IAI INVESTMENT FUNDS VIII INC, 485BPOS, 1995-07-28

IAI INVESTMENT FUNDS VIII INC
485BPOS, 1995-07-28

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<PAGE>

As filed with the Securities and Exchange Commission on July 31, 1995

1933 Act Registration No. 2-84589
1940 Act Registration No. 811-3767

SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ___
Pre-Effective Amendment No._____ ___
Post-Effective Amendment No. 20 X
___

and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ___
Amendment No. 20 X
___

IAI INVESTMENT FUNDS VIII, INC.
(Exact Name of Registrant as Specified in Charter)

3700 FIRST BANK PLACE, P.O. BOX 357
Minneapolis, Minnesota 55440
(Address of Principal Executive Offices) (Zip Code)

(612) 376-2700
(Registrant's Telephone Number, including Area Code)

Christopher J. Smith, Esq. Copy to:
3700 First Bank Place Michael J. Radmer, Esq.
P.O. Box 357 Dorsey & Whitney
Minneapolis, Minnesota 55440 220 South Sixth Street
(Name and Address of Agent for Service) Minneapolis, Minnesota 55402

It is proposed that this filing will become effective (check appropriate box)

___ immediately upon filing pursuant to paragraph (b)
X on August 1, 1995 pursuant to paragraph (b)
___
___ 60 days after filing pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

___ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment

Registrant has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to rule 24f-2 under the Investment Company Act
of 1940, as amended. Rule 24f-2 Notices were last filed with the Commission on
May 23, 1995

<PAGE>

IAI INVESTMENT FUNDS VIII, INC.

FORM N-1A
CROSS-REFERENCE SHEET

Item Number Caption Prospectus Caption
- ----------- ------- ------------------
<S> <C> <C>
1 Cover Page........................ Cover Page of Prospectus

2 Synopsis.......................... Fund Expense Information

3 Condensed Financial Information... Financial Highlights; Investment Performance

4 General Description of Registrant. Investment Objectives and Policies;
Description of Common Stock; Additional
Information

5 Management of the Fund............ Fund Expense Information; Management;
Additional Information; Custodian, Transfer
Agent and Dividend Disbursing Agent

5A Management's Discussion of Fund
Performance..................... Information is Contained in the Annual
Report

6 Capital Stock and Other
Securities...................... Dividends, Distributions and Tax Status;
Description of Common Stock; Additional
Information

7 Purchase of Securities Being
Offered......................... Plan of Distribution; Computation of Net
Asset Value and Pricing; Purchase of Shares;
Automatic Investment Plan; Exchange
Privilege; Automatic Exchange Plan;
Retirement Plans

8 Redemption or Repurchase.......... Systematic Cash Withdrawal Plan;
Redemption of Shares; Authorized
Telephone Trading

9 Pending Legal Proceedings......... Not Applicable
</TABLE>
<PAGE>

Item Number Caption Statement of Additional Information Caption
- ----------- ------- -------------------------------------------
<S> <C> <C>
10 Cover Page........................ Cover Page of Statement of Additional
Information

11 Table of Contents................. Table of Contents

12 General Information and History... History

13 Investment Objectives and
Policies........................ Investment Objectives and Policies;
Investment Restrictions

14 Management of the Fund............ Management

15 Control Persons and Principal
Holders of Securities........... Management; Capital Stock

16 Investment Advisory and Other
Services........................ Management; Plan of Distribution; Counsel
and Auditors; Custodian, Transfer Agent
and Dividend Disbursing Agent

17 Brokerage Allocation.............. Portfolio Transactions and Allocation of
Brokerage

18 Capital Stock and Other
Securities...................... Capital Stock

19 Purchase, Redemption and Pricing
of Securities Being Offered..... Net Asset Value and Public Offering Price

20 Tax Status........................ Tax Status

21 Underwriters...................... Plan of Distribution

22 Calculation of Performance Data... Investment Performance

23 Financial Statements.............. Financial Statements
</TABLE>
<PAGE>

PROSPECTUS DATED AUGUST 1, 1995

IAI EMERGING GROWTH FUND
IAI GROWTH FUND
IAI GROWTH AND INCOME FUND
IAI MIDCAP GROWTH FUND
IAI REGIONAL FUND
IAI VALUE FUND

3700 FIRST BANK PLACE
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440
TELEPHONE 1-612-376-2700
1-800-945-3863

IAI Emerging Growth Fund pursues its objective of long-term capital appreciation
by investing primarily in equity securities of small and medium sized companies
that are in the early stages of their life cycles and which have demonstrated or
have the potential for above average capital growth.

IAI Growth Fund's investment objective is long-term capital appreciation. Growth
Fund pursues its objective by investing primarily in equity securities of
established companies that are expected to increase earnings at an above average
rate.

IAI Growth and Income Fund's primary investment objective is capital
appreciation, with income being its secondary objective. Growth and Income Fund
pursues its objectives by investing primarily in equity securities which offer
the potential for capital appreciation and secondarily by investing in
income-producing equity securities.

IAI Midcap Growth Fund's investment objective is long-term capital appreciation.
Midcap Growth Fund pursues its investment objective by investing primarily in
equity securities of medium-sized U.S. companies that have above-average
prospects for growth.

IAI Regional Fund pursues its objective of capital appreciation by investing at
least 80% of its equity investments in companies which have their headquarters
in Minnesota, Wisconsin, Iowa, Illinois, Nebraska, Montana, North Dakota or
South Dakota.

IAI Value Fund pursues its investment objective of long-term capital
appreciation primarily by investing in securities believed by management to be
undervalued and which are considered to offer unusual opportunities for capital
growth.

1
<PAGE>

This Prospectus sets forth concisely the information which a prospective
investor should know about each Fund before investing and it should be retained
for future reference. A "Statement of Additional Information" dated August 1,
1995, which provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to some investors, has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. For a free copy, call or write the Funds at the address or telephone
number shown on the inside back cover of this Prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

2
<PAGE>

TABLE OF CONTENTS

PAGE

FUND EXPENSE INFORMATION.........................................4
FUND DIRECTORS...................................................5
FINANCIAL HIGHLIGHTS.............................................6
INVESTMENT PERFORMANCE...........................................12
INVESTMENT OBJECTIVES AND POLICIES...............................12
EMERGING GROWTH FUND........................................12
GROWTH FUND.................................................13
GROWTH AND INCOME FUND......................................14
MIDCAP GROWTH FUND..........................................14
REGIONAL FUND...............................................14
VALUE FUND..................................................15
PORTFOLIO SECURITIES AND OTHER FUND INVESTMENT TECHNIQUES........16
FUND RISK FACTORS................................................18
MANAGEMENT.......................................................19
PLAN OF DISTRIBUTION.............................................21
COMPUTATION OF NET ASSET VALUE AND PRICING.......................22
PURCHASE OF SHARES...............................................22
RETIREMENT PLANS.................................................23
AUTOMATIC INVESTMENT PLAN........................................23
REDEMPTION OF SHARES.............................................23
EXCHANGE PRIVILEGE...............................................24
AUTOMATIC EXCHANGE PLAN..........................................24
AUTHORIZED TELEPHONE TRADING.....................................25
SYSTEMATIC CASH WITHDRAWAL PLAN..................................25
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS..........................25
DESCRIPTION OF COMMON STOCK......................................26
COUNSEL AND AUDITORS.............................................27
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT..........27
ADDITIONAL INFORMATION...........................................27

3
<PAGE>

FUND EXPENSE INFORMATION

SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------

<TABLE>
<CAPTION>
Emerging Midcap
Growth Growth and Growth Regional Value
Fund Growth Fund Income Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on None None None None None None
Purchases
Sales Load Imposed on
Reinvested Dividends None None None None None None
Redemption Fees None None None None None None
Exchange Fees None None None None None None
</TABLE>

ANNUAL FUND OPERATING EXPENSES *
- ---------------------------
(NET OF REIMBURSEMENTS)
- ---------------------------

<TABLE>
<CAPTION>
Emerging Midcap
Growth Growth and Growth Regional Value
Fund Growth Fund Income Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management Fee .74% .75% .74% .75% .71% .75%
Rule 12b-1 Fee .25% .02% .25% .18% .25% .12%
Other Expenses .26% .48% .26% .32% .27% .38%
----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses 1.25% 1.25% 1.25% 1.25% 1.23% 1.25%
----- ----- ----- ----- ----- -----
</TABLE>

* as a percentage of average month-end net assets

EXAMPLE:

Based upon the levels of Total Fund Operating Expenses listed above, you would
pay the following expenses on a $1,000 investment, assuming a five percent
annual return and redemption at the end of each period:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Emerging Growth Fund $13 $40 $69 $151
Growth Fund $13 $40 $69 $151
Growth and Income Fund $13 $40 $69 $151
Midcap Growth Fund $13 $40 $69 $151
Regional Fund $13 $39 $68 $149
Value Fund $13 $40 $69 $151
</TABLE>

The purpose of the above table is to assist you in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly. The information in the table is based upon actual expenses the Funds
incurred for the fiscal year or period ended March 31, 1995. The example should
not be considered a representation of past or future expenses. Actual expenses
may be greater or less than those shown. Because each Fund's Rule 12b-1 Fee is
based on a percentage of such Fund's net assets, long-term shareholders

4
<PAGE>

may pay more than the economic equivalent of the maximum front-end sales charges
permitted by Section 26 of the National Association of Securities Dealers'
Rules of Fair Practice.

Each of the Funds Total Fund Operating Expenses are subject to a
contractual expense limitation of 1.25% of a Fund's average month-end net
assets, as further described in the section "Management." Projected Total Fund
Operating Expenses set forth above are the same as the actual Total Fund
Operating Expenses for the fiscal year or period ended March 31, 1995. Absent
such expense limitations, each of Growth Fund, Midcap Growth Fund and Value Fund
would pay .25% of its average month-end net assets in Rule 12b-1 Fees. Further
information concerning fees paid by each Fund is found in the Statement of
Additional Information.

FUND DIRECTORS

Madeline Betsch Richard E. Struthers

W. William Hodgson J. Peter Thompson

George R. Long Charles H. Withers

Noel P. Rahn

5
<PAGE>

FINANCIAL HIGHLIGHTS

The following information has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report is included in the Fund's Annual Report. The Financial
Highlights section of the Annual Report is incorporated by reference in (and is
a part of) the Statement of Additional Information. Such Annual Report may be
obtained by shareholders on request from the Fund at no charge.

EMERGING GROWTH FUND

<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED MARCH 31, AUGUST 5, 1991*
-------------------------------- TO
1995 1994 1993 MARCH 31, 1992
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 15.20 $ 13.47 $ 11.91 $ 10.00
-------- -------- -------- ---------
Operations:
Net investment income (loss) (.07) (.10) (.05) .01
Net realized and unrealized gains 1.42 2.18 2.37 1.91
-------- -------- -------- ---------
Total from operations 1.35 2.08 2.32 1.92
-------- -------- -------- ---------
Distributions to shareholders from:
Net investment income -- -- -- (.01)
Net realized gains (.72) (.35) (.76) --
-------- -------- -------- ---------
Total distributions (.72) (.35) (.76) (.01)
-------- -------- -------- ---------
NET ASSET VALUE:
End of period $ 15.83 $ 15.20 $ 13.47 $ 11.91
======== ======== ======== =========
Total investment return ** 10.23% 15.43% 21.90% 19.23%
Net assets at end of period (000's omitted) $342,874 $225,510 $131,514 $ 38,110
RATIOS:
Expenses to average net assets 1.25% 1.25% 1.25% 1.25%***
Net investment income (loss)
to average net assets (.54%) (.77%) (.72%) .14%***
Portfolio turnover rate
(excluding short-term securities) 58.1% 76.3% 96.1% 126.6%
- --------------------
</TABLE>

* Commencement of operations
** Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
*** Annualized

6
<PAGE>

GROWTH FUND

PERIOD FROM PERIOD FROM
AUGUST 1, 1994 AUGUST 6, 1993***
TO MARCH 31, 1995**** TO JULY 31, 1994
---------------------- -------------------
<S> <C> <C>
NET ASSET VALUE:
Beginning of period $9.87 $10.00
----- ------

OPERATIONS:
Net investment income .04 .01
Net realized and unrealized gains (losses) 1.07 (.13)
----- ------
Total from operations 1.11 (.12)
----- ------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (.03) (.01)
------ ------
Total distributions (.03) (.01)
------ ------

NET ASSET VALUE:
End of period $10.95 $9.87
------ ------

Total investment return* 11.24% (1.21%)

Net assets at end of period (000's omitted) $26,794 $14,408

RATIOS:
Expenses to average net assets** 1.25% 1.25%
Net investment income to average net
assets** 0.61% 0.61%
Portfolio turnover rate (excluding short-
term securities) 68.7% 105.4%
- --------------------------
</TABLE>

* Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at
net asset value.
** Annualized
*** Commencement of operations

**** Reflects fiscal year-end change from July 31 to March 31.

7
<PAGE>

GROWTH AND INCOME FUND

YEARS ENDED MARCH 31,
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------

NET ASSET VALUE:
Beginning of period $ 13.91 $ 15.19 $ 14.73 $ 14.48 $ 15.47 $ 16.01 $ 14.80 $ 17.32 $ 16.09 $ 13.25
-------- -------- -------- -------- ------- ------- ------- ------- ------- --------

Operations:
Net investment income .12 .09 .07 .13 .29 .39 .31 .28 .33 .42
Net realized and
unrealized
gains (losses) 1.04 .38 1.17 1.20 .72 2.26 2.23 (1.09) 3.07 3.36
-------- -------- -------- -------- ------- ------- ------- ------- ------- --------
Total from operations 1.16 .47 1.24 1.33 1.01 2.65 2.54 (.81) 3.40 3.78
-------- -------- -------- -------- ------- ------- ------- ------- ------- --------

Distributions to
shareholders from:
Net investment income (.10) (.06) (.07) (.14) (.30) (.43) (.23) (.37) (.37) (.48)
Net realized gains (.65) (1.69) (.71) (.94) (1.70) (2.76) (1.10) (1.34) (1.80) (.46)
-------- -------- -------- -------- ------- ------- ------- ------- ------- --------
Total distributions (.75) (1.75) (.78) (1.08) (2.00) (3.19) (1.33) (1.71) (2.17) (.94)
-------- -------- -------- -------- ------- ------- ------- ------- ------- --------

NET ASSET VALUE:
End of period $ 14.32 $ 13.91 $ 15.19 $ 14.73 $ 14.48 $ 15.47 $ 16.01 $ 14.80 $ 17.32 $ 16.09
======== ======== ======== ======== ======= ======= ======= ======= ======= =======

Total investment return* 8.92% 3.07% 9.04% 9.56% 7.42% 16.77% 18.06% (4.89%) 24.25% 30.62%

Net assets at end of period
(000's omitted) $101,256 $119,102 $134,308 $113,324 $90,590 $76,484 $76,901 $83,290 $83,691 $69,126

RATIOS:
Expenses to average
net assets 1.25% 1.25% 1.25% 1.25% 1.05% 1.00% .90% .80% .80% .70%
Net investment income to
average net assets 0.80% 0.60% 0.61% 1.03% 2.19% 2.10% 1.80% 1.70% 2.10% 2.90%
Portfolio turnover rate
(excluding short-term
securities) 79.1% 205.6% 175.6% 210.1% 68.5% 66.2% 48.3% 35.8% 67.5% 50.0%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value.

8
<PAGE>

MIDCAP GROWTH FUND

Years Ended March 31, Period From
--------------------- April 10, 1992** to
1995 1994 March 31, 1993
------- ------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 13.67 $ 11.88 $ 10.00
------- ------- -------

Operations:
Net investment income (loss) (.04) (.04) .02
Net realized and unrealized gains 2.35 1.99 1.89
------- ------- -------
Total from operations 2.31 1.95 1.91
------- ------- -------

Distributions to shareholders from:
Net investment income -- -- (.03)
Net realized gains (.63) (.16) --
------- ------- -------
Total distributions (.63) (.16) (.03)
------- ------- -------

Net Asset Value:
End of period $ 15.35 $ 13.67 $ 11.88
======= ======= =======

Total investment return*** 17.63% 16.40% 19.09%

Net assets at end of period
(000's omitted) $88,075 $56,618 $22,070

RATIOS:
Expenses to average net assets 1.25% 1.25% 1.25%*
Net investment income to average net
assets (.33%) (.45%) .24%*
Portfolio turnover rate (excluding
short-term securities) 51.3% 49.7% 57.6%
______________________________
</TABLE>

* Annualized
** Commencement of operations
***Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value.

9
<PAGE>

REGIONAL FUND

YEARS ENDED MARCH 31,
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- ------- -------- -------- ------- -------- -------
NET ASSET VALUE:
Beginning of period $ 20.94 $ 22.23 $ 21.29 $ 21.03 $ 18.95 $ 19.38 $ 17.11 $ 21.19 $ 23.44 $ 17.29
-------------------------------------------------------------------------------------------------
Operations:
Net investment income .17 .21 .21 .20 .35 .46 .36 .33 .36 .41
Net realized and
unrealized gains (losses) 1.84 .51 1.48 2.38 2.88 3.59 2.76 (.80) 4.26 6.57
--------------------------------------------------------------------------------------------------
Total from operations 2.01 .72 1.69 2.58 3.23 4.05 3.12 (.47) 4.62 6.98
--------------------------------------------------------------------------------------------------
Distributions to
shareholders from:
Net investment income (.20) (.18) (.23) (.24) (.33) (.51) (.28) (.40) (.42) (.43)
Net realized gains (1.19) (1.83) (.52) (2.08) (.82) (3.97) (.57) (3.21) (6.45) (.40)
--------------------------------------------------------------------------------------------------
Total distributions (1.39) (2.01) (.75) (2.32) (1.15) (4.48) (.85) (3.61) (6.87) (.83)
--------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 21.56 $ 20.94 $ 22.23 $ 21.29 $ 21.03 $ 18.95 $ 19.38 $ 17.11 $ 21.19 $ 23.44
==================================================================================================

Total investment return * 10.35% 3.26% 8.31% 12.77% 18.01% 21.66% 18.63% (1.40)% 25.57% 42.20%

Net assets at end of period
(000's omitted) $523,364 $596,572 $659,904 $528,763 $284,054 $138,270 $102,425 $85,666 $101,949 $77,743

RATIOS:
Expenses to average net
assets 1.23% 1.25% 1.25% 1.25% 1.01% .99% 1.00% .80% .80% .80%
Net investment income to
average net assets .74% .94% 1.09% 1.20% 2.27% 2.31% 2.00% 1.60% 1.80% 2.10%
Portfolio turnover rate
(excluding short-term
securities) 150.0% 163.0% 139.7% 140.6% 168.7% 116.2% 93.7% 85.3% 132.5% 112.0%
- ---------------------------
</TABLE>

*Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value.
10
<PAGE>

VALUE FUND

YEARS ENDED MARCH 31,
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE:
Beginning of period $ 11.63 $ 11.63 $ 11.06 $ 10.46 $ 12.29 $ 13.14 $ 10.75 $ 12.51 $ 11.46 $ 10.07
-------------------------------------------------------------------------------------------------

Operations:
Net investment income .03 .05 .11 .12 .22 .19 .12 .12 .15 .20
Net realized and unrealized
gains (losses) .38 1.45 .56 1.08 .36 1.11 2.46 (.04) 1.42 1.59
-------------------------------------------------------------------------------------------------
Total from operations .41 1.50 .67 1.20 .58 1.30 2.58 .08 1.57 1.79
-------------------------------------------------------------------------------------------------

Distributions to shareholders
from:
Net investment income (.03) (.13) -- (.15) (.17) (.18) (.10) (.17) (.18) (.20)
Net realized gains (.84) (1.37) (.10) (.45) (2.24) (1.97) (.09) (1.67) (.34) (.20)
-------------------------------------------------------------------------------------------------
Total distributions (.87) (1.50) (.10) (.60) (2.41) (2.15) (.19) (1.84) (.52) (.40)
-------------------------------------------------------------------------------------------------

NET ASSET VALUE:
End of period $ 11.17 $ 11.63 $ 11.63 $ 11.06 $ 10.46 $ 12.29 $ 13.14 $ 10.75 $ 12.51 $11.46
=================================================================================================

Total investment return * 3.88% 12.70% 6.20% 12.21% 6.19% 9.90% 24.18% 1.12% 14.22% 18.69%

Net assets at end of period
(000's omitted) $40,601 $35,282 $24,643 $32,246 $22,145 $25,913 $27,980 $20,464 $22,310 $24,736

RATIOS:
Expenses to average net
assets 1.25% 1.25% 1.25% 1.25% 1.10% 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income to
average net assets 0.31% 0.35% 0.68% 1.24% 2.00% 1.34% 1.00% 1.00% 1.30% 2.10%
Portfolio turnover rate
(excluding short-term
securities) 102.1% 191.9% 118.3% 125.4% 57.0% 70.3% 52.7% 62.5% 85.7% 85.4%
- -------------------------------------
</TABLE>

*Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset value.

11
<PAGE>

INVESTMENT PERFORMANCE

From time to time the Funds may advertise performance data including
monthly, quarterly, yearly or cumulative total return and average annual total
return figures. All such figures are based on historical earnings and
performance and are not intended to be indicative of future performance. The
investment return on and principal value of an investment in a Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.

Total return is the change in value of an investment in a Fund over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period.

For additional information regarding the calculation of such total
return figures, see "Investment Performance" in the Statement of Additional
Information. Further information about the performance of each Fund is
contained in each Funds Annual Report to shareholders which may be obtained
without charge from each Fund.

Comparative performance information may be used from time to time in
advertising or marketing a Fund's shares, including data on the performance of
other mutual funds, indexes or averages of other mutual funds, indexes of
related financial assets or data, and other competing investment and deposit
products available from or through other financial institutions. The
composition of these indexes, averages or products differs from that of the
Funds. The comparison of a Fund to an alternative investment should be made
with consideration of differences in features and expected performance. A Fund
may also note its mention in newspapers, magazines, or other media from time to
time. The Funds assume no responsibility for the accuracy of such data. For
additional information on the types of indexes, averages and periodicals that
might be utilized by the Funds in advertising and sales literature, see the
section "Investment Performance" in the Statement of Additional Information.

INVESTMENT OBJECTIVES AND POLICIES

EMERGING GROWTH FUND

The investment objective of Emerging Growth Fund is long-term capital
appreciation. The Emerging Growth Fund is designed for investors seeking the
opportunity for substantial long-term growth who can accept above average stock
market risk and little or no current income. Emerging Growth Fund will pursue
its objective by investing primarily in equity securities of small and medium
sized companies that are in the early stages of their life cycles and which have
demonstrated or have the potential for above average capital growth. Emerging
Growth Fund's investment objective is a fundamental policy and may not be
changed without shareholder approval. There can be no assurance that Emerging
Growth Fund will achieve its investment objective.

Emerging Growth Fund's policy is to invest in equity securities,
including convertible securities, of companies that IAI, Emerging Growth Fund's
investment adviser and manager, believes are in the early stages of their life
cycles and have demonstrated or have the potential to experience rapid growth in
earnings and/or revenues ("emerging growth companies"). Under normal market
conditions, Emerging Growth Fund will invest at least 65% of the value of its
total assets in emerging growth companies that are of small to medium size
(market capitalization of $1 billion or less). Emerging growth companies are
generally expected to show earnings growth over time that is well above the
growth rate of the overall economy and the rate of inflation, and have products,
management and market opportunities which are usually necessary to become more
widely recognized as growth companies. Emerging Growth Fund may also invest in
more established companies that may receive greater market recognition or
otherwise offer strong capital appreciation potential due to their relative
market position, the strength of their balance sheet, changes in management or
other similar opportunities.

12
<PAGE>

Although Emerging Growth Fund's portfolio generally consists primarily
of common stocks, Emerging Growth Fund may invest in securities convertible into
common stocks, nonconvertible preferred stocks and nonconvertible debt
securities.

Emerging Growth Fund may invest in other securities and may employ
certain other investment techniques, as described in the section Portfolio
Securities and Other Fund Investment Techniques. Please see the Prospectus
section Fund Risk Factors and the Statement of Additional Information section
Investment Objectives and Policies for a discussion of the risks associated with
investing in Emerging Growth Fund.

GROWTH FUND

The investment objective of Growth Fund is long-term capital
appreciation. Growth Fund is designed for investors seeking the opportunity for
significant long term growth who can accept above average market risk with
little or no current income. Growth Fund pursues its objective by investing
primarily in equity securities of established companies that are expected to
increase earnings at an above average rate. Growth Fund's investment objective
is a fundamental policy and may not be changed without shareholder approval.
There can be no assurance that Growth Fund will achieve its investment
objective.

In general, Growth Fund concentrates on companies that have strong
management, leading market positions, strong balance sheets, and a well defined
strategy for future growth. In selecting investments for Growth Fund, IAI,
Growth Funds investment adviser and manager, utilizes several valuation
techniques to determine which stocks offer the best combination of intrinsic
value and earnings growth potential. The goal is to have an acceptable balance
of risk and reward in the portfolio.

Under normal circumstances, at least 65% of Growth Funds assets will
be invested in growth-type securities. Growth Fund may also invest in
government securities, investment-grade corporate bonds and debentures, high-
grade commercial paper, preferred stocks, certificates of deposit or other
securities of U.S. and foreign issuers when IAI perceives an opportunity for
capital growth from such securities or so that Growth Fund may receive a return
on its idle cash. Growth Fund currently intends to limit its investments in
debt securities to securities of U.S. companies, the U.S. Government and foreign
governments and governmental entities. When IAI invests in such debt
securities, investment income will increase and may constitute a large portion
of the return on Growth Fund, and Growth Fund probably will not participate in
market advances or declines to the extent that it would if it were fully
invested in equity securities. In addition, Growth Fund may increase its cash
position on a temporary basis when IAI is unable to locate investment
opportunities with desirable risk/reward characteristics or to meet redemption
requests or pay Fund expenses.

In considering whether to purchase securities of foreign issuers, IAI
considers the political and economic conditions in a country, the prospect for
changes in the value of its currency and the liquidity of the investment in that
country's securities markets. If appropriate, IAI may purchase foreign
securities through dollar-denominated American Depository Receipts ("ADRs")
which are issued by domestic banks and publicly traded in the United States.
Such investments do not involve the same currency and liquidity risks as
securities denominated in foreign currency.

Growth Fund may invest in other securities and may employ certain
other investment techniques, as described in the section Portfolio Securities
and Other Fund Investment Techniques. Please see the Prospectus section Fund
Risk Factors and the Statement of Additional Information section Investment
Objectives and Policies for a discussion of the risks associated with investing
in Growth Fund.

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<PAGE>

GROWTH AND INCOME FUND

The primary investment objective of Growth and Income Fund is capital
appreciation, with income being its secondary objective. Growth and Income Fund
pursues its objectives by investing primarily in equity securities which offer
the potential for capital appreciation and secondarily by investing in income-
producing equity securities. Growth and Income Funds investment objectives are
fundamental policies and may not be changed without shareholder approval. There
can be no assurance that Growth and Income Fund will achieve its investment
objectives.

Growth and Income Fund invests primarily in common stocks and may
invest in securities convertible into common stocks, nonconvertible preferred
stocks and nonconvertible debt securities. In selecting investments, Growth and
Income Fund considers a number of factors, such as product development and
demand, operating ratios, utilization of earnings for expansion, management
abilities, analyses of intrinsic values, market action and overall economic and
political conditions. Dividend income is a consideration secondary to Growth
and Income Fund's primary objective of capital appreciation.

Growth and Income Fund may invest in other securities and may employ
certain other investment techniques, as described in the section Portfolio
Securities and Other Fund Investment Techniques. Please see the Prospectus
section Fund Risk Factors and the Statement of Additional Information section
Investment Objectives and Policies for a discussion of the risks associated with
investing in Growth and Income Fund.

MIDCAP GROWTH FUND

The investment objective of Midcap Growth Fund is long-term capital
appreciation. Midcap Growth Fund is designed for investors seeking the
opportunity for substantial long-term growth who can accept above average stock
market risk and little or no current income. Midcap Growth Fund will pursue its
objective by investing in equity securities of medium-sized U.S. companies that
IAI, Midcap Growth Fund's investment adviser and manager, believes have above-
average prospects for growth. Midcap Growth Fund's investment objective is a
fundamental policy and may not be changed without shareholder approval. There
can be no assurance that Midcap Growth Fund will achieve its investment
objective.

Midcap Growth Fund will invest at least 65% of the value of its total
assets in medium-sized companies that have a market capitalization between $500
million and $5 billion. Under normal market conditions, the weighted average
capitalization of Midcap Growth Funds investment portfolio will range from $1
billion to $3 billion. In general, Midcap Growth Fund concentrates on companies
that have superior performance records, solid market positions, strong balance
sheets and a management team capable of sustaining growth. Investments in such
companies are generally considered to be less volatile than less capitalized
emerging companies. However, such companies may not generate the dividend
income of larger, more capitalized companies. Dividend income, if any, is a
consideration incidental to Midcap Growth Fund's objective of capital
appreciation.

Midcap Growth Fund invests primarily in common stocks. However, it
may invest in securities convertible into common stocks, nonconvertible
preferred stocks and nonconvertible debt securities when IAI believes that these
securities offer opportunities for capital appreciation. Current income will
not be a substantial factor in the selection of securities.

Midcap Growth Fund may invest in other securities and may employ
certain other investment techniques, as described in the section Portfolio
Securities and Other Fund Investment Techniques. Please see the Prospectus
section Fund Risk Factors and the Statement of Additional Information section
Investment Objectives and Policies for a discussion of the risks associated with
investing in Midcap Growth Fund.

REGIONAL FUND

The investment objective of Regional Fund is capital appreciation.
Regional Fund does not expect to provide significant current income to
investors. Regional Fund pursues its objective by investing at least 80% of

14
<PAGE>

its equity investments in companies which have their headquarters in Minnesota,
Wisconsin, Iowa, Illinois, Nebraska, Montana, North Dakota or South Dakota (the
"Eight State Region"). Regional Fund's investment objective is a fundamental
policy and may not be changed without shareholder approval. There can be no
assurance that Regional Fund will achieve its investment objective.

Regional Fund invests primarily in common stocks but may also invest
in securities convertible into common stocks, nonconvertible preferred stocks,
and nonconvertible debt securities. In selecting investments for Regional Fund,
IAI, Regional Fund's investment adviser and manager, considers a number of
factors, such as product development and demand, operating ratios, utilization
of earnings for expansion, management abilities, analyses of intrinsic values,
market action and overall economic and political conditions. Along with
investments in nationally recognized companies, Regional Fund invests in
companies which are not as well known because they are newer or have a small
capitalization, but which offer the potential for capital appreciation. The
prices of stocks of such companies are more volatile than prices of stocks of
mature companies. All investments are subject to the market risks inherent in
any investment in equity securities.

Regional Fund may invest in other securities and may employ certain
other investment techniques, as described in the section Portfolio Securities
and Other Fund Investment Techniques. Please see the Prospectus section Fund
Risk Factors and the Statement of Additional Information section Investment
Objectives and Policies for a discussion of the risks associated with investing
in Regional Fund.

VALUE FUND

The investment objective of Value Fund is long-term capital
appreciation. Value Fund does not expect to provide significant current income
to investors. Value Fund pursues its objective primarily by investing in
securities believed by management to be undervalued and which are considered to
offer unusual opportunities for capital growth. Value Fund's investment
objective is a fundamental policy and may not be changed without shareholder
approval. There can be no assurance that Value Fund will achieve its investment
objective.

The following are typical, but not exclusive, example of
investments that are considered for Value Fund:

1. Equity securities of companies which have been unpopular for some
time but where, in the opinion of IAI, Value Fund's investment adviser
and manager, recent developments such as those listed below suggest
the possibility of improved operating results:

(a) a sale or termination of an unprofitable part of the
company's business;

(b) a change in the company's management or in management's
philosophy;

(d) the introduction of new products; or

(e) the prospect of an acquisition or merger.

2. Equity securities of companies which have experienced recent market
popularity but which, in the opinion of IAI, have temporarily fallen
out of favor for reasons that are considered nonrecurring or short-
term.

3. Equity securities of companies which appear undervalued in relation
to popular securities of other companies in the same industry.

Although there is no formula as to the percentage of assets that may
be invested in any one type of security, Value Fund generally is primarily
invested in common stocks. Value Fund may also acquire preferred

15
<PAGE>

stocks, fixed income securities, and securities convertible into or which carry
warrants to purchase common stocks, or other equity interests.

IAI is responsible for the management of Value Fund's portfolio and makes
portfolio decisions based on its own research analysis supplemented by research
information provided by other sources. The basic orientation of Value Fund's
investment policies is such that many of the portfolio securities may not be
recommended by most research analysts.

Value Fund may invest in other securities and may employ certain other
investment techniques, as described in the section Portfolio Securities and
Other Fund Investment Techniques. Please see the Prospectus section Fund Risk
Factors and the Statement of Additional Information section Investment
Objectives and Policies for a discussion of the risks associated with investing
in Value Fund.

PORTFOLIO SECURITIES AND OTHER FUND INVESTMENT TECHNIQUES

REPURCHASE AGREEMENTS

Each Fund may invest in repurchase agreements relating to the securities in
which it may invest. In a repurchase agreement, a Fund buys a security at one
price and simultaneously agrees to sell it back at a higher price. Delays or
losses could result if the other party to the agreement defaults or becomes
bankrupt.

BORROWING

Each Fund may borrow from banks for temporary or emergency purposes or
through reverse repurchase agreements. If a Fund borrows money, its share price
may be subject to greater fluctuation until the borrowing is paid off. If a Fund
makes additional investments while borrowings are outstanding, this may be
considered a form of leverage.

ILLIQUID SECURITIES

Each Fund may invest up to 15% of its total assets in securities that are
considered illiquid because of the absence of a readily available market or due
to legal or contractual restrictions. However, certain restricted securities
that are not registered for sale to the general public but that can be resold to
institutional investors may be considered liquid pursuant to guidelines adopted
by the Board of Directors. The institutional trading market is relatively new,
and the liquidity of the Fund's investments could be impaired if trading does
not develop or declines.

FOREIGN SECURITIES

Each Fund may invest in securities of foreign issuers in accordance with
its investment objective and policies. In considering whether to purchase
securities of foreign issuers, IAI will consider the political and economic
conditions in a country, the prospect for changes in the value of its currency
and the liquidity of the investment in that countrys securities markets. Each of
Growth and Income, Emerging Growth, Midcap Growth, Regional and Value Funds
currently intends to limit its investment in foreign securities denominated in
foreign currency and not publicly traded in the United States to no more than
10% of the value of its total assets. Growth Fund intends to limit its
investment in such securities to no more than 15% of the value of its total
assets.

VENTURE CAPITAL

Each Fund may invest in venture capital limited partnerships and funds
which, in turn, invest principally in securities of early stage, developing
companies. Investments in venture capital limited partnerships and funds present
a number of risks not found in investing in established enterprises including
the facts that such a partnership's portfolio will be composed almost entirely
of early-stage companies which may lack depth of management and sufficient
resources, which may be marketing a new product for which there is no
established

<PAGE>

market, and which may be subject to intense competition from larger companies.
Any investment in a venture capital fund will lack liquidity, will be difficult
to value, and a Fund will not be entitled to participate in the management of
the partnership or fund. If for any reason the services of the general partners
of a venture capital limited partnership were to become unavailable, such
limited partnership could be adversely affected.

In addition to investing in venture capital limited partnerships and funds,
a Fund may directly invest in early-stage, developing companies. The risks
associated with investing in these securities are substantially similar to the
risks set forth above. A Fund will typically purchase equity securities in these
early-stage, developing companies; however from time to time, a Fund may
purchase non-investment grade debt securities in the form of convertible
notes.

LEVERAGED BUYOUTS

Each Fund may invest in leveraged buyout limited partnerships and funds
which, in turn, invest in leveraged buyout transactions ("LBOs"). An LBO,
generally, is an acquisition of an existing business by a newly formed
corporation financed largely with debt assumed by such newly formed corporation
to be later repaid with funds generated from the acquired company. Since most
LBOs are by nature highly leveraged (typically with debt to equity ratios of
approximately 9 to 1), equity investments in LBOs may appreciate substantially
in value given only modest growth in the earnings or cash flow of the acquired
business. Investments in LBO partnerships and funds, however, present a number
of risks. Investments in LBO limited partnerships and funds will normally lack
liquidity and may be subject to intense competition from other LBO limited
partnerships and funds. Additionally, if the cash flow of the acquired company
is insufficient to service the debt assumed in the LBO, the LBO limited
partnership or fund could lose all or part of its investment in such acquired
company.

ADJUSTING INVESTMENT EXPOSURE

Each Fund can use various techniques to increase or decrease its exposure
to changing security prices, interest rates, currency exchange rates, commodity
prices, or other factors that affect security values. These techniques include
buying and selling options and futures contracts, entering into currency
exchange contracts or swap agreements, purchasing indexed securities, and
selling securities short. Because some Fund assets may be invested in restricted
securities and thus may not be associated with short-term movement in the
financial markets, that portion of a Funds assets may not be able to participate
in market movements. Each Fund may invest in future contracts in amounts
corresponding to its investments in such restricted securities in order to
participate fully in market movements.

TEMPORARY DEFENSIVE POSITION

In unusual market conditions, when IAI believes a temporary defensive
position is warranted, each Fund may invest without limitation in investment-
grade fixed income securities, that is, securities rated within the four highest
grades assigned by Moodys Investors Service, Inc. or Standard & Poors
Corporation, or money market securities (including repurchase agreements). Money
market securities will only be purchased if they have been given one of the two
top ratings by a major ratings service or, if unrated, are of comparable quality
as determined by IAI. Midcap Growth and Emerging Growth Funds, for temporary
defensive purposes, may also invest without limitation in common stocks of
larger, more established companies. If a Fund maintains a temporary defensive
position, investment income may increase and may constitute a large portion of a
Funds return.

PORTFOLIO TURNOVER

The Funds will dispose of securities without regard to the time they have
been held when such action appears advisable to management either as a result of
securities having reached a price objective, or by reason of developments not
foreseen at the time of the investment decision. Since investment changes
usually will be made without reference to the length of time a security has been
held, a significant number of short-term transactions may result. Accordingly, a
Fund's annual portfolio turnover rate cannot be anticipated and may be
relatively high.

<PAGE>

A higher turnover rate generally results in higher brokerage and other costs for
a Fund. The Funds historical portfolio turnover rates are set forth in the
section Financial Highlights.

Further information regarding these and other securities and techniques is
contained in the Statement of Additional Information.

FUND RISK FACTORS

FOREIGN INVESTMENT RISK FACTORS

Investments in foreign securities involve risks that are different in some
respects from investments in securities of U.S. issuers, such as the risk of
fluctuations in the value of the currencies in which they are denominated, the
risk of adverse political and economic developments and, with respect to certain
countries, the possibility of expropriation, nationalization or confiscatory
taxation or limitations on the removal of funds or other assets of a Fund.
Securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies. There also may be less publicly
available information about foreign issuers than domestic issuers, and foreign
issuers generally are not subject to the uniform accounting, auditing and
financial reporting standards, practices and requirements applicable to domestic
issuers. Because a Fund can invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates may affect the value of securities in the portfolio. Foreign currency
exchange rates are determined by forces of supply and demand in the foreign
exchange markets and other economic and financial conditions affecting the world
economy. A decline in the value of any particular currency against the U.S.
dollar will cause a decline in the U.S. dollar value of a Funds holdings of
securities denominated in such currency and, therefore, will cause an overall
decline in a Funds net asset value and net investment income and capital gains,
if any, to be distributed in U.S. dollars to shareholders by a Fund. Delays may
be encountered in settling securities transactions in certain foreign markets,
and a Fund will incur costs in converting foreign currencies into U.S. dollars.
Custody charges are generally higher for foreign securities.

RISKS OF TRANSACTIONS IN DERIVATIVES

IAI may use futures, options, swap and currency exchange agreements as well
as short sales to adjust the risk and return characteristics of each Fund's
portfolio of investments. If IAI judges market conditions incorrectly or employs
a strategy that does not correlate well with a Fund's investments, use of these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. Use of these techniques may increase the
volatility of a Fund and may involve a small investment of cash relative to the
magnitude of risk assumed. In addition, these techniques could result in a loss
if the counterparty to the transaction is unable to perform as promised.
Moreover, a liquid secondary market for any futures or options contract may not
be available when a futures or options position is sought to be closed. Please
refer to the Statement of Additional Information which further describes these
risks.

SPECIAL RISK FACTORS ASSOCIATED WITH INVESTING IN EMERGING GROWTH FUND

Investing in emerging growth companies involves greater risk than is
customarily associated with investments in larger, more established companies
due to the greater business risks of small size, limited markets and financial
resources, narrow product lines and the frequent lack of depth of management.
The securities of small companies are often traded over-the-counter and may not
be traded in volumes typical on a national securities exchange. Consequently,
the securities of emerging growth companies may have limited market stability
and may be subject to more abrupt or erratic market movements than securities of
larger, more established growth companies or the market averages in general.
Therefore, shares of Emerging Growth Fund are subject to greater fluctuation in
value than shares of a conservative equity fund or of a growth fund which
invests entirely in more established growth stocks. Emerging Growth Fund will
attempt to reduce the volatility of its share price by diversifying its
investments among many companies and different industries.

<PAGE>

SPECIAL RISK FACTORS ASSOCIATED WITH INVESTING IN REGIONAL FUND

The objective of capital appreciation along with the policy of
concentrating equity investments in the Eight State Region means that the assets
of Regional Fund will generally be subject to greater risk than may be involved
in investing in securities which do not have appreciation potential or which
have more geographic diversity. For example, Regional Funds net asset value
could be adversely affected by economic, political, or other developments having
an unfavorable impact upon the Eight State Region; moreover, because of
geographic limitation, Regional Fund may be less diversified by industry and
company than other funds with a similar investment objective and no such
geographic limitation.

SPECIAL RISK FACTORS ASSOCIATED WITH INVESTING IN VALUE FUND

In selecting securities judged to be undervalued, IAI will be exercising
opinions and judgments which may be contrary to those of the majority of
investors. In certain instances, such opinions and judgments will involve the
risks of either:

(a) a correct judgment by the majority, in which case losses may be
incurred or profits may be limited; or

(b) a long delay before majority recognition of the accuracy of IAI's
judgment, in which case capital invested by Value Fund in an individual
security or group of securities may be nonproductive for an extended
period. Generally, it is expected that if a Value Fund investment is
"nonproductive" for more than two to three years, it will be sold.

In many instances, the selection of undervalued securities for purchase by
Value Fund may involve limited risk of capital loss because such lack of
investor recognition is already reflected in the price of the securities at the
time of purchase.

It is anticipated that some of the portfolio securities of Value Fund may
not be widely traded, and that Value Fund's position in such securities may be
substantial in relation to the market for the securities. Accordingly, it would
under certain circumstances be difficult for Value Fund to dispose of such
portfolio securities at prevailing market prices in order to meet redemptions.
Value Fund may, when management deems it appropriate, maintain a reserve in
liquid assets which it considers adequate to meet anticipated redemptions.

INVESTMENT RESTRICTIONS

Each Fund is subject to certain other investment policies and restrictions
described in the Statement of Additional Information, some of which are
fundamental and may not be changed without the approval of the shareholders of
the Fund. Each Fund is a diversified investment company and has a fundamental
policy that, with respect to 75% of its total assets, it may not invest more
than 5% of its total assets in any one issuer. Each Fund, also as fundamental
policies, may not invest more than 25% of its assets in any one industry and may
borrow only for temporary or emergency purposes in an amount not exceeding one-
third of its total assets. Please refer to the Statement of Additional
Information for a further discussion of each Funds investment restrictions.

MANAGEMENT

Under Minnesota law, each Funds Board of Directors is generally responsible
for the overall operation and management of such Fund. IAI serves as the
investment adviser and manager of the Funds pursuant to written advisory
agreements (the "Advisory Agreement"). IAI also furnishes investment advice to
other concerns including other investment companies, pension and profit sharing
plans, portfolios of foundations, religious, educational and charitable
institutions, trusts, municipalities and individuals, having total assets in
excess of $14 billion. IAI is an affiliate of Hill Samuel Group ("Hill Samuel"),
an international merchant banking and financial services group based in London,
England. Hill Samuel, in turn, is owned by TSB Group plc, a publicly-held

<PAGE>

financial services organization headquartered in London, England. TSB Group plc
is one of the largest personal and corporate financial services groups in the
United Kingdom and is engaged in a wide range of activities including banking,
unit linked life assurance, unit trust management, investment management, credit
card and finance house business. The address of IAI is that of the Funds.

Under the Advisory Agreements, IAI provides the Funds with investment
advice, statistical and research facilities, and certain equipment and services,
including, but not limited to, office space and necessary office facilities,
equipment, and the services of required personnel. IAI has the sole authority
and responsibility to make and execute investment decisions for each Fund within
the framework of each Fund's investment policies, subject to review by the Board
of Directors. As compensation for these services, each Fund has agreed to pay a
monthly advisory fee at the initial annual rate of .75% of such Funds average
month-end net assets, which fee, except for Growth Fund and Growth and Income
Fund, declines to .65% of such Funds average month-end net assets as the amount
of assets in each Fund grows. Each of Growth Funds and Growth and Income Funds
advisory fee declines to .55% of such Funds average month-end net assets. For
the fiscal year or period ended March 31, 1995, each Fund paid IAI advisory fees
as a percentage of such Funds average month-end net assets as follows: Emerging
Growth Fund: .74%; Growth Fund: .75%; Growth and Income Fund: .74%; Midcap
Growth Fund: .75%; Regional Fund: .71%; and Value Fund: .75%.

Each Fund is managed by a team of IAI investment professionals which is
responsible for making the day-to-day investment decisions for such Fund. The
teams managing the Funds are as follows:

Rick Leggott has responsibility for the management of Emerging Growth Fund.
Mr. Leggott is a Senior Vice President and has served as an equity portfolio
manager of IAI since 1987. Mr. Leggott has managed Emerging Growth Fund since
its inception.

John Twele and David McDonald have responsibility for the management of
Growth Fund. Mr. Twele has managed Growth Fund since April 1994, when he joined
IAI as a Vice President and equity portfolio manager. Before joining IAI, Mr.
Twele was a Senior Equity Analyst with IDS Financial Services from 1987 to 1994.
Mr. McDonald has managed Growth Fund since September 1994, when he joined IAI as
a Vice President and equity portfolio manager. Before joining IAI, Mr. McDonald
was a Managing Director of Wessels Arnold & Henderson from 1989 to 1994 and an
Associate Portfolio Manager with IDS Financial Services from 1986 to 1989.

Todd McCallister has responsibility for the management of Growth and Income
Fund. Mr. McCallister is a Vice President and has served as a portfolio manager
of IAI since 1993. Before joining IAI in 1992, Mr. McCallister was an Investment
Analyst with ANB Investment Management from 1987 to 1992. Mr. McCallister has
managed Growth and Income Fund since 1994.

Suzanne Zak has responsibility for the management of Midcap Growth Fund.
Ms. Zak is a Senior Vice President and has served as an equity portfolio manager
since joining IAI in 1992. Before joining IAI, Ms. Zak had been a Managing
Director of J & W Seligman from 1985 to 1992. Ms. Zak has managed Midcap Growth
Fund since 1993.

Julian (Bing) Carlin and Mark Hoonsbeen have responsibility for the
management of Regional Fund. Mr. Carlin is a Senior Vice President and has
served as an equity portfolio manager since joining IAI in 1974. Mr. Carlin has
managed Regional Fund since its inception. Mr. Hoonsbeen is a Vice President and
has managed Regional Fund since he joined IAI in 1994. Before joining IAI, Mr.
Hoonsbeen served as an equity portfolio manager for The St. Paul Companies Inc.
from 1986 to 1994.

Douglas Platt has been responsible for the management of Value Fund since
1991. Mr. Platt is a Senior Vice President and has served as a portfolio manager
of IAI since 1967.

R. David Spreng has been responsible for Fund investments in restricted
securities, including equity and limited partnership interests in privately-held
companies and investment partnerships, since 1993. Mr. Spreng is a Senior Vice
President and has served IAI in several capacities since 1989.

<PAGE>

Pursuant to the terms of Administrative Agreements, IAI also provides all
required administrative, stock transfer, redemption, dividend disbursing and
accounting services to the Funds, including, for example, the maintenance of a
Fund's accounts, books and records, the daily calculation of the Fund's net
asset value, daily and periodic reports, all information necessary to complete
tax returns, questionnaires and other reports requested by a Fund, the
maintenance of stock registry records, the processing of requested account
registration changes and redemption requests, and the administration of payments
of dividends and distributions declared by a Fund. As compensation for these
services, each Fund paid IAI an administrative fee of .20% of the Funds average
month-end net assets for the fiscal year or period ended March 31, 1995. IAI may
use all or a portion of this administrative fee to pay certain institutions
which have contracted with IAI to provide certain administrative services to
their customers who invest in a Fund. Such services include, but are not limited
to, shareholder assistance and communication, transaction processing and
settlement, account set-up and maintenance, shareholder tax reporting, and
accounting.

In addition to the advisory fee and the administrative fee paid to IAI,
each Fund pays all its other costs and expenses, including, for example, costs
incurred in the purchase and sale of assets, interest, taxes, charges of the
custodian of each Fund's assets, costs of reports and proxy materials sent to
Fund shareholders, fees paid for independent auditing and legal services, costs
of printing prospectuses for Fund shareholders and registering the Funds shares,
postage, fees to disinterested directors, insurance premiums and costs of
attending investment conferences.

The Advisory Agreements provide that IAI shall reimburse a Fund for
operating expenses (other than interest and, in certain circumstances, taxes and
extraordinary expenses) which, for any year, exceed 1.25% of a Fund's average
month-end net assets. IAI shall not be liable for any loss suffered by a Fund in
the absence of willful misfeasance, bad faith or gross negligence in the
performance of its duties and obligations.

PLAN OF DISTRIBUTION

Each Fund has adopted a written plan of distribution (the "Plan") in
accordance with Rule 12b-1 under the 1940 Act pursuant to which it pays a fee as
described below. Under the Plan, each Fund has entered into a Distribution and
Shareholders Services Agreement with IAI Securities, Inc. (IAIS), pursuant to
which a Fund may pay IAIS a fee for servicing Fund shareholder accounts and for
distributing Fund shares (the Rule 12b-1 Fee). Subject to the expense
limitations described above, each Fund has agreed to pay IAIS a Rule 12b-1 Fee
at an annual rate of .25% of a Fund's average month-end net assets (which amount
will be paid to IAIS regardless of amounts spent by IAIS in servicing Fund
shareholders and distributing a Fund's shares).

The Rule 12b-1 Fee may be used by each Fund to compensate IAIS for the
provision of certain services to Fund shareholders. The services provided may
include personal services provided to shareholders, such as answering
shareholder inquiries regarding a Fund and providing reports and other
information, and services related to the maintenance of shareholder accounts.
IAIS may use the Rule 12b-1 Fee to make payments to qualifying broker-dealers
and financial institutions that provide such services.

The Rule 12b-1 Fee may also be used by IAIS for the purposes of financing
any activity which is primarily intended to result in the sale of shares of a
Fund. The expenses of such activities include, by way of example but not by way
of limitation, costs of prospectuses, semiannual reports, costs of quarterly
reports and monthly letters to prospective shareholders, expenses associated
with the preparation and distribution of sales literature and advertising of any
type, compensation and benefits paid to and expenses incurred by personnel,
including supervisory personnel, involved in direct mail and advertising
activities and activities relating to the direct marketing of Fund shares to the
public, and compensation to other broker-dealers for selling Fund shares.

The Rule 12b-1 Fee payable by a Fund is subject to the limitations on Fund
operating expenses set forth in the Advisory Agreements described above.
Additionally, IAIS, in its sole and absolute discretion, may from time to time,
out of its own assets, pay for certain additional costs associated with
shareholder servicing or

<PAGE>

distributing a Fund's shares. For the fiscal year or period ended March 31,
1995, each Fund paid IAIS annualized Rule 12b-1 Fees as a percentage of such
Funds average month-end net assets as follows: Emerging Growth Fund: .25%;
Growth Fund: .02%; Growth and Income Fund: .25%; Midcap Growth Fund: .18%;
Regional Fund: .25%; and Value Fund: .12%. IAIS is an affiliate of IAI and its
offices are the same as those of the Funds.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., IAI may consider sales of shares of a Fund as a factor
in the selection of broker-dealers to execute a Funds securities transactions.

COMPUTATION OF NET ASSET VALUE AND PRICING

Each Fund is open for business each day the New York Stock Exchange
("NYSE") is open. IAI normally calculates a Fund's net asset value (NAV) as of
the close of business of the NYSE, normally 3 p.m. Central time.

A Fund's NAV is the value of a single share. The NAV is computed by adding
up the value of a Fund's investments, cash, and other assets, subtracting its
liabilities, and then dividing the result by the number of shares outstanding.

A Fund's investments with remaining maturities of 60 days or less may be
valued on the basis of amortized cost. This method minimizes the effect of
changes in a security's market value. Other portfolio securities and assets are
valued primarily on the basis of market quotations or, if quotations are not
readily available, by a method that the Board of Directors believes accurately
reflects fair value. Foreign securities are valued on the basis of quotations
from the primary market in which they are traded, and are translated from the
local currency into U.S. dollars using current exchange rates.

The offering price (price to buy one share) and redemption price (price to
sell one share) are a Fund's NAV.

PURCHASE OF SHARES

Each Fund offers its shares continually to the public at the net asset
value of such shares. Shares may be purchased directly from a Fund or through
certain security dealers who have responsibility to promptly transmit orders and
may charge a processing fee, provided that the Fund is duly registered in the
state of the purchasers residence, if required, and the purchaser otherwise
satisfies the Funds purchase requirements. No sales load or commission is
charged in connection with the purchase of Fund shares.

Shares may be purchased for cash or in exchange for securities which are
permissible investments of a Fund, subject to IAIs discretion and its
determination that the securities are acceptable. Securities accepted in
exchange will be valued on the basis of market quotations or, if market
quotations are not available, by a method that IAI believes accurately reflects
fair value. In addition, securities accepted in exchange are required to be
liquid securities that are not restricted as to transfer.

The minimum initial investment to establish an account with the IAI Mutual
Funds is $5,000. Such initial investment may be allocated among a Fund and other
IAI Mutual Funds as desired, provided that no less than $1,000 is allocated to
any one fund. The minimum initial investment for IRA accounts is $2,000,
provided that the minimum amount that may be allocated to one fund is $1,000.
Once the account minimum has been met, subsequent purchases can be made in a
Fund for $100 or more.

Investors may satisfy the minimum investment requirement by participating
in the STAR Program. Participation in the STAR Program requires an initial
investment of $1,000 per Fund and a commitment to invest an aggregate of $5,000
within 24 months. If a STAR Program participant does not invest an aggregate of
$5,000 in the IAI Mutual Funds within 24 months, IAI may, at its option, redeem
such shareholder's interest and remit

<PAGE>

such amount to the shareholders. Investors wishing to participate in the STAR
Program should contact the Fund to obtain a STAR Program application.

To purchase shares, forward the completed application and a check payable
to IAI Funds to a Fund. Upon receipt, your account will be credited with the
number of full and fractional shares which can be purchased at the net asset
value next determined.

Purchases of shares are subject to acceptance or rejection by a Fund on the
same day the purchase order is received and are not binding until so accepted.
It is the policy of the Funds and IAIS to keep confidential information
contained in the application and regarding the account of an investor or
potential investor in a Fund. Share certificates will only be issued for a Fund
upon written request.

All correspondence relating to purchase of shares should be directed to the
office of the Funds, P.O. Box 357, Minneapolis, Minnesota 55440, or, if using
overnight delivery, to 3700 First Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55402. For assistance in completing the application
please contact IAI Mutual Fund Shareholder Services at 1-800-945-3863.

RETIREMENT PLANS

Shares of the Funds may be an appropriate investment medium for various
retirement plans. Persons desiring information about establishing an Individual
Retirement Account (IRA) (for employed persons and their spouses) or other
retirement plans should contact IAI Mutual Fund Shareholder Services at 1-800-
945-3863. All retirement plans involve a long-term commitment of assets and are
subject to various legal requirements and restrictions. The legal and tax
implications may vary according to the circumstances of the individual investor.
Therefore, you are urged to consult with an attorney or tax advisor prior to the
establishment of such a plan.

AUTOMATIC INVESTMENT PLAN

Investors may arrange to make regular investments of $100 or more per Fund
on a monthly or twice a month basis, effective as of the 4th and/or the 18th day
of each month (or the next business day), through automatic deductions from
their checking or savings accounts. Such investors may, of course, terminate
their participation in the Automatic Investment Plans at any time upon written
notice to a Fund. Any changes or instructions to terminate existing Automatic
Investment Plan must be received at least two weeks before the date on which the
change or termination is to take place. Investors interested in participating in
the Automatic Investment Plan should complete the Automatic Investment Plan
application and return it to the Funds.

REDEMPTION OF SHARES

Registered holders of Fund shares may at any time require a Fund to redeem
their shares upon their written request. Shareholders may redeem shares by
phone, subject to a limit of $50,000, provided such shareholders have authorized
the Funds to accept telephone instructions.

Fund shareholders who redeem shares by presenting stock certificates must
endorse the back of the certificate with the signature of the person whose name
appears on the certificate.

Redemption instructions must be signed by the person(s) in whose name the
shares are registered. If the redemption proceeds are to be paid or mailed to
any person other than the shareholder of record or if redemption proceeds are in
excess of $50,000, a Fund will require that the signature on the written
instructions be guaranteed by a participant in a signature guarantee program,
which may include certain national banks or trust companies or certain member
firms of national securities exchanges. (Notarization by a Notary Public is NOT
ACCEPTED.) If the shares are held of record in the name of a corporation,
partnership, trust or fiduciary, a Fund may require additional evidence of
authority prior to accepting a request for redemption. A Fund will not send
redemption

<PAGE>

proceeds until checks (including certified checks or cashiers checks) received
for the shares purchased have cleared.

The redemption proceeds received by the investor are based on the net asset
value next determined after redemption instructions in good order are received
by a Fund. Since the value of shares redeemed is based upon the value of a Fund
investment at the time of redemption, it may be more or less than the price
originally paid for the shares.

Payment for shares redeemed will ordinarily be made within seven days after
a request for redemption has been made. Normally a Fund will mail payment for
shares redeemed on the business day following receipt of the redemption request.

Following a redemption or transfer request, if the value of a shareholder's
interest in a Fund falls below $500, such Fund reserves the right to redeem such
shareholder's entire interest and remit such amount. Such a redemption will only
be effected following: (a) a redemption or transfer by a shareholder which
causes the value of such shareholder's interest in such Fund to fall below $500;
(b) the mailing by such Fund to such shareholder of a notice of intention to
redeem; and (c) the passage of at least six months from the date of such
mailing, during which time the investor will have the opportunity to make an
additional investment in such Fund to increase the value of such investor's
account to at least $500.

EXCHANGE PRIVILEGE

The Exchange Privilege enables shareholders to purchase, in exchange for
shares of a Fund, shares of other IAI Mutual Funds. These funds have different
investment objectives from the Funds. Shareholders may exchange shares of a Fund
for shares of another fund managed by IAI provided that the fund whose shares
will be acquired is duly registered in the state of the shareholders residence
and the shareholder otherwise satisfies the funds purchase requirements.
Although the IAI Mutual Funds do not currently charge a fee for use of the
Exchange Privilege, they reserve the right to do so in the future.

Because excessive trading can hurt Fund performance and shareholders, there
is a limit of four exchanges out of each IAI Mutual Fund per calendar year per
account. Accounts under common ownership or control, including accounts with the
same taxpayer identification number, will be counted together for purposes of
the four exchange limit. Each Fund reserves the right to temporarily or
permanently terminate the Exchange Privilege of any investor who exceeds this
limit. The limit may be modified for certain retirement plan accounts, as
required by the applicable plan document and/or relevant Department of Labor
regulations, and for Automatic Exchange Plan participants. Each Fund also
reserves the right to refuse or limit exchange purchases by any investor if, in
IAIs judgment, such Fund would be unable to invest the money effectively in
accordance with its investment objectives and policies, or would otherwise
potentially be adversely affected.

Fund shareholders wishing to exercise the Exchange Privilege should notify
the Fund in writing or, provided such shareholders have authorized a Fund to
accept telephone instructions, by telephone. At the time of the exchange, if the
net asset value of the shares redeemed in connection with the exchange is
greater than the investors cost, a taxable capital gain will be realized. A
capital loss will be realized if at the time of the exchange the net asset value
of the shares redeemed in the exchange is less than the investors cost. Each
Fund reserves the right to terminate or modify the Exchange Privilege in the
future.

AUTOMATIC EXCHANGE PLAN

Investors may arrange to make regular exchanges of $100 or more between any
of the IAI Mutual Funds on a monthly basis. Exchanges will take place at the
closing price of the fifth day of each month (or the next business day).
Shareholders are responsible for making sure sufficient shares exist in the Fund
account from which the exchange takes place. If there are not sufficient funds
in the Fund account to meet the requested exchange amount, the Automatic
Exchange Plan will be suspended. Shareholders may not close Fund accounts

<PAGE>

through the Automatic Exchange Plan. Investors interested in participating in
the Automatic Exchange Plan should complete the Automatic Exchange Plan portion
of their application. For assistance in completing the application contact IAI
Mutual Fund Shareholder Services at 1-800-945-3863.

AUTHORIZED TELEPHONE TRADING

Investors can transact account exchanges and redemptions via the telephone
by completing the Authorized Telephone Trading section of the application and
returning it to a Fund. Investors requesting telephone trading privileges will
be provided with a personal identification number (PIN) that must accompany any
instructions by phone. Shares will be redeemed or exchanged at the next
determined net asset value. All proceeds must be made payable to the owner(s) of
record and delivered to the address of record.

In order to confirm that telephone instructions for redemptions and
exchanges are genuine, the Funds have established reasonable procedures,
including the requirement that a personal identification number accompany
telephone instructions. If a Fund or the transfer agent fails to follow these
procedures, such Fund may be liable for losses due to unauthorized or fraudulent
instructions. None of the Funds, their transfer agent, IAI, or IAIS will be
liable for any loss, injury, damage, or expense for acting upon telephone
instructions believed to be genuine, and will otherwise not be responsible for
the authenticity of any telephone instructions, and, accordingly, the investor
bears the risk of loss resulting from telephone instructions. All telephone
redemptions and exchange requests will be tape recorded. Telephone redemptions
are not permitted for IRA or Simplified Employee Pension (SEP) accounts. For
redemptions from these accounts, please contact IAI Mutual Fund Shareholder
Services at 1-800-945-3863 for instructions.

SYSTEMATIC CASH WITHDRAWAL PLAN

Each Fund has available a Systematic Cash Withdrawal Plan for any investor
desiring to follow a program of systematically withdrawing a fixed amount of
money from an investment in shares of a Fund. An investment of $10,000 is
required to establish the plan. Payments under the plan will be monthly or
quarterly in amounts of $100 or more. Shares will be sold with the closing price
of the 15th of the applicable month (or the next business day). To provide funds
for payment, such Fund will redeem as many full and fractional shares as
necessary at the redemption price, which is net asset value.

Payments under this plan, unless pursuant to a retirement plan, should not
be considered income. Withdrawal payments may exceed dividends and distributions
and, to this extent, there will be a reduction in the investor's equity. An
investor should also understand that this plan cannot insure profit, nor does it
protect against any loss in a declining market. Careful consideration should be
given to the amount withdrawn each month. Excessive withdrawals could lead to a
serious depletion of equity, especially during periods of declining market
values. Fund management will be available for consultation in this matter.

Plan application forms are available through the Funds. If you would like
assistance in completing the application contact IAI Mutual Fund Shareholder
Services at 1-800-945-3863.

DIVIDENDS, DISTRIBUTIONS AND TAX STATUS

The policy of the Funds is to pay dividends from net investment income
semiannually and to make distributions of realized capital gains, if any,
annually. However, provisions in the Internal Revenue Code of 1986, as amended
(the "Code"), may result in additional net investment income and capital gains
distributions by a Fund. When you open an account, you should specify on your
application how you want to receive your distributions. The Funds offer three
options: Full Reinvestment--your dividend and capital gain distributions will be
automatically reinvested in additional shares of the Fund; Capital Gains
Reinvestment--your capital gain distributions will be automatically reinvested,
but your income dividend distributions will be paid in cash; and Cash--your
income dividends and capital gain distributions will be paid in cash.
Distributions taken in cash can be sent via check or transferred directly to
your account at any bank, savings and loan or credit union that is a

25
<PAGE>

member of the Automated Clearing House (ACH) network. Unless directed otherwise
by the shareholder, each Fund will automatically reinvest all such distributions
into full and fractional shares at net asset value.

The Funds Directed Dividend service allows you to invest your dividends
and/or capital gain distributions directly into another IAI Mutual Fund. Contact
IAI Mutual Fund Shareholder Services at 1-800-945-3863 for details.

Each Fund intends to qualify for tax purposes as a regulated investment
company under Subchapter M of the Internal Revenue Code during the current
taxable year. If so qualified, each Fund will not be subject to federal income
tax on income that it distributes to its shareholders.

Distributions are subject to federal income tax, and may also be subject to
state or local taxes. If you live outside the United States, your distributions
could also be taxed by the country in which you reside. Your distributions are
taxable when they are paid, whether you take them in cash or reinvest them in
additional shares.

For federal income tax purposes, each Fund's income and short-term capital
gain distributions are taxed as dividends; long-term capital gain distributions
designated as capital gain dividends are taxed as long-term capital gains
regardless of the length of time the shareholder has held the shares. Annually,
IAI will send you and the IRS a statement showing the amount of each taxable
distribution you received in the previous year.

Upon redemption of shares of a Fund, the shareholder will generally
recognize a capital gain or loss equal to the difference between the amount
realized on the redemption and the shareholders adjusted basis in such shares.
Such gain or loss will be long-term if the shares have been held for more than
one year. Under the Code, the deductibility of capital losses is subject to
certain limitations.

Whenever you sell shares of a Fund, IAI will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive an account statement quarterly and a consolidated transaction statement
annually. However, it is up to you or your tax preparer to determine whether
this sale resulted in a capital gain and, if so, the amount of tax to be paid.
Be sure to keep your account statements; the information they contain will be
essential in calculating the amount of your capital gains.

The foregoing relates to federal income taxation as in effect as of the
date of this Prospectus. For a more detailed discussion of the federal income
tax consequences of investing in shares of a Fund, see "Tax Status" in the
Statement of Additional Information.

DESCRIPTION OF COMMON STOCK

Emerging Growth Fund and Midcap Growth Fund are separate portfolios
represented by separate classes of common stock of IAI Investment Funds VI, Inc.
Growth Fund is a separate portfolio represented by a separate class of common
stock of IAI Investment Funds II, Inc. Growth and Income Fund is a separate
portfolio represented by a separate class of common stock of IAI Investment
Funds VII, Inc. Regional Fund is a separate portfolio represented by a separate
class of common stock of IAI Investment Funds IV, Inc. Value Fund is a separate
portfolio represented by a separate class of common stock of IAI Investment
Funds VIII, Inc. Each of these companies is a Minnesota corporation authorized
to issue its shares of common stock in more than one series. All shares of each
Fund have equal rights as to redemption, dividends and liquidation, and will be
fully paid and nonassessable when issued and will have no preemptive or
conversion rights.

The shares of each Fund have noncumulative voting rights, which means that
the holders of more than 50% of the shares voting for the election of directors
can elect 100% of the directors if they choose to do so. On some issues, such as
the election of directors, all shares of each corporation vote together as one
series. On an issue affecting only a particular series, such as voting on the
advisory agreement, only the approval of the series is required to make the
agreement effective with respect to such series.

26
<PAGE>

Annual or periodically scheduled regular meetings of shareholders will not
be held except as required by law. Minnesota corporation law does not require an
annual meeting; instead, it provides for the Board of Directors to convene
shareholder meetings when it deems appropriate. In addition, if a regular
meeting of shareholders has not been held during the immediately preceding
fifteen months, shareholders holding three percent or more of the voting shares
of a Fund may demand a regular meeting of shareholders of such Fund by written
notice of demand given to the chief executive officer or the chief financial
officer of such Fund. Within thirty days after receipt of the demand by one of
those officers, the Board of Directors shall cause a regular meeting of
shareholders to be called and held no later than ninety days after receipt of
the demand, all at the expense of such Fund. An annual meeting will be held on
the removal of a director or directors of such Fund if requested in writing by
holders of not less than 10% of the outstanding shares of such Fund.

The shares of each Fund are transferable by endorsement of the certificate
if held by the shareholder, or if the certificate is held by a Fund, by delivery
to such Fund of transfer instructions. Transfer instructions or certificates
should be delivered to the office of a Fund. Each Fund is not bound to recognize
any transfer until it is recorded on the stock transfer books maintained by such
Fund.

COUNSEL AND AUDITORS

The firm of Dorsey & Whitney P.L.L.P., 220 South Sixth Street, Minneapolis,
Minnesota 55402, provides legal counsel for the Funds. KPMG Peat Marwick LLP,
4200 Norwest Center, Minneapolis, Minnesota 55402, serves as independent
auditors for the Funds.

CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

The Custodian for each Fund is Norwest Bank Minnesota, N.A., Norwest
Center, Sixth and Marquette, Minneapolis, Minnesota 55479. Norwest employs
foreign subcustodians and depositories, which were approved by the Funds Board
of Directors in accordance with the rules and regulations of the Securities and
Exchange Commission, for the purpose of providing custodial services for a Funds
assets held outside of the United States. For a listing of the subcustodians and
depositories currently employed by the Funds, see the Statement of Additional
Information. IAI acts as each Funds transfer agent, dividend disbursing agent
and IRA Custodian, at P.O. Box 357, Minneapolis, Minnesota.

ADDITIONAL INFORMATION

Each Fund sends to its shareholders a six-month unaudited and an annual
audited financial report, each of which includes a list of investment securities
held. To reduce the volume of mail you receive, only one copy of most Fund
reports, such as the Funds Annual Report, may be mailed to your household (same
surname, same address). Please call IAI Mutual Fund Shareholder Services at
1-800-945-3863 if you wish to receive additional shareholder reports.

In the opinion of the staff of the Securities and Exchange Commission, the
use of this combined prospectus may possibly subject all Funds to a certain
amount of liability for any losses arising out of any statement or omission in
this Prospectus regarding a particular Fund. In the opinion of the Funds
management, however, the risk of such liability is not materially increased by
use of a combined prospectus.

Shareholder inquiries should be directed to a Fund at the telephone number
or mailing address listed on the inside back cover of this Prospectus.

27
<PAGE>

IAI EMERGING GROWTH FUND
IAI GROWTH FUND
IAI GROWTH AND INCOME FUND
IAI MIDCAP GROWTH FUND
IAI REGIONAL FUND
IAI VALUE FUND

STATEMENT OF ADDITIONAL INFORMATION
DATED AUGUST 1, 1995

This statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to a Prospectus dated August 1, 1995
and should be read in conjunction therewith. A copy of the Prospectus may be
obtained from the Fund at 3700 First Bank Place, P.O. Box 357, Minneapolis,
Minnesota 55440 (telephone: 1-612-376-2700 or 1-800-945-3863).
<PAGE>

TABLE OF CONTENTS

PAGE

INVESTMENT OBJECTIVES AND POLICIES................................... 3
Repurchase Agreements........................................... 3
Reverse Repurchase Agreements................................... 3
Securities of Foreign Issuers................................... 3
Illiquid Securities............................................. 4
Lending Portfolio Securities.................................... 4
Swap Agreements................................................. 4
Indexed Securities.............................................. 5
Foreign Currency Transactions................................... 5
Limitations on Futures and Options Transactions................. 6
Futures Contracts............................................... 7
Futures Margin Payments......................................... 7
Purchasing Put and Call Options................................. 7
Writing Put and Call Options.................................... 8
Combined Positions.............................................. 8
Correlation of Price Changes.................................... 8
Liquidity of Options and Futures Contracts...................... 9
OTC Options..................................................... 9
Options and Futures Relating to Foreign Currencies.............. 9
Asset Coverage for Futures and Options Positions................ 9
INVESTMENT RESTRICTIONS.............................................. 10
Portfolio Turnover.............................................. 11
INVESTMENT PERFORMANCE............................................... 11
MANAGEMENT........................................................... 14
History......................................................... 17
Investment Advisory Agreements.................................. 18
Administrative Agreement........................................ 20
Allocation of Expenses.......................................... 20
Duration of Agreements.......................................... 20
PLAN OF DISTRIBUTION................................................. 21
CUSTODIAL SERVICE.................................................... 22
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE................... 26
CAPITAL STOCK........................................................ 27
NET ASSET VALUE AND PUBLIC OFFERING PRICE............................ 31
TAX STATUS........................................................... 31
LIMITATION OF DIRECTOR LIABILITY..................................... 33
FINANCIAL STATEMENTS................................................. 33

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The investment objectives and policies of IAI Emerging Growth Fund, IAI
Growth Fund, IAI Growth and Income Fund, IAI Midcap Growth Fund, IAI Regional
Fund and IAI Value Fund (the "Funds"), are summarized on the front page of the
Prospectus and in the text of the Prospectus under "Investment Objectives and
Policies." Investors should understand that all investments have risks. There
can be no guarantee against loss resulting from an investment in the Funds, and
there can be no assurance that the Fund's investment policies will be
successful, or that its investment objective will be attained. Certain of the
investment practices of the Funds are further explained below.

REPURCHASE AGREEMENTS

Each Fund may invest in repurchase agreements relating to the securities in
which it may invest. A repurchase agreement involves the purchase of securities
with the condition that, after a stated period of time, the original seller will
buy back the securities at a predetermined price or yield. A Funds custodian
will have custody of, and will hold in a segregated account, securities acquired
by such Fund under a repurchase agreement or other securities as collateral. In
the case of a security registered on a book entry system, the book entry will be
maintained in a Fund's name or that of its custodian. Repurchase agreements
involve certain risks not associated with direct investments in securities. For
example, if the seller of the agreement defaults on its obligation to repurchase
the underlying securities at a time when the value of the securities has
declined, a Fund may incur a loss upon disposition of such securities. In the
event that bankruptcy proceedings are commenced with respect to the seller of
the agreement, a Fund's ability to dispose of the collateral to recover its
investment may be restricted or delayed. While collateral will at all times be
maintained in an amount equal to the repurchase price under the agreement
(including accrued interest due thereunder), to the extent proceeds from the
sale of collateral were less than the repurchase price, a Fund could suffer a
loss.

REVERSE REPURCHASE AGREEMENTS

Each Fund may invest in reverse repurchase agreements. In a reverse
repurchase agreement, a Fund sells a portfolio instrument to another party, such
as a bank or broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase agreement
is outstanding, a Fund will maintain appropriate liquid assets in a segregated
custodial account to cover its obligation under the agreement. A Fund will enter
into reverse repurchase agreements only with parties whose creditworthiness has
been found satisfactory by IAI, the Fund's investment adviser and manager. As a
result, such transactions may increase fluctuations in the market value of a
Fund's assets and may be viewed as a form of leverage.

SECURITIES OF FOREIGN ISSUERS

Investing in foreign securities may result in greater risk than that
incurred by investing in domestic securities. There is generally less publicly
available information about foreign issuers comparable to reports and ratings
that are published about comapnies in the United States. Also, foreign issuers
are not subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to United
States coampnies.

It is contemplated that most foreign securities will be purchased in over-
the-counter markets or on stock exchanges located in the countries in which the
respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Similarly,
volume and liquidity in most foreign bond markets is less than in the United
States and at times volatility of price can be greater than in the United
States. Commissions on foreign stock exchanges are generally higher than
commissions on United States exchanges, although the Fund will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less

<PAGE>

government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the United States.

With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of a
Fund, political or social instability, or diplomatic developments which could
affect United States investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.

IAI is not aware at this time of the existence of any investment or
exchange control regulations which might substantially impair the operations of
a Fund as described in the Prospectus and this Statement of Additional
Information. It should be noted, however, that this situation could change at
any time.

The dividends and interest payable on certain of a Fund's foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to a Fund's shareholders. The
expense ratio of a Fund should not be materially affected by such Fund's
investment in such foreign securities.

ILLIQUID SECURITIES

Each Fund may also invest up to 15% of its total assets in securities that
are considered illiquid because of the absence of a readily available market or
due to legal or contractual restrictions. However, certain restricted securities
that are not registered for sale to the general public that can be resold to
institutional investors may be considered liquid pursuant to guidelines adopted
by the Board of Directors. It is not possible to predict with assurance the
maintenance of an institutional trading market for such securities and the
liquidity of a Funds investments could be impaired if trading declines.

LENDING PORTFOLIO SECURITIES

In order to generate additional income, each Fund may lend portfolio
securities to broker-dealers, banks or other financial borrowers of securities.
As with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, a Fund will only enter into loan arrangements with broker-
dealers, banks or other institutions which IAI has determined are creditworthy
under guidelines established by the Fund's Board of Directors. Each Fund may
also experience a loss if, upon the failure of a borrower to return loaned
securities, the collateral is not sufficient in value or liquidity to cover the
value of such loaned securities (including accrued interest thereon). However, a
Fund will receive collateral in the form of cash, United States Government
securities, certificates of deposit or other high-grade, short-term obligations
or interest-bearing cash equivalents equal to at least 102% of the value of the
securities loaned. The value of the collateral and of the securities loaned will
be marked to market on a daily basis. During the time portfolio securities are
on loan, the borrower pays a Fund an amount equivalent to any dividends or
interest paid on the securities and a Fund may invest the cash collateral and
earn additional income or may receive an agreed upon amount of interest income
from the borrower. However, the amounts received by a Fund may be reduced by
finders' fees paid to broker-dealers and related expenses.

SWAP AGREEMENTS

Swap agreements can be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease a Fund's
exposure to long- or short-term interest rates (in the U.S. or abroad), foreign
currency values, mortgage securities, corporate borrowing rates, or other
factors such as security prices or inflation rates. Swap agreements can take
many different forms and are known by a variety of names. A Fund is not limited
to any particular form of swap agreement if IAI determines it is consistent with
such Fund's investment objective and policies.

<PAGE>

Swap agreements will tend to shift a Fund's investment exposure from one
type of investment to another. For example, if a Fund agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease a Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Depending on how they are used,
swap agreements may increase or decrease the overall volatility of a Fund's
investments and its share price.

The most significant factor in the performance of swap agreements is the
change in the specific interest rate, currency, or other factors that determine
the amounts of payments due to and from a Fund. If a swap agreement calls for
payments by a Fund, such Fund must be prepared to make such payments when due.
In addition, if the counterparty's creditworthiness declines, the value of a
swap agreement would be likely to decline, potentially resulting in losses. A
Fund expects to be able to eliminate its exposure under swap agreements either
by assignment or other disposition, or by entering into an offsetting swap
agreement with the same party or a similar creditworthy party.

Each Fund will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If a Fund enters
into a swap agreement on a net basis, it will segregate assets with a daily
value at least equal to the excess, if any, of a Fund's accrued obligations
under the swap agreement over the accrued amount such Fund is entitled to
receive under the agreement. If a Fund enters into a swap agreement on other
than a net basis, it will segregate assets with a value equal to the full amount
of such Fund's accrued obligation under the agreement.

INDEXED SECURITIES

Each Fund may purchase securities whose prices are indexed to the prices of
other securities, securities indexes, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically, but
not always, are debt securities or deposits whose value at maturity or coupon
rate is determined by reference to a specific instrument or statistic. Gold-
indexed securities, for example, typically provide for a maturity value that
depends on the price of gold, resulting in a security whose price tends to rise
and fall together with gold prices. Currency-indexed securities typically are
short to intermediate-term debt securities whose maturity values or interest
rates are determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency. Currency-
indexed securities may also have prices that depend on the values of a number of
different foreign currencies relative to each other.

The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies. IAI will use its judgment in determining whether indexed
securities should be treated as short-term instruments, bonds, stocks, or as a
separate asset class for purposes of a Fund's investment policies, depending on
the individual characteristics of the securities. Indexed securities may be more
volatile than the underlying instruments.

FOREIGN CURRENCY TRANSACTIONS

Each Fund may hold foreign currency deposits from time to time and may
convert dollars and foreign currencies in the foreign exchange markets. Currency
conversion involves dealer spreads and other costs, although commissions usually
are not charged. Currencies may be exchanged on a spot (i.e., cash) basis, or by
entering into forward contracts to purchase or sell foreign currencies at a
future date and price. Forward contracts

<PAGE>

generally are traded in an interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. The parties to a
forward contract may agree to offset or terminate the contract before its
maturity, or may hold the contract to maturity and complete the contemplated
currency exchange.

Such Funds may use currency forward contracts to manage currency risks and
to facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Funds.

In connection with purchases and sales of securities denominated in foreign
currencies, a Fund may enter into currency forward contracts to fix a definite
price for the purchase or sale in advance of the trade's settlement date. This
technique is sometimes referred to as a "settlement hedge" or "transaction
hedge." IAI expects to enter into settlement hedges in the normal course of
managing a Fund's foreign investments. A Fund could also enter into forward
contracts to purchase or sell a foreign currency in anticipation of future
purchases or sales of securities denominated in foreign currency, even if the
specific investments have not yet been selected by IAI.

Each Fund may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if a
Fund owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge," would tend to offset both positive and negative
currency fluctuations but would not offset changes in security values caused by
other factors. A Fund could also hedge the position by selling another currency
expected to perform similarly to the pound sterling -- for example, by entering
into a forward contract to sell Deutschemarks or European Currency Units in
return for U.S. dollars. This type of hedge, sometimes referred to as a "proxy
hedge," could offer advantages in terms of cost, yield, or efficiency, but
generally would not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged securities
are denominated.

Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover currency
forward contracts. As required by SEC guidelines, each Fund will segregate
assets to cover currency forward contracts, if any, whose purpose is essentially
speculative. Each Fund will not segregate assets to cover forward contracts
entered into for hedging purposes, including settlement hedges, position hedges,
and proxy hedges.

Successful use of forward currency contracts will depend on IAI's skill in
analyzing and predicting currency values. Forward contracts may substantially
change a Fund's investment exposure to changes in currency exchange rates, and
could result in losses to a Fund if currencies do not perform as IAI
anticipates. For example, if a currency's value rose at a time when IAI had
hedged a Fund by selling that currency in exchange for dollars, such Fund would
be unable to participate in the currency's appreciation. If IAI hedges currency
exposure through proxy hedges, a Fund could realize currency losses from the
hedge and the security position at the same time if the two currencies do not
move in tandem. Similarly, if IAI increases a Fund's exposure to a foreign
currency, and that currency's value declines, such Fund will realize a loss.
There is no assurance that IAI's use of forward currency contracts will be
advantageous to a Fund or that it will hedge at an appropriate time. The
policies described in this section are non-fundamental policies of the Funds.

LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS

Each Fund has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the Commodity Futures
Trading Commission (CFTC) and the National Futures Association, which regulate
trading in the futures markets, before engaging in any purchases or sales of
futures contracts or options on futures contracts. Each Fund intends to comply
with Section 4.5 of the regulations under the Commodity Exchange Act, which
limits the extent to which a Fund can commit assets to initial margin deposits
and option premiums.

<PAGE>

The above limitation on a Fund's investments in futures contracts and
options, and such Fund's policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information may be changed
as regulatory agencies permit.

FUTURES CONTRACTS

When a Fund purchases a futures contract, it agrees to purchase a specified
underlying instrument at a specified future date. When a Fund sells a futures
contract, it agrees to sell the underlying instrument at a specified future
date. The price at which the purchase and sale will take place is fixed when a
Fund enters into the contract. Some currently available futures contracts are
based on specific securities, such as U.S. Treasury bonds or notes, and some are
based on indexes of securities prices, such as the Standard & Poor's 500
Composite Stock Price Index (S&P 500). Futures can be held until their delivery
dates, or can be closed out before then if a liquid secondary market is
available.

The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a Fund's exposure to positive and negative price
fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When a Fund sells a futures contract, by
contrast, the value of its futures position will tend to move in a direction
contrary to the market. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.

FUTURES MARGIN PAYMENTS

The purchaser or seller of a futures contract is not required to deliver or
pay for the underlying instrument unless the contract is held until the delivery
date. However, both the purchaser and seller are required to deposit "initial
margin" with a futures broker, known as a futures commission merchant (FCM),
when the contract is entered into. Initial margin deposits are typically equal
to a percentage of the contract's value. If the value of either party's position
declines, that party will be required to make additional "variation margin"
payments to settle the change in value on a daily basis. The party that has a
gain may be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin for
purposes of a Fund's investment limitations. In the event of the bankruptcy of
an FCM that holds margin on behalf of a Fund, such Fund may be entitled to
return of margin owed to it only in proportion to the amount received by the
FMC's other customers, potentially resulting in losses to such Fund.

PURCHASING PUT AND CALL OPTIONS

By purchasing a put option, a Fund obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed strike price.
In return for this right, a Fund pays the current market price for the option
(known as the option premium). Options have various types of underlying
instruments, including specific securities, indexes of securities prices, and
futures contracts. A Fund may terminate its position in a put option it has
purchased by allowing it to expire or by exercising the option. If the option is
allowed to expire, a Fund will lose the entire premium it paid. If a Fund
exercises the option, it completes the sale of the underlying instrument at the
strike price. A Fund may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary market
exists.

The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).

The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk

<PAGE>

limited to the cost of the option if security prices fall. At the same time, the
buyer can expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.

WRITING PUT AND CALL OPTIONS

When a Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
such Fund assumes the obligation to pay the strike price for the option's
underlying instrument if the other party to the option chooses to exercise it.
When writing an option on a futures contract a Fund would be required to make
margin payments to an FCM as described above for futures contracts. A Fund may
seek to terminate its position in a put option it writes before exercise by
closing out the option in the secondary market at its current price. If the
secondary market is not liquid for a put option a Fund has written, however,
such Fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position. If security prices rise, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received.

If security prices remain the same over time, it is likely that the writer
will also profit, because it should be able to close out the option at a lower
price. If security prices fall, the put writer would expect to suffer a loss.
This loss should be less than the loss from purchasing the underlying instrument
directly, however, because the premium received for writing the option should
mitigate the effects of the decline.

Writing a call option obligates a Fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.

COMBINED POSITIONS

A Fund may purchase and write options in combination with each other, or in
combination with futures or forward contracts, to adjust the risk and return
characteristics of the overall position. For example, a Fund may purchase a put
option and write a call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are similar
to selling a futures contract. Another possible combined position would involve
writing a call option at one strike price and buying a call option at a lower
price, in order to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.

CORRELATION OF PRICE CHANGES

Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match a Fund's current or anticipated investments exactly. A Fund may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of such Fund's other investments.

Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A Fund may purchase or sell options and futures
contracts with a

<PAGE>

greater or lesser value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases. If price changes in a Fund's options or futures positions are poorly
correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.

LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS

There is no assurance a liquid secondary market will exist for any
particular options or futures contract at any particular time. Options may have
relatively low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges may
establish daily price fluctuation limits for options and futures contracts, and
may halt trading if a contract's price moves upward or downward more than the
limit in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for a Fund to
enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
potentially could require a Fund to continue to hold a position until delivery
or expiration regardless of changes in its value. As a result, a Fund's access
to other assets held to cover its options or futures positions could also be
impaired.

OTC OPTIONS

Unlike exchange-traded options, which are standardized with respect to the
underlying instrument, expiration date, contract size, and strike price, the
terms of over-the-counter options (options not traded on exchanges) generally
are established through negotiation with the other party to the option contract.
While this type of arrangement allows a Fund greater flexibility to tailor an
option to its needs, OTC options generally involve greater credit risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchanges where they are traded.

OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES

Currency futures contracts are similar to forward currency exchange
contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date. Most
currency futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency, which
generally is purchased or delivered in exchange for U.S. dollars, or may be a
futures contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the right
to sell the underlying currency.

The uses and risks of currency options and futures are similar to options
and futures relating to securities or indexes, as discussed above. A Fund may
purchase and sell currency futures and may purchase and write currency options
to increase or decrease its exposure to different foreign currencies. A Fund may
also purchase and write currency options in conjunction with each other or with
currency futures or forward contracts. Currency futures and options values can
be expected to correlate with exchange rates, but may not reflect other factors
that affect the value of a Fund's investments. A currency hedge, for example,
should protect a yen-denominated security from a decline in the yen, but will
not protect a Fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of a Fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of a Fund's investments exactly over time.

ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS

Each Fund will comply with guidelines established by the Securities and
Exchange Commission with respect to coverage of options and futures strategies
by mutual funds, and if the guidelines so require will set aside appropriate
liquid assets in a segregated custodial account in the amount prescribed.
Securities held in a segregated account cannot be sold while the futures or
option strategy is outstanding, unless they are replaced with

<PAGE>

other suitable assets. As a result, there is a possibility that segregation of a
large percentage of a Fund's assets could impede portfolio management or a
Fund's ability to meet redemption requests or other current obligations.

INVESTMENT RESTRICTIONS

As indicated in the Prospectus, each Fund is subject to certain policies
and restrictions which are "fundamental" and may not be changed without
shareholder approval. Shareholder approval consists of the approval of the
lesser of (i) more than 50% of the outstanding voting securities of a Fund, or
(ii) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities of a Fund are present or
represented by proxy. Limitations 1 through 8 below are deemed fundamental
limitations. The remaining limitations set forth below serve as operating
policies of each Fund and may be changed by the Board of Directors without
shareholder approval.

Each Fund may not:

1. PURCHASE THE SECURITIES OF ANY ISSUER IF SUCH PURCHASE WOULD CAUSE THE
FUND TO FAIL TO MEET THE REQUIREMENTS OF A "DIVERSIFIED COMPANY" AS DEFINED
UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "1940 ACT").

AS CURRENTLY DEFINED IN THE 1940 ACT, DIVERSIFIED COMPANY MEANS A
MANAGEMENT COMPANY WHICH MEETS THE FOLLOWING REQUIREMENTS: AT LEAST 75% OF THE
VALUE OF ITS TOTAL ASSETS IS REPRESENTED BY CASH AND CASH ITEMS (INCLUDING
RECEIVABLES), GOVERNMENT SECURITIES, SECURITIES OF OTHER INVESTMENT COMPANIES
AND OTHER SECURITIES FOR THE PURPOSES OF THIS CALCULATION LIMITED IN RESPECT OF
ANY ONE ISSUER TO AN AMOUNT NOT GREATER IN VALUE THAN 5% OF THE VALUE OF THE
TOTAL ASSETS OF SUCH MANAGEMENT COMPANY AND NOT MORE THAN 10% OF THE OUTSTANDING
VOTING SECURITIES OF SUCH ISSUER.

2. PURCHASE THE SECURITIES OF ANY ISSUER (OTHER THAN "GOVERNMENT
SECURITIES" AS DEFINED UNDER THE 1940 ACT) IF, AS A RESULT, MORE THAN 25% OF THE
VALUE OF THE FUND'S TOTAL ASSETS WOULD BE INVESTED IN THE SECURITIES OF
COMPANIES WHOSE PRINCIPAL BUSINESS ACTIVITIES ARE IN THE SAME INDUSTRY.

3. ISSUE ANY SENIOR SECURITIES, EXCEPT AS PERMITTED BY THE 1940 ACT OR
THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION.

4. BORROW MONEY, EXCEPT FROM BANKS FOR TEMPORARY OR EMERGENCY PURPOSES
PROVIDED THAT SUCH BORROWINGS MAY NOT EXCEED 33-1/3% OF THE VALUE OF THE FUND'S
NET ASSETS (INCLUDING THE AMOUNT BORROWED). ANY BORROWINGS THAT COME TO EXCEED
THIS AMOUNT WILL BE REDUCED WITHIN THREE DAYS (NOT INCLUDING SUNDAYS AND
HOLIDAYS) TO THE EXTENT NECESSARY TO COMPLY WITH THE 33-1/3% LIMITATION. THIS
LIMITATION SHALL NOT PROHIBIT THE FUND FROM ENGAGING IN REVERSE REPURCHASE
AGREEMENTS, MAKING DEPOSITS OF ASSETS TO MARGIN OR GUARANTEE POSITIONS IN
FUTURES, OPTIONS, SWAPS OR FORWARD CONTRACTS, OR SEGREGATING ASSETS IN
CONNECTION WITH SUCH AGREEMENTS OR CONTRACTS.

5. ACT AS AN UNDERWRITER OF SECURITIES OF OTHER ISSUERS, EXCEPT TO THE
EXTENT THAT IN CONNECTION WITH THE DISPOSITION OF PORTFOLIO SECURITIES THE FUND
MAY BE DEEMED TO BE AN UNDERWRITER UNDER APPLICABLE LAWS.

6. PURCHASE OR SELL REAL ESTATE UNLESS ACQUIRED AS A RESULT OF OWNERSHIP
OF SECURITIES OR OTHER INSTRUMENTS. THIS RESTRICTION SHALL NOT PREVENT THE FUND
FROM INVESTING IN SECURITIES OR OTHER INSTRUMENTS BACKED BY REAL ESTATE OR
SECURITIES OF COMPANIES ENGAGED IN THE REAL ESTATE BUSINESS.

7. PURCHASE OR SELL COMMODITIES OTHER THAN FOREIGN CURRENCIES UNLESS
ACQUIRED AS A RESULT OF OWNERSHIP OF SECURITIES. THIS LIMITATION SHALL NOT
PREVENT THE FUND FROM PURCHASING OR SELLING OPTIONS, FUTURES, SWAPS AND FORWARD
CONTRACTS OR FROM INVESTING IN SECURITIES OR OTHER INSTRUMENTS BACKED BY
COMMODITIES.

<PAGE>

8. MAKE LOANS TO OTHER PERSONS EXCEPT TO THE EXTENT NOT INCONSISTENT WITH
THE 1940 ACT OR THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE
COMMISSION. THIS LIMITATION DOES NOT APPLY TO PURCHASES OF COMMERCIAL PAPER,
DEBT SECURITIES OR REPURCHASE AGREEMENTS, OR TO THE LENDING OF PORTFOLIO
SECURITIES.

9. PURCHASE SECURITIES ON MARGIN, EXCEPT THAT THE FUND MAY OBTAIN SUCH
SHORT-TERM CREDITS AS MAY BE NECESSARY FOR THE CLEARANCE OF PURCHASES OR SALES
OF SECURITIES AND PROVIDED THAT MARGIN PAYMENTS IN CONNECTION WITH TRANSACTIONS
IN OPTIONS, FUTURES, SWAPS AND FORWARD CONTRACTS SHALL NOT BE DEEMED TO
CONSTITUTE PURCHASING SECURITIES ON MARGIN.

10. SELL SECURITIES SHORT, UNLESS IT OWNS OR HAS THE RIGHT TO OBTAIN
SECURITIES EQUIVALENT IN KIND AND AMOUNT TO THE SECURITIES SOLD SHORT, AND
PROVIDED THAT TRANSACTIONS IN OPTIONS, SWAPS AND FORWARD FUTURES CONTRACTS ARE
NOT DEEMED TO CONSTITUTE SELLING SECURITIES SHORT.

11. EXCEPT AS PART OF A MERGER, CONSOLIDATION, ACQUISITION, OR
REORGANIZATION, INVEST MORE THAN 5% OF THE VALUE OF ITS TOTAL ASSETS IN THE
SECURITIES OF ANY ONE INVESTMENT COMPANY OR MORE THAN 10% OF THE VALUE OF ITS
TOTAL ASSETS, IN THE AGGREGATE, IN THE SECURITIES OF TWO OR MORE INVESTMENT
COMPANIES, OR ACQUIRE MORE THAN 3% OF THE TOTAL OUTSTANDING VOTING SECURITIES OF
ANY ONE INVESTMENT COMPANY.

12. MORTGAGE, PLEDGE OR HYPOTHECATE ITS ASSETS EXCEPT TO THE EXTENT
NECESSARY TO SECURE PERMITTED BORROWINGS. THIS LIMITATION DOES NOT APPLY TO
REVERSE REPURCHASE AGREEMENTS OR IN THE CASE OF ASSETS DEPOSITED TO MARGIN OR
GUARANTEE POSITIONS IN FUTURES, OPTIONS, SWAPS OR FORWARD CONTRACTS OR PLACED IN
A SEGREGATED ACCOUNT IN CONNECTION WITH SUCH CONTRACTS.

13. PARTICIPATE ON A JOINT OR A JOINT AND SEVERAL BASIS IN ANY
SECURITIES TRADING ACCOUNT.

14. INVEST MORE THAN 15% OF ITS NET ASSETS IN ILLIQUID INVESTMENTS.

15. INVEST DIRECTLY IN INTERESTS (INCLUDING PARTNERSHIP INTERESTS) IN
OIL, GAS OR OTHER MINERAL EXPLORATION OR DEVELOPMENT LEASES OR PROGRAMS, EXCEPT
THE FUND MAY PURCHASE OR SELL SECURITIES ISSUED BY CORPORATIONS ENGAGING IN OIL,
GAS OR OTHER MINERAL EXPLORATION OR DEVELOPMENT BUSINESS.

ANY OF A FUND'S INVESTMENT POLICIES SET FORTH UNDER "INVESTMENT OBJECTIVE
AND POLICIES" IN THE PROSPECTUS, OR ANY RESTRICTION SET FORTH ABOVE UNDER
"INVESTMENT RESTRICTIONS" WHICH INVOLVES A MAXIMUM PERCENTAGE OF SECURITIES OR
ASSETS SHALL NOT BE CONSIDERED TO BE VIOLATED UNLESS AN EXCESS OVER THE
PERCENTAGE OCCURS IMMEDIATELY AFTER AN ACQUISITION OF SECURITIES OR UTILIZATION
OF ASSETS AND RESULTS THEREFROM.

PORTFOLIO TURNOVER

The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the particular fiscal year by the
monthly average of the value of portfolio securities owned by a Fund during the
same fiscal year. "Portfolio securities" for purposes of this calculation do not
include securities with a maturity date of less than twelve (12) months from the
date of investment. A 100% portfolio turnover rate would occur, for example, if
the lesser of the value of purchases or sales of portfolio securities for a
particular year were equal to the average monthly value of the portfolio
securities owned during such year.

INVESTMENT PERFORMANCE

Advertisements and other sales literature for each Fund may refer to
monthly, quarterly, yearly, cumulative and average annual total return. Each
such calculation assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts. Each of
monthly, quarterly and yearly total return is computed in the same manner as
cumulative total return, as set forth below.

<PAGE>

Cumulative total return is computed by finding the cumulative rate of
return over the period indicated in the advertisement that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:

<TABLE>
<CAPTION>
<S> <C> <C>
CTR = (/ERV-P/) 100
-----
P

Where: CTR = Cumulative total return;

ERV = ending redeemable value at the end of the period of a hypothetical
$1,000 payment made at the beginning of such period; and

P = initial payment of $1,000

Average annual total return is computed by finding the average annual compounded rates of return over
the periods indicated in the advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:

P(1+T)/n /= ERV

Where: P = a hypothetical initial payment of $1,000;

T = average annual total return;

n = number of years; and

ERV = ending redeemable value at the end of the period of a hypothetical
$1,000 payment made at the beginning of such period.
</TABLE>

The table below shows the yearly total return for the Funds for the periods
indicated:

Total Return
--------------------------------------------------------------------------
Year Ended Emerging Growth Growth & Midcap Regional Value
12/31 Growth Fund* Fund** Income Fund Growth Fund*** Fund Fund****
- ---------- ------------ ------ ----------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1981 -- -- -1.0% -- -3.2% --
1982 -- -- 33.4% -- 41.4% --
1983 -- -- 19.4% -- 13.2% 5.9%
1984 -- -- 2.9% -- -2.4% -5.6%
1985 -- -- 23.7% -- 38.8% 12.9%
1986 -- -- 13.1% -- 24.6% 1.9%
1987 -- -- 15.5% -- 5.3% 14.1%
1988 -- -- 8.5% -- 18.6% 24.3%
1989 -- -- 29.8% -- 31.3% 22.6%
1990 -- -- -6.7% -- -0.3% -11.5%
1991 23.6% -- 26.7% -- 35.4% 19.8%
1992 22.4% -- 4.0% 15.0% 3.5% 11.9%
1993 14.76% 0.99% 9.98% 22.85% 8.96% 22.08%
1994 0.19% 0.66% -4.77% 5.65% 0.68% -9.08%

- ---------------------------------------------
* Commenced operations on August 5, 1991
** Commenced operations on August 6, 1993
*** Commenced operations on April 10, 1992
**** Commenced operations on October 12, 1983
</TABLE>

12
<PAGE>

The average annual total returns of Emerging Growth Fund for the fiscal
year ending March 31, 1995 and from inception through March 31, 1995 were 10.23%
and 18.32%, respectively.

The average annual total returns of Growth Fund for the twelve-month period
ending March 31, 1995 and from inception through March 31, 1995 were 13.31% and
5.89%, respectively.

The average annual total returns of Growth and Income Fund for the one,
five and ten year periods ended March 31, 1995 were 8.92%, 7.58%, and 11.85%,
respectively.

The average annual total returns of Midcap Growth Fund for the fiscal year
ending March 31, 1995 and from inception through March 31, 1995 were 17.63% and
17.88%, respectively.

The average annual total returns of Regional Fund for the one, five and ten
year periods ended March 31, 1995 were 10.35%, 10.43% and 15.36%,
respectively.

The average annual total returns of Value Fund for the one, five and ten
year periods ended March 31, 1995 were 3.88%, 8.18% and 10.73%,
respectively.

In advertising and sales literature, each Fund may compare its performance
with that of other mutual funds, indexes or averages of other mutual funds,
indexes of related financial assets or data, and other competing investment and
deposit products available from or through other financial institutions. The
composition of these indexes, averages or products differs from that of a Fund.
The comparison of a Fund to an alternative investment should be made with
consideration of differences in features and expected performance.

The indexes and averages noted below will be obtained from the indicated
sources or reporting services, which the Fund believes to be generally accurate.
Each Fund may also note its mention in newspapers, magazines, or other media
from time to time. However, such Fund assumes no responsibility for the
accuracy of such data.

For example, (1) a Fund's performance or P/E ratio may be compared to any
one or a combination of the following: (i) the Standard & Poor's 500 Stock
Index and Dow Jones Industrial Average so that you may compare the Fund's
results with those of a group of unmanaged securities widely regarded by
investors as representative of the U.S. stock market in general; (ii) other
groups of mutual funds, including the IAI Funds, tracked by: (A) Lipper
Analytical Services, Inc., a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets; (B)
Morningstar, Inc., another widely used independent research firm which rates
mutual funds; or (C) other financial or business publications, which may
include, but are not limited to, Business Week, Money Magazine, Forbes and
Barron's, which provide similar information; (iii) the Value Line Index and the
Standard & Poor's Value Index; (iv) the Callan Midcap Index, the Russell Midcap
Index and the Standard & Poor's Midcap Index; (v) the Russell 2500 Index, the
Russell 2000 Growth Index and the Russell 1000 Growth Index; (vi) the Standard &
Poor's Growth Index; and (vii) the performance of U.S. government and corporate
bonds, notes and bills. (The purpose of these comparisons would be to
illustrate historical trends in different market sectors so as to allow
potential investors to compare different investment strategies.); (2) the
Consumer Price Index (measure for inflation) may be used to assess the real rate
of return from an investment in a Fund; (3) other U.S. or foreign government
statistics such as GNP, and net import and export figures derived from
governmental publications, e.g., The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic business,
investment, or financial environment in which such Fund operates; (4) the effect
of tax-deferred compounding on a Fund's investment returns, or on returns in
general, may be illustrated by graphs, charts, etc. where such graphs or charts
would compare, at various points in time, the return from an investment in such
Fund (or returns in general) on a tax-deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates) with the return
on a taxable basis; and (5) the sectors or industries in which a Fund invests
may be compared to relevant indices or surveys (e.g., S&P Industry Surveys) in
order to evaluate a Fund's historical performance or current or potential value
with respect to the particular industry or sector.

13
<PAGE>

MANAGEMENT

The names, addresses and positions of the directors and executive officers of
the Funds are given below.

AGGREGATE COMPENSATION AGGREGATE COMPENSATION
NAME AND ADDRESS POSITION FROM EACH FUND* FROM IAI MUTUAL FUNDS**
- ---------------- -------- ---------------------- -----------------------
<S> <C> <C> <C>
NOEL P. RAHN*** CHAIRMAN OF THE BOARD N/A N/A
3700 FIRST BANK PLACE
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440

RICHARD E. STRUTHERS*** PRESIDENT, DIRECTOR N/A N/A
3700 FIRST BANK PLACE
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440

MADELINE BETSCH DIRECTOR $1,700 $26,350
19 SOUTH FIRST STREET ****(GROWTH FUND $1,375)
MINNEAPOLIS, MINNESOTA 55401

W. WILLIAM HODGSON DIRECTOR $1,700 $26,350
1698 DODD ROAD ****(GROWTH FUND $1,375)
MENDOTA HEIGHTS, MINNESOTA 55118

GEORGE R. LONG DIRECTOR $2,100 $24,950
29 LAS BRISAS WAY ****(GROWTH FUND $975)
NAPLES, FLORIDA 33963

J. PETER THOMPSON DIRECTOR $1,700 $26,350
ROUTE 1 ****(GROWTH FUND $1,375)
MOUNTAIN LAKE, MINNESOTA 56159

CHARLES H. WITHERS DIRECTOR $2,100 $24,950
ROCHESTER POST-BULLETIN ****(GROWTH FUND $975)
P.O. BOX 6118
ROCHESTER, MINNESOTA 55903

ARCHIE C. BLACK III TREASURER N/A N/A
3700 FIRST BANK PLACE
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440

WILLIAM C. JOAS SECRETARY N/A N/A
3700 FIRST BANK PLACE
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440

KIRK GOVE VICE PRESIDENT, MARKETING N/A N/A
3700 FIRST BANK PLACE
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440
</TABLE>

14
<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C> <C>
RICK D. LEGGOTT VICE PRESIDENT, INVESTMENTS N/A N/A
3700 FIRST BANK PLACE (EMERGING GROWTH FUND)
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440

JOHN TWELE VICE PRESIDENT, INVESTMENTS N/A N/A
3700 FIRST BANK PLACE (GROWTH FUND)
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440

DAVID MCDONALD VICE PRESIDENT, INVESTMENTS N/A N/A
3700 FIRST BANK PLACE (GROWTH FUND)
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440

TODD MCCALLISTER VICE PRESIDENT, INVESTMENTS N/A N/A
3700 FIRST BANK PLACE (GROWTH AND INCOME FUND)
P.O.BOX 357
MINNEAPOLIS, MINNESOTA 55440

SUZANNE F. ZAK VICE PRESIDENT, INVESTMENTS N/A N/A
3700 FIRST BANK PLACE (MIDCAP GROWTH FUND)
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440

JULIAN P. CARLIN VICE PRESIDENT, INVESTMENTS N/A N/A
3700 FIRST BANK PLACE (REGIONAL FUND)
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440

MARK HOONSBEEN VICE PRESIDENT, INVESTMENTS N/A N/A
3700 FIRST BANK PLACE (REGIONAL FUND)
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440

DOUGLAS R. PLATT VICE PRESIDENT, INVESTMENTS N/A N/A
3700 FIRST BANK PLACE (VALUE FUND)
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440

SUSAN SCHELPF VICE PRESIDENT, OPERATIONS N/A N/A
3700 FIRST BANK PLACE
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440

SUSAN J. HAEDT VICE PRESIDENT, N/A N/A
3700 FIRST BANK PLACE CONTROLLER
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440
</TABLE>

- -------------
* FOR THE FISCAL YEAR OR PERIOD ENDED MARCH 31, 1995.
** FOR THE CALENDAR YEAR ENDED DECEMBER 31, 1994. THERE ARE CURRENTLY EIGHTEEN
PORTFOLIOS WITHIN THE IAI MUTUAL FUNDS.

<PAGE>

*** Directors of each Fund who are interested persons (as that term is defined
by the Investment Company Act of 1940) of IAI and each Fund.

**** For the fiscal period August 1, 1994 through March 31, 1994.

Noel P. Rahn has been Chief Executive Officer and a Director of IAI since
1974.

Richard E. Struthers is Executive Vice President and a Director of IAI and
has served IAI in many capacities since 1979.

Madeline Betsch, until April 1994, was Executive Vice President, Director
of Client Services, of CME-KHBB Advertising since May 1985, and prior thereto
was a Vice President with Campbell-Mithun, Inc. since February 1977. Ms. Betsch
is currently President of ESMA Corp., a start-up business in the beauty and
wellness field.

W. William Hodgson served as information manager for the North Central Home
Office of the Prudential Insurance Company of America from 1961 until 1984; he
is currently retired.

George R. Long has been Chairman of Mayfield Corp. (financial consultants
and venture capitalists) since 1973.

J. Peter Thompson has been a grain farmer in southwestern Minnesota since
1974. Prior to that, Mr. Thompson was employed by Paine Webber, Jackson &
Curtis, Incorporated, most recently as Senior Vice President and General
Partner.

Charles H. Withers was Editor of the Rochester Post-Bulletin, Rochester,
Minnesota from 1960 through March 31, 1980; he is currently retired.

Archie C. Black is a Senior Vice President and Chief Financial Officer of
IAI and has served IAI in several capacities since 1987.

William C. Joas is a Vice President of IAI. Prior to joining IAI in 1990,
Mr. Joas served in the legal administration department of Tricord Systems, Inc.

Kirk Gove is a Vice President of IAI. Prior to joining IAI in 1991, Mr.
Gove served as an Assistant Vice President of Dain Bosworth, Incorporated.

Rick Leggott is a Senior Vice President of IAI and has served as a
Portfolio Manager with IAI since 1987.

John Twele is a Vice President of IAI. Prior to joining IAI in 1994, Mr.
Twele had been a Senior Equity Analyst with IDS Financial Services since 1987.

David McDonald is a Vice President of IAI. Prior to joining IAI in 1994,
Mr. McDonald had been a Managing Director of Wessels Arnold & Henderson since
1989 and an Associate Portfolio Manager with IDS Financial Services from 1986 to
1989.

Todd McCallister is a Vice President of IAI. Prior to joining IAI in 1992,
Mr. McCallister was an Investment Analyst with ANB Investment Management from
1987 to 1992.

Suzanne Zak is a Senior Vice President of IAI. Prior to joining IAI in
1992, Ms. Zak served as a Managing Director of J&W Seligman from 1985 to 1992.

Julian ("Bing") Carlin is a Senior Vice President of IAI and has served as
an Equity Portfolio Manager since joining IAI in 1974.

16
<PAGE>

Mark Hoonsbeen is a Vice President of IAI. Prior to joining IAI in 1994,
Mr. Hoonsbeen served as an Equity Portfolio Manager for the St. Paul Companies
Inc. from 1986 to 1994.

Douglas Platt is a Senior Vice President of IAI and has served in various
capacities since 1967.

Susan Schelpf is a Vice President of IAI and Director of Mutual Funds
Operations. Prior to joining IAI in 1993, Ms. Schelpf served as a Vice President
at SEI Corporation.

Susan J. Haedt is a Vice President of IAI and Funds Controller. Prior to
joining IAI in 1992, Ms. Haedt served as a Senior Manager at KPMG Peat Marwick
LLP.

Each Fund has agreed to reduced initial subscription requirements for
employees and directors of a Fund or IAI, their spouses, children and
grandchildren. With respect to such persons, the minimum initial investment in
one or more of the IAI Family of Funds is $500; provided that the minimum amount
that can be allocated to any one of the Funds is $250. Subsequent subscriptions
are limited to a minimum of $100 for each of the Funds.

No compensation is paid by a Fund to any of its officers. Directors who
are not affiliated with IAI receive from each Fund $300 annually, $250 for each
Board meeting attended, $200 for each Restricted Securities Committee meeting
attended (if applicable) and $200 for each Audit Committee meeting attended.
Such unaffiliated directors also are reimbursed for expenses incurred in
connection with attending meetings.

The Board of Directors for each of the Funds, at a meeting held May 10,
1995, approved a new Code of Ethics. The Code permits access persons to engage
in personal securities transactions subject to certain policies and procedures.
Such procedures prohibit the acquiring of any securities in an initial public
offering. In addition, all securities acquired through private placement must be
pre-cleared. Procedures have been adopted which implement blackout periods for
certain securities transactions, as well as a ban on short-term trading profits.
Additional policies prohibit the receipt of gifts in certain instances.
Procedures have been implemented to monitor employee trading. Access persons of
the Adviser are required to certify annually that they have read and understood
the Code of Ethics. An annual report is provided to the Funds' Board of
Directors summarizing existing procedures, identifying material violations and
recommending any changes needed.

IAI, the Fund's investment adviser, is an affiliate of the Hill Samuel
Group ("Hill Samuel"). Hill Samuel is an international merchant banking and
financial services firm headquartered in London, England. Hill Samuel owns
controlling interests in over seventy insurance, merchant banking, financial
services and shipping services subsidiaries located in Western Europe, Asia, the
United States, Australia, New Zealand and Great Britain. The principal offices
of Hill Samuel are located at 100 Wood Street, London EC2 P2AJ.

Hill Samuel is owned by TSB Group, plc ("TSB"), a publicly-held financial
services organization headquartered in London, England. TSB is one of the
largest personal and corporate financial services groups in the United Kingdom,
engaged in a wide range of activities including banking, unit linked life
assurance, unit trust management, investment management, credit card and finance
house business. The principal offices of TSB are located at 25 Milk Street,
London EC2 V8LU.

History

Emerging Growth Fund is a separate portfolio of IAI Investment Funds VI,
Inc., a Minnesota corporation whose shares of common stock are currently issued
in six series (Series A through F). On June 25, 1993, the Fund's shareholders
approved amended and restated Articles of Incorporation, which provided that the
registered investment company whose corporate name had been IAI Series Fund,
Inc. be renamed IAI Investment Funds VI, Inc. The investment portfolio
represented by Series A common shares is referred to as "IAI Emerging Growth
Fund."

Growth and Income Fund is a separate portfolio of IAI Investment Funds VII,
Inc., a Minnesota corporation whose shares of common stock are currently issued
in one series (Series A). On June 25, 1993, the

17
<PAGE>

Fund's shareholders approved amended and restated Articles of Incorporation,
which provided that the registered investment company whose corporate name has
been IAI Stock Fund, Inc., be renamed IAI Investment Funds VII, Inc. The
investment portfolio represented by Series A common shares is referred to as
"IAI Growth and Income Fund", which name better reflects the investment
objectives of the investment portfolio.

Midcap Growth Fund is a separate portfolio of IAI Investment Funds VI,
Inc., a Minnesota corporation whose shares of common stock are currently issued
in six series (Series A through F). On June 25, 1993, the Fund's shareholders
approved amended and restated Articles of Incorporation, which provided that the
registered investment company whose corporate name had been IAI Series Fund,
Inc., be renamed IAI Investment Funds VI, Inc. The investment portfolio
represented by Series C common shares is referred to as "IAI Midcap Growth
Fund."

Regional Fund is a separate portfolio of IAI Investment Funds IV, Inc., a
Minnesota corporation whose shares of common stock are currently issued in one
series (Series A). On June 28, 1993, the Fund's shareholders approved amended
and restated Articles of Incorporation, which provided that the registered
investment company whose corporate name had been IAI Regional Fund, Inc., be
renamed IAI Investment Funds IV, Inc. The investment portfolio represented by
Series A common shares is referred to as "IAI Regional Fund."

Value Fund is a separate portfolio of IAI Investment Funds VIII, Inc., a
Minnesota corporation whose shares of common stock are currently issued in one
series (Series A). On June 25, 1993, the Fund's shareholders approved amended
and restated Articles of Incorporation, which provided that the registered
investment company whose corporate name had been IAI Value Fund, Inc., be
renamed IAI Investment Funds VIII, Inc. The investment portfolio represented by
Series A common shares is referred to as "IAI Value Fund."

INVESTMENT ADVISORY AGREEMENTS

Pursuant to an Investment Advisory Agreement between each Fund and IAI (the
"Advisory Agreement"), IAI has agreed to provide each Fund with investment
advice, statistical and research facilities, and certain equipment and services,
including, but not limited to, office space and necessary office facilities,
equipment, and the services of required personnel. Under the Advisory
Agreements, IAI has the sole authority and responsibility to make and execute
investment decisions for each Fund within the framework of the Fund's investment
policies, subject to review by the directors of each Fund.

As compensation for these services, each Fund has agreed to pay IAI a
monthly fee equivalent on an annual basis to .75% of its average month-end net
assets. This percentage fee declines as a Fund's asset size increases. The
following table sets forth the fees which IAI receives from each Fund, as a
percentage of average month-end net assets.

GROWTH FUND
GROWTH AND INCOME FUND
----------------------

Monthly Fee Approximate Fee
Received by IAI Receives
Month End Net Asset Value IAI Annually
- -------------------------- ----------- ---------------
<S> <C> <C>

For the first $100,000,000.. .0625% .75%
For the next $100,000,000... .0542% .65%
Above $200,000,000.......... .0458% .55%
</TABLE>

18
<PAGE>

EMERGING GROWTH FUND
MIDCAP GROWTH FUND
REGIONAL FUND
VALUE FUND
----------

Monthly Fee Approximate Fee
Received by IAI Receives
Month End Net Asset Value IAI Annually
- ------------------------- ------------ ----------------
<S> <C> <C>
For the first $200,000,000.............. .0625% .75%
For the next $300,000,000............... .0583% .70%
Above $500,000,000...................... .0542% .65%

As of March 31, 1995, the net assets of each Fund were as follows:

Emerging Growth Fund $342,873,905
Growth Fund $ 26,793,763
Growth and Income Fund $101,255,839
Midcap Growth Fund $ 88,075,447
Regional Fund $523,364,230
Value Fund $ 40,600,954

</TABLE>

Advisory fees were paid by each Fund for the fiscal years (or periods) as
follows:

Fiscal Year Ended March 31,
------------------------------------------------
Fund 1993 1994 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
Emerging Growth $ 476,714 $1,456,386 $ 2,049,484
Growth -- $ 55,580* $ 119,142**
Growth and Income $ 787,570 $ 918,636 $ 827,288
Midcap Growth $ 69,961*** $ 246,371 $ 543,698
Regional $3,607,824 $4,427,159 $ 3,866,797
Value $ 177,788 $ 171,561 $ 276,714
- -------------------------

</TABLE>
* For the period from August 6, 1993 (commencement of operations) through
July 31, 1994.
** For the period from August 1, 1994 through March 31, 1995.
*** For the period from April 6, 1992 (commencement of operations) through
March 31, 1993.

Each Fund's monthly payment of the advisory fee is suspended or reduced (and
reimbursement made by IAI, if necessary) when it appears that the amount of
expenses may exceed such Fund's applicable expense limit (and after the monthly
payment of the distribution fee has been reduced to zero), as set forth in the
section "Allocation of Expenses," below.

Pursuant to the expense limits, IAI has reimbursed advisory fees to the
following Funds for the fiscal years or periods noted: Growth Fund, for the
fiscal period August 6, 1993 to July 31, 1994 -- $29,939; Midcap Growth Fund,
for the fiscal period April 6, 1992 through March 31, 1993 -- $3,893, and for
the fiscal year ended March 31, 1994 -- $11,397; and Value Fund, for the fiscal
year ended March 31, 1994 -- $38,260.

<PAGE>

ADMINISTRATIVE AGREEMENT

Each Fund has engaged IAI to serve as the Fund's administrative, dividend
disbursing, redemption, accounting services and transfer agent pursuant to an
Administrative Agreement. Under the Administrative Agreement, IAI has agreed to
provide to each Fund all required administrative, stock transfer, redemption,
dividend disbursing and accounting services including, without limitation, the
following: (1) the maintenance of accounts, books and records; (2) the
calculations of the daily net asset value in accordance with a Fund's current
Prospectus and Statement of Additional Information; (3) daily and periodic
reports; (4) all information necessary to complete tax returns, questionnaires
and other reports requested by a Fund; (5) the maintenance of stock registry
records; (6) the processing of requested account registration changes, stock
certificate issuances and redemption requests; and (7) the administration of
payments of dividends and distributions declared by a Fund. As compensation for
these services, each Fund has agreed to pay IAI a monthly fee equal to .01667%
of the value of such Fund's net assets on the last day of the month, which is
equivalent on an annual basis to .20% of a Fund's average month-end net assets.

Pursuant to the Administrative Agreements for the fiscal year (or period)
ended March 31, 1995, each Fund paid IAI the following fees:

Fund Amount
---- ------
<S> <C>

Emerging Growth $ 556,995
Growth $ 31,771*
Growth and Income $ 223,782
Midcap Growth $ 144,986
Regional $1,082,091
Value $ 73,790

</TABLE>

-------------------

* For the period August 1, 1994 to March 31, 1995.

ALLOCATION OF EXPENSES

In addition to the advisory and administrative fees paid to IAI, each Fund
pays all its other costs and expenses, including, for example, costs incurred in
the purchase and sale of assets, interest, taxes, charges of the custodian of a
Fund's assets, costs of reports and proxy material sent to Fund shareholders,
fees paid for independent accounting and legal services, costs of printing
Prospectuses for Fund shareholders and registering a Fund's shares, postage,
fees to directors who are not "interested persons" of a Fund, distribution
expenses pursuant to the Fund's Rule 12b-1 plan, insurance premiums, costs of
attending investment conferences and such other costs which may be designated as
extraordinary. IAI has agreed to reimburse each Fund for expenses (other than
brokerage commissions and other expenditures in connection with the purchase and
sale of portfolio securities, interest expense, and, subject to the specific
approval of a majority of the disinterested directors of a Fund, taxes and
extraordinary expenses) which exceed 1.25% per year of the average month-end net
assets of a Fund (the "expense limit"). Certain state securities commissions may
impose additional limitations on certain of a Fund's expenses, and IAI may be
required by such state commissions to reimburse a Fund for expenses in excess of
any limitations as a requirement to selling shares of such Fund in those states.
IAI is not liable for any loss suffered by a Fund in the absence of willful
misfeasance, bad faith or gross negligence in the performance of its duties and
obligations.

DURATION OF AGREEMENTS

The Advisory Agreements and the Administrative Agreements will terminate
automatically in the event of their assignment. In addition, each Agreement is
terminable at any time without penalty by the Board of Directors of a Fund or by
vote of a majority of a Fund's outstanding voting securities on not more than 60
days' written notice to IAI, and by IAI on 60 days' notice to a Fund. Each
Agreement shall continue in effect from

<PAGE>

year to year only so long as such continuance is specifically approved at least
annually by either the Board of Directors of a Fund or by vote of a majority of
the outstanding voting securities, provided that in either event such
continuance is also approved by the vote of a majority of directors who are not
parties to the Agreement or interested persons of such parties cast in person at
a meeting called for the purpose of voting on such approval.

PLAN OF DISTRIBUTION

Each Fund has adopted a Plan of Distribution relating to the payment of
certain distribution expenses pursuant to Rule 12b-1 under the 1940 Act (Rule
12b-1 Fees). Such Plans were last approved by the Funds Board of Directors at a
meeting on May 10, 1995. The shareholders of Emerging Growth, Growth and Income,
Midcap Growth and Value Funds last approved the Plans on June 25, 1993. The
shareholders of Regional Fund last approved the Plan on June 28, 1993.

Rule 12b-1(b) provides that any payments made by a fund in connection with
the distribution of its shares may only be made pursuant to a written plan
describing all material aspects of the proposed financing of distribution and
also requires that all agreements with any person relating to implementation of
the plan must be in writing. In addition, Rule 12b-1(b)(1) requires that such
plan be approved by a vote of at least a majority of the fund's outstanding
shares, and Rule 12b-1(b)(2) requires that such plan, together with any related
agreements, be approved by a vote of the board of directors of the company and
the directors of the company who are not interested persons of the company and
have no direct or indirect financial interest in the operation of the plan or in
any agreements related to the plan, cast in person at a meeting called for the
purpose of voting on such plan or agreements. Rule 12b-1(b)(3) requires that the
plan or agreement provide, in substance: (1) that it shall continue in effect
for a period of more than one year from the date of its execution or adoption
only so long as such continuance is specifically approved at least annually in
the manner described in paragraph (b)(2) of Rule 12b-1; (2) that any person
authorized to direct the disposition of monies paid or payable by a fund
pursuant to its plan or any related agreement shall provide to a fund's board of
directors, and the directors shall review, at least quarterly, a written report
of the amount so expended and the purposes for which such expenditures were
made; and (3) in the case of a plan, that it may be terminated at any time by
vote of a majority of the members of the board of directors of a fund who are
not interested persons of the fund and have no direct or indirect financial
interest in the operation of the plan or in any agreements related to the plan
or by vote of a majority of the outstanding voting securities of a fund.

Rule 12b-1(b)(4) requires that such plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1. Rule 12b-1(c) provides that a fund
may rely upon Rule 12b-1(1) only if selection and nomination of its
disinterested directors are committed to the discretion of such disinterested
directors. Rule 12b-1(e) provides that a fund may implement or continue a plan
pursuant to Rule 12b-1(b) only if the directors who vote to approve such
implementation or continuation conclude, in the exercise of reasonable business
judgment and in light of their fiduciary duties under state law, and under
Section 36(a) and (b) of the 1940 Act, that there is a reasonable likelihood
that the plan will benefit the fund and its shareholders. At the meeting of the
Board of Directors on May 10, 1995, the directors so concluded with respect to
each Fund's Plan of Distribution.

Pursuant to the Plan of Distribution, each Fund has entered into a
Distribution and Shareholder Services Agreement pursuant to which a Fund will
make payments to IAI Securities, Inc. ("IAIS") at an annual rate of 0.25% of a
Fund's average month-end net assets to cover expenses incurred by IAIS in
connection with the servicing of shareholder accounts and the distribution of
such Fund's shares (which amount is paid to IAIS regardless of amounts spent by
IAIS). The 12b-1 Fee payable by a Fund to IAIS may be used by IAIS to pay
advertising and promotional expenses including, without limitation, costs of
printing and providing Prospectuses, Statements of Additional Information,
annual reports and semiannual reports to prospective shareholders, expenses of
preparing and providing sales literature advertising of any type, and
compensation and benefits paid to and expenses incurred by personnel, including
supervisory personnel, involved in direct mail and advertising activities and
activities relating to the direct marketing of shares of the Fund to the public
and compensation to

<PAGE>

other broker-dealers for their sale of Fund shares. The Rule 12b-1 Fee may also
be used to compensate the Underwriter for the provision of certain services to
Fund shareholders. Such services may include answering shareholder questions,
providing reports and other information and other services designed to maintain
shareholder accounts. IAIS may use the Rule 12b-1 Fee to make payments to
qualifying broker-dealers and financial institutions that provide such
shareholder services.

The Rule 12b-1 Fee payable by each Fund is subject to the expense
limitations set forth in the Advisory Agreements as described above.
Additionally, IAIS, in its sole and absolute discretion, may from time to time
out of its own assets pay for certain additional costs of servicing shareholder
accounts and distributing a Fund's shares. IAIS is an affiliate of IAI.

The net Rule 12b-1 Fee paid by each Fund pursuant to its Plan of
Distribution during the fiscal year (or period) ended March 31, 1995 follows:
<TABLE>
<CAPTION>

Fund Net 12b-1 Fee Fees Reimbursed by IAI**
---- ------------- ------------------------
<S> <C> <C>

Emerging Growth $ 694,592 $ 1,652
Growth* $ 3,091 $36,623
Growth and Income $ 273,792 $ 5,934
Midcap Growth $ 133,487 $47,746
Regional $1,352,614 N/A
Value $ 43,432 $48,806
- ----------------
</TABLE>
* For the period from August 1, 1994 to March 31, 1995.
** Pursuant to the above-mentioned expense limitation.

The Rule 12b-1 Fees were paid to, and retained by, IAIS pursuant to the
Distribution and Shareholder Services Agreements discussed above. During the
fiscal year or period ended March 31, 1995, such fees (along with amounts paid
out of IAIS own assets) were paid by IAIS in connection with the servicing of
shareholder accounts and the distribution of a Funds shares as follows:

Printing and mailing of
prospectuses to
other than current Payments to Direct payments to
Fund Advertising shareholders brokers or dealers sales personnel Other
- ---- ----------- ----------------------- ------------------ ------------------ -----
<S> <C> <C> <C> <C> <C>
Emerging Growth $215,324 $ 90,297 $ 97,243 $208,378 $ 83,350
Growth $ 958 $ 402 $ 433 $ 927 $ 371
Growth and Income $ 84,876 $ 35,593 $ 38,330 $ 82,138 $ 32,855
Midcap Growth $ 41,382 $ 17,353 $ 18,688 $ 40,046 $ 16,018
Regional $419,310 $175,840 $189,366 $405,784 $162,314
Value $ 13,464 $ 5,646 $ 6,080 $ 13,030 $ 5,212
</TABLE>

CUSTODIAL SERVICE

The custodian for the Funds is Norwest Bank Minnesota, N.A. Norwest Center,
Sixth and Marquette, Minneapolis, MN 55479. Norwest has entered into an
agreement with Morgan Stanley Trust Company, 1 Pierrepont Plaza, Brooklyn, New
York ("Morgan Stanley") which enables the Funds to utilize the subcustodian and
depository network of Morgan Stanley. Such agreements, subcustodians and
depositories were approved by the Fund's Board of Directors in accordance with
the rules and regulations of the Securities and Exchange Commission, for the
purpose of providing custodial services for a Fund's assets held outside the
United States.

22
<PAGE>

The following is a listing of the subcustodians and depositories currently
approved by each Fund's directors and the countries in which such subcustodians
and depositories are located:

BRANCHES OF THE CUSTODIAN
AND SUBCUSTODIAN BANKS
----------------------

Argentina Citibank, N.A., Buenos Aires Branch

Australia Australia & New Zealand Banking Group, Ltd.

Belgium Banque Bruxelles Lambert (BBL)

Botswana Barclays Bank of Botswana

Brazil Banco de Boston

Canada Toronto Dominion Bank

Chile Citibank, N.A., Santiago Branch

China Hong Kong & Shanghai Banking, Corp. Ltd.

Columbia Cititrust

Czech Republic ING Bank

France Banque Indosuez

Germany Berliner Handels-und-Frankfurter Bank

Ghana Barclays Bank of Ghana

Greece Citibank, N.A., Athens Branch

Hong Kong Hong Kong & Shanghai Banking Corp. Ltd.

Hungary Citibank, N.A., Budapest Branch

India Standard Chartered Bank

Indonesia Hong Kong & Shanghai Banking Corp. Ltd.

Ireland Allied Irish Bank

Israel Bank Leumi

Italy Barclays Bank PLC

Japan The Mitsubishi Bank Limited

Jordan Arab Bank plc

23
<PAGE>

Korea Standard Chartered Bank

Luxembourg Banque Bruxelles Lambert

Malaysia Oversea Chinese Banking Corporation

Mexico Citibank, N.A., Mexico City Branch

Morocco Banque Commerciale du Maroc

Netherlands ABN Amro Bank

New Zealand Bank of New Zealand

Pakistan Standard Chartered Bank

Papua New Guinea Australia and New Zealand Bank

Peru Citibank N.A., Lima Branch

Philippines Hong Kong & Shanghai Banking Corp. Ltd.

Poland Citibank, S.A.

Portugal Banco Commercial Portugues

Singapore Oversea Chinese Banking Corporation

South Africa First National Bank of Southern Africa

Spain Banco Santader

Sri Lanka Hong Kong & Shanghai Banking, Corp. Ltd.

Switzerland Morgan Guaranty Trust Company of New
York, Zurich Branch

Taiwan Hong Kong & Shanghai Banking Corp. Ltd.

Thailand Standard Chartered Bank

Turkey Citibank, N.A., Istanbul Branch

United Kingdom Barclays Bank PLC

Uruguay Citibank, N.A., Montevideo Branch

Venezuela Citibank, N.A., Caracas Branch

Zimbabwe Barclays Bank of Zimbabwe

24
<PAGE>

DEPOSITORIES
------------

Argentina Caja de Valores

Australia Clearing House Electronic Subregister
System

Austria Euroclear Clearance System
OsterreicheKontrollbank

Belgium C.I.K. (Caisse Interprofessionelle de Depot
et de Virements de Titres S.A.)

Brazil Sao Paulo Stock Exchange

Canada CDS (The Canadian Depository
for Securities Ltd.)

Czech Republic Center for Securities (SCP)

Denmark Euroclear Clearance System
Vaerdipapircentralen

Finland Euroclear Clearance System

France SICOVAM (Societe Interprofessionelle la
Compensacion des Valuers Mobilieres)

Germany Kassenverein (Deutscher Kassenverein AG)

Hong Kong Central Clearing and Settlement System

Hungary Euroclear Clearance System
OsterreicheKontrollbank

Italy Monte Titoli, S.p.A

Japan Japan Securities Depository Center

Korea The Korean Central Depository

Malaysia The Malaysian Central Depository

Mexico Instituto para el Deposito de Valores

Netherlands NECIGEF (Netherlands Centraal Instit
voor Giraal Effectenverkeer B.V.

Norway Euroclear Clearance System
Verdipapirsentralen

Singapore Central Depository Pte Ltd.

Spain Servicio de Compensacion y Liquidacion de
Valores

25
<PAGE>

Sweden Euroclear Clearance System
Vardepapperscentralen VPC AB

Switzerland SEGA (Schweizerische Effekten Giro A.G.)

Taiwan Taiwan Securities Depository Co.

Thailand Share Depository Center

United Kingdom Stock Exchange Talisman System

PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

Most of a Fund's portfolio transactions are effected with dealers
without the payment of brokerage commissions but at a net price which usually
includes a spread or markup. In effecting such portfolio transactions on behalf
of a Fund, IAI seeks the most favorable net price consistent with the best
execution.

Generally, however, a Fund must deal with brokers. IAI selects and
(where applicable) negotiates commissions with the brokers who execute the
transactions for such Fund. The primary criteria for the selection of a broker
is the ability of the broker, in the opinion of IAI, to secure prompt execution
of the transactions on favorable terms, including the reasonableness of the
commission and considering the state of the market at the time. In selecting a
broker, IAI may consider whether such broker provides brokerage and research
services (as defined in the Securities Exchange Act of 1934). IAI may direct
Fund transactions to brokers who furnish research services to IAI. Such
research services include advice, both directly and in writing, as to the value
of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, as well as analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts. By allocating brokerage business in order to obtain research
services for IAI, a Fund enables IAI to supplement its own investment research
activities and allows IAI to obtain the views and information of individuals and
research staffs of many different securities research firms prior to making
investment decisions for a Fund. To the extent such commissions are directed to
brokers who furnish research services to IAI, IAI receives a benefit, not
capable of evaluation in dollar amounts, without providing any direct monetary
benefit to a Fund from these commissions. Generally a Fund pays higher than the
lowest commission rates available.

IAI believes that most research services obtained by it generally
benefit one or more of the investment companies or other accounts which it
manages. Normally research services obtained through commissions paid by the
managed fund investing in common stocks and managed accounts investing in common
stocks would primarily benefit the fund and accounts.

There is no formula for the allocation by IAI of each Fund's brokerage
business to any broker-dealers for brokerage and research services. However,
IAI will authorize a Fund to pay an amount of commission for effecting a
securities transaction in excess of the amount of commission another broker
would have charged only if IAI determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker viewed in terms of either that particular
transaction or IAI's overall responsibilities with respect to the accounts as to
which it exercises investment discretion.

Although investment decisions for a Fund are made independently from
other accounts as to which IAI gives investment advice, it may occasionally
develop that the same security is suitable for more than one account. If and
when more than one account simultaneously purchase or sell the same security,
the transactions will be averaged as to price and allocated as to amount in
accordance with arrangements equitable to each Fund and such accounts. The
simultaneous purchase or sale of the same securities by a Fund and other
accounts may have

26
<PAGE>

detrimental effects on a Fund, as they may affect the price paid or received by
a Fund or the size of the position obtainable by a Fund.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the policies set forth in the preceding
paragraphs and such other policies as the Board of Directors of the Fund may
determine, IAI may consider sales of shares of a Fund as a factor in the
selection of broker-dealers to execute the Fund's securities transactions.

Brokerage commissions, listed below, were paid by each Fund for the fiscal
year (or period) ended March 31, 1995. During that period, a percentage of
commissions were paid to brokerage firms that provided research services to IAI,
although the provision of such services was not necessarily a factor in the
placement of all such business with such firms.

<TABLE>
<CAPTION>
Percentage of
Commission to Brokers
Fund Amount of Commissions Providing Research
---- --------------------- ---------------------

<S> <C> <C>
Emerging Growth $ 844,250 67%
Growth $ 93,542 61%
Growth and Income $ 297,072 51%
Midcap Growth $ 160,255 62%
Regional $2,639,390 70%
Value $ 245,263 60%
</TABLE>

CAPITAL STOCK

EMERGING GROWTH FUND

IAI Emerging Growth Fund is a separate portfolio of IAI Investment Funds
VI, Inc., a Minnesota corporation whose shares of common stock are currently
issued in six series (Series A through F). Each share of a series is entitled to
participate pro rata in any dividends and other distributions of such series and
all shares of a series have equal rights in the event of liquidation of that
series. The Board of Directors of IAI Investment Funds VI, Inc., is empowered
under the Articles of Incorporation of such company to issue other series of the
company's common stock without shareholder approval. IAI Investment Funds VI,
Inc., has authorized 10,000,000,000 shares of $.01 par value common stock to be
issued as Series A common shares, the investment portfolio represented by such
shares is referred to as IAI Emerging Growth Fund. As of March 31, 1995,
Emerging Growth Fund had 21,654,161 shares outstanding.

As of July 11, 1995, no person held of record or, to the knowledge of
Emerging Growth Fund beneficially owned more than 5% of the outstanding shares
of Emerging Growth Fund, except as set forth in the following table:

27
<PAGE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Name and Address Number of Percent of
of Shareholder Shares Class
- --------------------------------------------------------------------
<S> <C> <C>

Charles Schwab & Co., Inc. 2,125,260.852 9.26
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94101

Strafe & Co. 1,537,315.394 6.70
FAO In Thomson Consumer Electronics SAL
Attn: Mutual Funds
235 West Schrock Road
Westerville, Ohio 43081
</TABLE>

In addition, as of July 11, 1995, Emerging Growth Fund's officers and
directors as a group owned less than 1% of Emerging Growth Fund's outstanding
shares.

GROWTH FUND

IAI Growth Fund is a separate portfolio of IAI Investment Funds II, Inc., a
Minnesota corporation whose shares of common stock are currently issued in one
series (Series A). Each share of a series is entitled to participate pro rata in
any dividends and other distributions of such series and all shares of a series
have equal rights in the event of liquidation of that series. The Board of
Directors of IAI Investment Funds II, Inc., is empowered under the Articles of
Incorporation of such company to issue other series of the company's common
stock without shareholder approval. IAI Investment Funds II, Inc., has
authorized 10,000,000,000 shares of $.01 par value common stock to be issued as
Series A common shares. The investment portfolio represented by such shares is
referred to as IAI Growth Fund. As of March 31, 1995, the Fund had 2,447,689
shares outstanding.

As of July 11, 1995, no person held of record or, to the knowledge of
Growth Fund, beneficially owned more than 5% of the outstanding shares of Growth
Fund, except as set forth in the following table:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Name and Address Number of Percent of
of Shareholder Shares Class
- -------------------------------------------------------------------
<S> <C> <C>

Brothers of the Christian Schools of the 140,351.114 7.99
St. Louis District "Fund A"
2101 Rue de la Salle
Glencoe, MO 63038
</TABLE>

In addition, as of July 11, 1995, Growth Fund's officers and directors as a
group owned less than 1% of Growth Fund's outstanding shares.

GROWTH AND INCOME FUND

IAI Growth and Income Fund is a separate portfolio of IAI Investment Funds
VII, Inc., a Minnesota corporation whose shares of common stock are currently
issued in one series (Series A). Each share of a series is entitled to
participate pro rata in any dividends and other distributions of such series and
all shares of a series have equal rights in the event of liquidation of that
series. The Board of Directors of IAI Investment Funds VII, Inc., is empowered
under the Articles of Incorporation of such company to issue other series of the
company's common stock without shareholder approval. IAI Investment Funds VII,
Inc., has authorized 10,000,000,000 shares of $.01

28
<PAGE>

par value common stock to be issued as Series A common shares. The investment
portfolio represented by such shares is referred to as IAI Growth and Income
Fund. As of March 31, 1995, the Fund had 7,072,342 shares outstanding.

As of July 11, 1995, no person held of record or, to the knowledge of
Growth and Income Fund, beneficially owned more than 5% of the outstanding
shares of Growth and Income Fund, except as set forth in the following table:

Pentair, Inc. Retirement Savings & Stock 612,381.910 10.89
401(k) Plan
1500 County Road 32 W
St. Paul, MN 55113-3105
</TABLE>

In addition, as of July 11, 1995, Growth and Income Fund's officers and
directors as a group owned less than 1% of Growth and Income Fund's outstanding
shares.

MIDCAP GROWTH FUND

IAI Midcap Growth Fund is a separate portfolio of IAI Investment Funds VI,
Inc., a Minnesota corporation whose shares of common stock are currently issued
in six series (Series A through F). Each share of a series is entitled to
participate pro rata in any dividends and other distributions of such series and
all shares of a series have equal rights in the event of liquidation of that
series. The Board of Directors of IAI Investment Funds VI, Inc., is empowered
under the Articles of Incorporation of such company to issue other series of the
company's common stock without shareholder approval. IAI Investment Funds VI,
Inc., has authorized 10,000,000,000 shares of $.01 par value common stock to be
issued as Series C common shares, the investment portfolio represented by such
shares is referred to as IAI Midcap Growth Fund. As of March 31, 1995, Midcap
Growth Fund had 5,736,230 shares outstanding.

As of July 11, 1995, no person held of record or, to the knowledge of
Midcap Growth Fund beneficially owned more than 5% of the outstanding shares of
Midcap Growth Fund, except as set forth in the following table:

- ---------------------------------------------------------
Name and Address Number of Percent of
of Shareholder Shares Class
- ---------------------------------------------------------
<S> <C> <C>

Charles Schwab & Co., Inc. 886,036.026 14.82
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104
</TABLE>

In addition, as of July 11, 1995, Midcap Growth Fund's officers and
directors as a group owned less than 1% of Midcap Growth Fund's outstanding
shares.

REGIONAL FUND

IAI Regional Fund is a separate portfolio of IAI Investment Funds IV, Inc.,
a Minnesota corporation whose shares of common stock are currently issued in one
series (Series A). Each share of a series is entitled to participate pro rata in
any dividends and other distributions of such series and all shares of a series
have equal rights in the event of liquidation of that series. The Board of
Directors of IAI Investment Funds IV, Inc., is empowered under the Articles of
Incorporation of such company to issue other series of the company's common

29
<PAGE>

stock without shareholder approval. IAI Investment Funds IV, Inc., has
authorized 10,000,000,000 shares of $.01 par value common stock to be issued as
Series A common shares. The investment portfolio represented by such shares is
referred to as IAI Regional Fund. As of March 31, 1995, Regional Fund had
24,272,468 shares outstanding.

As of July 11, 1995, no person held of record or, to the knowledge of
Regional Fund, beneficially owned more than 5% of the outstanding shares of
Regional Fund, except as set forth in the following table:

- -----------------------------------------------------------------
Name and Address Number of Percent of
of Shareholder Shares Class
- -----------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 1,475,388.859 6.24
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104

</TABLE>

As of July 11, 1995, Regional Fund's officers and directors as a group
owned less than 1% of Regional Fund's outstanding shares.

VALUE FUND

IAI Value Fund is a separate portfolio of IAI Investment Funds VIII, Inc. a
Minnesota corporation whose shares of common stock are currently issued in one
series (Series A). Each share of a series is entitled to participate pro rata in
any dividends and other distributions of such series and all shares of a series
have equal rights in the event of liquidation of that series. The Board of
Directors of IAI Investment Funds VIII, Inc., is empowered under the Articles of
Incorporation of such company to issue other series of the company's common
stock without shareholder approval. IAI Investment Funds VIII, Inc., has
authorized 10,000,000,000 shares of $.01 par value common stock to be issued as
Series A common shares. The investment portfolio represented by such shares is
referred to as IAI Value Fund. As of March 31, 1995, Value Fund had 3,636,130
shares outstanding.

As of July 11, 1995, no person held of record or, to the knowledge of Value
Fund, beneficially owned more than 5% of the outstanding shares of Value Fund,
except as set forth in the following table:

- -----------------------------------------------------------------
Name and Address Number of Percent of
of Shareholder Shares Class
- -----------------------------------------------------------------
<S> <C> <C>
First Trust, N.A. Trustee for
NSP Retirement Savings Trust 278,691.324 7.83
P.O. Box 64482
St. Paul, MN 55164-0482

Charles Schwab & Co., Inc. 437,609.570 12.30
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104

</TABLE>

As of July 11, 1995, Value Fund's officers and directors as a group owned
less than 1% of Value Fund's outstanding shares.

<PAGE>

NET ASSET VALUE AND PUBLIC OFFERING PRICE

The portfolio securities in which each Fund invests fluctuate in value, and
hence, for each Fund, the net asset value per share also fluctuates.

The net asset value per share of a Fund is determined once daily as of the
close of trading on the New York Stock Exchange on each business day on which
the New York Stock Exchange is open for trading, and may be determined on
additional days as required by the Rules of the Securities and Exchange
Commission. The New York Stock Exchange is closed, and the net asset value per
share of the Fund is not determined, on the following national holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.

On March 31, 1995, each Funds net asset value and public offering price per
share were calculated as follows:

Emerging Growth Fund
--------------------

NAV = Net Assets ($342,873,905) = $15.83
-------------------------------
Shares Outstanding (21,654,161)

Growth Fund
-----------

NAV = Net Assets ($26,793,763) = $10.95
------------------------------
Shares Outstanding (2,447,689)

Growth and Income Fund
----------------------

NAV = Net Assets ($101,255,839) = $14.32
------------------------------
Shares Outstanding (7,072,342)

Midcap Growth Fund
------------------

NAV = Net Assets ($88,075,447) = $15.35
------------------------------
Shares Outstanding (5,736,230)

Regional Fund
-------------

NAV = Net Assets ($523,364,230) = $21.56
-------------------------------
Shares Outstanding (24,272,468)

Value Fund
----------

NAV = Net Assets ($40,600,954) = $11.17
------------------------------
Shares Outstanding (3,636,130)

31
<PAGE>

TAX STATUS

The tax status of the Funds and the distributions of the Fund are
summarized in the Prospectus under "Dividends, Distributions and Tax Status."

Under the Internal Revenue Code of 1986, as amended, (the Code), individual
shareholders may not exclude any amount of distributions from Fund gross income
that is derived from dividends; corporate shareholders, however, are permitted
to deduct 70% of qualifying dividend distributions from domestic corporations.
Such a deduction by a corporate shareholder will depend upon the portion of the
Funds gross income that is derived from dividends received from domestic
corporations. Since it is anticipated that a portion of the net investment
income of the Fund may derive from sources other than dividends from domestic
corporations, a portion of the Funds dividends may not qualify for this
exclusion. Distributions designated as long-term capital gain distributions will
be taxable to the shareholder as long-term capital gains regardless of how long
the shareholder has held the shares. Such distributions will not be eligible for
the dividends received exclusion referred to above.

Ordinarily, distributions and redemption proceeds earned by Fund
shareholders are not subject to withholding of federal income tax. However, each
Fund is required to withhold 31% of a shareholder's distributions and redemption
proceeds upon the occurrence of certain events specified in Section 3406 of the
Code and regulations promulgated thereunder. These events include the failure of
a Fund shareholder to supply the Fund with such shareholder's taxpayer
identification number, and the failure of a Fund shareholder who is otherwise
exempt from withholding to properly document such shareholder's status as an
exempt recipient. Additionally, distributions may be subject to state and local
income taxes, and the treatment thereunder may differ from the federal income
tax consequences discussed above.

If Fund shares are sold or otherwise disposed of more than one year from
the date of acquisition, the difference between the price paid for the shares
and the sales price will result in long-term capital gain or loss to a Fund
shareholder if, as is usually the case, a Fund shares are a capital asset in the
hands of a Fund shareholder at that time. However, under a special provision in
the Code, if Fund shares with respect to which a long-term capital gain
distribution has been, or will be, made are held for six months or less, any
loss on the sale or other disposition of such shares will be long-term capital
loss to the extent of such distribution.

Under the Code, each Fund will be subject to a non-deductible excise tax
equal to 4% of the excess, if any, of the amount of investment income and
capital gains required to be distributed pursuant to the Code for each calendar
year over the amount actually distributed. In order to avoid this excise tax,
each Fund generally must declare dividends by the end of each calendar year
representing 98% of the Fund's ordinary income for such calendar year and 98% of
its capital gain net income, if any, for the twelve-month period ending October
31 of the same calendar year. The excise tax is not imposed, however, an
undistributed income that is already subject to corporate income tax. It is each
Funds policy not to distribute capital gains until capital loss carryovers, if
any, either are utilized or expire.

Income received from sources within foreign countries may be subject to
withholding and other taxes imposed by such countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes. It
is impossible to determine the effective rate of foreign tax applicable to such
income in advance since the precise amount of a Fund's assets to be invested in
various countries is not known. Any amount of taxes paid by a Fund to foreign
countries will reduce the amount of income available to a Fund for distributions
to shareholders.

The foregoing is a general and abbreviated summary of the Code and Treasury
regulations in effect as of the date of each Fund's Prospectus and this
Statement of Additional Information. The foregoing relates solely to the federal
income tax law applicable to "U.S. persons," i.e., U.S. citizens and residents
and U.S. domestic corporations, partnerships, trusts and estates. Shareholders
who are not U.S. persons are encouraged to consult a tax adviser regarding the
income tax consequences of acquiring shares of a Fund.

<PAGE>

LIMITATION OF DIRECTOR LIABILITY

Under Minnesota law, each Fund's Board of Directors owes certain fiduciary
duties to the Fund and to its shareholders. Minnesota law provides that a
director "shall discharge the duties of the position of director in good faith,
in a manner the director reasonably believes to be in the best interest of the
corporation, and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances." Fiduciary duties of a director of a
Minnesota corporation include, therefore, both a duty of "loyalty" (to act in
good faith and act in a manner reasonably believed to be in the best interests
of the corporation) and a duty of "care" (to act with the care an ordinarily
prudent person in a like position would exercise under similar circumstances).
Minnesota law authorizes corporations to eliminate or limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of the fiduciary duty of "care." Minnesota law does not,
however, permit a corporation to eliminate or limit the liability of a director
(i) for any breach of the director's duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation of
Minnesota law or for violation of certain provisions of Minnesota securities
laws, or (iv) for any transaction from which the director derived an improper
personal benefit. The Articles of Incorporation of IAI Investment Funds II,
Inc., IAI Investment Funds IV, Inc., IAI Investment Funds VI, Inc., IAI
Investment Funds VII, Inc., and IAI Investment Funds VIII, Inc., limit the
liability of directors to the fullest extent permitted by Minnesota statutes,
except to the extent that such liability cannot be limited as provided in the
Investment Company Act of 1940 (which Act prohibits any provisions which purport
to limit the liability of directors arising from such directors' willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of their role as directors).

Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" of the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers.) Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the Investment Company Act of 1940 and the rules
and regulations adopted under such Act.

FINANCIAL STATEMENTS

The financial statements, included as part of the Funds 1995 Annual Report
to shareholders, are incorporated herein by reference. Such Annual Report may be
obtained by shareholders on request from the Funds at no charge.

<PAGE>

PART C

Item 24. Financial Statements and Exhibits
- -------- ---------------------------------

(a) Financial Statements (1)

(b) Exhibits

(1) Articles of Incorporation (4)

(2) Bylaws (4)

(5) Investment Advisory Agreement (4)

(6A) Distribution and Shareholder Services Agreement
(6B) Dealer Sales Agreement
(6C) Shareholder Services Agreement

(8) Custodian Agreement (4)

(9) Administrative Agreement (2)

(11) Consent of Independent Auditors

(15) Plan of Distribution (4)

(16) Calculations of Total Returns (3)

(99) Annual Report (5)

____________________

(1) Incorporated by reference in Part B of the Registration Statement.

(2) Incorporated by reference to Post-Effective Amendment to Registrant's
Registration Statement on Form N-1A filed on May 31, 1989.

(3) Incorporated by reference to Post-Effective Amendment to Registrant's
Registration Statement on Form N-1A filed on May 31, 1988.

(4) Incorporated by reference to Post-Effective Amendment No. 18 to Registrants
Registration Statement on Form N-1A filed on June 3, 1993.

(5) Incorporated by reference to the Annual Report filed electronically on Form
N-30D on May 26, 1995.

III-1
<PAGE>

Item 25. Persons Controlled by or Under Common Control with Registrant.
- -------- --------------------------------------------------------------

See the sections of the Prospectus entitled "Management" and "Description
of Common Stock" and the section of the Statement of Additional Information
entitled "Management," filed as part of this Registration Statement.

Item 26. Number of Holders Securities.
- -------- -----------------------------

Number of Record Holders
Portfolio Title of Class as of June 30, 1995
- --------- -------------- ------------------------

IAI Value Fund Common Stock (Series A) 1,851

Item 27. Indemnification.
- -------- ----------------

No change from information supplied in Post-Effective Amendment, filed in
July 1986.

Item 28. Business and Other Connections of Investment Adviser.
- -------- -----------------------------------------------------

Information on the business of Investment Advisers, Inc. ("IAI") is
described in the Prospectus section "Management" and in Part B of this
Registration Statement in the section "Management."

The senior officers and directors of IAI and their titles are as follows:

Name Title
---- -----

Jeffrey R. Applebaum Senior Vice President
Charles P. Barrington Director
Scott Allen Bettin Senior Vice President
Richard Oliver Bernays Chairman of the Board
Archie Campbell Black, III Senior Vice President/Treasurer
Julian Peavey Carlin Senior Vice President
Stephen C. Coleman Senior Vice President
Hugh Freedberg Chairman of the Board
Larry Ray Hill Executive Vice President/Director
Anne Florence Holloran Senior Vice President
Richard A. Holway Senior Vice President
Irving Philip Knelman Executive Vice President/Director
Rick D. Leggott Senior Vice President
Timothy A. Palmer Senior Vice President
Douglas Rugh Platt Senior Vice President
Andrew Scott Plummer Director
Noel Paul Rahn Chief Executive Officer/Director
R. David Spreng Senior Vice President
Christopher John Smith Senior Vice President/Secretary
Eric St. C. Stobart Director
Richard Edward Struthers Executive Vice President/Director
Suzanne F. Zak Senior Vice President

All of such persons have been affiliated with IAI for more than two years
except Messrs. Bernays, Barrington, Plummer and Stobart. Prior to being
appointed to the Board of IAI in 1993, Mr. Bernays was and remains Chief
Executive Officer of Hill Samuel Investment Management Group Ltd., 10 Fleet
Place,

III-2
<PAGE>

Limeburner Lane, London, England EC4M 7RH, since 1992. Prior to being appointed
to the Board in 1994, Mr. Barrington was and remains Managing Director of Hill
Samuel Bank, 100 Wood Street, London, England EC2P 2AJ, since 1991. Prior to
being appointed to the Board in 1994, Mr. Freedberg was and remains Chief
Executive of TSB Group plc, Hill Samuel Division, 100 Wood Street, London,
England EC2P 2AJ, since 1991. Prior to being appointed to the Board in 1994, Mr.
Plummer was and remains Legal Adviser to TSB Group plc, 60 Lombard Street,
London, England EC3V 9DN, since 1988. Prior to being appointed to the Board in
1994, Mr. Stobart was and remains Director of Hill Samuel Bank, 100 Wood Street,
London, England EC2P 2AJ, since 1977.

Certain directors and officers of IAI are directors and/or officers of the
Registrant, as described in the section of the Statement of Additional
Information entitled "Management," filed as a part of this Registration
Statement.

The address of the officers and directors of IAI is that of IAI, which is
3700 First Bank Place, P. O. Box 357, Minneapolis, Minnesota 55440.

Certain of the officers and directors of IAI also serve as officers and
directors of Hill Samuel Investment Advisers Limited ("HSIA"). Both IAI and HSIA
are wholly-owned subsidiaries of Hill Samuel Group BV, a London-based merchant
banking and financial services firm which, in turn, is owned by TSB Group plc, a
publicly-held financial services organization based in London, England. The
officers and directors of HSIA and their titles are as follows:

Name Title
- ---- -----

Noel Paul Rahn Chairman of the Board of Directors
Richard Bernays Director
Roy C. Gillson Chief Investment Officer/Director
Anne F. Holloran Senior Vice President/Director
Irving Philip Knelman Director
Hilary Fane Deputy Chief Investment Officer/Director
Feidhlim O'Broin Associate Director
Elizabeth Gold Associate Director

Certain of the officers and directors of IAI also serve as officers and
directors of IAI Trust Company, a wholly-owned subsidiary of IAI. The officers
and directors of IAI Trust Company and their titles are as follows:

Name Title
- ---- -----

Richard E. Struthers Chairman of the Board
John G. Flesch Director/President
Christopher J. Smith Director/Secretary
Archie C. Black Director/Treasurer
Christie Haagensen Director of Client Services

Item 29. Principal Underwriters
- -------- ----------------------

(a) IAI Securities is also the principal underwriter for IAI Investment
Funds I, Inc., IAI Investment Funds II, Inc., IAI Investment Funds III, Inc.,
IAI Investment Funds IV, Inc., IAI Investment Funds V, Inc., IAI Investment
Funds VI, Inc., and IAI Investment Funds VII, Inc.

III-3
<PAGE>

(b) The officers and directors of IAI Securities and the positions, if
any, such officers and directors hold with the Registrant are set forth below.
The business address of such persons is 3700 First Bank Place, Minneapolis,
Minnesota 55402.

<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>

Noel P. Rahn Chairman of the Board Chairman of the Board

Richard E. Struthers President/Director President/Director

Douglas R. Platt Vice President/Director Vice President Investments

R. David Spreng Vice President/Director None

Christopher J. Smith Secretary None

Archie C. Black, III CFO/Treasurer Treasurer

William C. Joas Chief Compliance Officer Secretary
</TABLE>

Item 30. Location of Accounts and Records.
- -------- ---------------------------------

The Custodian for Registrant is Norwest Bank Minnesota, N.A., Norwest
Center, Sixth & Marquette, Minneapolis, Minnesota 55479. The Custodian
maintains records of all cash transactions of Registrant. All other books and
records of Registrant, including books and records of Registrant's investment
portfolios, are maintained by IAI. IAI also acts as Registrant's transfer agent
and dividend disbursing agent, at 3700 First Bank Place, Minneapolis, Minnesota
55402.

Item 31. Management Services.
- -------- --------------------

Not applicable.

Item 32. Undertakings.
- -------- -------------

(a) Not applicable.

(b) Not applicable.

(c) IAI Investment Funds VIII, Inc., undertakes to furnish each person to
whom a prospectus is delivered with a copy of its latest annual report to
shareholders, upon request and without change.

III-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of the
requirements for effectiveness of its Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Minneapolis, and State of Minnesota, on the 25th day of July, 1995.

IAI INVESTMENT FUNDS VIII, INC.
(Registrant)

By /s/ Richard E. Struthers, President
------------------------------------
Richard E. Struthers, President

Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:

/s/ Richard E. Struthers President (principal July 25, 1995
- --------------------------- executive officer) & Director
Richard E. Struthers

/s/ Archie C. Black III Treasurer (principal July 25, 1995
- --------------------------- financial and accounting
Archie C. Black III officer)

Noel P. Rahn (1)
Director

Madeline Betsch (1)
Director

W. William Hodgson (1)
Director

George R. Long (1)
Director

J. Peter Thompson (1)
Director

Charles H. Withers (1)
Director

/s/ William C. Joas July 25, 1995
- ---------------------------
William C. Joas,
Attorney-in-fact

(1) Registrant's directors executing Powers of Attorney dated August 18, 1993.

III-5
<PAGE>

EXHIBIT INDEX
-------------

Exhibit No. Exhibit Description Sequential Page No.
- ----------- ------------------- -------------------

6A Distribution and Shareholder Services Agreement
6B Dealer Sales Agreement
6C Shareholder Services Agreement
11 Consent of Independent Auditors
15 Plan of Distribution
99 Annual Report

<PAGE>

As amended 5/10/95

DISTRIBUTION AND SHAREHOLDER SERVICES AGREEMENT

THIS AGREEMENT is made this 10 day of May, 1995, by and between IAI
Investment Funds VIII, Inc., a Minnesota corporation (the "Corporation"), on
behalf of each portfolio represented by a series of shares of common stock of
the Corporation (the "Portfolios") set forth in Exhibit A hereto, as
supplemented from time to time, and IAI Securities, Inc., a Minnesota
corporation ("Securities").

1. DISTRIBUTION AND SHAREHOLDER SERVICES.
--------------------------------------

The Corporation hereby engages Securities, and Securities hereby agrees to
act, as principal underwriter for the Corporation in connection with the sale
and distribution of Portfolio shares to the public. Securities agrees to offer
such shares for sale at all times when such shares are available for sale and
may lawfully be offered for sale and sold. Securities, or others retained by
it, may also provide shareholder services, as described in the Corporation's
Plan of Distribution.

2. SALE OF PORTFOLIO SHARES.
-------------------------

Portfolio shares are to be sold only on the following terms:

(a) All subscriptions, offers or sales shall be subject to acceptance or
rejection by the Corporation. Any offer or sale shall be conclusively presumed
to have been accepted by the Corporation if the Corporation shall fail to notify
Securities of the rejection of such offer or sale prior to the computation of
the net asset value of the respective Portfolio's shares next following receipt
by the Corporation of notice of such offer or sale.

(b) Portfolio shares shall not be sold by Securities for an amount less
than the net asset value of such shares. No such shares shall be sold by
Securities for any consideration other than cash or, pursuant to an exchange
privilege provided for by the currently effective Prospectus of the respective
Portfolio, shares of any other investment company for which Securities act as
principal underwriter.

3. REGISTRATION OF SHARES.
-----------------------

The Corporation agrees to make prompt and reasonable efforts to effect and
keep in effect, at its own expense, the registration or qualification of the
shares of each Portfolio for sale in such jurisdiction as the Corporation may
designate.

4. INFORMATION TO BE FURNISHED TO SECURITIES.
------------------------------------------

The Corporation agrees that it will furnish Securities with such
information with respect to the affairs and accounts of the Corporation and the
Portfolios as Securities may from time to time reasonably require and further
agrees that Securities, at all reasonable times, shall be permitted to inspect
the books and records of the Corporation.

5. ALLOCATION OF EXPENSES.
-----------------------

During the period of this contract, the Corporation, on behalf of each
Portfolio shall pay or cause to be paid all expenses, costs and fees which are
not assumed by Securities or Investment Advisers, Inc. ("Advisers"). Securities
shall pay all promotional expenses in connection with the distribution of
Portfolio shares including paying for prospectuses and shareholder reports for
new shareholders and the costs of sales literature. Securities shall pay all
expenses which it incurs in connection with providing shareholder services.
Advisers, rather than Securities, may bear the expenses referred to in the above
two sentences, but Securities shall be primarily liable for such expenses until
paid.

<PAGE>

6. COMPENSATION TO SECURITIES.
---------------------------

As compensation for all of its services and its costs assumed under this
contract, the Corporation, on behalf of each Portfolio, shall pay Securities a
monthly fee based upon the average net assets of the Portfolios as set forth in
Exhibit A hereto, as supplemented from time to time.

Securities hereby agrees to waive a portion or all of the monthly fee with
respect to each Portfolio to the extent that the expenses for such Portfolio
exceeds its expense limitation referenced in Part Three of the Investment
Advisory Agreement between the Corporation and Advisers.

The monthly distribution fee paid by each Portfolio shall be used by
Securities for the purposes of financing any activity which is primarily
intended to result in the sale of such Portfolio's shares as set forth in a
written plan and in any related agreements which shall comply with Rule 12b-1
under the Investment Company Act of 1940, as such rule may be periodically
amended.

7. LIMITATION OF SECURITIES' AUTHORITY.
------------------------------------

Securities shall be deemed to be an independent contractor and, except as
specifically provided or authorized herein, shall have no authority to act for
or represent the Corporation or any Portfolio. In connection with its role as
underwriter of Portfolio shares, Securities shall at all times be deemed an
agent of the Corporation and shall sell such shares to purchasers thereof as
agent and not as principal.

8. SUBSCRIPTION FOR SHARES--REFUND FOR CANCELED ORDERS.
----------------------------------------------------

Securities shall effect the subscription of Portfolio shares as agent for
the Corporation. In the event that an order for the purchase of Portfolio
shares is placed with Securities by a customer and subsequently canceled,
Securities, on behalf of such customer or dealer, shall forthwith cancel the
subscription for such shares entered on the books of the Corporation, and if
Securities has paid the Corporation for such shares, shall be entitled to
receive from the Corporation in refund of such payment the lesser of:

(a) the consideration received by the Corporation for said shares; and

(b) the net asset value of such shares at the time of cancellation by
Securities.

9. INDEMNIFICATION OF THE CORPORATION.
-----------------------------------

Securities agrees to indemnify the Corporation against any and all
litigation and other legal proceedings of any kind or nature and against any
liability, judgment, cost or penalty imposed as a result of such litigation or
proceedings in any way arising out of or in connection with the sale or
distribution of Portfolio shares by Securities. In the event of the threat or
institution of any such litigation or legal proceedings against the Corporation,
Securities shall defend such action on behalf of the Corporation at its own
expense, and shall pay any such liability, judgment, cost or penalty resulting
therefrom whether imposed by legal authority or agreed upon by way of compromise
and settlement; provided, however, Securities shall not be required to pay or
reimburse the Corporation for any liability, judgment, cost or penalty incurred
as a result of information supplied by, or as the result of the omission to
supply information by, the Corporation to Securities, or to Securities by a
director, officer, or employee of the Corporation who is not an interested
person of Securities, unless the information so supplied or omitted was
available to Securities or Advisers without recourse to the Corporation or any
such interested person of the Corporation.

10. FREEDOM TO DEAL WITH THIRD PARTIES.
-----------------------------------

Securities shall be free to render to others services of a nature either
similar to or different from those rendered under this contract, except such as
may impair its performance of the service and duties to be rendered by it
hereunder.

<PAGE>

11. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT.
------------------------------------------------------

This Agreement shall become effective with respect to each Portfolio on the
date set forth on Exhibit A hereto, as supplemented from time to time.

Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect only so long as such continuance is specifically approved at
least annually (a) by the Board of Directors of the Corporation, or by the vote
of the holders of a majority of the outstanding voting securities of the
applicable Portfolio, and (b) by a majority of the directors who are not
interested persons of Securities or of the Corporation cast in person at a
meeting called for the purpose of voting on such approval. Whenever referred to
in this Agreement, the vote or approval of the holders of a majority of the
outstanding voting securities of a Portfolio shall mean the vote of 67% or more
of such securities if the holders of more than 50% of such securities are
present in person or by proxy or the vote of more than 50% of such securities,
whichever is less.

This Agreement may be terminated with respect to any Portfolio at any time
without the payment of any penalty by the vote of the Board of Directors of the
Corporation or by the vote of the holders of majority of the outstanding voting
securities of such Portfolio, or by Securities, upon sixty (60) days' written
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment.

12. AMENDMENTS TO AGREEMENT.
------------------------

No material amendment to this Agreement shall be effective until approved
by a vote of the Board of Directors of the Corporation, including a majority of
the directors who are not interested persons of the Corporation and who have no
direct or indirect financial interest in this Agreement, case in person at a
meeting called for the purpose of voting on such amendment. Additionally, no
amendment to this Agreement that materially increases the fee payable by a
Portfolio hereunder shall be effective until approved by a vote of the holders
of a majority of the outstanding voting securities of such Portfolio.

13. NOTICES.
--------

Any notice under this Agreement shall be in writing addressed, delivered or
mailed, postage prepaid to the other party at such address as such other party
may designate in writing for receipt of such notice.

IN WITNESS WHEREOF, the Corporation and Securities have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.

IAI INVESTMENT FUNDS VIII, INC.

By:
---------------------------------
Noel P. Rahn, Chairman

IAI SECURITIES, INC.

By:
---------------------------------
Richard E. Struthers, President

<PAGE>

DEALER SALES AGREEMENT
----------------------

Ladies and Gentlemen:

We invite you to join a selling group for the distribution of shares of those
mutual funds available to the public for which we serve as principal underwriter
(the "Funds"). Upon execution of this Agreement, you agree to participate in
the distribution of the Funds to the public subject to the terms set forth
herein.

1. In all sales of the Funds to the public, you shall act as dealer of your
own account and shall not be authorized to act as agent for the Funds, for us or
for any other dealer.

2. All orders will be accepted by us only at the price, in the amount and
subject to the terms set forth in the then current Prospectuses and Statements
of Additional Information of the Funds. The procedure relating to the handling
of orders shall be subject to instructions which we shall forward to you from
time to time. Certificates representing shares of the Funds will not be issued.

3. You agree to provide distribution and marketing services in the
marketing of shares of the Funds and assistance to your customers who own shares
of the Funds including, but not limited to, answering inquiries regarding the
status of customers' accounts, assisting in changing dividend options, account
designations and addresses, and providing information to customers relating to
maintaining their investments in the Funds. For such services, we will pay you a
fee, as established by us from time to time and as permitted by each Fund's
respective Plan of Distribution established under Rule 12b-1 of the Investment
Company Act of 1940. Such fee will be based upon the following percentages of
the average month-end net assets of each Fund represented by shares of the Fund
owned, during the quarter for which payment is being made, by customers for
which you maintain a servicing relationship as evidenced by their execution of
such agreements as we may from time to time require. We specifically reserve the
right to discontinue paying fees with respect to those assets for which such
customer authorizations which we may require are not provided.

<PAGE>

Annual Fee (as a % of
Fund average month-end net assets)
---- -----------------------------
Reserve Fund 0
Money Market Fund 0
Tax Free Fund .10%
Bond Fund .15%
Government Fund .15%
Growth and Income Fund .25%
Regional Fund .25%
Value Fund .25%
Developing Countries Fund .25%
International Fund .25%
Midcap Growth Fund .25%
Balanced Fund .25%
Growth Fund .25%

Such fee will be paid on a quarterly basis and, subject to the last sentence of
this section 3, will be paid so long as the accounts of your clients remain in
the Funds and this Agreement and such other agreements as we may require have
not been terminated. Each Fund reserves the right to terminate or suspend its
Plan of Distribution at any time as specified therein. You agree to furnish us
or the Funds with such information as may be reasonably requested with respect
to such fees paid to you pursuant to this Agreement.

4. If any Fund shares sold under the terms of this Agreement are
repurchased by the Funds or are tendered for redemption within seven business
days after confirmation of the original purchase, it is agreed that you shall
forfeit the right to receive the fees hereunder with respect to such shares.

5. No person is authorized to make any representations concerning the Funds
except those contained in the then current Prospectuses and in such printed
information as may be furnished by us for use as information supplemental to the
Prospectuses. Additional copies of the Prospectuses and any printed information
supplementing the Prospectuses will be supplied by us in reasonable quantities
upon request.

<PAGE>

6. We reserve the right in our sole discretion, without notice, to suspend
sales or withdraw the offering of shares of the Funds. This Agreement may be
terminated by either party at any time upon seven days' notice to the other
party. We reserve the right to amend this Agreement at any time upon written
notice.

7. You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. and agree that termination or suspension
of such membership shall automatically terminate this Agreement. You further
agree that you will immediately advise us of any such termination or suspension.
You also represent that you are authorized under relevant federal and state laws
and regulations to receive the fees payable hereunder and that you will
immediately advise us of any termination or suspension of such authorization.

8. You agree to indemnify and hold harmless the Funds and IAI Securities,
Inc. from and against any and all claims, liability, expense or loss in any way
connected with your violation of this Agreement or arising out of or in any way
connected with your willful, reckless or negligent conduct in the performance of
your duties and obligations hereunder including, without limitation, any
representations, verbal or otherwise, of any untrue or alleged untrue statements
of a material fact relating to the offer and sale of the Funds made by you, your
agents or employees.

9. All communications to us should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.

The undersigned hereby accepts
the offer set forth herein:

DEALER IAI SECURITIES, INC.

By By
----------------------------- -----------------------------
Its Its
---------------------------- ----------------------------
Date of Acceptance , 19
------- --
3

<PAGE>

SHAREHOLDER SERVICE AGREEMENT

Ladies and Gentlemen:

We invite you to enter into an agreement with us for the servicing of
shareholders of, and the maintenance of shareholder accounts for which we serve
as principal underwriter (the "Funds") and the shares of which are offered to
the public at net asset value, as described in the Funds' Prospectuses. Subject
to your acceptance of this Agreement, the terms and conditions of this Agreement
shall be as follows:

1. You shall provide shareholder and account maintenance services for certain
shareholders of the Funds who purchase shares of the Funds as a result of
their relationship to you. Such services may include, shareholder liaison
services, such as responding to customer inquiries and providing
information on their investments, and such other information and services
as we reasonably may request, to the extent you are permitted by applicable
statute, rule or regulation to provide such information or services.

2. If shares of the Funds are to be purchased or held by you on behalf of your
clients:

(i) Such shares will be registered in your name or in the name of your
nominee. The client will be the beneficial owner of the shares of
the Funds purchased and held by you in accordance with the client's
instructions and the client may exercise all rights of a shareholder
of the Funds. You agree to transmit to the Funds' transfer agent
(Investment Advisers, Inc.), in a timely manner, all purchase orders
and redemption requests of your clients and to forward to each client
all proxy statements, periodic shareholder reports and other
communications received from the Funds by you on behalf of your
clients. The Funds have agreed to pay all reasonable out-of-pocket
expenses actually incurred by you in connection with the transfer by
you of such proxy statements and reports to your clients.

(ii) You agree to transfer to the Funds' transfer agent, on the date such
purchase orders are effective, federal funds in an amount equal to
the amount of all purchase orders placed by you on behalf of your
clients and accepted by the Funds. In the event that the Funds fail
to receive such federal funds on such date (other than through fault
of the Funds or their transfer agent), you shall indemnify the Funds
against any expense (including overdraft charges) incurred by the
Funds as a result of their failure to receive such federal funds.

(iii) You agree to make available to the Funds, upon the Funds' request,
such information relating to your clients who are beneficial owners
of shares of
<PAGE>

the Funds and their transactions in shares of the Funds, as
may be required by applicable laws and regulations or as may be
reasonably requested by the Funds.

(iv) You agree to transfer record ownership of a client's shares of the
Funds to the client promptly upon the request of a client. In
addition, record ownership will be promptly transferred to the client
in the event that the person or entity ceases to be your client.

3. You shall provide to us copies of the lists of members of your organization
and make available to us any publications and other facilities of your
organization for the placement of advertisements or promotional materials
and sending information regarding the Funds, to enable us to solicit for
sale and to sell shares to your members.

4. Neither you nor any of your employees or agents are authorized to make any
representation concerning the shares of the Funds except those contained in
the then current Prospectuses of the Funds, copies of which will be
supplied by us to you; and you shall have no authority to act as agent for
the Funds or for us. You agree to hold the Funds harmless and indemnify us
in the event that you, or any of your employees or agents, should violate
any law, rule, or regulation, or any provisions of this Agreement, which
violation may result in liability to us, and in the event we determine to
refund any amounts paid by any investor by reason of any such violation on
your part, you shall return to us any fees previously paid by us to you in
connection with the transaction for which the refund is made.

5. In consideration for the services described herein, you shall be entitled
to receive from us such fees as established by us from time to time and as
permitted by each Funds' respective Plan of Distribution established under
Rule 12b-1 of the Investment Company Act of 1940 as set forth on Exhibit A.
Such fee will be based upon assets of each Fund represented by shares of
the Fund owned, during the quarter for which payment is being made, by
shareholders for which you maintain a servicing relationship as evidenced
by their execution of such agreements as we may from time to time require.
We specifically reserve the right to discontinue paying fees with respect
to those assets for which such customer authorization which we may require
is not provided.

Such fee will be paid on a quarterly basis and, subject to the last
sentence of this section, will be paid so long as the accounts for your
clients and this Agreement and such other agreements as we may require have
not been terminated. Each Fund reserves the right to terminate or suspend
its Plan of Distribution or terminate this Agreement at any time, and upon
such termination any such obligation to pay such fee shall cease. You
agree to furnish us and the Funds with any such information as may be
reasonably requested with respect to such fees paid to you pursuant to this
Agreement.
<PAGE>

6. We reserve the right, at our discretion and without notice, to suspend the
sale of shares or withdraw the sale of shares of the Funds.

7. This Agreement may be terminated by either party at any time upon seven
days notice to the other party with or without cause. We reserve the right
to amend this Agreement at any time upon written notice.

8. All communications to us should be sent to us at 3700 First Bank Place,
P.O. Box 357, Minneapolis, MN 55440. Any notice to you shall be duly given
if mailed or telegraphed to you at the address specified by you below.
This Agreement shall be governed by and construed under the laws of the
State of Minnesota.

The undersigned hereby accepts IAI Securities, Inc.
the offer set forth herein

_____________________________ By ____________________________
Firm

By___________________________ Its ___________________________

Its _________________________ Date of Acceptance_____________

Address______________________

_____________________________

<PAGE>

[LETTERHEAD OF KPMG PEAT MARWICK LLP]

Exhibit 11

Independent Auditors' Consent
-----------------------------

The Board of Directors
IAI Investment Funds II, Inc.
IAI Investment Funds IV, Inc.
IAI Investment Funds VI, Inc.
IAI Investment Funds VII, Inc.
IAI Investment Funds VIII, Inc.

We consent to the use of our reports incorporated herein by reference and to the
references to our Firm under the headings "FINANCIAL HIGHLIGHTS" and "COUNSEL
AND AUDITORS" in Part A of the Registration Statement.

/s/ KPMG Peat Marwick LLP

KPMG Peat Marwick LLP

Minneapolis, Minnesota
July 14, 1995

<PAGE>

EXHIBIT 15
AS AMENDED 5/10/95

IAI INVESTMENT FUNDS VIII, INC.

PLAN OF DISTRIBUTION

WHEREAS, Rule 12b-1 under the Investment Company Act of 1940 (the "Rule"),
provides that a registered open-end management investment company may act as a
distributor of securities of which it is the issuer, provided that any payments
made by such company in connection with such distribution are made pursuant to a
written plan describing all material aspects of the proposed financing of
distribution; and

WHEREAS, it is intended that IAI Investment Funds VIII, Inc. (the
"Corporation"), will enter into an Underwriting and Distribution Agreement (the
"Agreement") with IAI Securities, Inc. ("Securities"), pursuant to which shares
of each series of common stock of the Corporation set forth in Exhibit A hereto,
as supplemented from time to time (the "Portfolios"), will be sold to the
public.

NOW THEREFORE, the following shall constitute the written plan pursuant to
which such distribution shall be made.

The Agreement between the Corporation, on behalf of each Portfolio, and
Securities provides that Securities will receive, as compensation for services
it renders under the Agreement, a monthly fee from each Portfolio as set forth
in Exhibit A hereto.

Securities shall waive a portion or all of the monthly fee so that the
Corporation does not exceed the expense limitation referenced in Part Three (3)
of the Investment Advisory Agreement between the Corporation and Investment
Advisers, Inc. The Corporation's investment adviser and Securities may at their
option and in their sole discretion, make payments from their own resources to
cover the costs of additional distribution and shareholder servicing activities.

The monthly fee paid by each Portfolio shall be used by Securities for the
purposes of financing any activity which is primarily intended to result in the
sale of such Portfolio's shares, or as otherwise provided herein.

The fee may be used to pay advertising and promotional expenses in
connection with the distribution of shares of the Portfolios. These advertising
and promotional expenses include, by way of example but not by way of
limitation:

- costs of prospectuses, annual reports and semi-annual reports for other
than current shareholders

- costs of quarterly reports and monthly letters to shareholders and
prospective shareholders

- preparation and distribution of sales literature and advertising of any
type

- compensation and benefits paid to and expenses incurred by:

- personnel involved in the preparation and execution of all direct
mail and advertising activity

- personnel involved in the direct marketing of shares to the public

- personnel with the responsibility of supporting the activities
mentioned above
<PAGE>

- compensation to other broker-dealers for their sale of the Corporation's
shares, including the implementation of various incentive programs with
respect to broker-dealers, banks and other financial institutions.

The fee may also be used to pay shareholder servicing fees, which includes
payments for personal service and/or the maintenance of shareholder accounts.
These shareholder servicing fees may be paid to those who provide shareholder
liaison services, such as responding to customer inquiries and providing
information on their investments.

This Plan shall become effective with respect to each Portfolio on the date
set forth on Exhibit A hereto, as supplemented from time to time.

This Plan shall continue in effect for a period of more than one year from
the date of its adoption with respect to a Portfolio only so long as such Plan,
together with any related agreements, has been approved by a vote of the Board
of Directors of the Corporation, and the directors who are not interested
persons of the Corporation and have no direct or indirect financial interest in
the operation of the Plan or in any agreements related to the Plan, cast in
person at a meeting called for the purpose of voting on such Plan or agreements.

The President of Securities, or such other persons as he may designate,
shall provide to the Board of Directors of the Corporation, and the directors
shall review, at least quarterly, a written report of the amounts received by
Securities pursuant to the Plan, the expenditures made by Securities out of such
proceeds, and the purpose for which such expenditures were made.

This Plan may be terminated with respect to a Portfolio at any time by vote
a majority of the members of the Board of Directors of the Corporation who are
not interested persons of the Corporation and have no direct or indirect
financial interest in the operation of the Plan or in any agreements related to
the Plan, or by vote of a majority of the outstanding voting securities of such
Portfolio.

This Plan may not be amended to increase materially the amount to be spent
by a Portfolio as set forth in Exhibit A without shareholder approval.

All material amendments to the Plan, together with any related agreements,
must be approved by a vote of the Board of Directors of the Corporation, and of
the directors who are not interested persons of the Corporation and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan, cast in person at a meeting called for the
purpose of voting such Plan or agreements.

<PAGE>

Exhibit 23

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.

/s/ KPMG Peat Marwick LLP

KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 12, 1995