<PAGE>
----------------------------------------------------
EQUITY FUNDS
ANNUAL REPORT
IAI Growth & Income Fund, IAI Regional Fund,
IAI Value Fund
MARCH 31, 1995
----------------------------------------------------
[LOGO OF IAI]
MUTUAL FUNDS
<PAGE>
[MAP ART]
<PAGE>
TABLE OF CONTENTS
-----------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
Annual Report
March 31, 1995
<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.....................................16
Notes to Fund Portfolios............................18
Statements of Assets and Liabilities................24
Statements of Operations............................26
Statements of Changes in Net Assets.................28
Financial Highlights
IAI Growth & Income Fund...........................30
IAI Regional Fund..................................31
IAI Value Fund.....................................32
Notes to Financial Statements.......................33
Independent Auditors' Report........................39
Federal Tax Information.............................40
IAI Mutual Fund Family..............................41
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
[PHOTO OF NOEL P. RAHN]
Noel P. Rahn,
Chairman
Sticking to Basics
No matter what the economy or the markets do, we will still need funds to
achieve our financial objectives. That is why it is important to stick with the
basic techniques that have helped long-term investors reach their goals for
decades.
As a long-time investor, I have found four investment fundamentals to be
important keys to building financial security.
1. Create your own investment game plan.
The first, and most important key, is to plan for your specific financial
requirements. You may be investing for different financial goals. It is
important that you know your own situation and how much money you will need to
achieve your objectives. Then, you can prioritize your goals and determine how
to invest to achieve them.
You will probably find that most of your goals are longer-term goals. This fact
is important because it means you have the potential to earn higher returns.
Long-term investment strategies are the most appropriate for long-term goals.
2. Diversify.
Diversification can reduce your risk. Owning shares in several companies makes
you less dependent on just a few to achieve your hopes and dreams. A good way to
gain instant diversification is to invest through mutual funds which usually
hold shares in dozens to hundreds of different companies.
You can also reduce your risk by owning mutual funds with different investment
objectives. That way changing economic conditions which may impact one part of
your portfolio may benefit other parts.
3. Pay attention to the financial media only in proportion to the time frame
they are covering.
Sometimes it is easy to get caught up in the exciting, but transitory, stories
of our time. The fact is, investors who have invested in good businesses have
been well rewarded over the long term, even following periods of war or economic
depression.
4. Buy bargains.
It seems we want our investments to only go up, but sometimes prices can
decline. These discounts may be temporary or extend for a few years, but as long
as you still have several years before you will need your money, market
discounts can be good opportunities to increase your ownership in operating
businesses at bargain prices.
You can achieve a lot using your own common sense. It is our goal, as
professional investment managers, to help take you the rest of the way--to
financial security.
2
<PAGE>
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.
While the Federal Reserve Board has recently taken a "wait and see" attitude, it
is not likely to ease interest rates in the next six months. The trend of rising
interest rates and the prospect for further increases are still a negative part
of our economic outlook. While we see no reason to expect a recession this year,
our conclusion is that the economy will slow modestly but remain at an above-
average rate of growth. Growth in U.S. GDP (Gross Domestic Product) will run at
about 3%-3.5% after ending last year at a 5.1% pace.
We anticipate a few inflationary scares in the monthly reports during the second
half of the year. With the Producer Price Index (PPI) in an uptrend and the
Consumer Price Index (CPI) relatively flat, we could experience some monthly
increases of from 0.4% to 0.6% in the CPI. And, even though there are some
favorable secular trends on inflation, and labor costs are still very low for
this part of the cycle, inflation for the year will likely reach 4% compared
with last year's rate of just 2.7%.
In the current economic environment, investment strategy favors conservative and
well diversified portfolios. The rest of the year could be volatile and
frustrating for both stock and bond investors. Financial market strength in the
first quarter has led some to conclude that the worst part of the market cycle
is over. We are more cautious. Our projected returns of 5-10% for stocks in
general in 1995, and 5-7% for bonds and money market funds have already been
achieved. The greatest risk for the period comes from an inflation scare and a
move toward higher interest rates.
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 OF TODD L. MCCALLISTER]
Todd L. McCallister,
CFA
IAI Growth & Income
Fund Manager
Top Five
Sectors
% of Net Assets as of 3/31/95
Consumer Non-Cyclical 20.1%
Consumer Cyclical 19.8%
Industrial 13.8%
Technology 13.3%
Financial 8.2%
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 Year
During the first seven months of the last fiscal year ended March 31, 1995, Fund
performance was relatively flat and highly correlated with that of the broad
market as measured by the S&P 500 Index. Both the market and the Fund declined
in November through mid-December in 1994, with the Fund experiencing a decline
of approximately 7% during the six-week period. However, from mid-December
through the end of the final fiscal quarter, the IAI Growth & Income Fund made
up that lost ground and advanced strongly, appreciating more than 12% in less
than four months. The Fund completed the year earning a total return of 8.92%.
Most of 1994 was characterized by an economic environment of rising interest
rates which caused difficulty for interest-rate sensitive issues, including some
of the Fund's holdings such as housing stocks, smaller financial stocks, some
cyclical stocks, and Treasury bonds. We have subsequently closed our positions
in both Treasury bonds and housing issues, and reduced our positions in cyclical
and financial stocks.
However, we have retained some holdings in financial issues, such as Fannie Mae
and Freddie Mac, which continued to grow during the bond market decline. These
companies are both good examples of franchise businesses with good growth
prospects. Proctor & Gamble and Philip Morris are other Fund holdings with good
franchises, as is UNUM, an interesting company making money in disability
insurance, a business its competitors find difficult. Franchise companies have
market power to manage their prices which should help reduce their vulnerability
to general market weakness.
Outlook
We are still dealing with the twin deficits-the government fiscal deficit and
the national trade deficit. At some point, as we have seen recently, investors
do not want to hold as many dollars, and the U.S. dollar has lost substantial
value relative to Japanese and European currencies.
The bond market debacle seems to have settled down, but the big problem now is
the possibility of an earnings slowdown. In fact, this is probably investors'
biggest worry in the current environment. If earnings do moderate, the stock
market will have a more difficult time as we have already seen in some cyclical
stocks.
Another danger for the market is that the momentum style of investing has become
very popular. While this trend has benefited the Fund by making some high
quality companies relatively cheap, it could ultimately lead to an exaggerated
correction in the market should prices begin to move lower.
4
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI Growth & Income Fund
Value of $10,000 Investment
[Performance chart appears here]
<TABLE>
<CAPTION>
3/31/95
- -------------------------------------------------
<S> <C>
IAI Growth & Income Fund (since 8/16/71) $ 94,765
S&P 500 Index (since 9/1/71) $128,217
</TABLE>
Average Annual Returns+
Through 3/31/95
<TABLE>
<CAPTION>
Since
Inception
1 year 5 Years 10 Years 8/16/71
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IAI Growth & Income Fund 8.92% 7.58% 11.85% 9.98%
- ------------------------------------------------------------------------
S&P 500 Index 15.59% 11.42% 14.34% 11.42%*
</TABLE>
+ Past performance is not predictive of future performance
* Since 9/01/71
Top Ten Common Stock Holdings
<TABLE>
<CAPTION>
% of Net Assets
-------------------
Issues* Sector 3/31/95 3/31/94
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Philip Morris Consumer Non-Cyclical 3.85 --
Walt Disney Consumer Cyclical 2.60 0.95
Alco Standard Basic Materials 2.53 --
Procter & Gamble Consumer Non-Cyclical 2.40 0.75
Corning Industrial 2.22 --
UNUM Financial 2.04 --
Hershey Foods Consumer Non-Cyclical 1.99 --
Federal National
Mortgage Association Financial 1.99 2.02
CUC International Technology 1.93 --
Camco International Industrial 1.93 1.45
- ------------------------------------------------------------------------
Total 23.48 5.17
</TABLE>
* 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
<PAGE>
FUND MANAGERS' REVIEW
---------------------
IAI Regional Fund
[PHOTO OF JULIAN "BING" CARLIN]
Julian "Bing" Carlin, CFA
IAI Regional Fund
Co-Manager
[PHOTO OF MARK HOONSBEEN]
Mark Hoonsbeen, CFA
IAI Regional Fund
Co-Manager
Top Five
Sectors
% of Net Assets as of 3/31/95
Industrial 22.4%
Consumer Cyclical 17.6%
Consumer Non-Cyclical 13.0%
Financial 9.1%
Technology 7.1%
IAI Regional Fund
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 Year
The stock market has advanced strongly but is highly selective in narrow sectors
such as technology and consumer non-durables. During the middle of the year, our
investments in "story stocks," companies with outstanding businesses but little
to no profit, experienced steep sell-offs which were intensified by lack of
liquidity. Our overweighted positions in telecommunications, savings and loans,
and acquisitions themes worked well. However, as the market shifted gears late
last year, we became concerned with high valuation levels and sold some stocks
which had reached our target prices and reinvested the proceeds into a broad-
based, market neutral portfolio going into 1995.
The two industries that led the portfolio during the last year were
telecommunications equipment and medical products. The Fund's best performing
holdings in these dynamic sectors were ADC Telecommunications and Tellabs in the
telecommunications segment and Medtronic, SciMed and St. Jude in the area of
medical products.
In the telecommunications equipment area, the Fund invested in companies that
are supplying equipment to build the information superhighway. ADC
Telecommunications specializes in fiber optics and cable equipment. Tellabs also
makes equipment that goes into the building of the information superhighway.
Both are small companies with strong financials and serve large customers.
In medical products, companies are rebounding from depressed prices caused by
overreaction to the Clinton healthcare proposals and consolidation within the
industry. For example, St. Jude made an acquisition which immediately added to
earnings. SciMed was bought out by Boston Scientific at a good price and we
earned excellent appreciation.
Outlook
The economic expansion, which began in the summer of 1991, is very mature and
likely closer to the end of the growth cycle than the beginning. Typically,
markets in the latter stages of recovery have not been known for rewarding
investors in high risk investments. However, equity markets have been
surprisingly optimistic, recording several record highs. One major concern
remains--the value of the U.S. dollar declining to its lowest point at this
stage of an economic cycle in nearly 50 years. We are maintaining portfolio
neutrality versus the market.
Demographically, the aging of America continues. Production versus consumption
themes and productivity enhancement ideas are still in place. The world-class
franchise concept is still in place. Although these themes remain intact, the
key is that valuations are high. The strong market recovery since the S&P 500
Index low of last November has moved investors into a high risk area.
In summary, we approach the coming year with caution. However, we anticipate
finding some good buying opportunities late in the second or third quarter, and
we believe the Fund should finish the year with good returns.
6
<PAGE>
FUND MANAGERS' REVIEW
---------------------
IAI Regional Fund
Value of $10,000 Investment
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
3/31/95
- -----------------------------------------
<S> <C>
IAI Regional Fund (since 5/20/80) $92,903
S&P 500 Index (since 6/1/80) $78,458
</TABLE>
<TABLE>
<CAPTION>
Average Annual Returns+
Through 3/31/95
Since
Inception
1 year 5 Years 10 Years 5/20/80
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
IAI Regional Fund 10.35% 10.43% 15.36% 16.17%
- ---------------------------------------------------------------------------------------
S&P 500 Index 15.59% 11.42% 14.34% 14.90%*
</TABLE>
+ Past performance is not predictive of future performance
* Since 6/01/80
<TABLE>
<CAPTION>
Top Ten Common Stock Holdings
Location of % of Net Assets
Issues* Headquarters Sector 3/31/95 3/31/94
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Sears Roebuck Illinois Consumer Cyclical 3.48 -
McDonald's Illinois Consumer Cyclical 2.74 1.43
Illinois Toolworks Illinois Industrial 2.59 1.02
Amoco Illinois Energy 2.57 -
Reliastar Financial Minnesota Financial 2.15 -
FIserv Wisconsin Technology 2.02 -
Newell Illinois Consumer Cyclical 1.94 -
Royal Dutch Petroleum The Netherlands Energy 1.94 -
R.R. Donnelley & Sons Illinois Consumer Cyclical 1.92 -
Harley Davidson Wisconsin Consumer Cyclical 1.90 1.15
- ---------------------------------------------------------------------------------------
Total 23.25 3.60
</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 OF DOUGLAS R. PLATT]
Douglas R. Platt
IAI Value Fund Manager
Top Five
Sectors
% of Net Assets as of 3/31/95
Financial
Consumer Cyclical
Industrial
Building Materials
Consumer Non-Cyclical
Fund Objective
IAI ValueFund'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 Year
IAI Value Fund performance was in the top quartile among all value funds during
the first two quarters of the past fiscal year. Valuations declined in the third
quarter and have rebounded strongly in the final quarter ended March 31, 1995.
Total return for the Fund for the last fiscal year was 3.88%.
Valuations were hurt by increasing interest rates, even though the fundamentals
of our holdings have remained good. The market perception became one that these
stocks would have a shorter cycle and would decline in price in response to the
Federal Reserve tightening despite strong fundamentals.
Several of our holdings are relatively new companies with significant
fundamental growth, but prices were perceived to be high relative to what the
companies were actually earning. While the majority of these holdings have
experienced very favorable product growth, they are, in many cases, companies
not yet showing positive earnings. They are very new companies in their life
cycle. As investors start seeking good growth stories, they will start looking
more at these stocks.
The market has been quite strong during the first quarter of 1995, but we are
entering a period where valuations are high. We have sold some positions that
appreciated substantially during the first quarter, and the Fund started the
current fiscal year with slightly more cash than usual, about 7% currently.
Some of the most interesting stocks in the portfolio are among the small ones,
like Digital Biometrics (computerized fingerprint transmission) and OncorMed
(genetic cancer identification). These stocks each have very unique products
which are to a large extent protected by patents. Their growth trend is quite
explosive and each should become profitable within the next year. As the market
broadens its focus, we believe these stocks will continue to do well.
Among larger cap stocks, a recent purchase has been LDDS Communications, the
fourth largest provider of long distance telephone capabilities. Another
company, Trinity Industries, is the country's leading producer of rail cars and
marine barges which should benefit from an aging fleet. Owens-Corning
Fiberglass, the world's leading producer of insulation products, has completed
significant restructuring and management changes. They have just introduced the
first new insulation product in 20 years-a thinner product with better
insulating qualities.
Outlook
As we started the new fiscal year, there was a good chance that interest rates
had peaked and long Treasury bond rates could begin declining. It now appears
likely that the economic cycle will be extended for two to three more years from
this point. Many of the early cyclical stocks that have done quite poorly over
the last six months, such as autos and rails, should begin to benefit from lower
interest rates and the perception that the cycle is going to be productive and
lengthy, giving these stocks another opportunity in this cycle.
The Fund will continue to emphasize individual stock picking as industry
concentrations become less important. As a result, the Fund is now more broadly
diversified than it was at this time last year.
8
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI Value Fund
Value of $10,000 Investment
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
3/31/95
- -----------------------------------------
<S> <C>
IAI Value Fund (since 10/12/83) $28,911
Value Line Index (since 10/1/83 $16,019
</TABLE>
<TABLE>
<CAPTION>
Average Annual Returns+
Through 3/31/95
- -----------------------------------------------------------------------------------------
Since Inception
1 Year 5 Year 10 Year 10/12/83
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IAI Value Fund 3.88% 8.18% 10.73% 9.70%
- -----------------------------------------------------------------------------------------
Value Line Index 2.52% 3.67% 4.15% 4.18%*
- -----------------------------------------------------------------------------------------
S&P 500 Index 15.59% 11.42% 14.34% 13.85%*
</TABLE>
+ Past performance is not predictive of future performance
* Since 10/01/83
<TABLE>
<CAPTION>
Top Ten Holdings
% of Net Assets
-----------------------
Issues* Sector 3/31/95 3/31/94
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Northwest Airlines Class A Consumer Cyclical 2.79 -
LifeUSA Holding Financial 2.62 3.41
Trinity Industries Industrial 2.43 -
Owens-Corning Fiberglass Building Materials 2.43 -
USG Building Materials 2.41 1.72
Racotek Technology 2.23 -
Whirlpool Consumer Cyclical 2.22 -
PartnerRe Holdings Financial 2.21 2.07
Holophane Industrial 2.16 1.96
BankAmerica Financial 2.13 1.56
- -----------------------------------------------------------------------------------------
Total 23.63 10.72
</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
March 31, 1995
(percentage figures indicate percentage of total net assets)
<TABLE>
<CAPTION>
Common Stocks 88.1%
Market
Quantity Value (a)
- -------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS -- 7.2%
Alco Standard 35,400 $2,566,500
Dow Chemical 6,500 474,500
Du Pont (E.I.) de Nemours 15,700 949,850
Georgia-Pacific 12,100 964,975
Martin Marietta Materials 61,400 1,181,950
Plum Creek Timber L.P. 51,000 1,122,000
----------
7,259,775
- -------------------------------------------------------
CONSUMER CYCLICAL -- 19.8%
American Greetings Class A 61,500 1,829,625
Interpublic Group 33,600 1,255,800
Lancaster Colony 27,100 948,500
Leggett & Platt 22,900 961,800
Loewen Group, ADR 37,000 1,008,250
Marriott International 42,000 1,459,500
Mattel 78,362 1,929,664
McGraw-Hill 26,200 1,879,850
Newell 49,300 1,257,150
Readers Digest Class A 38,400 1,848,000
Reebok International 33,000 1,175,625
Toys "R" Us (b) 72,900 1,868,063
Walt Disney 49,400 2,636,725
-----------
20,058,552
- -------------------------------------------------------
CONSUMER NON-CYCLICAL -- 20.0%
Becton, Dickinson 13,000 705,250
Caremark International 51,200 1,011,200
Colgate-Palmolive 17,600 1,161,600
Columbia HCA Healthcare 34,300 1,474,900
Foundation Health (b) 12,500 407,813
Gillette 15,900 1,297,838
Health Management Associates
Class A (b) 58,500 1,689,188
Hershey Foods 39,600 2,024,550
Medtronic 16,500 1,144,688
Philip Morris 59,800 3,901,950
Premark International 22,400 988,400
Procter & Gamble 36,800 2,438,000
Market
Quantity Value (a)
- -------------------------------------------------------
Safeway (b) 30,600 $ 1,063,350
UST 16,000 508,000
United HealthCare 10,500 490,875
-----------
20,307,602
- -------------------------------------------------------
ENERGY -- 5.7%
Anadarko Petroleum 21,600 945,000
Burlington Resources 14,500 590,875
Enron Oil & Gas 27,600 679,650
Exxon 14,000 934,500
Occidental Petroleum 27,500 601,563
Phillips Petroleum 19,200 703,200
Sun 21,200 604,200
Tosco 22,300 691,300
-----------
5,750,288
- -------------------------------------------------------
FINANCIAL -- 8.1%
Equity Residential
Properties Trust 27,100 704,600
FHP International (b) 14,200 418,900
Federal Home Loan Mortgage
Corporation 18,300 1,107,150
Federal National Mortgage
Association 24,800 2,018,100
MGIC Investment 23,200 945,400
Oasis Residential 40,400 919,100
UNUM 45,800 2,072,450
-----------
8,185,700
- -------------------------------------------------------
INDUSTRIAL -- 9.8%
Arnold Industries 25,000 443,750
Camco International 95,000 1,959,375
Corning 62,700 2,257,200
Eaton 14,400 781,200
General Electric 34,200 1,851,075
IDEX 45,750 1,366,781
Illinois Central 13,400 462,300
Trimas 34,000 756,500
-----------
9,878,181
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
10
<PAGE>
FUND PORTFOLIO
==============
IAI Growth & Income Fund
March 31, 1995
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology 13.3%
Automatic Data Processing 13,900 $ 875,700
Cellular Communications Class A (b) 27,200 1,285,200
CUC International (b) 50,500 1,963,188
General Dynamics 39,300 1,847,100
General Motors Class E 39,000 1,516,125
Lockheed Martin (b) 19,100 1,009,913
Microsoft (b) 17,700 1,256,700
Motorola 23,000 1,256,375
Reynolds & Reynolds Class A 49,000 1,347,500
Oracle 7.25% (Salomon ELKS) (g) 14,200 559,125
Microsoft 5.00% (Salomon ELKS) (g) 6,100 605,425
-----------
13,522,351
- ----------------------------------------------------------------------------------------------------
Utilities 4.2%
ALC Communications (b) 49,000 1,672,125
AT&T 26,400 1,366,200
MCI Communications 61,000 1,250,500
-----------
4,288,825
====================================================================================================
Total Investments in Common Stocks
(Cost: $77,766,272).................................................................... $89,251,274
====================================================================================================
</TABLE>
Preferred Stocks -- 1.1%
<TABLE>
<CAPTION>
Market
Rate Quantity Value (a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible -- 1.1%
Industrial - 1.1%
Corning Delaware LP 6.00% 20,000 $ 1,080,000
====================================================================================================
Total Investments in Preferred Stocks
(Cost: $1,000,000) ..................................................................... $ 1,080,000
====================================================================================================
</TABLE>
Corporate Bonds -- 2.9%
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convertible -- 2.9%
Industrial - 2.9%
Carnival Cruise Lines 4.50% 07/01/97 $1,000,000 $1,360,000
Danka Business Systems (e) 6.75% 04/01/02 500,000 538,750
Hospitality Franchise Systems 4.50% 10/01/99 1,000,000 1,046,250
----------
2,945,000
====================================================================================================
Total Investments in Corporate Bonds
(Cost: $2,871,250)....................................................................... $2,945,000
====================================================================================================
</TABLE>
Other Securities - 10.2%
<TABLE>
<CAPTION>
Market
Quantity (c) Value (a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ADRA Systems Class A (b) 12,243 $ 24,486
ADRA Systems Class D Convertible PFD (b) 14,964 149,640
Alta Berkeley L.P. (1.75%) (b) -- 182,760
Ampersand Specialty Materials & Chemicals II L.P. (2.25%) (b) -- 1,054,895
Athena Venture L.P. (2.50%) (b) -- 434,198
Biometric Systems Series A Convertible PFD (b) 6,667 133,340
Broad Street Investment Fund I L.P. (0.33%) (b) -- 405,862
GalaGen Series B PFD (b) 92,307 449,997
GalaGen Series C PFD (b) 30,000 150,000
Hyperion Software (b) 790 29,230
Pace Health Management Systems (b) 121,221 500,051
Pace Health Management Systems - Warrants (b) 100,000 --
Performance Semiconductor Series B PFD (b) 130,435 --
Performance Semiconductor Series C PFD (b) 20,537 --
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
11
<PAGE>
FUND PORTFOLIO
--------------
IAI Growth & Income Fund
March 31, 1995
<TABLE>
<CAPTION>
Market
Quantity (c) Value (a)
- ---------------------------------------------------------------
<S> <C> <C>
Performance Semiconductor
Series D PFD (b) 10,143 $ --
Retix (b) 993 3,376
South Street Corporate Recovery
Fund I L.P. (1.31%) (b) -- 3,109,978
Tut Systems Series D PFD (b) 222,222 255,555
Urologix Series B PFD (b) 150,000 445,950
Urologix Series C PFD (b) 89,418 196,719
Vanguard Associates
II L.P. (3.73%) (b) -- 167,782
Vanguard Associates
III L.P. (6.55%) (b) -- 1,962,538
Vaso Products Series B PFD (b) 123,076 30,769
Young Broadcasting
Series A PFD (b) 38,056 669,786
Zoran PFD (b) 243,821 2,438
------------
10,359,350
===============================================================
TOTAL INVESTMENTS IN
OTHER SECURITIES
(Cost: $8,761,215)................................ $ 10,359,350
===============================================================
TOTAL INVESTMENTS IN SECURITIES
(Cost: $90,398,737) (h)........................... $103,635,624
===============================================================
OTHER ASSETS AND LIABILITIES
(NET) - (2.3%).................................. $(2,379,785)
===============================================================
TOTAL NET ASSETS.................................. $101,255,839
===============================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
12
<PAGE>
FUND PORTFOLIO
--------------
IAI Regional Fund
March 31, 1995
(percentage figures indicate percentage of total net assets)
<TABLE>
<CAPTION>
COMMON STOCKS -- 80.5%
Market
Quantity Value (a)
<S> <C> <C>
BASIC MATERIALS -- 3.4%
Bandag 115,000 $ 6,569,375
Nalco Chemical 225,000 7,565,625
Vigoro 99,000 3,663,000
-----------
17,798,000
- ------------------------------------------------------------
CONSUMER CYCLICAL -- 17.6%
Alternative Resources (b) 86,700 3,381,300
Banta 140,400 4,633,200
Buffets (b) 105,000 971,250
Casey's General Stores 334,300 5,223,438
Department 56 (b) 160,000 6,380,000
Fruit of the Loom (b) 120,000 3,150,000
Harley-Davidson 415,000 9,960,000
Kohl's (b) 23,000 1,017,750
McDonald's 421,000 14,366,625
Merrill 100,000 1,600,000
Newell 400,000 10,200,000
R.R. Donnelley & Sons 293,100 10,075,313
Sears Roebuck 342,000 18,254,250
Winnebago Industries 305,200 2,899,400
-----------
92,112,526
- ------------------------------------------------------------
CONSUMER NON-CYCLICAL -- 13.8%
Abbott Laboratories 200,000 7,125,000
Archer-Daniels-Midland 328,000 6,109,000
BMC Industries 490,000 8,452,500
Baxter International 175,000 5,731,250
Colgate-Palmolive 100,000 6,600,000
Medtronic 50,000 3,468,750
Procter & Gamble 85,000 5,631,250
Sara Lee 245,000 6,400,625
Sybron (b) 247,000 8,892,000
United HealthCare 70,000 3,272,500
Warner-Lambert 72,000 5,634,000
Wrigley 111,000 4,925,625
-----------
72,242,500
- ------------------------------------------------------------
ENERGY -- 4.5%
Amoco 212,000 $13,488,500
Royal Dutch Petroleum 85,000 10,200,000
-----------
23,688,500
- ------------------------------------------------------------
FINANCIAL -- 9.1%
Bankers Life Holding 142,600 2,941,125
Berkshire Hathaway (b) 200 4,530,000
Equitable of Iowa 190,000 6,436,250
FCB Financial (d) 150,000 2,287,500
First Chicago 119,150 5,972,394
Green Tree Financial 98,000 4,018,000
LifeUSA Holding (b) 150,000 1,500,000
Reliastar Financial 332,000 11,288,000
Roosevelt Financial Group 339,100 5,298,438
Winthrop Resources 300,000 3,375,000
-----------
47,646,707
- ------------------------------------------------------------
INDUSTRIAL -- 22.4%
ABC Rail Products (b) 150,000 3,337,500
Aptargroup 272,000 7,786,000
Automotive Industries Holdings (b) 162,500 3,493,750
Bemis 200,000 5,875,000
Biomedical Waste Systems (b) 400,000 462,520
Biomedical Waste Systems
Warrants Class A (b) 25,000 -
Briggs & Stratton 70,000 2,581,250
Grainger 65,000 4,095,000
Harnischfeger 215,000 6,020,000
Honeywell 150,000 5,606,250
IDEX (b) 224,800 6,715,900
Illinois Central 216,000 7,452,000
Illinois Toolworks (f) 279,800 13,675,225
Itel (b) 197,700 7,586,737
Johnson Controls 130,000 6,613,750
Lindsay Manufacturing (b) 166,000 4,897,000
Minnesota Mining & Manufacturing 154,000 8,951,250
Recovery Engineering (b) 100,000 1,625,000
Strattec Security (b) 14,000 150,500
Truck Components (b) 366,000 3,294,000
Valspar 125,000 4,640,625
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
13
<PAGE>
FUND PORTFOLIO
--------------
IAI Regional Fund
March 31, 1995
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ---------------------------------------------------------------
<S> <C> <C>
WMX Technologies 105,000 $ 2,887,500
Wisconsin Central Transport (b) 60,000 2,820,000
Zebra Technologies, Class A (b) 162,000 6,561,000
-----------
117,127,757
- ---------------------------------------------------------------
Technology -- 7.1%
ADC Telecommunications (b) 161,100 4,752,450
Aetrium (b) 26,000 351,000
FIserv (b) 400,000 10,600,000
General Instrument (b) 120,000 4,170,000
Motorola 146,500 8,002,562
Norand (b) 65,000 2,258,750
Tellabs (b) 125,000 7,250,000
-----------
37,384,762
- ---------------------------------------------------------------
Utilities -- 2.6%
Ameritech 200,000 8,250,000
Northern States Power 58,000 2,552,000
Wisconsin Energy 100,000 2,712,500
-----------
13,514,500
- ---------------------------------------------------------------
Total Investments
in Common Stocks
(Cost: $383,188,854).............................. $421,515,252
- ---------------------------------------------------------------
Other Securities -- 5.6%
Market
Quantity (c) Value (a)
- ---------------------------------------------------------------
Accessline Technologies
Class A (b) 41,666 $ 208,330
Accessline Technologies
Series A PFD (b) 71,420 499,949
Accessline Technologies
Warrants (b) 10,713 --
Air Communications (b)(d) 875,001 --
AirCom Holdings Series B
Convertible Note 10.0% (d) 37,500 37,500
AirCom Holdings
Series A PFD (b) (d) 1,000,000 62,500
Market
Quantity (c) Value (a)
- ---------------------------------------------------------------
Alta Berkeley L.P. (3.49%) (b) -- $ 365,523
Ampersand Specialty Materials
& Chemicals II L.P.
(3.37%) (b) -- 1,581,110
Anglo Chinese Investment 1,600 508,244
Anglo Chinese Selections 100,000 850,000
Athena Venture L.P. (2.74%) (b) -- 476,517
Biometric Systems Series A PFD (b) 34,520 690,400
CardioGenesis Series B PFD (b)(d) 500,000 1,000,000
Conrad Collins Merchant Banking
Fund LTD (8.45%) (b) -- 390,336
GalaGen Series B PFD (b)(d) 369,231 1,800,001
GalaGen Convertible
Note, 6.50% (b)(d) 440,000 440,000
GalaGen Series C PFD (b)(d) 40,000 200,000
GalaGen Warrants (b)(d) 21,000 --
Greenwich Street Capital
Partners L.P. (3.00%) (b) -- 450,587
Hyperion Software (b) 1,794 66,378
Indigo Medical Series B PFD (b)(d) 181,818 173,254
Indigo Medical Series C PFD (b)(d) 898,496 856,177
Intellon Series A PFD (b) 600,000 600,000
Intellon Warrants (b) 90,000 --
OncorMed (b) 66,666 593,327
Ovamed Convertible
Note, 9.50% 50,000 50,000
Ovamed Series D PFD (b) 214,286 375,001
Pace Health Management
Systems (b)(d) 230,320 950,072
Pace Health Management
Systems Warrants (b)(d) 21,820 --
Pacific Monolithics (b) 9,865 5,919
Pathfinder Venture Capital
Fund I L.P. (3.18%) (b) -- 80,602
Pathfinder Venture Capital
Fund III L.P. (3.99%) (b) -- 653,676
Pricellular (b) 103,545 590,206
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
14
<PAGE>
FUND PORTFOLIO
--------------
IAI Regional Fund
March 31, 1995
<TABLE>
<CAPTION>
Market
Quantity (d) Value (a)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Seurat Analytical Systems, Series B PFD (b)(d) 50,000 $ 100,000
Seurat Analytical Systems Convertible Note, 9.50% (d) 125,000 125,000
South Street Corporate Recovery Fund I L.P. (2.80%) (b) -- 6,534,358
South Street Leveraged Corporate Recovery Fund I L.P. (3.38%) (b) -- 1,218,175
Spectrum Equity Investors L.P. (2.76%) (b) -- 524,198
Tut Systems Series D PFD (b)(d) 478,416 550,178
Tut Systems Series E PFD (b)(d) 217,391 250,000
Urologix Series B PFD (b)(d) 225,000 668,925
Urologix Series C PFD (b)(d) 134,129 295,084
Vanguard Associates II L.P. (3.73%) (b) -- 167,782
Vanguard Associates III L.P. (6.20%) (b) -- 1,886,121
Vanguard Associates IV L.P. (9.53%) (b) -- 2,139,830
Vaso Products Series B PFD (b)(d) 184,616 46,154
Vaso Products Series C PFD (b)(d) 375,000 93,754
Vaso Products Warrants (b)(d) 375,000 --
Zoran (b) 264,041 2,640
------------
29,157,808
- -------------------------------------------------------------------------------------------------
Total Investments in other Securities
(Cost: $26,761,954).............................................................. $ 29,157,808
- -------------------------------------------------------------------------------------------------
Total Investments in Long-Term Securities
(Cost: $409,950,808)............................................................. $450,673,060
- -------------------------------------------------------------------------------------------------
</TABLE>
Short-term Securities -- 13.2%
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bills -- 13.2%
5.77% 04/13/95 $32,500,000 $ 32,449,267
5.85% 05/25/95 22,000,000 21,821,096
5.62% 06/29/95 15,000,000 14,794,095
------------
69,064,458
- ---------------------------------------------------------------------------
Total Investments in Short-term Securities
(Cost: $69,055,975)...................................... $ 69,064,458
- ---------------------------------------------------------------------------
Total Investments in Securities
(Cost: $479,006,783) (h)................................. $519,737,518
- ---------------------------------------------------------------------------
Other Assets and Liabilities (net) - 0.7%................ $ 3,626,712
- ---------------------------------------------------------------------------
Total Net Assets......................................... $523,364,230
- ---------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
15
<PAGE>
FUND PORTFOLIO
--------------
IAI Value Fund
March 31, 1995
(percentage figures indicate percentage of total net assets)
<TABLE>
<CAPTION>
Common Stocks 79.2%
<S> <C> <C>
Market
Quantity Value (a)
- ----------------------------------------------------------
Basic Materials -- 5.9%
Great Lakes Chemical 8,000 $ 499,000
Sigma-Aldrich 20,000 770,000
Weyerhaeuser 20,000 777,500
Ziegler Coal Holding 34,200 359,100
-----------
2,405,600
- ----------------------------------------------------------
Building Materials -- 11.4%
ABT Building Products (b) 45,000 686,250
Centex Construction Products (b) 63,000 779,625
Giant Cement Holding (b) 40,000 450,000
Masco 27,000 745,875
Owens-Corning Fiberglass (b) 27,500 990,000
USG (b) 42,600 979,800
-----------
4,631,550
- ----------------------------------------------------------
Consumer Cyclical -- 16.6%
C. Brewer Homes Class A (b) 30,000 157,500
Chrysler 20,000 837,500
Fingerhut 30,000 356,250
Kaufman & Broad Home 49,500 587,812
The Limited 37,000 855,625
M/I Schottenstein Homes (b) 50,000 337,500
Northwest Airlines Class A (b) 42,100 1,136,700
Pier 1 Imports 78,000 721,500
Price Costco (b) 58,500 855,563
Whirlpool 16,500 903,375
-----------
6,749,325
- ----------------------------------------------------------
Consumer Non-Cyclical -- 8.1%
Endosonics (b) 105,000 813,750
Michael Foods 55,000 605,000
NovaCare (b) 104,600 823,725
PepsiCo 19,000 741,000
Vons (b) 15,000 290,625
-----------
3,274,100
- ----------------------------------------------------------
Financial -- 17.5%
American Express 22,000 767,250
Astoria Financial (b) 10,000 307,500
Market
Quantity Value (a)
- ----------------------------------------------------------
BankAmerica 18,000 $ 868,500
Calumet Bancorp (b) 20,000 530,000
Glendale Federal Bank FSB (b) 51,977 526,267
Glendale Federal Bank FSB
Warrants (b) 71,460 214,380
Great Western Financial 32,000 600,000
Inter-Regional Financial Group 30,000 746,250
LifeUSA Holding (b) 106,532 1,065,320
Northwest Equity (b) 25,000 212,500
PartnerRe Holdings 42,800 898,800
Prime Residential 25,000 381,250
-----------
7,118,017
- ----------------------------------------------------------
Industrial -- 12.1%
Giddings & Lewis 30,000 510,000
Holophane (b) 49,500 878,625
Kansas City Southern Industries 20,000 812,500
M/A/R/C (b) 40,000 510,000
Medusa 20,000 487,500
Stewart & Stevenson Services 20,000 705,000
Trinity Industries 26,500 990,437
-----------
4,894,062
- ----------------------------------------------------------
Technology -- 7.6%
Audre Recognition Systems (b) 600,000 225,000
Digital Biometrics (b) 90,500 780,563
LDDS Communications (b) 30,000 693,750
Oncor (b) 63,500 277,813
OncorMed (b) 18,000 200,250
Racotek (b) 145,000 906,250
-----------
3,083,626
==========================================================
Total Investments
in Common Stocks
(Cost: $31,934,834) $32,156,280
==========================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
16
<PAGE>
FUND PORTFOLIO
--------------
IAI Value Fund
March 31, 1995
Other Securities -- 9.0%
<TABLE>
<CAPTION>
Market
Quantity (c) Value (a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Ampersand Specialty Materials Chemicals II L.P. (1.12%) (b) -- $ 526,213
Athena Venture Partners L.P. (0.85%) (b) -- 148,231
Biometric Systems Series A Convertible PFD (b) 18,520 370,400
Conrad Collins L.P. (8.45%) (b) -- 390,336
Hyperion Software (b) 308 11,396
Intellon Series A PFD (b) 200,000 200,000
Intellon Warrants (b) 30,000 --
OncorMed Class A (b) 66,667 593,336
Pacific Monolithics (b) 9,865 5,919
Retix (b) 993 3,376
South Street Leveraged Corporate Recovery Fund I L.P. (0.97%) (b) -- 348,049
Tut Systems Series D PFD (b) 350,319 402,867
Vanguard Associates III L.P. (1.42%) (b) -- 427,635
Vaso Products Series B PFD (b) 61,538 15,385
Young Broadcasting Class A (b) 11,857 208,683
Zoran PFD (b) 88,905 889
-----------
3,652,715
- ------------------------------------------------------------------------------------------------
Total Investments in Other Securities
(Cost: $2,822,909)............................................................... $ 3,652,715
- ------------------------------------------------------------------------------------------------
Total Investments in Long-Term Securities
(Cost: $34,757,743).............................................................. $35,808,995
- ------------------------------------------------------------------------------------------------
</TABLE>
Short-term Securities -- 7.4%
<TABLE>
Principal Market
Rate Maturity Amount Value (a)
- -------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bills -- 7.4%
5.57% 04/13/95 $2,000,000 $ 1,996,367
5.87% 05/25/95 1,000,000 991,868
-----------
2,988,235
- -------------------------------------------------------------
Total Investments in Short-Term Securities
(Cost: $2,987,802)........................... $ 2,988,235
- -------------------------------------------------------------
Total Investments in Securities
(Cost: $37,745,545) (h)...................... $38,797,230
- -------------------------------------------------------------
Other Assets and Liabilities (Net) - 4.4%
............................................. $ 1,803,724
- -------------------------------------------------------------
Total Net Assets
............................................. $40,600,954
- -------------------------------------------------------------
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
17
<PAGE>
NOTES TO FUND PORTFOLIOS
------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1995
(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 March 31, 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. The percentage ownership of limited
partnerships is indicated parenthetically. Information concerning each
restricted security holding on March 31, 1995 is shown on pages 20-23.
(d)
Investments representing five percent or more of the outstanding voting
securities of the issuer, and is therefore an affiliate, as defined in the
Investment Company Act of 1940, at March 31, 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 DIVIDEND
ISSUER QUANTITY COST QUANTITY COST GAIN (LOSS) INCOME
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AirCom Holdings Series A PFD 1,000,000 $ 63,474 - $ - $ - $ -
AirCom Holdings Series B
Convertible Note 37,500 $ 37,500 - $ - $ - $ -
Air Communications 259,616 $ 168,751 - - - -
BMC Industries - - 70,200 $1,183,990 $ 299,933 $28,992
CardioGenesis Series B PFD 500,000 $1,000,000 - $ - $ - $ -
Chronimed 194,000 $2,945,329 394,000 $5,450,845 $ (508,035) $ -
CMAC Investment - - 230,800 $6,172,180 $ (163,109) $11,540
FCB Financial 35,000 $ 547,188 - $ - $ - $64,350
GalaGen Convertible Note 440,000 $ 440,489 - $ - $ - $ -
GalaGen Warrants 21,000 $ - - $ - $ - $ -
Indigo Series C PFD 898,496 $ 763,844 - $ - $ - $ -
Indigo Medical Series B PFD 181,818 $ 173,254 - - - -
Indigo Medical
Convertible Note 500,000 $ 501,032 500,000 $ 501,032 - -
LifeUSA Holding 62,499 $ 578,539 522,500 $4,462,702 $ 345,795 $ -
Pace Health Management
Systems/(1)/ 230,320 $ 950,763 - $ - $ - $ -
Pace Health Management
Systems Warrants 21,820 $ - - $ - $ - $ -
Rimage - - 135,000 $1,838,662 $(1,016,475) $ -
Seurat Analytical Systems
Convertible Note 125,000 $ 125,666 _ $ - $ _ $ _
Seurat Analytical
Systems Series B PFD 50,000 $ 100,000 - $ - $ - $ -
Tut Systems Series D PFD 33,972 $ 30,576 - $ - $ - $ -
Tut Systems Series E PFD 217,391 $ 250,398 - $ - $ - $ -
Vaso Products Series C PFD 375,000 $ 375,871 - $ - $ - $ -
Vaso Products Warrants 375,000 $ - - $ - $ - $ -
</TABLE>
(1) During the year ended March 31, 1995, 333,334 Series G and 88,888 Series H
common shares of Health Care Expert Systems were converted into 230,320 common
shares of Pace Health Management Systems
18
<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)
Security is partially pledged to cover option contracts written (see Note 6 to
the financial statements). The following option contracts written were
outstanding at March 31, 1995 in the Regional Fund:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Call Options
- --------------------------------------------------------------------------------
Number of Number of Shares Exercise Expiration Market
Contracts Subject to Call Price Date Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Illinois Toolworks 250 25,000 $45.00 April 1995 $75,000
</TABLE>
(g)
ELKS are equity-linked securities that are structured as interest bearing debt
securities of a brokerage firm and linked to the common stock of another
company. The terms of ELKS differ from those of ordinary debt securities in that
the principal amount received at maturity is not fixed but is based on the price
of the common stock the ELK is linked to.
(h)
At March 31, 1995, the cost of securities for federal income tax purposes and
the aggregate gross unrealized appreciation and depreciation based on that cost
were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
IAI Growth & Income Fund IAI Regional Fund IAI Value Fund
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost for federal tax purposes $90,249,441 $479,539,693 $38,376,679
=====================================================
Gross unrealized appreciation $16,099,047 $ 47,417,141 $ 3,421,543
Gross unrealized depreciation (2,712,864) (7,219,316) (3,000,992)
-----------------------------------------------------
Net unrealized appreciation $13,386,183 $ 40,197,825 $ 420,551
=====================================================
</TABLE>
19
<PAGE>
NOTES TO FUND PORTFOLIOS
------------------------
IAI Growth & Income Fund
March 31, 1995
<TABLE>
<CAPTION>
Restricted Securities
Security Acquisition Date Cost
- -------------------------------------------------------------
<S> <C> <C>
ADRA Systems Class
A Common 10/20/88 $139,353
09/29/92 1,545
ADRA Systems Class D
Convertible PFD 10/20/88 179,842
Alta Berkeley L.P. 03/31/93 48,668
04/27/93 50,317
08/25/94 50,487
09/21/94 50,508
Ampersand Specialty Materials
& Chemicals II L.P. 02/25/93 37,878
07/07/93 100,000
06/08/94 100,000
11/25/94 100,000
Athena Venture L.P. 09/27/85 190,258
05/15/86 410,000
Biometric Systems Series A
Convertible PFD 12/28/90 100,006
Broad Street Investment
Fund I L.P. 05/08/91 52,945
GalaGen Series B PFD 02/26/93 300,000
GalaGen Series C PFD 11/29/93 150,000
Hyperion Software 10/01/93 32,215
Pace Health
Management Systems 01/11/94 500,000
Pace Health Management
Systems Warrants 03/30/95 -
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 01/26/88 25,358
Security Acquisition Date Cost
- -------------------------------------------------------------
<S> <C> <C>
Retix 06/24/94 $ 61,688
South Street Corporate
Recovery Fund I L.P. 06/15/92 229,487
10/15/92 375,000
12/15/92 525,000
12/30/92 510,000
02/17/93 315,000
Tut Systems Series D PFD 02/17/94 200,147
Urologix Series B PFD 08/14/92 200,000
11/06/92 100,000
Urologix Series C PFD 03/22/94 196,720
Vanguard II L.P. 07/28/83 289,812
12/10/84 270,112
10/31/86 138,197
Vanguard III L.P. 07/13/88 256,209
06/15/90 305,250
02/28/91 305,250
01/10/92 305,250
01/11/93 305,250
09/30/93 34,128
Vaso Products Series B PFD 06/25/92 199,998
Young Broadcasting
Class A 05/25/88 475,000
11/03/94 12,200
Zoran PFD 10/04/85 245,999
03/12/87 64,260
</TABLE>
20
<PAGE>
NOTES TO FUND PORTFOLIOS
------------------------
IAI Regional Fund
March 31, 1995
<TABLE>
<CAPTION>
Restricted Securities
Security Acquisition Date Cost
- --------------------------------------------------------------------
<S> <C> <C>
Accessline Technologies
Class A 06/30/94 $ 208,803
Accessline Technologies
Series A PFD 06/03/94 499,940
Accessline Technologies
Warrants 06/03/94 -
Air Communications 11/24/93 400,000
04/25/94 168,750
AirCom Holdings Series A PFD 11/15/94 63,474
AirCom Holdings Series B
Convertible Note 03/17/95 37,500
Alta Berkeley L.P. 03/31/93 97,337
04/27/93 100,634
08/25/94 100,974
09/21/94 101,015
Ampersand Specialty Materials
& Chemicals II L.P. 02/25/93 56,814
07/07/93 150,000
06/08/94 150,000
11/25/94 150,000
Anglo Chinese Investment 12/27/90 157,263
02/07/94 343,001
02/09/94 6,311
Anglo Chinese Selections 12/27/90 1,042,724
Athena Venture L.P. 09/27/85 208,808
05/15/86 450,000
Biometric Systems
Series A PFD 05/04/89 250,020
12/28/90 240,000
CardioGenesis Series B PFD 06/09/94 1,000,000
Conrad-Collins Merchant
Banking Fund LTD 05/11/89 373,706
GalaGen Series B PFD 02/26/93 1,200,000
GalaGen Convertible
Note 6.5% 06/17/94 315,489
03/22/95 125,000
GalaGen Series C PFD 11/29/93 200,000
GalaGen Warrants 12/05/94 -
Security Acquisition Date Cost
- --------------------------------------------------------------------
Greenwich Street Capital
Partners L.P. 12/30/94 $ 452,205
Hyperion Software 10/01/93 52,347
Indigo Medical Series B PFD 05/26/93 500,000
Indigo Medical Series C PFD 09/30/94 256,254
12/27/94 506,590
02/07/95 1,000
Intellon Series A PFD 03/24/94 600,000
Intellon Warrants 04/12/94 -
OncorMed 12/13/93 200,050
Ovamed Convertible Note 02/01/95 50,208
Ovamed Series D PFD 05/27/94 375,000
Pace Health Management
Systems 01/11/94 750,000
01/31/95 200,762
Pace Health Management
Systems Warrants 03/30/95 -
Pacific Monolithics 04/24/85 24,999
08/06/85 75,000
08/19/86 47,989
Pathfinder Venture Capital
Fund I L.P. 03/27/81 61,138
12/01/81 38,714
05/03/82 150,365
11/01/83 120,292
09/01/88 31,250
Pathfinder Venture Capital
Fund III L.P. 04/29/91 62,128
03/05/92 100,000
10/29/92 100,000
04/20/93 100,000
08/24/93 100,000
03/24/94 100,000
12/08/94 100,000
Pricellular 05/16/94 751,053
Seurat Analytical Systems,
Series B PFD 04/29/94 100,000
</TABLE>
21
<PAGE>
NOTES TO FUND PORTFOLIOS
------------------------
IAI Regional Fund
March 31, 1995
<TABLE>
<CAPTION>
Restricted Securities (Cont.)
Security Acquisition Date Cost
- --------------------------------------------------------------
<S> <C> <C>
Seurat Analytical Systems
Convertible Note, 9.5% 01/31/95 $ 125,666
South Street Corporate
Recovery Fund I L.P. 06/15/92 562,080
10/15/92 875,000
12/15/92 1,225,000
12/30/92 850,000
02/17/93 675,000
South Street Leveraged
Corporate Recovery
Fund I L.P. 12/30/92 525,460
02/17/93 105,000
Spectrum Equity
Investors L.P. 05/12/94 447,860
01/03/95 150,000
Tut Systems
Series D PFD 02/17/94 400,293
04/08/94 30,575
Tut Systems Series E PFD 12/21/94 250,398
Urologix Series B PFD 08/14/92 200,000
11/06/92 250,000
Urologix Series C PFD 03/22/94 295,084
Vanguard II, L.P. 07/28/83 289,811
12/10/84 270,112
10/31/86 138,197
Vanguard III, L.P. 07/13/88 242,360
06/15/90 288,750
02/28/91 288,750
01/10/92 288,750
01/11/93 288,750
09/30/93 32,284
Security Acquisition Date Cost
- --------------------------------------------------------------
Vanguard IV, L.P. 08/10/92 $ 200,000
12/18/92 150,000
02/11/93 350,000
08/12/93 350,000
11/01/93 350,000
04/19/94 350,000
09/19/94 350,000
01/17/95 350,000
Vaso Products Series B PFD 06/25/92 300,001
Vaso Products Series C PFD 07/13/94 375,871
Vaso Products Warrants 07/13/94 -
Zoran 10/04/85 266,400
03/12/87 69,594
</TABLE>
22
<PAGE>
NOTES TO FUND PORTFOLIOS
------------------------
IAI Value Fund
March 31, 1995
<TABLE>
<CAPTION>
Restricted Securities
Security Acquisition Date Cost
- --------------------------------------------------------------------------
<S> <C> <C>
Ampersand Specialty Materials
& Chemicals II L.P. 02/25/93 $ 18,936
07/07/93 50,000
06/08/94 50,000
11/25/94 50,000
Athena Venture L.P. 09/27/85 64,966
05/15/86 140,000
Biometric Systems Series A
Convertible PFD 05/04/89 250,020
Conrad/Collins L.P. 05/11/89 373,706
Hyperion Software 10/01/93 22,861
Intellon Series A PFD 03/24/94 200,000
Intellon Warrants 04/12/94 -
OncorMed 12/13/93 200,050
Pacific Monolithics 04/24/85 24,999
08/06/85 75,000
08/19/86 47,990
Retix 06/24/94 61,688
Security Acquisition Date Cost
- --------------------------------------------------------------------------
South Street Leveraged Corporate
Recovery Fund I L.P. 12/30/92 $150,131
02/17/93 30,000
Tut Systems Series D PFD 02/17/94 300,220
04/08/94 15,288
Vanguard III L.P. 07/13/88 55,397
06/15/90 66,000
02/28/91 66,000
01/10/92 66,000
01/11/93 66,000
09/30/93 7,379
Vaso Products Series B PFD 06/25/92 99,999
Young Broadcasting
Class A 05/25/88 125,000
06/23/89 28,750
11/03/94 3,400
Zoran PFD 10/04/85 89,699
03/12/87 23,430
</TABLE>
23
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
------------------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1995
<TABLE>
<CAPTION>
IAI GROWTH & INCOME FUND
- -----------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities of unaffiliated issuers, at market
(Cost: $90,398,737, $468,473,052, and $37,745,545,
respectively) $103,635,624
Investments in securities of affiliated issuers, at market
(Cost: $0, $10,533,731, and $0, respectively) -
--------------------------
Total investments in securities (see Fund Portfolios) 103,635,624
Cash in bank on demand deposit -
Dividends and accrued interest receivable 163,857
Receivable for investment securities sold 3,142,418
Other 54,511
--------------------------
Total Assets 106,996,410
--------------------------
LIABILITIES
Disbursements in excess of cash on demand deposit 2,009,460
Accrued investment advisory fee 67,088
Accrued distribution fee 41,836
Accrued dividend-disbursing, administrative, and accounting fee 18,030
Other accrued expenses 20,819
Covered call options written, at market
(premiums received $24,249) (Note 6) -
Payable for investment securities purchased 3,583,338
--------------------------
Total liabilities 5,740,571
--------------------------
Net assets applicable to outstanding capital stock $101,255,839
==========================
REPRESENTED BY:
Capital stock $ 707,234
Additional paid-in capital 89,158,982
Undistributed net investment income 282,408
Accumulated net realized gains (losses) (2,129,672)
Unrealized appreciation on investments 13,236,887
--------------------------
Total -- representing net assets applicable to outstanding
capital stock $101,255,839
==========================
Shares of capital stock outstanding (Note 4) 7,072,342
--------------------------
Net asset value per share of outstanding capital stock $14.32
==========================
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
IAI REGIONAL FUND IAI VALUE FUND
- --------------------------------------
<C> <C>
$509,801,419 $38,797,230
9,936,099 -
- --------------------------------------
519,737,518 38,797,230
4,308,483 393,029
608,497 10,550
1,011,581 1,439,318
67,677 12,681
- --------------------------------------
525,733,756 40,652,808
- --------------------------------------
- -
319,268 25,837
111,362 4,071
89,089 6,889
77,820 15,057
75,000 -
1,696,987 -
- --------------------------------------
2,369,526 51,854
- --------------------------------------
$523,364,230 $40,600,954
======================================
$ 242,725 $ 36,361
469,300,673 39,378,385
802,488 17,489
12,338,360 117,034
40,679,984 1,051,685
- --------------------------------------
$523,364,230 $40,600,954
======================================
24,272,468 3,636,130
- --------------------------------------
$21.56 $11.17
======================================
</TABLE>
See accompanying Notes to Financial Statements on page 33
25
<PAGE>
STATEMENTS OF OPERATIONS
------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
Year ended March 31, 1995
<TABLE>
<CAPTION>
IAI GROWTH & INCOME FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C>
NET INVESTMENT INCOME
Income
Dividends (including $0, $104,882, and $0, respectively,
from affiliated issuers) $ 1,843,757
Interest 448,362
- ------------------------------------------------------------------------------------------
TOTAL INCOME 2,292,119
- ------------------------------------------------------------------------------------------
Expenses
Investment advisory fees 827,288
Distribution fees 279,726
Dividend-disbursing, administrative, and accounting fees 223,782
Legal fees -
Custodian fees 11,900
Compensation of Directors 9,100
Audit fees 11,964
Printing and shareholder reporting 26,500
Registration fees 6,825
Other expenses 7,480
- ------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,404,565
Less fees reimbursed by Advisers or Distributor (5,934)
Net expenses 1,398,631
- ------------------------------------------------------------------------------------------
Net investment income 893,488
- ------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
Net realized gains (losses) on:
Investment securities (including $0, ($1,041,891), and
$0, respectively, from affiliated issuers) $(2,449,778)
Futures contracts (269,747)
Written option contracts -
-----------
(2,719,525)
Net change in unrealized appreciation or depreciation on:
Investment securities $10,157,384
Futures contracts 547,567
Written option contracts -
-----------
10,704,951
- ------------------------------------------------------------------------------------------
Net gain on investments 7,985,426
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 8,878,914
==========================================================================================
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
IAI Regional Fund IAI Value Fund
- -------------------------------------------------
<S> <C> <C> <C>
$ 5,836,791 $ 418,906
4,845,128 157,994
- -------------------------------------------------
10,681,919 576,900
- -------------------------------------------------
3,866,797 276,714
1,352,614 92,238
1,082,091 73,790
12,586 -
7,140 8,034
16,815 9,376
26,465 10,644
212,800 24,506
43,330 11,671
48,314 3,023
- -------------------------------------------------
6,668,952 509,996
- (48,806)
- -------------------------------------------------
6,668,952 461,190
- -------------------------------------------------
4,012,967 115,710
- -------------------------------------------------
$22,090,276 $300,380
(3,961,637) -
(54,591) -
- ----------- --------
18,074,048 300,380
$26,172,839 700,762
3,294,825 -
(50,751) -
- ----------- --------
29,416,913 700,762
- -------------------------------------------------
47,490,961 1,001,142
- -------------------------------------------------
$51,503,928 $1,116,852
=================================================
</TABLE>
See accompanying Notes to Financial Statements on page 33
27
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
<TABLE>
<CAPTION>
IAI Growth & Income Fund
Years ended March 31,
-----------------------------
1995 1994
- ----------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 893,488 $ 784,749
Net realized gains (losses) (2,719,525) 14,422,083
Net change in unrealized
appreciation or depreciation 10,704,951 (10,697,951)
-----------------------------
Net increase in net
assets resulting from
operations 8,878,914 4,508,881
-----------------------------
Distributions to Shareholders From:
Net investment income (840,812) (555,017)
Net realized gains (5,569,932) (14,728,083)
-----------------------------
Total distributions (6,410,744) (15,283,100)
-----------------------------
Capital Share Transactions (Note 4)
Net proceeds from sale of
shares 22,505,094 87,985,287
Net asset value of shares
issued to shareholders in
reinvestment of distributions 6,225,103 14,809,254
Cost of shares redeemed (49,044,325) (107,226,931)
-----------------------------
Increase (decrease) in
net assets from capital
share transactions (20,314,128) (4,432,390)
-----------------------------
Total increase (decrease)
in net assets (17,845,958) (15,206,609)
Net assets at beginning of
period 119,101,797 134,308,406
-----------------------------
Net assets at end of period $101,255,839 $ 119,101,797
=============================
[including undistributed
net investment income (loss)
of $282,408 and $229,732 for Growth & Income Fund,
$802,488 and $1,885,310 for Regional Fund,
and $17,489 and ($12,648) for Value Fund]
</TABLE>
28
<PAGE>
IAI Regional Fund IAI Value Fund
Years ended March 31, Years ended March 31
- ----------------------------- ----------------------------
1995 1994 1995 1994
- -------------------------------------------------------------
[C] [C] [C] [C]
$ 4,012,967 $ 6,154,026 $ 115,710 $ 99,676
18,074,048 64,129,158 300,380 5,782,482
29,416,913 (47,344,333) 700,762 (3,102,843)
- -------------------------------------------------------------
51,503,928 22,938,851 1,116,852 2,779,315
- -------------------------------------------------------------
(5,095,789) (5,260,543) (85,573) (282,951)
(31,395,122) (53,408,880) (2,540,750) (3,458,250)
- -------------------------------------------------------------
(36,490,911) (58,669,423) (2,626,323) (3,741,201)
- -------------------------------------------------------------
60,901,121 158,147,071 28,248,406 41,232,384
35,128,935 56,316,342 2,610,202 3,702,692
(184,250,826) (242,064,831) (24,030,273) (33,333,934)
- -------------------------------------------------------------
(88,220,770) (27,601,418) 6,828,335 11,601,142
- -------------------------------------------------------------
(73,207,753) (63,331,990) 5,318,864 10,639,256
596,571,983 659,903,973 35,282,090 24,642,834
- -------------------------------------------------------------
$ 523,364,230 $ 596,571,983 $ 40,600,954 $ 35,282,090
=============================================================
See accompanying Notes to Financial Statements on page 33
29
<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>
IAI Growth & Income Fund
Years Ended March 31,
----------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of period $ 13.91 $ 15.19 $ 14.73 $ 14.48 $ 15.47
----------------------------------------------------
Operations
Net investment income .12 .09 .07 .13 .29
Net realized and unrealized gains 1.04 .38 1.17 1.20 .72
----------------------------------------------------
Total from operations 1.16 .47 1.24 1.33 1.01
----------------------------------------------------
Distributions to Shareholders From:
Net investment income (.10) (.06) (.07) (.14) (.30)
Net realized gains (.65) (1.69) (.71) (.94) (1.70)
----------------------------------------------------
Total distributions (.75) (1.75) (.78) (1.08) (2.00)
----------------------------------------------------
Net Asset Value
End of period $ 14.32 $ 13.91 $ 15.19 $ 14.73 $ 14.48
====================================================
Total investment return* 8.92% 3.07% 9.04% 9.56% 7.42%
Net assets at end of period (000's omitted) $101,256 $119,102 $134,308 $113,324 $90,590
Ratios
Expenses to average net assets 1.25% 1.25% 1.25% 1.25% 1.05%
Net investment income to average net assets 0.80% 0.60% 0.61% 1.03% 2.19%
Portfolio turnover rate
(excluding short-term securities) 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.
30
<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>
IAI Regional Fund
Years Ended March 31,
----------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of period $ 20.94 $ 22.23 $ 21.29 $ 21.03 $ 18.95
----------------------------------------------------
Operations
Net investment income .17 .21 .21 .20 .35
Net realized and unrealized gains 1.84 .51 1.48 2.38 2.88
----------------------------------------------------
Total from operations 2.01 .72 1.69 2.58 3.23
----------------------------------------------------
Distributions to Shareholders From:
Net investment income (.20) (.18) (.23) (.24) (.33)
Net realized gains (1.19) (1.83) (.52) (2.08) (.82)
----------------------------------------------------
Total distributions (1.39) (2.01) (.75) (2.32) (1.15)
----------------------------------------------------
Net Asset Value
End of period $ 21.56 $ 20.94 $ 22.23 $ 21.29 $ 21.03
====================================================
Total investment return* 10.35% 3.26% 8.31% 12.77% 18.01%
Net assets at end of period (000's omitted) $523,364 $596,572 $659,904 $528,763 $284,054
Ratios
Expenses to average net assets 1.23% 1.25% 1.25% 1.25% 1.01%
Net investment income to average net assets 0.74% 0.94% 1.09% 1.20% 2.27%
Portfolio turnover rate
(excluding short-term securities) 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.
31
<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:
IAI Value Fund
<TABLE>
<CAPTION>
Years Ended March 31,
-------------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of period $ 11.63 $ 11.63 $ 11.06 $ 10.46 $ 12.29
-------------------------------------------------
Operations
Net investment income .03 .05 .11 .12 .22
Net realized and unrealized gains .38 1.45 .56 1.08 .36
-------------------------------------------------
Total from operations .41 1.50 .67 1.20 .58
-------------------------------------------------
Distributions to Shareholders From:
Net investment income (.03) (.13) - (.15) (.17)
Net realized gains (.84) (1.37) (.10) (.45) (2.24)
-------------------------------------------------
Total distributions (.87) (1.50) (.10) (.60) (2.41)
-------------------------------------------------
Net Asset Value
End of period $ 11.17 $ 11.63 $ 11.63 $ 11.06 $ 10.46
=================================================
Total investment return* 3.88% 12.70% 6.20% 12.21% 6.19%
Net assets at end of period (000's omitted) $40,601 $35,282 $24,643 $32,246 $22,145
Ratios
Expenses to average net assets 1.25% 1.25% 1.25% 1.25% 1.10%
Net investment income to average net assets 0.31% 0.35% 0.68% 1.24% 2.00%
Portfolio turnover rate
(excluding short-term securities) 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.
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
[1] Summary of Significant Accounting Policies
The IAI Mutual Funds are registered under the Investment Company Act of 1940 (as
amended) as diversified, open-end management investment companies, or series
thereof. IAI 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 bid price.
The 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.
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
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
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.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, accumulated net realized gains (losses) have been increased by
$3,796, resulting in a reclassification adjustment to decrease additional paid-
in capital by $3,796 for Growth & Income Fund.
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.
[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
March 31, 1995 for the Funds.
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
At March 31, 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 Berkley L.P. $251,000 $ 503,000 $ -
Ampersand Specialty Materials and Chemicals II L.P. 500,000 750,000 250,000
Greenwich Street Capital Partners L.P. - 7,838,000 -
Pathfinder Venture Capital Fund I L.P. - 30,000 -
Pathfinder Venture Capital Fund III L.P. - 200,000 -
Spectrum Equity Investors L.P. - 2,400,000 -
Vanguard Associates IV L.P. - 1,050,000 -
- ------------------------------------------------------------------------------------------------------------------
Total Commitments $751,000 $12,771,000 $250,000
==================================================================================================================
</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.
[3] Fees and Expenses
Under terms of an investment advisory agreement, each Fund pays Investment
Advisers, Inc. (Advisers) an annual management fee computed monthly on the
average month-end net asset value using the following annual fee schedule:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Month-End Net Asset-Value Annual Rate
- --------------------------------------------------------------------------------
<S> <C> <C>
IAI Growth & Income Fund
For the first $100,000,000 .75%
For the next $100,000,000 .65%
Above $200,000,000 .55%
IAI Regional Fund & IAI Value Fund
For the first $200,000,000 .75%
For the next $300,000,000 .70%
Above $500,000,000 .65%
</TABLE>
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
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 years ended
March 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
IAI Growth & Income Fund IAI Regional Fund IAI Value Fund
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sold 1,651,236 5,930,139 2,960,445 7,182,845 2,541,639 3,297,445
Issued for reinvested
distributions 477,649 1,033,547 1,792,336 2,639,886 244,196 310,613
Redeemed (3,619,759) (7,243,734) (8,975,444) (11,016,346) (2,182,842) (2,693,469)
-----------------------------------------------------------------------------------------
Increase (decrease) in
shares outstanding (1,490,874) (280,048) (4,222,663) (1,193,615) 602,993 914,589
=========================================================================================
</TABLE>
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
[5] Investment Transactions
Purchases and Sales of Securities
For the year ended March 31, 1995, purchases of securities and sales proceeds,
other than investments in short-term securities, for the Funds were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Purchases Sales
- ---------------------------------------------------------
<S> <C> <C>
IAI Growth & Income Fund $ 86,949,863 $107,506,797
IAI Regional Fund $671,725,770 $715,710,638
IAI Value Fund $ 35,867,441 $ 34,132,813
</TABLE>
Restricted Securities
Included in the Funds' portfolios of investments in securities at March 31, 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.
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
[6] Option Contracts Written
During the year ended March 31, 1995, Regional Fund wrote the following options
on equity securities. The unrealized depreciation of these contracts is $50,751.
<TABLE>
<CAPTION>
Call Options
- ----------------------------------------------------------------------
Number of Contracts Premium
- ----------------------------------------------------------------------
<S> <C> <C>
Outstanding at 3/31/94 -- $ --
Opened 9,690 1,617,195
Expired (1,600) (177,006)
Closed (3,064) (530,172)
Exercised (4,776) (885,768)
----------------------------------------
Outstanding at 3/31/95 250 $ 24,249
========================================
Put Options
- ----------------------------------------------------------------------
Number of Contracts Premium
- ----------------------------------------------------------------------
Outstanding at 3/31/94 -- $ --
Opened 100 12,200
Expired -- --
Closed -- --
Exercised (100) (12,200)
----------------------------------------
Outstanding at 3/31/95 -- $ --
========================================
</TABLE>
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
The Board of Directors and Shareholders
IAI Investment Funds IV, Inc.
IAI Investment Funds VII, Inc.
IAI Investment Funds VIII, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the fund portfolios, of IAI Regional Fund (a portfolio within IAI Investment
Funds IV, Inc.), IAI Growth & Income Fund (a portfolio within IAI Investment
Funds VII, Inc.) and IAI Value Fund (a portfolio within IAI Investment Funds
VIII, Inc.) as of March 31, 1995 and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended and the financial highlights for each of
the years in the five-year period ended March 31, 1995. These financial
statements and the financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of IAI
Regional Fund, IAI Growth & Income Fund and IAI Value Fund at March 31, 1995,
the results of their operations for the year then ended, the changes in their
net assets for each of the years in the two-year period then ended and the
financial highlights for each of the years in the five-year period ended March
31, 1995, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 12, 1995
39
<PAGE>
FEDERAL TAX INFORMATION
-----------------------
IAI Growth & Income Fund, IAI Regional Fund, IAI Value Fund
We are required by federal tax regulations to provide shareholders with certain
information regarding dividend distributions paid during our fiscal year. The
figures provided are for information purposes only and should not be used for
reporting to federal or state revenue agencies. You will receive all necessary
tax information on Form 1099-DIV, Dividends and Distributions, in January of
each year.
<TABLE>
<CAPTION>
IAI Growth & Income Fund
- -------------------------------------------------------
Payable Date Ordinary Long-Term
Income (A) Capital Gain
- -------------------------------------------------------
<S> <C> <C>
June 1994 $ .3860 $ .2915
December 1994 .0752 --
=======================================================
$ .4612 $ .2915
</TABLE>
79.32% of ordinary income distributions qualifying for deduction by
corporations.
<TABLE>
<CAPTION>
IAI Regional Fund
- -------------------------------------------------------
Payable Date Ordinary Long-Term
Income (A) Capital Gain
- -------------------------------------------------------
<S> <C> <C>
June 1994 $ .5702 $ .4149
December 1994 .1288 .2740
=======================================================
$ .6990 $ .6889
</TABLE>
28.16% of ordinary income distributions qualifying for deduction by
corporations.
<TABLE>
<CAPTION>
IAI Value Fund
- -------------------------------------------------------
Payable Date Ordinary Long-Term
Income (A) Capital Gain
- -------------------------------------------------------
<S> <C> <C>
June 1994 $ .3146 $ .4705
December 1994 .0253 .0564
=======================================================
$ .3399 $ .5269
</TABLE>
43.46% of ordinary income distributions qualifying for deduction by
corporations.
(A) Includes distributions of short-term capital gains, if any, which are
taxable as ordinary income.
40
<PAGE>
IAI MUTUAL FUND FAMILY
----------------------
To diversify your portfolio, please consider all of the mutual funds in our fund
family
<TABLE>
<CAPTION>
=========================================================================================================================
Secondary
IAI Fund Primary Objective Objective Portfolio Composition
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IAI Developing Capital Appreciation -- Equity securities of companies
Countries Fund in developing countries
- -------------------------------------------------------------------------------------------------------------------------
IAI International Fund Capital Appreciation Income Equity securities of non-U.S. companies
- -------------------------------------------------------------------------------------------------------------------------
IAI Emerging Growth Fund Capital Appreciation -- Common stocks of small to
medium-sized emerging growth companies
- -------------------------------------------------------------------------------------------------------------------------
IAI Midcap Growth Fund Capital Appreciation -- Common stocks of medium-sized growth companies
- -------------------------------------------------------------------------------------------------------------------------
IAI Regional Fund Capital Appreciation -- Common stocks of Upper Midwest companies
- -------------------------------------------------------------------------------------------------------------------------
IAI Growth Fund Capital Appreciation -- Common stocks with potential for above-average
growth and appreciation
- -------------------------------------------------------------------------------------------------------------------------
IAI Value Fund Capital Appreciation -- Common stocks which are considered to be
undervalued
- -------------------------------------------------------------------------------------------------------------------------
IAI Growth & Income Fund Capital Appreciation Income Common stocks with potential for long-term
appreciation, and common stocks that
are expected to produce income
- -------------------------------------------------------------------------------------------------------------------------
IAI Balanced Fund Total Return Income Common stocks, investment grade bonds and
[Capital Appreciation + Income] short-term instruments
- -------------------------------------------------------------------------------------------------------------------------
IAI Bond Fund Income Capital Preservation Investment grade bonds
- -------------------------------------------------------------------------------------------------------------------------
IAI Minnesota Tax Free Fund Tax-free Income Capital Preservation Investment grade municipal bonds
(formerly IAI Tax Free Fund) [Exempt from Federal and
Minnesota State Income Taxes]
- -------------------------------------------------------------------------------------------------------------------------
IAI Government Fund Income Capital Preservation U.S. Government securities
- -------------------------------------------------------------------------------------------------------------------------
IAI Reserve Fund Stability/Liquidity Income The portfolio has a maximum average maturity
of 25 months, investing primarily in
investment grade bonds
- -------------------------------------------------------------------------------------------------------------------------
IAI Money Market Fund Stability/Liquidity Income The portfolio's average dollar-weighted
maturity is less than 90 days, investing in
high quality, money market securities
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
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<PAGE>
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<PAGE>
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<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 OF IAI]
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
