<PAGE>
PRINCIPAL PROTECTION FUNDS
SEMI-ANNUAL REPORT
IAI Reserve Fund
IAI Money Market Fund
July 31, 1995
(unaudited)
[IAI LOGO]
<PAGE>
[GLOBE ARTWORK]
<PAGE>
Table of Contents
-----------------
IAI Reserve Fund, IAI Money Market Fund
[GLOBE ARTWORK]
Semi-Annual Report
July 31, 1995
(unaudited)
<TABLE>
<S> <C>
Chairman's Letter ...................................2
Fund Manager's Reviews
IAI Reserve Fund ................................5
IAI Money Market Fund ...........................7
Fund Portfolios
IAI Reserve Fund ...............................10
IAI Money Market Fund ..........................13
Notes to Fund Portfolios ...........................15
Statements of Assets and Liabilities ...............16
Statements of Operations ...........................17
Statements of Changes in Net Assets ................18
Financial Highlights
IAI Reserve Fund ...............................20
IAI Money Market Fund ..........................21
Notes to Financial Statements ......................22
IAI Mutual Fund Family .............................26
Distributor, Adviser, Custodian,
Legal Counsel, Independent Auditors,
Directors ...........................Inside Back Cover
</TABLE>
1
<PAGE>
Chairman's Letter
-----------------
IAI Reserve Fund, IAI Money Market Fund
[GLOBE ARTWORK]
New Perspective on Fixed-Income Investing
[Photo of Noel P. Rahn, Chairman]
Recently, the Chairman of the Securities and Exchange Commission, Arthur Levitt,
said he believes "the mutual fund industry will come to be regarded among the
greatest financial innovations of the modern era."
The facts and figures, and the demographic trends, would seem to back him up. In
1980, mutual fund assets accounted for less than $100 billion. Today, fund
assets total well in excess of $2 trillion. And, the fund industry trade group,
the Investment Company Institute, forecasts assets will continue to grow to
between $3.5 to $5 trillion before the end of the 1990s.
Also, individuals have become more involved with investing. For several years,
companies have been phasing out the traditional defined benefit retirement plans
and creating defined contributions plans which shift investment responsibility
to the wage-earners. In addition, employees have increasingly taken advantage of
saving and investing before-tax dollars in employer sponsored 401(k) plans.
The fact is that mutual funds have thrived and should continue to thrive because
they serve real and important needs of the majority of Americans. In addition,
demographic trends favor the on-going growth of funds, as the large population
bulge known as the "baby boomers," with longer life expectancies than their
parents, continues to age and require more wealth accumulation for retirement.
Mutual funds provide two important benefits: instant diversification and
professional management. And they are responsive to individual investors,
enabling them to invest in practically any type of asset available. Mutual funds
now even make it possible for investors to follow different strategies such as
growth investing or value investing, or to adjust their investments to match the
different stages of their lives using lifestyle strategy funds.
With the expansion in the number of funds available to more than 6,000, some
investors have found selecting a good fund more confusing than ever. However, we
believe the industry has plenty of room to grow more. As for selecting
appropriate funds, individual investors can be well served investing with a
mutual fund family which offers a good diversity of well established funds with
good track records, including a selection of large-, mid-, and small-cap equity
funds as well as established international funds and a diversified group of
fixed income funds. And, as competition has increased in the fund industry,
making shareholder service more important than ever, we remain committed to
providing you with the best service in the business.
2
<PAGE>
Chairman's Letter
-----------------
IAI Reserve Fund, IAI Money Market Fund
[GLOBE ARTWORK]
Economic Outlook
Larry Hill, IAI's Chief Investment Officer, provides his economic outlook below,
as published recently in the Adviser.
The myth of an economic soft landing is an attractive idea--growth strong enough
to create new jobs and keep the economy moving forward, and yet slow enough to
prevent inflationary pressures from building. Unfortunately, business cycles
have not been eliminated, and even when a soft landing seems imminent, it is
usually just a temporary phase before moving in one of two different directions.
When the economy pauses, as it has recently in what looks like a soft landing,
it is usually just a temporary phase of continuing growth or slowdown. The key
to which way the economy goes after the pause lies with interest rates. Rising
interest rates lead to slower economic growth, and a recession can follow. On
the other hand, when interest rates fall, as they have recently, there is still
plenty of financial capacity for the economy to grow. Generally, this type of
pause is followed by a reacceleration of economic growth. We expect the
reacceleration to occur in the second half of 1995.
While there are several factors influencing whether, and how much, interest
rates rise or fall, two are key--growth and inflation.
While we anticipate an acceleration of growth, we are not looking for a robust
burst of economic activity. The fourth quarter of 1994 was much stronger than
the long-term trend, and typically when that happens, succeeding quarters are
slower. First quarter 1995 real GDP growth was only 2.7%, and the second quarter
is likely to be weaker. Looking at the second half of the year, we anticipate a
recovery to about 3% growth in real GDP. With this increase in growth, we expect
rising credit demands, and upward pressure on interest rates.
Inflationary pressures will also increase in the second half of 1995. Price
increases have entered the economic pipeline at the producers' end, but have not
yet flowed into the retail market. Consumers are very price conscious and
businesses have cut costs to compete. However, at some point they will not be
able to cut further, and they will be forced to pass along their higher costs.
The year-over-year increase in the Consumer Price Index has already established
a clear up trend, rising by 3.1% over the last 12 months. We anticipate as much
as a 3.5%-4% increase in inflation on consumer prices which is higher than the
consensus expectation of approximately 3%.
In addition to growth and inflation, several other factors earlier this year
will influence interest rates in the months ahead. The moves in the U.S.
Congress to cut expenditures and balance the budget are gathering momentum, and
that has helped the U.S. bond market. However, the failure of the balanced
budget amendment sparked a substantial decline in the value of the U.S. dollar.
Ironically, this decline helped the U.S. bond market.
3
<PAGE>
Chairman's Letter
-----------------
IAI Reserve Fund, IAI Money Market Fund
[GLOBE ARTWORK]
As the dollar declined, compared with major currencies, foreign central banks
became large buyers of U.S. bonds in their dollar-support effort which helped
fuel the recent rally in the bond market. However, foreign governments are not
economic buyers, and if the dollar stabilizes or strengthens, they could become
large sellers which could adversely impact U.S. bond prices. Furthermore, cash
flows into bond mutual funds have been a negative for bonds indicating
continuing weak demand from individual investors.
Both bonds and stocks have recently been appreciating together which is very
unusual for this latter stage of the cycle. This kind of market behavior is more
typical of the period immediately following a recession, when the Federal
Reserve Board (the Fed) is lowering interest rates and profit growth is
accelerating. The stock market, like the bond market, is also overextended, and
there is a cyclical risk of a relatively strong pullback which could be
triggered by the fear of decelerating earnings.
The larger economic picture is still very positive for financial assets and
should continue over the long term. However, economic cycles still dominate
financial markets, and the current cycle has not yet ended.
We do not anticipate a recession this year. Typically, rates rise into a
recession, and they have been declining during the first half of the year. Those
lower rates will fuel a new burst of economic activity and higher consumer
prices, both of which will put upward pressure on interest rates.
Thus, we are cautious on both bonds and stocks for the second half of this year.
The equity market appears to be more overextended than the bond market, although
both are running well above their average total return trends. We believe the
high rates of return earned in the first half are not sustainable for the full
year.
The Fed has been holding short-term rates steady; however, higher growth and
inflation will begin to push market interest rates up. We believe the Fed is
falling behind the trend toward higher prices, and will be forced to raise
interest rates again as the inflation rate increases later this year.
Strategically, we would remain cautious now, and average in new investments on
significant pullbacks. The conservative investment virtues of patience and
discipline are those most likely to be rewarded during the remainder of the
year.
Please read the Fund Manager's Reviews, which follow this letter, for a detailed
perspective on the Funds' performance and our strategy going forward. We
appreciate your continued trust and confidence in IAI. If there is any way we
can serve you better, please let us know by calling our toll-free Investor
Services Hotline at 1-800-945-3863.
Sincerely,
/s/ Noel P. Rahn
Noel P. Rahn
Chairman
4
<PAGE>
Fund Manager's Review
---------------------
IAI Reserve Fund
[GLOBE ARTWORK]
IAI Reserve Fund
Fund Objectives
The Fund's investment objectives are to provide its shareholders with high
levels of capital stability and liquidity and, to the extent consistent with
these primary objectives, a high level of current income. The Fund pursues its
objectives primarily through investment in a diversified portfolio of investment
grade bonds and other debt securities of similar quality.
Fund Positioning for the Past Six Months
During the last six months, the IAI Reserve Fund has continued to pursue its
mandate of providing stability. The Fund has benefited from the broad bond
market rally during the first half of 1995, earning a total return of 3.42% for
the six months ended July 31.
Due largely to market optimism regarding the prospect for lower inflation,
interest rates declined during the first half of the year, culminating in the
Federal Reserve Board's cut in official rates in early July. However, we are
concerned that the recent economic slowdown and inflation abatement may only be
due to a temporary pause in economic growth. Such a pause in growth is typical
of the later phase of economic expansion. In this circumstance, renewed growth
may produce inflation pressure quickly.
The Reserve Fund has three primary components to strategy implementation:
adjusting the Fund's sensitivity to interest rate changes, managing the mix of
maturities held, and determining the exposure to different market sectors.
During the last six months, we have maintained a neutral to short average
duration (interest rate sensitivity) for the Fund. The maturity structure of the
portfolio reflects a bias toward a combination of very short term cash
equivalents with selected 2-5 year securities.
During the period, Fund holdings have emphasized sectors which offer a yield
advantage to U.S. government securities. We continue to favor asset-backed
securities and short-maturity corporate issues. AAA-rated asset-backed
securities offer liquidity and high credit quality at attractive yields.
Selected corporate bonds offer strong risk-adjusted value due to continued
strong business cash flows and profitability. As a result of these sector
opportunities, government securities currently comprise a smaller proportion of
the Fund's portfolio than we have held in several years.
The average credit quality of fund holdings is currently AA, and no securities
are rated below investment grade.
Fund Positioning Going Forward
It appears as though the economy will recover from the sub-2% level of the first
half and expand at a 2-3% rate for 1995. The Consumer Price Index (CPI) will
most likely rise by 3-3 1/2% for the year, and job growth is poised to resume
later this year. The acceleration in both money supply and credit will promote
stronger economic growth and may produce inflationary pressures. Given such an
environment, the Federal Reserve will likely pursue a relatively stable policy
until the direction of the economy becomes more clear.
We will continue to search for attractive opportunities to add value through
specific security selection, as many such opportunities currently are available.
Portfolio structure will reflect our concern regarding the cyclical risks of
high employment and capacity utilization and the resulting potential for
inflation and interest rate pressures. Over the longer term, however, strong
secular forces remain in place which will ultimately contain inflation and
interest rates.
/s/ Timothy A. Palmer
Timothy A. Palmer, CFA
Fund Manager
[Photo of Timothy A. Palmer, CFA
IAI Reserve Fund Manager]
"Strong secular forces remain in place which will ultimately contain inflation
and interest rates."
5
<PAGE>
Fund Manager's Review
---------------------
IAI Reserve Fund
[GLOBE ARTWORK]
IAI Reserve Fund
Note to Chairman's Letter & Fund Manager's Review
Performance data for the IAI Reserve Fund includes changes in share price and
reinvestment of 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.
Credit Rating
% of Portfolio as of 7/31/95
U.S. Gov't and
Gov't Agency ....................12%
AAA .............................28%
AA ..............................42%
A ................................6%
BAA .............................12%
Non-Rated .......................--
Non-Investment
Grade ...........................--
Value of $10,000 Investment+
[CHART APPEARS HERE]
Average Annual Returns+
Through 7/31/95
<TABLE>
<CAPTION>
Six Months Since Inception
ended 7/31/95* 1 year 5 years 1/31/86
===============================================================================
<S> <C> <C> <C> <C>
IAI Reserve Fund 3.42% 5.72% 5.00% 5.92%
- -------------------------------------------------------------------------------
Salomon Brothers One Year
Treasury Bill Index 4.19% 6.52% 5.84% 6.68%**
</TABLE>
+ Past performance is not predictive of future performance
* Not Annualized
** As of 2/1/86
Sectors
% of Portfolio as of 7/31/95
[CHART APPEARS HERE]
Effective Maturity
% of Portfolio as of 7/31/95
[CHART APPEARS HERE]
6
<PAGE>
Fund Manager's Review
---------------------
IAI Money Market Fund
[GLOBE ARTWORK]
IAI Money Market Fund
Fund Objective
The Fund's objective is to provide shareholders with a high level of current
income consistent with the preservation of capital and liquidity. The Fund's
goal is to maintain a stable share price of $1.00.
The Fund pursues its objective by investing in a variety of high quality money
market securities, including the following:
. U.S. Treasury Bills
. U.S. Government short-term notes
. CDs issued by large banks
. Commercial paper issued by large corporations
. Repurchase agreements
Fund Positioning for the Past Six Months
The money market saw considerable moves and a shift in direction over the last
six months. In early February, the Federal Reserve again raised short-term rates
1/2%, amid concerns of higher inflation. However, by early July, the Fed had
reversed course deeming successful its sharp rate hikes of the previous year,
and lowered official rates 1/4%.
During much of the period, the average maturity of your Fund's holdings has
remained relatively short, as money market securities of longer maturities have
provided little additional yield in return for extending maturity. As of July
31, the Fund's average maturity was 14 days.
The Fund is structured to provide a high degree of liquidity, with a large
percentage of the portfolio maturing within a few days. The remaining holdings
are of only moderately longer maturity. Despite the recent drop in short-term
interest rates, the real rate of return for the Fund (the yield minus the
current inflation rate) continues to be positive.
The average credit quality of the Fund remains very high as we continue to
emphasize government securities and top-tier commercial paper. Currently more
than half of the Fund is invested in United States government securities, which
provide both liquidity and credit-risk safety for the Fund. Our commitment to
this portion of the portfolio will vary depending on the liquidity needs of the
Fund, investor cash flows, and new opportunities that may arise in the market.
All of the commercial holdings are issued by high quality corporations and are
rated tier one for credit quality.
Fund Positioning Going Forward
Short-term interest rates are likely entering a period of relative stability as
the Federal Reserve assesses the inflationary landscape and the impact of
economic growth. The economy is likely to pick up steam into the second half of
the year, which may give the Fed pause in considering further cuts.
During the remainder of 1995, we will continue to seek opportunities to add
value to the portfolio, always keeping in mind safety and liquidity of your
funds.
/s/ Timothy A. Palmer
Timothy A. Palmer, CFA
Fund Manager
[Photo of Timothy A. Palmer, CFA
IAI Money Market Fund Manager]
"Despite the recent drop in short-term interest rates, the real rate of return
for the Fund continues to be positive."
7
<PAGE>
Fund Manager's Review
---------------------
IAI Money Market Fund
[GLOBE ARTWORK]
IAI Money Market Fund
Note to Chairman's letter & Fund Manager's Review
Performance data for the IAI Money Market Fund assumes reinvestment of all
dividends. The IAI Money Market Fund is managed to maintain a stable share value
of $1.00 and historically has always achieved this objective. But, unlike bank
deposits and CDs, money market funds are not guaranteed, and there can be no
assurance that a stable share value will be maintained. Past performance is not
a guarantee of future results. 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.
<TABLE>
<CAPTION>
Average Annual Returns/1/+
Through 7/31/95
Since
Six Months/3/ Inception
ended 7/31/95 1 Year 1/5/93
============================================================================================================
<S> <C> <C> <C>
IAI Money Market Fund 2.72% 5.11% 3.82%
- ------------------------------------------------------------------------------------------------------------
Lipper Money Market Instrument
Fund Average 2.67% 5.01% 3.63%/2/
</TABLE>
+ Past performance is not predictive of future performance.
/1/ Fees and expenses are currently being waived to .50% of average
daily net assets.
/2/ Since 1/1/93
/3/ Not Annualized
Sectors
% of Portfolio as of 7/31/95
[CHART APPEARS HERE]
Effective Maturity
% of Portfolio as of 7/31/95
[CHART APPEARS HERE]
8
<PAGE>
(This page intentionally left blank)
<PAGE>
Fund Portfolio
--------------
IAI Reserve Fund
[GLOBE ARTWORK]
July 31, 1995
(percentage figures indicate percentage of total net assets)
(unaudited)
<TABLE>
<CAPTION>
U.S. Government Obligations -- 0.8%
Principal Market
Rate Maturity Amount Value(a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bill -- 0.8%
6.89% 02/08/96 $ 600,000(b) $ 583,033
=======================================================================================================
Total Investments in U.S. Government Obligations
(Cost: $579,770) ......................................................................... $ 583,033
U.S. Government Agency Securities -- 11.4%
Principal Market
Rate Maturity Amount Value(a)
- -------------------------------------------------------------------------------------------------------
Federal Home Loan Bank -- 6.5%
Federal Home Loan Bank (discount note) 5.75% 08/01/95 $5,000,000 $5,000,000
=======================================================================================================
Government National Mortgage
Association -- 4.9%
Government National Mortgage Association 9.00% 12/15/09 3,606,248 3,806,828
=======================================================================================================
Total Investments in U.S. Government Agency Securities
(Cost: $8,829,385) ....................................................................... $8,806,828
</TABLE>
See accompanying Notes to Fund Portfolios on page 15
10
<PAGE>
Fund Portfolio
--------------
IAI Reserve Fund
[GLOBE ARTWORK]
July 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Corporate Bonds -- 23.2%
Principal Market
Rate Maturity Amount Value(a)
====================================================================================================
<S> <C> <C> <C> <C>
Financial Services -- 11.9%
GE Capital (medium-term note) 5.83%(c) 07/21/97 $ 4,000,000 $ 3,994,480
Salomon (medium-term note) 5.32% 09/16/96 3,200,000 3,154,400
USF&G 7.00% 05/15/98 2,000,000 2,012,060
-----------
9,160,940
- ----------------------------------------------------------------------------------------------------
Industrial -- 6.2%
American Home Products 7.70% 02/15/00 2,700,000 2,809,728
RJR Nabisco (medium-term note) 6.25% 01/31/97 2,000,000 1,990,880
-----------
4,800,608
- ----------------------------------------------------------------------------------------------------
Utilities -- 5.1%
Commonwealth Edison 6.00% 03/15/98 2,000,000 1,970,960
Northern Indiana Public Service 6.38% 09/01/97 2,000,000 2,000,860
-----------
3,971,820
====================================================================================================
Total Investments in Corporate Bonds
(Cost: $17,881,151)......................................................................$17,933,368
Asset-Backed Securities -- 22.2%
Principal Market
Rate Maturity Amount Value(a)
====================================================================================================
Auto Loan --16.8%
Banc One Auto Trust 95-A A4 6.90% 04/15/98 $ 3,000,000 $ 3,030,000
Carco Auto Loan Master Trust 94-2 A 7.88% 07/15/99 3,000,000 3,083,280
Ford Credit Auto Lease Trust 95-1 A2 6.35% 10/15/98 3,000,000 3,006,540
Ford Credit Grantor Trust 94-A A 6.35% 05/15/99 1,247,967 1,251,087
GMAC Grantor Trust 95-A A 7.15% 03/15/00 2,557,513 2,591,324
-----------
12,962,231
- ----------------------------------------------------------------------------------------------------
Credit Card -- 3.3%
Chase Manhattan Credit Card Master Trust 95-2 A 6.01%(c) 08/15/01 1,500,000 1,498,590
Household Affinity Credit Card Master Trust I 94-2 A 7.00% 12/15/99 1,000,000 1,016,550
-----------
2,515,140
- ----------------------------------------------------------------------------------------------------
Equipment -- 2.1%
Case Equipment Loan Trust 95-A-A 7.30% 03/15/02 1,621,532 1,645,093
====================================================================================================
Total Investments in Asset-Backed Securities
(Cost: $16,918,151)......................................................................$17,122,464
</TABLE>
See accompanying Notes to Fund Portfolios on page 15
11
<PAGE>
Fund Portfolio
--------------
IAI Reserve Fund
[GLOBE ARTWORK]
July 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Commercial Paper -- 41.0%
Principal Market
Rate Maturity Amount Value(a)
====================================================================================================
<S> <C> <C> <C> <C>
Financial -- 21.3%
AT&T Capital 5.70% 08/10/95 $1,300,000 $ 1,298,147
CSW Credit 5.75% 08/09/95 3,000,000 2,996,167
Motorola Credit 5.73% 08/21/95 1,954,000 1,947,780
Pitney Bowes Credit 5.72% 08/04/95 3,358,000 3,356,400
University of Chicago 5.74% 08/18/95 4,000,000 3,989,158
Weyerhauser Mortgage 5.72% 08/28/95 2,900,000 2,887,559
-----------
16,475,211
- ----------------------------------------------------------------------------------------------------
Health Technology -- 3.9%
Pfizer (d) 5.68% 09/05/95 3,000,000 2,983,433
- ----------------------------------------------------------------------------------------------------
Industrial -- 13.2%
American Greetings 5.75% 08/24/95 3,600,000 3,586,775
Siemens 5.95% 08/02/95 2,800,000 2,799,537
Stanley Works 5.73% 08/25/95 3,850,000 3,835,293
-----------
10,221,605
- ----------------------------------------------------------------------------------------------------
Utilities -- 2.6%
New England Power 5.73% 08/03/95 2,000,000 1,999,363
====================================================================================================
Total Investments in Commercial Paper
(Cost: $31,679,612)......................................................................$31,679,612
====================================================================================================
Total Investments in Securities
(Cost: $75,888,069)(e)...................................................................$76,125,305
====================================================================================================
Other Assets and Liabilities (net) -- 1.4%
.........................................................................................$ 1,077,398
====================================================================================================
Total Net Assets
.........................................................................................$77,202,703
====================================================================================================
</TABLE>
See accompanying Notes to Fund Portfolio on page 15
12
<PAGE>
Fund Portfolio
--------------
IAI Money Market Fund
[GLOBE ARTWORK]
July 31, 1995
(percentage figures indicate percentage of total net assets)
(unaudited)
<TABLE>
<CAPTION>
U.S. Government Agency Securities -- 66.2%
Principal Market
Rate Maturity Amount Value(a)
====================================================================================================
<S> <C> <C> <C> <C>
Federal Home Loan Bank -- 12.5%
Federal Home Loan Bank (discount notes) 5.75% 08/01/95 $3,500,000 $ 3,500,000
5.83% 08/07/95 950,000 949,077
-----------
4,449,077
- ----------------------------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corporation -- 28.3%
Federal Home Loan Mortgage Corporation (discount notes) 5.67% 08/02/95 1,581,000 1,580,751
5.63% 08/15/95 2,700,000 2,694,089
5.66% 08/21/95 3,000,000 2,990,567
5.65% 08/24/95 2,760,000 2,750,037
-----------
10,015,444
- ----------------------------------------------------------------------------------------------------
Federal National
Mortgage Association -- 25.4%
Federal National Mortgage Association (discount notes) 5.83% 08/07/95 1,250,000 1,248,785
5.65% 08/11/95 2,300,000 2,296,390
5.83% 08/14/95 3,000,000 2,993,684
5.67% 08/25/95 2,455,000 2,445,720
-----------
8,984,579
====================================================================================================
Total Investments in U.S. Government Agency Securities
(Cost: $23,449,100)......................................................................$23,449,100
</TABLE>
See accompanying Notes to Fund Portfolios on page 15
13
<PAGE>
Fund Portfolio
---------------------
IAI Money Market Fund
[GLOBE ARTWORK]
July 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Commercial Paper -- 34.0%
Principal Market
Rate Maturity Amount Value (a)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial -- 8.2%
Pitney Bowes 5.70% 08/04/95 $1,000,000 $ 999,525
Southwestern Bell Capital 5.70% 08/08/95 900,000 899,003
Weyerhauser Mortgage 5.72% 08/17/95 1,000,000 997,458
-----------
2,895,986
- -----------------------------------------------------------------------------------------
Industrial -- 16.9%
Emerson Electric 5.65% 08/08/95 1,000,000 998,901
Motorola 5.71% 08/17/95 1,000,000 997,462
PHH 5.72% 08/22/95 1,000,000 996,663
Pepsico 5.93% 08/01/95 1,000,000 1,000,000
Pfizer (d) 5.68% 09/05/95 1,000,000 994,478
Philip Morris 5.71% 08/10/95 1,000,000 998,573
-----------
5,986,077
- -----------------------------------------------------------------------------------------
Telecommunications -- 2.8%
- -----------------------------------------------------------------------------------------
AT&T 5.67% 08/30/95 1,000,000 995,432
Utilities -- 6.1%
Duke Power 5.72% 08/11/95 1,150,000 1,148,173
Wisconsin Electric Fuel 5.70% 08/21/95 1,000,000 996,833
-----------
2,145,006
=========================================================================================
Total Investments in Commercial Paper
(Cost: $12,022,501)..........................................................$12,022,501
=========================================================================================
Total Investments in Securities
(Cost: $35,471,601)(e).......................................................$35,471,601
=========================================================================================
Other Assets and Liabilities (NET) -- (0.2%)
..............................................................................$ (54,806)
=========================================================================================
Total Net Assets
..............................................................................$35,416,795
=========================================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 15
14
<PAGE>
Notes to Fund Portfolios
------------------------
IAI Reserve Fund, IAI Money Market Fund
[GLOBE ARTWORK]
July 31, 1995
(unaudited)
(a)
Market value of securities is determined as described in Note 1 to the financial
statements, under "Security Valuation."
(b)
Security is partially pledged to cover initial margin on open futures contract
(see Note 6 to the financial statements).
(c)
Interest rate varies to reflect current market conditions; rate shown is the
effective rate on July 31, 1995.
(d)
Represents security sold within terms of a private placement memorandum exempt
from registration under Section 4(2) of the Securities Act of 1933. These issues
may be only sold to other qualified institutional buyers, and are considered
liquid under guidelines established by the Board of Directors.
(e)
At July 31, 1995, 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 Reserve Fund IAI Money Market Fund
- -----------------------------------------------------------------------
<S> <C> <C>
Cost for federal tax purposes $75,888,069 $35,471,601
---------------------------------------
Gross unrealized appreciation $ 341,147 $ --
Gross unrealized depreciation (103,911) --
---------------------------------------
Net unrealized appreciation $ 237,236 $ --
=======================================
</TABLE>
15
<PAGE>
Statements of Assets and Liabilities
------------------------------------
IAI Reserve Fund, IAI Money Market Fund
[GLOBE ARTWORK]
July 31, 1995
(unaudited)
<TABLE>
<CAPTION>
IAI IAI Money
Reserve Fund Market Fund
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in securities, at market
(Cost: $75,888,069 and $35,471,601) (see Fund Portfolios) $76,125,305 $35,471,601
Cash in bank on demand deposit 394,062 61,797
Accrued interest receivable 707,769 -
Organization costs - 25,490
Other 24,128 -
------------------------------
Total assets 77,251,264 35,558,888
------------------------------
Liabilities
Accrued investment advisory fee 31,825 2,989
Accrued dividend-disbursing, administrative, and accounting fees 12,729 4,278
Other accrued expenses 4,007 15,432
Dividends payable ($0.0043 per share) - 119,394
------------------------------
Total liabilities 48,561 142,093
------------------------------
Net assets applicable to outstanding capital stock $77,202,703 $35,416,795
==============================
Represented By:
Capital stock $ 77,498 $ 354,166
Additional paid-in capital 78,574,240 35,062,408
Undistributed net investment income 123,334 -
Accumulated net realized gains (losses) (1,827,380) 221
Unrealized appreciation (depreciation) on investment securities 255,011 -
------------------------------
Total -- representing net assets applicable
to outstanding capital stock $77,202,703 $35,416,795
==============================
Shares of capital stock outstanding; authorized 10 billion
shares each of $.01 par value stock 7,749,759 35,416,574
------------------------------
Net asset value per share of outstanding capital stock $ 9.96 $ 1.00
==============================
</TABLE>
See accompanying Notes to Financial Statements on page 22
16
<PAGE>
Statements of Operations
------------------------
IAI Reserve Fund, IAI Money Market Fund
[GLOBE ARTWORK]
Six months ended July 31, 1995
(unaudited)
<TABLE>
<CAPTION>
IAI IAI Money
Reserve Fund Market Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Net Investment Income
Income
Interest $2,478,059 $844,318
-----------------------------
Total income 2,478,059 844,318
-----------------------------
Expenses
Investment advisory fees 194,766 42,021
Distribution fees 38,953 -
Dividend-disbursing, administrative, and accounting fees 77,906 28,014
Legal fees - 1,810
Custodian fees 905 310
Amortization of organization costs - 5,227
Compensation of Directors 3,620 2,840
Audit fees 5,230 4,344
Printing and shareholder reporting 9,051 7,810
Registration fees 9,050 1,500
Other expenses 6,325 2,225
-----------------------------
Total expenses 345,806 96,101
Less fees reimbursed by Advisers or Distributor (14,704) (26,012)
-----------------------------
Net expenses 331,102 70,089
-----------------------------
Net investment income 2,146,957 774,229
-----------------------------
Net Realized and Unrealized Gains (Losses)
Net realized gains (losses) on:
Investment securities $ 71,225 $2,131
Futures contracts (594,250) -
--------- ------
(523,025) 2,131
Net change in unrealized appreciation or depreciation on:
Investment securities $ 958,280 $ -
Futures contracts 17,775 -
--------- ------
976,055 -
-----------------------------
Net gain (loss) on investments 453,030 2,131
-----------------------------
Net increase in net assets resulting
from operations $2,599,987 $776,360
-----------------------------
</TABLE>
See accompanying Notes to Financial Statements on page 22
17
<PAGE>
Statements of Changes in Net Assets
-----------------------------------
IAI Reserve Fund, IAI Money Market Fund
[GLOBE ARTWORK]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Operations
Net investment income
Net realized gains (losses)
Net change in unrealized appreciation or depreciation -----------------------------------------------------------------
Net increase in net assets resulting from operations -----------------------------------------------------------------
Distributions to Shareholders From:
Net investment income -----------------------------------------------------------------
Total distributions -----------------------------------------------------------------
Capital Share Transactions (Note 4)
Net proceeds from sale of shares
Net asset value of shares issued to shareholders in
reinvestment of distributions
Cost of shares redeemed
Increase (decrease) in net assets from capital share
transactions -----------------------------------------------------------------
Total increase (decrease) in net assets -----------------------------------------------------------------
Net assets at beginning of period -----------------------------------------------------------------
Net assets at end of period
(including undistributed net investment income
of $123,334 and $33,609 for Reserve Fund) -----------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
IAI Reserve Fund IAI Money Market Fund
Six months ended Period from April 1, 1994 Six months ended Period from April 1, 1994
July 31, 1995 to January 31, 1995 July 31, 1995 to January 31, 1995
---------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
$ 2,146,957 $ 3,333,740 $ 774,229 $ 886,997
(523,025) (570,786) 2,131 3,441
976,055 (124,030) -- --
---------------------------------------------------------------------------------------------
2,599,987 2,638,924 776,360 890,438
---------------------------------------------------------------------------------------------
(2,057,232) (3,406,637) (774,229) (886,997)
---------------------------------------------------------------------------------------------
(2,057,232) (3,406,637) (774,229) (886,997)
---------------------------------------------------------------------------------------------
65,800,527 121,503,576 166,436,952 130,873,884
2,025,983 3,357,074 1,197,780 793,295
(68,439,691) (145,633,109) (165,394,851) (128,283,703)
---------------------------------------------------------------------------------------------
(613,181) (20,772,459) 2,239,881 3,383,476
---------------------------------------------------------------------------------------------
(70,426) (21,540,172) 2,242,012 3,386,917
77,273,129 98,813,301 33,174,783 29,787,866
---------------------------------------------------------------------------------------------
$ 77,202,703 $ 77,273,129 $ 35,416,795 $ 33,174,783
=============================================================================================
</TABLE>
See accompanying Notes to Financial Statements on page 22
19
<PAGE>
Financial Highlights
--------------------
IAI Reserve Fund
[GLOBE ARTWORK]
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>
Period from Years Ended March 31,
Six months ended April 1, 1994 -------------------------------------------
July 31, 1995 to January 31, 1995 1994 1993 1992 1991
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value (unaudited)
Beginning of period $ 9.89 $ 9.98 $ 10.10 $ 10.16 $ 10.17 $ 10.08
-----------------------------------------------------------------------------------
Operations
Net investment income .28 .40 .39 .36 .57 .72
Net realized and unrealized
gains (losses) .05 (.08) (.13) .02 .08 .10
-----------------------------------------------------------------------------------
Total from operations .33 .32 .26 .38 .65 .82
-----------------------------------------------------------------------------------
Distributions to Shareholders From:
Net investment income (.26) (.41) (.37) (.36) (.58) (.73)
Net realized gains -- -- (.01) (.08) (.08) --
-----------------------------------------------------------------------------------
Total distributions (.26) (.41) (.38) (.44) (.66) (.73)
-----------------------------------------------------------------------------------
Net Asset Value
End of period $ 9.96 $ 9.89 $ 9.98 $ 10.10 $ 10.16 $ 10.17
===================================================================================
Total investment return* 3.42% 3.21% 2.60% 3.81% 6.54% 8.49%
Net assets at end of period
(000's omitted) $77,203 $77,273 $98,813 $82,085 $108,373 $104,300
Ratios
Expenses to average net assets .85%** .85%** .85% .85% .85% .85%
Net investment income to
average net assets 5.51%** 4.77%** 3.95% 3.49% 5.63% 7.09%
Portfolio turnover rate 126.6% 170.0% 235.0% 538.7% 218.1% 87.0%
(excluding short-term securities)
</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. Not annualized
** Annualized
20
<PAGE>
Financial Highlights
--------------------
IAI Money Market Fund
[Globe Artwork]
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>
Period from Period from
Six months ended April 1, 1994 Year Ended January 5, 1993***
July 31, 1995 to January 31, 1995 March 31, 1994 to March 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Net Asset Value
Beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------------
Operations
Net investment income .03 .03 .03 .01
----------------------------------------------------------------------------
Total from operations .03 .03 .03 .01
----------------------------------------------------------------------------
Distributions to Shareholders From:
Net investment income (.03) (.03) (.03) (.01)
----------------------------------------------------------------------------
Total distributions (.03) (.03) (.03) (.01)
----------------------------------------------------------------------------
Net Asset Value
End of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------------
Total investment return* 2.72% 3.47% 2.88% 2.85%**
Net assets at end of period (000's omitted) $ 35,417 $ 33,175 $29,788 $ 25,877
Ratios
Expenses to average daily net assets**** .50%** .50%** .45% .29%**
Net investment income to average daily
net assets**** 5.48%** 4.12%** 2.73% 2.96%**
</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. Not annualized except as indicated
** Annualized
*** Commencement of operations
**** The Fund's adviser voluntarily waived $26,012, $81,895, $147,924 and
$18,494 in expenses for the six months ended July 31, 1995, the period
ended January 31, 1995, the year ended March 31, 1994, and the period
ended March 31, 1993, respectively. If the Fund had been charged for these
expenses, the ratio of expenses to average daily net assets would have
been .68%, .88%, .88% and .69%, respectively, and the ratio of net
investment income to average daily net assets would have been 5.30%,
3.74%, 2.30% and 2.56%, respectively.
21
<PAGE>
Notes to Financial Statements
IAI Reserve Fund, IAI Money Market Fund
[Globe Artwork]
July 31, 1995
(unaudited)
[1] Summary of Significant Accounting Policies
IAI Investment Funds V, Inc. and IAI Investment Funds VI, Inc. are registered
under the Investment Company Act of 1940 (as amended) as diversified, open-end
management investment companies. IAI Reserve Fund (Reserve Fund) is a separate
portfolio of IAI Investment Funds V, Inc. IAI Money Market Fund (Money Market
Fund) is a separate portfolio of IAI Investment Funds VI, Inc. This report
covers only the Reserve Fund and Money Market Fund (The Funds).
On November 9, 1994, the Board of Directors elected to change the fiscal year
end of the Funds from March 31 to January 31. Accordingly, these financial
statements include the ten-month period from April 1, 1994 to January 31, 1995.
Significant accounting policies followed by the Funds are summarized below:
Security Valuation
The values of debt securities for Reserve Fund are determined using pricing
services or prices quoted by independent brokers. Short-term securities with a
maturity of 60 days or less from the date of purchase are valued at amortized
cost. Short-term securities with a maturity greater than 60 days from the date
of purchase are marked-to-market on a daily basis.
Pursuant to Rule 2a-7 of the Investment Company Act of 1940 (as amended), all
securities in Money Market Fund are valued daily at amortized cost, which
approximates market value, in order to maintain a constant net asset value of $1
per share.
Repurchase Agreements
Securities pledged as collateral for repurchase agreements are held by the
custodian bank until maturity of the repurchase agreement. Provisions of the
agreement ensure that the market value of the collateral, including accrued
interest, is sufficient in the event of default; however, in the event of
default or bankruptcy by the other party to the agreement, realization of the
collateral may be delayed or limited.
Futures Contracts
In order to increase exposure to and hedge against changes in the market,
Reserve Fund may buy and sell futures contracts. The risks of entering into
futures contracts include the possibility that changes in the value of the
contract may not correlate with changes in the value of the underlying
securities. Futures contracts are valued at the settlement price of the exchange
on which they are traded.
Upon entering into a futures contract, Reserve 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 as unrealized gains and losses. The
variation margin is paid or received in cash daily by Reserve Fund. Reserve Fund
realizes a gain or loss when the contract is closed or expires.
Foreign Currency Translations and Foreign Currency Contracts
Reserve Fund may invest in foreign securities. The market value of securities
and other assets and liabilities denominated in foreign currencies is translated
daily into U.S. dollars at the closing rate of exchange. Purchases and sales of
securities, income and expenses are translated at the exchange rate on the
transaction date and are recorded in realized and unrealized appreciation
(depreciation). Exchange gains (losses) may also be realized between the trade
and settlement dates on security and foreign currency contract transactions.
Reserve Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market
22
<PAGE>
Notes to Financial Statements
IAI Reserve Fund, IAI Money Market Fund
[Globe Artwork]
July 31, 1995
(unaudited)
[1] Summary of Significant Accounting Policies (cont.)
prices of securities held. Such fluctuations are included with the net realized
and unrealized gain or loss from investments.
Reserve Fund may enter into foreign currency exchange contracts for operational
purposes and to protect against adverse exchange rate fluctuations. The net U.S.
dollar value of foreign currency underlying all contractual commitments held by
Reserve Fund and the resulting unrealized appreciation or depreciation are
determined using foreign currency exchange rates from an independent pricing
service. Reserve Fund is subject to the credit risk that the other party will
not complete the obligations of the contract.
Federal Taxes
Since it is each Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
their taxable income to shareholders, no provision for income taxes is required.
In order to avoid the payment of any federal excise taxes, the Funds are
required to distribute substantially all of their net investment income and net
realized gains on a calendar year basis.
Net investment income and net realized gains may differ for financial statement
and tax purposes primarily because of the deferral of "wash sale" losses for tax
purposes. The character of distributions made during the year for net investment
income or net realized gains may also differ from its ultimate characterization
for tax purposes.
For federal income tax purposes, Reserve Fund has a capital loss carryover of
approximately $1,144,000, at January 31, 1995 which, if not offset by subsequent
capital gains, will expire in 2002. It is unlikely the Board of Directors will
authorize a distribution of any net realized gains until the available capital
loss carryover is offset or expires.
Security Transactions and Investment Income
The Funds record security transactions on trade date, the date the securities
are purchased or sold. Interest income is accrued daily. Reserve Fund amortizes
discount purchased on long-term bonds using the level yield method of
amortization. For Money Market Fund, discounts and premiums are accreted and
amortized, respectively, to interest income over the lives of the respective
securities. Security gains and losses are determined on the basis of identified
cost, which is the same basis used for federal income tax purposes.
Distributions to Shareholders
Distributions to Reserve Fund shareholders are recorded on the ex-dividend date.
Distributions from net investment income are paid monthly. For Money Market
Fund, distributions from net investment income are declared daily and paid on
the first business day of the following month. Capital gains for the Funds, 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.
Organization Costs
Organization costs are being amortized over 60 months on a straight-line basis.
23
<PAGE>
Notes to Financial Statements
IAI Reserve Fund, IAI Money Market Fund
[Globe Artwork]
July 31, 1995
(unaudited)
[2] Commitments and Contingencies
For purposes of obtaining certain types of insurance coverage for the Funds and
their officers and directors, the Funds are policyholders in an industry-
sponsored mutual insurance company (the Company). In connection with their
obligations as policyholders, the Funds have made payments to the Company which
have been capitalized. Also, the Funds are committed to make future capital
contributions, if requested by the Company.
Reserve Fund and Money Market Fund have available a $15,000,000 and $7,150,000
respectively, line of credit with a bank at prime interest rates. No
compensating balances or commitment fees are required under the line of credit.
There were no borrowings outstanding at July 31, 1995. To the extent funds are
drawn against the line, securities are held in a segregated account.
[3] Fees and Expenses
Under the terms of an investment advisory agreement, the Funds pay Investment
Advisers, Inc. (Advisers) a monthly management fee computed at an annual rate of
.50% of the average month-end net asset value for Reserve Fund and .30% of
average daily net assets for Money Market Fund.
Each Fund also pays an annual fee to Advisers for acting as the Fund's dividend-
disbursing, administrative, and accounting services agent. The fee is computed
monthly on the average month-end net assets for Reserve Fund and average daily
net assets for Money Market Fund at an annual rate of .20%.
Reserve Fund has adopted a plan of distribution with IAI Securities, Inc.
(Distributor), the Fund's distributor. Under the Plan, Reserve Fund pays
Distributor a monthly fee to cover expenses incurred in the distribution and
promotion of Reserve Fund's shares. The fee is equal to an annual rate of .10%
of Reserve Fund's average month-end net assets.
In addition to the advisory, distribution, and the dividend-disbursing,
administrative, and accounting services fees, each Fund is responsible for
paying its operating expenses, including costs incurred in the purchase and sale
of assets. Advisers and Distributor have agreed to reimburse Reserve Fund to the
extent total expenses, excluding costs incurred in the purchase and sale of
assets, exceed, on an annual basis, .85% of average month-end net assets.
Additionally, since July 1, 1993, Advisers has voluntarily agreed to waive
expenses for Money Market Fund in excess of .50% of average daily net assets.
24
<PAGE>
Notes to Financial Statements
-----------------------------
IAI Reserve Fund, IAI Money Market Fund
[GLOBE ARTWORK]
July 31, 1995
(unaudited)
[4] Capital Stock
The Funds each have authorized 10 billion shares of $.01 par value stock.
Transactions in shares of capital stock during the period ended July 31, 1995,
and the period ended January 31, 1995 were as follows:
<TABLE>
<CAPTION>
IAI Reserve Fund IAI Money Market Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Six months ended Period from April 1, 1994 Six months ended Period from April 1, 1994
July 31, 1995 to January 31, 1995 July 31, 1995 to January 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 6,604,152 12,212,854 166,437,173 130,873,884
Issued for reinvested distributions 203,667 338,618 1,197,779 793,295
Redeemed (6,870,378) (14,636,560) (165,394,850) (128,283,703)
-------------------------------------------------------------------------------------------
Increase (decrease) in shares
outstanding (62,559) (2,085,088) 2,240,102 3,383,476
===========================================================================================
</TABLE>
[5] Purchases and Sales of Securities
For the period ended July 31, 1995, purchases of securities and sales proceeds
for the Funds were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Purchases Sales
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
IAI Reserve Fund $537,299,219 $540,063,771
IAI Money Market Fund $428,287,980 $426,927,698
</TABLE>
[6] Open Futures Contracts
The financial futures contracts shown below were open in Reserve Fund as of July
31, 1995. The market value of securities deposited to cover initial margin
requirements for the open positions at July 31, 1995 was $145,758.
<TABLE>
<CAPTION>
Futures
- ----------------------------------------------------------------------------------------------------------
Number of Expiration Market Unrealized
Fund Type Contracts Month Position Value Gain
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IAI Reserve Fund 90 Day Euro Dollar 10 September 1995 Short $2,356,000 $ 4,175
U.S. Treasury Note 20 September 1995 Short 2,133,437 13,600
-----------------------
$4,489,437 $17,775
=======================
</TABLE>
25
<PAGE>
IAI Mutual Fund Family
IAI Reserve Fund, IAI Money Market Fund
[Globe Artwork]
To diversify your portfolio, please consider all of the mutual funds in our fund
family
<TABLE>
<CAPTION>
Secondary
IAI Fund Primary Objective Objective Portfolio Composition
___________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
IAI Developing Capital Appreciation -- Equity securities of companies in developing
Countries Fund countries
___________________________________________________________________________________________________________________________________
IAI International Fund Capital Appreciation Income Equity securities of non-U.S. companies
___________________________________________________________________________________________________________________________________
IAI Emerging Growth Fund Capital Appreciation -- Common stocks of small to medium-sized emerging growth
companies
___________________________________________________________________________________________________________________________________
IAI Midcap Growth Fund Capital Appreciation -- Common stocks of medium-sized growth companies
___________________________________________________________________________________________________________________________________
IAI Regional Fund Capital Appreciation -- Common stocks of Upper Midwest companies
___________________________________________________________________________________________________________________________________
IAI Growth Fund Capital Appreciation -- Common stocks with potential for above-average growth
and appreciation
___________________________________________________________________________________________________________________________________
IAI Value Fund Capital Appreciation -- Common stocks which are considered to be undervalued
___________________________________________________________________________________________________________________________________
IAI Growth & Income Fund Capital Appreciation Income Common stocks with potential for long-term appreciation,
and common stocks that are expected to produce income
___________________________________________________________________________________________________________________________________
IAI Balanced Fund Total Return Income Common stocks, investment grade bonds and short-term
[Capital Appreciation + Income] instruments
___________________________________________________________________________________________________________________________________
IAI Bond Fund Income Capital Preservation Investment grade bonds
___________________________________________________________________________________________________________________________________
IAI Minnesota Tax Free Fund Tax-free Income Capital Preservation Investment grade municipal bonds
(formerly IAI Tax Free Fund) [Exempt from Federal and Minnesota State Income Taxes]
___________________________________________________________________________________________________________________________________
IAI Government Fund Income Capital Preservation U.S. Government securities
___________________________________________________________________________________________________________________________________
IAI Reserve Fund Stability/Liquidity Income The portfolio has a maximum average maturity of 25
months, investing primarily in investment grade bonds
___________________________________________________________________________________________________________________________________
IAI Money Market Fund Stability/Liquidity Income The portfolio's average dollar-weighted maturity is
less than 90 days, investing in high quality, money
market securities
___________________________________________________________________________________________________________________________________
</TABLE>
26
<PAGE>
(This page intentionally left blank)
<PAGE>
(This page intentionally left blank)
<PAGE>
IAI Securities, Inc.
Investment Advisers, Inc.
P.O. Box 357
Minneapolis, MN 55440-0357 USA
800.945.3863
612.376.2700
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, MN 55479
Dorsey & Whitney P.L.L.P.
220 South Sixth Street
Minneapolis, MN 55402
KPMG Peat Marwick LLP
4200 Norwest Center
Minneapolis, MN 55402
Madeline Betsch
W. William Hodgson
George R. Long
Noel P. Rahn
Richard E. Struthers
J. Peter Thompson
Charles H. Withers
<PAGE>
[IAI LOGO]
MUTUAL FUNDS
Investment Advisers, Inc.
3700 First Bank Place, P.O. Box 357, Minneapolis, Minnesota 55440-0357 USA fax
612.376.2737
800.945.3863
612.376.2700
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> IAI Reserve Fund
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 75,888
<INVESTMENTS-AT-VALUE> 76,125
<RECEIVABLES> 1,102
<ASSETS-OTHER> 24
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 77,251
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49
<TOTAL-LIABILITIES> 49
<SENIOR-EQUITY> 78
<PAID-IN-CAPITAL-COMMON> 78,574
<SHARES-COMMON-STOCK> 7,750
<SHARES-COMMON-PRIOR> 7,812
<ACCUMULATED-NII-CURRENT> 123
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,827
<ACCUM-APPREC-OR-DEPREC> 255
<NET-ASSETS> 77,203
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,478
<OTHER-INCOME> 0
<EXPENSES-NET> 331
<NET-INVESTMENT-INCOME> 2,147
<REALIZED-GAINS-CURRENT> (523)
<APPREC-INCREASE-CURRENT> 976
<NET-CHANGE-FROM-OPS> 2,600
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,057
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,604
<NUMBER-OF-SHARES-REDEEMED> 6,870
<SHARES-REINVESTED> 204
<NET-CHANGE-IN-ASSETS> (70)
<ACCUMULATED-NII-PRIOR> 3,334
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 571
<GROSS-ADVISORY-FEES> 195
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 346
<AVERAGE-NET-ASSETS> 78,552
<PER-SHARE-NAV-BEGIN> 9.89
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> .05
<PER-SHARE-DIVIDEND> .26
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
