EQUITY FUNDS
SEMI-ANNUAL REPORT
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND,
IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
[LOGO]
IAI
MUTUAL FUNDS
<PAGE>
TABLE OF CONTENTS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1997
(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.............................................. 20
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................................................ 42
Adviser, Custodian, Legal Counsel,
Independent Auditors,
Directors.............................................. Inside Back Cover
<PAGE>
CHAIRMAN'S LETTER
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
[PHOTO]
NOEL P. RAHN
CHAIRMAN
A DAY FOR BUYING OPPORTUNITIES
In life, traumatic events grip our attention, sometimes compelling us to make
quick decisions, often rewarding us for remaining calm. As time passes, we
collect ourselves and attain a perspective.
The stock market is a case in point. The last few days of October broke records
for points lost and gained--and for trading volume, which reached a billion
shares per day. But now that we've had some time to reflect, what really
happened? And what does it mean over the long term?
The problem began in Southeast Asia, as those booming economies increasingly
became overbuilt. Investors, seeing trouble ahead, withdrew their money, causing
downward pressure on currencies in Thailand and Malaysia. The governments
attempted to boost their currencies by raising interest rates. That caused
investors in these fragile stock markets to flee. Once the panic spread to Hong
Kong, investors throughout the world reacted.
In the United States, investors who were having a good year so far in 1997
decided to lock in their profits. Many of the best performers in recent years,
such as technology companies which do a great deal of business in Asia, were hit
hard. Small capitalization stocks held up better, as did large cap companies
like retailers who do their business exclusively in the United States.
The October 27 sell-off was inevitably compared with the stock market of 1987.
But there really was no comparison. In percentage terms, this year's fireworks
amounted to a 7% drop. In comparison, the 1987 sell-off was 22% in one day.
But there are other fundamental differences too, which make the events of
October 27, 1997, much less worrisome. Ten years ago, inflation was in the
mid-single digits and rising. Today, some economists would argue that there is
no inflation at all--in fact, there may even be deflation. In 1987, interest
rates were in the double digits and rising. Today, the 30-year U.S. Treasury
bond yields about 6%. In 1987, the federal budget deficit was mushrooming.
Today, the deficit has virtually been wiped out, and there's talk of a surplus.
The American economy is much stronger today than it was a decade ago.
Perhaps most importantly, investors, rather than running scared and selling at
the bottom, increasingly look at days like October 27 as a buying opportunity.
Even with the events of late October, the stock market has turned in an
above-average performance for 1997. Historically, stocks have produced average
annual returns of 10-12%. Viewed over this decade, and since the bull market
began in 1982, investors have truly enjoyed excellent results.
We believe the turmoil that occurred on October 27 will prove to be a relatively
minor event. True, it was a very strong reaction to external events. But the
environment continues to be a good one for U.S. investors. The economy continues
to grow at a 3-4% rate without inflation. Interest rates are low and corporate
profits continue to grow, although more slowly than in recent years. And the
markets in Asia appear to have stabilized for now.
The recent volatility is a great reminder to dollar-cost average into the
markets. Mutual funds make it easy to invest a fixed amount of money
periodically. When the market is down, that fixed investment buys more shares at
bargain prices. Such an automatic process allows you to keep your long-term
perspective when days like October 27th inevitably occur.
<PAGE>
CHAIRMAN'S LETTER
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
ECONOMIC OUTLOOK
A summary of economic outlook as provided by Larry Hill, IAI's Chief Fixed
Income Officer, is listed below.
Fundamentally, the U.S. economy is in good shape. The expansion continued at a
3.6% pace in the third quarter, making this the first time since 1983 that
inflation-adjusted growth has been above 3% for four consecutive quarters.
During this same time, prices rose at an annualized rate of only 1.4%--the
slowest quarterly increase since 1964.
As further evidence of strength, the unemployment rate dropped to 4.7% in
October, its lowest level in 24 years. Job gains were widespread throughout a
majority of industries. So far in 1997, over 2.1 million new jobs have been
created.
On the fiscal policy side, the federal budget deficit has declined dramatically.
Tax receipts have exceeded expectations, hinting that income growth is even
higher than current statistics indicate. Low inflation has allowed the Fed to
follow a neutral monetary policy. The last time the Fed acted was in March of
this year when the overnight rate was raised by 0.25%. A shrinking deficit and
neutral monetary policy has helped long-term interest rates to drop by 1% in the
last six months.
Given this favorable backdrop, U.S. financial markets have experienced
above-average returns. For the 10 months through October, the stock market was
up 28% and bonds had returned about 8%.
Unfortunately, this good news has recently been overshadowed by turmoil
overseas. Currency devaluation and falling stock prices in the Asian Pacific
region quickly became a global event. In typical fashion, markets have led
economics. The events in October were a dramatic reintroduction of risk premiums
into the global investment equation. While some investors clearly suffered
substantial losses, the impact so far has been more psychological than
fundamental. Falling markets are likely to lead to slower growth and rising
financial problem in the afflicted economies. Although market volatility will
continue, the economic impact will be less invasive for the major economies of
Europe and North America. Global growth and inflation may be mildly lower.
However, as markets stabilize, investors are likely to refocus on positive
fundamentals.
Please read the Fund Managers' Reviews, which follow this letter, for a detailed
perspective on Fund 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
<PAGE>
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
[BAR CHART]
TOP FIVE SECTORS
% OF NET ASSETS AS OF 9/30/97
FINANCIAL 19.0%
CONSUMER DURABLES 14.9%
PRODUCER MANUFACTURING 12.9%
CONSUMER NON-DURABLES 8.0%
ELECTRONIC TECHNOLOGY 6.8%
WHAT IS THE FUND'S 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.
HOW HAS THE FUND PERFORMED?
The Fund generated a total return of 7.11% this past quarter. This was roughly
in line with the market as represented by the S&P 500, which was up 7.61% for
the quarter. For the six months ended September 30, 1997, the Fund produced a
return of 25.95%, while the S&P 500 Index had a 26.38% total return. Large
capitalization stocks had been driving the market indices until recently when a
few large "blue chip" companies announced they would not be able to meet
earnings expectations of Wall Street analysts. This bad earnings news, coupled
with the fact that small and medium sized stocks represented better value,
resulted in many investors selling large capitalization stocks to buy smaller
"cap" stocks. As a result, many of the Fund's smaller cap stocks performed well.
The best performing sectors for the Fund were energy, health care, and
capital goods, while the worst performers were basic material and consumer
staples.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Our holdings in the energy sector were particularly successful this quarter.
Strong performing stocks included Department 56 (4.18%)*, Intel (2.88%)*,
Harley-Davidson (2.91%)*, Healthcare COMPARE (3.04%)*, and SLM Holding (3.82%)*.
The worst performing stocks in the quarter were Aetna (2.06%)*, Eastman Kodak
(1.82%)*, and Electronic Data Systems (0.80%)*
* PERCENTAGE OF NET ASSETS AS OF 9/30/97
WERE THERE ANY SIGNIFICANT CHANGES?
No significant restructuring occurred this past quarter, although we took some
profits on some of our heavier weighted positions.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
The shift from large cap stocks to smaller cap stocks benefited the Fund, given
that the Fund holds a somewhat larger percentage of smaller cap stocks than the
S&P 500 index.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We believe the overall market fully reflects an economic environment of strong
growth and low inflation, leaving little room for negative news. More than ever,
we believe our focus on companies with solid competitive advantages, generating
high levels of free cash flow at attractive valuations, positions us well for
what will very likely be a less stable economic environment in the future.
<PAGE>
FUND MANAGER'S REVIEW
IAI GROWTH AND INCOME FUND
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.
VALUE OF $10,000 INVESTMENT+
[PLOT POINTS GRAPH]
IAI GROWTH &
INCOME FUND S&P 500 INDEX
10/1/87 $10,000 $10,000
3/31/88 $ 8,285 $ 8,179
3/31/89 $ 9,781 $ 9,642
3/31/90 $11,421 $11,480
3/31/91 $12,268 $13,133
3/31/92 $13,442 $14,583
3/31/93 $14,657 $16,810
3/31/94 $15,106 $17,051
3/31/95 $16,452 $19,709
3/31/96 $19,987 $26,044
3/31/97 $22,653 $31,237
9/30/97 $28,535 $39,479
AVERAGE ANNUAL RETURNS+
THROUGH 9/30/97
Six Months** 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
IAI GROWTH AND INCOME FUND 25.95% 32.68% 16.13% 11.06%
- --------------------------------------------------------------------------------
S&P 500 Index 26.38% 40.67% 20.83% 14.72%
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
** NOT ANNUALIZED
TOP TEN HOLDINGS*
% of Net Assets
-------------------
Issue Sector 9/30/97 3/31/97
- --------------------------------------------------------------------------------
Nabors Industries Industrial Services 4.29 1.60
Department 56 Consumer Durables 4.18 3.18
Westinghouse Electric Producer Manufacturing 4.03 2.67
SLM Holding Financial 3.82 --
Federal Home Loan Mortgage
Corporation Financial 3.18 3.14
Wal-Mart Stores Retail Trade 3.10 2.45
Philip Morris Consumer Non-Durables 3.08 3.66
Healthcare COMPARE Health Services 3.04 --
SmithKline Beecham ADR Health Technology 2.96 2.75
Tyco International Producer Manufacturing 2.94 2.41
- --------------------------------------------------------------------------------
TOTAL 34.62 21.86
* EXCLUDES U.S. TREASURY AND GOVERNMENT OBLIGATIONS
<PAGE>
FUND MANAGER'S REVIEW
IAI REGIONAL FUND
IAI REGIONAL FUND
[PHOTO]
MARK C HOONSBEEN,
CFA
IAI REGIONAL FUND MANAGER
[BAR CHART]
TOP FIVE SECTORS
% OF NET ASSETS AS OF 9/30/97
PRODUCER MANUFACTURING 15.4%
ELECTRONIC TECHNOLOGY 9.8%
CONSUMER DURABLES 9.6%
HEALTH TECHNOLOGY 8.4%
PROCESS INDUSTRIES 8.0%
WHAT IS THE FUND'S 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.
HOW HAS THE FUND PERFORMED?
During the third quarter, the IAI Regional Fund rose 11.47% which compares very
favorably versus a 6.40% gain for the Regional 300 Index and a 7.61% gain for
the S&P Index. For the six months ended September 30, 1997, the Fund produced a
return of 30.46%, while the S&P 500 Index had a 26.38% total return.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Recovery Engineering (1.70%)* continued its upward streak with another strong
contribution to the Fund's performance. Cerus (0.31%)*, CIMA Labs (0.38%)*,
Richardson Electronics (0.49%)*, and Secure Computing (0.66%)* also turned in
strong absolute performance. Almost every sector of the Fund contributed
positively to performance with the technology and capital goods areas leading
the way. The only significant disappointment was Sitel (0.00%)* which announced
slower than expected earnings growth. Sitel was subsequently eliminated from the
Fund.
WERE THERE ANY SIGNIFICANT CHANGES IN THE FUND?
We initiated new positions in Excelsior-Henderson Motorcycle (0.32%)*, Hormel
Foods (0.78%)*, Galileo International (0.75%)*, and Platinum Technology
(0.45%)*. During the quarter we sold positions in IMC Global (0.00%)*,
Harley-Davidson (0.00%)*, Control Data Systems (0.00%)*, and Motorola (0.00%)*.
* PERCENTAGE OF NET ASSETS AS OF 9/30/97
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
Small capitalization stocks led the stock market during the third quarter as
evidenced by the Russell 2000 Index return of 14.9%. This was roughly double
that of the S&P 500 Index return. Stocks with market capitalization of below $1
billion make up approximately 45% of the Fund and this strong relative gain by
small cap stocks contributed greatly to the Fund's return.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We continue to monitor our companies very carefully. During the past quarter
several large cap companies sent warnings to market about slower earnings
growth. Our focus on investing in companies with sustainable growth and high
returns on capital should prove to be rewarding in an environment where larger
companies are finding it a challenge to meet expectations.
<PAGE>
FUND MANAGER'S REVIEW
IAI REGIONAL FUND
NOTE TO CHAIRMAN'S LETTER & FUND MANAGER'S REVIEW
PERFORMANCE DATA FOR THE IAI REGIONAL FUND INCLUDES CHANGES IN SHARE PRICE AND
REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS. THE FUND'S INVESTMENT RETURN, YIELD AND PRINCIPAL
MAY FLUCTUATE SO THAT, WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN THE
ORIGINAL COST. MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING CHARGES AND
EXPENSES, IS AVAILABLE IN THE PROSPECTUS. PLEASE READ THE FUND'S PROSPECTUS
CAREFULLY BEFORE INVESTING. ALL INDICES CITED ARE UNMANAGED, AND ARE EITHER
TRADEMARKS, REGISTERED TRADEMARKS OR COPYRIGHTS OF THEIR RESPECTIVE SPONSORING
COMPANIES.
VALUE OF $10,000 INVESTMENT+
[PLOT POINTS GRAPH]
IAI REGIONAL
FUND S&P 500 INDEX
10/1/87 $10,000 $10,000
3/31/88 $ 9,044 $ 8,179
3/31/89 $10,729 $ 9,642
3/31/90 $13,052 $11,480
3/31/91 $15,402 $13,133
3/31/92 $17,370 $14,583
3/31/93 $18,814 $16,810
3/31/94 $19,428 $17,051
3/31/95 $21,438 $19,709
3/31/96 $27,573 $26,044
3/31/97 $29,958 $31,237
9/30/97 $39,086 $39,479
AVERAGE ANNUAL RETURNS+
THROUGH 9/30/97
Six Months** 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
IAI REGIONAL FUND 30.46% 35.97% 17.94% 14.61%
- --------------------------------------------------------------------------------
S&P 500 Index 26.38% 40.67% 20.83% 14.72%
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
** NOT ANNUALIZED
TOP TEN HOLDINGS*
% of Net Assets
--------------------
Issue Sector 9/30/97 3/31/97
- --------------------------------------------------------------------------------
Snap-On Consumer Durables 3.47 2.93
FSI International Electronic Technology 2.84 1.59
Amoco Energy Minerals 2.71 2.45
Aetrium Electronic Technology 2.53 1.46
Pentair Producer Manufacturing 2.41 1.90
AptarGroup Process Industries 2.18 2.50
IDEX Producer Manufacturing 2.18 1.56
Healthcare COMPARE Health Services 2.17 1.33
BMC Industries Process Industries 1.87 1.46
Newell Consumer Durables 1.87 2.10
- --------------------------------------------------------------------------------
TOTAL 24.23 19.28
* EXCLUDES U.S. TREASURY AND GOVERNMENT OBLIGATIONS
<PAGE>
FUND MANAGER'S REVIEW
IAI VALUE FUND
IAI VALUE FUND
[PHOTO]
DONALD J. HOELTING,
CFA
IAI VALUE FUND MANAGER
[BAR CHART]
TOP FIVE SECTORS
% OF NET ASSETS AS OF 9/30/97
CONSUMER DURABLES 16.1%
FINANCIAL 12.1%
PRODUCER MANUFACTURING 11.5%
INDUSTRIAL SERVICES 8.7%
NON-ENERGY MINERALS 7.4%
WHAT IS THE FUND'S OBJECTIVE?
The IAI Value Fund is designed for investors who seek long-term capital
appreciation. It pursues this objective by investing primarily in equity
securities believed by management to be under-valued and which are considered to
offer unusual opportunities for capital growth.
HOW HAS THE FUND PERFORMED?
The Fund generated good absolute returns during the third quarter of 12.72%.
However, the Fund under-performed its benchmark, the Russell 2500 Index, which
posted a 14.35% return. Mid-way through the third quarter, smaller
capitalization stocks began out-performing large cap stocks, reversing the trend
that had been in place all year to that point. The best performing groups in the
market overall were the energy and technology sectors, while utilities and
consumer cyclicals lagged. The Fund was helped by some good stock picks in the
energy sector, which performed even better than the good performance of energy
stocks in general. However, the Fund's heavy weighting in consumer cyclicals and
underweighting in technology held back the Fund's performance vs. the benchmark.
We are encouraged to report that during the past 12 months, the Fund
produced a total return of 36.96% vs. its benchmark, the Russell 2500 Index
which had a return of 34.31%. For the six months ended September 30, 1997, the
Fund produced a return of 30.39%, while the Russell 2500 Index had a 31.63%
total return.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Some of the best performing issues for the quarter were Department 56 (4.76%)*,
a designer and marketer of collectibles; 800-JR Cigar (2.34%)*, a retailer and
wholesaler of cigars; two oil service companies, Dawson Production Services
(2.58%)* and Petroleum Geo-Services ADR (3.80%)*. Among the under-performing
issues in the portfolio were Nucor (2.61%)*, which has been affected by
commodity price fluctuations, and Ziegler Coal (1.24%)*. Another was Dal-Tile
International (1.48%)*, the largest manufacturer and distributor of floor and
wall tile in North America. The company is experiencing difficulties in
integrating a major acquisition.
* PERCENTAGE OF NET ASSETS AS OF 9/30/97
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
Generally, the movement from a large cap "blue chip" market to a broader based,
fundamentally driven market improved the climate for our stocks. Our
overweighting in the energy sector, specifically in drilling related service
stocks, generated significant outperformance. Strong performance of smaller
technology firms, combined with our underweighting in technology stocks hurt our
performance.
WHAT IS YOUR OUTLOOK FOR THE FUND?
With the likelihood of a less stable economic environment in the future, we are
well positioned with our focus on companies with strong competitive profiles,
generating significant levels of free cash flow and selling at attractive
valuation levels.
<PAGE>
FUND MANAGER'S REVIEW
IAI VALUE FUND
NOTE TO CHAIRMAN'S LETTER & FUND MANAGER'S REVIEW
PERFORMANCE DATA FOR THE IAI VALUE FUND INCLUDES CHANGES IN SHARE PRICE AND
REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS. THE FUND'S INVESTMENT RETURN, YIELD AND PRINCIPAL
MAY FLUCTUATE SO THAT, WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN THE
ORIGINAL COST. MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING CHARGES AND
EXPENSES, IS AVAILABLE IN THE PROSPECTUS. PLEASE READ THE FUND'S PROSPECTUS
CAREFULLY BEFORE INVESTING. ALL INDICES CITED ARE UNMANAGED, AND ARE EITHER
TRADEMARKS, REGISTERED TRADEMARKS OR COPYRIGHTS OF THEIR RESPECTIVE SPONSORING
COMPANIES.
VALUE OF $10,000 INVESTMENT+
[PLOT POINTS GRAPH]
RUSSELL 2500
IAI VALUE FUND INDEX S&P 500 INDEX
10/1/87 $10,000 $10,000 $10,000
3/31/88 $ 8,738 $ 8,589 $ 8,179
3/31/89 $10,851 $ 9,787 $ 9,642
3/31/90 $11,926 $10,548 $11,480
3/31/91 $12,665 $11,587 $13,133
3/31/92 $14,212 $14,128 $14,583
3/31/93 $15,093 $16,488 $16,810
3/31/94 $17,008 $17,938 $17,051
3/31/95 $17,669 $19,492 $19,709
3/31/96 $21,389 $25,305 $26,044
3/31/97 $22,642 $27,502 $31,237
9/30/97 $29,524 $36,200 $39,479
AVERAGE ANNUAL RETURNS+
THROUGH 9/30/97
Six Months** 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
IAI VALUE FUND 30.39% 36.96% 16.84% 11.43%
- --------------------------------------------------------------------------------
Russell 2500 Index 31.63% 34.31% 21.18% 13.73%
- --------------------------------------------------------------------------------
S&P 500 Index 26.38% 40.67% 20.83% 14.72%
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
** NOT ANNUALIZED
TOP TEN HOLDINGS*
% of Net Assets
-------------------------
Issue Sector 9/30/97 3/31/97
- --------------------------------------------------------------------------------
Department 56 Consumer Durables 4.76 2.95
R.P. Scherer Health Technology 4.09 3.52
Polaris Consumer Durables 3.92 3.46
Petroleum Geo-Services ADR Industrial Services 3.80 3.65
United Assets Management Financial 3.79 3.48
Bandag Consumer Durables 3.76 3.68
Leucadia National Financial 3.66 3.83
Pizza Inn Retail Trade 3.63 3.31
Sturm Ruger Consumer Durables 3.62 3.13
Trigon Healthcare Health Services 3.56 2.60
- --------------------------------------------------------------------------------
TOTAL 38.59 33.61
* EXCLUDES U.S. TREASURY AND GOVERNMENT OBLIGATIONS
<PAGE>
FUND PORTFOLIO
IAI GROWTH AND INCOME FUND
SEPTEMBER 30, 1997
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
(UNAUDITED)
COMMON STOCKS - 95.1%
Market
Quantity Value (a)
- -------------------------------------------------------------------------
CONSUMER DURABLES - 14.9%
Bandag 37,000 $ 1,958,687
Department 56 (b) 157,400 4,554,763
Eastman Kodak 30,600 1,987,087
Harley-Davidson 108,600 3,169,763
Polaris 62,800 1,848,675
Sturm Ruger 140,600 2,662,613
-------------
16,181,588
- -------------------------------------------------------------------------
CONSUMER NON-DURABLES - 8.0%
Coca-Cola 34,800 2,120,625
Gillette 20,900 1,803,931
Philip Morris 80,600 3,349,938
UST 48,400 1,479,225
-------------
8,753,719
- -------------------------------------------------------------------------
CONSUMER SERVICES - 2.7%
Walt Disney 36,500 2,942,810
- -------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY - 6.8%
3Com (b) 46,900 2,403,625
Intel 34,000 3,138,625
Motorola 25,400 1,825,625
-------------
7,367,875
- -------------------------------------------------------------------------
ENERGY MINERALS - 4.4%
British Petroleum ADR 25,307 2,298,192
Exxon 38,700 2,479,219
-------------
4,777,411
- -------------------------------------------------------------------------
FINANCIAL - 19.0%
Aetna 27,500 2,239,531
American Express 33,600 2,751,000
Federal Home Loan Mortgage
Corporation 98,400 3,468,600
Leucadia National 59,400 2,041,875
Norwest 34,600 2,119,250
PMI Group 25,200 1,444,275
SLM Holding 26,900 4,156,050
United Assets Management 87,800 2,518,763
-------------
20,739,344
- -------------------------------------------------------------------------
Market
Quantity Value (a)
- -------------------------------------------------------------------------
HEALTH SERVICES - 3.1%
Healthcare COMPARE (b) 51,900 $ 3,315,113
- -------------------------------------------------------------------------
HEALTH TECHNOLOGY - 6.6%
Pfizer 32,400 1,946,025
R.P. Scherer (b) 33,000 2,043,937
SmithKline Beecham ADR 66,058 3,228,585
-------------
7,218,547
- -------------------------------------------------------------------------
INDUSTRIAL SERVICES - 5.2%
Nabors Industries (b) 119,900 4,668,606
Waste Management 29,300 1,023,669
-------------
5,692,275
- -------------------------------------------------------------------------
NON-ENERGY MINERALS - 4.2%
Nucor 32,100 1,691,269
Schweitzer-Mauduit International 67,900 2,885,750
-------------
4,577,019
- -------------------------------------------------------------------------
PRODUCER MANUFACTURING - 12.9%
Berkshire Hathaway Class A (b) 60 2,688,000
Berkshire Hathaway Class B (b) 107 159,965
General Electric 30,800 2,096,325
Nordson 25,700 1,506,662
Tyco International 39,000 3,200,438
Westinghouse Electric 162,300 4,392,244
-------------
14,043,634
- -------------------------------------------------------------------------
RETAIL TRADE - 3.1%
Wal-Mart Stores 92,200 3,376,825
- -------------------------------------------------------------------------
TECHNOLOGY SERVICES - 2.8%
Electronic Data Systems 24,600 873,300
Parametric Technology (b) 49,300 2,175,363
-------------
3,048,663
- -------------------------------------------------------------------------
UTILITIES - 1.4%
FPL Group 29,400 1,506,750
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $69,491,319)....................................... $103,541,573
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 20
<PAGE>
FUND PORTFOLIO
IAI GROWTH AND INCOME FUND
SEPTEMBER 30, 1997
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
(UNAUDITED)
OTHER SECURITIES - 2.9%
Market
Quantity (c) Value (a)
- -------------------------------------------------------------------------
COMMON STOCKS - 0.3%
Adra Systems Class A (b) 12,243 $ 24,485
Advanced Recognition
Technologies (b) 2,109 1,242
GalaGen (b) (d) 54,168 109,690
Oren (b) 24 5
PACE Health Management
Systems (b) (d) 121,220 190,922
-------------
326,344
- -------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK - 0.1%
Surmodics Series A (b) 6,667 133,340
- -------------------------------------------------------------------------
NON-CONVERTIBLE PREFERRED STOCKS - 0.6%
Adra Systems Series D (b) 14,964 149,640
Advanced Recognition
Technologies Series A (b) 19,119 11,255
Advanced Recognition
Technologies Series B (b) 74,871 44,076
Advanced Recognition
Technologies Series C (b) 8,005 4,713
Myriad UltraSound Systems
Series A (b) 13,068 16,531
Myriad UltraSound Systems
Series B (b) 14,491 18,331
Myriad UltraSound Systems
Series C (b) 14,351 18,154
Oren Series I (b) 132 211
Oren Series K (b) 220 352
Oren Series L (b) 256 307
ServiceSoft Series F (b) 27,063 5,413
Tut Systems Series D (b) (d) 222,222 277,778
VasoMedx Series B (b) 9,733 --
-------------
546,761
- -------------------------------------------------------------------------
Ownership Market
Percentage (c) Value (a)
- -------------------------------------------------------------------------
LIMITED PARTNERSHIPS - 1.9%
Alta Berkeley III, foreign (b) 1.58% $ 415,036
Ampersand Specialty Materials
& Chemicals II (b) 1.82 542,662
Broad Street Investment
Fund I (b) 0.12 197,055
South Street Corporate
Recovery Fund I (b) 1.26 74,502
Vanguard Associates II (b) 3.72 158,614
Vanguard Associates III (b) 6.55 727,629
-------------
2,115,498
- -------------------------------------------------------------------------
Market
Quantity (c) Value (a)
- -------------------------------------------------------------------------
CALL OPTIONS - 0.0%
GalaGen, $3.69, 05/22/98 (b) (d) 1,300 --
- -------------------------------------------------------------------------
WARRANTS - 0.0%
Myriad UltraSound Systems
03/06/99 1,577 --
Myriad UltraSound Systems
06/15/99 457 --
-------------
--
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN OTHER SECURITIES
(COST: $3,132,154)........................................ $ 3,121,943
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN LONG-TERM SECURITIES
(COST: $72,623,473)....................................... $106,663,516
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 20
<PAGE>
FUND PORTFOLIO
IAI GROWTH AND INCOME FUND
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHORT-TERM SECURITIES - 1.8%
Principal Market
Rate Maturity Amount Value (a)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATION - 1.8%
Federal Home Loan Mortgage
Corporation (DISCOUNT NOTE) 5.40% 10/24/97 $ 2,000,000 $ 1,993,100
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES
(COST: $1,993,100).................................................................................. $ 1,993,100
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(COST: $74,616,573) (e)............................................................................. $108,656,616
- -----------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) - 0.2%
................................................................................................. $ 269,817
- -----------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS
................................................................................................. $108,926,433
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 20
<PAGE>
FUND PORTFOLIO
IAI REGIONAL FUND
SEPTEMBER 30, 1997
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
(UNAUDITED)
COMMON STOCKS - 85.6%
Market
Quantity Value (a)
- -------------------------------------------------------------------------
COMMERCIAL SERVICES - 4.4%
Bell & Howell (b) 292,000 $ 9,471,750
HA-LO Industries 115,500 3,306,188
Merrill 155,700 7,162,200
R.R. Donnelley 164,000 5,852,750
-------------
25,792,888
- -------------------------------------------------------------------------
CONSUMER DURABLES - 9.6%
Excelsior-Henderson
Motorcycle (b) 290,000 1,866,875
ITI Technologies (b) 357,500 10,188,750
Jostens 103,200 2,799,300
Newell 273,500 10,940,000
Polaris 339,500 9,994,031
Racing Champions (b) 13,400 159,125
Snap-On 441,500 20,336,594
-------------
56,284,675
- -------------------------------------------------------------------------
CONSUMER NON-DURABLES - 2.3%
Hormel Foods 143,500 4,600,969
Sara Lee 175,500 9,038,250
-------------
13,639,219
- -------------------------------------------------------------------------
CONSUMER SERVICES - 1.2%
Lodgenet Entertainment (b) 529,000 7,009,250
- -------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY - 9.8%
360 Communications (b) 435,300 9,086,887
ACI Telecentrics (b) 233,000 1,223,250
ADC Telecommunications 73,000 2,372,500
Aetrium (b) (d) 596,000 14,825,500
Andrew 91,500 2,396,156
FSI International (b) 798,800 16,674,950
Galileo International (b) 158,200 4,419,713
Sheldahl (b) 292,000 6,278,000
-------------
57,276,956
- -------------------------------------------------------------------------
ENERGY MINERALS - 2.7%
Amoco 165,000 15,901,875
- -------------------------------------------------------------------------
Market
Quantity Value (a)
- -------------------------------------------------------------------------
FINANCIAL - 7.1%
Allstate 101,500 $ 8,158,062
First Alliance (b) 287,800 9,065,700
Green Tree Financial 154,500 7,261,500
LifeUSA (b) 388,300 6,261,338
MMI Companies 101,500 2,677,063
ReliaStar Financial 205,300 8,173,506
-------------
41,597,169
- -------------------------------------------------------------------------
HEALTH SERVICES - 3.5%
Healthcare COMPARE (b) 199,000 12,711,125
Patterson Dental (b) 195,000 7,897,500
-------------
20,608,625
- -------------------------------------------------------------------------
HEALTH TECHNOLOGY - 8.4%
Abbott Laboratories 78,200 4,999,913
Baxter International 141,000 7,367,250
Cerus (b) 105,800 1,838,275
CIMA Labs (b) 328,000 2,214,000
Diametrics Medical (b) 1,609,300 14,684,863
Marquette Medical Systems
Class A (b) 80,500 2,495,500
Northfield Laboratories (b) 572,000 6,578,000
Possis Medical (b) 296,200 4,220,850
Urologix (b) 197,063 4,680,245
-------------
49,078,896
- -------------------------------------------------------------------------
PROCESS INDUSTRIES - 8.0%
AptarGroup 228,300 12,770,531
Bemis 206,300 9,231,925
BMC Industries 345,500 10,991,219
Mycogen (b) 136,000 3,196,000
Northland Cranberries Class A 158,500 2,971,875
Valspar 248,800 7,806,100
-------------
46,967,650
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 20
<PAGE>
FUND PORTFOLIO
IAI REGIONAL FUND
SEPTEMBER 30, 1997
(UNAUDITED)
COMMON STOCKS (CONT.)
Market
Quantity Value (a)
- -------------------------------------------------------------------------
PRODUCER MANUFACTURING - 15.4%
ABC Rail Products (b) (d) 567,800 $ 10,362,350
Berkshire Hathaway Class A (b) 200 8,960,000
Borg-Warner Automotive 139,700 7,945,438
IDEX 371,500 12,770,313
Illinois Tool Works 99,500 4,968,780
Johnson Controls 201,000 9,962,062
Pentair 384,000 14,160,000
Recovery Engineering (b) (d) 365,000 9,946,250
Thermo Sentron (b) 332,100 4,649,400
Zebra Technologies Class A (b) 183,500 6,560,125
-------------
90,284,718
- -------------------------------------------------------------------------
RETAIL TRADE - 5.4%
Dayton Hudson 98,500 5,903,844
Lands' End (b) 190,300 5,863,619
Sears Roebuck 140,700 8,011,106
Shopko Stores (b) 110,000 2,860,000
Video Update Class A (b) (d) 1,245,300 4,592,044
Walgreen 163,000 4,176,875
-------------
31,407,488
- -------------------------------------------------------------------------
TECHNOLOGY SERVICES - 3.7%
Anicom 307,692 5,153,841
Engineering Animation (b) 146,200 5,573,875
Platinum Technology (b) 121,700 2,616,550
Racotek (b) 746,200 1,492,400
Richardson Electronics 224,600 2,891,725
Secure Computing 434,700 3,885,131
-------------
21,613,522
- -------------------------------------------------------------------------
TRANSPORTATION - 2.7%
Illinois Central 247,500 9,095,625
USFreightways 205,300 6,903,213
-------------
15,998,838
- -------------------------------------------------------------------------
Market
Quantity Value (a)
- -------------------------------------------------------------------------
UTILITIES - 1.4%
Ameritech 93,000 $ 6,184,500
PriCellular Class A 222,525 2,211,342
-------------
8,395,842
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $375,050,949)...................................... $501,857,611
- -------------------------------------------------------------------------
OTHER SECURITIES - 9.6%
Market
Quantity (c) Value (a)
- -------------------------------------------------------------------------
COMMON STOCKS - 2.4%
AccessLine Technologies
Class A (b) 41,666 $ 208,330
Advanced Fibre
Communications (b) 109,064 4,471,625
Advanced Recognition
Technologies (b) 2,315 1,363
Anglo Chinese Investment
Company, foreign (b) (d) 1,600 283,467
BEI Medical (b) 1,029 10
CardioGenesis (b) 609,793 7,521,187
DSI Toys (b) 10,968 92,548
GalaGen (b) (d) 291,733 588,717
NEI Webworld (b) 134,703 507,696
Oren (b) 27 5
PACE Health Management
Systems (b) (d) 340,705 530,818
Pacific Monolithics (b) 9,865 5,919
Seurat Analytical Systems
Class B (b) (d) 35,102 351
-------------
14,212,036
- -------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 0.1%
Surmodics Series A (b) 34,520 690,400
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 20
<PAGE>
FUND PORTFOLIO
IAI REGIONAL FUND
SEPTEMBER 30, 1997
(UNAUDITED)
OTHER SECURITIES (CONT.)
Market
Quantity (c) Value (a)
- -------------------------------------------------------------------------
NON-CONVERTIBLE PREFERRED STOCKS - 0.5%
AccessLine Technologies
Series A (b) 71,420 $ 357,100
Advanced Recognition
Technologies Series A (b) 20,985 12,354
Advanced Recognition
Technologies Series B (b) 82,181 48,380
Advanced Recognition
Technologies Series C (b) 8,787 5,173
Intellon Series A (b) 600,000 1,116,000
Intellon Series B (b) 192,921 358,833
Myriad UltraSound Systems
Series A (b) 14,344 18,145
Myriad UltraSound Systems
Series B (b) 15,905 20,120
Myriad UltraSound Systems
Series C (b) 15,752 19,926
Oren Series I (b) 145 231
Oren Series K (b) 242 387
Oren Series L (b) 281 337
ServiceSoft Series F (b) 29,706 5,941
Seurat Analytical Systems
Series B (b) (d) 114,973 1,150
Seurat Analytical Systems
Series C (b) (d) 37,414 374
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) 500,000 5
VasoMedx Series B (b) 39,599 --
-------------
3,159,215
- -------------------------------------------------------------------------
Ownership Market
Percentage (c) Value (a)
- -------------------------------------------------------------------------
LIMITED PARTNERSHIPS - 6.6%
Agio Capital Partners I (b) 11.11% $ 304,613
Alta Berkeley III, foreign (b) 3.15 830,091
Ampersand Specialty Materials
& Chemicals II (b) 2.72 813,957
Anglo Chinese Selections (b) 3.28 887,000
Conrad/Collins Merchant
Banking Fund (b) 8.45 278,812
Greenwich Street Capital
Partners (b) 2.99 6,189,908
Pathfinder Venture
Capital Fund III (b) 3.99 1,019,240
South Street Corporate
Recovery Fund I (b) 2.68 158,102
South Street Leveraged
Corporate Recovery Fund I (b) 2.35 66,544
Spectrum Equity Investors (b) 2.76 3,105,406
Vanguard Associates II (b) 3.72 158,614
Vanguard Associates III (b) 6.20 720,363
Vanguard Associates IV (b) 9.44 24,247,020
-------------
38,779,670
- -------------------------------------------------------------------------
Principal Market
Rate Maturity Amount (c) Value (a)
- -------------------------------------------------------------------------
CONVERTIBLE DEBENTURES - 0.0%
Air Communications Series B (b) (d)
10.00% 02/28/97 $ 258,332 --
VasoMedx Series C (b) (d)
12.00 02/28/97 113,000 --
-------------
--
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 20
<PAGE>
FUND PORTFOLIO
IAI REGIONAL FUND
SEPTEMBER 30, 1997
(UNAUDITED)
OTHER SECURITIES (CONT.)
Market
Quantity (c) Value (a)
- -------------------------------------------------------------------------
CALL OPTIONS - 0.0%
GalaGen, $3.69, 05/22/98 (b) (d) 5,200 $ --
GalaGen, $11.07, 03/27/01 (b) (d) 270 --
-------------
--
- -------------------------------------------------------------------------
WARRANTS - 0.0%
AccessLine Technologies,
$7.00, 06/03/99 10,713 --
GalaGen, $11.07, 06/16/99 (d) 5,687 --
GalaGen, $11.07, 03/24/00 (d) 2,256 --
GalaGen, $11.07, 07/09/00 (d) 1,805 --
GalaGen, $7.00, 01/29/01 (d) 7,500 --
Intellon, $2.50, 03/23/99 90,000 --
Myriad Ultrasound Systems
03/06/99 1,731 --
Market
Quantity (c) Value (a)
- -------------------------------------------------------------------------
Myriad Ultrasound Systems
06/15/99 501 $ --
PACE Health Management
Systems, $4.12, 01/31/00 (d) 21,820 --
PACE Health Management
Systems, $3.00, 08/31/05 (d) 35,000 --
-------------
--
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN OTHER SECURITIES
(COST: $22,975,333)....................................... $ 56,841,321
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN LONG-TERM
SECURITIES
(COST: $398,026,282)...................................... $558,698,932
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TERM SECURITIES - 4.8%
Principal Market
Rate Maturity Amount (c) Value (a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATION - 4.8%
Federal Home Loan Mortgage
Corporation (DISCOUNT NOTE) 5.40% 10/24/97 $28,000,000 $ 27,903,400
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES
(COST: $27,903,400)...................................................................... $ 27,903,400
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(COST: $425,929,682) (e)................................................................. $586,602,332
- -----------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 0.0%
...................................................................................... $ (155,626)
- -----------------------------------------------------------------------------------------------------
TOTAL NET ASSETS
...................................................................................... $586,446,706
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 20
<PAGE>
FUND PORTFOLIO
IAI VALUE FUND
SEPTEMBER 30, 1997
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
(UNAUDITED)
COMMON STOCKS - 88.8%
Market
Quantity Value (a)
- -------------------------------------------------------------------------
COMMERCIAL SERVICES - 5.9%
M/A/R/C 30,150 $ 716,063
Scientific Games (b) 48,500 1,054,875
-------------
1,770,938
- -------------------------------------------------------------------------
CONSUMER DURABLES - 16.1%
Bandag 21,200 1,122,275
Department 56 (b) 49,100 1,420,831
Polaris 39,800 1,171,613
Sturm Ruger 57,100 1,081,331
-------------
4,796,050
- -------------------------------------------------------------------------
CONSUMER NON-DURABLES - 5.4%
800 - JR Cigar (b) 20,000 700,000
Swisher International Class A (b) 50,000 906,250
-------------
1,606,250
- -------------------------------------------------------------------------
CONSUMER SERVICES - 1.1%
Colonial Downs Class A (b) 49,200 338,250
- -------------------------------------------------------------------------
ENERGY MINERALS - 1.2%
Zeigler Coal 15,800 369,325
- -------------------------------------------------------------------------
FINANCIAL - 12.1%
Ambassador Apartments 21,200 504,825
Leucadia National 31,800 1,093,125
LifeUSA (b) 54,032 871,265
United Assets Management 39,400 1,130,288
-------------
3,599,503
- -------------------------------------------------------------------------
HEALTH SERVICES - 6.7%
Healthcare COMPARE (b) 14,700 938,963
Trigon Healthcare (b) 42,800 1,061,975
-------------
2,000,938
- -------------------------------------------------------------------------
HEALTH TECHNOLOGY - 4.1%
R.P. Scherer (b) 19,700 1,220,167
- -------------------------------------------------------------------------
INDUSTRIAL SERVICES - 8.7%
Dawson Production Services (b) 36,400 768,950
Falcon Drilling (b) 19,800 699,188
Petroleum Geo-Services ADR (b) 16,800 1,136,100
-------------
2,604,238
- -------------------------------------------------------------------------
Market
Quantity Value (a)
- -------------------------------------------------------------------------
NON-ENERGY MINERALS - 7.4%
Dal-Tile International (b) 29,400 $ 441,000
Nucor 14,800 779,775
Schweitzer-Mauduit
International 23,300 990,250
-------------
2,211,025
- -------------------------------------------------------------------------
PRODUCER MANUFACTURING - 11.5%
Holophane (b) 39,400 906,200
NCI Building Systems (b) 24,800 892,800
Nordson 17,700 1,037,662
Trinity Industries 12,400 598,300
-------------
3,434,962
- -------------------------------------------------------------------------
RETAIL TRADE - 5.7%
Pizza Inn (b) 222,500 1,084,688
SkyMall (b) 98,500 627,938
-------------
1,712,626
- -------------------------------------------------------------------------
TECHNOLOGY SERVICES - 2.9%
Audre Recognition
Systems (b) 1,365,350 14
Black Box (b) 19,600 857,500
-------------
857,514
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $21,108,810)........................................ $26,521,786
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 20
<PAGE>
FUND PORTFOLIO
IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
OTHER SECURITIES - 10.1%
Market
Quantity (c) Value (a)
- -------------------------------------------------------------------------
COMMON STOCKS - 2.0%
Advanced Recognition
Technologies (b) 720 $ 424
DSI Toys (b) 10,968 92,547
NEI Webworld (b) 134,703 507,696
Oren (b) 8 2
Pacific Monolithics (b) 9,865 5,919
-------------
606,588
- -------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK - 1.3%
Surmodics Series A (b) 18,520 370,400
- -------------------------------------------------------------------------
NON-CONVERTIBLE PREFERRED STOCKS - 4.4%
Advanced Recognition
Technologies Series A (b) 6,529 3,844
Advanced Recognition
Technologies Series B (b) 25,569 15,051
Advanced Recognition
Technologies Series C (b) 2,734 1,610
Intellon Series A 200,000 372,000
Myriad UltraSound Systems
Series A (b) 4,463 5,646
Myriad UltraSound Systems
Series B (b) 4,949 6,260
Myriad UltraSound Systems
Series C (b) 4,901 6,200
Oren Series I (b) 45 72
Oren Series K (b) 75 120
Oren Series L (b) 87 105
PathNet Series A (b) 100,000 328,000
PathNet Series B (b) 43,153 141,542
ServiceSoft Series F (b) 9,243 1,849
Tut Systems Series D (b) (d) 350,319 437,899
VasoMedx Series B (b) 4,867 --
-------------
1,320,198
- -------------------------------------------------------------------------
Ownership Market
Percentage (c) Value (a)
- -------------------------------------------------------------------------
LIMITED PARTNERSHIPS - 2.4%
Ampersand Specialty Materials
& Chemicals II (b) 0.91% $ 271,331
Conrad/Collins Merchant
Banking Fund (b) 8.45 278,813
South Street Leveraged
Corporate Recovery Fund I (b) 0.67 19,013
Vanguard Associates III (b) 1.42 160,886
-------------
730,043
- -------------------------------------------------------------------------
Market
Quantity (c) Value (a)
- -------------------------------------------------------------------------
WARRANTS - 0.0%
Intellon, $2.50, 03/23/99 30,000 $ --
Myriad UltraSound Systems,
03/06/99 538 --
Myriad UltraSound Systems,
06/15/99 156 --
-------------
--
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN OTHER SECURITIES
(COST: $1,719,425)......................................... $ 3,027,229
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN LONG-TERM
SECURITIES
(COST: $22,828,235)........................................ $29,549,015
- -------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 20
<PAGE>
FUND PORTFOLIO
IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHORT-TERM SECURITIES - 0.4%
Principal Market
Rate Maturity Amount Value (a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATION - 0.4%
U.S. Treasury Bill 5.05% 12/04/97 $100,000 $ 99,125
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES
(COST: $99,124)........................................................................... $ 99,125
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(COST: $22,927,359) (e)................................................................... $29,648,140
- -------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) - 0.7%
....................................................................................... $ 211,528
- -------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS
....................................................................................... $29,859,668
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 20
<PAGE>
NOTES TO FUND PORTFOLIOS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1997
(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, 1997, 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, 1997 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, 1997. A summary of transactions during the
period with affiliated issuers of the Funds follows:
<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>
ABC Rail Products 31,100 $ 593,589 -- $ -- $ -- $ --
Aetrium 41,000 $ 961,450 -- $ -- $ -- $ --
*First Alliance 15,800 $ 521,361 -- $ -- $ -- $ --
*ITI Technologies 19,500 $ 519,189 156,000 $2,521,264 $ (1,277,828) $ --
Recovery Engineering 20,000 $ 565,914 -- $ -- $ -- $ --
*Secure Computing 23,800 $ 153,898 50,100 $ 341,420 $ (1,653,715) $ --
Video Update Class A 560,300 $2,467,557 -- $ -- $ -- $ --
</TABLE>
* SECURITIES THAT WERE AFFLIATED DURING THE SIX MONTH PERIOD ENDING ON 9/30/97
BUT NOT AT 9/30/97.
<PAGE>
NOTES TO FUND PORTFOLIOS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
(e)
At September 30, 1997, 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 $75,190,877 $428,639,512 $23,202,970
===========================================================================
Gross unrealized appreciation $35,401,040 $175,812,206 $ 8,029,069
Gross unrealized depreciation (1,935,300) (17,849,386) (1,583,899)
---------------------------------------------------------------------------
Net unrealized appreciation $33,465,740 $157,962,820 $ 6,445,170
===========================================================================
</TABLE>
<PAGE>
NOTES TO FUND PORTFOLIOS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
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
Advanced Recognition
Technologies 06/16/97 47
GalaGen 02/26/93 300,000
11/29/93 150,031
Oren 06/16/97 5
PACE Health
Management Systems 01/11/94 499,996
CONVERTIBLE PREFERRED STOCK
Security Acquisition Date Cost
- ---------------------------------------------------------------------
Surmodics Series A 12/28/90 $ 100,005
NON-CONVERTIBLE
PREFERRED STOCKS
Security Acquisition Date Cost
- ---------------------------------------------------------------------
Adra Systems Series D 10/20/88 $ 179,842
Advanced Recognition
Technologies Series A 06/16/97 7,208
Advanced Recognition
Technologies Series B 06/16/97 14,845
Advanced Recognition
Technologies Series C 06/16/97 4,713
Myriad UltraSound Systems
Series A 06/16/97 6,743
Myriad UltraSound Systems
Series B 06/16/97 16,375
Myriad UltraSound Systems
Series C 06/16/97 18,154
Oren Series I 06/16/97 211
Oren Series K 06/16/97 352
Oren Series L 06/16/97 307
ServiceSoft Series F 06/16/97 52,494
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, foreign 09/25/96 $ 46,010
06/06/97 23,135
Ampersand Specialty Materials
& Chemicals II 12/05/96 45,478
Broad Street Investment
Fund I 05/08/91 12,408
South Street Corporate
Recovery Fund I 10/03/95 --
Vanguard Associates II 07/28/83 18,263
12/10/84 270,112
10/31/86 138,197
Vanguard Associates III 02/28/91 41,552
01/10/92 305,250
01/11/93 305,250
09/30/93 34,128
CALL OPTIONS
Security Acquisition Date Cost
- ---------------------------------------------------------------------
GalaGen 05/22/98 03/24/94 $ --
02/22/95 --
02/22/96 --
02/22/97
WARRANTS
Security Acquisition Date Cost
- ---------------------------------------------------------------------
Myriad UltraSound Systems
03/06/99 10/15/96 $ --
Myriad UltraSound Systems
06/15/99 10/15/96 --
<PAGE>
NOTES TO FUND PORTFOLIOS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
RESTRICTED SECURITIES
IAI REGIONAL FUND
COMMON STOCKS
Security Acquisition Date Cost
- ---------------------------------------------------------------------
AccessLine Technologies
Class A 06/30/94 $ 209,009
Advanced Fibre
Communications 10/31/96 52,042
Advanced Recognition
Technologies 06/16/97 52
Anglo Chinese Investment
Company, foreign 12/27/90 157,263
02/07/94 343,001
02/09/94 6,311
BEI Medical 02/05/96 31,094
CardioGenesis 06/09/94 1,000,202
12/05/95 670,285
DSI Toys 12/11/95 20,291
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
NEI Webworld 02/28/94 50,298
Oren 06/16/97 5
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
Seurat Analytical Systems
Class B 06/28/96 --
CONVERTIBLE PREFERRED STOCK
Security Acquisition Date Cost
- ---------------------------------------------------------------------
Surmodics 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
Advanced Recognition
Technologies Series A 06/16/97 7,912
Advanced Recognition
Technologies Series B 06/16/97 16,294
Advanced Recognition
Technologies Series C 06/16/97 5,173
Intellon Series A 03/24/94 600,489
Intellon Series B 04/03/96 358,892
Myriad UltraSound Systems
Series A 06/16/97 7,403
Myriad UltraSound Systems
Series B 06/16/97 17,973
Myriad UltraSound Systems
Series C 06/16/97 19,926
Oren Series I 06/16/97 231
Oren Series K 06/16/97 387
Oren Series L 06/16/97 337
ServiceSoft Series F 06/16/97 57,621
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
10/18/96 28,832
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 07/30/96 325,095
<PAGE>
NOTES TO FUND PORTFOLIOS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
RESTRICTED SECURITIES
IAI REGIONAL FUND (CONT.)
Security Acquisition Date Cost
- ---------------------------------------------------------------------
VasoMedx Series A 10/12/95 $ 48,794
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
01/03/97 300,000
Alta Berkeley III, foreign 09/25/96 92,022
06/06/97 46,273
Ampersand Specialty
Materials & Chemicals II 12/05/96 68,214
Anglo Chinese Selections 12/27/90 1,042,724
Conrad/Collins Merchant
Banking Fund 05/11/89 218,574
Greenwich Street
Capital Partners 08/29/95 186,552
10/27/95 340,920
01/23/96 487,783
05/10/96 439,785
05/24/96 397,680
08/22/96 76,998
09/16/96 193,879
11/07/96 234,214
01/28/97 1,304,156
04/28/97 1,923,808
08/22/97 351,787
Pathfinder Venture
Capital Fund III 10/29/92 94,301
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
09/17/97 50,000
Security Acquisition Date Cost
- ---------------------------------------------------------------------
South Street Corporate
Recovery Fund I 10/03/95 $ --
South Street Leveraged
Corporate Recovery Fund I 10/03/95 --
Spectrum Equity Investors 05/12/94 191,047
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
10/22/96 300,000
12/12/96 75,000
02/12/97 128,360
02/26/97 150,000
05/05/97 120,000
06/10/97 75,000
09/30/97 75,000
Vanguard Associates II 07/28/83 18,263
12/10/84 270,112
10/31/86 138,197
Vanguard Associates III 02/28/91 39,306
01/10/92 288,750
01/11/93 288,750
09/30/93 32,284
Vanguard Associates IV 07/26/96 93,473
<PAGE>
NOTES TO FUND PORTFOLIOS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
RESTRICTED SECURITIES
IAI REGIONAL FUND (CONT.)
CONVERTIBLE DEBENTURES
Security Acquisition Date Cost
- ---------------------------------------------------------------------
Air Communications
Series B 02/28/97 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 02/28/97 07/17/96 75,000
12/04/96 30,000
01/13/97 8,000
CALL OPTIONS
Security Acquisition Date Cost
- ---------------------------------------------------------------------
GalaGen 05/22/98 03/24/94 $ --
02/22/95 --
02/22/96 --
02/22/97 --
GalaGen 03/27/01 12/26/96 --
WARRANTS
Security Acquisition Date Cost
- ---------------------------------------------------------------------
AccessLine Technologies
06/03/99 06/03/94 $ --
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 03/23/99 04/12/94 --
Myriad UltraSound Systems
03/06/99 10/15/96 --
Myriad UltraSound Systems
06/15/99 10/15/96 --
PACE Health Management
Systems 01/31/00 03/30/95 --
PACE Health Management
Systems 08/31/05 01/16/96 28
<PAGE>
NOTES TO FUND PORTFOLIOS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
RESTRICTED SECURITIES
IAI VALUE FUND
COMMON STOCKS
Security Acquisition Date Cost
- ---------------------------------------------------------------------
Advanced Recognition
Technologies 06/16/97 $ 16
DSI Toys 12/11/95 20,291
NEI Webworld 02/28/94 50,298
Oren 06/16/97 2
Pacific Monolithics 04/24/85 24,999
08/06/85 75,000
08/19/86 47,990
CONVERTIBLE PREFERRED STOCK
Security Acquisition Date Cost
- ---------------------------------------------------------------------
Surmodics Series A 05/04/89 $ 250,020
NON-CONVERTIBLE
PREFERRED STOCKS
Security Acquisition Date Cost
- ---------------------------------------------------------------------
Advanced Recognition
Technologies Series A 06/16/97 $ 2,461
Advanced Recognition
Technologies Series B 06/16/97 5,069
Advanced Recognition
Technologies Series C 06/16/97 1,610
Intellon Series A 03/24/94 200,163
Myriad UltraSound Systems
Series A 06/16/97 2,303
Myriad UltraSound Systems
Series B 06/16/97 5,592
Myriad UltraSound Systems
Series C 06/16/97 6,200
Oren Series I 06/16/97 72
Oren Series K 06/16/97 120
Oren Series L 06/16/97 105
Security Acquisition Date Cost
- ---------------------------------------------------------------------
PathNet Series A 08/28/95 $ 50,567
02/09/96 50,033
PathNet Series B 08/05/96 70,078
12/23/96 33,326
Servicesoft Series F 06/16/97 17,928
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 12/05/96 $ 22,738
Conrad/Collins Merchant
Banking Fund 05/11/89 218,574
South Street Leveraged
Corporate Recovery Fund I 10/03/95 --
Vanguard Associates III 02/28/91 8,984
01/10/92 66,000
01/11/93 66,000
09/30/93 7,379
WARRANTS
Security Acquisition Date Cost
- ---------------------------------------------------------------------
Intellon 03/23/99 04/12/94 $ --
Myriad UltraSound Systems
03/06/99 10/15/96 --
Myriad UltraSound Systems
06/15/99 10/15/96 --
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
IAI GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities of unaffiliated issuers, at market
(Cost: $73,466,399, $387,437,627 and $22,611,851, respectively) $108,078,226
Investments in securities of affiliated issuers, at market
(Cost: $1,150,174, $38,492,055 and $315,508, respectively) 578,390
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (SEE FUND PORTFOLIOS) 108,656,616
Cash in bank on demand deposit 90,123
Receivable for investment securities sold --
Dividends and accrued interest receivable 130,910
Other assets (Note 2) 48,784
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 108,926,433
- ------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investment securities purchased --
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES --
- ------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $108,926,433
============================================================================================================
REPRESENTED BY:
Capital stock $ 602,346
Additional paid-in capital 73,082,466
Undistributed (overdistributed) net investment income (617,956)
Accumulated net realized gains (Note 2) 1,819,534
Unrealized appreciation on investments 34,040,043
- ------------------------------------------------------------------------------------------------------------
TOTAL - REPRESENTING NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $108,926,433
============================================================================================================
Shares of capital stock outstanding (Note 4) 6,023,456
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE OF OUTSTANDING CAPITAL STOCK $ 18.08
============================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IAI REGIONAL FUND IAI VALUE FUND
- ------------------------------------------------------
<S> <C> <C>
$544,276,552 $29,210,241
42,325,780 437,899
- ------------------------------------------------------
586,602,332 29,648,140
667,866 181,614
27,599 --
295,999 19,019
957,067 10,895
- ------------------------------------------------------
588,550,863 29,859,668
- ------------------------------------------------------
2,104,157 --
- ------------------------------------------------------
2,104,157 --
- ------------------------------------------------------
$586,446,706 $29,859,668
======================================================
$ 212,518 $ 20,545
392,325,114 19,716,484
(1,262,638) (123,644)
34,499,062 3,525,502
160,672,650 6,720,781
- ------------------------------------------------------
$586,446,706 $29,859,668
======================================================
21,251,818 2,054,471
- ------------------------------------------------------
$ 27.60 $ 14.53
======================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 37
<PAGE>
STATEMENTS OF OPERATIONS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SIX MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
IAI GROWTH AND INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INVESTMENT INCOME
INCOME
Dividends (net of foreign income taxes withheld of $2,469, $0 and $0, respectively) $ 671,922
Interest 141,959
---------------------------------------
TOTAL INCOME 813,881
---------------------------------------
EXPENSES
Management fees 650,723
Compensation of Directors 5,544
---------------------------------------
TOTAL EXPENSES 656,267
Less fees reimbursed by Advisers (5,544)
---------------------------------------
NET EXPENSES 650,723
---------------------------------------
NET INVESTMENT INCOME 163,158
---------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
Net realized gains (losses) on:
Investment securities (including $0, ($2,931,543) and $0,
respectively, from affiliated issuers) $ 1,822,237
Futures contracts --
------------
1,822,237
Net change in unrealized appreciation or depreciation on
investment securities 21,353,445
---------------------------------------
NET GAIN ON INVESTMENTS 23,175,682
---------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 23,338,840
=======================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IAI REGIONAL FUND IAI VALUE FUND
- -------------------------------------------------------------------
<S> <C> <C> <C>
$ 1,968,796 $ 142,789
1,528,736 1,382
- -------------------------------------------------------------------
3,497,532 144,171
- -------------------------------------------------------------------
3,314,755 181,963
28,984 1,556
- -------------------------------------------------------------------
3,343,739 183,519
(28,984) (1,556)
- -------------------------------------------------------------------
3,314,755 181,963
- -------------------------------------------------------------------
182,777 (37,792)
- -------------------------------------------------------------------
$ 35,796,614 $ 3,715,566
(38,875) --
------------- -----------
35,757,739 3,715,566
108,299,044 3,996,031
- -------------------------------------------------------------------
144,056,783 7,711,597
- -------------------------------------------------------------------
$ 144,239,560 $ 7,673,805
===================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 37
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
<TABLE>
<CAPTION>
IAI GROWTH AND INCOME FUND
Six months ended Year ended
September 30, March 31,
1997 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS (UNAUDITED)
Net investment income $ 163,158 $ 447,997
Net realized gains (losses) 1,822,237 9,983,503
Net change in unrealized appreciation or depreciation 21,353,445 40,277
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 23,338,840 10,471,777
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (235,523) (512,361)
Excess distribution from net investment income -- (545,591)
From net realized gains (3,200,058) (12,410,890)
- --------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (3,435,581) (13,468,842)
- --------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares sold 13,330,165 35,274,494
Net asset value of shares issued for reinvestment of distributions 3,228,872 12,953,084
Cost of shares redeemed (18,276,478) (39,151,495)
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (1,717,441) 9,076,083
- --------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 18,185,818 6,079,018
NET ASSETS AT BEGINNING OF PERIOD 90,740,615 84,661,597
- --------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $ 108,926,433 $ 90,740,615
========================================================================================================
including undistributed (overdistributed) net investment income of: $ (617,956) $ (545,591)
========================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IAI REGIONAL FUND IAI VALUE FUND
Six months ended Year ended Six months ended Year ended
September 30, March 31, September 30, March 31,
1997 1997 1997 1997
- --------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
$ 182,777 $ 816,077 $ (37,792) $ 227,574
35,757,739 90,243,072 3,715,566 3,790,947
108,299,044 (41,343,059) 3,996,031 (1,893,898)
- --------------------------------------------------------------
144,239,560 49,716,090 7,673,805 2,124,623
- --------------------------------------------------------------
(103,657) (960,706) (256,129) (362,139)
-- (1,307,272) -- --
(35,199,112) (88,807,982) (1,049,838) (3,825,316)
- --------------------------------------------------------------
(35,302,769) (91,075,960) (1,305,967) (4,187,455)
- --------------------------------------------------------------
19,980,202 66,024,812 5,598,875 18,415,875
34,303,381 88,548,881 1,251,042 4,123,935
(74,952,141) (190,191,836) (12,796,868) (33,047,689)
- --------------------------------------------------------------
(20,668,558) (35,618,143) (5,946,951) (10,507,879)
- --------------------------------------------------------------
88,268,233 (76,978,013) 420,887 (12,570,711)
498,178,473 575,156,486 29,438,781 42,009,492
- --------------------------------------------------------------
$ 586,446,706 $ 498,178,473 $ 29,859,668 $ 29,438,781
==============================================================
$ (1,262,638) $ (1,341,758) $ (123,644) $ 170,277
==============================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 37
<PAGE>
FINANCIAL HIGHLIGHTS
IAI GROWTH AND INCOME FUND
PER SHARE DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
AND SELECTED INFORMATION FOR EACH PERIOD INDICATED ARE AS FOLLOWS:
<TABLE>
<CAPTION>
IAI GROWTH AND INCOME FUND
Years ended
Six months ended March 31,
September 30, ------------------------------------------------------------------
1997 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE (UNAUDITED)
Beginning of period $ 14.83 $ 15.30 $ 14.32 $ 13.91 $ 15.19 $ 14.73
- -------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income 0.03 0.10 0.10 0.12 0.09 0.07
Net realized and unrealized gains 3.78 1.88 2.86 1.04 0.38 1.17
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM OPERATIONS 3.81 1.98 2.96 1.16 0.47 1.24
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.04) (0.10) (0.13) (0.10) (0.06) (0.07)
Excess distribution from
net investment income -- (0.10) -- -- -- --
From net realized gains (0.52) (2.25) (1.85) (0.65) (1.69) (0.71)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.56) (2.45) (1.98) (0.75) (1.75) (0.78)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 18.08 $ 14.83 $ 15.30 $ 14.32 $ 13.91 $ 15.19
===============================================================================================================================
Total investment return* 25.95% 13.34% 21.51% 8.92% 3.07% 9.04%
Net assets at end of period (000's omitted) $ 108,926 $ 90,741 $ 84,662 $ 101,256 $ 119,102 $ 134,308
RATIOS
Expenses to average net assets 1.24%** 1.25% 1.25% 1.25% 1.25% 1.25%
Net investment income to
average net assets 0.31%** 0.51% 0.62% 0.80% 0.60% 0.61%
Average brokerage commission rate*** $ 0.0599 $ 0.0623 n/a n/a n/a n/a
Portfolio turnover rate
(excluding short-term securities) 11.7% 51.2% 89.1% 79.1% 205.6% 175.6%
</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
*** BEGINNING IN FISCAL 1997, THE FUND IS REQUIRED TO DISCLOSE AN AVERAGE
BROKERAGE COMMISSION RATE.
<PAGE>
FINANCIAL HIGHLIGHTS
IAI REGIONAL FUND
PER SHARE DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
AND SELECTED INFORMATION FOR EACH PERIOD INDICATED ARE AS FOLLOWS:
<TABLE>
<CAPTION>
IAI REGIONAL FUND
Years ended
Six months ended March 31,
September 30, ------------------------------------------------------------------
1997 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE (UNAUDITED)
Beginning of period $ 22.59 $ 24.57 $ 21.56 $ 20.94 $ 22.23 $ 21.29
- --------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income 0.01 0.03 0.14 0.17 0.21 0.21
Net realized and unrealized gains 6.66 2.08 5.77 1.84 0.51 1.48
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM OPERATIONS 6.67 2.11 5.91 2.01 0.72 1.69
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (0.04) (0.18) (0.20) (0.18) (0.23)
Excess distribution from net
investment income -- (0.06) (0.02) -- -- --
From net realized gains (1.66) (3.99) (2.70) (1.19) (1.83) (0.52)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.66) (4.09) (2.90) (1.39) (2.01) (0.75)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 27.60 $ 22.59 $ 24.57 $ 21.56 $ 20.94 $ 22.23
================================================================================================================================
Total investment return* 30.46% 8.65% 28.62% 10.35% 3.26% 8.31%
Net assets at end of period (000's omitted) $ 586,447 $ 498,178 $ 575,156 $ 523,364 $ 596,572 $ 659,904
RATIOS
Expenses to average net assets 1.21%** 1.21% 1.25% 1.23% 1.25% 1.25%
Net investment income to
average net assets 0.07%** 0.14% 0.58% 0.74% 0.94% 1.09%
Average brokerage commission rate*** $ 0.0594 $ 0.0581 n/a n/a n/a n/a
Portfolio turnover rate
(excluding short-term securities) 22.1% 61.1% 89.7% 150.0% 163.0% 139.7%
</TABLE>
* TOTAL INVESTMENT RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE OF A SHARE
DURING THE PERIOD AND ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AT NET ASSET
VALUE.
** ANNUALIZED
*** BEGINNING IN FISCAL 1997, THE FUND IS REQUIRED TO DISCLOSE AN AVERAGE
BROKERAGE COMMISSION RATE.
<PAGE>
FINANCIAL HIGHLIGHTS
IAI VALUE FUND
PER SHARE DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
AND SELECTED INFORMATION FOR EACH PERIOD INDICATED ARE AS FOLLOWS:
<TABLE>
<CAPTION>
IAI VALUE FUND
Years ended
Six months ended March 31,
September 30, ------------------------------------------------------------------
1997 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE (UNAUDITED)
Beginning of period $ 11.66 $ 12.42 $ 11.17 $ 11.63 $ 11.63 $ 11.06
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OPERATIONS
Net investment income (0.01) 0.09 0.08 0.03 0.05 0.11
Net realized and unrealized gains 3.46 0.68 2.19 0.38 1.45 0.56
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Total from operations 3.45 0.77 2.27 0.41 1.50 0.67
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.11) (0.12) (0.01) (0.03) (0.13) --
Net realized gains (0.47) (1.41) (1.01) (0.84) (1.37) (0.10)
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Total distributions (0.58) (1.53) (1.02) (0.87) (1.50) (0.10)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 14.53 $ 11.66 $ 12.42 $ 11.17 $ 11.63 $ 11.63
================================================================================================================================
Total investment return* 30.39% 5.85% 21.07% 3.88% 12.70% 6.20%
Net assets at end of period (000's omitted) $ 29,860 $ 29,439 $ 42,009 $ 40,601 $ 35,282 $ 24,643
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 (0.26%)** 0.61% 0.65% 0.31% 0.35% 0.68%
Average brokerage commission rate*** $ 0.0583 $ 0.0600 n/a n/a n/a n/a
Portfolio turnover rate
(excluding short-term securities) 10.2% 61.3% 73.4% 102.1% 191.9% 118.3%
</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
*** BEGINNING IN FISCAL 1997, THE FUND IS REQUIRED TO DISCLOSE AN AVERAGE
BROKERAGE COMMISSION RATE.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1997
(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
Securities traded on national or inter-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. Such valuations are obtained from pricing services or are supplied by
dealers.
Short-term securities with maturities of 60 days or less from the date of
initial acquisition are valued at amortized cost. Those securities with
maturities 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 under procedures established by the Board of Directors. Such
securities represent $3,121,943 (2.9% of net assets) for Growth and Income Fund,
$56,841,321 (9.6% of net assets) for Regional Fund and $3,027,229 (10.1% of net
assets) for Value Fund. Because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would have been
used had a ready market for the securities existed, and the differences could be
material.
FUTURES AND OPTIONS CONTRACTS
In order to increase exposure to and hedge against changes in the market, the
Funds may buy and sell futures contracts and options. The risks of entering into
futures and option contracts include the possibility that changes in the value
of these contracts may not correlate with changes in the underlying security.
Futures contracts are valued at the settlement price of the exchange on which
they are traded. Upon entering into a futures contract, a Fund is required to
deposit either cash or securities, representing the initial margin, equal to a
certain percentage of the contract value. Subsequent changes in the value of the
contract, or variation margin, are recorded daily as unrealized gains or losses.
The 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
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.
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. Distributions in excess of book basis
net investment income (but which are not tax returns of capital) are presented
as "excess distributions" in the statement of changes in net assets and the
financial highlights.
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 in the financial statements. Actual results could
differ from those estimates.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
[2] COMMITMENTS AND CONTINGENCIES
For purposes of obtaining certain types of insurance coverage for the Funds and
its officers and directors, the Funds are policyholders in an industry-sponsored
mutual insurance company (the Company). In connection with their obligations as
policyholders, the Funds are committed to make future capital contributions, if
requested by the Company.
Growth and Income Fund, Regional Fund, and Value Fund have available lines of
credit of $15,000,000, $15,000,000 and $9,300,000, 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. There were no borrowings
outstanding at September 30, 1997.
Included in other assets and realized gains is $909,805 of net proceeds from a
litigation proceeding concerning a security previously held by the Regional Fund
and for which Regional Fund is one of several plantiffs. A settlement agreement
has been entered into which will result in the payment of the aforementioned net
proceeds on or about May 1, 1998.
At September 30, 1997, 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. $ -- $ 1,125,000 $ --
Alta Berkeley III L.P. 56,000 113,000 --
Ampersand Specialty Materials & Chemicals II L.P. 100,000 150,000 50,000
Greenwich Street Capital Partners L.P. -- 3,220,000 --
Pathfinder Venture Capital Fund III L.P. -- 50,000 --
Spectrum Equity Investors L.P. -- 470,000 --
- -----------------------------------------------------------------------------------------------------
Total commitments $ 156,000 $ 5,128,000 $ 50,000
=====================================================================================================
</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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
[3] FEES AND EXPENSES
Under the terms of each Fund's Management Agreement, Investment Advisers, Inc.
(Advisers) 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 and extraordinary expenses ), in return for each Fund paying an all
inclusive management fee (unified fee) to Advisers. The fee is equal to an
annual rate of 1.25% declining to 1.10% (1.00% for Growth and Income Fund) of
average daily net assets. This fee is paid monthly. The Management Agreements
further provide that Advisers will either reimburse the Funds for the fees and
expenses it pays to Directors who are not "interested persons" of the Funds or
reduce its fee by an equivalent amount.
[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, March 31, September 30, March 31, September 30, March 31,
1997 1997 1997 1997 1997 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SOLD 813,773 2,284,028 810,249 2,707,762 427,184 1,484,142
ISSUED FOR REINVESTED
DISTRIBUTIONS 190,494 860,881 1,393,880 3,783,653 99,526 335,216
REDEEMED (1,098,106) (2,561,834) (3,003,579) (7,853,235) (996,518) (2,676,973)
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
SHARES OUTSTANDING (93,839) 583,075 (799,450) (1,361,820) (469,808) (857,615)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
IAI GROWTH AND INCOME FUND, IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1997
(UNAUDITED)
[5] INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES
For the six months ended September 30, 1997, 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 $ 11,509,495 $ 14,685,140
REGIONAL FUND $ 109,083,647 $ 142,324,847
VALUE FUND $ 2,873,264 $ 10,153,693
RESTRICTED SECURITIES
Included in the Funds' portfolios of investments in securities at September 30,
1997 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% 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.
<PAGE>
IAI MUTUAL FUND FAMILY
TO DIVERSIFY YOUR PORTFOLIO, PLEASE CONSIDER ALL OF THE MUTUAL FUNDS IN OUR FUND
FAMILY
<TABLE>
<CAPTION>
SECONDARY
IAI FUND PRIMARY OBJECTIVE OBJECTIVE PORTFOLIO COMPOSITION
...................................................................................................................................
<S> <C> <C> <C>
IAI DEVELOPING Capital Appreciation -- Equity securities of companies in developing countries
COUNTRIES FUND
- -----------------------------------------------------------------------------------------------------------------------------------
IAI INTERNATIONAL FUND Capital Appreciation Income Equity securities of non-U.S. companies
- -----------------------------------------------------------------------------------------------------------------------------------
IAI EMERGING GROWTH FUND Capital Appreciation -- Common stocks of small- to medium-sized
emerging growth companies
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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
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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
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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
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IAI BALANCED FUND Total Return Income Common stocks, investment-grade bonds and
[CAPITAL APPRECIATION short-term instruments
+ INCOME]
- -----------------------------------------------------------------------------------------------------------------------------------
IAI BOND FUND Income Capital Preservation Investment-grade bonds
- -----------------------------------------------------------------------------------------------------------------------------------
IAI GOVERNMENT FUND Income Capital Preservation U.S. Government securities
- -----------------------------------------------------------------------------------------------------------------------------------
IAI RESERVE FUND Stability/Liquidity Income The portfolio has a maximum average maturity of 25
months, investing primarily in investment-grade bonds
- -----------------------------------------------------------------------------------------------------------------------------------
IAI MONEY MARKET FUND Stability/Liquidity Income The portfolio's average dollar-weighted maturity is
less than 90 days, investing in high quality, money
market securities
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</TABLE>
<PAGE>
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<PAGE>
INVESTMENT ADVISER
AND MANAGER
Investment Advisers, Inc.
P.O. Box 357
Minneapolis, MN 55440-0357 USA
800.945.3863
612.376.2700
http://www.iaifunds.com
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
J. Peter Thompson
Charles H. Withers
<PAGE>
[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
