EQUITY FUNDS
SEMI-ANNUAL REPORT
IAI GROWTH & INCOME FUND, IAI REGIONAL FUND,
IAI VALUE FUND
SEPTEMBER 30, 1996
(UNAUDITED)
[LOGO]
IAI MUTUAL FUNDS
TABLE OF CONTENTS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1996
(UNAUDITED)
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
IAI Mutual Fund Family.........................43
Adviser, Custodian, Legal Counsel,
Independent Auditors,
Directors.......................Inside Back Cover
CHAIRMAN'S LETTER
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
CALM AFTER THE STORM
[PHOTO]
NOEL P. RAHN
CHAIRMAN
The milestones keep coming faster and faster. The Dow Jones Industrial Average
broke the 5,000 barrier last November. Less than a year later, the Dow has now
broken through 6,000. That's pretty remarkable when you consider that the Dow
Jones Industrial Average was under 1,000 as recently as 1982.
There are many reasons to remain optimistic about the financial markets. After a
strong second quarter, the U.S. economy seems to be moderating its pace, growing
fast enough to generate corporate profits, but not so fast to bring back
inflation. Interest rates have stabilized, as the Federal Reserve Board took no
action before the presidential election, calming the market.
Still, the road hasn't always been smooth in 1996. The first half of this summer
was an eye-opener for many investors. After reaching a high of 5780 on May 22,
the Dow Jones Industrial Average fell about 7 percent by the end of July--more,
if you count swings in intra-day trading. And small cap stocks, those that
typically trade on NASDAQ, fell as much as 20 percent. The reason for the
turbulence was investor fears, generated by job growth data and increases in
commodity prices, that the economy was becoming overheated. Corporate profits in
the second quarter rose sharply. According to Business Week, corporate profits
rose 11 percent during the second quarter of 1996, compared to the same period
in 1995. In a pattern that often confounds politicians, good news in the economy
is often bad news on Wall Street.
Just remember, though, that stock market corrections are normal. They're even
healthy, because they allow investors to buy stocks at temporarily depressed
prices. For two months, the Dow fell steadily from 5780 in May to less than 5300
in July before rallying in early August back to the 5700 level. Of course,
nobody knows when the market will hit bottom. Many Wall Street pundits told the
media that the stock market was headed lower, perhaps much lower. But they were
wrong, as is often the case.
We don't recommend that you try to time the market. Even the pros can't get it
right consistently. That's why dollar cost averaging is such a good strategy. By
contributing a fixed amount into the market each month, your money buys more
shares when the market is low and fewer shares when the market is high. This
simple yet time honored method typically allows you to purchase shares at a
lower average cost.
Another way to minimize the impact of market turbulence is to make sure that you
are properly diversified. The fixed income market typically offers stability to
a portfolio, and is particularly appropriate for those investors who rely on
income as opposed to price appreciation. The international equity markets also
offer a way to diversify your portfolio, since the economies in other parts of
the world are in different stages than the U.S. economy.
Over the next six months, the markets will undoubtedly be affected by the
results of the U.S. presidential election as well as uncertainties regarding the
new Congress. And, as we've seen so far in 1996, there is great potential for
volatility. But the markets continue to demonstrate a remarkable resiliency.
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.
The economy has been stuck in a pattern of mini-cycles where periods of strength
are followed by periods of weakness. After expanding at a rate of about 3.4% in
the first half of this year, growth has slowed to 2.2% in the third quarter and
may be somewhat slower than that pace in the fourth quarter.
Recognizing the ebb and flow of the economy is critical to understanding the
recent behavior of the financial markets. The U.S. economy is operating only
slightly below its non-inflationary capacity. An extended period of real
strength would push resource utilization beyond its limits, producing higher
inflation, a tighter Federal Reserve policy, rising interest rates and an
eventual recession. Pauses, such as the one we are currently experiencing, help
extend the cycle and postpone these events. Thus, the markets respond favorably
to signs of a slowdown, as long as the slowdown does not go too far.
Lower growth rates in the second half of the year should relieve some
inflationary pressures without seriously damaging the expansion. New job
creation has slowed in the last two months, but remains on a upward trend. The
unemployment rate of 5.2% is close to a seven-year low, but labor costs are
still contained. Consumer confidence remains high, but spending has slowed as
consumers re-liquefy. Money and credit growth are providing ample liquidity, but
the excesses of earlier this year are dissipating. Commodity prices (including
the price of gold) appear to be headed lower, the budget deficit is at its
lowest level in 15 years and the U.S. dollar is firm. Overall, the slowdown
helps to preserve a favorable economic background for stocks and bonds.
Eventually this cycle will end in its usual way, with an overheating economy,
higher inflation, tighter monetary policy and a recession. Although this is not
likely to develop in the next six months, investors should remember that the
current pause is sure to be followed by renewed strength along with a pullback
in the markets. With this in mind, it is important to focus on a long-term
financial plan and not react to the emotions of the moment. Instead, periods of
volatility should be used to realign a well diversified portfolio or invest cash
reserves. In the months immediately ahead, we expect the firming trend of stock
and bond prices to continue.
Please read the Fund Managers' Reviews, which follow this letter, for a detailed
perspective on each Fund's performance and our strategy going forward. We
appreciate your continued trust and confidence in IAI. If there is any way we
can serve you better, please let us know by calling our toll-free Investor
Services Hotline at 1-800-945-3863.
Sincerely,
/s/ Noel P. Rahn
Noel P. Rahn
Chairman
FUND MANAGER'S REVIEW
IAI GROWTH AND INCOME FUND
IAI GROWTH AND INCOME FUND
[PHOTO]
DONALD J. HOELTING, CFA
IAI GROWTH AND INCOME FUND MANAGER
TOP FIVE SECTORS
% OF NET ASSETS AS OF 9/30/96
[BAR CHART]
FINANCIAL 17.2%
CONSUMER DURABLES 10.4%
PRODUCER MANUFACTURING 8.8%
CONSUMER NON-DURABLES 8.5%
RETAIL TRADE 8.0%
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.
FACTORS AFFECTING THE PAST SIX-MONTH PERFORMANCE
For the six months ended September 30, 1996, the IAI Growth and Income Fund
produced a total return of 7.59%. In contrast, the Standard & Poor's 500 Index
generated a return of 7.76%. For the twelve-month period ended September 30,
1996, the IAI Growth and Income Fund produced a total return of 15.43% while the
S&P 500 Index was up 20.39%.
Companies such as Intel, Gillette and Norwest continued to perform extremely
well and boost the results of the portfolio. Intel has developed a very strong
business franchise by becoming the leading provider of components for personal
computers. Its Pentium chip continues to lead the market, which has helped
Intel's stock rise 30% in the third quarter. Gillette is another franchise
company generating tremendous amounts of free cash flow. The stock has performed
well recently in part because investors flock to stable growth companies when
the market is uncertain.
In addition, the investment community views its recent acquisition of Duracell
as synergistic in terms of building shelf space at the retail level. Norwest, a
Minneapolis-based financial institution, continues to exceed earnings
expectations. Their strategy is to become the McDonald's of banking, by buying
new "stores" and generating higher revenues and earnings through the
cross-selling of their different products.
On the minus side, tobacco stocks were down during the quarter due to an
unfavorable Florida court decision. However, a tobacco-related company in the
portfolio actually benefits from adverse legal developments. Schweitzer-Mauduit
International is the leading maker of filter tips for cigarettes. As the
litigation climate surrounding the tobacco industry intensifies, the company
will benefit because it produces devices that attempt to protect cigarette
smokers from the dangers of tobacco.
OUTLOOK
In extremely strong markets, the IAI Growth and Income Fund usually does not
outperform the broader averages. However, since we do not believe that the stock
market can continue to rise at an average rate of 15% when the economy is
growing just 3% per year, we believe that investors will tend to focus more on
true underlying corporate value, thus favoring the stocks in this portfolio.
FUND MANAGER'S REVIEW
IAI GROWTH AND INCOME FUND
VALUE OF $10,000 INVESTMENT+
[GRAPH PLOT POINTS]
IAI Growth And Income Fund S&P 500 Index
10/1/86 $10,000 $10,000
3/31/87 $12,822 $12,784
3/31/88 $12,195 $11,721
3/31/89 $14,369 $13,819
3/31/90 $16,811 $16,452
3/31/91 $18,058 $18,822
3/31/92 $19,785 $20,900
3/31/93 $21,573 $24,091
3/31/94 $22,235 $24,437
3/31/95 $24,217 $28,246
3/31/96 $29,420 $37,325
9/30/96 $31,654 $40,222
AVERAGE ANNUAL RETURNS+
THROUGH 9/30/96
6 Months** 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
IAI GROWTH AND INCOME FUND 7.59% 15.43% 11.44% 12.22%
- --------------------------------------------------------------------------------
S&P 500 Index 7.76% 20.39% 15.24% 14.93%
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
** NOT ANNUALIZED
TOP TEN HOLDINGS*
% of Net Assets
Issue Sector 9/30/96 3/31/96
- --------------------------------------------------------------------------------
Walt Disney Consumer Services 3.46 3.71
Philip Morris Consumer Non-Durables 3.04 4.36
Harcourt General Retail Trade 3.01 2.63
Federal Home Loan
Mortgage Corporation Financial 2.96 2.24
General Electric Producer Manufacturing 2.85 2.59
SmithKline Beecham ADR Health Technology 2.64 2.33
United Assets Management Financial 2.63 --
Eastman Kodak Consumer Durables 2.61 2.16
Wal-Mart Retail Trade 2.57 2.39
Schweitzer-Mauduit International Non-Energy Minerals 2.56 --
- --------------------------------------------------------------------------------
TOTAL 28.33 22.41
* EXCLUDES U.S. TREASURY AND GOVERNMENT OBLIGATIONS
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.
FUND MANAGER'S REVIEW
IAI REGIONAL FUND
IAI REGIONAL FUND
[PHOTO]
MARK C. HOONSBEEN, CFA
IAI REGIONAL FUND MANAGER
TOP FIVE SECTORS
% OF NET ASSETS AS OF 9/30/96
[BAR CHART]
PRODUCER MANUFACTURING 12.6%
FINANCIAL 11.4%
PROCESS INDUSTRIES 9.5%
CONSUMER DURABLES 8.2%
ELECTRONIC TECHNOLOGY 8.0%
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.
FACTORS AFFECTING THE PAST SIX-MONTH PERFORMANCE
For the six months ended September 30, 1996, the IAI Regional Fund produced a
total return of 4.24%. In contrast, the IAI Regional 300 Index reflected a total
return of 5.60%, while the Standard & Poor's 500 Index generated a return of
7.76%. For the twelve-month period ended September 30, 1996, the IAI Regional
Fund produced a total return of 16.31% while the S&P 500 Index was up 20.39%.
The IAI Regional Fund posted a strong second calendar quarter. The Fund was up
5.80% for the quarter, nearly double the IAI Regional 300 Index of 2.99% and
substantially above the S&P 500 Index performance of 4.49%. However, the third
calendar quarter ended September 30 was more difficult. The Regional Fund's
third quarter performance was -1.46% compared to 2.51% for the IAI Regional 300
and 3.09% for the S&P 500 Index. A number of companies in the
Portfolio--including IDEX, Polaris and Patterson Dental--reported disappointing
results. Additionally, the S&P 500 benefited from a third quarter rally in large
capitalization companies. Smaller capitalization stocks, such as those held in
our portfolio, generally underperformed.
On the plus side, strong performing areas in the third quarter included life
insurance and diversified electronic products. Life insurance stocks were
favorably impacted by lower interest rates. Leading performers included
Equitable of Iowa, Guarantee Life and Reliastar Financial. In diversified
electronics, not having a position in Motorola when the stock was knocked down
in July was beneficial to the portfolio. We subsequently established a position
in Motorola after the sell-off because we believe its price now reflects the
lack of near-term earnings visibility.
OUTLOOK
The capital goods area continues to be an important theme in the IAI Regional
Fund's portfolio. The theme has worked because companies that focus on
production have outperformed those that have emphasized consumption. However,
aggregate spending in the capital goods area is beginning to slow down, and we
believe that the quality of management will become even more important to
generating shareholder value. Companies such as Illinois Tool Works, Idex and
Tower Automotive are examples where management skill will be critical in order
for shareholders to continue to realize value in this less favorable
environment.
Our approach continues to focus on buying good companies and sticking to a
valuation discipline. Certain segments of the market have become quite
speculative due to the enormous amount of cash that has moved into the market.
Though our disciplined approach may impact performance over shorter time
periods, we believe it will serve our shareholders over the long term.
FUND MANAGERS' REVIEW
IAI REGIONAL FUND
VALUE OF $10,000 INVESTMENT+
[GRAPH PLOT POINTS]
IAI Regional Fund S&P 500 Index
10/1/86 $10,000 $10,000
3/31/87 $12,027 $12,784
3/31/88 $11,859 $11,721
3/31/89 $14,068 $13,819
3/31/90 $17,114 $16,452
3/31/91 $20,194 $18,822
3/31/92 $22,775 $20,900
3/31/93 $24,669 $24,091
3/31/94 $25,473 $24,437
3/31/95 $28,108 $28,246
3/31/96 $36,153 $37,325
9/30/96 $37,690 $40,222
AVERAGE ANNUAL RETURNS+
THROUGH 9/30/96
6 Months** 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
IAI REGIONAL FUND 4.24% 16.31% 11.93% 14.19%
- --------------------------------------------------------------------------------
S&P 500 Index 7.76% 20.39% 15.24% 14.93%
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
** NOT ANNUALIZED
TOP TEN HOLDINGS*
% of Net Assets
------------------
Issue Sector 9/30/96 3/31/96
- --------------------------------------------------------------------------------
Baxter International Health Technology 2.56 2.39
ITI Technologies Consumer Durables 2.09 0.99
Newell Consumer Durables 2.05 1.80
AptarGroup Process Industries 1.96 2.02
USG Non-Energy Minerals 1.70 1.63
Lands' End Retail Trade 1.69 0.34
360 Communications Electronic Technology 1.67 0.98
Snap-On Consumer Durables 1.66 0.97
Amoco Energy Minerals 1.63 1.46
ABC Rail Products Producer Manufacturing 1.62 1.42
- --------------------------------------------------------------------------------
TOTAL 18.63 14.00
* EXCLUDES U.S. TREASURY AND GOVERNMENT OBLIGATIONS
NOTE TO CHAIRMAN'S LETTER & FUND MANAGERS' REVIEW
PERFORMANCE DATA FOR THE IAI REGIONAL FUND INCLUDES CHANGES IN SHARE PRICE AND
REINVESTMENT OF 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.
FUND MANAGERS' REVIEW
IAI VALUE FUND
IAI VALUE FUND
[PHOTO]
DONALD J. HOELTING, CFA
IAI VALUE FUND CO-MANAGER
[PHOTO]
DOUGLAS R. PLATT
IAI VALUE FUND CO-MANAGER
TOP FIVE SECTORS
% OF NET ASSETS AS OF 9/30/96
[BAR CHART]
FINANCIAL 16.0%
CONSUMER DURABLES 12.1%
PRODUCER MANUFACTURING 10.4%
NON-ENERGY MINERALS 10.2%
INDUSTRIAL SERVICES 6.7%
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.
FACTORS AFFECTING THE PAST SIX-MONTH PERFORMANCE
For the six months ended September 30, 1996, the IAI Value Fund produced a total
return of 0.78%. In contrast, the Value Line Index reflected a total return of
3.29% while the Standard & Poor's 500 Index generated a return of 7.76%. For the
twelve-month period ended September 30, 1996, the IAI Value Fund produced a
total return of 8.08% while the Value Line Index reflected a total return of
7.64% and the S&P 500 Index was up 20.39%.
Greenpoint Financial, Life USA, Dal-Tile International and Department 56
illustrate the Fund's current strategy. Greenpoint Financial is the leading
provider of mortgage financing to lower income homeowners in the Northeast. The
company requires bigger down payments to compensate for the added risk. Because
of its strong franchise, the company generates a very large free cash flow. Life
USA is a Minneapolis-based insurance company that focuses on selling annuities.
The company has built distribution for its product by purchasing financial
planner firms that sell the product. Annuities are appealing because they
provide an income payment for life. Dal-Tile International, based in Texas, is a
leading manufacturer of decorative tile used in upper income homes. Kitchen and
bathroom tile is considered to be the most durable and stylish material.
In the past few years, small capitalization growth stocks have had a tremendous
runup. Many of these stocks have become overpriced and vulnerable to a downturn.
Typically, when these companies report disappointing earnings, share prices drop
dramatically. For instance, we were able to purchase the stock of Department 56,
a leading manufacturer of holiday decorations at a 25% discount after such a
disappointing announcement. However, the company still has a very strong
franchise, and we expect it to resume generating strong cash flow in the months
ahead.
OUTLOOK
In extremely strong markets, the IAI Value Fund usually does not outperform the
broader averages. However, since we do not believe that the stock market can
continue to rise at an average rate of 15% when the economy is growing just 3%
per year, we believe that investors will tend to focus more on true underlying
corporate value, thus favoring the stocks in this portfolio.
FUND MANAGERS' REVIEW
IAI VALUE FUND
VALUE OF $10,000 INVESTMENT+
[GRAPH PLOT POINTS]
IAI Value Fund Value Line Index Russell 2500 S&P 500 Index
10/1/86 $10,000 10,000 10,000 $10,000
3/31/87 $12,571 12,062 12,365 $12,784
3/31/88 $12,711 10,273 11,206 11,721
3/31/89 $15,783 11,066 12,769 $13,819
3/31/90 $17,347 10,981 13,763 $16,452
3/31/91 $18,422 10,696 15,118 $18,822
3/31/92 $20,672 11,585 18,433 $20,900
3/31/93 $21,953 12,609 21,512 $24,091
3/31/94 $24,739 12,826 23,405 $24,437
3/31/95 $25,701 13,149 25,432 $28,246
3/31/96 $31,111 15,533 33,017 $37,325
9/30/96 $31,354 16,043 35,168 $40,222
AVERAGE ANNUAL RETURNS+
THROUGH 9/30/96
6 Months** 1 Year 5 Years 10 Years
- -----------------------------------------------------------------------------
IAI VALUE FUND 0.78% 8.08% 11.47% 12.11%
- -----------------------------------------------------------------------------
Value Line Index(1) 3.29% 7.64% 8.03% 4.80%(2)
- -----------------------------------------------------------------------------
Russell 2500 Index 6.51% 15.83% 16.50% 13.40%
- -----------------------------------------------------------------------------
S&P 500 Index 7.76% 20.39% 15.24% 14.93%
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
** NOT ANNUALIZED
1 THE VALUE LINE INDEX WILL BE REPLACED WITH THE RUSSELL 2500 INDEX AS THE
FUND'S MANAGEMENT HAS DETERMINED THE RUSSELL 2500 INDEX TO BE MORE
REPRESENTATIVE OF THE FUND'S INVESTMENTS, AND THEREFORE A BETTER COMPARISON
FOR FUND PERFORMANCE.
2 SINCE 01/01/87
<TABLE>
<CAPTION>
TOP TEN HOLDINGS*
% of Net Assets
------------------------
Issue Sector 9/30/96 3/31/96
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
M/A/R/C Commercial Services 3.34 2.31
Falcon Drilling Industrial Services 3.03 3.71
Sturm Ruger Consumer Durables 2.96 --
Dal-Tile International Non-Energy Minerals 2.92 --
Nordson Producer Manufacturing 2.75 --
Leucadia National Financial 2.73 --
Bandag Consumer Durables 2.71 --
Scherer (R.P.) Health Technology 2.68 --
United Assets Management Financial 2.59 --
Life USA Financial 2.53 2.19
- ------------------------------------------------------------------------------------
TOTAL 28.24 8.21
</TABLE>
* EXCLUDES U.S. TREASURY AND GOVERNMENT OBLIGATIONS
NOTE TO CHAIRMAN'S LETTER & FUND MANAGERS' 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.
FUND PORTFOLIO
IAI GROWTH AND INCOME FUND
SEPTEMBER 30, 1996
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
(UNAUDITED)
COMMON STOCKS 87.5%
Market
Quantity Value (a)
- -------------------------------------------------------
CONSUMER DURABLES - 10.4%
Bandag 33,200 $ 1,639,250
Eastman Kodak 27,300 2,143,050
Hasbro 40,900 1,518,412
Polaris 73,100 1,653,888
Sturm Ruger 79,400 1,558,225
- -------------------------------------------------------
8,512,825
- -------------------------------------------------------
CONSUMER NON-DURABLES - 8.5%
Coca Cola 34,600 1,760,275
Gillette 19,700 1,420,862
Philip Morris 27,800 2,495,050
UST 43,700 1,294,612
- -------------------------------------------------------
6,970,799
- -------------------------------------------------------
CONSUMER SERVICES - 6.3%
Media General Class A 35,900 1,130,850
Reader's Digest Class A 29,700 1,213,988
Walt Disney 44,800 2,839,200
- -------------------------------------------------------
5,184,038
- -------------------------------------------------------
ELECTRONIC TECHNOLOGY - 6.1%
General Dynamics 22,900 1,577,238
Intel 21,900 2,090,081
Motorola 26,400 1,362,900
- -------------------------------------------------------
5,030,219
- -------------------------------------------------------
ENERGY MINERALS - 3.1%
British Petroleum ADR 6,810 851,250
Exxon 20,100 1,673,325
- -------------------------------------------------------
2,524,575
- -------------------------------------------------------
FINANCIAL - 17.2%
Aetna 27,800 1,956,425
American Express 43,600 2,016,500
Federal Home Loan Mortgage
Corporation 24,800 2,427,300
Leucadia National 54,100 1,311,925
Norwest 35,600 1,455,150
PMI Group 26,400 1,402,500
United Assets Management 91,400 2,159,325
United Dominion Realty Trust 95,700 1,339,800
- -------------------------------------------------------
14,068,925
- -------------------------------------------------------
HEALTH TECHNOLOGY - 6.2%
Pfizer 16,400 1,297,650
Scherer (R.P.) (b) 33,100 1,613,625
SmithKline Beecham ADR 35,629 2,168,915
- -------------------------------------------------------
5,080,190
- -------------------------------------------------------
INDUSTRIAL SERVICES - 2.0%
Schlumberger ADR 6,400 540,800
WMX Technologies 32,600 1,071,725
- -------------------------------------------------------
1,612,525
- -------------------------------------------------------
NON-ENERGY MINERALS - 4.0%
Nucor 23,800 1,207,850
Schweitzer-Mauduit 62,800 2,103,800
International
- -------------------------------------------------------
3,311,650
- -------------------------------------------------------
PRODUCER MANUFACTURING - 8.8%
Berkshire Hathaway Class A (b) 60 1,929,000
General Electric 25,700 2,338,700
Nordson 22,800 1,271,100
Tyco International 39,800 1,716,375
- -------------------------------------------------------
7,255,175
- -------------------------------------------------------
RETAIL TRADE - 8.0%
Circuit City 54,800 1,979,650
Harcourt General 44,700 2,469,675
Wal-Mart 79,800 2,104,725
- -------------------------------------------------------
6,554,050
- -------------------------------------------------------
TECHNOLOGY SERVICES 2.2%
Electronic Data Systems 29,700 1,822,838
- -------------------------------------------------------
UTILITIES - 4.7%
AT&T 32,900 1,719,025
FPL Group 26,200 1,133,150
MCI Communications 37,900 971,188
- -------------------------------------------------------
3,823,363
- -------------------------------------------------------
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $62,271,217)....................$ 71,751,172
- -------------------------------------------------------
OTHER SECURITIES - 8.2%
Market
Quantity (c) Value (a)
- -------------------------------------------------------
COMMON STOCKS - 3.7%
Adra Systems Class A (b) 12,243 $ 24,486
GalaGen (b) (d) 54,168 276,419
PACE Health Management
Systems (b) (d) 121,220 427,179
Smartflex Systems (b) 2,180 26,664
Urologix (b) 146,060 2,133,352
Young Broadcasting Class A (b) 4,331 135,777
- -------------------------------------------------------
3,023,877
- -------------------------------------------------------
CONVERTIBLE PREFERRED STOCK - 0.2%
Biometric Systems Series A (b) 6,667 133,340
- -------------------------------------------------------
NON-CONVERTIBLE PREFERRED STOCKS - 0.5%
Adra Systems Series D (b) 14,964 149,640
Performance Semiconductor
Series B (b) 65,218 9,215
Performance Semiconductor
Series C (b) 10,269 1,451
Performance Semiconductor
Series D (b) 5,072 717
Tut Systems Series D (b) (d) 222,222 277,777
VasoMedx Series B (b) 9,723 97
- -------------------------------------------------------
438,897
- -------------------------------------------------------
Ownership Market
Percentage (c) Value (a)
- -------------------------------------------------------
LIMITED PARTNERSHIPS - 3.8%
Alta Berkeley III (b) 1.76% $ 621,688
Ampersand Specialty Materials &
Chemicals II (b) 1.82 662,369
Athena Venture Partners (b) 2.28 157,032
Broad Street Investment
Fund I (b) 0.16 389,710
South Street Corporate
Recovery Fund I (b) 1.05 127,054
Vanguard Associates II (b) 3.76 169,621
Vanguard Associates III (b) 6.55 967,713
- -------------------------------------------------------
3,095,187
- -------------------------------------------------------
Market
Quantity (c) Value (a)
- -------------------------------------------------------
STOCK OPTIONS - 0.0%
GalaGen (b) (d) 975 1,378
- -------------------------------------------------------
TOTAL INVESTMENTS IN OTHER SECURITIES
(COST: $4,528,634).....................$ 6,692,679
- -------------------------------------------------------
TOTAL INVESTMENTS IN LONG-TERM SECURITIES
(COST: $66,799,851)....................$ 78,443,851
- -------------------------------------------------------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 19
FUND PORTFOLIO
IAI GROWTH AND INCOME FUND
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHORT-TERM SECURITIES - 3.6%
Principal Market
Rate Maturity Amount Value (a)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY BILLS - 3.6%
5.16% 11/14/96 $ 1,000,000 $ 993,970
5.30 12/12/96 2,000,000 1,980,120
- -------------------------------------------------------------------------------------------------------------
2,974,090
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES
(COST: $2,973,232)............................................................................$ 2,974,090
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(COST: $69,773,083) (e).......................................................................$ 81,417,941
- -------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) - 0.7%
.........................................................................................$ 606,464
- -------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS
.........................................................................................$ 82,024,405
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 19
FUND PORTFOLIO
IAI REGIONAL FUND
SEPTEMBER 30, 1996
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
(UNAUDITED)
COMMON STOCKS - 80.2%
Market
Quantity Value (a)
- -------------------------------------------------------
COMMERCIAL SERVICES - 5.0%
Bell & Howell (b) 205,500 $ 6,524,625
Castle (A.M.) 230,200 4,632,775
Data Documents (b) 196,000 2,131,500
Manpower 172,000 5,719,000
Merrill 350,000 7,525,000
Stericycle (b) 175,000 1,596,875
- -------------------------------------------------------
28,129,775
- -------------------------------------------------------
CONSUMER DURABLES - 8.2%
Clarcor 138,000 3,018,750
Harley-Davidson 104,000 4,472,000
ITI Technologies (b) 335,000 11,808,750
Newell 386,000 11,580,000
Polaris 262,000 5,927,750
Snap-On 292,500 9,396,563
- -------------------------------------------------------
46,203,813
- -------------------------------------------------------
CONSUMER NON-DURABLES - 1.6%
Oshkosh B'Gosh Class A 15,000 249,375
Sara Lee 245,000 8,758,750
- -------------------------------------------------------
9,008,125
- -------------------------------------------------------
CONSUMER SERVICES - 1.1%
Lodgenet Entertainment (b) 67,700 829,325
McDonald's 119,000 5,637,625
- -------------------------------------------------------
6,466,950
- -------------------------------------------------------
ELECTRONIC TECHNOLOGY - 8.0%
360 Communications (b) 402,000 9,447,000
Aetrium (b) (d) 534,600 5,613,300
Cyberoptics (b) 160,000 2,160,000
FSI International (b) 598,700 6,585,700
Lucent Technologies 100,800 4,624,200
Motorola 146,000 7,537,250
Rural Cellular Class A (b) 98,900 1,038,450
Sheldahl (b) 124,100 2,094,188
U.S. Robotics (b) 95,000 6,139,375
- -------------------------------------------------------
45,239,463
- -------------------------------------------------------
Market
Quantity Value (a)
- -------------------------------------------------------
ENERGY MINERALS - 1.6%
Amoco 131,000 $ 9,235,500
- -------------------------------------------------------
FINANCIAL - 11.4%
Allstate 145,000 7,141,250
Amerin (b) 317,000 7,132,500
Bankers Life Holding 125,000 3,046,875
Equitable of Iowa 195,000 8,092,500
FCB Financial (d) 150,000 2,587,500
First Alliance (b) 311,400 7,006,500
Green Tree Financial 175,000 6,868,750
Guarantee Life 175,000 3,478,125
Life USA (b) 330,000 2,887,500
Reliastar Financial 170,000 8,075,000
Roosevelt Financial 179,900 3,080,788
Winthrop Resources 186,700 5,040,900
- -------------------------------------------------------
64,438,188
- -------------------------------------------------------
HEALTH SERVICES - 0.9%
Patterson Dental (b) 186,200 4,980,850
- -------------------------------------------------------
HEALTH TECHNOLOGY - 7.4%
Abbott Laboratories 105,000 5,171,250
Aksys (b) 137,400 1,545,750
Baxter International 310,000 14,492,500
CIMA Labs (b) 232,400 1,888,250
CNS (b) 270,000 4,792,500
Diametrics Medical (b) 685,000 3,168,125
Northfield Laboratories (b) 121,000 1,406,625
Possis Medical (b) 165,000 2,928,750
Sybron International -
Wisconsin (b) 213,000 6,177,000
- -------------------------------------------------------
41,570,750
- -------------------------------------------------------
NON-ENERGY MINERALS - 1.7%
USG (b) 325,000 9,628,125
- -------------------------------------------------------
Market
Quantity Value (a)
- -------------------------------------------------------
PROCESS INDUSTRIES - 9.5%
AptarGroup 345,000 $ 11,083,125
Bemis 200,000 6,775,000
BMC 238,100 6,815,613
Fort Howard (b) 310,000 7,556,250
IMC Global 118,600 4,640,225
Mycogen (b) 25,000 356,250
Northland Cranberries Class A 404,000 6,868,000
Pioneer HiBred 74,000 4,477,000
Valspar 100,000 4,925,000
- -------------------------------------------------------
53,496,463
- -------------------------------------------------------
PRODUCER MANUFACTURING - 12.6%
ABC Rail Products (b) (d) 453,000 9,173,250
Berkshire Hathaway Class A (b) 200 6,430,000
Borg-Warner Automotive 139,000 4,934,500
Case 115,000 5,606,250
Diamond Home Services (b) 124,000 3,596,000
Dura Automotive Systems (b) 115,600 2,153,050
IDEX 258,900 8,608,425
Illinois Tool Works 81,800 5,899,825
Lindsay Manufacturing 100,000 4,150,000
Littlefuse (b) 90,000 3,487,500
Pentair 295,000 7,817,500
Recovery Engineering (b) (d) 297,800 3,685,275
Thermo Sentron (b) 284,600 3,272,900
Zebra Technologies Class A (b) 110,200 2,823,875
- -------------------------------------------------------
71,638,350
- -------------------------------------------------------
RETAIL TRADE - 4.5%
Eastbay (b) 28,600 507,650
Lands' End (b) 443,900 9,543,850
Sears Roebuck 184,000 8,234,000
Video Update (b) 507,600 2,442,825
Walgreen 128,000 4,736,000
- -------------------------------------------------------
25,464,325
- -------------------------------------------------------
TECHNOLOGY SERVICES - 3.4%
Anicom (b) 153,846 $ 1,999,996
CCC Information Services (b) 35,000 735,000
Engineering Animation (b) 150,000 3,600,000
LifeRate Systems (b) 35,000 157,500
Metromail (b) 75,200 1,626,200
Racotek (b) 520,000 3,120,000
Richardson Electronics 130,500 1,044,000
Secure Computing (b) (d) 405,000 4,505,625
Spyglass (b) 76,000 1,434,500
TRO Learning (b) 41,900 733,250
- -------------------------------------------------------
18,956,071
- -------------------------------------------------------
TRANSPORTATION - 3.3%
Illinois Central 191,000 6,040,375
USFreightways 411,000 8,425,500
Wisconsin Central
Transportation (b) 118,000 4,233,250
- -------------------------------------------------------
18,699,125
- -------------------------------------------------------
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $399,326,469).....................$ 453,155,873
- -------------------------------------------------------
OTHER SECURITIES - 6.7%
Market
Quantity (c) Value (a)
- -------------------------------------------------------
COMMON STOCKS - 2.9%
Accessline Technologies
Class A (b) 41,666 $ 249,996
Anglo Chinese Investment
Company (b) (d) 1,600 508,027
BEI Medical (b) 1,029 30,860
Biomedical Waste Systems
Class B (b) 400,000 4,000
CardioGenesis (b) 609,793 5,916,212
GalaGen (b) (d) 291,733 1,450,496
Indigo Medical (b) 108,032 482,039
Network Appliance (b) 37,085 1,112,550
OncorMed Class A (b) 6,625 23,996
PACE Health Management
Systems (b) (d) 340,705 1,200,644
Pacific Monolithics (b) 9,865 5,919
PriCellular Class B (b) 168,260 2,297,759
Seurat Analytical Systems
Class B (b) (d) 35,102 28,082
Smartflex Systems (b) 3,270 39,995
Urologix (b) 219,091 3,200,043
- -------------------------------------------------------
16,550,618
- -------------------------------------------------------
CONVERTIBLE PREFERRED STOCK - 0.1%
Biometric Systems Series A (b) 34,520 690,400
- -------------------------------------------------------
NON-CONVERTIBLE PREFERRED STOCKS - 0.7%
AccessLine Technologies
Series A (b) 71,420 571,360
Air Communications
Series B (b) (d) 875,001 --
Intellon Series A (b) 600,000 1,116,000
Intellon Series B (b) 192,921 358,833
Seurat Analytical Systems
Series B (b) (d) 114,973 229,945
- -------------------------------------------------------
Seurat Analytical Systems
Series C (b) (d) 33,809 270,472
Tut Systems Series D (b)(d) 478,416 598,020
Tut Systems Series E (b)(d) 217,391 271,739
Tut Systems Series F (b)(d) 260,000 325,000
VasoMedx Series A (b)(d) 505,884 252,942
VasoMedx Series B (b)(d) 39,585 405
- -------------------------------------------------------
3,994,716
- -------------------------------------------------------
Ownership Market
Percentage (c) Value (a)
- -------------------------------------------------------
LIMITED PARTNERSHIPS - 3.0%
Agio Capital Partners I (b) 15.00% 58,680
Alta Berkeley III (b) 3.52 1,243,378
Ampersand Specialty Materials &
Chemicals II (b) 2.72 993,554
Anglo Chinese Selections (b) 3.28 935,000
Athena Venture Partners (b) 2.50 172,332
Conrad/Collins Merchant
Banking Fund (b) 8.45 367,390
Greenwich Street Capital
Partners (b) 3.00 3,034,399
Pathfinder Venture
Capital Fund III (b) 3.99 980,930
South Street Corporate
Recovery Fund I (b) 2.24 270,762
South Street Leveraged Corporate
Recovery Fund I (b) 2.64 69,357
Spectrum Equity Investors (b) 2.76 2,430,732
Vanguard Associates II (b) 3.76 169,621
Vanguard Associates III (b) 6.20 947,509
Vanguard Associates IV (b) 9.53 4,882,777
- -------------------------------------------------------
16,556,421
- -------------------------------------------------------
Principal Market
Rate Maturity Amount (c) Value (a)
- -------------------------------------------------------
CONVERTIBLE DEBENTURES - 0.0%
Air Communications Series B (b) (d)
10.00% 10/31/96 $ 258,332 $ --
VasoMedx Series C (b) (d)
12.00 11/30/96 75,000 75,000
- -------------------------------------------------------
75,000
- -------------------------------------------------------
Market
Quantity (c) Value (a)
- -------------------------------------------------------
STOCK OPTION - 0.0%
GalaGen (b) (d) 3,900 5,000
- -------------------------------------------------------
WARRANTS - 0.0%
AccessLine Technologies 10,713 --
GalaGen 06/16/99 (d) 5,691 --
GalaGen 03/24/00 (d) 2,258 --
GalaGen 07/09/00 (d) 1,807 $ --
GalaGen 01/29/01 (d) 7,500 --
Intellon 90,000 --
Pace Health Management
Systems (d) 21,820 11,435
Pace Health Management
Systems 08/31/05 (d) 35,000 18,340
- -------------------------------------------------------
29,775
- -------------------------------------------------------
TOTAL INVESTMENTS IN OTHER SECURITIES
(COST: $26,742,731)....................$ 37,901,930
- -------------------------------------------------------
TOTAL INVESTMENTS IN LONG-TERM
SECURITIES
(COST: $426,069,200)...................$ 491,057,803
- -------------------------------------------------------
- -------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TERM SECURITIES - 13.5%
Principal Market
Rate Maturity Amount Value (a)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY BILLS - 13.3%
5.16% 11/14/96 $ 39,500,000 $ 39,261,815
5.21 12/12/96 36,000,000 35,642,160
- ------------------------------------------------------------------------------------------------------------
74,903,975
- ------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.2%
Federal Home Loan Bank (discount note) 5.70 10/01/96 1,200,000 1,200,000
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES
(COST: $76,092,068)............................................................................$ 76,103,975
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(COST: $502,161,268) (e).......................................................................$567,161,778
- ------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) (0.4%)
......................................................................................$ (1,909,839)
- ------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS
......................................................................................$565,251,939
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 19
FUND PORTFOLIO
IAI VALUE FUND
SEPTEMBER 30, 1996
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
(UNAUDITED)
COMMON STOCKS - 74.0%
Market
Quantity Value (a)
- -------------------------------------------------------
COMMERCIAL SERVICES - 3.3%
M/A/R/C 62,500 $1,218,750
- -------------------------------------------------------
CONSUMER DURABLES - 12.1%
Bandag 20,000 987,500
Department 56 (b) 25,000 621,875
M/I Schottenstein Homes (b) 95,000 831,250
Polaris 40,000 905,000
Sturm Ruger 55,000 1,079,375
- -------------------------------------------------------
4,425,000
- -------------------------------------------------------
CONSUMER NON-DURABLES - 2.3%
Michael Foods 80,000 830,000
- -------------------------------------------------------
ENERGY MINERALS - 2.4%
Zeigler Coal 49,700 857,325
- -------------------------------------------------------
FINANCIAL - 16.0%
Ambassador Apartments 35,000 625,625
Greenpoint Financial 20,000 762,500
Leucadia National 41,000 994,250
Liberty Property Trust 40,000 870,000
Life USA (b) 105,532 923,405
United Assets Management 40,000 945,000
United Dominion Realty Trust 50,000 700,000
- -------------------------------------------------------
5,820,780
- -------------------------------------------------------
HEALTH TECHNOLOGY - 5.2%
Endosonics (b) 65,000 910,000
Scherer (R.P.) (b) 20,000 975,000
- -------------------------------------------------------
1,885,000
- -------------------------------------------------------
INDUSTRIAL SERVICES - 6.7%
Dawson Production Services (b) 50,000 637,500
Falcon Drilling (b) 42,500 1,105,000
Petroleum Geo-Services ADR (b) 25,000 681,250
- -------------------------------------------------------
2,423,750
- -------------------------------------------------------
NON-ENERGY MINERALS - 10.2%
Dal-Tile International (b) 65,000 1,064,375
Huntco Class A 19,700 349,675
Nucor 15,000 761,250
Owens Corning (b) 17,000 626,875
Schweitzer-Mauduit
International 27,000 904,500
- -------------------------------------------------------
3,706,675
- -------------------------------------------------------
PROCESS INDUSTRIES - 1.0%
Digital Biometrics (b) 97,700 366,375
- -------------------------------------------------------
PRODUCER MANUFACTURING - 10.4%
ABT Building Products (b) 33,700 674,000
Giddings & Lewis 45,000 534,375
Holophane (b) 40,000 750,000
Nordson 18,000 1,003,500
Trinity Industries 25,000 834,375
- -------------------------------------------------------
3,796,250
- -------------------------------------------------------
RETAIL TRADE - 1.1%
Eastbay (b) 22,700 402,925
- -------------------------------------------------------
TECHNOLOGY SERVICES - 1.9%
Audre Recognition Systems (b)1,365,350 85,334
Racotek (b) 100,000 600,000
- -------------------------------------------------------
685,334
- -------------------------------------------------------
TRANSPORTATION - 1.4%
Canadian National Railway 25,300 518,650
- -------------------------------------------------------
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $25,152,686).......................$ 26,936,814
- -------------------------------------------------------
OTHER SECURITIES - 6.6%
Market
Quantity (c) Value (a)
- -------------------------------------------------------
COMMON STOCKS - 0.2%
OncorMed Class A (b) 6,625 $ 23,996
Pacific Monolithics (b) 9,865 5,919
Smartflex Systems (b) 1,089 13,320
Young Broadcasting Class A (b) 1,207 37,839
- -------------------------------------------------------
81,074
- -------------------------------------------------------
CONVERTIBLE PREFERRED STOCK - 1.0%
Biometric Systems Series A (b) 18,520 370,400
- -------------------------------------------------------
NON-CONVERTIBLE PREFERRED STOCKS - 2.5%
Intellon Series A (b) 200,000 372,000
PathNet Series A (b) (d) 100,000 100,000
Tut Systems Series D (b) (d) 350,319 437,899
VasoMedx Series B (b) 4,861 49
- -------------------------------------------------------
909,948
- -------------------------------------------------------
Ownership Market
Percentage (c) Value (a)
- -------------------------------------------------------
LIMITED PARTNERSHIPS - 2.7%
Ampersand Specialty Materials &
Chemicals II (b) 0.91% $ 331,187
Athena Venture Partners (b) 0.78 57,940
Conrad/Collins Merchant
Banking Fund (b) 8.45 367,390
South Street Leveraged
Corporate Recovery Fund I (b) 0.75 19,817
Vanguard Associates III (b) 1.42 212,790
- -------------------------------------------------------
989,124
- -------------------------------------------------------
Principal Market
Rate Maturity Amount (c) Value (a)
- -------------------------------------------------------
CONVERTIBLE DEBENTURE - 0.2%
PathNet Series B (b) (d)
12.00% 08/05/97 $ 70,000 $ 70,000
- -------------------------------------------------------
Market
Quantity (c) Value (a)
- -------------------------------------------------------
WARRANTS - 0.0%
Intellon 30,000 --
- -------------------------------------------------------
TOTAL INVESTMENTS IN OTHER SECURITIES
(COST: $1,985,227).....................$ 2,420,546
- -------------------------------------------------------
TOTAL INVESTMENTS IN LONG-TERM
SECURITIES
(COST: $27,137,913)....................$ 29,357,360
- -------------------------------------------------------
SHORT-TERM SECURITIES - 21.5%
Principal Market
Rate Maturity Amount Value (a)
- -------------------------------------------------------
U.S. TREASURY BILLS - 21.5%
5.15% 11/14/96 $ 3,900,000 $3,876,483
5.30 12/12/96 4,000,000 3,960,240
- -------------------------------------------------------
7,836,723
- -------------------------------------------------------
TOTAL INVESTMENTS IN
SHORT-TERM SECURITIES
(COST: $7,834,804).....................$ 7,836,723
- -------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(COST: $34,972,717) (e)................$ 37,194,083
- -------------------------------------------------------
OTHER ASSETS AND LIABILITIES
(Net) - (2.1%)
.......................................$ (747,164)
- -------------------------------------------------------
TOTAL NET ASSETS
.......................................$ 36,446,919
- -------------------------------------------------------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 19
NOTES TO FUND PORTFOLIOS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1996
(UNAUDITED)
(a)
Market value of securities is determined as described in Note 1 to the financial
statements, under "Security Valuation."
(b)
Currently non-income producing security.
(c)
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 September 30, 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 September 30, 1996 is shown on pages 22-26.
(d)
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 September 30, 1996. A summary of transactions during the
period with affiliated issuers of the Funds follows: 18
NOTES TO FUND PORTFOLIOS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1996
(UNAUDITED)
<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>
Air Communications
Series A PFD -- $ -- 1,000,000 $ 1 $ (63,473) $ --
Air Communications
Series B PFD -- $ -- 300,000 $ -- $(375,472) $ --
Air Communications
Warrants -- $ -- 75,000 $ -- $ (75) $ --
Air Communications
Series B Convertible Note
10/31/96 24,999 $ 25,055 -- $ -- $ -- $ --
ABC Rail Products 126,100 $2,729,032 6,100 $ 151,127 $ 19,977 $ --
Aetrium 66,600 $ 775,083 -- $ -- $ -- $ --
CardioGenesis
Series B PFD(1) -- $ -- 410,000 $ -- $ -- $ --
CardioGenesis
Series C PFD(1) -- $ -- 199,793 $ -- $ -- $ --
CardioGenesis
Common Stock(1) 609,793 $1,670,486 -- $ -- $ -- $ --
FCB Financial -- $ -- -- $ -- $ -- $ 54,000
GalaGen Convertible Note
Series E 03/31/97 -- $ -- 125,000 $ 125,000 $ -- $ 18
PACE Health Management
Systems 65,385 $ 212,501 -- $ -- $ -- $ --
Recovery Engineering 85,000 $1,102,769 -- $ -- $ -- $ --
Secure Computing 119,900 $2,815,583 7,900 $ 241,720 $(108,645) --
Seurat Analytical Systems
Series C Convertible Note
7/08/962 -- $ -- 225,000 $ -- $ -- $ 15,485
Seurat Analytical Systems
Series C PFD(2) 33,809 $ 270,790 -- $ -- $ -- $ --
Seurat Analytical Systems
Series B Common Stock 35,102 $ -- -- $ -- $ -- $ --
Tut Systems Series F
Convertible Note 3/23/97 83,750 $ 83,750 83,750 $ 83,750 $ -- $ 826
Tut Systems Series F PFD 260,000 $ 325,000 -- $ -- $ -- $ --
VasoMedx Series C
Convertible Note 11/30/96 75,000 $ 75,000 -- $ -- $ -- $ --
</TABLE>
DURING THE SIX MONTHS ENDED SEPTEMBER 30, 1996: (1) CARDIOGENESIS PREFERRED
STOCKS WITH A COST OF $1,670,486 CONVERTED INTO CARDIOGENESIS COMMON STOCK.
(2) SEURAT CONVERTIBLE NOTE WITH A COST OF $225,310 WAS CONVERTED INTO SERIES C
PREFERRED STOCK.
NOTES TO FUND PORTFOLIOS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
IAI VALUE FUND AFFILIATED ISSUERS
- -----------------------------------------------------------------------------------------------------
PURCHASES SALES REALIZED INVESTMENT
- -----------------------------------------------------------------------------------------------------
ISSUER QUANTITY COST QUANTITY PROCEEDS GAIN (LOSS) INCOME
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pathnet Series B
Convertible Note 08/05/97 70,000 $ 70,000 -- $ -- $ -- $ --
</TABLE>
(e)
At September 30, 1996, the cost of securities for federal in come 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 $ 70,070,855 $ 503,242,611 $ 35,197,357
- ------------------------------------------------------------------------------------------------------------
Gross unrealized appreciation $ 14,686,309 $ 93,442,079 $ 4,255,781
Gross unrealized depreciation (3,339,223) (29,522,912) (2,259,055)
- ------------------------------------------------------------------------------------------------------------
Net unrealized appreciation $ 11,347,086 $ 63,919,167 $ 1,996,726
- ------------------------------------------------------------------------------------------------------------
</TABLE>
RESTRICTED SECURITIES
IAI GROWTH AND INCOME FUND
COMMON STOCKS
Security Acquisition Date Cost
- -------------------------------------------------------
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
PACE Health
Management Systems 01/11/94 499,996
Smartflex Systems 10/04/93 1,522
UroLogix 08/14/92 200,000
11/06/92 100,000
03/22/94 196,720
Young Broadcasting Class A 11/03/94 12,549
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 75,000
Performance Semiconductor
Series C 11/19/86 35,942
Performance Semiconductor
Series D 01/26/88 12,680
Tut Systems Series D 02/17/94 200,147
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
07/19/96 51,563
09/25/96 51,531
Ampersand Specialty Materials
& Chemicals II 11/27/95 23,339
06/10/96 100,000
Athena Venture Partners 05/15/86 358,540
Broad Street Investment
Fund I 05/08/91 18,325
South Street Corporate
Recovery Fund I 10/03/95 --
Vanguard Associates II 07/28/83 21,237
12/10/84 270,112
10/31/86 138,197
Vanguard Associates III 02/28/91 173,184
01/10/92 305,250
01/11/93 305,250
09/30/93 34,128
STOCK OPTIONS
Security Acquisition Date Cost
- -------------------------------------------------------
GalaGen 03/24/94 $ --
02/22/95 --
02/22/96 --
RESTRICTED SECURITIES IAI REGIONAL FUND
COMMON STOCK
Security Acquisition Date Cost
- -------------------------------------------------------
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
CardioGenesis 06/09/94 1,000,202
12/05/95 670,285
GalaGen 02/26/93 1,200,000
11/29/93 200,126
06/17/94 351,839
03/22/95 133,236
07/07/95 104,684
12/14/95 125,002
Indigo Medical 02/07/95 100
05/26/93 50,002
12/27/94 76,352
Network Appliance 09/07/93 35,115
09/26/96 11,984
OncorMed Class A 12/13/93 50,516
PACE Health
Management Systems 01/11/94 750,000
01/31/95 201,525
04/27/95 150,625
06/20/95 75,000
09/17/96 212,502
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
Seurat Analytical Systems
Class B 06/28/96 --
Smartflex Systems 10/04/93 2,283
Security Acquisition Date Cost
- -------------------------------------------------------
Urologix 08/14/92 $ 200,000
11/06/92 250,000
03/22/94 295,084
CONVERTIBLE PREFERRED STOCK
Security Acquisition Date Cost
- -------------------------------------------------------
Biometric Systems
Series A 05/04/89 $ 250,020
12/28/90 240,000
NON-CONVERTIBLE PREFERRED STOCKS
Security Acquisition Date Cost
- -------------------------------------------------------
Accessline Technologies
Series A 06/03/94 $ 499,940
Air Communications
Series B 11/24/93 400,000
04/25/94 168,750
Intellon Series A 03/24/94 600,489
Intellon Series B 04/03/96 358,892
Seurat Analytical Systems
Series B 04/29/94 100,000
07/05/95 130,614
Seurat Analytical Systems
Series C 07/05/95 125,186
11/08/95 50,124
01/22/96 25,000
03/19/96 40,485
06/28/96 29,995
Tut Systems Series D 02/17/94 400,293
04/08/94 30,575
Tut Systems Series E 12/21/94 250,563
Tut Systems Series F 07/30/96 325,000
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
LIMITED PARTNERSHIPS
Security Acquisition Date Cost
- -------------------------------------------------------
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
07/19/96 103,127
09/25/96 103,062
Ampersand Specialty
Materials & Chemicals II 11/27/95 35,006
06/10/96 150,000
Anglo Chinese Selections 12/27/90 1,042,724
Athena Venture Partners 05/15/86 393,494
Conrad/Collins Merchant
Banking Fund 05/11/89 373,706
Greenwich Street
Capital Partners 12/30/94 104,997
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
05/10/96 439,785
Security Acquisition Date Cost
- -------------------------------------------------------
05/24/96 $ 458,906
08/22/96 76,998
09/16/96 193,879
Pathfinder Venture
Capital Fund III 04/29/91 26,512
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
08/14/96 50,000
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
04/17/96 75,000
05/15/96 210,000
08/14/96 120,000
Vanguard Associates II 07/28/83 21,237
12/10/84 270,112
10/31/86 138,197
Vanguard Associates III 02/28/91 163,822
01/10/92 288,750
01/11/93 288,750
09/30/93 32,284
Vanguard Associates IV 08/10/92 152,904
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
07/26/96 350,000
CONVERTIBLE DEBENTURES
Security Acquisition Date Cost
- -------------------------------------------------------
Air Communications
Series B 10/31/96 11/21/95 $ 75,000
11/30/95 50,000
02/26/96 50,000
03/22/96 58,333
05/21/96 16,666
06/25/96 8,333
VasoMedx Series C 11/30/96 07/17/96 75,000
STOCK OPTIONS
Security Acquisition Date Cost
- -------------------------------------------------------
GalaGen 02/22/95 $ --
02/22/96 --
03/24/94 --
WARRANTS
Security Acquisition Date Cost
- -------------------------------------------------------
AccessLine Technologies 06/03/94 $ --
Biomedical Waste Systems
Class A 11/08/93 --
GalaGen 06/16/99 12/05/94 --
GalaGen 03/24/00 04/13/95 --
GalaGen 07/09/00 07/07/95 --
GalaGen 01/29/01 01/30/96 --
Intellon 04/12/94 --
PACE Health
Management Systems 03/30/95 --
PACE Health
Management Systems
08/31/05 01/16/96 --
RESTRICTED SECURITIES IAI VALUE FUND
COMMON STOCKS
Security Acquisition Date Cost
- -------------------------------------------------------
OncorMed Class A 05/08/96 $ 50,516
Pacific Monolithics 04/24/85 24,999
08/06/85 75,000
08/19/86 47,990
Smartflex Systems 10/04/93 759
Young Broadcasting Class A 11/03/94 3,497
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 50,033
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 11/27/95 $ 11,668
06/10/96 50,000
Athena Venture Partners 05/15/86 133,978
Conrad/Collins Merchant
Banking Fund 05/11/89 373,706
South Street Leveraged
Corporate Recovery
Fund I 10/03/95 --
Vanguard Associates III 02/28/91 37,445
01/10/92 66,000
01/11/93 66,000
09/30/93 7,379
CONVERTIBLE DEBENTURE
Security Acquisition Date Cost
- -------------------------------------------------------
PathNet Series B 08/05/97 08/05/96 $ 70,000
WARRANTS
Security Acquisition Date Cost
- -------------------------------------------------------
Intellon 04/12/94 $ --
(THIS PAGE INTENTIONALLY LEFT BLANK)
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1996
(UNAUDITED)
IAI GROWTH AND IAI
INCOME FUND REGIONAL FUND IAI VALUE FUND
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Investments in securities of unaffiliated issuers, at market
(Cost: $68,622,909, $458,139,217, and $34,486,609, respectively) $ 80,435,188 $ 536,351,281 $ 36,586,184
Investments in securities of affiliated issuers, at market
(Cost: $1,150,174, $44,022,051, and $486,108, respectively) 982,753 30,810,497 607,899
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (SEE FUND PORTFOLIOS) 81,417,941 567,161,778 37,194,083
Cash in bank on demand deposit 428,492 -- 563,004
Receivable for investment securities sold -- 973,246 33,000
Dividends and accrued interest receivable 129,475 412,155 37,620
Other 48,497 43,948 10,941
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 82,024,405 568,591,127 37,838,648
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Disbursements in excess of cash on demand deposit -- 528,735 --
Payable for investment securities purchased -- 2,804,203 1,391,729
Covered call options written, at market -- 6,250 --
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES -- 3,339,188 1,391,729
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $ 82,024,405 $ 565,251,939 $ 36,446,919
- ---------------------------------------------------------------------------------------------------------------------------
REPRESENTED BY:
Capital stock $ 536,583 $ 234,009 $ 30,184
Additional paid-in capital 63,237,930 447,953,515 31,765,371
Undistributed net investment income (loss) (468,622) (1,093,100) 81,715
Accumulated net realized gains 7,073,656 53,159,655 2,348,283
Unrealized appreciation on investments 11,644,858 64,997,860 2,221,366
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL - REPRESENTING NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $ 82,024,405 $ 565,251,939 $ 36,446,919
- ---------------------------------------------------------------------------------------------------------------------------
Shares of capital stock outstanding (Note 4) 5,365,834 23,400,937 3,018,401
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE OF OUTSTANDING CAPITAL STOCK $ 15.29 $ 24.16 $ 12.07
- ---------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 37
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
IAI GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INVESTMENT INCOME
INCOME
Dividends (including $0, $54,000, and $0, respectively, from affiliated issuers) $ 647,475
(net of foreign income taxes withheld of $3,504, $0, and $4,008, respectively)
Interest (including $0, $16,329, and $0, respectively, from affiliated issuers) 71,260
- --------------------------------------------------------------------------------------------------------------
TOTAL INCOME 718,735
- --------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees (Note 3) 514,251
Compensation of Directors 2,949
- --------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 517,200
Less fees reimbursed by Advisers or Distributor (2,949)
- --------------------------------------------------------------------------------------------------------------
NET EXPENSES 514,251
- --------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 204,484
- --------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) NET REALIZED GAINS (LOSSES) ON:
Investment securities (including $0, ($527,688), and $0,
respectively, from affiliated issuers) $ 6,699,518
Futures contracts --
-----------
6,699,518
Net change in unrealized appreciation or depreciation on:
Investment securities $(1,001,463)
Futures contracts --
Written option contracts --
-----------
(1,001,463)
- --------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 5,698,055
- --------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,902,539
- --------------------------------------------------------------------------------------------------------------
[WIDE TABLE CONTINUED FROM ABOVE]
IAI REGIONAL FUND
- --------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
INCOME
Dividends (including $0, $54,000, and $0, respectively, from affiliated issuers) $ 2,382,110
(net of foreign income taxes withheld of $3,504, $0, and $4,008, respectively)
Interest (including $0, $16,329, and $0, respectively, from affiliated issuers) 1,579,843
- ------------------------------------------------------------------------------------------------------------
TOTAL INCOME 3,961,953
- ------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees (Note 3) 3,514,166
Compensation of Directors 20,811
- ------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 3,534,977
Less fees reimbursed by Advisers or Distributor (20,811)
- ------------------------------------------------------------------------------------------------------------
NET EXPENSES 3,514,166
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 447,787
- ------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) NET REALIZED GAINS (LOSSES) ON:
Investment securities (including $0, ($527,688), and $0,
respectively, from affiliated issuers) $ 52,538,732
Futures contracts 76,780
------------
52,615,512
Net change in unrealized appreciation or depreciation on:
Investment securities $(28,788,255)
Futures contracts 72,100
Written option contracts (2,650)
------------
(28,718,805
- ------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 23,896,707
- ------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $24,344,494
- ------------------------------------------------------------------------------------------------------------
[WIDE TABLE CONTINUED FROM ABOVE]
IAI VALUE FUND
- ----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
INCOME
Dividends (including $0, $54,000, and $0, respectively, from affiliated isuers) $ 188,587
(net of foreign income taxes withheld of $3,504, $0, and $4,008, respetively)
Interest (including $0, $16,329, and $0, respectively, from affiliated issers) 199,112
- ---------------------------------------------------------------------------------------------------------
TOTAL INCOME 387,699
- ---------------------------------------------------------------------------------------------------------
EXPENSES
Management fees (Note 3) 248,687
Compensation of Directors 1,440
- ---------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 250,127
Less fees reimbursed by Advisers or Distributor (1,440)
- ---------------------------------------------------------------------------------------------------------
NET EXPENSES 248,687
- ---------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 139,012
- ---------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) NET REALIZED GAINS (LOSSES) ON:
Investment securities (including $0, ($527,688), and $0,
respectively, from affiliated issuers) $ 2,516,017
Futures contracts --
-----------
2,516,017
Net change in unrealized appreciation or depreciation on:
Investment securities $(2,397,282)
Futures contracts --
Written option contracts --
-----------
(2,397,282)
- ---------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 118,735
- ---------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 257,747
- ---------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 37
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
IAI GROWTH AND INCOME FUND
Six months ended Year ended
September 30, 1996 March 31, 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS (UNAUDITED)
Net investment income $ 204,484 $ 549,098
Net realized gains (losses) 6,699,518 17,293,074
Net change in unrealized appreciation or depreciation (1,001,463) (590,566)
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 5,902,539 17,251,606
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (737,470) (763,346)
Net realized gains (5,251,542) (9,537,722)
- --------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (5,989,012) (10,301,068)
- --------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 13,064,408 17,287,097
Net asset value of shares issued to shareholders in
reinvestment of distributions 5,769,498 9,969,833
Cost of shares redeemed (21,384,625) (50,801,710)
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS (2,550,719) (23,544,780)
- --------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (2,637,192) (16,594,242)
NET ASSETS AT BEGINNING OF PERIOD 84,661,597 101,255,839
- --------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $82,024,405 $ 84,661,597
- --------------------------------------------------------------------------------------------------------
[including undistributed net investment income (loss)
of ($468,622) and $64,364 for Growth and Income Fund,
($1,093,100) and $144,629 for Regional Fund,
and $81,715 and $304,842 for Value Fund]
[WIDE TABLE CONTINUED FROM ABOVE]
IAI REGIONAL FUND
Six months ended Year ended
September 30, 1996 March 31, 1996
- ----------------------------------------------------------------------------------------------------------
OPERATIONS (UNAUDITED)
Net investment income $ 447,787 $ 3,195,732
Net realized gains (losses) 52,615,512 81,548,493
Net change in unrealized appreciation or depreciation (28,718,805) 53,036,681
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 24,344,494 137,780,906
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,685,516) (4,484,095)
Net realized gains (31,926,716) (60,785,490)
- --------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (33,612,232) (65,269,585)
- --------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 43,839,864 71,313,378
Net asset value of shares issued to shareholders in
reinvestment of distributions 32,703,044 63,289,191
Cost of shares redeemed (77,179,717) (155,321,634)
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS (636,809) (20,719,065)
- --------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (9,904,547) 51,792,256
NET ASSETS AT BEGINNING OF PERIOD 575,156,486 523,364,230
- --------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $565,251,939 $575,156,486
- --------------------------------------------------------------------------------------------------------
[including undistributed net investment income (loss)
of ($468,622) and $64,364 for Growth and Income Fund,
($1,093,100) and $144,629 for Regional Fund,
and $81,715 and $304,842 for Value Fund]
[WIDE TABLE CONTINUED FROM ABOVE]
IAI VALUE FUND
Six months ended Year ended
September 30, 1996 March 31, 1996
- --------------------------------------------------------------------------------------------------------
OPERATIONS (UNAUDITED)
Net investment income $ 139,012 $ 272,784
Net realized gains (losses) 2,516,017 4,170,114
Net change in unrealized appreciation or depreciation (2,397,282) 3,566,963
- ------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 257,747 8,009,861
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (362,139) (32,696)
Net realized gains (1,061,877) (3,345,740)
- ------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1,424,016) (3,378,436)
- ------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 6,328,360 12,377,130
Net asset value of shares issued to shareholders in
reinvestment of distributions 1,403,647 3,343,336
Cost of shares redeemed (12,128,311) (18,943,353)
- ------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS (4,396,304) (3,222,887)
- ------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (5,562,573) 1,408,538
NET ASSETS AT BEGINNING OF PERIOD 42,009,492 40,600,954
- ------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $36,446,919 $42,009,492
- ------------------------------------------------------------------------------------------------------
[including undistributed net investment income (loss)
of ($468,622) and $64,364 for Growth and Income Fund,
($1,093,100) and $144,629 for Regional Fund,
and $81,715 and $304,842 for Value Fund]
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 37
</TABLE>
<TABLE>
<CAPTION>
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:
IAI GROWTH AND INCOME FUND
Six months Years ended
ended March 31,
------------------------------------------------------
September 30, 1996 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE (UNAUDITED)
Beginning of period $ 15.30 $ 14.32 $ 13.91 $ 15.19 $ 14.73 $ 14.48
- -------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income .04 .10 .12 .09 .07 .13
Net realized and unrealized gains 1.10 2.86 1.04 .38 1.17 1.20
- -------------------------------------------------------------------------------------------------------------------
TOTAL FROM OPERATIONS 1.14 2.96 1.16 .47 1.24 1.33
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (.14) (.13) (.10) (.06) (.07) (.14)
Net realized gains (1.01) (1.85) (.65) (1.69) (.71) (.94)
- -------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.15) (1.98) (.75) (1.75) (.78) (1.08)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 15.29 $ 15.30 $ 14.32 $ 13.91 $ 15.19 $ 14.73
- -------------------------------------------------------------------------------------------------------------------
Total investment return* 7.59% 21.51% 8.92% 3.07% 9.04% 9.56%
Net assets at end of period (000's omitted) $ 82,024 $ 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% 1.25%
Net investment income to average net assets 0.50%** 0.62% 0.80% 0.60% 0.61% 1.03%
Portfolio turnover rate
(excluding short-term securities) 36.2% 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.
** ANNUALIZED
FINANCIAL HIGHLIGHTS
IAI REGIONAL FUND
PER SHARE DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH PERIOD AND SELECTED INFORMATION FOR
EACH PERIOD INDICATED ARE AS FOLLOWS:
<TABLE>
<CAPTION>
IAI REGIONAL FUND
Six months Years ended
ended March 31,
-------------------------------------------------------
September 30, 1996 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $ 24.57 $ 21.56 $ 20.94 $ 22.23 $ 21.29 $ 21.03
- -------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income .02 .14 .17 .21 .21 .20
Net realized and unrealized gains 1.04 5.77 1.84 .51 1.48 2.38
- -------------------------------------------------------------------------------------------------------------------
TOTAL FROM OPERATIONS 1.06 5.91 2.01 .72 1.69 2.58
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (.07) (.20) (.20) (.18) (.23) (.24)
Net realized gains (1.40) (2.70) (1.19) (1.83) (.52) (2.08)
- -------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.47) (2.90) (1.39) (2.01) (.75) (2.32)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 24.16 $ 24.57 $ 21.56 $ 20.94 $ 22.23 $ 21.29
- -------------------------------------------------------------------------------------------------------------------
Total investment return* (1.67%) 28.62% 10.35% 3.26% 8.31% 12.77%
Net assets at end of period (000's omitted) $565,252 $575,156 $523,364 $596,572 $659,904 $528,763
RATIOS
Expenses to average net assets 1.21%** 1.25% 1.23% 1.25% 1.25% 1.25%
Net investment income to average net assets 0.15%** 0.58% 0.74% 0.94% 1.09% 1.20%
Portfolio turnover rate
(excluding short-term securities) 35.8% 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.
** ANNUALIZED
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
NOTES TO FINANCIAL STATEMENTS
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
Six months Years ended
ended March 31,
------------------------------------------------------
September 30, 1996 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE (UNAUDITED)
Beginning of period $ 12.42 $ 11.17 $ 11.63 $ 11.63 $ 11.06 $ 10.46
- -------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income .05 .08 .03 .05 .11 .12
Net realized and unrealized gains .06 2.19 .38 1.45 .56 1.08
- -------------------------------------------------------------------------------------------------------------------
TOTAL FROM OPERATIONS .11 2.27 .41 1.50 .67 1.20
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (.12) (.01) (.03) (.13) -- (.15)
Net realized gains (.34) (1.01) (.84) (1.37) (.10) (.45)
- -------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.46) (1.02) (.87) (1.50) (.10) (.60)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 12.07 $ 12.42 $ 11.17 $ 11.63 $ 11.63 $ 11.06
- -------------------------------------------------------------------------------------------------------------------
Total investment return* 0.78% 21.07% 3.88% 12.70% 6.20% 12.21%
Net assets at end of period (000's omitted) $ 36,447 $ 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% 1.25%
Net investment income to average net assets 0.70%** 0.65% 0.31% 0.35% 0.68% 1.24%
Portfolio turnover rate
(excluding short-term securities) 38.2% 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.
** ANNUALIZED
NOTES TO FINANCIAL STATEMENTS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1996
(UNAUDITED)
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The IAI Mutual Funds are registered under the Investment Company Act of 1940 (as
amended) as diversified, open-end management investment companies, or series
thereof. IAI Growth and Income Fund (Growth and Income Fund) is a separate
portfolio of IAI Investment Fund VII, Inc., IAI Regional Fund (Regional Fund) is
a separate portfolio of IAI Investment Funds IV, Inc. and IAI Value Fund (Value
Fund) is a separate portfolio of IAI Investment Funds VIII, Inc. 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 risk 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 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.
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.
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, $14,471,265 and $13,750,000, 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
September 30, 1996, the Funds paid $3,696, $515, and $221, respectively, in
interest on the line of credit at an average annual rate of 8.25%. Advances
under the line of credit totalled $528,735 for the Regional Fund at September
30,1996. There were no borrowings outstanding at September 30, 1996 for the
Growth and Income Fund and the Value Fund.
At September 30, 1996, the Funds are committed to invest additional amounts in
certain limited partnership investments held, as follows:
<TABLE>
<CAPTION>
LIMITED PARTNERSHIP 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. 80,000 262,000 --
Ampersand Specialty Materials & Chemicals II L.P. 200,000 300,000 100,000
Greenwich Street Capital Partners L.P. -- 6,968,000 --
Pathfinder Venture Capital Fund III L.P. -- 100,000 --
Spectrum Equity Investors L.P. -- 1,392,000 --
- --------------------------------------------------------------------------------------------------------------
Total commitments $ 280,000 $ 10,447,000 $ 100,000
- --------------------------------------------------------------------------------------------------------------
</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.
[3] FEES AND EXPENSES
Under the terms of each Funds' Management Agreements, Adviser is required to pay
for all expenses of each Fund, except certain costs (primarily those incurred in
the purchase and sale of assets, taxes, interest, extraordinary expenses and
compensation of Directors), in return for each Fund paying an all inclusive
management fee to Advisers. This fee is paid monthly and is equal to an annual
rate of 1.25% of each Funds' average daily net assets, which declines to 1.10%
(1.00% for Growth and Income Fund) as each Fund's assets increase.
[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 periods
indicated were as follows:
<TABLE>
<CAPTION>
GROWTH AND INCOME REGIONAL VALUE
FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 MARCH 31, 1996 SEPTEMBER 30, 1996 MARCH 31, 1996 SEPTEMBER 30, 1996 MARCH 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SOLD 867,078 1,133,461 1,788,185 3,012,767 517,049 1,036,630
ISSUED FOR REINVESTED
DISTRIBUTIONS 385,147 689,692 1,334,274 2,749,024 114,771 289,094
REDEEMED (1,420,611) (3,361,275) (3,134,610) (6,621,171) (995,313) (1,579,960)
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
SHARES OUTSTANDING (168,386) (1,538,122) (12,151) (859,380) (363,493) (254,236)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[5] INVESTMENT TRANSACTIONS
PURCHASE AND SALES OF SECURITIES
For the six months ended September 30, 1996, purchases of securities and sales
proceeds, other than investments in short-term securities, for the Funds were as
follows:
Purchases Sales
- --------------------------------------------------------------------------
GROWTH AND INCOME FUND $ 28,408,446 $ 33,466,020
REGIONAL FUND $ 185,219,074 $ 222,077,831
VALUE FUND $ 12,171,831 $ 18,892,116
RESTRICTED SECURITIES
Included in the Funds' portfolios of investments in securities at September 30,
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.
At September 30, 1996, the Funds held restricted securities as follows:
Market % of
Value Net Assets
- ---------------------------------------------------------------------------
IAI GROWTH AND INCOME FUND $ 6,692,679 8.2%
IAI REGIONAL FUND $ 37,901,930 6.7%
IAI VALUE FUND $ 2,420,546 6.6%
[6] OPTION CONTRACTS WRITTEN
During the six months ended September 30, 1996, Regional Fund wrote the
following options on equity securities:
CALL OPTIONS
- ------------------------------------------------------------------------------
Number of Contracts Premium
- ------------------------------------------------------------------------------
Outstanding at 3/31/96 -- $ --
Opened 60 4,320
Expired -- --
Closed -- --
Exercised (10) (720)
- ------------------------------------------------------------------------------
Outstanding at 9/30/96 50 $ 3,600
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IAI MUTUAL FUND FAMILY
SEPTEMBER 30, 1996
(UNAUDITED)
TO DIVERSIFY YOUR PORTFOLIO, PLEASE CONSIDER ALL OF THE MUTUAL FUNDS IN OUR FUND
FAMILY
SECONDARY
IAI FUND PRIMARY OBJECTIVE OBJECTIVE PORTFOLIO COMPOSITION
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IAI Developing Capital Appreciation -- Equity securities of companies in developing
Countries Fund 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 Capital Appreciation -- Common stocks of small- to medium-sized
Appreciation Fund growth companies
- ----------------------------------------------------------------------------------------------------------------------------------
IAI Midcap Growth Fund Capital Appreciation -- Common stocks of medium-sized growth companies
- ----------------------------------------------------------------------------------------------------------------------------------
IAI Regional Fund Capital Appreciation -- Common stocks of Upper Midwest companies
- ----------------------------------------------------------------------------------------------------------------------------------
IAI Growth Fund Capital Appreciation -- Common stocks with potential for above-average
growth and appreciation
- ----------------------------------------------------------------------------------------------------------------------------------
IAI Value Fund Capital Appreciation -- Common stocks which are considered to be undervalued
- ----------------------------------------------------------------------------------------------------------------------------------
IAI Growth and Income Fund Capital Appreciation Income Common stocks with potential for long-term
appreciation, and common stocks that are expected to
produce income
- ----------------------------------------------------------------------------------------------------------------------------------
IAI Balanced Fund Total Return Income Common stocks, investment-grade bonds and
[Capital Appreciation short-term instruments
+ Income]
- ----------------------------------------------------------------------------------------------------------------------------------
IAI Bond Fund Income Capital 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>
(This page intentionally left blank)
INVESTMENT ADVISER
AND MANAGER
Investment Advisers, Inc.
P.O. Box 357
Minneapolis, MN 55440-0357 USA
800.945.3863
612.376.2700
http://networth.galt.com/iai
CUSTODIAN
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, MN 55479
LEGAL COUNSEL
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
4200 Norwest Center
Minneapolis, MN 55402
DIRECTORS
Madeline Betsch
W. William Hodgson
George R. Long
Noel P. Rahn
Richard E. Struthers
J. Peter Thompson
Charles H. Withers
[LOGO]
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
