SEMI-ANNUAL REPORT
IAI EQUITY FUNDS
IAI CAPITAL APPRECIATION FUND - IAI EMERGING GROWTH FUND
IAI GROWTH FUND - IAI GROWTH AND INCOME FUND
IAI MIDCAP GROWTH FUND - IAI REGIONAL FUND - IAI VALUE FUND
SEPTEMBER 30, 1999
(UNAUDITED)
[LOGO] IAI
MUTUAL FUNDS
<PAGE>
TABLE OF CONTENTS
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH AND INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1999
(UNAUDITED)
Letter to Shareholders .................................................. 2
Fund Manager's Review
IAI CAPITAL APPRECIATION FUND ........................................ 4
IAI EMERGING GROWTH FUND ............................................. 6
IAI GROWTH FUND ...................................................... 8
IAI GROWTH AND INCOME FUND ........................................... 10
IAI MIDCAP GROWTH FUND ............................................... 12
IAI REGIONAL FUND .................................................... 14
IAI VALUE FUND ....................................................... 16
Fund Portfolios
IAI CAPITAL APPRECIATION FUND ........................................ 18
IAI EMERGING GROWTH FUND ............................................. 20
IAI GROWTH FUND ...................................................... 23
IAI GROWTH AND INCOME FUND ........................................... 25
IAI MIDCAP GROWTH FUND ............................................... 27
IAI REGIONAL FUND .................................................... 30
IAI VALUE FUND ....................................................... 33
Notes to Fund Portfolios ................................................ 35
Statements of Assets and Liabilities .................................... 40
Statements of Operations ................................................ 42
Statements of Changes in Net Assets ..................................... 44
Financial Highlights
IAI CAPITAL APPRECIATION FUND ........................................ 48
IAI EMERGING GROWTH FUND ............................................. 49
IAI GROWTH FUND ...................................................... 50
IAI GROWTH AND INCOME FUND ........................................... 51
IAI MIDCAP GROWTH FUND ............................................... 52
IAI REGIONAL FUND .................................................... 53
IAI VALUE FUND ....................................................... 54
Notes to Financial Statements ........................................... 55
Adviser, Custodian, Legal Counsel,
Independent Auditors,
Directors ................................................ Inside Back Cover
<PAGE>
LETTER TO SHAREHOLDERS
----------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH AND INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
OUTLOOK 2000
A summary of the economic outlook as provided by Larry Hill, IAI's Chief Fixed
Income Officer, follows.
While the U.S. economy continues to show strong growth with modest inflation,
concerns that growth cannot continue without igniting inflationary pressures
have become widespread. In the last half of the 1990s, corporate mergers and
cost reductions have helped to contain wage pressures while a strong dollar,
excess capacity, new technology and fierce competition have helped to suppress
domestic pricing power. Thus, inflation remains surprisingly benign for the
ninth year of an economic expansion. Yet, a shift now appears to be under way.
Labor markets are extremely tight. The unemployment rate is at the lowest level
in almost 30 years and many firms have been forced to offer bonuses to attract
qualified workers. Tight labor markets are threatening to push wage rates, and
ultimately inflation, higher. Commodity prices are also in an upswing. Energy
prices have vaulted ahead 52% from a year ago. Gold also registered a big move.
After languishing below $260 per ounce, gold rocketed to $300 at quarter-end in
response to a decision by central bankers to restrict anticipated sales gold
over the next 5 years. Other commodities have begun to show signs of
acceleration as well during the past few months. The value of the dollar, which
had been in a major uptrend for nearly 4 years has weakened in 1999. The strong
dollar has had a dampening effect on inflation as U.S. producers have not been
able to increase prices in the face of "cheap" imports. Continued growth in
Europe, recovery in non-Japan Asia and early signs of life from the Japanese
economy suggest that pressure on commodity prices will continue. As excess
overseas capacity is absorbed by growth in foreign economies, pricing power may
emerge for U.S. companies.
While the trend of mega-mergers and cost reductions continues, many of the other
elements of the strong growth, modest inflation era of the 1990's have
deteriorated. As a result, the Fed is on alert. Policy makers have already moved
interest rates higher twice this year and are likely to raise rates again if
compelling evidence of slower growth does not materialize. This tightening bias
is a threat to financial assets.
Another widely discussed unknown for the financial markets is the potential
impact of Y2K. The financial services industry has taken significant steps to
test trading, settlement and other systems for Y2K compliance. However, broker
2
<PAGE>
LETTER TO SHAREHOLDERS
----------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH AND INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
OUTLOOK 2000 (CONT.)
dealers plan to take a conservative posture toward carrying significant
securities inventories over year-end. This will have an impact on liquidity in
the markets. Couple this with the probable pre-funding of needs by fixed income
borrowers prior to Y2K and the markets are likely to remain volatile through the
remainder of the year.
In our view, the Federal Reserve's actions will have an impact on growth in the
economy. Early indications suggest that rate increases are having an impact as
housing starts have softened in response to higher mortgage rates. As this works
itself through the broader economy, activity will slacken. A recession, however,
remains only a remote possibility. Slowing economic growth and a modest increase
in inflation implies a continuation of this aging economic recovery into the
year 2000.
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.
3
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI CAPITAL APPRECIATION FUND
IAI CAPITAL APPRECIATION FUND
FUND MANAGEMENT
IAI SMALL CAP/
MIDCAP TEAM
CURT D. MCLEOD, CFA
SCOTT A. BILLEADEAU, CFA
ROBERT E. SCOTT, CFA
ROBERT J. MLNARIK
TOP FIVE SECTORS
% OF NET ASSETS AS OF 9/30/99
[BAR CHART]
TECHNOLOGY SERVICES 18.4%
ELECTRONIC TECHNOLOGY 14.1%
FINANCIAL 13.1%
COMMERICAL SERVICES 8.4%
CONSUMER DURABLES 6.1%
* PERCENTAGE OF NET ASSETS AS OF 9/30/99.
HOW HAS THE FUND PERFORMED?
For the past six months the returns were 7.48% for the IAI Capital Appreciation
Fund, 12.75% for the Russell 2500 Growth Index and 0.36% for the S&P 500 Index.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Our healthcare stocks were among the strongest contributors to performance in
the past six months. Leading the way were Mentor Corp. (4.7%)* and Xomed
Surgical Products. The financial and consumer cyclical sectors were the weakest
performing sectors in the Fund. Although technology fared well during the past
six months, our technology holdings declined as a group. International
Telecommunications Data Systems (ITDS) (1.5%)*, Inspire Insurance Solutions
(0.8%)*, and Billing Concepts all experienced deteriorating fundamental
conditions.
WERE THERE ANY SIGNIFICANT CHANGES?
Portfolio activity was higher than normal during the past six months as we
exerted our strict sell discipline and eliminated a number of companies
including Xomed Surgical Products, Barnett Inc., Billing Concepts, Flanders,
Sinclair Broadcasting and Watsco. We also made a number of new additions to the
Fund including Wild Oats Markets (2.6%)*, 99 Cents Only Stores (2.6%)*, Papa
John's International (2.1%)*, JAKKS Pacific (0.8%)*, Renal Care Group (2.3%)*,
DSET Corp. (1.6%)*, Mercury Computer Systems (1.6%)*, REMEC (1.5%)*, and Sawtek
(2.2%)*.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
Indications of a stronger economy helped boost small caps in the first half of
the period, in particular those stocks with strong price momentum.
Earnings-based valuation appeared to have lost most of its relevance. As
inflation concerns took center stage during the last three months the Federal
Reserve engineered two interest rate increases over the summer. With that
backdrop, the market sold off and impacted both small and large cap stocks
equally, with each index declining (6.3%) as measured by the Russell 2000 and
S&P 500, respectively.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We continue to be encouraged about the long-term outlook for the small cap
market. We believe that the increased acquisition activity within the small cap
market illustrates the tremendous value in the stocks of small companies.
Earnings growth in general continues to be strong as the domestic economy
continues to grow. Interest rate fears notwithstanding, we believe small cap
stocks offer one of the most attractive market opportunities.
4
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI CAPITAL APPRECIATION FUND
VALUE OF $10,000 INVESTMENT+
IAI RUSSELL
inception CAPITAL S&P 2500
2/1/96 APPRECIATION 500 GROWTH
FUND INDEX INDEX
10,000 10,000 10,000
Feb-96 10,740 10,097 10,440
Mar-96 11,240 10,196 10,667
Apr-96 12,791 10,348 11,397
May-96 13,531 10,615 11,804
Jun-96 13,451 10,658 11,212
Jul-96 12,901 10,184 10,098
Aug-96 13,891 10,402 10,793
Sep-96 14,841 10,987 11,366
Oct-96 14,171 11,294 11,012
Nov-96 14,771 12,153 11,416
Dec-96 15,549 11,917 11,472
Jan-97 15,467 12,658 11,815
Feb-97 14,673 12,760 11,297
Mar-97 13,900 12,229 10,554
Apr-97 14,014 12,956 10,601
May-97 16,363 13,750 11,872
Jun-97 17,044 14,363 12,269
Jul-97 17,724 15,514 13,048
Aug-97 17,972 14,657 13,366
Sep-97 19,683 15,455 14,310
Oct-97 18,354 14,945 13,417
Nov-97 17,901 15,630 13,212
Dec-97 18,316 15,895 13,164
Jan-98 18,351 16,075 12,992
Feb-98 20,098 17,231 14,107
Mar-98 21,195 18,113 14,630
Apr-98 21,195 18,296 14,763
May-98 19,803 17,981 13,815
Jun-98 19,702 18,711 13,916
Jul-98 18,336 18,511 12,879
Aug-98 14,812 15,834 9,953
Sep-98 15,276 16,849 10,826
Oct-98 16,441 18,167 11,557
Nov-98 17,290 19,268 12,379
Dec-98 18,721 20,378 13,571
Jan-99 18,111 21,230 13,963
Feb-99 16,667 20,569 12,830
Mar-99 17,144 21,392 13,428
Apr-99 17,859 22,220 14,500
May-99 18,654 21,696 14,649
Jun-99 19,525 22,900 15,685
Jul-99 18,990 22,185 15,365
Aug-99 18,304 22,074 15,033
Sep-99 18,427 21,470 15,141
AVERAGE ANNUAL RETURNS+
THROUGH 9/30/99
Since
Inception
6 Months** 1 Year 2/1/96
=========== =========== ==========
IAI CAPITAL APPRECIATION FUND 7.49% 20.63% 18.16%
- -------------------------------- ----- ----- -----
Russell 2500 Growth Index 12.75% 39.85% 11.98%
- -------------------------------- ----- ----- -----
S&P 500 Index 0.36% 27.80% 23.19%
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
** NOT ANNUALIZED.
TOP TEN HOLDINGS**
<TABLE>
<CAPTION>
% of Net Assets
--------------------
Issues Sector 9/30/99 3/31/99
- --------------------------------- ------------------------ --------- --------
<S> <C> <C> <C>
Aftermarket Technology Consumer Durables 5.29 1.53
Mentor Health Technology 4.68 2.47
CCC Information Services Group Financial 4.14 3.24
Radian Group Financial 3.96 3.39
Valassis Communications Commercial Services 3.94 4.75
Tollgrade Communications Electronic Technology 3.41 0.95
Zebra Technologies Producer Manufacturing 3.20 2.23
Patterson Dental Health Services 2.90 1.94
DII Group Electronic Technology 2.84 0.31
Great Plains Software Technology Services 2.67 0.41
================================= ======================== ===== =====
TOTAL 37.03 21.22
</TABLE>
** EXCLUDES U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
NOTE
TO FUND
MANAGER'S
REVIEW
PERFORMANCE DATA FOR THE IAI CAPITAL APPRECIATION 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. INVESTORS SHOULD CONSIDER THE INHERENT RISKS OF
INVESTING IN SMALL-CAP SECURITIES DURING PERIODS OF MARKET VOLATILITY. 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,
AND ARE NOT AVAILABLE FOR DIRECT INVESTMENT.
5
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI EMERGING GROWTH FUND
IAI EMERGING GROWTH FUND
FUND MANAGEMENT
IAI SMALL CAP/
MIDCAP TEAM
CURT D. MCLEOD, CFA
SCOTT A. BILLEADEAU, CFA
ROBERT E. SCOTT, CFA
ROBERT J. MLNARIK
TOP FIVE COMMON STOCK SECTORS
% OF NET ASSETS AS OF 9/30/99
[BAR CHART]
ELECTRONIC TECHNOLOGY 23.2%
TECHNOLOGY SERVICES 23.0%
HEALTH SERVICES 8.3%
RETAIL TRADE 6.8%
CONSUMER SERVICES 6.0%
* PERCENTAGE OF NET ASSETS AS OF
9/30/99.
HOW HAS THE FUND PERFORMED?
The IAI Emerging Growth Fund showed a return of (0.95%) for the past six months,
as compared to the Russell 2500 Growth 12.75% and the S&P 500 Indices 0.36%
respectively.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Technology and consumer stocks helped the Fund's performance as Peregrine
Systems (2.8%)*, Sawtek (2.6%)*, Legato Systems (1.5%)* and Navigant Consulting
(2.5%)*, posted sharp gains. Tut Systems (1.5%)*, a significant holding of the
Fund in the past six months, detracted from performance as restricted holders of
the stock were finally allowed to sell, putting downward pressure on the share
price.
WERE THERE ANY SIGNIFICANT CHANGES?
We were able to reduce our position in Tut Systems from approximately 30% of the
Fund down to under 2% as the restrictions on the stock were lifted. This sale
resulted in a significant gain for the Fund's shareholders since our initial
investment in the company. We put the proceeds from the Tut sale to work in
several technology stocks including Creo Products (1.4%)*, Tollgrade
Communications (2.9%)*, DII Group (2.9%)* and Mastech Corp. (1.9%)*.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
The period witnessed substantial volatility with strong performance exhibited
the first half as small caps led the market advance. However, the equity markets
sold off across the board during the second half of the period as two short-term
interest rate hikes by the Federal Reserve took hold. The Fed has moved to a
tightening bias as it wants to be vigilant in heading off future inflation.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We are seeing signs that sustainable, strong near-term relative performance for
small cap stocks could be close at hand. Over the last six months, small cap
stocks have outperformed their larger cap counterparts. This recent trend is a
reversal of the large cap leadership that has been in place for the last several
years. We also believe that the increased acquisition activity within the small
cap market illustrates the tremendous value in the stocks of small companies and
bodes well for this segment of the market.
6
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI EMERGING GROWTH FUND
VALUE OF $10,000 INVESTMENT+
[GRAPH]
inception
8/5/91
IAI RUSSELL
EMERGING S&P 2500
GROWTH 500 GROWTH
FUND INDEX INDEX
10,000 10,000 10,000
Aug-91 10,170 10,236 10,433
Sep-91 10,440 10,068 10,552
Oct-91 10,790 10,202 10,910
Nov-91 10,700 9,791 10,450
Dec-91 12,363 10,910 11,728
Jan-92 12,584 10,708 12,224
Feb-92 12,363 10,845 12,345
Mar-92 11,923 10,631 11,641
Apr-92 11,072 10,942 11,034
May-92 11,222 11,000 11,053
Jun-92 10,952 10,840 10,452
Jul-92 11,427 11,278 10,859
Aug-92 11,114 11,050 10,538
Sep-92 12,063 11,177 10,699
Oct-92 13,056 11,217 11,154
Nov-92 14,372 11,596 12,052
Dec-92 15,138 11,748 12,407
Jan-93 15,257 11,834 12,494
Feb-93 13,800 11,994 11,866
Mar-93 14,534 12,255 12,251
Apr-93 13,919 11,954 11,794
May-93 15,441 12,275 12,520
Jun-93 15,686 12,315 12,550
Jul-93 15,794 12,257 12,561
Aug-93 16,205 12,724 13,223
Sep-93 16,974 12,631 13,562
Oct-93 17,244 12,888 13,829
Nov-93 16,649 12,765 13,327
Dec-93 17,372 12,923 13,913
Jan-94 17,726 13,357 14,315
Feb-94 17,880 12,995 14,339
Mar-94 16,776 12,431 13,505
Apr-94 16,644 12,591 13,489
May-94 15,684 12,797 13,218
Jun-94 14,485 12,479 12,631
Jul-94 14,918 12,892 12,906
Aug-94 16,436 13,417 13,855
Sep-94 16,809 13,093 13,848
Oct-94 17,159 13,396 14,086
Nov-94 16,598 12,904 13,462
Dec-94 17,405 13,094 13,735
Jan-95 16,983 13,434 13,601
Feb-95 17,707 13,954 14,341
Mar-95 18,489 14,368 14,897
Apr-95 17,894 14,792 15,065
May-95 18,209 15,377 15,297
Jun-95 20,183 15,738 16,225
Jul-95 21,959 16,266 17,504
Aug-95 22,240 16,310 17,650
Sep-95 24,122 16,995 18,028
Oct-95 24,824 16,933 17,391
Nov-95 25,864 17,678 18,103
Dec-95 26,032 18,005 18,343
Jan-96 25,209 18,622 18,399
Feb-96 27,009 18,802 19,209
Mar-96 28,703 18,987 19,626
Apr-96 32,064 19,270 20,970
May-96 32,971 19,766 21,718
Jun-96 31,369 19,848 20,629
Jul-96 26,748 18,965 18,579
Aug-96 28,567 19,370 19,858
Sep-96 31,546 20,460 20,912
Oct-96 29,285 21,031 20,261
Nov-96 29,044 22,631 21,004
Dec-96 27,842 22,191 21,107
Jan-97 28,777 23,571 21,739
Feb-97 25,166 23,762 20,786
Mar-97 22,111 22,772 19,418
Apr-97 21,887 24,127 19,506
May-97 25,459 25,606 21,844
Jun-97 26,552 26,746 22,574
Jul-97 27,131 28,891 24,007
Aug-97 26,607 27,294 24,593
Sep-97 28,443 28,781 26,330
Oct-97 26,324 27,831 24,687
Nov-97 26,042 29,105 24,309
Dec-97 27,047 29,600 24,222
Jan-98 26,674 29,935 23,904
Feb-98 28,352 32,087 25,955
Mar-98 29,492 33,730 26,918
Apr-98 29,639 34,071 27,163
May-98 27,718 33,485 25,419
Jun-98 28,935 34,844 25,605
Jul-98 25,995 34,471 23,697
Aug-98 21,127 29,487 18,313
Sep-98 23,093 31,377 19,919
Oct-98 24,241 33,862 21,264
Nov-98 25,177 35,914 22,776
Dec-98 28,455 37,982 24,969
Jan-99 33,824 39,570 25,691
Feb-99 29,488 38,340 23,607
Mar-99 30,544 39,873 24,707
Apr-99 28,387 41,416 27,146
May-99 30,866 40,439 27,700
Jun-99 33,860 42,683 28,664
Jul-99 30,257 41,351 28,116
Aug-99 29,080 41,145 27,037
Sep-99 30,255 40,017 26,185
AVERAGE ANNUAL RETURNS+
THROUGH 9/30/99
<TABLE>
<CAPTION>
Since
Inception
6 Months** 1 Year 5 Years 8/5/91
============== =========== =========== ==========
<S> <C> <C> <C> <C>
IAI EMERGING GROWTH FUND (0.94)% 31.01% 12.47% 14.53%
- ---------------------------- ----- ----- ----- -----
Russell 2500 Growth Index 12.75% 39.85% 15.01% 13.37%
- ---------------------------- ----- ----- ----- -----
S&P 500 Index 0.36% 27.80% 25.03% 18.51%
</TABLE>
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
** NOT ANNUALIZED.
TOP TEN HOLDINGS**
% of Net Assets
--------------------
Issues Sector 9/30/99 3/31/99
- ---------------------------- ----------------------- --------- --------
Aftermarket Technology Consumer Durables 3.72 --
Great Plains Software Technology Services 3.31 1.35
Wild Oats Market Retail Trade 3.02 1.47
Papa John's International Consumer Services 2.94 1.12
Tollgrade Communications Electronic Technology 2.88 --
DII Group Electronic Technology 2.88 --
Peregrine Systems Technology Services 2.78 1.44
99 Cents Only Stores Retail Trade 2.78 1.43
Renal Care Group Health Services 2.76 1.22
Sawtek Electronic Technology 2.64 --
============================ ======================= ===== ====
TOTAL 29.71 8.03
** EXCLUDES U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
NOTE
TO FUND
MANAGER'S
REVIEW
PERFORMANCE DATA FOR THE IAI EMERGING GROWTH 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. INVESTORS SHOULD CONSIDER THE INHERENT RISKS OF
INVESTING IN SMALL-CAP SECURITIES DURING PERIODS OF MARKET VOLATILITY. 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,
AND ARE NOT AVAILABLE FOR DIRECT INVESTMENT.
7
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI GROWTH FUND
IAI GROWTH FUND
FUND MANAGEMENT
IAI LARGE CAP
TEAM
KEITH WIRTZ, CFA
DAVID A. MCDONALD
JEFF MALET
PAUL ROACH
TOP FIVE SECTORS
% OF NET ASSETS AS OF 9/30/99
[BAR CHART]
ELECTRONIC TECHNOLOGY 22.4%
HEALTH TECHNOLOGY 15.2%
TECHNOLOGY SERVICES 13.6%
RETAIL TRADE 6.0%
CONSUMER NON-DURABLES 5.6%
* PERCENTAGE OF NET ASSETS AS OF
9/30/99.
HOW HAS THE FUND PERFORMED?
For the past six months the returns were 1.73% for the IAI Growth Fund and 0.36%
for the S&P 500 Index.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Performance relative to the benchmark was a stock issue, not a portfolio issue.
Although over 50% of the Fund's holdings outperformed the market during the past
six months, the numbers were insufficient to offset poor showings in a few large
holdings, namely Bergen Brunswig, Republic Services Group and Waste Management,
which were eliminated. A downward revision in earnings expectations was the
catalyst in all three cases. On the positive side of the ledger, technology was
the largest contributor to returns. The best performing stocks were Patterson
Dental (3.9%)*, BMC Software (3.2%)* and Comverse Technology (1.9%)*.
WERE THERE ANY SIGNIFICANT CHANGES?
Transaction activity was skewed more toward the sell side, with eight positions
eliminated due to either achieving our price targets or deteriorating
fundamentals. Positions eliminated in addition to those mentioned above include
Abbott Laboratories, Clorox, Fiserv, Galileo International, Gillette and Xerox.
Positions were initiated in two stocks: Citrix (1.1%)* and Electronic Arts
(1.9%)*.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
Mounting inflationary pressures prompted the federal reserve Board to raise
interest rates, sparking a correction in financial markets. The S&P 500 index
was flat, with interest sensitive and cyclical stocks faring the worst.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We remain cautious on the market as interest rates are biased upwards, which is
likely to preclude any meaningful upside moves. Although domestic Y2K related
risks appear more manageable than earlier believed, risks do remain. As we move
beyond the new year, we believe that interest rates will flatten out and returns
will reflect growth in corporate earnings. This suggests returns more in line
with historic norms of low double digits.
8
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI GROWTH FUND
VALUE OF $10,000 INVESTMENT+
[GRAPH]
inception
8/6/93 IAI S&P
GROWTH 500
FUND INDEX
10,000 10,000
Aug-93 10,220 10,381
Sep-93 10,340 10,305
Oct-93 10,320 10,515
Nov-93 9,910 10,415
Dec-93 10,100 10,543
Jan-94 10,480 10,898
Feb-94 10,110 10,602
Mar-94 9,700 10,142
Apr-94 9,670 10,273
May-94 9,930 10,441
Jun-94 9,479 10,181
Jul-94 9,879 10,518
Aug-94 10,380 10,947
Sep-94 10,260 10,682
Oct-94 10,510 10,929
Nov-94 9,959 10,528
Dec-94 10,166 10,683
Jan-95 10,347 10,960
Feb-95 10,618 11,385
Mar-95 10,990 11,723
Apr-95 10,739 12,068
May-95 11,061 12,546
Jun-95 11,580 12,840
Jul-95 12,154 13,271
Aug-95 12,234 13,307
Sep-95 12,455 13,866
Oct-95 12,123 13,815
Nov-95 12,717 14,423
Dec-95 12,522 14,690
Jan-96 12,719 15,193
Feb-96 12,740 15,340
Mar-96 12,970 15,491
Apr-96 13,274 15,722
May-96 13,634 16,127
Jun-96 13,402 16,194
Jul-96 12,708 15,473
Aug-96 13,199 15,804
Sep-96 14,037 16,693
Oct-96 14,061 17,159
Nov-96 14,827 18,464
Dec-96 14,443 18,105
Jan-97 14,938 19,231
Feb-97 14,882 19,387
Mar-97 14,060 18,580
Apr-97 14,330 19,684
May-97 15,365 20,891
Jun-97 15,853 21,821
Jul-97 17,025 23,571
Aug-97 16,003 22,268
Sep-97 16,815 23,481
Oct-97 16,078 22,706
Nov-97 16,725 23,746
Dec-97 17,210 24,150
Jan-98 17,435 24,423
Feb-98 18,800 26,179
Mar-98 19,539 27,519
Apr-98 19,764 27,797
May-98 19,137 27,319
Jun-98 19,878 28,428
Jul-98 19,777 28,124
Aug-98 15,977 24,057
Sep-98 17,147 25,600
Oct-98 18,503 27,601
Nov-98 19,945 29,274
Dec-98 21,776 30,960
Jan-99 22,771 32,254
Feb-99 21,591 31,251
Mar-99 22,457 32,501
Apr-99 22,697 33,759
May-99 22,402 32,962
Jun-99 23,760 34,792
Jul-99 22,603 33,706
Aug-99 22,372 33,538
Sep-99 22,070 32,619
AVERAGE ANNUAL RETURNS+
THROUGH 9/30/99
Since
Inception
6 Months** 1 Year 5 Years 8/6/93
============== =========== ========= ==========
IAI GROWTH FUND (1.73)% 28.71% 16.56 13.73%
- ------------------ ----- ----- ----- -----
S&P 500 Index 0.36% 27.80% 25.03% 21.14%
- ------------------ ----- ----- ----- -----
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
** NOT ANNUALIZED.
TOP TEN HOLDINGS**
% of Net Assets
--------------------
Issues Sector 9/30/99 3/31/99
- ---------------------- ----------------------- --------- --------
Microsoft Technology Services 4.73 4.02
Intel Electronic Technology 4.44 2.88
General Electric Process Industries 4.44 3.91
Tyco International Process Manufacturing 4.10 2.65
Patterson Dental Health Services 3.94 3.21
Cendant Consumer Services 3.86 3.22
Johnson & Johnson Health Technology 3.36 3.13
Synopsys Electronic Technology 3.29 2.95
BMC Software Technology Services 3.17 1.55
Lucent Technologies Electronic Technology 3.15 2.43
====================== ======================= ===== =====
TOTAL 38.47 29.95
** EXCLUDES U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
NOTE
TO FUND
MANAGER'S
REVIEW
PERFORMANCE DATA FOR THE IAI GROWTH 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, AND ARE NOT AVAILABLE FOR DIRECT INVESTMENT.
9
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI GROWTH AND INCOME FUND
IAI GROWTH AND INCOME FUND
FUND MANAGEMENT
IAI LARGE CAP
TEAM
KEITH WIRTZ, CFA
DAVID A. MCDONALD
JEFF MALET
PAUL ROACH
TOP FIVE
COMMON STOCK
SECTORS
% OF NET ASSETS AS OF 9/30/99
[BAR CHART]
FINANCIAL 19.1%
UTILITIES 15.6%
PRODUCER MANUFACTURING 10.4%
CONSUMER DURABLES 7.8%
HEALTH SERVICES 7.3%
* PERCENTAGE OF NET ASSETS AS OF
9/30/99.
HOW HAS THE FUND PERFORMED?
The return for the past six months for the IAI Growth and Income Fund was
(2.9%), compared to the S&P 500 Index return of 0.36%.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Specific stocks performing well were two Communications Services companies Bell
Atlantic (3.3%)* and SBC Communications (2.6%)* Communication Services
companies continue to benefit increase traffic via the Internet and industry
consolidation.
The worst performing stocks during the past six months were Newell Rubbermaid
(1.3%)* and United Healthcare Corp. (2.1%)*. Newell Rubbermaid stock continues
to be under pressure due to a slower than anticipated integration of the merger
of Newell and Rubbermaid. United Healthcare stock was hurt by the increased
likelihood of negative legislation coming out Washington regarding Health
Maintenance Organizations.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
For most companies, the strength of the economy is the major determining factor
as to how fast a company can grow their business and thus their free
cashflow/earnings. It is difficult to imagine overall economic activity picking
up meaningfully from current strong levels without a corresponding increase in
inflation causing the Federal Reserve to increase interest rates further. At
current stock prices, we believe relatively strong growth is already priced in
most stocks, leaving interest rates as the primary variable that will determine
future stock prices.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Valuations remain high even after the declines experienced over the last few
months. If anything has changed in the recent past it is that market
sentiment/psychology has started to turn decidedly cautious if not negative. It
is our belief, given the high valuation level of stocks, that there is little
room for stocks to move meaningfully higher on strong business fundamentals
alone. Interest rates must at a minimum stabilize and probably need to go lower
for stocks to be significantly higher by year end. While we have no strong
conviction as to the future direction of interest rates, we will continue to try
to find stocks that have strong business fundamentals that are not reflected in
the price of the stock and thus have a built in margin of safety should interest
rates continue to rise.
10
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI GROWTH AND INCOME FUND
VALUE OF $10,000 INVESTMENT+
[GRAPH]
inception
Aug-71 IAI
GROWTH & S&P
INCOME 500
FUND INDEX
10,000 10,000
Oct-89 9,835 9,765
Nov-89 10,044 9,966
Dec-89 10,206 10,202
Jan-90 9,669 9,517
Feb-90 9,766 9,638
Mar-90 9,999 9,889
Apr-90 9,617 9,645
May-90 10,387 10,585
Jun-90 10,575 10,512
Jul-90 10,603 10,478
Aug-90 9,703 9,531
Sep-90 9,145 9,062
Oct-90 8,942 9,030
Nov-90 9,298 9,609
Dec-90 9,524 9,876
Jan-91 9,917 10,313
Feb-91 10,622 11,052
Mar-91 10,741 11,314
Apr-91 10,674 11,346
May-91 10,889 11,831
Jun-91 10,366 11,290
Jul-91 10,944 11,817
Aug-91 11,248 12,096
Sep-91 10,959 11,897
Oct-91 11,339 12,056
Nov-91 11,042 11,570
Dec-91 12,064 12,892
Jan-92 11,920 12,654
Feb-92 12,048 12,816
Mar-92 11,768 12,563
Apr-92 11,776 12,930
May-92 11,904 12,999
Jun-92 11,571 12,810
Jul-92 11,865 13,327
Aug-92 11,655 13,057
Sep-92 11,831 13,208
Oct-92 12,050 13,255
Nov-92 12,444 13,703
Dec-92 12,544 13,883
Jan-93 12,536 13,985
Feb-93 12,418 14,173
Mar-93 12,832 14,481
Apr-93 12,350 14,126
May-93 12,612 14,505
Jun-93 12,807 14,553
Jul-93 12,683 14,484
Aug-93 13,302 15,036
Sep-93 13,585 14,926
Oct-93 13,621 15,230
Nov-93 13,240 15,085
Dec-93 13,796 15,271
Jan-94 14,043 15,784
Feb-94 13,853 15,356
Mar-94 13,225 14,689
Apr-94 13,282 14,879
May-94 13,358 15,122
Jun-94 12,953 14,747
Jul-94 13,333 15,235
Aug-94 13,713 15,855
Sep-94 13,382 15,472
Oct-94 13,613 15,830
Nov-94 13,042 15,249
Dec-94 13,137 15,473
Jan-95 13,278 15,875
Feb-95 13,771 16,490
Mar-95 14,404 16,979
Apr-95 14,535 17,480
May-95 14,696 18,171
Jun-95 15,102 18,597
Jul-95 15,546 19,222
Aug-95 15,656 19,274
Sep-95 16,312 20,083
Oct-95 16,009 20,010
Nov-95 16,412 20,891
Dec-95 16,700 21,277
Jan-96 16,985 22,006
Feb-96 17,534 22,218
Mar-96 17,499 22,437
Apr-96 17,887 22,771
May-96 18,596 23,358
Jun-96 18,469 23,455
Jul-96 17,743 22,411
Aug-96 17,915 22,890
Sep-96 18,827 24,178
Oct-96 18,790 24,853
Nov-96 20,082 26,744
Dec-96 20,072 26,223
Jan-97 21,036 27,854
Feb-97 20,821 28,079
Mar-97 19,832 26,910
Apr-97 20,661 28,511
May-97 22,453 30,259
Jun-97 23,321 31,606
Jul-97 24,842 34,140
Aug-97 23,972 32,253
Sep-97 24,982 34,010
Oct-97 24,125 32,888
Nov-97 24,581 34,394
Dec-97 24,878 34,979
Jan-98 24,906 35,374
Feb-98 26,554 37,918
Mar-98 27,781 39,859
Apr-98 28,162 40,262
May-98 27,261 39,569
Jun-98 27,939 41,176
Jul-98 26,713 40,735
Aug-98 23,117 34,845
Sep-98 23,827 37,078
Oct-98 26,438 40,093
Nov-98 27,115 42,522
Dec-98 28,609 44,972
Jan-99 28,589 46,851
Feb-99 28,455 45,394
Mar-99 28,202 47,210
Apr-99 29,849 49,037
May-99 29,577 47,880
Jun-99 31,207 50,537
Jul-99 29,796 48,960
Aug-99 28,887 48,716
Sep-99 27,379 47,381
AVERAGE ANNUAL RETURNS+
THROUGH 9/30/99
<TABLE>
<CAPTION>
6 Months** 1 Year 5 Years 10 Years
============== =========== =========== ===========
<S> <C> <C> <C> <C>
IAI GROWTH AND INCOME FUND (2.92)% 14.91% 15.40% 10.60%
- ----------------------------- ----- ----- ----- -----
S&P 500 Index 0.36% 27.80% 25.03% 16.82%
- ----------------------------- ----- ----- ----- -----
</TABLE>
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
** NOT ANNUALIZED.
TOP TEN HOLDINGS**
% of Net Assets
--------------------
Issues Sector 9/30/99 3/31/99
- ----------------------------- --------------------- --------- --------
Berkshire Hathaway Class A Process Industries 4.46 5.06
Nabors Industries Industrial Services 3.46 3.32
American Express Financial 3.32 2.97
SLM Holding Financial 3.29 2.23
Bell Atlantic Utilities 3.28 2.16
Exxon Energy Minerals 2.98 3.28
Citigroup Financial 2.94 3.17
BellSouth Utilities 2.85 2.17
Freddie Mac Financial 2.77 2.33
First Health Group Health Services 2.64 1.64
============================= ===================== ===== =====
TOTAL 31.99 28.33
** EXCLUDES U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
NOTE
TO FUND
MANAGER'S
REVIEW
PERFORMANCE DATA FOR 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, AND ARE NOT AVAILABLE FOR DIRECT INVESTMENT.
11
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI MIDCAP GROWTH FUND
IAI MIDCAP GROWTH FUND
FUND MANAGEMENT
IAI SMALL CAP/
MIDCAP TEAM
CURT D. MCLEOD, CFA
SCOTT A. BILLEADEAU, CFA
ROBERT E. SCOTT, CFA
ROBERT J. MLNARIK
TOP FIVE
COMMON STOCK
SECTORS
% OF NET ASSETS AS OF 9/30/99
[BAR CHART]
ELECTRONIC TECHNOLOGY 23.4%
TECHNOLOGY SERVICES 12.2%
COMMERCIAL SERVICES 11.5%
HEALTH TECHNOLOGY 10.0%
RETAIL TRADE 8.6%
* PERCENTAGE OF NET ASSETS AS OF
9/30/99.
HOW HAS THE FUND PERFORMED?
The past six months showed a return of 2.0% on the IAI Midcap Growth Fund
compared with the S&P 500 showing a return of 0.36%, the S&P Midcap's return of
4.57% and the S&P Midcap Growth's return of 5.55%.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Technology again was one of the leading sectors in the market driven by strong
earnings growth. Within technology, Navigant Consulting (2.8%)*, a leading
consultant to the utility industry, was the top performer, rising nearly 70%.
Legato Systems (2.6%)* and Veritas Software (1.9%)*, also contributed strongly
to performance. We had a few healthcare companies report disappointing earnings,
including Health Management (1.1%)*, Quintiles (.38%)*, and Total Renal Care
(0%)*.
WERE THERE ANY SIGNIFICANT CHANGES?
With regards to transaction activity during the past six months, we eliminated
Keane, Republic Services, Starbucks, and Total Renal Care due to announced
earnings shortfalls. We eliminated our position in Qualcomm, taking profits in
one of our biggest contributors to performance this year. We added only one new
investment in the Fund, Papa John's International (1.6%)*, a leading operator of
pizza delivery and carryout restaurants.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
The past six months were a volatile period for the Fund. The first three months
saw strong performance as small and midcap stocks led the market advance. Both
the S&P Midcap Index and the Russell 2000, with a gain of 15.6% doubled the 7.1%
return of the S&P 500 index. However, as the impact of two short-term interest
rate increases by the Federal Reserve during the last three months took hold,
the market surrendered approximately half of its earlier gains. Only two
sectors, technology and utilities, posted positive returns. The interest rate
sensitive sectors were the hardest hit.
WHAT IS YOUR OUTLOOK FOR THE FUND?
While the near-term outlook for the market is somewhat uncertain due to the
current negative interest rate environment and as the market prepares for the
uncertainties surrounding any Y2K impact, we believe the longer-term outlook for
the midcap sector is quite positive. We think as the market broadens out from
the leading mega-cap growth companies, which have been the performance leaders
over the last few years, the midcap sector will benefit. Furthermore, valuations
for midcap stocks continue to be very attractive versus large cap stocks.
12
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI MIDCAP GROWTH FUND
VALUE OF $10,000 INVESTMENT+
[GRAPH]
<TABLE>
<CAPTION>
inception
4/10/92 IAI S&P S&P S&P
MID CAP MIDCAP 500 MIDCAP GROWTH
<S> <C> <C> <C> <C>
10,000 10,000 10,000 10,000
Apr-92 10,010 9,881 10,292 9,615
May-92 10,090 9,974 10,347 9,708
Jun-92 9,850 9,689 10,197 9,323
Jul-92 10,250 10,170 10,608 9,804
Aug-92 10,020 9,927 10,393 9,558
Sep-92 10,350 10,066 10,513 9,725
Oct-92 10,660 10,307 10,551 10,063
Nov-92 11,100 10,883 10,907 10,785
Dec-92 11,498 11,248 11,050 11,091
Jan-93 11,889 11,389 11,131 11,143
Feb-93 11,478 11,229 11,282 10,669
Mar-93 11,909 11,617 11,527 10,989
Apr-93 11,418 11,313 11,244 10,603
May-93 11,929 11,829 11,546 11,317
Jun-93 11,939 11,888 11,584 11,305
Jul-93 12,250 11,865 11,529 11,293
Aug-93 13,002 12,355 11,968 11,834
Sep-93 13,322 12,486 11,881 12,042
Oct-93 13,673 12,526 12,123 12,167
Nov-93 13,373 12,249 12,007 11,924
Dec-93 14,125 12,818 12,155 12,607
Jan-94 14,288 13,116 12,564 12,880
Feb-94 14,480 12,930 12,223 12,724
Mar-94 13,862 12,331 11,693 12,024
Apr-94 14,014 12,423 11,843 11,921
May-94 13,943 12,305 12,037 11,663
Jun-94 13,503 11,881 11,738 11,090
Jul-94 14,166 12,284 12,127 11,368
Aug-94 14,819 12,927 12,620 12,138
Sep-94 14,529 12,686 12,315 12,007
Oct-94 15,151 12,824 12,600 12,196
Nov-94 14,519 12,246 12,138 11,637
Dec-94 14,924 12,358 12,317 11,727
Jan-95 15,051 12,487 12,636 11,671
Feb-95 15,561 13,142 13,126 12,323
Mar-95 16,305 13,370 13,515 12,689
Apr-95 16,359 13,639 13,913 12,855
May-95 16,475 13,968 14,464 13,076
Jun-95 17,132 14,536 14,803 13,793
Jul-95 17,800 15,295 15,300 14,637
Aug-95 17,811 15,578 15,341 14,870
Sep-95 18,356 15,955 15,986 15,246
Oct-95 17,756 15,545 15,928 14,630
Nov-95 18,235 16,224 16,629 15,181
Dec-95 18,819 16,183 16,936 14,928
Jan-96 18,534 16,418 17,516 15,106
Feb-96 19,763 16,976 17,685 15,810
Mar-96 20,139 17,179 17,859 16,021
Apr-96 21,083 17,704 18,125 16,853
May-96 21,937 17,944 18,593 17,055
Jun-96 20,899 17,674 18,669 16,470
Jul-96 19,587 16,479 17,839 15,243
Aug-96 20,278 17,429 18,220 16,133
Sep-96 21,499 18,189 19,245 17,130
Oct-96 21,544 18,242 19,782 16,956
Nov-96 22,339 19,269 21,288 17,875
Dec-96 21,939 19,291 20,873 17,683
Jan-97 22,661 20,015 22,172 18,643
Feb-97 21,988 19,850 22,351 18,161
Mar-97 20,768 19,004 21,420 17,211
Apr-97 20,058 19,496 22,694 17,746
May-97 22,025 21,201 24,085 19,749
Jun-97 22,594 21,797 25,158 20,328
Jul-97 23,890 23,955 27,175 22,859
Aug-97 23,752 23,926 25,673 22,644
Sep-97 25,063 25,301 27,072 23,982
Oct-97 23,461 24,203 26,178 22,592
Nov-97 23,405 24,561 27,377 22,678
Dec-97 23,876 25,514 27,843 23,037
Jan-98 23,205 25,029 28,157 22,689
Feb-98 24,671 27,102 30,182 24,774
Mar-98 25,372 28,324 31,727 25,851
Apr-98 26,138 28,840 32,047 26,616
May-98 25,134 27,542 31,496 25,304
Jun-98 25,901 27,715 32,775 25,793
Jul-98 25,373 26,640 32,424 24,898
Aug-98 20,455 21,682 27,736 19,717
Sep-98 22,603 23,707 29,514 21,880
Oct-98 24,111 25,827 31,851 24,116
Nov-98 25,712 27,116 33,781 25,985
Dec-98 29,831 30,391 35,727 31,068
Jan-99 30,586 29,209 37,220 30,305
Feb-99 28,344 27,678 36,063 28,568
Mar-99 30,022 28,451 37,505 29,633
Apr-99 31,300 29,902 38,957 31,463
May-99 31,488 30,030 38,037 31,235
Jun-99 33,790 31,640 40,149 33,612
Jul-99 31,763 30,966 38,896 32,634
Aug-99 30,867 29,904 38,701 31,642
Sep-99 30,632 28,980 37,641 31,277
</TABLE>
AVERAGE ANNUAL RETURNS+
THROUGH 9/30/99
<TABLE>
<CAPTION>
Since
Inception
6 Months** 1 Year 5 Years 4/10/92
============== =========== =========== ==========
<S> <C> <C> <C> <C>
IAI MIDCAP GROWTH FUND 2.03% 35.50% 16.09% 16.15%
- -------------------------- ---- ----- ----- -----
S&P Midcap Index 4.57% 25.49% 18.59% 15.65%
- -------------------------- ---- ----- ----- -----
S&P 500 Index 0.36% 27.80% 25.03% 19.33%
- -------------------------- ---- ----- ----- -----
S&P Midcap Growth Index 5.55% 42.95% 21.10% 16.42%
- -------------------------- ---- ----- ----- -----
</TABLE>
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
** NOT ANNUALIZED.
TOP TEN HOLDINGS**
% of Net Assets
--------------------
Issues Sector 9/30/99 3/31/99
- ------------------------- ----------------------- --------- --------
Biogen Health Technology 3.31 2.20
Navigant Consulting Commercial Services 2.77 --
Legato Systems Technology Services 2.65 1.09
Dean Foods Consumer Non-Durables 2.64 1.56
Xilinx Electronic Technology 2.61 1.36
Analog Devices Electronic Technology 2.56 1.61
Electronic Arts Electronic Technology 2.36 0.77
ADC Telecommunications Electronic Technology 2.32 1.71
Linear Technology Electronic Technology 2.25 1.69
McCormick & Company Consumer Non-Durables 2.23 1.68
========================= ======================= ===== =====
TOTAL 25.70 13.67
** EXCLUDES U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
NOTE
TO FUND
MANAGER'S
REVIEW
PERFORMANCE DATA FOR THE IAI MIDCAP GROWTH 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, AND ARE NOT AVAILABLE FOR DIRECT INVESTMENT.
13
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI REGIONAL FUND
IAI REGIONAL FUND
FUND MANAGEMENT
IAI REGIONAL TEAM
JULIAN P. "BING" CARLIN, CFA
AMY DENN
TOP FIVE
COMMON STOCK
SECTORS
% OF NET ASSETS AS OF 9/30/99
[BAR CHART]
HEALTH TECHNOLOGY 14.3%
PROCESS INDUSTRIES 8.8%
RETAIL TRADE 7.7%
UTLITIES 7.5%
ELECTRONIC TECHNOLOGY 6.6%
* PERCENTAGE OF NET ASSETS AS OF 9/30/99.
HOW HAS THE FUND PERFORMED?
The IAI Regional Fund showed a return of 5.99% over the last six months compared
to the S&P 500's 0.36% return.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Performance was led by Recovery Engineering, a Minneapolis company that makes
water filtration systems. Proctor & Gamble announced they would initiate a
tender offer for $35.25/share, a price representing a premium of approximately
100% above Recovery's current stock price. Although Financials was an
underperforming sector due to rising interest rates, our position in Chicago
Title, the nation's third largest title company, appreciated significantly on
news that they would be acquired by Fidelity National Financial. Both positions
were eliminated after the announcement. Biomet and Spyglass were the biggest
detractors from performance and were eliminated from the Fund.
WERE THERE ANY SIGNIFICANT CHANGES?
Several stocks were added to the Fund during the third quarter, including
General Electric (2.4%)*, Minnesota Mining & Manufacturing (1.7%)*,
Anheuser-Busch (2.1%)*, General Mills (2.4%)*, Exxon (2.5%)*, TCF Financial
(2.0%)*, Lucent Technologies (2.1%)* and Time Warner (1.5%)*. Among the stocks
eliminated from the Fund were Ecolab, AT&T Corp., Tootsie Roll Industries,
Allstate and Galileo International. The cash position of the Fund remained at
above-normal levels.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
The past six months continued in the negative direction that the market has been
in since April with 65% of stocks showing negative returns for 1999. Performance
has reflected this trend and we continue to fight a defensive investment battle.
A handful of stocks have masked the problem and driven the NASDAQ Index higher.
These investments have centered on Internet and high-tech companies whose
valuations are extremely lofty and stock prices appear extended. We have refused
to play in this sector due to its high valuation risk.
WHAT IS YOUR OUTLOOK FOR THE FUND?
As we work our way through the fourth quarter, we will be looking for investment
targets with more reasonable valuations. We continue to focus on (1) aging of
America, (2) globalization and (3) technology/productivity as major investment
themes. One segment of technology that we are currently invested in is
telecommunications. We believe that wireless and broadband infrastructure will
continue to play an important role in the coming years. We hope the next six
months will prove to be more favorable for investors than the past six months,
but our guard remains alert!
14
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI REGIONAL FUND
VALUE OF $10,000 INVESTMENT+
[GRAPH]
inception
May-80 IAI S&P
REGIONAL 500
FUND INDEX
10,000 10,000
Oct-89 9,754 9,765
Nov-89 9,969 9,966
Dec-89 10,084 10,202
Jan-90 9,553 9,517
Feb-90 9,744 9,638
Mar-90 10,068 9,889
Apr-90 9,856 9,645
May-90 10,701 10,585
Jun-90 10,905 10,512
Jul-90 10,627 10,478
Aug-90 9,777 9,531
Sep-90 9,351 9,062
Oct-90 9,253 9,030
Nov-90 9,793 9,609
Dec-90 10,051 9,876
Jan-91 10,700 10,313
Feb-91 11,293 11,052
Mar-91 11,881 11,314
Apr-91 11,807 11,346
May-91 12,219 11,831
Jun-91 11,804 11,290
Jul-91 12,313 11,817
Aug-91 12,661 12,096
Sep-91 12,620 11,897
Oct-91 12,996 12,056
Nov-91 12,498 11,570
Dec-91 13,606 12,892
Jan-92 13,764 12,654
Feb-92 13,720 12,816
Mar-92 13,399 12,563
Apr-92 13,184 12,930
May-92 13,316 12,999
Jun-92 13,040 12,810
Jul-92 13,287 13,327
Aug-92 12,957 13,057
Sep-92 13,210 13,208
Oct-92 13,333 13,255
Nov-92 13,844 13,703
Dec-92 14,089 13,883
Jan-93 14,225 13,985
Feb-93 14,134 14,173
Mar-93 14,513 14,481
Apr-93 14,154 14,126
May-93 14,331 14,505
Jun-93 14,525 14,553
Jul-93 14,397 14,484
Aug-93 15,124 15,036
Sep-93 15,481 14,926
Oct-93 15,487 15,230
Nov-93 14,902 15,085
Dec-93 15,352 15,271
Jan-94 15,760 15,784
Feb-94 15,552 15,356
Mar-94 14,986 14,689
Apr-94 15,107 14,879
May-94 14,972 15,122
Jun-94 14,579 14,747
Jul-94 14,932 15,235
Aug-94 15,737 15,855
Sep-94 15,414 15,472
Oct-94 15,692 15,830
Nov-94 15,150 15,249
Dec-94 15,455 15,473
Jan-95 15,662 15,875
Feb-95 16,168 16,490
Mar-95 16,537 16,979
Apr-95 16,966 17,480
May-95 17,365 18,171
Jun-95 17,827 18,597
Jul-95 18,694 19,222
Aug-95 18,748 19,274
Sep-95 19,063 20,083
Oct-95 18,803 20,010
Nov-95 19,779 20,891
Dec-95 20,499 21,277
Jan-96 20,784 22,006
Feb-96 21,079 22,218
Mar-96 21,269 22,437
Apr-96 22,335 22,771
May-96 23,174 23,358
Jun-96 22,502 23,455
Jul-96 20,860 22,411
Aug-96 21,705 22,890
Sep-96 22,173 24,178
Oct-96 22,413 24,853
Nov-96 23,276 26,744
Dec-96 23,725 26,223
Jan-97 23,858 27,854
Feb-97 24,543 28,079
Mar-97 23,109 26,910
Apr-97 23,528 28,511
May-97 25,932 30,259
Jun-97 27,047 31,606
Jul-97 28,654 34,140
Aug-97 28,172 32,253
Sep-97 30,150 34,010
Oct-97 28,543 32,888
Nov-97 28,195 34,394
Dec-97 28,198 34,979
Jan-98 27,873 35,374
Feb-98 29,222 37,918
Mar-98 30,400 39,859
Apr-98 30,503 40,262
May-98 29,881 39,569
Jun-98 30,093 41,176
Jul-98 28,550 40,735
Aug-98 23,205 34,845
Sep-98 24,709 37,078
Oct-98 25,250 40,093
Nov-98 26,689 42,522
Dec-98 27,810 44,972
Jan-99 29,381 46,851
Feb-99 28,667 45,394
Mar-99 28,048 47,210
Apr-99 28,034 49,037
May-99 27,956 47,880
Jun-99 28,912 50,537
Jul-99 27,697 48,960
Aug-99 26,864 48,716
Sep-99 26,369 47,381
AVERAGE ANNUAL RETURNS+
THROUGH 9/30/99
6 Months** 1 Year 5 Years 10 Years
============== ========== =========== ===========
IAI REGIONAL FUND (5.98)% 6.72% 11.34% 10.18%
- -------------------- ----- ----- ----- -----
S&P 500 Index 0.36% 27.80% 25.03% 16.82%
- -------------------- ----- ----- ----- -----
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
** NOT ANNUALIZED.
TOP TEN HOLDINGS**
<TABLE>
<CAPTION>
% of Net Assets
--------------------
Issues Sector 9/30/99 3/31/99
- ------------------------------- ------------------------ --------- --------
<S> <C> <C> <C>
Telephone and Data Systems Utilities 3.09 --
Ameritech Utilities 3.00 --
Baxter International Health Technology 3.00 2.27
Illinois Tool Works Producer Manufacturing 2.86 2.23
Sybron International Health Technology 2.85 2.17
McDonald's Consumer Services 2.67 --
Clear Channel Communications Consumer Services 2.58 --
Exxon Energy Minerals 2.46 --
Valspar Process Industries 2.43 1.71
General Mills Consumer Non-Durables 2.42 --
=============================== ======================== ===== =====
TOTAL 27.36 8.38
</TABLE>
** EXCLUDES U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
NOTE
TO FUND
MANAGER'S
REVIEW
PERFORMANCE DATA FOR 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, AND ARE NOT AVAILABLE FOR DIRECT INVESTMENT.
15
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI VALUE FUND
IAI VALUE FUND
FUND MANAGEMENT
IAI SMALL CAP/
MIDCAP TEAM
CURT D. MCLEOD, CFA
SCOTT A. BILLEADEAU, CFA
ROBERT E. SCOTT, CFA
ROBERT J. MLNARIK
TOP FIVE
COMMON STOCK
SECTORS
% OF NET ASSETS AS OF 9/30/99
[BAR CHART]
PRODUCER MANUFACTURING 14.6%
HEALTH SERVICES 13.1%
CONSUMER DURABLES 11.2%
ELECTRONIC TECHNOLOGY 10.7%
TECHNOLOGY SERVICES 8.8%
* PERCENTAGE OF NET ASSETS AS OF
9/30/99.
HOW HAS THE FUND PERFORMED?
For the past six months the return for the IAI Value Fund was (29.08%) as
compared to the Russell 2500 Growth Index's return of 12.75% and the S&P 500's
return of 0.36%.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
The Fund underperformed in the past six months primarily due to the performance
of its two largest holdings, Tut Systems and Pathnet PFD, which were eliminated.
Positive performers during the past six months were First Health (2.6%)* and
CompX (3.5%)*. First Health group announced a strong list of new clients and
CompX made an acquisition which should enhance its growth prospects.
WERE THERE ANY SIGNIFICANT CHANGES?
There were significant changes during the past six months. The large positions
in Pathnet PFD and Tut Systems were eliminated and 16 new stocks were added. The
Tut Systems sale resulted in a significant gain for Fund shareholders since our
initial investment in the company.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
The relatively strong performance of growth stocks had an impact on the fund.
The Russell 2500 Growth Index returned 8.89% during the past six months vs. the
Russell 2500 Value Index performance of 6.00%. The Fund's emphasis on valuation
was not beneficial during the last six months.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We suspect changes in economic conditions, Federal Reserve policy and market
psychology will continue to result in volatile short-term market performance.
Changes in the market sentiment does not change our focus. We continue to focus
on companies with a strong and durable economic franchise, high returns on
invested capital, significant free cash flow, and with excellent management
teams. We are confident these companies will outperform throughout an economic
cycle.
16
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI VALUE FUND
VALUE OF $10,000 INVESTMENT+
[GRAPH]
inception
10/12/83 IAI S&P
VALUE RUSSELL 500
FUND 2500 INDEX
10,000 10,000 10,000
Oct-89 9,563 9,481 9,765
Nov-89 9,716 9,555 9,966
Dec-89 9,857 9,603 10,202
Jan-90 9,129 8,802 9,517
Feb-90 9,263 9,049 9,638
Mar-90 9,615 9,336 9,889
Apr-90 9,318 8,992 9,645
May-90 10,218 9,703 10,585
Jun-90 10,236 9,703 10,512
Jul-90 9,862 9,355 10,478
Aug-90 8,794 8,229 9,531
Sep-90 8,189 7,570 9,062
Oct-90 7,895 7,211 9,030
Nov-90 8,412 7,825 9,609
Dec-90 8,727 8,174 9,876
Jan-91 9,273 8,824 10,313
Feb-91 9,860 9,723 11,052
Mar-91 10,211 10,255 11,314
Apr-91 10,230 10,233 11,346
May-91 10,649 10,703 11,831
Jun-91 10,180 10,236 11,290
Jul-91 10,300 10,715 11,817
Aug-91 10,410 11,117 12,096
Sep-91 10,099 11,116 11,897
Oct-91 10,410 11,367 12,056
Nov-91 9,587 10,913 11,570
Dec-91 10,452 11,991 12,892
Jan-92 11,146 12,585 12,654
Feb-92 11,706 12,917 12,816
Mar-92 11,458 12,504 12,563
Apr-92 11,468 12,255 12,930
May-92 11,396 12,366 12,999
Jun-92 11,006 11,937 12,810
Jul-92 11,372 12,383 13,327
Aug-92 10,787 12,057 13,057
Sep-92 10,933 12,263 13,208
Oct-92 10,996 12,630 13,255
Nov-92 11,508 13,461 13,703
Dec-92 11,697 13,932 13,883
Jan-93 12,105 14,267 13,985
Feb-93 12,001 14,067 14,173
Mar-93 12,168 14,593 14,481
Apr-93 12,116 14,176 14,126
May-93 12,398 14,745 14,505
Jun-93 12,599 14,898 14,553
Jul-93 12,599 14,993 14,484
Aug-93 13,148 15,657 15,036
Sep-93 13,391 15,952 14,926
Oct-93 13,718 16,143 15,230
Nov-93 13,887 15,625 15,085
Dec-93 14,278 16,236 15,271
Jan-94 14,467 16,749 15,784
Feb-94 14,313 16,688 15,356
Mar-94 13,712 15,876 14,689
Apr-94 13,618 15,969 14,879
May-94 13,772 15,804 15,122
Jun-94 13,626 15,315 14,747
Jul-94 13,790 15,730 15,235
Aug-94 14,348 16,579 15,855
Sep-94 13,943 16,412 15,472
Oct-94 13,664 16,438 15,830
Nov-94 12,955 15,725 15,249
Dec-94 12,983 16,065 15,473
Jan-95 13,315 16,032 15,875
Feb-95 14,131 16,839 16,490
Mar-95 14,245 17,252 16,979
Apr-95 14,590 17,558 17,480
May-95 14,832 17,929 18,171
Jun-95 15,244 18,789 18,597
Jul-95 15,760 19,898 19,222
Aug-95 15,939 20,216 19,274
Sep-95 16,081 20,595 20,083
Oct-95 15,695 19,950 20,010
Nov-95 16,171 20,803 20,891
Dec-95 16,148 21,158 21,277
Jan-96 16,453 21,307 22,006
Feb-96 16,842 21,950 22,218
Mar-96 17,244 22,397 22,437
Apr-96 17,855 23,432 22,771
May-96 17,701 24,068 23,358
Jun-96 17,882 23,329 23,455
Jul-96 16,773 21,622 22,411
Aug-96 16,989 22,865 22,890
Sep-96 17,378 23,856 24,178
Oct-96 17,811 23,699 24,853
Nov-96 18,417 24,844 26,744
Dec-96 19,680 25,184 26,223
Jan-97 19,712 25,880 27,854
Feb-97 19,069 25,496 28,079
Mar-97 18,255 24,341 26,910
Apr-97 18,207 24,649 28,511
May-97 19,804 26,918 30,259
Jun-97 21,115 28,018 31,606
Jul-97 21,755 29,661 34,140
Aug-97 22,149 30,074 32,253
Sep-97 23,803 32,040 34,010
Oct-97 23,344 30,601 32,888
Nov-97 23,295 30,739 34,394
Dec-97 23,537 31,320 34,979
Jan-98 22,786 30,840 35,374
Feb-98 23,422 33,079 37,918
Mar-98 24,502 34,532 39,859
Apr-98 24,926 34,663 40,262
May-98 31,441 33,055 39,569
Jun-98 30,576 33,094 41,176
Jul-98 26,378 30,821 40,735
Aug-98 20,955 25,008 34,845
Sep-98 19,790 26,783 37,078
Oct-98 21,478 28,248 40,093
Nov-98 21,257 29,647 42,522
Dec-98 23,529 31,443 44,972
Jan-99 29,367 31,390 46,851
Feb-99 28,016 29,328 45,394
Mar-99 26,578 29,955 47,210
Apr-99 25,380 32,912 49,037
May-99 26,055 33,583 47,880
Jun-99 28,142 34,752 50,537
Jul-99 20,051 34,088 48,960
Aug-99 19,221 32,779 48,716
Sep-99 18,850 31,747 47,381
AVERAGE ANNUAL RETURNS+
THROUGH 9/30/99
<TABLE>
<CAPTION>
6 Months** 1 Year 5 Years 10 Years
============== ============= ========= =========
<S> <C> <C> <C> <C>
IAI VALUE FUND (29.08)% (4.75)% 6.22% 6.54%
- ---------------------------- ------ ----- ----- -----
Russell 2500 Growth Index 8.89% 21.78% 14.72% 12.55%
- ---------------------------- ------ ----- ----- -----
S&P 500 Index 0.36% 27.80% 25.03% 16.82%
</TABLE>
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
** NOT ANNUALIZED.
TOP TEN HOLDINGS*
<TABLE>
<CAPTION>
% of Net Assets
--------------------
Issues Sector 9/30/99 3/31/99
- ----------------------------------------- ------------------------ --------- --------
<S> <C> <C> <C>
Intellon Series A** Electronic Technology 5.23 2.72
Aftermarket Technology Consumer Durables 4.69 --
CCC Information Services Group Financial 4.12 --
CompX International Producer Manufacturing 3.47 0.57
Rayovac Producer Manufacturing 3.22 1.05
Tollgrade Communications Electronic Technology 3.06 --
Keane Technology Services 2.98 --
Nabors Industries Industrial Services 2.95 1.05
Lincare Holdings Health Services 2.89 --
Transaction Systems Architects Class A Technology Services 2.89 --
========================================= ======================== ===== =====
TOTAL 35.50 5.39
</TABLE>
* EXCLUDES U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
** RESTRICTED SECURITY.
NOTE
TO 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, AND ARE NOT AVAILABLE FOR DIRECT INVESTMENT.
17
<PAGE>
FUND PORTFOLIO
--------------
IAI CAPITAL APPRECIATION FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 92.7%
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ---------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL SERVICES - 8.4%
Catalina Marketing (b) 5,100 $ 432,544
Right Management Consultants (b) 19,600 220,500
Scientific Games Holdings (b) 9,900 195,525
Valassis Communications (b) 17,100 751,331
---------
1,599,900
---------
CONSUMER DURABLES - 6.1%
Aftermarket Technology (b) 96,100 1,009,050
JAKKS Pacific (b) 3,900 146,250
---------
1,155,300
---------
CONSUMER SERVICES - 5.7%
Apollo Group Class A (b) 12,300 259,837
Papa John's International (b) 9,900 408,375
Strayer Education 21,450 426,319
---------
1,094,531
---------
ELECTRONIC TECHNOLOGY - 14.1%
DII Group (b) 15,400 541,887
Hutchinson Technology (b) 6,900 186,300
Mercury Computer
Systems (b) 9,200 312,800
REMEC (b) 20,900 287,375
Sawtek (b) 12,100 423,500
Tollgrade Communications (b) 24,200 650,375
Three-Five Systems (b) 12,900 285,413
---------
2,687,650
---------
FINANCIAL - 13.1%
CCC Information Services
Group (b) 59,800 788,612
Enhance Financial Services Group 25,600 452,800
INSpire Insurance Solutions (b) 23,300 160,187
Radian Group 17,599 755,657
Triad Guaranty (b) 3,900 65,813
UniCapital (b) 86,100 274,444
---------
2,497,513
---------
</TABLE>
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ---------------------------------------------------------------------
<S> <C> <C>
HEALTH SERVICES - 6.0%
Patterson Dental (b) 11,150 $ 552,622
Renal Care Group (b) 19,600 429,363
Henry Schein (b) 11,100 158,175
---------
1,140,160
---------
HEALTH TECHNOLOGY - 5.6%
Mentor 31,300 892,050
Respironics (b) 22,600 186,450
---------
1,078,500
---------
INDUSTRIAL SERVICES - 3.9%
Petroleum Geo-Services ADR (b) 13,600 259,250
Service Experts (b) 46,100 478,288
---------
737,538
---------
PRODUCER MANUFACTURING - 5.2%
Advanced Lighting
Technologies (b) 27,800 194,600
JLK Direct Distribution
Class A (b) 27,300 191,100
Zebra Technologies Class A (b) 13,400 609,281
---------
994,981
---------
RETAIL TRADE - 5.2%
99 Cents Only Stores (b) 13,400 484,075
Wild Oats Markets (b) 12,600 497,700
---------
981,775
---------
TECHNOLOGY SERVICES - 18.4%
American Management Systems (b) 6,500 166,766
BISYS Group (b) 7,200 337,725
DSET (b) 20,900 306,969
Great Plains Software (b) 9,900 509,850
HNC Software (b) 9,100 361,156
Hyperion Solutions (b) 16,900 371,800
International Telecommunications
Data Systems (b) 33,700 284,344
Mastech (b) 29,800 402,300
National Computer Systems 12,800 490,800
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
18
</TABLE>
<PAGE>
FUND PORTFOLIO
--------------
IAI CAPITAL APPRECIATION FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS (CONT.)
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- --------------------------------------------------------------
<S> <C> <C>
Transaction Systems Architects
Class A (b) 9,900 $ 266,681
----------
3,498,391
----------
TRANSPORTATION - 1.0%
Atlas Air (b) 8,900 194,687
==============================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $17,848,734)......................... $17,660,926
==============================================================
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM SECURITIES - 3.8%
Principal Market
Rate Amount Value (a)
- -----------------------------------------------------------------
<S> <C> <C>
DEMAND NOTES - 0.7%
Pitney Bowes (COMMERCIAL SERVICES)
4.99% (c) $135,897 $ 135,897
- -----------------------------------------------------------------
INVESTMENT COMPANY - 3.1%
Firstar Institutional Money Market Fund
5.02% 594,735 594,735
=================================================================
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES (COST: $730,632)............................. $730,632
=================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $18,579,366) (f).............................. $18,391,558
=================================================================
OTHER ASSETS AND LIABILITIES
(NET) - 3.5% ........................................... $668,295
=================================================================
TOTAL NET ASSETS .................................... $19,059,853
=================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
19
<PAGE>
FUND PORTFOLIO
--------------
IAI EMERGING GROWTH FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 89.5%
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL SERVICES - 5.1%
Navigant Consulting (b) 27,800 $1,289,225
Profit Recovery Group
International (b) 29,700 1,325,363
----------
2,614,588
----------
CONSUMER DURABLES - 5.8%
Aftermarket Technology (b) 181,700 1,907,850
JAKKS Pacific (b) 28,500 1,068,750
----------
2,976,600
----------
CONSUMER SERVICES - 6.0%
Apollo Group Class A (b) 51,250 1,082,656
Papa John's International (b) 36,600 1,509,750
Strayer Education 25,000 496,875
----------
3,089,281
----------
ELECTRONIC TECHNOLOGY - 23.2%
Alpha Industries (b) 23,000 1,297,344
Creo Products (b)(d) 29,000 712,312
DII Group (b) 42,000 1,477,875
Etec Systems (b) 20,000 752,500
Mercury Computer Systems (b) 30,700 1,043,800
Micrel (b) 24,900 1,080,037
REMEC (b) 65,000 893,750
RSA Security (b) 15,000 398,438
Sawtek (b) 38,700 1,354,500
Tollgrade Communications (b) 55,000 1,478,125
Three-Five Systems (b) 32,700 723,488
Vitesse Semiconductor (b) 8,100 691,537
----------
11,903,706
----------
</TABLE>
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ----------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL - 3.0%
CCC Information Services
Group (b) 11,400 $ 150,337
Knight/Trimark Group Class A (b) 6,000 177,750
Radian Group 15,000 644,063
Rent-A-Center (b) 30,700 571,788
----------
1,543,938
----------
HEALTH SERVICES - 8.3%
Express Scripts (b) 15,900 1,244,175
InfoCure (b) 30,000 566,250
MedQuist (b) 15,000 501,562
Patterson Dental (b) 10,000 495,625
Renal Care Group (b) 64,600 1,415,144
----------
4,222,756
----------
HEALTH TECHNOLOGY - 4.0%
Medicis Pharmaceutical (b) 23,650 674,025
Mentor 37,000 1,054,500
Watson Pharmaceuticals (b) 10,100 308,681
----------
2,037,206
----------
INDUSTRIAL SERVICES - 1.9%
Petroleum Geo-Services ADR (b) 50,000 953,125
----------
PRODUCER MANUFACTURING - 1.8%
PRI Automation 25,900 935,638
----------
RETAIL TRADE - 6.8%
99 Cents Only Stores (b) 39,425 1,424,228
Bed Bath & Beyond (b) 14,800 517,075
Wild Oats Markets (b) 39,200 1,548,400
----------
3,489,703
----------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
20
</TABLE>
<PAGE>
FUND PORTFOLIO
--------------
IAI EMERGING GROWTH FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS (CONT.)
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- -------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY SERVICES - 23.0%
Acxiom (b) 30,600 $ 601,481
Advantage Learning Systems (b) 25,000 465,625
Citrix Systems (b) 17,300 1,071,519
CSG Systems International (b) 26,200 718,044
DSET (b) 25,000 367,187
Emulex (b) 2,000 171,750
Great Plains Software (b) 33,000 1,699,500
HNC Software (b) 19,200 762,000
IMRglobal (b) 19,400 160,050
International Telecommunication
Data Systems (b) 6,900 58,219
Legato Systems (b) 18,000 784,687
Mastech (b) 71,800 969,300
National Computer Systems 13,000 498,469
National Information
Consortium (b) 5,000 123,438
Network Appliance (b) 2,850 204,131
Peregrine Systems (b) 35,000 1,426,250
TIBCO Software (b) 2,500 75,234
Transaction Systems Architects
Class A (b) 28,300 762,331
Whittman-Hart (b) 22,900 888,091
-----------
11,807,306
-----------
TRANSPORTATION - 0.6%
Atlas Air (b) 14,400 315,000
================================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $38,155,320)........................... $45,888,847
================================================================
</TABLE>
<TABLE>
<CAPTION>
RESTRICTED SECURITIES - 2.8%
Market
Quantity (e) Value (a)
- ----------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 1.4%
AccessLine Holdings Class A (b) 818 $ 41
Tut Systems (b) 30,255 741,913
-------
741,954
-------
CONVERTIBLE PREFERRED STOCKS - 0.8%
AccessLine Holdings Series A (b) 21,158 21,158
Intellon Series A (b) 200,000 372,000
-------
393,158
-------
</TABLE>
<TABLE>
<CAPTION>
Ownership Market
Percentage (e) Value (a)
---------------- ----------
<S> <C> <C>
LIMITED PARTNERSHIPS - 0.6%
Alta Berkeley III, foreign (b) 1.78% 330,489
South Street Corporate Recovery
Fund I (b) 0.69 --
South Street Leveraged Corporate
Recovery Fund I (b) 1.65 --
-------
330,489
-------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount (e) Value (a)
- --------------- ---------- -------------- ---------------
<S> <C> <C> <C>
CONVERTIBLE DEBENTURES - 0.0%
Air Communications Series B
(b)
10.00% 02/28/97 258,332 --
-------
--
-------
Exercise Market
Price Maturity Quantity (e) Value (a)
- ------------ -------- -------------- ---------------
CALL OPTIONS - 0.0%
GalaGen,
2.56 02/22/03 4,062 --
GalaGen,
2.56 12/27/05 812 --
-------
--
-------
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
21
<PAGE>
FUND PORTFOLIO
--------------
IAI EMERGING GROWTH FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
RESTRICTED SECURITIES (CONT.)
<TABLE>
<CAPTION>
Market
Rate Maturity Quantity (e) Value (a)
- -------------- ---------- -------------- ----------
<S> <C> <C> <C>
WARRANTS - 0.0%
AccessLine Holdings,
$ 0.60 10/15/99 71,420 $ --
GalaGen,
$ 11.08 03/24/00 2,256 --
GalaGen,
$ 11.08 07/09/00 1,805 --
GalaGen,
$ 11.08 01/29/01 22,501 --
-------
--
=======
TOTAL INVESTMENTS IN RESTRICTED
SECURITIES (COST: $1,688,648)............... $1,465,601
============================================================
</TABLE>
SHORT-TERM SECURITIES - 14.8%
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
- ------------------------------------------------ ---------- ------------- -------------
<S> <C> <C> <C>
COMMERCIAL PAPER - 14.6%
Anheuser Busch Companies (CONSUMER NON-DURABLES)
5.50% 10/01/99 $2,500,000 $2,500,000
Gillette (CONSUMER NON-DURABLES)
5.55% 10/01/99 2,500,000 2,500,000
Xerox (PRODUCER MANUFACTURING)
5.52% 10/01/99 2,500,000 2,500,000
----------
7,500,000
----------
INVESTMENT COMPANY - 0.2%
Firstar Institutional Money Market Fund
5.02% 72,317 72,317
========================================================================================
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES (COST: $7,572,317)................................................ $7,572,317
========================================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $47,416,285) (F)..................................................... $54,926,765
========================================================================================
OTHER ASSETS AND LIABILITIES
(NET) - (7.1%)............................................................. $(3,634,139)
========================================================================================
TOTAL NET ASSETS............................................................ $51,292,626
========================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
22
<PAGE>
FUND PORTFOLIO
--------------
IAI GROWTH FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 92.5%
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ----------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL SERVICES - 2.7%
Amdocs (b) 9,110 $ 191,310
SunGard Data Systems (b) 3,000 78,938
----------
270,248
----------
CONSUMER NON-DURABLES - 5.6%
Coca-Cola 1,500 72,094
Colgate-Palmolive 1,510 69,082
Dial 6,770 172,635
PepsiCo 2,380 71,995
Procter & Gamble 1,820 170,625
----------
556,431
----------
CONSUMER SERVICES - 5.1%
Cendant (b) 21,598 383,364
McDonald's 1,690 72,670
Time Warner 900 54,675
----------
510,709
----------
ELECTRONIC TECHNOLOGY - 22.4%
Analog Devices (b) 3,450 176,812
Cisco Systems (b) 4,250 291,391
Comverse Technology (b) 2,025 190,983
Electronic Arts (b) 2,600 188,175
EMC (b) 850 60,722
Intel 5,940 441,416
International Business Machines 1,200 145,650
Lucent Technologies 4,830 313,346
SBC Communications 1,780 90,891
Synopsys (b) 5,820 326,829
----------
2,226,215
----------
FINANCIAL - 5.0%
American Express 600 80,775
American International Group 1,137 98,848
Associates First Capital Class A 2,400 86,400
Fannie Mae 1,100 68,956
Freddie Mac 1,550 80,600
State Street 1,170 75,611
----------
491,190
----------
</TABLE>
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ----------------------------------------------------------------------------
<S> <C> <C>
HEALTH SERVICES - 5.3%
Cardinal Health 2,545 $ 138,702
Patterson Dental (b) 7,900 391,544
----------
530,246
----------
HEALTH TECHNOLOGY - 15.2%
Bristol-Myers Squibb 4,210 284,175
Eli Lilly & Company 1,550 99,200
Johnson & Johnson 3,640 334,425
Medtronic 2,000 71,000
Merck & Co. 2,830 183,419
Pfizer 5,590 200,891
Schering-Plough 2,650 115,606
Warner-Lambert 3,380 224,348
----------
1,513,064
----------
PROCESS INDUSTRIES - 7.0%
Ecolab 2,300 78,487
General Electric 3,720 441,053
----------
519,540
----------
PRODUCER MANUFACTURING - 4.1%
Tyco International 3,950 407,838
----------
RETAIL TRADE - 6.0%
Abercrombie & Fitch Class A (b) 4,170 142,041
CVS 2,300 93,869
Home Depot 1,900 130,388
Staples (b) 2,575 56,167
Wal-Mart Stores 3,650 173,603
----------
596,068
----------
TECHNOLOGY SERVICES - 13.6%
America Online (b) 2,100 218,400
BMC Software (b) 4,400 314,875
Citrix Systems (b) 1,800 111,487
First Data 2,620 114,953
Microsoft (b) 5,190 470,019
Sun Microsystems (b) 1,250 116,250
----------
1,345,984
----------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
23
</TABLE>
<PAGE>
FUND PORTFOLIO
--------------
IAI GROWTH FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS (CONT.)
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- -----------------------------------------------------------
<S> <C> <C>
UTILITIES - 2.3%
MCI WorldCom (b) 3,100 $222,813
==============================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $7,458,540)............................ $9,190,346
==============================================================
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM SECURITIES - 5.2%
Principal Market
Rate Amount Value (a)
- ----------------------------------------------------------------------
<S> <C> <C>
DEMAND NOTES - 2.9%
Pitney Bowes (COMMERCIAL SERVICES)
4.99% (c) $292,053 $ 292,053
-------- -----------
INVESTMENT COMPANY - 2.3%
Firstar Institutional Money
Market Fund
5.02% 231,009 231,009
===================================================================
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES (COST: $523,062)............................... $523,062
===================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $7,981,602) (f).................................. $9,713,408
===================================================================
OTHER ASSETS AND LIABILITIES
(NET) - 2.3% ............................................. $226,020
===================================================================
TOTAL NET ASSETS ....................................... $9,939,428
===================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
24
<PAGE>
FUND PORTFOLIO
--------------
IAI GROWTH AND INCOME FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 94.3%
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- -------------------------------------------------------------------------
<S> <C> <C>
CONSUMER DURABLES - 7.8%
Department 56 (b) 32,900 $ 787,544
Eastman Kodak 10,500 792,094
Mattel 38,400 729,600
Newell Rubbermaid 16,200 462,713
---------
2,771,951
---------
CONSUMER NON-DURABLES - 6.1%
Clorox 18,400 703,800
800 - JR Cigar (b) 73,200 777,750
Philip Morris Companies 20,300 694,006
---------
2,175,556
---------
ELECTRONIC TECHNOLOGY - 4.8%
International Business Machines 6,300 764,662
SBC Communications 18,400 939,550
---------
1,704,212
---------
ENERGY MINERALS - 6.7%
Chevron 5,200 461,500
Exxon 14,000 1,063,125
Mobil 5,900 594,425
Texaco 4,600 290,375
---------
2,409,425
---------
FINANCIAL - 19.1%
American Express 8,800 1,184,700
Bank of America 13,000 723,937
Bank One 8,100 281,981
Chase Manhattan 9,700 731,138
Citigroup 23,850 1,049,400
Freddie Mac 19,000 988,000
SLM Holding 27,350 1,176,050
Wells Fargo 17,800 705,325
---------
6,840,531
---------
HEALTH SERVICES - 7.3%
First Health Group (b) 42,000 942,375
Health Management Associates
Class A (b) 127,000 936,625
United HealthCare 15,100 735,181
---------
2,614,181
---------
</TABLE>
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- -------------------------------------------------------------------------
<S> <C> <C>
HEALTH TECHNOLOGY - 3.4%
Hillenbrand Industries 17,800 $ 469,475
Watson Pharmaceuticals (b) 24,600 751,838
---------
1,221,313
---------
INDUSTRIAL SERVICES - 3.5%
Nabors Industries (b) 49,500 1,237,500
---------
PROCESS INDUSTRIES - 7.0%
Bemis Company 9,600 325,200
Berkshire Hathaway Class A (b) 29 1,595,000
Sigma-Aldrich 17,800 565,150
---------
2,485,350
---------
PRODUCER MANUFACTURING - 10.4%
AlliedSignal 15,200 911,050
Emerson Electric 13,500 853,031
HON INDUSTRIES 31,900 614,075
Tyco International 6,600 681,450
Xerox 16,000 671,000
---------
3,730,606
---------
TECHNOLOGY SERVICES - 2.6%
Keane (b) 18,900 431,156
Parametric Technology (b) 35,900 484,650
---------
915,806
---------
UTILITIES - 15.6%
AT&T 14,900 648,150
Bell Atlantic 17,400 1,171,238
BellSouth 22,600 1,017,000
Duke Energy 8,300 457,537
Enron 16,000 660,000
FPL Group 8,600 433,225
MCI WorldCom (b) 4,400 316,250
PG&E 17,300 447,638
Texas Utilities 11,600 432,825
---------
5,583,863
=================================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $30,255,355)...................................$33,690,294
=================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
25
<PAGE>
FUND PORTFOLIO
--------------
IAI GROWTH AND INCOME FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
RESTRICTED SECURITIES - 2.2%
<TABLE>
<CAPTION>
Market
Quantity (e) Value (a)
- --------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 0.2%
MatrixOne Class A (b) 12,243 $71,009
-------
CONVERTIBLE PREFERRED STOCKS - 0.2%
MatrixOne Series D (b) 14,964 86,791
Myriad Ultrasound Systems
Series A (b) 13,068 --
Myriad Ultrasound
Systems Series B (b) 14,491 --
Myriad Ultrasound
Systems Series C (b) 14,351 --
-------
86,791
-------
</TABLE>
<TABLE>
<CAPTION>
Ownership Market
Percentage (e) Value (a)
- ----------------------------------------------------------------
<S> <C> <C>
LIMITED PARTNERSHIPS - 1.8%
Alta Berkeley III, foreign (b) 1.78% 330,489
South Street Corporate Recovery
Fund I (b) 1.44 --
Vanguard Associates III (b) 6.55 299,564
-------
630,053
-------
</TABLE>
<TABLE>
<CAPTION>
Exercise Market
Price Maturity Quantity (e) Value (a)
- -------------------------------------------------------
<S> <C> <C> <C>
CALL OPTIONS - 0.0%
GalaGen,
2.56 02/22/03 1,625 --
=======================================================
TOTAL INVESTMENTS IN RESTRICTED
SECURITIES (COST: $1,038,630)............... $787,853
=======================================================
</TABLE>
SHORT-TERM SECURITIES - 3.4%
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER - 2.8%
Xerox (PRODUCER MANUFACTURING)
5.52% 10/01/99 $1,000,000 $1,000,000
----------
DEMAND NOTES - 0.1%
Pitney Bowes (COMMERCIAL SERVICES)
4.99% (c) 24,435 24,435
----------
INVESTMENT COMPANY - 0.5%
Firstar Institutional Money Market Fund
5.02% 186,716 186,716
=======================================================================================
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES (COST: $1,211,151).............................................. $1,211,151
=======================================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $32,505,136) (f)................................................... $35,689,298
=======================================================================================
OTHER ASSETS AND LIABILITIES
(NET) - 0.1% ................................................................. $40,360
=======================================================================================
TOTAL NET ASSETS ......................................................... $35,729,658
=======================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
26
<PAGE>
FUND PORTFOLIO
--------------
IAI MIDCAP GROWTH FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 97.7%
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- --------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL SERVICES - 11.5%
Bergen Brunswig Class A 15,700 $ 162,887
Cintas 9,400 543,437
Galileo International 6,300 253,575
Navigant Consulting (b) 19,600 908,950
Paychex 16,850 575,006
Quintiles Transnational 17,600 334,950
Robert Half International (b) 22,200 532,800
SunGard Data Systems (b) 17,700 465,731
---------
3,777,336
---------
CONSUMER DURABLES - 3.5%
Harley-Davidson 13,100 655,819
Leggett & Platt 25,400 500,063
---------
1,155,882
---------
CONSUMER NON-DURABLES - 8.3%
Dean Foods 19,900 866,894
Dial 20,200 515,100
Jones Apparel Group (b) 20,900 600,875
McCormick & Company
Non Voting Shares 22,200 733,988
---------
2,716,857
---------
CONSUMER SERVICES - 6.7%
Apollo Group Class A (b) 20,600 435,175
DeVry (b) 13,700 274,000
Harte-Hanks 18,900 476,044
Papa John's International (b) 12,800 528,000
Washington Post Class B 1,000 510,000
---------
2,223,219
---------
ELECTRONIC TECHNOLOGY - 23.4%
ADC Telecommunications (b) 18,200 763,262
Altera (b) 12,100 524,837
Analog Devices (b) 16,401 840,551
Comverse Technology (b) 7,600 716,775
Electronic Arts (b) 10,700 774,413
Linear Technology 12,600 740,644
Maxim Integrated Products (b) 10,800 681,413
Siebel Systems (b) 6,200 413,075
Solectron (b) 9,100 653,494
</TABLE>
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- -------------------------------------------------------------------
<S> <C> <C>
Synopsys (b) 13,000 $ 730,031
Xilinx (b) 13,100 858,459
---------
7,696,954
---------
FINANCIAL - 6.7%
AFLAC 9,300 389,437
City National 13,800 463,162
E*TRADE Group (b) 11,800 277,300
First Tennessee National 10,600 298,125
Mercantile Bankshares 11,400 352,688
T. Rowe Price Associates 10,000 274,375
Zions Bancorporation 2,500 137,813
---------
2,192,900
---------
HEALTH SERVICES - 1.1%
Health Management Associates Class
A (b) 47,000 346,625
---------
HEALTH TECHNOLOGY - 10.0%
Biogen (b) 13,800 1,087,612
Biomet 11,100 292,069
Centocor (b) 7,100 415,794
MedImmune (b) 2,200 219,244
Mylan Laboratories 21,100 387,713
Sybron International (b) 25,500 685,313
VISX (b) 2,700 213,553
---------
3,301,298
---------
INDUSTRIAL SERVICES - 0.9%
Smith International (b) 7,300 295,650
---------
PRODUCER MANUFACTURING - 4.8%
American Power Conversion (b) 31,300 594,700
Danaher 10,500 553,219
Kaydon 16,900 420,388
---------
1,568,307
---------
RETAIL TRADE - 8.6%
Abercrombie & Fitch Class A (b) 8,300 282,719
Bed Bath & Beyond (b) 18,200 635,862
Family Dollar Stores 30,400 642,200
Kohl's (b) 5,800 383,525
Office Depot 34,150 347,903
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
27
</TABLE>
<PAGE>
FUND PORTFOLIO
--------------
IAI MIDCAP GROWTH FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 97.7%
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ------------------------------------------------
<S> <C> <C>
Ross Stores 9,000 $ 181,125
Staples (b) 15,850 345,728
---------
2,819,062
---------
TECHNOLOGY SERVICES - 12.2%
CIBER (b) 15,300 234,281
Citrix Systems (b) 10,600 656,537
Fiserv (b) 19,600 637,000
i2 Technologies (b) 4,900 190,181
Legato Systems (b) 20,000 871,875
Sterling Commerce (b) 11,300 209,756
VERITAS Software (b) 8,700 660,656
Whittman-Hart (b) 14,100 546,816
---------
4,007,102
==============================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $29,050,655)............... $32,101,192
==============================================
</TABLE>
RESTRICTED SECURITIES - 0.0%
<TABLE>
<CAPTION>
Ownership Market
Percentage (e) Value (a)
- ----------------------------------------------------------
<S> <C> <C>
LIMITED PARTNERSHIP - 0.0%
South Street Leveraged
Corporate Recovery
Fund I (b) 1.10% $ --
-------
Exercise Market
Price Maturity Quantity (e) Value (a)
- ----------------------------------------------------------
CALL OPTIONS - 0.0%
GalaGen,
$ 2.56 02/22/03 1,354 $ --
==========================================================
TOTAL INVESTMENTS IN RESTRICTED
SECURITIES (COST: $0)............................. $ --
==========================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
28
<PAGE>
FUND PORTFOLIO
--------------
IAI MIDCAP GROWTH FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
SHORT-TERM SECURITIES - 6.1%
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER - 5.2%
Xerox (PRODUCER MANUFACTURING)
5.52% 10/01/99 $1,700,000 $1,700,000
----------
INVESTMENT COMPANY - 0.9%
Firstar Institutional Money Market Fund
5.02% 316,271 316,272
======================================================================================
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES (COST: $2,016,272).............................................. $2,016,272
======================================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $31,066,927) (f)................................................... $34,117,464
======================================================================================
OTHER ASSETS AND LIABILITIES
(NET) - (3.8%)............................................................ $(1,245,453)
======================================================================================
TOTAL NET ASSETS.......................................................... $32,872,011
======================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
29
<PAGE>
FUND PORTFOLIO
--------------
IAI REGIONAL FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 78.4%
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL SERVICES - 2.6%
Clear Channel Communications (b) 65,000 $5,191,875
----------
CONSUMER DURABLES - 2.6%
Harley-Davidson 80,000 4,005,000
IntraNet Solutions (b) 150,000 1,293,750
----------
5,298,750
----------
CONSUMER NON-DURABLES - 6.6%
Anheuser-Busch Companies 60,000 4,203,750
Dean Foods 95,900 4,177,644
General Mills 60,000 4,867,500
----------
13,248,894
----------
CONSUMER SERVICES - 4.2%
McDonald's 125,000 5,375,000
Time Warner 50,000 3,037,500
----------
8,412,500
----------
ELECTRONIC TECHNOLOGY - 6.6%
ADC Telecommunications (b) 115,000 4,822,812
International Business Machines 35,000 4,248,125
Lucent Technologies 65,000 4,216,875
----------
13,287,812
----------
ENERGY MINERALS - 2.5%
Exxon 65,000 4,935,938
----------
FINANCIAL - 5.1%
MGIC Investment 85,000 4,058,750
ReliaStar Financial 67,900 2,257,675
TCF Financial 140,000 3,998,750
----------
10,315,175
----------
HEALTH TECHNOLOGY - 14.3%
Abbott Laboratories 100,000 3,675,000
Baxter International 100,000 6,025,000
Diametrics Medical (b) 894,600 4,473,000
Johnson & Johnson 50,000 4,593,750
Medtronic 122,000 4,331,000
Sybron International (b) 212,800 5,719,000
----------
28,816,750
----------
</TABLE>
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ------------------------------------------------------------------
<S> <C> <C>
PROCESS INDUSTRIES - 8.8%
AptarGroup 100,000 $2,675,000
Berkshire Hathaway Class A (b) 50 2,750,000
Donaldson Company 115,200 2,671,200
General Electric 40,000 4,742,500
Valspar 149,200 4,876,975
----------
17,715,675
----------
PRODUCER MANUFACTURING - 6.5%
Illinois Tool Works 77,000 5,741,312
Minnesota Mining and
Manufacturing 35,000 3,362,188
Pentair 100,000 4,012,500
----------
13,116,000
----------
RETAIL TRADE - 7.7%
Dayton Hudson 50,000 3,003,125
Fastenal 35,000 1,649,375
Kohl's (b) 50,000 3,306,250
Lands' End 56,000 3,696,000
Walgreen 150,000 3,806,250
----------
15,461,000
----------
TECHNOLOGY SERVICES - 1.7%
DST Systems (b) 60,000 3,412,500
----------
TRANSPORTATION - 1.7%
C.H. Robinson Worldwide 100,000 3,368,750
----------
UTILITIES - 7.5%
Ameritech 90,000 6,046,875
MCI WorldCom (b) 40,000 2,875,000
Telephone and Data Systems 70,000 6,216,875
----------
15,138,750
==================================================================
TOTAL INVESTMENTS IN COMMON
STOCKS
(COST: $138,883,657)................................. $157,720,369
==================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
30
<PAGE>
FUND PORTFOLIO
--------------
IAI REGIONAL FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
RESTRICTED SECURITIES - 1.6%
<TABLE>
<CAPTION>
Market
Quantity (e) Value (a)
- ---------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 0.4%
AccessLine Holdings Class A (b) 440 $ 22
Anglo Chinese Investment
Company, foreign (b) 1,600 272,048
Tut Systems (b) 19,745 484,187
Westgate Acquisition (b) 42,272 --
---------
756,257
---------
CONVERTIBLE PREFERRED STOCKS - 0.5%
Intellon Series A (b) 600,000 1,116,000
Myriad Ultrasound Systems
Series A (b) 14,344 --
Myriad Ultrasound Systems
Series B (b) 15,905 --
Myriad Ultrasound Systems
Series C (b) 15,752 --
---------
1,116,000
---------
NON-CONVERTIBLE PREFERRED STOCK - 0.0%
Westgate Acquisitions
Series A (b) 86,198 --
---------
</TABLE>
<TABLE>
<CAPTION>
Ownership Market
Percentage (e) Value (a)
- -----------------------------------------------------------------------
<S> <C> <C>
LIMITED PARTNERSHIPS - 0.7%
Alta Berkeley III, foreign (b) 3.56% 660,995
South Street Corporate Recovery
Fund I (b) 3.08 --
South Street Leveraged
Corporate Recovery Fund I (b) 3.85 --
Spell Capital Partners Fund I (b) 4.00 353,602
Vanguard Associates III (b) 6.20 315,448
-------
1,330,045
---------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount (e) Value (a)
- --------------------------------------------------------
<S> <C> <C> <C>
CONVERTIBLE DEBENTURES - 0.0%
Air Communications
Series B (b)
10.00% 02/28/97 $258,332 $ --
- ------------ -------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
Exercise Market
Rate Maturity Quantity (e) Value (a)
- -----------------------------------------------------
<S> <C> <C> <C>
CALL OPTIONS - 0.0%
GalaGen,
$ 2.56 02/22/03 6,500 --
GalaGen,
$ 2.56 12/27/05 812 --
------
WARRANTS - 0.0%
AccessLine Holdings,
$ 0.60 10/15/99 71,420 --
GalaGen,
$ 11.08 03/24/00 2,256 --
GalaGen,
$ 11.08 07/09/00 1,805 --
GalaGen,
$ 11.08 01/29/01 7,500 --
------
--
=================================================
TOTAL INVESTMENTS IN RESTRICTED
SECURITIES (COST: $3,624,893)......... $3,202,302
=================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
31
<PAGE>
FUND PORTFOLIO
--------------
IAI REGIONAL FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
SHORT-TERM SECURITIES - 18.8%
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER - 18.1%
Anheuser-Busch Companies (CONSUMER NON-DURABLES)
5.50% 10/01/99 $9,775,000 $9,775,000
Gillette (CONSUMER NON-DURABLES)
5.55% 10/01/99 9,425,000 9,425,000
Merrill Lynch and Company (FINANCIAL)
5.60% 10/01/99 7,000,000 7,000,000
Xerox (PRODUCER MANUFACTURING)
5.52% 10/01/99 10,100,000 10,100,000
----------
36,300,000
----------
INVESTMENT COMPANY - 0.7%
Firstar Institutional Money Market Fund
5.02% 1,457,925 1,457,925
==========================================================================================
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES
(COST: $37,757,925)........................................................... $37,757,925
==========================================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $180,266,475) (f)..................................................... $198,680,596
==========================================================================================
OTHER ASSETS AND LIABILITIES
(NET) - 1.2%................................................................... $2,281,068
==========================================================================================
TOTAL NET ASSETS............................................................. $200,961,664
==========================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
32
<PAGE>
FUND PORTFOLIO
--------------
IAI VALUE FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 91.8%
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL SERVICES - 5.8%
Right Management Consultants (b) 14,500 $ 163,125
Scientific Games Holdings (b) 10,300 203,425
Towne Services (b) 14,900 47,494
---------
414,044
---------
CONSUMER DURABLES - 11.2%
Aftermarket Technology (b) 31,800 333,900
Department 56 (b) 7,600 181,925
Polaris Industries 4,100 141,963
Sturm, Ruger & Company 15,500 139,500
---------
797,288
---------
CONSUMER NON-DURABLES - 2.3%
800-JR Cigar (b) 15,700 166,812
---------
CONSUMER SERVICES - 4.7%
Service Experts (b) 17,100 177,413
Strayer Education 7,800 155,025
---------
332,438
---------
ELECTRONIC TECHNOLOGY - 10.7%
Belden 8,500 174,250
Black Box (b) 1,100 57,750
DII Group (b) 5,000 175,937
REMEC (b) 10,100 138,875
Tollgrade Communications (b) 8,100 217,688
---------
764,500
---------
FINANCIAL - 8.0%
CCC Information Services
Group (b) 22,200 292,762
Leucadia National 3,300 69,300
Life USA Holding 3,432 70,785
Radian Group 3,200 137,400
---------
570,247
---------
HEALTH SERVICES - 13.1%
First Health Group (b) 8,300 186,231
Health Management Associates
Class A (b) 26,600 196,175
Lincare Holdings (b) 7,700 205,253
Patterson Dental (b) 1,500 74,344
</TABLE>
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ------------------------------------------------------------------
<S> <C> <C>
Renal Care Group (b) 4,100 $ 89,816
Trigon Healthcare (b) 6,200 179,025
---------
930,844
---------
HEALTH TECHNOLOGY - 2.1%
Mentor 5,300 151,050
---------
INDUSTRIAL SERVICES - 2.9%
Nabors Industries (b) 8,400 210,000
---------
PROCESS INDUSTRIES - 0.9%
Building One Services (b) 5,000 60,937
---------
PRODUCER MANUFACTURING - 14.6%
CompX International (b) 13,000 247,000
HON INDUSTRIES 9,000 173,250
Nordson 1,700 83,300
NCI Building Systems (b) 10,100 167,281
Rayovac (b) 10,600 229,225
Zebra Technologies (b) 3,000 136,406
---------
1,036,462
---------
RETAIL TRADE - 6.7%
Buckle (b) 11,400 196,650
99 Cents Only Stores (b) 4,000 144,500
Pizza Inn 35,200 132,000
---------
473,150
---------
TECHNOLOGY SERVICES - 8.8%
Keane 9,300 212,156
DSET 5,200 76,375
National Computer Systems 2,000 76,687
Phoenix International Ltd. (b) 13,650 54,600
Transaction Systems Architects
Class A (b) 7,600 204,725
---------
624,543
==================================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $7,009,911)..................................... $6,532,315
==================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
33
<PAGE>
FUND PORTFOLIO
--------------
IAI VALUE FUND
SEPTEMBER 30, 1999
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
RESTRICTED SECURITIES - 6.2%
<TABLE>
<CAPTION>
Market
Quantity (e) Value (a)
- ----------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 0.0%
Westgate Acquisitions (b) 42,272 $ --
-------
CONVERTIBLE PREFERRED STOCKS - 5.2%
Intellon Series A (b) 200,000 372,000
Myriad Ultrasound Systems
Series A (b) 4,463 --
Myriad Ultrasound Systems
Series B (b) 4,949 --
Myriad Ultrasound Systems
Series C (b) 4,901 --
-------
372,000
-------
NON-CONVERTIBLE PREFERRED
STOCKS - 0.0%
Westgate Acquisitions Series A (b) 86,198 --
-------
</TABLE>
<TABLE>
<CAPTION>
Ownership Market
Percentage (e) Value (a)
- ---------------------------------------------------------------
<S> <C> <C>
LIMITED PARTNERSHIPS - 1.0%
South Street Leveraged
Corporate Recovery Fund I (b) 1.10% $ --
Vanguard Associates III (b) 1.42 68,334
--------
68,334
==============================================================
TOTAL INVESTMENTS IN RESTRICTED
SECURITIES (COST: $425,785).......................... $440,335
==============================================================
</TABLE>
SHORT-TERM SECURITIES - 28.3%
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER - 26.7%
SLMA
5.18% 10/01/99 $1,900,000 $1,900,000
----------
INVESTMENT COMPANY - 1.6%
Firstar Institutional
Money Market Fund
5.02% 116,381 116,381
======================================================================================
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES (COST: $2,016,381).............................................. $2,016,381
======================================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $9,452,077) (f)..................................................... $8,989,031
======================================================================================
OTHER ASSETS AND LIABILITIES
(NET) - (26.3%)........................................................... $(1,875,633)
======================================================================================
TOTAL NET ASSETS........................................................... $7,113,398
======================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 35
34
<PAGE>
NOTES TO FUND PORTFOLIOS
------------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH AND INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1999
(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)
Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates. The
rates listed are as of September 30, 1999.
(d)
Purchased on a when-issued basis. At September 30, 1999, the total cost of
securities purchased on a when-issued basis was $471,375. Collateral for the
security purchased on a when-issued basis has been secured by Anheuser-Busch
Companies, 5.50%, maturing October 1, 1999, valued at $2,500,000.
(e)
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 at September 30, 1999, 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, 1999, is shown on pages 36 - 39.
(f)
At September 30, 1999, the cost of securities for federal income tax purposes
and the aggregate gross unrealized appreciation and depreciation based on that
cost were as follows:
<TABLE>
<CAPTION>
IAI CAPITAL IAI EMERGING IAI GROWTH IAI GROWTH
APPRECIATION FUND GROWTH FUND FUND AND INCOME FUND
------------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Cost for federal income tax purposes ........ $ 18,579,366 $ 47,416,285 $7,981,602 $ 32,505,136
============ ============ ========== ============
Gross unrealized appreciation ............... $ 2,771,103 $ 10,140,096 $2,033,679 $ 6,521,211
Gross unrealized depreciation ............... (2,958,911) (2,629,616) (301,873) (3,337,049)
------------ ------------ ---------- ------------
Net unrealized appreciation (depreciation) .. $ (187,808) $ 7,510,480 $1,731,806 $ 3,184,162
============ ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
IAI MIDCAP IAI REGIONAL IAI VALUE
GROWTH FUND FUND FUND
--------------- ---------------- ---------------
<S> <C> <C> <C>
Cost for federal income tax purposes ............ $ 31,066,927 $180,266,475 $ 9,452,077
============ ============ ============
Gross unrealized appreciation ................... $ 7,148,731 $ 23,700,706 $ 538,233
Gross unrealized depreciation ................... (4,098,194) (5,286,585) (1,001,279)
------------ ------------ ------------
Net unrealized appreciation (depreciation) ...... $ 3,050,537 $ 18,414,121 $ (463,046)
============ ============ ============
</TABLE>
35
<PAGE>
NOTES TO FUND PORTFOLIOS
------------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH AND INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1999
(UNAUDITED)
RESTRICTED SECURITIES IAI EMERGING GROWTH FUND
<TABLE>
<CAPTION>
Acquisition
Security Date Cost
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS
AccessLine Holdings Class A 06/30/94 $708,949
Tut Systems 12/16/97 363,125
CONVERTIBLE PREFERRED STOCKS
AccessLine Holdings Series A 01/15/98 19,711
Intellon Series A 03/24/94 200,163
LIMITED PARTNERSHIPS
Alta Berkeley III, foreign 09/25/96 46,011
06/06/97 23,136
07/27/97 22,647
11/05/97 23,396
02/09/99 23,179
South Street Corporate Recovery
Fund I 10/03/95 --
South Street Leveraged Corporate
Recovery Fund I 10/03/95 --
</TABLE>
<TABLE>
<CAPTION>
Acquisition
Security Date Cost
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONVERTIBLE DEBENTURES
Air Communications
Series B 10.00% 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
Call Options
GalaGen $ 2.56 02/22/03 02/22/94 --
02/22/95 --
02/22/96 --
02/22/97 --
02/22/98 --
GalaGen 2.56 12/27/05 12/27/96 --
12/26/97 --
12/28/98 --
WARRANTS
AccessLine
Holdings $ 0.60 10/15/99 12/17/98 --
GalaGen 11.08 03/24/00 04/13/95 --
GalaGen 11.08 07/09/00 07/07/95 --
GalaGen 11.08 01/29/01 01/30/96 --
03/27/97 --
</TABLE>
36
<PAGE>
NOTES TO FUND PORTFOLIOS
------------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH AND INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1999
(UNAUDITED)
RESTRICTED SECURITIES IAI GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Acquisition
Security Date Cost
- -----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS
MatrixOne Class A 10/20/88 $139,353
09/29/92 1,545
--------
CONVERTIBLE PREFERRED STOCKS
MatrixOne Series D 10/20/98 179,842
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
</TABLE>
<TABLE>
<CAPTION>
Acquisition
Security Date Cost
- -----------------------------------------------------------------------
<S> <C> <C>
LIMITED PARTNERSHIPS
Alta Berkeley III, foreign 09/25/96 $46,011
06/06/97 23,136
07/27/97 23,396
11/05/97 22,647
02/09/99 23,178
South Street Corporate
Recovery Fund I 10/03/95 --
Vanguard Associates III 01/11/93 305,250
9/30/93 34,128
-------
CALL OPTIONS
GalaGen $2.56 02/22/03 02/22/94 --
02/22/95 --
02/22/96 --
02/22/97 --
02/22/98 --
</TABLE>
RESTRICTED SECURITIES IAI MIDCAP GROWTH FUND
<TABLE>
<CAPTION>
Acquisition
Security Date Cost
- -----------------------------------------------------------------------
<S> <C> <C>
LIMITED PARTNERSHIP
South Street Leveraged Corporate
Recovery Fund I (b) 10/03/95 $ --
</TABLE>
<TABLE>
<CAPTION>
Acquisition
Security Date Cost
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
CALL OPTIONS
GalaGen $2.56 02/22/03 02/22/94 $ --
02/22/95 --
02/22/96 --
02/22/97 --
02/22/98 --
</TABLE>
37
<PAGE>
NOTES TO FUND PORTFOLIOS
------------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH AND INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1999
(UNAUDITED)
RESTRICTED SECURITIES IAI REGIONAL FUND
<TABLE>
<CAPTION>
Acquisition
Security Date Cost
- -----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS
AccessLine Holdings Class A 06/30/94 $709,169
Anglo Chinese Investment
Company, foreign 12/27/90 157,264
02/07/94 343,001
02/09/94 6,311
Tut Systems 12/16/97 236,982
Westgate Acquisitions 11/30/91 42,272
--------
CONVERTIBLE PREFERRED STOCKS
Intellon Series A 03/24/94 600,489
Myriad Ultrasound Systems
Series A 06/16/97 7,402
Myriad Ultrasound Systems
Series B 06/16/97 17,973
Myriad Ultrasound Systems
Series C 06/16/97 19,926
--------
NON-CONVERTIBLE PREFERRED STOCKS
Westgate Acquisitions Series A 11/30/91 52,876
--------
LIMITED PARTNERSHIPS
Altra Berkeley III, foreign 09/25/96 92,022
06/06/97 46,273
07/27/97 46,793
11/05/97 45,294
02/09/99 46,358
South Street Corporate Recovery
Fund I 10/03/95 --
South Street Leveraged Corporate
Recovery Fund I 10/03/95 --
Spell Capital Partners 10/17/97 20,000
12/21/98 367,000
Vanguard Associates III 01/10/92 188,122
01/11/93 288,750
09/30/93 32,284
</TABLE>
<TABLE>
<CAPTION>
Acquisition
Security Date Cost
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONVERTIBLE DEBENTURES
Air Communications
Series B 10.00% 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
-------
CALL OPTIONS
GalaGen $ 2.56 02/22/03 02/22/94 --
02/22/95 --
02/22/96 --
02/22/97 --
02/22/98 --
GalaGen 2.56 12/27/05 12/26/96 --
12/26/97 --
12/28/98 --
-------
WARRANTS
AccessLine Holdi$ 0.60 10/15/99 12/17/98 --
GalaGen 11.08 03/24/00 04/13/95 --
GalaGen 11.08 07/09/00 07/07/95 --
GalaGen 11.08 01/29/01 01/30/96 --
</TABLE>
38
<PAGE>
NOTES TO FUND PORTFOLIOS
------------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH AND INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1999
(UNAUDITED)
RESTRICTED SECURITIES IAI VALUE FUND
<TABLE>
<CAPTION>
Acquisition
Security Date Cost
- -----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS
Westgate Acquisitions 11/30/91 $42,272
-------
CONVERTIBLE PREFERRED STOCKS
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
</TABLE>
<TABLE>
<CAPTION>
Acquisition
Security Date Cost
- -----------------------------------------------------------------------
<S> <C> <C>
NON-CONVERTIBLE PREFERRED STOCK
Westgate Acquisitions Series A 11/30/91 $52,876
-------
LIMITED PARTNERSHIPS
South Street Leveraged Corporate
Recovery Fund I 12/17/98 --
Vanguard Associates III 01/10/92 43,000
01/11/93 66,000
09/30/93 7,379
</TABLE>
39
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
------------------------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH & INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
IAI CAPITAL IAI EMERGING IAI GROWTH
APPRECIATION FUND GROWTH FUND FUND
------------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Investments in securities at market (see Fund Portfolios)
(cost: $18,579,366, $47,416,285, $7,981,602, $32,505,136,
$31,066,927, $180,266,475 and $9,452,077, respectively) $18,391,558 $54,926,765 $9,713,408
Cash 74,019 1,591,598 --
Receivable for investment securities sold 235,364 1,416,585 229,033
Receivable for Fund shares sold 900,099 667 500
Dividends and accrued interest receivable 2,967 774 7,483
Other assets (Note 2) -- -- --
----------- ----------- ----------
TOTAL ASSETS 19,604,007 57,936,389 9,950,424
----------- ----------- ----------
LIABILITIES
Payable for investment securities purchased 377,289 6,511,555 --
Payable for Fund shares redeemed 141,249 83,939 1,356
Accrued management fee 25,616 48,269 9,640
----------- ----------- ----------
TOTAL LIABILITIES 544,154 6,643,763 10,996
----------- ----------- ----------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $19,059,853 $51,292,626 $9,939,428
=========== =========== ==========
REPRESENTED BY:
Capital stock 14,187 43,304 10,434
Additional paid-in capital 13,593,098 32,801,306 7,552,792
Undistributed (overdistributed) net investment income (181,105) (216,837) (34,419)
Accumulated net realized gain on investments 5,821,481 11,154,373 678,815
Unrealized appreciation (depreciation) on investment securities (187,808) 7,510,480 1,731,806
----------- ----------- ----------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO OUTSTANDING
CAPITAL STOCK $19,059,853 $51,292,626 $9,939,428
=========== =========== ==========
Shares of capital stock outstanding:
authorized 10 billion shares each of $0.01 par value stock 1,418,726 4,330,418 1,043,392
----------- ----------- ----------
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER SHARE $ 13.43 $ 11.84 $ 9.53
=========== =========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
<TABLE>
<CAPTION>
IAI GROWTH IAI MIDCAP IAI REGIONAL IAI VALUE
& INCOME FUND GROWTH FUND FUND FUND
--------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
$ 35,689,298 $34,117,464 $ 198,680,596 $8,989,031
-- 2,306 530,552 4,616
-- -- 6,875,230 --
538 481 6,696 --
43,199 15,316 121,457 881
53,323 -- 103,141 11,766
------------ ----------- ------------- ----------
35,786,358 34,135,567 206,317,672 9,006,294
------------ ----------- ------------- ----------
-- -- 1,647,006 1,558,163
21,713 1,231,032 3,476,802 327,630
34,987 32,524 232,200 7,103
------------ ----------- ------------- ----------
56,700 1,263,556 5,356,008 1,892,896
------------ ----------- ------------- ----------
$ 35,729,658 $32,872,011 $ 200,961,664 $7,113,398
============ =========== ============= ==========
31,224 25,301 107,582 8,251
25,235,289 23,920,972 160,912,476 4,244,827
272,835 (137,910) 204,475 14,577
7,006,148 6,013,111 21,323,010 3,308,789
3,184,162 3,050,537 18,414,121 (463,046)
------------ ----------- ------------- ----------
$ 35,729,658 $32,872,011 $ 200,961,664 $7,113,398
============ =========== ============= ==========
3,122,413 2,530,066 10,758,203 825,074
------------ ----------- ------------- ----------
$ 11.44 $ 12.99 $ 18.68 $ 8.62
============ =========== ============= ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
STATEMENTS OF OPERATIONS
------------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH & INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
SIX MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
IAI CAPITAL IAI EMERGING IAI GROWTH
APPRECIATION FUND GROWTH FUND FUND
------------------- ---------------- --------------
<S> <C> <C> <C>
NET INVESTMENT INCOME
INCOME
Dividends (net of foreign income taxes withheld of $0,
$0, $1, $0 $0, $0 and $0) $ 14,913 $ 293 $ 31,487
Interest 37,561 157,661 7,780
------------ ------------- ----------
TOTAL INCOME 52,474 157,954 39,267
------------ ------------- ----------
EXPENSES
Management fees 233,579 346,742 73,641
Compensation of Directors 5,209 8,399 1,829
Interest expense -- -- 45
------------ ------------- ----------
TOTAL EXPENSES 238,788 355,141 75,515
Less fees reimbursed by Advisers (5,209) (8,399) (1,829)
------------ ------------- ----------
NET EXPENSES 233,579 346,742 73,686
------------ ------------- ----------
NET INVESTMENT INCOME (181,105) (188,788) (34,419)
------------ ------------- ----------
NET REALIZED AND UNREALIZED
GAINS (LOSSES)
Net realized gains on investments securities
(including $0, ($2,067,241), $0,
$0, $0, ($3,948,525) and $0
respectively, from affiliated issuers) 5,902,472 10,855,008 769,512
Net change in unrealized appreciation or (depreciation)
on investment securities (2,576,763) (10,976,370) (866,530)
------------ ------------- ----------
NET GAIN (LOSS) ON INVESTMENTS 3,325,709 (121,362) (97,018)
------------ ------------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 3,144,604 $ (310,150) $ (131,437)
============ ============= ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
<TABLE>
<CAPTION>
IAI GROWTH IAI MIDCAP IAI REGIONAL IAI VALUE
& INCOME FUND GROWTH FUND FUND FUND
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
$ 293,567 $ 69,313 $ 694,883 $ 56,072
27,300 30,349 682,311 24,536
------------ ------------ ------------- ------------
320,867 99,662 1,377,194 80,608
------------ ------------ ------------- ------------
283,540 237,450 1,489,884 65,672
7,152 5,947 37,400 1,566
594 122 7,039 359
------------ ------------ ------------- ------------
291,286 243,519 1,534,323 67,597
(7,152) (5,947) (37,400) (1,566)
------------ ------------ ------------- ------------
284,134 237,572 1,496,923 66,031
------------ ------------ ------------- ------------
36,733 (137,910) (119,729) 14,577
------------ ------------ ------------- ------------
2,915,125 4,116,094 22,443,902 4,615,321
(3,166,487) (2,962,264) (35,065,774) (7,964,571)
------------ ------------ ------------- ------------
(251,362) 1,153,830 (12,621,872) (3,349,250)
------------ ------------ ------------- ------------
$ (214,629) $ 1,015,920 $ (12,741,601) $ (3,334,673)
============ ============ ============= ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND,
IAI GROWTH FUND, IAI GROWTH & INCOME FUND
<TABLE>
<CAPTION>
IAI CAPITAL APPRECIATION FUND
Six months ended Year ended
September 30, 1999 March 31, 1999
-------------------- ---------------
(unaudited)
<S> <C> <C>
OPERATIONS
Net investment income (loss) $ (181,105) $ (555,486)
Net realized gains 5,902,472 1,284,752
Net change in unrealized depreciation (2,576,763) (12,317,880)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 3,144,604 (11,588,614)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- --
Net realized gains (1,278,852) (6,234,187)
------------- -------------
TOTAL DISTRIBUTIONS (1,278,852) (6,234,187)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 8,379,210 43,416,791
Net asset value of shares issued in reinvestment of distribution 1,257,315 5,984,845
Cost of shares redeemed (30,677,100) (59,298,904)
------------- -------------
DECREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (19,174,823) (9,897,268)
------------- -------------
TOTAL DECREASE IN NET ASSETS (30,684,223) (27,720,069)
NET ASSETS AT BEGINNING OF PERIOD 38,234,676 65,954,745
------------- -------------
NET ASSETS AT END OF PERIOD $ 19,059,853 $ 38,234,676
============= =============
INCLUDING UNDISTRIBUTED (OVERDISTRIBUTED) NET
NET INVESTMENT INCOME OF: $ (181,105) $ --
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
<TABLE>
<CAPTION>
IAI EMERGING GROWTH FUND IAI GROWTH FUND IAI GROWTH & INCOME FUND
Six months ended Year ended Six months ended Year ended Six months ended Year ended
September 30, 1999 March 31, 1999 September 30, 1999 March 31, 1999 September 30, 1999 March 31, 1999
- -------------------- ---------------- -------------------- ---------------- -------------------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
$ (188,788) $ (942,520) $ (34,419) $ (56,628) $ 36,733 $ 101,618
10,855,008 19,044,258 769,512 3,775,499 2,915,125 26,243,639
(10,976,370) (20,663,120) (866,530) (917,336) (3,166,487) (26,792,018)
------------- -------------- ------------ ------------- ------------- -------------
(310,150) (2,561,382) (131,437) 2,801,535 (214,629) (446,761)
------------- -------------- ------------ ------------- ------------- -------------
-- -- -- -- (334,556) (94,984)
(5,571,384) (32,980,423) (2,411,377) (2,267,380) (8,508,533) (22,991,612)
------------- -------------- ------------ ------------- ------------- -------------
(5,571,384) (32,980,423) (2,411,377) (2,267,380) (8,843,089) (23,086,596)
------------- -------------- ------------ ------------- ------------- -------------
23,665,112 226,725,423 1,588,983 12,745,665 1,712,362 13,983,138
5,511,262 32,054,352 2,396,214 2,257,869 8,441,994 22,240,765
(31,777,952) (325,374,196) (5,857,647) (15,957,510) (17,587,035) (57,224,580)
------------- -------------- ------------ ------------- ------------- -------------
(2,601,577) (66,594,421) (1,872,450) (953,976) (7,432,679) (21,000,677)
------------- -------------- ------------ ------------- ------------- -------------
(8,483,111) (102,136,226) (4,415,264) (419,821) (16,490,396) (44,534,034)
59,775,737 161,911,963 14,354,692 14,774,513 52,220,055 96,754,089
------------- -------------- ------------ ------------- ------------- -------------
$ 51,292,626 $ 59,775,737 $ 9,939,428 $ 14,354,692 $ 35,729,658 $ 52,220,055
============= ============== ============ ============= ============= =============
$ (216,837) $ (28,049) $ (34,419) $ -- $ 272,835 $ 570,658
============= ============== ============ ============= ============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
IAI MIDCAP GROWTH FUND, IAI REGIONAL FUND, IAI VALUE FUND
<TABLE>
<CAPTION>
IAI MIDCAP GROWTH FUND
Six months ended Year ended
September 30, 1999 March 31, 1999
-------------------- ---------------
(unaudited)
<S> <C> <C>
OPERATIONS
Net investment income (loss) $ (137,910) $ (410,629)
Net realized gains 4,116,094 11,021,481
Net change in unrealized depreciation (2,962,264) (5,017,225)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,015,920 5,593,627
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- --
Net realized gains (4,298,248) (13,572,954)
------------- -------------
TOTAL DISTRIBUTIONS (4,298,248) (13,572,954)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 4,450,319 21,221,199
Net asset value of shares issued in reinvestment of distributions 4,239,705 13,063,019
Cost of shares redeemed (11,966,925) (69,478,482)
------------- -------------
DECREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (3,276,901) (35,194,264)
------------- -------------
TOTAL DECREASE IN NET ASSETS (6,559,229) (43,173,591)
NET ASSETS AT BEGINNING OF PERIOD 39,431,240 82,604,831
------------- -------------
NET ASSETS AT END OF PERIOD $ 32,872,011 $ 39,431,240
============= =============
INCLUDING UNDISTRIBUTED (OVERDISTRIBUTED) NET
INVESTMENT INCOME OF: $ (137,910) $ --
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
<TABLE>
<CAPTION>
IAI REGIONAL FUND IAI VALUE FUND
Six months ended Year ended Six months ended Year ended
September 30, 1999 March 31, 1999 September 30, 1999 March 31, 1999
-------------------- ---------------- -------------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
$ (119,729) $ (816,128) $ 14,577 $ (141,047)
22,443,902 22,509,903 4,615,321 201,631
(35,065,774) (61,992,723) (7,964,571) 1,594,477
-------------- -------------- ------------ -------------
(12,741,601) (40,298,948) (3,334,673) 1,655,061
-------------- -------------- ------------ -------------
(578,451) -- -- --
(14,750,389) (58,884,994) (42,741) (2,260,558)
-------------- -------------- ------------ -------------
(15,328,840) (58,884,994) (42,741) (2,260,558)
-------------- -------------- ------------ -------------
46,874,939 138,443,618 485,971 2,257,507
14,909,338 57,189,214 42,026 2,164,302
(108,429,921) (330,327,094) (3,720,228) (16,872,394)
-------------- -------------- ------------ -------------
(46,645,644) (134,694,262) (3,192,231) (12,450,585)
-------------- -------------- ------------ -------------
(74,716,085) (233,878,204) (6,569,644) (13,056,082)
275,677,749 509,555,953 13,683,043 26,739,125
-------------- -------------- ------------ -------------
$ 200,961,664 $ 275,677,749 $ 7,113,398 $ 13,683,043
============== ============== ============ =============
$ 204,475 $ 902,655 $ 14,577 $ --
============== ============== ============ =============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------
IAI CAPITAL APPRECIATION 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>
Six months ended Years ended March 31, Period from
September 30, 1999 --------------------------------------- February 1, 1996 to
(unaudited) 1999 1998 1997 March 31, 1996+
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 12.94 $ 17.96 $ 13.49 $ 11.24 $ 10.00
---------- ---------- ---------- ---------- ----------
OPERATIONS
Net investment loss (0.08)**** (0.19) (0.16) (0.09) --
Net realized and unrealized
gains (losses) 1.06 (3.02) 6.77 2.79 1.24
---------- ---------- ---------- ---------- ----------
TOTAL FROM OPERATIONS 0.98 (3.21) 6.61 2.70 1.24
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net realized gains (0.49) (1.81) (2.14) (0.41) --
Tax return of capital -- -- -- (0.04) --
---------- ---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS (0.49) (1.81) (2.14) (0.45) --
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE
End of period $ 13.43 $ 12.94 $ 17.96 $ 13.49 $ 11.24
========== ========== ========== ========== ==========
Total investment return* 7.49% (19.11)% 52.46% 23.68% 12.40%
Net assets at end of period
(000's omitted) $ 19,060 $ 38,235 $ 65,955 $ 44,230 $ 9,411
RATIOS
Expenses to average net assets
(including interest expense)** 1.40%*** 1.41% 1.43% 1.26% 1.25%***
Expenses to average net assets
(excluding interest expense)** 1.40%*** 1.40% 1.40% 1.25% 1.25%***
Net investment income to
average net assets** (1.09)%*** (1.08)% (0.95)% (0.80)% 0.23%***
Portfolio turnover rate
(excluding short-term
securities) 32.4% 51.4% 75.6% 132.5% 1.2%
</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.
**THE FUND'S ADVISER VOLUNTARY WAIVED $54,841 AND $827 IN EXPENSES FOR YEAR
ENDED MARCH 31, 1997 AND THE PERIOD ENDED MARCH 31, 1996, RESPECTIVELY. IF
THE FUND HAD BEEN CHARGED THESE EXPENSES, THE RATIO OF EXPENSES TO AVERAGE
DAILY NET ASSETS WOULD HAVE BEEN 1.40% AND 1.40%, RESPECTIVELY, AND THE
RATIO OF NET INVESTMENT INCOME TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN
(0.95)% AND 0.08%, RESPECTIVELY.
***ANNUALIZED.
****CALCULATED USING AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
+COMMENCEMENT OF OPERATIONS.
48
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------
IAI EMERGING GROWTH 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>
Six months ended Years ended March 31,
September 30, 1999 --------------------------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 13.31 $ 18.11 $ 15.85 $ 24.08 $ 15.83 $ 15.20
----------- ----------- ----------- ----------- ----------- -----------
OPERATIONS
Net investment loss (0.04) (0.15)+ (0.18)+ (0.20) (0.09) (0.07)
Net realized and unrealized
gains (losses) (0.06) 0.36 5.07 (4.52) 8.77 1.42
----------- ----------- ----------- ----------- ----------- -----------
TOTAL FROM OPERATIONS (0.10) 0.21 4.89 (4.72) 8.68 1.35
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net realized gains (1.37) (5.01) (2.63) (3.51) (0.43) (0.72)
----------- ----------- ----------- ----------- ----------- -----------
TOTAL DISTRIBUTIONS (1.37) (5.01) (2.63) (3.51) (0.43) (0.72)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE
End of period $ 11.84 $ 13.31 $ 18.11 $ 15.85 $ 24.08 $ 15.83
=========== =========== =========== =========== =========== ===========
Total investment return* (0.94)% 3.56% 33.37% (22.97)% 55.20% 10.23%
Net assets at end of period
(000's omitted) $ 51,293 $ 59,776 $ 161,912 $ 387,105 $ 653,888 $ 342,874
RATIOS
Expenses to average net assets
(including interest expense) 1.25%** 1.29% 1.25% 1.20% 1.24% 1.25%
Expenses to average net assets
(excluding interest expense) 1.25%** 1.25% 1.24% 1.19% 1.24% 1.25%
Net investment income to
average net assets (0.68)%** (1.00)% (0.98)% (0.75)% (0.52)% (0.54)%
Portfolio turnover rate
(excluding short-term
securities) 64.4% 46.7% 41.0% 49.5% 62.8% 58.1%
</TABLE>
*TOTAL INVESTMENT RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE OF A SHARE
DURING THE PERIOD AND ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AT NET ASSET
VALUE.
**ANNUALIZED.
+CALCULATED USING AVERAGE SHARES OUTSTANDING DURING THE YEAR.
49
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------
IAI GROWTH 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>
Six months ended Years ended March 31,
September 30, 1999 -------------------------------------------------
(unaudited) 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 12.19 $ 12.17 $ 9.92 $ 11.89 $ 10.95
---------- ---------- ---------- ---------- ----------
OPERATIONS
Net investment
income (loss) (0.03) (0.05) -- (0.03) --
Net realized
and unrealized
gains (losses) (0.12) 1.73 3.59 1.02 1.93
---------- ---------- ---------- ---------- ----------
TOTAL FROM OPERATIONS (0.15) 1.68 3.59 0.99 1.93
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income -- -- -- -- (0.03)
Net realized gains (2.51) (1.66) (1.34) (2.96) (0.96)
---------- ---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS (2.51) (1.66) (1.34) (2.96) (0.99)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE
End of period $ 9.53 $ 12.19 $ 12.17 $ 9.92 $ 11.89
========== ========== ========== ========== ==========
Total investment return* (1.73)% 14.94% 38.96% 8.42% 18.01%
Net assets at end of period
(000's omitted) $ 9,939 $ 14,355 $ 14,775 $ 11,747 $ 17,079
RATIOS
Expenses to average net
assets (including interest
expense) 1.25%** 1.27% 1.25% 1.27% 1.25%
Expenses to average net
assets (excluding
interest expense) 1.25%** 1.25% 1.25% 1.25% 1.25%
Net investment income
to average net assets (0.58)%** (0.36)% (0.02)% (0.25)% (0.04)%
Portfolio turnover rate
(excluding short-term
securities) 22.5% 109.7% 87.3% 134.2% 92.8%
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Period from Period from
August 1, 1994 to August 6, 1993***
March 31,1995+ to July 31,1994
------------------ ------------------
<S> C> <C>
NET ASSET VALUE
Beginning of period $ 9.87 $ 10.00
---------- ----------
OPERATIONS
Net investment
income (loss) 0.04 0.01
Net realized
and unrealized
gains (losses) 1.07 (0.13)
---------- ----------
TOTAL FROM OPERATIONS 1.11 (0.12)
---------- ----------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (0.03) (0.01)
Net realized gains -- --
---------- ----------
TOTAL DISTRIBUTIONS (0.03) (0.01)
---------- ----------
NET ASSET VALUE
End of period $ 10.95 $ 9.87
========== ==========
Total investment return* 11.24% (1.21)%
Net assets at end of period
(000's omitted) $ 26,794 $ 14,408
RATIOS
Expenses to average net
assets (including interest
expense) 1.25%** 1.25%**
Expenses to average net
assets (excluding
interest expense) 1.25%** 1.25%**
Net investment income
to average net assets 0.61%** 0.16%**
Portfolio turnover rate
(excluding short-term
securities) 68.7% 105.4%
</TABLE>
*TOTAL INVESTMENT RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE OF A SHARE
DURING THE PERIOD AND ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AT NET ASSET
VALUE.
**ANNUALIZED.
***COMMENCEMENT OF OPERATIONS.
+REFLECTS FISCAL YEAR END CHANGE FROM JULY 31 TO MARCH 31.
50
<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>
Six months ended Years ended March 31,
September 30, 1999 ------------------------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 14.55 $ 19.72 $ 14.83 $ 15.30 $ 14.32 $ 13.91
----------- ----------- ----------- ----------- ----------- -----------
OPERATIONS
Net investment income 0.01+ 0.02+ 0.04+ 0.10 0.10 0.12
Net realized and unrealized
gains (0.20) 0.19 5.75 1.88 2.86 1.04
----------- ----------- ----------- ----------- ----------- -----------
TOTAL FROM OPERATIONS (0.19) 0.21 5.79 1.98 2.96 1.16
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (0.11) (0.02) -- (0.10) (0.13) (0.10)
Excess distribution from net
investment income -- -- (0.07) (0.10) -- --
Net realized gains (2.81) (5.36) (0.83) (2.45) (1.85) (0.65)
----------- ----------- ----------- ----------- ----------- -----------
TOTAL DISTRIBUTIONS (2.92) (5.38) (0.90) (2.45) (1.98) (0.75)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE
End of period $ 11.44 $ 14.55 $ 19.72 $ 14.83 $ 15.30 $ 14.32
=========== =========== =========== =========== =========== ===========
Total investment return* (2.92)% 1.52% 40.06% 13.34% 21.51% 8.92%
Net assets at end of period
(000's omitted) $ 35,730 $ 52,220 $ 96,754 $ 90,741 $ 84,662 $ 101,256
RATIOS
Expenses to average net assets
(including interest expense) 1.25%** 1.26% 1.27% 1.26% 1.25% 1.25%
Expenses to average net assets
(excluding interest expense) 1.25%** 1.25% 1.25% 1.25% 1.25% 1.25%
Net investment income to
average net assets 0.16%** 0.13% 0.21% 0.51% 0.62% 0.80%
Portfolio turnover rate
(excluding short-term
securities) 12.3% 66.1% 23.2% 51.2% 89.1% 79.1%
</TABLE>
*TOTAL INVESTMENT RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE OF A SHARE
DURING THE PERIOD AND ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AT NET ASSET
VALUE.
**ANNUALIZED.
+CALCULATED USING AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
51
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------
IAI MIDCAP GROWTH 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>
Six months ended Years ended March 31,
September 30, 1999 -----------------------------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 14.32 $ 15.91 $ 16.68 $ 17.70 $ 15.35 $ 13.67
----------- ----------- ----------- ----------- ----------- -----------
OPERATIONS
Net investment loss (0.06) (0.12)+ (0.10) (0.08) (0.05) (0.04)
Net realized and unrealized
gains 0.42 2.53 3.34 0.68 3.50 2.35
----------- ----------- ----------- ----------- ----------- -----------
TOTAL FROM OPERATIONS 0.36 2.41 3.24 0.60 3.45 2.31
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net realized gains (1.69) (4.00) (4.01) (1.62) (1.10) (0.63)
----------- ----------- ----------- ----------- ----------- -----------
TOTAL DISTRIBUTIONS (1.69) (4.00) (4.01) (1.62) (1.10) (0.63)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE
End of period $ 12.99 $ 14.32 $ 15.91 $ 16.68 $ 17.70 $ 15.35
=========== =========== =========== =========== =========== ===========
Total investment return* 2.03% 18.31% 22.21% 3.12% 23.51% 17.63%
Net assets at end of period
(000's omitted) $ 32,872 $ 39,431 $ 82,605 $ 128,259 $ 122,375 $ 88,075
RATIOS
Expenses to average net assets
(including interest expense) 1.25%* 1.34% 1.26% 1.25% 1.25% 1.25%
Expenses to average net assets
(excluding interest expense) 1.25%* 1.25% 1.25% 1.25% 1.25% 1.25%
Net investment income to
average net assets (0.73)%** (0.82)% (0.48)% (0.47)% (0.36)% (0.33)%
Portfolio turnover rate
(excluding short-term
securities) 26.0% 107.2% 106.8% 72.4% 29.8% 51.3%
</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.
+CALCULATED USING AVERAGE SHARES OUTSTANDING DURING THE YEAR.
52
<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>
Six months ended Years ended March 31,
September 30, 1999 -----------------------------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 21.25 $ 26.35 $ 22.59 $ 24.57 $ 21.56 $ 20.94
----------- ----------- ----------- ----------- ----------- -----------
OPERATIONS
Net investment income (loss) -- (0.06) (0.02) 0.03 0.14 0.17
Net realized and unrealized
gains (losses) (1.20) (1.81) 6.79 2.08 5.77 1.84
----------- ----------- ----------- ----------- ----------- -----------
TOTAL FROM OPERATIONS (1.20) (1.87) 6.77 2.11 5.91 2.01
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (0.05) -- -- (0.04) (0.18) (0.20)
Excess distribution from net
investment income -- -- -- (0.06) (0.02) --
Net realized gains (1.32) (3.23) (3.01) (3.99) (2.70) (1.19)
----------- ----------- ----------- ----------- ----------- -----------
TOTAL DISTRIBUTIONS (1.37) (3.23) (3.01) (4.09) (2.90) (1.39)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE
End of period $ 18.68 $ 21.25 $ 26.35 $ 22.59 $ 24.57 $ 21.56
=========== =========== =========== =========== =========== ===========
Total investment return* (5.98)% (7.74)% 31.55% 8.65% 28.62% 10.35%
Net assets at end of period
(000's omitted) $ 200,962 $ 275,678 $ 509,556 $ 498,178 $ 575,156 $ 523,364
RATIOS
Expenses to average net assets
(including interest expense) 1.26%* 1.25% 1.22% 1.21% 1.25% 1.23%
Expenses to average net assets
(excluding interest expense) 1.25%* 1.23% 1.22% 1.21% 1.25% 1.23%
Net investment income to
average net assets (0.10)%** (0.21)% (0.05)% 0.14% 0.58% 0.74%
Portfolio turnover rate
(excluding short-term
securities) 81.2% 53.2% 46.0% 61.1% 89.7% 150.0%
</TABLE>
*TOTAL INVESTMENT RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE OF A SHARE
DURING THE PERIOD AND ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AT NET ASSET
VALUE.
**ANNUALIZED.
53
<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>
Six months ended Years ended March 31,
September 30, 1999 ----------------------------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 12.20 $ 12.71 $ 11.66 $ 12.42 $ 11.17 $ 11.63
---------- ---------- ---------- ---------- ---------- ----------
OPERATIONS
Net investment income (loss) 0.02 (0.09)+ (0.03) 0.09 0.08 0.03
Net realized and unrealized
gains (losses) (3.55) 1.07 3.79 0.68 2.19 0.38
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM OPERATIONS (3.54) 0.98 3.76 0.77 2.27 0.41
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income -- -- (0.04) (0.12) (0.01) (0.03)
Excess distribution from net
investment income -- -- (0.07) -- -- --
Net realized gains (0.04) (1.49) (2.60) (1.41) (1.01) (0.84)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS (0.04) (1.49) (2.71) (1.53) (1.02) (0.87)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE
End of period $ 8.62 $ 12.20 $ 12.71 $ 11.66 $ 12.42 $ 11.17
========== ========== ========== ========== ========== ==========
Total investment return* (29.08)% 8.47% 34.21% 5.85% 21.07% 3.88%
Net assets at end of period
(000's omitted) $ 7,113 $ 13,683 $ 26,739 $ 29,439 $ 42,009 $ 40,601
RATIOS
Expenses to average net assets
(including interest expense) 1.26%*** 1.36%** 1.28% 1.25% 1.25% 1.25%
Expenses to average net assets
(excluding interest expense) 1.25%*** 1.33%** 1.25% 1.25% 1.25% 1.25%
Net investment income to
average net assets 0.28%*** (0.73)% (0.24)% 0.61% 0.65% 0.31%
Portfolio turnover rate
(excluding short-term
securities) 53.3% 8.2% 27.0% 61.3% 73.4% 102.1%
</TABLE>
*TOTAL INVESTMENT RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE OF A SHARE
DURING THE PERIOD AND ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AT NET ASSET
VALUE.
**THIS RATIO INCLUDES AN 8 BASIS POINT EXPENSE APPROVED BY THE BOARD OF
DIRECTORS RELATED TO AN INDEPENDENT VALUATION OF A RESTRICTED SECURITY.
***ANNUALIZED.
+CALCULATED USING AVERAGE SHARES OUTSTANDING DURING THE YEAR.
54
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH AND INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1999
(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 Capital Appreciation Fund (Capital Appreciation), IAI Emerging
Growth Fund (Emerging Growth) and IAI Midcap Growth Fund (Midcap Growth) are
separate portfolios of IAI Investment Funds VI, Inc., IAI Growth Fund (Growth
Fund) is a separate portfolio of IAI Investment Funds II, Inc., IAI Growth and
Income Fund (Growth and Income Fund) is a separate portfolio of IAI Investment
Funds VII, Inc., IAI Regional Fund (Regional Fund) is a separate portfolio of
IAI Investment Funds IV, Inc. and IAI Value Fund (Value Fund) is a separate
portfolio of IAI Investment Funds VIII, Inc. The Funds have a primary objective
of long-term appreciation through investment in equity securities.
Significant accounting policies followed by the Funds are summarized below:
SECURITY VALUATION
Portfolio securities are valued at the close of the New York Stock Exchange on
each trading day. Listed and unlisted securities for which such information is
regularly reported are valued at the last sale price of the day or, in the
absence of sales, at values based on the closing bid or the last sale price on
the prior trading day. Long-term and short-term "non-money market" debt
securities are valued by a portfolio pricing service. Securities which cannot be
valued by the portfolio pricing service are valued using dealer-supplied
valuations, or are valued under consistently applied procedures established by
the Board of Directors to determine fair value in good faith. Short-term "money
market type" debt securities having a remaining maturity of 60 days or less at
acquisition are valued at cost adjusted for amortization to maturity of any
premium or discount.
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
procedures consider various factors including, but not limited to, the cost of
the security at the date of purchase, the current financial statements of the
issuer and special reports prepared by analysts, the size of the position held,
recent purchases or sales of securities of the company, prices and public
trading activity of comparable companies, prices of unrestricted securities of
the same class discounted to reflect the nature and duration of restrictions on
disposition, pending public offerings with respect to the security, changes in
economic conditions and industry developments affecting the issuer, and other
relevant matters. Restricted securities represent $1,465,601 (2.8% of net
assets) for Emerging Growth, $787,853 (2.2% of net assets) for Growth and Income
Fund, $3,202,302 (1.6% of net assets) for the Regional Fund and $440,335 (6.2%
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
future 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
will realize a gain or loss upon expiration or closing of the option
transaction.
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH AND INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1999
(UNAUDITED)
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
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, the 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-dividend date.
Distributions from net investment income are paid 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.
[2] COMMITMENTS AND CONTINGENCIES
INSURANCE
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 capital contributions, if
requested by the Company.
LITIGATION
In July 1998, a lawsuit was filed against Value Fund, Advisers and certain of
their officers and directors relating to the pricing of a restricted security
held by the Fund. Management, after review with legal counsel, believes the
ultimate disposition of this matter will not have a material effect on the
Fund's financial condition.
LIMITED PARTNERSHIP COMMITMENTS
At September 30, 1999, the Regional Fund is committed to invest an additional
$613,000 in Spell Capital Partners Fund I limited partnership.
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
56
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH AND INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1999
(UNAUDITED)
[2] COMMITMENTS AND CONTINGENCIES (CONT.)
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 Fund's management intends to finance the aforementioned commitment with
available cash or with proceeds from the sale of investments in short-term
securities. The Fund maintains in a segregated account an amount equal to the
aggregate unpaid commitments.
[3] FEES AND EXPENSES
Under 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% (1.40% for Capital Appreciation) declining to 1.10% (1.00%
for Growth and 1.00% for Growth and Income Fund) of average daily net assets.
This fee is paid monthly. The Management Agreements further provides that
Advisers will 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
The Funds 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>
CAPITAL EMERGING
APPRECIATION FUND GROWTH FUND
--------------------------------- ----------------------------------
Period ended Year ended Period ended Year ended
September 30, March 31, September 30, March 31,
1999 1999 1999 1999
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
SOLD 612,802 3,267,382 1,850,906 16,292,957
ISSUED FOR REINVESTED DISTRIBUTIONS 91,242 405,752 457,366 2,353,201
REDEEMED (2,240,489) (4,389,856) (2,468,056) (23,098,599)
---------- ---------- ---------- -----------
INCREASE (DECREASE) IN SHARES OUTSTANDING (1,536,445) (716,722) (159,784) (4,452,441)
========== ========== ========== ===========
</TABLE>
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH AND INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1999
(UNAUDITED)
[4] CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
GROWTH AND
GROWTH FUND INCOME FUND
--------------------------------- ---------------------------------
Period ended Year ended Period ended Year ended
September 30, March 31, September 30, March 31,
1999 1999 1999 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
SOLD 141,006 1,140,212 123,329 861,648
ISSUED FOR REINVESTED DISTRIBUTIONS 245,514 194,230 678,072 1,424,886
REDEEMED (520,403) (1,370,805) (1,268,722) (3,602,092)
-------- ---------- ---------- ----------
INCREASE (DECREASE) IN SHARES OUTSTANDING (133,883) (36,363) (467,321) (1,315,558)
======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MIDCAP
GROWTH FUND REGIONAL FUND
--------------------------------- ----------------------------------
Period ended Year ended Period ended Year ended
September 30, March 31, September 30, March 31,
1999 1999 1999 1999
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
SOLD 308,477 1,486,852 2,287,915 6,565,416
ISSUED FOR REINVESTED DISTRIBUTIONS 312,202 960,996 754,521 2,553,090
REDEEMED (844,576) (4,884,829) (5,255,011) (15,482,162)
-------- ---------- ---------- -----------
INCREASE (DECREASE) IN SHARES OUTSTANDING (223,897) (2,436,981) (2,212,575) (6,363,656)
======== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
VALUE FUND
---------------------------------
Period ended Year ended
September 30, March 31,
1999 1999
--------------- ---------------
<S> <C> <C>
SOLD 42,504 176,175
ISSUED FOR REINVESTED DISTRIBUTIONS 3,520 177,661
REDEEMED (342,124) (1,336,197)
-------- ----------
INCREASE (DECREASE) IN SHARES OUTSTANDING (296,100) (982,361)
======== ==========
</TABLE>
[5] PURCHASES AND SALES OF SECURITIES
For the period ended September 30, 1999, purchases of securities and sales
proceeds, other than investments in short-term securities, for the Funds were as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------- ---------------
<S> <C> <C>
CAPITAL APPRECIATION FUND $ 10,037,639 $ 33,530,625
EMERGING GROWTH FUND $ 31,794,394 $ 39,060,004
GROWTH FUND $ 2,513,003 $ 6,544,945
GROWTH AND INCOME FUND $ 5,280,998 $ 17,563,200
MIDCAP GROWTH FUND $ 9,511,757 $ 18,628,075
REGIONAL FUND $169,448,544 $269,853,104
VALUE FUND $ 5,001,390 $ 8,101,198
</TABLE>
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI GROWTH FUND,
IAI GROWTH AND INCOME FUND, IAI MIDCAP GROWTH FUND,
IAI REGIONAL FUND, IAI VALUE FUND
SEPTEMBER 30, 1999
(UNAUDITED)
[5] PURCHASES AND SALES OF SECURITIES (CONT.)
RESTRICTED SECURITIES
Included in the Fund's portfolios of investments in securities at September 30,
1999, 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.
AFFILIATED ISSUERS
An affiliated investment, as defined in the Investment Company Act of 1940, is
an investment that represents five percent or more of the outstanding voting
securities of an issuer.
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 Fund's Board of Directors.
A summary of transactions during the period with affiliated issuers of the Funds
follows:
IAI REGIONAL FUND AFFILIATED ISSUERS
<TABLE>
<CAPTION>
PURCHASES SALES
------------------- -------------------------
REALIZED INVESTMENT
ISSUER QUANTITY COST QUANTITY PROCEEDS GAIN (LOSS) INCOME
- ------------------------------------------ ---------- ------ ------------ ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
*MYELOS NEUROSCIENCES SERIES A -- $ -- 500,000 $810,001 $ 310,001 $ --
*MYELOS NEUROSCIENCES SERIES B -- $ -- 571,409 $925,715 $ (75,198) $ --
*MYELOS NEUROSCIENCES SERIES C -- $ -- 277,778 $450,000 $ (50,294) $ --
*PACE MANAGEMENT SYSTEMS COMMON STOCK -- $ -- 471,473 $ 14,144 $(1,800,502) $ --
*PACE HEALTH MANAGEMENT SYSTEMS SERIES A
PREFERRED STOCK -- $ -- 1,125,000 $667,547 $ (459,187) $ --
*PACE HEALTH MANAGEMENT SYSTEMS
WARRANTS 01/31/00 -- $ -- 21,820 $ 281 $ 281 $ --
*PACE HEALTH MANAGEMENT SYSTEMS
WARRANTS 07/07/02 -- $ -- 250,000 $ 3,215 $ 3,215 $ --
*PACE HEALTH MANAGEMENT SYSTEMS
WARRANTS 08/12/02 -- $ -- 125,000 $ 1,608 $ 1,608 $ --
*PACE HEALTH MANAGEMENT SYSTEMS
WARRANTS 12/30/02 -- $ -- 125,000 $ 1,608 $ 1,608 $ --
*PACE HEALTH MANAGEMENT SYSTEMS
WARRANTS 02/19/03 -- $ -- 62,500 $ 804 $ 804 $ --
*PACE HEALTH MANAGEMENT SYSTEMS
WARRANTS 08/31/05 -- $ -- 35,000 $ 450 $ 423 $ --
</TABLE>
*Securities that were affiliated during the period ending 9/30/99 but not at
09/30/99.
IAI EMERGING GROWTH FUND AFFILIATED ISSUERS
<TABLE>
<CAPTION>
PURCHASES SALES
---------------------- --------------------------
REALIZED INVESTMENT
ISSUER QUANTITY COST QUANTITY PROCEEDS GAIN (LOSS) INCOME
- --------------------------------------- ---------- ----------- ------------ ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
* LODGENET ENTERTAINMENT CORPORATION -- $ -- 607,700 $5,249,311 $(2,711,851) $ --
* RECOVERY ENGINEERING, INC. 40,600 $471,975 493,800 $9,367,040 $ 3,798,539 $ --
*VIDEO UPDATE CLASS A -- $ -- 1,474,700 $ 933,283 $(5,035,213) $ --
</TABLE>
*Securities that were affiliated during the period ending 9/30/99 but not at
09/30/99.
59
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
60
<PAGE>
INVESTMENT ADVISER
AND MANAGER
Investment Advisers, Inc.
P.O. Box 357
Minneapolis, MN 55440-0357 USA
800.945.3863
http://www.iaifunds.com
CUSTODIAN
Firstar Bank Milwaukee, N.A.
P.O. Box 510
Milwaukee, WI 53201-0510
LEGAL COUNSEL
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS
KPMG LLP
4200 Norwest Center
Minneapolis, MN 55402
DIRECTORS
Madeline Betsch
W. William Hodgson
George R. Long
J. Peter Thompson
Charles H. Withers
<PAGE>
IAI [LOGO]
MUTUAL FUNDS
P.O. BOX 357, MINNEAPOLIS, MINNESOTA 55440-0357 USA FAX 612.376.2737
800.945.3863
500-0019-0599
