<PAGE>
FIXED INCOME FUNDS
SEMI-ANNUAL REPORT
IAI Bond Fund, IAI Government Fund,
IAI Minnesota Tax Free Fund
MAY 31, 1995
(unaudited)
[IAI LOGO]
Mutual Funds
<PAGE>
[WORLD MAP ART]
<PAGE>
TABLE OF CONTENTS
-----------------
IAI Bond Fund, IAI Government Fund, IAI Minnesota Tax Free Fund
Semi-Annual Report
May 31, 1995
<TABLE>
<S> <C>
Chairman's Letter...........................................2
Managers' Reviews
IAI Bond Fund..............................................6
IAI Government Fund........................................8
IAI Minnesota Tax Free Fund...............................10
Fund Portfolios
IAI Bond Fund.............................................12
IAI Government Fund.......................................16
IAI Minnesota Tax Free Fund...............................19
Notes to Fund Portfolios...................................21
Statements of Assets and Liabilities.......................22
Statements of Operations...................................24
Statements of Changes in Net Assets........................26
Financial Highlights
IAI Bond Fund.............................................28
IAI Government Fund.......................................29
IAI Minnesota Tax Free Fund...............................30
Notes to Financial Statements..............................31
IAI Mutual Fund Family.....................................36
Distributor, Adviser, Custodian,
Legal Counsel, Independent Auditors,
Directors...................................Inside Back Cover
</TABLE>
<PAGE>
CHAIRMAN'S LETTER
-----------------
IAI Bond Fund, IAI Government Fund, IAI Minnesota Tax Free Fund
[PHOTO OF NOEL P. RAHN]
NOEL P. RAHN,
Chairman
Since the early 1980s, there have been some major secular trends that have made
investment planning more important, not only for the wealthy but also for the
broad middle class. Increasingly, American families are being squeezed between
saving for their own retirement, their children's education, and for their aging
parents. And, the country is in the middle of a historic transfer of wealth
between generations which also requires careful planning.
For the last few years, three primary secular trends have been driving economic
growth--demographics, globalization, and the de-leveraging of the economy. The
aging of America has led to a shift from consumption to savings. Globalization
has resulted in more international trade and foreign investment. And, companies
and consumers have been paying off debt incurred in the 1980s.
Until recently, all of these mega-trends have overshadowed the traditional
economic credit cycle and favored financial assets. As a result, the Federal
Reserve Board (the Fed) was able to add liquidity and lower short term interest
rates far more than most investors expected. However, near the end of 1994,
these conditions began to recede and a more familiar cyclical pattern emerged.
Now, the traditional cyclical forces of a mature economic recovery have returned
to dominate business activity. The real goods part of the economy remains
strong as measured by industrial production which is running near full capacity.
Labor markets are strengthening and there are signs of rising unit labor costs
and the specter of higher inflation.
Monetary policy is restrictive, and historically once the Fed has started
tightening, they usually do not stop until the end of the economic cycle. Total
reserve growth has declined indicating negative prospects for interest rates,
both long- and short-term. Ultimately, the economy could slip into a recession
as it typically has at the end of past economic cycles, or it could muddle
through a growth recession with positive, but very low growth rates.
While there is short-term risk in the bond market, the major secular trends
favor bonds over the long run. Even after the bond market rally during the first
half of this year, bond yields remain attractive. Compared with the current rate
of inflation, bonds still provide relatively high real rates of return. Compared
with equities, bond yields are much higher than stock yields which are at
historic lows.
2
<PAGE>
CHAIRMAN'S LETTER
-----------------
IAI Bond Fund, IAI Government Fund, IAI Minnesota Tax Free Fund
Economic Outlook
Larry Hill, IAI's Chief Investment Officer, provides his economic outlook below,
as published recently in the Adviser.
Outlook
The myth of an economic soft landing is an attractive idea--growth strong enough
to create new jobs and keep the economy moving forward, and yet slow enough to
prevent inflationary pressures from building. Unfortunately, business cycles
have not been eliminated, and even when a soft landing seems imminent, it is
usually just a temporary phase before moving in one of two different directions.
When the economy pauses, as it has recently in what looks like a soft landing,
it is usually just a temporary phase of continuing growth or slowdown. The key
to which way the economy goes after the pause lies with interest rates. Rising
interest rates lead to slower economic growth, and a recession can follow. On
the other hand, when interest rates fall, as they have recently, there is still
plenty of financial capacity for the economy to grow. Generally, this type of
pause is followed by a reacceleration of economic growth. We expect the
reacceleration to occur in the second half of 1995.
While there are several factors influencing whether, and how much, interest
rates rise or fall, two are key--growth and inflation.
While we anticipate an acceleration of growth, we are not looking for a robust
burst of economic activity. The fourth quarter of 1994 was much stronger than
the long-term trend, and typically when that happens, succeeding quarters are
slower. First quarter 1995 real GDP growth was only 2.7%, and the second quarter
is likely to be weaker. Looking at the second half of the year, we anticipate a
recovery to about 3% growth in real GDP. With this increase in growth, we expect
rising credit demands, and upward pressure on interest rates.
Inflationary pressures will also increase in the second half of 1995. Price
increases have entered the economic pipeline at the producers' end, but have not
yet flowed into the retail market. Consumers are very price conscious and
businesses have cut costs to compete. However, at some point they will not be
able to cut further, and they will be forced to pass along their higher costs.
The year-over-year increase in the Consumer Price Index has already established
a clear up trend, rising by 3.1% over the last 12 months. We anticipate as much
as a 3.5%-4% increase in inflation on consumer prices which is higher than the
consensus expectation of approximately 3%.
3
<PAGE>
CHAIRMAN'S LETTER
-----------------
IAI Bond Fund, IAI Government Fund, IAI Tax Free Fund
In addition to growth and inflation, several other factors earlier this year
will influence interest rates in the months ahead. The moves in the U.S.
Congress to cut expenditures and balance the budget are gathering momentum, and
that has helped the U.S. bond market. However, the failure of the balanced
budget amendment sparked a substantial decline in the value of the U.S. dollar.
Ironically, this decline helped the U.S. bond market.
As the dollar declined, compared with major currencies, foreign central banks
became large buyers of U.S. bonds in their dollar-support effort which helped
fuel the recent rally in the bond market. However, foreign governments are not
economic buyers, and if the dollar stabilizes or strengthens, they could become
large sellers which could adversely impact U.S. bond prices. Furthermore, cash
flows into bond mutual funds have been a negative for bonds indicating
continuing weak demand from individual investors.
Both bonds and stocks have recently been appreciating together which is very
unusual for this latter stage of the cycle. This kind of market behavior is more
typical of the period immediately following a recession, when the Federal
Reserve Board (the Fed) is lowering interest rates and profit growth is
accelerating. The stock market, like the bond market, is also overextended, and
there is a cyclical risk of a relatively strong pullback which could be
triggered by the fear of decelerating earnings.
The larger economic picture is still very positive for financial assets and
should continue over the long term. However, economic cycles still dominate
financial markets, and the current cycle has not yet ended.
We do not anticipate a recession this year. Typically, rates rise into a
recession, and they have been declining during the first half of the year. Those
lower rates will fuel a new burst of economic activity and higher consumer
prices, both of which will put upward pressure on interest rates.
Thus, we are cautious on both bonds and stocks for the second half of this year.
The equity market appears to be more overextended than the bond market, although
both are running well above their average total return trends. We believe the
high rates of return earned in the first half are not sustainable for the full
year.
The Fed has been holding short-term rates steady; however, higher growth and
inflation will begin to
4
<PAGE>
CHAIRMAN'S LETTER
-----------------
IAI Bond Fund, IAI Government Fund, IAI Tax Free Fund
push market interest rates up. We believe the Fed is falling behind the trend
toward higher prices, and will be forced to raise interest rates again as the
inflation rate increases later this year.
Strategically, we would remain cautious now, and average in new investments on
significant pullbacks. The conservative investment virtues of patience and
discipline are those most likely to be rewarded during the remainder of the
year.
Please read the Fund Manager's Review, which follows this letter, for a detailed
perspective on the Funds' performance and our strategy going forward. We
appreciate your continued trust and confidence in IAI. If there is any way we
can serve you better, please let us know by calling our toll-free Investor
Services Hotline at 1-800-945-3863.
Sincerely,
/s/ Noel P. Rahn
Noel P. Rahn
Chairman
5
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI Bond Fund
IAI Bond Fund
[PHOTO OF LARRY R. HILL, CFA]
LARRY R. HILL, CFA
IAI Bond Fund Manager
"The Fund's average-annual return has been 9.53% over the past 17 years."
Fund Objective
The IAI Bond Fund's objective is to provide a high level of current income
consistent with capital preservation. This objective is pursued by investing in
a diversified portfolio of high quality bonds. The Fund invests primarily in
investment-grade bonds and other debt securities of similar high quality. The
Fund invests in a variety of maturities and sectors which are varied depending
on relative values in the marketplace at a given point in time.
Fund Positioning for
the Past Six Months
Since last November, interest rates have declined and bond prices have
appreciated. The total return for the IAI Bond Fund has been 10.85% over the
past six months.
There have been four primary factors driving the bond market higher. First,
there are numerous signs that economic growth has slowed from above to below the
average long-term trend rate of approximately 3%. Slower growth favors bonds
because it reduces the likelihood of rising interest rates. Second, inflation
has remained relatively stable at a below 3% level. This also favors bonds
because lower inflation helps preserve the purchasing power of fixed-income
assets. As these factors have helped push bond prices up, trend-following
investors have become buyers and provided additional support to the market. And
finally, foreign central banks have become major buyers of U.S. debt which has
also fueled demand and raised bond prices.
Strategically, our view remains that we are in the latter stages of the credit
cycle which has historically been a risky phase for fixed income investments.
Thus, the IAI Bond Fund has been conservatively positioned relative to the broad
market. The effective duration of the Fund is currently at 3.91 years compared
with 4.64 years for the Salomon Broad Investment Grade Bond Index. ("SBIGB
Index").
With our shorter duration, we have emphasized market sector strategies to invest
for better relative value and higher yield. This has enabled the Fund to earn
near market returns in a rising market, when its shorter duration would
otherwise cause it to underperform more significantly.
The two best contributors to the Fund's performance in the past six months have
been high yield corporate bonds which have comprised 5% of the portfolio and
foreign bonds which have comprised 12%. Most of the currency risk has been
hedged out of the foreign bond holdings and our currency risk is now
approximately 3%.
We continue to emphasize short-term asset-backed issues to increase yield on our
short-term holdings. The Fund is currently overweighted in higher yielding
asset-backed, foreign, and high-yield corporate bonds as compared with the SBIGB
Index, and underweighted in Treasury bonds and mortgage pass-throughs. Fund
credit quality is very high with more than 85% of the holdings in the portfolio
rated AAA or better.
Fund Positioning Going Forward
None of the four forces which have driven bond prices higher this year are
sustainable. We expect the economy to reaccelerate in the second half of the
year, in large part due to the lower interest rates experienced in the first
half. We expect inflation to increase due to faster economic growth and high
levels of capacity utilization. Higher inflation has already impacted raw
materials and we expect more of these increases will be passed on to consumers.
With regard to investor demand for bonds, if the U.S. dollar stabilizes or
strengthens, foreign central banks will reduce their purchases and perhaps
become net sellers of U.S. securities. This would put pressure on bond prices
which would only be exacerbated by continuing negative cash flows from bond
mutual funds and selling by momentum investors in a declining market.
The IAI Bond Fund remains conservatively positioned with a shorter-than-market
duration which will help the Fund outperform the broad market if interest rates
rise, as we expect they will. We are maintaining modest cash reserves to
capitalize on new opportunities as rates move higher.
6
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI Bond Fund
<TABLE>
<CAPTION>
Value Of $10,000 Investment
- ---------------------------
6/01/85 3/86 3/87 3/88 3/89 3/90 3/91 3/92 3/93 3/94 11/94 5/31/95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IAI Bond Fund $10,000 $24,418
Lehman Aggregate Bond Index $10,000 $26,046
(Inception 8/18/77)
</TABLE>
Past performance is not predictive of future performance.
Average Annual Returns+
Through 5/31/95
<TABLE>
<CAPTION>
Six Months** 1 year 5 Years 10 Years
===============================================================================
<S> <C> <C> <C> <C>
IAI Bond Fund 10.85% 9.94% 9.78% 9.34%
...............................................................................
Lehman Aggregate Bond Index 11.40% 10.63% 9.60% 10.05%
</TABLE>
+ Past performance is not predictive of future performance
. As of 9/1/77
.. Not annualized
Sectors
% of Portfolio as of 5/31/95
Commercial Paper 4%
Corporate 23%
Non-U.S. Dollar 11%
Short-Term 1%
Mortgage Pass-Through 34%
Preferred Stock 3%
U.S. Government 15%
Asset Backed 9%
Effective Maturity
% of Portfolio as of 5/31/95
Years
- ----------------------------
0-3 19%
3-10 55%
10-20 11%
20+ 15%
Credit Rating
% of Portfolio as of 5/31/95
U.S
Government.............. 54%
AAA..................... 19%
AA...................... 3%
A....................... 14%
BBB..................... 5%
Non-Investment Grade.... 5%
7
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI Government Fund
IAI Government Fund
[PHOTO OF SCOTT A. BETTIN, CFA]
SCOTT A. BETTIN, CFA
IAI Government Fund
Manager
"The recent backup in interest rates is most likely a cyclical correction in a
secular bull market."
Fund Objective
The Fund seeks to provide shareholders with a high level of current income with
preservation of capital. The Fund invests primarily in U.S. Government
Securities with a dollar-weighted average maturity of five years or less.
Fund Positioning for the
Past Six Months
Since November, 1994, interest rates have declined and bond prices have risen.
The total return for the IAI Government Fund over the past six months is 6.58%.
Several factors have driven the bond market higher. First, economic growth has
slowed from above to below the average long-term trend rate of approximately 3%.
Slower growth favors bonds because it reduces the likelihood of higher interest
rates. Second, inflation has remained relatively stable at a below 3% level.
This also favors bonds because lower inflation helps preserve the purchasing
power of fixed-income assets. In addition, demand has increased as bond prices
have risen. Trend-following investors and foreign central banks have become
major buyers of U.S. debt and that has fueled this year's rapid price
appreciation.
Strategically, we continue to believe that we are in the latter stages of the
credit cycle which has historically been a risky phase for fixed income
investments. Thus, the IAI Government Fund remains conservatively positioned
compared to the broad market. The effective duration of the Fund is currently at
2.5 years compared with 3.7 years for the Salomon Brothers Government Mortgage-
Backed Index.
Strategically, we have balanced the Fund's shorter duration with market sector
selection to provide higher yield. This has enabled the Fund to earn near market
returns in a rising market, and still provide some protection against a
declining market.
Our current portfolio is overweighted in higher yielding mortgage passthrough
securities, relative to the Salomon Government Mortgage Bond Index, and
underweighted in Treasury bonds. The credit quality of the Fund is better than
AAA, with approximately 60% of the portfolio allocated to agency securities and
40% to government securities. The Fund does not hold any collateralized mortgage
obligations (CMOs) or derivatives.
Fund Positioning
Going Forward
Long-term, we remain positive in our outlook for bonds, however , we are
currently very cautious. We believe all of the major forces which have driven
prices higher this year are not sustainable. We expect the economy to
reaccelerate in the second half of the year, in large part due to the lower
interest rates we have experienced in the first half. We expect inflation to
increase due to faster economic growth and high levels of capacity utilization.
Higher inflation has already impacted raw materials and we expect more of these
increases will be passed on to consumers.
With regard to investor demand for bonds, if the U.S. dollar stabilizes or
strengthens, foreign central banks will reduce their purchases and become
sellers of U.S. securities. This could cause bond prices to decline which could
become exaggerated by continuing negative cash flows from bond mutual funds and
net selling by momentum investors.
The coupon yield curve will flatten at higher levels, and eventually invert,
with short-term rates rising above long-term rates. Recent bond market strength
will diminish as a stronger economy and a weaker dollar resume their trends and
interest rates will rise.
The IAI Government Fund is conservatively structured with a shorter-than-market
duration which will help protect principal during any broad market declines.
Should interest rates rise later this year, as we expect, the Fund is well
positioned to provide better performance than the benchmark Salomon Brothers
Government Mortgage Backed Index.
8
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI Government Fund
<TABLE>
<CAPTION>
8/08/91 3/92 3/93 3/94 11/94 5/31/95
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IAI Government Fund $10,000 $13,068
(Inception 8/08/91)
Salomon Brothers
Intermediate Treasury/
Agency/Mortgage-
Backed Index $ 8,000 $12,801
</TABLE>
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
Average Annual Returns+
Through 5/31/95
Since Inception
Six Months** 1 Year 8/08/91
===============================================================================
<S> <C> <C> <C>
IAI Government Fund 6.58% 7.13% 6.70%
...............................................................................
Salomon Brothers Intermediate
Treasury/Agency/Mortgage-Backed Index 9.69% 10.02% 7.40%*
</TABLE>
+ Past performance is not predictive of future performance
. As of 9/1/91
.. Not Annualized
Sectors
% of Portfolio as of 5/31/95
Short-Term 23%
U.S. Government 20%
U.S. Government Agency Mortgage-Backed 57%
Effective Maturity
% of Portfolio as of 5/31/95
Years
- --------------------------------------------------
0-1 30%
1-3 15%
3-5 6%
5-10 42%
10+ 7%
9
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI Minnesota Tax Free Fund
(Formerly IAI Tax Free Fund)
IAI Minnesota Tax Free Fund
[PHOTO]
Steven C. Coleman, CFA
IAI Minnesota Tax Free
(formerly IAI Tax Free Fund)
Fund Manager
"Tax-free bonds
offer unusually
good values at
current prices."
Fund Objective
The objective of the IAI Minnesota Tax Free Fund (formerly IAI Tax Free Fund) is
to provide shareholders with as high a level of current income exempt from
federal income tax as is consistent with the preservation of capital. The Fund
will seek to achieve this goal by investing primarily in high quality investment
grade municipal bonds from Minnesota issuers-bonds rated BBB or better by
Standard & Poor's or Baa or better by Moody's.
Fund Positioning for the
Past Six Months
Since November of last year, interest rates have declined and bond prices have
advanced. The IAI Minnesota Tax Free Fund has earned a total return of 9.14%
over the last six months.
We remain cautious on the bond market because we expect both short and long-term
interest rates to increase as the economic expansion, which has slowed in the
first half of the year, resumes in the second half. In addition to higher
interest rates, we also expect reaccelerating economic growth to put upward
pressure on inflation as higher raw material prices and high capacity
utilization combine to raise consumer prices.
The transition of the Fund, last November and December, from a national tax-free
fund to the current federal and Minnesota tax-free fund occurred during a
difficult time for the municipal bond market. There was a sell-off in the muni
market related to year-end tax-loss selling. It was unusually pronounced due to
prior year gains being reversed in 1994, and depressed the municipal market.
At the same time, there was a short supply of Minnesota municipal issues to buy.
Due to these factors and our conservative position, the Fund has underperformed
this year compared with a universe of other Minnesota tax-free funds.
The average weighted maturity of the Fund is shorter than the average of
competitive funds. This reflects our conservative view of protecting principal
against the rising interest rates we expect in the second half of the year. The
average credit quality of the Fund is AAA.
Included in the portfolio are a number of pre-refunded issues, which will be
redeemed in January of next year, and a floating rate issue. These holdings have
very short effective durations which tend to underperform the broader market in
a strong rally such as the one we have experienced in the last six months.
During this period there has also been serious discussions regarding tax issues
in both the state assembly and the federal congress which would put the
municipal market at a disadvantage, on a relative basis. However, none of this
proposed legislation appears likely to pass this year.
Fund Positioning Going
Forward
Our overall outlook hasn't changed. The only thing that has changed is the
absolute level of interest rates which are currently well below where we
projected them to be at this stage. However, we still believe that the expansion
phase of the business cycle remains in place. The yield curve still has a
positive slope. Consumer sentiment remains high, and credit is readily
available. After a short pause to re-balance inventories, we expect the economy
to revive in the second half of the year leading to some upward pressure on
interest rates.
This summer, the municipal market will experience significant cash flows from
the high level of bond redemptions taking place in June and July. These cash
flows, combined with the payment of coupons during the same period, will provide
support for the municipal market over the near term.
10
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI Minnesota Tax Free Fund
Value of $10,000 Investment
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
---------------------------------------------------------
4/06/92 3/93 3/94 11/94 5/31/95
<S> <C> <C> <C> <C> <C>
IAI Tax Free Fund
(Inception 4/06/92) $10,000 $11,963
Lehman Brothers
Municipal Bond--Long
Bond Index
(since 4/01/92) $10,000 $13,013
Past performance is not predictive of future performance.
---------------------------------------------------------
</TABLE>
Average Annual Returns+
Through 5/31/95
<TABLE>
<CAPTION>
Since Inception
Six Months** 1 Year 4/06/92
================================================================================
<S> <C> <C> <C>
IAI Minnesota Tax Free Fund 9.15% 3.97% 5.85%
Lehman Brothers Municipal
Bond--Long Bond Index 18.65% 14.58% 8.92%*
</TABLE>
+ Past performance is not predictive of future performance
. As of 5/1/92
.. Not Annualized
Sectors
% of Long-Term Securities as of 5/31/95
[CHART APPEARS HERE]
<TABLE>
<S> <C>
General Obligations Bonds 27%
Revenue Bonds 34%
Escrowed 5%
Pre-Refunded 34%
</TABLE>
<TABLE>
<CAPTION>
Effective Maturity
% of Portfolio as of 5/31/95
[CHART APPEARS HERE]
YEARS
- ---------------------
<S> <C>
0-10 29%
10-15 15%
15-20 27%
20-25 29%
</TABLE>
<TABLE>
<CAPTION>
Credit Rating
& of Portfolio as of 5/31/95
<S> <C>
AAA................... 77%
AA.................... 23%
A..................... 0%
BBB................... --
Non-Rated............. --
Non-Investment Grade.. --
</TABLE>
11
<PAGE>
FUND PORTFOLIO
--------------
IAI Bond Fund
May 31, 1995
(percentage figures indicate percentage of total net assets)
(unaudited)
Preferred Stock - 3.3%
<TABLE>
<CAPTION>
Market
Rate Quantity Value (a)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-Convertible - 3.3%
Grand Metro Delaware PFD Series A 9.42% 102,180 $ 2,784,405
==========================================================================================================================
Total Investments in Preferred Stock
(Cost: $2,755,795)......................................................................................... $ 2,784,405
==========================================================================================================================
Corporate Bonds - 24.5%
Market
Rate Maturity Quantity Value (a)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Credit Card Related - 4.5%
Chase Manhattan 8.00% 05/01/05 $ 3,750,000 $ 3,788,550
- --------------------------------------------------------------------------------------------------------------------------
Finance/Financial Services - 7.7%
ABN-AMRO Bank 7.13% 10/15/93 2,600,000 2,379,000
Liberty Mutual 144A(f) 8.50% 05/15/25 3,000,000 3,008,160
Westinghouse Credit 8.88% 06/14/14 1,000,000 1,097,500
-----------
6,484,660
- --------------------------------------------------------------------------------------------------------------------------
Industrial - 9.4%
Cablevision 10.75% 01/20/02 1,125,000 1,226,250
Coca Cola Enterprises (zero-coupon bond) 7.54%(c) 06/20/20(b) 15,200,000 2,462,400
Gulf Canada Resources (Yankee) 9.25% 01/15/04 1,000,000 990,000
RJR Nabisco 7.63% 09/15/00 2,000,000 1,920,000
Triton Energy (zero-coupon bond) 9.94%(c) 12/15/00 1,500,000 1,320,000
-----------
7,918,650
- --------------------------------------------------------------------------------------------------------------------------
Utilities - 3.1%
Commonwealth Edison 7.50% 07/01/13 1,250,000 1,214,775
Long Island Lighting 7.85% 05/15/99 1,350,000 1,380,591
-----------
2,595,366
==========================================================================================================================
Total Investments in Corporate Bonds
(Cost: $20,176,563)........................................................................................ $10,787,226
==========================================================================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 21
12
<PAGE>
FUND PORTFOLIO
--------------
IAI Bond Fund
May 31, 1995
(unaudited)
<TABLE>
<CAPTION>
U.S. Government Obligations - 15.9%
Principal Market
Rate Maturity Amount Value (a)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Obligations - 15.9%
U.S. Treasury Notes 4.63% (d) 02/15/96 $1,700,000 $ 1,685,653
10.75% (d) 08/15/05 2,700,000 3,571,182
9.25% 02/15/16 3,800,000 4,840,859
U.S. Treasury Strips (zero-coupon bonds) 6.20% (c) 08/15/97 2,300,000 2,024,714
6.83% (c) 02/15/06 2,650,000 1,330,460
-----------
$13,452,868
===================================================================================================
Total Investments in U.S. Government Obligations
(Cost: $13,079,926).....................................................................$13,452,868
===================================================================================================
U.S. Government Agency Mortgage-Backed Securities - 35.1%
Principal Market
Rate Maturity Amount Value (a)
- ---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corporation - 8.3%
7.50% 06/01/00 (b) $ 4,530,000 $ 4,616,343
10.50% 11/01/00 1,861,254 1,956,049
10.50% 02/01/04 451,877 486,392
-----------
7,058,784
- ---------------------------------------------------------------------------------------------------
Government National Mortgage
Association - 26.7%
9.00% 07/15/09 $ 1,390,952 1,493,299
9.00% 12/15/09 750,430 805,648
9.00% 06/01/17 (b) 2,870,000 3,085,135
9.00% 12/15/17 (b) 2,874,514 3,089,988
10.00% 12/15/20 1,029,000 1,115,179
6.50% 01/15/23 1,036,264 994,482
6.50% 12/15/23 779,245 747,827
6.50% 05/15/24 262,331 251,754
7.00% 06/01/24 (b) 11,200,000 11,021,472
-----------
22,604,782
===================================================================================================
Total Investments in U.S. Government Agency Mortgage-Backed Securities
(Cost: $29,330,255).....................................................................$29,663,567
</TABLE>
See accompanying Notes to Fund Portfolios on page 21
13
<PAGE>
FUND PORTFOLIO
--------------
IAI Bond Fund
May 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Asset Backed Securities - 9.3%
Principal Market
Rate Maturity Amount Value (a)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Auto Loan Related - 3.0%
Ford Credit Auto Lease 95-1 A2 6.35% 10/15/98 $2,500,000 $ 2,501,551
- ----------------------------------------------------------------------------------------------------
Credit Card Related - 6.3%
First Chicago Master Trust II 94-L A 7.15% 04/15/01 560,000 575,736
First Chicago Master Trust II 95-N A 6.29% 12/15/00 1,000,000 1,001,410
Private Label Credit Card Master Trust II 94-2 A 7.80% 09/20/03 1,140,000 1,190,570
Standard Credit Card Master Trust 93-3 A 7.00% 10/15/04 2,500,000 2,566,926
-----------
5,334,642
====================================================================================================
Total Investments in Asset-Backed Securities
(Cost: $7,686,382).......................................................................$ 7,836,193
Foreign Denominated Bonds - 12.2%
Principal Market
Rate Maturity Amount (e) Value (a)
- ----------------------------------------------------------------------------------------------------
Foreign Government Bonds - 12.2%
German Government (German mark) 7.50% 10/20/97 4,700,000 $ 3,501,733
German Government (German mark) 8.50% 09/20/96 1,200,000 889,561
Japanese Government (Japanese yen) 4.20% 09/20/04 460,000,000 5,979,291
-----------
10,370,585
====================================================================================================
Total Investments in Foreign Denominated Bonds
(Cost: $9,284,162).......................................................................$10,370,585
====================================================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 21
14
<PAGE>
FUND PORTFOLIO
--------------
IAI Bond Fund
May 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Short-Term Securities - 6.3%
Principal Market
Rate Maturity Amount Value (a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Obligations - 1.6%
U.S. Treasury Bill 6.37% 01/11/96 (d) $1,400,000 $ 1,351,743
- ----------------------------------------------------------------------------------------------------
Commercial Paper - 4.7%
Pepsico 5.92% 06/21/95 4,000,000 3,986,845
====================================================================================================
Total Investments in Short-term Securities
(Cost: $5,334,839).....................................................................$ 5,338,588
====================================================================================================
Total Investments in Securities
(Cost: $ 87,647,922) (g)...............................................................$90,233,440
====================================================================================================
Other Assets & Liabilities (Net) - (6.6%)
.....................................................................................$(5,560,049)
====================================================================================================
Total Net Assets
.....................................................................................$84,673,391
====================================================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 21
15
<PAGE>
FUND PORTFOLIO
--------------
IAI Government Fund
May 31, 1995
(percentage figures indicate percentage of total net assets)
(unaudited)
<TABLE>
<CAPTION>
U.S. Government Obligations - 20.6%
Principal Market
Rate Maturity Amount Value (a)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Obligations - 20.6%
U.S. Treasury Note 5.13% 03/31/96 $4,000,000 $3,975,640
U.S. Treasury Bonds 11.13% 08/15/03 1,000,000 1,305,000
11.63% 11/15/04 1,000,000 1,370,310
10.75% 08/15/05 1,400,000 1,851,724
----------
8,502,674
============================================================================================
Total Investments in U.S. Government Obligations
(Cost: $8,260,542)..............................................................$8,502,674
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Agency Mortgage-Backed Securities - 58.7%
Principal Market
Rate Maturity Amount Value (a)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation - 3.3%
5.50% 07/01/98 $ 38,068 $ 37,385
7.00% 01/01/99 45,558 46,028
10.50% 11/01/00 901,353 947,259
10.50% 02/01/04 234,614 252,534
6.00% 07/01/09 82,385 79,305
----------
1,362,511
- --------------------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corporation Gold - 12.1%
8.50% 03/01/00 1,985,953 2,045,532
7.50% 06/01/00 (b) 2,000,000 2,038,120
5.00% 03/01/01 895,337 838,260
5.00% 10/01/01 68,409 67,266
----------
4,989,178
- --------------------------------------------------------------------------------------------
Federal National Mortgage
Association - 5.4%
11.50% 01/01/01 26,451 28,237
11.50% 01/01/13 15,804 17,277
11.50% 11/01/15 91,280 99,797
</TABLE>
See accompanying Notes to Fund Portfolios on page 21
16
<PAGE>
FUND PORTFOLIO
--------------
IAI Government Fund
May 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11.50% 12/01/15 $ 55,676 60,861
11.50% 01/01/16 44,971 48,126
8.00% 09/01/24 1,929,182 1,969,561
----------
2,223,859
- --------------------------------------------------------------------------------------------
Federal National Mortgage
Association Dwarfs - 1.3%
10.00% 02/01/01 25,824 27,132
10.00% 01/01/03 507,697 533,397
----------
560,529
- --------------------------------------------------------------------------------------------
Government National Mortgage
Association - 36.2%
6.50% 07/15/08 207,696 205,553
6.50% 08/15/08 743,062 733,395
7.50% 09/15/08 458,635 467,662
6.50% 10/15/08 343,166 339,625
6.50% 11/15/08 415,008 410,725
7.50% 12/15/08 112,462 114,676
6.50% 03/15/09 224,320 222,005
7.50% 03/15/09 123,990 126,430
7.50% 04/15/09 447,639 456,449
7.50% 05/15/09 409,295 417,350
9.00% 07/15/09 455,401 488,909
7.50% 11/15/09 384,650 392,220
9.00% 12/15/09 375,215 402,823
11.00% 06/15/13 43,848 48,507
9.00% 01/01/17(b) 2,200,000 2,364,912
10.00% 12/15/20 294,001 318,624
6.50% 11/15/23 1,004,783 964,271
9.00% 04/15/25 2,481,713 2,601,906
7.00% 06/01/25(b) 4,000,000 3,901,240
----------
14,979,280
</TABLE>
See accompanying Notes to Fund Portfolios on page 21
17
<PAGE>
FUND PORTFOLIO
--------------
IAI Government Fund
May 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government National Mortgage
Association Midgets - 0.4%
10.50% 03/15/01 $ 83,783 $ 88,339
9.00% 11/15/01 6,222 6,514
9.00% 08/15/02 65,573 68,647
9.00% 01/15/04 12,923 13,529
-----------
177,029
========================================================================================================
Total Investments in U.S. Government
Agency Mortgage-Backed Securities
(Cost: $23,848,365)...................................................................... $24,292,386
========================================================================================================
Short-Term Securities - 23.9%
Principal Market
Rate Maturity Amount Value (a)
- --------------------------------------------------------------------------------------------------------
U.S. Government and Government
Agency Securities - 23.9%
U.S. Treasury Bills 5.81% 06/29/95 $2,000,000 $ 1,991,460
7.32% 01/11/96(d) 6,100,000 5,889,727
Federal Home Loan Mortgage
Association (discount note) 6.10% 06/01/95 2,000,000 2,000,000
-----------
9,881,187
========================================================================================================
Total Investments in Short-Term Securities
(Cost: $9,835,778)....................................................................... $ 9,881,187
========================================================================================================
Total Investments in Securities
(Cost: $41,944,685)(g)................................................................... $42,676,247
========================================================================================================
Other Assets and Liabilities (Net) - (3.2)%
....................................................................................... $(1,312,648)
========================================================================================================
Total Net Assets
....................................................................................... $41,363,599
========================================================================================================
</TABLE>
See accompanying Notes to Fund Portfolio on page 21
18
<PAGE>
Fund Portfolio
--------------
IAI Minnesota Tax Free Fund
May 31, 1995
(percentage figures indicate percentage of total net assets)
(unaudited)
Municipal Bonds -- 96.2%
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value(a)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minnesota Municipal Bonds -- 96.2%
Anoka-Hennepin Minnesota Independent School District
Number 11 General Obligation Bond Series B 5.90% 02/01/08 $300,000 $314,262
Chaska Minnesota Independent School District
Number 112 General Obligation Bond Series B 5.38% 02/01/14 250,000 245,503
Dakota County Minnesota Housing &
Redevelopment Authority Multifamily Revenue Bond 4.75% 12/01/16 300,000 300,000
Duluth Minnesota Economic Development Authority
Health Care Facility Revenue Bond 6.20% 11/01/12 350,000 362,856
Fairbault Minnesota Independent School District
Number 656 General Obligation Bond 6.10% 06/01/09 350,000 364,497
Metropolitan Council Minnesota Minneapolis & St. Paul
Metropolitan Area Refunding General
Obligation Bond Series A 5.13% 12/01/06 350,000 351,838
Minneapolis Minnesota General Obligation Bond 6.75% 12/01/99 325,000 337,883
Minneapolis Minnesota Hospital Revenue Bond
Fairview Hospital & Healthcare 6.50% 01/01/11 350,000 374,910
Minneapolis & St. Paul Minnesota Housing &
Redevelopment Authority Healthcare System
Obligation Revenue Bond Series A 7.40% 08/15/11 300,000 336,087
Minnesota State Duluth Airport
Refunding Revenue Bond Series 95B 6.25% 08/01/14 300,000 305,388
Minnesota State Housing Finance Agency
Revenue Bond Series L 6.70% 07/01/20 350,000 362,033
St. Cloud Minnesota Hospital Facility
Revenue Bond Series C 6.75% 07/01/15 350,000 377,752
St. Paul Minnesota Urban Renewal General Obligation
Bond Series A 5.75% 03/01/02 300,000 312,855
St. Paul Minnesota Sewer Refunding Revenue Bond 5.60% 12/01/08 350,000 356,545
</TABLE>
See accompanying Notes to Fund Portfolio on page 21
19
<PAGE>
FUND PORTFOLIO
--------------
IAI Minnesota Tax Free Fund
May 31, 1995
(unaudited)
Municipal Bonds (Continued)
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value(a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Southern Minnesota Municipal Power Agency
Balance Revenue Bond Big Series A 9.50% 01/01/17 $1,000,000 $1,051,379
Southern Minnesota Municipal Power Agency
Balance Revenue Bond Series A 7.13% 01/01/15 1,000,000 1,037,739
Southern Minnesota Municipal Power Agency
Refunded Balance Revenue Bond Series A 5.75% 01/01/18 350,000 353,520
---------
7,145,047
=========================================================================================================================
Total Investments in Municipal Bonds
(Cost: $6,757,366)............................................................................................$7,145,047
=========================================================================================================================
Short-Term Securities -- 1.2%
Principal Market
Amount Value(a)
- -------------------------------------------------------------------------------------------------------------------------
Money Market Funds -- 1.2%
Federated Tax Exempt Cash Fund $89,459 $ 89,459
=========================================================================================================================
Total Investments in Short-Term Securities
(Cost: $89,459).............................................................................................. $ 89,459
=========================================================================================================================
Total Investments in Securities
(Cost: $6,846,824) (g)....................................................................................... $7,234,506
=========================================================================================================================
Other Assets and Liabilities (Net) -- 2.6%
.......................................................................................................... $ 194,648
=========================================================================================================================
Total Net Assets
.......................................................................................................... $7,429,154
=========================================================================================================================
</TABLE>
See accompanying Notes to Fund Portfolio on page 21
20
<PAGE>
NOTES TO FUND PORTFOLIOS
------------------------
IAI Bond Fund, IAI Government Fund, IAI Minnesota Tax Free Fund
May 31, 1995
(unaudited)
(a)
Market value of securities is determined as described in Note 1 to the financial
statements, under "Security Valuation."
(b)
Purchased on a when-issued basis. At May 31, 1995 the total cost of securities
purchased on a when-issued basis was $24,067,177 and $8,259,500 in the Bond Fund
and Government Fund, respectively.
(c)
Interest rate disclosed represents yield to maturity at date of acquisition.
(d)
Security is pledged to cover initial margin on open futures contracts (see Note
7 to the financial statements).
(e)
Foreign security market values are stated in U.S. dollars. Principal amounts are
denominated in the foreign currency indicated parenthetically.
(f)
Represents security sold within terms of a private placement memorandum exempt
from registration under Section 144A of the Securities Act of 1933. These issues
may only be sold to other qualified institutional buyers, and are considered
liquid under guidelines established by the Board of Directors.
(g)
At May 31, 1995, the cost of securities for federal income tax purposes and the
aggregate gross unrealized appreciation and depreciation based on that cost were
as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
IAI Bond Fund IAI Government Fund IAI Tax Free Fund
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost for federal tax purposes $87,647,922 $41,944,685 $6,845,941
=========================================================
Gross unrealized appreciation $ 2,596,772 $ 774,265 $ 388,565
Gross unrealized depreciation (11,254) (42,703) --
---------------------------------------------------------
Net unrealized appreciation $ 2,585,518 $ 731,562 $ 388,565
=========================================================
</TABLE>
21
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
------------------------------------
IAI Bond Fund, IAI Government Fund, IAI Minnesota Tax Free Fund
May 31, 1995
(unaudited)
<TABLE>
<CAPTION>
IAI Bond Fund
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in securities, at market
(Cost: $87,647,922; $41,944,685; $6,846,824, respectively) $90,233,440
(see Fund Portfolios)
Cash in bank on demand deposit 835,643
Cash denominated in foreign currency (Cost: $61,962; $0; and
$0, respectively) 63,723
Accrued interest and dividends receivable 861,845
Receivable for investment securities sold 17,068,409
Receivable for foreign currency contracts held, at value (Note 6) 7,670,554
Due from Advisers --
Organization costs --
Other 23,203
-------------
=============
Liabilities
Accrued investment advisory fee 42,025
Accrued distribution fee 19,102
Accrued dividend-disbursing, administrative, and accounting fees 15,282
Other accrued expenses 49,906
Variation margin payable 66,856
Payable for investment securities purchased 24,080,114
Payable for foreign currency contracts held, at value (Note 6) 7,810,141
-------------
Total liabilities 32,083,426
-------------
Net assets applicable to outstanding capital stock $84,673,391
=============
Represented by:
Capital stock 91,779
Additional paid-in capital 87,602,672
Undistributed net investment income 285,556
Accumulated net realized losses (4,967,693)
Unrealized appreciation (depreciation) on:
Investment securities $1,788,959
Other assets and liabilities denominated in
foreign currency (127,882)
===========
1,661,077
-------------
Total -- representing net assets applicable to
outstanding capital stock $84,673,391
=============
Shares of capital stock outstanding; authorized
10 billion shares of $0.01 par value stock 9,177,923
-------------
Net asset value per share of outstanding stock $ 9.23
=============
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
IAI Government Fund IAI Minnesota Tax Free Fund
- --------------------------------------------------------------------------------
<C> <C> <C> <C>
$42,676,247 $7,234,506
31,265 --
-- --
280,051 173,996
6,719,193 --
-- --
-- 15,061
7,746 6,559
879 272
- --------------------------------------------------------------------------------
================================================================================
20,509 --
7,817 --
7,458 --
51,748 1,240
4,750 --
8,259,500 --
-- --
- --------------------------------------------------------------------------------
8,351,782 1,240
- --------------------------------------------------------------------------------
$41,363,599 $7,429,154
================================================================================
41,609 7,323
42,708,766 7,748,960
70,683 18,142
(1,941,173) (732,953)
$483,714 $387,682
-- --
======== ========
483,714 387,682
- --------------------------------------------------------------------------------
$41,363,599 $7,429,154
================================================================================
4,160,875 732,343
- --------------------------------------------------------------------------------
$ 9.94 $ 10.14
================================================================================
</TABLE>
See accompanying Notes to Financial Statements on page 31
23
<PAGE>
STATEMENTS OF OPERATIONS
------------------------
IAI Bond Fund, IAI Government Fund, IAI Tax Free Fund
Period from December 1, 1994 to May 31, 1995
(unaudited)
<TABLE>
<CAPTION>
IAI Bond Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Investment Income:
Income:
Interest $3,126,656
-----------------------------------
Total income 3,126,656
-----------------------------------
Expenses:
Investment advisory fees 225,994
Distribution fees 102,724
Dividend-disbursing, administrative, and accounting fees 82,180
Legal fees --
Custodian fees 3,640
Amortization of organization costs --
Compensation of Directors 1,820
Audit fees 6,898
Printing and shareholder reporting 16,450
Registration fees 3,640
Other expenses 5,598
-----------------------------------
Total expenses 448,944
Less fees reimbursed or waived by Advisers or Distributor --
-----------------------------------
Net expenses 448,944
-----------------------------------
Net investment income 2,677,712
-----------------------------------
Net Realized and Unrealized Gains (Losses):
Net realized gains (losses) on:
Investment securities $ 2,485,218
Foreign currency transactions 361,937
Futures contracts (1,320,895)
Written option contracts (10,344)
-----------
1,515,916
Net change in unrealized appreciation or depreciation on:
Investment securities 5,114,247
Other assets and liabilities denominated in foreign currency (72,859)
Futures contracts (781,358)
-----------
4,260,030
-----------------------------------
Net gain on investments and foreign currency 5,775,946
-----------------------------------
Net increase in net assets resulting from operations $8,453,658
===================================
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
IAI Government Fund IAI Minnesota Tax Free Fund
- ----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
$1,453,288 $208,128
- ----------------------------------------------------------------------------------------------------------
1,453,288 208,128
- ----------------------------------------------------------------------------------------------------------
109,943 20,979
49,974 3,814
39,979 7,629
-- 5,413
2,554 2,145
3,159 1,690
1,820 2,467
6,564 6,000
7,260 4,439
9,070 --
3,900 2,443
- ----------------------------------------------------------------------------------------------------------
234,223 57,019
(14,337) (47,483)
- ----------------------------------------------------------------------------------------------------------
219,886 9,536
- ----------------------------------------------------------------------------------------------------------
1,233,402 198,592
- ----------------------------------------------------------------------------------------------------------
$ (597,416) $(32,026)
-- --
(49,044) --
-- --
----------- --------
(646,460) (32,026)
$2,201,693 $496,456
-- --
(247,848) --
----------- --------
1,953,845 496,546
- ----------------------------------------------------------------------------------------------------------
1,307,385 464,520
- ----------------------------------------------------------------------------------------------------------
$2,540,787 $663,112
==========================================================================================================
</TABLE>
See accompanying Notes to Financial Statements on page 31
25
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
IAI Bond Fund, IAI Government Fund, IAI Tax Free Fund
<TABLE>
<CAPTION>
IAI Bond Fund
Six Months Period from
Ended April 1, 1994 to
May 31, 1995 November 30, 1994
-------------------------------------------------------------------------------
<S> <C> <C>
Operations: (unaudited)
Net investment income $ 2,677,712 $ 3,589,656
Net realized gains (losses) 1,515,916 (6,088,410)
Net change in unrealized
appreciation or depreciation 4,260,030 534,529
-------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 8,453,658 (1,964,225)
-------------------------------------------
Distributions to Shareholders from:
Net investment income (3,137,004) (3,424,716)
Net realized gains -- (1,319,750)
-------------------------------------------
Total distributions (3,137,004) (4,744,466)
-------------------------------------------
Capital Share Transactions (note 4):
Net proceeds from sale of shares 15,284,883 15,848,360
Net asset value of shares issued
to shareholders in reinvestment
of distributions 3,008,134 4,584,528
Cost of shares redeemed (19,558,329) (30,240,799)
-------------------------------------------
Increase (decrease) in net
assets from capital share
transactions (1,265,312) (9,807,911)
-------------------------------------------
Total increase (decrease)
in net assets 4,051,342 (16,516,602)
Net assets at beginning of period 80,622,049 97,138,651
-------------------------------------------
Net assets at end of period $84,673,391 $80,622,049
===========================================
(including undistributed net
investment income of:
Bond--$285,556 and $744,848;
Government--$70,683 and $83,710;
Minnesota Tax Free--$18,142 and
$13,487, respectively)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
IAI Government Fund IAI Minnesota Tax Free Fund
Six Months Period from Six Months Period from
Ended April 1, 1994 to Ended April 1, 1994 to
May 31, 1995 November 30, 1994 May 31, 1995 November 30, 1994
- --------------------------------------------------------------------------------
<C> <C> <C> <C>
(unaudited) (unaudited)
$ 1,233,402 $ 1,349,524 $ 198,592 $ 290,088
(646,460) (934,618) (32,026) (700,925)
1,953,845 (466,812) 496,546 180,719
- --------------------------------------------------------------------------------
2,540,787 (31,906) 663,112 (230,118)
- --------------------------------------------------------------------------------
(1,246,429) (1,312,183) (193,937) (291,185)
-- (114,249) -- (35,171)
- --------------------------------------------------------------------------------
(1,246,429) (1,426,432) (193,937) (326,356)
- --------------------------------------------------------------------------------
12,137,772 13,323,314 2,063,190 1,523,509
1,209,927 1,382,769 185,081 309,174
(11,716,477) (15,837,048) (2,230,340) (2,071,786)
- --------------------------------------------------------------------------------
1,631,222 (1,130,965) 17,931 (239,103)
- --------------------------------------------------------------------------------
2,925,580 (2,589,303) 487,106 (795,577)
38,438,019 41,027,322 6,942,048 7,737,625
- --------------------------------------------------------------------------------
$41,363,599 $38,438,019 $7,429,154 $6,942,048
================================================================================
See accompanying Notes to Financial Statements on page 31
</TABLE>
27
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------
IAI Bond Fund
Per share data for a share of capital stock outstanding throughout each period
and selected information for each period indicated are as follows:
IAI Bond Fund
<TABLE>
<CAPTION>
Six Months Period from Years Ended March 31,
Ended April 1, 1994 to --------------------------------------
May 31, 1995 November 30, 1994*** 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value: (unaudited)
Beginning of period $ 8.65 $ 9.32 $ 10.42 $ 10.25 $ 10.02 $ 9.66
Operations:
Net investment income .29 .36 .62 .64 .73 .73
Net realized and unrealized gains (losses) .63 (.55) (.25) .93 .34 .43
Total from operations .92 (.19) .37 1.57 1.07 1.16
Distributions to Shareholders From:
Net investment income (.34) (.35) (.66) (.64) (.74) (.80)
Net realized gains -- (.13) (.81) (.76) (.10) --
Total distributions (.34) (.48) (1.47) (1.40) (.84) (.80)
Net Asset Value:
End of period $ 9.23 $ 8.65 $ 9.32 $ 10.42 $ 10.25 $ 10.02
Total investment return* 10.85% (2.10%) 3.16% 16.44% 10.80% 12.62%
Net assets at end of period (000's omitted) $84,673 $80,622 $97,139 $119,371 $107,634 $108,589
Ratios:
Expenses to average net assets 1.09%** 1.10%** 1.09% 1.10% 1.10% .88%
Net investment income to average net assets 6.52%** 6.03% 5.63% 6.03% 7.43% 7.56%
Portfolio turnover rate
(excluding short-term securities) 277.2% 226.7% 333.1% 160.8% 126.2% 43.0%
</TABLE>
. Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of all distributions
at net asset value.
.. Annualized
... Reflects fiscal year change from March 31 to November 30
28
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------
IAI Government Fund
Per share data for a share of capital stock outstanding throughout each period
and selected information for each period indicated are as follows:
IAI Government Fund
<TABLE>
<CAPTION>
Years ended
Six Months Period from March 31, Period from
Ended April 1, 1994 to ------------------- August 8, 1991***
May 31, 1995 November 30, 1994+ 1994 1993 to March 31, 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value:
Beginning of period $ 9.92 $ 9.98 $ 10.46 $ 10.22 $ 10.00
-----------------------------------------------------------------------------
Operations:
Net investment income .30 .33 .47 .57 .30
Net realized and unrealized gains .02 (.34) (.24) .59 .24
-----------------------------------------------------------------------------
Total from operations .32 (.01) .23 1.16 .54
-----------------------------------------------------------------------------
Distributions to
Shareholders From:
Net investment income (.30) (.32) (.49) (.58) (.30)
Net realized gains -- (.03) (.22) (.34) (.02)
-----------------------------------------------------------------------------
Total distributions (.30) (.35) (.71) (.92) (.32)
-----------------------------------------------------------------------------
Net Asset Value:
End of period $ 9.94 $ 9.62 $ 9.98 $ 10.46 $ 10.22
=============================================================================
Total investment return* 6.58% (.09%) 2.02% 11.70% 5.51%
Net assets at end of period (000's omitted) $41,364 $38,438 $41,027 $43,704 $30,707
Ratios:
Expenses to average net assets 1.10%** 1.10%** 1.10% 1.10% 1.10%**
Net investment income to
average net assets 6.17%** 5.12%** 4.40% 5.40% 5.16%**
Portfolio turnover rate
(excluding short-term securities) 170.9% 121.5% 641.0% 236.3% 169.6%
</TABLE>
* Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at
net asset value.
** Annualized
*** Commencement of operations
+ Reflects fiscal year-end change from March 31 to November 30
29
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------
IAI Minnesota Tax Free Fund
Per share data for a share of capital stock outstanding throughout each period
and selected information for each period indicated are as follows:
IAI Minnesota Tax Free Fund
<TABLE>
<CAPTION>
Six Months Period from Year Ended Period from
Ended April 1, 1994 to March 31, April 6, 1992***
May 31, 1995 November 30, 1994/+/ 1994 to March 31, 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value: (unaudited)
Beginning of period $ 9.53 $10.27 $10.67 $10.00
-----------------------------------------------------------------------
Operations:
Net investment income .26 .39 .58 .41
Net realized and
unrealized gains (losses) .60 (.69) (.35) .67
-----------------------------------------------------------------------
Total from operations .86 (.30) .23 1.08
-----------------------------------------------------------------------
Distributions to shareholders
From:
Net investment income (.25) (.39) (.56) (.41)
Net realized gains -- (.05) (.07) --
-----------------------------------------------------------------------
Total distributions (.25) (.44) (.63) (.41)
-----------------------------------------------------------------------
Net Asset Value:
End of period $10.14 $ 9.53 $10.27 $10.67
=======================================================================
Total investment return* 9.15% (3.10%) 1.89% 11.00%
Net assets at end of
period (000's omitted) $7,429 $6,942 $7,738 $5,045
Ratios:
Expenses to average net
assets**** .25%** .25%** .25% .95%**
Net investment income to
average net assets**** 5.21%** 5.76%** 5.28% 4.36%**
Portfolio turnover rate
(excluding short-term
securities) 78.6% 57.8% 16.0% 4.8%
</TABLE>
* Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
** Annualized
*** Commencement of operations
**** The Fund's adviser voluntarily waived $26,701, $35,252 and $53,108 in
expenses for the periods ended May 31, 1995 and November 30, 1994 and the
year ended March 31, 1994, respectively. If the Fund had been charged for
these expenses, the ratio of expenses to average net assets would have been
.95%, .95% and .95% respectively, and the ratio of net investment income to
average net assets would have been 4.51%, 5.06% and 4.58%, respectively.
/+ Reflects fiscal year change from March 31 to November 30
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI Bond Fund, IAI Government Fund, IAI Minnesota Tax Free Fund
(1) Summary of Significant Accounting Policies
The IAI Mutual Funds are registered under the Investment Company Act of 1940 (as
amended) as diversified, open-end management investment companies, or series
thereof. IAI Bond Fund (Bond Fund) is a separate portfolio of IAI Investment
Funds I, Inc. IAI Government Fund (Government Fund) and IAI Minnesota Tax Free
Fund (formerly IAI Tax Free Fund) are separate portfolios of IAI Investment
Funds VI, Inc. This report covers only the Bond Fund, Government Fund, and
Minnesota Tax Free Fund (the Funds).
On November 9, 1994, the Board of Directors elected to change the fiscal year
end of the Funds from March 31 to November 30. Accordingly, these financial
statements include the eight-month period from April 1, 1994 to November 30,
1994.
Effective December 15, 1994 the Board also approved changes to the Minnesota Tax
Free Fund's non-fundamental investment policies. The Minnesota Tax Free Fund
will seek to provide its shareholders with current income, exempt from federal
and Minnesota personal income tax. Accordingly, the Board of Directors also
chose to rename the Fund "IAI Minnesota Tax Free Fund."
Significant accounting policies followed by the Funds are summarized below:
Security Valuation
The values of debt securities are determined using pricing services or prices
quoted by independent brokers. Short-term securities with a maturity of 60 days
or less from the date of acquisition are valued at amortized cost. Short-term
securities with a maturity greater than 60 days from the date of acquisition are
marked-to-market on a daily basis.
Securities Purchased on a When-Issued Basis
Delivery and payment for securities which have been purchased by the Funds on a
forward commitment or when-issued basis may occur a month or more after the
transaction date. During this period, such securities are subject to market
fluctuations and the Funds maintain, in segregated accounts with their
custodian, assets with a market value equal to the amount of their purchase
commitments.
Foreign Currency Translations and Foreign Currency Contracts
Bond Fund and Government Fund may invest in foreign securities. The market value
of securities and other assets and liabilities denominated in foreign currencies
is translated daily into U.S. dollars at the closing rate of exchange. Purchases
and sales of securities, income and expenses are translated at the exchange rate
on the transaction date and are recorded in realized and unrealized appreciation
(depreciation) on foreign currency transactions. Exchange gains (losses) may
also be realized between the trade and settlement dates on security and foreign
currency contract transactions.
The Funds do not isolate that portion of the result of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI Bond Fund, IAI Government Fund, IAI Minnesota Tax Free Fund
(1) Summary of Significant Accounting Policies (Cont.)
The Funds may enter into foreign currency exchange contracts for operational
purposes and to protect against adverse exchange rate fluctuation. The net U.S.
dollar value of foreign currency underlying all contractual commitments held by
the Funds and the resulting unrealized appreciation or depreciation are
determined using foreign currency exchange rates from an independent pricing
service. The Funds are subject to the credit risk that the other party will not
complete the obligations of the contract.
Futures and Options Contracts
In order to increase exposure to and hedge against changes in the market and
produce incremental earnings, the Funds may buy and sell futures contracts and
options. These investments involve risks caused by the possibility of an
imperfect correlation between movements in the value of the contract or option
and the price of the underlying securities and interest rates. Risks may also
arise if there is an illiquid secondary market for the instruments, or due to
the inability of counterparties to perform. Futures contracts are valued at the
settlement price of the exchange on which they are traded. Options traded on an
exchange are valued using the last sale price. Options traded over-the-counter
are valued using dealer-supplied valuations.
Upon entering into a futures contract, the Funds are required to deposit either
cash or securities, representing the initial margin, equal to a certain
percentage of the contract value. Subsequent changes in the value of the
contract, or variation margin, are recorded as unrealized gains and losses. The
variation margin is paid or received in cash daily by the Fund. The Fund
realizes a gain or loss when the contract is closed or expires.
Federal Taxes
Since it is each Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
taxable income to shareholders, no provision for income taxes is required. In
order to avoid the payment of any federal excise taxes, the Funds are required
to distribute substantially all of their net investment income and net realized
gains on a calendar year basis.
Net investment income and net realized gains may differ for financial statement
and tax purposes primarily because of recognition of certain foreign currency
gains and losses as ordinary income and the deferral of "wash sale" losses for
tax purposes. The character of distributions made during the year for net
investment income or net realized gains may also differ from its ultimate
characterization for tax purposes.
For federal income tax purposes, Bond Fund, Government Fund and Minnesota Tax
Free Fund have capital loss carryovers of approximately $6,498,000, $1,295,000,
and $696,000, respectively at November 30, 1994 which, if not offset by
subsequent capital gains, will expire in 2002. It is unlikely the Board of
Directors will authorize a distribution of any net realized gains until the
available capital loss carryover is offset or expires.
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI Bond Fund, IAI Government Fund, IAI Minnesota Tax Free Fund
Security Transactions and Investment Income
The Funds record security transactions on trade date, the date the securities
are purchased or sold. Interest income, including level yield amortization of
discount for the Funds, and premium for the Tax Free Fund, are accrued daily.
Security gains and losses are determined on the basis of identified cost, which
is the same basis used for federal income tax purposes.
Distributions to Shareholders
Distributions to shareholders are recorded on the ex-date. Distributions from
net investment income are made monthly. Capital gains, if any, are primarily
distributed at the end of the calendar year. Additional capital gains
distributions as needed to comply with federal tax regulations are distributed
during the year.
Organization Costs
Organization costs are being amortized over 60 months on a straight-line basis.
In the event Investment Advisers, Inc. (Advisers) redeems any or all of its
shares representing initial capital in the Funds prior to the date such costs
are fully amortized, they will bear such portion of the unamortized organization
costs of the Fund as the number of shares redeemed bears to the initial purchase
of shares.
(2) Commitments & Contingencies
For purposes of obtaining certain types of insurance coverage for the Funds and
their officers and directors, the Funds are policyholders in an industry-
sponsored mutual insurance company (the Company). In connection with their
obligation as policyholders, the Funds have made payments to the Company which
have been capitalized. Also, the Funds are committed to make future capital
contributions, if requested by the Company.
Bond Fund, Government Fund, and Tax Free Fund have available lines of credit of
$15,000,000, $13,375,000 and $2,600,000, respectively, with a bank at prime
interest rates. To the extent funds are drawn against the line, securities are
held in a segregated account. No compensating balances or commitment fees are
required under the lines of credit. There were no borrowings outstanding at May
31, 1995.
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI Bond Fund, IAI Government Fund, IAI Minnesota Tax Free Fund
(3) Fees and Expenses
Under the terms of an investment advisory agreement, each Fund pays Investment
Advisers, Inc. (Advisers) a monthly management fee computed at an annual rate of
.55% of the average month-end net asset value.
Each Fund also pays an annual fee to Advisers for acting as the Fund's dividend-
disbursing, administrative, and accounting services agent. The fee is computed
monthly on the average month-end net assets at an annual rate of .20%.
The Funds have adopted a plan of distribution with IAI Securities, Inc.
(Distributor), the Funds' distributor. Under the Plan, the Funds pay Distributor
a monthly fee to cover expenses incurred in the distribution and promotion of
the Funds' shares. The distribution fee for Bond Fund and Government Fund is
equal to an annual rate of .25% of the Funds' average month-end net assets, for
Minnesota Tax Free Fund, the fee is equal to an annual rate of .10% of average
month-end net assets.
In addition to the advisory, distribution, and the dividend-disbursing,
administrative, and accounting services fees, the Funds are responsible for
paying their operating expenses, including costs incurred in the purchase and
sale of assets. Advisers and Distributor have agreed to reimburse those Funds to
the extent total expenses, excluding costs incurred in the purchase and sale of
assets, exceed, on an annual basis, 1.10% of average month-end net assets for
Bond Fund and Government Fund, and .95% of average month-end net assets for
Minnesota Tax Free Fund.
Additionally, since April 1, 1993, Advisers has voluntarily agreed to further
waive expenses for Minnesota Tax Free Fund in excess of .25% of its average
month-end net assets.
(4) Capital Stock
The Funds each have authorized 10 billion shares of $.01 par value stock.
Transactions in shares of capital stock during the six months ended May 31,
1995, and the period from April 1, 1994 to November 30, 1994 were as follows:
<TABLE>
<CAPTION>
IAI Bond Fund IAI Government Fund IAI Minnesota Tax Free Fund
------------------------------------------------------------------------------------------------------------------------------
Period from Period from Period from
Six Months April 1, 1994 Six Months April 1, 1994 Six Months April 1, 1994
Ended to November 30, Ended to November 30, Ended to November 30,
May 31, 1995 1994 May 31, 1995 1994 May 31, 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sold 1,722,640 1,758,099 1,243,755 1,353,148 210,465 150,799
Issued for reinvested
dividends 338,349 517,374 124,016 141,583 18,699 30,604
Redeemed (2,204,089) (3,375,013) (1,201,162) (1,612,383) (225,622) (206,114)
-------------------------------------------------------------------------------------------------------
Increase (decrease) in
shares outstanding (143,100) (1,099,540) 166,609 (117,652) 3,542 (24,711)
-------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI Bond Fund, IAI Government Fund, IAI Minnesota Tax Free Fund
(5) Purchases and Sales of Securities
For the period ended May 31, 1995, purchases of securities and sales proceeds,
other than investments in short-term securities, for the Funds were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Purchases Sales
- ------------------------------------------------------------------
<S> <C> <C>
IAI Bond Fund $211,875,252 $212,690,157
IAI Government Fund $ 54,658,390 $ 59,192,972
IAI Minnesota Tax Free Fund $ 6,823,459 $ 4,976,133
</TABLE>
(6) Foreign Currency Commitments
At May 31, 1995, the Bond Fund had entered into foreign currency exchange
contracts. The unrealized depreciation of $139,586 for these contracts at May
31, 1995 is included in unrealized appreciation (depreciation) on other assets
and liabilities denominated in foreign currency in the statement of assets and
liabilities.
<TABLE>
<CAPTION>
Exchange Currency U.S. $ Value as of Currency U.S. $ Value as of
Date to be Delivered May 31, 1995 to be Received May 31, 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6/16/95 240,000,000 Japanese Yen $2,875,064 2,782,867 U.S. Dollars $2,782,867
6/19/95 235,000,000 Japanese Yen 2,810,582 2,716,763 U.S. Dollars 2,716,763
6/30/95 3,000,000 German Mark 2,124,495 2,170,924 U.S. Dollars 2,170,924
---------- ----------
$7,810,141 $7,670,554
=======================================================================================================================
</TABLE>
(7) Open Futures Contracts
The financial futures contracts shown below were open as of May 31, 1995. The
market value of securities deposited to cover initial margin requirements for
the open positions at May 31, 1995 was $4,263,500 and $43,448 for Bond Fund and
Government Fund, respectively.
Futures
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Number of Expiration Market Unrealized
Fund Type Contracts Month Position Value Loss
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IAI Bond Fund U.S. 10 Yr. Treasury Note 108 June 1995 Short $10,172,813 $547,606
U.S. 20 Yr. Treasury Bond 90 June 1995 Short $11,907,000 243,125
German 10 Yr. Note 18 Sept 1995 Long $ 3,066,047 5,828
--------
$796,559
==========================================================================================================================
IAI Government Fund U.S. 10 Yr. Treasury Note 38 June 1995 Short $ 4,189,500 $248,848
==========================================================================================================================
</TABLE>
35
<PAGE>
IAI MUTUAL FUND FAMILY
----------------------
To diversify your portfolio, please consider all of the mutual funds in our
fund family
<TABLE>
<CAPTION>
====================================================================================================================================
<S> <C> <C> <C>
Secondary
IAI Fund Primary Objective Objective Portfolio Composition
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Developing Capital Appreciation -- Equity securities of companies in developing countries
Countries Fund
- ------------------------------------------------------------------------------------------------------------------------------------
IAI International Fund Capital Appreciation Income Equity securities of non-U.S. companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Emerging Growth Fund Capital Appreciation -- Common stocks of small to medium-sized emerging growth
companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Midcap Growth Fund Capital Appreciation -- Common stocks of medium-sized growth companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Regional Fund Capital Appreciation -- Common stocks of Upper Midwest companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Growth Fund Capital Appreciation -- Common stocks with potential for above-average
growth and appreciation
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Value Fund Capital Appreciation -- Common stocks which are considered to be undervalued
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Growth & Income Fund Capital Appreciation Income Common stocks with potential for long-term appreciation,
and common stocks that are expected to produce income
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Balanced Fund Total Return Income Common stocks, investment grade bonds and
[Capital Appreciation + short-term instruments
Income]
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Bond Fund Income Capital Preservation Investment grade bonds
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Minnesota Tax Free Fund Tax-free Income Capital Preservation Investment grade municipal bonds
(formerly IAI Tax Free Fund) [Exempt from Federal and
Minnesota State Income Taxes]
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Government Fund Income Capital Preservation U.S. Government securities
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Reserve Fund Stability/Liquidity Income The portfolio has a maximum average maturity of 25
months, investing primarily in investment grade bonds
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Money Market Fund Stability/Liquidity Income The portfolio's average dollar-weighted maturity is
less than 90 days, investing in high quality, money
market securities
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
Distributor
IAI Securities, Inc.
Investment Adviser
and Manager
Investment Advisers, Inc.
P.O. Box 357
Minneapolis, MN 55440-0357 USA
800.945.3863
612.376.2700
Custodian
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, MN 55479
Legal Counsel
Dorsey & Whitney, P.L.L.P.
220 South Sixth Street
Minneapolis, MN 55402
Independent Auditors
KPMG Peat Marwick LLP
4200 Norwest Center
Minneapolis, MN 55402
Directors
Madeline Betsch
W. William Hodgson
George R. Long
Noel P. Rahn
Richard E. Struthers
J. Peter Thompson
Charles H. Withers
<PAGE>
[IAI LOGO]
Mutual Funds
Investment Advisers, Inc.
3700 First Bank Place, P.O. Box 357, Minneapolis, Minnesota 55440-0357
USA fax 612.376.2737
800.945.3863
612.376.2700
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> IAI Minnesota Tax Free Fund
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-01-1994
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 6,847
<INVESTMENTS-AT-VALUE> 7,235
<RECEIVABLES> 189
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,430
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1
<TOTAL-LIABILITIES> 1
<SENIOR-EQUITY> 7
<PAID-IN-CAPITAL-COMMON> 7,749
<SHARES-COMMON-STOCK> 732
<SHARES-COMMON-PRIOR> 729
<ACCUMULATED-NII-CURRENT> 18
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 733
<ACCUM-APPREC-OR-DEPREC> 388
<NET-ASSETS> 7,429
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 208
<OTHER-INCOME> 0
<EXPENSES-NET> 10
<NET-INVESTMENT-INCOME> 198
<REALIZED-GAINS-CURRENT> (32)
<APPREC-INCREASE-CURRENT> 497
<NET-CHANGE-FROM-OPS> 663
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 194
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 210
<NUMBER-OF-SHARES-REDEEMED> 226
<SHARES-REINVESTED> 19
<NET-CHANGE-IN-ASSETS> 487
<ACCUMULATED-NII-PRIOR> 290
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 701
<GROSS-ADVISORY-FEES> 21
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 57
<AVERAGE-NET-ASSETS> 7,650
<PER-SHARE-NAV-BEGIN> 9.53
<PER-SHARE-NII> .26
<PER-SHARE-GAIN-APPREC> .60
<PER-SHARE-DIVIDEND> .25
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> .25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> IAI GOVERNMENT FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-01-1994
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 41,945
<INVESTMENTS-AT-VALUE> 42,676
<RECEIVABLES> 6,999
<ASSETS-OTHER> 40
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 49,715
<PAYABLE-FOR-SECURITIES> 8,260
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 92
<TOTAL-LIABILITIES> 8,352
<SENIOR-EQUITY> 42
<PAID-IN-CAPITAL-COMMON> 42,709
<SHARES-COMMON-STOCK> 4,161
<SHARES-COMMON-PRIOR> 3,994
<ACCUMULATED-NII-CURRENT> 70
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,941
<ACCUM-APPREC-OR-DEPREC> 484
<NET-ASSETS> 41,364
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,453
<OTHER-INCOME> 0
<EXPENSES-NET> 220
<NET-INVESTMENT-INCOME> 1,233
<REALIZED-GAINS-CURRENT> (646)
<APPREC-INCREASE-CURRENT> 1,954
<NET-CHANGE-FROM-OPS> 2,541
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,246
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,244
<NUMBER-OF-SHARES-REDEEMED> 1,201
<SHARES-REINVESTED> 124
<NET-CHANGE-IN-ASSETS> 2,926
<ACCUMULATED-NII-PRIOR> 1,350
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 935
<GROSS-ADVISORY-FEES> 110
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 234
<AVERAGE-NET-ASSETS> 40,089
<PER-SHARE-NAV-BEGIN> 9.92
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> .02
<PER-SHARE-DIVIDEND> .30
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.94
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
