ANNUAL REPORT
IAI EQUITY FUND
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
MARCH 31, 2000
[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
ANNUAL REPORT
MARCH 31, 2000
Letter to Shareholders ....................... 2
Fund Managers' Reviews
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 ......................... 29
IAI VALUE FUND ............................ 31
Notes to Fund Portfolios ..................... 33
Statements of Assets and Liabilities ......... 36
Statements of Operations ..................... 38
Statement of Cash Flows ...................... 40
Statements of Changes in Net Assets .......... 42
Financial Highlights
IAI CAPITAL APPRECIATION FUND ............. 46
IAI EMERGING GROWTH FUND .................. 47
IAI GROWTH FUND ........................... 48
IAI GROWTH AND INCOME FUND ................ 49
IAI MIDCAP GROWTH FUND .................... 50
IAI REGIONAL FUND ......................... 51
IAI VALUE FUND ............................ 52
Notes to Financial Statements ................ 53
Independent Auditors' Report ................. 59
Federal Tax Information ...................... 60
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
ECONOMIC OUTLOOK
A summary of economic outlook as provided by Larry Hill, IAI's Chief Fixed
Income Officer, follows.
The U.S. economy continued to grow at a strong pace in the first quarter. Over
the past five years, the seasonal impact of year-end bonuses and tax refunds
have combined to boost consumer spending. In addition, a strong stock market
and relatively mild weather provided further incentives for the consumer to
spend money.
Inflation moved higher in the first quarter, sparked primarily by a rise in the
price of oil. Although the core rate of inflation (the consumer price index
less food and energy costs) remained subdued, it certainly appears that it's
only a matter of time before higher energy costs find their way into core
inflation.
The labor markets also expanded in the quarter. While this is certainly good
news for consumers, tight labor markets seem to be a source of concern for the
Federal Reserve. Some anecdotal evidence of rising labor costs are already
creeping into the economic data. The combination of strong economic growth,
tight labor markets and rising inflation should cause the Fed to continue
raising short-term interest rates.
The bond market had a somewhat uneasy tone in the first quarter but still
succeeded in producing positive investment results. The Treasury yield curve
inverted during the quarter as long-term bond prices responded favorably to a
new Treasury buy-back program while short bond prices fell in response to
further Fed tightening. In addition, credit spreads widened. Both events were
generally negative for the market. However, some of this negative contribution
was masked by a dramatic drop in long-term Treasury bond yields. The decline of
65 basis points in these long rates produced a gain of over 23% for 30 year
Treasury bond holders during the quarter. Corporate bonds were the weakest
performing sector, particularly long-term lower rated issues where stock market
volatility and fear over a tighter Fed policy had the greatest impact.
Looking ahead, the Fed is likely to continue raising short-term interest rates
until they see clear evidence of a slowdown in the economy. Credit spreads are
likely to widen further and stock market volatility will remain high as the Fed
withdraws liquidity from the financial system. We are cautious on the near-term
direction of financial markets, but the long-term trends still remain
favorable.
2
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<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
ECONOMIC OUTLOOK (CONT.)
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
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<PAGE>
FUND MANAGERS' 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 3/31/00
[BAR CHART]
ELECTRONIC TECHNOLOGY 22.6%
TELECOMMUNICATION TECHNOLOGY 14.0%
TECHNOLOGY SERVICES 13.8%
HEALTH TECHNOLOGY 8.1%
RETAIL TRADE 7.6%
HOW HAS THE FUND PERFORMED?
For the past 12 months ending March 31, 2000, the returns were 72.9% for the IAI
Capital Appreciation Fund, 80.9% for the Russell 2500 Growth Index and 17.9% for
the S&P 500 Index.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Technology stocks dominated the performance of nearly all market participants
during the year. Several technology holdings in the Fund posted astounding
results; they included Tollgrade Communications, Anadigics Inc., and Remec Inc.
The capital goods sector also produced strong results for the Fund with DII
Group and Three-Five Systems each more than tripling. The Fund's investments in
consumer sectors detracted from relative performance. In particular, Service
Experts Inc. and Advantage Learning Systems Inc. significantly disappointed
investors and underperformed dramatically in the second half of the year.
WERE THERE ANY SIGNIFICANT CHANGES?
As the market experienced extreme volatility, the Fund management team was very
active taking advantage of opportunities presented in this environment. Earlier
in the year we significantly increased our exposure in the technology area. More
recently, sharp price increases have led to stretched valuations and allowed us
to take profits. We then redeployed the proceeds of those sales into new
technology companies with more attractive valuations. We also used some of the
technology proceeds to increase our holdings in non-technology areas such as the
consumer and healthcare sectors where we see strong fundamental outlooks and
more attractive valuations.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
Stocks of small cap companies generated stellar performance during the last 12
months. In addition, the market was decidedly growth oriented, particularly
during the last six months. Our move to significantly increase the quality and
expected growth prospects in the portfolio benefited the Fund performance
dramatically. However, those companies with the highest valuations, i.e. high
P/E ratios, and those with no earnings prospects, captured most of the market
participants focus during the period. Our disciplined valuation approach
detracted from the Fund participating fully in the speculative valuation bubble
created in the market.
WHAT IS YOUR OUTLOOK FOR THE FUND?
The stock market has been very volatile recently due to concerns over rising
interest rates and valuations. We believe the outlook for the small cap market
is extremely attractive. Small cap stocks are trading near all-time low relative
valuations and are beginning to demonstrate higher and accelerating growth
prospects. We feel we are still in the early part of a protracted small cap
relative performance cycle. We will continue to execute our discipline of owning
emerging growth companies with superior business models trading at attractive
valuations. We anticipate this discipline will continue to deliver strong
relative performance to our shareholders. Despite the recent strong performance
of small cap stocks, we believe there are still attractive opportunities in this
market cap segment and believe the portfolio is well positioned for the future.
4
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<PAGE>
FUND MANAGERS' REVIEW
IAI CAPITAL APPRECIATION FUND
VALUE OF $10,000 INVESTMENT+
[PLOT POINTS CHART]
IAI CAPITAL RUSSELL 2500 S&P 500
APPRECIATION FUND GROWTH INDEX INDEX
10,000 10,000 10,000
10,740 10,440 10,097
11,241 10,667 10,196
12,791 11,397 10,348
13,531 11,804 10,615
13,451 11,212 10,659
12,901 10,098 10,184
13,891 10,793 10,402
14,841 11,366 10,987
14,171 11,012 11,294
14,771 11,416 12,153
15,549 11,472 11,917
15,467 11,815 12,658
14,674 11,297 12,760
13,900 10,554 12,229
14,014 10,601 12,956
16,363 11,872 13,750
17,044 12,269 14,363
17,724 13,048 15,514
17,972 13,366 14,657
19,683 14,310 15,455
18,354 13,417 14,945
17,901 13,212 15,630
18,316 13,164 15,896
18,351 12,992 16,075
20,098 14,107 17,231
21,195 14,630 18,113
21,195 14,763 18,296
19,803 13,815 17,981
19,702 13,916 18,711
18,336 12,879 18,511
14,812 9,953 15,835
15,276 10,826 16,849
16,441 11,557 18,167
17,290 12,379 19,268
18,721 13,571 20,378
18,111 13,963 21,230
16,668 12,831 20,569
17,144 13,428 21,392
17,859 14,500 22,220
18,654 14,649 21,696
19,525 15,685 22,900
18,990 15,365 22,185
18,304 15,033 22,074
18,427 15,141 21,470
18,399 15,879 22,829
20,129 17,754 23,292
23,307 21,102 24,664
22,844 20,984 23,426
28,559 26,367 22,983
29,641 24,297 25,231
AVERAGE ANNUAL RETURN+
THROUGH 3/31/00
Since
Inception
1 Year 2/1/96
--------------------------------------------------------------------------------
IAI CAPITAL APPRECIATION FUND 72.89% 29.81%
--------------------------------------------------------------------------------
Russell 2500 Growth Index 80.94% 23.75%
--------------------------------------------------------------------------------
S&P 500 Index 17.94% 24.89%
--------------------------------------------------------------------------------
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOP TEN HOLDINGS**
% of Net Assets
-----------------
Issue Sector 3/31/00 3/31/99
--------------------------------------------------------------------------------
CCC Information Services Group Technology Services 3.68 3.24
Tollgrade Communications Telecommunication Technology 3.42 0.95
REMEC Electronic Technology 3.30 --
Three-Five Systems Electronic Technology 3.14 --
Aftermarket Technology Consumer Durables 3.03 1.53
Radian Group Financial 2.70 --
JAKKS Pacific Consumer Non-Durables 2.55 --
99 Cents Only Stores Retail Trade 2.55 --
Mercury Computer Systems Electronic Technology 2.40 --
IMRglobal Technology Services 2.32 --
================================================================================
TOTAL 29.09 5.72
** EXCLUDES SHORT-TERM SECURITIES, U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
NOTE TO FUND MANAGERS' 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
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<PAGE>
FUND MANAGERS' 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 3/31/00
[BAR CHART]
ELECTRONIC TECHNOLOGY 23.5%
TELECOMMUNICATION TECHNOLOGY 14.3%
TECHNOLOGY SERVICES 14.2%
HEALTH TECHNOLOGY 8.4%
RETAIL TRADE 8.0%
HOW HAS THE FUND PERFORMED?
The IAI Emerging Growth Fund showed a return of 70.9% for the past 12 months
ending March 31, 2000 as compared to the Russell 2500 Growth's return of 80.9%
and the S&P 500's return of 17.9%.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Technology stocks dominated the performance of nearly all market participants
during the year. Tollgrade Communications, Anadigics Inc., and Remec Inc. all
posted positive results. The capital goods sector also produced strong results
for the portfolio with DII Group and Three-Five Systems each more than tripling.
The Fund's investments in consumer sectors detracted from relative performance.
In particular, Service Experts Inc. and Advantage Learning Systems Inc.
significantly disappointed investors and underperformed dramatically in the
second half of the year.
WERE THERE ANY SIGNIFICANT CHANGES?
As the market experienced extreme volatility, the Fund management team was
actively taking advantage of opportunities presented in this environment.
Activity was concentrated on executing our discipline of owning rapidly growing
companies with superior business models trading at attractive valuations. In the
technology area particularly, sharp price increases have led to stretched
valuations and allowed us to take profits. We then redeployed the proceeds of
those sales into new technology companies with more attractive valuations. We
also used some of the technology proceeds to increase our holdings in
non-technology areas such as the consumer and healthcare sectors where we see
strong fundamental outlooks and more attractive valuations. Additionally, the
Fund's portfolio of restricted securities was reduced significantly during the
year.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
Stocks of emerging growth companies generated stellar performance during the
last 12 months. In addition, the market was decidedly growth oriented,
particularly during the last six months. However, those companies with the
highest valuations, i.e. high P/E ratios, and those with no earnings prospects,
captured most of the market participants focus during the period.
WHAT IS YOUR OUTLOOK FOR THE FUND?
The stock market has been very volatile recently due to concerns over rising
interest rates and valuations. We plan to take advantage of opportunities that
present themselves in this environment by maintaining our investment philosophy
and process. We believe the outlook for the small cap market is extremely
attractive. Small cap stocks are trading near all-time low relative valuations,
and are beginning to demonstrate higher and accelerating growth prospects. We
feel we are still in the early part of a protracted small cap relative
performance cycle. Despite the recent strong performance of small cap stocks, we
believe there are still attractive opportunities in this market cap segment, and
believe the portfolio is well positioned for the future.
6
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<PAGE>
FUND MANAGERS' REVIEW
IAI EMERGING GROWTH FUND
VALUE OF $10,000 INVESTMENT+
[PLOT POINTS CHART]
IAI EMERGING RUSSELL 2500 S&P 500
GROWTH MUTUAL FUND GROWTH INDEX INDEX
10,000 10,000 10,000
10,170 10,433 10,236
10,440 10,552 10,068
10,790 10,910 10,202
10,700 10,450 9,791
12,363 11,728 10,910
12,584 12,224 10,708
12,363 12,345 10,845
11,923 11,641 10,631
11,072 11,034 10,942
11,222 11,054 11,000
10,952 10,452 10,840
11,427 10,859 11,278
11,114 10,538 11,050
12,063 10,699 11,177
13,056 11,154 11,217
14,372 12,052 11,596
15,139 12,407 11,748
15,257 12,494 11,834
13,801 11,866 11,994
14,534 12,251 12,255
13,919 11,794 11,954
15,441 12,520 12,275
15,686 12,550 12,315
15,794 12,561 12,257
16,205 13,223 12,724
16,974 13,562 12,631
17,244 13,829 12,888
16,649 13,327 12,766
17,372 13,914 12,923
17,726 14,315 13,357
17,880 14,339 12,995
16,776 13,505 12,431
16,644 13,489 12,591
15,684 13,219 12,797
14,485 12,632 12,479
14,918 12,906 12,892
16,436 13,855 13,417
16,809 13,848 13,093
17,159 14,086 13,396
16,598 13,462 12,904
17,405 13,735 13,094
16,983 13,601 13,434
17,707 14,341 13,955
18,490 14,897 14,368
17,894 15,066 14,792
18,209 15,297 15,377
20,183 16,225 15,738
21,959 17,504 16,266
22,240 17,650 16,310
24,122 18,028 16,995
24,824 17,391 16,933
25,864 18,103 17,679
26,032 18,343 18,005
25,209 18,399 18,622
27,009 19,209 18,802
28,703 19,626 18,987
32,064 20,970 19,270
32,971 21,718 19,766
31,369 20,629 19,848
26,748 18,579 18,965
28,567 19,858 19,370
31,546 20,912 20,460
29,285 20,262 21,031
29,044 21,004 22,631
27,842 21,107 22,191
28,778 21,739 23,571
25,166 20,786 23,762
22,111 19,418 22,773
21,887 19,506 24,127
25,460 21,844 25,606
26,552 22,574 26,746
27,131 24,007 28,891
26,607 24,593 27,294
28,443 26,330 28,781
26,324 24,687 27,831
26,042 24,309 29,106
27,047 24,222 29,600
26,674 23,905 29,935
28,352 25,956 32,087
29,492 26,918 33,730
29,639 27,163 34,071
27,719 25,420 33,485
28,935 25,605 34,844
25,996 23,698 34,471
21,127 18,313 29,487
23,093 19,920 31,377
24,241 21,264 33,862
25,177 22,776 35,914
28,455 24,969 37,983
33,824 25,691 39,570
29,488 23,607 38,340
30,544 24,707 39,873
28,387 26,679 41,416
30,866 26,954 40,439
33,860 28,860 42,683
30,257 28,271 41,351
29,080 27,660 41,145
30,255 27,859 40,017
30,920 29,216 42,550
34,856 32,667 43,414
40,796 38,827 45,971
40,131 38,610 43,663
50,441 48,513 42,838
52,211 44,705 47,028
AVERAGE ANNUAL RETURN+
THROUGH 3/31/00
Since
Inception
1 Year 5 Years 8/5/91
--------------------------------------------------------------------------------
IAI EMERGING GROWTH FUND 70.93% 23.06% 21.02%
--------------------------------------------------------------------------------
Russell 2500 Growth Index 80.94% 24.58% 18.86%
--------------------------------------------------------------------------------
S&P 500 Index 17.94% 26.76% 19.56%
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOP TEN HOLDINGS**
% of Net Assets
-----------------
Issue Sector 3/31/00 3/31/99
--------------------------------------------------------------------------------
CCC Information Services Group Technology Services 3.51 --
REMEC Electronic Technology 3.42 --
Tollgrade Communications Telecommunication Technology 3.39 --
Three-Five Systems Electronic Technology 3.24 --
Aftermarket Technology Consumer Durables 3.14 --
Radian Group Financial 2.80 --
99 Cents Only Stores Retail Trade 2.64 1.43
JAKKS Pacific Consumer Non-Durables 2.64 --
Mercury Computer Systems Electronic Technology 2.47 0.56
Zebra Technologies Class A Producer Manufacturing 2.40 --
================================================================================
TOTAL 29.65 1.99
** EXCLUDES SHORT-TERM SECURITIES, U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
NOTE TO FUND MANAGERS' 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
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<PAGE>
FUND MANAGERS' REVIEW
IAI GROWTH FUND
IAI GROWTH FUND
FUND MANAGEMENT
IAI LARGE CAP
TEAM
JEFFREY C. BEARD
MARK N. MCCALL, CFA
KEITH WIRTZ, CFA
JEFF MALET, CFA
TOP FIVE
SECTORS
% OF NET ASSETS AS OF 3/31/00
[BAR CHART]
ELECTRONIC TECHNOLOGY 20.9%
TECHNOLOGY SERVICES 15.0%
HEALTH TECHNOLOGY 13.0%
RETAIL TRADE 9.2%
TELECOMMUNICATION TECHNOLOGY 8.0%
HOW HAS THE FUND PERFORMED?
For the 12 month period ending March 31, 2000, the returns were 28.6% for the
IAI Growth Fund and 17.9% for the S&P 500 Index.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Our holdings in the technology sector have been key to recent performance
success. Winners over the last six months include Intel (+78%), Cisco Systems
(+122%), and Sun Microsystems (+101%). Technology was an emphasis for much of
the period. And while we like the fundamental prospects longer term, we did
reduce our exposure to this sector late in the year due to valuations. The
Fund's investment in the capital goods area, which showed flat returns over the
last six months, detracted from results given the positive market conditions.
WERE THERE ANY SIGNIFICANT CHANGES?
Late in 1999, we slowly shifted the portfolio to capture two strategic
intentions. First, we reduced the average number of investments held to around
35 securities to emphasize our best ideas. Secondly, the market conditions now
are particularly attractive for large multi-national companies. As such, we
reduced our exposure to mid-size companies in order to emphasize the larger
companies who are industry leaders. With rapid globalization of businesses, we
see tremendous opportunities investing in these leaders. Our strategy, moving
forward, should be labeled 'blue-chip' and 'focused.'
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
Y2K anxiety slowly dissipated during the last three months of 1999. This was a
contributing factor for improved investor sentiment to end the year. Also,
growth stocks performed well versus their value counterparts in the large
capitalization range. The Fund was well positioned to take advantage of the
improved market tone.
WHAT IS YOUR OUTLOOK FOR THE FUND?
By the time we move into the second half of 2000, we believe that interest rates
will flatten out and returns will reflect growth in corporate earnings. This
suggests that equity returns will become more balanced between sectors and more
in line with historic norms of low double-digits. Looking longer term, the
Fund's focused investment strategy should take advantage of attractive secular
growth trends. Today, these growth trends include technology,
health/bio-technology and telecommunications - areas we continue to favor. More
interesting, our emphasis on the largest, multi-national companies could serve
us well as globalization continues to shrink our business world.
8
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<PAGE>
FUND MANAGERS' REVIEW
IAI GROWTH FUND
VALUE OF $10,000 INVESTMENT+
[PLOT POINTS CHART]
IAI GROWTH S&P 500
FUND INDEX
10,000 10,000
10,220 10,381
10,340 10,305
10,320 10,515
9,910 10,415
10,100 10,543
10,480 10,898
10,110 10,602
9,700 10,142
9,670 10,273
9,930 10,441
9,479 10,181
9,879 10,518
10,380 10,947
10,260 10,682
10,510 10,929
9,959 10,528
10,166 10,683
10,347 10,960
10,618 11,385
10,990 11,723
10,739 12,068
11,061 12,546
11,580 12,840
12,154 13,271
12,234 13,307
12,455 13,866
12,123 13,815
12,717 14,423
12,522 14,690
12,719 15,193
12,740 15,340
12,970 15,491
13,274 15,722
13,634 16,127
13,402 16,194
12,708 15,473
13,199 15,804
14,037 16,693
14,061 17,159
14,827 18,464
14,443 18,105
14,938 19,231
14,882 19,387
14,060 18,580
14,330 19,684
15,365 20,891
15,853 21,821
17,025 23,571
16,003 22,268
16,815 23,481
16,078 22,706
16,725 23,746
17,210 24,150
17,435 24,423
18,800 26,179
19,539 27,519
19,764 27,797
19,137 27,319
19,878 28,428
19,777 28,124
15,977 24,057
17,147 25,600
18,503 27,601
19,945 29,274
21,776 30,960
22,771 32,254
21,591 31,251
22,457 32,501
22,697 33,759
22,402 32,962
23,760 34,792
22,603 33,706
22,372 33,538
22,070 32,619
23,112 34,684
24,570 35,388
26,163 37,472
25,333 35,591
26,564 34,918
28,875 38,333
AVERAGE ANNUAL RETURN+
THROUGH 3/31/00
Since
Inception
1 Year 5 Years 8/6/93
--------------------------------------------------------------------------------
IAI GROWTH FUND 28.57% 21.31% 17.27%
--------------------------------------------------------------------------------
S&P 500 Index 17.94% 26.76% 22.34%
--------------------------------------------------------------------------------
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOP TEN HOLDINGS**
% of Net Assets
-------------------
Issue Sector 3/31/00 3/31/99
--------------------------------------------------------------------------------
Intel Electronic Technology 6.63 2.88
Cisco Systems Electronic Technology 6.50 1.68
Microsoft Technology Services 5.21 4.02
Oracle Systems Technology Services 4.99 --
Warner Lambert Health Technology 4.94 2.07
General Electric Process Industries 4.45 3.91
Tyco International Producer Manufacturing 4.40 2.65
Charles Schwab Financial 3.97 --
Nortel Networks Electronic Technology 3.58 --
American Online Technology Services 3.35 1.88
================================================================================
TOTAL 48.02 19.09
** EXCLUDES SHORT-TERM SECURITIES, U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
NOTE TO FUND MANAGERS' 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 MANAGERS' REVIEW
IAI GROWTH AND INCOME FUND
IAI GROWTH AND INCOME FUND
FUND MANAGEMENT
IAI LARGE CAP
TEAM
JEFFREY C. BEARD
MARK N. MCCALL, CFA
KEITH WIRTZ, CFA
JEFF MALET, CFA
TOP FIVE
COMMON STOCK
SECTORS
% OF NET ASSETS AS OF 3/31/00
[BAR CHART]
ELECTRONIC TECHNOLOGY 19.2%
TECHNOLOGY SERVICES 16.0%
FINANCIAL 9.2%
RETAIL TRADE 8.6%
HEALTH TECHNOLOGY 8.1%
HOW HAS THE FUND PERFORMED?
The return for the past 12 months ending March 31, 2000, for the IAI Growth and
Income Fund was 19.2% compared to the S&P 500 Index return of 17.9%.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
As has been the case for some time, technology led the way for much of the last
twelve months. The best performers were beneficiaries of the Internet and the
movement to rapidly deploy faster communications networks. This list included
many of our holdings: Oracle, Sun Microsystems, Nortel Networks and Cisco
Systems. Individual stocks negatively impacting returns included Waste
Management, Tyco International, Philip Morris and Xerox.
WERE THERE ANY SIGNIFICANT CHANGES?
Over the course of the year, several names were added and few eliminated in
order to position the Fund for the future. The net result was an expansion of
the number of holdings and a further diversification of strategy. The Fund
exhibits a higher growth rate and an attractive aggregate valuation
characteristic.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
The market gains have been somewhat misleading over the last twelve months. It
was a period where growth strategies far outpaced value investing. Fortunately,
our increased emphasis on higher growth rate ideas paid off in late 1999 and
contributed to the out-performance relative to the broad market. As we all know
too well, the equity markets have been extremely volatile over the last year or
so. Investors should expect continued volatility.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We remain cautiously optimistic about the next twelve months. Valuations are
still high (by historic standards) and the interest rate outlook is challenging.
However, our investment philosophy is simple and balances risk versus reward. By
maintaining a diversified portfolio of growth companies at attractive rates, we
believe shareholders could be rewarded with solid returns in the year ahead.
10
--------------------------------------------------------------------------------
<PAGE>
FUND MANAGERS' REVIEW
IAI GROWTH AND INCOME FUND
VALUE OF $10,000 INVESTMENT+
[PLOT POINTS CHART]
IAI GROWTH S&P 500
AND INCOME FUND INDEX
10,000 10,000
9,619 9,753
10,388 10,703
10,576 10,630
10,604 10,595
9,704 9,638
9,146 9,163
8,944 9,131
9,299 9,717
9,525 9,986
9,919 10,428
10,623 11,175
10,742 11,440
10,675 11,472
10,890 11,963
10,367 11,416
10,945 11,949
11,249 12,231
10,960 12,030
11,340 12,190
11,044 11,699
12,065 13,036
11,921 12,795
12,049 12,959
11,769 12,703
11,777 13,075
11,905 13,144
11,573 12,953
11,867 13,476
11,657 13,203
11,833 13,355
12,051 13,403
12,446 13,856
12,546 14,038
12,538 14,141
12,419 14,332
12,833 14,643
12,352 14,284
12,614 14,667
12,809 14,715
12,685 14,646
13,304 15,204
13,587 15,093
13,622 15,400
13,242 15,254
13,797 15,442
14,045 15,961
13,855 15,527
13,227 14,854
13,284 15,045
13,360 15,291
12,954 14,912
13,334 15,405
13,715 16,032
13,384 15,645
13,614 16,006
13,044 15,419
13,139 15,646
13,280 16,052
13,772 16,674
14,406 17,169
14,537 17,675
14,698 18,374
15,104 18,805
15,548 19,436
15,658 19,489
16,314 20,308
16,011 20,234
16,414 21,124
16,702 21,514
16,987 22,252
17,536 22,466
17,501 22,687
17,889 23,026
18,598 23,619
18,471 23,717
17,745 22,662
17,918 23,146
18,830 24,448
18,792 25,130
20,085 27,043
20,075 26,516
21,038 28,166
20,824 28,393
19,835 27,211
20,664 28,829
22,455 30,597
23,324 31,959
24,845 34,522
23,976 32,614
24,985 34,390
24,128 33,255
24,584 34,779
24,881 35,370
24,909 35,769
26,558 38,341
27,785 40,304
28,165 40,711
27,264 40,011
27,943 41,636
26,716 41,190
23,120 35,234
23,830 37,493
26,442 40,541
27,119 42,997
28,613 45,474
28,593 47,375
28,459 45,902
28,205 47,738
29,852 49,585
29,581 48,415
31,211 51,102
29,800 49,508
28,891 49,260
27,383 47,910
27,766 50,943
29,035 51,977
30,327 55,039
29,514 52,276
30,255 51,288
33,608 56,304
AVERAGE ANNUAL RETURN+
THROUGH 3/31/00
1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
IAI GROWTH AND INCOME FUND 19.15% 18.46% 12.89%
--------------------------------------------------------------------------------
S&P 500 Index 17.94% 26.76% 18.84%
--------------------------------------------------------------------------------
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOP TEN HOLDINGS**
% of Net Assets
------------------
Issue Sector 3/31/00 3/31/99
--------------------------------------------------------------------------------
MatrixOne Technology Services 6.23 0.14
Microsoft Technology Services 4.13 --
Intel Electronic Technology 3.82 --
Flextronics International Electronic Technology 3.68 --
Tyco International Producer Manufacturing 3.54 1.21
General Electric Process Industries 3.41 --
Cisco Systems Electronic Technology 3.10 --
Medtronic Health Technology 2.65 --
Synopsys Electronic Technology 2.58 --
Lucent Technologies Telecommunication Technology 2.46 --
================================================================================
TOTAL 35.60 1.35
** EXCLUDES SHORT-TERM SECURITIES, U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
NOTE TO FUND MANAGERS' 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 MANAGERS' 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 3/31/00
[BAR CHART]
ELECTRONIC TECHNOLOGY 24.2%
TELECOMMUNICATION TECHNOLOGY 16.4%
HEALTH TECHNOLOGY 9.6%
TECHNOLOGY SERVICES 9.4%
RETAIL TRADE 7.8%
HOW HAS THE FUND PERFORMED?
The return for the past 12 months ending March 31, 2000 for the IAI Midcap
Growth Fund was 49.4% compared with the S&P 500's return of 17.9%, the S&P
Midcap's return of 38.1% and the S&P Midcap Growth's return of 60.6%.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Technology stocks dominated the performance of nearly all market participants
during the year. Several technology holdings in the Fund posted astounding
results. Veritas Software, Sebel Systems, and I2 Technologies all advanced more
than fourfold during the last twelve months. The semiconductor industry also
produced strong results for the Fund with Qualcomm Inc., Vitesse Semiconductor,
Analog Devices, and Xilinx Inc. all more than tripling. The Fund's investments
in healthcare and consumer sectors detracted from relative performance. In
particular, Quintiles Transnational, Total Renal Care and Healtheon/WebMD
produced sub-par results and Navigant Consulting significantly disappointed
investors and underperformed dramatically in the second half of the year.
WERE THERE ANY SIGNIFICANT CHANGES?
As the market experienced extreme volatility, the Fund management team was very
active taking advantage of opportunities presented in this environment. In the
technology area particularly, sharp price increases have led to stretched
valuations and allowed us to take profits. We redeployed the proceeds of those
sales into new technology companies with more attractive valuations. We also
used some of the technology proceeds to increase our holdings in non-technology
areas such as the consumer and energy sectors where we see strong fundamental
outlooks and more attractive valuations.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
Stocks of midcap companies generated the best performance of any segment in the
market during the last twelve months. In addition, the market was decidedly
growth oriented, particularly during the last six months. Our emphasis on owning
the highest quality rapidly growing midcap companies benefited the fund
performance significantly. However, those companies with the highest valuations,
i.e. high P/E ratios, and those with no earnings prospects, captured most of the
market participants focus during the period. Our disciplined valuation approach
detracted from the fund participating fully in the speculative valuation bubble
created in the market.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Economic growth currently remains extremely strong, fears over rising interest
rates will continue to loom over the market. Valuations are now higher after a
stellar rise in the market and we feel near-term volatility will create some new
and exciting opportunities. We will continue to execute our discipline of owning
rapidly growing companies with superior business models trading at attractive
valuations. We believe the portfolio is well positioned to perform in the future
and believe our discipline could deliver strong performance for our
shareholders.
12
--------------------------------------------------------------------------------
<PAGE>
FUND MANAGERS' REVIEW
IAI MIDCAP GROWTH FUND
VALUE OF $10,000 INVESTMENT+
[PLOT POINTS CHART]
IAI MIDCAP S&P MIDCAP S&P 500 S&P MIDCAP
GROWTH FUND INDEX INDEX GROWTH INDEX
10,000 10,000 10,000 10,000
10,010 9,881 10,292 9,615
10,090 9,974 10,347 9,708
9,850 9,689 10,197 9,323
10,250 10,170 10,608 9,804
10,020 9,927 10,393 9,558
10,350 10,066 10,513 9,725
10,660 10,307 10,551 10,063
11,100 10,883 10,907 10,785
11,498 11,248 11,050 11,091
11,889 11,389 11,131 11,143
11,478 11,229 11,282 10,669
11,909 11,617 11,527 10,989
11,418 11,313 11,244 10,603
11,929 11,829 11,546 11,317
11,939 11,888 11,584 11,305
12,250 11,865 11,529 11,293
13,002 12,355 11,968 11,834
13,322 12,486 11,881 12,042
13,673 12,526 12,123 12,167
13,373 12,249 12,007 11,924
14,125 12,818 12,155 12,607
14,288 13,116 12,564 12,880
14,480 12,930 12,223 12,724
13,862 12,331 11,693 12,024
14,014 12,423 11,843 11,921
13,943 12,305 12,037 11,663
13,503 11,881 11,738 11,090
14,166 12,284 12,127 11,368
14,819 12,927 12,620 12,138
14,529 12,686 12,315 12,007
15,151 12,824 12,600 12,196
14,519 12,246 12,138 11,637
14,924 12,358 12,317 11,727
15,051 12,487 12,636 11,671
15,561 13,142 13,126 12,323
16,305 13,370 13,515 12,689
16,359 13,639 13,913 12,855
16,475 13,968 14,464 13,076
17,132 14,536 14,803 13,793
17,800 15,295 15,300 14,637
17,811 15,578 15,341 14,870
18,356 15,955 15,986 15,246
17,756 15,545 15,928 14,630
18,235 16,224 16,629 15,181
18,819 16,183 16,936 14,928
18,534 16,418 17,516 15,106
19,763 16,976 17,685 15,810
20,139 17,179 17,859 16,021
21,083 17,704 18,125 16,853
21,937 17,944 18,593 17,055
20,899 17,674 18,669 16,470
19,587 16,479 17,839 15,243
20,278 17,429 18,220 16,133
21,499 18,189 19,245 17,130
21,544 18,242 19,782 16,956
22,339 19,269 21,288 17,875
21,939 19,291 20,873 17,683
22,661 20,015 22,172 18,643
21,988 19,850 22,351 18,161
20,768 19,004 21,420 17,211
20,058 19,496 22,694 17,746
22,025 21,201 24,085 19,749
22,594 21,797 25,158 20,328
23,890 23,955 27,175 22,859
23,752 23,926 25,673 22,644
25,063 25,301 27,072 23,982
23,461 24,203 26,178 22,592
23,405 24,561 27,377 22,678
23,876 25,514 27,843 23,037
23,205 25,029 28,157 22,689
24,671 27,102 30,182 24,774
25,372 28,324 31,727 25,851
26,138 28,840 32,047 26,616
25,134 27,542 31,496 25,304
25,901 27,715 32,775 25,793
25,373 26,640 32,424 24,898
20,455 21,682 27,736 19,717
22,603 23,707 29,514 21,880
24,111 25,827 31,851 24,116
25,712 27,116 33,781 25,985
29,831 30,391 35,727 31,068
30,586 29,209 37,220 30,305
28,344 27,678 36,063 28,568
30,022 28,451 37,505 29,633
31,300 30,695 38,957 31,463
31,488 30,827 38,037 31,235
33,790 32,480 40,149 33,612
31,763 31,788 38,896 32,634
30,867 30,698 38,701 31,642
30,632 29,749 37,641 31,277
32,780 31,266 40,024 33,857
35,255 32,908 40,836 36,752
37,877 34,862 43,241 40,000
36,828 33,879 41,071 39,412
43,796 36,251 40,294 45,979
44,843 39,285 44,235 47,583
AVERAGE ANNUAL RETURN+
THROUGH 3/31/00
Since
Inception
1 Year 5 Years 4/10/92
--------------------------------------------------------------------------------
IAI MIDCAP GROWTH FUND 49.36% 22.43% 20.70%
--------------------------------------------------------------------------------
S&P Midcap Index 38.09% 24.06% 18.65%
--------------------------------------------------------------------------------
S&P Midcap Growth Index 60.57% 30.26% 21.53%
--------------------------------------------------------------------------------
S&P 500 Index 17.94% 26.76% 20.42%
--------------------------------------------------------------------------------
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOP TEN HOLDINGS**
% of Net Assets
------------------
Issue Sector 3/31/00 3/31/99
--------------------------------------------------------------------------------
REMEC Electronic Technology 3.38 --
ADC Telecommunications Telecommunication Technology 3.24 1.71
Analog Devices Electronic Technology 3.09 1.61
Maxim Integrated Products Telecommunication Technology 2.94 1.73
Vitesse Semiconductor Telecommunication Technology 2.76 --
Siebel Systems Technology Services 2.64 0.96
Linear Technology Telecommunication Technology 2.64 1.69
VERITAS Software Electronic Technology 2.40 --
CIENA Electronic Technology 2.31 --
Amdocs Commercial Services 2.27 --
================================================================================
TOTAL 27.67 7.70
** EXCLUDES SHORT-TERM SECURITIES, U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
NOTE TO FUND MANAGERS' 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 MANAGERS' 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 3/31/00
[BAR CHART]
HEALTH TECHNOLOGY 16.4%
TELECOMMUNICATION TECHNOLOGY 12.6%
PRODUCER MANUFACTURING 11.3%
TECHNOLOGY SERVICES 9.0%
CONSUMER SERVICES 5.9%
HOW HAS THE FUND PERFORMED?
The IAI Regional Fund showed a return of 12.3% for the 12 month period ending
March 31, 2000 compared to the S&P 500's return of 17.9%.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
On a sector basis, the primary performance contributors were technology and
health care. Within technology, top picks included ADC Telecommunications,
Corning, and Intranet Solutions. Diametrics Medical and Medtronic were the best
performers in healthcare. Another successful holding was C.H. Robinson
Worldwide, a non-asset based company that provides transportation services and
logistics solutions. Companies that were acquired at significant premiums during
this period included Recovery Engineering and Chicago Title.
The stock market was one of "haves" and "haves nots" during this period. Only
two sectors, technology and capital goods, outperformed the S&P 500. The worst
performing sectors over the past year included transportation, consumer staples,
and financials. We continue to believe a diversified portfolio with
representation in all sectors is the best approach for our shareholders.
WERE THERE ANY SIGNIFICANT CHANGES?
One notable change in the composition of the portfolio over the past twelve
months has been a shift toward companies with larger market caps. We also
increased the percentage of permissible non-regional holdings from 20% to 35% to
better reflect industry changes over the past 20 years. Although we continue to
focus on the Midwest region, this change provides us with the ability to invest
in businesses important to the overall economy which are not headquartered in
our eight state area, particularly telecommunications and the Internet, as well
as companies in the healthcare sector, including medical device and
pharmaceutical firms.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
During the past five years, billions of dollars have flowed to mutual funds
through IRAs, 401(k) plans, etc. Strong U.S. growth, a rising dollar and falling
commodity prices have been the catalysts for the upward move in stock prices.
Expanding price-to-earnings ratios accounted for more than 60% of stock market
gains from 1995-1999 while earnings growth contributed less than 30%. The impact
that technology has had on the market is reflected by this sector's weighting
within the S&P 500. This component has increased to more than 30%, up from 12%
just three years ago, as the Internet, fiber optics, and other areas of
technology dominated the marketplace.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Volatility remains high and valuations in some areas - particularly technology -
continue to look extended. The market is likely to be uncertain in the coming
months as we expect further tightening by the Federal Reserve in their intent to
slow economic growth. The risk of rising inflation as well as a growing U.S.
current account trade deficit reinforces our cautious outlook. We emphasize
stock selection as the key to beating the market in this environment.
14
--------------------------------------------------------------------------------
<PAGE>
FUND MANAGERS' REVIEW
IAI REGIONAL FUND
VALUE OF $10,000 INVESTMENT+
[PLOT POINTS CHART]
IAI REGIONAL S&P 500
FUND INDEX
10,000 10,000
9,789 9,753
10,628 10,703
10,831 10,630
10,555 10,595
9,710 9,638
9,288 9,163
9,190 9,131
9,726 9,717
9,983 9,986
10,628 10,428
11,217 11,175
11,800 11,440
11,727 11,472
12,136 11,963
11,723 11,416
12,230 11,949
12,575 12,231
12,535 12,030
12,908 12,190
12,414 11,699
13,514 13,036
13,670 12,795
13,627 12,959
13,308 12,703
13,095 13,075
13,226 13,144
12,952 12,953
13,197 13,476
12,869 13,203
13,120 13,355
13,242 13,403
13,750 13,856
13,993 14,038
14,129 14,141
14,038 14,332
14,415 14,643
14,058 14,284
14,234 14,667
14,426 14,715
14,299 14,646
15,022 15,204
15,376 15,093
15,382 15,400
14,801 15,254
15,248 15,442
15,653 15,961
15,447 15,527
14,884 14,854
15,005 15,045
14,870 15,291
14,480 14,912
14,831 15,405
15,630 16,032
15,310 15,645
15,585 16,006
15,048 15,419
15,350 15,646
15,556 16,052
16,058 16,674
16,424 17,169
16,851 17,675
17,247 18,374
17,706 18,805
18,567 19,436
18,621 19,489
18,933 20,308
18,676 20,234
19,645 21,124
20,360 21,514
20,643 22,252
20,936 22,466
21,125 22,687
22,183 23,026
23,017 23,619
22,350 23,717
20,718 22,662
21,557 23,146
22,023 24,448
22,261 25,130
23,118 27,043
23,564 26,516
23,696 28,166
24,376 28,393
22,952 27,211
23,368 28,829
25,756 30,597
26,864 31,959
28,459 34,522
27,981 32,614
29,945 34,390
28,349 33,255
28,004 34,779
28,006 35,370
27,684 35,769
29,024 38,341
30,194 40,304
30,296 40,711
29,678 40,011
29,889 41,636
28,356 41,190
23,048 35,234
24,541 37,493
25,079 40,541
26,508 42,997
27,621 45,474
29,182 47,375
28,473 45,902
27,858 47,738
27,844 49,585
27,766 48,415
28,716 51,102
27,510 49,508
26,681 49,260
26,191 47,910
27,424 50,943
27,803 51,977
30,002 55,039
28,202 52,276
30,015 51,288
31,291 56,304
AVERAGE ANNUAL RETURN+
THROUGH 3/31/00
1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
IAI REGIONAL FUND 12.33% 13.76% 12.08%
--------------------------------------------------------------------------------
S&P 500 Index 17.94% 26.76% 18.84%
--------------------------------------------------------------------------------
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOP TEN HOLDINGS**
<TABLE>
<CAPTION>
% of Net Assets
-----------------
Issue Sector 3/31/00 3/31/99
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diametrics Medical Health Technology 4.68 2.84
ADC Telecommunications Telecommunication Technology 4.42 --
Corning Electronic Technology 3.57 --
Time Warner Consumer Services 3.44 --
Medtronic Health Technology 3.38 1.76
Motorola Telecommunication Technology 3.26 --
DST Systems Technology Services 3.11 --
McDonald's Consumer Services 3.06 --
Telephone and Data Systems Utilities 3.04 --
Minnesota Mining and Manufacturing Producer Manufacturing 3.03 --
======================================================================================
TOTAL 34.99 4.60
</TABLE>
** EXCLUDES SHORT-TERM SECURITIES, U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
NOTE TO FUND MANAGERS' 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 MANAGERS' 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 3/31/00
[BAR CHART]
ELECTRONIC TECHNOLOGY 23.8%
TECHNOLOGY SERVICES 13.8%
TELECOMMUNICATION TECHNOLOGY 12.9%
HEALTH TECHNOLOGY 8.2%
RETAIL TRADE 7.6%
HOW HAS THE FUND PERFORMED?
For the past twelve months ending March 31, 2000, the return for the IAI Value
Fund was 6.0% as compared to the Russell 2500 Index's return of 43.5% and the
S&P 500's return of 17.9%.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE FUND? WERE THERE ANY
DISAPPOINTMENTS?
Technology stocks dominated the performance of nearly all market participants
during the year. Several technology holdings in the portfolio posted astounding
results. Tollgrade Communications, Anadigics Inc., and Remec Inc. all more than
tripled in the last twelve months. The capital goods sector also produced strong
results for the portfolio with DII Group and Three-Five Systems each more than
tripling as well. The Fund's investments in consumer sectors detracted from
relative performance. In particular, Service Experts Inc., Advantage Learning
Systems Inc., and Towne Services Inc. significantly disappointed investors and
under performed dramatically in the second half of the year.
WERE THERE ANY SIGNIFICANT CHANGES?
As the market experienced extreme volatility, the Fund management team was very
active taking advantage of opportunities presented in this environment. All
activity concentrated on executing our discipline of owning growing companies
with superior business models trading at very attractive valuations. Earlier in
the year we significantly increased our exposure in the technology area. More
recently, sharp price increases have led to stretched valuations and allowed us
to take profits. We then redeployed the proceeds of those sales into new
technology companies with more attractive valuations. We also used some of the
technology proceeds to increase our holdings in non technology areas such as the
consumer and healthcare sectors where we see strong fundamental outlooks and
more attractive valuations. Additionally, the Fund's portfolio of restricted
securities was reduced significantly during the year.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
Stocks of small cap and midcap companies generated stellar returns during the
last twelve months. In addition, the market was decidedly growth oriented,
particularly during the last six months. However, those companies with the
highest valuations, i.e. high P/E ratios, and those with no earnings prospects,
captured most of the market participants focus during the period. Our
disciplined valuation approach detracted from the fund participating fully in
speculative valuation bubble created in the market.
WHAT IS YOUR OUTLOOK FOR THE FUND?
The stock market has been very volatile recently due to concerns over rising
interest rates and valuations. We believe the outlook for the small cap market
is extremely attractive. Small cap stocks are trading near all-time low relative
valuations, and are beginning to demonstrate higher and accelerating growth
prospects. We feel we are still in the early part of a protracted small cap
relative performance cycle. Despite the recent strong performance of small cap
stocks, we believe there are still attractive opportunities in this market cap
segment.
16
--------------------------------------------------------------------------------
<PAGE>
FUND MANAGERS' REVIEW
IAI VALUE FUND
VALUE OF $10,000 INVESTMENT+
[PLOT POINTS CHART]
IAI VALUE
FUND RUSSELL 2500 S&P 500
10,000 10,000 10,000
9,691 9,632 9,753
10,627 10,393 10,703
10,646 10,393 10,630
10,258 10,021 10,595
9,147 8,815 9,638
8,517 8,109 9,163
8,212 7,724 9,131
8,749 8,382 9,717
9,077 8,755 9,986
9,645 9,452 10,428
10,255 10,415 11,175
10,620 10,985 11,440
10,640 10,961 11,472
11,076 11,464 11,963
10,588 10,964 11,416
10,713 11,477 11,949
10,827 11,908 12,231
10,503 11,907 12,030
10,827 12,176 12,190
9,972 11,690 11,699
10,871 12,844 13,036
11,593 13,480 12,795
12,175 13,836 12,959
11,917 13,394 12,703
11,927 13,127 13,075
11,852 13,246 13,144
11,447 12,786 12,953
11,828 13,264 13,476
11,219 12,915 13,203
11,372 13,135 13,355
11,436 13,529 13,403
11,969 14,419 13,856
12,166 14,923 14,038
12,590 15,282 14,141
12,482 15,068 14,332
12,655 15,631 14,643
12,601 15,185 14,284
12,895 15,794 14,667
13,104 15,958 14,715
13,104 16,060 14,646
13,675 16,770 15,204
13,928 17,087 15,093
14,268 17,291 15,400
14,443 16,737 15,254
14,850 17,391 15,442
15,047 17,941 15,961
14,887 17,875 15,527
14,262 17,006 14,854
14,163 17,105 15,045
14,323 16,929 15,291
14,172 16,404 14,912
14,343 16,849 15,405
14,923 17,759 16,032
14,502 17,580 15,645
14,212 17,607 16,006
13,474 16,844 15,419
13,504 17,208 15,646
13,848 17,173 16,052
14,697 18,037 16,674
14,816 18,479 17,169
15,175 18,807 17,675
15,426 19,205 18,374
15,855 20,126 18,805
16,391 21,313 19,436
16,578 21,654 19,489
16,726 22,060 20,308
16,324 21,370 20,234
16,819 22,282 21,124
16,795 22,663 21,514
17,113 22,823 22,252
17,517 23,511 22,466
17,935 23,990 22,687
18,570 25,099 23,026
18,410 25,781 23,619
18,598 24,989 23,717
17,445 23,160 22,662
17,670 24,491 23,146
18,075 25,553 24,448
18,525 25,385 25,130
19,155 26,612 27,043
20,469 26,976 26,516
20,501 27,721 28,166
19,833 27,310 28,393
18,986 26,073 27,211
18,937 26,403 28,829
20,598 28,833 30,597
21,961 30,012 31,959
22,627 31,771 34,522
23,036 32,213 32,614
24,757 34,319 34,390
24,279 32,778 33,255
24,228 32,925 34,779
24,480 33,548 35,370
23,699 33,034 35,769
24,360 35,433 38,341
25,483 36,988 40,304
25,924 37,129 40,711
32,701 35,406 40,011
31,802 35,448 41,636
27,435 33,013 41,190
21,795 26,787 35,234
20,583 28,689 37,493
22,339 30,258 40,541
22,108 31,756 42,997
24,472 33,680 45,474
30,543 33,623 47,375
29,138 31,414 45,902
27,644 32,086 47,738
26,397 34,958 49,585
27,099 35,500 48,415
29,270 37,346 51,102
20,855 36,610 49,508
19,991 35,464 49,260
19,605 34,936 47,910
18,900 35,701 50,943
20,559 37,718 51,977
23,365 41,810 55,039
22,935 40,849 52,276
28,410 46,747 51,288
29,305 46,032 56,304
AVERAGE ANNUAL RETURN+
THROUGH 3/31/00
1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
IAI VALUE FUND 6.01% 14.61% 11.35%
--------------------------------------------------------------------------------
Russell 2500 Index 43.48% 20.02% 16.49%
--------------------------------------------------------------------------------
S&P 500 Index 17.94% 26.76% 18.84%
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
TOP TEN HOLDINGS*
% of Net Assets
-----------------
Issue Sector 3/31/00 3/31/99
--------------------------------------------------------------------------------
CCC Information Services Group Technology Services 3.58 --
REMEC Electronic Technology 3.32 --
Tollgrade Communications Telecommunication Technology 3.30 --
Three-Five Systems Electronic Technology 3.16 --
Aftermarket Technology Consumer Durables 3.14 --
Radian Group Financial 2.73 --
JAKKS Pacific Consumer Non-Durables 2.56 --
99 Cents Only Stores Retail Trade 2.56 --
Mercury Computer Systems Electronic Technology 2.39 --
IMRglobal Technology Services 2.33 --
================================================================================
TOTAL 29.07 --
* EXCLUDES SHORT-TERM SECURITIES, U.S. TREASURY AND GOVERNMENT OBLIGATIONS.
NOTE TO FUND MANAGERS' REVIEW
PERFORMANCE DATA FOR THE IAI VALUE FUND INCLUDES CHANGES IN SHARE PRICE AND
REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS. THE FUND'S INVESTMENT RETURN, YIELD AND PRINCIPAL
MAY FLUCTUATE SO THAT, WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN THE
ORIGINAL COST. MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING CHARGES AND
EXPENSES, IS AVAILABLE IN THE PROSPECTUS. PLEASE READ THE FUND'S PROSPECTUS
CAREFULLY BEFORE INVESTING. ALL INDICES CITED ARE UNMANAGED, AND ARE EITHER
TRADEMARKS, REGISTERED TRADEMARKS OR COPYRIGHTS OF THEIR RESPECTIVE SPONSORING
COMPANIES, AND ARE NOT AVAILABLE FOR DIRECT INVESTMENT.
17
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI CAPITAL APPRECIATION FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 94.0%
Market
Quantity Value (a)
---------------------------------------------------------------------
COMMERCIAL SERVICES - 6.1%
Catalina Marketing (b) 3,700 $ 374,625
Official Payments (b) 2,100 88,200
Profit Recovery Group
International (b) 20,400 377,400
TTI Team Telecom
International, foreign (b) 6,600 217,800
Valassis Communications (b) 13,000 433,062
----------
1,491,087
---------------------------------------------------------------------
CONSUMER DURABLES - 3.0%
Aftermarket Technology (b) 59,300 741,250
---------------------------------------------------------------------
CONSUMER NON-DURABLES - 2.6%
JAKKS Pacific (b) 28,950 624,234
---------------------------------------------------------------------
CONSUMER SERVICES - 2.8%
Apollo Group Class A (b) 8,200 231,137
Hotel Reservations Network
Class A (b) 12,600 223,650
Papa John's International (b) 7,200 237,600
----------
692,387
---------------------------------------------------------------------
ELECTRONIC TECHNOLOGY - 22.6%
ADE (b) 4,500 99,000
American Xtal Technology (b) 9,500 307,562
ArrowPoint Communications (b) 200 23,697
AstroPower (b) 5,500 177,719
California Amplifier (b) 3,600 111,600
Cognex (b) 3,600 207,675
Datalink (b) 14,300 286,000
Exar (b) 5,300 379,281
Lattice Semiconductor (b) 6,700 453,506
Mercury Computer Systems (b) 12,000 586,500
National Computer Systems 6,900 350,175
REMEC (b) 16,000 808,000
Sawtek (b) 6,800 357,425
Three-Five Systems (b) 12,833 769,980
Visual Networks (b) 2,400 136,200
Zamba (b) 20,600 215,656
Zoran (b) 4,600 259,037
----------
5,529,013
---------------------------------------------------------------------
Market
Quantity Value (a)
---------------------------------------------------------------------
ENERGY MINERALS - 1.7%
Patterson Energy (b) 13,400 $ 425,450
---------------------------------------------------------------------
FINANCIAL - 2.7%
Radian Group 13,899 661,940
---------------------------------------------------------------------
HEALTH SERVICES - 3.1%
Patterson Dental (b) 8,150 311,738
Renal Care Group (b) 20,600 446,763
----------
758,501
---------------------------------------------------------------------
HEALTH TECHNOLOGY - 8.1%
Albany Molecular Research (b) 6,300 367,763
Antigenics (b) 1,000 20,375
Coherent (b) 5,900 306,800
Eclipse Surgical Technologies (b) 8,800 65,450
Emisphere Technologies (b) 4,300 223,063
InfoCure (b) 14,900 258,888
Maxygen (b) 900 58,669
Mentor 17,450 471,150
Novoste (b) 5,300 212,000
----------
1,984,158
---------------------------------------------------------------------
PRODUCER MANUFACTURING - 5.2%
Advanced Lighting
Technologies (b) 5,200 97,500
Applied Science and
Technology (b) 13,800 417,450
IFCO Systems, foreign (b) 4,725 108,084
Trex Company (b) 3,200 122,400
Zebra Technologies Class A (b) 10,400 520,000
----------
1,265,434
---------------------------------------------------------------------
RETAIL TRADE - 7.6%
Express Scripts Class A (b) 2,400 100,800
Kenneth Cole Productions
Class A (b) 7,100 278,675
99 Cents Only Stores (b) 15,900 624,075
Pacific Sunwear of California (b) 14,100 542,850
Wild Oats Markets (b) 15,250 312,625
----------
1,859,025
---------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
18
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI CAPITAL APPRECIATION FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS (CONT.) - 94.0%
Market
Quantity Value (a)
------------------------------------------------------------
TECHNOLOGY SERVICES - 13.8%
Alamosa PCS Holdings (b) 5,600 $ 211,400
American Mobile Satellite (b) 11,700 280,800
CCC Information Services Group (b) 41,900 900,850
Diamond Technology Partners (b) 1,400 92,050
DSET (b) 18,000 331,875
Exchange Applications (b) 5,400 285,778
Great Plains Software (b) 4,700 250,863
iGATE Capital (b) 7,700 347,463
IMRglobal (b) 39,500 567,813
Wavo (b) 25,500 113,953
----------
3,382,845
-----------------------------------------------------------
TELECOMMUNICATION
TECHNOLOGY - 14.0%
Advanced Radio Telecom (b) 7,300 241,812
ANADIGICS (b) 6,300 415,800
ANTEC (b) 8,200 367,462
Aware (b) 3,400 136,425
BreezeCom, foreign (b) 5,000 186,875
CommScope (b) 3,200 146,000
Com21 (b) 5,500 258,500
Digital Microwave (b) 8,600 291,325
Orckit Communications, foreign (b) 4,900 328,300
Tollgrade Communications (b) 15,800 837,400
Westell Technologies Class A (b) 6,900 219,937
----------
3,429,836
-----------------------------------------------------------
TRANSPORTATION - 0.7%
Atlas Air (b) 6,500 177,938
===========================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $18,665,038)............................ $23,023,098
===========================================================
SHORT-TERM SECURITIES - 8.7%
Principal Market
Rate Maturity Amount/Shares Value (a)
--------------------------------------------------------------------------------
COMMERCIAL PAPER - 4.9%
Gillette (Consumer Non-Durables) (e)
6.20% 04/03/00 $1,200,000 $1,199,587
--------------------------------------------------------------------------------
INVESTMENT COMPANY - 3.8%
Firstar Institutional Money Market Fund
5.69% 919,835 919,835
================================================================================
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES (COST: $2,119,422)...................................... $2,119,422
================================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $20,784,460) (g)............................................ $25,142,520
================================================================================
OTHER ASSETS AND LIABILITIES
(NET) - (2.7)% .................................................... $(656,881)
================================================================================
TOTAL NET ASSETS .................................................. $24,485,639
================================================================================
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
19
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI EMERGING GROWTH FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 97.9%
Market
Quantity Value (a)
----------------------------------------------------------------------
COMMERCIAL SERVICES - 6.3%
Catalina Marketing (b) 14,100 $ 1,427,625
Official Payments (b) 8,500 357,000
Profit Recovery Group
International (b) 71,800 1,328,300
TTI Team Telecom
International, foreign (b) 26,000 858,000
Valassis Communications (b) 49,100 1,635,644
-----------
5,606,569
----------------------------------------------------------------------
CONSUMER DURABLES - 3.1%
Aftermarket Technology (b) 224,600 2,807,500
----------------------------------------------------------------------
CONSUMER NON-DURABLES - 2.6%
JAKKS Pacific (b) 109,450 2,360,016
----------------------------------------------------------------------
CONSUMER SERVICES - 3.3%
Apollo Group Class A (b) 31,150 878,041
Hotel Reservations Network
Class A (b) 47,800 848,450
Papa John's International (b) 36,600 1,207,800
-----------
2,934,291
----------------------------------------------------------------------
ELECTRONIC TECHNOLOGY - 23.5%
ADE (b) 17,100 376,200
American Xtal Technology (b) 35,800 1,159,025
ArrowPoint Communications (b) 900 106,636
AstroPower (b) 20,900 675,331
California Amplifier (b) 13,600 421,600
Cognex (b) 13,600 784,550
Datalink (b) 59,200 1,184,000
Exar (b) 20,000 1,431,250
Lattice Semiconductor (b) 25,200 1,705,725
Mercury Computer Systems (b) 45,200 2,209,150
National Computer Systems 26,000 1,319,500
REMEC (b) 60,600 3,060,300
Sawtek (b) 25,600 1,345,600
Three-Five Systems (b) 48,300 2,898,000
Visual Networks (b) 9,000 510,750
Zamba (b) 78,300 819,703
Zoran (b) 17,500 985,469
-----------
20,992,789
----------------------------------------------------------------------
Market
Quantity Value (a)
----------------------------------------------------------------------
ENERGY MINERALS - 1.8%
Patterson Energy (b) 50,800 $ 1,612,900
----------------------------------------------------------------------
FINANCIAL - 2.8%
Radian Group 52,600 2,505,075
----------------------------------------------------------------------
HEALTH SERVICES - 3.2%
Patterson Dental (b) 30,900 1,181,925
Renal Care Group (b) 78,100 1,693,794
-----------
2,875,719
----------------------------------------------------------------------
HEALTH TECHNOLOGY - 8.4%
Albany Molecular Research (b) 23,900 1,395,162
Antigenics (b) 4,100 83,537
Coherent (b) 22,200 1,154,400
Eclipse Surgical Technologies (b) 33,300 247,669
Emisphere Technologies (b) 16,200 840,375
GalaGen (b) 4,874 12,642
InfoCure (b) 56,300 978,212
Maxygen (b) 3,800 247,712
Mentor 66,100 1,784,700
Novoste (b) 20,000 800,000
-----------
7,544,409
----------------------------------------------------------------------
PRODUCER MANUFACTURING - 5.6%
Advanced Lighting
Technologies (b) 19,600 367,500
Applied Science and
Technology (b) 52,000 1,573,000
IFCO Systems, foreign (b) 18,789 429,798
Trex Company (b) 13,100 501,075
Zebra Technologies Class A (b) 43,000 2,150,000
-----------
5,021,373
----------------------------------------------------------------------
RETAIL TRADE - 8.0%
Express Scripts Class A (b) 10,900 457,800
Kenneth Cole Productions
Class A (b) 26,900 1,055,825
99 Cents Only Stores (b) 60,233 2,364,145
Pacific Sunwear of California (b) 53,300 2,052,050
Wild Oats Markets (b) 58,800 1,205,400
-----------
7,135,220
----------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
20
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI EMERGING GROWTH FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS (CONT.) - 97.9%
Market
Quantity Value (a)
------------------------------------------------------------
TECHNOLOGY SERVICES - 14.2%
Alamosa PCS Holdings (b) 21,300 $ 804,075
American Mobile Satellite (b) 44,400 1,065,600
CCC Information Services Group (b) 145,800 3,134,700
Diamond Technology Partners (b) 5,100 335,325
DSET (b) 68,100 1,255,594
Exchange Applications (b) 20,500 1,084,898
Great Plains Software (b) 17,900 955,413
iGATE Capital (b) 32,300 1,457,538
IMRglobal (b) 149,300 2,146,188
Wavo (b) 96,400 430,788
----------
12,670,119
------------------------------------------------------------
TELECOMMUNICATION
TECHNOLOGY - 14.3%
Advanced Radio Telecom (b) 27,700 917,562
ANADIGICS (b) 23,950 1,580,700
ANTEC (b) 31,100 1,393,669
Aware (b) 13,300 533,662
BreezeCom, foreign (b) 17,800 665,275
CommScope (b) 11,900 542,937
Com21 (b) 20,900 982,300
Digital Microwave (b) 32,400 1,097,550
Orckit Communications, foreign (b) 18,300 1,226,100
Tollgrade Communications (b) 57,200 3,031,600
Westell Technologies Class A (b) 26,000 828,750
-----------
12,800,105
------------------------------------------------------------
TRANSPORTATION - 0.8%
Atlas Air (b) 24,700 676,163
============================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $70,732,770)............................. $87,542,248
============================================================
RESTRICTED SECURITIES - 0.2%
Ownership Market
Percentage (d) Value (a)
------------------------------------------------------------
LIMITED PARTNERSHIPS - 0.2%
Alta Berkeley III, foreign (b) 1.78% $161,520
South Street Corporate Recovery
Fund I (b) 0.69 --
South Street Leveraged Corporate
Recovery Fund I (b) 1.65 --
--------
161,520
------------------------------------------------------------
Exercise Principal Market
Rate Date Amount (d) Value (a)
------------------------------------------------------------
CONVERTIBLE DEBENTURES - 0.0%
Air Communications Series B (b)
10.00% 02/28/97 $258,332 $ --
----------
--
------------------------------------------------------------
Exercise Market
Exercise Price Date Quantity (d) Value (a)
------------------------------------------------------------
WARRANTS - 0.0%
GalaGen,
$ 11.08 07/09/00 1,805 $ --
GalaGen,
$ 11.08 01/29/01 22,501 --
----------
--
============================================================
TOTAL INVESTMENTS IN RESTRICTED
SECURITIES (COST: $372,822)........................ $161,520
============================================================
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
21
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI EMERGING GROWTH FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
SHORT-TERM SECURITIES - 3.3%
Principal Market
Rate Maturity Amount/Shares Value (a)
-------------------------------------------------------------------------------
COMMERCIAL PAPER - 2.9%
Associates (FINANCIAL)
6.20% 04/03/00 $2,500,000 $2,549,122
-------------------------------------------------------------------------------
INVESTMENT COMPANY - 0.4%
Firstar Institutional Money Market Fund
5.69% 375,260 375,260
===============================================================================
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES (COST: $2,924,382)..................................... $2,924,382
===============================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $74,029,974) (g)........................................... $90,628,150
===============================================================================
OTHER ASSETS AND LIABILITIES
(NET) - (1.4)% ................................................... $(1,227,531)
===============================================================================
TOTAL NET ASSETS ................................................. $89,400,619
===============================================================================
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
22
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI GROWTH FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 99.3%
Market
Quantity Value (a)
------------------------------------------------------------------
COMMERCIAL SERVICES - 3.0%
Amdocs (b) 3,460 $ 254,959
------------------------------------------------------------------
CONSUMER DURABLES - 2.4%
Electronic Arts (b) 2,800 199,325
------------------------------------------------------------------
CONSUMER NON-DURABLES - 1.6%
PepsiCo 3,800 131,337
------------------------------------------------------------------
CONSUMER SERVICES - 3.9%
Clear Channel Communications (b) 2,300 158,844
Time Warner 1,700 170,000
----------
328,844
------------------------------------------------------------------
ELECTRONIC TECHNOLOGY - 20.9%
Cisco Systems (b) 7,100 548,919
EMC (b) 2,150 268,750
Intel 4,240 559,415
JDS Uniphase (b) 1,000 120,562
Sun Microsystems (b) 2,900 271,739
----------
1,769,385
------------------------------------------------------------------
FINANCIAL - 7.5%
American International Group 1,337 146,401
Citigroup 2,500 148,281
The Charles Schwab 5,900 335,194
----------
629,876
------------------------------------------------------------------
HEALTH SERVICES - 2.9%
Cardinal Health 5,295 242,908
------------------------------------------------------------------
HEALTH TECHNOLOGY - 13.0%
Bristol-Myers Squibb 2,510 144,953
Genentech (b) 800 121,600
Medtronic 4,700 241,756
Schering-Plough 4,750 174,563
Warner-Lambert 4,280 417,300
----------
1,100,172
------------------------------------------------------------------
Market
Quantity Value (a)
------------------------------------------------------------------
PROCESS INDUSTRIES - 4.4%
General Electric 2,420 $ 375,554
------------------------------------------------------------------
PRODUCER MANUFACTURING - 4.4%
Tyco International, foreign 7,450 371,569
------------------------------------------------------------------
RETAIL TRADE - 9.2%
CVS 4,700 176,544
The Gap 4,200 209,213
Lowe's Companies 3,250 189,719
Wal-Mart Stores 3,550 197,025
----------
772,501
------------------------------------------------------------------
TECHNOLOGY SERVICES - 15.0%
America Online (b) 4,200 282,450
Global Crossing, foreign (b) 3,050 124,859
Microsoft (b) 4,140 439,875
Oracle (b) 5,400 421,538
----------
1,268,722
------------------------------------------------------------------
TELECOMMUNICATION TECHNOLOGY - 8.0%
Lucent Technologies 4,230 256,972
Motorola 800 113,900
Nortel Networks 2,400 302,400
----------
673,272
----------
UTILITIES - 3.1%
MCI WorldCom (b) 3,700 167,656
Sprint 1,500 94,500
----------
262,156
==================================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $6,635,194)..................................... $8,380,580
==================================================================
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
23
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI GROWTH FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
SHORT-TERM SECURITY - 2.9%
Market
Rate Shares Value (a)
-----------------------------------------------------------------------
INVESTMENT COMPANY - 2.9%
Firstar Institutional Money Market Fund
5.69% 249,869 $249,869
========================================================================
TOTAL INVESTMENT IN SHORT-TERM
SECURITY (COST: $249,869)................................... $249,869
========================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $6,885,063) (g)...................................... $8,630,449
========================================================================
OTHER ASSETS AND LIABILITIES
(NET) - (2.2%) .............................................. $(188,084)
========================================================================
TOTAL NET ASSETS ............................................ $8,442,365
========================================================================
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
24
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI GROWTH AND INCOME FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 96.9%
Market
Quantity Value (a)
--------------------------------------------------------------------
COMMERCIAL SERVICES - 1.2%
Amdocs (b) 5,100 $ 375,806
--------------------------------------------------------------------
CONSUMER DURABLES - 2.1%
Electronic Arts (b) 9,200 654,925
--------------------------------------------------------------------
CONSUMER NON-DURABLES - 2.1%
Colgate-Palmolive 4,500 253,687
PepsiCo 12,000 414,750
----------
668,437
--------------------------------------------------------------------
CONSUMER SERVICES - 3.4%
Clear Channel Communications (b) 6,100 421,281
Time Warner 6,300 630,000
----------
1,051,281
--------------------------------------------------------------------
ELECTRONIC TECHNOLOGY - 19.2%
Analog Devices (b) 6,000 483,375
Cisco Systems (b) 12,600 974,137
EMC (b) 2,700 337,500
Flextronics International (b) 16,400 1,155,175
Intel 9,100 1,200,631
JDS Uniphase (b) 1,400 168,787
Palm (b) 8,800 394,900
Sun Microsystems (b) 5,300 496,627
Synopsys (b) 16,600 809,250
----------
6,020,382
--------------------------------------------------------------------
ENERGY MINERALS - 5.7%
Chevron 3,000 277,313
Exxon Mobil 9,100 708,094
Halliburton 7,100 291,100
Schlumberger 4,500 344,250
Texaco 3,300 176,963
----------
1,797,720
--------------------------------------------------------------------
Market
Quantity Value (a)
--------------------------------------------------------------------
FINANCIAL - 9.2%
American International Group 3,400 $ 372,300
Bank of America 5,800 304,137
Charles Schwab 8,400 477,225
Chase Manhattan 3,000 261,563
Citigroup 9,650 572,366
Freddie Mac 8,000 353,500
Mellon Financial 7,300 215,350
Wells Fargo 8,200 335,688
----------
2,892,129
--------------------------------------------------------------------
HEALTH SERVICES - 1.8%
Cardinal Health 12,100 555,087
--------------------------------------------------------------------
HEALTH TECHNOLOGY - 8.1%
Baxter International 4,700 294,631
Bristol-Myers Squibb 6,000 346,500
GalaGen (b) 1,625 4,215
Medtronic 16,200 833,287
Schering-Plough 12,100 444,675
Warner-Lambert 6,500 633,750
----------
2,557,058
--------------------------------------------------------------------
NON-ENERGY MINERALS - 0.5%
Weyerhaeuser 3,000 171,000
--------------------------------------------------------------------
PROCESS INDUSTRIES - 4.5%
General Electric 6,900 1,070,794
Praxair 8,000 333,000
----------
1,403,794
--------------------------------------------------------------------
PRODUCER MANUFACTURING - 3.5%
Tyco International, foreign 22,300 1,112,213
--------------------------------------------------------------------
RETAIL TRADE - 8.6%
CVS 9,000 338,063
Dollar General 22,500 604,688
The Gap 9,400 468,238
Lowe's Companies 7,500 437,813
Target 6,100 455,975
Wal-Mart Stores 7,100 394,050
----------
2,698,827
--------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
25
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI GROWTH AND INCOME FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS (CONT.) - 96.9%
Market
Quantity Value (a)
-----------------------------------------------------
TECHNOLOGY SERVICES - 16.0%
America Online (b) 10,400 $ 699,400
Citrix Systems (b) 3,200 212,000
Global Crossing, foreign (b) 6,500 266,094
MatrixOne (b)(f) 122,428 1,955,787
Microsoft (b) 12,200 1,296,250
Oracle (b) 7,800 608,887
-----------
5,038,418
-----------------------------------------------------
TELECOMMUNICATION TECHNOLOGY - 4.6%
Lucent Technologies 12,700 771,525
Motorola 2,100 298,987
Nortel Networks 3,000 378,000
-----------
1,448,512
-----------------------------------------------------
UTILITIES - 6.4%
AT&T 8,600 483,750
Bell Atlantic 8,300 507,337
Enron 5,200 389,350
MCI WorldCom (b) 8,250 373,828
Sprint 4,000 252,000
-----------
2,006,265
=====================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $23,868,895)...................... $30,451,854
=====================================================
RESTRICTED SECURITIES - 0.7%
Ownership Market
Percentage (d) Value (a)
--------------------------------------------------------------
LIMITED PARTNERSHIPS - 0.7%
Alta Berkeley III, foreign (b) 1.78% $161,520
South Street Corporate Recovery
Fund I (b) 1.44 --
Vanguard Associates III (b) 6.55 42,409
--------
203,929
==============================================================
TOTAL INVESTMENTS IN RESTRICTED
SECURITIES (COST: $545,041)..................... $203,929
==============================================================
SHORT-TERM SECURITY - 1.6%
Market
Rate Shares Value (a)
--------------------------------------------------------------
INVESTMENT COMPANY - 1.6%
Firstar Institutional Money Market Fund
5.69% 510,292 $510,292
==============================================================
TOTAL INVESTMENT IN SHORT-TERM
SECURITY (COST: $510,292)....................... $510,292
==============================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $24,924,228) (g)......................... $31,166,075
==============================================================
OTHER ASSETS AND LIABILITIES
(NET) - 0.8% ................................... $250,126
==============================================================
TOTAL NET ASSETS ............................... $31,416,201
==============================================================
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
26
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI MIDCAP GROWTH FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 98.3%
Market
Quantity Value (a)
-------------------------------------------------------------------
COMMERCIAL SERVICES - 6.6%
Amdocs (b) 13,100 $ 965,306
Cintas 12,150 476,128
Paychex 6,350 332,581
Robert Half International (b) 8,400 398,475
Valassis Communications (b) 19,600 652,925
-----------
2,825,415
-------------------------------------------------------------------
CONSUMER DURABLES - 2.7%
Electronic Arts (b) 10,300 733,231
Leggett & Platt 20,400 438,600
-----------
1,171,831
-------------------------------------------------------------------
CONSUMER NON-DURABLES - 3.5%
Jones Apparel Group (b) 20,600 656,625
McCormick & Company
Non Voting Shares 7,100 228,975
Starbucks (b) 14,000 627,375
-----------
1,512,975
-------------------------------------------------------------------
CONSUMER SERVICES - 3.9%
Apollo Group Class A (b) 27,000 761,062
DeVry (b) 12,100 369,050
Papa John's International (b) 15,600 514,800
-----------
1,644,912
-------------------------------------------------------------------
ELECTRONIC TECHNOLOGY - 24.2%
Altera (b) 10,100 901,425
Analog Devices (b) 16,302 1,313,330
Cabletron Systems (b) 18,000 527,625
CIENA (b) 7,800 983,775
Cognex (b) 3,800 219,212
DII Group (b) 8,500 961,031
Flextronics International (b) 7,500 528,281
Kopin (b) 2,600 178,750
Microchip Technology (b) 9,000 591,750
QLogic (b) 6,300 853,650
REMEC (b) 28,500 1,439,250
Sawtek (b) 4,600 241,788
Synopsys (b) 11,000 536,250
VERITAS Software (b) 7,800 1,021,800
-----------
10,297,917
-------------------------------------------------------------------
Market
Quantity Value (a)
-------------------------------------------------------------------
ENERGY MINERALS - 1.3%
Smith International (b) 7,000 $ 542,500
-------------------------------------------------------------------
FINANCIAL - 6.0%
AFLAC 7,300 332,606
City National 11,900 400,881
First Tennessee National 9,100 184,844
Knight/Trimark Group (b) 12,800 652,800
Mercantile Bankshares 10,800 330,075
T. Rowe Price Associates 11,100 438,450
Zions 5,300 220,613
-----------
2,560,269
-------------------------------------------------------------------
HEALTH SERVICES - 1.9%
Health Management
Associates Class A (b) 55,500 790,875
-------------------------------------------------------------------
HEALTH TECHNOLOGY - 9.6%
Biogen (b) 10,300 719,713
Biomet 14,700 534,713
GalaGen (b) 1,354 3,512
Healtheon/WebMD (b) 16,600 381,800
MedImmune (b) 2,100 365,662
MiniMed (b) 2,200 284,900
Mylan Laboratories 24,000 660,000
Sybron International (b) 21,700 629,300
Watson Pharmaceuticals (b) 12,400 492,125
-----------
4,071,725
-------------------------------------------------------------------
INDUSTRIAL SERVICES - 1.8%
Nabors Industries (b) 19,700 764,606
-------------------------------------------------------------------
PRODUCER MANUFACTURING - 1.5%
American Power Conversion (b) 14,500 621,688
-------------------------------------------------------------------
RETAIL TRADE - 7.8%
Abercrombie & Fitch Class A (b) 10,300 164,800
American Eagle Outfitters (b) 14,200 538,712
Bed Bath & Beyond (b) 17,500 689,063
Express Scripts Class A (b) 8,800 369,600
Family Dollar Stores 28,200 586,912
Kohl's (b) 5,000 512,500
Ross Stores 7,800 187,688
Staples (b) 14,350 287,000
-----------
3,336,275
-------------------------------------------------------------------
See accompanying Notes to Fund Portfolios on page 33
27
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI MIDCAP GROWTH FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS (CONT.) - 98.3%
Market
Quantity Value (a)
---------------------------------------------------------
TECHNOLOGY SERVICES - 9.4%
CIBER (b) 12,300 $ 252,150
Citrix Systems (b) 8,700 576,375
Fiserv (b) 14,600 542,938
i2 Technologies (b) 2,500 305,313
Legato Systems (b) 6,800 303,450
Peregrine Systems (b) 13,200 885,225
Siebel Systems (b) 9,400 1,122,713
-----------
3,988,164
---------------------------------------------------------
TELECOMMUNICATION
TECHNOLOGY - 16.4%
ADC Telecommunications (b) 25,600 1,379,200
Aware (b) 7,300 292,912
CommScope (b) 13,000 593,125
Comverse Technology (b) 2,800 529,200
Digital Microwave (b) 19,400 657,175
Linear Technology 20,400 1,122,000
Maxim Integrated Products (b) 17,600 1,250,700
Vitesse Semiconductor (b) 12,200 1,174,250
-----------
6,998,562
---------------------------------------------------------
UTILITIES - 1.7%
Citizens Utilities Class B (b) 19,200 314,400
Telephone and Data Systems 3,700 410,700
-----------
725,100
=========================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $28,594,812).......................... $41,852,814
=========================================================
RESTRICTED SECURITY - 0.0%
Ownership Market
Percentage (d) Value (a)
---------------------------------------------------------
LIMITED PARTNERSHIP - 0.0%
South Street Leveraged Corporate
Recovery Fund I 1.10% $ --
=========================================================
TOTAL INVESTMENT IN RESTRICTED
SECURITY (COST: $0)................................ $ --
=========================================================
SHORT-TERM SECURITIES - 7.6%
Principal Market
Rate Maturity Amount/Shares Value (a)
--------------------------------------------------------------------------------
COMMERCIAL PAPER - 4.7%
BP Amoco Capital (Financial)
6.23% 04/03/00 $2,000,000 $1,999,308
-------------------------------------------------------------------------------
INVESTMENT COMPANY - 2.9%
Firstar Institutional Money Market Fund
5.69% 1,217,949 1,217,949
===============================================================================
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES (COST: $3,217,257)...................................... $3,217,257
===============================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $31,812,069) (g)............................................ $45,070,071
===============================================================================
OTHER ASSETS AND LIABILITIES
(NET) - (5.9%)..................................................... $(2,502,568)
===============================================================================
TOTAL NET ASSETS .................................................. $42,567,503
===============================================================================
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
28
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI REGIONAL FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 88.7%
Market
Quantity Value (a)
-----------------------------------------------------------------
COMMERCIAL SERVICES - 1.3%
R.R. Donnelley & Sons 120,000 $ 2,512,500
-----------------------------------------------------------------
CONSUMER NON-DURABLES - 3.1%
McDonald's 155,000 5,822,187
-----------------------------------------------------------------
CONSUMER SERVICES - 5.9%
DeVry (b) 155,000 4,727,500
Time Warner 65,400 6,540,000
-----------
11,267,500
-----------------------------------------------------------------
ELECTRONIC TECHNOLOGY - 4.7%
Corning 35,000 6,790,000
Metromedia Fiber Network
Class A (b) 22,000 2,128,500
-----------
8,918,500
-----------------------------------------------------------------
ENERGY MINERALS - 3.9%
Diamond Offshore Drilling 68,000 2,715,750
Exxon Mobil 61,000 4,746,562
-----------
7,462,312
-----------------------------------------------------------------
FINANCIAL - 4.4%
Household International 105,000 3,917,813
MGIC Investment 100,000 4,362,500
-----------
8,280,313
-----------------------------------------------------------------
HEALTH TECHNOLOGY - 16.4%
Abbott Laboratories 100,000 3,518,750
Allergan 51,900 2,595,000
Baxter International 77,000 4,826,938
Diametrics Medical (b) 790,400 8,892,000
GalaGen (b) 7,312 18,967
Medtronic 125,000 6,429,687
Sybron International (b) 167,500 4,857,500
-----------
31,138,842
-----------------------------------------------------------------
PROCESS INDUSTRIES - 4.4%
AptarGroup 181,000 4,830,437
Bemis Company 95,000 3,503,125
-----------
8,333,562
-----------------------------------------------------------------
Market
Quantity Value (a)
-----------------------------------------------------------------
PRODUCER MANUFACTURING - 11.3%
Emerson Electric 50,000 $ 2,643,750
Minnesota Mining and
Manufacturing 65,000 5,756,562
Pentair 153,500 5,689,094
TRW 75,000 4,387,500
Zebra Technologies Class A (b) 61,300 3,065,000
-----------
21,541,906
-----------------------------------------------------------------
RETAIL TRADE - 4.3%
Target 58,500 4,372,875
Walgreen 150,000 3,862,500
-----------
8,235,375
-----------------------------------------------------------------
TECHNOLOGY SERVICES - 9.0%
America Online (b) 40,000 2,690,000
DST Systems (b) 91,000 5,909,313
Diamond Technology Partners (b) 25,000 1,643,750
IntraNet Solutions (b) 110,000 5,060,000
S1 (b) 21,000 1,799,437
-----------
17,102,500
-----------------------------------------------------------------
TELECOMMUNICATION
TECHNOLOGY - 12.6%
ADC Telecommunications (b) 156,000 8,404,500
Harris 120,000 4,147,500
Motorola (b) 43,500 6,193,312
QUALCOMM (b) 20,000 2,986,250
Tellabs (b) 35,000 2,204,453
-----------
23,936,015
-----------------------------------------------------------------
TRANSPORTATION - 1.9%
C.H. Robinson Worldwide 95,000 3,538,750
-----------------------------------------------------------------
UTILITIES - 5.5%
AT&T 85,000 4,781,250
Telephone and Data Systems 52,000 5,772,000
-----------------------------------------------------------------
10,553,250
=================================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $137,914,960)................................ $168,643,512
=================================================================
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
29
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI REGIONAL FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
RESTRICTED SECURITIES - 0.4%
Market
Quantity (d) Value (a)
-----------------------------------------------------------------
COMMON STOCKS - 0.2%
Anglo Chinese Investment
Company, foreign (b) 1,600 $303,120
Westgate Acquisition (b) 42,272 --
--------
303,120
----------------------------------------------------------------
NON-CONVERTIBLE PREFERRED
STOCK - 0.0%
Westgate Acquisitions Series A (b) 86,198 --
----------------------------------------------------------------
Ownership Market
Percentage (d) Value (a)
----------------------------------------------------------------
LIMITED PARTNERSHIPS - 0.2%
Alta Berkeley III, foreign (b) 3.56% $323,050
South Street Corporate
Recovery Fund I (b) 3.08 --
South Street Leveraged Corporate
Recovery Fund I (b) 3.85 --
Vanguard Associates III (b) 6.20 63,169
---------
386,219
----------------------------------------------------------------
Exercise Principal Market
Rate Date Amount (d) Value (a)
----------------------------------------------------------------
CONVERTIBLE DEBENTURES - 0.0%
Air Communications Series B (b)
10.00% 02/28/97 $258,332 $ --
----------------------------------------------------------------
Exercise Exercise Market
Price Date Quantity (d) Value (a)
----------------------------------------------------------------
WARRANTS - 0.0%
GalaGen,
$ 11.08 07/09/00 1,805 $ --
GalaGen,
$ 11.08 01/29/01 7,500 --
----------
--
================================================================
TOTAL INVESTMENTS IN RESTRICTED
SECURITIES (COST: $1,496,317).......................... $689,339
================================================================
SHORT-TERM SECURITIES - 8.0%
Principal Market
Rate Maturity Amount/Shares Value (a)
--------------------------------------------------------------------------------
COMMERCIAL PAPER - 7.5%
BP Amoco Capital (FINANCIAL)
6.23% 04/03/00 $4,300,000 $4,298,512
Bell Atlantic Network Funding (FINANCIAL)
6.00% 04/10/00 3,000,000 2,995,500
Warner Lambert (HEALTH TECHNOLOGY) (e)
5.98% 04/04/00 3,000,000 2,998,505
Wisconsin Electric Fuel (UTILITIES)
6.00% 04/14/00 1,048,000 1,045,729
Xerox (PRODUCER MANUFACTURING)
6.20% 04/06/00 3,000,000 2,997,492
----------
14,335,738
--------------------------------------------------------------------------------
INVESTMENT COMPANY - 0.5%
Firstar Institutional Money Market Fund
5.69% 975,478 975,478
================================================================================
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES (COST: $15,311,216)...................................... $15,311,216
================================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $154,722,493) (g)........................................... $184,644,067
================================================================================
OTHER ASSETS AND LIABILITIES
(NET) - 2.9% ...................................................... $5,524,184
================================================================================
TOTAL NET ASSETS .................................................. $190,168,251
================================================================================
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
30
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI VALUE FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 94.4%
Market
Quantity Value (a)
---------------------------------------------------------------------
COMMERCIAL SERVICES - 6.0%
Catalina Marketing (b) 2,500 $ 253,125
Official Payments (b) 1,500 63,000
Profit Recovery Group
International (b) 12,700 234,950
TTI Team Telecom
International, foreign (b) 4,700 155,100
Valassis Communications (b) 8,800 293,150
---------
999,325
---------------------------------------------------------------------
CONSUMER DURABLES - 3.1%
Aftermarket Technology (b) 41,600 520,000
---------------------------------------------------------------------
CONSUMER NON-DURABLES - 2.6%
JAKKS Pacific (b) 19,700 424,781
---------------------------------------------------------------------
CONSUMER SERVICES - 2.9%
Apollo Group Class A (b) 5,600 157,850
Hotel Reservations Network
Class A (b) 8,600 152,650
Papa John's International (b) 4,900 161,700
---------
472,200
---------------------------------------------------------------------
ELECTRONIC TECHNOLOGY - 23.8%
ADE (b) 3,100 68,200
Advanced Radio Telecom (b) 5,000 165,625
American Xtal Technology (b) 6,400 207,200
ArrowPoint Communications (b) 200 23,697
AstroPower (b) 3,800 122,787
California Amplifier (b) 2,500 77,500
Cognex (b) 2,500 144,219
Datalink (b) 10,000 200,000
Exar (b) 3,600 257,625
Lattice Semiconductor (b) 4,500 304,594
Mercury Computer Systems (b) 8,100 395,888
National Computer Systems 4,700 238,525
REMEC (b) 10,900 550,450
Sawtek (b) 4,600 241,788
Three-Five Systems (b) 8,733 523,980
Visual Networks (b) 1,600 90,800
Zamba (b) 14,095 147,557
Zoran (b) 3,100 174,569
---------
3,935,004
---------------------------------------------------------------------
Market
Quantity Value (a)
---------------------------------------------------------------------
ENERGY MINERALS - 1.8%
Patterson Energy (b) 9,100 $ 288,925
---------------------------------------------------------------------
FINANCIAL - 2.7%
Radian Group 9,500 452,438
---------------------------------------------------------------------
HEALTH SERVICES - 3.1%
Patterson Dental (b) 5,600 214,200
Renal Care Group (b) 14,000 303,625
---------
517,825
---------------------------------------------------------------------
HEALTH TECHNOLOGY - 8.2%
Albany Molecular Research (b) 4,300 251,012
Antigenics (b) 700 14,262
Coherent (b) 4,000 208,000
Eclipse Surgical Technologies (b) 6,000 44,625
Emisphere Technologies (b) 2,900 150,438
InfoCure (b) 10,100 175,488
Maxygen (b) 700 45,631
Mentor 11,900 321,300
Novoste (b) 3,600 144,000
---------
1,354,756
---------------------------------------------------------------------
PRODUCER MANUFACTURING - 5.2%
Advanced Lighting
Technologies (b) 3,500 65,625
Applied Science and
Technology (b) 9,400 284,350
IFCO Systems, foreign (b) 3,388 77,501
Trex Company (b) 2,200 84,150
Zebra Technologies Class A (b) 7,100 355,000
---------
866,626
---------------------------------------------------------------------
RETAIL TRADE - 7.6%
Express Scripts Class A (b) 1,600 67,200
Kenneth Cole Productions
Class A (b) 4,800 188,400
99 Cents Only Stores (b) 10,799 423,861
Pacific Sunwear of California (b) 9,600 369,600
Wild Oats Markets (b) 10,350 212,175
---------
1,261,236
---------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
31
--------------------------------------------------------------------------------
<PAGE>
FUND PORTFOLIO
IAI VALUE FUND
MARCH 31, 2000
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS (CONT.) - 94.4%
Market
Quantity Value (a)
-----------------------------------------------------------
TECHNOLOGY SERVICES - 13.8%
Alamosa PCS Holdings (b) 3,800 $ 143,450
American Mobile Satellite (b) 8,000 192,000
CCC Information Services Group (b) 27,600 593,400
Diamond Technology Partners (b) 900 59,175
DSET (b) 12,200 224,937
Exchange Applications (b) 3,700 195,811
Great Plains Software (b) 3,200 170,800
iGATE Capital (b) 5,300 239,163
IMRglobal (b) 26,900 386,687
Wavo (b) 17,300 77,309
----------
2,282,732
-----------------------------------------------------------
TELECOMMUNICATION
TECHNOLOGY - 12.9%
ANADIGICS (b) 4,300 283,800
ANTEC (b) 5,600 250,950
Aware (b) 2,300 92,287
BreezeCom, foreign (b) 3,200 119,600
CommScope (b) 2,100 95,812
Com21 (b) 3,800 178,600
Digital Microwave (b) 5,800 196,475
Orckit Communications, foreign (b) 3,300 221,100
Tollgrade Communications (b) 10,300 545,900
Westell Technologies Class A (b) 4,700 149,812
----------
2,134,336
-----------------------------------------------------------
TRANSPORTATION - 0.7%
Atlas Air (b) 4,500 123,188
===========================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $13,641,440)............................ $15,633,372
===========================================================
RESTRICTED SECURITIES - 0.1%
Market
Quantity (d) Value (a)
-----------------------------------------------------------
COMMON STOCKS - 0.0%
Westgate Acquisitions (b) 42,272 $ --
-----------------------------------------------------------
NON-CONVERTIBLE PREFERRED
STOCKS - 0.0%
Westgate Acquisitions Series A (b) 86,198 $ --
-----------------------------------------------------------
Ownership Market
Percentage (d) Value (a)
-----------------------------------------------------------
LIMITED PARTNERSHIPS - 0.1%
South Street Leveraged
Corporate Recovery Fund I (b) 1.10% $ --
Vanguard Associates III (b) 1.42 11,795
---------
11,795
===========================================================
TOTAL INVESTMENTS IN RESTRICTED
SECURITIES (COST: $188,241)........................ $11,795
===========================================================
SHORT-TERM SECURITIES - (5.0)%
Principal Market
Rate Amount/Shares Value (a)
-----------------------------------------------------------
DEMAND NOTE - 0.9%
Wisconsin Electric (UTILITIES)
5.77% (c) $141,760 $ 141,760
-----------------------------------------------------------
INVESTMENT COMPANY - 4.1%
Firstar Institutional Money Market Fund
5.69% 683,686 683,686
===========================================================
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES (COST: $825,446)....................... $825,446
===========================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $14,655,127) (g)........................ $16,470,613
===========================================================
OTHER ASSETS AND LIABILITIES
(NET) - 0.5% .................................. $90,871
===========================================================
TOTAL NET ASSETS .............................. $16,561,484
===========================================================
SEE ACCOMPANYING NOTES TO FUND PORTFOLIOS ON PAGE 33
32
--------------------------------------------------------------------------------
<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
MARCH 31, 2000
(a)
Market value of securities is determined as described in Note 1 to the financial
statements, under Security Valuation.
(b)
Currently a 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 rate
listed is as of March 31, 2000.
(d)
Restricted securities generally must be registered with the Securities and
Exchange Commission under the Securities Act of 1933 prior to being sold to the
public.
For each restricted security issue at March 31, 2000, the Fund held no
unrestricted securities of the same issuer as of either the date the purchase
price was agreed to or the date the Fund first obtained an enforceable right to
obtain the securities. Information concerning each restricted security held at
March 31, 2000, is shown on pages 34 - 35.
(e)
Represents security sold within terms of a private placement memorandum exempt
from registration under Section 144A 4(a) of the Securities Act of 1933. These
issues may only be sold to other qualified institutional buyers and are
considered liquid under guidelines established by the Board of Directors.
(f)
The security is valued at a discount to reflect the terms of a litigation
settlement agreement. See Note 2 in Notes to Financial Statements, shown on
pages 53 - 58.
(g)
At March 31, 2000, 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 .... $ 20,843,800 $ 74,520,563 $ 6,907,406 $ 25,040,174
==================================================================
Gross unrealized appreciation ........... $ 5,568,076 $ 20,939,180 $ 1,914,094 $ 7,391,042
Gross unrealized depreciation ........... (1,269,356) (4,831,593) (191,051) (1,265,141)
------------------------------------------------------------------
Net unrealized appreciation ............. $ 4,298,720 $ 16,107,587 $ 1,723,043 $ 6,125,901
==================================================================
</TABLE>
<TABLE>
<CAPTION>
IAI MIDCAP IAI REGIONAL IAI VALUE
GROWTH FUND FUND FUND
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost for federal income tax purposes ..................... $ 31,883,399 $156,396,508 $ 14,658,246
=================================================
Gross unrealized appreciation ............................ $ 15,435,628 $ 32,507,104 $ 2,990,306
Gross unrealized depreciation ............................ (2,248,956) (4,259,545) (1,177,939)
-------------------------------------------------
Net unrealized appreciation .............................. $ 13,186,672 $ 28,247,559 $ 1,812,367
=================================================
</TABLE>
33
--------------------------------------------------------------------------------
<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
MARCH 31, 2000
IAI EMERGING GROWTH FUND
RESTRICTED SECURITIES
Acquisition
Security Date Cost
----------------------------------------------------------
LIMITED PARTNERSHIPS
Alta Berkeley III, foreign 09/25/96 $22,132
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 -
Exercise Acquisition
Security Rate Date Date Cost
--------------------------------------------------------------------
CONVERTIBLE DEBENTURES
Air Communications
Series B 10.00% 02/28/97 11/21/95 $75,000
11/30/95 50,000
11/30/95 50,000
03/22/96 58,333
05/21/96 16,666
06/25/96 8,333
Exercise Exercise Acquisition
Security Price Date Date Cost
-----------------------------------------------------------------------
WARRANTS
GalaGen $ 11.08 07/09/00 07/07/95 $ -
GalaGen 11.08 01/29/01 01/30/96 -
03/27/97 -
IAI GROWTH AND INCOME FUND
RESTRICTED SECURITIES
Acquisition
Security Date Cost
---------------------------------------------------------
LIMITED PARTNERSHIPS
Alta Berkeley III, foreign 09/25/96 $22,131
06/06/97 23,136
07/27/97 23,396
11/05/97 22,647
02/09/99 23,178
Acquisition
Security Date Cost
-----------------------------------------------------------
South Street Corporate
Recovery Fund I 10/03/95 $ -
Vanguard Associates III 01/10/92 91,175
01/11/93 305,250
09/30/93 34,128
IAI MIDCAP GROWTH FUND
RESTRICTED SECURITIES
Acquisition
Security Date Cost
-----------------------------------------------------------
LIMITED PARTNERSHIP
South Street Leveraged
Corporate Recovery Fund I (b) 10/03/95 $ -
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
MARCH 31, 2000
IAI REGIONAL FUND
RESTRICTED SECURITIES
Acquisition
Security Date Cost
-------------------------------------------------------------
COMMON STOCKS
Anglo Chinese Investment
Company, foreign 12/27/90 $157,264
02/07/94 343,001
02/09/94 6,311
Westgate Acquisitions 11/30/91 42,272
----------------------------------------------------------
NON-CONVERTIBLE PREFERRED STOCKS
Westgate Acquisitions Series A 11/30/91 52,876
----------------------------------------------------------
LIMITED PARTNERSHIPS
Alta Berkeley III, foreign 09/25/96 44,264
06/06/97 46,273
11/05/97 46,793
07/28/98 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 -
Vanguard Associates III 01/10/92 86,245
01/11/93 288,750
09/30/93 32,284
Exercise Acquisition
Security Rate Date Date Cost
-------------------------------------------------------------------
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
Exercise Acquisition
Price Date Date Cost
-------------------------------------------------------------------
WARRANTS
GalaGen $ 11.08 07/09/00 07/07/95 $ -
GalaGen 11.08 01/29/01 01/30/96 -
IAI VALUE FUND
RESTRICTED SECURITIES
Acquisition
Security Date Cost
-------------------------------------------------------------
COMMON STOCKS
Westgate Acquisitions 11/30/91 $42,272
-------------------------------------------------------------
NON-CONVERTIBLE PREFERRED STOCK
Westgate Acquisitions
Series A 11/30/91 52,876
Acquisition
Security Date Cost
-------------------------------------------------------------
LIMITED PARTNERSHIPS
South Street Leveraged
Corporate Recovery Fund I 12/17/98 $ -
Vanguard Associates III 01/10/92 19,714
01/11/93 66,000
09/30/93 7,379
35
--------------------------------------------------------------------------------
<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
MARCH 31, 2000
<TABLE>
<CAPTION>
IAI CAPITAL IAI EMERGING IAI GROWTH
APPRECIATION FUND GROWTH FUND FUND
------------------- -------------- ---------------
<S> <C> <C> <C>
ASSETS
Investments in securities at market
(cost: $20,784,460, $74,029,974, $6,885,063, $24,924,228,
$31,812,069, $154,722,493 and $14,655,127, respectively) $ 25,142,520 $90,628,150 $ 8,630,449
Cash - 113,822 16,968
Receivable for investment securities sold 601,188 2,862,017 980,218
Receivable for Fund shares sold - 166,948 -
Dividends and accrued interest receivable 2,947 4,285 2,681
Other assets (Note 2) - - -
------------ ----------- -----------
TOTAL ASSETS 25,746,655 93,775,222 9,630,316
------------ ----------- -----------
LIABILITIES
Bank overdraft 39,181 - -
Payable for investment securities purchased 1,177,420 4,098,083 1,179,122
Payable for Fund shares redeemed 19,239 184,872 -
Accrued management fee 25,176 91,648 8,829
------------ ----------- -----------
TOTAL LIABILITIES 1,261,016 4,374,603 1,187,951
------------ ----------- -----------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $ 24,485,639 $89,400,619 $ 8,442,365
============ =========== ============
NET ASSETS REPRESENTED BY:
Paid in capital $ 15,614,707 $50,822,946 $ 4,425,499
Undistributed (overdistributed) net investment income - (28,049) -
Accumulated net realized gain on investments 4,512,872 22,007,546 2,271,480
Unrealized appreciation (depreciation) on investment securities 4,358,060 16,598,176 1,745,386
------------ ----------- -----------
TOTAL - REPRESENTING NET ASSETS APPLICABLE TO OUTSTANDING
CAPITAL STOCK $ 24,485,639 $89,400,619 $ 8,442,365
============ ============ ============
Shares of capital stock outstanding:
authorized 10 billion shares each of $0.01 par value stock 1,417,582 5,413,611 733,987
------------ ----------- -----------
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER SHARE $ 17.27 $ 16.51 $ 11.50
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 53
36
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
IAI GROWTH IAI MIDCAP IAI REGIONAL IAI VALUE
& INCOME FUND GROWTH FUND FUND FUND
--------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
$ 31,166,075 $ 45,070,071 $ 184,644,067 $ 16,470,613
- - - 13,903
1,414,894 307,939 6,091,260 822,691
- 28,770 - -
11,388 9,356 57,190 2,170
53,323 - 65,773 11,766
------------ ------------ ------------- ------------
32,645,680 45,416,136 190,858,290 17,321,143
------------ ------------ ------------- ------------
5,695 209,867 409,637 -
1,189,662 2,593,551 66,334 739,121
- 48 11,663 4,504
34,122 45,167 202,405 16,034
------------ ------------ ------------- ------------
1,229,479 2,848,633 690,039 759,659
------------ ------------ ------------- ------------
$ 31,416,201 $ 42,567,503 $ 190,168,251 $ 16,561,484
============ ============ ============= ============
$ 19,742,379 $ 23,647,189 $ 135,389,682 $ 12,416,930
- - 65,426 -
5,431,975 5,662,312 24,791,569 2,329,068
6,241,847 13,258,002 29,921,574 1,815,486
------------ ------------ ------------- ------------
$ 31,416,201 $ 42,567,503 $ 190,168,251 $ 16,561,484
============ ============ ============= ============
2,237,945 2,370,526 9,113,962 2,021,084
------------ ------------ ------------- ------------
$ 14.04 $ 17.96 $ 20.87 $ 8.19
============ ============ ============= ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 53
37
--------------------------------------------------------------------------------
<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
YEAR ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
IAI CAPITAL IAI EMERGING IAI GROWTH
APPRECIATION FUND GROWTH FUND FUND
------------------- -------------- --------------
<S> <C> <C> <C>
NET INVESTMENT INCOME
INCOME
Dividends $ 19,113 $ 9,574 $ 43,486
Interest 60,960 243,054 19,306
----------- ------------ ----------
TOTAL INCOME 80,073 252,628 62,792
----------- ------------ ----------
EXPENSES
Management fees 356,300 755,602 129,685
Compensation of Directors 10,074 23,347 4,141
Interest expense 109 375 45
----------- ------------ ----------
TOTAL EXPENSES 366,483 779,324 133,871
Less fees reimbursed by Advisers (10,074) (23,347) (4,141)
----------- ------------ ----------
NET EXPENSES 356,409 755,977 129,730
----------- ------------ ----------
NET INVESTMENT LOSS (276,336) (503,349) (66,938)
----------- ------------ ----------
NET REALIZED AND UNREALIZED
GAINS (LOSSES)
Net realized gains (losses) on investments securities (including $0,
($2,067,241), $0, $0, $0, ($3,948,525) and
$0 respectively, from affiliated issuers) 9,223,171 36,771,387 3,167,603
Net change in unrealized appreciation or depreciation on
investment securities 1,969,105 (1,888,674) (852,950)
----------- ------------ ----------
NET GAIN ON INVESTMENTS 11,192,276 34,882,713 2,314,653
----------- ------------ ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $10,915,940 $ 34,379,364 $2,247,715
=========== ============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 53
38
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
IAI GROWTH IAI MIDCAP IAI REGIONAL IAI VALUE
& INCOME FUND GROWTH FUND FUND FUND
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
$ 406,621 $ 118,325 $ 1,342,737 $ 61,125
56,859 80,720 1,394,159 40,163
---------- ----------- ------------- ------------
463,480 199,045 2,736,896 101,288
---------- ----------- ------------- ------------
484,598 473,807 2,736,606 125,699
15,769 15,319 89,804 3,890
594 1,230 7,039 359
---------- ----------- ------------- ------------
500,961 490,356 2,833,449 129,948
(15,769) (15,319) (89,804) (3,890)
---------- ----------- ------------- ------------
485,192 475,037 2,743,645 126,058
---------- ----------- ------------- ------------
(21,712) (275,992) (6,749) (24,770)
---------- ----------- ------------- ------------
6,412,650 8,344,844 46,275,035 6,364,324
(108,802) 7,245,201 (23,558,321) (5,686,039)
---------- ----------- ------------- ------------
6,303,848 15,590,045 22,716,714 678,285
---------- ----------- ------------- ------------
$6,282,136 $15,314,053 $ 22,709,965 $ 653,515
========== =========== ============= ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 53
39
--------------------------------------------------------------------------------
<PAGE>
STATEMENT OF CASH FLOWS
IAI VALUE FUND
YEAR ENDED MARCH 31, 2000
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment loss $ (24,770)
Net amortization of bond discount (26,511)
Net change in receivables/payables related to operations 15,473
-------------
NET CASH USED BY OPERATING ACTIVITIES (35,808)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 18,439,225
Purchases of investments (20,067,969)
Net purchases of short-term securities (798,935)
-------------
NET CASH USED BY INVESTING ACTIVITIES (2,427,679)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of shares 9,617,129
Net asset value of shares issued in reinvestment of distributions 2,494,927
Cost of shares redeemed (7,372,499)
Distributions paid to shareholders (2,510,127)
-------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,229,430
-------------
NET DECREASE IN CASH (234,057)
CASH AT BEGINNING OF YEAR 247,960
-------------
CASH AT END OF YEAR $ 13,903
=============
</TABLE>
THE STATEMENT OF CASH FLOWS IS PRESENTED IN VALUE FUND DUE TO RESTRICTED
SECURITIES HELD DURING THE FIRST QUARTER OF THE FISCAL YEAR OF APPROXIMATELY
76.9%. THESE HOLDINGS WERE SIGNIFICANTLY REDUCED TO APPROXIMATELY 0.1% AS OF
MARCH 31, 2000.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 53
40
--------------------------------------------------------------------------------
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
41
--------------------------------------------------------------------------------
<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
Year ended Year ended
March 31, 2000 March 31, 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income (loss) $ (276,336) $ (555,486)
Net realized gains 9,223,171 1,284,752
Net change in unrealized appreciation or depreciation 1,969,105 (12,317,880)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 10,915,940 (11,588,614)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - -
Net realized gains (4,520,932) (6,234,187)
------------- -------------
TOTAL DISTRIBUTIONS (4,520,932) (6,234,187)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 22,570,281 43,416,791
Net asset value of shares issued in reinvestment of distributions 4,414,332 5,984,845
Cost of shares redeemed (47,128,658) (59,298,904)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (20,144,045) (9,897,268)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (13,749,037) (27,720,069)
NET ASSETS AT BEGINNING OF PERIOD 38,234,676 65,954,745
------------- -------------
NET ASSETS AT END OF PERIOD $ 24,485,639 $ 38,234,676
============= =============
INCLUDING UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME OF: $ - $ -
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 53
42
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
IAI EMERGING GROWTH FUND IAI GROWTH FUND IAI GROWTH AND INCOME FUND
Year ended Year ended Year ended Year ended Year ended Year ended
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ (503,349) $ (942,520) $ (66,938) $ (56,628) $ (21,712) $ 101,618
36,771,387 19,044,258 3,167,603 3,775,499 6,412,650 26,243,639
(1,888,674) (20,663,120) (852,950) (917,336) (108,802) (26,792,018)
------------- -------------- ------------- ------------- ------------- -------------
34,379,364 (2,561,382) 2,247,715 2,801,535 6,282,136 (446,761)
------------- -------------- ------------- ------------- ------------- -------------
- - - - (334,556) (94,984)
(17,542,029) (32,980,423) (3,149,865) (2,267,380) (8,508,533) (22,991,612)
------------- -------------- ------------- ------------- ------------- -------------
(17,542,029) (32,980,423) (3,149,865) (2,267,380) (8,843,089) (23,086,596)
------------- -------------- ------------- ------------- ------------- -------------
51,756,483 226,725,423 3,961,202 12,745,665 2,834,891 13,983,138
17,292,869 32,054,352 3,120,014 2,257,869 8,441,994 22,240,765
(56,261,805) (325,374,196) (12,091,393) (15,957,510) (29,519,786) (57,224,580)
------------- -------------- ------------- ------------- ------------- -------------
12,787,547 (66,594,421) (5,010,177) (953,976) (18,242,901) (21,000,677)
------------- -------------- ------------- ------------- ------------- -------------
29,624,882 (102,136,226) (5,912,327) (419,821) (20,803,854) (44,534,034)
59,775,737 161,911,963 14,354,692 14,774,513 52,220,055 96,754,089
------------- -------------- ------------- ------------- ------------- -------------
$ 89,400,619 $ 59,775,737 $ 8,442,365 $ 14,354,692 $ 31,416,201 $ 52,220,055
============= ============== ============= ============= ============= =============
$ (28,049) $ (28,049) $ - $ - $ - $ 570,658
============= ============== ============= ============= ============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 53
43
--------------------------------------------------------------------------------
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
IAI MIDCAP GROWTH FUND, IAI REGIONAL FUND, IAI VALUE FUND
<TABLE>
<CAPTION>
IAI MIDCAP GROWTH FUND
Year ended Year ended
March 31, 2000 March 31, 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment loss $ (275,992) $ (410,629)
Net realized gains 8,344,844 11,021,481
Net change in unrealized appreciation or depreciation 7,245,201 (5,017,225)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 15,314,053 5,593,627
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - -
Net realized gains (6,388,488) (13,572,954)
------------- -------------
TOTAL DISTRIBUTIONS (6,388,488) (13,572,954)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 12,478,111 21,221,199
Net asset value of shares issued in reinvestment of distributions 6,292,131 13,063,019
Cost of shares redeemed (24,559,544) (69,478,482)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (5,789,302) (35,194,264)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,136,263 (43,173,591)
NET ASSETS AT BEGINNING OF PERIOD 39,431,240 82,604,831
------------- -------------
NET ASSETS AT END OF PERIOD $ 42,567,503 $ 39,431,240
============= =============
INCLUDING UNDISTRIBUTED (OVERDISTRIBUTED) NET
INVESTMENT INCOME OF: $ - $ -
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 53
44
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
IAI REGIONAL FUND IAI VALUE FUND
Year ended Year ended Year ended Year ended
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ (6,749) $ (816,128) $ (24,770) $ (141,047)
46,275,035 22,509,903 6,364,324 201,631
(23,558,321) (61,992,723) (5,686,039) 1,594,477
-------------- -------------- ------------ -------------
22,709,965 (40,298,948) 653,515 1,655,061
-------------- -------------- ------------ -------------
(578,416) - - -
(27,995,666) (58,884,994) (2,510,127) (2,260,558)
-------------- -------------- ------------ -------------
(28,574,082) (58,884,994) (2,510,127) (2,260,558)
-------------- -------------- ------------ -------------
56,548,945 138,443,618 9,617,129 2,257,507
27,786,459 57,189,214 2,494,927 2,164,302
(163,980,785) (330,327,094) (7,377,003) (16,872,394)
-------------- -------------- ------------ -------------
(79,645,381) (134,694,262) 4,735,053 (12,450,585)
-------------- -------------- ------------ -------------
(85,509,498) (233,878,204) 2,878,441 (13,056,082)
275,677,749 509,555,953 13,683,043 26,739,125
-------------- -------------- ------------ -------------
$ 190,168,251 $ 275,677,749 $ 16,561,484 $ 13,683,043
============== ============== ============ =============
$ 65,426 $ 902,655 $ - $ -
============== ============== ============ =============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 53
45
--------------------------------------------------------------------------------
<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>
Years ended March 31, Period from
------------------------------------------------------- February 1, 1996\^
2000 1999 1998 1997 to 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 ( 0.15)*** ( 0.19) ( 0.16) ( 0.09) -
Net realized and unrealized gains (losses) 8.10 ( 3.02) 6.77 2.79 1.24
-------- -------- ------- ------- ---------
TOTAL FROM OPERATIONS 7.95 ( 3.21) 6.61 2.70 1.24
-------- -------- ------- ------- ---------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net realized gains ( 3.62) ( 1.81) ( 2.14) ( 0.41) -
Tax return of capital - - - ( 0.04) -
-------- -------- ------- ------- ---------
TOTAL DISTRIBUTIONS ( 3.62) ( 1.81) ( 2.14) ( 0.45) -
-------- -------- ------- ------- ---------
NET ASSET VALUE
End of period $ 17.27 $ 12.94 $ 17.96 $ 13.49 $ 11.24
======== ======== ======= ======= =========
Total investment return* 72.89% (19.11)% 52.46% 23.68% 12.40 %
Net assets at end of period (000's omitted) $ 24,486 $ 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 (loss) to average net
assets** ( 1.09)% ( 1.08)% ( 0.95)% ( 0.80)% 0.23%****
Portfolio turnover rate
(excluding short-term securities) 113.1 % 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
(.95)% AND .08%, RESPECTIVELY.
***CALCULATED USING AVERAGE SHARES OUTSTANDING DURING THE YEAR.
****ANNUALIZED.
+COMMENCEMENT OF OPERATIONS.
46
--------------------------------------------------------------------------------
<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>
Years ended March 31,
--------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 13.31 $ 18.11 $ 15.85 $ 24.08 $ 15.83
-------- -------- -------- -------- -------
OPERATIONS
Net investment loss ( 0.11)** ( 0.15)** ( 0.18)** ( 0.20) ( 0.09)
Net realized and unrealized gains (losses) 7.53 0.36 5.07 ( 4.52) 8.77
-------- -------- -------- -------- -------
TOTAL FROM OPERATIONS 7.42 0.21 4.89 ( 4.72) 8.68
-------- -------- -------- -------- -------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net realized gains ( 4.22) ( 5.01) ( 2.63) ( 3.51) ( 0.43)
-------- -------- -------- -------- -------
TOTAL DISTRIBUTIONS ( 4.22) ( 5.01) ( 2.63) ( 3.51) ( 0.43)
-------- -------- -------- -------- -------
NET ASSET VALUE
End of period $ 16.51 $ 13.31 $ 18.11 $ 15.85 $ 24.08
======== ======== ======== ======== =======
Total investment return* 70.93% 3.56% 33.37% (22.97)% 55.20%
Net assets at end of period (000's omitted) $ 89,401 $ 59,776 $161,912 $387,105 $653,888
RATIOS
Expenses to average net assets
(including interest expense) 1.25% 1.29% 1.25% 1.20% 1.24%
Expenses to average net assets
(excluding interest expense) 1.25% 1.25% 1.24% 1.19% 1.24%
Net investment loss to average net assets ( 0.83)% ( 1.00)% ( 0.98)% ( 0.75)% ( 0.52)%
Portfolio turnover rate
(excluding short-term securities) 174.8 % 46.7 % 41.0 % 49.5 % 62.8 %
</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.
**CALCULATED USING AVERAGE SHARES OUTSTANDING DURING THE YEAR.
47
--------------------------------------------------------------------------------
<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>
Years ended March 31,
-----------------------------------------------------------------------
2000 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 loss ( 0.07)** ( 0.05) - ( 0.03) -
Net realized and unrealized gains (losses) 2.74 1.73 3.59 1.02 1.93
-------- ------- ------- ------- -------
TOTAL FROM OPERATIONS 2.67 1.68 3.59 0.99 1.93
-------- ------- ------- ------- -------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income - - - - ( 0.03)
Net realized gains ( 3.36) ( 1.66) ( 1.34) ( 2.96) ( 0.96)
-------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS ( 3.36) ( 1.66) ( 1.34) ( 2.96) ( 0.99)
-------- ------- ------- ------- -------
NET ASSET VALUE
End of period $ 11.50 $ 12.19 $ 12.17 $ 9.92 $ 11.89
======== ======= ======= ======= =======
Total investment return* 28.57% 14.94% 38.96% 8.42% 18.01%
Net assets at end of period (000's omitted) $ 8,442 $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 loss to average net assets ( 0.65)% ( 0.36)% ( 0.02)% ( 0.25)% ( 0.04)%
Portfolio turnover rate
(excluding short-term securities) 101.9 % 109.7 % 87.3 % 134.2 % 92.8 %
</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.
**CALCULATED USING AVERAGE SHARES OUTSTANDING DURING THE YEAR.
48
--------------------------------------------------------------------------------
<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>
Years ended March 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 14.55 $ 19.72 $ 14.83 $ 15.30 $ 14.32
-------- ------- ------- ------- -------
OPERATIONS
Net investment income (loss) ( 0.01)** 0.02 ** 0.04 ** 0.10 0.10
Net realized and unrealized gains 2.42 0.19 5.75 1.88 2.86
-------- --------- --------- ------- -------
TOTAL FROM OPERATIONS 2.41 0.21 5.79 1.98 2.96
-------- --------- --------- ------- -------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ( 0.11) ( 0.02) - ( 0.10) ( 0.13)
Excess distribution from net investment income - - ( 0.07) ( 0.10) -
Net realized gains ( 2.81) ( 5.36) ( 0.83) ( 2.25) ( 1.85)
-------- --------- --------- ------- -------
TOTAL DISTRIBUTIONS ( 2.92) ( 5.38) ( 0.90) ( 2.45) ( 1.98)
-------- --------- --------- ------- -------
NET ASSET VALUE
End of period $ 14.04 $ 14.55 $ 19.72 $ 14.83 $ 15.30
======== ========= ========= ======= =======
Total investment return* 19.15% 1.52% 40.06% 13.34% 21.51%
Net assets at end of period (000's omitted) $ 31,416 $52,220 $96,754 $90,741 $84,662
RATIOS
Expenses to average net assets
(including interest expense) 1.25% 1.26% 1.27% 1.26% 1.25%
Expenses to average net assets
(excluding interest expense) 1.25% 1.25% 1.25% 1.25% 1.25%
Net investment income (loss) to average net
assets ( 0.06)% 0.13% 0.21% 0.51% 0.62%
Portfolio turnover rate
(excluding short-term securities) 112.9 % 66.1% 23.2% 51.2% 89.1%
</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.
**CALCULATED USING AVERAGE SHARES OUTSTANDING DURING THE YEAR.
49
--------------------------------------------------------------------------------
<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>
Years ended March 31,
-----------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 14.32 $ 15.91 $ 16.68 $ 17.70 $ 15.35
-------- -------- ------- ------- -------
OPERATIONS
Net investment loss ( 0.11)** ( 0.12)** ( 0.10) ( 0.08) ( 0.05)
Net realized and unrealized gains 6.30 2.53 3.34 0.68 3.50
-------- -------- ------- ------- -------
TOTAL FROM OPERATIONS 6.19 2.41 3.24 0.60 3.45
-------- -------- ------- ------- -------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net realized gains ( 2.55) ( 4.00) ( 4.01) ( 1.62) ( 1.10)
-------- -------- ------- ------- -------
TOTAL DISTRIBUTIONS ( 2.55) ( 4.00) ( 4.01) ( 1.62) ( 1.10)
-------- -------- ------- ------- -------
NET ASSET VALUE
End of period $ 17.96 $ 14.32 $ 15.91 $ 16.68 $ 17.70
======== ======== ======= ======= =======
Total investment return* 49.36% 18.31% 22.21% 3.12% 23.51%
Net assets at end of period (000's omitted) $ 42,568 $ 39,431 $82,605 $128,259 $122,375
RATIOS
Expenses to average net assets
(including interest expense) 1.25% 1.34% 1.26% 1.25% 1.25%
Expenses to average net assets
(excluding interest expense) 1.25% 1.25% 1.25% 1.25% 1.25%
Net investment income (loss) to average net
assets ( 0.73)% ( 0.82)% ( 0.48)% ( 0.47)% ( 0.36)%
Portfolio turnover rate
(excluding short-term securities) 70.6 % 107.2 % 106.8 % 72.4 % 29.8 %
</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.
**CALCULATED USING AVERAGE SHARES OUTSTANDING DURING THE YEAR.
50
--------------------------------------------------------------------------------
<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>
Years ended March 31,
----------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 21.25 $ 26.35 $ 22.59 $ 24.57 $ 21.56
------- ------- ------- ------- -------
OPERATIONS
Net investment income (loss) -** ( 0.06) ( 0.02) 0.03 0.14
Net realized and unrealized gains (losses) 2.32 ( 1.81) 6.79 2.08 5.77
------- ------- ------- ------- -------
TOTAL FROM OPERATIONS 2.32 ( 1.87) 6.77 2.11 5.91
------- ------- ------- ------- -------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ( 0.05) - - ( 0.04) ( 0.18)
Excess distribution from net investment income - - - ( 0.06) ( 0.02)
Net realized gains ( 2.65) ( 3.23) ( 3.01) ( 3.99) ( 2.70)
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS ( 2.70) ( 3.23) ( 3.01) ( 4.09) ( 2.90)
------- ------- ------- ------- -------
NET ASSET VALUE
End of period $ 20.87 $ 21.25 $ 26.35 $ 22.59 $ 24.57
======= ======= ======= ======= =======
Total investment return* 12.33% ( 7.74%) 31.55% 8.65% 28.62%
Net assets at end of period (000's omitted) $190,168 $275,678 $509,556 $498,178 $575,156
RATIOS
Expenses to average net assets
(including interest expense) 1.25% 1.25% 1.22% 1.21% 1.25%
Expenses to average net assets
(excluding interest expense) 1.25% 1.23% 1.22% 1.21% 1.25%
Net investment income (loss) to average net
assets 0.00% ( 0.21)% ( 0.05)% 0.14% 0.58%
Portfolio turnover rate
(excluding short-term securities) 203.3 % 53.2 % 46.0 % 61.1% 89.7%
</TABLE>
*TOTAL INVESTMENT RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE OF A SHARE
DURING THE PERIOD AND ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AT NET ASSET
VALUE.
**CALCULATED USING AVERAGE SHARES OUTSTANDING DURING THE YEAR.
51
--------------------------------------------------------------------------------
<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>
Years ended March 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 12.20 $ 12.71 $ 11.66 $ 12.42 $ 11.17
-------- ------- ------- ------- -------
OPERATIONS
Net investment income (loss) ( 0.02)*** ( 0.09)*** ( 0.03) 0.09 0.08
Net realized and unrealized gains (losses) ( 0.51) 1.07 3.79 0.68 2.19
-------- -------- ------- ------- -------
TOTAL FROM OPERATIONS ( 0.53) 0.98 3.76 0.77 2.27
-------- -------- ------- ------- -------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income - - ( 0.04) ( 0.12) ( 0.01)
Excess distribution from net investment income - - ( 0.07) - -
Net realized gains ( 3.48) ( 1.49) ( 2.60) ( 1.41) ( 1.01)
-------- -------- ------- ------- -------
TOTAL DISTRIBUTIONS ( 3.48) ( 1.49) ( 2.71) ( 1.53) ( 1.02)
-------- -------- ------- ------- -------
NET ASSET VALUE
End of period $ 8.19 $ 12.20 $ 12.71 $ 11.66 $ 12.42
======== ======== ======= ======= =======
Total investment return* 6.01% 8.47 % 34.21% 5.85% 21.07%
Net assets at end of period (000's omitted) $ 16,561 $ 13,683 $26,739 $29,439 $42,009
RATIOS
Expenses to average net assets
(including interest expense) 1.25% 1.36%* * 1.28% 1.25% 1.25%
Expenses to average net assets
(excluding interest expense) 1.25% 1.33%* * 1.25% 1.25% 1.25%
Net investment income (loss) to average net
assets ( 0.25)% ( 0.73) % ( 0.24)% 0.61% 0.65%
Portfolio turnover rate
(excluding short-term securities) 202.1 % 8.2 % 27.0 % 61.3% 73.4%
</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.
**THIS RATIO INCLUDES AN 8 BASIS POINT EXPENSE APPROVED BY THE BOARD OF
DIRECTORS RELATED TO AN INDEPENDENT VALUATION OF A RESTRICTED SECURITY.
***CALCULATED USING AVERAGE SHARES OUTSTANDING DURING THE YEAR.
52
--------------------------------------------------------------------------------
<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
MARCH 31, 2000
[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. Each Fund has 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 $161,520 (0.2% of net assets)
for Emerging Growth, $203,929 (0.7% of net assets) for Growth and Income Fund,
$689,339 (0.4% of net assets) for the Regional Fund and $11,795 (0.1% of net
assets) for Value Fund. Because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would have been
used had a ready market for the securities existed, and the differences could be
material.
FUTURES AND OPTIONS CONTRACTS
In order to increase exposure to and hedge against changes in the market, the
Funds may buy and sell futures contracts and options. The risks of entering into
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 a Fund. A Fund
realizes a gain or loss when the contract is closed or expires.
53
--------------------------------------------------------------------------------
<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
MARCH 31, 2000
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Options traded on an exchange are valued using the last sale price, and those
traded over-the-counter are valued using dealer-supplied valuations, resulting
in unrealized appreciation or depreciation being recorded. A Fund will realize a
gain or loss upon expiration or closing of the option transaction. When an
option is exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or paid.
FEDERAL TAXES
Since it is each Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its shareholders, no provision for income taxes is
required. In order to avoid the payment of any federal excise taxes, 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.
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
MARCH 31, 2000
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
The Capital Appreciation, Emerging Growth, Growth and Income, Midcap Growth,
Regional and Value Funds elected to utilize equalization debits by which a
portion of the costs of redemptions, which occurred during the year ended March
31, 2000, reduced accumulated net realized gains for tax purposes by $1,110,892,
$2,575,002, $5,945,691, $2,215,081, $9,020,155 and $300,000, respectively. The
Growth and Income and Regional Funds elected to utilize equalization debits to
also reduce undistributed net investment income by $236,101 and $353,082,
respectively. As a result of these and other permanent book-to-tax differences,
undistributed (overdistributed) net investment income and accumulated net
realized gains have been increased or decreased on the statement of assets and
liabilities 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>
Undistributed (overdistributed)
net investment income ................. $ 276,336 $ 503,349 $ 66,938 $ (214,390)
Accumulated net realized gains ......... $(1,387,228) $(3,092,561) $(66,938) $(5,071,698)
Paid in capital ........................ $ 1,110,892 $ 2,589,212 $ - $ 5,286,088
</TABLE>
<TABLE>
<CAPTION>
IAI MIDCAP IAI REGIONAL IAI VALUE
GROWTH FUND FUND FUND
---------------- ---------------- --------------
<S> <C> <C> <C>
Undistributed (overdistributed)
net investment income ................. $ 275,992 $ (252,064) $ 24,770
Accumulated net realized gains ......... $(2,489,309) $(7,117,297) $(261,338)
Paid in capital ........................ $ 2,213,317 $ 7,369,361 $ 236,568
</TABLE>
[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.
LINE OF CREDIT
The Funds, together with other funds advised by Advisers, have an available
joint line of credit of $25,000,000 with Firstar Bank, N.A. at the prime
interest rate less 2%. To the extent funds are drawn against the line,
securities are segregated by the Funds. No compensating balances are required
under the line of credit, however, a commitment fee of .10% per annum
on the commitment amount of the line is payable quarterly in arrears. Advisers
has agreed to pay the commitment fee on behalf of the Funds. There were no
borrowings outstanding for the Funds at March 31, 2000.
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.
A lawsuit was filed in February 2000 against Investment Advisers, Inc. relating
to the sale of a restricted security (MatrixOne, Inc.) to a third party by
Growth and Income Fund. A settlement agreement with the plaintiff
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
MARCH 31, 2000
[2] COMMITMENTS AND CONTINGENCIES (CONT.)
was signed in March 2000. At March 31, 2000, the security is valued at a
discount to reflect the terms of the settlement agreement. The litigation was
dismissed in April 2000 in accordance with the terms of the agreement.
CONTINGENT LIABILITY
The Emerging Growth and Regional Funds received cash distributions of
approximately $1.8 million, respectively, in November 1998 and May 2000 from the
South Street Leveraged Corporate Recovery Fund L.P. and the South Street
Corporate Recovery Fund L.P. The Growth and Income Fund received cash
distributions of approximately $500,000 in November 1998 and May 2000 from the
South Street Corporate Recovery Fund. The Midcap Growth and Value Funds received
cash distributions of approximately $100,000, respectively, in November 1998 and
May 2000 from the South Street Leveraged Corporate Recovery Fund L.P. According
to various agreements, proceeds received may be required to be returned to the
limited partnerships due to ongoing litigation. Management, after review with
third parties, believes the likelihood of returning such distributions to the
partnerships is not probable.
[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 provide that
Advisers will reimburse each Fund 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
--------------------------------- ----------------------------------
Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
SOLD 1,542,856 3,267,382 3,802,076 16,292,957
ISSUED FOR REINVESTED DISTRIBUTIONS 344,208 405,752 1,439,167 2,353,201
REDEEMED (3,424,653) (4,389,856) (4,317,834) (23,098,599)
---------- ---------- ---------- -----------
INCREASE (DECREASE) IN SHARES OUTSTANDING (1,537,589) (716,722) 923,409 (4,452,441)
========== ========== ========== ===========
</TABLE>
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
MARCH 31, 2000
[4] CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
GROWTH AND
GROWTH FUND INCOME FUND
--------------------------------- ---------------------------------
Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
SOLD 363,165 1,140,212 216,363 861,648
ISSUED FOR REINVESTED DISTRIBUTIONS 317,248 194,230 678,072 1,424,886
REDEEMED (1,123,701) (1,370,805) (2,246,224) (3,602,092)
---------- ---------- ---------- ----------
INCREASE (DECREASE) IN SHARES OUTSTANDING (443,288) (36,363) (1,351,789) (1,315,558)
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MIDCAP
GROWTH FUND REGIONAL FUND
--------------------------------- ----------------------------------
Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
SOLD 835,153 1,486,852 2,787,368 6,565,416
ISSUED FOR REINVESTED DISTRIBUTIONS 452,587 960,996 1,426,254 2,553,090
REDEEMED (1,671,177) (4,884,829) (8,070,438) (15,482,162)
---------- ---------- ---------- -----------
INCREASE (DECREASE) IN SHARES OUTSTANDING (383,437) (2,436,981) (3,856,816) (6,363,656)
========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
VALUE FUND
------------------------------
Year ended Year ended
March 31, March 31,
2000 1999
------------ ---------------
<S> <C> <C>
SOLD 1,305,290 176,175
ISSUED FOR REINVESTED DISTRIBUTIONS 412,337 177,661
REDEEMED (817,717) (1,336,197)
--------- ----------
INCREASE (DECREASE) IN SHARES OUTSTANDING 899,910 (982,361)
========= ==========
</TABLE>
[5] PURCHASES AND SALES OF SECURITIES
For the year ended March 31, 2000, 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 $ 27,964,577 $ 53,850,541
EMERGING GROWTH FUND $ 99,256,635 $104,671,049
GROWTH FUND $ 10,075,370 $ 17,320,978
GROWTH AND INCOME FUND $ 42,030,206 $ 64,689,842
MIDCAP GROWTH FUND $ 25,757,924 $ 39,558,241
REGIONAL FUND $387,215,997 $514,546,259
VALUE FUND $ 20,807,090 $ 19,183,361
</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
MARCH 31, 2000
[5] PURCHASES AND SALES OF SECURITIES (CONT.)
RESTRICTED SECURITIES
Included in the Fund's portfolios of investments in securities at March 31,
2000, 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 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>
*MYELOS NEUROSCIENCES SERIES A - $ - 500,000 $810,002 $ 310,001 $ -
*MYELOS NEUROSCIENCES SERIES B - $ - 571,429 $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 3/31/00 but not at
3/31/00.
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>
* 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 3/31/00 but not at
3/31/00.
58
--------------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITORS' REPORT
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
THE BOARD OF DIRECTORS AND SHAREHOLDERS
IAI INVESTMENT FUNDS II, INC.
IAI INVESTMENT FUNDS IV, INC.
IAI INVESTMENT FUNDS VI, INC.
IAI INVESTMENT FUNDS VII, INC.
IAI INVESTMENT FUNDS VIII, INC.:
We have audited the accompanying statements of assets and liabilities, including
the fund portfolios, of IAI Capital Appreciation Fund, IAI Emerging Growth Fund,
IAI Midcap Growth Fund (portfolios within IAI Investment Funds VI, Inc.), IAI
Growth Fund (a portfolio within IAI Investment Funds II, Inc.), IAI Growth and
Income Fund (a portfolio within IAI Investment Funds VII, Inc.), IAI Regional
Fund (a portfolio within IAI Investment Funds IV, Inc.), and IAI Value Fund (a
portfolio within IAI Investment Funds VIII, Inc.) as of March 31, 2000, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended
and the financial highlights for the periods presented on pages 46 through 52 of
the annual report. These financial statements and the financial highlights are
the responsibility of the funds' management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 2000, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of IAI
Capital Appreciation Fund, IAI Emerging Growth Fund, IAI Midcap Growth Fund, IAI
Growth Fund, IAI Growth and Income Fund, IAI Regional Fund, and IAI Value Fund
as of March 31, 2000, and the results of their operations for the year then
ended, the changes in their net assets for each of the years in the two-year
period then ended and the financial highlights for the periods stated in the
first paragraph above, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Minneapolis, Minnesota
May 19, 2000
59
--------------------------------------------------------------------------------
<PAGE>
FEDERAL TAX INFORMATION
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
We are required by federal tax regulations to provide shareholders with certain
information regarding dividend distributions paid during our fiscal year. The
figures provided are for informational purposes only and should not be used for
reporting to federal or state revenue agencies. You will receive all necessary
tax information on Form 1099-DIV, Dividends and Distributions, in January of
each year.
IAI CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
TAX INFORMATION
Ordinary Long-Term
Payable Date Income (A) Capital Gain
-------------------------------------------------------------------------------------------------
<S> <C> <C>
JUNE 1999 $ 0.0000 $ 0.4914
DECEMBER 1999 1.0800 2.0500
=================================================================================================
0.38% of ordinary income qualify for deduction by corporations. $ 1.0800 $ 2.5414
</TABLE>
IAI EMERGING GROWTH FUND
<TABLE>
<CAPTION>
TAX INFORMATION
Ordinary Long-Term
Payable Date Income (A) Capital Gain
-------------------------------------------------------------------------------------------------
<S> <C> <C>
JUNE 1999 $ 0.3333 $ 1.0349
DECEMBER 1999 0.6400 2.2100
===============================================================================================
0.11% of ordinary income qualify for deduction by corporations. $ 0.9733 $ 3.2449
</TABLE>
IAI GROWTH FUND
<TABLE>
<CAPTION>
TAX INFORMATION
Ordinary Long-Term
Payable Date Income (A) Capital Gain
--------------------------------------------------------------------------------------------------
<S> <C> <C>
JUNE 1999 $ 0.6805 $ 1.8274
DECEMBER 1999 0.2200 0.6300
================================================================================================
14.78% of ordinary income qualify for deduction by corporations. $ 0.9005 $ 2.4574
</TABLE>
IAI GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
TAX INFORMATION
Ordinary Long-Term
Payable Date Income (A) Capital Gain
--------------------------------------------------------------------------------------------------
<S> <C> <C>
JUNE 1999 $ 0.1522 $ 2.7704
DECEMBER 1999 0.0000 0.0000
================================================================================================
81.40% of ordinary income qualify for deduction by corporations. $ 0.1522 $ 2.7704
</TABLE>
(A)INCLUDES DISTRIBUTIONS OF SHORT-TERM CAPITAL GAINS, IF ANY, WHICH ARE TAXABLE
AS ORDINARY INCOME.
60
--------------------------------------------------------------------------------
<PAGE>
FEDERAL TAX INFORMATION
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
We are required by federal tax regulations to provide shareholders with certain
information regarding dividend distributions paid during our fiscal year. The
figures provided are for informational purposes only and should not be used for
reporting to federal or state revenue agencies. You will receive all necessary
tax information on Form 1099-DIV, Dividends and Distributions, in January of
each year.
IAI MIDCAP GROWTH FUND
<TABLE>
<CAPTION>
TAX INFORMATION
Ordinary Long-Term
Payable Date Income (A) Capital Gain
------------------------------------------------------------------ ------------ -------------
<S> <C> <C>
JUNE 1999 $ 1.2791 $ 0.4149
DECEMBER 1999 0.2300 0.6300
===============================================================================================
4.49% of ordinary income qualify for deduction by corporations. $ 1.5091 $ 1.0449
</TABLE>
IAI REGIONAL FUND
<TABLE>
<CAPTION>
TAX INFORMATION
Ordinary Long-Term
Payable Date Income (A) Capital Gain
----------------------------------------------------------------- ------------ -------------
<S> <C> <C>
JUNE 1999 $ 0.0518 $ 1.3217
DECEMBER 1999 0.0000 1.3300
==============================================================================================
100% of ordinary income qualify for deduction by corporations. $ 0.0518 $ 2.6517
</TABLE>
IAI VALUE FUND
<TABLE>
<CAPTION>
TAX INFORMATION
Ordinary Long-Term
Payable Date Income (A) Capital Gain
----------------------------------------------------------------- ------------ -------------
<S> <C> <C>
JUNE 1999 $ 0.0000 $ 0.0446
DECEMBER 1999 0.0000 3.4400
==============================================================================================
$ 0.0000 $ 3.4846
</TABLE>
(A) INCLUDES DISTRIBUTIONS OF SHORT-TERM CAPITAL GAINS, IF ANY, WHICH ARE
TAXABLE AS ORDINARY INCOME.
61
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62
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<PAGE>
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63
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<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
64
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<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, N.A.
425 Walnut Street
Cincinnati, OH 45202
LEGAL COUNSEL
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS
KPMG LLP
4200 Norwest Center
Minneapolis, MN55402
DIRECTORS
Madeline Betsch
W. William Hodgson
George R. Long
J. Peter Thompson
Charles H. Withers
<PAGE>
[LOGO] IAI
MUTUAL FUNDS
C/O FIRSTAR MUTUAL FUND SERVICES, LLC, P.O. BOX 701, MILWAUKEE,
WISCONSIN 53201-0701 USA
800.945.3863
