November 1997
Dear Shareholders:
We are pleased to provide you with this unaudited Semi-Annual Financial Report
for the IMG Mutual Funds for the period ended October 31, 1997. Please remember
that historical performance information is provided since July 7, 1995. Many of
the Fund's investment relationships were begun prior to that formal
registration.
For the semi-annual period ended October 31, 1997, the IMG Core Stock Fund
captured over 85 percent of the market's 15 percent advance. The Fund's slight
underperformance primarily relates to a repositioning of the equity portfolio at
the beginning of the period to take advantage of changing markets.
The IMG Bond Fund's return was equal to the market for the period. As interest
rates remained relatively stable throughout the semi-annual period, there was
little opportunity to outperform.
Our investment strategy continues to be cautiously optimistic for both markets.
Our inflation outlook is positive, creating a strong longer-term performance
environment for both stocks and bonds. In the near term, performance may be a
bit more volatile as fairly valued markets react to the inevitable release of
some elements of negative information in the short run.
I invite you to review the investment commentary provided elsewhere in this
report by the respective portfolio managers. In closing, we appreciate your
support of and investment in the IMG Mutual Funds. If you have any additional
questions, please contact me personally.
Sincerely,
Mark A. McClurg
President, IMG Mutual Funds, Inc.
Senior Managing Director
Investors Management Group
<PAGE>
IMG CORE STOCK FUND
For the six-month period ended October 31, 1997, the IMG Core Stock Fund
increased in value with Institutional, Select and Advisor shares achieving total
returns of 13.06 percent, 12.93 percent, and 12.59 percent, respectively. For
the same period, the S&P 500 Index generated a total return of 15.16 percent.
Stock returns were robust during spring and early summer but became volatile
during late summer and early fall. Stocks suffered a pullback during August due
to renewed inflation fears sparked by stronger-than-expected U.S. economic
growth. After recovering most of the loss in September, stocks declined sharply
in October in response to dramatic stock market declines in Southeast Asia.
However, the strong gains achieved in the first half of the period easily offset
the declines that occurred during the second half, resulting in double-digit
gains for the full six-month period.
During the period, the U.S. stock market was led by financials, consumer
cyclicals, commercial services, energy, healthcare and technology. These sectors
benefited as investors rotated to cyclical industry groups in the belief that
the stronger-than-expected economic growth that emerged during the summer
offered the opportunity to buy increasing earnings growth at cheaper valuations.
Lagging sectors included basic materials, consumer staples, utilities, capital
goods and transportation. Large capitalization, economically defensive stocks
particularly underperformed during the summer due to profit warnings from
several high profile, multinational companies in response to lower revenues
caused by the strong U.S. dollar.
As you may recall, I rejoined Investors Management Group at the end of April.
Since that time, we have significantly repositioned the IMG Core Stock Fund. We
have broadened the diversification of the portfolio among a larger number of
stocks and industry groups, we have raised the beta of the portfolio so it will
participate more consistently in market advances, and we have increased the
portfolio's exposure to high-quality, large capitalization stocks that exhibit
consistent and reliable earnings growth. We strengthened the portfolio's stock
holdings by selling stocks with weaker business fundamentals and replacing them
with fundamentally stronger stocks that have a higher probability of meeting
earnings expectations over the long run. We also eliminated the portfolio's
exposure to electric utility stocks and significantly increased exposure to
technology and capital goods.
The Fund underperformed modestly during the six-month period, primarily because
cyclical and low quality stocks dramatically outperformed during the month of
July on signs of stronger-than-expected economic growth. We were underweighted
in cyclical stocks due to our belief that economic growth will remain moderate.
This was not the case in July and August when economic conditions became much
stronger than expected. However, the surge in cyclical stocks peaked in
September as the economy began to show signs of slowing. Likewise, the IMG Core
Stock Fund, which holds more noncyclical and higher quality stocks, has
outperformed the S&P 500 Index since the end of July. For the three-month period
ended October 31, 1997, Institutional, Select and Advisor shares declined 3.01
percent, 3.06 percent and 3.12 percent, respectively, versus a decline of 3.76
percent for the S&P 500 Index.
Going forward, our strategy will focus on companies that possess strong or
improving business fundamentals combined with earnings that are growing faster
than the broad stock market. We believe corporate earnings growth will slow in
1998 which should create opportunities for high-quality companies that exhibit
steady and predictable above-market growth rates to outperform. We favor
consumer staples, health care, and financials. We also favor technology but
believe it is important to be selective as some stocks in the group are fully
valued after strong price gains in July. Although recent events in Southeast
Asia have increased stock market volatility, our longer-term outlook for U.S.
stocks remains constructive. Most likely, the financial crisis in the Pacific
Rim will slow U.S. economic growth by less than one percent in 1998. While this
development has initially shaken the U.S. stock market, we do not believe the
slowdown will be enough to precipitate a bear market. The fundamentals of
moderate economic growth, stable interest rates, and low inflation, which have
been supporting the bull market for the last several years, are still in tact.
As always, we will continue to watch for signs that would suggest this positive
environment may be changing. Earnings growth is slowing but should be in the
upper single digit percentage range for 1998. This suggests that stock returns
will most likely continue to be positive but may be closer to the stock market's
long-run historical average return of approximately 10 percent.
We are pleased that the IMG Core Stock Fund now represents a well-diversified
portfolio of quality companies which possess strong business fundamentals.
During the last six months, the Fund's compartive returns with the S&P 500 Index
have increasingly become more competitive, particulary during the last three
months of the period when the Fund outperformed the S&P 500. We are confident
the portfolio is favorably positioned and believe the strengthening momentum of
the Fund will continue into 1998.
Thank you for your continued support and investment in the IMG Core Stock Fund.
JAMES T. RICHARDS
PORTFOLIO MANAGER
<PAGE>
IMG BOND FUND
For the six-month period ended October 31, 1997, the IMG Bond Fund increased in
value with Select and Institutional shares achieving total returns of 6.93
percent and 7.04 percent, respectively. Returns of both classes of shares were
near the Lehman Aggregate Bond Index return of 7.09 percent.
The combination of moderate growth and mild inflation has allowed bond yields to
decline by 0.75 percent during the last six months. Real GDP has exceeded 3.0
percent in each of the last four quarters. Inflation, meanwhile, has trended
lower, with core CPI up only 2.20 percent over last year.
The secular outlook for continued mild inflation is quite good. The
implementation of technology increases the efficiency of businesses. A global
marketplace creates greater price competition. More industries are being
deregulated. Policy officials around the globe are focused on inflation.
Cyclical pressures, however, are beginning to become evident. Expansions
typically end when the economy grows at an above-trend pace, pressuring
resources, fueling rising costs, reducing profit margins, and eventually leading
to inflation. Resource constraints and price pressures are beginning to emerge.
Industrial capacity utilization recently reached 84.40 percent and has been
slowly rising all year. The National Association of Purchasing Managers price
index has risen to 55.90 from 40 over the last eighteen months.
The primary resource constraint at present is the supply of labor. As the
unemployment rate has declined to below 5.0 percent, wages have begun to climb.
Average hourly earnings have risen 4.2 percent over the past year, nearly double
the rate of inflation.
Monetary growth has also been robust. M2 has grown at a 5.0 percent pace over
the last year, while M3 is growing over 8 percent. Inflation often climbs during
periods of excessive monetary growth.
Inflation has managed to stay benign in spite of tightening labor markets and
strong monetary growth due to a variety of offsetting factors. Of particular
significance is the rise in the U.S. dollar versus foreign currencies. A
strengthening dollar lowers the costs of import goods in dollar terms. Import
prices are down 4 percent over last year. The rise in the dollar has shaved 0.50
percent off the CPI.
The secular outlook for bond investors is positive, as the spread between
long-term interest rates and underlying inflationary trends is historically
significant. In the near term, however, cyclical pressures may push long-term
bond yields higher. Therefore, we have reduced the duration of the IMG Bond Fund
to neutral versus the Lehman Aggregate Bond Index.
Along the yield curve, the magnitude of near-term interest rate shifts may be
most pronounced on shorter maturities, since all fears of further Federal
Reserve rate hikes are currently priced out of the market. Three-month and
six-month Treasury bills yield less than federal funds. The two-year Treasury is
less than 1/4 percent above the federal funds rate, historically low in periods
when the Fed is in a tightening mode.
Corporate bond yield spreads were narrow during most of the period. Greater
concern about earnings near the end of October caused yield spreads to widen
slightly. We continue to utilize taxable municipal bonds as an alternative to
corporate bonds.
Yield spreads on mortgage-backed securities widened during the quarter.
Refinancing began to increase as mortgage rates fell below 7.50 percent. We took
advantage of this opportunity to increase exposure to this sector to near a
neutral weighting.
In summary, the secular outlook for bond investors is positive. The difference
between long-term interest rates and the underlying trend of inflation is
historically significant and secular forces are disinflationary. The near-term
outlook is more cautious due to cyclical economic pressures. Therefore, we have
reduced the duration of the portfolio to neutral versus the benchmark and
increased the weighting to mortgage-backed securities to near neutral.
KATHRYN D. BEYER, CFA JEFFREY D. LORENZEN, CFA
PORTFOLIO MANAGER PORTFOLIO MANAGER
<PAGE>
IMG MUTUAL FUNDS, INC.
MANAGEMENT TEAM
KATHRYN D. BEYER, CFA, MANAGING DIRECTOR-Ms. Beyer is a fixed income strategist.
Prior to joining IMG, she was the Director of Mortgage-Backed Securities for
Central Life Assurance Company with the responsibility of managing two
portfolios which comprised 20 percent of the company's assets. Prior to her
promotion, Kathy was a Senior Fixed Income Analyst. In this position, she
performed research and analysis of corporate bonds and mortgage-backed
securities and formulated specific investment strategies for the company's total
fixed income portfolio of $2 billion. She received her M.B.A. from Drake
University and her B.S. from Iowa State University. Kathy is a Chartered
Financial Analyst.
JEFFREY D. LORENZEN, CFA, MANAGING DIRECTOR-Mr. Lorenzen serves as a fixed
income strategist and portfolio manager for discretionary and nondiscretionary
fixed income portfolios. Prior to joining IMG, he served as a Senior Analyst for
The Statesman Group, responsible for the analytical and management functions
under both the corporate and mortgage-backed portfolios which totaled over $3
billion. Jeff received his M.B.A. degree from Drake University and his B.B.A.
degree from the University of Iowa. He is a Chartered Financial Analyst, and an
active member of the Association for Investment Management and Research, where
he serves as a CFA exam grader and a member of the Council of Examiners. He also
serves as the Vice President of the Iowa Society of Financial Analysts.
JAMES T. RICHARDS, MANAGING DIRECTOR-Mr. Richards is IMG's equity strategist. He
returned to IMG in 1997, after leaving the firm for one year to head the trust
investment division of Brenton Bank. At Brenton, he directed the investment
strategy for all discretionary assets under management which totaled over $500
million. James served as Managing Director - Equity Strategist for IMG from 1991
to 1995. He originally joined IMG to expand the firm's equity management effort.
Prior to IMG, he served as Managing Director - Equity Strategist for SCI Capital
Management, a Cedar Rapids, Iowa investment management firm. He received his
M.B.A. from the University of Iowa and his B.A. from Coe College.
<PAGE>
IMG CORE STOCK FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARE/
PAR VALUE DESCRIPTION VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (97.09%)
Utilities (4.71%)
4,000 Ameritech Corp. $ 260,000
4,174 Bell Atlantic Corp. 331,242
-----------
591,242
-----------
Financials (19.49%)
2,606 Aegon N.V. 207,176
7,300 Ambac, Inc. 308,425
1,300 American International Group 132,681
4,140 Banc One Corp. 215,798
4,600 Chubb Corp. 304,750
6,100 Freddie Mac 231,038
3,300 J.P. Morgan & Co. 362,175
4,600 Key Corporation 281,463
3,000 Nationsbank Corp. 179,625
6,000 Providian Financial Corp. 222,000
-----------
2,445,131
-----------
Consumer Staples (25.96%)
8,600 Abbott Laboratories 527,286
8,200 Albertson's, Inc. 302,375
2,700 American Home Products 200,138
4,700 Anheuser-Busch Co., Inc. 187,706
2,400 Baxter International, Inc. 111,000
3,300 Bristol-Myers Squibb Co. 289,575
5,800 Conagra, Inc. 174,725
1,800 Gillette Co. 160,313
3,500 Johnson & Johnson 200,813
2,500 Merck & Co., Inc. 223,125
7,100 Newell Company 272,463
3,700 Pepsico, Inc. 136,206
2,000 Procter & Gamble Co. 136,000
3,600 Sara Lee Corp. 184,050
2,700 Schering-Plough Corp. 151,369
-----------
3,257,144
-----------
Consumer Services (2.31%)
2,000 Walt Disney Co. 164,500
2,800 McDonald's Corp. 125,475
-----------
289,975
-----------
Consumer Cyclicals (7.49%)
4,500 Alliedsignal, Inc. 162,000
4,800 Brunswick Corp. 162,000
2,800 Corning, Inc. 126,350
9,900 Genuine Parts Co. 309,994
1,400 Goodyear Tire & Rubber Co. 87,675
1,650 Home Depot, Inc. 91,781
-----------
939,800
-----------
Technology (14.79%)
2,400 Adaptec, Inc. 116,250
1,800 Ascend Communications, Inc. 48,600
2,000 Grainger (W.W.), Inc. 174,874
2,700 Honeywell, Inc. 183,769
2,800 Intel Corp. 215,600
1,700 Microsoft Corp. 221,000
2,300 Minnesota Mining & Manufacturing Co. 210,450
1,700 Motorola, Inc. 104,975
3,750 Oracle Corporation 134,180
2,000 Parametric Technology Corp. 88,250
2,700 Pitney Bowes, Inc. 214,144
2,500 TRW, Inc. 143,125
-----------
1,855,217
-----------
Capital Goods (5.93%)
2,200 Emerson Electric Co. 115,363
5,500 General Electric 355,094
2,300 Illinois Tool Works 113,131
2,300 United Technologies Corp 161,000
-----------
744,588
-----------
Energy (5.34%)
1,500 Atlantic Richfield Co. 123,469
1,500 Chevron Corp. 124,406
4,300 Exxon Corp. 264,181
1,800 Schlumberger, LTD. 157,500
-----------
669,556
-----------
Basic Industries (11.07%)
5,500 Avery Dennison Corp. 218,968
4,200 Dupont (EI) De Nemours 238,875
4,300 Great Lakes Chemical 202,100
6,800 Kimberly-Clark Corp. 353,175
6,600 Sherwin Williams Co. 183,150
5,500 Sigma-Aldrich 193,188
-----------
1,389,456
-----------
Total Common Stocks 12,182,109
(Cost $10,557,984) -----------
CASH EQUIVALENTS (2.90%)
133,000 Emerson Electric Commercial Paper, 11/03/97 132,961
231,000 Merrill Lynch Commercial Paper, 11/03/97 230,927
-----------
Total Cash Equivalents 363,888
(Cost $363,831) -----------
TOTAL INVESTMENTS IN SECURITIES (99.99%)
(Cost $10,921,815) 12,545,997
-----------
Other Assets and Liabilities, Net (0.01%) 1,120
-----------
NET ASSETS 100.00% $12,547,117
===========
</TABLE>
Based on the cost of investments of $10,921,815 for federal income tax purposes
at October 31, 1997, the aggregate gross unrealized appreciation was $1,962,734,
the aggregate gross unrealized depreciation was $338,552, and the net unrealized
appreciation was $1,624,182.
See notes to financial statements.
<PAGE>
IMG BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARE/
PAR VALUE DESCRIPTION VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES (6.80%)
Government Agencies (1.30%)
20,000 FNMA Medium Term Note, 7.46%, 11/14/97 $ 20,011
62,500 Government Export Trust, 4.85%, 11/01/97 62,746
----------
82,757
----------
U.S. Treasury Bonds (3.94%)
225,000 U.S. T-Bond, 7.25%, 05/15/16 250,933
----------
U.S. Treasury Notes (1.56%)
100,000 U.S. Treasury Note, 5.13%, 12/31/98 99,474
----------
Total Government Securities 433,164
(Cost $412,839) ----------
CORPORATE BONDS (30.14%)
210,000 Analog Devices, 6.63%, 03/01/00 210,000
75,000 Citizens Utility Co., 6.80%, 08/15/26 77,063
75,000 Dayton Hudson, 10.00%, 12/01/00 82,687
205,000 GMAC, 8.88%, 06/01/10 243,438
130,000 Hubco, Inc., 7.75%, 01/15/04 134,550
75,000 Hydro-Quebec, 8.25%, 01/15/27 85,688
165,000 Lehman Brothers, 8.05%, 01/15/19 179,231
183,000 Manitoba, 7.75%, 07/17/16 204,045
225,000 Naples, City of, Italy, 7.52%, 07/15/06 234,522
185,000 Nova Scotia, 8.25%, 11/15/19 216,681
250,000 WMX Tech., 6.65%, 05/15/05 253,750
----------
Total Corporate Bonds 1,921,655
(Cost $1,856,310) ----------
TAXABLE MUNICIPAL BONDS (26.61%)
230,000 Berry Creek Met Dist, CO, 7.05%, 12/01/03 229,713
125,000 Cottonwood County, MN, 7.40%, 02/01/01 127,967
125,000 Fulton, MO Import Taxable, 7.60%, 07/01/11 131,875
70,000 IA Lakes Community College, 7.50%, 06/01/05 72,100
155,000 Manteca, CA Financial Authority, 6.63%, 09/15/99 156,550
155,000 New Orleans, LA Hsg. Dev., 8.00%, 12/01/03 159,069
65,991 Oregon Department of Transportation, 9.00%, 06/15/00 68,345
175,000 Portland, OR, 7.63%, 12/01/01 174,125
90,000 Prairie Du Chien, WI, Redevelopment Authority,
7.60%, 04/01/05 93,375
100,000 Prairie Du Chien, WI, Redevelopment Authority,
7.63%, 04/01/06 102,875
150,000 St. Paul, MN Port Authority, 6.65%, 09/01/99 151,688
50,000 Texas St. G.O. Taxable, 8.70%, 12/01/09 56,938
165,000 Washington St. Housing, 7.65%, 01/01/04 171,394
----------
Total Taxable Municpal Bonds 1,696,014
(Cost $1,647,322) ----------
MORTGAGE-BACKED SECURITIES (34.40%)
Collateralized Mortgage Obligations (14.39%)
61,172 Chase Mtge. Finance Corp, 5.75%, 04/25/09 60,739
13,097 FHLMC Series L Class 5, 7.90%, 05/01/01 13,481
100,000 FHLMC 1504 B, 7.00%, 12/15/22 98,312
11,282 FHLMC 91 Series 188 Class F, 7.50%, 05/15/20 11,254
150,000 FNMA G92-60 C, 7.00%, 02/25/21 152,216
94,872 FNMA G93-9 D, 6.00%, 04/25/13 94,550
50,000 FNMA 1991-137 G, 8.30%, 06/25/20 50,538
60,000 FNMA 1991-174 K, 7.00%, 04/25/06 60,506
12,356 Green Tree, 5.20%, 10/15/18 12,352
63,725 Housing Securities, Inc 1993-C C3, P/O, 9.06%, 05/25/08** 48,244
56,502 Housing Securities, Inc 1993-E E-14, P/O, 10.27%, 09/25/08** 42,427
35,653 Residential Funding Mtg. Sec I, Series 1993-S7,
Class A6, 7.15%, 02/25/08 35,757
19,149 Resolution Trust Corp. Series 1992-17 Class A1,
Variable Rate, 8.87%,12/25/20* 19,147
258,548 Salomon Mortgage Sec. VII 1995-1, P/O, 10.54%, 06/01/22** 180,146
37,000 Standard Credit Card Master Tr., 1995-6 A, 6.75%, 06/07/00 37,200
----------
916,869
----------
FHLMC Mortgage-Backed Pools (0.26%)
16,148 FHLMC #C00126, 8.50%, 06/01/22 16,843
----------
FNMA Mortgage-Backed Pools (3.15%)
200,000 FNMA #251286, 7.00%, 10/01/27 200,562
----------
GNMA Mortgage-Backed Pools (16.60%)
28,945 GNMA #315929, 9.00%, 06/15/22 30,871
49,554 GNMA #341681, 8.50%, 01/15/23 51,809
44,143 GNMA #354189, 7.50%, 05/01/23 45,106
87,267 GNMA #359600, 7.50%, 07/15/23 89,156
239,210 GNMA #376218, 7.50%, 08/15/25 244,540
186,264 GNMA #385300, 8.00%, 10/15/24 193,093
195,618 GNMA #410049, 8.00%, 07/15/25 202,805
200,000 GNMA #412334, 7.00%, 10/15/27 201,062
----------
1,058,442
----------
Total Mortgage-Backed Securities 2,192,716
(Cost $2,175,145) ----------
CASH EQUIVALENTS (6.74%)
Commercial Paper (6.73%)
100,000 Emerson Electric Commercial Paper, 11/03/97 99,969
329,000 Merrill Lynch Commercial Paper, 11/03/97 328,896
----------
428,865
----------
Money Market Mutual Funds (0.01%)
688 Norwest Cash Investment Fund, 5.27% 688
----------
Total Cash Equivalents 429,553
(Cost $429,485) ----------
TOTAL INVESTMENTS IN SECURITIES (104.69%)
(Cost $6,521,101) 6,673,102
----------
Other Assets and Liabilities, Net (-4.69%) (298,681)
----------
NET ASSETS 100.0% $6,374,421
==========
</TABLE>
*Denotes a floating rate investment with interest rate as of OCtober 31, 1997.
**Interest presented for zero coupon bond equates effective yield at date of
purchase.
Based on the cost of investment of $6,521,101 for federal income tax purposes at
October 31, 1997, the aggregate goss unrealized appreciation was $183,372, the
aggregate gross unrealized depreciation was $31,371, and the net unrealized
appreciation was $152,001.
See notes to financial statements.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
IMG CORE IMG
STOCK BOND
PORTFOLIO PORTFOLIO
ASSETS:
Investment in Securities at Value
(Cost $10,921,815; and $6,521,101 respectively) $12,545,997 $6,673,102
Dividends & Interest Receivable 12,369 104,905
Other Assets 0 1,255
----------- ----------
Total Assets 12,558,366 6,779,262
LIABILITIES:
Investment Securities Purchased 0 400,000
Accrued Operating Expenses and Other Liabilities 11,249 4,841
----------- ----------
Total Liabilities 11,249 404,841
----------- ----------
NET ASSETS $12,547,117 $6,374,421
=========== ==========
ANALYSIS OF NET ASSETS
Excess of amounts received from issuance of
shares over amounts
paid on redemption of shares $ 9,391,527 $6,155,671
Undistributed net realized gain 1,502,566 31,217
Unrealized appreciation 1,624,182 152,001
Undistributed net investment Income 28,842 35,532
----------- ----------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $12,547,117 $6,374,421
=========== ==========
PRICING OF ADVISOR SHARES
Net assets applicable to advisor shares outstanding $ 715,644 $ 0
=========== ==========
Shares outstanding, $.001 par value* 58,954 0
=========== ==========
Net asset value, offering price and redemption
price per Advisor Shares $ 12.139 $ 0.000
=========== ==========
PRICING OF SELECT SHARES
Net assets applicable to select shares outstanding $ 6,402,287 $3,000,295
=========== ==========
Shares outstanding, $.001 par value* 524,851 295,054
=========== ==========
Net asset value, offering price and redemption
price per Select Shares $ 12.198 $ 10.169
=========== ==========
PRICING OF INSTITUTIONAL SHARES
Net assets applicable to select shares outstanding $ 5,429,186 $3,374,126
=========== ==========
Shares outstanding, $.001 par value* 444,736 331,756
=========== ==========
Net asset value, offering price and redemption
price per Institutional Shares $ 12.208 $ 10.171
=========== ==========
* Shares outstanding reflect rounding to the nearest whole share.
See notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 31, 1997
IMG CORE IMG
STOCK FUND BOND FUND
PORTFOLIO PORTFOLIO
INCOME:
Interest Income $ 8,181 $ 243,970
Dividend Income 133,720 0
---------- ---------
Total Income 141,901 243,970
---------- ---------
EXPENSES:
Advisory Fees-IMG 33,894 10,351
Administration Fee 13,777 4,252
Distribution Fee - Advisor 1,324 0
Distribution Fee - Select 4,916 2,405
Fund Accounting/Custody Fee 6,779 3,450
Transfer Agent Fee 3,390 1,726
Other Expenses 6,779 3,450
---------- ---------
Total Expenses 70,859 25,633
---------- ---------
NET INVESTMENT INCOME 71,042 218,336
---------- ---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on Investments 1,283,762 3,616
Net Change in Unrealized Appreciation 374,773 243,923
---------- ---------
NET GAIN ON INVESTMENTS 1,658,535 247,539
---------- ---------
NET INCREASE IN NET ASSETS FROM OPERATIONS $1,729,577 $ 465,875
========== =========
See notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
IMG CORE IMG
STOCK FUND BOND FUND
PORTFOLIO PORTFOLIO
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income $ 71,042 $ 303,034 $ 218,336 $ 251,493
Net Realized Gain (Loss) on Investments 1,283,762 729,676 3,616 ($45,666)
Net Change in Unrealized Appreciation 374,773 (440,747) 243,923 223,964
-----------------------------------------------------
Net Increase in Net Assets from Operations 1,729,577 591,963 465,875 429,791
-----------------------------------------------------
DISTRIBUTIONS:
Dividend Distributions Paid
Advisor Shares 5,175 9,258 0 0
Select Shares 59,737 105,570 100,406 114,567
Institutional Shares 77,705 151,805 121,670 136,931
Capital Gain Distribution Paid
Advisor Shares 0 0 0 0
Select Shares 0 0 0 0
Institutional Shares 0 0 0 0
-----------------------------------------------------
Total Distributions 142,617 266,633 222,076 251,498
-----------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Sales- Advisor Shares 83,159 0 0 0
Select Shares 343,225 287,728 138,471 318,564
Institutional Shares 153,880 139,792 274,942 101,665
Reinvestments- Advisor Shares 5,175 9,258 0 0
Select Shares 58,932 105,570 92,079 114,567
Institutional Shares 72,048 147,433 112,189 118,066
Exchanges- Advisor Shares 0 0 0 0
Select Shares 141,057 (20,000) (116,169) 20,000
Institutional Shares (103,323) 0 78,435 0
Redemptions- Advisor Shares 0 0 0 0
Select Shares (587,516) (510,906) (426,787) (218,728)
Institutional Shares (2,730,435) (168,361) (1,582,806) (552,450)
-----------------------------------------------------
Increase (Decrease) in Net Assets from
Capital Share Transactions (2,563,800) (9,486) (1,429,646) (98,316)
-----------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (976,840) 315,844 (1,185,847) 79,977
NET ASSETS:
Beginning of Period 13,523,957 14,340,080 7,560,268 8,004,572
----------------------------------------------------
End of Period $12,547,117 $14,655,924 $6,374,421 $8,084,549
====================================================
Undistributed net investment income at end of period $ 28,842 $ 197,215 $ 35,532 $ 45,443
====================================================
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
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 5,000
shares of each series 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 the IMG Private
Investment Trusts (the "Trusts"). 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 the 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. Advisor Shares 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 valued 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 semiannual 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
its income to shareholders in amounts that will avoid or minimize federal
income or excise taxes for the funds. 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 distribtuions, 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 will also act as fund accountant, transfer agent, and dividend paying
agent for the Funds, and maintain shareholder records. Fees for such
services will total 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; custodian fees;
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
May 1, 1997 through October 31, 1997, are as follows:
IMG CORE IMG BOND
STOCK PORTFOLIO PORTFOLIO
--------------- ---------
Purchases $7,227,469 1,482,235
Proceeds from sales $9,935,664 3,003,732
4. CAPITAL SHARE TRANSACTIONS
SHARE ACTIVITY
The following table summarizes the activity in each class of capital share
of the Funds:
<TABLE>
<CAPTION>
IMG Core IMG
Stock Fund Bond Fund
1997 1996 1997 1996
<S> <C> <C> <C> <C>
ADVISOR SHARES
For the years ended October 31, 1997 and 1996:
Shares sold 6,767 0 0 0
Shares issued in reinvestment of dividends 438 821 0 0
Share class exchanges 0 0 0 0
Shares redeemed 0 0 0 0
---------------------------------------------
Net increase from capital share transactions 7,205 821 0 0
=============================================
SELECT SHARES
For the years ended October 31, 1997 and 1996:
Shares sold 28,867 42,864 13,886 33,895
Shares issued in reinvestment of dividends 4,978 9,349 9,247 3,739
Share class exchanges 10,598 (1,776) (11,506) 0
Shares redeemed (48,400) (61,592) (42,416) (26,879)
---------------------------------------------
Net increase from capital share transactions (3,957) (11,155) (30,789) 10,755
=============================================
INSTITUTIONAL SHARES
For the years ended October 31, 1997 and 1996:
Shares sold 12,552 28,792 27,507 67,894
Shares issued in reinvestment of dividends 6,086 13,060 26,609 4,538
Share class exchanges (7,549) 0 (7,561) 0
Shares redeemed (225,592) (31,942) (158,593) (2,000)
---------------------------------------------
Net increase from capital share transactions (214,503) 9,910 (112,038) 70,432
=============================================
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
The following presents information relating to an Advisor Share of Capital Stock
of the Fund outstanding for the entire period.
<TABLE>
<CAPTION>
IMG CORE IMG
STOCK FUND BOND FUND
1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD* $ 10.873 $ 11.341 $ 0.000 $ 0.000 $ 0.000 $ 0.000
-----------------------------------------------------------------------
Net Investment Income 0.045 0.218 0.000 0.000 0.000 0.000
Net Realized and Unrealized Gains
on Investments 1.321 0.227 0.000 0.000 0.000 0.000
-----------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.366 0.445 0.000 0.000 0.000 0.000
-----------------------------------------------------------------------
LESS:
Distributions from
Net Investment Income 0.100 0.000 0.000 0.000 0.000 0.000
Distributions from
Net Realized Gains 0.000 0.200 0.000 0.000 0.000 0.000
-----------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.100 0.200 0.000 0.000 0.000 0.000
-----------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.139 $ 11.586 $ 0.000 $ 0.000 $ 0.000 $ 0.000
=======================================================================
Total Return 12.59% 3.97% 0.00% 0.00% 0.00% 0.00%
Net Assets, End of Period $ 715,644 $ 545,851 $ 0 $ 0 $ 0 $ 0
Ratio of Expenses
to Average Net Assets 1.40% 1.35% 0.00% 0.00% 0.00% 0.00%
Ratio of Net Investment Income
to Average Net Assets 0.61% 3.84% 0.00% 0.00% 0.00% 0.00%
Portfolio Turnover Rate 55.90% 18.77% 0.00% 0.00% 0.00% 0.00%
Average Commission Paid
to Broker $ .0608 $ .1005
</TABLE>
*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.
<PAGE>
FINANCIAL HIGHLIGHTS
The following presents information relating to an Investor Share of Capital
Stock of the Fund outstanding for the entire period.
<TABLE>
<CAPTION>
IMG CORE IMG
STOCK FUND BOND FUND
1997 1996 1995* 1997 1996 1995*
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 0.000 $ 0.000 $ 10.000 $ 0.000 $ 0.000 $ 10.000
-----------------------------------------------------------------------
Net Investment Income 0.000 0.000 0.048 0.000 0.000 0.213
Net Realized and Unrealized Gains
on Investments 0.000 0.000 0.694 0.000 0.000 0.047
-----------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.000 0.000 0.742 0.000 0.000 0.260
-----------------------------------------------------------------------
LESS:
Distributions from
Net Investment Income 0.000 0.000 0.000 0.000 0.000 0.149
Distributions from
Net Realized Gains 0.000 0.000 0.000 0.000 0.000 0.000
-----------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.000 0.000 0.000 0.000 0.000 0.149
-----------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD** $ 0.000 $ 0.000 $ 10.742 $ 0.000 $ 0.000 $ 10.111
=======================================================================
Total Return 0.00% 0.00% 7.42% 0.00% 0.00% 2.62%
Net Assets, End of Period $ 0 $ 0 $ 724,594 $ 0 $ 0 $130,714
Ratio of Expenses
to Average Net Assets 0.00% 0.00% 1.35% 0.00% 0.00% 1.00%
Ratio of Net Investment Income
to Average Net Assets 0.00% 0.00% 5.34% 0.00% 0.00% 6.56%
Portfolio Turnover Rate 0.00% 0.00% 7.21% 0.00% 0.00% 10.82%
Average Commission Paid
to Broker $ .0940
</TABLE>
* From inception of the Fund July 7, 1995
**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.
<PAGE>
FINANCIAL HIGHLIGHTS
The following presents information relating to an Select Share of Capital Stock
of the Fund outstanding for the entire period.
<TABLE>
<CAPTION>
IMG CORE IMG
STOCK FUND BOND FUND
1997 1996 1995* 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.905 $ 11.359 $ 10.000 $ 9.822 $ 9.782 $ 10.000
------------------------------------------------------------------------
Net Investment Income 0.055 0.244 0.088 0.332 0.308 0.213
Net Realized and Unrealized Gains
on Investments 1.351 0.216 0.662 0.340 0.222 0.054
------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.406 0.460 0.750 0.671 0.530 0.267
------------------------------------------------------------------------
LESS:
Distributions from
Net Investment Income 0.113 0.203 0.000 0.325 0.309 0.154
Distributions from
Net Realized Gains 0.000 0.000 0.000 0.000 0.000 0.000
------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.113 0.203 0.000 0.325 0.309 0.154
------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.198 $ 11.616 $ 10.750 $ 10.169 $ 10.003 $ 10.113
========================================================================
Total Return 12.93% 4.10% 7.50% 6.93% 5.52% 7.50%
Net Assets, End of Period $6,402,287 $6,340,774 $7,043,735 $3,000,295 $3,968,829 $2,470,119
Ratio of Expenses
to Average Net Assets 1.15% 1.11% 1.10% 0.85% 0.81% 0.81%
Ratio of Net Investment Income
to Average Net Assets 0.88% 4.09% 2.85% 6.23% 6.15% 6.71%
Portfolio Turnover Rate 55.90% 18.77% 7.21% 23.29% 29.62% 10.82%
Average Commission Paid
to Broker $ .0608 $ .1005 $ .0940
</TABLE>
* From inception of the Fund July 7, 1995.
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year.
<PAGE>
FINANCIAL HIGHLIGHTS
The following presents information relating to an Institutional Share of Capital
Stock of the Fund outstanding for the entire period.
<TABLE>
<CAPTION>
IMG CORE IMG
STOCK FUND BOND FUND
1997 1996 1995* 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.913 $ 11.371 $ 10.000 $ 9.824 $ 9.785 $ 10.000
--------------------------------------------------------------------------
Net Investment Income 0.078 0.242 0.099 0.335 0.320 0.212
Net Realized and Unrealized Gains
on Investments 1.343 0.232 0.660 0.347 0.219 0.061
--------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.421 0.474 0.759 0.682 0.539 0.273
--------------------------------------------------------------------------
LESS:
Distributions from
Net Investment Income 0.126 0.222 0.000 0.335 0.319 0.158
Distributions from
Net Realized Gains 0.000 0.000 0.000 0.000 0.000 0.000
--------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.126 0.222 0.000 0.335 0.319 0.158
--------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.208 $ 11.616 $ 10.750 $ 10.171 $ 10.003 $ 10.115
==========================================================================
Total Return 13.06% 4.23% 7.59% 7.04% 5.63% 2.76%
Net Assets, End of Period $5,429,186 $7,769,299 $4,516,123 $3,374,126 $4,115,729 $2,934,939
Ratio of Expenses
to Average Net Assets 0.90% 0.86% 0.85% 0.65% 0.61% 0.60%
Ratio of Net Investment Income
to Average Net Assets 1.26% 4.43% 3.11% 6.42% 6.35% 6.83%
Portfolio Turnover Rate 55.90% 18.77% 7.21% 23.29% 29.62% 10.82%
Average Commission Paid
to Broker $ .0608 $ .1005 $ .0940
</TABLE>
* From inception of the Fund July 7, 1995.
Note for all Portfolios: Ratios have been determined on an annualized basis.
Total return is not annualized for periods less than a full year.
