
to be required to meet margin requirements until the position is closed. In
addition, many of the contracts discussed above are relatively new instruments
without a significant trading history. As a result, there can be no assurance
that an active secondary market will develop or continue to exist.
Federal Tax Treatment of Futures Contracts
For federal income tax purposes, each Fund is required to recognize at the end
of each taxable year its net unrealized gains and losses on Futures Contracts as
of the end of the year as well as those actually realized during the year.
Except for transactions in Futures Contracts which the taxpayer elects to
classify as part of a "mixed straddle", any gain or loss recognized with respect
to a Futures Contract is considered to be 60 percent long-term capital gain or
loss and 40 percent short-term capital gain or loss, without regard to the
holding period of the Futures Contract. In the case of a Futures transaction
classified as a "mixed straddle", the recognition of losses may be deferred to a
later taxable year.
Sales of Futures Contracts which are intended to hedge against a change in the
value of securities held by a Fund may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
In order for each Fund to continue to qualify for federal income tax treatment
as a regulated investment company, at least 90 percent of its gross income for a
taxable year must be derived from qualifying income (i.e., dividends, interest,
income derived from loans of securities and gains from the sale of securities,
and other income (including gains on options and Futures Contracts)) derived
with respect to the Fund's business of investing in securities. In addition,
gains realized on the sale or other disposition of securities on Futures
Contracts held for less than three months must be limited to less than 30
percent of the Fund's annual gross income. It is anticipated that any net gain
realized from the closing out of Futures Contracts will be considered gain from
the sale of securities and therefore be qualifying income for purposes of the 90
percent requirement. For purposes of applying these tests any increase in value
on a position that is part of a designated hedge will be offset by any decrease
in value (whether or not realized) on any other position that is part of such
hedge. It is anticipated that unrealized gains on Futures Contracts, which have
been open for less than three months as of the end of a Fund's fiscal year and
which are recognized for tax purposes, will not be considered gains on
securities held less than three months for purposes of the 30 percent test.
Each Fund will distribute to shareholders annually any net capital gains which
have been recognized for federal income tax purposes (including unrealized gains
at the end of the Fund's fiscal year) on Futures transactions. Such
distributions will be combined with distributions of capital gains realized on
the Fund's other investments.
Stock Index Options
The IMG Core Stock Fund may (i) purchase stock index options for any purpose,
(ii) sell stock index options in order to close out existing positions, and/or
(iii) write covered options on stock indexes for hedging purposes. Stock index
options are put options and call options on various stock indexes. In most
respects, they are identical to listed options on common stocks. The primary
difference between stock options and index options occurs when index options are
exercised. In the case of stock options, the underlying security, common stock,
is delivered. However, upon the exercise of an index option, settlement does not
occur by delivery of the securities comprising the index. The option holder who
exercises the index option receives an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option. This
amount of cash is equal to the difference between the closing price of the stock
index and the exercise price of the option expressed in dollars times a
specified multiple.
A stock index fluctuates with changes in the market values of the stocks
included in the index. For example, some stock index options are based on a
broad market index, such as the Standard & Poor's 500 or the Value Line
Composite Index or a narrower market index, such as the Standard & Poor's 100.
Indexes may also be based on an industry or market segment, such as the AMEX Oil
and Gas Index or the Computer and Business Equipment Index. Options on stock
indexes are currently traded on the following exchanges: the Chicago Board
Options Exchange, the NYSE, the American Stock Exchange, the Pacific Stock
Exchange and the Philadelphia Stock Exchange.
The IMG Core Stock Fund may purchase call and put options in an attempt to
either hedge against the risk of unfavorable price movements adversely affecting
the value of the Fund's securities, or securities the Fund intends to buy, or
otherwise in furtherance of the Fund's investment objective. The Fund will sell
(write) stock index options for hedging purposes or in order to close out
positions in stock index options which the Fund has purchased. The IMG Core
Stock Fund may only write "covered" options. The Fund may cover a call option on
a stock index it writes by, for example, having a portfolio of securities which
approximately correlates with the stock index.
Put options may be purchased in order to hedge against an anticipated decline in
stock market prices that might adversely affect the value of the Fund's
securities or in an attempt to capitalize on an anticipated decline in stock
market prices. If the Fund purchases a put option on a stock index, the amount
of the payment it receives upon exercising the option depends on the extent of
any decline in the level of the stock index below the exercise price. Such
payments would tend to offset a decline in the value of the Fund securities. If,
however, the level of the stock index increases and remains above the exercise
price while the put option is outstanding, the Fund will not be able to
profitably exercise the option and will lose the amount of the premium and any
transaction costs. Such loss may be offset by an increase in the value of the
Fund securities.
Call options on stock indexes may be purchased in order to participate in an
anticipated increase in stock market prices or to hedge against higher prices
for securities that the Fund intends to buy in the future. If the Fund purchases
a call option on a stock index, the amount of the payment it receives upon
exercising the option depends on the extent of any increase in the level of the
stock index above the exercise price. Such payments would in effect allow the
Fund to benefit from stock market appreciation even though it may not have had
sufficient cash to purchase the underlying stocks. Such payments may also offset
increases in the price of stocks that the Fund intends to purchase. If, however,
the level of the stock index declines and remains below the exercise price while
the call option is outstanding, the Fund will not be able to exercise the option
profitably and will lose the amount of the premium and transaction costs. Such
loss may be offset by a reduction in the price the Fund pays to buy additional
securities.
The use of stock index options by the IMG Core Stock Fund is subject to certain
risks. Successful use by the Fund of options on stock indexes will be subject to
the ability to correctly predict movements in the directions of the stock
market. This requires different skills and techniques than predicting changes in
the prices of individual securities. In addition, the Fund's ability to
effectively hedge all or a portion of the securities in its portfolio, in
anticipation of or during a market decline through transactions in put options
on stock indexes, depends on the degree to which price movements in the
underlying index correlate with the price movements in the Fund's securities.
Inasmuch as the Fund's securities will not duplicate the components of an index,
the correlation will not be perfect. Consequently, the Fund will bear the risk
that the prices of its securities being hedged will not move in the same amount
as the prices of the Fund put options on the stock indexes. It is also possible
that there may be a negative correlation between the index and the securities
which would result in a loss on both such Fund securities and the options on
stock indexes acquired by the Fund.
All index options purchased by the Fund will be listed and traded on a national
securities exchange. However, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option, or at any particular
time, and for some options no secondary market may exist. If the Fund is unable
to effect a closing sale transaction with respect to options that it has
purchased, it would have to exercise the options in order to realize any profit.
The hours of trading for options may not conform to the hours during which the
underlying securities are traded. To the extent that the options markets close
before the markets for the underlying securities, significant price and rate
movements can take place in the underlying markets that cannot be reflected in
the options markets. The purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary Fund securities transactions. The purchase of stock index options
involves the risk that the premium and transaction costs paid by each Fund in
purchasing an option will be lost as a result of unanticipated movements in
prices of the securities comprising the stock index on which the option is
based.
In the case of transactions involving "non-equity options", each Fund will treat
any gain or loss arising from the lapse, closing out or exercise of such
positions as 60 percent long-term and 40 percent short-term gain or loss as
required by Section 1256 of the Internal Revenue Code (the "Code"). In addition,
such positions must be marked-to-market as of the last business day of the year
and gain or loss recognized for federal income tax purposes in accordance with
the 60/40 rule discussed above even though the position has not been terminated.
A "non-equity option" includes an option with respect to any group of stocks or
a stock index if there is in effect a designation by the Commodity Futures
Trading Commission of a contract market for a contract based on such group of
stocks or indexes. For example, transactions involving broad-based stock indexes
such as the Standard & Poor's 500 and 100 Indexes would be "non-equity options"
within the meaning of Code Section 1256.
Options on Futures
Each Fund may also purchase put and write call options on Futures Contracts and
enter into closing transactions with respect to such options to terminate an
existing position. A futures option gives the holder the right, in return for
the premium paid, to assume a long position (call) or short position (put) in a
Futures Contract at a specified exercise price prior to the expiration of the
option. Upon exercise of a call option, the holder acquires a long position in
the Futures Contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true. Prior to exercise or expiration,
a futures option may be closed out by an offsetting purchase or sale of a
futures option of the same series.
Each Fund may use its options on Futures Contracts in connection with hedging
strategies. Generally, these strategies would be employed under the same market
and market sector conditions in which the Fund uses put and call options on
securities. (See "Covered Call and Put Options" below.) The purchase of put
options on Futures Contracts is analogous to the purchase of puts on securities
so as to hedge the Fund's securities against the risk of declining market
prices. The writing of a call option on a Futures Contract constitutes a partial
hedge against declining prices of the securities being hedged. If the futures
price at expiration of a written call option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the Fund's holdings of
securities. If the futures price when the option is exercised is above the
exercise price, however, the Fund will incur a loss, which may be offset, in
whole or in part, by the increase in the value of the securities that were being
hedged.
As with investments in Futures Contracts, each Fund is also required to deposit
and maintain margin with respect to options on Futures Contracts written by it.
Such margin deposits will vary depending on the nature of the underlying Futures
Contracts (and the related initial margin requirements), the current market
value of the option and other futures positions held by each Fund.
The risks associated with the use of options on Futures Contracts include the
risk that a Fund may close out its position as a writer of an option only if a
liquid secondary market exists for such options, which cannot be assured. The
Fund's successful use of options on Futures Contracts also depends on the
ability to correctly predict the movement in prices of Futures Contracts and the
underlying instruments, which may prove to be incorrect. In addition, there may
be imperfect correlation between the instruments being hedged and the Futures
Contract subject to the option. (See "Futures Contracts".)
Neither Fund will purchase or write options on Futures Contracts if, as a result
(i) the aggregate market value of all Fund securities covering the Fund's
options (including options on Futures Contracts and Fund securities) exceeds 25
percent of the Fund's net assets; (ii) the value of all options (including
options on Futures Contracts and Fund securities) exceeds 5 percent of the
Fund's total assets; (iii) the aggregate premiums paid for all options
(including options on Futures Contracts and Fund securities) held exceeds 5
percent of the Fund's net assets; or (iv) more than 5 percent of the Fund's
total assets (taken at market value at the time of entering into the contract)
would be committed to initial margin and premiums paid on Futures Contracts and
options on Futures Contracts.
Covered Call and Put Options
Each Fund may write (sell) covered call options and purchase options to close
out options previously written by the Fund. The purpose of writing covered call
options is to reduce the effect of price fluctuations of the securities owned by
the Fund (and involved in the options) on the Fund's net asset value per share.
Although premiums may be generated through the use of covered call options, the
Advisor does not consider such premiums as the primary reason for writing
covered call options.
A call option gives the holder (buyer) the right to purchase a security at a
specified price (the exercise price) at any time until a certain date (the
expiration date). So long as the obligation of the writer of a call option
continues, such writer may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring the writer to deliver the
underlying security against payment of the exercise price. This obligation
terminates upon the expiration of the call option, or such earlier time at which
the writer effects a closing purchase transaction by repurchasing the option the
writer previously sold. To secure the writer's obligation to deliver the
underlying security in the case of a call option, the writer is required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the clearing corporations and of the exchanges. A put option gives the
holder (buyer) the right to sell a security at a specified price (the exercise
price) at any time until a certain date (the expiration date). A Fund will only
write covered call options and purchase covered put options. This means that the
Fund will only write a call option or purchase a put option on a security that
the Fund already owns. The Fund will not write call options on when-issued
securities. The Fund will write covered call options and purchase covered put
options in standard contracts, which may be quoted on NASDAQ or on national
securities exchanges, or write covered call options with and purchase covered
put options directly from investment dealers meeting the creditworthiness
criteria of the Advisor. In order to comply with the requirements of the
securities laws in several states, a Fund will not write a covered call option
or purchase a put option on Fund securities if, as a result, (i) the aggregate
market value of all Fund securities covering the Fund's options (including
options on Futures Contracts and Fund securities) exceeds 25 percent of the
Fund's net assets; (ii) the value of all options (including options on Futures
Contracts and Fund securities) exceeds 5 percent of the Fund's total assets; or
(iii) the aggregate premiums paid for all options (including options on Futures
Contracts and Fund securities) held exceeds 5 percent of the Fund's net assets.
Securities on which put options will be purchased and call options may be
written will be purchased solely on the basis of investment considerations
consistent with each Fund's investment objective. The writing of covered call
options is a conservative investment technique believed to involve relatively
little risk (in contrast to the writing of naked or uncovered options, which the
Funds will not do), but capable of enhancing each Fund's total return. When
writing a covered call option, the Fund, in return for the premium, gives up the
opportunity for profit from a price increase in the underlying security above
the exercise price, but conversely retains the risk of loss should the price of
the security decline. If a call option which the Fund has written expires, the
Fund will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security during the
option period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security. Each Fund will purchase put
options involving Fund securities only when a temporary defensive position is
desirable in light of market conditions and the Fund will hold the Fund
security. As a result, the purchase of put options will be utilized to protect a
Fund's holdings in an underlying security against a substantial decline in
market value. Such protection is, of course, only provided during the life of
the put option when a Fund, as the holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. By using put options in this manner, the
Funds will reduce any profit they might otherwise have realized in their
underlying security by the premium paid for the put option and by transaction
costs. The securities covering the call option will be maintained in a
segregated account of the Custodian. The Funds do not consider a security
covered by a call option or put option to be "pledged" as that term is used in
each Fund's policy limiting the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium a Fund will
receive from writing a call option will reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to such market price, the historical price volatility of the underlying
security, the length of the option period, the general supply of and demand for
credit and the general interest rate environment. The premium received by the
Fund for writing covered call options will be recorded as a liability in the
Fund's Statement of Assets and Liabilities. This liability will be adjusted
daily to the option's current market value, which will be the latest sale price
at the time at which the net asset value per share of the Fund is computed
(close of the New York Stock Exchange), or, in the absence of such sale, the
latest asked price. The liability will be extinguished upon expiration of the
option, the purchase of an identical option in a closing transaction or delivery
of the underlying security upon the exercise of the option.
The premium paid by each Fund when purchasing a put option will be recorded as
an asset in the Fund's Statement of Assets and Liabilities. This asset will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Fund is
computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest bid price. The asset will be extinguished upon expiration of
the option, the selling (writing) of an identical option in a closing
transaction or the delivery of the underlying security upon the exercise of the
option.
Each Fund will only purchase a call option to close out a covered call option it
has written. A Fund will only write a put option to close out a put option it
has purchased. Such closing transactions will be effected in order to realize a
profit on an outstanding call or put option, to prevent an underlying security
from being called or put, or to permit the sale of the underlying security.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. If the Fund desires to sell a particular
security from its portfolio on which it has written a call option or purchased a
put option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security. There is, of course, no assurance
that the Fund will be able to effect such closing transactions at a favorable
price. If the Fund cannot enter into such a transaction, it may be required to
hold a security that it might otherwise have sold, in which case it would
continue to be at market risk on the security. This could result in higher
transaction costs, including brokerage commissions. The Fund will pay brokerage
commissions in connection with the writing or purchase of options to close out
previously written options. Such brokerage commissions are normally higher than
the transaction costs applicable to purchases and sales of Fund securities.
Call options written by each Fund will normally have expiration dates between
three and nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities at the time the options are written. From time to time, the Fund may
purchase an underlying security for delivery in accordance with an exercise
notice of a call option assigned to it rather than delivering such security from
its portfolio. In such cases additional transaction costs will be incurred.
A Fund will realize a profit or loss from a closing purchase transaction if the
cost of the transaction is less or more than the premium received from the
writing of the call option; however, any loss so incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
simultaneous or subsequent sale of a different call or put option. Also, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from the
repurchase of a call option is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Fund.
Over-The-Counter Options
Subject to restrictions on investments in Illiquid Securities, and its own
investment limitations, each Fund may invest in over-the-counter options. Unlike
transactions entered into by the Funds in Futures Contracts or exchange-traded
options, over-the-counter options on securities are not traded on contract
markets regulated by the CFTC or the United States Securities and Exchange
Commission ("SEC"). To the contrary, such instruments are traded through
financial institutions acting as market-makers. In an over-the-counter trading
environment, many of the protections afforded to exchange participants will not
be available. For example, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Although the purchaser of an option cannot lose more than the
amount of the premium plus related transaction costs, this entire amount could
be lost. Moreover, the option writer could lose amounts substantially in excess
of their initial investments, due to the margin and collateral requirements
associated with such positions.
In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of a
Fund's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Fund. Where
no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the trading
of over-the-counter contracts, and a Fund could be required to retain options
purchased or written, until exercise, expiration or maturity. This in turn could
limit the Fund's ability to profit from open positions or to reduce losses
experienced, and could result in greater losses.
Further, over-the-counter transactions are not subject to the guarantee of an
exchange clearinghouse, and a Fund will therefore be subject to the risk of
default by, or the bankruptcy of, the financial institution serving as its
counterparty. One or more of such institutions also may decide to discontinue
their role as market-makers in a particular currency, metal or security, thereby
restricting the Fund's ability to enter into desired hedging transactions. A
Fund will enter into an over-the-counter transaction only with parties whose
creditworthiness has been reviewed and found satisfactory by the Advisor.
Spread Transactions
Each Fund may purchase from securities dealers covered spread options. Such
covered spread options are not presently exchange listed or traded. The purchase
of a spread option gives the Fund the right to put or sell a security that it
owns at a fixed dollar spread or fixed yield spread in relationship to another
security that the Fund does not own, but which is used as a benchmark. The risk
to the Fund in purchasing covered spread options is the cost of the premium paid
for the spread option and any transaction costs. In addition, there is no
assurance that closing transactions will be available. The purchase of spread
options will be used to protect the Fund against adverse changes in prevailing
credit quality spreads (i.e., the yield spread between high-quality and
lower-quality securities). Such protection is only provided during the life of
the spread option. The security covering the spread option will be maintained in
a segregated account by the Fund's custodian. The Funds do not consider a
security covered by a spread option to be "pledged" as that term is used in each
Fund's policy limiting the pledging or mortgaging of its assets.
Federal Tax Treatment of Options
Certain option transactions have special tax results. Expiration of a call
option written by a Fund will result in a short-term capital gain. If the call
option is exercised, the Fund will realize a gain or loss from the sale of the
security covering the call option, and in determining such gain or loss the
premium will be included in the proceeds of the sale.
If a Fund writes options other than "qualified covered call options", as defined
in the Code or purchases puts, any losses on such options transactions, to the
extent they do not exceed the unrealized gains on the securities covering the
options, may be subject to deferral until the securities covering the options
have been sold.
In the case of transactions involving "non-equity options" and options on
Futures Contracts, a Fund will treat any gain or loss arising from the lapse,
closing out or exercise of such positions as 60 percent long-term and 40 percent
short-term gain or loss as required by Section 1256 of the Code. In addition,
such positions must be marked-to-market as of the last business day of the year
and gain or loss recognized for federal income tax purposes in accordance with
the 60/40 rule discussed above even though the position has not been terminated.
Certain Considerations Regarding Options
There is no assurance that a liquid secondary market on an options exchange will
exist for any particular option, or at any particular time, and for some options
no secondary market on an exchange or elsewhere may exist. The writing and
purchasing of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary Fund
securities transactions. Imperfect correlation between the options and
securities markets may detract from the effectiveness of attempted hedging.
Options transactions may result in significantly higher transaction costs and
portfolio turnover for a Fund.
Asset Coverage for Futures and Options Positions
Each Fund will comply with regulatory requirements of the SEC and the CFTC with
respect to coverage of options and futures positions by registered investment
companies. The Funds will set aside cash, and other liquid, high grade debt
securities in a segregated custodial account to cover their obligations under
options and futures transactions. Securities held in a segregated account cannot
be sold while the futures or options position is outstanding, unless replaced
with other permissible assets. As a result, there is a possibility that the
segregation of a large percentage of the Fund's assets may force the Fund to
close out futures and options positions and/or liquidate other Fund securities,
any of which may occur at disadvantageous prices, in order for the Fund to meet
redemption requests or other current obligations.
Low-Rated and Comparable Unrated Fixed Income Securities
The IMG Bond Fund may invest up to 25 percent of its total assets in
non-Investment-Grade Debt Securities. Non-Investment-Grade Debt Securities
(hereinafter referred to as "junk bonds" or "low-rated and comparable unrated
securities") include (i) bonds rated as low as "Ba" by Moody's Investors
Service, Inc. ("Moody's"), or "BB" by Standard & Poor's Corporation ("S&P"),
Fitch Investors Services, Inc. ("Fitch") or Duff & Phelps, Inc. ("D&P") or of
similar quality by another NRSRO; and (ii) unrated debt securities of comparable
quality.
Low-rated and comparable unrated securities, while generally offering higher
yields than investment-grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with such
investments are discussed below. Refer to Appendix B of this Statement of
Additional Information for a discussion of securities ratings.
Effect of Interest Rates and Economic Changes. The low-rated and
comparable unrated securities market is relatively new, and its growth
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such a
prolonged economic downturn could severely disrupt the market for and adversely
affect the value of such securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
low-rated and comparable unrated securities tend to reflect individual corporate
development to a greater extent than do higher-rated securities, which react
primarily to fluctuations in the general level of interest rates. Low-rated and
comparable unrated securities also tend to be more sensitive to economic
conditions than are higher-rated securities. As a result, they generally involve
more credit risk than securities in the higher-rated categories. During an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of low-rated and comparable unrated securities may experience
financial stress and may not have sufficient revenues to meet their payment
obligations. The issuer's ability to service its debt obligations may also be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecasts, or the unavailability of additional
financing. The risk of loss due to default by an issuer of low-rated and
comparable unrated securities is significantly greater than that of issuers of
higher-rated securities because such securities are generally unsecured and are
often subordinated to other creditors. Further, if the issuer of a low-rated and
comparable unrated security defaulted, the Fund might incur additional expenses
to seek recovery. Periods of economic uncertainty and changes would also
generally result in increased volatility in the market prices of low-rated and
comparable unrated securities and thus in the Fund's net asset value.
As previously stated, the value of such a security will decrease in a rising
interest rate market and accordingly, so will the Fund's net asset value. If the
Fund experiences unexpected net redemptions in such a market, it may be forced
to liquidate a portion of its Fund securities without regard to their investment
merits. Due to the limited liquidity of high-yield securities (discussed below)
the Fund may be forced to liquidate these securities at a substantial discount.
Any such liquidation would reduce the Fund's asset base over which expenses
could be allocated and could result in a reduced rate of return for the Fund.
Payment Expectations. Low-rated and comparable unrated securities
typically contain redemption, call or prepayment provisions which permit the
issuer of such securities containing such provisions to, at their discretion,
redeem the securities. During periods of falling interest rates, issuers of
high-yield securities are likely to redeem or prepay the securities and
refinance them with debt securities with a lower interest rate. To the extent an
issuer is able to refinance the securities, or otherwise redeem them, the Fund
may have to replace the securities with a lower-yielding security, which would
result in a lower return for the Fund.
Credit Ratings. Credit ratings issued by credit-rating agencies
evaluate the safety of principal and interest payments of rated securities. They
do not, however, evaluate the market value risk of low-rated and comparable
unrated securities and, therefore, may not fully reflect the true risks of an
investment. In addition, credit-rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the condition of the
issuer that affect the market value of the security. Consequently, credit
ratings are used only as a preliminary indicator of investment quality.
Investments in low-rated and comparable unrated securities will be more
dependent on the credit analysis than would be the case with investments in
investment-grade debt securities. The Advisor employs its own credit research
and analysis, which includes a study of existing debt, capital structure,
ability to service debt and to pay dividends, the issuer's sensitivity to
economic conditions, its operating history, and the current trend of earnings.
The Advisor continually monitors the investments owned by the Funds and
carefully evaluates whether to dispose of or to retain low-rated and comparable
unrated securities whose credit ratings or credit quality may have changed.
Liquidity and Valuation. The Fund may have difficulty disposing of
certain low-rated and comparable unrated securities because there may be a thin
trading market for such securities. Because not all dealers maintain markets in
low-rated and comparable unrated securities, there is no established retail
secondary market for many of these securities. The Fund anticipates that such
securities could be sold only to a limited number of dealers or institutional
investors. To the extent a secondary trading market does exist, it is generally
not as liquid as the secondary market for higher-rated securities. As a result,
the Fund's asset value and the Fund's ability to dispose of particular
securities, when necessary to meet the Fund's liquidity needs or in response to
a specific economic event, may be impacted. The lack of a liquid secondary
market for certain securities may also make it more difficult for the Fund to
obtain accurate market quotations for purposes of valuing the Fund's securities.
Market quotations are generally available on many low-rated and comparable
unrated securities only from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales. During periods
of thin trading, the spread between bid and asked prices is likely to increase
significantly. In addition, adverse publicity and investor perceptions, whether
or not based on fundamental analysis, may decrease the values and liquidity of
low-rated and comparable unrated securities, especially in a thinly-traded
market.
New and Proposed Legislation. Legislation has been adopted and, from
time to time, proposals have been discussed regarding new legislation designed
to limit the use of certain low-rated and comparable unrated securities by
certain issuers. An example of legislation is a recent law which requires
federally insured savings and loan associations to divest their investment in
these securities over time. New legislation could further reduce the market
because such securities, generally, could negatively affect the financial
condition of the issuers of high-yield securities, and could adversely affect
the market in general. It is not currently possible to determine the impact of
the recent legislation on this market. However, it is anticipated that if
additional legislation is enacted or proposed, it could have a material effect
on the value of low-rated and comparable unrated securities and the existence of
a secondary trading market for the securities.
INVESTMENT RESTRICTIONS
The Prospectus sets forth the investment objectives and policies applicable to
each Fund under the caption "INVESTMENT OBJECTIVES AND POLICIES". The following
is a list of investment restrictions applicable to each Fund. If a percentage
limitation is adhered to at the time of an investment by a Fund, a later
increase or decrease in percentage resulting from any change in value or net
assets will not result in a violation of the restriction.
Neither Fund's "fundamental" investment restrictions may be changed by that Fund
without the approval of a majority of its shareholders, which means the vote at
any shareholder meeting of the Fund, of (i) 67 percent or more of the shares
present or represented by proxy at the meeting (if holders of more than 50
percent of the outstanding shares are present or represented by proxy) or (ii)
more than 50 percent of the outstanding shares, whichever is less. However,
except for the fundamental investment limitations set forth below, the
investment policies and limitations described in this Statement of Additional
Information are not fundamental, and may be changed without shareholder
approval.
Except as otherwise stated, the following fundamental restrictions apply to both
Funds. The Funds may not individually:
1. Purchase the securities of any issuer if such purchase would cause more
than 5 percent of the value of 75 percent of the Fund's total assets to
be invested in securities of any one issuer (except securities of the
U.S. government or any instrumentality thereof), or purchase more than 10
percent of the outstanding voting securities of any one issuer, or more
than 10 percent of the outstanding securities of any class.
2. Borrow money except for temporary or emergency purposes (but not for the
purpose of purchasing investments) and then, only in an amount not to
exceed 25 percent of the value of a Fund's net assets at the time the
borrowing is incurred; provided, however, that a Fund may enter into
transactions in options, futures and options on futures. A Fund will not
purchase securities when borrowings exceed 5 percent of its total assets.
If a Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. To this extent, purchasing
securities when borrowings are outstanding may involve an element of
leverage.
3. Invest in commodities or physical commodity contracts. However, the
Funds may purchase and sell financial futures contracts and options on
such contracts.
4. Make loans, except that the Funds may (i) purchase and hold debt
obligations in accordance with their investment objectives and policies,
(ii) enter into repurchase agreements, and (iii) lend Fund securities
against collateral (consisting of cash or securities issued or guaranteed
by the U.S. government or its agencies or instrumentalities) equal at all
times to not less than 100 percent of the value of the securities loaned
provided no such loan may be made if as a result the aggregate of such
loans of a Fund's securities exceeds 30 percent of the value of the
Fund's total assets.
5. Invest in real estate, although they may invest in securities which are
secured by real estate and securities of issuers which invest or deal in
real estate.
6. Issue senior securities, bonds or debentures.
7. Underwrite securities of other issuers, except to the extent a Fund may
be deemed to be an underwriter in connection with the sale of securities
held by it.
8. Invest in the securities of a company for the purpose of exercising
control or management.
9. Sell securities short (except where the Fund holds or has the right to
obtain at no added cost a long position in the securities sold that
equals or exceeds the securities sold short) or purchase any securities
on margin, except that it may obtain such short-term credits as are
necessary for the clearance of transactions. The deposit or payment of
margin in connection with transactions in options and financial futures
contracts is not considered the purchase of securities on margin.
10. Concentrate investments in any industry. However, a Fund may invest
up to 25 percent of the value of its total assets in any one industry.
The following limitations are not fundamental and may be changed without
shareholder approval. The Funds do not currently intend to:
A. Purchase securities of any company having less than three years of
continuous operation (including the operations of any predecessors) if
the purchase would cause the value of a Fund's investments in all such
companies to exceed 5 percent of the value of its net assets.
B. Enter into a Futures Contract or an option thereon unless if, as a result
thereof, (i) the then current aggregate futures market prices of
instruments required to be delivered under open Futures Contract sales
plus the then current aggregate purchase prices of instruments required
to be purchased under open Futures Contract purchases would not exceed 30
percent of a Fund's net assets (taken at market value at the time of
entering into the contract) and (ii) not more than 5 percent of a Fund's
total assets (taken at market value at the time of entering into the
contract) would be committed to initial margin and premiums paid on
Futures Contracts or options on Futures Contracts. Transactions in
Futures Contracts or options thereon may be entered into only for hedging
purposes.
C. Engage in the purchase and sale of put, spread or call options on
specific securities or Futures Contracts, or engage in writing such
options, except that a Fund may, subject to the provisions of Items B and
D, (i) purchase warrants where the grantor of the warrants is the issuer
of the underlying securities, provided that not more than 5 percent of a
Fund's net assets may be invested in such warrants; (ii) purchase covered
spread options, provided that the value of such options at any time does
not exceed 5 percent of a Fund's net assets; (iii) write covered call
options, and purchase covered put options with respect to all of its Fund
securities and enter into closing transactions with respect to such
options; and (iv) write call options and purchase put options on Futures
Contracts and enter into closing transactions with respect to such
options.
D. Purchase or write options on specific securities, Futures Contracts and
indexes if as a result thereof, (i) the aggregate market value of all
Fund securities covering such options (including options on Futures
Contracts and Fund securities) exceeds 25 percent of a Fund's net assets;
(ii) the value of all such options (including options on Futures
Contracts and Fund securities) exceeds 5 percent of a Fund's total
assets; (iii) the aggregate premiums paid for all such options (including
options on Futures Contracts and Fund securities) held exceeds 5 percent
of a Fund's net assets; or (iv) more than 5 percent of the Fund's total
assets (taken at market value at the time of entering into the contract)
would be committed to initial margin and premiums paid on Futures
Contracts and options on Futures Contracts.
E. Invest more than 10 percent of any Fund's total assets in securities of
other open-end investment companies, invest more than 5 percent of total
assets in the securities of any one investment company, or acquire more
than 3 percent of the outstanding voting securities of any one investment
company except in connection with a merger, consolidation or plan of
reorganization.
F. Borrow money, except (a) from a bank or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements are
treated as borrowings for purposes of fundamental investment limitation
(2)). A Fund may not purchase any security while borrowings representing
more than 5 percent of its total assets are outstanding.
G. Purchase or retain securities issued by an issuer, any of whose officers
or directors or security holders is an Officer or Director of the Fund or
its Advisor if, or so long as, the Officers and Directors of the Fund and
of the Advisor together own beneficially more than 5 percent of any class
of securities of the issuer.
H. Invest in oil, gas or other mineral exploration or development programs,
although the Funds may invest in securities of issuers which invest in or
sponsor such programs.
For further discussion of the limitations of each Fund's investments which are
not fundamental and may be changed without shareholder approval, see "INVESTMENT
POLICIES AND TECHNIQUES" above.
DIRECTORS AND OFFICERS
Directors and Officers, together with information as to their principal business
occupations during the last five years, and other information are shown below.
Each Director who is deemed an "interested person", as defined in the Investment
Company Act, is indicated by an asterisk.
*David W. Miles, Chairman of the Board and Director.
President, Treasurer and Senior Managing Director, Investors Management
Group, and IMG Financial Services, Inc.
*Mark A. McClurg, President and Director.
Vice President, Secretary and Senior Managing Director, Investors
Management Group, and IMG Financial Services, Inc.
*James W. Paulsen, Vice President, Treasurer and Director.
Senior Managing Director, Investors Management Group, and IMG Financial
Services, Inc.
*Richard A. Westcott, Director.
Chairman, Investors Management Group, and IMG Financial Services, Inc.
David Lundquist, Director.
Vice Chairman and CFO, New Heritage Association 1991-1995; Executive Vice
President, Heritage Communications 1980-1990.
Johnny Danos, Director.
President, Danos, Inc., a personal investment company, 1994-1995; Audit
Partner, KPMG Peat Marwick, 1963-1994.
Debra Johnson, Director.
CFO and Treasurer, Business Publications Corporation/Iowa Title Company,
1990-1995; CFO, Chart Services, Ltd., an industrial hygiene consulting
firm, 1989-1990.
Robert A. Dee, Director.
Vice Chairman, HMA, Inc., an insurance agency, 1960-1995.
Edward J. Stanek, Director.
CEO, Iowa Lottery, 1985-1995.
Ruth L. Prochaska, Secretary.
Controller / Compliance Officer, Investors Management Group, and IMG
Financial Services, Inc.
The address for Messrs. Miles, McClurg, Westcott and Paulsen, and Ms. Prochaska
is 2203 Grand Avenue, Des Moines, Iowa 50312-5338.
As of the date hereof, Officers and Director beneficially owned no shares of
common stock of the Fund.
Directors and Officers of the Fund who are officers, directors, employees, or
stockholders of the Advisor do not receive any remuneration from the Fund for
serving as Directors or Officers. Those Directors of the Funds who are not so
affiliated with the Advisor receive $250 for each Board of Directors meeting
attended, plus reimbursement for out-of-pocket expenses in attending meetings.
PRINCIPAL SHAREHOLDERS
As of the date hereof, no persons owned of record or are known to own of record
more than 5 percent of any Fund's shares other than the Advisor, Investors
Management Group, which is the only shareholder.
MANAGEMENT OF THE FUNDS
The Advisor
The Funds' advisor is Investors Management Group ("IMG" or the "Advisor"), a
registered investment advisor incorporated in the state of Iowa A brief
description of the Funds' investment advisory agreement is set forth in the
Prospectus under "MANAGEMENT".
The Advisory Agreement, (the "Advisory Agreement"), was approved by the initial
shareholder on November 17, 1994. The Advisory Agreement is required to be
approved annually by the Board of Directors of the Funds or by a vote of a
majority of the Funds' outstanding voting securities (as defined in the
Investment Company Act). In either case, each annual renewal must be approved by
the vote of a majority of the Funds' Directors who are not parties to the
Advisory Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement is terminable, without penalty, on 60 days' written notice by the
Board of Directors of the Funds, by vote of a majority of the Funds' outstanding
voting securities, or by IMG. In addition, the Advisory Agreement will terminate
automatically in the event of its assignment.
Under the terms of the Advisory Agreement, IMG is responsible for all day-to-day
management of the Funds, subject to the supervision of the Funds' Board of
Directors.
The IMG Core Stock Fund is co-managed by James W. Paulsen, Ph.D. and James T.
Richards. The IMG Bond Fund is co-managed by James W. Paulsen, Ph.D., Jeffrey
D. Lorenzen, CFA, and Kathryn D. Beyer, CFA. The following is certain
biographical information concerning the co-managers:
James W. Paulsen, Ph.D., Senior Managing Director. Dr. Paulsen is the
firm's chief portfolio strategist and chairs IMG's Investment Policy
Committee. Prior to joining IMG in 1991, Dr. Paulsen served as
president of a Cedar Rapids, Iowa investment firm managing over $700
million from 1983 to 1991. Dr. Paulsen received his Bachelor of
Science degree in economics and his Doctorate in economics from Iowa
State University.
James T. Richards, Managing Director. Mr. Richards is IMG's chief
equity strategist, and is a member of IMG's Investment Policy
Committee. Prior to joining IMG in 1991, he served as vice
president and managing director--equities, for a Cedar Rapids, Iowa
investment firm from 1985 to 1991. Mr. Richards received his Master of
Business Administration from the University of Iowa and his Bachelor of
Arts degree in economics from Coe College.
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 Master of Business
Administration from Drake University and his Bachelor of Business
Administration degree from the University of Iowa.
Kathryn D. Beyer, CFA, Managing Director. Ms. Beyer is a fixed
income strategist and is a member of IMG's Investment Policy
Committee. Prior to joining IMG in 1993, her experience includes
serving as a securities analyst and director of mortgage-backed
securities for Central Life Assurance Company from 1988 to 1993. Ms.
Beyer received her Master of Business Administration from Drake
University and her Bachelor of Science degree in agricultural
engineering from Iowa State University.
IMG is responsible for investment decisions and supplies investment research and
Fund management. At its expense, IMG provides office space and all necessary
office facilities, equipment, and personnel for servicing the investments of the
Funds.
Except for the expenses expressly assumed by IMG as set forth above or as
described below with respect to the distribution of the Funds' shares, the Funds
are responsible for all their other expenses, including, without limitation,
governmental fees, interest charges, taxes, membership dues in the Investment
Company Institute allocable to the Funds, brokerage commissions, and other
expenses connected with the execution, recording and settlement of Fund security
transactions; expenses of repurchasing and redeeming shares and servicing
shareholder accounts; expenses of registering or qualifying shares for sale;
expenses for preparing, printing and distributing periodic reports, notices and
proxy statements to shareholders and to governmental officers and commissions;
insurance premiums; fees and expenses of the Funds' custodian including
safekeeping of funds and securities and maintaining required books and
accounting; expenses of calculating the net asset value of shares of the Funds;
fees and expenses of independent auditors, of legal counsel, and of any transfer
agent, registrar or dividend disbursing agent of the Funds; compensation and
expenses of Directors who are not "interested persons" of the Advisor; and
expenses of shareholder meetings. Expenses relating to the issuance,
registration and qualification of shares of the Funds and the preparation,
printing and mailing of prospectuses are borne by the Funds except that the
Funds' Distribution Agreement with IMG Financial Services, Inc. requires IMG
Financial Services, Inc. to pay for prospectuses that are to be used for sales
purposes.
As compensation for its services, the Funds pay to the Advisor a monthly
management fee at an annual rate of 0.50 percent and 0.30 percent of average net
assets of the IMG Core Stock Fund and the IMG Bond Fund respectively. (See
"ADDITIONAL INVESTMENT INFORMATION -- Calculation of Net Asset Value" in the
Prospectus.) From time to time, IMG may voluntarily waive all or a portion of
their management fees for one or more of the Funds. The organizational expenses
of the Funds were borne by IMG and will not be reimbursed by the Funds.
The Advisory Agreement requires IMG to reimburse the Funds in the event that the
expenses and charges payable by the Funds in any fiscal year, including the
advisory fee but excluding taxes, interest, brokerage commissions, and similar
fees, exceed that percentage of the average net asset value of the Funds for
such year, which is the most restrictive percentage provided by the state laws
of the various states in which the Funds' common stock is qualified for sale.
Such excess is determined by valuations made as of the close of each business
day of the year. No percentage limitation is currently applicable to the Funds.
Reimbursement of expenses in excess of the applicable limitation will be made on
a monthly basis and will be paid to the Funds by reduction of the Advisor's fee,
subject to later adjustment, month by month, for the remainder of the Funds'
fiscal year. IMG may from time to time voluntarily absorb expenses for the Funds
in addition to the reimbursement of expenses in excess of applicable
limitations.
The Distributor
The Directors of the Funds have adopted a Distribution Plan (the "Distribution
Plan") pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder,
after having concluded that there was a reasonable likelihood that the
Distribution Plan would benefit the Funds and the shareholders of the Funds. The
Distribution Plan is designed to promote sales, thereby increasing the net
assets of the Funds. Such an increase may reduce the expense ratio to the extent
the Funds' fixed costs are spread over a larger net asset base. Also, an
increase in net assets may lessen the adverse effects that could result were the
Funds required to liquidate portfolio securities to meet redemptions. There is,
however, no assurance that the net assets of the Funds will increase or that the
other benefits referred to above will be realized.
The Distribution Plan provides that the Funds shall pay IMG Financial Services,
Inc. ("IFS"), as the Funds' distributor, a daily distribution fee payable
monthly and equal on an annual basis to 0.40 percent of the average daily net
assets of Investor Shares of the IMG Core Stock Fund, 0.25 percent of Investor
Shares of the IMG Bond Fund, and 0.15 percent of Select Shares of each Fund. The
purpose of such payments is to compensate IFS for its distribution services to
the Funds. IFS pays the cost of fees to broker-dealers, and for expenses of
printing prospectuses and reports used for sales purposes, expenses of the
preparation and printing of sales literature and other distribution-related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, of personnel, travel, office expenses and
equipment.
In accordance with Rule 12b-1, all agreements relating to the Distribution Plan
entered into between either the Funds or IFS and other organizations must be
approved by the Funds' Board of Directors, including a majority of the Directors
who are not "interested persons" of the Funds (as defined in the 1940 Act) and
who have no direct or indirect financial interest in the operation of the
Distribution Plan or in any agreement related to such Plan ("Qualified
Directors"). The Distribution Plan further provides that the selection and
nomination of Qualified Directors shall be committed to the discretion of the
non-interested Directors then in office.
The Distribution Plan requires that the Funds shall provide to the Directors,
and the Directors shall review, at least quarterly, a written report of the
amounts expended (and purposes therefor) under the Distribution Plan. The
Distribution Plan may be terminated at any time by vote of a majority of the
Qualified Directors or by vote of the holders of a majority of the shares of the
Funds (as defined in "Investment Restrictions" above). The Distribution Plan may
not be amended to increase materially the amount of permitted distribution
expenses without the approval of shareholders and may not be materially amended
in any case without a vote of the majority of both the Directors and the
Qualified Directors.
As the distributor of the Funds, IFS acts as agent in selling shares of the
Funds to dealers. From time to time, IFS, at its expense, may provide additional
commissions, compensation or promotional incentives ("concessions") to dealers
which sell shares of the Funds. Such concessions provided by IFS may include
financial assistance to dealers in connection with preapproved conferences or
seminars, sales or training programs for invited registered representatives,
payment for travel expenses, including lodging, incurred by registered
representatives and members of their families to various locations for such
seminars or training programs, seminars for the public, advertising and sales
campaigns regarding one or more Funds and/or other dealer-sponsored events. In
some instances, these concessions may be offered to dealers or only to certain
dealers who have sold or may sell, during specified periods, certain minimum
amounts of shares of the Funds. No other concessions will be offered to the
extent prohibited by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc. Neither IFS nor dealers
are permitted to delay placing orders to benefit themselves by a price change.
The Funds have entered into a Distribution Agreement (the "Distribution
Agreement"), with IFS in accordance with the provisions of the Distribution
Plan. Under the Agreement IFS will serve as distributor for the continuous
offering of shares of the Funds. The public offering price of shares of each
Fund is their net asset value next computed after the sale (see "HOW TO INVEST"
in the Prospectus). The Distribution Agreement will continue in effect only if
such continuance is specifically approved at least annually by vote of both a
majority of the Directors and a majority of the Qualified Directors of the
Funds. The Distribution Agreement will be terminated automatically if assigned,
and may be terminated at any time by a majority of the Qualified Directors or by
vote of the holders of a majority of the shares of the Funds.
Administrative Services Agreement
IMG provides information and administrative services for shareholders of the
Funds pursuant to a Shareholder Services Plan and Administrative Services
Agreement (the "Administrative Services Agreement"). IMG may enter into related
arrangements with various financial services firms, such as broker-dealer firms
or banks ("firms"), that provide services and facilities for their customers or
clients who are shareholders of the Funds. Such administrative services and
assistance may include, but are not limited to, establishing and maintaining
shareholder accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the Funds and their special
features and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. IMG bears all its expenses
of providing services pursuant to the Administrative Services Agreement,
including the payment of any services fees. For services under the
Administrative Services Agreement, the Funds pay IMG a fee, payable monthly, at
the annual rate of up to 0.25 percent of average daily net assets of Investor
Shares of each Fund, 0.25 percent of Select Shares of the IMG Core Stock Fund,
0.15 percent of Select Shares of the IMG Bond Fund, 0.15 percent of
Institutional Shares of the IMG Core Stock Fund, and 0.10 percent of
Institutional Shares of the IMG Bond Fund. IMG may then pay each firm a service
fee at an annual rate up to the amount received by IMG for net assets of those
accounts in the Funds that the Firm maintains and services. A firm becomes
eligible for the service fee based on assets in the accounts in the month
following the month of purchase and the fee continues until terminated by IMG or
the Funds. The fees are calculated monthly and paid quarterly.
Shareholder Services Plan
Pursuant to the "Shareholder Services Plan", adopted by the Board of Directors
and reviewed at least annually, IMG may enter into related arrangements with
various financial services firms that provide services and facilities for their
customers or clients who are shareholders of the Funds. Such administrative
services and assistance may include, but are not limited to, establishing and
maintaining shareholder accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the Funds and their special
features and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. As long as the
Administrative Services Agreement or any Amendment thereto shall remain in
effect, it is understood that IMG shall be paid fees as set forth in the
Administrative Services Agreement. Unless otherwise specifically approved by the
Board of Directors, IMG shall be solely responsible for all costs and expenses
incurred by it in delivery of such services and its sole compensation shall be
the receipt of its fees.
IMG also may provide some of the above services and may retain any portion of
the fee under the Administrative Services Agreement not paid to firms to
compensate itself for administrative functions performed for the Funds.
Shareholder Servicing, Transfer and Dividend Disbursing Agent
IMG provides shareholder servicing, transfer agency and dividend disbursing
services pursuant to a Transfer Agent, Dividend Disbursing Agent, and
Shareholder Servicing Agent Agreement with the Funds (the "Agency Agreement").
IMG's responsibilities under the Agency Agreement include administering and
performing transfer agent functions and the keeping of records in connection
with the issuance, transfer and redemption of the shares of each Fund. For these
services, IMG receives a fee, computed and paid monthly, at the annual rate of
.05 percent of average daily net assets of the Funds.
Fund Accounting Services
IMG provides fund accounting services under a Fund Accounting Agreement.
Pursuant to this Agreement, IMG is responsible for maintaining all usual,
customary and required books, journals and ledgers of accounts and providing
pricing and reporting all computational services. Under the Agreement, IMG will
be paid a fee computed and paid monthly, at the annual rate of 0.10 percent of
average daily net assets of each Fund.
Custodian
Norwest Bank Minnesota, N.A., Sixth and Marquette, Minneapolis, Minnesota 55479
(the "Custodian") is the custodian of the Funds' assets. The Custodian's
responsibilities include safekeeping and controlling each Fund's cash and
securities, handling the receipt and delivery of securities, determining income
and collecting interest and dividends on each Fund's investments, maintaining
books of original entry for portfolio and fund accounting and other required
books and accounts, and calculating the daily net asset value and public
offering price of shares of each Fund. The Custodian does not determine the
investment policies of any Fund or decide which securities a Fund will buy or
sell. Any Fund may, however, invest in securities of the Custodian and may deal
with the Custodian as principal in securities transactions.
FUND TRANSACTIONS AND BROKERAGE
The Advisor is responsible for decisions to buy and sell securities for each
Fund and for the placement of its business and the negotiation of the
commissions to be paid on such transactions. It is the policy of the Advisor to
seek the best execution at the best security price available with respect to
each transaction, in light of the overall quality of brokerage and research
services provided to the Advisor or the Funds. In over-the-counter transactions,
orders are placed directly with a principal market maker unless it is believed
that a better price and execution can be achieved by using a broker. Normally,
the IMG Bond Fund will pay no brokerage commissions on purchases and sales of
Fund securities since most of their purchases and sales will be principal
transactions. In selecting broker-dealers and in negotiating commissions, the
Advisor considers the firm's reliability, the quality of its execution services
on a continuing basis, and its financial condition.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)") permits
an investment advisor, under certain circumstances, to cause an account to pay a
broker or dealer who supplies brokerage and research services a commission for
effecting a transaction in excess of the amount of commission another broker or
dealer would have charged for effecting the transaction. Brokerage and research
services include (a) furnishing advice as to the value of securities, the
advisability of investing, purchasing, or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, strategy, and the performance of accounts; and (c)
effecting securities transactions and performing functions incidental thereto
(such as clearance, settlement and custody).
In carrying out the provisions of the Advisory Agreement, the Advisor may cause
the Funds to pay a broker which provides brokerage and research services to the
Advisor a commission for effecting a securities transaction in excess of the
amount another broker would have charged for effecting the transaction. The
Advisor is of the opinion that the continued receipt of supplemental investment
research services from broker-dealers is essential to its provision of
high-quality management services to the Funds. The Advisory Agreement provides
that such higher commissions will not be paid by the Funds unless (a) the
Advisor determines in good faith that the amount is reasonable in relation to
the services in terms of the particular transaction or in terms of the Advisor's
overall responsibilities with respect to the accounts as to which it exercises
investment discretion; (b) such payment is made in compliance with the
provisions of Section 28(e), other applicable state and federal laws, and the
Advisory Agreement; and (c) in the opinion of the Advisor, the total commissions
paid by the Funds will be reasonable in relation to the benefits to the Funds
over the long term. The investment advisory fee paid by the Funds under the
Advisory Agreement is not reduced as a result of the Advisor's receipt of
research services.
The Advisor is authorized to use research services provided by and to place
transactions with brokerage firms that have provided assistance in the
distribution of shares of the Funds or shares of other funds managed by the
Advisor to the extent permitted by law.
The Advisor places portfolio transactions for other advisory accounts, including
other mutual funds managed by the Advisor. Research services furnished by firms
through which the Funds effect their securities transactions may be used by the
Advisor in servicing all of its accounts; not all of such services may be used
by the Advisor in connection with the Funds. In the opinion of the Advisor, it
is not possible to separately measure the benefits from research services to
each of the accounts (including the Funds) managed by the Advisor. Because the
volume and nature of the trading activities of the accounts are not uniform, the
amount of commissions in excess of those charged by another broker paid by each
account for brokerage and research services will vary. However, in the opinion
of the Advisor, such costs to the Funds will not be disproportionate to the
benefits received by the Funds on a continuing basis.
The Advisor seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Funds and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Funds. In
making such allocations between the Funds and other advisory accounts, the main
factors considered by the Advisor are the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for recommending the
investment.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the policies set forth in the preceding
paragraphs and such other policies as the Board of Directors of the Funds may
determine, IMG may consider sales of shares of the Funds as a factor in the
selection of broker-dealers to execute the Funds' securities transactions.
TAXES
As indicated under "DISTRIBUTIONS AND TAXES" in the Prospectus, it is the Funds'
intent to qualify each of the Funds as a "regulated investment company" under
the Code. This qualification does not involve governmental supervision of the
Funds' management practices or policies.
A dividend or capital gains distribution received shortly after the purchase of
shares reduces the net asset value of the shares by the amount of the dividend
or distribution and, although in effect a return of capital, will be subject to
income taxes. Net gain on sales of securities when realized and distributed,
actually or constructively, is taxable as capital gain. If the net asset value
of shares were reduced below a shareholder's cost by distribution of gains
realized on sales of securities, such distribution would be a return of
investments although taxable as stated above.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "ADDITIONAL INVESTMENT
INFORMATION -- Calculation of Net Asset Value," the net asset value of each Fund
will be determined as of the close of trading on each day the NYSE is open for
trading. The NYSE is open for trading Monday through Friday except New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Additionally,
if any of the aforementioned holidays falls on a Saturday, the NYSE will not be
open for trading on the preceding Friday, and when any such holiday falls on a
Sunday, the NYSE will not be open for trading on the succeeding Monday unless
unusual business conditions exist, such as the ending of a monthly or the yearly
accounting period.
The Funds have sought an order from the Securities and Exchange Commission
pursuant to Section 6(c) of the 1940 Act for exemption from the provisions of
Sections 18(f), 18(g), and 18(i) of the 1940 Act. The conditional order when
granted will permit the Funds (a) to issue three classes of shares, ("Investor"
Shares, "Select" Shares and "Institutional" Shares), representing interests in
the same portfolio of securities; and (b) to allow conversions between the
classes of shares. See the Prospectus for a complete description of the
Investor, Select and Institutional Shares.
SHAREHOLDER SERVICES
As described under "SHAREHOLDER SERVICES -- Automatic Dividend Reinvestment" in
the Prospectus, all income dividends and capital gain distributions will be
invested automatically in additional shares of the Fund paying the distribution
unless the Funds are otherwise notified in writing.
Systematic Withdrawal Plan
You can set up automatic withdrawals from your account at monthly, quarterly or
annual intervals. To begin distributions, you must have an initial balance of
$24,000 in the Fund account, and a maximum of 10 percent per year may be
withdrawn pursuant to the Systematic Withdrawal Plan. To establish the
Systematic Withdrawal Plan, call 1-800-798-1819 and request an application. To
establish the Systematic Withdrawal Plan, you appoint the Funds as your agent to
effect redemptions of Fund shares held in your account for the purpose of making
monthly, quarterly or annual withdrawal payments of a fixed amount to you out of
your account. One request will be honored in any 12 month period
The minimum periodic withdrawal payment is $200. Redemptions will be made on the
fifth business day preceding the last day of each month or, if that day is a
holiday, on the next preceding business day. The shareholder may wish to
consider reinvesting dividends in additional Fund shares at net asset value. You
may deposit additional Fund shares in your account at any time.
The right is reserved to amend the Systematic Withdrawal Plan on 30 days'
notice. The Plan may be terminated at any time by the shareholder or the Funds.
Withdrawal payments cannot be considered to be yield or income on the
shareholder's investment since portions of each payment will normally consist of
a return of capital. Depending on the size or the frequency of the disbursements
requested and the fluctuation in the value of a Fund's securities, redemptions
for the purpose of making such disbursements may reduce or even exhaust your
account.
You may vary the amount or frequency of withdrawal payments, temporarily
discontinue them, or change the designated payee or payee's address by notifying
the Funds.
Automatic Investment Plan
An Automatic Investment Plan may be established at any time. By participating in
the Automatic Investment Plan, you may automatically make purchases of shares of
any Fund on a regular, convenient basis. You may choose to make contributions on
the fifth and/or twentieth day of each month in an amount of $50 or more.
Under the Automatic Investment Plan, your bank or other financial institution
debits preauthorized amounts drawn on your account each month and applies such
amounts to the purchase of shares of the Funds. The Automatic Investment Plan
can be implemented with any financial institution that is a member of the
Automated Clearinghouse. You may obtain an application to establish the
Automatic Investment Plan from the Funds. No service fee is charged by the Funds
for participating in the Automatic Investment Plan.
General Procedures for Shareholder Accounts
As set forth under "CAPITAL STOCK" in the Prospectus, certificates for Fund
shares will not be issued.
Either an investor or the Funds, by written notice to the other, may terminate
the investor's participation in the plans, programs, privileges, or other
services described under "SHAREHOLDER SERVICES" in the Prospectus without
penalty at any time, except as discussed in the Prospectus.
Your account may be terminated by the Funds on not less than 30 days' notice if,
at the time of any transfer or redemption of shares in the account, the value of
the remaining shares in the account at the current net asset value falls below
$1,000 ($250 for UF/TMA and IRA accounts). Upon any such termination, the shares
will be redeemed at the then current net asset value and a check for the
proceeds of redemption sent within seven days of such redemption.
Telephone Exchange Privilege and Automatic Exchange Plan
A discussion of the Telephone Exchange Privilege and Automatic Exchange Plan is
set forth in the Prospectus under the captions "SHAREHOLDER SERVICES --
Telephone Exchange and Redemption Privilege" and -- "Automatic Exchange Plan".
Shares of each Fund may be exchanged for each other at relative net asset
values. Exchanges will be effected by redemption of shares of the Fund held and
purchase of shares of the Fund for which Fund shares are being exchanged (the
"New Fund"). Investments in the New Fund will be made into the lowest fee class
of shares for which the shareholder is eligible in the New Fund. For federal
income tax purposes, any such exchange constitutes a sale upon which a capital
gain or loss will be realized, depending upon whether the value of the shares
being exchanged is more or less than the shareholder's adjusted cost basis. Upon
a telephone exchange, the transfer agent establishes a new account in the New
Fund with the same registration and dividend and capital gains options as the
redeemed account, unless otherwise specified, and confirms the purchase to you.
In order to establish a Systematic Withdrawal Plan for the new account, however,
an exchanging shareholder must file a specific written request.
The Telephone Exchange Privilege and Automatic Exchange Plan are available only
in states where shares of the New Fund may be sold, and the privilege may be
modified or discontinued at any time. Additional information concerning these
exchange privileges is contained in the Funds' Prospectus.
SHAREHOLDER MEETINGS
The Maryland Corporation Law permits registered investment companies, such as
the Funds, to operate without an annual meeting of shareholders under specified
circumstances if an annual meeting is not required by the Investment Company Act
of 1940. The Company has adopted the appropriate Bylaw provisions and may not
hold an annual meeting in any year in which the election of Directors is not
required to be acted on by shareholders under the 1940 Act.
The Bylaws also contain procedures for the removal of Directors by shareholders.
At any meeting of shareholders, duly called and at which a quorum is present,
the shareholders may, by the affirmative vote of the holders of a majority of
the votes entitled to be cast thereon, remove any Director or Directors from
office and may elect a successor or successors to fill any resulting vacancies
for the unexpired terms of removed Directors.
Upon the written request of the holders of shares entitled to not less than 10
percent of all the votes entitled to be cast at such meeting, the Secretary of
the Funds shall promptly call a special meeting of shareholders for the purpose
of voting upon the question of removal of any Director. Whenever 10 or more
shareholders of record who have been such for at least six months preceding the
date of application, and who hold in the aggregate either shares having a net
asset value of at least $25,000 or at least 1 percent of the total outstanding
shares, whichever is less, shall apply to the Secretary in writing, stating that
they wish to communicate with other shareholders with a view to obtaining
signatures to a request for a meeting as described above and accompanied by a
form of communication and request which they wish to transmit, the Secretary
shall within five business days after such application either: (1) afford to
such applicants access to a list of the names and addresses of all shareholders
of record; or (2) inform such applicants as to the approximate number of
shareholders of record and the approximate cost of mailing to them the proposed
communication and form of request.
If the Secretary elects to follow the course specified in clause (2) of the last
sentence of the preceding paragraph, the Secretary, upon the written request of
such applicants, accompanied by a tender of the material to be mailed and of the
reasonable expenses of mailing, shall, with reasonable promptness, mail such
material to all shareholders of record at their addresses as recorded on the
books unless within five business days after such tender the Secretary shall
mail to such applicants and file with the SEC, together with a copy of the
material to be mailed, a written statement signed by at least a majority of the
Board of Directors to the effect that in their opinion either such material
contains untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion.
After opportunity for hearing upon the objections specified in the written
statement so filed, the SEC may, and if demanded by the Board of Directors or by
such applicants shall, enter an order either sustaining one or more of such
objections or refusing to sustain any of them. If the SEC shall enter an order
refusing to sustain any of such objections, or if, after the entry of an order
sustaining one or more of such objections, the SEC shall find, after notice and
opportunity for hearing, that all objections so sustained have been met, and
shall enter an order so declaring, the Secretary shall mail copies of such
material to all shareholders with reasonable promptness after the entry of such
order and the renewal of such tender.
VALUATION OF FUND SECURITIES
Each Fund's net asset value per share is determined by the Custodian, under
procedures established by the Board of Directors. Fund securities are valued
primarily on the basis of valuations furnished by a pricing service which uses
both dealer-supplied valuations and electronic data processing techniques that
take into account appropriate factors such as institutional-size trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data, with exclusive reliance
upon quoted prices or exchange or over-the-counter prices, since such valuations
are believed to reflect more accurately the fair value of such securities. Use
of the pricing service has been approved by the Board of Directors. There are a
number of pricing services available, and the Directors, or Officers acting on
behalf of the Directors, on the basis of ongoing evaluation of these services,
may use other pricing services or discontinue the use of any pricing service in
whole or in part.
Securities not valued by the pricing service and for which quotations are
readily available are valued at market values determined on the basis of their
latest available bid prices as furnished by recognized dealers in such
securities. Futures contracts and options are valued on the basis of market
quotations, if available. Securities and other assets for which quotations or
pricing service valuations are not readily available are valued at their fair
value as determined in good faith under consistently applied procedures under
the general supervision of the Board of Directors.
PERFORMANCE INFORMATION
As described in the "PERFORMANCE INFORMATION" section of the Funds' Prospectus,
the historical performance or return of each Fund may be shown in the form of
"yield", "average annual total return", "total return", and "cumulative total
return".
Each class of shares' average annual total return quotation is computed in
accordance with a standardized method prescribed by rules of the SEC. The
average annual total return for a specific period is found by first taking a
hypothetical $10,000 investment ("initial investment") in the Fund's respective
shares on the first day of the period and computing the "redeemable value" of
that investment at the end of the period. The redeemable value is then divided
by the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. The calculation assumes that
all income and capital gains dividends paid by the Fund have been reinvested at
net asset value on the reinvestment dates during the period.
Calculation of a Fund's total return is subject to a standardized format. Total
return performance for a specific period is calculated by first taking an
investment (assumed below to be $10,000) ("initial investment") in the shares on
the first day of the period and computing the "ending value" of that investment
at the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The calculation assumes that all income and capital gains dividends paid by the
Fund have been reinvested at net asset value on the reinvestment dates during
the period. Total return may also be shown as the increased dollar value of the
hypothetical investment over the period.
Cumulative total return represents the simple change in value of your investment
over a stated period and may be quoted as a percentage or as a dollar amount.
Total returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to illustrate the
relationship between these factors and their contributions to total return.
Yield for the shares of the IMG Bond Fund is computed in accordance with a
standardized method prescribed by rules of the SEC. Under that method, the
current yield quotation for each Fund is based on a one month or 30-day period.
Yield is computed by dividing the net investment income per share earned during
the 30-day or one month period by the maximum offering price per share on the
last day of the period, according to the following formula:
a-b
---------------------
YIELD = 2[(-------- + 1)6 - 1]
cd
Where a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends. d = the maximum
offering price per share on the last day of the period.
In computing yield, the Fund follows certain standardized accounting practices
specified by SEC rules. These practices are not necessarily consistent with
those that the Fund uses to prepare annual and interim financial statements in
conformity with generally accepted accounting principles. Therefore, the quoted
yields as calculated above may differ from the actual dividends paid.
Performance figures are based upon historical results and are not necessarily
representative of future performance. Returns and net asset value will fluctuate
and shares are redeemable at the then current net asset value, which may be more
or less than original cost. Factors affecting performance include general market
conditions, operating expenses and investment management. Any additional fees
charged by a dealer or other financial services firm would reduce the returns
described in this section.
Each Fund may compare its share performance to that of U.S. Treasury bonds,
bills or notes because such instruments represent alternative income producing
products. Treasury obligations are issued in selected denominations. Rates of
Treasury obligations are fixed at the time of issuance and payment of principal
and interest is backed by the full faith and credit of the United States
Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Generally, the values of obligations with shorter maturities will
fluctuate less than those with longer maturities.
From time to time, in marketing and other Fund literature, performance may be
compared to the performance of other mutual funds in general or to the
performance of particular types of mutual funds, with similar investment goals,
as tracked by independent organizations. Among these organizations, Lipper
Analytical Services, Inc. ("Lipper"), a widely used independent research firm
which ranks mutual funds by overall performance, investment objectives, and
assets, may be cited. Lipper performance figures are based on changes in net
asset value, with all income and capital gain dividends reinvested. Such
calculations do not include the effect of any sales charges. Shares of each Fund
will be compared to Lipper's appropriate fund category; that is, by Fund
objective and holdings. Lipper also issues a monthly yield analysis for Fixed
Income Securities and the Funds may, from time to time, advertise those
rankings.
Performance may also be compared to the performance of other mutual funds by
Morningstar, Inc. which rates funds on the basis of historical risk and total
return. Morningstar's ratings range from five stars (highest) to one star
(lowest) and represent Morningstar's assessment of the historical risk level and
total return of a fund as a weighted average for three, five, and ten year
periods. Ratings are not absolute or necessarily predictive of future
performance.
Evaluations of performance made by independent sources may also be used in
advertisements concerning the Funds, including reprints of, or selections from,
editorials or articles about the Funds, especially those with similar
objectives. Sources for the performance information and articles about the Funds
may include publications such as Money, Forbes, Kiplinger's, Financial World,
Business Week, U.S. News and World Report, The Wall Street Journal, Barron's and
a variety of investment newsletters. The Funds may compare Fund performance to a
wide variety of indices including, but not limited to the following:
IMG Core Stock Fund
Standard & Poor's
NASDAQ Over-the-Counter Composite Index
Russell 1000 Index
Russell 2000 Small Stock Index
Russell 2500 Index
Russell 3000 Index
Wilshire 5000 Equity Index
IMG Bond Fund
Lehman Brothers Government Corporate Index
Lehman Brothers Intermediate Bond Index
Merrill Lynch Government Corporate Master Index
Lehman Brothers All Government Bond Index
Lehman Brothers One to Three Years Government Bond Index
Merrill Lynch Government Master Index
Merrill Lynch Short-Term U.S. Treasury Index
Merrill Lynch Intermediate-Term U.S. Treasury Index
Merrill Lynch All Mortgages Index
Merrill Lynch All GNMAs
IBC/Donoghue Money Fund Index
There are differences and similarities between the investments which each Fund
may purchase and the investments measured by the indices which are noted herein.
The market prices and yields of bonds will fluctuate. There are important
differences among the various investments included in the indices that should be
considered in reviewing this information.
Investors may want to compare each Fund's performance to that of certificates of
deposit offered by banks and other depository institutions. Certificates of
deposit represent an alternative (taxable) income producing product.
Certificates of deposit may offer fixed or variable interest rates and principal
is guaranteed and may be insured. Withdrawal of the deposits prior to maturity
normally will be subject to a penalty. Rates offered by banks and other
depository institutions are subject to change at any time specified by the
issuing institution. The bonds held by the IMG Bond Fund are generally of longer
term than most certificates of deposit and may reflect longer term market rate
fluctuations.
Investors may also want to compare performance of the Funds to that of money
market funds. Money market fund yields will fluctuate and shares are not
insured, but share values usually remain stable.
GENERAL INFORMATION
The Advisor believes that actively managing each Fund's investments is the best
way to achieve each Fund's objective. This policy is based on a fundamental
belief that economic and financial conditions create favorable and unfavorable
investment periods and sectors, and that these different periods require
different investment approaches.
Financial goals vary from person to person. Investors may choose one or more of
the Funds to help them reach their financial goals. To help you better
understand each of the Funds and determine which Fund or combination of Funds
best meets your personal investment objectives, study the Prospectus carefully
before you invest.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, P.O. Box 772, Des Moines, Iowa, 50309, have been selected
as the independent accountants for the Funds.
<PAGE>
APPENDIX A
BOND RATINGS
Standard & Poor's Bond Ratings
A Standard & Poor's corporate rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished by
the issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
"AAA" Bonds have the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
"AA" Bonds have a very strong capacity to pay interest and repay principal and
differ from the highest rated issues only in small degrees.
"A" Bonds have a strong capacity to pay interest and repay principal although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
"BBB" Bonds are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for bonds in this
category than in higher rated categories.
"BB", "B", "CCC", "CC" and "C" Bonds are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates the least degree of
speculation and "C" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. A "C" rating
is typically applied to debt subordinated to senior debt which is assigned an
actual or implied "CCC" rating. It may also be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are continued.
Moody's Bond Ratings
"Aaa" Bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edged". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
"Aa" Bonds are judged to be of high quality by all standards. Together with the
"Aaa" group they comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in "Aaa" securities or fluctuation of protection elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" Bonds possess many favorable investment attributes and are to be considered
as upper-medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
"Baa" Bonds are considered as medium-grade obligations (i.e., they are neither
highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
Bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
"Ba" Bonds are judged to have speculative elements; their future cannot be
considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes Bonds in
this class.
"B" Bonds generally lack characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
"Caa" Bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
"Ca" Bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
"C" Bonds are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Fitch Investors Services, Inc. Bond Ratings
The Fitch Bond Rating provides a guide to investors in determining the
investment risk associated with a particular security. The rating represents its
assessment of the issuer's ability to meet the obligations of a specific debt
issue. Fitch bond ratings are not recommendations to buy, sell or hold
securities since they incorporate no information on market price or yield
relative to other debt instruments.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the record of the issuer and of
any guarantor, as well as the political and economic environment that might
affect the future financial strength and credit quality of the issuer.
Bonds which have the same rating are of similar but not necessarily identical
investment quality since the limited number of rating categories cannot fully
reflect small differences in the degree of risk. Moreover, the character of the
risk factor varies from industry to industry and between corporate, health care
and municipal obligations.
In assessing credit risk, Fitch Investors Services relies on current information
furnished by the issuer and/or guarantor and other sources which it considers
reliable. Fitch does not perform an audit of the financial statements used in
assigning a rating.
Ratings may be changed, withdrawn or suspended at any time to reflect changes in
the financial condition of the issuer, the status of the issue relative to other
debt of the issuer, or any other circumstances that Fitch considers to have a
material effect on the credit of the obligor.
"AAA" rated Bonds are considered to be investment grade and of the highest
credit quality. The obligor has an extraordinary ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" rated Bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal, while very
strong, is somewhat less than for "AAA" rated securities or more subject to
possible change over the term of the issue.
"A" rated Bonds are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
"BBB" rated Bonds are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to weaken this ability than bonds with
higher ratings.
"BB" rated bonds are considered speculative and of low investment grade. The
obligor's ability to pay interest and repay principal is not strong and is
considered likely to be affected over time by adverse economic changes.
"B" rated Bonds are considered highly speculative. Bonds in this class are
highly protected as to the obligor's ability to pay interest over the life of
the issue and repay principal when due.
"CCC" rated Bonds may have certain identifiable characteristics which, if not
remedied, could lead to the possibility of default in either principal or
interest payments.
"CC" rated Bonds are minimally protected. Default in payment of interest and/or
principal seems probable.
"C" rated Bonds are in actual or imminent default in payment of interest or
principal.
Duff & Phelps, Inc. Long-Term Ratings
These ratings represent a summary opinion of the issuer's long-term fundamental
quality. Rating determination is based on qualitative and quantitative factors
which may vary according to the basic economic and financial characteristics of
each industry and each issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such factors as competition,
government action, regulation, technological obsolescence, demand shifts, cost
structure and management depth and expertise. The projected viability of the
obligor at the trough of the cycle is a critical determination. Each rating also
takes into account the legal form of the security, (e.g., first mortgage bonds,
subordinated debt, preferred stock, etc.). The extent of rating dispersion among
the various classes of securities is determined by several factors, including
relative weightings of the different security classes in the capital structure,
the overall credit strength of the issuer, and the nature of covenant
protection. Review of indenture restrictions is important to the analysis of a
company's operating and financial constraints. The Credit Rating Committee
formally reviews all ratings once per quarter (more frequently, if necessary).
Rating
Scale Definition
_______________________________________________________________________________
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
_______________________________________________________________________________
AA+ High credit quality. Protection factors are strong. Risk is modest,
AA but may vary slightly from time to time because of economic
AA- conditions.
_______________________________________________________________________________
A+ Protection factors are average but adequate. However, risk factors
A are more variable and greater in periods of economic stress.
A-
_______________________________________________________________________________
BBB+ Below average protection factors but still considered
BBB sufficient for prudent investment. Considerable variability in risk
BBB- during economic cycles.
_______________________________________________________________________________
BB+ Below investment grade but deemed likely to meet obligations when
BB due Present or prospective financial protection factors fluctuate
BB- according to industry conditions or company fortunes. Overall
quality may move up or down frequently within this category.
_______________________________________________________________________________
B+ Below investment grade and possessing risk that obligations will
B not be met when due. Financial protection factors will fluctuate
B- widely according to economic cycles, industry conditions and/
or company fortunes. Potential exists for frequent changes in
the rating within this category or into a higher or lower rating
grade.
_______________________________________________________________________________
CCC Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
_______________________________________________________________________________
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
_______________________________________________________________________________
DP Preferred stock with dividend averages.
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The categories are as follows:
"A" Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues within this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
"A-1" Designation indicates that the degree of safety regarding timely payment
is either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are designated "A-1+".
"A-2" Designation indicates that the capacity for timely payment is strong.
However, the relative degree of safety is not as high as for issues designated
"A-1".
"A-3" Designation indicates a satisfactory capacity for timely payment. Issues
with this designation, however, are somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" Issues are regarded as having only an adequate capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
"C" Issues have a doubtful capacity for payment.
"D" Issues are in payment default. The "D" rating category is used when interest
payments or principal payments are not made on the due date even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period.
Moody's Commercial Paper Ratings
Moody's rates commercial paper as either Prime, which contains three categories,
or Not Prime. The commercial paper ratings are as follows:
"P-1" Issuers (or related supporting institutions) have a superior capacity for
repayment of short-term promissory obligations, normally evidenced by the
following characteristics: (i) leading market positions in well established
industries, (ii) high rates of return on funds employed, (iii) conservative
capitalization structures with moderate reliance on debt and ample asset
protection, (iv) broad margins in earnings coverage of fixed financial charges
and high internal cash generation, and (v) well established access to a range of
financial markets and assured sources of alternate liquidity.
"P-2" Issuers (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations, normally evidenced by many of
the characteristics of a "P-1" rating, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
"P-3" Issuers (or related supporting institutions) have an acceptable capacity
for repayment of short-term promissory obligations. The effect of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and the requirement for relatively high financial leverage.
Adequate alternate liquidity is maintained. "Not Prime" Issuers (or related
supporting institutions) do not fall within any of the Prime rating categories.
Fitch Investors Services, Inc. Short-Term Ratings
Fitch-1+ (Exceptionally Strong Credit Quality) Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
Fitch-1 (Very Strong Credit Quality) Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
Fitch-1+.
Fitch-2 (Good Credit Quality) Issues carrying this rating have a satisfactory
degree of assurance for timely payment but the margin of safety is not as great
as the two higher categories.
Fitch-3 (Fair Credit Quality) Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate; however,
near-term adverse change is likely to cause these securities to be rated below
investment grade.
Fitch-S (Weak Credit Quality) Issues carrying this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near term adverse changes in financial and economic conditions.
D (Default) Issues carrying this rating are in actual or imminent payment
default.
Duff & Phelps, Inc. Short-Term Ratings
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit and current maturities of long-term
debt.
Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds, including trade
credit, bank lines and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
A. Category 1: High Grade
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small.
B. Category 2: Good Grade
Duff 2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
C. Category 3: Satisfactory Grade
Duff 2 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
D. Category 4: Non-investment Grade
Duff 4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service. Operating factors and
market access may be subject to a high degree of variation.
E. Category 5: Default
Duff 5 Issuer failed to meet scheduled principal and/or interest
payments.
Thomas Bankwatch (TBW) Short-Term Ratings
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less. The TBW Short-Term Ratings specifically assess the
likelihood of an untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.
TBW-3 The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
<PAGE>
EXHIBIT "D"
OPINION OF COUNSEL
<PAGE>
May 17, 1995
Board of Directors
IMG Mutual Funds, Inc.
Trustee
IMG Equity Trust
720 Liberty Building
418 Sixth Avenue
Des Moines, Iowa 50309
RE: REORGANIZATION OF IMG EQUITY TRUST AS SERIES OF IMG MUTUAL FUNDS, INC.
Gentlemen:
You have asked us for our opinion concerning certain federal income tax
consequences to the holders of trust interests ("Beneficiaries") of IMG Equity
Trust (the "Trust") when the Beneficiaries receive shares ("Shares") of
beneficial interest, par value $.00001 per shares, of the IMG Core Stock Fund of
IMG Mutual Funds, Inc. (the "Fund") and cash in liquidation of their Trust
interest in the Trust pursuant to a termination of the Trust as described in
section 708(b)(1)(A) of the Internal Revenue Code of 1986. No Beneficiary will
receive an amount of cash in excess of his adjusted basis in his Trust interest
when such interest is liquidated. The only assets of the Trust immediately prior
to its termination will be Shares and cash.
We have reviewed such documents and certain representations from the
Co-Trustee of the Trust, as we have considered necessary for the purpose of
rendering this opinion. In rendered this opinion, we have assumed that such
documents when executed will conform to the proposed forms of such documents
that we have examined. In addition, we have assumed the genuineness of all
signatures, the capacity of each party executing a document so to execute such
document, the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as certified
or photostatic copies. We have made inquiry as to the underlying facts which we
consider to be relevant to the conclusions set forth in this letter. The
opinions expressed in this letter are based upon certain factual statements and
representations of the Trust and the Fund set forth in the Registration
Statements on Form N-1A and N-14 filed by the Fund and representations to us by
the Trust and Co-Trustee. We have no reason to believe that these
representations and facts are not valid, but we have not attempted to verify
independently any of these representations and facts, and this opinion is based
upon the assumption that each of them is accurate.
The conclusions expressed herein are based upon the Internal Revenue
Code of 1985, Treasury Regulations, published and private letter rulings and
procedures of the Internal Revenue Services and judicial decisions, all as in
effect on the date of this letter.
Based upon the foregoing, it is our opinion that:
(A) The transfer by Trust of its assets, subject to any liabilities, to
the Fund in exchange for all of the shares (other than those shares received by
Investors Management Group, Ltd., for the initial capitalization of the Fund in
the amount of $100,000 as a part of this transaction) of the Fund will not be a
taxable event for the Trust.
(B) Upon the termination of the Trust, the Trust's taxable year will
close; and each Beneficiary will include in income the Beneficiary's allocable
share of the Trust's gain or loss for the taxable year. The Beneficiary's
federal income tax adjusted basis in his Trust interest will be increased by the
amount of any allocable gain and will be reduced (but not below zero) by the
amount of any allocable loss.
(C) A Beneficiary will not recognize, for federal income tax purposes,
taxable gain or loss if he receives Shares and cash in liquidation of his Trust
interest in the Trust and if the amount of cash received is less than his
adjusted basis in his Trust interest.
(D) A Beneficiary's federal income tax basis in his Shares will be
equal to his federal income tax adjusted basis in his former Trust interest in
the Trust minus the amount of cash he received pursuant to the liquidation of
his Trust interest.
(E) A Beneficiary's holding periods with respect to his Shares, for
federal income tax purposes, will include the Trust's holding periods with
respect to its Shares.
Except as provided herein, we express no opinion as to the federal,
state or local tax consequences to the Fund, the Trust, any shareholder of the
Fund, or any Beneficiary of the Trust regarding the above described liquidations
and termination or any other transaction.
Very truly yours,
LARRY A. HOLLE
For the Firm
Cline, Williams, Wright, Johnson & Oldfather
<PAGE>
May 17, 1995
Board of Directors
IMG Mutual Funds, Inc.
Trustee
IMG Income Trust
720 Liberty Building
418 Sixth Avenue
Des Moines, Iowa 50309
RE: REORGANIZATION OF IMG INCOME TRUST AS SERIES OF IMG MUTUAL FUNDS, INC.
Gentlemen:
You have asked us for our opinion concerning certain federal income tax
consequences to the holders of trust interests ("Beneficiaries") of IMG Income
Trust (the "Trust") when the Beneficiaries receive shares ("Shares") of
beneficial interest, par value $.00001 per shares, of the IMG Bond Fund of IMG
Mutual Funds, Inc. (the "Fund") and cash in liquidation of their Trust interest
in the Trust pursuant to a termination of the Trust as described in section
708(b)(1)(A) of the Internal Revenue Code of 1986. No Beneficiary will receive
an amount of cash in excess of his adjusted basis in his Trust interest when
such interest is liquidated. The only assets of the Trust immediately prior to
its termination will be Shares and cash.
We have reviewed such documents and certain representations from the
Co-Trustee of the Trust, as we have considered necessary for the purpose of
rendering this opinion. In rendered this opinion, we have assumed that such
documents when executed will conform to the proposed forms of such documents
that we have examined. In addition, we have assumed the genuineness of all
signatures, the capacity of each party executing a document so to execute such
document, the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as certified
or photostatic copies. We have made inquiry as to the underlying facts which we
consider to be relevant to the conclusions set forth in this letter. The
opinions expressed in this letter are based upon certain factual statements and
representations of the Trust and the Fund set forth in the Registration
Statements on Form N-1A and N-14 filed by the Fund and representations to us by
the Trust and Co-Trustee. We have no reason to believe that these
representations and facts are not valid, but we have not attempted to verify
independently any of these representations and facts, and this opinion is based
upon the assumption that each of them is accurate.
The conclusions expressed herein are based upon the Internal Revenue
Code of 1985, Treasury Regulations, published and private letter rulings and
procedures of the Internal Revenue Services and judicial decisions, all as in
effect on the date of this letter.
Based upon the foregoing, it is our opinion that:
(A) The transfer by Trust of its assets, subject to any liabilities, to
the Fund in exchange for all of the shares (other than those shares received by
Investors Management Group, Ltd., for the initial capitalization of the Fund in
the amount of $100,000 as a part of this transaction) of the Fund will not be a
taxable event for the Trust.
(B) Upon the termination of the Trust, the Trust's taxable year will
close; and each Beneficiary will include in income the Beneficiary's allocable
share of the Trust's gain or loss for the taxable year. The Beneficiary's
federal income tax adjusted basis in his Trust interest will be increased by the
amount of any allocable gain and will be reduced (but not below zero) by the
amount of any allocable loss.
(C) A Beneficiary will not recognize, for federal income tax purposes,
taxable gain or loss if he receives Shares and cash in liquidation of his Trust
interest in the Trust and if the amount of cash received is less than his
adjusted basis in his Trust interest.
(D) A Beneficiary's federal income tax basis in his Shares will be
equal to his federal income tax adjusted basis in his former Trust interest in
the Trust minus the amount of cash he received pursuant to the liquidation of
his Trust interest.
(E) A Beneficiary's holding periods with respect to his Shares, for
federal income tax purposes, will include the Trust's holding periods with
respect to its Shares.
Except as provided herein, we express no opinion as to the federal,
state or local tax consequences to the Fund, the Trust, any shareholder of the
Fund, or any Beneficiary of the Trust regarding the above described liquidations
and termination or any other transaction.
Very truly yours,
LARRY A. HOLLE
For the Firm
Cline, Williams, Wright, Johnson & Oldfather
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 24, 1995
Acquisition of the assets of
IMG EQUITY TRUST
IMG INCOME TRUST
418 6th Avenue, Suite 720
Des Moines, Iowa 50309-2439
By and in exchange for the shares of
IMG MUTUAL FUNDS, INC.
418 6th Avenue, Suite 720
Des Moines, Iowa 50309-2439
This Statement of Additional Information (the "Statement") relates
to the proposed transfer of all or substantially all of the assets of IMG Equity
Trust (the "Equity Trust") to IMG Mutual Funds, Inc. (the "Company")--IMG Core
Stock Fund (the "Core Stock Fund") in exchange for Shares of the Core Stock Fund
and the proposed transfer of all or substantially all of the assets of the IMG
Income Trust (the "Income Trust") to the Company's IMG Bond Fund (the "Bond
Fund") in exchange for Shares of the Bond Fund. Collectively the Core Stock Fund
and the Bond Fund may be referred to as "Funds." The Statement is not a
prospectus and is meant to be read in conjunction with the
Prospectus/Information Statement dated May 24, 1995, that this Statement
accompanies. A Statement of Additional Information relating to the Company and
the Funds dated May 24, 1995, is incorporated by reference into this Statement
of Additional Information. A copy of the Prospectus for the Funds and the
Statement of Additional Information of the Funds may be obtained without charge
by calling IMG Financial Services, Inc. at (515) 244-5426, (800) 798-1819 (toll
free), or by faxing a request to (515) 244-2353 or writing to the address above.
<PAGE>
TABLE OF CONTENTS
Page
The Exchange.............................................................. 3
Financial Statements...................................................... 4
Financial Statements of the Company....................................... A-1
Independent Auditors' Report ....................................... A-1
Statement of Assets and Liabilities dated
May 1, 1995......................................................... A-2
Financial Statements of IMG Private Investment Trusts .............. B-1
Independent Auditors' Report as of and for the periods ending
December 31, 1994 and 1993.......................................... B-1
Statements of Operations for the year ended
December 31, 1994 .................................................. B-2
Statements of Net Assets for the year ended
December 31, 1994 .................................................. B-3
Schedules of Investments as of
December 31, 1994 .................................................. B-4
Statements of Changes in Net Assets for the years ended
December 31, 1994 and 1993.......................................... B-10
Financial Highlights................................................ B-11
Notes to Financial Statements ...................................... B-12
Pro Forma Financial Information........................................... C-1
<PAGE>
THE EXCHANGE
The beneficiaries of the Trusts ("Beneficiaries") are being asked
to approve Agreements and Plans of Exchange (the "Plans"). Under the Plans,
substantially all of the assets of the Trusts will be acquired by the Company in
exchange for Shares of the Funds. The Company, an open-end management investment
company organized as a Maryland corporation, was formed on November 16, 1994 but
has not yet commenced offering Shares of the Funds to the public. The
Beneficiaries will be the first public shareholders of the Funds upon
consummation of the Plans which is anticipated to occur on or before June 30,
1995.
For detailed information about the Plans and the proposed
exchange, Beneficiaries should refer to the Prospectus/Information Statement.
For further information about the Company or the Funds, Beneficiaries should
refer to the Company's Prospectus dated May 24, 1995, that is attached to the
Prospectus/Information Statement as Exhibit "B" and the Company's Statement of
Additional Information dated May 24, 1995, attached to the
Prospectus/Information Statement as Exhibit "C", which is incorporated by
reference into this Statement.
<PAGE>
Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Initial Shareholder
IMG Mutual Funds, Inc.:
We have audited the statements of assets and liabilities of IMG Core Stock Fund
and IMG Bond Fund (portfolios within IMG Mutual Funds, Inc.) as of May 1, 1995.
These financial statements are the responsibility of Fund management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audites in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of cash by correspondence with the custodian. An audit also
includes assessing the accounting prinicples used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of IMG Core
Stock Fund and IMG Bond Fund as of May 1, 1995 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Des Moines, Iowa
May 3, 1995
<PAGE>
IMG MUTUAL FUNDS, INC.
Statement of Assets and Liabilities
May 1, 1995
IMG Core IMG
Stock Bond
Fund Fund
Assets - cash $50,000 50,000
Liabilities -- --
------- ------
Net assets applicable to
outstanding capital stock $50,000 50,000
======= ======
Represented by:
Capital stock (note 5) $ 50 50
Additional paid-in capital 49,950 49,950
------ ------
$50,000 50,000
======= ======
Net asset value per share of
outstanding capital stock:
Investor shares - net assets $15,000
and shares outstanding 1,500 $10.00 10.00
====== =====
Select shares - net assets $15,000
and shares outstanding 1,500 $10.00 10.00
====== =====
Institutional shares - net assets $20,000
and shares outstanding 2,000 $10.00 10.00
====== =====
See accompanying note to financial statements of assets and liabilities.
<PAGE>
IMG MUTUAL FUNDS, INC.
Notes to Statement of Assets and Liabilities
May 1, 1995
(1) Organization and Significant Accounting Policies
IMG Mutual Funds, Inc. (the Fund) was incorporated on November 16,
1994 and capitalized on May 1, 1995. The Fund is registered under
the Investment Company Act of 1940 (the Act) (as amended) as a
diversified open-end management investment company issuing its
shares in two series representing a diversified portfolio with
distinct investment objectives and policies. The shares of each
series are divided into Investors, Select, and Institutional
Shares. Investments in specific class levels are based upon
minimum investment requirements. Shares will automatically convert
to the next class level upon attainment of the minimum investment
requirement. Each class of shares has equal rights as to earnings,
assets, and voting privileges except that each class bears
different distribution expenses. Each class of shares has
exclusive voting rights with respect to matters that affect just
that class. Income, expenses (other than expenses attributable to
a specific class), and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its
relative net assets.
The Fund's dividend distribution policy provides for quarterly
dividends for the IMG Bond Fund and semiannual dividends for IMG
Core Stock Fund.
(2) Federal Taxes
The Fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute taxable income to shareholders in amounts that will
avoid or minimize federal income or excise taxes of the fund.
(3) Fees and Expenses
The Fund has entered into an investment advisory agreement with
Investors Management Group (the Advisor), for management of the
Fund's assets. The annual fees for such services are .50 percent
of the average daily net assets of the IMG Core Stock Fund and .30
percent of the average daily net assets of the IMG Bond Fund.
Organization costs were borne by the Advisor.
The Fund has also entered into an administrative services agreement
with the Advisor to provide certain information and administrative
services to the Fund. The annual fees for such services will rande
from .10 percent to .25 percent of average daily net assets,
depending on the type of shares owned.
IMG will also act as fund accountant, transfer agent, and dividend
paying agent for the Funds, and maintain all shareholder records.
Fees for such services will total .15 percent of average daily net
assets.
In addition, the Fund is responsible for paying most other operating
expenses including outside directors' fees and expenses; custodian
fees; registration fees; printing and shareholder reports;
transfer agent fees and expenses; legal, auditing and accounting
services; insurance; interest; and other miscellaneous expenses.
(Continued)
<PAGE>
IMG MUTUAL FUNDS, INC.
Notes to Statement of Assets and Liabilities, Continued
(4) Distribution Plan
The Fund has entered into a distribution agreement, pursuant to Rule
12b-1 under the 1940 Act, with IMG Financial Services Inc. (the
Distributor) for the marketing and distribution of the shares of
the Fund. The fees for such services for the IMG Core Stock Fund
are .40 percent and .15 percent of the average daily net assets of
the Investor and Select Shares, respectively. Fees paid by the IMG
Bond Fund amount to .25 percent and .15 percent of the average
daily net assets of the Investors and Select Shares, respectively.
The Fund pays no distribution fees in relation to the
Institutional shares outstanding.
(5) Capital Stock
The Fund's capital stock is as follows as of May 1, 1995:
Shares authorized Shares issued
Portfolio Investor Select Institutional Investor Select Institutional
IMG Core
Stock Fund 200,000,000 200,000,000 200,000,000 1,500 1,500 2,000
IMG Bond
Fund 200,000,000 200,000,000 200,000,000 1,500 1,500 2,000
=========== =========== =========== ===== ===== =====
Par Value
Portfolio Investor Select Institutional
IMG Core
Stock Fund $ .001 .001 .001
IMG Bond
Fund $ .001 .001 .001
========= ======= =======
The shares of each portfolio have one vote, and all shares of a
portfolio participate equally in dividends and other capital gains
distributions for such portfolio by the Fund. The shares of a
portfolio have no preemptive, conversion, or subscription rights.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Initial Shareholder IMG Equity Trust and IMG Income
Trust:
We have audited the accompanying statements of net assets, including the
schedules of investments, of the IMG Equity Trust and the IMG Income Trust as of
December 31, 1994 and the related statments of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the three-year peiod then ended and the period from November 1, 1991 to
December 31, 1991. These financial statements are the responsibility of the
Trusts' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audites in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1994 by correspondence with
the custodian. An audit also includes assessing the accounting prinicples used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the net assets of the IMG Equity
Trust and the IMG Income Trust as of December 31, 1994 and the results of
operations for the year then ended, the changes in their net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the three-year period then ended and the period from
November 1, 1991 to December 31, 1991 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Des Moines, Iowa
Janaury 18, 1995
<PAGE>
IMG PRIVATE INVESTMENT TRUSTS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
IMG IMG
EQUITY INCOME
Investment Income TRUST TRUST
Interest and dividend income $237,739 $214,463
________ ________
Expenses
Advisory fees (note 4) 85,170 22,717
Other 17,034 7,572
________ ________
102,204 30,289
________ ________
Net investment income 135,535 184,174
________ ________
Realized and Unrealized Gain/(Loss) on Investments
Realized gain/(loss) on investments 357,969 (37,940
Change in unrealized appreciation
in value of investments (504,384) (201,028)
________ ________
Net gain/(loss) on investments (146,415) (238,968)
________ ________
Net decrease in net assets
resulting from operations ($10,880) ($54,794)
========= =========
<PAGE>
IMG PRIVATE INVESTMENT TRUSTS
STATEMENTS OF NET ASSETS
DECEMBER 31, 1994
IMG IMG
EQUITY INCOME
Assets: TRUST TRUST
Investment securities - at market value
(identified cost $7,319,010 for IMG Equity $7,161,009 $3,759,034
Trust and $3,963,410 for IMG Income Trust)
Interest and dividends receivable 29,395 53,212
_________ _________
Total Assets 7,190,404 3,812,246
Liabilities:
Investment advisory fees payable (note 4) 22,576 7,106
Other accrued liabilities 4,515 2,369
_________ _________
Total Liabilities 27,091 9,475
Net Assets: $7,163,313 $3,802,771
=========== ==========
(equivalent to $11.9973 per unit based on
597,075.2620 units outstanding for the IMG Equity
Trust and $11.6761 per unit based on 325,689.1010
units outstanding for the IMG Income Trust)
<PAGE>
SCHEDULE OF INVESTMENTS
IMG Equity Trust
December 31, 1994
Unit Total Market Pct.
Quantity Security Cost Cost* Price Value Assets
COMMON STOCKS
UTILITIES
4,000 Ameritech Corp. 40.10 160,400 40.37 161,500 2.2
6,800 Consolidate Edison NY 28.25 192,092 25.75 175,100 2.4
6,800 Detroit Edison 24.89 169,255 26.12 177,650 2.5
5,200 GTA Corp. 30.85 160,420 30.37 157,950 2.2
4,500 Nynex Corp. 36.13 162,587 36.75 165,375 2.3
8,900 San Diego Gas & 19.50 173,577 19.25 171,325 2.4
Electric
4,800 U.S. West, Inc. 39.48 189,483 35.62 171,000 2.4
6,500 WPS Resources Corp. 29.35 190,787 26.75 173,875 2.4
_________ _________ _____
1,398,602 1,353,775 18.8
FINANCE
4,300 Ambac Inc. 40.91 175,892 37.25 160,175 2.2
9,200 American Heritage Life 17.91 164,746 19.12 175,950 2.4
5,500 Banc One 32.89 180,887 25.37 139,562 1.9
2,200 Cigna Corp. 57.79 127,145 63.62 139,975 1.9
5,600 First Hawaiian 27.35 153,172 23.75 133,000 1.8
5,300 Key Corp. 28.19 149,418 25.00 132,500 1.8
4,200 Providian 32.47 136,395 30.87 129,675 1.8
4,800 Regions Financial 30.87 148,200 31.00 148,800 2.1
_________ _________ _____
1,235,856 1,159,637 16.1
TRANSPORTATION
2,400 Roadway Services 61.91 148,590 56.75 136,200 1.9
_________ _________ _____
148,590 136,200 1.9
RETAIL TRADE
19,800 Charming Shoppes 10.56 209,141 6.62 131,175 1.8
7,300 Liz Claiborne 22.77 166,205 17.00 124,100 1.7
5,900 Medicine Shoppe 22.66 133,670 26.75 157,825 2.2
2,900 Mercantile Stores 34.50 100,040 39.50 114,550 1.6
_________ _________ _____
609,056 527,650 7.3
CONSUMER SERVICES
2,900 Knight-Ridder 52.08 151,040 50.50 146,450 2.0
_________ _________ _____
151,040 146,450 2.0
CONSUMER NON-DURABLES
2,300 Kellogg Co. 49.22 113,217 58.12 133,687 1.9
1,400 Kimberly Clark 51.47 72,065 50.37 70,525 1.0
3,800 Pepsico, Inc. 33.10 125,780 36.25 137,750 1.9
5,200 Rubbermaid, Inc. 27.54 143,220 28.75 149,500 2.1
_________ _________ _____
454,282 491,462 6.8
See accompanying notes to Financial Statements
<PAGE>
SCHEDULE OF INVESTMENTS
IMG Equity Trust
December 31, 1994
Unit Total Market Pct.
Quantity Security Cost Cost* Price Value Assets
CONSUMER DURABLES
7,200 Centex 24.63 155,357 22.75 163,800 2.3
5,600 La-Z Boy Chair 28.06 157,122 31.87 178,500 2.5
3,000 Whirlpool 54.83 164,500 50.25 150,750 2.1
_________ _________ _____
476,980 493,050 6.9
HEALTH TECHNOLOGY
2,200 American Home 63.53 139,770 62.75 138,050 1.9
Products
2,500 Johnson & Johnson 40.87 102,187 54.75 136,875 1.9
3,800 Merck & Co., Inc. 33.35 126,730 38.12 144,875 2.0
2,100 Schering Plough 67.86 142,498 74.00 155,400 2.2
3,900 UpJohn 30.04 117,172 30.75 119,925 1.7
_________ _________ _____
628,358 695,125 9.7
ELECTRONIC TECHNOLOGY
2,000 IBM 50.29 100,587 73.50 147,000 2.0
6,800 MCI Communications 25.43 172,935 18.37 124,950 1.7
_________ _________ _____
273,522 271,950 3.8
COMMERCIAL SERVICES
2,700 Dun & Bradstreet Corp. 58.60 158,232 55.00 148,500 2.1
6,800 Giant Food Inc. 21.62 146,985 21.75 147,900 2.1
1,900 McGraw Hill 61.91 117,627 66.87 127,062 1.8
8,500 Nash Finch Co. 17.86 151,820 16.50 140,250 2.0
_________ _________ _____
574,665 563,712 7.8
PROCESS INDUSTRIES
2,500 Great Lakes Chemical 59.60 149,000 57.00 142,500 2.0
_________ _________ _____
149,000 142,500 2.0
PRODUCER MANUFACTURING
2,900 Boeing Co. 39.23 113,765 47.00 136,300 1.9
5,200 Joslyn Corp. 24.11 125,376 25.37 131,950 1.8
_________ _________ _____
239,141 268,250 3.7
INDUSTRIAL SERVICES
3,500 Flightsafety Int'l. 35.42 123,987 40.62 142,187 2.0
3,600 Foster Wheeler 34.49 124,147 29.75 107,100 1.5
5,300 WMX Technologies, Inc. 30.38 161,012 26.12 138,462 1.9
_________ _________ _____
409,147 387,750 5.4
See accompanying notes to Financial Statements
<PAGE>
SCHEDULE OF INVESTMENTS
IMG Equity Trust
December 31, 1994
Unit Total Market Pct.
Quantity Security Cost Cost* Price Value Assets
ENERGY
1,300 Atlantic Richfield 102.08 132,705 101.75 132,275 1.8
_________ _________ _____
132,705 132,275 1.8
COMMON STOCK Total 6,902,946 6,769,787 94.2
GOVERNMENT BONDS
300,000 U.S. Treasury Bond 91.84 275,531 92.44 277,320 3.9
7.25% Due 05-15-16
Accrued Interest 2,764 0.0
_________ _________ _____
275,531 280,084 3.9
CASH & EQUIVALENTS
Dividend Accrual Account 26,631 26,631 0.4
Pilot Short-Term U.S. Treasury 113,901 113,901 1.6
_________ _________ _____
140,532 140,532 2.0
TOTAL PORTFOLIO 7,319,010 7,190,404 100.0
*Represents cost basis for both book and tax purposes.
See accompanying notes to Financial Statements
<PAGE>
SCHEDULE OF INVESTMENTS
IMG Income Trust
December 31, 1994
Unit Total Market Pct.
Quantity Security Cost Cost* Price Value Asset
GOVERNMENT BONDS
75,000 U.S. Treasury Note 99.86 74,895 97.87 73,406 1.9
6.250% Due 08-31-96
700,000 U.S. Treasury Bond 96.10 672,688 92.44 647,080 17.0
7.250% Due 05-15-16
275,000 U.S. Treasury Bond 121.99 335,477 109.19 300,266 7.9
8.875% Due 02-15-19
285,000 U.S. Treasury Bond 95.81 273,050 91.06 259,528 6.8
7.125% Due 02-15-23
Accrued Interest 24,796 0.7
_________ _________ _____
1,356,109 1,305,076 34.2
GNMA MORTGAGE-BACKED POOLS
66,294 GNMA Pool #315929 107.81 71,473 100.87 66,874 1.8
9.000% Due 06-15-22
78,805 GNMA Pool #341681 107.31 84,567 98.22 77,401 2.0
8.500% Due 01-15-23
56,547 GNMA Pool #354189 102.91 58,190 92.77 52,456 1.4
7.500% Due 05-01-23
120,763 GNMA Pool #359600 101.58 122,672 92.77 112,027 2.9
7.500% Due 07-15-23
Accrued Interest 1,319 0.0
_________ _________ _____
336,903 310,077 8.1
FHLMC MORTGAGE-BACKED POOLS
24,511 FHLMC Pool #C00126 105.53 25,866 98.34 24,105 0.6
8.500% Due 06-01-22
Accrued Interest 174 0.0
_________ _________ _____
25,866 24,278 0.6
COLLATERALIZED MORTGAGE OBLIGATIONS
23,111 FHLMC Ser. L, Cl. 5 102.25 23,631 94.86 21,923 0.6
7.900% Due 05-01-01
25,000 FNMA 1991-75 Class L 104.50 26,125 100.31 25,077 0.7
9.000% Due 06-25-01
81,034 Goldman Sachs Trust 4 102.19 82,807 100.72 81,617 2.1
Ser. C-3
9.450% Due 10-27-03
91,583 Housing Securities 66.63 61,017 65.18 59,694 1.6
'92-EA Cl. A6 (physical)
0.000% Due 10-25-07
86,065 Residential Funding 98.19 84,505 95.97 82,596 2.2
Mtg. Sec. I 1993-S7 A6
7.150% Due 02-25-08
97,283 Housing Securities 66.50 64,693 65.07 63,302 1.7
'93-C Cl. C3 (physical)
0.000% Due 05-25-08
See accompanying notes to Financial Statements
<PAGE>
SCHEDULE OF INVESTMENTS
IMG Income Trust
December 31, 1994
Unit Total Market Pct.
Quantity Security Cost Cost* Price Value Asset
72,827 Housing Securities 62.50 45,517 62.84 45,761 1.2
1993-E E14 (physical)
0.000% Due 09-25-08
71,715 Chase Mtge. Fin. 96.13 68,936 94.57 67,818 1.8
1993-F1 1A2
5.750% Due 04-25-09
93,289 Citicorp Mtg. Sec. 98.12 91,540 98.47 91,863 2.4
1987-13 Class A-3
9.350% Due 06-01-10
113,449 FHLMC 188 F-PAC 100.91 114,482 97.77 110,922 2.9
7.500% Due 05-15-20
19,755 Housing Securities 99.56 19,668 98.23 19,405 0.5
1992-EB B1A
6.750% Due 05-25-20
50,000 FNMA 1991-137 Class G 103.19 51,594 97.65 48,826 1.3
8.300% Due 06-25-20
101,227 Resolution Trust 101.13 102,366 99.28 100,499 2.6
1992-17 Class A1
8.777% Due 12-25-20
100,000 FHLMC 1504 Class B 80.69 80,687 84.87 84,875 2.2
7.000% Due 12-15-22
Accrued Interest 5,599 0.1
_________ _________ _____
917,569 909,778 23.9
CORPORATE BONDS
75,000 Hertz Corp. 105.75 79,312 101.39 76,045 2.0
9.125% Due 08-01-96
125,000 Chrysler Financial 99.92 124,896 99.70 124,624 3.3
Corp.
8.125% Due 12-15-96
75,000 Dayton Hudson 119.45 89,586 106.45 79,834 2.1
0.000% Due 12-01-00
205,000 GMAC (Putable 6/1/95 110.59 226,714 104.31 213,838 5.6
@ 100)
8.875% Due 06-01-10
120,000 ITT Financial 117.38 140,861 104.31 125,173 3.3
Putable 6/1/95 @ 100)
8.875% Due 06-01-10
75,000 Commonwealth 105.54 79,155 105.08 78,809 2.1
Ed. (Callable 1/15/95
@ 105.3)
9.125% Due 01-15-14
153,000 Manitoba, Province 111.57 170,707 99.55 152,307 4.0
(Putable 7/17/96 @ 100)
7.750% Due 07-17-16
140,000 Nova Scotia (Putable 109.36 153,103 99.06 138,684 3.6
11/15/01 @ 100)
8.250% Due 11-15-19
See accompanying notes to Financial Statements
<PAGE>
SCHEDULE OF INVESTMENTS
IMG Income Trust
December 31, 1994
Unit Total Market Pct.
Quantity Security Cost Cost* Price Value Asset
50,000 Northern Sts Power 107.37 53,687 107.11 53,553 1.4
(Callable 6/1/95 107.03)
9.375% Due 06-01-20
75,000 Hydro-Quebec 105.26 78,944 92.45 69,340 1.8
8.250% Due 01-15-27
Accrued Interest 19,693 0.5
_________ _________ _____
1,196,968 1,131,901 29.7
MUNICIPAL BONDS
75,000 Texas St Vets Hsg (Call 99.65 74,740 99.00 74,250 1.9
12/1/04@102)Taxable
8.700% Due 12-01-09
Accrued Interest 1,631 0.0
_________ _________ _____
74,740 75,881 1.9
CASH & EQUIVALENTS
Pilot Short-Term U.S. Treasury 55,255 55,255 1.4
_________ _________ _____
55,255 55,255 1.4
TOTAL PORTFOLIO 3,963,410 3,812,246 100.0
*Represents cost basis for both book and tax purposes.
See accompanying notes to Financial Statements
<PAGE>
IMG PRIVATE INVESTMENT TRUSTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31
IMG EQUITY IMG INCOME
TRUST TRUST
1994 1993 1994 1993
Increase in Net Assets
Operations:
Net investment income $135,535 $66,482 $184,174 $90,249
Realized gain/(loss) on investments 357,969 220,216 (37,940) 35,800
Change in unrealized appreciation
in value of investments (504,384) 262,641 (201,028) (3,369)
_________ ________ _________ ________
Net decrease in net assets resulting
from operations (10,880) 549,339 (54,794) 122,680
Capital share transactions 1,506,722 2,135,209 1,647,147 1,188,435
_________ _________ _________ _________
Total increase in net assets 1,495,842 2,684,548 1,592,353 1,311,115
Net Assets at beginning of period 5,667,471 2,982,923 2,210,418 899,303
__________ __________ _________ __________
Net Assets at end of period $7,163,313 $5,667,471 $3,802,771 $2,210,418
========== ========== ========== ==========
<PAGE>
FINANCIAL HIGHLIGHTS
Selected Data for a Share of Each Trust Outstanding
Throughout Each Period: 1994 1993 1992 1991*
IMG EQUITY TRUST:
Net Asset Value - Beginning of Period $12.0023 $10.5309 $10.0868 $10.0000
Net Investment Income 0.2399 0.1697 0.2041 0.0174
Net Realized and Unrealized
Gains/(Losses) on Investments (0.2449) 1.3017 0.2400 0.0694
________ ________ ________ ________
Net Assets - End of Period $11.9973 $12.0023 $10.5309 $10.0868
Total Return -0.04% 13.97% 4.40% 0.87%
Net Assets - End of Period $7,163,313 $5,667,471 $2,982,923 $694,359
Ratio of Expenses to Avg Net Assets 1.51% 1.61% 1.70% 0.41%
Ratio of Net Investment Income
to Avg Net Assets 2.01% 1.52% 2.09% 0.26%
Portfolio Turnover Rate 50.62% 22.61% 18.31% 0.00%
IMG INCOME TRUST:
Net Asset Value - Beginning of Period $12.0047 $10.9957 $10.3777 $10.0000
Net Investment Income 0.7331 0.6309 0.4881 0.1176
Net Realized and Unrealized
Gains/(Losses) on Investments (1.0617) 0.3781 0.1299 0.2601
_______ _______ _______ ________
Net Asset Value - End of Period $11.6761 $12.0047 $10.9957 $10.3777
Total Return -2.74% 9.18% 5.96% 3.78%
Net Assets - End of Period $3,802,771 $2,210,418 $899,303 $103,777
Ratio of Expenses to Avg Net Assets 1.05% 1.05% 1.36% 0.25%
Ratio of Net Investment Income
to Avg Net Assets 6.40% 5.56% 4.80% 1.73%
Portfolio Turnover Rate 57.36% 121.15% 118.54% 0.00%
*From inception - 11/01/91
See notes to financial statements
<PAGE>
IMG PRIVATE INVESTMENT TRUSTS
Notes to Financial Statements
December 31, 1994
(1) Summary of Significant Accounting Policies and Related Matters
Organization
The IMG Equity Trust and the IMG Income Trust (the Trusts) are private,
revocable, grantor investment trusts organized in Iowa on October 14,
1991. The primary objective of the IMG Equity Trust is to invest in a
conservative portfolio of equity securities which is intended to
produce a positive real rate of return over the course of a full-market
cycle. Preference is given to capital appreciation over dividend or
interest income. The primary objective of the IMG Income Trust is to
invest in a conservative portfolio of fixed income debt securities
which is intended to preserve principal and produce consistent current
income.
Investment Securities
Investments in securities traded on a national securities exchange are
valued at the last reported sales price of the day of valuation;
securities traded in the over-the-counter market and listed securities
for which no sale was reported on that date are valued at the last
quoted bid price.
The Trusts record security transactions on the trade date. Realized
gains and losses on security transactions are determined on the
identified cost method. Dividend income is recognized on the
ex-dividend date, and interest is recognized on an accrual basis.
Income Taxes
Income and losses of the Trusts are to be included in the income tax
returns of the individual investors. Accordingly, the financial
statements make no provision for income taxes. Differences in reporting
for financial statement and income tax purposes relate primarily to
unrealized appreciation or depreciation in the Trusts' investment
securities.
(2) Capital Transactions
Each participant's capital contribution is commingled with the
contributions of other participants. Ownership of Trust assets is
evidenced by investment units. Unless waived by the trustees, the
initial capital contribution is a minimum of $100,000. Capital
transactions for the years ended December 31, 1994 and December 31,
1993 were as follows:
IMG Equity Trust: Units Amount
1994 1993 1994 1993
------ ---- ---- -------
Units purchased 186,244.8118 236,004.2397 $2,253,238 $2,649,860
Units redeemed 61,366.9837 47,062.2783 $ 746,516 $ 514,651
-------------- ----------- ---------- ----------
Net increase/(decrease) 124,877.8281 188,941.9614 $1,506,722 $2,135,209
============ ============ ========== ==========
<PAGE>
IMG Income Trust: Units Amount
1994 1993 1994 1993
---- ---- ---- ----
Units purchased 163,848.6285 137,108.1201 $1,908,076 $1,589,885
Units redeemed 22,288.8025 34,765.7359 $ 260,929 $ 401,450
------------ ------------ ---------- ----------
Net increase/(decrease) 141,559.8260 102,342.3842 $1,647,147 $1,188,435
============ ============ ========== ==========
On the first day of each month, existing participants may make
additional contributions, and the trustees may accept new participants.
Participants may redeem some or all of their Trust units on the first
day of each month by providing at least 15 days' written notice to the
Trust.
(3) Investment Transactions
Purchases of investment securities during the year ended December 31,
1994 amounted to $5,001,223 and $3,827,505 for the IMG Equity Trust and
the IMG Income Trust, respectively. Proceeds from sales of investment
securities during the year ended December 31, 1994 amounted to
$3,425,485 and $390,534 for the IMG Equity Trust and the IMG Income
Trust, respectively.
(4) Transactions with Related Parties
The Trusts have entered into advisory agreements with Investors
Management Group, Ltd., (IMG) to provide all investment advice, make
all recommendations for portfolio transactions, and manage the assets
of the Trusts. For its services, IMG is paid, at the end of each
calendar quarter, a quarterly fee equal to .1875 percent (.75 percent
annually) of the market value of the IMG Income Trust and .3125 percent
(1.25 percent annually) of the market value of the IMG Equity Trust.
Administrative expenses of the Trusts may not exceed .25 percent of the
market value of each Trust at the end of each year. To the extent such
expenses exceed the maximum amount allowed, the Trusts will be
reimbursed by IMG.
<PAGE>
Pro Forma Financial Information
The proposed transactions involve the transfer of all or substantially
all of the assets of IMG Equity Trust (the "Equity Trust") and IMG Income Trust
(the "Income Trust") to IMG Mutual Funds, Inc. (the "Company"), in exchange for
shares of beneficial interest, par value $.001 per share in IMG Core Stock Fund
(the "Core Stock Fund") and IMG Bond Fund (the "Bond Fund"), respectively, of
the Company. Collectively, the Core Stock Fund and Bond Fund are referred to as
"Funds."
The Funds had no operations prior to the date of this
Prospectus/Information Statement, other than the sale of 5,000 Shares of the
Core Stock Fund and the Bond Fund, at $10 per share to Investors Management
Group, Ltd. for an aggregate of $100,000. Shares will be offered to the public
on a continuous basis upon the completion of the transactions.
Management believes that the presentation of pro forma balance sheet
and portfolio information is not necessary since such information would
essentially repeat the historical information of the Equity Trust and the Income
Trust. In addition, the fee and expense structure of the Core Stock Fund and the
Bond Fund, as compared to that of the Equity Trust or the Income Trust,
respectively, is described in SUMMARY-Fees and Expenses and CAPITALIZATION of
this Prospectus/Information Statement.
<PAGE>
PART C
OTHER INFORMATION
Item 15. Indemnification
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification by the Registrant is against public
policy as expressed in the Act and, therefore, may be unenforceable. In the
event that a claim for such indemnification (except insofar as it provides for
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such director, officer or
controlling person and the Securities and Exchange Commission is still of the
same opinion, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether or not such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Section 2-418 of the Maryland General Corporation Law permits the
Registrant to indemnify directors and officers. In addition, Section 2-405.1
sets forth the standard of care for directors and Section 2-405.2 allows the
Registrant to include in the Charter provisions further limiting the liability
of the directors and officers in certain circumstances. Article ELEVENTH of the
Articles of Incorporation included herewith as Exhibit 1(a) (the "Articles")
limits the liability of any director or officer of the Registrant arising out of
a breach of fiduciary duty, subject to the limits of the Investment Company Act
of 1940 ("1940 Act"). Article TWELFTH of the Articles and Article VII of the
Bylaws, included herewith as Exhibit (2), makes mandatory the indemnification of
any person made or threatened to be made a party to any action by reason of the
facts that such person is or was a director, officer or employee, subject to the
limits otherwise imposed by law or by the 1940 Act.
In addition, Paragraph 7 of the Advisory Agreement included
herewith as Exhibit (6), and Article III of the Distribution Agreement, included
herewith as Exhibit (7), provide that Investors Management Group, Inc. ("IMG")
and IMG Financial Services, Inc. ("IFS"), shall not be liable to the Registrant
for any error, judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the management provided by IMG or for
any distribution services provided by IFS to the Registrant for the performance
of the duties under such agreements, except for willful misfeasance, bad faith
or gross negligence in the performance of their duties or by reason of reckless
disregard of their obligation and duties under such agreements. In addition,
Article IV of the Distribution Agreement and Paragraph 8 of the Transfer Agent,
Dividend Disbursing Agent and Shareholder Services Agent Agreement, included
herewith as Exhibit (10), further indemnify IFS and IMG against certain
liabilities arising out of the performance of such agreements.
Item 16. Exhibits
* 1 Articles of Incorporation
* 2 Bylaws of Company
*** 4 Form of Agreements and Plans of Exchange
* 5 See Article Fifth of the Articles of Incorporation
* 6 Investment Advisory Agreement
* 7 Distribution Agreement
* 9 Custodial Agreement
* 10(a) Distribution Plan
10(b) Shareholder Services Plan
** 11 Opinion and Consent of Messrs. Ober, Kahler, Grimes & Schriver
*** 12 Tax opinion of Cline, Williams, Wright, Johnson & Oldfather
14 Consent of KPMG Peat Marwick
* 17 Rule 24f-2 declaration
18 Rule 18f-3 Plan
- ------------------
* Incorporated herein by reference to the Company's Registration Statement on
Form N-1A filed December 14, 1994
** Incorporated herein by reference to Pre-Effective Amendment No. 2 to the
Company's Registration Statement on Form N1-A filed May 5, 1995.
*** Incorporated herein by reference to the Company's initial N-14
Registration Statement filed April 20, 1995 to which this amendment
relates.
<PAGE>
Item 17. Undertakings
(1) The undersigned Company agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Act, the reoffering
prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Company agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Des Moines, State of Iowa, on the 18th day of May,
1995.
IMG MUTUAL FUNDS, INC.
By: __________________________________
Mark A. McClurg, President
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed below by the following persons in the
capacities indicated on May 18, 1995:
Signature Title
____________________________________ Chairman & Director
David W. Miles
____________________________________ President, Principal Executive Officer,
Mark A. McClurg Principal Financial & Accounting Officer,
and Director
____________________________________ Vice President, Treasurer and Director
James W. Paulsen
____________________________________ Secretary
Ruth L. Prochaska
_________
|
____________________________________ Director |
Johnny Danos |
|
____________________________________ Director |
David Lundquist |
|
____________________________________ Director |_______________________
Debra Johnson |by: David W. Miles
| Attorney-in-fact
____________________________________ Director |
Robert Dee |
|
____________________________________ Director |
Edward Stanek |
|
____________________________________ Director |
Richard A. Westcott |
_________|
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Des Moines, State of Iowa, on the 18th day of May,
1995.
IMG MUTUAL FUNDS, INC.
By: _____/s/ Mark A. McClurg ________
Mark A. McClurg, President
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed below by the following persons in the
capacities indicated on May 18, 1995:
Signature Title
/s/ David W. Miles Chairman & Director
David W. Miles
/s/ Mark A. McClurg President, Principal Executive Officer,
Mark A. McClurg Principal Financial & Accounting Officer,
and Director
/s/ James W. Paulsen Vice President, Treasurer and Director
James W. Paulsen
/s/ Ruth L. Prochaska Secretary
Ruth L. Prochaska
_________
|
/s/ Johnny Danos Director |
Johnny Danos |
|
/s/ David Lundquist Director |
David Lundquist |
|
/s/ Debra Johnson Director | /s/ David W. Miles
Debra Johnson |by: David W. Miles
| Attorney-in-fact
/s/ Robert Dee _ Director |
Robert Dee |
|
/s/ Edward Stanek Director |
Edward Stanek |
|
/s/ Richard A. Westcott Director |
Richard A. Westcott |
_________|
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
------------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. 1 |X|
Post-Effective Amendment No. ___ |_|
------------------------------
IMG MUTUAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
Page Number
in Sequential
Exhibit No. Description Numbering System
* 1 Articles of Incorporation
* 2 Bylaws of Company
*** 4 Form of Agreements and Plans of Exchange
* 5 See Article Fifth of the Articles of Incorporation
* 6 Investment Advisory Agreement
* 7 Distribution Agreement
* 9 Custodial Agreement
* 10(a) Distribution Plan
10(b) Shareholder Services Plan pursuant to Rule 18f-3
** 11 Opinion and Consent of Messrs. Ober, Kahler, Grimes & Schriver
*** 12 Tax opinion of Cline, Williams, Wright, Johnson & Oldfather
14 Consent of KPMG Peat Marwick
* 17 Rule 24f-2 declaration
18 Rule 18f-3 Plan
- ------------------
* Incorporated herein by reference to the Company's Registration Statement
on Form N-1A filed December 14, 1994
** Incorporated herein by reference to Pre-Effective Amendment No. 2 to the
Company's Registration Statement on Form N1-A filed May 5, 1995.
*** Incorporated herein by reference to the Company's initial N-14
Registration Statement filed April 20, 1995 to which this amendment
relates.
<PAGE>
Exhibit 14
CONSENT OF INDEPENDENT AUDITORS
To the Directors of
IMG Mutual Funds, Inc.:
We consent to the use of our report herein dated January 18, 1995 on the
financial statements of IM G Equity Trust and IM G Income Trust and to the
references to our Firm under the headings "FINANCIAL STATEMENTS" and "EXPERTS"
in the Prospectus/Information Statement.
KPMG Peat Markwick LLP
Des Moines, Iowa
May 18, 1995
<PAGE>
Exhibit 18
EXHIBIT A
PLAN ADOPTED PURSUANT TO RULE 18F-3 PROVIDING FOR THE ISSUANCE
OF MULTIPLE CLASSES OF SHARES
1. Summary of Proposed Multi-Class Structure.
In order to accommodate the requirements of a variety of groups of
investors in a cost-efficient and equitable manner, the Company may offer an
unlimited number of classes or series of new Shares ("new Classes") in their
existing and future investment portfolios. These might be offered (1) in
connection with a plan or plans adopted pursuant to Rule 12b-1 under the Act
(the "12b-1 Plan(s)") and/or (2) in connection with a non-Rule 12b-1
administrative plan or plans (the "Shareholder Services Plan(s)"); and/or (3) in
connection with the allocation of certain expenses (referred to herein as "Class
Expenses") that are directly attributable only to certain of such new or
existing class(es) and (4) subject to certain conversion features. The 12b-1
Plan(s) and the Shareholder Services Plan(s) are sometimes collectively referred
to herein as "Plans".1 Any references herein to "board of directors" shall be
deemed to include the board of directors of the Company.
Currently, the Company is authorized to offer Shares in two separate investment
portfolios ("Portfolios"):
1. IMG Bond Fund, seeking income primarily from fixed income
securities; and
2. IMG Core Stock Fund, an equity-oriented portfolio.
Shares of the currently authorized Portfolios will be offered on a
continuous basis by IFS. At present it is contemplated that all Shares will be
sold and redeemed at net asset value without a sales or redemption charge.
However, 12b-1 and servicing fees will be charged to Investor and Select Shares,
respectively. Transfer agency expenses have been treated as a general expenses
of the particular Portfolio.
Each class of Shares in the Portfolios is intended to bear Class
Expenses which are related to the level of services provided to the investors in
such Portfolios. Currently, Investor Shares in the IMG Core Stock Fund are
anticipated to bear the expense of a 12b-1 Plan at an annual rate currently not
in excess of .40% of the average net asset value of the Portfolio's outstanding
Investor Shares. Investor Shares of the IMG Bond Fund would bear the expense of
a Rule 12b-1 Plan at a rate currently not in excess of .25% of the average net
asset value of the Portfolio's outstanding Investor Shares. In addition,
Investor Shares of either Portfolio would bear the expense of a Shareholder
Services Plan, including a service fee as defined in Article III, Section
2(b)(9) of the National Association of Securities Dealers, Inc.'s ("NASD") Rules
of Fair Practice of up to .25% of the average annual net asset value of the
Shares in the Investor class of each Portfolio.
Select Shares of the IMG Core Stock Fund and IMG Bond Fund would each
bear the expense of a Rule 12b-1 Plan at an annual rate of .15% of the average
net asset value of the respective Portfolio's Select Shares. Select Shares of
the Portfolios also bear the expense of a Shareholder Services Plan, including a
service fee as defined in Article III, Section 2(b)(9) of the NASD Rules of Fair
Practice of up to .25% (annualized) of the IMG Core Stock Fund's and .15%
(annualized) of the IMG Bond Fund's average daily net asset value of the
particular Portfolio's Select Shares. Institutional Shares of either Portfolio
do not bear the expenses of a 12b-1 Plan, but bear expenses of the Shareholder
Services Plan at the annual rates of .15% and .10% of the average asset value of
the outstanding shares of the Institutional Classes of the IMG Core Stock Fund
and IMG Bond Fund respectively.
Each Portfolio is charged with the Portfolio's direct liabilities and
with a portion of the general liabilities of the Fund. Expenses that are not
directly attributable to the operations of a specific Portfolio are allocated
among the Portfolios based upon the relative net assets of each Portfolio or as
otherwise determined under the supervision of the Board of Directors. The
expenses attributed to or allocated to a Portfolio are, in turn, borne on a pro
rata basis by the Portfolio's shareholders.
IMG serves as the Fund's investment adviser; Norwest Bank, N.A.,
Minnesota ("Norwest") serves as the Fund's custodian; IMG serves as the Fund's
transfer and dividend disbursing agent; and IFS serves as the Fund's
distributor.
2. Description of Classes of Shares Representing Interests in the
Portfolios.
As a result of increased competition for the assets of public
investors, the Board of Directors believe that it is imperative that the Company
be able to tailor its services and expenses, to the extent possible, to the
investment needs of the particular investor. In order to accomplish this, and to
expand its marketing alternatives, the Company has created three classes of
Shares in each of its Portfolios and is contemplating the creation of other
classes of Shares in existing and future Portfolios.
Except for its class designation, the allocation of certain expenses,
voting rights, differences in exchange privileges, and conversion features as
described below, each class of Shares would be identical in all respects and
would be subject to the same investment objective, policies and limitations that
apply to the existing class of Shares or other class(es) of Shares in the same
Portfolio. The net asset value per share in each Portfolio would be calculated
and would be determined in the same manner and on the same days and at the same
times, regardless of class; the net investment income and capital gains, if any,
of each Portfolio would be declared and paid at the same times to all
shareholders of the Portfolio; and expenses, other than Plan payments and Class
Expenses described below, would be borne on a pro rata basis by each class on
the basis of the relative net asset value of the respective class. While the
manner of determining net asset value of classes within a Portfolio would be
identical, the net asset value of the classes within a Portfolio (excluding any
money market portfolios using the amortized cost method of valuation pursuant to
Rule 2a-7 which maintain a stable net asset value per share) may differ because
of different Plan payments (defined below), if any, and Class Expenses if any,
charged to a particular class. This possible difference in net asset value would
be disclosed in the Portfolio's prospectus, where applicable.
A. Unlimited Number of Classes.
The Company is permitted to offer an unlimited number of classes of
Shares in its existing and future investment Portfolios. These classes might be
offered (1) in connection with a 12b-1 Plan or Plans; and/or (2) in connection
with a Shareholder Services Plan or Plans; and/or (3) in connection with the
allocation of certain Class Expenses attributable directly only to certain of
such classes; and/or (4) subject to certain conversion features.
B. 12b-1 Plan(s) and Shareholder Services Plan(s).
With respect to each class, the Company could adopt a 12b-1 Plan and/or
a Shareholder Services Plan concerning the financing of marketing programs
intended to result in the sale of Shares (for example, the payment of printing
costs for prospectuses and sales literature) and the provision of various
distribution and administrative services. Such services might be provided
directly by a Company's distributor and/or administrator, or by groups,
organizations or institutions ("Organizations") which have entered into
agreements (collectively, "Plan Agreements") with that Company or its
distributor or administrator concerning the provision of services to the
clients, members or customers of such Organizations who from time to time
beneficially own Shares of a particular class ("Class Shareholders").
The services to be provided by the Company's distributor or
Organizations under a 12b-1 Plan could include: (i) advertising via radio,
television, newspapers, magazines and otherwise; (ii) preparing, printing and
distributing sales materials, brochures and prospectuses (except for
prospectuses used for regulatory purposes or for distribution to existing
shareholders); (iii) establishing and maintaining shareholder accounts and
records; (iv) maintaining telephone and in-house telemarketing activities; and
(v) other advertising and marketing efforts. Payments under a 12b-1 Plan could
be used for, but would not be limited to, the payment of sales commissions and
incentive compensation, as well as payment for advertising and promotional
costs. Since the services and expenses contemplated under a 12b-1 Plan would be
distribution-related, such Plan would be adopted pursuant to Rule 12b-1 under
the Act.
The services to be provided by a Company's administrator or qualified
banks and other financial institutions ("Shareholder Service Organizations")
under a Shareholder Services Plan could include: (i) establishing and
maintaining accounts and records relating to a customer's Shares; (ii)
aggregating and processing purchase, exchange and redemption requests from
customers and placing net purchase, exchange and redemption orders with the
distributor; (iii) providing customers with a service that invests the assets of
their accounts in Shares pursuant to specific or pre-authorized instructions;
(iv) providing periodic statements showing a customer's account balance and
integrating such statements with those of other transactions and balances in the
customer's other accounts serviced by a Shareholder Service Organization; (v)
arranging for bank wires; (vi) processing dividend payments from a Company on
behalf of customers and assisting customers in changing dividend options,
account designations and addresses; (vii) providing and maintaining elective
services such as check writing and wire transfer services; (viii) acting as sole
shareholder of record and nominee for customers; (ix) maintaining account
records for customers; (x) issuing confirmations of transactions; (xi) providing
sub-accounting with respect to Shares beneficially owned by customers or the
information to a Company necessary for sub-accounting; (xii) if required by law,
forwarding shareholder communications from a Company (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; and (xiii) providing other similar
services. Some of such services will constitute a "service fee" under NASD rules
and others will not be service fees. A Shareholder Services Plan will not
provide for payments for activities intended to result in the sale of Shares.
In addition, it is possible that a Company's administrator would
provide certain services under a Shareholder Services Plan that are not required
for all Share classes offered by a Portfolio. These services could include the
development and monitoring of various programs from time to time for individual
and retail shareholders, such as IRAs, automatic deposit and withdrawal
programs, check writing privileges, audio response services, payment of
dividends through automated clearing house funds, lock box facilities and direct
deposit programs; and the maintenance of dedicated walk-in facilities, staff and
communications systems for investors. A Company's administrator might also
undertake under a Shareholder Services Plan to provide oversight and other
support services that are intended to ensure the delivery of quality service to
individual and retail investors, including review of correspondence from a
Company's transfer agent to shareholders for accuracy and timeliness in handling
inquiries and review of dividend checks, statements and purchase and redemption
orders for proper turn-around; preparation of regular reports for internal use
and for distribution to the Company's Board of Directors concerning shareholder
activity; preparation and mailing of confirmation statements for Share
transactions; development and monitoring of order-taking facilities for public
investors; distribution of written communications to such investors, such as
copies of the Company's annual and semi-annual reports and prospectuses; and
responsibility for responding to shareholder inquiries and problems.
Organizations may charge other fees directly to their Class
Shareholders who are the beneficial owners of Shares in connection with their
Class Shareholder accounts. These fees would be in addition to any amounts
received by the Organization under a Plan Agreement with a Company. Under the
terms of such Plan Agreements, Organizations would be required to provide their
Class Shareholders with a schedule of fees charged to such Class Shareholders
which relate to their investments in Shares.
C. No Duplication of Services.
The provision of services under the Plans would augment or replace (and
not be duplicative of) the services otherwise provided by a Company's investment
adviser, transfer agent and administrator. The services provided by these
service contractors generally relate either to the internal operations of the
Company (for example, investment of assets and maintenance of books and records)
or to the Company's relationships with the shareholders of record (for example,
the transmission of proxy materials and shareholder reports to record
shareholders, and the processing of purchase and redemption orders from record
shareholders), or are otherwise intended to benefit all classes of Shares in a
Portfolio. On the other hand, the support services described above that would be
provided pursuant to the Shareholder Services Plan(s) will relate either to the
indirect relationship between a Company and the beneficial owners of Shares, or
to the services available only to certain Share classes. Similarly, payments by
a Company for distribution activities that are authorized by a 12b-1 Plan would
be for distribution-related expenses and services undertaken in connection with
the sale of Shares covered by the Plan. When a class is subject to both a 12b-1
Plan and a Shareholder Services Plan, the provision of services under one Plan
would augment (and not be duplicative of) the services provided under the other
Plan.
Essentially, the Company is unbundling the services that may be
provided to it to permit the Company's distributor, administrator and
Organizations flexibility in providing services under one or both types of Plans
with respect to Class Shareholders, with the precise services to be tailored to
the needs of the Class Shareholders and specified in the particular Plans.
D. Plan Payments.
With respect to each class, the Company could pay its distributor,
administrator or Organizations for expenses, services and assistance in
accordance with the terms of the particular Plan (such payments are herein
referred to as "Plan Payments") and such Plan Payments would be borne entirely
by the beneficial owners of the class of the Portfolio to which the payments
relate. The maximum level of payments made pursuant to a Plan might vary based
upon an independent determination by the Board of Directors and, in the case of
a 12b-1 Plan, subject to shareholder approval of the affected class. In all
cases, however, the Company shall comply with Article III, Section 26 of the
Rules of Fair Practice of the NASD as it relates to the maximum amount of
asset-based sales charges and service fees that may be imposed by an investment
company, when and in the form (as amended from time to time) the provisions of
such Rules relating to such charges become effective, and for as long as they
remain in effect.
E. Efficiencies Resulting From Proposed Class Structure.
The Board of Directors believe that by offering Shares in connection
with Plans as described above, and by also creating and offering Shares
independently of Plans, the Companies may be able to achieve added flexibility
in meeting the service and investment needs of shareholders and future
investors. If Shares are created and Plans adopted as described, the Company
will be able to address more precisely the needs of the particular investors and
to cause the associated expenses to be borne by such investors. While this
objective might be achieved through the organization of new investment
Portfolios, the Board of Directors believe that it would be inefficient, and
probably economically or operationally unfeasible, to organize a separate
investment Portfolio for each new Class of Shares to be created. Not only would
unnecessary accounting and bookkeeping costs be incurred in organizing and
operating such new Portfolios, but management of the new Portfolios as well as
the existing Portfolios might also be hampered. For example, unless the new
Portfolios grew at a sufficient rate and to a sufficient size, the new
Portfolios could be faced with liquidity and diversification problems that would
prevent them from performing well. The risk that the new Portfolios would
ultimately fail because of such duplicative costs and management problems would
not be insignificant in light of today's extremely competitive environment where
investors may choose from a broad array of investment alternatives and expect to
get services suited to their needs without sacrificing safety or performance.
In order to obviate the foregoing risks, the Board of Directors wish to
use a structure under which new Classes could be created without having to
establish corresponding separate Portfolios. Under this arrangement, all Shares
of a particular Portfolio would represent interests in the Portfolio, although
Shares of each class may have a different net asset value (and thus represent a
different proportionate interest in the Portfolio's assets), and, as described
above, would have identical voting, dividend, liquidation and other rights,
preferences, powers, restrictions, limitations, qualifications, designations and
terms and conditions. The only differences between the classes of Shares of the
same Portfolio will relate solely to: (a) the impact of (i) expenses assessed to
a class pursuant to a Plan, (ii) other Class Expenses which would be limited to
(A) transfer agent fees identified by the transfer agent as being attributable
to a specific class of Shares; (B) fees and expenses of a Company's
administrator that are identified and approved by the Company's Board of
Directors as being attributable to a specific class of Shares; (C) printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders of a
class; (D) blue sky registration fees incurred by a class of Shares; (E) SEC
registration fees incurred by a class of Shares; (F) the expense of
administrative personnel and services as required to support the shareholders of
a specific class; (G) litigation or other legal expenses or audit or other
accounting expenses relating solely to one class of Shares; and (H) directors'
fees incurred as a result of issues relating no one class of Shares; and (iii)
any other incremental expenses subsequently identified that should be properly
allocated to one class and which are approved by the Commission pursuant to an
amended order; and (b) the fact that the classes will vote separately with
respect to a Portfolio's Plans, except as provided below; and (c) the different
exchange privileges of the classes of Shares; and (d) the designation of each
class of Shares of a Portfolio; and (e) certain conversion features offered by
some of the classes.
F. Allocation of Expenses.
Expenses of the Company that can not be attributed directly to any one
Portfolio ("Company Expenses") shall be allocated to each Portfolio based on the
relative net assets of such Portfolio or as otherwise determined under the
supervision of its Board of Directors. Company Expenses could include, for
example, directors' fees and expenses, audit fees and legal fees, insurance
premiums, SEC and state blue sky registration fees, and dues paid to
organizations such as the Investment Company Institute.
Certain expenses may be attributable to a Portfolio but not to a
particular class ("Portfolio Expenses"). All such Portfolio Expenses incurred by
the Portfolio shall be allocated to each class on the basis of the relative net
asset value of the respective classes in the Portfolio. Portfolio Expenses could
include, for example, advisory fees, Portfolio accounting fees, custodian fees,
and fees related to preparation of separate documents of the Portfolio.
Class Expenses consist of the following types of fees or expenses which
the Company identifies and determines are directly attributable to a particular
class and are to be allocated to that class exclusively: (a) transfer agent fees
identified by the transfer agent as being attributable to a specific class of
Shares; (b) fees and expenses of the administrator that are identified and
approved by the Company's Board of Directors as being attributable to a specific
class of Shares; (c) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxies to
current shareholders of a class; (d) blue sky registration fees incurred by a
class of Shares; (e) SEC registration fees incurred by a class of Shares; (f)
the expense of administration personnel and services as required to support the
shareholders of a specific class; (g) litigation or other legal expenses or
audit or other accounting expenses relating solely to one class of Shares; and
(h) directors' fees incurred as a result of issues relating to one class of
Shares.
Currently, the Company does not intend to allocate any transfer agency
expenses on a class basis, but the Board of Directors of the Company may
determine that such an allocation is appropriate, and may amend this Plan to add
this authority to make such allocations. It is contemplated that certain
transfer agency expenses may be among those allocated on a class rather than
Portfolio basis in the future. For example, it is anticipated that certain
classes which are to be marketed to retail customers may provide investors with
a check-writing feature which will increase the transfer agency expenses for
such classes. Accounts in these retail classes of Shares are also likely to be
smaller, on average, resulting in higher transfer agency expenses on a per Share
and aggregate basis. In contrast, Organizations may serve as the record
shareholder for their customers' investments, thereby decreasing a Company's
transfer agency expenses for a class. These variations and similar factors may
contribute to a significant disparity in the transfer agency portion of the
expense ratios for different classes of Shares, justifying the allocation of
these expenses according to class rather than Portfolio. To the extent that a
class may bear transfer agency or other expenses not being borne by other
classes of the same Portfolio, appropriate disclosure would be included in the
applicable Portfolio's prospectus.
The Company's investment adviser or other service contractor may choose
to reimburse or waive Class Expenses on certain classes on a voluntary,
temporary basis. The amount of Class Expenses waived or reimbursed by the
investment adviser or other service contractor may vary from class to class.
Class Expenses are by their nature specific to a given class and obviously
expected to vary from one class to another. Applicants believe that it is
acceptable and consistent with shareholder expectations to reimburse or waive
Class Expenses at different levels for different classes of the same Portfolio.
In addition, the investment adviser or other service contractor way
waive or reimburse Company Expenses and/or Portfolio Expenses (with or without a
waiver or reimbursement of Class Expenses) but only if the same proportionate
amount of Company Expenses and/or Portfolio Expenses are waived or reimbursed
for each class of a Portfolio. Thus, any Company Expenses that are waived or
reimbursed would be credited to each class of a Portfolio based on the relative
net assets of the classes. Similarly, any Portfolio Expenses that are waived or
reimbursed would be credited to each class of that Portfolio according to the
relative net assets of the classes. Company Expenses and Portfolio Expenses
apply equally to all classes of a given Portfolio. Accordingly, it may not be
appropriate to waive or reimburse Company Expenses or Portfolio Expenses at
different levels for different classes of the same portfolio.
Certain expenses shall be allocated differently if their method of
imposition changes. Thus, if a Class Expense can no longer be attributed to a
class or the Company determines that it should not be allocated to a particular
class exclusively, it will be charged as a Portfolio Expense or a Company
Expense, as may be appropriate; similarly, if a Company Expense becomes
attributable to a Portfolio, it will become a Portfolio Expense. However, any
additional Class Expenses (including Plan Payments) not specifically identified
above which are subsequently identified and determined to be properly allocated
to one class of Shares shall not be so allocated until approved by the Board of
Directors.
G. Differences in Net Income Per Share; Net Asset Value.
Because of the Plan Payments and Class Expenses that may be borne by
each class of Shares, the per Share net income of, and dividends to, each class
may be different from the net income of, and dividends to, the other classes of
Shares of the Portfolio. For example, if one class bore the expense of a Plan
Payment that did not apply to another class, the per Share net income and
dividends of the former class would be expected to be lower than the per Share
net income and dividends of the latter class. In addition and apart from the
allocation of Plan Payments, to the extent aggregate Class Expenses (such as
transfer agency fees, administration fees and prospectus printing costs) are
higher with respect to one class of a Portfolio, the per Share net income and
dividends of that class would be lower than the per Share net income and
dividends of the other classes of the Portfolio's Shares. Dividends paid to each
class of Shares in a Portfolio would, however, be declared and paid on the same
days and at the same times, and, except as noted with respect to the expenses of
Plan Payments and Class Expenses, would be determined in the same manner and
paid in the same amounts.
In addition, except for those Portfolios that seek to maintain a stable
net asset value per Share or that declare dividends of net investment income
daily, the net asset value attributable to each class of a Portfolio's Shares
may diverge over time due to the payment of Plan Payments or Class Expenses, if
any. The extent of such divergence would be affected by the accrued per Share
net income to which the holders of a class are entitled, but which has not yet
been declared as a dividend. The net asset value of all outstanding Shares in a
Portfolio would be computed on the same days and at the same times.
3. Conversion Features.
Conversion from one class of Shares to another depends upon the minimum
investment requirement of each Portfolio. Investor Shares will automatically
convert to Select Shares upon attaining the $100,000 minimum investment. The
conversion will be made on the relative net asset values of the two classes
without the imposition of any sales load, fee or other charge. The conversion
will occur on the third business day following any purchase or transfer of
Shares in the account after which the value of Investor Shares in the account at
the current net asset value reaches $100,000. Each account in each Fund is
evaluated separately; identically registered accounts in more than one Fund are
not combined for purposes of calculating account minimums.
Investor and Select Shares of the Fund will also automatically convert
to Institutional Shares upon meeting the $500,000 minimum investment on the same
terms described above.
Shareholders of the Fund may also be automatically converted from
Institutional Shares to Select or Investor Shares, and from Select Shares to
Investor Shares. The conversion will occur on the third business day following
the date of any transfer or redemption of Shares in the account after which the
value of the remaining Shares in the account at the current net asset value
falls below the required minimum for that class of Shares. The conversion will
be to the lowest fee class of Shares for which the investor is eligible as of
the date of conversion.
Investors will not be converted to another class of Shares solely due
to a change in net asset value of their existing Shares. However, a change in
net asset value together with purchase, redemption, or transfer from the account
could result in a conversion to another class of Shares at a time when the
purchase, redemption, or transfer alone may not have triggered the conversion.
The Board of Directors reserve the right to impose a condition on the
conversion between different classes of Shares which requires management to seek
a determination of the availability of an opinion of counsel or Internal Revenue
Service private letter ruling to the effect that the conversion of the Shares
does not constitute a taxable event under federal income tax law. Conversions
may be suspended if such a ruling or opinion is not available. In that event, no
further conversions would occur.
The Board of Directors believe that the issuance and sale of the various classes
of Shares in the Portfolios will better enable the Company to meet the
competitive demands of today's financial services industry. The arrangement will
permit the Company to both facilitate the distribution of its securities and
expand the depth and scope of its services without assuming excessive
operational costs or unnecessary investment risks. Under the proposed
arrangement, the Company could, among other things, compensate financial
intermediaries for providing support services that are tailored to the needs of
their customers. Customers who enjoy such services would, in turn, bear the
associated expenses. Such customers would enjoy not only the benefits of such
services, but also the additional investment safety and stability resulting from
their ability to invest in established, sizeable investment Portfolios.
Moreover, since holders of additional classes of Shares may invest in existing
Portfolios, all shareholders of the applicable Portfolios would benefit from the
economies of scale that result where a portion of the fixed costs normally
associated with open-end management investment companies would, potentially, be
spread over a greater number of Shares than they would be otherwise. In
addition, the Companies would be able, under the proposed arrangement, to match
more precisely their distribution costs, administrative support, and transfer
agency and other expenses with those investors on whose behalf such costs and
expenses are incurred.
The Board of Directors believe that the allocation of expenses and
voting rights relating to the Plans in the manner described is in conformity to
Rule 18f-3 under the Act and is equitable and would not discriminate against any
group of shareholders. Activities financed by Plan Payments or Class Expenses
would be intended for the investors that purchase the Shares bearing these
Payments and Expenses. Moreover, because, with respect to any Portfolio, the
rights and privileges of all classes in the Portfolio is substantially
identical, the possibility that the interests of the respective classes would
ever conflict would be remote. In any event, the interests of each class of
shareholders would be adequately protected pursuant to the conditions set forth
in Part V below, including the requirement that each Plan, along with the Plan
Agreements, conform to the requirements of Rule 12b-1 or the protections
described in condition 5 hereof, including the requirement that they be approved
by the Board of Directors.
The multi-class structure will also enable the Company (and its
shareholders) to save the organizational and other continuing costs that would
be incurred if a Company were required to establish a new separate investment
Portfolio for each class of Shares.
The Board of Directors is sensitive, with respect to the proposed
arrangement, of the need for full disclosure of class-related payments. Among
other things, the Board of Directors direct that management shall take all
appropriate steps to ensure that to the extent required by SEC rules, the
respective performance data of all classes of Shares in a Portfolio are fairly
disclosed in the prospectuses and shareholder reports for such Portfolio. In
this regard, to the extent required by applicable SEC rules, the performance
data of all classes in each Portfolio shall be posted separately, and would
reflect the impact of any Plan Payments borne and Class Expenses by the
class(es) involved.
The issuance of multiple class of shares as described herein shall be
subject to the to the following conditions:
1. Each class of Shares representing interests in the
same Portfolio of a Company will be identical in all respects, except as set
forth below. The only differences between the classes of Shares of the same
Portfolio will relate solely to: (a) the impact of (i) expenses assessed to a
class pursuant to a Plan, (ii) other Class Expenses which would be limited to
(A) transfer agent fees identified by the transfer agent as being attributable
to a specific class of Shares; (B) fees and expenses of a Company's
administrator that are identified and approved by the Company's Board of
Directors as being attributable to a specific class of Shares; (C) printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders of a
class; (D) blue sky registration fees incurred by a class of Shares; (E) SEC
registration fees incurred by a class of Shares; (F) the expense of
administrative personnel and services as required to support the shareholders of
a specific class; (G) litigation or other legal expenses or audit or other
accounting expenses relating solely to one class of Shares; and (H) directors'
fees incurred as a result of issues relating no one class of Shares; and
(iii) any other incremental expenses subsequently identified that should be
properly allocated to one class and which are approved by the Commission
pursuant to an amended order; and (b) the fact that the classes will vote
separately with respect to a Portfolio's Plans, except as provided in Condition
17 below; and (c) the different exchange privileges of the classes of Shares;
and (d) the designation of each class of Shares of a Portfolio; and (e) certain
conversion features offered by some of the classes.
2. On an ongoing basis, the Board of Directors, pursuant
to their fiduciary responsibilities under the Act and otherwise, will monitor
each Portfolio having a multi-class system for the existence of any material
conflicts among the interests of the various classes of each Portfolio. The
directors, including a majority of the independent directors, shall take such
action as is reasonably necessary to eliminate any such conflicts that may
develop. A Portfolio's investment adviser and distributor will be responsible
for reporting any potential or existing conflicts to the directors. If a
conflict arises, a Portfolio's investment adviser and/or distributor at their
own cost will remedy such conflict up to and including establishing a new
registered management investment company.
3. Any Shareholder Services Plan will be adopted and
operated in accordance with the procedures set forth in Rule 12b-1(b) through
(f) as if the expenditures made thereunder were subject to Rule 12b-1, except
that shareholders need not enjoy the voting rights specified in Rule 12b-1.
4. The Board of Directors shall receive quarterly and
annual statements concerning distribution and shareholder servicing expenditures
complying with paragraph (b)(3)(ii) of Rule 12b-1, as it may be amended from
time to time. In the statements, only expenditures properly attributable to the
sale or servicing of a particular class of Shares will be used to justify any
distribution or servicing expenditure charged to that class. Expenditures not
related to the sale or servicing of a particular class will not be presented to
the directors to justify any fee attributable to that class. The statements,
including the allocations upon which they are based, will be subject to the
review and approval of the independent directors in the exercise of their
fiduciary duties.
5. Dividends paid by a Portfolio with respect to each
lass of its Shares, to the extent any dividends are paid, will be calculated in
the same manner, at the same time, on the same day, and will be in the same
amount, except that Plan Payments relating to each respective class of Shares
and the Class Expenses relating to each class of Shares will be borne
exclusively by that class.
6. The methodology and procedures for calculating the
net asset value and dividends and distributions of the various classes in any
Portfolio having a multi-class distribution system and the proper allocation of
expenses among the various classes in each such Portfolio have been reviewed
by an expert ("Expert") who has rendered a report to the Company involving such
methodology and procedures are adequate to ensure that such calculations and
allocations will be made in an appropriate manner. On an ongoing basis, the
Expert, or an appropriate substitute Expert, will monitor the manner in which
the calculations and allocations are being made and, based upon such review,
will render at least annually a report to the Company involved that the
calculations and allocations are being made properly. If otherwise required by
Regulation S-X the reports of the Expert shall be filed as part of the periodic
reports filed with the Commission pursuant to Sections 30(a) and 30(b)(1) of the
1940 Act. The work papers of the Expert with respect to such reports, following
request by the Company involved (which the Company agrees to provide), will be
available for inspection by the Commission staff upon written request to the
Company for such work papers by a senior member of the Division of Investment
Management or a regional office of the SEC. Authorized staff members would be
limited to the Director, an Associate Director, the Chief Accountant, the Chief
Financial Analyst, an Assistant Director, and any Regional Administrators or
Associate and Assistant Administrators. The initial report of the Expert will
be a "Report on Policies and Procedures Placed in Operation" and the ongoing
reports will be "Reports on Policies and Procedures Placed in Operation and
Tests of Operating Effectiveness" as defined and described in Statement of
Auditing Standards ("SAS") No. 70 of the American Institute of Certified Public
Accountants ("AICPA"), as it may be amended from time to time, or in similar
auditing standards as may be adopted by the AICPA from time to time.
7. The Administrator shall have adequate facilities in
place to ensure implementation of the methodology and procedures for calculating
the net asset value and dividends and distributions of the various classes of
Shares and the proper allocation of expenses among the classes of Shares and
this representation will be concurred with by the Expert in the initial report
referred to in condition 8 above and will be concurred with by the Expert, or an
appropriate substitute Expert, on an ongoing basis at least annually in the
ongoing reports referred to in condition 6 above. The Applicants will take
immediate corrective measures if this representation is not concurred in by the
Expert or appropriate substitute Expert.
8. The prospectuses of each Portfolio having a multi-
class system will contain a statement to the effect that a salesperson and any
other person entitled to receive compensation for selling or servicing Shares of
a Portfolio may receive different compensation with respect to one particular
class of Shares over another in the same Portfolio.
9. The Distributor of the Company will adopt compliance
standards for any Portfolio which has a multi-class system, which standards will
relate to when each class of Shares may appropriately be sold to particular
investors.
10. Each Portfolio having a multi-class system will
disclose the respective expenses, performance data, distribution arrangements,
services, fees, front-end sales loads, CDSCs, conversion features, and exchange
privileges applicable to each class of Shares in a Portfolio in every
prospectus relating to such Portfolio, regardless of whether all classes of
Shares are offered through each prospectus. Each such Portfolio will disclose
the respective expenses and performance data applicable to all classes of Shares
in a Portfolio in every shareholder report relating to such Portfolio. The
shareholder reports for each such Portfolio will contain, in the statement of
assets and liabilities and statement of operations, information related to the
Portfolio as a whole generally and not on a per class basis (each Portfolio's
per Share data, however, will be prepared on a per class basis with respect to
all classes of Shares of such Portfolio). To the extent any advertisement or
sales literature describes the expenses or performance data applicable to any
class of Shares, it will also disclose the respective expenses and/or
performance data applicable to all classes of Shares. The information provided
by the Applicants for publication in any newspaper or similar listing of any
Portfolio's net asset value and public offering price will present each class of
Shares separately.
11. Any class of Shares with a conversion feature will
convert into another class of Shares on the basis of the relative net asset
values of the two classes, without the imposition of any sales load, fee, or
other charge. After conversion, the converted Shares will be subject to an
asset-based sales charge and/or service fee (as those terms are defined in
Article III, Section 26 of the NASD's Rules of Fair Practice), if any, that in
the aggregate are lower than the asset-based sales charge and service fee to
which they were subject prior to conversion.
1 The Company will not implement the multiple class structure with respect to
any Portfolio or allocate Class Expenses until after the Company amends its
Registration Statement as necessary to reflect the offering of additonal
classes of Shares in a Portfolio.
