IMG MUTUAL FUNDS, INC.
ANNUAL FINANCIAL REPORT
IMG CORE STOCK FUND
IMG BOND FUND
SELECT SHARES
INSTITUTIONAL SHARES
ADVISOR SHARES
APRIL 30, 1996
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[THIS PAGE LEFT BLANK INTENTIONALLY.]
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May 1996
Dear Shareholder:
We are pleased to provide you with the inaugural Annual Financial Report for the
IMG Mutual Funds for the fiscal year ended April 30, 1996. While many of the
Fund's investment relationships were begun prior to the formal SEC registration
of the IMG Core Stock Fund and the IMG Bond Fund, this is the first set of
audited financials that you will receive that were prepared subsequent to
registration on July 7, 1995.
All financial information presented covers the period from July 7, 1995 to April
30, 1996. It may be helpful to keep this fact in mind as you evaluate your
historical performance in either or both of the Funds.
The last six months of 1995 and the first four months of 1996 presented
interesting contrasts in overall equity and fixed income market performance.
Both periods witnessed relatively strong performance in the equity markets, with
the S&P 500 providing a total return of 19.73 percent for the period. The second
half of 1995 similarly was a strong period of performance for bonds. However,
the first four months of 1996 reversed many of the fixed income gains realized
in 1995.
The Funds performed very well during 1995. The overall exposure to
interest-sensitive components of the economy in the IMG Core Stock Fund and an
extended duration in the IMG Bond Fund provided significant gains for the Fund's
investors.
The Funds underperformed in the first four months of 1996 as interest rates
rose, primarily in response to somewhat isolated economic reports indicating a
growing national economy.
We continue to expect long-term interest rates to decline. Both Funds are well
positioned for a declining interest rate environment.
Overall, our investment strategy for both Funds continues to focus on providing
above-market returns while experiencing below-market risk over complete market
cycles.
We appreciate your support of and investment in the IMG Mutual Funds. We look
forward to another successful year of serving your investment needs.
Sincerely yours,
Mark A. McClurg
President, IMG Mutual Funds, Inc.
Senior Managing Director
Investors Management Group
<PAGE>
IMG MUTUAL FUNDS INC.
IMG CORE STOCK FUND
APRIL 30, 1996
Strong corporate profit growth and substantial flows of new money into equity
mutual funds helped drive the U.S. stock market higher in the period. However,
market momentum waned in the final three months of the period as signs of a
stronger economy drove long-term interest rates sharply higher. For the period
July 7, 1995 to April 30, 1996, the IMG Core Stock Fund rose in value with the
Select and Institutional Shares generating total returns of 15.02 percent and
15.25 percent, respectively. For the same period, the S&P 500 generated a total
return of 19.73 percent. Advisor Shares were first issued April 8, 1996 and
generated a total return of -1.05 percent for the period April 8, 1996 to April
30, 1996.
The Fund's underperformance during the period primarily reflects the poor
performance of the interest-sensitive sectors, particularly the electric
utilities and telecommunications stocks. These areas had performed well for
several months until long-term interest rates reversed half of their 1995
decline in the first quarter of 1996. In addition, the Fund's position in
long-term U.S. Treasury bonds declined in value in the first quarter. The Fund's
holdings in the consumer nondurables sector, including household products, food,
and drug stocks, performed well for most of the period before retreating late in
the period as investors' renewed optimism on the economy led a rotation into
cyclical stocks. Finally, the Fund's performance was penalized by its minimal
exposure to both the cyclical and technology sectors.
- --------------------------------------------------------------------------------
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at the Fund's inception, with a similar investment
in the Standard & Poors 500 Stock Index (S&P). The S&P is an unmanaged index of
common stocks. An additional fee of $10 will be charged for redemption from a
retirement plan account and redemptions payable by wire transfer. The
performance of other classes will be greater or less than the line shown based
on the differences in charges and fees paid by shareholders investing in
different classes.
AVERAGE ANNUAL TOTAL RETURNS
Share Class 1 Year 5 Year Life of Fund
Select Shares* N/A N/A 15.02%
Institutional Shares* N/A N/A 15.25%
Advisor Shares** N/A N/A -1.05%
The Fund began operation on July 7, 1995.
Figures assume reinvestment of all dividends and capital gain distributions at
net asset value.
* The Fund began offering Select and Institutional Shares on July 7, 1995.
** The Fund began offering Advisory Shares on April 4, 1996.
Advisory shares are not sold directly to the general public and are only
available through financial services firms.
THE DATA ABOVE REPRESENT PAST PERFORMANCE OF THE FUND'S SHARES, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
- --------------------------------------------------------------------------------
Our strategy is based on the premise that growth in both the economy and
corporate earnings over the next several months will prove more sluggish than is
now discounted in the financial markets. Most measures of monetary and fiscal
policy have been restrictive since late 1994. Moreover, the recent
percentage-point spike in long-term interest rates comes at a time of
particularly high vulnerability, with most measures of growth--both nominal and
inflation-adjusted--at very low levels. In addition, we have been concerned with
the general complacency over the ongoing deceleration in corporate profits
growth. While some managers fear that higher inflation and/or interest rates may
ultimately derail the bull market, little has been made of the collapse in
corporate earnings growth to near zero from more than 20 percent two quarters
ago.
Our investment strategy continues to emphasize companies with superior dividend
yields and minimal sensitivity to the economic cycle, including the consumer
nondurables, finance, and utilities sectors. Recent declines in electric and gas
utilities and telecommunications stocks have helped reestablish better value in
these sectors and they should benefit if our expectations of lower long-term
interest rates are realized. Regional banks and insurance companies also stand
to benefit from lower rates and we continue to overweight them. We are
maintaining overweighted positions in the consumer nondurables on the belief
that investors will place increasing value on their steady earnings streams as
growth in the economy and corporate profits weakens. We think it is dangerous to
climb onto the bandwagon now chasing the cyclical stocks; valuations among the
cyclicals appear expensive and we fear that profit growth in many cyclical
industries is vulnerable to further slowdown in coming quarters. We believe that
capacity expansion in the technology sector has been too aggressive and that
profit estimates for much of the sector are too optimistic. We, therefore,
continue to underweight this area. Finally, we have increased the Fund's
position in U.S. Treasury bonds with the objectives of increasing the Fund's
yield and capitalizing on our expectations of lower long-term interest rates.
We manage the Fund with the goal of generating above-market returns on a
long-term basis while taking risks significantly below those of the overall
market. Our value-driven, conservative orientation has allowed us to capture
roughly 80 percent of the upward market movements while participating in only
about 60 percent of market downdrafts. The Fund is positioned to participate if
further significant gains lie ahead in this bull market. If, on the other hand,
the market enters a period of consolidation or decline, we believe the Fund's
defensive positioning should pay off in substantial outperformance relative to
the major market averages.
DOUGLAS R. RAMSEY JAMES W. PAULSEN, PH.D.
PORTFOLIO MANAGER PORTFOLIO MANAGER
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IMG MUTUAL FUNDS, INC.
IMG BOND FUND
APRIL 30, 1996
For the period July 7, 1995 to April 30, 1996, the IMG Bond Fund increased in
value with Select and Institutional Shares achieving total returns of 2.10
percent and 2.27 percent respectively. For the same period, the Lehman Aggregate
Bond Index generated a total return of 2.76 percent. The performance of the IMG
Bond Fund was hindered in the first four months of 1996, as long-term bond
yields rose by 1 percent.
Long-term bond yields rose dramatically following the release of the February
employment report. The more than 700,000 gain in employment caused the bond
market to become concerned that faster economic growth would lead to higher
inflation. Selling by hedge funds further exasperated the bond market move.
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This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at the Fund's inception, with a similar investment
in the Lehman Aggregate Index. The Lehman Aggregate includes fixed rate debt
issues rated investment grade or higher by Moody's Investors Services, Standard
and Poor's Corporation or Fitch Investor's Service. All issues have at least one
year to maturity and an outstanding par value of at least $100 million. The
Lehman Aggregate Index includes bonds with maturities of 1 - 30 years. Price,
coupon and total return are reported for all sectors on a month-end basis. An
additional fee of $10 will be charged for redemption from a retirement plan
account and redemptions payable by wire transfer. The performance of other
classes will be greater or less than the mine shown based on the differences in
charges and fees paid by shareholders investing in different classes.
AVERAGE ANNUAL TOTAL RETURNS
Share Class 1 Year 5 Year Life of Fund
Select Shares N/A N/A 2.10%
Institutional Shares N/A N/A 2.27%
The Fund began operation on July 7, 1995.
Figures assume reinvestment of all dividends and capital gain distributions at
net asset value.
THE DATA ABOVE REPRESENT PAST PERFORMANCE OF THE FUND'S SHARES, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
- --------------------------------------------------------------------------------
Markets do not move in straight lines. A graph of long-term bond yields will
show that a backup of 0.50 to 1 percent often occurs in the midst of a secular
decline in rates. In our view, economic growth is still modest and may prove
disappointing in the second half of the year. The rise in long-term bond yields
increases the possibility of sluggish economic growth going forward.
More important for the bond market is inflation. The inflation outlook remains
quite good. Industrial commodity price indexes hit 12-month lows during the
first quarter. Consumer prices have risen at an annual rate of just 2.8 percent
over the last twelve months. The prices-paid index in the March Purchasing
Management survey has steadily fallen since November 1994 from 87.5 to 39.5 last
month. Labor costs have been well contained. At present levels, long-term bond
yields are 4 to 5 percent above the level of inflation. Thus, we view the recent
bond market sell-off as a buying opportunity and are increasing the average
maturity of the Fund.
Several indicators we monitor are positive for the bond market. Unemployment
claims are rising, industrial commodity prices are falling, monetary and fiscal
policies are tight, and loan growth is declining. All of these factors are the
exact opposite of what occurs in a rising yield environment.
We are also monitoring the position of maturities along the yield curve closely.
Typically, during an economic slowdown, the yield curve steepens as short-term
yields fall faster than long-term yields. The yield curve may not steepen as
much as might be expected, however, due to the vigilance of the Federal Reserve
and its control of short-term interest rates. The Fed, however, may wait too
long to cut short-term interest rates which could force them to drop rates
dramatically before the economy responds.
The Fund continues to be overweighted in Treasuries, since we believe the
mortgage and corporate sectors are overvalued. We remain significantly
underweighted in mortgage pass-throughs. Mortgages outperformed comparable
Treasuries recently. If long-term bond yields test the 6 percent level again,
however, mortgages are likely to underperform Treasuries. Corporate bond yield
spreads are still narrow relative to Treasuries. This sector is likely to
underperform in 1996 if corporate earnings are disappointing. As an alternative
to corporate bonds, we find taxable municipal bonds attractive. We are using
taxable municipals to obtain high quality securities at reasonable yield spreads
and to diversify the Portfolio.
In summary, the IMG Bond Fund is positioned for a declining interest rate
environment. We will be monitoring the yield curve posture of the portfolio
closely going forward. The Fund will remain overweighted in Treasuries until
yield spreads in other sectors improve.
KATHRYN D. BEYER, CFA JEFFREY D. LORENZEN, CFA
PORTFOLIO MANAGER PORTFOLIO MANAGER
<PAGE>
IMG MUTUAL FUND, INC.
MANAGEMENT TEAM
APRIL 30, 1996
KATHRYN D. BEYER, CFA, MANAGING DIRECTOR.
Ms. Beyer serves as a fixed income strategist. Prior to joining IMG, she served
as the director of mortgage-backed securities and as a corporate bond fixed
income analyst for Central Life Assurance Company. She received her M.B.A.
degree from Drake University and her B.S. degree from Iowa State University.
JEFFREY D. LORENZEN, CFA, MANAGING DIRECTOR.
Mr. Lorenzen serves as a fixed income strategist. Prior to joining IMG, he
served as a senior analyst for The Statesman Group under both the corporate and
mortgage-backed portfolios. He received his M.B.A. degree from Drake University
and his B.B.A. degree from the University of Iowa.
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, he served as president of a
Cedar Rapids, Iowa investment firm. He received his Doctorate in economics
degree and his B.S. degree from Iowa State University.
DOUGLAS R. RAMSEY, SENIOR EQUITY ANALYST.
Mr. Ramsey serves as IMG's senior equity analyst. Prior to joining IMG, he was a
securities analyst at a Minneapolis-based regional brokerage firm and a
securities analyst and economist at a Cedar Rapids, Iowa-based investment firm.
Doug received his B.A. degree in business administration and economics from Coe
College and his M.A. degree in economics from Ohio State University.
<PAGE>
IMG MUTUAL FUNDS, INC.
IMG CORE STOCK FUND
SCHEDULE OF INVESTMENTS
APRIL 30, 1996
SHARE/
PAR VALUE DESCRIPTION VALUE
- -------------------------------------------------------------------------------
COMMON STOCK (83.03%)
UTILITIES (17.57%)
14,000 Central & S.W. Corp. $ 381,500
14,000 Central Louisiana Electric 358,750
11,700 Consolidated Edison of NY 343,686
10,900 DTE Energy Company 337,900
15,900 Enova Corporation 341,850
17,100 South Jersey Industries 399,713
11,300 WPS Resources Corp 357,363
-----------
2,520,762
-----------
FINANCE (20.60%)
6,500 Ambac Inc. 316,063
13,500 American Heritage Life 313,875
9,240 Banc One Corp. 321,090
7,800 Comerica, Inc. 339,300
10,600 First Hawaiian 310,050
9,100 Key Corp. 351,487
8,800 National City Corp. 324,500
7,400 Providian 341,325
7,300 Regions Financial Corp. 336,713
-----------
2,954,403
-----------
RETAIL TRADE (2.87%)
11,300 Liz Claiborne, Inc. 411,038
-----------
CONSUMER SERVICES (4.80%)
4,800 Knight-Ridder Inc. 347,400
14,200 Luby's Cafeterias, Inc. 340,800
-----------
688,200
-----------
CONSUMER NON-DURABLES (10.56%)
11,400 American Greetings 314,925
5,700 General Mills Inc. 316,350
11,600 Hormel Foods Corp. 308,850
3,400 Kimberly-Clark Corp. 246,925
11,600 Rubbermaid, Inc. 327,700
-----------
1,514,750
-----------
HEALTH TECHNOLOGY (6.05%)
2,700 American Home Products 284,850
3,300 Bristol-Meyers Squibb Co. 271,425
8,120 Pharmacia & Upjohn, Inc. 310,590
-----------
866,865
-----------
ELECTRONIC TECHNOLOGY (9.36%)
5,800 Ameritech Corporation 338,575
7,000 NYNEX Corporation 343,875
12,900 TELE Denmark 325,725
6,400 U.S. Media Group 124,800
6,400 U.S. West, Inc. 209,600
-----------
1,342,575
-----------
See notes to financial statements.
<PAGE>
IMG MUTUAL FUNDS, INC.
IMG CORE STOCK FUND (CONT.)
SCHEDULE OF INVESTMENTS
APRIL 30, 1996
SHARE/
PAR VALUE DESCRIPTION VALUE
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES (2.04%)
4,800 Dun & Bradstreet Corporation $ 292,200
-----------
PROCESS INDUSTRIES (2.05%)
4,300 Great Lakes Chemical 293,475
-----------
INDUSTRIAL SERVICES (4.91%)
6,200 Flightsafety International 343,325
10,400 WMX Technologies, Incorporated 361,400
-----------
704,725
-----------
ENERGY (2.22%)
2,700 Atlantic Richfield Co. 317,925
-----------
Total Common Stocks 11,906,918
(Cost $10,180,392) -----------
U.S. GOVERNMENT SECURITIES (15.62%)
3,575,000 Treasury Principal Strips, 05/15/20, 6.47%* 640,783
1,570,000 U.S. Treasury Bond, 7.25%, 05/15/16 1,598,951
-----------
Total U.S. Government Securities 2,239,734
(Cost $2,397,354) -----------
CASH EQUIVALENTS (0.86%)
123,448 Norwest Cash Investment Fund, 4.99% 123,448
(Cost $123,448) -----------
TOTAL INVESTMENTS IN SECURITIES (99.51%)
(Cost $12,701,194) 14,270,100
-----------
Other Assets and Liabilities, Net (0.49%) 69,980
-----------
NET ASSETS 100.0% $14,340,080
===========
*Interest rate for zero coupon security equates effective yield at date of
purchase.
Based on the cost of investments of $12,701,194 for federal income tax purposes
at April 30, 1996, the aggregate gross unrealized appreciation was $1,881,543,
the aggregate gross unrealized depreciation was $312,637, and the net unrealized
appreciation was $1,568,906.
See notes to financial statements.
<PAGE>
IMG MUTUAL FUNDS, INC.
IMG BOND FUND
SCHEDULE OF INVESTMENTS
APRIL 30, 1996
SHARE/
PAR VALUE DESCRIPTION VALUE
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U.S. GOVERNMENT SECURITIES (54.99%)
GOVERNMENT AGENCIES (3.09%)
250,000 Government Export Trust, 4.85%, 11/01/97 $ 247,375
-----------
U.S. TREASURY BONDS (20.42%)
1,605,000 U.S. T-Bond, 7.25%, 05/15/16 1,634,596
-----------
U.S. TREASURY NOTES (31.48%)
275,000 U.S. T-Note, 5.75%, 08/15/03 261,291
510,000 U.S. T-Note, 7.85%, 08/15/01 541,503
540,000 U.S. T-Note, 6.875%, 03/31/00 549,088
785,000 U.S. T-Note, 6.25%, 02/15/03 771,671
400,000 U.S. T-Note, 6.375%, 08/15/02 396,544
-----------
2,520,097
-----------
Total Government Securities 4,402,068
(Cost $4,511,467) -----------
CORPORATE BONDS (11.80%)
75,000 Dayton Hudson, 10.00%, 12/01/00 83,437
205,000 GMAC, 8.875%, 06/01/10 229,343
75,000 Hydro-Quebec, 8.25%, 01/15/27 77,625
165,000 Lehman Brothers, 8.05%, 01/15/19 167,591
183,000 Manitoba, 7.75%, 07/17/16 186,351
185,000 Nova Scotia, 8.25%, 11/15/19 200,263
-----------
Total Corporate Bonds 944,610
(Cost $973,509) -----------
MUNICIPAL BONDS (10.42%)
230,000 Berry Creek Met. Dist. Co., 7.05%, 12/01/03 220,225
45,000 Iowa Lakes Community College, 6.65%, 06/01/04 42,581
45,000 Iowa Lakes Community College, 6.55%, 06/01/03 42,863
115,000 Illinois Dev. Financial Authority, 8.65%, 07/01/97 114,282
100,000 Kirkwood Community College, 7.80%, 06/01/02 103,625
155,000 New Orleans, LA Hsg. Dev., 8.00%, 12/01/03 153,256
50,000 Texas St. G.O. Taxable, 8.70%, 12/01/09 55,500
97,851 Oregon Department of Transportation, 9.00%, 06/15/00 101,638
-----------
Total Municipal Bonds 833,970
(Cost $845,544) -----------
MORTAGE-BACKED SECURITIES (18.87%)
COLLATERALIZED MORTGAGE OBLIGATIONS (15.23%)
51,433 Chase Mtge. Finance Corp., 5.75%, 04/25/09 50,506
43,579 Citicorp Mtge. Sec. 1987-13 a3, 9.35%, 06/01/10 43,571
18,682 FHLMC Series L Class 5, 7.90%, 05/01/01 18,439
100,000 FHLMC 1504 B, 7.00%, 12/15/22 94,981
61,947 FHLMC 91 Series 188 Class F, 7.50%, 05/15/20 62,257
150,000 FNMA G92-60 C, 7.00%, 02/25/21 143,363
50,000 FNMA 1991-137 G, 8.30%, 06/25/20 51,020
See notes to financial statements.
<PAGE>
IMG MUTUAL FUNDS, INC.
IMG BOND FUND (CONT.)
SCHEDULE OF INVESTMENTS
APRIL 30, 1996
155,000 Green Tree Financial Corp. Class 1993-3 A3,
5.20%, 10/15/18 $ 152,887
81,555 Housing Securities, Inc., 1992-EA A6,
Zero Coupon, 10/25/07, 9.13%** 58,611
9,181 Housing Securities, Inc., 1992 EB B1A,
Zero Coupon, 05/25/20, 6.84%** 9,143
78,053 Housing Securities, Inc., 1993-C C3,
Zero Coupon, 05/25/08, 9.06%** 55,878
65,294 Housing Securities, Inc., 1993-E E-14,
Zero Coupon, 05/20/18, 10.27%** 45,948
91,232 Kidder Peabody Mtg. Asset Trust Class 5G,
8.45%, 05/20/18 90,833
63,333 Residential Funding Mtg. Sec. I Series 1993-S7,
Class A6, 7.15%, 02/25/08 63,058
60,383 Resolution Trust Corp. Series 1992-17 Class A1,
Variable Rate,12/25/20, 8.86%* 61,062
320,040 Salomon Mortgage Sec. VII 1995-1 PO, 06/01/22,
10.54%*** 217,291
-----------
1,218,848
-----------
FHLMC MORTGAGE-BACKED POOLS (0.27%)
20,715 FHLMC Pool #C00126, 8.50%, 06/01/22 21,245
-----------
GNMA MORTGAGE-BACKED POOLS (3.37%)
50,496 GNMA Pool #315929, 9.00%, 06/15/22 53,053
68,033 GNMA Pool #341681, 8.50%, 01/15/23 70,224
52,495 GNMA Pool #354189, 7.50%, 05/01/23 51,944
96,198 GNMA Pool #359600, 7.50%, 07/15/23 95,293
-----------
270,514
-----------
Total Mortgage-Backed Securities 1,510,607
(Cost $1,493,196) -----------
CASH EQUIVALENTS (2.43%)
194,366 Norwest Cash Investment Fund, 4.99% (cost $194,366) 194,366
-----------
TOTAL INVESTMENTS IN SECURITIES (98.51%)
(Cost $8,018,082) 7,885,621
-----------
Other Assets and Liabilities, Net (1.49%) 118,951
-----------
NET ASSETS 100.0% $ 8,004,572
===========
* Denotes a floating rate investment with interest rate as of April 30, 1996.
** Interest rate for zero coupon bond equates effective yield at date of
purchase.
*** Principal only represents securities that entitle holders to receive only
principal payments on the underlying mortgages. The yield to maturity of a
principal only is sensitive to the rate of principal payments on the underlying
mortgage assets.
Based on the cost of investments of $8,018,082 for federal income tax purposes
at April 30, 1996, the aggregate gross unrealized appreciation was $73,868, the
aggregate gross unrealized depreciation was $206,329, and the net unrealized
depreciation was $132,461.
See notes to financial statements.
<PAGE>
IMG MUTUAL FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1996
IMG CORE IMG
STOCK BOND
FUND FUND
- --------------------------------------------------------------------------------
ASSETS:
Investment in Securities at Value
(Cost $12,701,194; and $8,018,082 respectively) $ 14,270,100 $ 7,885,621
Dividends & Interest Receivable 83,422 142,537
Other Assets -- 136,352
--------------------------
Total Assets 14,353,522 8,164,510
LIABILITIES:
Investment Securities Purchased -- 154,117
Accrued Operating Expenses and Other Liabilities 13,442 5,821
Total Liabilities 13,442 159,938
--------------------------
NET ASSETS $ 14,340,080 $ 8,004,572
==========================
ANALYSIS OF NET ASSETS
Excess of amounts received from issuance of shares
over amounts paid on redemptions of shares $ 12,197,185 8,062,991
Undistributed net realized gain 413,175 28,594
Unrealized appreciation (depreciation) 1,568,906 (132,461)
Undistributed net investment income 160,814 45,448
--------------------------
Net assets applicable to shares outstanding $ 14,340,080 $ 8,004,572
==========================
PRICING OF ADVISOR SHARES
Net assets applicable to Advisor Shares outstanding $ 525,011 $ 0
==========================
Shares outstanding, $.001 par value* 46,292 0
==========================
Net asset value, offering price and redemption
price per Advisor Shares $ 11.341 $ 0.000
==========================
PRICING OF SELECT SHARES
Net assets applicable to Select Shares outstanding $ 6,327,236 $ 3,641,922
==========================
Shares outstanding, $ .001 par value* 557,006 372,290
==========================
Net asset value, offering price and redemption
price per Select Shares $ 11.359 $ 9.782
==========================
PRICING OF INSTITUTIONAL SHARES
Net assets applicable to Select Shares outstanding $ 7,487,833 $ 4,362,650
==========================
Shares outstanding, $ .001 par value* 658,515 445,857
==========================
Net asset value, offering price and redemption
price per Institutional Shares $ 11.371 $ 9.785
==========================
*Shares outstanding reflect rounding to the nearest whole share.
See notes to financial statements.
<PAGE>
IMG MUTUAL FUNDS, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD JULY 7, 1995 TO APRIL 30, 1996
IMG CORE IMG
STOCK BOND
FUND FUND
- --------------------------------------------------------------------------------
INCOME:
Interest Income $ 145,468 $ 366,327
Dividend Income 294,945 --
------------------------
Total Income 440,413 366,327
------------------------
EXPENSES:
Advisory Fees 52,379 15,625
Administration Fee 21,775 6,555
Distribution Fee--Investor 2,054 285
Distribution Fee--Select 8,329 3,525
Fund Accounting/Custody Fee 10,476 5,208
Transfer Agent Fee 5,238 2,604
Other Expenses 5,249 2,679
------------------------
Total Expenses 105,500 36,481
------------------------
NET INVESTMENT INCOME 334,913 329,846
------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain on Investments 413,175 32,638
Net Change in Unrealized Appreciation (Depreciation)
(note 1) 953,002 (309,728)
------------------------
NET GAIN (LOSS) ON INVESTMENTS 1,366,177 (277,090)
------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,701,090 $ 52,756
========================
See notes to financial statements.
<PAGE>
IMG MUTUAL FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED APRIL 30, 1996
IMG CORE IMG
STOCK BOND
FUND FUND
- --------------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 334,913 $ 329,846
Net Realized Gain on Investments 413,175 32,638
Net Change in Unrealized Appreciation (Depreciation) 953,002 (309,728)
-----------------------
Increase in Net Assets from Operations 1,701,090 52,756
-----------------------
DISTRIBUTIONS:
Dividend Distributions Paid
Advisor Shares 0 0
Investor Shares 9,618 6,627
Select Shares 99,756 121,845
Institutional Shares 64,725 155,926
Capital Gain Distribution Paid
Advisor Shares 0 0
Investor Shares 0 111
Select Shares 0 1,902
Institutional Shares 0 2,031
-----------------------
Total Distributions 174,099 288,442
-----------------------
CAPITAL SHARE TRANSACTIONS
Sales- Advisor Shares 0 0
Investor Shares 784,372 201,168
Select Shares 7,860,056 4,348,326
Institutional Shares 6,361,593 4,197,204
Reinvestments- Advisor Shares 0 0
Investor Shares 9,618 4,249
Select Shares 99,756 123,746
Institutional Shares 64,725 157,957
Share Class Exchanges- Advisor Shares 530,571 0
Investor Shares (867,071) (197,449)
Select Shares (1,317,640) (328,893)
Institutional Shares 1,654,140 526,342
Redemptions- Advisor Shares 0 0
Investor Shares (15,801) (19,894)
Select Shares (1,211,178) (405,944)
Institutional Shares (1,190,052) (416,556)
-----------------------
Increase in Net Assets from Capital Shares Transactions 12,763,089 8,190,258
-----------------------
TOTAL INCREASE IN NET ASSETs 14,290,080 7,954,572
-----------------------
NET ASSETS:
Beginning of Period 50,000 50,000
-----------------------
End of Period $14,340,080 $8,004,572
=======================
Undistributed Net Investment Income at End of Period $ 160,814 $ 45,448
=======================
See notes to financial statements.
<PAGE>
IMG MUTUAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
IMG Mutual Funds, Inc. (the "Fund") was incorporated on November 16, 1994
and capitalized on May 1, 1995 with an initial $100,000 purchase of 10,000
shares by the Investment Advisor. The Fund did not commence operations
until July 7, 1995 when registration became effective under the 1933 Act.
The Fund is registered under the Investment Company Act of 1940 (the "1940
Act"), as amended, as a diversified open-end management investment company
issuing its shares in two series, each series representing a diversified
portfolio with distinct investment objectives and policies. 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 percent 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.
At the close of business on July 7, 1995, IMG Mutual Funds, Inc., acquired
the assets and assumed the identifiable liabilities of IMG Private
Investment Trust (the "Trust"). The net assets at the close of business
on July 7, 1995, were $8,818,148 and $4,623,413 for the IMG Equity Trust
and IMG Income Trust. respectively. In exchange for the Trusts, the Fund
issued the following capital stock for $10 per share.
Shares Issued
Portfolio Investor Select Institutional
------------------------------------------------------------------
IMG Core Stock Fund 21,331.600 600,833.985 259,649.196
IMG Bond Fund 12,639.557 231,990.759 217,711.043
Unrealized appreciation on the day of exchange totaled $615,904 for the IMG
Core Stock Fund and $177,267 for the IMG Bond Fund.
The shares of each series are divided into Advisor, Select, and
Institutional Shares. A fourth class, Investor Shares, ceased to be issued
as of April 4, 1996. Outstanding Investor Shares as of April 5, 1996, were
converted to other classes of shares. Advisor Shares (first offered on
April 5, 1996) are only available through Financial Services Firms. Select
and Institutional Shares may be purchased directly. 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 preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
SECURITY VALUATION
Equity securities are values at the last sales price on the national
securities exchange. 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 by the
Portfolio Manager. Fixed Income securities in a portfolio having maturities
of 60 days or less are valued by the amortized cost method.
SECURITY TRANSACTIONS
Security transactions are recorded on a trade date basis. Realized gains
and losses are determined on an identified cost basis.
INVESTMENT INCOME
Interest income is recorded on an accrual basis and dividend income is
recorded on the ex-dividend date. Original issue discounts and premiums on
securities purchased are amortized over the expected life of the respective
securities.
DISTRIBUTION OF INCOME AND GAINS
The Fund's dividend distribution policy provides for quarterly dividends
for the IMG Bond Fund and semi-annual dividends for IMG Core Stock Fund.
Any net realized capital gains will be distributed annually, after using
any available capital loss carry-over.
FEDERAL TAXES
The Fund's policy is 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. Net investment income and net
realized gains (losses) for the funds may differ for financial statement
and tax purposes. The character of distributions made during the year from
net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing
of dividend distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gains (losses) were
recorded by the Funds.
2. TRANSACTIONS WITH AFFILIATES
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 0.50 percent of the average daily net
assets of the IMG Core Stock Fund and 0.30 percent of the average daily net
assets of the IMG Bond Fund. Organization costs were borne by the Advisor.
The Fund has 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 range from 0.10 percent to
0.25 percent of average daily net assets, depending on the type of shares
owned.
IMG also acts as fund accountant, transfer agent, and dividend paying agent
for the Funds, and maintain shareholder records. Fees for such services
including custodian fees are accrued at 0.15 percent of average daily net
assets.
In addition, the Fund is responsible for paying most other operating
expenses including outside directors' fees and expenses; registration fees;
printing and shareholder reports; transfer agent fees and expenses; legal,
auditing, and accounting services; insurance; interest; and other
miscellaneous expenses.
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 0.40 percent and 0.15 percent
of the average daily net assets of the Advisor and Select Shares,
respectively. Fees paid by the IMG Bond Fund amount to 0.25 percent and
0.15 percent of the average daily net assets of the Advisor and Select
Shares, respectively. The Fund pays no distribution fees in relation to the
Institutional Shares outstanding.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term securities) for the period
July 7, 1995 through April 30, 1996, are as follows:
IMG Core IMG Bond
Stock Fund Fund
Purchases* $ 15,294,687 $ 12,152,287
Proceeds from sales $ 4,524,076 $ 3,576,945
* Including $8,788,519 and $4,564,451, respectively, that was acquired from
the IMG Private Investment Trusts on July 7, 1995.
<PAGE>
4. CAPITAL SHARE TRANSACTIONS
SHARE ACTIVITY
The following table summarizes the activity in each class of capital share
of the Funds:
IMG CORE IMG
STOCK BOND
FUND FUND
--------------------------
ADVISOR SHARES
For the period April 5, 1996 to April 30, 1996:
Shares sold 0 0
Shares issued in reinvestment of dividends 0 0
Shares exchanged 46,292 0
Shares redeemed 0 0
--------------------------
Net increase from capital share transactions 46,292 0
==========================
INVESTOR SHARES
For the period July 7, 1995 to April 5, 1996:
Shares sold 75,806 20,081
Shares issued in reinvestment of dividends 845 419
Shares exchanged (75,651) (20,000)
Shares redeemed (1,500) (2,000)
--------------------------
Net increase from capital share transactions (1,500) (1,500)
==========================
SELECT SHARES
For the period July 7, 1995 to April 30, 1996:
Shares sold 767,668 430,230
Shares issued in reinvestment of dividends 8,753 12,328
Shares exchanged (114,833) (29,767)
Shares redeemed (106,082) (42,001)
--------------------------
Net increase from capital share transactions 555,506 370,790
==========================
INSTITUTIONAL SHARES
For the period July 7, 1995 to April 30, 1996:
Shares sold 611,049 417,832
Shares issued in reinvestment of dividends 5,679 15,738
Shares exchanged 144,098 51,616
Shares redeemed (104,311) (41,329)
--------------------------
Net increase from capital share transactions 656,515 443,857
==========================
<PAGE>
IMG MUTUAL FUNDS, INC.
FINANCIAL HIGHLIGHTS
APRIL 30, 1996
The following presents information relating to an Advisor Share of Capital Stock
of the Fund outstanding for the period April 5, 1996 to April 30, 1996.
IMG CORE IMG
STOCK BOND
FUND FUND
- --------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD* $ 11.461 $ 0.000
-----------------------
Net Investment Income 0.066 0.000
Net Realized and Unrealized Gains on Investments (0.186) 0.000
-----------------------
TOTAL FROM INVESTMENT OPERATIONS (0.120) 0.000
-----------------------
LESS
Distributions from Net Investment Income 0.000 0.000
-----------------------
TOTAL DISTRIBUTIONS 0.000 0.000
-----------------------
NET ASSET VALUE, END OF PERIOD $ 11.341 $ 0.000
=======================
Total Return -1.05% 0.00%
Net Assets, End of Period $ 525,011 $ 0
Ratio of Expenses to Average Net Assets 1.45% 0.00%
Ratio of Net Investment Income to Average Net Assets 8.18% 0.00%
Portfolio Turnover Rate 38.44% 0.00%
Average Commission Rate Paid to Brokers $0.0032
* Advisor Shares were first issued on April 5, 1996. Investor Shares were
converted to Advisor Shares at their net asset value as of the close of business
on April 4, 1996.
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year.
See notes to financial statements.
<PAGE>
IMG MUTUAL FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONT.)
APRIL 30, 1996
The following presents information relating to an Investor Share of Capital
Stock of the Fund outstanding for the period July 7, 1995 to April 4, 1996.
IMG CORE IMG
STOCK BOND
FUND FUND
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.000 $ 10.000
-----------------------
Net Investment Income 0.194 0.432
Net Realized and Unrealized Gains on Investments 1.405 (0.140)
-----------------------
TOTAL FROM INVESTMENT OPERATIONS 1.599 0.292
-----------------------
LESS:
Distributions from Net Investment Income 0.138 0.413
Distributions from Net Realized Gains 0.000 0.007
-----------------------
Total Distributions 0.138 0.420
-----------------------
NET ASSET VALUE, END OF PERIOD* $ 11.461 $ 9.872
Total Return 16.00% 2.91%
Net Assets, End of Period $ 0 $ 0
Ratio of Expenses to Average Net Assets 1.35% 1.00%
Ratio of Net Investment Income to Average Net Assets 2.88% 6.02%
Portfolio Turnover Rate 38.44% 60.43%
Average Commission Rate Paid to Brokers $ 0.0032
* Investor Shares were converted to Advisor and Select Shares on April 5, 1996
at which time Investor Shares ceased to be issued.
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year.
See notes to financial statements.
<PAGE>
IMG MUTUAL FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONT.)
APRIL 30, 1996
The following presents information relating to a Select Share of Capital Stock
of the Fund outstanding for the period July 7, 1995 to April 30, 1996.
IMG CORE IMG
STOCK BOND
FUND FUND
- --------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 10.000 $ 10.000
------------------------
Net Investment Income 0.273 0.493
Net Realized and Unrealized Gains on Investments 1.229 (0.278)
------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.502 0.215
------------------------
LESS
Distributions from Net Investment Income 0.143 0.426
Distributions from Net Realized Gains 0.000 0.007
------------------------
TOTAL DISTRIBUTIONS 0.143 0.433
------------------------
NET ASSET VALUE, END OF PERIOD $ 11.359 $ 9.782
========================
Total Return 15.02% 2.10%
Net Assets, End of Period $6,327,236 $3,641,921
Ratio of Expenses to Average Net Assets 1.10% 0.80%
Ratio of Net Investment Income to Average Net Assets 3.11% 6.24%
Portfolio Turnover Rate 38.44% 60.43%
Average Commission Rate Paid to Brokers $ 0.0032
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year.
See notes to financial statements.
<PAGE>
IMG MUTUAL FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONT.)
APRIL 30, 1996
The following presents information relating to an Institutional Share of Capital
Stock of the Fund outstanding for the period July 7, 1995 to April 30, 1996.
IMG CORE IMG
STOCK BOND
FUND FUND
- --------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 10.000 $ 10.000
Net Investment Income 0.284 0.486
Net Realized and Unrealized Gains on Investments 1.242 (0.254)
------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.526 0.232
------------------------
LESS
Distributions from Net Investment Income 0.155 0.440
Distributions from Net Realized Gains 0.000 0.007
------------------------
TOTAL DISTRIBUTIONS 0.155 0.447
------------------------
NET ASSET VALUE, END OF PERIOD $ 11.371 $ 9.785
========================
Total Return 15.25% 2.27%
Net Assets, End of Period $7,487,833 $4,362,650
Ratio of Expenses to Average Net Assets 0.85% 0.60%
Ratio of Net Investment Income to Average Net Assets 3.37% 6.40%
Portfolio Turnover Rate 38.44% 60.43%
Average Commission Rate Paid to Brokers $ 0.0032
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year.
See notes to financial statements.
<PAGE>
IMG MUTUTAL FUND, INC.
INDEPENDENT AUDITORS' REPORT
APRIL 30, 1996
The Shareholders and Board of Directors
IMG Mutual Fund, Inc.:
We have audited the statements of assets and liabilities for the year ended
April 30, 1996, including the schedules of investments of the IMG Core Stock
Fund and the IMG Bond Fund (series of IMG Mutual Funds, Inc.), and the related
statements of operations, the statements of changes in net assets, and financial
highlights for the period July 7, 1995 (commencement of operations) through
April 30, 1996. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit 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 and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Investment securities held in custody were confirmed to us by the custodian. As
to securities purchased and sold but not received or delivered, we requested
confirmations from brokers, and where replies are not received, we carryout
other appropriate auditing procedures. An audit includes assessing the
accounting principles 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 financial position of the
IMG Core Stock Fund and the IMG Bond Fund as of April 30, 1996, and the results
of their operations, the changes in their net assets, and the financial
highlights for the period July 7, 1995 through April 30, 1996, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Des Moines, Iowa
May 30, 1996
<PAGE>
IMG MUTUAL FUNDS, INC.
2203 GRAND AVENUE
DES MOINES, IA 50312-5338
515-244-5426 TOLL FREE: 1-800-798-1819
