FIXED INCOME FUND
ANNUAL REPORT
IAI INSTITUTIONAL BOND FUND
NOVEMBER 30, 1998
[LOGO] IAI
MUTUAL FUNDS
<PAGE>
TABLE OF CONTENTS
IAI INSTITUTIONAL BOND FUND
ANNUAL REPORT
NOVEMBER 30, 1998
President's Letter.............................................. 2
Fund Manager's Review........................................... 4
Fund Portfolio.................................................. 6
Notes to Fund Portfolio........................................ 11
Statement of Assets and Liabilities............................ 12
Statement of Operations........................................ 13
Statements of Changes in Net Assets............................ 14
Financial Highlights........................................... 15
Notes to Financial Statements.................................. 16
Independent Auditors' Report................................... 21
Federal Tax Information........................................ 22
IAI Mutual Fund Family......................................... 23
Adviser, Custodian, Legal Counsel,
Independent Auditors,
Directors....................................... Inside Back Cover
<PAGE>
PRESIDENT'S LETTER
IAI INSTITUTIONAL BOND FUND
WHAT'S RIGHT WITH THIS MARKET
[PHOTO]
ROY C. GILLSON
PRESIDENT
The stock market has been on a roller coaster of late, and that naturally makes
people uneasy. But if you're a long-term investor, I would argue there are a lot
more good things influencing the market than bad things.
True, U.S. corporate earnings are flattening out, and that's putting a damper on
the stock market. When you buy a stock, you're buying a future stream of
dividends as well as a stronger company because most of the profits are being
reinvested. After double-digit growth during much of the 1990s, profits in 1998
are struggling. A major reason why profits are sluggish is the economic and
currency turmoil in Asia, which hurts U.S. companies doing business there.
Another reason for weak profit growth is the great job Corporate America has
done to become more efficient. After years of cost-cutting, there isn't much
cutting left to do. To enhance profits, companies must either boost prices or
sell more products and services. But with inflation at virtually zero, it's
tough to raise prices. So, profit growth must come through increased unit
volume.
And that's where the good news is likely to begin. Even with the dampening
effects of Asia, the U.S. economy is still basically healthy, making it possible
for U.S. corporations to sell more products and services here at home. True,
we're losing business in Asia, because the dollar is so strong compared to their
currencies. But what we're losing in Asia, we're gaining in Europe, as that
region of the world begins to enjoy U.S.-style prosperity. Europe will look even
stronger once the euro, the Continent's new single currency, begins to filter
through the economy.
Asia has helped keep inflation worries away, and that has kept interest rates
low. Recently, the 30-year Treasury bond yield reached its lowest level ever, as
global investors buy our securities for the greatest safety and liquidity.
Partly because of our low inflation environment, worldwide demand for U.S.
stocks and bonds continues to be strong.
Although 1998 was extremely volatile, the year turned out quite well, with the
Dow Jones Industrial Average up 18%. The Dow has more than doubled since 1995
and virtually tripled since the beginning of this decade. Where was the Dow in
1982? 800! Has the value of your house gone up by a factor of ten in fifteen
years? Probably not. The point is markets do not go up in a straight line, and
there is bound to be volatility. But if you're an investor for the long term,
you should be able to step back and see the good in this market.
2
<PAGE>
PRESIDENT'S LETTER
IAI INSTITUTIONAL BOND FUND
ECONOMIC OUTLOOK
A summary of economic outlook as provided by Larry Hill, IAI's Chief Fixed
Income Officer, follows.
Growth in the U.S. economy is likely to remain firm in the months ahead. Over
the four quarters ending in September 1998, the real economy expanded by 3.5%
with inflation, as measured by the GDP deflator, or rose at an annualized rate
of only 1.0%. While the economy is likely to slow, it is hard to become too
negative on the outlook. There is little evidence of a recession on the horizon.
A modest slowdown is more likely, with real growth dropping to about 3.0% for
1999.
Some sectors of the economy are losing forward momentum. The manufacturing
sector is clearly showing signs of weakness. This sector is directly exposed to
the global glut of commodity goods. With weaker demand overseas, exports are
slowing while imports are rising. Corporate profits are being squeezed, which is
likely to reduce capital spending plans for 1999. These indicators all point to
moderately slower growth ahead.
Yet, growing evidence of economic deterioration--if this occurs--will prompt
further rate reduction. Having taken the first step to ease in three years, the
Fed is now sensitive to overseas conditions and the fluid economic environment.
If the economy appears to be stumbling, the Fed has plenty of room to drop rates
and will do so with little hesitation. Likewise, renewed turmoil in the markets
will also prompt Fed action. Thus our outlook for no recession is driven by our
confidence that the Fed can and will act if necessary.
Fed diligence is also a key ingredient for the markets. Subdued inflation and
the prospect of further cuts in short rates--if needed--will provide support for
bonds. Stock prices remain trapped in a tug-of-war between high valuations and
favorable liquidity. Only a select group of stocks have benefited from excess
liquidity. The stock market will be pulled up and down until one force overcomes
the other and sets the next trend.
Please read the Fund Managers' Review, which follows this letter, for a detailed
perspective on Fund performance and our strategy going forward. We appreciate
your continued trust and confidence in IAI. If there is any way we can serve you
better, please let us know by calling our toll-free Investor Services Hotline at
1-800-945-3863.
SINCERELY,
/s/ Roy C. Gillson
Roy C. Gillson
President
3
<PAGE>
FUND MANAGER'S REVIEW
IAI INSTITUTIONAL BOND FUND
IAI INSTITUTIONAL BOND FUND
[PHOTO]
LARRY R. HILL, CFA
IAI INSTITUTIONAL BOND
FUND MANAGER
WHAT IS THE FUND'S OBJECTIVE?
The IAI Institutional Bond Fund seeks to provide a high level of total return
derived from a combination of capital appreciation and current income. This
objective is pursued by investing primarily in a diversified portfolio of U.S.
Government securities and investment- and non-investment- grade bonds and other
debt securities of similar quality. The Fund invests in a variety of maturities
and sectors which are varied depending on relative values in the marketplace at
a given point in time.
HOW HAS THE FUND PERFORMED?
The Fund gained 7.92% for the year ended November 30, 1998. This compares with
returns for the Lehman Brothers Aggregate Bond Index of 9.45% and the Salomon
Broad Investment Grade Bond Index of 9.49%.
WERE THERE ANY SIGNIFICANT CHANGES?
During the year, there were no major changes to the investment strategy. The
interest rate sensitivity of the Fund remained longer than the benchmark and
sector weightings continued to emphasize mortgages and corporates.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
The continuing flight-to-quality from less stable markets combined with the
increased premium on liquidity caused by forced sales at some hedge funds led to
a discontinuity within the bond market. Treasury yields declined significantly
during both August and September. At the same time however, the yields on
corporates and mortgages declined only modestly. This widening of interest rate
spreads accounted for the majority of the performance shortfall for the Fund
during the year because the Fund's portfolio is comprised of more
mortgaged-backed securities and corporate bonds, and less Treasury securities,
relative to the benchmark.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Markets will remain volatile until the excess leverage employed by foreign
businesses and hedge funds has been unwound. This process has been going on for
foreign businesses for some time, but hedge fund liquidations were just
beginning at the end of September. The Federal Reserve Board (the Fed) is trying
to prevent isolated cases of credit contraction from becoming a general economic
contraction. They have already acted to maintain ample liquidity by reducing the
Fed Funds rate by one-half percentage point.
Corporate bonds, mortgages and asset-backed securities present tremendous
long-term value at current, near record yield spreads. While these sectors are
still under pressure from leveraged sellers, we are maintaining our overweight
positions to potentially earn exceptional returns over the longer term. We
remain diligent in evaluating the credit trends for corporate holdings and the
prepayment uncertainties for mortgage backed securities. The portfolio is well
diversified for the current volatile environment, giving us the flexibility to
take advantage of buying opportunities as they arise.
4
<PAGE>
FUND MANAGER'S REVIEW
IAI INSTITUTIONAL BOND FUND
VALUE OF $2,000,000 INVESTMENT+
[PLOT POINTS CHART]
IAI INSTITUTIONAL SALOMON BROAD INVESTMENT LEHMAN BROTHERS
BOND FUND GRADE BOND INDEX AGGREGATE BOND INDEX
11/01/93 2,000,000 2,000,000 2,000,000
11/30/93 1,969,914 1,983,200 1,982,986
11/30/94 1,885,303 1,922,902 1,922,313
11/30/95 2,167,191 2,265,744 2,261,442
11/30/96 2,328,322 2,401,191 2,398,501
11/30/97 2,467,753 2,582,697 2,579,636
11/30/98 2,663,037 2,827,752 2,823,233
AVERAGE ANNUAL RETURNS+
THROUGH 11/30/98
Since Inception
1 Year 5 Years 11/01/93
================================================================================
IAI INSTITUTIONAL
BOND FUND 7.92% 6.22% 5.80%
- --------------------------------------------------------------------------------
Salomon Broad Investment
Grade Bond Index(1) 9.49% 7.35% 7.05%
- --------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index 9.45% 7.32% 7.02%
(1) SALOMON BROAD INVESTMENT GRADE BOND INDEX WILL BE REPLACED WITH THE LEHMAN
BROTHERS AGGREGATE BOND INDEX AS THE FUND'S MANAGEMENT HAS DETERMINED THE
LEHMAN BROTHERS AGGREGATE BOND INDEX TO BE MORE REPRESENTATIVE OF THE
FUND'S INVESTMENTS, AND THEREFORE A BETTER COMPARISON FOR FUND PERFORMANCE.
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
SECTORS
% OF PORTFOLIO AS OF 11/30/98
[PIE CHART]
Corporate 24%
Foreign Denominated 3%
Asset-Backed 3%
U.S. Government & Government Agency 13%
Preferred Stock 4%
U.S. Government Agency Mortgage-Backed 40%
Short-Term 13%
EFFECTIVE MATURITY
% OF PORTFOLIO AS OF 11/30/98
[BAR CHART]
YEARS
- -----
0-3 12%
3-5 26%
5-10 43%
10-20 5%
20+ 14%
NOTE TO PRESIDENT'S LETTER & FUND MANAGER'S REVIEW
PERFOR MANCE DATA FOR THE IAI INSTITUTIONAL BOND FUND INCLUDES CHANGES IN SHARE
PRICE AND REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. PAST PERFORMANCE IS
NOT A GUARANTEE OF FUTURE RESULTS. THE FUND'S INVESTMENT RETURN, YIELD AND
PRINCIPAL MAY FLUCTUATE, SO THAT WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL COST. MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING
CHARGES AND EXPENSES, IS AVAILABLE IN THE PRO SPECTUS. PLEASE READ THE FUND'S
PROSPECTUS CAREFULLY BEFORE INVESTING. ALL INDICES CITED ARE UNMANAGED, AND ARE
EITHER TRADEMARKS, REGISTERED TRADEMARKS OR COPYRIGHTS OF THEIR RESPECTIVE
SPONSORING COMPANIES.
CREDIT RATING
% OF PORTFOLIO AS OF 11/30/98
U.S.
Government................54%
Aaa.......................18%
Aa.........................6%
A..........................2%
Baa........................7%
Non-Investment
Grade.....................13%
5
<PAGE>
FUND PORTFOLIO
IAI INSTITUTIONAL BOND FUND
NOVEMBER 30, 1998
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
<TABLE>
<CAPTION>
CORPORATE BONDS - 26.0%
Principal Market
Rate Maturity Amount Value (a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL - 3.3%
Arcadia Financial 11.50% 03/15/07 $ 200,000 $ 150,000
Associates (e) 6.45 09/15/00 450,000 456,891
GMAC 5.75 11/10/03 260,000 261,004
Merrill Lynch 6.88 11/15/18 370,000 380,175
Nationsbank 6.13 07/15/04 230,000 236,523
Toyota Motor Credit 5.63 11/13/03 130,000 131,118
-------------
1,615,711
- -----------------------------------------------------------------------------------------------------------
INDUSTRIAL - 20.1%
Albecca (e) 10.75 08/15/08 500,000 510,000
Alberta Province (YANKEE) (f) 4.88 10/29/03 340,000 334,298
Atlas Air (e) 9.38 11/15/06 125,000 125,625
Bell Sports (e) 11.00 08/15/08 100,000 102,000
Biovail (e) 10.88 11/15/05 150,000 152,250
Cendant 7.75 12/01/03 490,000 493,200
Chesapeake Energy 9.13 04/15/06 350,000 301,000
Clear Channel Communications 6.88 06/15/18 590,000 580,371
Entex Information Services (k) 12.50 08/01/06 1,150,000 690,000
Grove Worldwide 9.25 05/01/08 200,000 200,500
Loewen Group International Series 3 7.50 04/15/01 125,000 111,250
Loewen Group International Series 3 7.75 10/15/01 180,000 160,200
Loewen Group International Series 4 8.25 10/15/03 400,000 348,000
Lubrizol 5.88 12/01/08 165,000 163,977
Petro-Canada (YANKEE) (f) 7.00 11/15/28 400,000 402,000
Queen Sand Resources (e) 12.50 07/01/08 500,000 405,000
Radio Unica (STEP BOND) (e) (i) 10.37 08/01/06 1,800,000 936,000
Raytheon 6.15 11/01/08 275,000 278,407
Saks 7.25 12/01/04 250,000 250,708
Sonic Automotive (e) 11.00 08/01/08 700,000 679,000
Styling Technology 10.88 07/01/08 75,000 70,125
Susa Partnership 7.45 07/01/18 275,000 254,716
True Temper Sports (e) 10.88 12/01/08 100,000 101,500
Union Pacific (MEDIUM-TERM NOTE) 6.79 11/09/07 485,000 498,701
Williams Companies 6.50 08/01/06 625,000 636,919
Windmere-Durable 10.00 07/31/08 1,200,000 1,125,000
-------------
9,910,747
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIO ON PAGE 11
6
<PAGE>
FUND PORTFOLIO
IAI INSTITUTIONAL BOND FUND
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
CORPORATE BONDS (CONT.)
Principal Market
Rate Maturity Amount Value (a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES - 2.6%
AT&T Capital (MEDIUM-TERM NOTE) 7.50 11/15/00 $ 345,000 $ 348,326
Global Crossing (PIK BOND) (e) (h) 10.50 12/01/08 1,250 (j) 125,000
KN Energy 7.25 03/01/28 420,000 416,174
Sprint Capital 6.88 11/15/28 365,000 379,027
-------------
1,268,527
===========================================================================================================
TOTAL INVESTMENTS IN CORPORATE BONDS
(COST: $13,441,569) ......................................................................... $ 12,794,985
===========================================================================================================
U.S. GOVERNMENT & GOVERNMENT AGENCY OBLIGATIONS - 14.4%
Principal Market
Rate Maturity Amount Value (a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY BONDS - 10.4%
12.38% 05/15/04 $ 440,000 $ 598,470
7.50 11/15/16 750,000 939,495
8.13 08/15/21 880,000 1,199,273
6.75 08/15/26 1,995,000 2,404,294
-------------
5,141,532
- ----------------------------------------------------------------------------------------------------------
U.S. TREASURY STRIP - 1.0%
U.S. Treasury STRIP (ZERO COUPON) 5.54 (g) 11/15/21 1,710,000 491,026
- ----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 3.0%
Federal Home Loan Mortgage Corporation 5.13 09/15/03 280,000 280,832
Federal National Mortgage Association 6.21 08/06/38 1,155,000 1,203,187
-------------
1,484,019
===========================================================================================================
TOTAL INVESTMENTS IN U.S. GOVERNMENT & GOVERNMENT AGENCY OBLIGATIONS
(COST: $6,856,571) ........................................................................... $ 7,116,577
===========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIO ON PAGE 11
7
<PAGE>
FUND PORTFOLIO
IAI INSTITUTIONAL BOND FUND
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 43.4%
Principal Market
Rate Maturity Amount Value (a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION GOLD - 14.9%
6.00% 04/01/11 $ 1,462,075 $ 1,468,465
6.50 04/01/13 680,526 690,515
6.50 05/01/13 381,019 386,613
6.00 12/01/13 485,000 (b) 485,907
6.50 12/01/28 4,265,000 (b) 4,296,988
-------------
7,328,488
- -----------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 12.4%
6.11 08/01/08 1,359,910 1,386,564
5.81 10/01/08 479,640 479,209
7.50 01/01/28 567,317 582,913
6.50 04/01/28 69,235 69,689
7.50 04/01/28 585,955 601,882
7.00 05/01/28 1,322,401 1,349,669
7.00 08/01/28 658,537 672,116
6.00 10/01/28 978,830 965,978
-------------
6,108,020
- -----------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION DWARF - 2.6%
6.50 03/01/13 1,026,178 1,040,925
6.00 11/01/13 252,500 252,815
-------------
1,293,740
- -----------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 12.4%
9.00 11/15/17 508,958 546,173
8.00 12/15/23 1,193,868 1,245,742
7.50 12/15/27 961,605 992,857
7.00 02/15/28 1,159,839 1,187,385
7.00 03/15/28 1,240,842 1,270,312
7.50 05/15/28 862,238 891,072
-------------
6,133,541
- -----------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION MIDGET - 1.1%
7.00 01/15/08 507,828 521,632
===========================================================================================================
TOTAL INVESTMENTS IN U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
(COST: $21,204,917) ......................................................................... $ 21,385,421
===========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIO ON PAGE 11
8
<PAGE>
FUND PORTFOLIO
IAI INSTITUTIONAL BOND FUND
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
ASSET-BACKED SECURITIES - 3.4%
Principal Market
Rate Maturity Amount Value (a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOME EQUITY - 3.4%
EQCC Home Equity Loan Trust 98-2 A6F 6.16% 04/15/08 $ 595,000 $ 596,250
Money Store Home Equity Trust 98-B AF4 6.12 06/15/21 300,000 300,094
Residential Asset Securities 98-KS2 AI3 6.24 07/25/29 805,000 802,005
-------------
1,698,349
===========================================================================================================
TOTAL INVESTMENTS IN ASSET-BACKED SECURITIES
(COST: $1,700,256) .......................................................................... $ 1,698,349
===========================================================================================================
FOREIGN DENOMINATED BONDS - 3.7%
<CAPTION>
Principal Market
Rate Maturity Amount (d) Value (a)
- -----------------------------------------------------------------------------------------------------------
CORPORATE - 3.7%
Colt Telecom Group (GERMAN DEUTSCHEMARK) 7.63% 07/31/08 1,175,000 $ 693,199
International Bank for Reconstruction and
Development (POLISH ZLOTTY) 16.50 03/09/05 3,300,000 1,147,393
-------------
1,840,592
===========================================================================================================
TOTAL INVESTMENTS IN FOREIGN DENOMINATED BONDS
(COST: $1,586,730)........................................................................... $ 1,840,592
===========================================================================================================
NON-CONVERTIBLE PREFERRED STOCK - 3.8%
Market
Rate Quantity Value (a)
- -----------------------------------------------------------------------------------------------------------
FINANCIAL - 3.8%
SI Financing Trust I 2.38% 70,000 $1,863,750
===========================================================================================================
TOTAL INVESTMENTS IN NON-CONVERTIBLE PREFERRED STOCK
(COST: $1,788,188) .......................................................................... $ 1,863,750
===========================================================================================================
TOTAL INVESTMENTS IN LONG-TERM SECURITIES
(COST: $46,578,231) ......................................................................... $ 46,699,674
===========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIO ON PAGE 11
9
<PAGE>
FUND PORTFOLIO
IAI INSTITUTIONAL BOND FUND
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHORT-TERM SECURITIES - 13.9%
Principal Market
Rate Maturity Amount Value (a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY BILL - 0.2%
4.05% 04/22/99 $ 100,000 (c) $ 98,253
- -----------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER - 13.7%
Associates (FINANCIAL) 5.15 12/09/98 2,365,000 2,362,293
Duke Power (UTILITIES) 5.25 12/01/98 2,000,000 2,000,000
General Electric (UTILITIES) 5.12 12/14/98 485,000 484,103
KFW International (FINANCIAL) 5.20 12/09/98 1,900,000 1,897,805
-------------
6,744,201
===========================================================================================================
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES
(COST: $6,842,657) .......................................................................... $ 6,842,454
===========================================================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $53,420,888) (l) ..................................................................... $ 53,542,128
===========================================================================================================
OTHER ASSETS & LIABILITIES (NET) - (8.6%)
............................................................................................ $ (4,246,531)
===========================================================================================================
TOTAL NET ASSETS
............................................................................................ $ 49,295,597
===========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIO ON PAGE 11
10
<PAGE>
NOTES TO FUND PORTFOLIO
IAI INSTITUTIONAL BOND FUND
NOVEMBER 30, 1998
(a)
Market value of securities is determined as described in Note 1 to the financial
statements, under "Security Valuation."
(b)
Purchased on a when-issued basis. At November 30, 1998, the total cost of
securities purchased on a when-issued basis was $4,767,480.
(c)
Security is partially pledged to cover initial margin on open futures contracts
(see Note 5 to financial statements).
(d)
Foreign security cost and market values are stated in U.S. dollars. Principal
amounts are denominated in the foreign currency indicated parenthetically.
(e)
Represents security sold within terms of a private placement memorandum exempt
from registration under Section 144A or 4(2) of the Securities Act of 1933.
These issues may only be sold to other qualified institutional buyers, and are
considered liquid under guidelines established by the Board of Directors.
The market value of such securities was $3,593,266 (7.3% of net assets) at
November 30,1998.
(f)
Yankee represents dollar-denominated bonds issued in the United States by
foreign banks and corporations.
(g)
Interest rate shown represents yield-to-maturity at date of purchase.
(h)
The interest rate shown for Payment-in-Kind bonds (PIK bonds) represents
effective yield at November 30, 1998. PIK--Payment-in-Kind income is generally
paid by issuing additional par or shares of the security rather than paying
cash.
(i)
A step bond is a security that remains zero-coupon until a predetermined date at
which time the stated coupon rate becomes payable at regular intervals. The
interest rate shown for step bonds represents the effective yield at November
30, 1998, based upon the estimated timing and amount of future interest and
principal payments.
(j)
Represents a preferred security. Quantity is disclosed in units. One unit
represents 100 par.
(k)
Represents security sold within terms of a private placement memorandum exempt
from registration under Section 144A of the Securities Act of 1933. This issue
was deemed illiquid at November 30, 1998, based on guidelines established by the
Board of Directors. The market value of this security was $690,000 (1.4% of net
assets) at November 30, 1998.
(l)
At November 30, 1998, the cost of securities for federal income tax purposes and
the aggregate gross unrealized appreciation and depreciation based on that cost
were as follows:
Cost for federal income tax purposes ..................... $ 53,457,645
================
Gross unrealized appreciation ............................ $ 979,863
Gross unrealized depreciation ............................ (895,380)
----------------
Net unrealized appreciation .............................. $ 84,483
================
11
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
IAI INSTITUTIONAL BOND FUND
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in securities at market
(Cost: $53,420,888) $53,542,128
Cash in bank on demand deposit 64,294
Accrued interest and dividends receivable 580,869
Variation margin receivable 18,750
-----------
TOTAL ASSETS 54,206,041
-----------
LIABILITIES
Payable for investment securities purchased 138,134
Payable for investment securities purchased on a when-issued basis 4,767,480
Unrealized depreciation on foreign currency contracts held, at value (Note 7) 4,830
-----------
TOTAL LIABILITIES 4,910,444
-----------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $49,295,597
===========
REPRESENTED BY:
Capital stock $ 51,303
Additional paid-in capital 46,861,002
Undistributed net investment income 261,734
Accumulated net realized gains on investments 2,032,151
Unrealized appreciation or depreciation on:
Investment securities $94,096
Other assets and liabilities denominated in foreign currency (4,689)
-------
89,407
-----------
TOTAL - REPRESENTING NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $49,295,597
===========
Shares of capital stock outstanding; authorized 10 billion shares
of $0.01 par value stock 5,130,298
-----------
NET ASSET VALUE PER SHARE OF OUTSTANDING CAPITAL STOCK $ 9.61
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 16
12
<PAGE>
STATEMENT OF OPERATIONS
IAI INSTITUTIONAL BOND FUND
YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INVESTMENT INCOME
INCOME
Interest (net of foreign income taxes withheld of $741) $5,249,108
Dividends 190,000
----------
TOTAL INCOME 5,439,108
----------
EXPENSES
Management fees 403,313
Compensation of Directors 14,246
----------
TOTAL EXPENSES 417,559
Less fees reimbursed by Advisers (14,246)
----------
NET EXPENSES 403,313
----------
NET INVESTMENT INCOME 5,035,795
----------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
Net realized gains (losses) on:
Investment securities $1,924,101
Futures contracts (95,485)
Written option contracts 164,362
Foreign currency transactions 82,954
----------
2,075,932
Net change in unrealized appreciation or depreciation on:
Investment securities $ (494,033)
Futures contracts (30,863)
Other assets and liabilities denominated in foreign currency (12,165)
----------
(537,061)
----------
NET GAIN ON INVESTMENTS AND FOREIGN CURRENCY 1,538,871
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,574,666
==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 16
13
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
IAI INSTITUTIONAL BOND FUND
<TABLE>
<CAPTION>
Year ended Year ended
November 30, 1998 November 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 5,035,795 $ 5,409,331
Net realized gains 2,075,932 2,527,322
Net change in unrealized appreciation or depreciation (537,061) (2,818,292)
------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 6,574,666 5,118,361
------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (5,187,365) (5,586,340)
------------------------------------
TOTAL DISTRIBUTIONS (5,187,365) (5,586,340)
------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from sale of 1,348,084 and 6,170,385 shares 12,829,367 57,996,609
Net asset value of 542,957 and 594,437 shares issued to
shareholders in reinvestment of distributions 5,179,038 5,564,118
Cost of 8,175,947 and 5,521,433 shares redeemed (78,467,061) (51,810,405)
------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (60,458,656) 11,750,322
------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (59,071,355) 11,282,343
NET ASSETS AT BEGINNING OF PERIOD 108,366,952 97,084,609
------------------------------------
NET ASSETS AT END OF PERIOD $ 49,295,597 $108,366,952
====================================
INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF: $ 261,734 $ 585,418
====================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 16
14
<PAGE>
FINANCIAL HIGHLIGHTS
IAI INSTITUTIONAL BOND FUND
PER SHARE DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
AND SELECTED INFORMATION FOR EACH PERIOD INDICATED ARE AS FOLLOWS:
<TABLE>
<CAPTION>
Years ended
November 30, Period from Period from
----------------------------------------- April 1, 1994 to November 1, 1993***
1998 1997 1996 1995 November 30, 1994+ to March 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 9.49 $ 9.54 $ 9.50 $ 8.85 $ 9.36 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income 0.64 0.58 0.63 0.62 0.38 0.22
Net realized and unrealized gains (losses) 0.09 (0.04) 0.04 0.66 (0.51) (0.65)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM OPERATIONS 0.73 0.54 0.67 1.28 (0.13) (0.43)
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.61) (0.59) (0.63) (0.63) (0.38) (0.21)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.61) (0.59) (0.63) (0.63) (0.38) (0.21)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 9.61 $ 9.49 $ 9.54 $ 9.50 $ 8.85 $ 9.36
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return* 7.92% 5.97% 7.44% 14.95% (1.44%) (4.35%)
Net assets at end of period (000's omitted) $49,296 $108,367 $97,085 $101,429 $73,724 $31,478
RATIOS
Expenses to average net assets 0.50% 0.50% 0.50% 0.50% 0.50%** 0.50%**
Net investment income to average
net assets 6.24% 6.19% 6.75% 6.76% 6.42%** 5.84%**
Portfolio turnover rate
(excluding short-term securities) 333.3% 511.0% 323.0% 358.8% 235.1% 127.1%
</TABLE>
* TOTAL INVESTMENT RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE OF A
SHARE DURING THE PERIOD AND ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AT
NET ASSET VALUE.
** ANNUALIZED
*** COMMENCEMENT OF OPERATIONS
+ REFLECTS FISCAL YEAR-END CHANGE FROM MARCH 31 TO NOVEMBER 30.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
IAI INSTITUTIONAL BOND FUND
NOVEMBER 30, 1998
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The IAI Mutual Funds are registered under the Investment Company Act of 1940 (as
amended) as diversified, open-end management investment companies. IAI
Institutional Bond Fund (Institutional Bond Fund) is a separate portfolio of IAI
Investment Funds I, Inc. The Fund's primary investment objective is to provide
shareholders with a high level of total return derived from a combination of
capital appreciation and current income. The Fund pursues its objective by
investing primarily in a diversified portfolio of U.S. Government securities and
investment- and non-investment-grade bonds and other debt securities of similar
quality. This report covers only Institutional Bond Fund (the Fund).
Significant accounting policies followed by the Fund are summarized below:
SECURITY VALUATION
Investments in securities traded on national or international securities
exchanges are valued at the last reported sales price at the close of each
business day. Securities traded on the over-the-counter market are valued at the
last reported sales price or if the last sales price is not available, the last
reported bid price. Such valuations are obtained from pricing services or are
supplied by dealers.
Debt securities for which quotations are not readily available are valued
primarily using dealer-supplied valuations or at their fair value as determined
in good faith using consistently applied procedures under the general
supervision of the Board of Directors.
Short-term securities with maturities of 60 days or less from the date of
initial acquisition are valued at amortized cost. Those with maturities greater
than 60 days from the date of initial acquisition are marked-to-market on a
daily basis.
SECURITIES PURCHASED ON A
WHEN-ISSUED BASIS
Delivery and payment for securities which have been purchased by the Fund on a
forward commitment or when-issued basis may occur a month or more after the
transaction date. During this period, such securities are subject to market
fluctuations and the Fund maintains, in a segregated account, assets with a
market value equal to the amount of its purchase commitments.
FUTURES AND OPTIONS
CONTRACTS
In order to increase exposure to and hedge against changes in the market, the
Fund may buy and sell futures contracts and options. The risks of entering into
futures and option contracts include the possibility that changes in the value
of these contracts may not correlate with changes in the underlying security.
Futures contracts are valued at the settlement price of the exchange on which
they are traded. Upon entering into a futures contract, the Fund is required to
deposit either cash or securities into a segregated account, representing the
initial margin, equal to a certain percentage of the contract value. Subsequent
changes in the value of the contract, or variation margin, are recorded daily as
unrealized gains or losses. Variation margin is paid or received in cash daily
by the Fund. The Fund realizes a gain or loss when the contract is closed or
expires.
Options traded on an exchange are valued using the last sale price, and those
traded over-the-counter are valued using dealer-supplied valuations, resulting
in unrealized appreciation or depreciation being recorded. The Fund will realize
a gain or loss upon expiration or closing of the option transaction. When an
option is exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or paid.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
IAI INSTITUTIONAL BOND FUND
NOVEMBER 30, 1998
[1] SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONT.)
FOREIGN CURRENCY
TRANSLATIONS AND FOREIGN
CURRENCY CONTRACTS
The Fund may invest in foreign securities. The market value of securities and
other assets and liabilities denominated in foreign currencies is translated
daily into U.S. dollars at the closing rate of exchange. Purchases and sales of
securities, income and expenses are translated at the exchange rate on the
transaction date and are recorded in realized and unrealized appreciation or
depreciation on foreign currency contracts.
Exchange gains and losses may also be realized between the trade and settlement
dates on security and foreign currency contract transactions. The Fund does not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from changes
in market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuations.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Fund is subject to the credit risk that the
other party will not complete the obligations of the contract.
FEDERAL TAXES
Since it is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its shareholders, no provision for income taxes is
required. In order to avoid the payment of any federal excise taxes, the Fund is
required to distribute substantially all of its net investment income and net
realized gains on a calendar year basis.
Net investment income and net realized gains may differ for financial statement
and tax purposes primarily because of recognition of certain foreign currency
gains and losses as ordinary income and the deferral of "wash sale" losses for
tax purposes. The character of distributions made during the year for net
investment income or net realized gains may also differ from its ultimate
characterization for tax purposes.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by $172,114
and accumulated net realized gains have been increased by $172,114.
SECURITY TRANSACTIONS AND
INVESTMENT INCOME
The Fund records security transactions on trade date, the date the securities
are purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income is accrued daily. The Fund amortizes discount purchased on
long-term bonds using the level yield method of amortization. Security gains and
losses are determined on the basis of identified cost, which is the same basis
used for federal income tax purposes.
DISTRIBUTIONS TO
SHAREHOLDERS
Distributions to shareholders are recorded on the record date. Distributions
from net investment income are made monthly. Capital gains, if any, are
primarily distributed at the end of the calendar year. Additional capital gains
distributions as needed to comply with federal tax regulations are distributed
during the year.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
IAI INSTITUTIONAL BOND FUND
NOVEMBER 30, 1998
[1] SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONT.)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
[2] COMMITMENTS AND CONTINGENCIES
INSURANCE
For purposes of obtaining certain types of insurance coverage for the Fund and
its officers and directors, the Fund is a policyholder in an industry-sponsored
mutual insurance company (the Company). In connection with its obligation as a
policy holder, the Fund is committed to make future capital contributions, if
requested by the Company.
LINE OF CREDIT
The Fund has available a $9,375,000 line of credit with a bank at the prime
interest rate. To the extent funds are drawn against the line, securities are
held in a segregated account. No compensating balances or commitment fees are
required under the line of credit. During the year ended November 30, 1998, the
Fund paid $5,005 in interest on the line of credit at an average rate of 8.50%.
This interest is included in interest income on the Statement of Operations.
There were no borrowings outstanding at November 30, 1998.
[3] FEES AND EXPENSES
Under terms of the Fund's Management Agreement, Investment Advisers, Inc.
(Advisers) is required to pay for all expenses of the Fund, except certain costs
(primarily those incurred in the purchase and sale of assets, taxes, interest
and extraordinary expenses), in return for the Fund paying an all inclusive
management fee (unified fee) to Advisers. The fee is equal to an annual rate of
0.50% of average daily net assets. This fee is paid monthly. The Management
Agreement further provides that Advisers will either reimburse the Fund for the
fees and expenses it pays to Directors who are not "interested persons" of the
Fund or reduce its fee by an equivalent amount.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
IAI INSTITUTIONAL BOND FUND
NOVEMBER 30, 1998
[4] PURCHASES AND SALES OF SECURITIES
For the year ended November 30, 1998, purchases of securities and sales
proceeds, other than investments in short-term securities, for the Fund
aggregated $263,205,414 and $324,016,343, respectively.
[5] OPEN FUTURES CONTRACTS
The financial futures contracts shown below were open as of November 30, 1998.
The market value of securities deposited to cover initial margin requirements
for the open positions at November 30, 1998 was $49,127. The unrealized
depreciation on these contracts is included in unrealized appreciation or
depreciation on investment securities.
<TABLE>
<CAPTION>
FUTURES
- ----------------------------------------------------------------------------------------------------------------
Number of Expiration Market Unrealized
Type Contracts Month Position Value Depreciation
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Bond 15 December 1998 Long $1,947,656 $27,144
================================================================================================================
</TABLE>
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
IAI INSTITUTIONAL BOND FUND
[6] OPTIONS CONTRACTS WRITTEN
During the year ended November 30, 1998, the Fund wrote the following options on
Treasury bond futures:
CALL OPTIONS
- --------------------------------------------------------------------------------
Number of Contracts Premium
- --------------------------------------------------------------------------------
Outstanding at 11/30/97 -- $ --
Opened 240 144,450
Expired (240) (144,450)
Closed -- --
Exercised -- --
- --------------------------------------------------------------------------------
Outstanding at 11/30/98 -- $ --
================================================================================
PUT OPTIONS
- --------------------------------------------------------------------------------
Number of Contracts Premium
- --------------------------------------------------------------------------------
Outstanding at 11/30/97 -- $ --
Opened 45 19,912
Expired (45) (19,912)
Closed -- --
Exercised -- --
- --------------------------------------------------------------------------------
Outstanding at 11/30/98 -- $ --
================================================================================
[7] FOREIGN CURRENCY EXCHANGE CONTRACTS
At November 30, 1998, the Fund had entered into foreign currency exchange
contracts. The unrealized depreciation on those contracts at November 30, 1998,
is included in unrealized appreciation or depreciation on other assets and
liabilities denominated in foreign currency. The terms of the open contracts are
as follows:
<TABLE>
<CAPTION>
Exchange Date Currency to be Delivered Currency to be Received Unrealized Depreciation
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12/30/98 1,057,000 German Deutschemark 621,399 U.S. Dollar $4,830
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
IAI INSTITUTIONAL BOND FUND
THE BOARD OF DIRECTORS AND SHAREHOLDERS
IAI INVESTMENT FUNDS I, INC.:
We have audited the accompanying statement of assets and liabilities, including
the fund portfolio, of IAI Institutional Bond Fund (a portfolio within IAI
Investment Funds I, Inc.) as of November 30, 1998, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for the periods presented on page 15 of the annual report. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased but not received, we request confirmations
from brokers and where replies are not received, we carry out other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of IAI
Institutional Bond Fund at November 30, 1998, and the results of its operations,
the changes in its net assets and the financial highlights for the periods
stated in the first paragraph above, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 8, 1999
21
<PAGE>
FEDERAL TAX INFORMATION
IAI INSTITUTIONAL BOND FUND
We are required by federal tax regulations to provide shareholders with certain
information regarding dividend distributions paid during our fiscal year. The
figures provided are for informational purposes only and should not be used for
reporting to federal or state revenue agencies. You will receive all necessary
tax information on Form 1099-DIV, Dividends and Distributions, in January of
each year.
TAX INFORMATION:
- --------------------------------------------------------------------------------
Payable Date Ordinary Income (A)
- --------------------------------------------------------------------------------
DECEMBER 1997 $0.1100
JANUARY 1998 0.0300
FEBRUARY 1998 0.0400
MARCH 1998 0.0500
APRIL 1998 0.0500
MAY 1998 0.0500
JUNE 1998 0.0600
JULY 1998 0.0600
AUGUST 1998 0.0400
SEPTEMBER 1998 0.0500
OCTOBER 1998 0.0400
NOVEMBER 1998 0.0300
================================================================================
$0.6100
(A) INCLUDES DISTRIBUTIONS OF SHORT-TERM CAPITAL GAINS, IF ANY, WHICH ARE
TAXABLE AS ORDINARY INCOME. 2.91% OF ORDINARY INCOME DISTRIBUTIONS QUALIFY FOR
DEDUCTION BY CORPORATIONS.
22
<PAGE>
IAI MUTUAL FUND FAMILY
TO DIVERSIFY YOUR PORTFOLIO, PLEASE CONSIDER ALL OF THE
MUTUAL FUNDS IN OUR FUND FAMILY
<TABLE>
<CAPTION>
====================================================================================================================================
SECONDARY
IAI FUND PRIMARY OBJECTIVE OBJECTIVE PORTFOLIO COMPOSITION
....................................................................................................................................
<S> <C> <C> <C>
IAI INTERNATIONAL FUND Capital Appreciation Income Equity securities of non-U.S. companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI EMERGING GROWTH FUND Capital Appreciation -- Common stocks of small- to medium-sized
emerging growth companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI CAPITAL Capital Appreciation -- Common stocks of small- to medium-sized
APPRECIATION FUND growth companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI MIDCAP GROWTH FUND Capital Appreciation -- Common stocks of medium-sized growth companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI REGIONAL FUND Capital Appreciation -- Common stocks of Upper Midwest companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI GROWTH FUND Capital Appreciation -- Common stocks with potential for above-average
growth and appreciation
- ------------------------------------------------------------------------------------------------------------------------------------
IAI VALUE FUND Capital Appreciation -- Common stocks which are considered to be
undervalued small-to medium-sized companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI GROWTH AND INCOME FUND Capital Appreciation Income Common stocks with potential for long-term
appreciation, and common stocks that are
expected to produce income
- ------------------------------------------------------------------------------------------------------------------------------------
IAI BALANCED FUND Total Return Income Common stocks, investment-grade bonds and
[CAPITAL APPRECIATION short-term instruments
+ INCOME]
- ------------------------------------------------------------------------------------------------------------------------------------
IAI BOND FUND Income Capital Preservation Investment-grade bonds
- ------------------------------------------------------------------------------------------------------------------------------------
IAI MONEY MARKET FUND Stability/Liquidity Income The portfolio's average dollar-weighted maturity
is less than 90 days, investing in high quality,
money market securities
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
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<PAGE>
INVESTMENT ADVISER
AND MANAGER
Investment Advisers, Inc.
P.O. Box 357
Minneapolis, MN 55440-0357 USA
800.945.3863
612.376.2700
http://www.iaifunds.com
CUSTODIAN
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, MN 55479
LEGAL COUNSEL
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
4200 Norwest Center
Minneapolis, MN 55402
DIRECTORS
Madeline Betsch
W. William Hodgson
George R. Long
J. Peter Thompson
Charles H. Withers
<PAGE>
[LOGO] IAI
MUTUAL FUNDS
P.O. BOX 357 MINNEAPOLIS, MINNESOTA 55440-0357 USA FAX 612.376.2737
800.945.3863
612.376.2700
