<PAGE>
EQUITY FUNDS
SEMI-ANNUAL REPORT
IAI Growth & Income Fund, IAI Regional Fund,
IAI Value Fund
September 30, 1995
(unaudited)
[LOGO]
Mutual Funds
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[GLOBE ARTWORK]
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Table of Contents
-----------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
Semi-Annual Report
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
<S> <C>
Chairman's Letter...................... 2
Fund Managers' Reviews
IAI Growth & Income Fund.............. 4
IAI Regional Fund..................... 6
IAI Value Fund........................ 8
Fund Portfolios
IAI Growth & Income Fund.............. 10
IAI Regional Fund..................... 13
IAI Value Fund........................ 17
Notes to Fund Portfolios............... 20
Statements of Assets and Liabilities... 26
Statements of Operations............... 28
Statements of Changes in Net Assets.... 30
Financial Highlights
IAI Growth & Income Fund.............. 32
IAI Regional Fund..................... 33
IAI Value Fund........................ 34
Notes to Financial Statements.......... 35
IAI Mutual Fund Family................. 40
Distributor, Adviser, Custodian,
Legal Counsel, Independent Auditors,
Directors................Inside Back Cover
</TABLE>
<PAGE>
Chairman's Letter
-----------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
A Great Time To Diversify
[PHOTO]
Noel P. Rahn,
Chairman
By just about any measure, the six months ending September 30, 1995 has been one
of the best periods in my memory for U.S. stocks and bonds. The economy has been
behaving just right: not too fast to bring back inflation, and not too slow to
bring on a recession. And American business is the most productive in the world.
It's a perfect recipe for continued success in the markets.
But just as the investment world was gloomy in 1994, let's not assume that
1995's performance is the norm, either. Stocks and bonds can be volatile. That's
particularly important to remember when prices are high. One of the most
important investment principles is diversification-not putting all your eggs in
one basket.
By investing in mutual funds, you have already taken a step towards
diversification. A typical mutual fund invests in dozens of securities, a much
more diversified portfolio than you can generally achieve on your own. But
another way to diversify is to broaden your investment horizon into areas that
haven't done quite as well. One example: international funds.
Developed and developing markets throughout the world have not matched the U.S.
economy during the past year. As a result, their securities have lagged our
markets. Since international markets largely move independently of the United
States, an investment overseas is considered an excellent way to diversify a
portfolio. This is particularly true when our markets are nearing all-time
highs.
If investing internationally is not for you, then there are other ways to
diversify your portfolio. If you've got mutual funds that invest in just one
type of investment objective, then you might want to consider broadening your
investment horizon. Of course, whether you focus on growth or income or a blend
of the two depends on your time horizon. If you're investing for a retirement
that's 30 years down the road, then you can afford to take more risk than if you
need the income from those investments right away.
Regardless of the time frame, the U.S. markets will continue to be impacted by
the performance of the economy, the outlook for inflation, and the level of
interest rates. Over the next six months, the presidential primary season will
also play a role. All of these events are truly unpredictable and uncontrollable
by the average investor. That makes investing a continuing challenge, and
another reason to stay diversified.
2
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Chairman's Letter
-----------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
Economic Outlook
Larry Hill, IAI's Chief Investment Officer, provides his economic outlook below,
as published recently in the Adviser.
For the remainder of 1995, the economy will grow at a rate of 2.5%. The next
move will probably be to accelerate and move to a modestly higher level next
year.
There is fundamental support for the equity market, although with the market up
as much as it is currently, caution is warranted. However, corporate earnings
and cash flow growth remain strong and provide solid underpinnings to equities.
If the strong earnings continue, higher valuations can be justified. Also, the
tremendous cash flow into equities has been a very strong supporting factor, and
as long as it continues, the general stock market will probably not decline more
than about 5% over the near term, although certain sectors such as technology
and possibly financial may drop more in an overall rotating correction.
In fixed-income markets, there has been a tremendous amount of buying of U.S.
government bonds by foreign central banks. That has supported the U.S. markets
and is one of the reasons interest rates declined and the bond market rallied
strongly this year. Currently, the economy is too weak to support the Fed
raising rates, and rates could move lower because there are enough signs of
weakness in the economy and lack of real price pressure.
Overall, the economic environment remains reasonably positive for financial
markets. It may not be a time to take significant new positions in stocks or
bonds at current levels, however, neither is it a time to raise cash. From a
valuation and asset allocation point of view, international markets currently
may have more room to appreciate than domestic markets.
Please read the Fund Managers' Reviews which follow this letter for a detailed
perspective on the Fund's performance and our strategy going forward. We
appreciate your continued trust and confidence in IAI. If there is any way we
can serve you better, please let us know by calling our toll-free Investor
Services Hotline at 1-800-945-3863.
Sincerely,
/s/Noel P. Rahn
Noel P. Rahn
Chairman
3
<PAGE>
Fund Manager's Review
---------------------
IAI Growth & Income Fund
IAI Growth & Income Fund
[PHOTO]
Todd L. McCallister, CFA
IAI Growth & Income Fund
Manager
Top Five Common Stock Sectors
% of Net Assets as of 9/30/95
Consumer Non-Durables.....13.0%
Consumer Services......... 9.3%
Finance................... 8.2%
Health Technology......... 6.5%
Consumer Durables......... 6.5%
Fund Objective
IAI Growth & Income Fund is designed for investors who want long-term capital
appreciation, with income as a secondary objective. While dividends are a factor
in stock selection, the dominant criteria is the potential for capital
appreciation.
Fund Positioning for the Past Six Months
For the six months ended September 30, 1995, the IAI Growth & Income Fund
produced a total return of 13.25%. In comparison, the total return for the S&P
500 Index returned 18.28% during the same period.
For most of the last six months, technology stocks dominated the market. As
these stocks continued to rise in price, they became too expensive for our
investment models. At September 30, 1995, technology comprised just 8.6% of the
IAI Growth & Income Fund, compared to 12.8% for the S&P 500. However,
considering its relative underweighting in technology stocks, the IAI Growth &
Income Fund has performed well during the six months ended September 30, 1995.
Most technology companies sell a commodity-and they have high fixed costs that
make them vulnerable in an economic downturn. Obviously there are exceptions:
Microsoft has unique marketing power in computer software. Motorola has leading-
edge technology in telecommunications. One of our themes in this portfolio is to
own "franchise" stocks-companies such as Microsoft and Motorola that have a
leading position in their respective markets. Other franchise businesses include
Coca Cola, Walt Disney, Gillette and Proctor & Gamble.
Healthcare stocks are a large portion of the portfolio, particularly
pharmaceutical companies which are consistent earnings producers. Pfizer and
Smithkline Beecham ADR have enough new products coming to sustain 10-12%
earnings growth for many years. Another important part of the portfolio is
office machines, but not companies that simply sell them. Alco Standard focuses
on the far more profitable service end of the business. Another theme of the
portfolio is to own stocks in industries that are temporarily out of favor.
Examples would include oil refiners, natural gas and shipping companies.
Meanwhile most of these companies are paying strong dividends-an important part
of the Fund's total return.
Outlook
Our outlook is for corporate profit growth to slow down in 1996 from its double
digit pace of the past four years. Since investors tend to reward relative
earnings performance, a slower profit environment would be advantageous for the
IAI Growth & Income Fund, which emphasizes stocks of companies that can grow
regardless of the economic environment.
4
<PAGE>
Fund Manager's Review
---------------------
IAI Growth & Income Fund
Value of $10,000 Investment+
[GRAPH APPEARS HERE]
IAI Growth & Income Fund S&P 500 Index
------------------------ -------------
Measurement Pt-
10/01/85 $10,000 $10,000
03/31/86 $12,719 $13,364
03/31/87 $15,803 $16,803
03/31/88 $15,030 $15,405
03/31/89 $17,744 $18,163
03/31/90 $20,719 $21,624
03/31/91 $22,267 $24,738
03/31/92 $24,385 $27,470
03/31/93 $26,589 $31,664
03/31/94 $27,405 $32,119
03/31/95 $29,847 $37,126
09/30/95 $33,802 $43,913
Average Annual Returns+
Through 9/30/95
Six Months* 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------
IAI Growth & Income Fund 13.25% 21.91% 12.27% 12.95%
.....................................................................
S&P 500 Index 18.28% 29.81% 12.25% 15.95%
+Past performance is not predictive of future performance
*Not annualized
Top Ten Holdings*
% of Net Assets
--------------------------
Issues Sector 9/30/95 3/31/95
- -------------------------------------------------------------------------
Philip Morris Consumer Non-Durables 4.01 3.85
Alco Standard Commercial Services 3.51 2.53
R.P. Scherer Health Technology 3.09 --
CUC International Consumer Services 2.54 1.94
Wal-Mart Retail Trade 2.52 --
Eastman Kodak Consumer Durables 2.50 --
Walt Disney Consumer Services 2.49 2.60
MCI Communications Utilities 2.27 1.23
General Motors Class E Technology Services 2.20 1.50
General Dynamics Electronic Technology 2.14 1.82
- -------------------------------------------------------------------------
Total 27.27% 15.47%
*Excludes U.S. Treasury and Government obligations
Note to Chairman's Letter & Fund Manager's Review
Performance data for the IAI Growth & Income Fund includes changes in share
price and reinvestment of 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 prospectus. 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.
5
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Fund Managers' Review
---------------------
IAI Regional Fund
IAI Regional Fund
[PHOTO]
Julian "Bing" Carlin, CFA
IAI Regional Fund
Co-Manager
[PHOTO]
Mark Hoonsbeen, CFA
IAI Regional Fund
Co-Manager
Top Five Common Stock Sectors
% of Net Assets as of 9/30/95
Producer Manufacturing..............17.6%
Finance..............................11.1%
Health Technology.................... 7.5%
Process Industries................... 7.5%
Commercial Services.................. 5.5%
Fund Objective
IAI Regional Fund seeks long-term capital appreciation by investing primarily in
stocks of companies which are headquartered in the upper Midwest--Minnesota,
Illinois, Wisconsin, Iowa, Nebraska, Montana, North Dakota and South Dakota.
Fund Positioning for the Past Six Months
For the six months ended September 30, 1995, the IAI Regional Fund produced a
total return of 15.28%. In comparison, the total return for the S&P 500 Index
was 18.28% during the same period.
The IAI Regional Fund invests in companies located in the Upper Midwest, a
region of the country with an excellent mixture of large established
corporations along with hundreds of small to midsized companies. The region also
contains a wide variety of industries from which to choose, making the IAI
Regional Fund broadly diversified.
Although our performance is often compared to the S&P 500 Index, there are some
significant differences in the universes of stocks in which we draw. For
instance, the IAI Regional Fund is under-represented in semiconductor and
personal computer stocks, two areas that have done extremely well in 1995. The
reason: there are very few of these companies located in the Upper Midwest. As a
result, we lost some ground against the S&P 500 during the six months ended
September 30, 1995. On the other hand, there is a higher proportion of
manufacturing concerns in the Upper Midwest than there is in the S&P 500 Index.
One of our largest manufacturing holdings is Motorola, which is a leader in the
wireless communications industry. An investment in Motorola is an investment in
the growth of cellular phones in the U.S. and the tremendous infrastructure
spending occurring internationally. Another company in the Fund is BMC
Industries, which manufacturers a critical part for color television sets. Over
the past few years, the company has moved into the big screen TV and computer
monitor markets, which carry much higher margins.
Outlook
A few years ago, the press was sounding the death knell for U.S. manufacturers.
In the 1980s, these companies were forced by competition to restructure in order
to compete in the global economy. Today, American manufacturers are among the
most efficient, and their products and technology are sought throughout the
world. We continue to believe that the manufacturing side of the economy is a
very attractive area for investment, and we expect these stocks to do well over
the next year.
6
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Fund Managers' Review
---------------------
IAI Regional Fund
Value of $10,000 Investment+
<TABLE>
<CAPTION>
[GRAPH APPEARS HERE]
IAI Regional Fund S&P 500 Index
Measurement Period (Since 10/01/85) (Since 10/01/85)
- ------------------ ----------------- ----------------
<S> <C> <C>
Measurement Pt-
10/01/85 $10,000 $10,000
03/31/86 $13,272 $13,364
03/31/87 $16,667 $16,803
03/31/88 $16,434 $15,406
03/31/89 $19,495 $18,163
03/31/90 $23,716 $21,624
03/31/91 $27,985 $24,738
03/31/92 $31,561 $27,470
03/31/93 $34,186 $31,664
03/31/94 $35,300 $32,119
03/31/95 $38,952 $37,125
09/30/95 $44,903 $43,913
</TABLE>
Average Annual Returns+
Through 9/30/95
<TABLE>
<CAPTION>
Six Months* 1 Year 5 Years 10 Years
=========================================================================
<S> <C> <C> <C> <C>
IAI Regional Fund 15.28% 23.68% 15.31% 16.20%
- -------------------------------------------------------------------------
S&P 500 Index 18.28% 29.81% 17.25% 15.95%
</TABLE>
+ Past performance is not predictive of future performance
* Not annualized
Top Ten Holdings*
<TABLE>
<CAPTION>
% of Net Assets
-----------------
Issues Sector 9/30/95 3/31/95
- -------------------------------------------------------------------
<S> <C> <C> <C>
Deere Producer Manufacturing 3.07 --
Motorola Electronic Technology 2.91 1.53
Anixter International Producer Manufacturing 2.60 --
Reliastar Financial Finance 2.57 2.15
Sybron Health Technology 2.44 1.70
McDonald's Consumer Services 2.38 2.74
Ameritech Utilities 2.05 1.58
BMC Industries Process Industries 2.01 1.62
Illinois Central Transportation 1.81 1.42
R.R. Donnelley & Sons Commercial Services 1.77 1.92
===================================================================
Total 23.61% 14.66%
</TABLE>
* Excludes U.S. Treasury and Government obligations
Note to Chairman's Letter & Fund Managers' Review
Performance data for the IAI Regional Fund includes changes in share price and
reinvestment of 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 prospectus. 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.
7
<PAGE>
Fund Manager's Review
---------------------
IAI Value Fund
IAI Value Fund
[PHOTO]
Douglas R. Platt
IAI Value Fund Manager]
Top Five Common Stock
Sectors
% of Net Assets as of 9/30/95
Non-Energy Minerals 12.8%
Finance 8.5%
Producer Manufacturing 8.3%
Retail Trade 6.7%
Health Services 5.3%
Fund Objective
IAI Value Fund's investment objective is long-term capital appreciation. The
Fund pursues its objective by investing in undervalued securities. These are
typically stocks of companies which are expected to be undervalued only
temporarily, until investors recognize the true value of the companies and bid
up their price.
Fund Positioning for the Past Six Months
For the six months ended September 30, 1995, the IAI Value Fund produced a total
return of 12.89%. In comparison, the total return for the Value Line Index was
13.35% during the same period, while the S&P 500 Index returned 18.28%.
Our approach to value investing is to take a contrarian approach: to search for
companies with temporary problems and a depressed stock price. We typically
won't invest in the year's "hot" industries because the stocks are simply too
expensive. For instance, 1995 has been the year of technology stocks, which
don't tend to fit the value criteria.
However, we have had much success with other industries that were out of favor
in 1994--and have since rebounded. For instance, companies in the housing,
construction, and appliance industries were down considerably last year as a
result of rising interest rates. Most of those stocks have recovered. Examples
in the portfolio include Kaufman & Broad Home, Owens-Corning Fiberglas and
Whirlpool. In addition, financial services stocks such as Great Western
Financial have benefited from falling interest rates in 1995.
As this year has progressed and the economy has slowed down, steel industry
stocks have been out of favor. High quality companies such as Nucor, known for
efficient operations and strong management, have become bargains. Health
maintenance organizations such as United Healthcare have been under pressure as
Congress debates the future of Medicare. HMOs have already begun to rebound from
the adverse publicity.
Outlook
The economy is strengthening, American industry is very productive, inflation is
low and there is strong demand for stocks from institutional investors around
the world. With such a favorable set of circumstances, it can sometimes be
difficult to find high quality value stocks that are temporarily out of favor.
Although we will keep some money on the sidelines rather than pay steep prices
for stocks, our mission will continue to be a search for investment bargains.
8
<PAGE>
Fund Manager's Review
---------------------
IAI Value Fund
Value of $10,000 Investment+
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
IAI Value Fund Value Line Index
Measurement Period (Since 10/01/85) (Since 10/01/85)
- ------------------ ---------------- ----------------
<S> <C> <C>
Measurement Pt-
10/01/85 $10,000 $10,000
03/31/86 $12,470 $12,816
03/31/87 $14,242 $14,173
03/31/88 $14,400 $12,070
03/31/89 $17,881 $13,003
03/31/90 $19,653 $12,902
03/31/91 $20,871 $12,568
03/31/92 $23,420 $13,611
03/31/93 $24,871 $14,815
03/31/94 $28,028 $15,071
03/31/95 $29,117 $15,450
09/30/95 $32,870 $17,512
</TABLE>
Average Annual Returns+
Through 9/30/95
<TABLE>
<CAPTION>
Six Months* 1 Year 5 Years 10 Years
==============================================================
<S> <C> <C> <C> <C>
IAI Value Fund 12.89% 15.35% 14.45% 12.64%
- --------------------------------------------------------------
Value Line Index 13.35% 14.97% 11.77% 5.76%
- --------------------------------------------------------------
S&P 500 Index 18.28% 29.81% 17.25% 15.95%
</TABLE>
+ Past performance is not predictive of future performance
* Not annualized
<TABLE>
<CAPTION>
Top Ten Holdings*
% of Net Assets
-------------------
Issues Sector 9/30/95 3/31/95
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Endosonics Health Technology 2.73 2.00
Holophane Producer Manufacturing 2.64 2.16
Owens-Corning Fiberglas Non-Energy Minerals 2.50 2.43
USG Non-Energy Minerals 2.41 2.41
Federal Express Transportation 2.37 --
PacifiCare Health Systems Class A Health Services 2.25 --
Michael Foods Consumer Non-Durables 2.14 1.49
Nucor Non-Energy Minerals 1.94 --
BankAmerica Finance 1.92 2.13
Centex Construction Products Non-Energy Minerals 1.89 1.92
- -----------------------------------------------------------------------------
Total 22.79% 14.54%
</TABLE>
* Excludes U.S. Treasury and Government obligations
Note to Chairman's Letter & Fund Manager's Review
Performance data for the IAI Value Fund includes changes in share price and
reinvestment of 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 prospectus. 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.
9
<PAGE>
Fund Portfolio
--------------
IAI Growth & Income Fund
September 30, 1995
(percentage figures indicate percentage of total net assets)
(unaudited)
<TABLE>
<CAPTION>
Common Stocks 84.4%
Market
Quantity Value (a)
- -------------------------------------------------------
<S> <C> <C>
Commercial Services -- 4.6%
Alco Standard 36,300 $3,076,425
Interpublic Group 23,800 946,050
----------
4,022,475
- -------------------------------------------------------
Consumer Durables -- 6.5%
American Greetings Class A 50,700 1,546,350
Eastman Kodak 36,900 2,186,325
Leggett & Platt 16,800 413,700
Sturm Ruger 49,900 1,559,375
----------
5,705,750
- -------------------------------------------------------
Consumer Non-Durables -- 13.0%
Anheuser-Busch 27,800 1,734,025
General Mills 22,300 1,243,225
Gillette 31,000 1,476,375
Nabisco Holdings Class A 17,300 512,513
Philip Morris 42,100 3,515,350
Procter & Gamble 20,500 1,578,500
Reebok International 20,800 715,000
RJR Nabisco 18,500 598,938
----------
11,373,926
- -------------------------------------------------------
Consumer Services -- 9.3%
Capital Cities/ABC 11,200 1,317,400
CUC International (b) 63,750 2,223,281
Ideon Group 106,300 1,089,575
Marriott International 34,600 1,293,175
Walt Disney 38,000 2,180,250
----------
8,103,681
- -------------------------------------------------------
Electronic Technology -- 4.6%
General Dynamics 34,100 1,871,238
Lockheed Martin 21,300 1,429,763
National Semiconductor (b) 26,800 740,350
----------
4,041,351
- -------------------------------------------------------
Energy Minerals -- 4.9%
Anadarko Petroleum 21,000 994,875
Atlantic Richfield 3,300 354,338
Burlington Resources 11,500 445,625
Enron Oil & Gas 21,700 $ 471,975
Newfield Exploration (b) 17,600 530,200
Occidental Petroleum 20,200 444,400
Sun 13,339 343,479
Tosco 19,300 665,850
----------
4,250,742
- -------------------------------------------------------
Finance -- 8.2%
Acceptance Insurance (b) 28,300 438,650
Aetna Life & Casualty 8,500 623,688
Capital One Financial 15,300 449,438
Chemical Banking 6,800 413,950
First USA 7,700 417,725
Leucadia National 29,700 1,741,163
MBNA 30,900 1,286,213
Salomon 24,800 948,600
UNUM 15,800 833,450
----------
7,152,877
- -------------------------------------------------------
Health Services -- 2.2%
Caremark International 27,900 599,850
Coastal Physician Group (b) 25,200 441,000
Health Management Associates
Class A (b) 26,400 848,100
----------
1,888,950
- -------------------------------------------------------
Health Technology -- 6.5%
Pfizer 30,100 1,606,588
R.P. Scherer 62,400 2,706,600
Smithkline Beecham ADR 27,800 1,414,325
----------
5,727,513
- -------------------------------------------------------
Industrial Services -- 4.8%
Camco International 73,000 1,788,500
Teekay Shipping (b) 41,900 1,005,600
WMX Technologies 50,900 1,450,649
----------
4,244,749
- -------------------------------------------------------
Process Industries -- 2.5%
Corning 45,400 1,299,575
Du Pont (E.I.) de Nemours 12,800 879,999
----------
2,179,574
- -------------------------------------------------------
</TABLE>
See accompanying Notes to Fund Portfolios on page 20
10
<PAGE>
Fund Portfolio
--------------
IAI Growth & Income Fund
September 30, 1995
(unaudited)
Common Stocks (cont.)
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- -----------------------------------------------------------------------
<S> <C> <C>
Producer Manufacturing -- 5.4%
General Electric 24,800 $ 1,581,000
Idex 38,350 1,371,013
Nordson 15,400 904,750
Trimas 43,900 910,924
-----------
4,767,687
- -----------------------------------------------------------------------
Retail Trade -- 4.4%
Toys "R" Us (b) 62,300 1,682,100
Wal-Mart 88,700 2,206,412
-----------
3,888,512
- -----------------------------------------------------------------------
Technology Services -- 2.2%
General Motors Class E 42,400 1,929,199
- -----------------------------------------------------------------------
Utilities -- 5.3%
AT&T 18,700 1,229,525
Cellular Communications
Class A (b) 26,300 1,433,350
MCI Communications 76,300 1,988,568
-----------
4,651,443
=======================================================================
Total Investments in Common Stocks
(Cost: $62,664,473)....................................... $73,928,429
=======================================================================
Other Securities -- 9.7%
Market
Quantity (c) Value (a)
- -----------------------------------------------------------------------
Common Stock -- 0.9%
ADFlex Solutions (b) 4,945 $ 105,699
ADRA Systems Class A (b) 12,243 24,486
Hyperion Software (b) 790 41,653
PACE Health Management
Systems (b) (d) 121,221 502,340
Young Broadcasting Series A (b) 4,331 113,147
Zoran (b) 243,821 2,439
-----------
789,764
- -----------------------------------------------------------------------
Convertible Preferred Stock -- 0.2%
Biometric Systems Series A (b) 6,667 133,340
- -----------------------------------------------------------------------
Non-Convertible Preferred Stock -- 1.9%
ADRA Systems Class D (b) 14,964 $ 149,640
GalaGen Series B (b) (d) 92,307 449,998
GalaGen Series C (b) (d) 30,000 150,000
Performance Semiconduct
Series B (b) 130,435 --
Performance Semiconductor
Series C (b) 20,537 --
Performance Semiconductor
Series D (b) 10,143 --
Tut Systems Series D (b) (d) 222,222 255,556
Urologix Series B (b) 150,000 445,951
Urologix Series C (b) 89,418 196,721
Vaso Products Series B (b) 123,076 1,232
-----------
1,649,098
- -----------------------------------------------------------------------
Ownership Market
Percentage (c) Value (a)
- -----------------------------------------------------------------------
Limited Partnerships -- 6.7%
Alta Berkeley III (b) 1.75% $ 238,638
Ampersand Speciality Materials
and Chemical II (b) 2.25 702,454
Athena Venture Partners (b) 2.27 466,398
Broad Street Investment Fund I (b) 0.21 479,785
South Street Corporate Recovery
Fund I (b) 1.31 1,961,374
Vanguard Associates II (b) 3.73 167,007
Vanguard Associates III (b) 6.55 1,891,899
-----------
5,907,555
=======================================================================
Total Investments in Other Securities
(Cost: $6,383,151)........................................ $ 8,479,757
=======================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 20
11
<PAGE>
Fund Portfolio
--------------
IAI Growth & Income Fund
September 30, 1995
(unaudited)
Convertible Corporate Bonds -- 3.3%
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial -- 3.3%
Danka Business Systems (e) 6.75% 4/01/02 $1,000,000 $1,380,000
HFS 4.50 10/01/99 1,000,000 1,535,000
----------
2,915,000
=============================================================================================================
Total Investments in Convertible Corporate Bonds
(Cost: $2,033,750)...............................................................................$ 2,915,000
=============================================================================================================
Total Investments in Long-Term Securities
(Cost: $71,081,374)..............................................................................$85,323,186
=============================================================================================================
Short-term Securities - 2.3%
Principal Market
Rate Maturity Amount Value (a)
- -------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills -- 2.3%
5.59% 12/07/95 $1,000,000 $ 990,357
5.32 1/11/96 1,000,000 985,159
----------
1,975,516
=============================================================================================================
Total Investments in Short-term Securities
(Cost: $1,975,151)...............................................................................$ 1,975,516
=============================================================================================================
Total Investments in Securities
(Cost: $73,056,525) (f)..........................................................................$87,298,702
=============================================================================================================
Other Assets and Liabilities (net) - 0.3%
...............................................................................................$ 280,778
=============================================================================================================
Total Net Assets
...............................................................................................$87,579,480
=============================================================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 20
12
<PAGE>
Fund Portfolio
--------------
IAI Regional Fund
September 30, 1995
(percentage figures indicate percentage of total net assets)
(unaudited)
<TABLE>
<CAPTION>
Common Stocks -- 81.0%
Market
Quantity Value (a)
<S> <C> <C>
- --------------------------------------------------------
Commercial Services -- 5.5%
Banta 141,800 $ 6,026,500
Castle (A.M.) & Company 214,300 4,768,175
Manpower 194,200 5,631,800
Northland Cranberries Class A 250,000 4,343,750
R.R. Donnelley & Sons 253,100 9,870,900
-----------
30,641,125
- --------------------------------------------------------
Consumer Durables -- 5.1%
Bandag 50,000 2,643,750
Clarcor 123,000 2,890,500
Harley-Davidson 172,700 4,209,563
ITI Technologies (b) 124,000 3,363,500
Newell 366,000 9,058,500
Polaris Industries 140,000 6,177,500
-----------
28,343,313
- --------------------------------------------------------
Consumer Non-Durables -- 2.3%
Sara Lee 245,000 7,288,750
Wrigley 111,000 5,605,500
12,894,250
- --------------------------------------------------------
Consumer Services -- 3.1%
Buffets (b) 315,300 3,941,250
McDonald's 346,000 13,234,500
-----------
17,175,750
- --------------------------------------------------------
Electronic Technology -- 3.9%
Aetrium (b) 147,600 3,173,400
General Instrument (b) 75,000 2,250,000
Motorola 211,900 16,183,863
-----------
21,607,263
- --------------------------------------------------------
Energy Minerals -- 2.1%
Amoco 125,000 8,015,625
Royal Dutch Petroleum ADR 30,000 3,682,500
-----------
11,698,125
- --------------------------------------------------------
Finance -- 11.1%
Allstate 205,801 $ 7,280,210
Bankers Life Holding 466,400 8,745,000
Dime Bancorp (b) 100,000 1,175,000
Equitable of Iowa 252,000 9,324,000
FCB Financial (d) 150,000 2,550,000
Household International 100,000 6,200,000
Life USA (b) 100,000 900,000
Reliastar Financial 352,000 14,300,000
Roosevelt Financial 339,100 5,976,638
Winthrop Resources 300,000 5,165,640
-----------
61,616,488
- --------------------------------------------------------
Health Services -- 1.2%
InStent (b) 120,000 1,950,000
United Healthcare 100,000 4,887,500
-----------
6,837,500
- --------------------------------------------------------
Health Technology -- 7.5%
Abbott Laboratories 230,000 9,803,750
Angeion (b) 123,800 928,500
Baxter International 210,000 8,636,250
Bio-Vascular (b) 160,000 2,880,000
Cima Labs (b) 114,900 904,837
Diametrics Medical (b) 306,000 3,480,750
Spine-Tech (b) 100,000 1,568,750
Sybron (b) 336,900 13,560,225
-----------
41,763,062
- --------------------------------------------------------
Process Industries -- 7.5%
Aptargroup 272,000 9,010,000
BMC Industries 289,000 11,162,625
Bemis 200,000 5,525,000
Nalco Chemical 175,200 5,978,700
Valspar 100,000 3,825,000
Vigoro 145,000 6,126,250
-----------
41,627,575
- --------------------------------------------------------
</TABLE>
See accompanying Notes to Fund Portfolios on page 20
13
<PAGE>
Fund Portfolio
--------------
IAI Regional Fund
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- -----------------------------------------------------------------------
<S> <C> <C>
Producer Manufacturing -- 17.6%
ABC Rail Products (b) 306,000 $ 6,426,000
Anixter International (b) 350,000 14,481,250
Berkshire Hathaway (b) 200 5,880,000
Borg-Warner Automotive 174,800 5,593,600
Case 176,000 6,468,000
Deere 210,000 17,088,750
Harnischfeger Industries 200,000 6,675,000
IDEX 205,800 7,357,350
Illinois Tool Works 39,800 2,343,225
Johnson Controls 78,000 4,933,500
Juno Lighting 100,000 1,525,000
Lindsay Manufacturing (b) 184,000 6,118,000
Pentair 70,000 3,150,000
Recovery Engineering (b) 235,900 3,833,375
Tower Automotive (b) 116,500 1,601,875
Varlen 155,000 4,223,750
------------
97,698,675
- -----------------------------------------------------------------------
Retail Trade -- 4.0%
Boise Cascade Office Products (b) 140,500 3,898,875
Casey's General Stores 183,200 4,144,900
Dayton-Hudson 39,200 2,974,300
Kohl's (b) 58,000 3,008,750
Sears Roebuck 222,000 8,186,250
------------
22,213,075
- -----------------------------------------------------------------------
Technology Services -- 3.0%
Bell & Howell (b) 205,500 5,240,250
FIserv (b) 296,700 8,567,212
Technology Solutions (b) 147,300 2,651,400
------------
16,458,862
- -----------------------------------------------------------------------
Transportation -- 4.1%
Heartland Express (b) 90,000 2,632,500
Illinois Central 257,200 10,062,950
TNT Freightways 244,500 4,614,937
Wisconsin Central
Transportation (b) 86,000 5,740,500
------------
23,050,887
- -----------------------------------------------------------------------
Utilities -- 3.0%
Ameritech 219,000 11,415,375
MFS Communications (b) 121,600 5,320,000
------------
16,735,375
=======================================================================
Total Investments in Common Stocks
(Cost: $382,967,210)...................................... $450,361,325
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
Other Securities -- 5.5%
Market
Quantity (c) Value (a)
- -----------------------------------------------------------------------
<S> <C> <C>
Common Stock -- 0.7%
Accessline Technologies
Class A (b) 41,666 $ 249,996
ADFlex Solutions (b) 7,418 158,560
BioMedical Waste Systems
Class B (b) 400,000 4,000
Hyperion Software (b) 1,794 94,589
OncorMed Series A (b) 66,666 657,060
PACE Health Management
Systems (b) 275,320 1,116,423
Pacific Monolithics (b) 9,865 5,919
PriCellular Class B (b) 134,608 1,540,193
Zoran (b) 264,041 2,640
----------
3,829,380
- -----------------------------------------------------------------------
Convertible Preferred Stock -- 0.1%
Biometric Systems Series A (b) 34,520 690,400
- -----------------------------------------------------------------------
Non-Convertible Preferred Stock -- 1.7%
Accessline Technologies
Series A (b) 71,420 571,361
Air Communications
Series A (b) (d) 1,000,000 1,250,000
Air Communications
Series B (b) (d) 300,000 375,000
Air Communications
Series B(b) (d) 875,001 --
</TABLE>
See accompanying Notes to Fund Portfolios on page 20
14
<PAGE>
Fund Portfolio
--------------
IAI Regional Fund
September 30, 1995
(unaudited)
Other Securities (Cont.)
<TABLE>
<CAPTION>
Market
Quantity (c) Value (a)
- ---------------------------------------------------------------
<S> <C> <C>
CardioGenesis Series B (b) (d) 500,000 $1,000,000
GalaGen Series B (b) (d) 369,231 1,800,002
GalaGen Series C (b) (d) 40,000 200,000
Indigo Medical Series B (b) (d) 181,818 173,255
Indigo Medical Series C (b) (d) 898,496 856,178
Intellon Series A (b) 600,000 1,050,000
OvaMed Series D (b) (d) 214,286 2,144
Seurat Analytical Systems
Series B (b) (d) 114,973 229,947
Tut Systems Series D (b) (d) 478,416 550,179
Tut Systems Series E (b) (d) 217,391 250,000
Urologix Series B (b) 225,000 668,926
Urologix Series C (b) 134,129 295,085
Vaso Products Series B (b) (d) 184,616 1,846
Vaso Products Series C (b) (d) 375,000 3,750
----------
9,277,673
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ownership Market
Percentage (c) Value (a)
- ---------------------------------------------------------------
<S> <C> <C>
Limited Partnerships -- 2.9%
Alta Berkeley III (b) 3.49% $ 477,277
Ampersand Specialty Materials
and Chemicals II (b) 3.37 1,053,633
Anglo Chinese Investment
Company (b) 1.45 507,385
Anglo Chinese Selections (b) 3.28 862,000
Athena Venture Partners (b) 2.50 511,867
Conrad/Collins Merchant Banking
Fund (b) 8.45 381,965
Greenwich Street Capital
Partners (b) 3.00 1,004,102
Pathfinder Venture Capital
Fund III (b) 3.99 897,060
South Street Corporate Recovery
Fund I (b) 2.80 4,208,609
South Street Leveraged Corporate
Recovery Fund (b) 3.38 714,497
Spectrum Equity Investors (b) 2.76 994,317
Vanguard Associates II (b) 3.73 167,006
Vanguard Associates III (b) 6.20 1,816,411
Vanguard Associates IV (b) 9.53 2,458,120
-----------
16,054,249
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Quantity (c) Value (a)
- ---------------------------------------------------------------
<S> <C> <C>
Warrants -- 0.0%
Accessline Technologies 10,713 $ --
Air Communications (d) 75,000 75
BioMedical Waste Systems
Class B 25,000 --
GalaGen (d) 8,333 --
GalaGen (d) 21,000 --
GalaGen (d) 6,667 --
Intellon 90,000 --
PACE Health Management
Systems (d) 21,820 --
Vaso Products (d) 375,000 --
----------
75
- ---------------------------------------------------------------
</TABLE>
See accompanying Notes to Fund Portfolios on page 20
15
<PAGE>
Fund Portfolio
--------------
IAI Regional Fund
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Other Securities (Cont.)
<S> <C> <C> <C> <C>
Principal Market
Rate Maturity Amount (c) Value (a)
- --------------------------------------------------------------------------------------------------
Convertible Debentures -- 0.1%
GalaGen (d) 6.50% 6/01/98 $ 540,000 $ 540,000
OvaMed (d) 40.00 10/31/95 167,000 167,023
Seurat Analytical Systems (d) 9.25 12/31/95 125,000 125,000
------------
832,023
- --------------------------------------------------------------------------------------------------
Non-Convertible Debentures -- 0.0%
Central Data 11.00% 10/31/98 28,875 $ 28,875
==================================================================================================
Total Investments in other Securities
(Cost: $25,252,247)............................................................... $ 30,712,675
==================================================================================================
Total Investments in Long-term Securities
(Cost: $408,219,457).............................................................. $481,074,000
==================================================================================================
Short-term Securities -- 12.8%
Principal Market
Rate Maturity Amount Value (a)
- --------------------------------------------------------------------------------------------------
U.S. Treasury Bills -- 12.8%
5.34% 12/07/95 $32,000,000 $ 31,691,425
5.37 1/11/96 40,000,000 39,406,360
------------
71,097,785
==================================================================================================
Total Investments in Short-term Securities
(Cost: $71,099,249)............................................................... $ 71,097,785
==================================================================================================
Total Investments in Securities
(Cost: $479,318,706) (f).......................................................... $552,171,785
==================================================================================================
Other Assets and Liabilities (net) - 0.7%
................................................................................... $ 4,055,237
==================================================================================================
Total Net Assets
................................................................................... $ 556,227,022
==================================================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 20
16
<PAGE>
Fund Portfolio
--------------
IAI Value Fund
September 30, 1995
(percentage figures indicate percentage of total net assets)
(unaudited)
<TABLE>
<CAPTION>
Common Stocks 69.7%
<S> <C> <C>
Market
Quantity Value (a)
- ----------------------------------------------------
Commercial Services -- 1.3%
M/A/R/C 40,000 $550,000
- ----------------------------------------------------
Consumer Durables -- 4.2%
Kaufman & Broad Homes 44,500 561,813
M/I Schottenstein Homes (b) 75,000 768,750
Whirlpool 8,500 490,875
---------
1,821,438
- ----------------------------------------------------
Consumer Non-Durables -- 3.5%
Michael Foods 70,000 936,250
Pepsico 11,500 586,500
---------
1,522,750
- ----------------------------------------------------
Electronic Technology -- 4.3%
Cray Research (b) 25,000 553,125
Polaroid 15,000 596,250
Tandem Computers (b) 60,000 735,000
---------
1,884,375
- ----------------------------------------------------
Energy Minerals -- 1.2%
Zeigler Coal 44,200 519,350
- ----------------------------------------------------
Finance -- 8.5%
Astoria Financial 10,000 426,250
BankAmerica 14,000 838,250
Calumet Bancorp (b) 20,000 550,000
Great Western Financial 17,000 403,750
Life USA Holdings (b) 91,532 823,788
Northwest Equity 25,000 250,000
Prime Residential 25,000 384,375
---------
3,676,413
- ----------------------------------------------------
Health Services -- 5.3%
Novacare (b) 79,600 597,000
PacifiCare Health Systems
Class A (b) 15,000 982,500
United Healthcare 15,000 733,125
---------
2,312,625
- ----------------------------------------------------
Health Technology -- 4.1%
Endosonics (b) 90,000 $1,192,500
Oncor (b) 63,500 472,281
OncorMed (b) 13,000 134,875
----------
1,799,656
- ----------------------------------------------------
Non-Energy Minerals -- 12.8%
Centex Construction Products (b) 63,000 826,875
Giant Cement Holdings (b) 40,000 485,000
Huntco Class A 35,000 529,375
Nucor 19,000 850,250
Owens-Corning Fiberglas (b) 24,500 1,093,312
USG(b) 37,600 1,052,800
Weyerhaeuser 16,000 730,000
----------
5,567,612
- ----------------------------------------------------
Process Industries -- 2.2%
Digital Biometrics (b) 85,500 609,188
Phillips-Van Heusen 30,000 345,000
----------
954,188
- ----------------------------------------------------
Producer Manufacturing -- 8.3%
ABT Building Products (b) 50,000 812,500
Giddings & Lewis 25,000 435,938
Holophane (b) 42,000 1,155,000
Masco 20,000 550,000
Trinity Industries 22,500 697,500
----------
3,650,938
- ----------------------------------------------------
Retail Trade -- 6.7%
Best Buy (b) 25,000 656,250
J.C. Penney 15,000 744,375
Pier 1 Imports 71,900 727,987
Price/Costco (b) 48,000 822,000
----------
2,950,612
- ----------------------------------------------------
Technology Services -- 1.9%
Audre Recognition Systems (b) 880,000 220,000
Racotek (b) 100,000 612,500
----------
832,500
- ----------------------------------------------------
</TABLE>
See accompanying Notes to Fund Portfolios on page 20
17
<PAGE>
Fund Portfolio
--------------
IAI Value Fund
September 30, 1995
(unaudited)
Common Stocks (cont.)
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ----------------------------------------------------------------------
<S> <C> <C>
Transportation -- 3.9%
Federal Express (b) 12,500 $ 1,037,500
Kansas City Southern Industries 15,000 682,500
-----------
1,720,000
- ----------------------------------------------------------------------
Utilities -- 1.5%
Worldcom Capital (b) 20,000 642,500
======================================================================
Total Investments
in Common Stocks
(Cost: $28,035,972)........................................$30,404,957
======================================================================
</TABLE>
Other Securities -- 7.7%
<TABLE>
<CAPTION>
Market
Quantity (c) Value (a)
- ----------------------------------------------------------------------
<S> <C> <C>
Common Stock -- 1.7%
ADFlex Solutions (b) 2,473 $ 52,860
Hyperion Software (b) 308 16,239
OncorMed Series A (b) 66,667 657,070
Pacific Monolithics (b) 9,865 5,919
Young Broadcasting Class A (b) 1,207 31,533
Zoran (b) 88,905 889
----------
764,510
- ----------------------------------------------------------------------
Convertible Preferred Stock -- 0.8%
Biometric Systems Series A (b) 18,520 370,400
- ----------------------------------------------------------------------
Non-Convertible Preferred Stock -- 1.8%
Intellon Series A (b) 200,000 350,000
PathNet Series A (b) 50,000 50,000
Tut Systems Series D (b) (d) 350,319 402,867
Vaso Products Series B (b) 61,538 615
----------
803,482
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ownership Market
Percentage (c) Value (a)
- ----------------------------------------------------------------------
<S> <C> <C>
Limited Partnerships -- 3.4%
Ampersand Speciality Materials
and Chemical II (b) 1.12% $ 351,182
Athena Venture Partners (b) 0.78 159,233
Conrad/Collins Merchant
Banking Fund (b) 8.45 381,965
South Street Leveraged Corporate
Recovery Fund (b) 0.97 204,125
Vanguard Associates III (b) 1.42 412,082
----------
1,508,587
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Quantity (c) Value (a)
- ----------------------------------------------------------------------
<S> <C> <C>
Warrants -- 0.0%
Intellon (b) 30,000 --
======================================================================
Total Investments in Other Securities
(Cost: $2,286,468).........................................$ 3,446,979
======================================================================
Total Investments in Long-Term
Securities
(Cost: $30,322,440)........................................$33,851,936
======================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 20
18
<PAGE>
Fund Portfolio
--------------
IAI Value Fund
September 30, 1995
(unaudited)
Short-term Securities -- 20.4%
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bills -- 20.4%
5.46% (f) 12/07/95 $6,000,000 $ 5,942,142
5.35 1/11/96 3,000,000 2,955,477
-----------
8,897,619
==================================================================================================
Total Investments in Short-Term Securities
(Cost: $8,896,363) .................................................................. $ 8,897,619
==================================================================================================
Total Investments in Securities
(Cost: $39,218,803) (f) ............................................................. $42,749,555
==================================================================================================
Other Assets and Liabilities (Net) - 2.2%
..................................................................................... $ 977,888
==================================================================================================
Total Net Assets
..................................................................................... $43,727,443
==================================================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 20
19
<PAGE>
Notes to Fund Portfolios
------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
September 30, 1995
(unaudited)
(a)
Market value of securities is determined as described in Note 1 to the financial
statements, under "Security Valuation."
(b)
Currently non-income producing securities.
(c)
Restricted securities represent ownership in a security which has not been
registered with the Securities and Exchange Commission under the Securities Act
of 1933. For each of the restricted security issues held at September 30, 1995,
there were no unrestricted securities of the same class as of either the date
the purchase price was agreed to or the date the Fund first obtained an
enforceable right to obtain the securities. Information concerning each
restricted security holding on September 30, 1995 is shown on pages 22-25.
(d)
Investment is an affiliate, as defined in the Investment Company Act of 1940, at
September 30,1995. A summary of transactions during the period with affiliated
issuers of the Regional Fund follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
IAI Regional Fund Affiliated Issuers
- -------------------------------------------------------------------------------------------------
PURCHASES SALES
--------------------- ------------------- REALIZED INVESTMENT
ISSUER QUANTITY COST QUANTITY COST GAIN (LOSS) INCOME
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Air Communications Series B
Convertible Note/1/ $137,500 $ 137,500 $175,000 $175,000 -- $ 3,025
Air Communications
Series B PFD 300,000 $ 375,000 -- -- -- --
Air Communications Warrants 75,000 $ 75 -- -- -- --
FCB Financial -- -- -- -- -- $22,500
GalaGen Convertible Note $100,000 $ 100,000 -- -- -- --
GalaGen Warrants 3/24/00 8,333 -- -- -- -- --
GalaGen Warrants 7/9/00 6,667 -- -- -- -- --
Life USA -- -- 50,000 $493,751 $(276,187) --
OvaMed Convertible Note $259,803 $ 260,677 $142,780 $142,988 -- --
PACE Health Management
Systems 45,000 $ 225,625 -- -- -- --
Recovery Engineering $135,900 $1,859,700 -- -- -- --
Seurat Analytical
Systems Series B PFD/2/ 64,973 $ 130,614 -- -- -- --
Seurat Analytical Systems
Convertible Note $125,000 $ 125,186 $125,000 $125,666 -- $ 4,948
</TABLE>
/1/ AirCom Holdings changed its name to Air Communications during the period.
/2/ During the six months ended September 30, 1995, $125,000 Convertible Note
was converted into Series B Preferred Stock.
20
<PAGE>
Notes to Fund Portfolios
------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
(e)
Represents security sold within terms of a private placement memorandum exempt
from registration under Section 144A of the Securities Act of 1933. These issues
may only be sold to other qualified institutional buyers, and are considered
liquid under guidelines established by the Board of Directors.
(f)
At September 30, 1995, the cost of securities for federal income tax purposes
and the aggregate gross unrealized appreciation and depreciation based on that
cost were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
IAI Growth & Income Fund IAI Regional Fund IAI Value Fund
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost for federal tax purposes $72,907,229 $479,851,616 $39,849,937
=======================================================
Gross unrealized appreciation $16,859,284 $ 82,924,334 $ 5,108,413
Gross unrealized depreciation (2,467,811) (10,604,165) (2,208,795)
-------------------------------------------------------
Net unrealized appreciation $14,391,473 $ 72,320,169 $ 2,899,618
=======================================================
</TABLE>
21
<PAGE>
Notes to Fund Portfolios
------------------------
IAI Growth & Income Fund
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Restricted Securities
Security Acquisition Date Cost
- ----------------------------------------------------------------
<S> <C> <C>
ADFlex Solutions 9/21/88 $ --
ADRA Systems Class A 10/20/88 139,353
9/29/92 1,545
ADRA Systems Class D 10/20/88 179,842
Alta Berkeley III C.V. 3/31/93 48,668
4/27/93 50,317
8/25/94 50,487
9/21/94 50,508
6/20/95 53,836
Ampersand Specialty Materials
& Chemicals II L.P. 6/09/95 --
Athena Venture Partners L.P. 9/27/85 144,062
5/15/86 410,000
Biometric Systems Series A
Convertible PFD 12/28/90 100,006
Broad Street Investment
Fund I L.P. 5/08/91 19,346
GalaGen Series B PFD 2/26/93 300,000
GalaGen Series C PFD 11/29/93 150,000
Hyperion Software 10/01/93 32,215
PACE Health
Management Systems 1/11/94 500,000
Performance Semiconductor
Series B PFD 10/19/84 150,000
Performance Semiconductor
Series C PFD 11/19/86 71,879
Performance Semiconductor
Series D PFD 1/26/88 $ 25,358
South Street Corporate
Recovery Fund I L.P. 12/30/92 199,864
2/17/93 315,000
Tut Systems Series D PFD 2/17/94 200,147
Urologix Series B PFD 8/14/92 200,000
11/06/92 100,000
Urologix Series C PFD 3/22/94 196,720
Vanguard Associates II L.P. 7/28/83 289,812
12/10/84 270,112
10/31/86 138,197
Vanguard Associates III L.P. 7/13/88 217,943
6/15/90 305,250
2/28/91 305,250
1/10/92 305,250
1/11/93 305,250
9/30/93 34,128
Vaso Products Series B PFD 6/25/92 199,998
Young Broadcasting Common
Series A 11/03/94 12,549
Zoran PFD 10/04/85 246,000
3/12/87 64,259
</TABLE>
22
<PAGE>
Notes to Fund Portfolios
------------------------
IAI Regional Fund
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Restricted Securities
Security Acquisition Date Cost
- ---------------------------------------------------------------------
<S> <C> <C>
AccessLine Technologies
Class A 6/30/94 $ 209,009
AccessLine Technologies
Series A PFD 6/03/94 499,940
AccessLine Technologies
Warrants 6/03/94 --
ADFlex Solutions 9/21/95 --
Air Communications
Series A PFD 11/15/94 63,474
Air Communications
Series B PFD 7/05/95 375,000
Air Communications
Series B PFD 11/24/93 400,000
4/25/94 168,750
Air Communications Warrants 7/05/95 75
Alta Berkeley III C.V. 3/31/93 97,337
4/27/93 100,634
8/25/94 100,974
9/21/94 101,015
6/20/95 107,674
Ampersand Specialty Materials
& Chemicals II L.P. 6/09/95 --
Anglo Chinese Investment
Company Limited 12/27/90 157,263
2/07/94 343,001
2/09/94 6,311
Anglo Chinese Selections,
Limited 12/27/90 1,042,724
Athena Venture Partners L.P. 9/27/85 158,104
5/15/86 450,000
Biomedical Waste Systems 11/08/93 1,001,789
Biomedical Waste Systems
Warrants Class A 11/08/93 --
Biometric Systems Series A
Convertible PFD 5/04/89 250,020
12/28/90 240,000
CardioGenesis Series B PFD 6/09/94 1,000,201
Central Data Corporate
Note 11% 5/12/95 $ 28,875
Conrad/Collins Merchant
Banking Fund L.P. 5/11/89 373,706
GalaGen, Convertible
Note 6.50% 6/17/94 315,489
3/22/95 125,000
7/07/95 100,000
GalaGen Series B PFD 2/26/93 1,200,000
GalaGen Series C PFD 11/29/93 200,000
GalaGen Warrants 12/05/94 --
GalaGen Warrants 4/13/95 --
GalaGen Warrants 7/07/95 --
Greenwich Street Capital
Partners L.P. 12/30/94 261,452
5/15/95 303,264
6/15/95 31,513
8/21/95 34,092
8/29/95 378,800
Hyperion Software 10/01/93 52,347
Indigo Medical Series B PFD 5/26/93 500,000
Indigo Medical Series C PFD 9/30/94 256,254
12/27/94 506,782
2/07/95 1,000
Intellon Series A PFD 3/24/94 600,489
Intellon Warrants 4/12/94 --
OncorMed Series A 12/13/93 200,173
OvaMed Convertible
Note 9.50% 7/14/95 167,897
OvaMed Series D PFD 5/27/94 375,000
PACE Health Management
Systems 1/11/94 750,000
1/31/95 201,199
4/27/95 25,625
4/27/95 125,000
6/20/95 75,000
</TABLE>
23
<PAGE>
Notes to Fund Portfolios
------------------------
IAI Regional Fund
September 30, 1995
(unaudited)
Restricted Securities (Cont.)
<TABLE>
<CAPTION>
Security Acquisition Date Cost
- -----------------------------------------------------
<S> <C> <C>
PACE Health Management
Systems Warrants 3/30/95 $ --
Pacific Monolithics 4/24/85 24,999
8/06/85 75,000
8/19/86 47,989
Pathfinder Venture Capital
Fund III L.P. 4/29/91 62,128
3/05/92 100,000
10/29/92 100,000
4/20/93 100,000
8/24/93 100,000
3/24/94 100,000
12/08/94 100,000
PriCellular Class B 5/16/94 751,053
Seurat Analytical Systems
Series B PFD 4/29/94 100,000
7/05/95 130,614
Seurat Analytical Systems
Convertible Note 9.5% 7/05/95 125,186
South Street Corporate
Recovery Fund I L.P. 12/30/92 421,020
2/17/93 675,000
South Street Leveraged
Corporate Recovery
Fund I L.P. 2/17/93 6,052
Spectrum Equity
Investors L.P. 5/12/94 447,860
1/03/95 150,000
5/11/95 33,149
5/22/95 210,000
Tut Systems
Series D PFD 2/17/94 400,293
4/08/94 30,575
Tut Systems Series E PFD 12/21/94 250,563
Urologix Series B PFD 8/14/92 200,000
11/06/92 250,000
Urologix Series C PFD 3/22/94 295,084
Vanguard Associates II L.P. 7/28/83 289,812
12/10/84 270,112
10/31/86 138,197
Vanguard Associates III L.P. 7/13/88 206,161
6/15/90 288,750
2/28/91 288,750
1/10/92 288,750
1/11/93 288,750
9/30/93 32,284
Vanguard Associates IV L.P. 8/10/92 200,000
12/18/92 150,000
2/11/93 350,000
8/12/93 350,000
11/01/93 350,000
4/19/94 350,000
9/19/94 350,000
1/17/95 350,000
7/17/95 350,000
Vaso Products Series B PFD 6/25/92 300,001
Vaso Products Series C PFD 7/13/94 375,871
Vaso Products Warrants 7/13/94 --
Zoran 10/04/85 266,400
3/12/87 69,594
</TABLE>
24
<PAGE>
Notes to Fund Portfolios
------------------------
IAI Value Fund
September 30, 1995
(unaudited)
Restricted Securities
<TABLE>
<CAPTION>
Security Acquisition Date Cost
- --------------------------------------------------------------
<S> <C> <C>
ADFlex Solutions 9/21/95 $ --
Ampersand Specialty Materials
& Chemicals II L.P. 6/09/95 --
Athena Venture L.P. 9/27/85 49,192
5/15/86 140,000
Biometric Systems Series A
Convertible PFD 5/04/89 250,020
Conrad/Collins Merchant
Banking Fund L.P. 5/11/89 373,706
Hyperion Software 10/01/93 22,861
Intellon Series A PFD 3/24/94 200,163
Intellon Warrants 4/12/94 --
OncorMed 12/13/93 200,173
Pacific Monolithics 4/24/85 24,999
8/06/85 75,000
8/19/86 47,990
PathNet Series A PFD 8/28/95 50,000
South Street Leveraged
Corporate Recovery
Fund I L.P. 2/17/93 1,729
Tut Systems Series D PFD 2/17/94 300,220
4/08/94 15,288
Vanguard Associates III L.P. 7/13/88 47,122
6/15/90 66,000
2/28/91 66,000
1/10/92 66,000
1/11/93 66,000
9/30/93 7,379
Vaso Products Series B PFD 6/25/92 99,999
Young Broadcasting
Common Series A 11/03/94 3,498
Zoran PFD 10/04/85 89,699
3/12/87 23,430
</TABLE>
25
<PAGE>
Statements of Assets and Liabilities
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
IAI Growth & Income Fund
<S> <C>
- --------------------------------------------------------------------------------------------------
Assets
Investments in securities of unaffiliated issuers, at market
(Cost: $71,906,378, $465,230,821 and $38,903,295, respectively) $85,940,808
Investments in securities of affiliated issuers, at market
(Cost: $1,150,147, $14,087,885, and $315,508, respectively) 1,357,894
-------------------------
Total investments in securities (see Fund Portfolios) 87,298,702
Cash in bank on demand deposit 579,779
Dividends and accrued interest receivable 168,923
Receivable for investment securities sold --
Other 56,780
-------------------------
Total assets 88,104,184
-------------------------
Liabilities
Payable for investment securities purchased 434,174
Accrued investment advisory fee 54,796
Accrued distribution fee 14,572
Accrued dividend-disbursing, administrative, and accounting fee 14,342
Other accrued expenses 6,820
-------------------------
Total liabilities 524,704
-------------------------
Net assets applicable to outstanding capital stock $87,579,480
=========================
Represented by:
Capital stock $ 542,003
Additional paid-in capital 64,699,595
Undistributed net investment income 251,038
Accumulated net realized gains 7,844,667
Unrealized appreciation on investments 14,242,177
-------------------------
Total -- representing net assets applicable to outstanding capital
stock $87,579,480
=========================
Shares of capital stock outstanding (Note 4) 5,420,029
-------------------------
Net asset value per share of outstanding capital stock $16.16
=========================
</TABLE>
26
<PAGE>
IAI Regional Fund IAI Value Fund
- -----------------------------------------
$537,147,588 $42,346,688
15,024,197 402,867
- -----------------------------------------
552,171,785 42,749,555
810,665 1,007,067
920,858 3,540
4,972,421 --
126,900 10,869
- -----------------------------------------
559,002,629 43,771,031
- -----------------------------------------
2,171,898 --
325,166 27,013
114,000 5,791
93,200 7,203
71,343 3,581
- -----------------------------------------
2,775,607 43,588
- -----------------------------------------
$556,227,022 $43,727,443
=========================================
$ 229,808 $ 34,982
440,054,499 37,717,122
2,073,100 117,977
41,016,536 2,326,610
72,853,079 3,530,752
- -----------------------------------------
$556,227,022 $43,727,443
=========================================
22,980,804 3,498,164
- -----------------------------------------
$24.20 $12.50
=========================================
27
<PAGE>
Statements of Operations
------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
Six months ended September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
IAI Growth & Income Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment Income
Income
Dividends (including $0, $22,500, and $0, respectively,
from affiliated issuers) $ 770,175
Interest (including $0, $7,973, and $0, respectively,
from affiliated issuers) 149,754
--------------------------
Total income 919,929
--------------------------
Expenses
Investment advisory fees 353,235
Distribution fees 116,590
Dividend-disbursing, administrative, and accounting fees 93,272
Legal fees --
Custodian fees 5,410
Compensation of Directors 3,660
Audit fees 5,242
Printing and shareholder reporting 18,300
Registration fees 910
Other expenses 5,004
--------------------------
Total expenses 601,623
Less fees reimbursed by Advisers or Distributor (18,675)
--------------------------
Net expenses 582,948
--------------------------
Net investment income 336,981
--------------------------
Net Realized and Unrealized Gains (losses)
Net realized gains (losses) on:
Investment securities (including $0, ($276,187), and $0,
respectively, from affiliated issuers) $ 9,993,989
Futures contracts (19,650)
Written option contracts --
-----------
9,974,339
Net change in unrealized appreciation or depreciation on
investment securities 1,005,290
--------------------------
Net gain on investments 10,979,629
--------------------------
Net increase in net assets resulting from operations $11,316,610
==========================
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
IAI Regional Fund IAI Value Fund
- -----------------------------------------------------------
<C> <C> <C> <C>
$ 3,681,848 $ 172,649
2,327,592 228,974
- ---------------------------------------------------------
6,009,440 401,623
- ---------------------------------------------------------
1,934,419 161,063
676,516 53,688
543,213 42,950
1,830 --
4,325 2,390
3,100 4,575
17,398 5,103
114,600 12,287
1,580 7,320
22,070 1,924
- ---------------------------------------------------------
3,319,051 291,300
-- (22,861)
- ---------------------------------------------------------
3,319,051 268,439
- ---------------------------------------------------------
2,690,389 133,184
- ---------------------------------------------------------
$41,312,429 $2,540,804
-- --
41,667 --
- ----------- ----------
41,354,096 2,540,804
32,173,095 2,479,067
- ---------------------------------------------------------
73,527,191 5,019,871
- ---------------------------------------------------------
$76,217,580 $5,153,055
=========================================================
</TABLE>
See accompanying Notes to Financial Statements on page 35
29
<PAGE>
Statements of Changes in Net Assets
-----------------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
<TABLE>
<CAPTION>
IAI Growth & Income Fund
Six months ended Year ended
September 30, 1995 March 31, 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations (unaudited)
Net investment income $ 336,981 $ 893,488
Net realized gains (losses) 9,974,339 (27,719,525)
Net change in unrealized appreciation or depreciation 1,005,290 10,704,951
-----------------------------------------
Net increase in net assets resulting from operations 11,316,610 8,878,914
-----------------------------------------
Distributions to Shareholders From:
Net investment income (368,351) (840,812)
Net realized gains -- (5,569,932)
-----------------------------------------
Total distributions (368,351) (6,410,744)
-----------------------------------------
Capital Share Transactions (Note 4)
Net proceeds from sale of shares 7,429,304 22,505,094
Net asset value of shares issued to shareholders in
reinvestment of distributions 353,624 6,225,103
Cost of shares redeemed (32,407,546) (49,044,325)
-----------------------------------------
Increase (decrease) in net assets from capital share transactions (24,624,618) (20,314,128)
-----------------------------------------
Total increase (decrease) in net assets (13,676,359) (17,845,958)
Net assets at beginning of period 101,255,839 119,101,797
-----------------------------------------
Net assets at end of period $ 87,579,480 $101,255,839
=========================================
[including undistributed net investment income (loss) of
$251,038 and $282,408 for Growth & Income Fund,
$2,073,100 and $802,488 for Regional Fund,
and $117,977 and $17,489 for Value Fund]
</TABLE>
30
<PAGE>
Statements of Changes in Net Assets
-----------------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
<TABLE>
<CAPTION>
IAI Regional Fund IAI Value Fund
Six months ended Year ended Six months ended Year ended
September 30, 1995 March 31, 1995 September 30, 1995 March 31, 1995
- ----------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
$ 2,690,389 $ 4,012,967 $ 133,184 $ 115,710
41,354,096 18,074,048 2,540,804 300,380
32,173,095 29,416,913 2,479,067 700,762
- ---------------------------------------------------------------------------------------
76,217,580 51,503,928 5,153,055 1,116,852
- ---------------------------------------------------------------------------------------
(1,419,777) (5,095,789) (32,696) (85,573)
(12,675,920) (31,395,122) (331,228) (2,540,750)
- ---------------------------------------------------------------------------------------
(14,095,697) (36,490,911) (363,924) (2,626,323)
- ---------------------------------------------------------------------------------------
31,396,527 60,901,121 6,741,311 28,248,406
13,623,918 35,128,935 32,041 2,610,202
(74,279,536) (184,250,826) (8,435,994) (24,030,273)
- ---------------------------------------------------------------------------------------
(29,259,091) (88,220,770) (1,662,642) 6,828,335
- ---------------------------------------------------------------------------------------
32,862,792 (73,207,753) 3,126,489 5,318,864
523,364,230 596,571,983 40,600,954 35,282,090
- ---------------------------------------------------------------------------------------
$556,227,022 $ 523,364,230 $43,727,443 $ 40,600,954
=======================================================================================
</TABLE>
See accompanying Notes to Financial Statements on page 35
31
<PAGE>
Financial Highlights
--------------------
IAI Growth & Income 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>
Six months ended Years ended March 31,
--------------------------------------------------------
September 30, 1995 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of period $ 14.32 $ 13.91 $ 15.19 $ 14.73 $ 14.48 $ 15.47
---------------------------------------------------------------------------
Operations
Net investment income .06 .12 .09 .07 .13 .29
Net realized and
unrealized gains 1.83 1.04 .38 1.17 1.20 .72
---------------------------------------------------------------------------
Total from operations 1.89 1.16 .47 1.24 1.33 1.01
---------------------------------------------------------------------------
Distributions to
Shareholders From:
Net investment income (.05) (.10) (.06) (.07) (.14) (.30)
Net realized gains -- (.65) (1.69) (.71) (.94) (1.70)
---------------------------------------------------------------------------
Total distributions (.05) (.75) (1.75) (.78) (1.08) (2.00)
---------------------------------------------------------------------------
Net Asset Value
End of period $ 16.16 $ 14.32 $ 13.91 $ 15.19 $ 14.73 $ 14.48
===========================================================================
Total investment return* 13.25% 8.92% 3.07% 9.04% 9.56% 7.42%
Net assets at end of
period (000's omitted) $ 87,579 $101,256 $119,102 $134,308 $113,324 $90,590
Ratios
Expenses to average net
assets 1.25%** 1.25% 1.25% 1.25% 1.25% 1.05%
Net investment income to
average net assets .72%** .80% .60% .61% 1.03% 2.19%
Portfolio turnover rate
(excluding short-term
securities) 44.4% 79.1% 205.6% 175.6% 210.1% 68.5%
</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
32
<PAGE>
Financial Highlights
--------------------
IAI Regional 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>
Six months ended Years ended March 31,
------------------------------------------------------
September 30, 1995 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value (unaudited)
Beginning of period $ 21.56 $ 20.94 $ 22.23 $ 21.29 $ 21.03 $ 18.95
------------------------------------------------------------------------
Operations
Net investment income .12 .17 .21 .21 .20 .35
Net realized and unrealized gains 3.13 1.84 .51 1.48 2.38 2.88
------------------------------------------------------------------------
Total from operations 3.25 2.01 .72 1.69 2.58 3.23
------------------------------------------------------------------------
Distributions to Shareholders From:
Net investment income (.06) (.20) (.18) (.23) (.24) (.33)
Net realized gains (.55) (1.19) (1.83) (.52) (2.08) (.82)
------------------------------------------------------------------------
Total distributions (.61) (1.39) (2.01) (.75) (2.32) (1.15)
------------------------------------------------------------------------
Net Asset Value
End of period $ 24.20 $ 21.56 $ 20.94 $ 22.23 $ 21.29 $ 21.03
========================================================================
Total investment return* 15.28% 10.35% 3.26% 8.31% 12.77% 18.01%
Net assets at end of period (000's omitted) $556,227 $523,364 $596,572 $659,904 $528,763 $284,054
Ratios
Expenses to average net assets 1.23%** 1.23% 1.25% 1.25% 1.25% 1.01%
Net investment income to average net assets .99%** 0.74% 0.94% 1.09% 1.20% 2.27%
Portfolio turnover rate
(excluding short-term securities) 50.0% 150.0% 163.0% 139.7% 140.6% 168.7%
</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
33
<PAGE>
Financial Highlights
--------------------
IAI Value 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 March 31,
Six months ended -------------------------------------------------------
September 30, 1995 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of period $ 11.17 $ 11.63 $ 11.63 $ 11.06 $ 10.46 $ 12.29
----------------------------------------------------------------------------
Operations
Net investment income .04 .03 .05 .11 .12 .22
Net realized and unrealized gains 1.39 .38 1.45 .56 1.08 .36
----------------------------------------------------------------------------
Total from operations 1.43 .41 1.50 .67 1.20 .58
----------------------------------------------------------------------------
Distributions to Shareholders From:
Net investment income (.01) (.03) (.13) -- (.15) (.17)
Net realized gains (.09) (.84) (1.37) (.10) (.45) (2.24)
----------------------------------------------------------------------------
Total distributions (.10) (.87) (1.50) (.10) (.60) (2.41)
----------------------------------------------------------------------------
Net Asset Value
End of period $ 12.50 $ 11.17 $ 11.63 $ 11.63 $ 11.06 $ 10.46
============================================================================
Total investment return* 12.89% 3.88% 12.70% 6.20% 12.21% 6.19%
Net assets at end of period (000's omitted) $ 43,727 $40,601 $35,282 $24,643 $32,246 $22,145
Ratios
Expenses to average net assets 1.25%** 1.25% 1.25% 1.25% 1.25% 1.10%
Net investment income to average net assets 0.62%** 0.31% 0.35% 0.68% 1.24% 2.00%
Portfolio turnover rate
(excluding short-term securities) 27.8% 102.1% 191.9% 118.3% 125.4% 57.0%
</TABLE>
* Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of all distributions at net asset
value.
** Annualized
34
<PAGE>
Notes to Financial Statements
-----------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
September 30, 1995
(unaudited)
[1] Summary of Significant Accounting Policies
The IAI Mutual Funds are registered under the Investment Company Act of 1940 (as
amended) as diversified, open-end management investment companies, or series
thereof. IAI Growth & Income Fund (Growth & Income Fund) is a separate portfolio
of IAI Investment Fund VII, Inc., IAI Regional Fund (Regional Fund) is a
separate portfolio of IAI Investment Funds IV, Inc. and IAI Value Fund (Value
Fund) is a separate portfolio of IAI Investment Funds VIII, Inc. This report
covers only the Growth & Income Fund, Regional Fund, and Value Fund (the Funds).
Significant accounting policies followed by the Funds are summarized below:
Security Valuation
Investments in securities traded on national 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 sale price
or if no last sales price is available, the last reported bid price is used. The
market values of debt securities are determined using pricing services or prices
quoted by independent brokers. Restricted securities for which there is no
public market are valued at fair value in good faith as determined by the Board
of Directors.
Short-term securities with a maturity of 60 days or less from the date of
purchase are valued at amortized cost. Short-term securities with a maturity
greater than 60 days from the date of purchase are marked-to-market on a daily
basis.
Futures and Options Contracts
In order to produce incremental earnings, protect gains, and facilitate buying
and selling of securities, the Funds may buy and sell futures contracts and
options. These investments involve risks caused by the possibility of an
imperfect correlation between movements in the value of the contract or option
and the price of the underlying securities and interest rates. Risks may also
arise if there is an illiquid secondary market for the instruments, or due to
the inability of counterparties to perform. Futures contracts are valued at the
settlement price of the exchange on which they are traded. Options traded on an
exchange are valued using the last sale price. Options traded over-the-counter
are valued using dealer-supplied valuations.
Upon entering into a futures contract, the Funds are required to deposit either
cash or securities, representing the initial margin, equal to a certain
percentage of the contract value. Subsequent changes in the value of the
contract, or variation margin, are recorded as unrealized gains and losses. The
variation margin is paid or received in cash daily by the Funds. The Funds
realize a gain or loss when the contract is closed or expires.
35
<PAGE>
Notes to Financial Statements
-----------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
September 30, 1995
(unaudited)
Federal Taxes
Since it is each Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
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, each 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 differ for financial statement and
tax purposes primarily because of recognition of limited partnership income and
the deferral of "wash sale" losses for tax purposes. The character of
distributions made during the year for net investment income or net realized
gains may also differ from its ultimate characterization for tax purposes.
For federal income tax purposes, Growth & Income Fund has a capital loss
carryover of approximately $1,417,000 at March 31, 1995 which, if not offset by
subsequent capital gains, will expire in 2003. It is unlikely the Board of
Directors will authorize a distribution of any net realized gains until the
available capital loss carryover is offset or expires.
Security Transactions and Investment Income
The Funds record 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 recorded on the accrual basis. The Funds amortize 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 ex-date. Distributions from
net investment income are made semi-annually. Capital gains, if any, are
primarily distributed as of the end of the calendar year. Additional capital
gains distributions as needed to comply with federal tax regulations are
distributed during the year.
36
<PAGE>
Notes to Financial Statements
-----------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
September 30, 1995
(unaudited)
[2] Commitments and Contingencies
For purposes of obtaining certain types of insurance coverage for the Funds and
its officers and directors, the Funds are policyholders in an industry-sponsored
mutual insurance company (the Company). In connection with their obligations as
policyholders, the Funds have made payments to the Company which have been
capitalized. Also, the Funds are committed to make future capital contributions,
if requested by the Company.
Growth & Income Fund, Regional Fund, and Value Fund have available lines of
credit of $15,000,000, $15,000,000 and $11,450,000, respectively, with a bank at
prime interest rates. To the extent funds are drawn against the line, securities
are held in a segregated account. No compensating balances or commitment fees
are required under the line of credit. There were no borrowings outstanding at
September 30, 1995 for the Funds.
At September 30, 1995, the Funds are committed to invest additional amounts in
certain limited partnership investments held, as follows:
<TABLE>
<CAPTION>
Limited Partnership Investment Commitments
- -------------------------------------------------------------------------------------------------------------------
IAI Growth & Income Fund IAI Regional Fund IAI Value Fund
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alta Berkeley III C.V. $198,000 $ 395,000 $ --
Ampersand Specialty Materials and Chemicals II L.P. 500,000 750,000 250,000
Greenwich Street Capital Partners L.P. -- 8,789,000 --
Pathfinder Venture Capital Fund III L.P. -- 200,000 --
Path Net -- -- 100,000
Spectrum Equity Investors L.P. -- 2,157,000 --
Vanguard Associates IV L.P. -- 700,000 --
- -------------------------------------------------------------------------------------------------------------------
Total Commitments $698,000 $12,991,000 $350,000
===================================================================================================================
</TABLE>
Default by a limited partner of payment of a properly requested capital
contribution, other than default due to a legal determination that such
contribution need not be made, would result in forfeiture of such limited
partner's interest in any future profits and loss in the partnership and
removal from the limited partnership.
The Funds' management intends to finance the aforementioned commitments with
available cash or with proceeds from the sale of temporary investments in short-
term securities. The Funds maintain a "segregated account" in an amount equal to
its aggregate unpaid commitments.
37
<PAGE>
Notes to Financial Statements
-----------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
September 30, 1995
(unaudited)
[3] Fees and Expenses
Under terms of an investment advisory agreement, Growth & Income Fund pays
Investment Advisers, Inc. (Advisers) a monthly management fee based on average
month-end net assets value equal on an annual basis to .75% of the first $100
million in net assets, .65% of the next $100 million in net assets, .55% of net
assets in excess of $200 million and Regional and Value Funds pay .75% of the
first $200 million in net assets, .70% of the next $300 million in net assets,
and .65% of net assets in excess of $500 million.
Each Fund also pays an annual fee to Advisers for acting as the Fund's dividend-
disbursing, administrative, and accounting services agent. The fee is computed
monthly on the average month-end net assets at an annual rate of .20%.
The Funds have adopted a plan of distribution with IAI Securities, Inc.
(Distributor), the Funds' distributor. Under the Plan, each Fund pays
Distributor a monthly fee to cover expenses incurred in the distribution and
promotion of Fund shares. The fee is equal to an annual rate of .25% of each
Fund's average month-end net assets.
In addition to the advisory, distribution, and the dividend-disbursing,
administrative, and accounting services fees, the Funds are responsible for
paying operating expenses, including costs incurred in the purchase and sale of
assets. Advisers and Distributor have agreed to reimburse the Funds to the
extent total expenses, excluding costs incurred in the purchase and sale of
assets, exceed, on an annual basis, 1.25% of each Fund's respective average
month-end net assets.
[4] Capital Stock
Growth & Income Fund has authorized 10 billion shares of $.10 par value stock;
Regional Fund and Value Fund each have authorized 10 billion shares of $.01 par
value stock. Transactions in shares of capital stock during the six months
ended September 30, 1995 and the year ended March 31, 1995 were as follows:
<TABLE>
<CAPTION>
IAI Growth & Income Fund IAI Regional Fund IAI Value Fund
- ----------------------------------------------------------------------------------------------------------------------------------
Six months ended Year ended Six months ended Year ended Six months ended Year ended
September 30, 1995 March 31, 1995 September 30, 1995 March 31, 1995 September 30, 1995 March 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sold 492,396 1,651,236 1,367,894 2,960,445 570,503 2,541,639
Issued for reinvested
distributions 23,749 477,649 605,508 1,792,336 2,741 244,196
Redeemed (2,168,458) (3,619,759) (3,265,066) (8,975,444) (711,210) (2,182,842)
----------------------------------------------------------------------------------------------------------
Increase (decrease) in
shares outstanding (1,652,313) (1,490,874) (1,291,664) (4,222,663) (137,966) 602,993
==========================================================================================================
</TABLE>
38
<PAGE>
Notes to Financial Statements
-----------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
September 30, 1995
(unaudited)
[5] Investment Transactions
Purchases and Sales of Securities
For the six months ended September 30, 1995, purchases of securities and sales
proceeds, other than investments in short-term securities, for the Funds were as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Purchases Sales
- -----------------------------------------------------------
<S> <C> <C>
IAI Growth & Income Fund $ 39,983,093 $ 69,293,850
IAI Regional Fund $226,154,283 $268,861,690
IAI Value Fund $ 9,629,786 $ 16,604,523
</TABLE>
Restricted Securities
Included in the Funds' portfolios of investments in securities at September 30,
1995 are issues which generally cannot be offered for sale to the public without
first being registered under the Securities Act of 1933 ("restricted
securities"). Each Fund limits investments in securities which are not readily
marketable to 15 percent of its total assets at the time of purchase. This
limitation does not include Rule 144A securities that have been determined to be
liquid based upon guidelines approved by the Fund's Board of Directors.
[6] Option Contracts Written
During the period ended September 30, 1995, Regional Fund wrote the following
options on equity securities. There are no outstanding contracts at September
30, 1995.
<TABLE>
<CAPTION>
Call Options
- ------------------------------------------------------------
Number of Contracts Premium
- ------------------------------------------------------------
<S> <C> <C>
Outstanding at 3/31/95 250 $ 24,249
Opened 2,360 342,783
Expired (300) (29,099)
Closed (280) (30,908)
Exercised (2,030) (307,025)
---------------------------------
Outstanding at 9/30/95 -- $ --
=================================
</TABLE>
39
<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>
IAI Developing Capital Appreciation -- Equity securities of companies in developing countries
Countries Fund
- -----------------------------------------------------------------------------------------------------------------------------------
IAI International Fund Capital Appreciation Income Equity securities of non-U.S. companies
- -----------------------------------------------------------------------------------------------------------------------------------
IAI Emerging Growth Fund Capital Appreciation -- Common stocks of small to medium-sized emerging
growth companies
- -----------------------------------------------------------------------------------------------------------------------------------
IAI Midcap Growth Fund Capital Appreciation -- Common stocks of medium-sized growth companies
- -----------------------------------------------------------------------------------------------------------------------------------
IAI Regional Fund Capital Appreciation -- Common stocks of Upper Midwest companies
- -----------------------------------------------------------------------------------------------------------------------------------
IAI Growth Fund Capital Appreciation -- Common stocks with potential for above-average growth
and appreciation
- -----------------------------------------------------------------------------------------------------------------------------------
IAI Value Fund Capital Appreciation -- Common stocks which are considered to be undervalued
- -----------------------------------------------------------------------------------------------------------------------------------
IAI Growth & Income Fund Capital Appreciation Income Common stocks with potential for long-term
appreciation, and common stocks that are expected to
produce income
- -----------------------------------------------------------------------------------------------------------------------------------
IAI Balanced Fund Total Return Income Common stocks, investment grade bonds and short-term
[Capital Appreciation + Income] instruments
- -----------------------------------------------------------------------------------------------------------------------------------
IAI Bond Fund Income Capital Preservation Investment grade bonds
- -----------------------------------------------------------------------------------------------------------------------------------
IAI Minnesota Tax Free Fund Tax-free Income Capital Preservation Investment grade municipal bonds
[Exempt from Federal and Minnesota State Income Taxes]
- -----------------------------------------------------------------------------------------------------------------------------------
IAI Government Fund Income Capital Preservation U.S. Government securities
- -----------------------------------------------------------------------------------------------------------------------------------
IAI Reserve Fund Stability/Liquidity Income The portfolio has a maximum average maturity of 25
months, investing primarily in investment grade bonds
- -----------------------------------------------------------------------------------------------------------------------------------
IAI Money Market Fund Stability/Liquidity Income The portfolio's average dollar-weighted maturity is
less than 90 days, investing in high quality, money
market securities
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
Distributor
IAI Securities, Inc.
Investment Adviser
and Manager
Investment Advisers, Inc.
P.O. Box 357
Minneapolis, MN 55440-0357 USA
800.945.3863
612.376.2700
Custodian
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, MN 55479
Legal Counsel
Dorsey & Whitney P.L.L.P.
220 South Sixth Street
Minneapolis, MN 55402
Independent Auditors
KPMG Peat Marwick LLP
4200 Norwest Center
Minneapolis, MN 55402
Directors
Madeline Betsch
W. William Hodgson
George R. Long
Noel P. Rahn
Richard E. Struthers
J. Peter Thompson
Charles H. Withers
<PAGE>
[LOGO]
Mutual Funds
3700 First Bank Place, P.O. Box 357, Minneapolis, Minnesota 55440-0357 USA fax
612.376.2737
800.945.3863
612.376.2700
