<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
[_] Preliminary Proxy Statement
[_] Confidential, for use of the Commission Only (as permitted
by Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[_] Definitive Additional materials
[_] Soliciting Material Pursuant to (S) 240.14a-l l(c) or (S)
240.14a-12
IAI INVESTMENT FUNDS I, INC.
----------------------------
(Name of Registrant as Specified in its Charter)
Steven G. Lentz
Investment Advisers, Inc.
3700 First Bank Place
Minneapolis MN 55402
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-l l(c)(l)(ii), 14a~(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rule 14a~(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
___________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
___________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 *-/:
___________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
___________________________________________________________________________
*-/ Set forth the amount on which the filing fee is calculated and state
how it was determined.
(5) Total fee paid:
___________________________________________________________________________
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-l l(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
__________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
__________________________________________________________________________
(3) Filing Party:
__________________________________________________________________________
(4) Date Filed:
___________________________________________________________________________
<PAGE>
IAI INVESTMENT FUNDS I, INC., IAI INVESTMENT FUNDS II, INC., IAI INVESTMENT
FUNDS III, INC., IAI INVESTMENT FUNDS IV, INC., IAI INVESTMENT FUNDS V, INC.,
IAI INVESTMENT FUNDS VI, INC., IAI INVESTMENT FUNDS VII, INC.,
and IAI INVESTMENT FUNDS VIII, INC.
3700 First Bank Place, P.O. Box 357
Minneapolis, Minnesota 55440-0357
(612) 376-2700; (800) 945-3863
NOTICE OF JOINT SPECIAL SHAREHOLDERS' MEETING: MARCH 21, 1996
NOTICE IS HEREBY GIVEN that a joint special meeting of shareholders of IAI
Investment Funds I, Inc., on behalf of its portfolio known as IAI Bond Fund; IAI
Investment Funds II, Inc., on behalf of its portfolio known as IAI Growth Fund;
IAI Investment Funds III, Inc., on behalf of its portfolios known as IAI
International Fund and IAI Developing Countries Fund; IAI Investment Funds IV,
Inc., on behalf of its portfolio known as IAI Regional Fund; IAI Investment
Funds V, Inc., on behalf of its portfolio known as IAI Reserve Fund; IAI
Investment Funds VI, Inc., on behalf of its portfolios known as IAI Balanced
Fund, IAI Emerging Growth Fund, IAI Government Fund, IAI Midcap Growth Fund, IAI
Money Market Fund, and IAI Minnesota Tax Free Fund; IAI Investment Funds VII,
Inc., on behalf of its portfolio known as IAI Growth and Income Fund; and IAI
Investment Funds VIII, Inc., on behalf of its portfolio known as IAI Value Fund
(collectively, the "Corporations" or "Funds", as appropriate), will be held at
the Crowne Plaza Northstar Hotel, 618 Second Avenue South, Minneapolis,
Minnesota, at 10:00 a.m. Central Standard Time, for the following purposes:
1. To re-elect the directors of the Corporations.
2. To ratify the selection of KPMG Peat Marwick LLP as the independent
auditors of the Corporations for each Fund's current fiscal year.
3. To ratify the current Advisory and Administrative Agreements between
the Funds and Investment Advisers, Inc. ("IAI") and the Subadvisory
Agreements with IAI International Ltd.
4. To approve or reject new Management Agreement between the Funds and
IAI to replace the existing Funds' agreements and pursuant to which
IAI will provide, or arrange for the provision of, all services
required by a Fund in exchange for one all-inclusive fee and pursuant
to which IAI has agreed to bear all other Fund expenses.
5. To approve or reject an amendment to IAI's Subadvisory Agreement with
IAI International Ltd. with respect to IAI Developing Countries Fund
to conform it with the new Management Agreement.
6. To approve or reject an amendment to IAI's Subadvisory Agreement with
IAI International Ltd. with respect to IAI International Fund to
conform it with the new Management Agreement.
Shareholders of record on February 7, 1996 are the only persons entitled to
notice of and to vote at the meeting. Your attention is directed to the attached
Proxy Statement. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE
FILL IN, SIGN, DATE, AND MAIL THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN
ORDER TO SAVE FURTHER SOLICITATION EXPENSE. There is enclosed with the proxy an
addressed envelope for which no postage is required.
Dated: February 20, 1996 William C. Joas, Secretary
<PAGE>
IAI INVESTMENT FUNDS I, INC., IAI INVESTMENT FUNDS II, INC.,
IAI INVESTMENT FUNDS III, INC., IAI INVESTMENT FUNDS IV, INC.,
IAI INVESTMENT FUNDS V, INC., IAI INVESTMENT FUNDS VI, INC., IAI
INVESTMENT FUNDS VII, INC., IAI INVESTMENT FUNDS VIII, INC.
3700 First Bank Place, P.O. Box 357
Minneapolis, Minnesota 55440-0357
(612) 376-2700; (800) 945-3863
JOINT SPECIAL MEETING OF SHAREHOLDERS -- MARCH 21, 1996
The enclosed Proxy is solicited by the Board of Directors of the above-
referenced registered investment companies (individually a "Corporation",
collectively the "Corporations) in connection with a joint special meeting of
shareholders to be held on Thursday, March 21, 1996, at the Crowne Plaza
Northstar Hotel, 618 Second Avenue South, Minneapolis, Minnesota, at 10:00 a.m.
Central Standard Time, and any adjournments thereof. The shares of the capital
stock of each Corporation entitled to vote at the meeting are issued in series
representing different investment portfolios (individually a "Fund",
collectively the "Funds") as set forth below:
<TABLE>
<CAPTION>
OUTSTANDING SHARES AS OF
CORPORATION INVESTMENT PORTFOLIO FEBRUARY 7, 1996
- ----------- -------------------- ------------------------
<S> <C> <C>
IAI Investment Funds I, Inc. IAI Bond Fund 8,391,657
IAI Investment Funds II, Inc. IAI Growth Fund 1,783,509
IAI Investment Funds III, Inc. IAI International Fund 11,361,764
IAI Developing Countries Fund 729,914
IAI Investment Funds IV, Inc. IAI Regional Fund 23,818,616
IAI Investment Funds V, Inc. IAI Reserve Fund 5,913,780
IAI Investment Funds VI, Inc. IAI Balanced Fund 3,506,293
IAI Emerging Growth Fund 26,973,708
IAI Government Fund 4,676,687
IAI Midcap Growth Fund 6,606,674
IAI Minnesota Tax Free Fund 630,262
IAI Money Market Fund 32,030,371
IAI Investment Funds VII, Inc. IAI Growth and Income Fund 5,635,312
IAI Investment Funds VIII, Inc. IAI Value Fund 3,461,163
</TABLE>
The costs of solicitation, including the cost of preparing and mailing
the Notice of Meeting and this Proxy Statement will be paid by Investment
Advisers, Inc. ("IAI"), the investment adviser and manager of each Fund, and
Lloyds TSB Group plc, IAI's ultimate corporate parent. Such mailing occurred on
approximately February 20, 1996. Shareholder Communications Corporation ("SCC")
of New York, NY, has been retained by IAI to assist with the solicitation of
proxies. For this service, SCC will be paid a fee of $6,125 and will be
reimbursed for expenses up to $23,875.
A Proxy may be revoked before the meeting by giving written notice of
revocation in person or by mail to the Secretary of the Funds or at the meeting
prior to voting. Unless revoked, properly executed Proxies on which choices are
not specified by the shareholder will be voted as indicated in this Proxy
Statement in accordance with the recommendation of management. In instances
where choices are specified in the Proxy, those Proxies will be voted or the
vote will be withheld in accordance with the shareholder's choices.
Common shares represent the only class of securities of each Fund.
Only shareholders of record on February 7, 1996, as set forth above, may vote at
the meeting or any adjournments thereof. Each shareholder is entitled to one
vote for each share held. In the event that sufficient Proxy votes in favor of
the proposals set forth in the Notice of Joint Special meeting of Shareholders
for a Fund are not received by March 21, 1996, the persons named as proxies may
propose one or more adjournments of the meeting for
<PAGE>
that Fund to permit further solicitation of Proxies. Any adjournment will
require the affirmative vote of the holders of a majority of the shares present
in person or by Proxy at the meeting. The persons named as proxies will vote in
favor of such adjournment if they are instructed (by a majority of the shares
represented in person or by Proxy) to vote for the proposals set forth in the
Notice of Meeting for which adjournment has been proposed. The persons named as
proxies will vote against such adjournment if they are instructed (by a majority
of the shares represented in person or by Proxy) to vote against such proposals.
An abstention on any proposal will be counted as present for purposes of
determining whether a quorum of shares is present at the meeting with respect to
the proposal on which the abstention is noted, but will be counted as a vote
against such proposal. Under the Rules of the New York Stock Exchange, Proposals
3-6 are considered "nondiscretionary" proposals; therefore, brokers who hold
Fund shares in street name for customers are not authorized to vote on those
proposals on behalf of any customer who has not furnished the broker with
specific voting instructions as to such proposal. Such "broker non-votes" will
not be counted as present for purposes of calculating the vote with respect to
the nondiscretionary proposals.
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER, AND ADMINISTRATOR. IAI is each Fund's
investment adviser and also provides each Fund with significant administrative
and business management services. IAI Securities, Inc. ("IAIS"), is currently
the principal underwriter for each Fund. The address of IAI and of IAIS is 3700
First Bank Place, 601 Second Avenue South, Minneapolis, Minnesota 55440. IAI
International Ltd. is the subadviser for International Fund and Developing
Countries Fund. Its address is 10 Fleet Place, Limeburner Lane, London, U.K.
EC4M 7RH.
<TABLE>
<CAPTION>
SUMMARY OF PROPOSALS FUNDS AFFECTED
- -------------------- --------------
<S> <C>
(1) Re-election of Directors All Funds
(2) Ratification of Independent Accountants All Funds
(3) Ratification of Advisory Agreements, Subadvisory All Funds
Agreements and Administrative Agreements
(4) Approval of Management Agreements All Funds
(5) Approval of Amendment to Subadvisory Agreement Developing Countries Fund
(6) Approval of Amendment to Subadvisory Agreement International Fund
</TABLE>
ANNUAL REPORT. Each Fund will furnish, without charge, a copy of such Fund's
annual report and most recent semi-annual report succeeding the annual report,
if any, to a shareholder upon request. To request such materials, please call
the Funds at 1-800-943-3863.
SHARE OWNERSHIP
The following table sets forth, as of February 7, 1996, the number of
shares of each Fund beneficially owned, and the percentage of total outstanding
Fund shares such owned shares represent, by Fund directors individually, by all
Fund officers and directors as a group, and by persons and entities known by
Fund management to beneficially own more than 5% of each Fund's outstanding
shares. Except as set forth below, no person or entity, to the knowledge of
Fund management, beneficially owns more than 5% of any Fund's outstanding shares
as of February 7, 1996.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT OF OUTSTANDING
NAME OF BENEFICIAL OWNER OWNED SHARES
- ------------------------ ------------------- ----------------------
<S> <C> <C>
Directors:
Madeline Betsch 1,163 (Growth and Income) (1)
1,042 (Regional) (1)
1,674 (Value) (1)
889 (International) (1)
512 (Emerging Growth) (1)
1,235 (Midcap Growth) (1)
W. William Hodgson 2,748 (Regional) (1)
581 (Value) (1)
7,834 (International) (1)
3,246 (Emerging Growth) (1)
477 (Midcap Growth) (1)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
George R. Long 90 (Growth and Income) (1)
75 (Regional) (1)
62 (Value) (1)
32 (Bond) (1)
22 (Reserve) (1)
Noel P. Rahn 16,404 (Growth and Income) (1)
32,443 (Regional) (1)
28,540 (Value) (1)
42,062 (International) (1)
8,419 (Emerging Growth) (1)
29,199 (Midcap Growth) (1)
579 (Bond) (1)
126,457 (Minnesota Tax Free) 20.06 (Minnesota Tax Free)
10,277 (Dev. Countries) 1.41 (Dev. Countries)
Richard E. Struthers 5,460 (Regional) (1)
314 (Value) (1)
20,872 (International) (1)
7,414 (Emerging Growth) (1)
6,131 (Midcap Growth) (1)
4,437 (Bond) (1)
1,006 (Money Market) (1)
3,435 (Reserve) (1)
J. Peter Thompson 7,289 (Money Market) (1)
259 (Growth and Income) (1)
Charles H. Withers 58,573 (Regional Fund) (1)
133,103 (Growth and Income) 2.36 (Growth and Income)
3,899 (Emerging Growth) (1)
2,226,526 (Money Market) 6.95 (Money Market)
Fund Officers and Directors as a Group
Shares Beneficially Owned Percent of Outstanding Shares
--------------------------- -----------------------------
153,455 (Growth and Income) 2.72
45,933 (Bond) (1)
113,052 (Regional) (1)
45,406 (Value) 1.31
31,864 (Reserve) (1)
82,057 (International) (1)
38,582 (Government) (1)
41,284 (Emerging Growth) (1)
61,774 (Midcap Growth) (1)
151,548 (Minnesota Tax Free) 24.05
2,311,794 (Minnesota Tax Free) 7.22
8,098 (Growth) (1)
19,003 (Dev. Countries) 2.60
Owners of More than 5% Shares Beneficially Owned Percent of Outstanding Shares
--------------------------- -----------------------------
Pentair Inc. Retirement 71,150 (Growth and Income) 12.62 (Growth and Income)
Savings Plan
1500 County Road B2 West 960,917 (Balanced) 27.41 (Balanced)
St. Paul, MN 55113-3105
Universal Cooperatives, 283,221 (Growth and Income) 5.03 (Growth and Income)
Inc. Pension Plan
7801 Metro Parkway Box 460
Minneapolis, MN 55440
*Charles Schwab & Co., Inc. 511,350 (Bond) 6.09 (Bond)
Special Custody Account 1,538,139 (Regional) 6.46 (Regional)
for the Exclusive Benefit 338,802 (Value) 9.79 (Value)
of Customers 451,140 (Reserve) 7.63 (Reserve)
101 Montgomery Street 838,086 (International) 7.38 (International)
San Francisco, CA 94104 3,643,198 (Emerging Growth) 13.51 (Emerging Growth)
1,069,077 (Midcap Growth) 16.18 (Midcap Growth)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
First Trust NA as Trustee 300,806 (Value) 8.69 (Value)
for NSP Retirement Savings
Trust
P.O. Box 64482
St. Paul, MN 55164-0482
Investment Advisers, Inc. 451,140 (Reserve) 14.20 (Reserve)
3700 First Bank Place,
P.O. Box 357
Minneapolis, MN 55440
Bost & Co. 373,452 (Reserve) 6.31 (Reserve)
MHFF2528002
AIM #153-3002
P.O. Box 3198 3 Mellon Bank
Pittsburgh, PA 15230-3198
Greater Cleveland Hospital 1,163,487 (International) 10.24 (International)
Association
Retirement Plan Trust
1226 Huron Rd. Playhouse
Square
Cleveland, OH 44115
Strafe & Co. 1,790,663 (Emerging Growth) 6.64 (Emerging Growth)
FAO Thomson Consumer
Electronics
235 W. Shrock Rd.
Westerville, OH 43081
Robert D. Watson 42,488 (Minnesota Tax Free) 6.74 (Minnesota Tax Free)
4900 IDS Center
Minneapolis, MN 55402
First Trust NA as Trustee 663,911 (Balanced) 18.93 (Balanced)
for Professional Medical
Assoc. 401k Plan
P.O. Box 64010
St. Paul, MN 55164-0010
Bros. of the Christian 152,162 (Growth) 8.53 (Growth)
Schools Fund A
200 S. Frontage Rd. #300
Burr Ridge, IL 60521
Naeve Health Care Assoc. 94,555 (Growth) 5.30 (Growth)
Pension Plan
404 Fountain Street
Albert Lea, MN 56007
Norwest Bank Minnesota NATTEE 47,755 (Dev. Countries) 6.54 (Dev. Countries)
Account No. 1-28061-02-5
RE: 6E Fleet
733 Marquette Avenue - 5th Floor
Minneapolis, MN 55479-0036
</TABLE>
4
<PAGE>
Congdon Trust 38,653 (Dev. Countries) 5.30 (Dev. Countries)
807 Lonsdale Building
Duluth, MN 55802
IAI Trust Company 36,940 (Dev. Countries) 5.06 (Dev. Countries)
as Truste
FBO Investment
Advisors, Inc.
Profit Sharing and
Pension Trust
3700 First Bank Place,
P.O. Box 357
Minneapolis, MN 55440
- ---------------------------
* Holder of record, rather than beneficial owner.
(1) Less than one percent
PROPOSAL 1: RE-ELECTION OF DIRECTORS
At the meeting, the shareholders of each Corporation will be asked to
re-elect the members of each Corporation's Board of Directors (the "Directors").
Each Corporation's Bylaws provide that the number of directors may be
established by the shareholders. The Directors recommend that there be seven
directors. It is intended that the enclosed Proxy will be voted for the re-
election of the seven persons named below as Directors, unless such authority
has been withheld in the Proxy. The term of office of each person elected will
be until the next meeting of shareholders where directors are elected or until
his or her successor is duly elected and shall qualify. In accordance with each
Corporation's Bylaws, management currently does not intend to hold annual or
periodically scheduled regular meetings of shareholders. Information regarding
each nominee is set forth following his or her name below. Information regarding
Fund shares beneficially owned by each nominee is set forth above under "Share
Ownership".
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME AGE PRINCIPAL OCCUPATION
- --------------------------------------------------------------------------------
<S> <C> <C>
Madeline Betsch 53 Executive Vice President of CME-KHBB
Director since 1975 Advertising until 1994; currently retired.
- --------------------------------------------------------------------------------
W. William Hodgson 71 Information Manager of North Central, Home
Director since 1970 Office of the Prudential Insurance Company of
America until retirement in 1984.
- --------------------------------------------------------------------------------
George R. Long 65 Chairman of Mayfield Corp. (financial
Director since 1981 consultants and venture capitalists);
Director of Black Hawk Holdings, Inc.
- --------------------------------------------------------------------------------
Noel P. Rahn* 57 Chief Executive Officer and Director of IAI;
Director since 1974 Chairman of the Board of the nineteen IAI
Funds (including the new IAI Capital
Appreciation Fund).
- --------------------------------------------------------------------------------
Richard E. Struthers* 43 Executive Vice President of IAI; President
Director since 1992 and Director of the nineteen IAI Funds
(including the new IAI Capital Appreciation
Fund).
- --------------------------------------------------------------------------------
J. Peter Thompson 64 Grain farmer since 1974; prior thereto Senior
Director since 1978 Vice President and General Partner of Paine,
Webber, Jackson & Curtis, Inc. (diversified
financial services concern).
- --------------------------------------------------------------------------------
Charles H. Withers 69 Editor of Rochester Post-Bulletin, Rochester,
Director since 1979 Minnesota, from 1960 through March 1980;
consultant to such newspaper through 1990;
currently retired.
- --------------------------------------------------------------------------------
</TABLE>
* Denotes directors who are "interested persons" (as defined by the Investment
Company Act of 1940, as amended) of a Corporation and IAI. Messrs. Rahn and
Struthers are interested persons because of their employment with IAI.
Each of the nominees was nominated by Directors who are not interested
persons, as defined by the Investment Company Act of 1940, as amended (the "1940
Act"), of a Corporation or IAI ("disinterested directors"), and each has agreed
to serve as a Director. If any unforeseen event prevents one or more of the
nominees from serving as a director, your votes will be cast for the election of
a substitute or substitutes selected by the disinterested directors. In no
event, however, can the Proxies be voted for a greater number of persons than
the number of nominees named. Unless otherwise instructed, the proxies will
vote for the re-election of each Director.
5
<PAGE>
Each Corporation has an Audit Committee whose members are selected annually
by the full Board of Directors. The Audit Committee is comprised of
disinterested directors Madeline Betsch, William Hodgson, and J. Peter Thompson.
The Audit Committee recommends annually to the Directors a firm of independent
certified public accountants to audit the books and records of each Corporation
for the ensuing year; monitors that firm's performance; reviews with the firm
the scope and results of each audit and determines the need, if any, to extend
audit procedures; confers with the firm and representatives of a Corporation on
matters concerning a Corporation's financial statements and reports; evaluates
the independence of the firm; reviews procedures to safeguard portfolio
securities; reviews a Corporation's purchase from the firm of non-audit
services; reviews fees paid to the firm; and facilitates communication. The
Corporations do not have a standing compensation committee or a standing
nominating committee.
For the most recent fiscal year, the Directors of each Fund met four times,
except that the Directors of Bond Fund, Government Fund, Minnesota Tax Free
Fund, International Fund, Developing Countries Fund, Money Market Fund and
Reserve Fund met five times. The Audit Committee met twice during the last
fiscal year of each Fund. No director attended fewer than 75% of the total
number of Directors' meetings and the meetings held by all Directors' committees
on which such director served.
The following table sets forth the total compensation received by each
director from each Fund as of its most recent fiscal year end, as well as the
total compensation received by each director from all eighteen mutual funds
managed by IAI for the calendar year ended December 31, 1995. Neither Mr. Rahn
nor Mr. Struthers received any compensation and they are not included in the
table. No officer of a Fund received compensation from a Fund during its most
recent fiscal year. No director receives pension or retirement benefits from
any Fund.
<TABLE>
<CAPTION>
Total Comp. Total Comp. from Total Comp.
from each Fund Developing Countries from each Fund Total Compensation from
Director in Group 1* Fund in Group 2** IAI Mutual Funds
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Madeline Betsch $1,700 $1,425 $1,950 $28,725
- ----------------------------------------------------------------------------------------------------------------------------
W. Wm. Hodgson $1,700 $1,425 $1,950 $28,725
- ----------------------------------------------------------------------------------------------------------------------------
George R. Long $2,100 $1,225 $1,550 $27,725
- ----------------------------------------------------------------------------------------------------------------------------
J. Peter Thompson $1,700 $1,425 $1,950 $28,725
- ----------------------------------------------------------------------------------------------------------------------------
Charles H. Withers $2,100 $1,225 $1,550 $27,725
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* IAI Balanced Fund, IAI Midcap Growth Fund, IAI Emerging Growth Fund, IAI
Regional Fund, IAI Value Fund, IAI Growth Fund, and IAI Growth and Income Fund.
Directors Long and Withers received $1,300 from Growth Fund rather than the
$2,100 paid by the other Funds because Growth Fund held no restricted securities
committee meetings, for which each of the other Funds paid Long and Withers
$800.
** IAI International Fund, IAI Money Market Fund, IAI Reserve Fund, IAI Bond
Fund, IAI Government Fund, IAI Minnesota Tax Free Fund.
The vote of a majority of shares of each Corporation represented at the
meeting, provided at least a quorum (50% of the outstanding shares), is
represented in person or by proxy, is sufficient for the re-election of the
Directors. By completing the Proxy, you give the proxy the right to vote for
the persons named in the table above. If you elect to withhold authority for
any nominees, you may do so by making an "X" in the box marked "FOR" and by
striking a line through the nominee name on the Proxy, as further explained on
the Proxy itself.
All of the nominees listed above have consented to serve as directors if
elected. In the event any of the above nominees are not candidates for election
at the meeting, the proxies may vote for such other persons as management may
designate. Nothing currently indicates that such a situation will arise.
PROPOSAL 2: RATIFICATION OF INDEPENDENT AUDITORS
The 1940 Act provides that every registered investment company shall be
audited at least once a year by independent auditors selected by a majority of
the disinterested directors. The 1940 Act requires that the selection be
submitted for ratification or rejection by the shareholders at their next annual
meeting following the selection. The Directors, including the disinterested
directors, have selected KPMG Peat Marwick LLP to be the independent auditors
for the Corporations for their current fiscal years. KPMG Peat Marwick LLP has
no direct or material indirect financial interest in the Corporations or in IAI,
other than receipt of fees for services to the Corporations and IAI. KPMG Peat
Marwick LLP has also served as the independent auditors for IAI. At the
meeting, the shareholders of each Corporation will be asked to ratify the
selection of KPMG Peat Marwick LLP as each
6
<PAGE>
Corporation's independent auditors. KPMG Peat Marwick LLP representatives will
be present at the meeting and will have an opportunity to make a statement to
the shareholders and to respond to questions.
The vote of a majority of the shares of each Corporation represented at the
meeting, provided at least a quorum (50% of the outstanding shares) is
represented in person or by proxy, is sufficient for the ratification of the
selection of the independent auditors. Unless otherwise instructed, the proxies
will vote for the ratification of the selection of KPMG Peat Marwick LLP as each
Corporation's independent auditors.
EACH CORPORATION'S BOARD OF DIRECTORS RECOMMENDS THE RATIFICATION OF THE
SELECTION OF THE FUND'S INDEPENDENT AUDITORS. UNLESS OTHERWISE INSTRUCTED, THE
PROXIES WILL VOTE TO RATIFY THE SELECTION.
If any Corporation's shareholders fail to ratify the selection, the
Directors will promptly consider what action to take and could resubmit the
selection for shareholder ratification.
PROPOSAL 3: RATIFICATION OF EACH FUND'S ADVISORY, SUBADVISORY
AND ADMINISTRATIVE AGREEMENTS
IAI serves as the investment adviser, transfer agent and administrative and
accounting services agent to each Fund pursuant to written agreements.
Additionally, IAI's affiliate, IAI International Ltd. ("IAI International")
provides subadvisory services to International Fund and Developing Countries
Fund pursuant to written agreements. Collectively, such agreements are referred
to herein as the "Advisory, Subadvisory and Administrative Agreements".
Until December 28, 1995, IAI and IAI International were, indirectly,
wholly-owned subsidiaries of TSB Group plc ("TSB"), a diversified financial
services concern headquartered in the United Kingdom. On December 28, 1995, TSB
merged with Lloyds Bank Plc ("Lloyds"), another U.K.-based financial services
concern, to form Lloyds TSB Group plc ("Lloyds TSB"). As a result of the
merger, Lloyds became a wholly-owned subsidiary of TSB. The merger was
accomplished by an arrangement in which the holders of ordinary voting shares
of Lloyds received ordinary voting shares of TSB. At the close of the merger,
former TSB shareholders held approximately 30% and former Lloyds shareholders
held approximately 70% of Lloyds TSB's outstanding shares. No shareholder or,
to the knowledge of Lloyds TSB, group of shareholders, owned 3% or more of the
outstanding shares of Lloyds TSB upon consummation of the merger.
Each of the Advisory, Subadvisory and Administrative Agreements provides
that such agreement terminates upon its "assignment" as that term is defined in
the 1940 Act. The 1940 Act defines "assignment" as including "any direct or
indirect transfer or hypothecation of a . . . controlling block of the
[advisor's] outstanding voting securities by a security holder of the
[advisor]." Control is further defined as "the power to exercise a controlling
influence over the management or policies of a company." Control is presumed for
any person who directly or indirectly beneficially owns more than 25% of the
voting securities of any company. Although the merger of TSB and Lloyds resulted
in the transfer of in excess of 25% of the outstanding TSB shares, IAI has
concluded that the merger did not cause such an assignment. This conclusion is
based primarily upon the facts that the merger did not result in a transfer of
control by one shareholder to another person (and no one person may be viewed as
receiving a controlling block of shares) and that the merger did not result in
any actual change in control or change in the management, policies or operations
of IAI or IAI International.
Nevertheless, IAI and the Board believe it is in the best interests of Fund
shareholders to eliminate any possible uncertainty about the ongoing status of
the Advisory, Subadvisory and Administrative Agreements. Accordingly, at a
February 7, 1996, meeting IAI recommended and the Board directed that a proposal
be submitted to Fund shareholders to ratify the Advisory, Subadvisory and
Administrative Agreements for the period from the effective date of the merger,
December 28, 1995, going forward or until the effective date of the new
Management Agreements which are the subject of Proposal 4 below. In agreeing
with IAI's recommendation, the Board considered the facts that the Advisory,
Subadvisory and Administrative Agreements were unchanged and that the investment
management and operations of the Funds were also unchanged.
DESCRIPTION OF ADVISORY AGREEMENTS. IAI serves as the investment adviser
to each Fund pursuant to written advisory agreements (the "Advisory Agreements")
dated July 26, 1993 (except for Growth Fund's Advisory Agreement, which is dated
April 21, 1993). The Advisory Agreements provide that IAI will furnish each
Fund continuously with investment planning and advice with regard to the Fund's
portfolio, prepare and make available to the Fund necessary research and
statistical data in connection
7
<PAGE>
therewith, supervise the purchase and sale of specific investments by the Fund
and perform such other services as are reasonably incidental to such duties.
Additionally, IAI furnishes each Fund with office space and its employees serve
as directors and officers of the Funds. In return for these services, each of
the Funds has agreed to pay IAI an annual advisory fee as described below.
DESCRIPTION OF SUBADVISORY AGREEMENTS. IAI International serves as
investment subadviser for International Fund and Developing Countries Fund
pursuant to written agreements (the "Subadvisory Agreements") dated January 28,
1987 and January 23, 1995, respectively. The Subadvisory Agreements provide
that IAI International assumes the responsibilities and obligations IAI assumed
under its Advisory Agreements with such Funds. All investment decisions made by
IAI International are subject to approval or ratification by IAI. In return for
such services, IAI pays IAI International an annual fee as described below.
DESCRIPTION OF ADMINISTRATIVE AGREEMENTS. IAI serves as each Fund's
administrative agent, dividend disbursing agent, transfer agent, redemption
agent and accounting services agent pursuant to written administrative
agreements (the "Administrative Agreements") dated July 26, 1993 (except for
Growth Fund's Administrative Agreement which is dated February 10, 1993).
Accounting services include maintaining and keeping current required books and
records, calculating the Fund's net asset value each business day and preparing
and supplying the Fund with required daily and periodic reports. Transfer
agency services include making original issues of Fund shares in accordance with
a Fund's registration statement, processing purchase orders, effective transfers
of Fund shares, issuing replacement share certificates as applicable,
maintaining a Fund's stock registry records and performing other duties usually
and customarily performed by transfer agents. Other services performed by IAI
under each Administrative Agreement include processing of redemption requests,
processing dividends and distributions, preparation and mailing of tax
information forms, and mailing of semi-annual reports of the Funds.
SUMMARY OF FEES. Set forth below is a summary of fees paid under the
Funds' various agreements, as well as the fees under the Subadvisory Agreements
that IAI pays IAI International. Actual amounts paid during each Fund's last
fiscal year pursuant to such contracts are set forth below under "Supplemental
Information Regarding the Funds."
<TABLE>
<CAPTION>
ANNUAL EXPENSE
AVERAGE MONTH-END ANNUAL ANNUAL SUB- ADMIN. FEE LIMITATION
IAI FUND NET ASSET VALUE* ADVISORY FEE ADVISORY FEE (ALL ASSETS) (ALL ASSETS)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bond Fund All assets .55% N/A .20% 1.10%
- ----------------------------------------------------------------------------------------------------------------------------------
Government Fund All assets .55% N/A .20% 1.10%
- ----------------------------------------------------------------------------------------------------------------------------------
Minnesota Tax Free Fund All assets .55% N/A .20% .95%
- ----------------------------------------------------------------------------------------------------------------------------------
Reserve Fund All assets .50% N/A .20% .85%
- ----------------------------------------------------------------------------------------------------------------------------------
Money Market Fund All assets .30% N/A .20% N/A
- ----------------------------------------------------------------------------------------------------------------------------------
International Fund For the first $100,000,000 1.00% .50% .30% 2.00%
For the next $100,000,000 .85% .425%
For the next $100,000,000 .75% .375%
Above $300,000,000 .70% .35%
- ----------------------------------------------------------------------------------------------------------------------------------
Developing Countries Fund For the first $200,000,000 1.25% Half of Actual .30% N/A
For the next $200,000,000 1.10% Advisory Fee
Above $400,000,000 1.00% Paid to IAI
- ----------------------------------------------------------------------------------------------------------------------------------
Growth Fund, For the first $100,000,000 .75% N/A .20% 1.25%
Growth and Income Fund For the next $100,000,000 .65%
Above $200,000,000 .55%
- ----------------------------------------------------------------------------------------------------------------------------------
Balanced Fund, For the first $200,000,000 .75% N/A .20% 1.25%
Emerging Growth Fund, For the next $300,000,000 .70%
Midcap Growth Fund, Above $500,000,000 .65%
Regional Fund,
Value Fund
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* All such fees are calculated on the basis of a Fund's assets at the end of
each month except for Money Market Fund and Developing Countries Fund, the fees
of which are calculated on the basis of average daily net assets.
OTHER INFORMATION. In addition to the fees paid to IAI and IAI
International pursuant to the Advisory, Subadvisory and Administrative
Agreements, each Fund pays all of its operating expenses. Such expenses
include, without limitation, underwriting and distribution fees pursuant to Rule
12b-1 under the 1940 Act ("Rule 12b-1 fees"), costs incurred in the purchase and
sale of
8
<PAGE>
assets, interest, taxes, custodian fees and charges, costs of reports and
proxy materials sent to Fund shareholders, fees of independent auditors and
legal counsel, costs of printing prospectuses for shareholders, costs of
registering Fund shares, postage and insurance premiums. The Advisory
Agreements for all Funds except Money Market Fund and Developing Countries Fund
obligate IAI to reimburse such Funds for all Fund expenses (except for brokerage
commissions and other expenditures in connection with the purchase and sale of
portfolio securities, interest expense and, if a majority of the disinterested
director of a Fund first specifically approve, taxes and extraordinary expenses)
which for any fiscal year exceed certain limitations as summarized in the table
above. Additionally, from time to time, IAI and IAI International may
voluntarily waive fees or reimburse the Funds for expenses that exceed certain
thresholds.
The Advisory, Subadvisory and Administrative Agreements continue in force
from year to year only so long as such continuance is specifically approved at
least annually by the Directors or by a "majority" (as defined in the 1940 Act)
of the Fund's outstanding voting securities. Each Advisory, Subadvisory and
Administrative Agreement may be terminated without penalty by the Fund or IAI by
giving 60 days' prior written notice to the other party and terminates
automatically in the event of its "assignment" (as defined in the 1940 Act).
The Advisory, Subadvisory and Administrative Agreements were last approved by
the Funds' Board of Directors (including a majority of the directors who are not
interested persons of IAI or the Fund) on November 8, 1995. With respect to
Growth Fund and Developing Countries Fund, the Advisory Agreements were last
submitted for shareholder approval in July 20, 1993 and on January 23, 1995,
respectively, for the purpose of obtaining initial shareholder approval. With
respect to Bond Fund, International Fund, Reserve Fund, Balanced Fund,
Government Fund, Emerging Growth Fund, Midcap Growth Fund, Growth and Income
Fund and Value Fund, such Advisory Agreements were last submitted for
shareholder approval on June 25, 1993 for the purpose of approving an increase
in advisory fees while at the same time approving a decrease in 12b-1 fees, and
to eliminate IAI's obligation to reimburse Fund taxes and extraordinary expenses
above the expense limitation if such taxes and expenses are specifically
approved by a Fund's disinterested directors. Regional Fund's Advisory Agreement
and the Advisory Agreements of Minnesota Tax Free Fund and Money Market Fund
were last submitted to Fund shareholders on June 28 and June 23, 1993,
respectively, for the same purpose. The Subadvisory Agreement for Developing
Countries Fund was last submitted to Fund shareholders on January 23, 1995 for
the purpose of obtaining initial shareholder approval. The Subadvisory
Agreement for International Fund was last submitted to Fund shareholders on
December 10, 1987 for the purpose of approving a new agreement after the
assignment of the old agreement. Please see the sections "Supplemental
Information Regarding IAI" and Supplemental Information Regarding the Funds"
below for further information.
VOTING INFORMATION. Ratification of the Advisory, Subadvisory and
Administrative Agreements requires the affirmative vote of holders of a majority
of the outstanding shares of each Fund. For this purpose, the term "majority of
the outstanding shares" means the vote of (i) 67% or more of the shares of a
Fund present at the meeting, so long as the holders of more than 50% of a Fund's
outstanding shares are present or represented by proxy; or (ii) more than 50% of
the outstanding voting securities of a Fund, whichever is less.
EACH FUND'S BOARD OF DIRECTORS RECOMMENDS THE RATIFICATION OF THE ADVISORY,
SUBADVISORY AND ADMINISTRATIVE AGREEMENTS. UNLESS OTHERWISE INSTRUCTED, THE
PROXIES WILL VOTE TO RATIFY EACH SUCH AGREEMENT.
If any Fund's shareholders fail to ratify the Advisory, Subadvisory and
Administrative Agreements, such Fund's Board of Directors will promptly consider
what action to take and given IAI's conclusion on the assignment issue, may or
may not resubmit such Agreements for shareholder ratification.
PROPOSAL 4: APPROVAL OF NEW MANAGEMENT AGREEMENT FOR EACH FUND
SUMMARY. Currently, IAI and IAIS provide services to each Fund pursuant a
number of written agreements, each of which has its own fee structure. To
lessen shareholder confusion and increase shareholder understanding of the fees
each Fund pays, IAI has recommended to the Fund's Board of Directors that these
agreements be replaced with one agreement under which IAI will provide, or
arrange for the provision of, all services required by a Fund in exchange for
one all-inclusive fee (the "Management Agreement"). If this proposal is
approved, the current written agreements and each Fund's 12b-1 Plan will
terminate, as will IAIS' status as the principal underwriter for the Funds.
APPROVAL OF THIS PROPOSAL IS NOT INTENDED TO RESULT IN A FEE CHANGE.
BASES FOR RECOMMENDATION OF THE MANAGEMENT AGREEMENT. There are several
separate components to the fee structure of the IAI Mutual Funds. As described
in the Proposal 3, each Fund pays IAI a separate fee for investment advisory and
administrative services. Each Fund, except Money Market Fund, also pays a
separate fee to IAIS as principal underwriter of the
9
<PAGE>
Funds for services relating to the distribution of Fund shares and for servicing
shareholder accounts under each Fund's Plan of Distribution ("12b-1 Plan").
Finally, each Fund pays all of its other expenses. As discussed previously,
total expenses of each Fund, except Developing Countries Fund, are capped at the
limits set forth in the Advisory Agreements. IAI has concluded that this
structure is unnecessarily complicated and should be replaced by a simpler
structure in which IAI provides, or arranges for the provision of, investment
advisory, administrative, shareholder and other miscellaneous services in
exchange for one fee. This fee will not pay for distribution services; rather
such services, if performed, will be funded by IAI and will not be a Fund
expense. At a meeting held on February 7, 1996, the Directors agreed with IAI
and directed that a proposal be submitted to Fund shareholders at a special
joint meeting to approve the Management Agreements effective April 1, 1996 or
such later date as IAI may determine. The Directors based this approval on the
desire to simplify the Funds' fee structure and improve shareholder
communication and understanding. The Directors also relied on IAI's
representations THAT THE LEVEL OF SERVICES IAI WOULD PROVIDE EACH FUND WOULD
REMAIN THE SAME AND THAT THERE WOULD BE NO MATERIAL INCREASE IN THE FEES THE
FUNDS PAY UNDER THEIR CURRENT AGREEMENTS. The Directors also relied on a report
from IAI comparing the new fee structure for each Fund with the fees paid by
comparable funds. At the same meeting, the Directors also voted to terminate
the existing agreements under which each Fund was paying the separate fees
discussed above as well as each Fund's 12b-1 Plan, contingent upon shareholder
approval of the Management Agreements.
DESCRIPTION OF MANAGEMENT AGREEMENT. The Management Agreement provides
that IAI will provide or arrange for the provision of services needed by the
Funds. These services include investment advisory, administrative and other
miscellaneous shareholder services. The Management Agreement does not
compensate IAI for any distribution services it may arrange for the Funds. The
Management Agreement further provides that IAI will pay all of a Fund's expenses
except for brokerage commissions and other expenditures in connection with the
purchase and sale of portfolio securities, interest expense and any taxes and
extraordinary expenses specifically approved by a majority of a Fund's
disinterested directors. Finally, the basis for calculating the fees under the
Management Agreements is average daily net assets. The switch from average
month-end net assets to average daily net assets is expected to have a
negligible effect on the dollar amount of the total fees and expenses the
affected Funds pay. See the first table under "Fees and Expense Comparison"
below for further information. The text of the Management Agreement is attached
as an Exhibit at the end of this Proxy Statement.
The following table sets forth the new, all-inclusive fee, as a percentage
of a Fund's average daily net assets, that each Fund will pay IAI under the
Management Agreements:
<TABLE>
<CAPTION>
FIRST $100 MILLION $100-250 MILLION $250-500 MILLION OVER $500 MILLION
OF FUND ASSETS OF FUND ASSETS OF FUND ASSETS OF FUND FUND ASSETS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bond Fund 1.10 1.05 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------
Growth Fund 1.25 1.15 1.05 1.00
- --------------------------------------------------------------------------------------------------------------------
International Fund 1.70 1.45 1.30 1.30
- --------------------------------------------------------------------------------------------------------------------
Developing Countries Fund 2.00 1.95 1.75 1.65
- --------------------------------------------------------------------------------------------------------------------
Regional Fund 1.25 1.25 1.20 1.10
- --------------------------------------------------------------------------------------------------------------------
Reserve Fund 0.85 0.85 0.85 0.85
- --------------------------------------------------------------------------------------------------------------------
Balanced Fund 1.25 1.25 1.20 1.10
- --------------------------------------------------------------------------------------------------------------------
Government Fund 1.10 1.05 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund 1.25 1.25 1.20 1.10
- --------------------------------------------------------------------------------------------------------------------
Midcap Growth Fund 1.25 1.25 1.20 1.10
- --------------------------------------------------------------------------------------------------------------------
Minnesota Tax Free Fund 0.95 0.90 0.85 0.85
- --------------------------------------------------------------------------------------------------------------------
Money Market Fund 0.60 0.55 0.50 0.50
- --------------------------------------------------------------------------------------------------------------------
Growth and Income Fund 1.25 1.15 1.05 1.00
- --------------------------------------------------------------------------------------------------------------------
Value Fund 1.25 1.25 1.20 1.10
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
FEES AND EXPENSE COMPARISON. The following table sets forth each Fund's
total fees and expenses as of the last fiscal year end, what that total would
have been had the new, all-inclusive fee been in effect, and the difference
between the two.
<TABLE>
<CAPTION>
AGGREGATE FEES AND AGGREGATE FEES AND CHANGE FROM
FUND EXPENSES UNDER EXPENSES UNDER PROPOSED CURRENT
CURRENT AGREEMENTS MANAGEMENT AGREEMENTS AGREEMENTS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond Fund $ 875,850 $ 883,343 +0.85%
- ----------------------------------------------------------------------------------------------
Growth Fund $ 198,603 $ 193,373 -2.63%
- ----------------------------------------------------------------------------------------------
International Fund* $2,374,617 $2,331,377 -1.82%
- ----------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Developing Countries Fund* $ 116,781** $ 71,488 -38.78%
- ----------------------------------------------------------------------------------------------
Regional Fund $6,668,952 $6,596,319 -1.08%
- ----------------------------------------------------------------------------------------------
Reserve Fund* $ 641,557 $ 643,846 +0.36%
- ----------------------------------------------------------------------------------------------
Balanced Fund $ 546,094 $ 550,127 +0.74%
- ----------------------------------------------------------------------------------------------
Government Fund $ 477,229 $ 471,695 -1.16%
- ----------------------------------------------------------------------------------------------
Emerging Growth Fund $3,481,220 $3,415,089 -1.90%
- ----------------------------------------------------------------------------------------------
Midcap Growth Fund $ 906,205 $ 883,911 -2.52%
- ----------------------------------------------------------------------------------------------
Minnesota Tax Free Fund $ 68,209** $ 67,453 -1.11%
- ----------------------------------------------------------------------------------------------
Money Market Fund* $ 236,185** $ 192,796 -18.4%
- ----------------------------------------------------------------------------------------------
Growth and Income Fund $1,398,631 $1,384,747 -.99%
- ----------------------------------------------------------------------------------------------
Value Fund $ 461,190 $ 458,073 -.68%
- ----------------------------------------------------------------------------------------------
</TABLE>
* Because the last fiscal year ends for these Funds is so recent, the fees
stated are unaudited.
** Without IAI's voluntary fee waiver and/or expense reimbursement, which
resulted in actual net fees and expenses of $71,488 for Developing Countries
Fund, $17,745 for Minnesota Tax Free Fund and $159,799 for Money Market Fund.
Upon approval of the Management Agreement for these Funds, IAI intends to
continue its voluntarily waiver of fees in excess of .25% of Minnesota Tax Free
Fund's average daily net assets and .50% of Money Market Fund's average daily
net assets through June 30, 1996.
Except for Developing Countries Fund and Money Market Fund, a difference
exists because the basis for calculating the fees changes from average month-end
net assets to average daily net assets. The differences for Developing
Countries Fund and Money Market Fund result from the lack of a contractual
expense limitation under the current agreements.
The following tables show the fees and expenses paid by each Fund under the
Current Agreements during the most recent fiscal year and the fees and expenses
each Fund would have paid during such year had the proposed Management Agreement
been in effect. Proposed annual expenses are expressed as a percentage of
average daily net assets and current annual expenses are expressed as a
percentage of average month-end net assets, except for Developing Countries Fund
and Money Market Fund, the expenses of which are expressed as a percentage of
average daily net assets.
SHAREHOLDER TRANSACTION EXPENSES-ALL FUNDS
Under
Current Under Management
Agreements Agreements
- ------------------------------------------------------------------------------
Sales Load Imposed on Purchases None None
Sales Load Imposed on Reinvested Dividends None None
Redemption Fees None None
Exchange Fees None None
ANNUAL EXPENSES
<TABLE>
<CAPTION>
Emerging Growth and Midcap
Growth Fund Growth Fund Income Fund Growth Fund Regional Fund
Current/Proposed Current/Proposed Current/Proposed Current/Proposed Current/Proposed
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management Fee .74%/1.25% .75%/1.25% .74%/1.25% .75%/1.25% .71%/1.23%
Rule 12b-1 Fee .25%/None .02%/None .25%/None .18%/None .25%/None
Other Expenses .26%/None .48%/None .26%/None .32%/None .27%/None
----------- ----------- ----------- ----------- -----------
Total Fund Operating Expenses 1.25%/1.25% 1.25%/1.25% 1.25%/1.25% 1.25%/1.25% 1.23%/1.23%
----------- ----------- ----------- ----------- -----------
Government MN Tax Free Money Market
Bond Fund Fund Reserve Fund Fund Fund
Current/Proposed Current/Proposed Current/Proposed Current/Proposed Current/Proposed
- ----------------------------------------------------------------------------------------------------------------------------------
Management Fee .55%/1.10% .55%/1.10% .50%/.85% .50%/.95% .30%/.60%
Rule 12b-1 Fee .25%/None .22%/None .06%/None 0%/None None/None
Other Expenses .29%/None .33%/None .29%/None .45%/None .44%/None
----------- ----------- --------- --------- ---------
Total Fund Operating Expenses 1.09%/1.10% 1.10%/1.10% .85%/.85% .95%/.95% .74%/.60%
----------- ----------- --------- --------- ---------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
International Dev. Countries
Fund Fund Balanced Fund Value Fund
Current/Proposed Current/Proposed Current/Proposed Current/Proposed
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fee .95%/1.70% 1.25%/2.00% .75%/1.25% .75%/1.25%
Rule 12b-1 Fee .25%/None .25%/None .11%/None .12%/None
Other Expenses .52%/None 1.81%/None .39%/None .38%/None
---------- ---------- ---------- ----------
Total Fund Operating Expenses 1.72%/1.70% 3.26%/2.00% 1.25%/1.25% 1.25%/1.25%
----------- ----------- ----------- -----------
</TABLE>
The Annual Expenses for Minnesota Tax Free Fund, Money Market Fund, and
Developing Countries Fund are expressed without including IAI's voluntary fee
waiver and/or expense reimbursement. After such waiver and/or reimbursement,
the Total Fund Operating Expenses for each Fund would be .25%, .50% and 2.00%,
respectively.
The following example illustrates your total expenses on a $1,000 investment
in a Fund, assuming a five percent annual return and redemption at the end of
each period, under both the Current Agreements (without voluntary fee waiver
and/or expense reimbursement) and the proposed Management Agreements. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
1 Year 3 Year 5 Year 10 Year
FUND Current/Proposed Current/Proposed Current/Proposed Current/Proposed
- ---- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Bond Fund $11/$11 $ 35/$35 $ 60/$60 $133/$133
Growth Fund $13/$13 $ 40/$40 $ 69/$69 $151/$151
International Fund $17/$17 $ 54/$54 $ 93/$93 $203/$203
Developing Countries Fund $33/$20 $100/$63 $170/$108 $356/$233
Regional Fund $13/$13 $ 39/$39 $ 68/$68 $149/$149
Reserve Fund $ 9/$9 $ 27/$27 $ 47/$47 $105/$105
Balanced Fund $13/$13 $ 40/$40 $ 69/$69 $151/$151
Government Fund $11/$11 $ 35/$35 $ 61/$61 $134/$134
Emerging Growth Fund $13/$13 $ 40/$40 $ 69/$69 $151/$151
Midcap Growth Fund $13/$13 $ 40/$40 $ 69/$69 $151/$151
Minnesota Tax Free Fund* $10/$10 $ 30/$30 $ 53/$53 $117/$117
Money Market Fund $ 8/$6 $ 24/$19 $ 41/$33 $ 92/$75
Growth and Income Fund $13/$13 $ 40/$40 $ 69/$69 $151/$151
Value Fund $13/$13 $ 40/$40 $ 69/$69 $151/$151
</TABLE>
BROKERAGE. In selecting a broker, IAI may consider whether such broker
provides brokerage and research services (as defined in the Securities Exchange
Act of 1934). IAI may direct Fund transactions to brokers who furnish research
services (including advice as to the value of securities, reports concerning
industries, securities, and economic factors and trends). To the extent such
commissions are directed to brokers who furnish research services to IAI, IAI
receives a benefit, not capable of evaluation in dollar amounts, without
providing any direct monetary benefit to a Fund from these commissions.
Generally a Fund pays higher than the lowest commission rates available. Some
investment companies enter into arrangements under which a broker-dealer agrees
to pay the cost of certain products or services (not including research
services) in exchange for fund brokerage ("brokerage/service arrangements").
Under a typical brokerage/service arrangement, a broker agrees to pay a fund's
custodian fees or transfer agent fees and, in exchange, the fund agrees to
direct a minimum amount of brokerage to the broker. IAI does not intend to
enter into such brokerage/service arrangements on behalf of the Funds. Some
investment companies enter into agreements that provide for specified or
reasonably ascertainable fee reductions in exchange for the use of fund assets
("expense offset agreements"). Under such expense offset agreements, expenses
are reduced by foregoing income rather than by re-characterizing them as capital
items. For example, a fund may have a "compensating balance" agreement with its
custodian under which the custodian reduces its fees if the fund maintains cash
or deposits with the custodian in non-interest bearing accounts. IAI does not
intend to enter into expense offset agreements involving assets of the Funds.
VOTING INFORMATION. Approval of the Management Agreements requires the
affirmative vote of holders of a majority of the outstanding shares of each
Fund. For this purpose, the term "majority of the outstanding shares" means the
vote of (i) 67% or more
12
<PAGE>
of the shares of a Fund present at the meeting, so long as the holders of more
than 50% of a Fund's outstanding shares are present or represented by proxy; or
(ii) more than 50% of the outstanding voting securities of a Fund, whichever is
less.
EACH FUND'S BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF THE MANAGEMENT
AGREEMENT. UNLESS OTHERWISE INSTRUCTED, THE PROXIES WILL VOTE TO APPROVE EACH
AGREEMENT.
If any Fund's shareholders fail to approve the Management Agreement for a
Fund, such Fund's Directors will promptly consider what action to take and could
resubmit the Agreement for shareholder approval.
PROPOSAL 5: APPROVAL OF AMENDMENT TO DEVELOPING COUNTRIES FUND'S SUBADVISORY
AGREEMENT
As discussed above, the Subadvisory Agreement for Developing Countries Fund
provides that IAI International will be paid half of the fee IAI collects under
the Advisory Agreement between IAI and the Fund. If the shareholders of
Developing Countries Fund approve the Management Agreement pursuant to Proposal
4, the Advisory Agreement and its fee structure will be replaced. To
accommodate this change and to specify the fee paid to IAI International without
reference to another agreement, IAI has recommended that the Subadvisory
Agreement be amended to specify that IAI will pay IAI International an annual
fee based on the average daily net assets of Developing Countries Fund as
follows:
For the first $200,000,000 1/2 of 1.25%
For the next $200,000,000 1/2 of 1.10%
Above $400,000,000 1/2 of 1.00%.
Actual fees paid to IAI International under the Subadvisory Agreement for the
last fiscal year are set forth below under "Supplemental Information Regarding
the Funds". Such fees would have been the same had the proposed amendment been
in effect. At a February 7, 1996, meeting, the Directors agreed with IAI and
directed that a proposal be submitted to Fund shareholders at a special joint
meeting to approve the amendment contingent upon shareholder approval of the
Management Agreement for Developing Countries Fund. The Directors based the
recommendation on their recognition that the Subadvisory Agreement would no
longer technically be accurate if the Management Agreement is approved and on
their understanding that the fee to IAI International will be unchanged.
Approval of the amendment requires the affirmative vote of holders of a
majority of the outstanding shares of Developing Countries Fund. For this
purpose, the term "majority of the outstanding shares" means the vote of (i) 67%
or more of the shares of the Fund present at the meeting, so long as the holders
of more than 50% of the Fund's outstanding shares are present or represented by
proxy; or (ii) more than 50% of the outstanding voting securities of the Fund,
whichever is less.
DEVELOPING COUNTRIES FUND'S BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF THE
AMENDMENT TO THE SUBADVISORY AGREEMENT. UNLESS OTHERWISE INSTRUCTED, THE
PROXIES WILL VOTE TO APPROVE THE AMENDMENT.
If Developing Countries Fund's shareholders fail to approve the amendment to
the Subadvisory Agreement the Directors will promptly consider what action to
take and could resubmit the amendment for shareholder approval.
PROPOSAL 6: APPROVAL OF AMENDMENT TO INTERNATIONAL FUND'S SUBADVISORY AGREEMENT
As discussed in Proposal 3, the Subadvisory Agreement between IAI and IAI
International for International Fund provides that IAI will pay IAI
International a monthly fee based on the value of the Fund's month-end net
assets. For the last fiscal year, IAI International received $684,000 under the
Subadvisory Agreement. Because the new Management Agreement compensates IAI on
the basis of average daily net assets, the Subadvisory Agreement must be amended
to accommodate this change. IAI has recommended that the Subadvisory Agreement
be amended to compensate IAI International on the basis of average daily net
assets. At a February 7, 1996, meeting, the Directors agreed with IAI and
directed that a proposal be submitted to Fund shareholders at a special joint
meeting to approve the amendment contingent upon shareholder approval of the
Management Agreement. The Directors based the recommendation on their
recognition that the Subadvisory Agreement is inconsistent with the Management
Agreement. Had the amended Subadvisory Agreement been in effect during the last
fiscal year, IAI International would have received $685,059 rather than
$684,000, an increase of 0.15%.
13
<PAGE>
Approval of the amendment requires the affirmative vote of holders of a
majority of the outstanding shares of International Fund. For this purpose, the
term "majority of the outstanding shares" means the vote of (i) 67% or more of
the shares of the Fund present at the meeting, so long as the holders of more
than 50% of the Fund's outstanding shares are present or represented by proxy;
or (ii) more than 50% of the outstanding voting securities of the Fund,
whichever is less.
INTERNATIONAL FUND'S BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF THE AMENDMENT
TO THE SUBADVISORY AGREEMENT. UNLESS OTHERWISE INSTRUCTED, THE PROXIES WILL
VOTE TO APPROVE THE AMENDMENT.
If International Fund's shareholders fail to approve the amendment to the
Subadvisory Agreement, the Directors will promptly consider what action to take
and could resubmit the amendment for shareholder approval.
SUPPLEMENTAL INFORMATION REGARDING IAI AND IAI INTERNATIONAL
Each of IAI and IAI International is an indirect wholly owned subsidiary of
Hill Samuel Group BV ("Hill Samuel"), an international merchant banking and
financial services firm headquartered in London, England. Hill Samuel's
principal offices are at 100 Wood Street, London, ECS P2AJ, UK. Hill Samuel, in
turn, is owned by Lloyds TSB Group, plc ("Lloyds TSB"), a publicly-held
financial services organization headquartered in London, England. The principal
offices of Lloyds TSB are at St. George's House, 6 - 8 Eastcheap, London, EC3M
1LL, UK. Set forth below is the name and principal occupation of the principal
executive officer and each director of IAI and IAI International:
<TABLE>
<CAPTION>
NAME POSITION WITH IAI POSITION WITH IAI INT'L OTHER PRINCIPAL OCCUPATIONS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles P. Barrington Director None Managing Director of Hill
100 Wood Street, Samuel Bank
London EC2P 2AJ
- ----------------------------------------------------------------------------------------------------------------
Hillary Fane None Director, Deputy Chief None
10 Fleet Place Investment Officer
Limeburner Lane
London EC4M 7RH
- ----------------------------------------------------------------------------------------------------------------
Hugh R. Freedberg Chairman of the Board None Chief Executive Hill Samuel
100 Wood Street, Bank
London EC2P 2AJ
- ----------------------------------------------------------------------------------------------------------------
Roy C. Gillson None Director, Chief None
10 Fleet Place Investment Officer
Limeburner Lane
London EC4M 7RH
- ----------------------------------------------------------------------------------------------------------------
Larry R. Hill Director, Executive None None
Vice President
- ----------------------------------------------------------------------------------------------------------------
Irving P. Knelman Director, Executive Director None
Vice President
- ----------------------------------------------------------------------------------------------------------------
Andrew Scott Plummer Director None Legal Adviser to Lloyds TSB
60 Lombard Street, Group plc
London, EC3V 9DN
- ----------------------------------------------------------------------------------------------------------------
Noel P. Rahn Director, Chief Chairman of the Board None
Executive Officer
- ----------------------------------------------------------------------------------------------------------------
Eric St. C. Stobart Director None Director of Hill Samuel Bank
100 Wood Street,
London, EC2P 2AJ
- ----------------------------------------------------------------------------------------------------------------
Richard E. Struthers Director, Executive None None
Vice President
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The business address of Messrs. Rahn, Hill, Knelman and Struthers is the same as
that of IAI.
14
<PAGE>
SUPPLEMENTAL INFORMATION REGARDING THE FUNDS
The actual amount of the investment advisory fee, the subadvisory fee, as
well as amounts paid by each Fund to IAI for administrative services and to IAIS
for distribution and shareholder services ("Rule 12b-1 fee"), during each Fund's
last fiscal year is set forth below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FUND ADVISORY FEE SUBADVISORY FEE ADMINISTRATIVE FEE RULE 12B-1 FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bond Fund $ 441,516 N/A $ 160,551 $ 200,689
- -------------------------------------------------------------------------------------------------------------
Growth Fund $ 119,142 N/A $ 31,771 $ 3,091
- -------------------------------------------------------------------------------------------------------------
International Fund* $1,368,001 $684,000 $ 429,883 $ 358,236
- -------------------------------------------------------------------------------------------------------------
Developing Countries Fund*# $ 8,362 $ 4,181 $ 10,731 $ 0
- -------------------------------------------------------------------------------------------------------------
Regional Fund $3,866,797 N/A $1,082,091 $1,352,614
- -------------------------------------------------------------------------------------------------------------
Reserve Fund* $ 377,386 N/A $ 150,954 $ 17,573
- -------------------------------------------------------------------------------------------------------------
Balanced Fund $ 327,630 N/A $ 87,368 $ 50,064
- -------------------------------------------------------------------------------------------------------------
Emerging Growth Fund $2,049,484 N/A $ 556,995 $ 694,592
- -------------------------------------------------------------------------------------------------------------
Midcap Growth Fund $ 543,698 N/A $ 144,986 $ 133,487
- -------------------------------------------------------------------------------------------------------------
Government Fund $ 238,633 N/A $ 86,776 $ 95,435
- -------------------------------------------------------------------------------------------------------------
Minnesota Tax Free Fund# $ 0 N/A $ 0 $ 0
- -------------------------------------------------------------------------------------------------------------
Money Market Fund*# $ 19,492 N/A $ 63,919 $ 0
- -------------------------------------------------------------------------------------------------------------
Growth and Income Fund $ 827,288 N/A $ 223,782 $ 273,792
- -------------------------------------------------------------------------------------------------------------
Value Fund $ 276,714 N/A $ 73,790 $ 43,432
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Because the last fiscal year ends for these Funds is so recent (1-31-96), the
fees stated are unaudited.
# Pursuant to IAI's and IAIS' voluntary waiver of fees and/or expenses in excess
of 2.00% of Developing Countries Fund's average daily net assets, .25% of
Minnesota Tax Free Fund's average month-end net assets, and .50% of Money Market
Fund's average daily net assets.
The following is a list of each officer or director of a Fund who is also
an officer, employee or director of IAI or IAI International. All positions
listed in the last column are with IAI unless otherwise identified.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
NAME AGE POSITION WITH FUND POSITION WITH IAI/IAI INT'L
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Archie C. Black III 33 Treasurer (all Funds) Senior Vice
President, Chief
Financial Officer
- ---------------------------------------------------------------------------------------
Scott A. Bettin 41 Vice President, Senior Vice
Investments (Bond President, Fixed
Fund, Government Fund) Income Portfolio
Manager
- ---------------------------------------------------------------------------------------
Steve C. Coleman 48 Vice President, Senior Vice
Investments President, Fixed
(Government Fund, Income Portfolio
Minnesota Tax Free Manager
Fund)
- ---------------------------------------------------------------------------------------
Livingston G. Douglas 35 Vice President, Vice President,
Investments (Bond Fixed Income
Fund, Minnesota Tax Portfolio Manager
Free Fund, Reserve
Fund)
- ---------------------------------------------------------------------------------------
Christine A. Duval 26 Assistant Secretary Transfer Agency
(all Funds) Manager
- ---------------------------------------------------------------------------------------
Roy C. Gillson 43 Vice President, IAI Int'l: Director,
Investments Chief Investment
(International Fund, Officer
Developing Countries
Fund)
- ---------------------------------------------------------------------------------------
Kirk L. Gove 33 Vice President, Vice President
Marketing (all funds)
- ---------------------------------------------------------------------------------------
Susan J. Haedt 33 Vice President and Vice President,
Director of Operations Director of Fund
(all Funds) Operations
- ---------------------------------------------------------------------------------------
Larry R. Hill 43 Vice President, Executive Vice
Investments (Bond President, Director,
Fund, Balanced Fund) Chief Fixed Income
Officer
- ---------------------------------------------------------------------------------------
Mark C. Hoonsbeen 34 Vice President, Vice President,
Investments (Regional Equity Portfolio
Fund) Manager
- ---------------------------------------------------------------------------------------
William C. Joas 33 Secretary (all Funds) Vice President,
Associate Counsel
- ---------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
Rick D. Leggott 37 Vice President, Senior Vice
Investments (Emerging President, Equity
Growth Fund) Portfolio Manager
- --------------------------------------------------------------------------------
Todd L. McCallister 36 Vice President, Vice President,
Investments (Growth Director of Asset
and Income Fund) Allocation &
Quantitative Research
- --------------------------------------------------------------------------------
David A. McDonald 35 Vice President, Vice President,
Investments (Growth Equity Portfolio
Fund) Manager
- --------------------------------------------------------------------------------
Timothy A. Palmer 33 Vice President, Senior Vice
Investments (Money President, Fixed
Market Fund, Reserve Income Portfolio
Fund) Manager
- --------------------------------------------------------------------------------
Douglas R. Platt 54 Vice President, Senior Vice
Investments (Value President, Equity
Fund) Portfolio Manager
- --------------------------------------------------------------------------------
Noel P. Rahn 57 Chairman of the Board IAI: Chief Executive
(all Funds) Officer, Director;
IAI Int'l: Chairman
of the Board
- --------------------------------------------------------------------------------
Michelle R. Regnier 28 Assistant Secretary Regulatory Specialist
(all Funds)
- --------------------------------------------------------------------------------
Mark L. Simenstad 37 Vice President, Vice President,
Investments (Balanced Fixed Income
Fund) Portfolio Manager
- --------------------------------------------------------------------------------
R. David Spreng 34 Vice President, Senior Vice President
Investments (Regional
Fund, Value Fund,
Growth and Income
Fund, Balanced Fund,
Emerging Growth Fund,
Midcap Growth Fund)
- --------------------------------------------------------------------------------
Richard E. Struthers 43 President (all Funds) Executive Vice
President, Director
- --------------------------------------------------------------------------------
John A. Twele 37 Vice President, Vice President,
Investments (Balanced Equity Portfolio
Fund, Growth Fund) Manager
- --------------------------------------------------------------------------------
Suzanne F. Zak 36 Vice President, Senior Vice
Investments (Midcap President, Equity
Growth Fund) Portfolio Manager
- --------------------------------------------------------------------------------
No officer or director of the Funds owns any securities of IAI or IAI
International. No officer or director of the Funds owns any securities of or
has any other material direct or indirect interest in IAI or IAI International
or any person controlling, controlled by or under common control with IAI or IAI
International. None of the executive officers or directors has family
relationships with other executive officers or directors.
The table below sets forth certain information as of February 7, 1996,
concerning other mutual funds for which IAI serves as investment adviser and
manager that have investment objectives similar to any of the Funds and
describes the rate of compensation such funds pay IAI.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Annual Fee
Name of Investment Company Size of Fund as of (based on average daily net
and/or Portfolio February 7, 1996 assets)
- -------------------------------------------------------------------------------------
<S> <C> <C>
IAI Investment Funds I, Inc. $102,391,000 .50%
IAI Institutional Bond Fund
- -------------------------------------------------------------------------------------
IAI Retirement Funds, Inc. $ 5,477,000 .65%
Regional Portfolio
- -------------------------------------------------------------------------------------
IAI Retirement Funds, Inc. $ 778,000 .65%
Reserve Portfolio
- -------------------------------------------------------------------------------------
IAI Retirement Funds, Inc. $ 842,000 .45%
Balanced Portfolio
- -------------------------------------------------------------------------------------
IAI Investment Funds VI, Inc. $ 1,840,000 1.40% on first $250 million
IAI Capital Appreciation Fund 1.35% on next $250 million
1.30% over $500 million
- -------------------------------------------------------------------------------------
Target Portfolio Trust $ 59,407,457 .30%
Small Cap Growth Portfolio
(Subadviser to Prudential Mutual
Fund Mgmt.)
- ------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
With respect to Capital Appreciation Fund, IAI has waived such fees in excess of
1.25% of the Fund's average daily net assets until March 31, 1997.
OTHER MATTERS
The Funds' Board of Directors knows of no other business to be brought
before the meeting. However, if any other matters are properly brought before
the meeting, it is the intention that proxies which do not contain specific
restrictions to the contrary will be voted on such matters in accordance with
the judgment of the persons named in the enclosed form of proxy.
SUBMISSION OF CERTAIN SHAREHOLDER PROPOSALS
The Funds do not hold annual shareholder meetings. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to William C. Joas, 3700 First Bank
Place, P.O. Box 357, Minneapolis, MN 5544-0357.
NOTICE TO BANKS, BROKER-DEALERS, AND VOTING TRUSTEES AND THEIR NOMINEES
Please advise the applicable Fund(s), in care of Investment Advisers, Inc.,
P.O. Box 357, Minneapolis, MN 55440-0357, whether other persons are beneficial
owners of shares for which proxies are being solicited and, if so, the number of
copies of the Proxy Statement you wish to receive in order to supply copies to
the beneficial owners of the respective shares.
Dated: February 20, 1996
William C. Joas
Secretary
17
<PAGE>
EXHIBIT
MANAGEMENT AGREEMENT
This Agreement is made and entered into as of _______________, 1996 by
and between Investment Advisers, Inc., a Delaware corporation ("IAI"), and IAI
Investment Funds __, Inc., a Minnesota corporation (the "Company"), on behalf of
IAI __________________ Fund, the portfolio represented by the Company's Series
__ Common Shares (the "Fund").
1. ENGAGEMENT OF IAI; SERVICES.
----------------------------
(a) Investment Advisory Services. The Company hereby engages IAI on
behalf of the Fund, and IAI hereby agrees, pursuant to the terms and conditions
hereinafter set forth, to furnish the Fund continuously with investment
planning, to provide investment advice with regard to the Fund's portfolio, to
prepare and make available to the Fund necessary research and statistical data
in connection therewith, to supervise the acquisition and disposition of
specific securities by the Fund and to perform such other services as are
reasonably incidental to the foregoing duties as investment adviser for, and to
manage the investment of the assets of, the Fund. IAI covenants and agrees that,
in effecting acquisitions and dispositions of specific investments on behalf of
the Fund, IAI shall at all times be governed by the Fund's investment
objectives, restrictions and policies as delineated and limited by the
disclosures contained in the various documents filed with the Securities and
Exchange Commission on behalf of the Fund, as such documents may from time to
time be amended or supplemented. IAI shall report to the Company's Board of
Directors regularly at such times and in such detail as the Board may from time
to time determine appropriate, in order to permit the Board to determine the
adherence of IAI to the Fund's investment objectives, policies and limitations.
(b) Dividend Disbursing, Accounting, Administrative and Transfer
Agency Services. The Company on behalf of the Fund hereby engages IAI, and IAI
hereby agrees, to provide to the Fund with all dividend disbursing, accounting,
administrative and transfer agency services required by the Fund, including,
without limitation, the following services:
(1) The calculation of net asset value per share at such times
and in such manner as specified in the Fund's current Prospectus and
Statement of Additional Information and at such other times upon which the
parties hereto may from time to time agree. The pricing services or other
sources from which daily price quotations on portfolio securities are to be
obtained for purposes of calculating the Fund's daily net asset value shall
be paid for by IAI and approved by the Company;
(2) Upon the receipt of funds for the purchase of Fund shares or
the receipt of redemption requests with respect to Fund shares outstanding,
the calculation of the number of shares to be purchased or redeemed,
respectively;
(3) Upon the Fund's distribution of dividends, (i) the
calculation of the amount of such dividends to be received per Fund share,
(ii) the calculation of the number of additional Fund shares to be received
by each Fund shareholder, other than any shareholder who has elected to
receive such dividends in cash, and (iii) the mailing of payments with
respect to such dividends to shareholders who have elected to receive such
dividends in cash;
(4) The provision of transfer agency services as described below:
(i) IAI shall make original issues of shares of the Fund
in accordance with the Fund's current Prospectus and Statement of
Additional Information and with instructions from the Company;
(ii) Prior to the daily determination of net asset value of
the Fund, IAI shall process all purchase orders received since the
last determination of the Fund's net asset value;
(iii) Transfers of shares shall be registered;
(iv) IAI will maintain stock registry records in the usual
form in which it will note the issuance, transfer and redemption of
Fund shares, and is also authorized to maintain an account in which it
will record the Fund shares and fractions issued and outstanding from
time to time for which issuance of Fund share certificates is
deferred; and
18
<PAGE>
(v) IAI will, in addition to the aforementioned duties and
functions, perform the usual duties and functions of a stock transfer
agent for a registered investment company;
(5) The creation and maintenance of such records relating to the
business of the Fund as the Company may from time to time reasonably
request;
(6) The preparation of tax forms, reports, notices, proxy
statements, proxies and other Fund shareholder communications, and the
mailing thereof to Fund shareholders; and
(7) The provision of such other dividend disbursing, accounting,
administrative, accounting and transfer agency services upon which the
parties hereto may from time to time agree.
(8) The Fund hereby authorizes IAI to contract with qualified
entities for the provision of any of the services to be performed pursuant
to this Section 1(b).
(c) Shareholder Services. The Company on behalf of the Fund hereby
engages, and IAI hereby agrees, to provide the Fund with all services to
shareholders not otherwise the subject of Section 1(b) above. These shareholder
services may include personal services provided to shareholders, such as
answering shareholder inquiries regarding a Fund and providing reports and other
information and services related to the maintenance of shareholder accounts.
The Fund hereby also authorizes IAI to contract with qualifying broker-dealers,
financial institutions and other such entities for the provision of such
services to Fund shareholders.
(d) Filings, Office Facilities, Equipment and Personnel. IAI shall,
at its own expense, file all documents with all relevant regulatory agencies and
governmental authorities on the Company's behalf, furnish the Company and the
Fund with all office facilities, equipment and personnel necessary to discharge
its responsibilities and duties hereunder. IAI shall arrange, if requested by
the Company, for officers or employees of IAI to serve without compensation from
the Company as directors, officers, or employees of the Company if duly elected
to such positions by the shareholders or directors of the Company.
(e) Other Services. IAI shall, at its own expense, provide or arrange
for the provision of all services required by the Company on behalf of the Fund
not otherwise addressed in this Agreement.
(f) Books and Records. IAI hereby acknowledges that all records
pertaining to the services rendered hereunder are the sole and exclusive
property of the Company, and in the event that a transfer of any of the services
currently rendered hereunder to someone other than IAI should ever occur, IAI
will promptly, and at its own cost, take all steps necessary to segregate such
records and deliver them to the Company.
(g) No Separate Charges to Shareholders. IAI hereby covenants and
agrees that it will make no separate charge to any Fund shareholder or his
individual account for any services rendered to said shareholder, the Fund or
the Company unless such charge for special services is specifically approved by
the Board including a majority of the directors who are not "interested persons"
(as such term is defined in the Investment Company Act of 1940, as amended,
which act, as amended and together with all rules and regulations promulgated
thereunder, is hereinafter referred to as the "1940 Act") of IAI. No special
charge will be levied retroactively or without appropriate notice to affected
shareholders.
(h) Limitation of Liability. IAI, in carrying out and performing the
terms and conditions of this Agreement, shall incur no liability for its status
hereunder or for any actions taken or omitted in good faith and without
negligence. Without limitation of the foregoing:
(1) IAI may rely upon, and shall not be liable to any person or
party for any actions taken or omitted to be taken in good faith in
reliance upon, the advice of the Company, or of counsel, who may be counsel
for the Company or counsel for IAI, and upon statements of accountants,
brokers and other persons believed by IAI in good faith to be expert in the
matters upon which they are consulted; and
(2) IAI may rely upon, and shall not be liable to any person or
party for any actions taken or omitted to be taken in good faith in
reliance upon, any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report, notice,
consent, order or other paper or document that IAI in good faith believes
to be genuine and to have been signed, presented or authorized by the
purchaser, Company or other proper party or parties.
19
<PAGE>
2. COMPENSATION FOR SERVICES; ALLOCATION OF EXPENSES
-------------------------------------------------
(a) In payment for the services to be provided or arranged by IAI
hereunder, the Company (on behalf of the Fund) shall pay to IAI a fee based on
the Fund's average daily net assets (as determined in accordance with the
Company's Bylaws and with the Fund's Prospectus and Statement of Additional
Information, as the same may from time to time be amended or supplemented) as
set forth in Exhibit A attached hereto. This fee shall be paid to IAI on a
monthly basis not later than the tenth business day of the month following the
month in which the services were rendered and shall be prorated for any fraction
of a month at the commencement or termination of this Agreement.
(b) Except for brokerage commissions and other expenditures in
connection with the purchase and sale of portfolio securities, interest expense
and, subject to the specific approval of a majority of the directors of the
Company who are not "interested persons" (as defined in the 1940 Act) of IAI or
the Company, taxes and extraordinary expenses, IAI shall bear all of the Fund's
expenses; provided however, that IAI will either pay the fees and the ordinary
and reasonable expenses of the Fund's disinterested directors or reduce the fee
due under this Agreement by an equivalent amount paid by the Fund to such
directors.
3. FREEDOM TO DEAL WITH THIRD PARTIES.
-----------------------------------
[A] shall be free to render services to others similar to those
rendered under this Agreement or of a different nature except as such services
may conflict with the services to be rendered or the duties to be assumed
hereunder.
4. EFFECTIVE DATE, DURATION, AMENDMENT AND TERMINATION OF AGREEMENT.
----------------------------------------------------------------
(a) Unless sooner terminated as hereinafter provided, this Agreement
shall continue in effect for a period more than two years from the date of its
execution but only as long as such continuance is specifically approved at least
annually by (i) the Board of Directors of the Company or by the vote of a
majority of the outstanding voting securities of the Fund, and (ii) by the vote
of a majority of the directors of the Company who are not parties to this
Agreement or "interested persons" (as defined in the 1940 Act) of IAI or of the
Company cast in person at a meeting called for the purpose of voting on such
approval.
(b) This Agreement may be terminated at any time, without the payment
of any penalty, by the Board of Directors of the Company or by the vote of a
majority of the outstanding voting securities of the Fund, or by IAI, upon 60
days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
"assignment" (as defined in the Investment Company Act of 1940, as amended).
(d) No amendment to this Agreement shall be effective until approved
by the vote of: (i) a majority of the directors of the Company who are not
parties to this Agreement or "interested persons" (as defined in the 1940 Act)
of IAI or of the Company cast in person at a meeting called for the purpose of
voting on such approval; and (ii) a majority of the outstanding voting
securities of the Fund.
(e) Wherever referred to in this Agreement, the vote or approval of
the holders of a majority of the outstanding voting securities or shares of the
Fund shall mean the lesser of (i) the vote of 67% or more of the voting
securities of the Fund present at a regular or special meeting of shareholders
duly called, if more than 50% of the Fund's outstanding voting securities are
present or represented by proxy, or (ii) the vote of more than 50% of the
outstanding voting securities of the Fund.
(f) To the extent the provisions of this Section 4 are based on
legislative or regulatory requirements in effect at the time of this Agreement's
initial approval by the Fund's Board of Directors and/or shareholders and any
such legislative or regulatory requirements change, the relevant provision of
this Section 4 will be deemed to have been so amended without further action by
the Fund's Board of Directors or its shareholders.
5. NOTICES.
-------
Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate in writing for receipt of such notice.
20
<PAGE>
6. REPRESENTATION.
---------------
[A] hereby represents that it will maintain registrations with and/or
approvals by all relevant governmental authorities necessary for the provision
of services pursuant to this Agreement.
7. INTERPRETATION; GOVERNING LAW.
-----------------------------
This Agreement shall be subject to and interpreted in accordance with
all applicable provisions of law including, but not limited to, the 1940 Act. To
the extent that the provisions herein contained conflict with any such
applicable provisions of law, the latter shall control. The laws of the State of
Minnesota shall otherwise govern the construction, validity and effect of this
Agreement.
IN WITNESS WHEREOF, the Company and IAI have caused this Agreement to
be executed by their duly authorized officers as of the day and year first above
written.
[A] INVESTMENT FUNDS __, INC.
By_______________________________
Richard E. Struthers, President
INVESTMENT ADVISERS, INC.
By_______________________________
Noel P. Rahn,
Chief Executive Officer
21
<PAGE>
PROXY
IAI BOND FUND
(A SERIES OF IAI INVESTMENT FUNDS I, INC.)
3700 FIRST BANK PLACE, P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440-0357
(612) 376-2700; (800) 945-3863
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF IAI
INVESTMENT FUNDS I, INC. (THE "CORPORATION").
The undersigned hereby appoints Richard E. Struthers, Susan J. Haedt
and William C. Joas, and each of them, with power to act without the other and
with the right of substitution in each, as proxies of the undersigned and hereby
authorizes each of them to represent and to vote, as designated below, all the
shares of the common stock of IAI Bond Fund (the "Fund"), held of record by the
undersigned on February 7, 1996, at a special meeting of the Funds' shareholders
to be held on Thursday, March 21, 1996, or any adjournments or postponements
thereof, with all powers the undersigned would possess if present in person.
All previous proxies given with respect to the meeting hereby are revoked.
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
1. RE-ELECTION OF DIRECTORS.
[_] FOR all nominees (except as marked to the contrary below).
[_] WITHHOLD AUTHORITY to vote for nominees listed below.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEES, BUT
NOT ALL OF THE NOMINEES, STRIKE A LINE THROUGH THE APPROPRIATE NAME LISTED
BELOW AND PLACE AN "X" IN THE BOX MARKED "FOR" ABOVE).
Nominees: Madeline Betsch Richard E. Struthers George R. Long
Charles H. Withers W. William Hodgson J. Peter Thompson
Noel P. Rahn
2. PROPOSAL TO RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP as the
independent auditors for the Corporation for its current fiscal year.
[_] FOR [_] AGAINST [_] ABSTAIN
3. PROPOSAL TO RATIFY THE FUND'S ADVISORY AND ADMINISTRATIVE AGREEMENTS with
Investment Advisers, Inc.
[_] FOR [_] AGAINST [_] ABSTAIN
4. PROPOSAL TO APPROVE OR REJECT A NEW MANAGEMENT AGREEMENT with Investment
Advisers, Inc.
[_] FOR [_] AGAINST [_] ABSTAIN
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED "FOR" EACH OF THE ABOVE PROPOSALS. RECEIPT OF THE NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING
IS ACKNOWLEDGED BY YOUR EXECUTION OF THIS PROXY.
PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME APPEARS BELOW. WHEN
SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS AN
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE
AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR
OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
PARTNER OR OTHER AUTHORIZED PERSON.
DATED: __________________, 1996
____________________________________________
Signature
[SHAREHOLDER INFORMATION]
____________________________________________
Signature if held jointly
TO SAVE FURTHER SOLICITATION EXPENSE, PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY USING THE ENCLOSED POSTAGE-PAID ENVELOPE.
