<PAGE>
EQUITY FUNDS
ANNUAL REPORT
IAI Growth and Income Fund, IAI Regional Fund,
IAI Value Fund
March 31, 1996
[LOGO OF IAI]
Mutual Funds
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Table of Contents
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IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
Annual Report
March 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Chairman's Letter.......................................... 2
Fund Managers' Reviews
IAI Growth and Income Fund................................ 4
IAI Regional Fund......................................... 6
IAI Value Fund............................................ 8
Fund Portfolios
IAI Growth and Income Fund................................10
IAI Regional Fund.........................................13
IAI Value Fund............................................17
Notes to Fund Portfolios...................................19
Statements of Assets and Liabilities.......................28
Statements of Operations...................................30
Statements of Changes in Net Assets........................32
Financial Highlights
IAI Growth and Income Fund................................34
IAI Regional Fund.........................................35
IAI Value Fund............................................36
Notes to Financial Statements..............................37
Independent Auditors' Report...............................43
Federal Tax Information....................................44
Shareholder Update.........................................45
IAI Mutual Fund Family.....................................47
Distributor, Adviser, Custodian,
Legal Counsel, Independent Auditors,
Directors.................................. Inside Back Cover
</TABLE>
<PAGE>
Chairman's Letter
-----------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
[PHOTO OF NOEL P. RAHN]
Noel P. Rahn,
Chairman
A Great Time to Diversify
The year ended March 31, 1996 was another excellent period for U.S. stocks.
Despite all the mixed signals, the economy has been behaving just right; not too
fast to bring back inflation, and not too slow to bring on a recession. Bonds
had a good year too, except for the very end when the economy seemed to
accelerate.
As we've seen so far in 1996, stocks and bonds can be volatile. That's
particularly important to remember when prices are high. One of the most
important investment principles is diversification--not putting all of your eggs
in one basket.
By investing in mutual funds, you have already taken a step toward
diversification. A typical mutual fund invests in dozens of securities, a much
more diversified portfolio than you can generally achieve on your own. But
another way to diversify is to broaden your investment horizon into areas that
have lagged but are beginning to awaken. One example: international funds.
Developed and developing markets throughout the world have not matched the U.S.
economy during the past year. But that's beginning to change. Since
international markets largely move independently of the United States, an
investment overseas is considered an excellent way to diversify a portfolio.
This is particularly true when our markets are nearing or achieving all-time
highs.
If investing internationally is not for you, then there are other ways to
diversify your portfolio. If you have mutual funds that invest in just one type
of investment objective, then you might want to consider broadening your
investment horizon. Of course, whether you focus on growth, income or a blend of
the two depends on your time horizon. If you're investing for a retirement
that's 30 years down the road, then you can afford to take more risk than if you
need the income from those investments right away.
Regardless of the time frame, the U.S. markets will continue to be impacted by
the performance of the economy, the outlook for inflation, and the level of
interest rates. Over the next six months, the presidential election will also
play a role. All of these events are truly unpredictable and uncontrollable by
the average investor. That makes investing a continuing challenge, and another
reason to stay diversified.
2
<PAGE>
Chairman's Letter
-----------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
Economic Outlook
Larry Hill, IAI's Chief Fixed Income Officer, provides his economic outlook
below:
Volatile markets will continue in the months ahead because of the uncertainty
surrounding economic fundamentals. First quarter growth was surprisingly strong
considering the unusual weather patterns, a partial federal government shutdown
and the temporary strike at General Motors. Nevertheless, it is important to
remember that despite its surprising strength, the economy only expanded by 2.8%
which is still below the long-term average. Reported growth was also in line
with our expectations of a 2.5% expansion for all of 1996.
Inflation is becoming a consideration in our policy decisions. Investors have
been far too complacent about prospective price increases. Low inflation has
been with us for several years and the secular arguments weigh heavily in favor
of further price restraint. Yet, the US economy is gradually approaching the
late phase of the credit cycle and the foundation is being laid for a rising
price trend in the next year. In many firms, just-in-time delivery, downsizing,
and other new business practices have eliminated the extra cushion that was
present in past expansions, leaving the economy with little room to adjust to
new demand. Broad money supply is expanding again in the United States and has
reached its highest level since the late 1980s. With rising money growth and the
lack of cushion in the system even modest economic growth will likely produce
some cyclical inflation by year-end.
Politics in an election year are also a potential risk for the market and could
cause some price swings. However, fundamental economic forces ultimately drive
markets. For most of 1996 we expect to see a modest expansion of about 2.5% and
only a slight increase to a level of about 3% in the consumer price index. The
markets will be volatile, but the economic background remains favorable for
financial assets.
Please read the Fund Managers' Review which follows this letter for a detailed
perspective on the Funds' performance and our strategy going forward. We
appreciate your continued trust and confidence in IAI. If there is any way we
can serve you better, please let us know by calling our toll-free Investor
Services Hotline at 1-800-945-3863.
Sincerely,
/s/ Noel P. Rahn
Noel P. Rahn
Chairman
3
<PAGE>
Fund Manager's Review
--------------------------
IAI Growth and Income Fund
IAI Growth and Income Fund
[PHOTO OF DON HOELTING,CFA]
Don Hoelting, CFA
IAI Growth and Income Fund Manager
Top Five Sectors
% of Net Assets as of 3/31/96
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL 12.7%
CONSUMER SERVICES 9.3%
CONSUMER NON-DURABLES 9.1%
UTILITIES 7.4%
INDUSTRIAL SERVICES 6.6%
</TABLE>
Fund Objective
The IAI Growth and Income Fund is designed for investors who seek long-term
capital appreciation, with income as a secondary objective. It pursues its
objectives by investing in a broadly diversified portfolio of common stocks.
While dividends are a factor in stock selection, the dominant criteria is the
potential for long-term growth.
Fund Positioning for the
Past Year
The IAI Growth and Income Fund posted total returns of 4.79% during the first
quarter of 1996 and 21.51% during the past twelve months, while the Standard &
Poor's 500 Index was up 5.45% for the quarter and 32.14% for the year. The
Fund's slight underperformance during the quarter was due to an overweighting in
technology issues, which had a difficult quarter.
The overall theme of the IAI Growth and Income Fund is to search for companies
which can continue to show earnings gains in an environment of slower overall
profit growth. We believe that investors will reward such companies, because
their performance will increasingly stand out. At the same time, the IAI Growth
and Income Fund seeks companies that pay dividends, which serve to buffer the
portfolio against market downturns.
A leading category is the so-called "franchise" company, which has a premier
position in its respective market. Examples include Walt Disney in
entertainment, Gillette in personal care products, Motorola in
telecommunications and Procter & Gamble in packaged goods.
General Electric, a company with a market capitalization of more than $100
billion, aims to be number one in all of its businesses, whether that be
broadcasting, appliances or manufacturing. Despite its size, the company
continues to generate substantial earnings growth.
Another group which marches to its own drummer is the pharmaceutical industry.
Pfizer, R.P. Scherer and SmithKline Beecham have enough new products coming on
stream to sustain 10-12% earnings growth for many years.
We believe that Wal-Mart will continue to show strong earnings growth in the
years ahead, even though it is part of the out of favor retail industry. In
general, the retailing industry, particularly the apparel sector, has too much
capacity. However, we believe that Wal-Mart will benefit from the coming
consolidation in that industry.
Outlook
For several months, investors have expected the U.S. economy's sluggishness to
produce lower profit growth in 1996. However, recent data suggests that the
economy may have more zest in it than originally thought, and that corporate
profits may be stronger than expected. As a result, we expect some improvement
in the fortunes of cyclical stocks such as autos and equipment manufacturers.
The specter of inflation may cause a correction in the overall market, which is
why a portfolio that includes an income component should be a good strategy.
4
<PAGE>
Fund Manager's Review
---------------------
IAI Growth and Income Fund
Value of $10,000 Investment+
[GRAPH APPEARS HERE]
Note to Chairman's Letter & Fund Manager's Review
Performance data for the IAI Growth and Income Fund includes changes in share
price and reinvestment of all dividends and capital gains. Past performance is
not a guarantee of future results. The Fund's investment return, yield and
principal may fluctuate so that, when redeemed, shares may be worth more or less
than the original cost. More complete information about the Fund, including
charges and expenses, is available in the prospectus. Please read the Fund's
prospectus carefully before investing. All indices cited are unmanaged, and are
either trademarks, registered trademarks or copyrights of their respective
sponsoring companies.
Average Annual Returns+
Through 3/31/96
1 Year 5 Years 10 Years
- --------------------------------------------------------------
IAI Growth and Income Fund 21.51% 10.26% 11.05%
- --------------------------------------------------------------
S&P 500 Index 32.14% 14.68% 13.89%
+ Past performance is not predictive of future performance
Top Ten Holdings*
% of Net Assets
-----------------
Issue Sector 3/31/96 3/31/95
- -----------------------------------------------------------------------
Philip Morris Consumer Non-Durables 4.36 3.85
Walt Disney Consumer Services 3.71 2.60
Alco Standard Commercial Services 3.45 2.53
Camco International Industrial Services 2.72 1.94
Harcourt General Retail Trade 2.63 --
AT&T Utilities 2.62 1.35
General Electric Producer Manufacturing 2.59 1.83
Wal-Mart Retail Trade 2.39 --
SmithKline Beecham ADR Health Technology 2.33 --
Federal Home Loan
Mortgage Corporation Financial 2.24 1.09
- -----------------------------------------------------------------------
Total 29.04 15.19
* Excludes U.S. Treasury and Government Obligations
5
<PAGE>
Fund Manager's Review
---------------------
IAI Regional Fund
IAI Regional Fund
Fund Objective
The IAI Regional Fund is designed for investors who seek long-term capital
appreciation. It pursues its objective of long-term capital appreciation by
investing primarily in equity securities of companies headquartered in
Minnesota, Wisconsin, Iowa, Illinois, Nebraska, Montana, North Dakota and South
Dakota.
Fund Positioning for the Past Year
The IAI Regional Fund posted total returns of 3.76% during the first quarter of
1996 and 28.62% during the past twelve months. The IAI Regional 300 Index is a
market-cap weighted index created by IAI, consisting of the 300 largest
companies in the eight state region, ranked by market capitalization and was up
4.11% for the quarter and 28.80% for the twelve month period. In a strong
market, cash is a drag on performance, and the cash position in the portfolio
was the primary reason for the modest underperformance over the last twelve
months. However, the Fund's disciplined approach to analysis and valuation of
companies lends itself to selling individual stocks that are overvalued. In
fact, the past year has demonstrated that the stock selection process is working
very well in that excluding cash, the performance of the stocks in the portfolio
did much better than most major indices.
As for the Fund, the largest holding in the Fund continues to be MFS Communica-
tions, a company whose stock has recently advanced from the mid-$40s to the mid-
$60s. MFS is developing fiber-optic networks in all major U.S. cities and major
European financial centers. Fiber optics permits the simultaneous transmission
of voice, video and data transmission. We expect the company's cash flow to
begin to build as its current capital spending program is completed.
In agriculture, Deere has performed well, as concerns about an overhang of used
farm equipment abates. Another excellent agriculture performer in the Fund is
Lindsay Manufacturing, which sells irrigation equipment. Fertilizer, farm
equipment and seed companies stand to benefit as China increases its
agricultural imports, and the Regional Fund is well positioned in agriculture.
The rise in interest rates during the period had little impact on the Fund, due
to its under weighting in financial services. However, it is true that rising
interest rates puts pressure on all stocks to the extent that investors begin to
find fixed income securities more attractive than equities.
Outlook
It is hard to look into the future without looking back at the incredible
strength the market has shown over the past year. A general feeling that it is
due for a "correction" is becoming more prevalent. But it is important to temper
a cautious outlook with the recognition that the Regional Fund is a portfolio of
individual stocks that are owned for very specific business reasons. In the case
of each stock in the portfolio, the reasons for ownership are tied to the
specific business outlook of the Company. The Fund does not hold stocks because
the "stock market" is cheap or expensive. A stock is owned because the "bottom
up" fundamental analysis indicates that the stock price has an upside potential.
More important, the Fund does not change its valuation method to accommodate the
latest fad in the "stock market." As a result, the Regional Fund is a portfolio
of investments in companies, investments that are made based on a fundamental
understanding of each companies' business and purchased at a price that will
generate a solid return on investment for the shareholders of the Fund. On that
basis, we feel the outlook for our stocks is quite good.
[PHOTO OF MARK HOONSBEEN]
Mark Hoonsbeen, CFA
IAI Regional Fund Manager
Top Five Sectors
% of Net Assets as of 3/31/96
[BAR GRAPH APPEARS HERE]
Producer Manufacturing 13.6%
Health Technology 8.3%
Process Industries 7.5%
Electronic Technology 7.2%
Financial 6.8%
6
<PAGE>
Fund Manager's Review
---------------------
IAI Regional Fund
Value of $10,000 Investment+
[GRAPH APPEARS HERE]
Note to Chairman's Letter & Fund Manager's Review
Performance data for the IAI Regional Fund includes changes in share price and
reinvestment of all dividends and capital gains. Past performance is not a
guarantee of future results. The Fund's investment return, yield and principal
may fluctuate so that, when redeemed, shares may be worth more or less than the
original cost. More complete information about the Fund, including charges and
expenses, is available in the prospectus. Please read the Fund's prospectus
carefully before investing. All indices cited are unmanaged, and are either
trademarks, registered trademarks or copyrights of their respective sponsoring
companies.
Average Annual Returns+
Through 3/31/96
1 Year 5 Years 10 Years
- -----------------------------------------------------
IAI Regional Fund 28.62% 12.35% 14.21%
- -----------------------------------------------------
S&P 500 Index 32.14% 14.68% 13.89%
+ Past performance is not predictive of future performance
Top Ten Holdings*
% of Net Assets
-----------------
Issue Sector 3/31/96 3/31/95
- -----------------------------------------------------------------------------
MFS Communications Utilities 2.61 --
Sybron International-Wisconsin Health Technology 2.40 1.70
Baxter International Health Technology 2.39 1.10
Anixter International Producer Manufacturing 2.22 --
Amerin Financial 2.07 --
TNT Freightways Transportation 2.02 --
Aptargroup Process Industries 2.02 1.49
Illinois Central Transportation 1.91 1.42
Newell Consumer Durables 1.80 1.95
Abbott Laboratories Health Technology 1.77 1.36
- -----------------------------------------------------------------------------
Total 21.21 9.02
* Excludes U.S. Treasury and Government Obligations
7
<PAGE>
Fund Manager's Review
---------------------
IAI Value Fund
IAI Value Fund
Fund Objective
The IAI Value Fund is designed for investors who seek long-term capital
appreciation. It pursues its objective of long-term capital appreciation by
investing primarily in equity securities believed by management to be
undervalued and which are considered to offer unusual opportunities for capital
growth.
Fund Positioning for the Past Year
The IAI Value Fund posted total returns of 6.79% during the first quarter of
1996 and 21.07% during the past twelve months. In contrast, the Value Line Index
was up 4.20% for the quarter and 18.13% for the twelve month period, while the
Standard & Poor's 500 Index was up 5.45% for the quarter and 32.14% for the
year.
Although we are pleased with our performance during the quarter, the nature of a
value investment is more long-term in nature. Often, investors must be patient
with a company that is temporarily out of favor in the market. Perhaps it is a
company with strong management that is moving into a new market. Or perhaps the
company's growth pattern has been disrupted on a short-term basis. It could be a
company that is in the midst of a turnaround. In order to buy the stock, we have
to be able to visualize a likely scenario in which the company's problems turn
into opportunities.
Our definition of value is not bounded by size or market capitalization. A value
"play" could be a stock that few people have ever heard of-or it can be a
household name. Indeed, a classic value play currently in the portfolio is
International Business Machines, a company that has made a wrenching transition
from big mainframe computers to personal computers and networks. After some lean
years, International Business Machines earned $4.2 billion on sales of $74.9
billion in 1995. The stock is selling at about 10 times earnings now. In
contrast, the Dow Jones Industrial Average, of which International Business
Machines is a component, is selling at about 18 times earnings.
Another good area for value is in the oil service industry, which had been
underperforming because of the low price of energy. However, the oil companies,
which have downsized and become more efficient, are now in a position to spend
more money on exploration. In addition, the technology in oil drilling is much
better now. For instance, Petroleum Geo-Services employs 3D seismic technology,
which more accurately identifies new areas for oil and gas drilling. Drilling
companies such as Falcon Drilling no longer have to drill straight down to reach
a target, but rather can drill sideways and parallel to a site.
Outlook
If the economy indeed strengthens, as suggested by recent economic indicators,
then the stock market could be vulnerable in the near term to a long overdue
correction. However, value stocks typically move independently of the overall
market. Value investing is a time-honored investment style, practiced by some of
the most respected money managers on Wall Street. Although the style doesn't
always produce the best quarter-to-quarter returns, value investing has proven
to be a very profitable way to invest in companies over the long term.
[PHOTO OF DOUGLAS R. PLATT]
Douglas R. Platt
IAI Value Fund Manager
Top Five Sectors
% of Net Assets as of 3/31/96
Non-Energy Minerals 14.9%
Financial 13.4%
Producer Manufacturing 11.1%
Industrial Services 7.9%
Consumer Durables 4.2%
8
<PAGE>
Fund Manager's Review
---------------------
IAI Value Fund
Value of $10,000 Investment+
[GRAPH APPEARS HERE]
Note to Chairman's Letter & Fund Manager's Review
Performance data for the IAI Value Fund includes changes in share price and
reinvestment of all dividends and capital gains. Past performance is not a
guarantee of future results. The Fund's investment return, yield and principal
may fluctuate so that, when redeemed, shares may be worth more or less than the
original cost. More complete information about the Fund, including charges and
expenses, is available in the prospectus. Please read the Fund's prospectus
carefully before investing. All indices cited are unmanaged, and are either
trademarks, registered trademarks or copyrights of their respective sponsoring
companies.
Average Annual Returns+
Through 3/31/96
- -----------------------------------------------------
1 Year 5 Years 10 Years
- -----------------------------------------------------
IAI Value Fund 21.07% 11.05% 10.95%
- -----------------------------------------------------
Value Line Index 18.13% 7.75% 3.60%
- -----------------------------------------------------
S&P 500 Index 32.14% 14.68% 13.89%
+ Past performance is not predictive of future performance
Top Ten Holdings*
% of Net Assets
-----------------
Issue Sector 3/31/96 3/31/95
- -------------------------------------------------------------------------------
Falcon Drilling Industrial Services 3.71 --
Endosonics Health Technology 2.98 2.00
ABT Building Products Producer Manufacturing 2.74 1.69
Zeigler Coal Energy Minerals 2.73 0.88
Federal Express Transportation 2.66 --
International Business Machines Electronic Technology 2.65 --
Price/Costco Retail Trade 2.63 2.11
Huntco Class A Non-Energy Minerals 2.55 --
Trinity Industries Producer Manufacturing 2.49 2.44
USX-US Steel Non-Energy Minerals 2.47 --
- -------------------------------------------------------------------------------
Total 27.61 9.12
* Excludes U.S. Treasury and Government Obligations
9
<PAGE>
Fund Portfolio
----------------------------------
IAI Growth and Income Fund
March 31, 1996
(percentage figures indicate percentage of total net assets)
<TABLE>
<CAPTION>
Common Stocks 83.8%
Market
Quantity Value (a)
- -------------------------------------------------------
<S> <C> <C>
Commercial Services -- 4.3%
Alco Standard 56,000 $2,919,000
Reynolds & Reynolds Class A 18,600 762,600
---------
3,681,600
- -------------------------------------------------------
Consumer Durables -- 6.5%
American Greetings Class A 26,600 734,825
Eastman Kodak 25,700 1,824,700
Hasbro 34,600 1,280,200
Sturm Ruger 43,600 1,678,600
---------
5,518,325
- -------------------------------------------------------
Consumer Non-Durables -- 9.1%
Colgate-Palmolive 9,600 747,600
Gillette 21,600 1,117,800
Philip Morris 42,100 3,694,274
Procter & Gamble 10,500 889,874
UST 39,700 1,265,437
---------
7,714,985
- -------------------------------------------------------
Consumer Services -- 9.3%
CUC International (b) 21,150 618,638
Hollinger International 25,700 308,400
Marriott International 25,800 1,225,500
Media General Class A 32,600 1,263,250
Reader's Digest Class A 28,000 1,323,000
Walt Disney 49,200 3,142,650
---------
7,881,438
- -------------------------------------------------------
Electronic Technology -- 3.2%
General Dynamics 25,100 1,468,350
Motorola 23,400 1,240,200
---------
2,708,550
- -------------------------------------------------------
Energy Minerals -- 2.7%
Anadarko Petroleum 21,000 1,165,500
British Petroleum ADR 5,200 552,500
Enron Oil & Gas 11,400 300,675
Tosco 6,200 290,625
---------
2,309,300
- -------------------------------------------------------
Market
Quantity Value (a)
- -------------------------------------------------------
Financial -- 12.7%
Cigna 15,900 $ 1,816,575
Federal Home Loan Mortgage
Corporation 22,200 1,892,550
First USA 13,900 787,088
Leucadia National 59,400 1,477,574
MBNA 29,550 875,419
PMI Group 29,000 1,265,125
TIG 12,700 412,750
United Dominion Realty Trust 86,000 1,257,750
UNUM 15,800 940,100
----------
10,724,931
- -------------------------------------------------------
Health Services -- 1.5%
Health Management Class A (b) 18,800 658,000
Sierra Health Services (b) 18,400 600,300
----------
1,258,300
- -------------------------------------------------------
Health Technology -- 5.6%
Pfizer 18,000 1,206,000
R.P. Scherer (b) 36,400 1,597,050
SmithKline Beecham ADR 38,400 1,972,800
----------
4,775,850
- -------------------------------------------------------
Industrial Services -- 6.6%
Camco International 73,000 2,299,500
Schlumberger ADR 7,000 553,875
Teekay Shipping 41,900 1,094,638
WMX Technologies 50,900 1,616,075
----------
5,564,088
- -------------------------------------------------------
Process Industries -- 1.0%
Corning 23,500 822,500
- -------------------------------------------------------
Producer Manufacturing -- 5.6%
General Electric 28,200 2,196,075
Nordson 15,400 935,550
Tyco International 43,700 1,562,275
----------
4,693,900
- -------------------------------------------------------
</TABLE>
See accompanying Notes to Fund Portfolios on page 19
10
<PAGE>
Fund Portfolio
----------------------------------
IAI Growth and Income Fund
March 31, 1996
<TABLE>
<CAPTION>
Common Stocks (cont.)
Market
Quantity Value (a)
- -----------------------------------------------------------------
<S> <C> <C>
Retail Trade -- 6.4%
Circuit City 38,500 $ 1,150,188
Harcourt General 49,100 2,227,913
Wal-Mart 87,600 2,025,750
-----------
5,403,851
- -----------------------------------------------------------------
Technology Services 2.2%
General Motors Class E 32,700 1,863,900
- -----------------------------------------------------------------
Utilities -- 7.1%
AT&T 36,200 2,217,250
Cellular Communications
Class A (b) 26,300 1,344,588
Century Telephone Enterprises 37,600 1,193,800
MCI Communications 41,600 1,258,400
-----------
6,014,038
=================================================================
Total Investments in Common Stocks
(Cost: $59,355,279)...................................$70,935,556
=================================================================
Other Securities -- 8.1%
Market
Quantity (d) Value (a)
- -----------------------------------------------------------------
<S> <C> <C>
Common Stocks -- 1.6%
Adra Systems Class A (b) 12,243 $ 24,486
GalaGen (b) (e) 55,142 488,007
Hyperion Software (b) 1,574 32,149
PACE Health
Management Systems (b) (e) 121,221 592,528
Smartflex Systems (b) 3,270 45,142
Young Broadcasting Class A (b) 4,331 115,928
Zoran (b) 1,469 30,702
-----------
1,328,942
- -----------------------------------------------------------------
Convertible Preferred Stock -- 0.1%
Biometric Systems Series A (b) 6,667 133,340
- -----------------------------------------------------------------
Market
Quantity (d) Value (a)
- -----------------------------------------------------------------
<S> <C> <C>
Non-Convertible Preferred Stocks -- 1.5%
Adra Systems Series D (b) 14,964 $ 149,640
Performance Semiconductor
Series B (b) 130,435 -
Performance Semiconductor
Series C (b) 20,537 -
Performance Semiconductor
Series D (b) 10,143 -
Tut Systems Series D (b) (e) 222,222 255,555
Urologix Series B (b) 150,000 577,663
Urologix Series C (b) 89,418 254,842
VasoMedx Series B (b) 9,723 97
-----------
1,237,797
Ownership Market
Percentage (d) Value (a)
- -----------------------------------------------------------------
<S> <C> <C>
Limited Partnerships -- 4.9%
Alta Berkeley III (b) 1.76% 323,222
Ampersand Specialty Materials &
Chemicals II (b) 1.82 713,869
Athena Venture Partners (b) 2.28 540,173
Broad Street Investment Fund I (b) .16 510,869
South Street Corporate
Recovery Fund I (b) 1.05 387,891
Vanguard Associates II (b) 3.76 184,104
Vanguard Associates III (b) 6.55 1,519,205
-----------
4,179,333
=================================================================
Total Investments in other securities
(Cost: $5,813,655)....................................$ 6,879,412
=================================================================
=================================================================
Total Investments
in Long-term securities
(Cost: $65,168,934)...................................$77,814,968
=================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 19
11
<PAGE>
Fund Portfolio
--------------------------
IAI Growth and Income Fund
March 31, 1996
<TABLE>
<CAPTION>
Short-term Securities -- 7.6%
Principal Market
Rate Maturity Amount Value (a)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bills -- 7.6%
4.91% 04/04/96 $ 1,000,000 $ 999,567
4.99 07/18/96 500,000 492,515
5.21 07/25/96 5,000,000 4,919,820
----------
6,411,902
===============================================================================
Total Investments in short-term securities
(Cost: $6,411,615)..................................................$ 6,411,902
===============================================================================
Total Investments in securities
(Cost: $71,580,549) (g).............................................$84,226,870
===============================================================================
Other Assets and Liabilities (net) - 0.5%
.............................................................$ 434,727
===============================================================================
Total Net Assets
.............................................................$84,661,597
===============================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 19
12
<PAGE>
Fund Portfolio
---------------------
IAI Regional Fund
March 31, 1996
(percentage figures indicate percentage of total net assets)
Common Stocks -- 82.0%
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- -------------------------------------------------------
<S> <C> <C>
Commercial Services -- 6.0%
Banta 212,700 $ 5,689,725
Bell & Howell (b) 205,500 6,730,125
Castle (A.M.) 280,100 8,262,950
Data Documents (b) 180,500 1,579,375
Manpower 262,000 8,122,000
Merrill 253,500 4,246,125
-----------
34,630,300
- -------------------------------------------------------
Consumer Durables -- 5.8%
Clarcor 123,000 2,675,250
ITI Technologies (b) 209,000 5,669,125
Newell 386,000 10,325,500
Polaris 300,600 9,243,450
Snap-On 119,000 5,563,250
-----------
33,476,575
- -------------------------------------------------------
Consumer Non-Durables -- 2.0%
Sara Lee 245,000 7,993,125
Wrigley 61,000 3,576,125
-----------
11,569,250
- -------------------------------------------------------
Consumer Services -- 1.8%
Buffets (b) 437,300 6,231,525
McDonald's 79,000 3,792,000
-----------
10,023,525
- -------------------------------------------------------
Electronic Technology -- 7.2%
360 Communications (b) 237,000 5,658,375
ADC Telecommunications (b) 72,000 2,484,000
Aetrium (b) (e) 468,000 7,137,000
Andrew (b) 120,150 4,595,738
FSI International (b) 676,000 7,858,500
General Instrument (b) 175,000 4,790,625
Motorola 9,900 524,700
Rural Cellular Class A (b) 133,000 1,529,500
Sheldahl (b) 74,100 1,426,425
Tellabs (b) 78,000 3,773,250
United States Satellite
Broadcasting (b) 48,000 1,572,000
-----------
41,350,113
- -------------------------------------------------------
Energy Minerals -- 1.5%
Amoco 116,000 $ 8,381,000
- -------------------------------------------------------
Financial -- 6.8%
Amerin (b) 436,000 11,881,000
Dime Bancorp (b) 100,000 1,237,500
Equitable of Iowa 139,000 4,969,250
FCB Financial (e) 150,000 2,662,500
First Commonwealth (b) 34,800 896,100
Guarantee Life (b) 125,000 1,921,875
Reliastar Financial 197,000 8,914,250
Roosevelt Financial 179,900 3,328,150
Winthrop Resources 186,700 3,360,600
-----------
39,171,225
- -------------------------------------------------------
Health Services -- 3.1%
InStent (b) 150,000 3,337,500
Patterson Dental (b) 186,200 5,632,550
United HealthCare 146,000 8,979,000
-----------
17,949,050
- -------------------------------------------------------
Health Technology -- 8.3%
Abbott Laboratories 250,000 10,187,500
Angeion (b) 123,800 1,377,275
Baxter International 304,000 13,756,000
CIMA Labs (b) 232,400 1,452,500
Diametrics Medical (b) 428,900 2,573,400
Northfield Laboratories (b) 50,000 950,000
Possis (b) 115,000 1,955,000
Spine--Tech (b) 78,100 1,796,300
Sybron International --
Wisconsin (b) 563,000 13,793,500
-----------
47,841,475
- -------------------------------------------------------
Non-Energy Minerals -- 1.6%
USG (b) 369,000 9,363,375
- -------------------------------------------------------
Process Industries -- 7.5%
Aptargroup 280,000 11,620,000
Bemis 200,000 6,275,000
BMC 410,300 8,821,450
IMC Global 182,700 6,668,550
</TABLE>
See accompanying Notes to Fund Portfolios on page 19
13
<PAGE>
Fund Portfolio
-----------------
IAI Regional Fund
March 31, 1996
Common Stocks (cont.)
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ------------------------------------------------------------------------------
<S> <C> <C>
Mycogen (b) 25,000 $ 431,250
Northland Cranberries Class A 202,000 4,418,750
Valspar 100,000 4,537,500
------------
42,772,500
- ------------------------------------------------------------------------------
Producer Manufacturing -- 13.6%
ABC Rail Products (b) 333,000 8,158,500
Anixter International (b) 756,400 12,764,250
Berkshire Hathaway (b) 200 6,770,000
Case 81,000 4,120,875
Deere 224,000 9,352,000
IDEX 242,800 9,438,850
Illinois Tool Works 39,800 2,572,075
Lindsay Manufacturing 276,000 9,522,000
Littlefuse (b) 6,800 256,700
Minnesota Mining & Manufacturing 50,000 3,243,750
Pentair 284,000 7,171,000
Recovery Engineering (b) (e) 212,800 2,287,600
Thermo Sentron (b) 170,000 2,720,000
------------
78,377,600
- ------------------------------------------------------------------------------
Retail Trade -- 4.9%
Boise Cascade Office Products (b) 140,500 9,185,188
Casey's General Stores 113,000 2,655,500
Fingerhut 264,200 3,401,575
Lands' End (b) 111,000 1,942,500
Sears Roebuck 167,000 8,141,250
Walgreen 80,000 2,610,000
------------
27,936,013
- ------------------------------------------------------------------------------
Technology Services -- 3.5%
FIserv (b) 224,000 6,272,000
Richardson Electronics 130,500 1,484,438
Secure Computing (b) 293,000 6,372,750
Spyglass (b) 59,000 1,275,875
Technology Solutions (b) 176,000 4,774,000
------------
20,179,063
- ------------------------------------------------------------------------------
Transportation -- 5.8%
Heartland Express (b) 153,959 3,906,710
Hub Group Class A (b) 10,000 176,250
Illinois Central 385,800 10,995,300
TNT Freightways 511,000 11,625,250
Wisconsin Central Transportation (b) 100,000 6,650,000
------------
33,353,510
- ------------------------------------------------------------------------------
Utilities -- 2.6%
MFS Communications (b) 241,000 15,002,248
==============================================================================
Total Investments in Common Stocks
(Cost: $383,823,906) ............................................ $471,376,822
==============================================================================
</TABLE>
Other Securities -- 5.7%
<TABLE>
<CAPTION>
Market
Quantity (d) Value (a)
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks -- 1.4%
Accessline Technologies Class A (b) 41,666 $ 249,995
Anglo Chinese Investment Company (e) 1,600 508,093
BEI Medical (b) 1,029 30,860
Biomedical Waste Systems Class B (b) 400,000 4,000
GalaGen (b) (e) 312,819 2,631,121
Hyperion Software (b) 3,588 73,285
Indigo Medical (b) (e) 100,000 95,290
Network Appliances (b) 9,153 267,387
OncorMed Class A (b) 66,666 403,729
PACE Health Management Systems (b) (e) 275,320 1,344,663
Pacific Monolithics (b) 9,865 5,919
PriCellular Class B (b) 168,260 2,078,011
Smartflex Systems (b) 4,904 67,700
Zoran (b) 1,591 33,252
------------
7,793,305
- ------------------------------------------------------------------------------
Convertible Preferred Stock -- 0.1%
Biometric Systems Series A (b) 34,520 690,400
- ------------------------------------------------------------------------------
</TABLE>
14 See accompanying Notes to Fund Portfolios on page 19
<PAGE>
Fund Portfolio
-------------------------
IAI Regional Fund
March 31, 1996
<TABLE>
<CAPTION>
Other Securities (cont.)
Market
Quantity (d) Value (a)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Non-Convertible Preferred Stocks -- 1.5%
AccessLine Technologies
Series A (b) 71,420 $ 571,360
Air Communications
Series A (b) (e) 1,000,000 1,250,000
Air Communications
Series B (b) (e) 875,001 -
Air Communications
Series B (b) (e) 300,000 375,000
CardioGenesis Series B (b) (e) 500,000 1,375,000
CardioGenesis Series C (b) (e) 243,650 670,038
Indigo Medical Series B (b) (e) 181,818 173,263
Indigo Medical Series C (b) (e) 798,496 760,887
Intellon Series A (b) 600,000 1,050,000
Seurat Analytical Systems
Series B (b) (e) 114,973 229,945
Tut Systems Series D (b) (e) 478,416 550,178
Tut Systems Series E (b) (e) 217,391 250,000
Urologix Series B (b) 225,000 866,475
Urologix Series C (b) 134,129 382,268
VasoMedx Series A (b) (e) 505,884 252,942
VasoMedx Series B (b) (e) 39,585 396
----------
8,757,752
Ownership Market
Percentage (d) Value (a)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Limited Partnerships -- 2.6%
Agio Capital Partners I (b) 15.00% 75,000
Alta Berkeley III (b) 3.52 646,445
Ampersand Specialty Materials &
Chemicals II (b) 2.72 1,070,769
Anglo Chinese Selections (b) 3.28 863,000
Athena Venture Partners (b) 2.50 592,810
Conrad/Collins Merchant
Banking Fund (b) 8.45 391,793
Greenwich Street Capital
Partners (b) 3.00 1,872,762
Pathfinder Venture
Capital Fund III (b) 3.99 956,714
Ownership Market
Percentage (d) Value (a)
- ------------------------------------------------------------------------------------
<S> <C> <C>
South Street Corporate
Recovery Fund I (b) 2.24% $ 831,083
South Street Leveraged
Corporate Recovery Fund I (b) 2.64 165,103
Spectrum Equity Investors (b) 2.76 1,450,354
Vanguard Associates II (b) 3.76 184,104
Vanguard Associates III (b) 6.20 1,474,208
Vanguard Associates IV (b) 9.53 4,500,498
----------
15,074,643
Principal Market
Rate Maturity Amount (d) Value (a)
- ------------------------------------------------------------------------------------
Convertible Debentures -- 0.1%
Air Communications Series B (e)
10.00% 05/31/96 $ 233,334 233,334
GalaGen Series E (e)
7.08 (f) 03/31/97 125,000 125,000
Seurat Analytical Systems Series C (b) (e)
8.75 (f) 04/06/96 200,000 200,000
Seurat Analytical Systems Series C (b) (e)
8.75 (f) 07/08/96 25,000 25,000
----------
583,334
Market
Quantity (d) Value (a)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Warrants -- 0.0%
AccessLine Technologies 10,713 $ -
Air Communications (e) 75,000 75
Biomedical Waste
Systems Class B 25,000 -
Intellon 90,000 -
Pace Health Management
Systems (e) 21,820 41,109
Pace Health Management
Systems 08/31/05 (e) 35,000 65,940
----------
107,124
- ------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Fund Portfolios on page 19
15
<PAGE>
Fund Portfolio
-------------------------
IAI Regional Fund
March 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
=======================================================================================
Total Investments in other Securities
(Cost: $26,748,112)........................................................$ 33,006,558
=======================================================================================
Total Investments in Long-Term Securities
(Cost: $410,572,018).......................................................$504,383,380
=======================================================================================
Short-term Securities -- 12.2%
Principal Market
Rate Maturity Amount Value (a)
- ---------------------------------------------------------------------------------------
U.S. Treasury Bills -- 12.2%
5.11% 04/04/96 $ 7,000,000 $ 6,996,969
5.15 04/18/96 27,000,000 26,934,201
4.86 05/02/96 9,500,000 9,458,039
4.95 07/18/96 27,000,000 (c) 26,595,810
-----------
69,985,019
=======================================================================================
Total Investments in Short-Term Securities
(Cost: $70,007,616)........................................................$ 69,985,019
=======================================================================================
Total Investments in Securities
(Cost: $480,579,634) (g)...................................................$574,368,399
=======================================================================================
Other Assets and Liabilities (Net) 0.1%
...........................................................................$ 788,087
=======================================================================================
Total Net Assets
...........................................................................$575,156,486
=======================================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 19
16
<PAGE>
Fund Portfolio
--------------
IAI Value Fund
March 31, 1996
(percentage figures indicate percentage of total net assets)
<TABLE>
<CAPTION>
Common Stocks -- 78.4%
Market
Quantity Value (a)
- -------------------------------------------------------------
<S> <C> <C>
Commercial Services -- 2.3%
M/A/R/C 57,500 $ 970,313
- -------------------------------------------------------------
Consumer Durables -- 4.2%
Kaufman & Broad Home 49,500 792,000
M/I Schottenstein Homes (b) 95,000 973,750
-----------
1,765,750
- -------------------------------------------------------------
Consumer Non-Durables -- 1.8%
Michael Foods 70,000 735,000
- -------------------------------------------------------------
Consumer Services -- 2.1%
Westcott Communications (b) 50,000 887,500
- -------------------------------------------------------------
Electronic Technology -- 3.6%
International Business Machines 10,000 1,111,250
Tandem Computers (b) 47,000 417,125
-----------
1,528,375
- -------------------------------------------------------------
Energy Minerals -- 2.7%
Zeigler Coal 79,200 1,148,400
- -------------------------------------------------------------
Financial -- 13.4%
BankAmerica 11,000 852,500
BankUnited Financial Class A (b) 41,500 342,375
Calumet Bancorp (b) 20,000 555,000
Fidelity Federal Bank Class A (b) 25,000 237,500
Greenpoint Financial 25,000 687,500
Imperial Thrift & Loan (b) 20,000 280,000
Liberty Property Trust 40,000 825,000
Life USA (b) 111,532 920,139
Patriot Bank 20,000 255,000
Prime Residential 35,000 651,875
-----------
5,606,889
- -------------------------------------------------------------
Health Services -- 0.2%
OncorMed (b) 13,000 82,875
- -------------------------------------------------------------
Health Technology -- 4.1%
Endosonics (b) 70,000 1,251,250
Oncor (b) 83,500 448,813
-----------
1,700,063
- -------------------------------------------------------------
Industrial Services -- 7.9%
Baker Hughes 20,000 585,000
Dawson Production Services (b) 50,000 562,500
Falcon Drilling (b) 70,000 1,557,500
Petroleum Geo-Services ADR (b) 25,000 629,687
-----------
3,334,687
- -------------------------------------------------------------
Non-Energy Minerals -- 14.9%
Centex Construction Products (b) 70,000 953,750
Huntco Class A 55,200 1,069,500
Nucor 15,000 886,875
Owens Corning (b) 22,000 882,750
USG (b) 27,600 700,350
USX-US Steel 30,000 1,038,750
Weyerhaeuser 16,000 738,000
-----------
6,269,975
- -------------------------------------------------------------
Process Industries -- 1.1%
Digital Biometrics (b) 130,500 440,437
- -------------------------------------------------------------
Producer Manufacturing -- 11.1%
ABT Building Products (b) 62,200 1,150,700
Giddings & Lewis 45,000 855,000
Holophane (b) 50,000 900,000
Philips Electronics ADR 20,000 727,500
Trinity Industries 30,000 1,046,250
-----------
4,679,450
- -------------------------------------------------------------
Retail Trade -- 2.6%
Price/Costco (b) 59,000 1,106,250
- -------------------------------------------------------------
Technology Services -- 2.7%
Audre Recognition Systems (b) 1,339,350 669,675
Racotek (b) 100,000 462,500
-----------
1,132,175
- -------------------------------------------------------------
Transportation -- 3.7%
Canadian National Railway 25,300 436,425
Federal Express (b) 16,000 1,118,000
-----------
1,554,425
- -------------------------------------------------------------
Total Investments in Common Stocks
(Cost: $28,987,741) $32,942,564
- -------------------------------------------------------------
</TABLE>
See accompanying Notes to Fund Portfolios on page 19
17
<PAGE>
Fund Portfolio
--------------
IAI Value Fund
March 31, 1996
<TABLE>
<CAPTION>
Other Securities -- 7.2%
Market
Quantity (d) Value (a)
- ---------------------------------------------------------------------
<S> <C> <C>
Common Stocks -- 1.2%
Hyperion Software (b) 604 $ 12,337
OncorMed Class A (b) 66,667 403,735
Pacific Monolithics (b) 9,865 5,919
Smartflex Systems (b) 1,635 22,571
Young Broadcasting Class A (b) 1,207 32,308
Zoran (b) 535 11,182
--------
488,052
- ---------------------------------------------------------------------
Convertible Preferred Stock -- 0.9%
Biometric Systems Series A (b) 18,520 370,400
- ---------------------------------------------------------------------
Non-Convertible Preferred Stocks -- 2.0%
Intellon Series A (b) 200,000 350,000
PathNet Series A(b) 100,000 100,000
Tut Systems Series D (b) (e) 350,319 402,867
VasoMedx Series B (b) 4,861 48
--------
852,915
Ownership Market
Percentage (d) Value (a)
- ---------------------------------------------------------------------
Limited Partnerships -- 3.1%
Ampersand Specialty Materials &
Chemicals II (b) .91% 356,889
Athena Venture Partners (b) .78 184,417
Conrad/Collins Merchant
Banking Fund (b) 8.45 391,793
South Street Leveraged
Corporate Recovery Fund I (b) .75 47,175
Vanguard Associates III (b) 1.42 332,635
----------
1,312,909
- ---------------------------------------------------------------------
Market
Quantity (d) Value (a)
- ---------------------------------------------------------------------
<S> <C> <C>
Warrants -- 0.0%
Intellon 30,000 $ --
=====================================================================
Total Investments in other Securities
(Cost: $2,359,253)....................................... $ 3,024,276
=====================================================================
Total Investments in Long-Term
Securities
(Cost: $31,346,994)...................................... $35,966,840
=====================================================================
Short-term Securities -- 11.6%
Principal Market
Rate Maturity Amount Value (a)
- ----------------------------------------------------------------
U.S. Treasury Bills -- 11.6%
5.11% 04/04/96 $1,500,000 $ 1,499,351
5.12 04/18/96 1,000,000 997,563
4.99 07/18/96 2,400,000 2,364,073
-----------
4,860,987
================================================================
Total Investments in
Short-Term Securities
(Cost: $4,862,185).................................. $ 4,860,987
================================================================
Total Investments in Securities
(Cost: $36,209,179) (g)............................. $40,827,827
================================================================
Other Assets and Liabilities
(Net) - 2.8%
........................................ $ 1,181,665
================================================================
Total Net Assets
........................................ $42,009,492
================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 19
18
<PAGE>
Notes to Fund Portfolios
-------------------------------------------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
(a)
Market value of securities is determined as described in Note 1 to the financial
statements, under "Security Valuation."
(b)
Currently non-income producing security.
(c)
Security is partially pledged to cover initial margin on open futures contracts
(see Note 6 to the financial statements).
(d)
Restricted securities generally must be registered with the Securities and
Exchange Commission under the Securities Act of 1933 prior to being sold to the
public. For each restricted security issue held at March 31, 1996, the Fund held
no unrestricted securities of the same issuer as of either the date the purchase
price was agreed to or the date the Fund first obtained an enforceable right to
obtain the securities. Information concerning each restricted security held at
March 31, 1996 is shown on pages 22-26.
(e)
Investment represents five percent or more of the outstanding voting securities
of the issuer, and is therefore an affiliate, as defined in the Investment
Company Act of 1940, at March 31, 1996. A summary of transactions during the
period with affiliated issuers of the Funds follows:
<TABLE>
<CAPTION>
IAI Growth and Income Fund Affiliated Issuers
PURCHASES SALES REALIZED INVESTMENT
ISSUER QUANTITY COST QUANTITY PROCEEDS GAIN (LOSS) INCOME
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GalaGen Common Stock/1/ 55,142 $ -- -- $ -- $ -- $ --
GalaGen Stock Options 3,600 $ -- 3,600 $ -- $ -- $ --
GalaGen Series B Preferred/1/ -- $ -- 92,307 $ -- $ -- $ --
GalaGen Series C Preferred/1/ -- $ -- 30,000 $ -- $ -- $ --
</TABLE>
/1/GalaGen Preferred Stock with a cost of $450,031 converted into GalaGen Common
Stock
19
<PAGE>
Notes to Fund Portfolios
-------------------------------------------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
IAI Regional Fund Affiliated Issuers
- --------------------------------------------------------------------------------------------------
PURCHASES SALES
----------------------------------------- REALIZED INVESTMENT
ISSUER QUANTITY COST QUANTITY PROCEEDS GAIN (LOSS) INCOME
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetrium 467,000 $8,130,024 25,000 $510,575 $ 289,172 $ --
Air Communications
Series B Convertible Note/1/ 370,834 $ 370,891 175,000 $ 175,000 $ -- $ 3,025
Air Communications
Series B PFD/1/ 300,000 $ 375,472 -- $ -- $ -- $ --
Air Communications
Warrants/1/ 75,000 $ 75 -- $ -- $ -- $ --
Anglo Chinese Investment
Company -- $ -- -- $ -- $ -- $40,492
CardioGenesis Series C PFD 243,650 $ 670,038 -- $ -- $ -- $ --
FCB Financial -- $ -- -- $ -- $ -- $90,000
GalaGen Common Stock/2/ 312,819 $ 174,272 -- $ -- $ -- $ --
GalaGen Convertible Note
Series D/2/ 100,000 $ 100,000 540,000 $ -- $ -- $49,270
GalaGen Convertible Note
Series E 125,000 $ 125,000 -- $ -- $ -- $ 1,474
GalaGen Series B Preferred/2/ -- $ -- 369,231 $ -- $ -- $ --
GalaGen Series C Preferred/2/ -- $ -- 40,000 $ -- $ -- $ --
GalaGen Series E Preferred/2/ 38,462 $ 125,002 38,462 $ -- $ -- $ --
GalaGen Warrants 06/16/99/2/ -- $ -- 21,000 $ -- $ -- $ --
GalaGen Warrants 03/24/00/2/ 8,333 $ -- 8,333 $ -- $ -- $ --
GalaGen Warrants 07/09/00/2/ 6,667 $ -- 6,667 $ -- $ -- $ --
GalaGen Stock Options 14,400 $ -- 14,400 $ -- $ -- $ --
Indigo Medical
Common Stock/3/ 100,000 $ -- -- $ -- $ -- $ --
Indigo Medical
Series C PFD/3/ -- $ -- 100,000 $ -- $ -- $ --
Life USA Holding -- $ -- 150,000 $2,031,714 $(763,588) $ --
PACE Health Management
Systems 45,000 $ 226,387 -- $ -- $ -- $ --
PACE Health Management
Systems Warrants 08/31/05 35,000 $ -- -- $ -- $ -- $ --
Recovery Engineering 139,600 $1,911,500 26,800 $ 344,500 $ (20,650) $ --
Seurat Analytical Systems
Series B PFD/4/ 64,973 $ -- -- $ -- $ -- $ --
Seurat Analytical Systems
Convertible Note/4/ -- $ -- 125,000 $ -- $ -- $ 4,948
</TABLE>
- Continued on next page -
20
<PAGE>
Notes to Fund Portfolios
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
<TABLE>
<CAPTION>
IAI Regional Fund Affiliated Issuers (cont.)
- --------------------------------------------------------------------------------------------------
purchases sales
- ------------------------------------------------------------------------ realized Investment
issuer quantity cost quantity proceeds gain (loss) income
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Seurat Analytical Systems
Series C PFD Convertible
Note 04/06/96 200,000 $200,310 - $ - $ - $ -
Seurat Analytical Systems
Series C PFD Convertible
Note 07/08/96 25,000 $ 25,000 - $ - $ - $ -
VasoMedx Series A PFD/5,6/ 505,884 $150,000 - $ - $ - $ -
VasoMedx Series B PFD/6/ 39,585 $675,872 - $ - $ - $ -
Vaso Products Warrants/6/ - $ - 375,000 $ - $ - $ -
VasoMedx Convertible
Note Series A/5,6/ 100,000 $100,000 100,000 $ - $ - $ 2,942
</TABLE>
During the year ended March 31, 1996: (1) AirCom Holdings changed its name to
Air Communications. This is a separate company from the Air Communications
Series B Preferred security with market value of $0. (2) GalaGen Preferred
Stocks with a cost of $1,400,126, Convertible Note Series D with a cost of
$540,489, and warrants converted into GalaGen Common Stock (3) Indigo Medical
Series C Preferred Stock with a cost of $1,000 converted into Indigo Medical
Common Stock (4) Seurat Convertible Note with a cost of $130,614 was converted
into Series B Preferred Stock (5) VasoMedx Convertible Note with a cost of
$102,942 was converted into Series A Preferred Stock (6) Vaso Products changed
its name to VasoMedx
(f)
Interest rate varies to reflect current market conditions; rate shown is the
rate in effect on March 31, 1996.
(g)
At March 31, 1996, the cost of securities for federal income tax purposes and
the aggregate gross unrealized appreciation and depreciation based on that cost
were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
IAI Growth and Income Fund IAI Regional Fund IAI Value Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost for federal tax purposes $71,878,321 $481,660,977 $36,433,819
----------------------------------------------------------------
Gross unrealized appreciation $14,785,735 $111,427,340 $ 5,930,044
Gross unrealized depreciation (2,437,186) (18,719,918) (1,536,036)
----------------------------------------------------------------
Net unrealized appreciation $12,348,549 $ 92,707,422 $ 4,394,008
----------------------------------------------------------------
</TABLE>
21
<PAGE>
Notes to Fund Portfolios
-------------------------------------------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
Restricted Securities
IAI Growth and Income Fund
<TABLE>
<CAPTION>
Common Stocks
Security Acquisition Date Cost
- -------------------------------------------------------------
<S> <C> <C>
Adra Systems Class A 10/20/88 $139,353
09/29/92 1,545
GalaGen 02/26/93 300,000
11/29/93 150,031
03/24/94 --
02/22/95 --
02/22/96 --
Hyperion Software 10/01/93 32,093
PACE Health
Management Systems 01/11/94 500,000
Smartflex Systems 10/04/93 2,283
Young Broadcasting Class A 11/03/94 12,549
Zoran 10/04/85 246,000
03/12/87 64,259
Convertible Preferred Stock
Security Acquisition Date Cost
- -------------------------------------------------------------
Biometric Systems Series A 12/28/90 $100,006
Non-Convertible
Preferred Stocks
Security Acquisition Date Cost
- -------------------------------------------------------------
Adra Systems Series D 10/20/88 $179,842
Performance Semiconductor
Series B 10/19/84 150,000
Performance Semiconductor
Series C 11/19/86 71,879
Performance Semiconductor
Series D 01/26/88 25,358
Tut Systems Series D 02/17/94 200,147
Urologix Series B 08/14/92 200,000
11/06/92 100,000
Urologix Series C 03/22/94 196,720
VasoMedx Series B 06/25/92 199,998
Limited Partnerships
Security Acquisition Date Cost
- -------------------------------------------------------------
Alta Berkeley III 03/31/93 $ 14,048
04/27/93 50,317
08/25/94 50,487
09/21/94 50,508
06/20/95 53,836
10/20/95 53,451
Ampersand Specialty Materials
& Chemicals II 11/27/95 77,180
Athena Venture Partners 09/27/85 98,455
05/15/86 410,000
03/11/96 --
Broad Street Investment
Fund I 05/08/91 19,346
South Street Corporate
Recovery Fund I 10/03/95 --
Vanguard Associates II 07/28/83 182,584
12/10/84 270,112
10/31/86 138,197
Vanguard Associates III 07/13/88 217,943
06/15/90 305,250
02/28/91 305,250
01/10/92 305,250
01/11/93 305,250
09/30/93 34,128
</TABLE>
22
<PAGE>
Notes to Fund Portfolios
-------------------------------------------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
Restricted Securities
IAI Regional Fund
<TABLE>
<CAPTION>
Common Stocks
Security Acquisition Date Cost
- -----------------------------------------------------------
<S> <C> <C>
Accessline Technologies
Class A 06/30/94 $ 209,009
Anglo Chinese Investment
Company 12/27/90 157,263
02/07/94 343,001
02/09/94 6,311
BEI Medical 02/05/96 30,860
Biomedical Waste Systems
Class B 11/08/93 1,001,789
GalaGen 02/26/93 1,200,000
11/29/93 200,126
03/24/94 -
06/17/94 351,839
12/05/94 -
02/22/95 -
03/22/95 133,236
04/13/95 -
07/07/95 104,684
12/14/95 125,002
01/30/96 -
02/22/96 -
Hyperion Software 10/01/93 52,347
Indigo Medical 02/07/95 1,000
Network Appliances 09/07/93 11,624
OncorMed Class A 12/13/93 200,411
PACE Health
Management Systems 01/11/94 750,000
01/31/95 201,525
04/27/95 150,625
06/20/95 75,000
Pacific Monolithics 04/24/85 24,999
08/06/85 75,000
08/19/86 47,989
PriCellular Class B 05/16/94 751,049
Smartflex Systems 10/04/93 3,423
Zoran 10/04/85 266,400
03/12/87 69,594
Convertible Preferred Stock
Biometric Systems
Series A 05/04/89 250,020
12/28/90 240,000
Non-Convertible Preferred Stocks
Accessline Technologies
Series A 06/03/94 499,940
Air Communications
Series A 11/15/94 63,474
Air Communications
Series B 11/24/93 400,000
04/25/94 168,750
Air Communications
Series B 07/05/95 375,472
CardioGenesis Series B 06/09/94 1,000,201
CardioGenesis Series C 12/05/95 670,038
Indigo Medical Series B 05/26/93 500,000
Indigo Medical Series C 09/30/94 256,254
12/27/94 506,782
Intellon Series A 03/24/94 600,489
Seurat Analytical Systems
Series B 04/29/94 100,000
07/05/95 130,614
Tut Systems Series D 02/17/94 400,293
04/08/94 30,575
Tut Systems Series E 12/21/94 250,563
Urologix Series B 08/14/92 200,000
11/06/92 250,000
Urologix Series C 03/22/94 295,084
VasoMedx Series A 10/12/95 51,736
11/14/95 51,206
01/26/96 150,000
VasoMedx Series B 06/25/92 300,001
07/13/94 375,871
</TABLE>
23
<PAGE>
Notes to Fund Portfolios
-------------------------------------------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
Restricted Securities (cont.)
Limited Partnerships
<TABLE>
<CAPTION>
Security Acquisition Date Cost
- ------------------------------------------------------------------------
<S> <C> <C>
Agio Capital Partners I 01/26/96 $ 75,000
Alta Berkeley III 03/31/93 28,095
04/27/93 100,634
08/25/94 100,974
09/21/94 101,015
06/20/95 107,674
10/20/95 106,902
Ampersand Specialty
Materials & Chemicals II 11/27/95 115,769
Anglo Chinese Selections 12/27/90 1,042,724
Athena Venture Partners 09/27/85 108,040
05/15/86 450,000
Conrad/Collins Merchant
Banking Fund 05/11/89 373,706
Greenwich Street
Capital Partners 12/30/94 185,791
05/15/95 303,264
06/15/95 31,513
08/21/95 34,092
08/29/95 378,800
10/27/95 340,920
01/23/96 487,783
Pathfinder Venture
Capital Fund III 04/29/91 56,449
03/05/92 100,000
10/29/92 100,000
04/20/93 100,000
08/24/93 100,000
03/24/94 100,000
12/08/94 100,000
11/01/95 50,000
</TABLE>
<TABLE>
<CAPTION>
Security Acquisition Date Cost
- ------------------------------------------------------------------------
<S> <C> <C>
South Street Corporate
Recovery Fund I 10/03/95 $ --
South Street Leveraged
Corporate Recovery Fund I 10/03/95 --
Spectrum Equity Investors 05/12/94 447,860
01/03/95 150,000
05/11/95 33,149
05/22/95 210,000
11/16/95 255,000
12/13/95 105,000
Vanguard Associates II 07/28/83 182,584
12/10/84 270,112
10/31/86 138,197
Vanguard Associates III 07/13/88 206,161
06/15/90 288,750
02/28/91 288,750
01/10/92 288,750
01/11/93 288,750
09/30/93 32,284
Vanguard Associates IV 08/10/92 188,376
12/18/92 150,000
02/11/93 350,000
08/12/93 350,000
11/01/93 350,000
04/19/94 350,000
09/19/94 350,000
01/17/95 350,000
07/17/95 350,000
12/13/95 350,000
</TABLE>
24
<PAGE>
Notes to Fund Portfolios
-------------------------------------------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
Restricted Securities (cont.)
<TABLE>
<CAPTION>
Convertible Debentures
Security Acquisition Date Cost
- -----------------------------------------------------------
<S> <C> <C>
Air Communications
Series B 05/31/96 11/21/95 $ 75,000
11/30/95 50,057
02/26/96 50,000
03/22/96 58,333
GalaGen Series E 03/31/97 01/31/96 125,000
Seurat Analytical Systems
Series C 04/06/96 07/05/95 125,186
11/08/95 50,124
01/22/96 25,000
Seurat Analytical Systems
Series C 07/08/96 03/19/96 25,000
Warrants
Security Acquisition Date Cost
- -----------------------------------------------------------
<S> <C> <C>
AccessLine Technologies 06/03/94 --
Air Communications 07/05/95 75
Biomedical Waste Systems
Class B 11/08/93 --
Intellon 04/12/94 --
PACE Health
Management Systems 03/30/95 --
PACE Health
Management Systems
08/31/05 01/16/96 --
</TABLE>
25
<PAGE>
Notes to Fund Portfolios
------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
Restricted Securities
IAI Value Fund
Common Stocks
<TABLE>
<CAPTION>
Security Acquisition Date Cost
- -------------------------------------------------------------------------
<S> <C> <C>
Hyperion Software 10/01/93 $ 22,415
OncorMed Class A 12/13/93 200,411
Pacific Monolithics 04/24/85 24,999
08/06/85 75,000
08/19/86 47,990
Smartflex Systems 10/04/93 1,141
Young Broadcasting Class A 11/03/94 3,497
Zoran 10/04/85 89,699
03/12/87 23,430
Convertible preferred Stock
Security Acquisition Date Cost
- -------------------------------------------------------------------------
Biometric Systems Series A 05/04/89 $250,020
Non-Convertible Preferred Stocks
Security Acquisition Date Cost
- -------------------------------------------------------------------------
Intellon Series A 03/24/94 $200,163
PathNet Series A 08/28/95 50,567
02/09/96 50,000
Tut Systems Series D 02/17/94 300,220
04/08/94 15,288
VasoMedx Series B 06/25/92 99,999
Limited Partnerships
Security Acquisition Date Cost
- -------------------------------------------------------------------------
Ampersand Specialty Materials
& Chemicals II 06/09/95 $ -
08/03/95 -
11/27/95 38,589
Athena Venture Partners 09/27/85 33,618
05/15/86 140,000
06/05/95 -
03/11/96 -
Conrad/Collins Merchant
Banking Fund 05/11/89 373,706
South Street Leveraged Corporate
Recovery Fund I 10/03/95 -
Vanguard Associates III 07/13/88 47,122
06/15/90 66,000
02/28/91 66,000
01/10/92 66,000
01/11/93 66,000
09/30/93 7,379
Warrants
Security Acquisition Date Cost
- -------------------------------------------------------------------------
Intellon 04/12/94 $ -
</TABLE>
26
<PAGE>
(This page intentionally left blank)
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
------------------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
<TABLE>
<CAPTION>
IAI GROWTH AND INCOME FUND
- ----------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities of unaffiliated issuers, at market
(Cost: $70,430,371, $457,030,181, and $35,893,671, respectively) $82,890,780
Investments in securities of affiliated issuers, at market
(Cost: $1,150,178, $23,549,453, and $315,508, respectively) 1,336,090
-----------
Total investments in securities (see Fund Portfolios) 84,226,870
Cash in bank on demand deposit 276,899
Receivable for investment securities sold -
Dividends and accrued interest receivable 177,076
Other 51,860
-----------
Total assets 84,732,705
-----------
LIABILITIES
Payable for investment securities purchased -
Accrued investment advisory fee 41,508
Accrued distribution fee 15,014
Accrued dividend-disbursing, administrative, and accounting fee 14,377
Other accrued expenses 209
-----------
Total liabilities 71,108
-----------
Net assets applicable to outstanding capital stock $84,661,597
===========
REPRESENTED BY:
Capital stock $ 553,422
Additional paid-in capital 65,771,810
Undistributed net investment income (loss) 64,364
Accumulated net realized gains 5,625,680
Unrealized appreciation on investments 12,646,321
-----------
Total -- representing net assets applicable to outstanding
capital stock $84,661,597
===========
Shares of capital stock outstanding (Note 4) 5,534,220
-----------
Net asset value per share of outstanding capital stock $ 15.30
===========
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
IAI REGIONAL FUND IAI VALUE FUND
------------------------------------
<C> <C>
$551,124,025 $40,424,960
23,244,374 402,867
------------------------------------
574,368,399 40,827,827
3,528,563 521,088
7,405,585 689,178
419,691 40,869
39,346 11,935
------------------------------------
585,761,584 42,090,897
------------------------------------
9,984,535 42,900
345,426 26,729
121,454 4,383
97,163 7,128
56,520 265
------------------------------------
10,605,098 81,405
------------------------------------
$575,156,486 $42,009,492
====================================
$ 234,131 $ 33,819
448,590,202 36,158,040
144,629 304,842
32,470,859 894,143
93,716,665 4,618,648
------------------------------------
$575,156,486 $42,009,492
====================================
23,413,088 3,381,894
------------------------------------
$ 24.57 $ 12.42
====================================
</TABLE>
See accompanying Notes to Financial Statements on page 37
29
<PAGE>
STATEMENTS OF OPERATIONS
------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
Year ended March 31, 1996
<TABLE>
<CAPTION>
IAI Growth and Income Fund
<S> <C>
- --------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Dividends (including $0, $130,492, and $0, respectively, from affiliated issuers) $ 1,413,826
(net of foreign income taxes withheld of $2,597, $0, and $0, respectively)
Interest (including $0, $61,659, and $0, respectively, from affiliated issuers) 244,971
------------------------
Total income 1,658,797
------------------------
Expenses
Investment advisory fees 667,378
Distribution fees 222,459
Dividend-disbursing, administrative, and accounting fees 177,967
Legal fees -
Custodian fees 12,365
Compensation of Directors 7,280
Audit fees 10,672
Printing and shareholder reporting 36,400
Registration fees 910
Other expenses 14,985
------------------------
Total expenses 1,150,416
Less fees reimbursed by Advisers or Distributor (40,717)
------------------------
Net expenses 1,109,699
------------------------
Net investment income 549,098
------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
Net realized gains (losses) on:
Investment securities (including $0, ($495,066), and $0,
respectively, from affiliated issuers) $17,312,724
Futures contracts (19,650)
Written option contracts -
-----------
17,293,074
Net change in unrealized appreciation or depreciation on:
Investment securities (590,566)
Futures contracts -
Written option contracts -
-----------
(590,566)
------------------------
Net gain on investments 16,702,508
------------------------
Net increase in net assets resulting from operations $17,251,606
========================
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
IAI REGIONAL FUND IAI VALUE FUND
------------------------------------------------------------------
<C> <C>
$ 6,248,997 $ 379,877
3,860,832 420,475
-------------------------------------------------------------------
10,109,829 800,352
-------------------------------------------------------------------
3,945,330 316,540
1,382,819 105,513
1,106,255 84,411
17,780 1,380
5,810 4,200
15,680 9,100
31,878 9,085
331,323 24,439
1,580 14,560
75,642 7,384
-------------------------------------------------------------------
6,914,097 576,612
-- (49,044)
-------------------------------------------------------------------
6,914,097 527,568
-------------------------------------------------------------------
3,195,732 272,784
-------------------------------------------------------------------
$ 81,751,564 $4,170,114
-- --
(203,071) --
-------------- ----------
81,548,493 4,170,114
53,058,030 3,566,963
(72,100) --
50,751 --
-------------- ----------
53,036,681 3,566,963
--------------------------------------------------------------------
134,585,174 7,737,077
--------------------------------------------------------------------
$137,780,906 $8,009,861
====================================================================
</TABLE>
31
See accompanying Notes to Financial Statements on page 37
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
<TABLE>
<CAPTION>
IAI GROWTH AND INCOME FUND
Years ended March 31,
--------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 549,098 $ 893,488
Net realized gains (losses) 17,293,074 (2,719,525)
Net change in unrealized appreciation or depreciation (590,566) 10,704,951
------------------------------
Net increase in net assets resulting from operations 17,251,606 8,878,914
------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (763,346) (840,812)
Net realized gains (9,537,722) (5,569,932)
------------------------------
Total distributions (10,301,068) (6,410,744)
------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 17,287,097 22,505,094
Net asset value of shares issued to shareholders in
reinvestment of distributions 9,969,833 6,225,103
Cost of shares redeemed (50,801,710) (49,044,325)
------------------------------
Increase (decrease) in net assets from capital share transactions (23,544,780) (20,314,128)
------------------------------
Total increase (decrease) in net assets (16,594,242) (17,845,958)
Net assets at beginning of period 101,255,839 119,101,797
------------------------------
Net assets at end of period $ 84,661,597 $101,255,839
==============================
[including undistributed net investment income
of $64,364 and $282,408 for Growth and Income Fund,
$144,629 and $802,488 for Regional Fund,
and $304,842 and $17,489 for Value Fund]
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
IAI REGIONAL FUND IAI VALUE FUND
Years ended March 31, Years ended March 31,
------------------------------- ------------------------------
1996 1995 1996 1995
----------------------------------------------------------------------------
<C> <C> <C> <C>
$ 3,195,732 $ 4,012,967 $ 272,784 $ 115,710
81,548,493 18,074,048 4,170,114 300,380
53,036,681 29,416,913 3,566,963 700,762
----------------------------------------------------------------------------
137,780,906 51,503,928 8,009,861 1,116,852
----------------------------------------------------------------------------
(4,484,095) (5,095,789) (32,696) (85,573)
(60,785,490) (31,395,122) (3,345,740) (2,540,750)
----------------------------------------------------------------------------
(65,269,585) (36,490,911) (3,378,436) (2,626,323)
----------------------------------------------------------------------------
71,313,378 60,901,121 12,377,130 28,248,406
63,289,191 35,128,935 3,343,336 2,610,202
(155,321,634) (184,250,826) (18,943,353) (24,030,273)
----------------------------------------------------------------------------
(20,719,065) (88,220,770) (3,222,887) 6,828,335
----------------------------------------------------------------------------
51,792,256 (73,207,753) 1,408,538 5,318,864
523,364,230 596,571,983 40,600,954 35,282,090
----------------------------------------------------------------------------
$ 575,156,486 $ 523,364,230 $ 42,009,492 $ 40,600,954
============================================================================
</TABLE>
See accompanying Notes to Financial Statements on page 37
33
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------
IAI GROWTH AND INCOME FUND
Per share data for a share of capital stock outstanding throughout each period
and selected information for each period indicated are as follows:
<TABLE>
<CAPTION>
IAI GROWTH AND INCOME FUND
Years ended March 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 14.32 $ 13.91 $ 15.19 $ 14.73 $ 14.48
--------------------------------------------------------
OPERATIONS
Net investment income .10 .12 .09 .07 .13
Net realized and unrealized gains 2.86 1.04 .38 1.17 1.20
--------------------------------------------------------
Total from operations 2.96 1.16 .47 1.24 1.33
--------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (.13) (.10) (.06) (.07) (.14)
Net realized gains (1.85) (.65) (1.69) (.71) (.94)
--------------------------------------------------------
Total distributions (1.98) (.75) (1.75) (.78) (1.08)
--------------------------------------------------------
NET ASSET VALUE
End of period $ 15.30 $ 14.32 $ 13.91 $ 15.19 $ 14.73
========================================================
Total investment return* 21.51% 8.92% 3.07% 9.04% 9.56%
Net assets at end of period (000's omitted) $84,662 $101,256 $119,102 $134,308 $113,324
RATIOS
Expenses to average net assets 1.25% 1.25% 1.25% 1.25% 1.25%
Net investment income to average net assets .62% 0.80% 0.60% 0.61% 1.03%
Portfolio turnover rate
(excluding short-term securities) 89.1% 79.1% 205.6% 175.6% 210.1%
</TABLE>
* Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of all distributions at net asset
value.
34
<PAGE>
Financial Highlights
--------------------
IAI Regional Fund
Per share data for a share of capital stock
outstanding throughout each period
and selected information for each
period indicated are as follows:
IAI Regional Fund
<TABLE>
<CAPTION>
Years ended March 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of period $ 21.56 $ 20.94 $ 22.23 $ 21.29 $ 21.03
----------------------------------------------------------
Operations
Net investment income .14 .17 .21 .21 .20
Net realized and unrealized gains 5.77 1.84 .51 1.48 2.38
----------------------------------------------------------
Total from operations 5.91 2.01 .72 1.69 2.58
----------------------------------------------------------
Distributions to Shareholders From:
Net investment income (.20) (.20) (.18) (.23) (.24)
Net realized gains (2.70) (1.19) (1.83) (.52) (2.08)
----------------------------------------------------------
Total distributions (2.90) (1.39) (2.01) (.75) (2.32)
----------------------------------------------------------
Net Asset Value
End of period $ 24.57 $ 21.56 $ 20.94 $ 22.23 $ 21.29
==========================================================
Total investment return* 28.62% 10.35% 3.26% 8.31% 12.77%
Net assets at end of period (000's omitted) $575,156 $523,364 $596,572 $659,904 $528,763
Ratios
Expenses to average net assets 1.25% 1.23% 1.25% 1.25% 1.25%
Net investment income to average net assets .58% 0.74% 0.94% 1.09% 1.20%
Portfolio turnover rate
(excluding short-term securities) 89.7% 150.0% 163.0% 139.7% 140.6%
</TABLE>
* Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of all distributions at net asset
value.
35
<PAGE>
Financial Highlights
--------------------
IAI Value Fund
Per share data for a share of capital stock
outstanding throughout each period
and selected information for each
period indicated are as follows:
IAI Value Fund
<TABLE>
<CAPTION>
Years ended March 31,
----------------------------------------------------
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of period $ 11.17 $ 11.63 $ 11.63 $ 11.06 $ 10.46
---------------------------------------------------
Operations
Net investment income .08 .03 .05 .11 .12
Net realized and unrealized gains 2.19 .38 1.45 .56 1.08
---------------------------------------------------
Total from operations 2.27 .41 1.50 .67 1.20
---------------------------------------------------
Distributions to Shareholders From:
Net investment income (.01) (.03) (.13) - (.15)
Net realized gains (1.01) (.84) (1.37) (.10) (.45)
--------------------------------------------------
Total distributions (1.02) (.87) (1.50) (.10) (.60)
--------------------------------------------------
Net Asset Value
End of period $ 12.42 $ 11.17 $ 11.63 $ 11.63 $ 11.06
===================================================
Total investment return* 21.07% 3.88% 12.70% 6.20% 12.21%
Net assets at end of period (000's omitted) $42,009 $40,601 $35,282 $24,643 $32,246
Ratios
Expenses to average net assets 1.25% 1.25% 1.25% 1.25% 1.25%
Net investment income to average net assets .65% 0.31% 0.35% 0.68% 1.24%
Portfolio turnover rate
(excluding short-term securities) 73.4% 102.1% 191.9% 118.3% 125.4%
</TABLE>
* Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of all distributions at net asset
value.
36
<PAGE>
Notes to Financial Statements
-----------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
[1] Summary of Significant Accounting Policies
The IAI Mutual Funds are registered under the Investment Company Act of 1940 (as
amended) as diversified, open-end management investment companies, or series
thereof. IAI Growth and Income Fund (Growth and Income Fund) is a separate
portfolio of IAI Investment Funds VII, Inc., IAI Regional Fund (Regional Fund)
is a separate portfolio of IAI Investment Funds IV, Inc. and IAI Value Fund
(Value Fund) is a separate portfolio of IAI Investment Funds VIII, Inc. The
Funds have a primary objective of long-term appreciation through investments in
equity securities. This report covers only the Growth and Income Fund, Regional
Fund, and Value Fund (the Funds).
Significant accounting policies followed by the Funds are summarized below:
Security Valuation
Investments in securities traded on national securities exchanges are valued at
the last reported sales price at the close of each business day. Securities
traded on the over-the-counter market are valued at the last reported sales
price or if the last sales price is not available, the last reported bid price
is used. Securities, including debt securities and restricted securities, for
which quotations are not readily available are valued primarily using dealer-
supplied valuations or at their fair value as determined in good faith using
consistently applied procedures under the general supervision of the Board of
Directors. Short-term securities with a maturity of 60 days or less from the
date of initial acquisition are valued at amortized cost. Short-term securities
with a maturity greater than 60 days from the date of initial acquisition are
marked-to-market on a daily basis.
Restricted securities for which there is no public market are valued at fair
value in good faith as determined by the Board of Directors.
Futures and Options
Contracts
In order to increase exposure to and hedge against changes in the market, the
Funds may buy and sell futures contracts and options. The risks of entering into
futures and option contracts include the possibility that changes in the value
of these contracts may not correlate with changes in the underlying security.
Futures contracts are valued at the settlement price of the exchange on which
they are traded. Upon entering into a futures contract, a Fund is required to
deposit either cash or securities, representing the initial margin, equal to a
certain percentage of the contract value. Subsequent changes in the value of the
contract, or variation margin, are recorded daily as unrealized gains or losses.
Variation margin is paid or received in cash daily by the Fund. The Fund
realizes a gain or loss when the contract is closed or expires.
Options traded on an exchange are valued using the last sale price, and those
traded over-the-counter are valued using dealer-supplied valuations, resulting
in unrealized appreciation or depreciation being recorded. The Fund will realize
a gain or loss upon expiration or closing of the option transaction. When an
option is exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option or the cost of a security for a
37
<PAGE>
Notes to Financial Statements
-----------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
[1] Summary of Significant Accounting
Policies (cont.)
purchased put or call option is adjusted by the amount of premium received or
paid.
The Fund is subject to the credit risk that the other party will not complete
obligations of the contract.
Federal Taxes
Since it is each Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its shareholders, no provision for income taxes is
required. In order to avoid the payment of any federal excise taxes, each Fund
is required to distribute substantially all of its net investment income and net
realized gains on a calendar year basis.
Net investment income and net realized gains differ for financial statement and
tax purposes primarily because of recognition of limited partnership income and
the deferral of "wash sale" losses for tax purposes. The character of
distributions made during the year from net investment income or net realized
gains may also differ from its ultimate characterization for tax purposes.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income (loss), and accumulated net
realized gains (losses) have been increased or decreased, resulting in a net
reclassification adjustment to additional paid-in capital as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Growth and Regional Value
Income Fund Fund Fund
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Undistributed net investment income (loss) $(3,796) $ 630,504 $ 47,265
Accumulated net realized gains (losses) $ - $(630,504) $(47,265)
Additional paid-in capital $ 3,796 $ - $ -
</TABLE>
Security Transactions and
Investment Income
The Funds record security transactions on trade date, the date the securities
are purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. The Funds amortize discount
purchased on long-term bonds using the level yield method of amortization.
Security gains and losses are determined on the basis of identified cost, which
is the same basis used for federal income tax purposes. The Funds use the equity
method of accounting for limited partnerships.
Distributions to
Shareholders
Distributions to shareholders are recorded on the ex-date. Distributions from
net investment income are made semi-annually. Capital gains, if any, are
primarily distributed as of the end of the calendar year. Additional capital
gains distributions as needed to comply with federal tax regulations are
distributed during the year.
38
<PAGE>
Notes to Financial Statements
-----------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
[1] Summary of Significant Accounting
Policies (cont.)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported results of operations during the reporting period. Actual results
could differ from those estimates.
[2] Commitments and Contingencies
For purposes of obtaining certain types of insurance coverage for the Funds and
its officers and directors, the Funds are policyholders in an industry-sponsored
mutual insurance company (the Company). In connection with their obligations as
policyholders, the Funds have made payments to the Company which have been
capitalized. Also, the Funds are committed to make future capital contributions,
if requested by the Company.
Growth and Income Fund, Regional Fund, and Value Fund have available lines of
credit of $15,000,000, $15,000,000 and $14,000,000, respectively, with a bank at
the prime interest rate. To the extent funds are drawn against the line,
securities are held in a segregated account. No compensating balances or
commitment fees are required under the line of credit. During the year ended
March 31, 1996, the Funds paid $5,713, $4,326, and $0, respectively, in interest
on the line of credit at an average annual rate ranging from 8.25% to 9.00%.
There were no borrowings outstanding at March 31, 1996.
At March 31, 1996, the Funds are committed to invest additional amounts in
certain positions held, as follows:
<TABLE>
<CAPTION>
Investment Commitments
- ------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund Regional Fund Value Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Agio Capital Partners I L.P. $ - $ 1,425,000 $ -
Alta Berkeley III L.P. 183,000 365,000 -
Ampersand Specialty Materials & Chemicals II L.P. 300,000 450,000 150,000
Greenwich Street Capital Partners L.P. - 8,036,000 -
Pathfinder Venture Capital Fund III L.P. - 150,000 -
PathNet Series A PFD - - 50,000
Spectrum Equity Investors L.P. - 1,797,000 -
Vanguard Associates IV L.P. - 350,000 -
- ------------------------------------------------------------------------------------------------------------------------
Total Commitments $483,000 $12,573,000 $200,000
========================================================================================================================
</TABLE>
Default by a limited partner of payment of a properly requested capital
contribution, other than default due to a legal determination that such
contribution need not be made, would result in forfeiture of such limited
partner's interest in any future profits and loss in the partnership and removal
from the limited partnership.
The Funds' management intends to finance the aforementioned commitments with
available cash or with proceeds from the sale of investments in short-term
securities. Each Fund maintains in a segregated account an amount equal to its
aggregate unpaid commitments.
39
<PAGE>
Notes to Financial Statements
-----------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
[3] Fees and Expenses
Under the terms of an investment advisory agreement, each Fund paid Investment
Advisers, Inc. (Advisers) an annual management fee computed monthly on the
average month-end net asset value using the following annual fee schedule:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Month-End Net Asset Value Annual Rate
- ------------------------------------------------------------------------------
<S> <C> <C>
Growth and Income Fund
For the first $100,000,000 .75%
For the next $100,000,000 .65%
Above $200,000,000 .55%
Regional Fund & Value Fund
For the first $200,000,000 .75%
For the next $300,000,000 .70%
Above $500,000,000 .65%
</TABLE>
Each Fund also paid a monthly fee to Advisers for acting as the Fund's dividend-
disbursing, administrative, and accounting services agent. The fee was computed
monthly on the average month-end net assets at an annual rate of .20%.
Each Fund had a Plan of Distribution with IAI Securities, Inc. (Distributor),
the Fund's distributor. Under the Plan, each Fund paid Distributor a monthly fee
to cover expenses incurred in the distribution and promotion of Fund shares. The
fee was equal to an annual rate of .25% of each Fund's average month-end net
assets.
In addition to the advisory, distribution, and the dividend-disbursing,
administrative, and accounting services fees, the Funds were responsible for
paying operating expenses, including costs incurred in the purchase and sale of
assets. Advisers and Distributor had agreed to reimburse the Funds to the extent
total expenses, excluding costs incurred in the purchase and sale of assets,
exceed, on an annual basis, 1.25% of each Fund's respective average month-end
net assets.
New Management Agreements between Advisers and the Funds were approved by a
majority of each Funds' shareholders at a special meeting held March 21, 1996,
and replaced the prior Advisory, Administrative, and Distribution Agreements
with Advisers. These new agreements, effective April 1, 1996, require Advisers
to pay for all expenses of each Fund, except certain costs (primarily those
incurred in the purchase and sale of assets, taxes, interest and extraordinary
expenses), in return for each Fund paying an all inclusive management fee to
Advisers. This fee is equal to an annual rate of 1.25% of each Funds' average
daily net assets, and will be paid monthly. This fee declines to 1.10% (1.00 for
Growth and Income Fund) as each Fund's assets increase.
Pursuant to these new agreements, and subsequent to March 31, 1996, each Fund
paid Advisers to assume certain unpaid liabilities, and received amounts from
Advisers in exchange for transferring prepaid expenses to Advisers. As a result
of these transactions, Growth and Income, Regional and Value Funds received net
amounts of $15,275, $40,416 and $1,849, respectively.
40
<PAGE>
Notes to Financial Statements
-----------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
[4] Capital Stock
Growth and Income Fund has authorized 10 billion shares of $.10 par value stock;
Regional Fund and Value Fund each have authorized 10 billion shares of $.01 par
value stock. Transactions in shares of capital stock during the years ended
March 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Growth and Income Fund Regional Fund Value Fund
- --------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sold 1,133,461 1,651,236 3,012,767 2,960,445 1,036,630 2,541,639
Issued for reinvested
distributions 689,692 477,649 2,749,024 1,792,336 289,094 244,196
Redeemed (3,361,275) (3,619,759) (6,621,171) (8,975,444) (1,579,960) (2,182,842)
-------------------------------------------------------------------------------------------
Increase (decrease) in
shares outstanding (1,538,122) (1,490,874) (859,380) (4,222,663) (254,236) 602,993
===========================================================================================
</TABLE>
[5] Investment Transactions
Purchases and Sales of
Securities
For the year ended March 31, 1996, purchases of securities and sales proceeds,
other than investments in short-term securities, for the Funds were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Purchases Sales
- --------------------------------------------------------------------------------
<S> <C> <C>
Growth and Income Fund $ 76,725,849 $119,266,866
Regional Fund $430,379,730 $511,000,224
Value Fund $ 25,516,583 $ 33,051,654
</TABLE>
Restricted Securities
Included in the Funds' portfolios of investments in securities at March 31, 1996
are issues which generally cannot be offered for sale to the public without
first being registered under the Securities Act of 1933 ("restricted
securities"). Such securities are generally illiquid. Each Fund limits
investments in securities which are not readily marketable to 15 percent of its
net assets at the time of purchase. This limitation does not include Rule 144A
securities that have been determined to be liquid based upon guidelines approved
by the Funds' Board of Directors.
41
<PAGE>
Notes to Financial Statements
-----------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
March 31, 1996
[5] Investment Transactions (cont.)
At March 31, 1996, the Funds held illiquid restricted securities as follows:
<TABLE>
<CAPTION>
Market % of
Value Net Assets
------------ ----------
<S> <C> <C>
IAI Growth and Income Fund $ 6,879,412 8.1%
IAI Regional Fund $33,006,558 5.7%
IAI Value Fund $ 3,024,276 7.2%
</TABLE>
[6] Open Futures Contracts
The financial futures contracts shown below were open in the Regional Fund as of
March 31, 1996. The market value of securities deposited to cover initial margin
requirements for the open position at March 31, 1996 was $985,030. The
unrealized depreciation of $72,100 on these contracts at March 31, 1996 is
included in unrealized appreciation on investment securities.
<TABLE>
<CAPTION>
Number of Expiration Market Unrealized
Type Contracts Month Position Value Depreciation
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
S&P 500 60 June 1996 Long $19,537,500 $ 72,100
</TABLE>
[7] Option Contracts Written
During the year ended March 31, 1996, Regional Fund wrote the following options
on equity securities:
<TABLE>
<CAPTION>
Call Options
- ----------------------------------------------------------------------
Number of Contracts Premium
- ----------------------------------------------------------------------
<S> <C> <C>
Outstanding at 3/31/95 250 $ 24,249
Opened 5,340 736,703
Expired (300) (29,100)
Closed (1,510) (259,145)
Exercised (3,780) (472,707)
-----------------------------------
Outstanding at 3/31/96 -- $ --
===================================
</TABLE>
42
<PAGE>
Independent Auditors' Report
-------------------------------------------------------------
IAI Growth and 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 and 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, 1996 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 then ended. 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 and Income Fund and IAI Value Fund at March 31, 1996,
and 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 then ended,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 10, 1996
43
<PAGE>
Federal Tax Information
-----------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
We are required by federal tax regulations to provide shareholders with certain
information regarding dividend distributions paid during our fiscal year. The
figures provided are for information purposes only and should not be used for
reporting to federal or state revenue agencies. You will receive all necessary
tax information on Form 1099-DIV, Dividends and Distributions, in January of
each year.
IAI Growth and Income Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Payable Date Ordinary Long-Term
Income (A) Capital Gain
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
June 1995 $.0535 $ -
December 1995 .0765 1.8472
==========================================================================================================
$.1300 $1.8472
92.26% of ordinary income distributions qualify for deduction by corporations.
IAI Regional Fund
- ---------------------------------------------------------------------------------------------------------
Payable Date Ordinary Long-Term
Income (A) Capital Gain
- ----------------------------------------------------------------------------------------------------------
June 1995 $ .4851 $ .1225
December 1995 1.4438 .8491
==========================================================================================================
$1.9289 $ .9716
19.89% of ordinary income distributions qualify for deduction by corporations.
IAI Value Fund
- ----------------------------------------------------------------------------------------------------------
Payable Date Ordinary Long-Term
Income (A) Capital Gain
- ----------------------------------------------------------------------------------------------------------
June 1995 $ .0921 $ .0103
December 1995 .3433 .5732
==========================================================================================================
$ .4354 $ .5835
32.54% of ordinary income distributions qualify for deduction by corporations.
</TABLE>
(A) Includes distributions of short-term capital gains, if any, which are
taxable as ordinary income.
44
<PAGE>
Shareholder Update
------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
Special Meeting Results
A special meeting of the funds' shareholders was held on March 21, 1996. Each
matter voted upon at the meeting, as well as the number of votes cast for,
against or withheld, and the number of abstentions with respect to such matter,
are set forth below.
1. The funds' shareholders re-elected the following directors:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Shares Voted Shares Withheld
IAI Growth and Income Fund "For" Authority
- --------------------------------------------------------------
<S> <C> <C>
Madeline Betsch 4,022,284 68,633
W. William Hodgson 4,020,957 69,960
Richard E. Struthers 4,028,406 62,511
J. Peter Thompson 4,027,006 63,911
George R. Long 4,026,413 64,504
Noel P. Rahn 4,026,786 64,131
Charles H. Withers 4,021,919 68,998
- --------------------------------------------------------------
Shares Voted Shares Withheld
IAI Regional Fund "For" Authority
- --------------------------------------------------------------
Madeline Betsch 13,115,398 303,082
W. William Hodgson 13,090,448 328,032
Richard E. Struthers 13,128,183 290,297
J. Peter Thompson 13,081,196 337,284
George R. Long 13,065,466 353,014
Noel P. Rahn 13,124,886 293,594
Charles H. Withers 13,103,772 314,708
- --------------------------------------------------------------
Shares Voted Shares Withheld
IAI Value Fund "For" Authority
- --------------------------------------------------------------
Madeline Betsch 2,009,120 14,889
W. William Hodgson 2,007,437 16,572
Richard E. Struthers 2,010,787 13,222
J. Peter Thompson 2,000,084 23,925
George R. Long 1,999,539 24,470
Noel P. Rahn 2,011,038 12,971
Charles H. Withers 2,007,123 16,886
</TABLE>
45
<PAGE>
Shareholder Update
-------------------------------------------------------------
IAI Growth and Income Fund, IAI Regional Fund, IAI Value Fund
2. The funds' shareholders ratified the selection of KPMG Peat Marwick LLP as
the independent public accountants for each of the funds for each of their
fiscal years. The following votes were cast regarding the matter:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Shares Voted Shares Voted
"For" "Against" Abstentions
- ----------------------------------------------------------------------
<S> <C> <C> <C>
IAI Growth and Income Fund 4,009,429 39,139 72,348
IAI Regional Fund 12,979,710 98,578 340,191
IAI Value Fund 1,997,451 4,874 21,683
</TABLE>
3. The funds' shareholders ratified each funds' Advisory, Subadvisory and
Administrative Agreements. The following votes were cast regarding the matter:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Shares Voted Shares Voted
"For" "Against" Abstentions
- ----------------------------------------------------------------------
<S> <C> <C> <C>
IAI Growth and Income Fund 3,992,370 16,476 82,070
IAI Regional Fund 12,789,808 190,446 438,225
IAI Value Fund 1,988,964 10,482 24,562
</TABLE>
4. The funds' shareholders ratified the new Management Agreement between
Investment Advisers, Inc. and each of the funds. The following votes were
cast regarding the matter:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Shares Voted Shares Voted
"For" "Against" Abstentions
- ----------------------------------------------------------------------
<S> <C> <C> <C>
IAI Growth and Income Fund 3,910,091 132,965 47,860
IAI Regional Fund 12,566,212 322,563 529,704
IAI Value Fund 1,977,297 10,709 36,002
</TABLE>
46
<PAGE>
IAI MUTUAL FUND FAMILY
----------------------
To diversify your portfolio, please consider all of the mutual funds in our fund
family
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Secondary
IAI Fund Primary Objective Objective Portfolio Composition
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IAI Developing Capital Appreciation - Equity securities of companies in
Countries Fund developing countries
- --------------------------------------------------------------------------------------------------------------------
IAI International Fund Capital Appreciation Income Equity securities of non-U.S. companies
- --------------------------------------------------------------------------------------------------------------------
IAI Emerging Growth Fund Capital Appreciation - Common stocks of small to medium-sized
(closed to new investors as of 2/1/96) emerging growth companies
- --------------------------------------------------------------------------------------------------------------------
IAI Capital Appreciation Capital Appreciation - Common stocks of small to medium-sized
Fund growth companies
- --------------------------------------------------------------------------------------------------------------------
IAI Midcap Growth Fund Capital Appreciation - Common stocks of medium-sized growth
companies
- --------------------------------------------------------------------------------------------------------------------
IAI Regional Fund Capital Appreciation - Common stocks of Upper Midwest companies
- --------------------------------------------------------------------------------------------------------------------
IAI Growth Fund Capital Appreciation - Common stocks with potential for
above-average growth and appreciation
- --------------------------------------------------------------------------------------------------------------------
IAI Value Fund Capital Appreciation - Common stocks which are considered to be
undervalued
- --------------------------------------------------------------------------------------------------------------------
IAI Growth and Income Fund Capital Appreciation Income Common stocks with potential for
long-term appreciation, and common stocks
that are expected to produce income
- --------------------------------------------------------------------------------------------------------------------
IAI Balanced Fund Total Return Income Common stocks, investment grade bonds and
[Capital Appreciation + Income] short-term instruments
- --------------------------------------------------------------------------------------------------------------------
IAI Bond Fund Income Capital Investment grade bonds
Preservation
- --------------------------------------------------------------------------------------------------------------------
IAI Government Fund Income Capital U.S. Government securities
Preservation
- --------------------------------------------------------------------------------------------------------------------
IAI Reserve Fund Stability/Liquidity Income The portfolio has a maximum average
maturity of 25 months, investing primarily
in investment grade bonds
- --------------------------------------------------------------------------------------------------------------------
IAI Money Market Fund Stability/Liquidity Income The portfolio's average dollar-weighted
maturity is less than 90 days, investing
in high quality, money market securities
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
DISTRIBUTOR
IAI Securities, Inc.
INVESTMENT ADVISER
AND MANAGER
Investment Advisers, Inc.
P.O. Box 357
Minneapolis, MN 55440-0357 USA
800.945.3863
612.376.2700
CUSTODIAN
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, MN 55479
LEGAL COUNSEL
Dorsey & Whitney P.L.L.P.
220 South Sixth Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
4200 Norwest Center
Minneapolis, MN 55402
DIRECTORS
Madeline Betsch
W. William Hodgson
George R. Long
Noel P. Rahn
Richard E. Struthers
J. Peter Thompson
Charles H. Withers
<PAGE>
----------------
| Bulk Rate |
| U.S. Postage |
| PAID |
| Chicago, IL |
| Permit #4441 |
----------------
IAI
MUTUAL FUNDS
3700 First Bank Place, P.O. Box 357, Minneapolis, Minnesota 55440-0357 USA
FAX 612.376.2737
800.945.3863
612.376.2700
