<PAGE>
As filed with the Securities and Exchange Commission on January 31, 1996
1933 Act Registration No. 33-40496
1940 Act Registration No. 811-5990
SECURITIES AND EXCHANGE COMMISSION
- --------------------------------------------------------------------------------
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ___
Pre-Effective Amendment No._____ ___
Post-Effective Amendment No. 16 [X]
---
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ___
Amendment No. 16 [X]
---
IAI INVESTMENT FUNDS VI, INC.
(Exact Name of Registrant as Specified in Charter)
3700 First Bank Place, P.O. Box 357
Minneapolis, Minnesota 55440
(Address of Principal Executive Offices) (Zip Code)
(612) 376-2700
(Registrant's Telephone Number, including Area Code)
Christopher J. Smith, Esq. Copy to:
3700 First Bank Place Michael J. Radmer, Esq.
P.O. Box 357 Dorsey & Whitney
Minneapolis, Minnesota 55440 220 South Sixth Street
(Name and Address of Agent for Service) Minneapolis, Minnesota 55402
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
---
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(i)
___ on (date) pursuant to paragraph (a)(i)
___ 75 days after filing pursuant to paragraph (a)(ii)
___ on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
___ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940, as amended. Rule 24f-2 Notices were last filed with the Commission on
May 23, 1995.
<PAGE>
IAI INVESTMENT FUNDS VI, INC.
FORM N-1A
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number Caption Prospectus Caption
- ----------- ------- ------------------
<S> <C> <C>
1 Cover Page................................. Cover Page of Prospectus
2 Synopsis................................... Fund Expense Information
3 Condensed Financial Information............ Not Applicable
4 General Description of Registrant.......... Investment Objectives and Policies;
Description of Common Stock; Additional
Information
5 Management of the Fund..................... Fund Expense Information; Management;
Additional Information; Custodian, Transfer
Agent and Dividend Disbursing Agent
5A Management's Discussion of Fund Performance Not Applicable
6 Capital Stock and Other Securities......... Dividends, Distributions and Tax Status;
Description of Common Stock; Additional
Information
7 Purchase of Securities Being Offered....... Computation of Net Asset Value and Pricing;
Purchase of Shares; Automatic Investment
Plan; Exchange Privilege; Automatic
Exchange Plan; Retirement Plans; Authorized
Telephone Trading
8 Redemption or Repurchase................... Systematic Cash Withdrawal Plan;
Redemption of Shares; Authorized
Telephone Trading
9 Pending Legal Proceedings.................. Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item Number Caption Statement of Additional Information Caption
- ----------- ------- -------------------------------------------
<S> <C> <C>
10 Cover Page................................. Cover Page of Statement of Additional
Information
11 Table of Contents.......................... Table of Contents
12 General Information and History............ Management
13 Investment Objectives and Policies......... Investment Objectives and Policies;
Investment Restrictions
14 Management of the Fund..................... Management
15 Control Persons and Principal
Holders of Securities..................... Management; Capital Stock
16 Investment Advisory and Other Services..... Management
17 Brokerage Allocation....................... Portfolio Transactions and Allocation of
Brokerage
18 Capital Stock and Other Securities......... Capital Stock
19 Purchase, Redemption and Pricing Purchases and Redemptions In Kind;
of Securities Being Offered................ Net Asset Value and Public Offering Price
20 Tax Status................................. Tax Status
21 Underwriters............................... Not Applicable
22 Calculation of Performance Data............ Not Applicable
23 Financial Statements....................... Financial Statements
</TABLE>
<PAGE>
PROSPECTUS DATED AUGUST 1, 1995
AS SUPPLEMENTED JANUARY 31, 1996
--------------------------------
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
3700 FIRST BANK PLACE
P.O. BOX 357
MINNEAPOLIS, MINNESOTA 55440
TELEPHONE 1-612-376-2700
1-800-945-3863
IAI Capital Appreciation Fund's investment objective is long-term capital
appreciation. Capital Appreciation Fund pursues its investment objective by
investing primarily in equity securities of U.S. companies that have above-
average prospects for growth.
IAI Emerging Growth Fund pursues its objective of long-term capital appreciation
by investing primarily in equity securities of small and medium sized companies
that are in the early stages of their life cycles and which have demonstrated or
have the potential for above average capital growth.
IAI Growth Fund's investment objective is long-term capital appreciation.
Growth Fund pursues its objective by investing primarily in equity securities of
established companies that are expected to increase earnings at an above average
rate.
IAI Growth and Income Fund's primary investment objective is capital
appreciation, with income being its secondary objective. Growth and Income Fund
pursues its objectives by investing primarily in equity securities which offer
the potential for capital appreciation and secondarily by investing in income-
producing equity securities.
IAI Midcap Growth Fund's investment objective is long-term capital appreciation.
Midcap Growth Fund pursues its investment objective by investing primarily in
equity securities of medium-sized U.S. companies that have above-average
prospects for growth.
IAI Regional Fund pursues its objective of capital appreciation by investing at
least 80% of its equity investments in companies which have their headquarters
in Minnesota, Wisconsin, Iowa, Illinois, Nebraska, Montana, North Dakota or
South Dakota.
IAI Value Fund pursues its investment objective of long-term capital
appreciation primarily by investing in securities believed by management to be
undervalued and which are considered to offer unusual opportunities for capital
growth.
<PAGE>
This Prospectus sets forth concisely the information which a prospective
investor should know about each Fund before investing and it should be retained
for future reference. A "Statement of Additional Information" dated August 1,
1995, as supplemented January 31, 1996, which provides a further discussion of
certain areas in this Prospectus and other matters which may be of interest to
some investors, has been filed with the Securities and Exchange Commission and
is incorporated herein by reference. For a free copy, call or write the Funds
at the address or telephone number shown on the inside back cover of this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
FUND EXPENSE INFORMATION................................... 4
FUND DIRECTORS............................................. 5
FINANCIAL HIGHLIGHTS....................................... 6
INVESTMENT PERFORMANCE..................................... 12
INVESTMENT OBJECTIVES AND POLICIES......................... 12
CAPITAL APPRECIATION FUND............................. 12
EMERGING GROWTH FUND.................................. 13
GROWTH FUND........................................... 13
GROWTH AND INCOME FUND................................ 14
MIDCAP GROWTH FUND.................................... 14
REGIONAL FUND......................................... 15
VALUE FUND............................................ 15
PORTFOLIO SECURITIES AND OTHER FUND INVESTMENT TECHNIQUES.. 16
FUND RISK FACTORS.......................................... 18
Investment Restrictions............................... 20
MANAGEMENT................................................. 20
ALL FUNDS OTHER THAN CAPITAL APPRECIATION FUND........ 20
CAPITAL APPRECIATION FUND............................. 22
PLAN OF DISTRIBUTION....................................... 22
COMPUTATION OF NET ASSET VALUE AND PRICING................. 23
PURCHASE OF SHARES......................................... 23
RETIREMENT PLANS........................................... 24
AUTOMATIC INVESTMENT PLAN.................................. 25
REDEMPTION OF SHARES....................................... 25
EXCHANGE PRIVILEGE......................................... 25
AUTOMATIC EXCHANGE PLAN.................................... 26
AUTHORIZED TELEPHONE TRADING............................... 26
SYSTEMATIC CASH WITHDRAWAL PLAN............................ 27
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.................... 27
DESCRIPTION OF COMMON STOCK................................ 28
COUNSEL AND AUDITORS....................................... 28
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT.... 28
ADDITIONAL INFORMATION..................................... 29
</TABLE>
3
<PAGE>
FUND EXPENSE INFORMATION
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ----------------------------------------------------------------------------------------------------------------------------------
IAI
Emerging IAI
IAI Capital Growth IAI Growth and IAI Midcap IAI IAI
Appreciation Fund Fund Growth Fund Income Fund Growth Fund Regional Fund Value Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases None None None None None None None
Sales Load Imposed on
Reinvested Dividends None None None None None None None
Redemption Fees None None None None None None None
Exchange Fees None None None None None None None
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
(NET OF REIMBURSEMENTS)
- ----------------------
IAI IAI
IAI Capital Emerging IAI Growth and IAI Midcap IAI IAI
Appreciation Growth Growth Income Growth Regional Value
Fund* Fund** Fund** Fund** Fund** Fund** Fund**
- ----------------------------------------------------------------------------------------------------------------------------------
Management Fee 1.25%*** .74% .75% .74% .75% .71% .75%
Rule 12b-1 Fee None .25% .02% .25% .18% .25% .12%
Other Expenses None .26% .48% .26% .32% .27% .38%
----- ---- ---- ---- ---- ---- ----
Total Fund Operating 1.25%*** 1.25% 1.25% 1.25% 1.25% 1.23% 1.25%
Expenses ---- ---- ---- ---- ---- ---- ----
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* as a percentage of average daily net assets
** as a percentage of average month-end net assets; net of reimbursements
*** after fee waiver
EXAMPLE:
Based upon the levels of Total Fund Operating Expenses listed above, you would
pay the following expenses on a $1,000 investment, assuming a five percent
annual return and redemption at the end of each period:
4
<PAGE>
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
IAI Capital Appreciation Fund $13 $40 -- --
IAI Emerging Growth Fund $13 $40 $69 $151
IAI Growth Fund $13 $40 $69 $151
IAI Growth and Income Fund $13 $40 $69 $151
IAI Midcap Growth Fund $13 $40 $69 $151
IAI Regional Fund $13 $39 $68 $149
IAI Value Fund $13 $40 $69 $151
</TABLE>
The purpose of the above table is to assist you in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly. For all Funds except Capital Appreciation Fund, the information in
the table is based upon actual expenses the Funds incurred for the fiscal year
or period ended March 31, 1995. For Capital Appreciation Fund, the fees set
forth in the table reflect estimated fees and expenses of the Fund for its
fiscal period ending March 31, 1996. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
For all Funds except Capital Appreciation Fund, each of such Fund's
Total Fund Operating Expenses are subject to a contractual expense limitation of
1.25% of the Fund's average month-end net assets, as further described in the
section "Management." Absent such expense limitations, each of Growth Fund,
Midcap Growth Fund and Value Fund would pay .25% of its average month-end net
assets in Rule 12b-1 Fees. For such Funds, projected Total Fund Operating
Expenses set forth above are the same as the actual Total Fund Operating
Expenses for the fiscal year or period ended March 31, 1995. Because each
Fund's Rule 12b-1 Fee is based on a percentage of such Fund's net assets, long-
term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by Section 26 of the National Association of
Securities Dealers' Rules of Fair Practice.
With respect to Capital Appreciation Fund, the Fund's investment
adviser has voluntarily agreed to waive the Management Fee in excess of 1.25% of
the Fund's average daily net assets until March 31, 1997. Absent such voluntary
waiver, the Fund would pay 1.40% of its average daily net assets as the
Management Fee.
Further information concerning fees paid by each Fund is set forth in
the section "Management" below and in the Statement of Additional Information.
FUND DIRECTORS
Madeline Betsch Richard E. Struthers
W. William Hodgson J. Peter Thompson
George R. Long Charles H. Withers
Noel P. Rahn
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report is included in the Fund's Annual Report. The Financial
Highlights section of the Annual Report is incorporated by reference in (and is
a part of) the Statement of Additional Information. Such Annual Report may be
obtained by shareholders on request from the Fund at no charge.
<TABLE>
<CAPTION>
EMERGING GROWTH FUND
PERIOD FROM
YEARS ENDED MARCH 31, AUGUST 5, 1991*
-------------------------------- TO
1995 1994 1993 MARCH 31, 1992
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 15.20 $ 13.47 $ 11.91 $ 10.00
-------- -------- -------- ---------
Operations:
Net investment income (loss) (.07) (.10) (.05) .01
Net realized and unrealized gains 1.42 2.18 2.37 1.91
-------- -------- -------- ---------
Total from operations 1.35 2.08 2.32 1.92
-------- -------- -------- ---------
Distributions to shareholders from:
Net investment income -- -- -- (.01)
Net realized gains (.72) (.35) (.76) --
-------- -------- -------- ---------
Total distributions (.72) (.35) (.76) (.01)
-------- -------- -------- ---------
NET ASSET VALUE:
End of period $ 15.83 $ 15.20 $ 13.47 $ 11.91
======== ======== ======== =========
Total investment return ** 10.23% 15.43% 21.90% 19.23%
Net assets at end of period (000's omitted) $342,874 $225,510 $131,514 $ 38,110
RATIOS:
Expenses to average net assets 1.25% 1.25% 1.25% 1.25%***
Net investment income (loss)
to average net assets (.54%) (.77%) (.72%) .14%***
Portfolio turnover rate
(excluding short-term securities) 58.1% 76.3% 96.1% 126.6%
- -----------------------
</TABLE>
* Commencement of operations
** Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
*** Annualized
6
<PAGE>
GROWTH FUND
The following information has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report is included in the Fund's Annual Report. The Financial
Highlights section of the Annual Report is incorporated by reference in (and is
a part of) the Statement of Additional Information. Such Annual Report may be
obtained by shareholders on request from the Fund at no charge.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 1, 1994 AUGUST 6, 1993***
TO MARCH 31, 1995**** TO JULY 31, 1994
--------------------- ----------------
<S> <C> <C>
NET ASSET VALUE:
Beginning of period $9.87 $10.00
----- ------
OPERATIONS:
Net investment income .04 .01
Net realized and unrealized gains (losses) 1.07 (.13)
----- ------
Total from operations 1.11 (.12)
----- ------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (.03) (.01)
---- ----
Total distributions (.03) (.01)
---- ----
NET ASSET VALUE:
End of period $10.95 $9.87
====== =====
Total investment return* 11.24% (1.21%)
Net assets at end of period (000's omitted) $26,794 $14,408
RATIOS:
Expenses to average net assets** 1.25% 1.25%
Net investment income to average net
assets** 0.61% 0.16%
Portfolio turnover rate (excluding short-
term securities) 68.7% 105.4%
</TABLE>
- ----------------
* Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
** Annualized
*** Commencement of operations
**** Reflects fiscal year-end change from July 31 to March 31.
7
<PAGE>
GROWTH AND INCOME FUND
The following information has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report is included in the Fund's Annual Report. The Financial
Highlights section of the Annual Report is incorporated by reference in (and is
a part of) the Statement of Additional Information. Such Annual Report may be
obtained by shareholders on request from the Fund at no charge.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 13.91 $ 15.19 $ 14.73 $ 14.48 $ 15.47 $ 16.01 $ 14.80 $ 17.32 $ 16.09 $ 13.25
------------------------------------------------------------------------------------------------------
Operations:
Net investment income .12 .09 .07 .13 .29 .39 .31 .28 .33 .42
Net realized and
unrealized
gains (losses) 1.04 .38 1.17 1.20 .72 2.26 2.23 (1.09) 3.07 3.36
------------------------------------------------------------------------------------------------------
Total from operations 1.16 .47 1.24 1.33 1.01 2.65 2.54 (.81) 3.40 3.78
------------------------------------------------------------------------------------------------------
Distributions to
shareholders from:
Net investment income (.10) (.06) (.07) (.14) (.30) (.43) (.23) (.37) (.37) (.48)
Net realized gains (.65) (1.69) (.71) (.94) (1.70) (2.76) (1.10) (1.34) (1.80) (.46)
------------------------------------------------------------------------------------------------------
Total distributions (.75) (1.75) (.78) (1.08) (2.00) (3.19) (1.33) (1.71) (2.17) (.94)
------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 14.32 $ 13.91 $ 15.19 $ 14.73 $ 14.48 $ 15.47 $ 16.01 $ 14.80 $ 17.32 $ 16.09
======================================================================================================
Total investment return * 8.92% 3.07% 9.04% 9.56% 7.42% 16.77% 18.06% (4.89%) 24.25% 30.62%
Net assets at end of period
(000's omitted) $101,256 $119,102 $134,308 $113,324 $90,590 $76,484 $76,901 $83,290 $83,691 $69,126
RATIOS:
Expenses to average
net assets 1.25% 1.25% 1.25% 1.25% 1.05% 1.00% .90% .80% .80% .70%
Net investment income to
average net assets 0.80% 0.60% 0.61% 1.03% 2.19% 2.10% 1.80% 1.70% 2.10% 2.90%
Portfolio turnover rate
(excluding short-term
securities) 79.1% 205.6% 175.6% 210.1% 68.5% 66.2% 48.3% 35.8% 67.5% 50.0%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value.
8
<PAGE>
MIDCAP GROWTH FUND
The following information has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report is included in the Fund's Annual Report.
The Financial Highlights section of the Annual Report is incorporated by
reference in (and is a part of) the Statement of Additional Information. Such
Annual Report may be obtained by shareholders on request from the Fund at no
charge.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, PERIOD FROM
-------------------- APRIL 10, 1992** TO
1995 1994 MARCH 31, 1993
-------- ------- --------------------
<S> <C> <C>
NET ASSET VALUE:
Beginning of period $ 13.67 $ 11.88 $ 10.00
------- ------- -------
Operations:
Net investment income (loss) (.04) (.04) .02
Net realized and unrealized gains 2.35 1.99 1.89
------- ------- -------
Total from operations 2.31 1.95 1.91
------- ------- -------
Distributions to shareholders from:
Net investment income -- -- (.03)
Net realized gains (.63) (.16) --
------- ------- -------
Total distributions (.63) (.16) (.03)
------- ------- -------
Net Asset Value:
End of period $ 15.35 $ 13.67 $ 11.88
======= ======= =======
Total investment return*** 17.63% 16.40% 19.09%
Net assets at end of period (000's 88,075 $56,618 $22,070
omitted)
RATIOS:
Expenses to average net assets 1.25% 1.25% 1.25%*
Net investment income to average net (.33%) (.45%) .24%*
assets
Portfolio turnover rate (excluding 51.3% 49.7% 57.6%
short-term securities)
______________________________
</TABLE>
* Annualized
** Commencement of operations
*** Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
9
<PAGE>
REGIONAL FUND
The following information has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report is included in the Fund's Annual Report. The Financial
Highlights section of the Annual Report is incorporated by reference in (and is
a part of) the Statement of Additional Information. Such Annual Report may be
obtained by shareholders on request from the Fund at no charge.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
NET ASSET VALUE:
Beginning of period $ 20.94 $ 22.23 $ 21.29 $ 21.03 $ 18.95
----------------------------------------------------
Operations:
Net investment income .17 .21 .21 .20 .35
Net realized and
unrealized
gains (losses) 1.84 .51 1.48 2.38 2.88
----------------------------------------------------
Total from operations 2.01 .72 1.69 2.58 3.23
----------------------------------------------------
Distributions to
shareholders from:
Net investment income (.20) (.18) (.23) (.24) (.33)
Net realized gains (1.19) (1.83) (.52) (2.08) (.82)
----------------------------------------------------
Total distributions (1.39) (2.01) (.75) (2.32) (1.15)
----------------------------------------------------
NET ASSET VALUE:
End of period $ 21.56 $ 20.94 $ 22.23 $ 21.29 $ 21.03
====================================================
Total investment return * 10.35% 3.26% 8.31% 12.77% 18.01%
Net assets at end of period
(000's omitted) $523,364 $596,572 $659,904 $528,763 $284,054
RATIOS:
Expenses to average net
assets 1.23% 1.25% 1.25% 1.25% 1.01%
Net investment income to
average net assets .74% .94% 1.09% 1.20% 2.27%
Portfolio turnover rate
(excluding short-term
securities) 150.0% 163.0% 139.7% 140.6% 168.7%
- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
1990 1989 1988 1987 1986
-------- -------- ------- -------- -------
NET ASSET VALUE:
Beginning of period $ 19.38 $ 17.11 $ 21.19 $ 23.44 $ 17.29
---------------------------------------------------
Operations:
Net investment income .46 .36 .33 .36 .41
Net realized and
unrealized
gains (losses) 3.59 2.76 (.80) 4.26 6.57
---------------------------------------------------
Total from operations 4.05 3.12 (.47) 4.62 6.98
---------------------------------------------------
Distributions to
shareholders from:
Net investment income (.51) (.28) (.40) (.42) (.43)
Net realized gains (3.97) (.57) (3.21) (6.45) (.40)
---------------------------------------------------
Total distributions (4.48) (.85) (3.61) (6.87) (.83)
---------------------------------------------------
NET ASSET VALUE:
End of period $ 18.95 $ 19.38 $ 17.11 $ 21.19 $ 23.44
===================================================
Total investment return * 21.66% 18.63% (1.40%) 25.57% 42.20%
Net assets at end of period
(000's omitted) $138,270 $102,425 $85,666 $101,949 $77,743
RATIOS:
Expenses to average net
assets .99% 1.00% .80% .80% .80%
Net investment income to
average net assets 2.31% 2.00% 1.60% 1.80% 2.10%
Portfolio turnover rate
(excluding short-term
securities) 116.2% 93.7% 85.3% 132.5% 112.0%
- ---------------------------
</TABLE>
*Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset value.
10
<PAGE>
VALUE FUND
The following information has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report is included in the Fund's Annual Report.
The Financial Highlights section of the Annual Report is incorporated by
reference in (and is a part of) the Statement of Additional Information. Such
Annual Report may be obtained by shareholders on request from the Fund at no
charge.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
NET ASSET VALUE:
Beginning of period $ 11.63 $ 11.63 $ 11.06 $ 10.46 $ 12.29
------------------------------------------------
Operations:
Net investment income .03 .05 .11 .12 .22
Net realized and unrealized
gains (losses) .38 1.45 .56 1.08 .36
------------------------------------------------
Total from operations .41 1.50 .67 1.20 .58
------------------------------------------------
Distributions to shareholders from:
Net investment income (.03) (.13) -- (.15) (.17)
Net realized gains (.84) (1.37) (.10) (.45) (2.24)
------------------------------------------------
Total distributions (.87) (1.50) (.10) (.60) (2.41)
------------------------------------------------
NET ASSET VALUE:
End of period $ 11.17 $ 11.63 $ 11.63 $ 11.06 $ 10.46
================================================
Total investment return* 3.88% 12.70% 6.20% 12.21% 6.19%
Net assets at end of period
(000's omitted) $40,601 $35,282 $24,643 $32,246 $22,145
RATIOS:
Expenses to average net
assets 1.25% 1.25% 1.25% 1.25% 1.10%
Net investment income to
average net assets 0.31% 0.35% 0.68% 1.24% 2.00%
Portfolio turnover rate
(excluding short-term
securities) 102.1% 191.9% 118.3% 125.4% 57.0%
- -------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
1990 1989 1988 1987 1986
------- ------- ------- ------- -------
NET ASSET VALUE:
Beginning of period $ 13.14 $ 10.75 $ 12.51 $ 11.46 $ 10.07
------------------------------------------------
Operations:
Net investment income .19 .12 .12 .15 .20
Net realized and unrealized
gains (losses) 1.11 2.46 (.04) 1.42 1.59
------------------------------------------------
Total from operations 1.30 2.58 .08 1.57 1.79
------------------------------------------------
Distributions to shareholders from:
Net investment income (.18) (.10) (.17) (.18) (.20)
Net realized gains (1.97) (.09) (1.67) (.34) (.20)
------------------------------------------------
Total distributions (2.15) (.19) (1.84) (.52) (.40)
------------------------------------------------
NET ASSET VALUE:
End of period $ 12.29 $ 13.14 $ 10.75 $ 12.51 $ 11.46
================================================
Total investment return* 9.90% 24.18% 1.12% 14.22% 18.69%
Net assets at end of period
(000's omitted) $25,913 $27,980 $20,464 $22,310 $24,736
RATIOS:
Expenses to average net
assets 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income to
average net assets 1.34% 1.00% 1.00% 1.30% 2.10%
Portfolio turnover rate
(excluding short-term
securities) 70.3% 52.7% 62.5% 85.7% 85.4%
- -------------------------------------
</TABLE>
*Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset value.
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INVESTMENT PERFORMANCE
From time to time the Funds may advertise performance data including
monthly, quarterly, yearly or cumulative total return and average annual total
return figures. All such figures are based on historical earnings and
performance and are not intended to be indicative of future performance. The
investment return on and principal value of an investment in a Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
Total return is the change in value of an investment in a Fund over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period.
For additional information regarding the calculation of such total
return figures, see "Investment Performance" in the Statement of Additional
Information. Further information about the performance of each Fund is
contained in each Fund's Annual Report to shareholders which may be obtained
without charge from each Fund.
Comparative performance information may be used from time to time in
advertising or marketing a Fund's shares, including data on the performance of
other mutual funds, indexes or averages of other mutual funds, indexes of
related financial assets or data, and other competing investment and deposit
products available from or through other financial institutions. The
composition of these indexes, averages or products differs from that of the
Funds. The comparison of a Fund to an alternative investment should be made
with consideration of differences in features and expected performance. A Fund
may also note its mention in newspapers, magazines, or other media from time to
time. The Funds assume no responsibility for the accuracy of such data. For
additional information on the types of indexes, averages and periodicals that
might be utilized by the Funds in advertising and sales literature, see the
section "Investment Performance" in the Statement of Additional Information.
INVESTMENT OBJECTIVES AND POLICIES
CAPITAL APPRECIATION FUND
The investment objective of Capital Appreciation Fund is long-term
capital appreciation. Capital Appreciation Fund is designed for investors
seeking the opportunity for substantial long-term growth who can accept above
average stock market risk and little or no current income. Capital Appreciation
Fund will pursue its objective by investing primarily in equity securities of
U.S. companies that Investment Advisers, Inc. (IAI), the Fund's investment
adviser and manager, believes have above-average prospects for growth. Capital
Appreciation Fund's investment objective is a fundamental policy and may not be
changed without shareholder approval. There can be no assurance that Capital
Appreciation Fund will achieve its investment objective.
In general, Capital Appreciation Fund will concentrate on companies
that have superior performance records, solid market positions, strong balance
sheets and a management team capable of sustaining growth. Although IAI expects
Capital Appreciation Fund will invest primarily in the common stocks of smaller
emerging and mid-sized companies, generally companies that have a market
capitalization less than $5 billion, it may invest in the securities of
companies of any size that offer strong earnings growth potential. In addition
to common stocks, Capital Appreciation Fund may also invest in securities
convertible into common stocks, nonconvertible preferred stocks and
nonconvertible debt securities when IAI believes that these securities offer
opportunities for capital appreciation. Current income will not be a
substantial factor in the selection of securities.
Capital Appreciation Fund may invest in other securities and may
employ certain other investment techniques, as described in the section
"Portfolio Securities and Other Fund Investment Techniques." Please see
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<PAGE>
the Prospectus section "Fund Risk Factors" and the Statement of Additional
Information section "Investment Objectives and Policies" for a discussion of the
risks associated with investing in Capital Appreciation Fund.
EMERGING GROWTH FUND
Emerging Growth Fund will close to new investors on February 1, 1996.
Emerging Growth Fund's current shareholders and certain others may continue to
add to an existing account. Emerging Growth Fund may resume sales to new
investors at some future date, but it has no present intention to do so. See
the section "Purchase of Shares" for more information on who can purchase shares
of Emerging Growth Fund.
The investment objective of Emerging Growth Fund is long-term capital
appreciation. The Emerging Growth Fund is designed for investors seeking the
opportunity for substantial long-term growth who can accept above average stock
market risk and little or no current income. Emerging Growth Fund will pursue
its objective by investing primarily in equity securities of small and medium
sized companies that are in the early stages of their life cycles and which have
demonstrated or have the potential for above average capital growth. Emerging
Growth Fund's investment objective is a fundamental policy and may not be
changed without shareholder approval. There can be no assurance that Emerging
Growth Fund will achieve its investment objective.
Emerging Growth Fund's policy is to invest in equity securities,
including convertible securities, of companies that IAI, Emerging Growth Fund's
investment adviser and manager, believes are in the early stages of their life
cycles and have demonstrated or have the potential to experience rapid growth in
earnings and/or revenues ("emerging growth companies"). Under normal market
conditions, Emerging Growth Fund will invest at least 65% of the value of its
total assets in emerging growth companies that are of small to medium size
(market capitalization of $1 billion or less). Emerging growth companies are
generally expected to show earnings growth over time that is well above the
growth rate of the overall economy and the rate of inflation, and have products,
management and market opportunities which are usually necessary to become more
widely recognized as growth companies. Emerging Growth Fund may also invest in
more established companies that may receive greater market recognition or
otherwise offer strong capital appreciation potential due to their relative
market position, the strength of their balance sheet, changes in management or
other similar opportunities.
Although Emerging Growth Fund's portfolio generally consists primarily
of common stocks, Emerging Growth Fund may invest in securities convertible into
common stocks, nonconvertible preferred stocks and nonconvertible debt
securities.
Emerging Growth Fund may invest in other securities and may employ
certain other investment techniques, as described in the section "Portfolio
Securities and Other Fund Investment Techniques." Please see the Prospectus
section "Fund Risk Factors" and the Statement of Additional Information section
"Investment Objectives and Policies" for a discussion of the risks associated
with investing in Emerging Growth Fund.
GROWTH FUND
The investment objective of Growth Fund is long-term capital appreciation.
Growth Fund is designed for investors seeking the opportunity for significant
long term growth who can accept above average market risk with little or no
current income. Growth Fund pursues its objective by investing primarily in
equity securities of established companies that are expected to increase
earnings at an above average rate. Growth Fund's investment objective is a
fundamental policy and may not be changed without shareholder approval. There
can be no assurance that Growth Fund will achieve its investment objective.
In general, Growth Fund concentrates on companies that have strong
management, leading market positions, strong balance sheets, and a well defined
strategy for future growth. In selecting investments for Growth Fund, IAI,
Growth Fund's investment adviser and manager, utilizes several valuation
techniques to
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<PAGE>
determine which stocks offer the best combination of intrinsic value and
earnings growth potential. The goal is to have an acceptable balance of risk and
reward in the portfolio.
Under normal circumstances, at least 65% of Growth Fund's assets will
be invested in growth-type securities. Growth Fund may also invest in
government securities, investment-grade corporate bonds and debentures, high-
grade commercial paper, preferred stocks, certificates of deposit or other
securities of U.S. and foreign issuers when IAI perceives an opportunity for
capital growth from such securities or so that Growth Fund may receive a return
on its idle cash. Growth Fund currently intends to limit its investments in
debt securities to securities of U.S. companies, the U.S. Government and foreign
governments and governmental entities. When IAI invests in such debt
securities, investment income will increase and may constitute a large portion
of the return on Growth Fund, and Growth Fund probably will not participate in
market advances or declines to the extent that it would if it were fully
invested in equity securities. In addition, Growth Fund may increase its cash
position on a temporary basis when IAI is unable to locate investment
opportunities with desirable risk/reward characteristics or to meet redemption
requests or pay Fund expenses.
In considering whether to purchase securities of foreign issuers, IAI
considers the political and economic conditions in a country, the prospect for
changes in the value of its currency and the liquidity of the investment in that
country's securities markets. If appropriate, IAI may purchase foreign
securities through dollar-denominated American Depository Receipts ("ADRs")
which are issued by domestic banks and publicly traded in the United States.
Such investments do not involve the same currency and liquidity risks as
securities denominated in foreign currency.
Growth Fund may invest in other securities and may employ certain
other investment techniques, as described in the section "Portfolio Securities
and Other Fund Investment Techniques." Please see the Prospectus section "Fund
Risk Factors" and the Statement of Additional Information section "Investment
Objectives and Policies" for a discussion of the risks associated with investing
in Growth Fund.
GROWTH AND INCOME FUND
The primary investment objective of Growth and Income Fund is capital
appreciation, with income being its secondary objective. Growth and Income Fund
pursues its objectives by investing primarily in equity securities which offer
the potential for capital appreciation and secondarily by investing in income-
producing equity securities. Growth and Income Fund's investment objectives are
fundamental policies and may not be changed without shareholder approval. There
can be no assurance that Growth and Income Fund will achieve its investment
objectives.
Growth and Income Fund invests primarily in common stocks and may
invest in securities convertible into common stocks, nonconvertible preferred
stocks and nonconvertible debt securities. In selecting investments, Growth and
Income Fund considers a number of factors, such as product development and
demand, operating ratios, utilization of earnings for expansion, management
abilities, analyses of intrinsic values, market action and overall economic and
political conditions. Dividend income is a consideration secondary to Growth
and Income Fund's primary objective of capital appreciation.
Growth and Income Fund may invest in other securities and may employ
certain other investment techniques, as described in the section "Portfolio
Securities and Other Fund Investment Techniques." Please see the Prospectus
section "Fund Risk Factors" and the Statement of Additional Information section
"Investment Objectives and Policies" for a discussion of the risks associated
with investing in Growth and Income Fund.
MIDCAP GROWTH FUND
The investment objective of Midcap Growth Fund is long-term capital
appreciation. Midcap Growth Fund is designed for investors seeking the
opportunity for substantial long-term growth who can accept above average stock
market risk and little or no current income. Midcap Growth Fund will pursue its
objective by investing in equity securities of medium-sized U.S. companies that
IAI, Midcap Growth Fund's investment adviser
14
<PAGE>
and manager, believes have above-average prospects for growth. Midcap Growth
Fund's investment objective is a fundamental policy and may not be changed
without shareholder approval. There can be no assurance that Midcap Growth Fund
will achieve its investment objective.
Midcap Growth Fund will invest at least 65% of the value of its total
assets in medium-sized companies that have a market capitalization between $500
million and $5 billion. Under normal market conditions, the weighted average
capitalization of Midcap Growth Fund's investment portfolio will range from $1
billion to $3 billion. In general, Midcap Growth Fund concentrates on companies
that have superior performance records, solid market positions, strong balance
sheets and a management team capable of sustaining growth. Investments in such
companies are generally considered to be less volatile than less capitalized
emerging companies. However, such companies may not generate the dividend
income of larger, more capitalized companies. Dividend income, if any, is a
consideration incidental to Midcap Growth Fund's objective of capital
appreciation.
Midcap Growth Fund invests primarily in common stocks. However, it may
invest in securities convertible into common stocks, nonconvertible preferred
stocks and nonconvertible debt securities when IAI believes that these
securities offer opportunities for capital appreciation. Current income will not
be a substantial factor in the selection of securities.
Midcap Growth Fund may invest in other securities and may employ certain
other investment techniques, as described in the section "Portfolio Securities
and Other Fund Investment Techniques." Please see the Prospectus section "Fund
Risk Factors" and the Statement of Additional Information section "Investment
Objectives and Policies" for a discussion of the risks associated with investing
in Midcap Growth Fund.
REGIONAL FUND
The investment objective of Regional Fund is capital appreciation. Regional
Fund does not expect to provide significant current income to investors.
Regional Fund pursues its objective by investing at least 80% of its equity
investments in companies which have their headquarters in Minnesota, Wisconsin,
Iowa, Illinois, Nebraska, Montana, North Dakota or South Dakota (the "Eight
State Region"). Regional Fund's investment objective is a fundamental policy and
may not be changed without shareholder approval. There can be no assurance that
Regional Fund will achieve its investment objective.
Regional Fund invests primarily in common stocks but may also invest
in securities convertible into common stocks, nonconvertible preferred stocks,
and nonconvertible debt securities. In selecting investments for Regional Fund,
IAI, Regional Fund's investment adviser and manager, considers a number of
factors, such as product development and demand, operating ratios, utilization
of earnings for expansion, management abilities, analyses of intrinsic values,
market action and overall economic and political conditions. Along with
investments in nationally recognized companies, Regional Fund invests in
companies which are not as well known because they are newer or have a small
capitalization, but which offer the potential for capital appreciation. The
prices of stocks of such companies are more volatile than prices of stocks of
mature companies. All investments are subject to the market risks inherent in
any investment in equity securities.
Regional Fund may invest in other securities and may employ certain
other investment techniques, as described in the section "Portfolio Securities
and Other Fund Investment Techniques." Please see the Prospectus section "Fund
Risk Factors" and the Statement of Additional Information section "Investment
Objectives and Policies" for a discussion of the risks associated with investing
in Regional Fund.
VALUE FUND
The investment objective of Value Fund is long-term capital appreciation.
Value Fund does not expect to provide significant current income to investors.
Value Fund pursues its objective primarily by investing in securities believed
by management to be undervalued and which are considered to offer unusual
opportunities for capital growth. Value Fund's investment objective is a
fundamental policy and may not be changed without shareholder approval. There
can be no assurance that Value Fund will achieve its investment objective.
15
<PAGE>
The following are typical, but not exclusive, example of investments that
are considered for Value Fund:
1. Equity securities of companies which have been unpopular for some time
but where, in the opinion of IAI, Value Fund's investment adviser and
manager, recent developments such as those listed below suggest the
possibility of improved operating results:
(a) a sale or termination of an unprofitable part of the company's
business;
(b) a change in the company's management or in management's
philosophy;
(c) a basic change in the industry in which the company operates;
(d) the introduction of new products; or
(e) the prospect of an acquisition or merger.
2. Equity securities of companies which have experienced recent market
popularity but which, in the opinion of IAI, have temporarily fallen out
of favor for reasons that are considered nonrecurring or short-term.
3. Equity securities of companies which appear undervalued in relation
to popular securities of other companies in the same industry.
Although there is no formula as to the percentage of assets that may be
invested in any one type of security, Value Fund generally is primarily invested
in common stocks. Value Fund may also acquire preferred stocks, fixed income
securities, and securities convertible into or which carry warrants to purchase
common stocks, or other equity interests.
IAI is responsible for the management of Value Fund's portfolio and makes
portfolio decisions based on its own research analysis supplemented by research
information provided by other sources. The basic orientation of Value Fund's
investment policies is such that many of the portfolio securities may not be
recommended by most research analysts.
Value Fund may invest in other securities and may employ certain other
investment techniques, as described in the section "Portfolio Securities and
Other Fund Investment Techniques." Please see the Prospectus section "Fund Risk
Factors" and the Statement of Additional Information section "Investment
Objectives and Policies" for a discussion of the risks associated with investing
in Value Fund.
PORTFOLIO SECURITIES AND OTHER FUND INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements relating to the securities in
which it may invest. In a repurchase agreement, a Fund buys a security at one
price and simultaneously agrees to sell it back at a higher price. Delays or
losses could result if the other party to the agreement defaults or becomes
bankrupt.
BORROWING
Each Fund may borrow from banks for temporary or emergency purposes or
through reverse repurchase agreements. If a Fund borrows money, its share price
may be subject to greater fluctuation until the borrowing is paid off. If a
Fund makes additional investments while borrowings are outstanding, this may be
considered a form of leverage.
16
<PAGE>
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in securities that are
considered illiquid because of the absence of a readily available market or due
to legal or contractual restrictions. However, certain restricted securities
that are not registered for sale to the general public but that can be resold to
institutional investors may be considered liquid pursuant to guidelines adopted
by the Board of Directors. The institutional trading market is relatively new,
and the liquidity of the Fund's investments could be impaired if trading does
not develop or declines.
FOREIGN SECURITIES
Each Fund may invest in securities of foreign issuers in accordance with
its investment objective and policies. In considering whether to purchase
securities of foreign issuers, IAI will consider the political and economic
conditions in a country, the prospect for changes in the value of its currency
and the liquidity of the investment in that country's securities markets. Each
of Growth and Income, Emerging Growth, Midcap Growth, Regional and Value Funds
currently intends to limit its investment in foreign securities denominated in
foreign currency and not publicly traded in the United States to no more than
10% of the value of its total assets. Each of Capital Appreciation Fund and
Growth Fund intends to limit its investment in such securities to no more than
15% of the value of its total assets.
VENTURE CAPITAL
Each Fund may invest in venture capital limited partnerships and venture
capital funds which, in turn, invest principally in securities of early stage,
developing companies. Investments in venture capital limited partnerships and
venture capital funds present a number of risks not found in investing in
established enterprises including the facts that such a partnership's or fund's
portfolio will be composed almost entirely of early-stage companies which may
lack depth of management and sufficient resources, which may be marketing a new
product for which there is no established market, and which may be subject to
intense competition from larger companies. Any investment in a venture capital
limited partnership or venture capital fund will lack liquidity, will be
difficult to value, and a Fund will not be entitled to participate in the
management of the partnership or fund. If for any reason the services of the
general partners of a venture capital limited partnership were to become
unavailable, such limited partnership could be adversely affected.
In addition to investing in venture capital limited partnerships and
venture capital funds, a Fund may directly invest in early-stage, developing
companies. The risks associated with investing in these securities are
substantially similar to the risks set forth above. A Fund will typically
purchase equity securities in these early-stage, developing companies; however
from time to time, a Fund may purchase non-investment grade debt securities in
the form of convertible notes. Capital Appreciation Fund currently intends to
limit its investments in securities described in this section to no more than 5%
of its net assets.
LEVERAGED BUYOUTS
Each Fund may invest in leveraged buyout limited partnerships and funds
which, in turn, invest in leveraged buyout transactions ("LBOs"). An LBO,
generally, is an acquisition of an existing business by a newly formed
corporation financed largely with debt assumed by such newly formed corporation
to be later repaid with funds generated from the acquired company. Since most
LBOs are by nature highly leveraged (typically with debt to equity ratios of
approximately 9 to 1), equity investments in LBOs may appreciate substantially
in value given only modest growth in the earnings or cash flow of the acquired
business. Investments in LBO partnerships and funds, however, present a number
of risks. Investments in LBO limited partnerships and funds will normally lack
liquidity and may be subject to intense competition from other LBO limited
partnerships and funds. Additionally, if the cash flow of the acquired company
is insufficient to service the debt assumed in the LBO, the LBO limited
partnership or fund could lose all or part of its investment in such acquired
company.
17
<PAGE>
ADJUSTING INVESTMENT EXPOSURE
Each Fund can use various techniques to increase or decrease its exposure
to changing security prices, interest rates, currency exchange rates, commodity
prices, or other factors that affect security values. These techniques include
buying and selling options and futures contracts, entering into currency
exchange contracts or swap agreements, purchasing indexed securities, and
selling securities short. Because some Fund assets may be invested in
restricted securities and thus may not be associated with short-term movement in
the financial markets, that portion of a Fund's assets may not be able to
participate in market movements. Each Fund may invest in futures contracts in
amounts corresponding to its investments in such restricted securities in order
to participate fully in market movements.
TEMPORARY DEFENSIVE POSITION
In unusual market conditions, when IAI believes a temporary defensive
position is warranted, each Fund may invest without limitation in investment-
grade fixed income securities, that is, securities rated within the four highest
grades assigned by Moody's Investors Service, Inc. or Standard & Poor's
Corporation, or money market securities (including repurchase agreements).
Money market securities will only be purchased if they have been given one of
the two top ratings by a major ratings service or, if unrated, are of comparable
quality as determined by IAI. Midcap Growth and Emerging Growth Funds, for
temporary defensive purposes, may also invest without limitation in common
stocks of larger, more established companies. If a Fund maintains a temporary
defensive position, investment income may increase and may constitute a large
portion of a Fund's return.
PORTFOLIO TURNOVER
The Funds will dispose of securities without regard to the time they have
been held when such action appears advisable to management either as a result of
securities having reached a price objective, or by reason of developments not
foreseen at the time of the investment decision. Since investment changes
usually will be made without reference to the length of time a security has been
held, a significant number of short-term transactions may result. Accordingly,
a Fund's annual portfolio turnover rate cannot be anticipated and may be
relatively high. A higher turnover rate generally results in higher brokerage
and other costs for a Fund. The Funds' historical portfolio turnover rates are
set forth in the section "Financial Highlights."
Further information regarding these and other securities and techniques is
contained in the Statement of Additional Information.
FUND RISK FACTORS
FOREIGN INVESTMENT RISK FACTORS
Investments in foreign securities involve risks that are different in some
respects from investments in securities of U.S. issuers, such as the risk of
fluctuations in the value of the currencies in which they are denominated, the
risk of adverse political and economic developments and, with respect to certain
countries, the possibility of expropriation, nationalization or confiscatory
taxation or limitations on the removal of funds or other assets of a Fund.
Securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies. There also may be less publicly
available information about foreign issuers than domestic issuers, and foreign
issuers generally are not subject to the uniform accounting, auditing and
financial reporting standards, practices and requirements applicable to domestic
issuers. Because a Fund can invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates may affect the value of securities in the portfolio. Foreign currency
exchange rates are determined by forces of supply and demand in the foreign
exchange markets and other economic and financial conditions affecting the world
economy. A decline in the value of any particular currency against the U.S.
dollar will cause a decline in the U.S. dollar value of a Fund's holdings of
securities denominated in such currency and, therefore, will cause an overall
decline in a Fund's net asset value and net investment income and capital gains,
if any, to be distributed in U.S. dollars to shareholders by a Fund. Delays may
be encountered in settling securities transactions in certain
18
<PAGE>
foreign markets, and a Fund will incur costs in converting foreign currencies
into U.S. dollars. Custody charges are generally higher for foreign securities.
RISKS OF TRANSACTIONS IN DERIVATIVES
IAI may use futures, options, swap and currency exchange agreements as well
as short sales to adjust the risk and return characteristics of each Fund's
portfolio of investments. If IAI judges market conditions incorrectly or
employs a strategy that does not correlate well with a Fund's investments, use
of these techniques could result in a loss, regardless of whether the intent was
to reduce risk or increase return. Use of these techniques may increase the
volatility of a Fund and may involve a small investment of cash relative to the
magnitude of risk assumed. In addition, these techniques could result in a loss
if the counterparty to the transaction is unable to perform as promised.
Moreover, a liquid secondary market for any futures or options contract may not
be available when a futures or options position is sought to be closed. Please
refer to the Statement of Additional Information which further describes these
risks.
SPECIAL RISK FACTORS ASSOCIATED WITH INVESTING IN SMALL COMPANIES
Investing in small companies involves greater risk than is customarily
associated with investments in larger, more established companies due to the
greater business risks of small size, limited markets and financial resources,
narrow product lines and the frequent lack of depth of management. The
securities of small companies are often traded over-the-counter and may not be
traded in volumes typical on a national securities exchange. Consequently, the
securities of small companies may have limited market stability and may be
subject to more abrupt or erratic market movements than securities of larger,
more established growth companies or the market averages in general. Therefore,
shares of Capital Appreciation and Emerging Growth Funds are subject to greater
fluctuation in value than shares of a conservative equity fund or of a growth
fund which invests entirely in more established growth stocks. Each of Capital
Appreciation and Emerging Growth Funds will attempt to reduce the volatility of
its share price by diversifying its investments among many companies and
different industries.
SPECIAL RISK FACTORS ASSOCIATED WITH INVESTING IN REGIONAL FUND
The objective of capital appreciation along with the policy of
concentrating equity investments in the Eight State Region means that the assets
of Regional Fund will generally be subject to greater risk than may be involved
in investing in securities which do not have appreciation potential or which
have more geographic diversity. For example, Regional Fund's net asset value
could be adversely affected by economic, political, or other developments having
an unfavorable impact upon the Eight State Region; moreover, because of
geographic limitation, Regional Fund may be less diversified by industry and
company than other funds with a similar investment objective and no such
geographic limitation.
SPECIAL RISK FACTORS ASSOCIATED WITH INVESTING IN VALUE FUND
In selecting securities judged to be undervalued, IAI will be exercising
opinions and judgments which may be contrary to those of the majority of
investors. In certain instances, such opinions and judgments will involve the
risks of either:
(a) a correct judgment by the majority, in which case losses may be
incurred or profits may be limited; or
(b) a long delay before majority recognition of the accuracy of IAI's
judgment, in which case capital invested by Value Fund in an individual
security or group of securities may be nonproductive for an extended
period. Generally, it is expected that if a Value Fund investment is
"nonproductive" for more than two to three years, it will be sold.
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<PAGE>
In many instances, the selection of undervalued securities for purchase
by Value Fund may involve limited risk of capital loss because such lack of
investor recognition is already reflected in the price of the securities at the
time of purchase.
It is anticipated that some of the portfolio securities of Value Fund may
not be widely traded, and that Value Fund's position in such securities may be
substantial in relation to the market for the securities. Accordingly, it would
under certain circumstances be difficult for Value Fund to dispose of such
portfolio securities at prevailing market prices in order to meet redemptions.
Value Fund may, when management deems it appropriate, maintain a reserve in
liquid assets which it considers adequate to meet anticipated redemptions.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain other investment policies and
restrictions described in the Statement of Additional Information, some of which
are fundamental and may not be changed without the approval of the shareholders
of the Fund. Each Fund is a diversified investment company and has a
fundamental policy that, with respect to 75% of its total assets, it may not
invest more than 5% of its total assets in any one issuer. Each Fund, also as
fundamental policies, may not invest 25% or more of its assets in any one
industry and may borrow only for temporary or emergency purposes in an amount
not exceeding one-third of its total assets. Please refer to the Statement of
Additional Information for a further discussion of each Fund's investment
restrictions.
MANAGEMENT
Capital Appreciation Fund (created November 8, 1995), Emerging Growth
Fund (created April 30, 1991) and Midcap Growth Fund (created February 7, 1992)
are separate portfolios represented by separate classes of common stock of IAI
Investment Funds VI, Inc. Growth Fund (created February 10, 1993) is a separate
portfolio represented by a separate class of common stock of IAI Investment
Funds II, Inc. Growth and Income Fund (created December 2, 1970) is a separate
portfolio represented by a separate class of common stock of IAI Investment
Funds VII, Inc. Regional Fund (created February 1, 1980) is a separate
portfolio represented by a separate class of common stock of IAI Investment
Funds IV, Inc. Value Fund (created August 7, 1987) is a separate portfolio
represented by a separate class of common stock of IAI Investment Funds VIII,
Inc. Each of these companies is a Minnesota corporation authorized to issue its
shares of common stock in more than one series. Under Minnesota law, each
Fund's Board of Directors is generally responsible for the overall operation and
management of such Fund. IAI serves as the investment adviser and manager of
the Funds. IAI also furnishes investment advice to other concerns including
other investment companies, pension and profit sharing plans, portfolios of
foundations, religious, educational and charitable institutions, trusts,
municipalities and individuals, having total assets in excess of $14 billion.
IAI's ultimate corporate parent is Lloyds TSB Group plc, a publicly-held
financial services organization headquartered in London, England. Lloyds TSB
Group plc is one of the largest personal and corporate financial services groups
in the United Kingdom and is engaged in a wide range of activities including
commercial and retail banking. The address of IAI is that of the Funds.
ALL FUNDS OTHER THAN CAPITAL APPRECIATION FUND
Under written agreements with the Funds ("the Advisory Agreements"), IAI
provides the Funds with investment advice, statistical and research facilities,
and certain equipment and services, including, but not limited to, office space
and necessary office facilities, equipment, and the services of required
personnel. IAI has the sole authority and responsibility to make and execute
investment decisions for each Fund within the framework of each Fund's
investment policies, subject to review by the Board of Directors. As
compensation for these services, each Fund has agreed to pay a monthly advisory
fee at the initial annual rate of .75% of such Fund's average month-end net
assets, which fee, except for Growth Fund and Growth and Income Fund, declines
to .65% of such Fund's average month-end net assets as the amount of assets in
each Fund grows. Each of Growth Fund's and Growth and Income Fund's advisory
fee declines to .55% of such Fund's average month-end net assets. For the
fiscal year or period ended March 31, 1995, each Fund paid IAI advisory fees as
a percentage of such Fund's average month-end net assets as follows: Emerging
Growth Fund: .74%; Growth Fund: .75%; Growth and Income Fund: .74%; Midcap
Growth Fund: .75%; Regional Fund: .71%; and Value Fund: .75%.
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Each Fund is managed by a team of IAI investment professionals which is
responsible for making the day-to-day investment decisions for such Fund. The
teams managing the Funds are as follows:
Rick Leggott has responsibility for the management of Emerging Growth
Fund. Mr. Leggott is a Senior Vice President and has served as an equity
portfolio manager of IAI since 1987. Mr. Leggott has managed Emerging Growth
Fund since its inception.
John Twele and David McDonald have responsibility for the management of
Growth Fund. Mr. Twele has managed Growth Fund since April 1994, when he joined
IAI as a Vice President and equity portfolio manager. Before joining IAI, Mr.
Twele was a Senior Equity Analyst with IDS Financial Services from 1987 to 1994.
Mr. McDonald has managed Growth Fund since September 1994, when he joined IAI as
a Vice President and equity portfolio manager. Before joining IAI, Mr. McDonald
was a Managing Director of Wessels Arnold & Henderson from 1989 to 1994 and an
Associate Portfolio Manager with IDS Financial Services from 1986 to 1989.
Todd McCallister has responsibility for the management of Growth and
Income Fund. Mr. McCallister is a Vice President and has served as a portfolio
manager of IAI since 1993. Before joining IAI in 1992, Mr. McCallister was an
Investment Analyst with ANB Investment Management from 1987 to 1992. Mr.
McCallister has managed Growth and Income Fund since 1994.
Suzanne Zak has responsibility for the management of Midcap Growth Fund.
Ms. Zak is a Senior Vice President and has served as an equity portfolio manager
since joining IAI in 1992. Before joining IAI, Ms. Zak had been a Managing
Director of J & W Seligman from 1985 to 1992. Ms. Zak has managed Midcap Growth
Fund since 1993.
Mark Hoonsbeen has responsibility for the management of Regional Fund.
Mr. Hoonsbeen is a Vice President and has managed Regional Fund since he joined
IAI in 1994. Before joining IAI, Mr. Hoonsbeen served as an equity portfolio
manager for The St. Paul Companies Inc. from 1986 to 1994.
Douglas Platt has been responsible for the management of Value Fund since
1991. Mr. Platt is a Senior Vice President and has served as a portfolio
manager of IAI since 1967.
R. David Spreng has been responsible for Fund investments in restricted
securities, including equity and limited partnership interests in privately-held
companies and investment partnerships, since 1993. Mr. Spreng is a Senior Vice
President and has served IAI in several capacities since 1989.
Pursuant to the terms of Administrative Agreements, IAI also provides all
required administrative, stock transfer, redemption, dividend disbursing and
accounting services to the Funds, including, for example, the maintenance of a
Fund's accounts, books and records, the daily calculation of the Fund's net
asset value, daily and periodic reports, all information necessary to complete
tax returns, questionnaires and other reports requested by a Fund, the
maintenance of stock registry records, the processing of requested account
registration changes and redemption requests, and the administration of payments
of dividends and distributions declared by a Fund. As compensation for these
services, each Fund paid IAI an administrative fee of .20% of the Fund's average
month-end net assets for the fiscal year or period ended March 31, 1995. IAI
may use all or a portion of this administrative fee to pay certain institutions
which have contracted with IAI to provide certain administrative services to
their customers who invest in a Fund. Such services include, but are not
limited to, shareholder assistance and communication, transaction processing and
settlement, account set-up and maintenance, shareholder tax reporting, and
accounting.
In addition to the advisory fee and the administrative fee paid to IAI,
each Fund pays all its other costs and expenses, including, for example, costs
incurred in the purchase and sale of assets, interest, taxes, charges of the
custodian of each Fund's assets, costs of reports and proxy materials sent to
Fund shareholders, fees paid for independent auditing and legal services, costs
of printing prospectuses for Fund shareholders and registering the
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Funds' shares, postage, fees to disinterested directors, insurance premiums and
costs of attending investment conferences.
The Advisory Agreements provide that IAI shall reimburse a Fund for
operating expenses (other than interest and, in certain circumstances, taxes and
extraordinary expenses) which, for any year, exceed 1.25% of a Fund's average
month-end net assets. IAI shall not be liable for any loss suffered by a Fund
in the absence of willful misfeasance, bad faith or gross negligence in the
performance of its duties and obligations.
CAPITAL APPRECIATION FUND
Under a written agreement with the Fund (the "Management Agreement"), IAI
provides the Fund with investment advice, statistical and research facilities,
and certain equipment and services, including, but not limited to, office space
and necessary office facilities, equipment, and the services of required
personnel. IAI also provides all required administrative, shareholder, stock
transfer, redemption, dividend disbursing and accounting services, including,
for example, the maintenance of the Fund's accounts, books and records, the
daily calculation of the Fund's net asset value, daily and periodic reports, all
information necessary to complete tax returns, questionnaires and other reports
requested by the Fund, the maintenance of stock registry records, the processing
of requested account registration changes and redemption requests, and the
administration of payments of dividends and distributions declared by the Fund.
IAI may also pay qualifying broker-dealers, financial institutions and other
entities that provide such services. In addition, the Management Agreement
provides that, except for brokerage commissions and other expenditures in
connection with the purchase and sale of portfolio securities, interest and, in
certain circumstances, taxes and extraordinary expenses, IAI shall pay all of
the Fund's operating expenses. As compensation for these services, the
Management Agreement provides that the Fund will pay IAI an annual fee of 1.40%
of the Fund's first $250 million of average daily net assets, 1.35% of the
Fund's next $250 million of average daily net assets, and 1.30% of the Fund's
average daily net assets in excess of $500 million, less any fees and expenses
the Fund pays to its disinterested directors. Until March 31, 1997, IAI has
voluntarily agreed to waive the fee due under the Management Agreement in excess
of 1.25% of the Fund's average daily net assets.
Capital Appreciation Fund is managed by a team of IAI investment
professionals. Suzanne Zak and Martin Calihan have responsibility for making
day-to-day management decisions for the Fund. Ms. Zak is a Senior Vice
President and has served as an equity portfolio manager of IAI since joining IAI
in 1992. Before joining IAI, Ms. Zak had been a Managing Director of J&W
Seligman from 1985 to 1992. Mr. Calihan is a Vice President and has served as
an equity analyst for IAI since 1992. Before joining IAI, Mr. Calihan was an
equity analyst with Morgan Stanley & Co. from 1991 to 1992 and with State Street
Research Management from 1990 to 1991. Ms. Zak and Mr. Calihan have managed the
Fund since inception. R. David Spreng is responsible for Fund investments in
equity and limited partnership interests in privately-held companies and
investment partnerships. Mr. Spreng is a Senior Vice President of IAI and has
served IAI in several capacities since 1989.
PLAN OF DISTRIBUTION
Each Fund, other than Capital Appreciation Fund, has adopted a written
plan of distribution (the "Plan") in accordance with Rule 12b-1 under the 1940
Act pursuant to which it pays a fee as described below. Under the Plan, each
Fund has entered into a Distribution and Shareholders Services Agreement with
IAI Securities, Inc. ("IAIS"), pursuant to which a Fund may pay IAIS a fee for
servicing Fund shareholder accounts and for distributing Fund shares (the "Rule
12b-1 Fee"). Subject to the expense limitations described above, each Fund has
agreed to pay IAIS a Rule 12b-1 Fee at an annual rate of .25% of a Fund's
average month-end net assets (which amount will be paid to IAIS regardless of
amounts spent by IAIS in servicing Fund shareholders and distributing a Fund's
shares).
The Rule 12b-1 Fee may be used by each Fund to compensate IAIS for the
provision of certain services to Fund shareholders. The services provided may
include personal services provided to shareholders, such as
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answering shareholder inquiries regarding a Fund and providing reports and other
information, and services related to the maintenance of shareholder accounts.
IAIS may use the Rule 12b-1 Fee to make payments to qualifying broker-dealers
and financial institutions that provide such services.
The Rule 12b-1 Fee may also be used by IAIS for the purposes of financing
any activity which is primarily intended to result in the sale of shares of a
Fund. The expenses of such activities include, by way of example but not by way
of limitation, costs of prospectuses, semiannual reports, costs of quarterly
reports and monthly letters to prospective shareholders, expenses associated
with the preparation and distribution of sales literature and advertising of any
type, compensation and benefits paid to and expenses incurred by personnel,
including supervisory personnel, involved in direct mail and advertising
activities and activities relating to the direct marketing of Fund shares to the
public, and compensation to other broker-dealers for selling Fund shares.
The Rule 12b-1 Fee payable by a Fund is subject to the limitations on
Fund operating expenses set forth in the Advisory Agreements described above.
Additionally, IAIS, in its sole and absolute discretion, may from time to time,
out of its own assets, pay for certain additional costs associated with
shareholder servicing or distributing a Fund's shares. For the fiscal year or
period ended March 31, 1995, each Fund paid IAIS annualized Rule 12b-1 Fees as a
percentage of such Fund's average month-end net assets as follows: Emerging
Growth Fund: .25%; Growth Fund: .02%; Growth and Income Fund: .25%; Midcap
Growth Fund: .18%; Regional Fund: .25%; and Value Fund: .12%. IAIS is an
affiliate of IAI and its offices are the same as those of the Funds.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., IAI may consider sales of shares of a Fund as a factor
in the selection of broker-dealers to execute a Fund's securities transactions.
COMPUTATION OF NET ASSET VALUE AND PRICING
Each Fund is open for business each day the New York Stock Exchange
("NYSE") is open. IAI normally calculates a Fund's net asset value ("NAV") as
of the close of business of the NYSE, normally 3 p.m. Central time.
A Fund's NAV is the value of a single share. The NAV is computed by
adding up the value of a Fund's investments, cash, and other assets, subtracting
its liabilities, and then dividing the result by the number of shares
outstanding.
A Fund's investments with remaining maturities of 60 days or less may be
valued on the basis of amortized cost. This method minimizes the effect of
changes in a security's market value. Other portfolio securities and assets are
valued primarily on the basis of market quotations or, if quotations are not
readily available, by a method that the Board of Directors believes accurately
reflects fair value. Foreign securities are valued on the basis of quotations
from the primary market in which they are traded, and are translated from the
local currency into U.S. dollars using current exchange rates.
The offering price (price to buy one share) and redemption price (price
to sell one share) are a Fund's NAV.
PURCHASE OF SHARES
Each Fund offers its shares continually to the public at the net asset
value of such shares. Shares may be purchased directly from a Fund or through
certain security dealers who have responsibility to promptly transmit orders and
may charge a processing fee, provided that the Fund is duly registered in the
state of the purchaser's residence, if required, and the purchaser otherwise
satisfies the Fund's purchase requirements. No sales load or commission is
charged in connection with the purchase of Fund shares.
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Shares may be purchased for cash or in exchange for securities which are
permissible investments of a Fund, subject to IAI's discretion and its
determination that the securities are acceptable. Securities accepted in
exchange will be valued on the basis of market quotations or, if market
quotations are not available, by a method that IAI believes accurately reflects
fair value. In addition, securities accepted in exchange are required to be
liquid securities that are not restricted as to transfer.
The minimum initial investment to establish an account with the IAI
Mutual Funds is $5,000. Such initial investment may be allocated among a Fund
and other IAI Mutual Funds as desired, provided that no less than $1,000 is
allocated to any one fund. The minimum initial investment for IRA accounts is
$2,000, provided that the minimum amount that may be allocated to one fund is
$1,000. Once the account minimum has been met, subsequent purchases can be made
in a Fund for $100 or more. Such minimums may be waived for participants in the
IAI Investment Club.
Investors may satisfy the minimum investment requirement by participating
in the STAR Program. Participation in the STAR Program requires an initial
investment of $1,000 per Fund and a commitment to invest an aggregate of $5,000
within 24 months. If a STAR Program participant does not invest an aggregate of
$5,000 in the IAI Mutual Funds within 24 months, IAI may, at its option, redeem
such shareholder's interest and remit such amount to the shareholders.
Investors wishing to participate in the STAR Program should contact the Fund to
obtain a STAR Program application.
To purchase shares, forward the completed application and a check payable
to "IAI Funds" to a Fund. Upon receipt, your account will be credited with the
number of full and fractional shares which can be purchased at the net asset
value next determined after receipt of the purchase order by a Fund.
Purchases of shares are subject to acceptance or rejection by a Fund on
the same day the purchase order is received and are not binding until so
accepted. It is the policy of the Funds and IAIS to keep confidential
information contained in the application and regarding the account of an
investor or potential investor in a Fund. Share certificates generally are not
issued for a Fund.
Emerging Growth Fund will close to new investors on February 1, 1996.
Shareholders of Emerging Growth Fund as of such closing date may continue to add
to an account through the reinvestment of dividends and cash distributions on
any Emerging Growth Fund shares owned, through the purchase of additional Fund
shares, and through exchanges from other IAI Mutual Fund accounts. Shares of
Emerging Growth Fund may continue to be purchased by current and future
participants in certain retirement plans that offer the Emerging Growth Fund as
an investment option as of the closing date. Additionally, all current and
future employees of IAI, Emerging Growth Fund's investment adviser and manager,
as well as their immediate family members, may purchase shares of Emerging
Growth Fund for new and existing accounts. Emerging Growth Fund may resume
sales to new investors at some future date, but it has no present intention to
do so.
All correspondence relating to purchase of shares should be directed to
the office of the Funds, P.O. Box 357, Minneapolis, Minnesota 55440, or, if
using overnight delivery, to 3700 First Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55402. For assistance in completing the application
please contact IAI Mutual Fund Shareholder Services at 1-800-945-3863.
RETIREMENT PLANS
Shares of the Funds may be an appropriate investment medium for various
retirement plans. Persons desiring information about establishing an Individual
Retirement Account (IRA) (for employed persons and their spouses) or other
retirement plans should contact IAI Mutual Fund Shareholder Services at 1-800-
945-3863. All retirement plans involve a long-term commitment of assets and are
subject to various legal requirements and restrictions. The legal and tax
implications may vary according to the circumstances of the individual investor.
Therefore, you are urged to consult with an attorney or tax advisor prior to the
establishment of such a plan.
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AUTOMATIC INVESTMENT PLAN
Investors may arrange to make regular investments of $100 or more per
Fund on a monthly or twice a month basis, effective as of the 4th and/or the
18th day of each month (or the next business day), through automatic deductions
from their checking or savings accounts. Such investors may, of course,
terminate their participation in the Automatic Investment Plans at any time upon
written notice to a Fund. Any changes or instructions to terminate existing
Automatic Investment Plan must be received at least two weeks before the date on
which the change or termination is to take place. Investors interested in
participating in the Automatic Investment Plan should complete the Automatic
Investment Plan application and return it to the Funds.
REDEMPTION OF SHARES
Registered holders of Fund shares may at any time require a Fund to
redeem their shares upon their written request. Shareholders may redeem shares
by phone, subject to a limit of $50,000, provided such shareholders have
authorized the Funds to accept telephone instructions.
Fund shareholders who redeem shares by presenting stock certificates must
endorse the back of the certificate with the signature of the person whose name
appears on the certificate.
Redemption instructions must be signed by the person(s) in whose name the
shares are registered. If the redemption proceeds are to be paid or mailed to
any person other than the shareholder of record or if redemption proceeds are in
excess of $50,000, a Fund will require that the signature on the written
instructions be guaranteed by a participant in a signature guarantee program,
which may include certain national banks or trust companies or certain member
firms of national securities exchanges. (Notarization by a Notary Public is NOT
ACCEPTED.) If the shares are held of record in the name of a corporation,
partnership, trust or fiduciary, a Fund may require additional evidence of
authority prior to accepting a request for redemption. A Fund will not send
redemption proceeds until checks (including certified checks or cashiers checks)
received for the shares purchased have cleared.
The redemption proceeds received by the investor are based on the net
asset value next determined after redemption instructions in good order are
received by a Fund. Since the value of shares redeemed is based upon the value
of a Fund investment at the time of redemption, it may be more or less than the
price originally paid for the shares.
Payment for shares redeemed will ordinarily be made within seven days
after a request for redemption has been made. Normally a Fund will mail payment
for shares redeemed on the business day following receipt of the redemption
request.
Following a redemption or transfer request, if the value of a
shareholder's interest in a Fund falls below $500, such Fund reserves the right
to redeem such shareholder's entire interest and remit such amount. Such a
redemption will only be effected following: (a) a redemption or transfer by a
shareholder which causes the value of such shareholder's interest in such Fund
to fall below $500; (b) the mailing by such Fund to such shareholder of a notice
of intention to redeem; and (c) the passage of at least six months from the date
of such mailing, during which time the investor will have the opportunity to
make an additional investment in such Fund to increase the value of such
investor's account to at least $500.
EXCHANGE PRIVILEGE
The Exchange Privilege enables shareholders to purchase, in exchange for
shares of a Fund, shares of other IAI Mutual Funds. These funds have different
investment objectives from the Funds. Shareholders may exchange shares of a
Fund for shares of another fund managed by IAI provided that the fund whose
shares will be acquired is duly registered in the state of the shareholder's
residence and the shareholder otherwise satisfies the
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fund's purchase requirements. Although the IAI Mutual Funds do not currently
charge a fee for use of the Exchange Privilege, they reserve the right to do so
in the future.
Because excessive trading can hurt Fund performance and shareholders,
there is a limit of four exchanges out of each IAI Mutual Fund per calendar year
per account. Accounts under common ownership or control, including accounts
with the same taxpayer identification number, will be counted together for
purposes of the four exchange limit. Each Fund reserves the right to
temporarily or permanently terminate the Exchange Privilege of any investor who
exceeds this limit. The limit may be modified for certain retirement plan
accounts, as required by the applicable plan document and/or relevant Department
of Labor regulations, and for Automatic Exchange Plan participants. Each Fund
also reserves the right to refuse or limit exchange purchases by any investor
if, in IAI's judgment, such Fund would be unable to invest the money effectively
in accordance with its investment objectives and policies, or would otherwise
potentially be adversely affected.
Fund shareholders wishing to exercise the Exchange Privilege should
notify the Fund in writing or, provided such shareholders have authorized a Fund
to accept telephone instructions, by telephone. At the time of the exchange, if
the net asset value of the shares redeemed in connection with the exchange is
greater than the investor's cost, a taxable capital gain will be realized. A
capital loss will be realized if at the time of the exchange the net asset value
of the shares redeemed in the exchange is less than the investor's cost. Each
Fund reserves the right to terminate or modify the Exchange Privilege in the
future.
AUTOMATIC EXCHANGE PLAN
Investors may arrange to make regular exchanges of $100 or more between
any of the IAI Mutual Funds on a monthly basis. Exchanges will take place at
the closing price of the fifth day of each month (or the next business day).
Shareholders are responsible for making sure sufficient shares exist in the Fund
account from which the exchange takes place. If there are not sufficient funds
in the Fund account to meet the requested exchange amount, the Automatic
Exchange Plan will be suspended. Shareholders may not close Fund accounts
through the Automatic Exchange Plan. Investors interested in participating in
the Automatic Exchange Plan should complete the Automatic Exchange Plan portion
of their application. For assistance in completing the application contact IAI
Mutual Fund Shareholder Services at 1-800-945-3863.
AUTHORIZED TELEPHONE TRADING
Investors can transact account exchanges and redemptions via the
telephone by completing the Authorized Telephone Trading section of the
application and returning it to a Fund. Investors requesting telephone trading
privileges will be provided with a personal identification number ("PIN") that
must accompany any instructions by phone. Shares will be redeemed or exchanged
at the next determined net asset value. All proceeds must be made payable to
the owner(s) of record and delivered to the address of record.
In order to confirm that telephone instructions for redemptions and
exchanges are genuine, the Funds have established reasonable procedures,
including the requirement that a personal identification number accompany
telephone instructions. If a Fund or the transfer agent fails to follow these
procedures, such Fund may be liable for losses due to unauthorized or fraudulent
instructions. To the extent these reasonable procedures are followed, none of
the Funds, their transfer agent, IAI, or any affiliated broker/dealer will be
liable for any loss, injury, damage, or expense for acting upon telephone
instructions believed to be genuine, and will otherwise not be responsible for
the authenticity of any telephone instructions, and, accordingly, the investor
bears the risk of loss resulting from telephone instructions. All telephone
redemptions and exchange requests will be tape recorded. Telephone redemptions
are not permitted for IRA or Simplified Employee Pension ("SEP") accounts. For
redemptions from these accounts, please contact IAI Mutual Fund Shareholder
Services at 1-800-945-3863 for instructions.
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SYSTEMATIC CASH WITHDRAWAL PLAN
Each Fund has available a Systematic Cash Withdrawal Plan for any
investor desiring to follow a program of systematically withdrawing a fixed
amount of money from an investment in shares of a Fund. An investment of
$10,000 is required to establish the plan. Payments under the plan will be
monthly or quarterly in amounts of $100 or more. Shares will be sold with the
closing price of the 15th of the applicable month (or the next business day).
To provide funds for payment, such Fund will redeem as many full and fractional
shares as necessary at the redemption price, which is net asset value.
Payments under this plan, unless pursuant to a retirement plan, should
not be considered income. Withdrawal payments may exceed dividends and
distributions and, to this extent, there will be a reduction in the investor's
equity. An investor should also understand that this plan cannot insure profit,
nor does it protect against any loss in a declining market. Careful
consideration should be given to the amount withdrawn each month. Excessive
withdrawals could lead to a serious depletion of equity, especially during
periods of declining market values. Fund management will be available for
consultation in this matter.
Plan application forms are available through the Funds. If you would
like assistance in completing the application contact IAI Mutual Fund
Shareholder Services at 1-800-945-3863.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
The policy of the Funds is to pay dividends from net investment income
semiannually and to make distributions of realized capital gains, if any,
annually. However, provisions in the Internal Revenue Code of 1986, as amended
(the "Code"), may result in additional net investment income and capital gains
distributions by a Fund. When you open an account, you should specify on your
application how you want to receive your distributions. The Funds offer three
options: Full Reinvestment--your dividend and capital gain distributions will
be automatically reinvested in additional shares of the Fund; Capital Gains
Reinvestment--your capital gain distributions will be automatically reinvested,
but your income dividend distributions will be paid in cash; and Cash--your
income dividends and capital gain distributions will be paid in cash.
Distributions taken in cash can be sent via check or transferred directly to
your account at any bank, savings and loan or credit union that is a member of
the Automated Clearing House (ACH) network. UNLESS DIRECTED OTHERWISE BY THE
SHAREHOLDER, EACH FUND WILL AUTOMATICALLY REINVEST ALL SUCH DISTRIBUTIONS INTO
FULL AND FRACTIONAL SHARES AT NET ASSET VALUE.
The Funds' Directed Dividend service allows you to invest your dividends
and/or capital gain distributions directly into another IAI Mutual Fund.
Contact IAI Mutual Fund Shareholder Services at 1-800-945-3863 for details.
Each Fund intends to qualify for tax purposes as a regulated investment
company under Subchapter M of the Internal Revenue Code during the current
taxable year. If so qualified, each Fund will not be subject to federal income
tax on income that it distributes to its shareholders.
Distributions are subject to federal income tax, and may also be subject
to state or local taxes. If you live outside the United States, your
distributions could also be taxed by the country in which you reside. Your
distributions are taxable when they are paid, whether you take them in cash or
reinvest them in additional shares.
For federal income tax purposes, each Fund's income and short-term
capital gain distributions are taxed as dividends; long-term capital gain
distributions designated as capital gain dividends are taxed as long-term
capital gains regardless of the length of time the shareholder has held the
shares. Annually, IAI will send you and the IRS a statement showing the amount
of each taxable distribution you received in the previous year.
Upon redemption of shares of a Fund, the shareholder will generally
recognize a capital gain or loss equal to the difference between the amount
realized on the redemption and the shareholder's adjusted basis in such
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shares. Such gain or loss will be long-term if the shares have been held for
more than one year. Under the Code, the deductibility of capital losses is
subject to certain limitations.
Whenever you sell shares of a Fund, IAI will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive an account statement quarterly and a consolidated transaction statement
annually. However, it is up to you or your tax preparer to determine whether
this sale resulted in a capital gain and, if so, the amount of tax to be paid.
Be sure to keep your account statements; the information they contain will be
essential in calculating the amount of your capital gains.
The foregoing relates to federal income taxation as in effect as of the
date of this Prospectus. For a more detailed discussion of the federal income
tax consequences of investing in shares of a Fund, see "Tax Status" in the
Statement of Additional Information.
DESCRIPTION OF COMMON STOCK
All shares of each Fund have equal rights as to redemption, dividends and
liquidation, and will be fully paid and nonassessable when issued and will have
no preemptive or conversion rights.
The shares of each Fund have noncumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they choose to do so. On some
issues, such as the election of directors, all shares of each corporation vote
together as one series. On an issue affecting only a particular series, such as
voting on the advisory agreement, only the approval of the series is required to
make the agreement effective with respect to such series.
Annual or periodically scheduled regular meetings of shareholders will
not be held except as required by law. Minnesota corporation law does not
require an annual meeting; instead, it provides for the Board of Directors to
convene shareholder meetings when it deems appropriate. In addition, if a
regular meeting of shareholders has not been held during the immediately
preceding fifteen months, shareholders holding three percent or more of the
voting shares of a Fund may demand a regular meeting of shareholders of such
Fund by written notice of demand given to the chief executive officer or the
chief financial officer of such Fund. Within thirty days after receipt of the
demand by one of those officers, the Board of Directors shall cause a regular
meeting of shareholders to be called and held no later than ninety days after
receipt of the demand, all at the expense of such Fund. An annual meeting will
be held on the removal of a director or directors of such Fund if requested in
writing by holders of not less than 10% of the outstanding shares of such Fund.
The shares of each Fund are transferable by endorsement of the
certificate if held by the shareholder, or if the certificate is held by a Fund,
by delivery to such Fund of transfer instructions. Transfer instructions or
certificates should be delivered to the office of a Fund. Each Fund is not
bound to recognize any transfer until it is recorded on the stock transfer books
maintained by such Fund.
COUNSEL AND AUDITORS
The firm of Dorsey & Whitney P.L.L.P., 220 South Sixth Street,
Minneapolis, Minnesota 55402, provides legal counsel for the Funds. KPMG Peat
Marwick LLP, 4200 Norwest Center, Minneapolis, Minnesota 55402, serves as
independent auditors for the Funds.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The Custodian for each Fund is Norwest Bank Minnesota, N.A., Norwest
Center, Sixth and Marquette, Minneapolis, Minnesota 55479. Norwest employs
foreign subcustodians and depositories, which were approved by the Funds' Board
of Directors in accordance with the rules and regulations of the Securities and
Exchange Commission, for the purpose of providing custodial services for a
Fund's assets held outside of the United States.
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For a listing of the subcustodians and depositories currently employed by the
Funds, see the Statement of Additional Information. IAI acts as each Fund's
transfer agent, dividend disbursing agent and IRA Custodian, at P.O. Box 357,
Minneapolis, Minnesota.
ADDITIONAL INFORMATION
Each Fund sends to its shareholders a six-month unaudited and an annual
audited financial report, each of which includes a list of investment securities
held. To reduce the volume of mail you receive, only one copy of most Fund
reports, such as the Fund's Annual Report, may be mailed to your household (same
surname, same address). Please call IAI Mutual Fund Shareholder Services at 1-
800-945-3863 if you wish to receive additional shareholder reports.
In the opinion of the staff of the Securities and Exchange Commission,
the use of this combined prospectus may possibly subject all Funds to a certain
amount of liability for any losses arising out of any statement or omission in
this Prospectus regarding a particular Fund. In the opinion of the Funds'
management, however, the risk of such liability is not materially increased by
use of a combined prospectus.
Shareholder inquiries should be directed to a Fund at the telephone
number or mailing address listed on the inside back cover of this Prospectus.
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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
STATEMENT OF ADDITIONAL INFORMATION
DATED AUGUST 1, 1995
AS SUPPLEMENTED JANUARY 31, 1996
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS
STATEMENT OF ADDITIONAL INFORMATION RELATES TO A PROSPECTUS DATED AUGUST 1,
1995, AS SUPPLEMENTED JANUARY 31, 1996, AND SHOULD BE READ IN CONJUNCTION
THEREWITH. A COPY OF THE PROSPECTUS MAY BE OBTAINED FROM THE FUND AT 3700 FIRST
BANK PLACE, P.O. BOX 357, MINNEAPOLIS, MINNESOTA 55440 (TELEPHONE: 1-612-376-
2700 OR 1-800-945-3863).
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES.................................................... 3
Repurchase Agreements............................................................ 3
Reverse Repurchase Agreements.................................................... 3
Securities of Foreign Issuers.................................................... 3
Illiquid Securities.............................................................. 4
Lending Portfolio Securities..................................................... 4
Swap Agreements.................................................................. 4
Indexed Securities............................................................... 5
Foreign Currency Transactions.................................................... 5
Limitations on Futures and Options Transactions.................................. 6
Futures Contracts................................................................ 7
Futures Margin Payments.......................................................... 7
Purchasing Put and Call Options.................................................. 7
Writing Put and Call Options..................................................... 8
Combined Positions............................................................... 8
Correlation of Price Changes..................................................... 8
Liquidity of Options and Futures Contracts....................................... 9
OTC Options...................................................................... 9
Options and Futures Relating to Foreign Currencies............................... 9
Asset Coverage for Futures and Options Positions................................. 9
INVESTMENT RESTRICTIONS............................................................... 10
Portfolio Turnover............................................................... 11
INVESTMENT PERFORMANCE................................................................ 11
MANAGEMENT............................................................................ 14
History.......................................................................... 17
Investment Advisory Agreements - All Funds Other Than Capital Appreciation Fund.. 18
Administrative Agreement - All Funds Other Than Capital Appreciation Fund........ 20
Allocation of Expenses - All Funds Other Than Capital Appreciation Fund.......... 20
Management Agreement - Capital Appreciation Fund................................. 21
Duration of Agreements - All Funds............................................... 21
PLAN OF DISTRIBUTION.................................................................. 22
CUSTODIAL SERVICE..................................................................... 23
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE.................................... 27
CAPITAL STOCK......................................................................... 28
NET ASSET VALUE AND PUBLIC OFFERING PRICE............................................. 32
PURCHASES AND REDEMPTIONS IN KIND..................................................... 33
TAX STATUS............................................................................ 33
LIMITATION OF DIRECTOR LIABILITY...................................................... 34
FINANCIAL STATEMENTS.................................................................. 35
</TABLE>
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INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of IAI Capital Appreciation Fund,
IAI Emerging Growth Fund, IAI Growth Fund, IAI Growth and Income Fund, IAI
Midcap Growth Fund, IAI Regional Fund and IAI Value Fund (the "Funds"), are
summarized on the front page of the Prospectus and in the text of the Prospectus
under "Investment Objectives and Policies." Investors should understand that all
investments have risks. There can be no guarantee against loss resulting from an
investment in the Funds, and there can be no assurance that the Fund's
investment policies will be successful, or that its investment objective will be
attained. Certain of the investment practices of the Funds are further explained
below.
REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements relating to the securities in
which it may invest. A repurchase agreement involves the purchase of securities
with the condition that, after a stated period of time, the original seller will
buy back the securities at a predetermined price or yield. A Fund's custodian
will have custody of, and will hold in a segregated account, securities acquired
by such Fund under a repurchase agreement or other securities as collateral. In
the case of a security registered on a book entry system, the book entry will be
maintained in a Fund's name or that of its custodian. Repurchase agreements
involve certain risks not associated with direct investments in securities. For
example, if the seller of the agreement defaults on its obligation to repurchase
the underlying securities at a time when the value of the securities has
declined, a Fund may incur a loss upon disposition of such securities. In the
event that bankruptcy proceedings are commenced with respect to the seller of
the agreement, a Fund's ability to dispose of the collateral to recover its
investment may be restricted or delayed. While collateral will at all times be
maintained in an amount equal to the repurchase price under the agreement
(including accrued interest due thereunder), to the extent proceeds from the
sale of collateral were less than the repurchase price, a Fund could suffer a
loss.
REVERSE REPURCHASE AGREEMENTS
Each Fund may invest in reverse repurchase agreements. In a reverse
repurchase agreement, a Fund sells a portfolio instrument to another party, such
as a bank or broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase agreement
is outstanding, a Fund will maintain appropriate liquid assets in a segregated
custodial account to cover its obligation under the agreement. A Fund will
enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by IAI, the Fund's investment
adviser and manager. As a result, such transactions may increase fluctuations
in the market value of a Fund's assets and may be viewed as a form of leverage.
SECURITIES OF FOREIGN ISSUERS
Investing in foreign securities may result in greater risk than that
incurred by investing in domestic securities. There is generally less publicly
available information about foreign issuers comparable to reports and ratings
that are published about comapnies in the United States. Also, foreign issuers
are not subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to United
States coampnies.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Similarly,
volume and liquidity in most foreign bond markets is less than in the United
States and at times volatility of price can be greater than in the United
States. Commissions on foreign stock exchanges are generally higher than
commissions on United States exchanges, although the Fund will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less
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government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of a
Fund, political or social instability, or diplomatic developments which could
affect United States investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
IAI is not aware at this time of the existence of any investment or
exchange control regulations which might substantially impair the operations of
a Fund as described in the Prospectus and this Statement of Additional
Information. It should be noted, however, that this situation could change at
any time.
The dividends and interest payable on certain of a Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to a Fund's shareholders.
The expense ratio of a Fund should not be materially affected by such Fund's
investment in such foreign securities.
ILLIQUID SECURITIES
Each Fund may also invest up to 15% of its net assets in securities
that are considered illiquid because of the absence of a readily available
market or due to legal or contractual restrictions. However, certain restricted
securities that are not registered for sale to the general public that can be
resold to institutional investors may be considered liquid pursuant to
guidelines adopted by the Board of Directors. It is not possible to predict
with assurance the maintenance of an institutional trading market for such
securities and the liquidity of a Fund's investments could be impaired if
trading declines.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each Fund may lend portfolio
securities to broker-dealers, banks or other financial borrowers of securities.
As with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, a Fund will only enter into loan arrangements with
broker-dealers, banks or other institutions which IAI has determined are
creditworthy under guidelines established by the Fund's Board of Directors.
Each Fund may also experience a loss if, upon the failure of a borrower to
return loaned securities, the collateral is not sufficient in value or liquidity
to cover the value of such loaned securities (including accrued interest
thereon). However, a Fund will receive collateral in the form of cash, United
States Government securities, certificates of deposit or other high-grade,
short-term obligations or interest-bearing cash equivalents equal to at least
102% of the value of the securities loaned. The value of the collateral and of
the securities loaned will be marked to market on a daily basis. During the
time portfolio securities are on loan, the borrower pays a Fund an amount
equivalent to any dividends or interest paid on the securities and a Fund may
invest the cash collateral and earn additional income or may receive an agreed
upon amount of interest income from the borrower. However, the amounts received
by a Fund may be reduced by finders' fees paid to broker-dealers and related
expenses.
SWAP AGREEMENTS
Swap agreements can be individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors. Depending on their structure, swap agreements may increase or decrease
a Fund's exposure to long- or short-term interest rates (in the U.S. or abroad),
foreign currency values, mortgage securities, corporate borrowing rates, or
other factors such as security prices or inflation rates. Swap agreements can
take many different forms and are known by a variety of names. A Fund is not
limited to any particular form of swap agreement if IAI determines it is
consistent with such Fund's investment objective and policies.
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<PAGE>
Swap agreements will tend to shift a Fund's investment exposure from
one type of investment to another. For example, if a Fund agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease a Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Depending on how they are
used, swap agreements may increase or decrease the overall volatility of a
Fund's investments and its share price.
The most significant factor in the performance of swap agreements is
the change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from a Fund. If a swap agreement
calls for payments by a Fund, such Fund must be prepared to make such payments
when due. In addition, if the counterparty's creditworthiness declines, the
value of a swap agreement would be likely to decline, potentially resulting in
losses. A Fund expects to be able to eliminate its exposure under swap
agreements either by assignment or other disposition, or by entering into an
offsetting swap agreement with the same party or a similar creditworthy party.
Each Fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements. If a
Fund enters into a swap agreement on a net basis, it will segregate assets with
a daily value at least equal to the excess, if any, of a Fund's accrued
obligations under the swap agreement over the accrued amount such Fund is
entitled to receive under the agreement. If a Fund enters into a swap agreement
on other than a net basis, it will segregate assets with a value equal to the
full amount of such Fund's accrued obligation under the agreement.
INDEXED SECURITIES
Each Fund may purchase securities whose prices are indexed to the
prices of other securities, securities indexes, currencies, precious metals or
other commodities, or other financial indicators. Indexed securities typically,
but not always, are debt securities or deposits whose value at maturity or
coupon rate is determined by reference to a specific instrument or statistic.
Gold-indexed securities, for example, typically provide for a maturity value
that depends on the price of gold, resulting in a security whose price tends to
rise and fall together with gold prices. Currency-indexed securities typically
are short to intermediate-term debt securities whose maturity values or interest
rates are determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency. Currency-
indexed securities may also have prices that depend on the values of a number of
different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies. IAI will use its judgment in determining whether indexed
securities should be treated as short-term instruments, bonds, stocks, or as a
separate asset class for purposes of a Fund's investment policies, depending on
the individual characteristics of the securities. Indexed securities may be
more volatile than the underlying instruments.
FOREIGN CURRENCY TRANSACTIONS
Each Fund may hold foreign currency deposits from time to time and may
convert dollars and foreign currencies in the foreign exchange markets.
Currency conversion involves dealer spreads and other costs, although
commissions usually are not charged. Currencies may be exchanged on a spot
(i.e., cash) basis, or by entering into forward contracts to purchase or sell
foreign currencies at a future date and price. Forward contracts generally are
traded in an interbank market conducted directly between currency traders
(usually large
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commercial banks) and their customers. The parties to a forward contract may
agree to offset or terminate the contract before its maturity, or may hold the
contract to maturity and complete the contemplated currency exchange.
Such Funds may use currency forward contracts to manage currency risks
and to facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Funds.
In connection with purchases and sales of securities denominated in
foreign currencies, a Fund may enter into currency forward contracts to fix a
definite price for the purchase or sale in advance of the trade's settlement
date. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." IAI expects to enter into settlement hedges in the normal
course of managing a Fund's foreign investments. A Fund could also enter into
forward contracts to purchase or sell a foreign currency in anticipation of
future purchases or sales of securities denominated in foreign currency, even if
the specific investments have not yet been selected by IAI.
Each Fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For example,
if a Fund owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations but would not offset changes in security values
caused by other factors. A Fund could also hedge the position by selling
another currency expected to perform similarly to the pound sterling -- for
example, by entering into a forward contract to sell Deutschemarks or European
Currency Units in return for U.S. dollars. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost, yield,
or efficiency, but generally would not hedge currency exposure as effectively as
a simple hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
Under certain conditions, SEC guidelines require mutual funds to set
aside appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, each Fund will
segregate assets to cover currency forward contracts, if any, whose purpose is
essentially speculative. Each Fund will not segregate assets to cover forward
contracts entered into for hedging purposes, including settlement hedges,
position hedges, and proxy hedges.
Successful use of forward currency contracts will depend on IAI's
skill in analyzing and predicting currency values. Forward contracts may
substantially change a Fund's investment exposure to changes in currency
exchange rates, and could result in losses to a Fund if currencies do not
perform as IAI anticipates. For example, if a currency's value rose at a time
when IAI had hedged a Fund by selling that currency in exchange for dollars,
such Fund would be unable to participate in the currency's appreciation. If IAI
hedges currency exposure through proxy hedges, a Fund could realize currency
losses from the hedge and the security position at the same time if the two
currencies do not move in tandem. Similarly, if IAI increases a Fund's exposure
to a foreign currency, and that currency's value declines, such Fund will
realize a loss. There is no assurance that IAI's use of forward currency
contracts will be advantageous to a Fund or that it will hedge at an appropriate
time. The policies described in this section are non-fundamental policies of
the Funds.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS
Each Fund has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the Commodity Futures
Trading Commission (CFTC) and the National Futures Association, which regulate
trading in the futures markets, before engaging in any purchases or sales of
futures contracts or options on futures contracts. Each Fund intends to comply
with Section 4.5 of the regulations under the Commodity Exchange Act, which
limits the extent to which a Fund can commit assets to initial margin deposits
and option premiums.
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The above limitation on a Fund's investments in futures contracts and
options, and such Fund's policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information may be changed
as regulatory agencies permit.
FUTURES CONTRACTS
When a Fund purchases a futures contract, it agrees to purchase a
specified underlying instrument at a specified future date. When a Fund sells a
futures contract, it agrees to sell the underlying instrument at a specified
future date. The price at which the purchase and sale will take place is fixed
when a Fund enters into the contract. Some currently available futures
contracts are based on specific securities, such as U.S. Treasury bonds or
notes, and some are based on indexes of securities prices, such as the Standard
& Poor's 500 Composite Stock Price Index (S&P 500). Futures can be held until
their delivery dates, or can be closed out before then if a liquid secondary
market is available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore, purchasing
futures contracts will tend to increase a Fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a Fund sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS
The purchaser or seller of a futures contract is not required to deliver or
pay for the underlying instrument unless the contract is held until the delivery
date. However, both the purchaser and seller are required to deposit "initial
margin" with a futures broker, known as a futures commission merchant (FCM),
when the contract is entered into. Initial margin deposits are typically equal
to a percentage of the contract's value. If the value of either party's position
declines, that party will be required to make additional "variation margin"
payments to settle the change in value on a daily basis. The party that has a
gain may be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin for
purposes of a Fund's investment limitations. In the event of the bankruptcy of
an FCM that holds margin on behalf of a Fund, such Fund may be entitled to
return of margin owed to it only in proportion to the amount received by the
FMC's other customers, potentially resulting in losses to such Fund.
PURCHASING PUT AND CALL OPTIONS
By purchasing a put option, a Fund obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed strike price.
In return for this right, a Fund pays the current market price for the option
(known as the option premium). Options have various types of underlying
instruments, including specific securities, indexes of securities prices, and
futures contracts. A Fund may terminate its position in a put option it has
purchased by allowing it to expire or by exercising the option. If the option
is allowed to expire, a Fund will lose the entire premium it paid. If a Fund
exercises the option, it completes the sale of the underlying instrument at the
strike price. A Fund may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
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WRITING PUT AND CALL OPTIONS
When a Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
such Fund assumes the obligation to pay the strike price for the option's
underlying instrument if the other party to the option chooses to exercise it.
When writing an option on a futures contract a Fund would be required to make
margin payments to an FCM as described above for futures contracts. A Fund may
seek to terminate its position in a put option it writes before exercise by
closing out the option in the secondary market at its current price. If the
secondary market is not liquid for a put option a Fund has written, however,
such Fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position. If security prices rise, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received.
If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer a
loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.
Writing a call option obligates a Fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
COMBINED POSITIONS
A Fund may purchase and write options in combination with each other,
or in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a Fund may
purchase a put option and write a call option on the same underlying instrument,
in order to construct a combined position whose risk and return characteristics
are similar to selling a futures contract. Another possible combined position
would involve writing a call option at one strike price and buying a call option
at a lower price, in order to reduce the risk of the written call option in the
event of a substantial price increase. Because combined options positions
involve multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
CORRELATION OF PRICE CHANGES
Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match a Fund's current or anticipated investments exactly. A Fund may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of such Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
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successful in all cases. If price changes in a Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS
There is no assurance a liquid secondary market will exist for any
particular options or futures contract at any particular time. Options may have
relatively low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges may
establish daily price fluctuation limits for options and futures contracts, and
may halt trading if a contract's price moves upward or downward more than the
limit in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for a Fund to
enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
potentially could require a Fund to continue to hold a position until delivery
or expiration regardless of changes in its value. As a result, a Fund's access
to other assets held to cover its options or futures positions could also be
impaired.
OTC OPTIONS
Unlike exchange-traded options, which are standardized with respect to
the underlying instrument, expiration date, contract size, and strike price, the
terms of over-the-counter options (options not traded on exchanges) generally
are established through negotiation with the other party to the option contract.
While this type of arrangement allows a Fund greater flexibility to tailor an
option to its needs, OTC options generally involve greater credit risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchanges where they are traded.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES
Currency futures contracts are similar to forward currency exchange
contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date. Most
currency futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency, which
generally is purchased or delivered in exchange for U.S. dollars, or may be a
futures contract. The purchaser of a currency call obtains the right to
purchase the underlying currency, and the purchaser of a currency put obtains
the right to sell the underlying currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indexes, as discussed above. A
Fund may purchase and sell currency futures and may purchase and write currency
options to increase or decrease its exposure to different foreign currencies. A
Fund may also purchase and write currency options in conjunction with each other
or with currency futures or forward contracts. Currency futures and options
values can be expected to correlate with exchange rates, but may not reflect
other factors that affect the value of a Fund's investments. A currency hedge,
for example, should protect a yen-denominated security from a decline in the
yen, but will not protect a Fund against a price decline resulting from
deterioration in the issuer's creditworthiness. Because the value of a Fund's
foreign-denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency options
and futures to the value of a Fund's investments exactly over time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS
Each Fund will comply with guidelines established by the Securities and
Exchange Commission with respect to coverage of options and futures strategies
by mutual funds, and if the guidelines so require will set aside appropriate
liquid assets in a segregated custodial account in the amount prescribed.
Securities held in a segregated account cannot be sold while the futures or
option strategy is outstanding, unless they are replaced with other suitable
assets. As a result, there is a possibility that segregation of a large
percentage of a Fund's assets could impede portfolio management or a Fund's
ability to meet redemption requests or other current obligations.
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INVESTMENT RESTRICTIONS
As indicated in the Prospectus, each Fund is subject to certain
policies and restrictions which are "fundamental" and may not be changed without
shareholder approval. Shareholder approval consists of the approval of the
lesser of (i) more than 50% of the outstanding voting securities of a Fund, or
(ii) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities of a Fund are present or
represented by proxy. Limitations 1 through 8 below are deemed fundamental
limitations. The remaining limitations set forth below serve as operating
policies of each Fund and may be changed by the Board of Directors without
shareholder approval.
Each Fund may not:
1. Purchase the securities of any issuer if such purchase would cause the
Fund to fail to meet the requirements of a "diversified company" as defined
under the Investment Company Act of 1940, as amended (the "1940 Act").
As currently defined in the 1940 Act, "diversified company" means a
management company which meets the following requirements: at least 75% of the
value of its total assets is represented by cash and cash items (including
receivables), Government securities, securities of other investment companies
and other securities for the purposes of this calculation limited in respect of
any one issuer to an amount not greater in value than 5% of the value of the
total assets of such management company and not more than 10% of the outstanding
voting securities of such issuer.
2. Purchase the securities of any issuer (other than "Government
securities" as defined under the 1940 Act) if, as a result, more than 25% of the
value of the Fund's total assets would be invested in the securities of
companies whose principal business activities are in the same industry.
3. Issue any senior securities, except as permitted by the 1940 Act or
the Rules and Regulations of the Securities and Exchange Commission.
4. Borrow money, except from banks for temporary or emergency purposes
provided that such borrowings may not exceed 33-1/3% of the value of the Fund's
net assets (including the amount borrowed). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33-1/3% limitation. This
limitation shall not prohibit the Fund from engaging in reverse repurchase
agreements, making deposits of assets to margin or guarantee positions in
futures, options, swaps or forward contracts, or segregating assets in
connection with such agreements or contracts.
To the extent the Fund engages in reverse repurchase agreements, because
such transactions are considered borrowing, reverse repurchase agreements are
included in the 33-1/3% limitation.
5. Act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities the Fund
may be deemed to be an underwriter under applicable laws.
6. Purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments. This restriction shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business.
7. Purchase or sell commodities other than foreign currencies unless
acquired as a result of ownership of securities. This limitation shall not
prevent the Fund from purchasing or selling options, futures, swaps and forward
contracts or from investing in securities or other instruments backed by
commodities.
10
<PAGE>
8. Make loans to other persons except to the extent not inconsistent with
the 1940 Act or the Rules and Regulations of the Securities and Exchange
Commission. This limitation does not apply to purchases of commercial paper,
debt securities or repurchase agreements, or to the lending of portfolio
securities.
9. Purchase securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases or sales
of securities and provided that margin payments in connection with transactions
in options, futures, swaps and forward contracts shall not be deemed to
constitute purchasing securities on margin.
10. Sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, and
provided that transactions in options, swaps and forward futures contracts are
not deemed to constitute selling securities short.
11. Except as part of a merger, consolidation, acquisition, or
reorganization, invest more than 5% of the value of its total assets in the
securities of any one investment company or more than 10% of the value of its
total assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting securities of
any one investment company.
12. Mortgage, pledge or hypothecate its assets except to the extent
necessary to secure permitted borrowings. This limitation does not apply to
reverse repurchase agreements or in the case of assets deposited to margin or
guarantee positions in futures, options, swaps or forward contracts or placed in
a segregated account in connection with such contracts.
13. Participate on a joint or a joint and several basis in any
securities trading account.
14. Invest more than 15% of its net assets in illiquid investments.
15. Invest directly in interests (including partnership interests) in
oil, gas or other mineral exploration or development leases or programs, except
the Fund may purchase or sell securities issued by corporations engaging in oil,
gas or other mineral exploration or development business.
Any of a Fund's investment policies set forth under "Investment Objective
and Policies" in the Prospectus, or any restriction set forth above under
"Investment Restrictions" which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after an acquisition of securities or utilization
of assets and results therefrom. With respect to Restriction 14, a Fund is
under a continuing obligation to ensure that it does not violate the maximum
percentage either by acquisition or by virtue of a decrease in the value of the
Fund's liquid assets.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the particular fiscal year by the
monthly average of the value of portfolio securities owned by a Fund during the
same fiscal year. "Portfolio securities" for purposes of this calculation do
not include securities with a maturity date of less than twelve (12) months from
the date of investment. A 100% portfolio turnover rate would occur, for
example, if the lesser of the value of purchases or sales of portfolio
securities for a particular year were equal to the average monthly value of the
portfolio securities owned during such year.
INVESTMENT PERFORMANCE
Advertisements and other sales literature for each Fund may refer to
monthly, quarterly, yearly, cumulative and average annual total return. Each
such calculation assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts. Each of
monthly, quarterly and yearly total return is computed in the same manner as
cumulative total return, as set forth below.
11
<PAGE>
Cumulative total return is computed by finding the cumulative rate of
return over the period indicated in the advertisement that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
CTR = (ERV-P) 100
-----
P
Where: CTR = Cumulative total return;
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period; and
P = initial payment of $1,000
Average annual total return is computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period
of a hypothetical $1,000 payment made at the
beginning of such period.
The table below shows the yearly total return for the Funds for the periods
indicated:
<TABLE>
<CAPTION>
Total Return
----------------------------------------------------------------------------
Year Ended Emerging Growth Growth & Midcap Regional Value
12/31 Growth Fund* Fund** Income Fund Growth Fund*** Fund Fund****
---------- ----------- ------- ----------- -------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1981 -- -- -1.0% -- -3.2% --
1982 -- -- 33.4% -- 41.4% --
1983 -- -- 19.4% -- 13.2% 5.9%
1984 -- -- 2.9% -- -2.4% -5.6%
1985 -- -- 23.7% -- 38.8% 12.9%
1986 -- -- 13.1% -- 24.6% 1.9%
1987 -- -- 15.5% -- 5.3% 14.1%
1988 -- -- 8.5% -- 18.6% 24.3%
1989 -- -- 29.8% -- 31.3% 22.6%
1990 -- -- -6.7% -- -0.3% -11.5%
1991 23.6% -- 26.7% -- 35.4% 19.8%
1992 22.4% -- 4.0% 15.0% 3.5% 11.9%
1993 14.76% 0.99% 9.98% 22.85% 8.96% 22.08%
1994 0.19% 0.66% -4.77% 5.65% 0.68% -9.08%
</TABLE>
- ------------------------------------------------
* Commenced operations on August 5, 1991
** Commenced operations on August 6, 1993
*** Commenced operations on April 10, 1992
**** Commenced operations on October 12, 1983
12
<PAGE>
The average annual total returns of Emerging Growth Fund for the fiscal
year ending March 31, 1995 and from inception through March 31, 1995 were 10.23%
and 18.32%, respectively.
The average annual total returns of Growth Fund for the twelve-month period
ending March 31, 1995 and from inception through March 31, 1995 were 13.31% and
5.89%, respectively.
The average annual total returns of Growth and Income Fund for the one,
five and ten year periods ended March 31, 1995 were 8.92%, 7.58%, and 11.85%,
respectively.
The average annual total returns of Midcap Growth Fund for the fiscal year
ending March 31, 1995 and from inception through March 31, 1995 were 17.63% and
17.88%, respectively.
The average annual total returns of Regional Fund for the one, five and ten
year periods ended March 31, 1995 were 10.35%, 10.43% and 15.36%, respectively.
The average annual total returns of Value Fund for the one, five and ten
year periods ended March 31, 1995 were 3.88%, 8.18% and 10.73%, respectively.
In advertising and sales literature, each Fund may compare its performance
with that of other mutual funds, indexes or averages of other mutual funds,
indexes of related financial assets or data, and other competing investment and
deposit products available from or through other financial institutions. The
composition of these indexes, averages or products differs from that of a Fund.
The comparison of a Fund to an alternative investment should be made with
consideration of differences in features and expected performance.
The indexes and averages noted below will be obtained from the indicated
sources or reporting services, which the Fund believes to be generally accurate.
Each Fund may also note its mention in newspapers, magazines, or other media
from time to time. However, such Fund assumes no responsibility for the
accuracy of such data.
For example, (1) a Fund's performance or P/E ratio may be compared to any
one or a combination of the following: (i) the Standard & Poor's 500 Stock
Index and Dow Jones Industrial Average so that you may compare the Fund's
results with those of a group of unmanaged securities widely regarded by
investors as representative of the U.S. stock market in general; (ii) other
groups of mutual funds, including the IAI Funds, tracked by: (A) Lipper
Analytical Services, Inc., a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets; (B)
Morningstar, Inc., another widely used independent research firm which rates
mutual funds; or (C) other financial or business publications, which may
include, but are not limited to, Business Week, Money Magazine, Forbes and
Barron's, which provide similar information; (iii) the Value Line Index and the
Standard & Poor's Value Index; (iv) the Callan Midcap Index, the Russell Midcap
Index and the Standard & Poor's Midcap Index; (v) the Russell 2500 Index, the
Russell 2000 Growth Index and the Russell 1000 Growth Index; (vi) the Standard &
Poor's Growth Index; and (vii) the performance of U.S. government and corporate
bonds, notes and bills; (viii) IAI Regional Index, an unmanaged index of the
stocks of the 300 largest companies (by market capitalization) located in the
Eight State Region (as defined in the Prospectus). (The purpose of these
comparisons would be to illustrate historical trends in different market sectors
so as to allow potential investors to compare different investment strategies.);
(2) the Consumer Price Index (measure for inflation) may be used to assess the
real rate of return from an investment in a Fund; (3) other U.S. or foreign
government statistics such as GNP, and net import and export figures derived
from governmental publications, e.g., The Survey of Current Business, may be
used to illustrate investment attributes of a Fund or the general economic
business, investment, or financial environment in which such Fund operates; (4)
the effect of tax-deferred compounding on a Fund's investment returns, or on
returns in general, may be illustrated by graphs, charts, etc. where such graphs
or charts would compare, at various points in time, the return from an
investment in such Fund (or returns in general) on a tax-deferred basis
(assuming reinvestment of capital gains and dividends and assuming one or more
tax rates) with the return on a taxable basis; and (5) the sectors or industries
in which a Fund invests may be compared to relevant indices or surveys (e.g.,
S&P Industry Surveys) in order to evaluate a Fund's historical performance or
current or potential value with respect to the particular industry or
sector.
13
<PAGE>
MANAGEMENT
The names, addresses, positions and principal occupations of the directors and
executive officers of the Fund are given below.
<TABLE>
<CAPTION>
Principal Occupation(s)
Name and Address Age Position During Past 5 Years
- ------------------------- --- ------------------- ------------------------
<S> <C> <C> <C>
Noel P. Rahn* 53 Chairman of the Noel P. Rahn has been
3700 First Bank Place Board Chief Executive Officer
P.O. Box 357 and a Director of IAI
Minneapolis, Minnesota since 1974. Mr. Rahn is
55440 also Chairman of the
other IAI Mutual Funds
as well as IAI
Securities, Inc., the
Fund's principal
underwriter.
Richard E. Struthers* 43 President, Director Richard E. Struthers is
3700 First Bank Place Executive Vice President
P.O. Box 357 and a Director of IAI
Minneapolis, Minnesota and has served IAI in
55440 many capacities since
1979. Mr. Struthers is
also President of the
other IAI Mutual Funds
as well as President and
Director of IAI
Securities, Inc., the
Fund's principal
underwriter.
Madeline Betsch 53 Director Madeline Betsch, until
19 South 1st Street April 1994, was
Minneapolis, Minnesota Executive Vice
55401 President, Director of
Client Services, of
CME-KHBB Advertising
since May 1985, and
prior thereto was a Vice
President with
Campbell-Mithun, Inc.
(advertising agency)
since February 1977.
Ms. Betsch currently is
President of ESMA Corp.,
a start-up business in
the beauty and wellness
field.
W. William Hodgson 71 Director W. William Hodgson
1698 Dodd Road served as information
Mendota Heights, Minnesota manager for the North
55118 Central Home Office of
the Prudential Insurance
Company of America from
1961 until 1984; he is
currently retired.
George R. Long 65 Director George R. Long has been
29 Las Brisas Way Chairman of Mayfield
Naples, Florida 33963 Corp. (financial
consultants and venture
capitalists) since 1973.
J. Peter Thompson 64 Director J. Peter Thompson has
Route 1 been a grain farmer in
Mountain Lake, Minnesota southwestern Minnesota
56159 since 1974. Prior to
that, Mr. Thompson was
employed by Paine
Webber, Jackson &
Curtis, Incorporated, (a
diversified financial
services concern), most
recently as Senior Vice
President and General
Partner.
Charles H. Withers 68 Director Charles H. Withers was
Rochester Post Bulletin Editor of the Rochester
P.O. Box 6118 Post-Bulletin,
Rochester, Minnesota 55903 Rochester, Minnesota
from 1960 through March
31, 1980; he is
currently retired.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Principal
Occupation(s) During
Name and Address Age Position Past 5 Years
- --------------------------- --- ---------------------- --------------------
<S> <C> <C> <C>
Archie C. Black, III 33 Treasurer Archie C. Black is a
3700 First Bank Place Senior Vice President
P.O. Box 357 and Chief Financial
Minneapolis, Minnesota Officer of IAI and
55440 has served IAI in
several capacities
since 1987. Mr.
Black is also
Treasurer of the
other IAI Mutual
Funds.
William C. Joas 33 Secretary William C. Joas is a
3700 First Bank Place Vice President of IAI
P.O. Box 357 and has served as an
Minneapolis, Minnesota attorney for IAI
55440 since 1990. Mr. Joas
is also Secretary of
the other IAI Mutual
Funds and Chief
Compliance Officer of
IAI Securities, Inc.,
the Fund's principal
underwriter.
Kirk Gove 33 Vice President, Kirk Gove is a Vice
3700 First Bank Place Marketing President of IAI.
P.O. Box 357 Prior to joining IAI
Minneapolis, Minnesota in 1992, Mr. Gove
55440 served as an
Associate Vice
President of Dain
Bosworth,
Incorporated (a
diversified financial
services concern).
Mr. Gove is also Vice
President, Marketing
of the other IAI
Mutual Funds.
Rick D. Leggott 37 Vice President, Rick Leggott is a
3700 First Bank Place Investments Senior Vice President
P.O. Box 357 (Emerging Growth of IAI and has served
Minneapolis, Minnesota Fund) as a portfolio
55440 manager with IAI
since 1987.
John Twele 37 Vice President, John Twele is a Vice
3700 First Bank Place Investments President of IAI.
P.O. Box 357 (Growth Fund) Prior to joining IAI
Minneapolis, Minnesota in 1994, Mr. Twele
55440 had been a Senior
Equity Analyst with
IDS Financial
Services (a
diversified financial
services concern)
since 1987. Mr.
Twele is also a Vice
President,
Investments of the
Balanced Portfolio of
IAI Retirement Funds,
Inc.
David McDonald 35 Vice President, David McDonald is a
3700 First Bank Place Investments Vice President of
P.O. Box 357 (Growth Fund) IAI. Prior to
Minneapolis, Minnesota joining IAI in 1994,
55440 Mr. McDonald had been
a Managing Director
of Wessels Arnold &
Henderson (a
brokerage firm) since
1989 and an Associate
Portfolio Manager
with IDS Financial
Services (a
diversified financial
services concern)
from 1986 to 1989.
Todd McCallister 36 Vice President, Todd McCallister is a
3700 First Bank Place Investments Vice President of
P.O. Box 357 (Growth and Income IAI. Prior to
Minneapolis, Minnesota Fund) joining IAI in 1992,
55440 Mr. McCallister was
an Investment Analyst
with ANB Investment
Management from 1987
to 1992.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Name and Address Age Position Principal
- --------------------------- --- --------------------- Occupation(s) During
Past 5 Years
----------------------
<S> <C> <C> <C>
Suzanne F. Zak 36 Vice President, Suzanne F. Zak is a
3700 First Bank Place Investments Senior Vice President
P.O. Box 357 (Midcap Growth Fund of IAI. Prior to
Minneapolis, Minnesota and Capital joining IAI in 1992,
55440 Appreciation Fund) Ms. Zak served as a
Managing Director of
J&W Seligman (a
diversified financial
services concern).
Ms. Zak is also Vice
President,
Investments of the
IAI Midcap Growth
Fund.
Martin J. Calihan 31 Vice President, Martin Calihan is a
3700 First Bank Place Investments (Capital Vice President of
P.O. Box 357 Appreciation Fund) IAI. Prior to
Minneapolis, Minnesota joining IAI in 1992,
55440 Mr. Calihan served as
an equity analyst for
Morgan Stanley Co. (a
diversified financial
services concern) and
State Street Research
Management.
Mark Hoonsbeen 34 Vice President, Mark Hoonsbeen is a
3700 First Bank Place Investments Vice President of
P.O. Box 357 (Regional Fund) IAI. Prior to
Minneapolis, Minnesota joining IAI in 1994,
55440 Mr. Hoonsbeen served
as an equity
portfolio manager for
The St. Paul
Companies, Inc. (a
diversified financial
services concern)
from 1986 to 1994.
Mr. Hoonsbeen is also
a Vice President,
Investments of the
Regional Portfolio of
IAI Retirement Funds,
Inc.
Douglas R. Platt 54 Vice President, Douglas Platt is a
3700 First Bank Place Investments Senior Vice President
P.O. Box 357 (Value Fund) of IAI and has served
Minneapolis, Minnesota in various capacities
55440 since 1967.
Susan J. Haedt 33 Vice President, Susan J. Haedt is a
3700 First Bank Place Director of Vice President of IAI
P.O. Box 357 Operations and Director of Fund
Minneapolis, Minnesota Operations. Prior
55440 to joining IAI in
1992, Ms. Haedt
served as a Senior
Manager at KPMG Peat
Marwick, (an
international tax,
accounting and
consulting firm).
Ms. Haedt is also
Vice President,
Director of
Operations of the
other IAI Mutual
Funds.
</TABLE>
- ----------
* Directors of the Funds who are interested persons (as that term is defined
by the Investment Company Act of 1940) of IAI and the Funds.
Each Fund has agreed to reduced initial subscription requirements for
employees and directors of the Fund or IAI, their spouses, children and
grandchildren. With respect to such persons, the minimum initial investment in
one or more of the IAI Family of Funds is $500; provided that the minimum amount
that can be allocated to any one of the Funds is $250. Subsequent subscriptions
are limited to a minimum of $100 for each of the Funds.
No compensation is paid by a Fund to any of its officers. As of January 1,
1996, directors who are not affiliated with IAI receive from the IAI Mutual
Funds a $15,000 annual retainer, $2,500 for each Board meeting attended, $3,600
for each Audit Committee meeting attended (as applicable) and $1,800 for each
Securities Valuation Committee meeting attended (as applicable). Each Fund will
pay, on a quarterly basis, its pro rata
16
<PAGE>
share of these fees based on its net assets. Such unaffiliated directors also
are reimbursed by the Funds for expenses incurred in connection with attending
meetings.
<TABLE>
<CAPTION>
Aggregate Aggregate Compensation Projected Aggregate
Compensation from the Compensation from the
Name of Person, Position from each Fund* 18 IAI Mutual Funds** 19 IAI Mutual Funds***
- --------------------------- -------------------- ---------------------- ------------------------
<S> <C> <C> <C>
Betsch, Madeline - $1,700 $26,350 $32,200
Director (Growth Fund $1,375)
Hodgson, W. William - $1,700 $26,350 $32,200
Director (Growth Fund $1,375)
Long, George R. - $2,100 $24,950 $32,200
Director (Growth Fund $975)
Thompson, J. Peter - $1,700 $26,350 $32,200
Director (Growth Fund $1,375)
Withers, Charles H. - $2,100 $24,950 $32,200
Director (Growth Fund $975)
- -------------------------
</TABLE>
* From each Fund except Capital Appreciation Fund, for the fiscal year or
period ended March 31, 1995. Aggregate compensation from Growth Fund reflects
fiscal period from August 1, 1994 through March 31, 1995.
** From all Funds except Capital Appreciation Fund for the calendar year ended
December 31, 1994.
*** As of December 31, 1996 and includes Capital Appreciation Fund; provided
that a director misses no meetings; excludes expenses incurred in connection
with attending meetings.
The Board of Directors for each of the Funds, at a meeting held May 10,
1995, and on November 8, 1995 for Capital Appreciation Fund, approved a new Code
of Ethics. The Code permits access persons to engage in personal securities
transactions subject to certain policies and procedures. Such procedures
prohibit the acquiring of any securities in an initial public offering. In
addition, all securities acquired through private placement must be pre-cleared.
Procedures have been adopted which implement blackout periods for certain
securities transactions, as well as a ban on short-term trading profits.
Additional policies prohibit the receipt of gifts in certain instances.
Procedures have been implemented to monitor employee trading. Access persons of
the Adviser are required to certify annually that they have read and understood
the Code of Ethics. An annual report is provided to the Funds' Board of
Directors summarizing existing procedures, identifying material violations and
recommending any changes needed.
IAI, the Fund's investment adviser, is an affiliate of the Hill Samuel Group
("Hill Samuel"). Hill Samuel is an international merchant banking and financial
services firm headquartered in London, England. Hill Samuel owns controlling
interests in over seventy insurance, merchant banking, financial services and
shipping services subsidiaries located in Western Europe, Asia, the United
States, Australia, New Zealand and Great Britain. The principal offices of Hill
Samuel are located at 100 Wood Street, London EC2 P2AJ.
Hill Samuel is owned by Lloyds TSB Group plc ("Lloyds TSB"), a publicly-held
financial services organization headquartered in London, England. Lloyds TSB is
one of the largest personal and corporate financial services groups in the
United Kingdom, engaged in a wide range of activities including commercial and
retail banking. The principal offices of Lloyds TSB are located at St. George's
House, 6 - 8 Eastcheap, London, EC3M 1LL.
17
<PAGE>
HISTORY
Capital Appreciation Fund is a separate portfolio of IAI Investment Funds
VI, Inc., a Minnesota corporation whose shares of common stock are currently
issued in seven series (Series A through G). On June 25, 1993, the
corporation's shareholders approved amended and restated Articles of
Incorporation, which provided that the registered investment company whose
corporate name had been IAI Series Fund, Inc., be renamed IAI Investment Funds
VI, Inc. The investment portfolio represented by Series G common shares is
referred to as "IAI Capital Appreciation Fund."
Emerging Growth Fund is a separate portfolio of IAI Investment Funds VI,
Inc., a Minnesota corporation whose shares of common stock are currently issued
in six series (Series A through F). On June 25, 1993, the Fund's shareholders
approved amended and restated Articles of Incorporation, which provided that the
registered investment company whose corporate name had been IAI Series Fund,
Inc. be renamed IAI Investment Funds VI, Inc. The investment portfolio
represented by Series A common shares is referred to as "IAI Emerging Growth
Fund."
Growth and Income Fund is a separate portfolio of IAI Investment Funds VII,
Inc., a Minnesota corporation whose shares of common stock are currently issued
in one series (Series A). On June 25, 1993, the Fund's shareholders approved
amended and restated Articles of Incorporation, which provided that the
registered investment company whose corporate name has been IAI Stock Fund,
Inc., be renamed IAI Investment Funds VII, Inc. The investment portfolio
represented by Series A common shares is referred to as "IAI Growth and Income
Fund", which name better reflects the investment objectives of the investment
portfolio.
Midcap Growth Fund is a separate portfolio of IAI Investment Funds VI, Inc.,
a Minnesota corporation whose shares of common stock are currently issued in six
series (Series A through F). On June 25, 1993, the Fund's shareholders approved
amended and restated Articles of Incorporation, which provided that the
registered investment company whose corporate name had been IAI Series Fund,
Inc., be renamed IAI Investment Funds VI, Inc. The investment portfolio
represented by Series C common shares is referred to as "IAI Midcap Growth
Fund."
Regional Fund is a separate portfolio of IAI Investment Funds IV, Inc., a
Minnesota corporation whose shares of common stock are currently issued in one
series (Series A). On June 28, 1993, the Fund's shareholders approved amended
and restated Articles of Incorporation, which provided that the registered
investment company whose corporate name had been IAI Regional Fund, Inc., be
renamed IAI Investment Funds IV, Inc. The investment portfolio represented by
Series A common shares is referred to as "IAI Regional Fund."
Value Fund is a separate portfolio of IAI Investment Funds VIII, Inc., a
Minnesota corporation whose shares of common stock are currently issued in one
series (Series A). On June 25, 1993, the Fund's shareholders approved amended
and restated Articles of Incorporation, which provided that the registered
investment company whose corporate name had been IAI Value Fund, Inc., be
renamed IAI Investment Funds VIII, Inc. The investment portfolio represented by
Series A common shares is referred to as "IAI Value Fund."
INVESTMENT ADVISORY AGREEMENTS - ALL FUNDS OTHER THAN CAPITAL APPRECIATION FUND
Pursuant to an Investment Advisory Agreement between each Fund and IAI
(the "Advisory Agreement"), IAI has agreed to provide each Fund with investment
advice, statistical and research facilities, and certain equipment and services,
including, but not limited to, office space and necessary office facilities,
equipment, and the services of required personnel. Under the Advisory
Agreements, IAI has the sole authority and responsibility to make and execute
investment decisions for each Fund within the framework of the Fund's investment
policies, subject to review by the directors of each Fund.
As compensation for these services, each Fund has agreed to pay IAI a
monthly fee equivalent on an annual basis to .75% of its average month-end net
assets. This percentage fee declines as a Fund's asset size
18
<PAGE>
increases. The following table sets forth the fees which IAI receives from each
Fund, as a percentage of average month-end net assets.
GROWTH FUND
GROWTH AND INCOME FUND
----------------------
<TABLE>
<CAPTION>
Monthly Fee Approximate Fee
Received by IAI Receives
Month End Net Asset Value IAI Annually
- ------------------------- ------------ ----------------
<S> <C> <C>
For the first $100,000,000.. .0625% .75%
For the next $100,000,000... .0542% .65%
Above $200,000,000.......... .0458% .55%
</TABLE>
EMERGING GROWTH FUND
MIDCAP GROWTH FUND
REGIONAL FUND
VALUE FUND
----------
<TABLE>
<CAPTION>
Monthly Fee Approximate Fee
Received by IAI Receives
Month End Net Asset Value IAI Annually
- ------------------------- --------------- ---------------
<S> <C> <C>
For the first $200,000,000.............. .0625% .75%
For the next $300,000,000............... .0583% .70%
Above $500,000,000...................... .0542% .65%
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1995, the net assets of each Fund were as follows:
<S> <C>
Emerging Growth Fund $342,873,905
Growth Fund $ 26,793,763
Growth and Income Fund $101,255,839
Midcap Growth Fund $ 88,075,447
Regional Fund $523,364,230
Value Fund $ 40,600,954
</TABLE>
Advisory fees were paid by each Fund for the fiscal years (or periods) as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
----------------------------------------
Fund 1993 1994 1995
- ---- ---------- ---------- ----------
<S> <C> <C> <C>
Emerging Growth $ 476,714 $1,456,386 $2,049,484
Growth -- $ 55,580* $ 119,142**
Growth and Income $ 787,570 $ 918,636 $ 827,288
Midcap Growth $ 69,961*** $ 246,371 $ 543,698
Regional $3,607,824 $4,427,159 $3,866,797
Value $ 177,788 $ 171,561 $ 276,714
- ------------------
</TABLE>
* For the period from August 6, 1993 (commencement of operations) through July
31, 1994.
** For the period from August 1, 1994 through March 31, 1995.
*** For the period from April 6, 1992 (commencement of operations) through March
31, 1993.
19
<PAGE>
Each Fund's monthly payment of the advisory fee is suspended or reduced (and
reimbursement made by IAI, if necessary) when it appears that the amount of
expenses may exceed such Fund's applicable expense limit (and after the monthly
payment of the distribution fee has been reduced to zero), as set forth in the
section "Allocation of Expenses," below.
Pursuant to the expense limits, IAI has reimbursed advisory fees to the
following Funds for the fiscal years or periods noted: Growth Fund, for the
fiscal period August 6, 1993 to July 31, 1994 -- $29,939; Midcap Growth Fund,
for the fiscal period April 6, 1992 through March 31, 1993 -- $3,893, and for
the fiscal year ended March 31, 1994 -- $11,397; and Value Fund, for the fiscal
year ended March 31, 1994 -- $38,260.
ADMINISTRATIVE AGREEMENT - ALL FUNDS OTHER THAN CAPITAL APPRECIATION FUND
Each Fund has engaged IAI to serve as the Fund's administrative, dividend
disbursing, redemption, accounting services and transfer agent pursuant to an
Administrative Agreement. Under the Administrative Agreement, IAI has agreed to
provide to each Fund all required administrative, stock transfer, redemption,
dividend disbursing and accounting services including, without limitation, the
following: (1) the maintenance of accounts, books and records; (2) the
calculations of the daily net asset value in accordance with a Fund's current
Prospectus and Statement of Additional Information; (3) daily and periodic
reports; (4) all information necessary to complete tax returns, questionnaires
and other reports requested by a Fund; (5) the maintenance of stock registry
records; (6) the processing of requested account registration changes, stock
certificate issuances and redemption requests; and (7) the administration of
payments of dividends and distributions declared by a Fund. As compensation for
these services, each Fund has agreed to pay IAI a monthly fee equal to .01667%
of the value of such Fund's net assets on the last day of the month, which is
equivalent on an annual basis to .20% of a Fund's average month-end net assets.
Pursuant to the Administrative Agreements for the fiscal year (or period)
ended March 31, 1995, each Fund paid IAI the following fees:
<TABLE>
<CAPTION>
Fund Amount
---- ------
<S> <C>
Emerging Growth $ 556,995
Growth $ 31,771*
Growth and Income $ 223,782
Midcap Growth $ 144,986
Regional $1,082,091
Value $ 73,790
----------
</TABLE>
* For the period August 1, 1994 to March 31, 1995.
ALLOCATION OF EXPENSES - ALL FUNDS OTHER THAN CAPITAL APPRECIATION FUND
In addition to the advisory and administrative fees paid to IAI, each Fund
pays all its other costs and expenses, including, for example, costs incurred in
the purchase and sale of assets, interest, taxes, charges of the custodian of a
Fund's assets, costs of reports and proxy material sent to Fund shareholders,
fees paid for independent accounting and legal services, costs of printing
Prospectuses for Fund shareholders and registering a Fund's shares, postage,
fees to directors who are not "interested persons" of a Fund, distribution
expenses pursuant to the Fund's Rule 12b-1 plan, insurance premiums, costs of
attending investment conferences and such other costs which may be designated as
extraordinary. IAI has agreed to reimburse each Fund for expenses (other than
brokerage commissions and other expenditures in connection with the purchase and
sale of portfolio securities, interest expense, and, subject to the specific
approval of a majority of the disinterested directors of a Fund, taxes and
extraordinary expenses) which exceed 1.25% per year of the average month-end net
assets of a Fund (the "expense limit"). Certain state securities commissions
may impose additional limitations on certain of a Fund's expenses, and IAI may
be required by such state commissions to reimburse a Fund for expenses in excess
20
<PAGE>
of any limitations as a requirement to selling shares of such Fund in those
states. IAI is not liable for any loss suffered by a Fund in the absence of
willful misfeasance, bad faith or gross negligence in the performance of its
duties and obligations.
MANAGEMENT AGREEMENT - CAPITAL APPRECIATION FUND
Pursuant to a Management Agreement between Capital Appreciation Fund and
IAI, IAI has agreed to provide the Fund with investment advice, statistical and
research facilities, and certain equipment and services, including, but not
limited to, office space and necessary office facilities, equipment, and the
services of required personnel and, in connection therewith, IAI has the sole
authority and responsibility to make and execute investment decisions for the
Fund within the framework of the Fund's investment policies, subject to review
by the directors of the Fund. In addition, IAI has agreed to provide or arrange
for the provision of all required administrative, stock transfer, redemption,
dividend disbursing, accounting, and shareholder services including, without
limitation, the following: (1) the maintenance of the Fund's accounts, books
and records; (2) the calculations of the daily net asset value in accordance
with the Fund's current Prospectus and Statement of Additional Information; (3)
daily and periodic reports; (4) all information necessary to complete tax
returns, questionnaires and other reports requested by the Fund; (5) the
maintenance of stock registry records; (6) the processing of requested account
registration changes, stock certificate issuances and redemption requests; and
(7) the administration of payments and dividends and distributions declared by
the Fund; (8) answering shareholder questions, (9) providing reports and other
information and (10) other services designed to maintain shareholder accounts.
IAI may also pay qualifying broker-dealers, financial institutions and other
entities that provide such services. In return for such services, the Fund has
agreed to pay IAI an annual fee as a percentage of the Fund's average daily net
assets as set forth below:
Daily Net Assets Fee IAI Receives Annually
---------------- -------------------------
For the first $250 million 1.40%
For the next $250 million 1.35%
Above $500 million 1.30%
Except for brokerage commissions and other expenditures in connection with
the purchase and sale of portfolio securities, interest expense, and, subject to
the specific approval of a majority of the disinterested directors of the Fund,
taxes and extraordinary expenses, IAI has agreed to pay all of the Fund's other
costs and expenses, including, for example, costs incurred in the purchase and
sale of assets, taxes, charges of the custodian of the Fund's assets, costs of
reports and proxy material sent to Fund shareholders, fees paid for independent
accounting and legal services, costs of printing Prospectuses for Fund
shareholders and registering the Fund's shares, postage, insurance premiums, and
costs of attending investment conferences. The Management Agreement further
provides that IAI will either reimburse the Fund for the fees and expenses it
pays to directors who are not "interested persons" of the Fund or reduce its fee
by an equivalent amount. IAI is not liable for any loss suffered by the Fund in
the absence of willful misfeasance, bad faith or negligence in the performance
of its duties and obligations.
DURATION OF AGREEMENTS - ALL FUNDS
The Advisory Agreements, Administrative Agreements and Management Agreement
will terminate automatically in the event of their assignment. In addition,
each Agreement is terminable at any time without penalty by the Board of
Directors of a Fund or by vote of a majority of a Fund's outstanding voting
securities on not more than 60 days' written notice to IAI, and by IAI on 60
days' notice to a Fund. Each Agreement shall continue in effect from year to
year only so long as such continuance is specifically approved at least annually
by either the Board of Directors of a Fund or by vote of a majority of the
outstanding voting securities, provided that in either event such continuance is
also approved by the vote of a majority of directors who are not parties to the
Agreement or interested persons of such parties cast in person at a meeting
called for the purpose of voting on such approval.
21
<PAGE>
PLAN OF DISTRIBUTION
All Funds other than Capital Appreciation Fund have adopted a Plan of
Distribution relating to the payment of certain distribution expenses pursuant
to Rule 12b-1 under the 1940 Act ("Rule 12b-1 Fees"). Such Plans were last
approved by the Funds' Board of Directors at a meeting on May 10, 1995. The
shareholders of Emerging Growth, Growth and Income, Midcap Growth and Value
Funds last approved the Plans on June 25, 1993. The shareholders of Regional
Fund last approved the Plan on June 28, 1993.
Rule 12b-1(b) provides that any payments made by a fund in connection with
the distribution of its shares may only be made pursuant to a written plan
describing all material aspects of the proposed financing of distribution and
also requires that all agreements with any person relating to implementation of
the plan must be in writing. In addition, Rule 12b-1(b)(1) requires that such
plan be approved by a vote of at least a majority of the fund's outstanding
shares, and Rule 12b-1(b)(2) requires that such plan, together with any related
agreements, be approved by a vote of the board of directors of the company and
the directors of the company who are not interested persons of the company and
have no direct or indirect financial interest in the operation of the plan or in
any agreements related to the plan, cast in person at a meeting called for the
purpose of voting on such plan or agreements. Rule 12b-1(b)(3) requires that
the plan or agreement provide, in substance: (1) that it shall continue in
effect for a period of more than one year from the date of its execution or
adoption only so long as such continuance is specifically approved at least
annually in the manner described in paragraph (b)(2) of Rule 12b-1; (2) that any
person authorized to direct the disposition of monies paid or payable by a fund
pursuant to its plan or any related agreement shall provide to a fund's board of
directors, and the directors shall review, at least quarterly, a written report
of the amount so expended and the purposes for which such expenditures were
made; and (3) in the case of a plan, that it may be terminated at any time by
vote of a majority of the members of the board of directors of a fund who are
not interested persons of the fund and have no direct or indirect financial
interest in the operation of the plan or in any agreements related to the plan
or by vote of a majority of the outstanding voting securities of a fund.
Rule 12b-1(b)(4) requires that such plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1. Rule 12b-1(c) provides that a fund
may rely upon Rule 12b-1(1) only if selection and nomination of its
disinterested directors are committed to the discretion of such disinterested
directors. Rule 12b-1(e) provides that a fund may implement or continue a plan
pursuant to Rule 12b-1(b) only if the directors who vote to approve such
implementation or continuation conclude, in the exercise of reasonable business
judgment and in light of their fiduciary duties under state law, and under
Section 36(a) and (b) of the 1940 Act, that there is a reasonable likelihood
that the plan will benefit the fund and its shareholders. At the meeting of the
Board of Directors on May 10, 1995, the directors so concluded with respect to
each Fund's Plan of Distribution.
Pursuant to the Plan of Distribution, each Fund has entered into a
Distribution and Shareholder Services Agreement pursuant to which a Fund will
make payments to IAI Securities, Inc. ("IAIS") at an annual rate of 0.25% of a
Fund's average month-end net assets to cover expenses incurred by IAIS in
connection with the servicing of shareholder accounts and the distribution of
such Fund's shares (which amount is paid to IAIS regardless of amounts spent by
IAIS). The 12b-1 Fee payable by a Fund to IAIS may be used by IAIS to pay
advertising and promotional expenses including, without limitation, costs of
printing and providing Prospectuses, Statements of Additional Information,
annual reports and semiannual reports to prospective shareholders, expenses of
preparing and providing sales literature advertising of any type, and
compensation and benefits paid to and expenses incurred by personnel, including
supervisory personnel, involved in direct mail and advertising activities and
activities relating to the direct marketing of shares of the Fund to the public
and compensation to other broker-dealers for their sale of Fund shares. The
Rule 12b-1 Fee may also be used to compensate the Underwriter for the provision
of certain services to Fund shareholders. Such services may include answering
shareholder questions, providing reports and other information and other
services designed to maintain shareholder accounts. IAIS may use the Rule 12b-1
Fee to make payments to qualifying broker-dealers and financial institutions
that provide such shareholder services.
22
<PAGE>
The Rule 12b-1 Fee payable by each Fund is subject to the expense
limitations set forth in the Advisory Agreements as described above.
Additionally, IAIS, in its sole and absolute discretion, may from time to time
out of its own assets pay for certain additional costs of servicing shareholder
accounts and distributing a Fund's shares. IAIS is an affiliate of IAI.
The net Rule 12b-1 Fee paid by each Fund pursuant to its Plan of
Distribution during the fiscal year (or period) ended March 31, 1995 follows:
<TABLE>
<CAPTION>
Fund Net 12b-1 Fee Fees Reimbursed by IAI**
---- ------------- ------------------------
<S> <C> <C>
Emerging Growth $ 694,592 $ 1,652
Growth* $ 3,091 $36,623
Growth and Income $ 273,792 $ 5,934
Midcap Growth $ 133,487 $47,746
Regional $1,352,614 N/A
Value $ 43,432 $48,806
- ------------------
</TABLE>
* For the period from August 1, 1994 to March 31, 1995.
** Pursuant to the above-mentioned expense limitation.
The Rule 12b-1 Fees were paid to, and retained by, IAIS pursuant to the
Distribution and Shareholder Services Agreements discussed above. During the
fiscal year or period ended March 31, 1995, such fees (along with amounts paid
out of IAIS' own assets) were paid by IAIS in connection with the servicing of
shareholder accounts and the distribution of a Fund's shares as follows:
<TABLE>
<CAPTION>
Printing and mailing of
prospectuses to Payments to
other than current brokers or Direct payments to
Fund Advertising shareholders dealers sales personnel Other
- ---- ----------- ----------------------- ----------- ------------------ --------
<S> <C> <C> <C> <C> <C>
Emerging Growth $215,324 $ 90,297 $ 97,243 $208,378 $ 83,350
Growth $ 958 $ 402 $ 433 $ 927 $ 371
Growth and Income $ 84,876 $ 35,593 $ 38,330 $ 82,138 $ 32,855
Midcap Growth $ 41,382 $ 17,353 $ 18,688 $ 40,046 $ 16,018
Regional $419,310 $175,840 $189,366 $405,784 $162,314
Value $ 13,464 $ 5,646 $ 6,080 $ 13,030 $ 5,212
</TABLE>
CUSTODIAL SERVICE
The custodian for the Funds is Norwest Bank Minnesota, N.A. Norwest Center,
Sixth and Marquette, Minneapolis, MN 55479. Norwest has entered into an
agreement with Morgan Stanley Trust Company, 1 Pierrepont Plaza, Brooklyn, New
York ("Morgan Stanley") which enables the Funds to utilize the subcustodian and
depository network of Morgan Stanley. Such agreements, subcustodians and
depositories were approved by the Fund's Board of Directors in accordance with
the rules and regulations of the Securities and Exchange Commission, for the
purpose of providing custodial services for a Fund's assets held outside the
United States.
The following is a listing of the subcustodians and depositories currently
approved by each Fund's directors and the countries in which such subcustodians
and depositories are located:
23
<PAGE>
BRANCHES OF THE CUSTODIAN
AND SUBCUSTODIAN BANKS
----------------------
Argentina Citibank, N.A., Buenos Aires Branch
Australia Australia & New Zealand Banking Group, Ltd.
Austria Credit Austalt Bankverein
Bangladesh Standard Chartered Bank
Belgium Banque Bruxelles Lambert (BBL)
Botswana Barclays Bank of Botswana
Brazil Banco de Boston
Canada Toronto Dominion Bank
Chile Citibank, N.A., Santiago Branch
China Hong Kong & Shanghai Banking, Corp. Ltd.
Columbia Cititrust
Cyprus Barclays Bank PLC
Czech Republic ING Bank
Denmark Den Danske Banke
Finland Merita Bank
France Banque Indosuez
Germany Berliner Handels-und-Frankfurter Bank
Ghana Barclays Bank of Ghana
Greece Citibank, N.A., Athens Branch
Hong Kong Hong Kong & Shanghai Banking Corp. Ltd.
Hungary Citibank, N.A., Budapest Branch
India Standard Chartered Bank
Indonesia Hong Kong & Shanghai Banking Corp. Ltd.
Ireland Allied Irish Bank
Israel Bank Leumi
Italy Barclays Bank PLC
24
<PAGE>
Japan The Mitsubishi Bank Limited
Jordan Arab Bank plc
Kenya Barclays Bank Kenya
Korea Standard Chartered Bank
Luxembourg Banque Bruxelles Lambert
Malaysia Oversea Chinese Banking Corporation
Mauritius Hong Kong and Shanghai Bank Corporation
Mexico Citibank, N.A., Mexico City Branch
Morocco Banque Commerciale du Maroc
Netherlands ABN Amro Bank
New Zealand Bank of New Zealand
Norway Den Norske Bank
Pakistan Standard Chartered Bank
Papua New Guinea Australia and New Zealand Bank
Peru Citibank N.A., Lima Branch
Philippines Hong Kong & Shanghai Banking Corp. Ltd.
Poland Citibank, S.A.
Portugal Banco Commercial Portugues
Singapore Oversea Chinese Banking Corporation
South Africa First National Bank of Southern Africa
Spain Banco Santader
Sri Lanka Hong Kong & Shanghai Banking, Corp. Ltd.
Swaziland Barclays Bank of Swaziland
Sweden Svenska Handelsbanken
Switzerland Morgan Guaranty Trust Company of New
York, Zurich Branch
Taiwan Hong Kong & Shanghai Banking Corp. Ltd.
25
<PAGE>
Thailand Standard Chartered Bank
Turkey Citibank, N.A., Istanbul Branch
United Kingdom Barclays Bank PLC
Uruguay Citibank, N.A., Montevideo Branch
Venezuela Citibank, N.A., Caracas Branch
Zambia Barclays Bank of Zambia
Zimbabwe Barclays Bank of Zimbabwe
DEPOSITORIES
------------
Argentina Caja de Valores
Australia Clearing House Electronic Subregister
System
Austria Euroclear Clearance System
OsterreicheKontrollbank
Belgium C.I.K. (Caisse Interprofessionelle de Depot
et de Virements de Titres S.A.)
Brazil Sao Paulo Stock Exchange
Canada CDS (The Canadian Depository
for Securities Ltd.)
Czech Republic Center for Securities (SCP)
Denmark Euroclear Clearance System
Vaerdipapircentralen
Finland Euroclear Clearance System
France SICOVAM (Societe Interprofessionelle la
Compensacion des Valuers Mobilieres)
Germany Kassenverein (Deutscher Kassenverein AG)
Hong Kong Central Clearing and Settlement System
Hungary Euroclear Clearance System
OsterreicheKontrollbank
Italy Monte Titoli, S.p.A
Japan Japan Securities Depository Center
26
<PAGE>
Korea The Korean Central Depository
Malaysia The Malaysian Central Depository
Mexico Instituto para el Deposito de Valores
Netherlands NECIGEF (Netherlands Centraal Instit
voor Giraal Effectenverkeer B.V.
Norway Euroclear Clearance System
Verdipapirsentralen
Singapore Central Depository Pte Ltd.
Spain Servicio de Compensacion y Liquidacion de
Valores
Sweden Euroclear Clearance System
Vardepapperscentralen VPC AB
Switzerland SEGA (Schweizerische Effekten Giro A.G.)
Taiwan Taiwan Securities Depository Co.
Thailand Share Depository Center
United Kingdom Stock Exchange Talisman System
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Most of a Fund's portfolio transactions are effected with dealers without
the payment of brokerage commissions but at a net price which usually includes a
spread or markup. In effecting such portfolio transactions on behalf of a Fund,
IAI seeks the most favorable net price consistent with the best execution.
Generally, however, a Fund must deal with brokers. IAI selects and (where
applicable) negotiates commissions with the brokers who execute the
transactions for such Fund. The primary criteria for the selection of a broker
is the ability of the broker, in the opinion of IAI, to secure prompt execution
of the transactions on favorable terms, including the reasonableness of the
commission and considering the state of the market at the time. In selecting a
broker, IAI may consider whether such broker provides brokerage and research
services (as defined in the Securities Exchange Act of 1934). IAI may direct
Fund transactions to brokers who furnish research services to IAI. Such
research services include advice, both directly and in writing, as to the value
of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, as well as analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts. By allocating brokerage business in order to obtain research
services for IAI, a Fund enables IAI to supplement its own investment research
activities and allows IAI to obtain the views and information of individuals and
research staffs of many different securities research firms prior to making
investment decisions for a Fund. To the extent such commissions are directed to
brokers who furnish research services to IAI, IAI receives a benefit, not
capable of evaluation in dollar amounts, without providing any direct monetary
benefit to a Fund from these commissions. Generally a Fund pays higher than the
lowest commission rates available.
IAI believes that most research services obtained by it generally benefit
one or more of the investment companies or other accounts which it manages.
Normally research services obtained through commissions paid
27
<PAGE>
by the managed fund investing in common stocks and managed accounts investing in
common stocks would primarily benefit the fund and accounts.
There is no formula for the allocation by IAI of each Fund's brokerage
business to any broker-dealers for brokerage and research services. However,
IAI will authorize a Fund to pay an amount of commission for effecting a
securities transaction in excess of the amount of commission another broker
would have charged only if IAI determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker viewed in terms of either that particular
transaction or IAI's overall responsibilities with respect to the accounts as to
which it exercises investment discretion.
Although investment decisions for a Fund are made independently from other
accounts as to which IAI gives investment advice, it may occasionally develop
that the same security is suitable for more than one account. If and when more
than one account simultaneously purchase or sell the same security, the
transactions will be averaged as to price and allocated as to amount in
accordance with arrangements equitable to each Fund and such accounts. The
simultaneous purchase or sale of the same securities by a Fund and other
accounts may have detrimental effects on a Fund, as they may affect the price
paid or received by a Fund or the size of the position obtainable by a Fund.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the policies set forth in the
preceding paragraphs and such other policies as the Board of Directors of the
Fund may determine, IAI may consider sales of shares of a Fund as a factor in
the selection of broker-dealers to execute the Fund's securities transactions.
Brokerage commissions, listed below, were paid by each Fund for the fiscal
year (or period) ended March 31, 1995. During that period, a percentage of
commissions were paid to brokerage firms that provided research services to IAI,
although the provision of such services was not necessarily a factor in the
placement of all such business with such firms.
<TABLE>
<CAPTION>
Percentage of
Commission to Brokers
Fund Amount of Commissions Providing Research
---- --------------------- ---------------------
<S> <C> <C>
Emerging Growth $ 844,250 67%
Growth $ 93,542 61%
Growth and Income $ 297,072 51%
Midcap Growth $ 160,255 62%
Regional $2,639,390 70%
Value $ 245,263 60%
</TABLE>
CAPITAL STOCK
CAPITAL APPRECIATION FUND
IAI Capital Appreciation Fund is a separate portfolio of IAI Investment
Funds VI, Inc., a Minnesota corporation whose shares of common stock are
currently issued in seven series (Series A through G). Each share of a series
is entitled to participate pro rata in any dividends and other distributions of
such series and all shares of a series have equal rights in the event of
liquidation of that series. The Board of Directors of IAI Investment Funds VI,
Inc. is empowered under the Articles of Incorporation of such company to issue
other series of the company's common stock without shareholder approval. IAI
Investment Funds VI, Inc., has authorized 10,000,000,000 shares of $.01 par
value common stock to be issued as Series G common shares. The investment
portfolio represented by such shares is referred to as IAI Capital Appreciation
Fund.
28
<PAGE>
EMERGING GROWTH FUND
IAI Emerging Growth Fund will close to new investors on February 1, 1996.
IAI Emerging Growth Fund's current shareholders and certain others may continue
to add to an existing account. IAI Emerging Growth Fund may resume sales to new
investors at some future date, but it has no present plans to do so. See the
Prospectus section "Purchase of Shares" for more information on who can purchase
shares of IAI Emerging Growth Fund.
IAI Emerging Growth Fund is a separate portfolio of IAI Investment Funds
VI, Inc., a Minnesota corporation whose shares of common stock are currently
issued in seven series (Series A through G). Each share of a series is entitled
to participate pro rata in any dividends and other distributions of such series
and all shares of a series have equal rights in the event of liquidation of that
series. The Board of Directors of IAI Investment Funds VI, Inc., is empowered
under the Articles of Incorporation of such company to issue other series of the
company's common stock without shareholder approval. IAI Investment Funds VI,
Inc., has authorized 10,000,000,000 shares of $.01 par value common stock to be
issued as Series A common shares, the investment portfolio represented by such
shares is referred to as IAI Emerging Growth Fund. As of March 31, 1995,
Emerging Growth Fund had 21,654,161 shares outstanding.
As of July 11, 1995, no person held of record or, to the knowledge of
Emerging Growth Fund beneficially owned more than 5% of the outstanding shares
of Emerging Growth Fund, except as set forth in the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Name and Address Number of Percent of
of Shareholder Shares Class
- --------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 2,125,260.852 9.26
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94101
Strafe & Co. 1,537,315.394 6.70
FAO In Thomson Consumer Electronics SAL
Attn: Mutual Funds
235 West Schrock Road
Westerville, Ohio 43081
</TABLE>
In addition, as of July 11, 1995, Emerging Growth Fund's officers and
directors as a group owned less than 1% of Emerging Growth Fund's outstanding
shares.
GROWTH FUND
IAI Growth Fund is a separate portfolio of IAI Investment Funds II, Inc., a
Minnesota corporation whose shares of common stock are currently issued in one
series (Series A). Each share of a series is entitled to participate pro rata
in any dividends and other distributions of such series and all shares of a
series have equal rights in the event of liquidation of that series. The Board
of Directors of IAI Investment Funds II, Inc., is empowered under the Articles
of Incorporation of such company to issue other series of the company's common
stock without shareholder approval. IAI Investment Funds II, Inc., has
authorized 10,000,000,000 shares of $.01 par value common stock to be issued as
Series A common shares. The investment portfolio represented by such shares is
referred to as IAI Growth Fund. As of March 31, 1995, the Fund had 2,447,689
shares outstanding.
29
<PAGE>
As of July 11, 1995, no person held of record or, to the knowledge of
Growth Fund, beneficially owned more than 5% of the outstanding shares of Growth
Fund, except as set forth in the following table:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Name and Address Number of Percent of
of Shareholder Shares Class
- -------------------------------------------------------------------
<S> <C> <C>
Brothers of the Christian Schools of the 140,351.114 7.99
St. Louis District "Fund A"
2101 Rue de la Salle
Glencoe, MO 63038
</TABLE>
In addition, as of July 11, 1995, Growth Fund's officers and directors as a
group owned less than 1% of Growth Fund's outstanding shares.
GROWTH AND INCOME FUND
IAI Growth and Income Fund is a separate portfolio of IAI Investment Funds
VII, Inc., a Minnesota corporation whose shares of common stock are currently
issued in one series (Series A). Each share of a series is entitled to
participate pro rata in any dividends and other distributions of such series and
all shares of a series have equal rights in the event of liquidation of that
series. The Board of Directors of IAI Investment Funds VII, Inc., is empowered
under the Articles of Incorporation of such company to issue other series of the
company's common stock without shareholder approval. IAI Investment Funds VII,
Inc., has authorized 10,000,000,000 shares of $.01 par value common stock to be
issued as Series A common shares. The investment portfolio represented by such
shares is referred to as IAI Growth and Income Fund. As of March 31, 1995, the
Fund had 7,072,342 shares outstanding.
As of July 11, 1995, no person held of record or, to the knowledge of
Growth and Income Fund, beneficially owned more than 5% of the outstanding
shares of Growth and Income Fund, except as set forth in the following table:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Name and Address Number of Percent of
of Shareholder Shares Class
- -------------------------------------------------------------------
<S> <C> <C>
Pentair, Inc. Retirement Savings & Stock 612,381.910 10.89
401(k) Plan
1500 County Road 32 W
St. Paul, MN 55113-3105
</TABLE>
In addition, as of July 11, 1995, Growth and Income Fund's officers and
directors as a group owned less than 1% of Growth and Income Fund's outstanding
shares.
MIDCAP GROWTH FUND
IAI Midcap Growth Fund is a separate portfolio of IAI Investment Funds VI,
Inc., a Minnesota corporation whose shares of common stock are currently issued
in seven series (Series A through G). Each share of a series is entitled to
participate pro rata in any dividends and other distributions of such series and
all shares of a series have equal rights in the event of liquidation of that
series. The Board of Directors of IAI Investment Funds VI, Inc., is empowered
under the Articles of Incorporation of such company to issue other series of the
company's common stock without shareholder approval. IAI Investment Funds VI,
Inc., has authorized 10,000,000,000 shares of $.01 par value common stock to be
issued as Series C common shares, the investment portfolio represented by such
shares is referred to as IAI Midcap Growth Fund. As of March 31, 1995, Midcap
Growth Fund had 5,736,230 shares outstanding.
30
<PAGE>
As of July 11, 1995, no person held of record or, to the knowledge of
Midcap Growth Fund beneficially owned more than 5% of the outstanding shares of
Midcap Growth Fund, except as set forth in the following table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Name and Address Number of Percent of
of Shareholder Shares Class
- -----------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 886,036.026 14.82
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
In addition, as of July 11, 1995, Midcap Growth Fund's officers and
directors as a group owned less than 1% of Midcap Growth Fund's outstanding
shares.
REGIONAL FUND
IAI Regional Fund is a separate portfolio of IAI Investment Funds IV, Inc.,
a Minnesota corporation whose shares of common stock are currently issued in one
series (Series A). Each share of a series is entitled to participate pro rata
in any dividends and other distributions of such series and all shares of a
series have equal rights in the event of liquidation of that series. The Board
of Directors of IAI Investment Funds IV, Inc., is empowered under the Articles
of Incorporation of such company to issue other series of the company's common
stock without shareholder approval. IAI Investment Funds IV, Inc., has
authorized 10,000,000,000 shares of $.01 par value common stock to be issued as
Series A common shares. The investment portfolio represented by such shares is
referred to as IAI Regional Fund. As of March 31, 1995, Regional Fund had
24,272,468 shares outstanding.
As of July 11, 1995, no person held of record or, to the knowledge of
Regional Fund, beneficially owned more than 5% of the outstanding shares of
Regional Fund, except as set forth in the following table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Name and Address Number of Percent of
of Shareholder Shares Class
- -----------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 1,475,388.859 6.24
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
As of July 11, 1995, Regional Fund's officers and directors as a group
owned less than 1% of Regional Fund's outstanding shares.
VALUE FUND
IAI Value Fund is a separate portfolio of IAI Investment Funds VIII, Inc. a
Minnesota corporation whose shares of common stock are currently issued in one
series (Series A). Each share of a series is entitled to participate pro rata in
any dividends and other distributions of such series and all shares of a series
have equal rights in the event of liquidation of that series. The Board of
Directors of IAI Investment Funds VIII, Inc., is empowered under the Articles of
Incorporation of such company to issue other series of the company's common
stock without shareholder approval. IAI Investment Funds VIII, Inc., has
authorized 10,000,000,000 shares of $.01 par value common stock to be issued as
Series A common shares. The investment portfolio represented by
31
<PAGE>
such shares is referred to as IAI Value Fund. As of March 31, 1995, Value Fund
had 3,636,130 shares outstanding.
As of July 11, 1995, no person held of record or, to the knowledge of Value
Fund, beneficially owned more than 5% of the outstanding shares of Value Fund,
except as set forth in the following table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Name and Address Number of Percent of
of Shareholder Shares Class
- -----------------------------------------------------------------------------
<S> <C> <C>
First Trust, N.A. Trustee for
NSP Retirement Savings Trust 278,691.324 7.83
P.O. Box 64482
St. Paul, MN 55164-0482
Charles Schwab & Co., Inc. 437,609.570 12.30
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
As of July 11, 1995, Value Fund's officers and directors as a group
owned less than 1% of Value Fund's outstanding shares.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The portfolio securities in which each Fund invests fluctuate in value, and
hence, for each Fund, the net asset value per share also fluctuates.
The net asset value per share of a Fund is determined once daily normally as
of the close of trading on the New York Stock Exchange, normally 3:00 p.m.
Central time, on each business day on which the New York Stock Exchange is open
for trading, and may be determined on additional days as required by the Rules
of the Securities and Exchange Commission. The New York Stock Exchange is
closed, and the net asset value per share of the Fund is not determined, on the
following national holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
On March 31, 1995, each Fund's net asset value and public offering price per
share were calculated as follows:
Emerging Growth Fund
--------------------
NAV = Net Assets ($342,873,905) = $15.83
----------------------------------
Shares Outstanding (21,654,161)
Growth Fund
-----------
NAV = Net Assets ($26,793,763) = $10.95
----------------------------------
Shares Outstanding (2,447,689)
Growth and Income Fund
----------------------
NAV = Net Assets ($101,255,839) = $14.32
----------------------------------
Shares Outstanding (7,072,342)
32
<PAGE>
Midcap Growth Fund
------------------
NAV = Net Assets ($88,075,447) = $15.35
----------------------------------
Shares Outstanding (5,736,230)
Regional Fund
-------------
NAV = Net Assets ($523,364,230) = $21.56
----------------------------------
Shares Outstanding (24,272,468)
Value Fund
----------
NAV = Net Assets ($40,600,954) = $11.17
---------------------------------
Shares Outstanding (3,636,130)
PURCHASES AND REDEMPTIONS IN KIND
In extraordinary circumstances, Fund shares may be purchased for cash or in
exchange for securities which are permissible investments of a Fund, subject to
IAI's discretion and its determination that the securities are acceptable.
Securities accepted in exchange will be valued on the basis of market
quotations, or if the market quotations are not available, by a method that IAI
believes accurately reflects fair value. In addition, securities accepted in
exchange are required to be liquid securities that are not restricted as to
transfer. Also in extraordinary circumstances, if a shareholder so desires, and
IAI so agrees, Fund shares may be redeemed in exchange for securities held by a
Fund. Securities redeemed in exchange will be valued on the basis of market
quotations, or if market quotations are not available, by a method that IAI
believes accurately reflects fair value.
TAX STATUS
The tax status of the Funds and the distributions of the Fund are summarized
in the Prospectus under "Dividends, Distributions and Tax Status."
Under the Internal Revenue Code of 1986, as amended (the "Code"),
individual shareholders may not exclude any amount of distributions from Fund
gross income that is derived from dividends; corporate shareholders, however,
are permitted to deduct 70% of qualifying dividend distributions from domestic
corporations. Such a deduction by a corporate shareholder will depend upon the
portion of the Fund's gross income that is derived from dividends received from
domestic corporations. Since it is anticipated that a portion of the net
investment income of the Fund may derive from sources other than dividends from
domestic corporations, a portion of the Fund's dividends may not qualify for
this exclusion. Distributions designated as long-term capital gain
distributions will be taxable to the shareholder as long-term capital gains
regardless of how long the shareholder has held the shares. Such distributions
will not be eligible for the dividends received exclusion referred to above.
Ordinarily, distributions and redemption proceeds earned by Fund
shareholders are not subject to withholding of federal income tax. However,
each Fund is required to withhold 31% of a shareholder's distributions and
redemption proceeds upon the occurrence of certain events specified in Section
3406 of the Code and regulations promulgated thereunder. These events include
the failure of a Fund shareholder to supply the Fund with such shareholder's
taxpayer identification number, and the failure of a Fund shareholder who is
otherwise exempt from withholding to properly document such shareholder's status
as an exempt recipient. Additionally, distributions may be subject to state and
local income taxes, and the treatment thereunder may differ from the federal
income tax consequences discussed above.
33
<PAGE>
If Fund shares are sold or otherwise disposed of more than one year from
the date of acquisition, the difference between the price paid for the shares
and the sales price will result in long-term capital gain or loss to a Fund
shareholder if, as is usually the case, a Fund shares are a capital asset in the
hands of a Fund shareholder at that time. However, under a special provision in
the Code, if Fund shares with respect to which a long-term capital gain
distribution has been, or will be, made are held for six months or less, any
loss on the sale or other disposition of such shares will be long-term capital
loss to the extent of such distribution.
Under the Code, each Fund will be subject to a non-deductible excise tax
equal to 4% of the excess, if any, of the amount of investment income and
capital gains required to be distributed pursuant to the Code for each calendar
year over the amount actually distributed. In order to avoid this excise tax,
each Fund generally must declare dividends by the end of each calendar year
representing 98% of the Fund's ordinary income for such calendar year and 98% of
its capital gain net income, if any, for the twelve-month period ending October
31 of the same calendar year. The excise tax is not imposed, however, an
undistributed income that is already subject to corporate income tax. It is
each Fund's policy not to distribute capital gains until capital loss
carryovers, if any, either are utilized or expire.
Income received from sources within foreign countries may be subject to
withholding and other taxes imposed by such countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes. It
is impossible to determine the effective rate of foreign tax applicable to such
income in advance since the precise amount of a Fund's assets to be invested in
various countries is not known. Any amount of taxes paid by a Fund to foreign
countries will reduce the amount of income available to a Fund for distributions
to shareholders.
The foregoing is a general and abbreviated summary of the Code and Treasury
regulations in effect as of the date of each Fund's Prospectus and this
Statement of Additional Information. The foregoing relates solely to the
federal income tax law applicable to "U.S. persons," i.e., U.S. citizens and
residents and U.S. domestic corporations, partnerships, trusts and estates.
Shareholders who are not U.S. persons are encouraged to consult a tax adviser
regarding the income tax consequences of acquiring shares of a Fund.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each Fund's Board of Directors owes certain fiduciary
duties to the Fund and to its shareholders. Minnesota law provides that a
director "shall discharge the duties of the position of director in good faith,
in a manner the director reasonably believes to be in the best interest of the
corporation, and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances." Fiduciary duties of a director of
a Minnesota corporation include, therefore, both a duty of "loyalty" (to act in
good faith and act in a manner reasonably believed to be in the best interests
of the corporation) and a duty of "care" (to act with the care an ordinarily
prudent person in a like position would exercise under similar circumstances).
Minnesota law authorizes corporations to eliminate or limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of the fiduciary duty of "care." Minnesota law does not,
however, permit a corporation to eliminate or limit the liability of a director
(i) for any breach of the director's duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation of
Minnesota law or for violation of certain provisions of Minnesota securities
laws, or (iv) for any transaction from which the director derived an improper
personal benefit. The Articles of Incorporation of IAI Investment Funds II,
Inc., IAI Investment Funds IV, Inc., IAI Investment Funds VI, Inc., IAI
Investment Funds VII, Inc., and IAI Investment Funds VIII, Inc., limit the
liability of directors to the fullest extent permitted by Minnesota statutes,
except to the extent that such liability cannot be limited as provided in the
Investment Company Act of 1940 (which Act prohibits any provisions which purport
to limit the liability of directors arising from such directors' willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of their role as directors).
34
<PAGE>
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" of the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the Investment Company Act of 1940 and the rules
and regulations adopted under such Act.
FINANCIAL STATEMENTS
For all Funds other than Capital Appreciation Fund, the financial
statements, included as part of the Funds' 1995 Annual Report to shareholders,
are incorporated herein by reference. Such Annual Report may be obtained by
shareholders on request from the Funds at no charge. Capital Appreciation Fund
has no financial statements at this time.
35
<PAGE>
PART C
Item 24. Financial Statements and Exhibits
- ------- ---------------------------------
(a) Financial Statements (Series A, C, E) (1)
(Series B, D) (2)
(Series F) (3)
(Series G) (4)
(b) Exhibits
(1A) Articles of Incorporation (5)
(1B) Certificate of Designation (Series C, D, E) (6)
(1C) Certificate of Designation (Series F) (7)
(1D) Certificate of Designation (Series G) (8)
(2) Bylaws
(5A) Investment Advisory Agreement (Series A, B, C, D, E, F) (5)
(5B) Management Agreement (Series G)
(6A) Distribution and Shareholder Services Agreement (Series A,
C, E) (1)
(6B) Distribution and Shareholder Services Agreement (Series F)
(3)
(6C) Distribution and Shareholder Services Agreement (Series B,
D) (8)
(6D) Dealer Sales Agreement (Series A, C, E) (1)
(6E) Dealer Sales Agreement (Series F) (3)
(6F) Dealer Sales Agreement (Series B, D) (8)
(6G) Dealer Sales Agreement (Series G)
(6H) Shareholder Services Agreement (Series A, C, E) (1)
(6I) Shareholder Services Agreement (Series F) (3)
(6J) Shareholder Services Agreement (Series B, D) (8)
(6K) Shareholder Services Agreement (Series G)
(8A) Custodian Agreement (Series A, B, C, D, E, F) (5)
(8B) Custodian Agreement (Series G)
(9) Administrative Agreement (Series A, B, C, D, E, F) (7)
IIII-1
<PAGE>
(11) Consent of Independent Auditors
(15A) Plan of Distribution (Series A, C, E) (1)
(15A) Plan of Distribution (Series B, D) (3)
(16) Calculation of Performance Data (6)
___________________
(1) Incorporated by reference to Post-Effective Amendment to Registrant's
Registration Statement on Form N-1A filed on July 31, 1995.
(2) Incorporated by reference to Post-Effective Amendment to Registrant's
Registration Statement on Form N-1A filed on March 30, 1995.
(3) Incorporated by reference to Post-Effective Amendment to Registrant's
Registration Statement on Form N-1A filed on June 1, 1995.
(4) To be filed by Post-Effective Amendment on or before February 1, 1996.
(5) Incorporated by reference to Post-Effective Amendment to Registrant's
Registration Statement on Form N-1A filed on June 3, 1993.
(6) Incorporated by reference to Post-Effective Amendment to Registrant's
Registration Statement on Form N-1A filed on February 7, 1992.
(7) Incorporated by reference to Post-Effective Amendment to Registrant's
Registration Statement on Form N-1A filed on October 30, 1992.
(8) Incorporated by reference to Post-Effective Amendment to Registrant's
Registration Statement on Form N-1A filed on November 17, 1995.
Item 25. Persons Controlled by or Under Common Control with Registrant.
- ------- -------------------------------------------------------------
See the sections of the Prospectus entitled "Management" and
"Description of Common Stock" and the section of the Statement of Additional
Information entitled "Management," filed as part of this Registration Statement.
Item 26. Number of Holders Securities.
- ------- ----------------------------
<TABLE>
<CAPTION>
Number of Record Holders
Portfolio Title of Class as of December 31, 1995
- --------- ----------------------- -----------------------
<S> <C> <C>
IAI Investment Funds VI, Inc. Common Stock (Series A) 7,161
Common Stock (Series B) 682
Common Stock (Series C) 3,557
Common Stock (Series D) 256
Common Stock (Series E) 662
Common Stock (Series F) 1,492
Common Stock (Series G) N/A
</TABLE>
Item 27. Indemnification.
- ------- ---------------
Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
filed on July 22, 1991.
IIII-2
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
- ------- ----------------------------------------------------
Information on the business of Investment Advisers, Inc. ("IAI") is
described in the Prospectus section "Management" and in Part B of this
Registration Statement in the section "Management."
The senior officers and directors of IAI and their titles are as follows:
Name Title
---- -----
Jeffrey R. Applebaum Senior Vice President
Charles P. Barrington Director
Scott Allen Bettin Senior Vice President
Richard Oliver Bernays Director
Archie Campbell Black, III Senior Vice President/Treasurer
Stephen C. Coleman Senior Vice President
Hugh Freedberg Chairman
Larry Ray Hill Executive Vice President/Director
Richard A. Holway Senior Vice President
Irving Philip Knelman Executive Vice President/Director
Rick D. Leggott Senior Vice President
Timothy A. Palmer Senior Vice President
Douglas Rugh Platt Senior Vice President
Andrew Scott Plummer Director
Noel Paul Rahn Chief Executive Officer/Director
R. David Spreng Senior Vice President
Christopher John Smith Senior Vice President/Secretary
Eric St. C. Stobart Director
Richard Edward Struthers Executive Vice President/Director
Suzanne F. Zak Senior Vice President
All of such persons have been affiliated with IAI for more than two
years except Messrs. Barrington, Freedberg, Plummer and Stobart. Prior to being
appointed to the Board in 1994, Mr. Barrington was and remains Managing Director
of Hill Samuel Bank, 100 Wood Street, London, England EC2P 2AJ, since 1991.
Prior to being appointed to the Board in 1994, Mr. Freedberg was and remains
Chief Executive Officer of Hill Samuel Bank, 100 Wood Street, London, England
EC2P 2AJ, since 1991. Prior to being appointed to the Board in 1994, Mr.
Plummer was and remains Legal Adviser to Lloyds TSB Group plc, 60 Lombard
Street, London, England EC3V 9DN, since 1988. Prior to being appointed to the
Board in 1994, Mr. Stobart was and remains Director of Hill Samuel Bank, 100
Wood Street, London, England EC2P 2AJ, since 1977.
Certain directors and officers of IAI are directors and/or officers of
the Registrant, as described in the section of the Statement of Additional
Information entitled "Management," filed as a part of this Registration
Statement.
The address of the officers and directors of IAI is that of IAI, which
is 3700 First Bank Place, P. O. Box 357, Minneapolis, Minnesota 55440.
Certain of the officers and directors of IAI also serve as officers
and directors of IAI International Ltd. Both IAI and IAI International are
wholly-owned subsidiaries of Hill Samuel Group BV, a London-based merchant
banking and financial services firm which, in turn, is owned by Lloyds TSB Group
plc, a publicly-held financial services organization based in London, England.
The senior officers and directors of IAI International and their titles are as
follows:
IIII-3
<PAGE>
Name Title
- ---- -----
Noel Paul Rahn Chairman of the Board of Directors
Richard Bernays Director
Roy C. Gillson Chief Investment Officer/Director
Irving Philip Knelman Director
Hilary Fane Deputy Chief Investment Officer/Director
Feidhlim O'Broin Associate Director
Certain of the officers and directors of IAI also serve as officers
and directors of IAI Trust Company, a wholly-owned subsidiary of IAI. The
principal officers and directors of IAI Trust Company and their titles are as
follows:
Name Title
- ---- -----
Richard E. Struthers Chairman of the Board
John G. Flesch Director/President
Christopher J. Smith Director/Secretary
Archie C. Black Director/Treasurer
Christie Haagensen Director of Trust Services
Item 29. Principal Underwriters
- ------- ----------------------
(a) IAI Securities is also the principal underwriter for IAI
Investment Funds I, Inc., IAI Investment Funds II, Inc., IAI Investment Funds
III, Inc., IAI Investment Funds IV, Inc., IAI Investment Funds V, Inc., IAI
Investment Funds VII, Inc., and IAI Investment Funds VIII, Inc.
(b) The officers and directors of IAI Securities and the positions, if
any, such officers and directors hold with the Registrant are set forth below.
The business address of such persons is 3700 First Bank Place, Minneapolis,
Minnesota 55402.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ---------------- ---------------- ---------------
<S> <C> <C>
Noel P. Rahn Chairman of the Board Chairman of the Board
Richard E. Struthers President/Director President/Director
Douglas R. Platt Vice President/Director None
R. David Spreng Vice President/Director None
Christopher J. Smith Secretary None
Archie C. Black, III CFO/Treasurer Treasurer
William C. Joas Chief Compliance Officer Secretary
</TABLE>
IIII-4
<PAGE>
Item 30. Location of Accounts and Records.
- ------- --------------------------------
The Custodian for Registrant is Norwest Bank Minnesota, N.A., Norwest
Center, Sixth & Marquette, Minneapolis, Minnesota 55479. The Custodian
maintains records of all cash transactions of Registrant. All other books and
records of Registrant, including books and records of Registrant's investment
portfolios, are maintained by IAI. IAI also acts as Registrant's transfer agent
and dividend disbursing agent, at 3700 First Bank Place, Minneapolis, Minnesota
55402.
Item 31. Management Services.
- ------- -------------------
Not applicable.
Item 32. Undertakings.
- ------- ------------
(a) Not applicable.
(b) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the effective date of the registration of Registrant's Series G Common Stock.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of its latest annual report to shareholders, upon request and
without change.
IIII-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of the
requirements for effectiveness of its Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Minneapolis, and State of Minnesota, on the 31st day of January, 1996.
IAI INVESTMENT FUNDS VI, INC.
(Registrant)
By /s/ Richard E. Struthers
-----------------------------------
Richard E. Struthers, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
/s/ Richard E. Struthers President (principal January 31, 1996
- ------------------------ executive officer) & Director
Richard E. Struthers
/s/ Archie C. Black III Treasurer (principal January 31, 1996
- ----------------------- financial and accounting
Archie C. Black III officer)
Noel P. Rahn (1)
Director
Madeline Betsch (1)
Director
W. William Hodgson (1)
Director
George R. Long (1)
Director
J. Peter Thompson (1)
Director
Charles H. Withers (1)
Director
/s/ William C. Joas January 31, 1996
- -------------------
William C. Joas,
Attorney-in-fact
(1) Registrant's directors executing Powers of Attorney dated August 18, 1993,
and filed with the Commission on February 7, 1994.
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit Description Sequential Page No.
- ----------- ------------------- -------------------
2 Bylaws
5 Management Agreement
6G Dealer Sales Agreement
6K Shareholder Services Agreement
8B Custodian Agreement
11 Consent of Independent Auditors
<PAGE>
EXHIBIT 2
BYLAWS
OF
IAI INVESTMENT FUNDS VI, INC.
ARTICLE I
OFFICES, CORPORATE SEAL
Section 1.01. Name. The name of the corporation is IAI Investment Funds
VI, Inc. The name of the series represented by Series A Common Shares shall be
"IAI Emerging Growth Fund." The name of the series represented by Series B
Common Shares shall be "IAI Government Fund." The name of the series
represented by Series C Common Shares shall be "IAI Midcap Growth Fund." The
name of the series represented by Series D Common Shares shall be "IAI Tax Free
Fund." The name of the series represented by Series E Common Shares shall be
"IAI Balanced Fund." The name of the series represented by Series F Common
Shares shall be "IAI Money Market Fund." The name of the series represented by
Series G Common Shares shall be "IAI Capital Appreciation Fund."
Section 1.02. Registered Office. The registered office of the corporation
in Minnesota shall be that set forth in the Articles of Incorporation or in the
most recent amendment of the Articles of Incorporation or resolution of the
directors filed with the Secretary of State of Minnesota changing the registered
office.
Section 1.03. Other Offices. The corporation may have such other offices
and places of businesses, within or without the State of Minnesota, as the
directors shall, from time to time, determine.
Section 1.04. Corporate Seal. The corporate seal shall be circular in
form and shall have inscribed thereon the name of the corporation and the word
"Minnesota" and the words "Corporate Seal." The form of the seal shall be
subject to alteration by the Board of Directors and the seal may be used by
causing it or a facsimile to be impressed or affixed or printed or otherwise
reproduced. Any officer or director of the corporation shall have authority to
affix the corporate seal of the corporation to any document requiring the same.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. Place and Time of Meetings. Except as provided otherwise by
Minnesota Statutes Chapter 302A, meetings of the shareholders may be held at any
place, within or without the State of Minnesota, designated by the directors
and, in the absence of such designation, shall be held at the registered office
of the corporation in the State of Minnesota. The directors shall designate the
time of day for each meeting and, in the absence of such designation, every
meeting of shareholders shall be held at ten o'clock a.m.
Section 2.02. Regular Meetings. Annual meetings of shareholders are not
required by these Bylaws. Regular meetings shall be held only with such
frequency and at such times and places as provided in and required by law.
Section 2.03. Special Meetings. Special meetings of the shareholders may
be held at any time and for any purpose and may be called by the Chairman of the
Board, the President, and two or more directors, or by one or more shareholders
holding ten percent (10%) or more of the shares entitled to vote on the matters
to be presented to the meeting, except that a special meeting for the purpose of
considering any action directly or indirectly to facilitate or effect a business
combination, including any action to change or otherwise affect the composition
of the Board of Directors for that purpose, must be called by 25% of the voting
power of all shares entitled to vote.
<PAGE>
Section 2.04. Quorum; Adjourned Meetings. The holders of ten percent
(10%) of the shares outstanding and entitled to vote at the meeting shall
constitute a quorum for the transaction of business at any regular or special
shareholders' meeting. In case a quorum shall not be present at a meeting,
those present in person or by proxy shall adjourn the meeting to such day as
they shall, by majority vote, agree upon without further notice other than by
announcement at the meeting at which such adjournment is taken. If a quorum is
present, a meeting may be adjourned from time to time without notice other than
announcement at the meeting. At adjourned meetings at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. If a quorum is present, the shareholders may
continue to transact business until adjournment notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 2.05. Voting. At each meeting of the shareholders, every
shareholder shall have the right to vote in person or by proxy. Each
shareholder, unless the Articles of Incorporation or applicable laws provide
otherwise, shall have one vote for each share having voting power registered in
his name on the books of the corporation. Upon the demand of any shareholder,
the vote upon any question before the meeting shall be by written ballot.
Except as otherwise specifically provided by these Bylaws or as required by
provisions of the Investment Company Act of l940 or other applicable laws, all
questions shall be decided by a majority vote of the number of shares entitled
to vote and represented at the meeting at the time of the vote. If the
matter(s) to be presented at a regular or special meeting relates only to an
individual series or class thereof of the corporation, then only the
shareholders of the series or class thereof are entitled to vote on such
matter(s).
Section 2.06. Voting Proxies. The right to vote by proxy shall exist
only if the instrument authorizing such proxy to act shall have been executed in
writing by the shareholder himself or by his attorney thereunto duly authorized
in writing. No proxy shall be voted after eleven (11) months from its date
unless it provides for a longer period.
Section 2.07. Closing of Books. The Board of Directors may fix a
time, not exceeding sixty (60) days preceding the date of any meeting of
shareholders, as a record date for the determination of the shareholders
entitled to notice of, and to vote at, such meeting, notwithstanding any
transfer of shares on the books of the corporation after any record date so
fixed. If the Board of Directors fails to fix a record date for determination
of the shareholders entitled to notice of, and to vote at, any meeting of
shareholders, the record date shall be the thirtieth (30th) day preceding the
date of such meeting.
Section 2.08. Notice of Meetings. The Secretary or an Assistant
Secretary shall mail to each shareholder shown by the books of the corporation
to be a holder of record of voting shares, at his address as shown by the books
of the corporation, a notice setting out the time and date and place of each
regular meeting and each special meeting, which notice shall be mailed at least
ten (10) days prior thereto; except that notice of a meeting at which an
agreement of merger or consolidation is to be considered shall be mailed to all
shareholders of record, whether entitled to vote or not, at least two (2) weeks
prior thereto; and except that notice of a meeting at which a proposal to
dispose of all, or substantially all, of the property and assets of the
corporation is to be considered shall be mailed to all shareholders of record,
whether entitled to vote or not, at least ten (10) days prior thereto; and
except that notice of a meeting at which a proposal to dissolve the corporation
or to amend the Articles of Incorporation is to be considered shall be mailed to
all shareholders of record, whether entitled to vote or not, at least ten (10)
days prior thereto. Every notice of any special meeting shall state the purpose
or purposes for which the meeting has been called, pursuant to Section 2.03, and
the business transacted at all special meetings shall be confined to the purpose
stated in the call.
Section 2.09. Waiver of Notice. Notice of any regular or special
meeting may be waived either before, at or after such meeting orally or in
writing signed by each shareholder or representative thereof entitled to vote
the shares so represented. A shareholder, by his attendance at any meeting of
shareholders, shall be deemed to have waived notice of such meeting, except
where the shareholder objects at the beginning of the meeting to the transaction
of business because the meeting is not lawfully called or convened, or objects
before a vote on an item of business because the item may not lawfully be
considered at that meeting and does not participate in the consideration of the
item at that meeting.
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Section 2.10. Written Action. Any action which might be taken at a
meeting of the shareholders may be taken without a meeting if done in writing
and signed by a majority of the shareholders entitled to vote on that action.
If the action to be taken relates to an individual series or class thereof of
the corporation, then only shareholders of the series or class thereof are
entitled to vote on such action.
ARTICLE III
DIRECTORS
Section 3.01. Number Qualifications and Term of Office. Until the
first meeting of shareholders, or until the directors increase their number by
resolution, the number of directors shall be the number named in the Articles of
Incorporation. Thereafter, the number of directors shall be established by
resolution of the shareholders (subject to the authority of the Board of
Directors to increase the number of directors as permitted by law). In the
absence of such resolution, the number of directors shall be the number last
fixed by the shareholders, the Board of Directors or the Articles of
Incorporation. Directors may but need not be shareholders. Each of the
directors shall hold office until the regular meeting of shareholders next held
after his election and until his successor shall have been elected and shall
qualify, or until he shall resign, or shall have been removed as hereinafter
provided.
Section 3.02. Election of Directors. Except as otherwise provided in
Section 3.12 and 3.13 hereof the directors shall be elected at all regular
shareholders' meeting. Directors may be elected at a special shareholders'
meeting, provided that the notice of such meeting shall contain mention of such
purpose. At each shareholders' meeting for the election of directors, the
directors shall be elected by a plurality of the votes validly cast at such
election. The shareholders of each series or class thereof of stock of the
corporation shall be entitled to vote for directors and shall have equal voting
power.
Section 3.03. General Powers.
(a) The property, affairs and business of the corporation shall be
managed by the Board of Directors, which may exercise all the powers of the
corporation except those powers vested solely in the shareholders of the
corporation by statute, the Articles of Incorporation or these Bylaws, as
amended.
(b) All acts done by any meeting of the directors or by any person
acting as a director, so long as his successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the corporation.
Section 3.04. Power to Declare Dividends.
(a) The Board of Directors, from time to time as they may deem
advisable, may declare and pay dividends in cash or other property of the
corporation, out of any source available for dividends, to the shareholders of
each series (or class thereof) of stock of the corporation according to their
respective rights and interests in the investment portfolio of the corporation
issuing such series (or class thereof) of stock.
(b) The Board of Directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than
(i) each investment portfolio's accumulated and accrued undistributed
net income (determined in accordance with generally accepted
accounting practice and the rules and regulations of the Securities
and Exchange Commission then in effect) and not including profits or
losses realized upon the sale of securities or other properties; or
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(ii) each investment portfolio's net income so determined for the
current or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation, and shall be in such form as the Commission may
prescribe.
(c) Notwithstanding the above provisions of this Section 3.04, the
Board of Directors may at any time declare and distribute pro rata among the
shareholders of each series (or class thereof) of stock a "stock dividend" out
of each portfolio's authorized but unissued shares of stock, including any
shares previously purchased by a portfolio of the corporation.
Section 3.05. Annual Meeting. The Board of Directors shall meet
annually at the registered office of the corporation, or at such other place
within or without the State of Minnesota as may be designated by the Board of
Directors, for the purpose of electing the officers of the corporation and for
the transaction of such other business as shall come before the meeting.
Section 3.06. Board Meetings. Meetings of the Board of Directors
shall be held from time to time at such time and place within or without the
State of Minnesota as may be fixed by resolution adopted by a majority of the
whole Board of Directors.
Section 3.07. Meeting; Notice. A director may call a meeting by
giving five (5) days' notice to all directors of the date, time, and place of
the meeting; provided that if the date, time and place of a board meeting have
been announced at a previous meeting of the board, no notice is required.
Section 3.08. Waiver of Notice. Notice of any meeting of the Board of
Directors may be waived either before, at, or after such meeting orally or in
writing signed by such director. A director, by his attendance and
participation in the action taken at any meeting of the Board of Directors,
shall be deemed to have waived notice of such meeting.
Section 3.09. Quorum. A majority of the directors then holding office
shall constitute a quorum for the transaction of business at such meeting;
provided, however, notwithstanding the above, if the Board of Directors is
taking action pursuant to the Investment Company Act of 1940, as now enacted or
hereafter amended, a majority of the directors who are not "interested persons"
(as defined by the Investment Company Act of 1940, as now enacted or hereafter
amended) of the corporation shall constitute a quorum for taking such action.
Section 3.10. Advance Consent or Opposition. A director may give
advance written consent or opposition to a proposal to be acted on at a meeting
of the Board of Directors. If such director is not present at the meeting,
consent or opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered in
the minutes or other record of action at the meeting, if the proposal acted on
at the meeting is substantially the same or has substantially the same effect as
the proposal to which the director has consented or objected.
Section 3.11. Conference Communications. Directors may participate in
any meeting of the Board of Directors, or of any duly constituted committee
thereof, by means of a conference telephone conversation or other comparable
communication technique whereby all persons participating in the meeting can
hear and communicate to each other. For the purposes of establishing a quorum
and taking any action at the meeting, such directors participating pursuant to
this Section 3.11 shall be deemed present in person at the meeting, and the
place of the meeting shall be the place or origination of the conference
telephone conversation or other comparable communication technique.
Section 3.12. Vacancies; Newly Created Directorships. Vacancies in
the Board of Directors of the corporation occurring by reason of death,
resignation, removal or disqualification shall be filled for the unexpired term
by a majority of the remaining directors of the Board although less than a
quorum; newly created
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directorships resulting from an increase in the authorized number of directors
by action of the Board of Directors as permitted by Section 3.01 may be filled
by a two-thirds (2/3) vote of the directors serving at the time of such
increase; and each person so elected shall be a director until his successor is
elected by the shareholders, who may make such election at their next regular
meeting or at any meeting duly called for that purpose; provided, however, that
no vacancy can be filled as provided above if prohibited by the provisions of
the Investment Company Act of 1940.
Section 3.13. Removal. The entire Board of Directors or any individual
director may be removed from office, with or without cause, by a vote of the
shareholders holding a majority of the shares entitled to vote at an election of
directors. In the event that the entire Board or any one or more directors be so
removed, new directors shall be elected at the same meeting, or the remaining
directors may, to the extent vacancies are not filled at such meeting, fill any
vacancy or vacancies created by such removal. A director named by the Board of
Directors to fill a vacancy may be removed from office at any time, with or
without cause, by the affirmative vote of the remaining directors if the
shareholders have not elected directors in the interim between the time of the
appointment to fill such vacancy and the time of removal.
Section 3.14. Committees. A resolution approved by the affirmative
vote of a majority of the Board of Directors may establish committees having the
authority of the board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the Board of
Directors, except as provided by Minnesota Statutes Section 302A.243.
A majority of the members of the committee present at a meeting is a
quorum for the transaction of business, unless a larger or smaller proportion or
number is provided in a resolution approved by the affirmative vote of a
majority of the directors present.
Section 3.15. Written Action. Any action which might be taken at a
meeting of the Board of Directors, or any duly constituted committee thereof,
may be taken without a meeting if done in writing and signed by a majority of
the directors or committee members.
Section 3.16. Compensation. Directors who are not salaried officers of
this corporation or affiliated with its investment adviser shall receive such
fixed sum per meeting attended or such fixed annual sum as shall be determined,
from time to time, by resolution of the Board of Directors. All directors may
receive their expenses, if any, of attendance at meetings of the Board of
Directors or any committee thereof. Nothing herein contained shall be construed
to preclude any director from serving this corporation in any other capacity and
receiving proper compensation therefor.
Section 3.17. Resignation. A director may resign by giving written
notice to the corporation, and the resignation is effective without acceptance
when given, unless a later effective time is specified in the notice.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the corporation shall consist of a
Chairman of the Board (if one is elected by the Board), the President, a
Treasurer and a Secretary, and, if desired by the Board, one or more Vice
Presidents, Assistant Secretaries, and Assistant Treasurers, and such other
officers and agents as may, from time to time, be elected by the Board of
Directors. Any number of offices may be held by the same person.
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Section 4.02. Election, Term of Office and Qualifications. The Board of
Directors shall elect, from within or without their number, the President,
the Secretary, the Treasurer and such other officers as may be deemed
advisable. The President and all other officers who may be directors shall
continue to hold office until the election and qualification of their
successors, notwithstanding an earlier termination of their directorship.
Section 4.03. Resignation. Any officer may resign his office at any time
by delivering a written resignation to the Board of Directors, the President,
the Secretary, or any Assistant Secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery.
Section 4.04. Removal and Vacancies. Any officer may be removed from his
office by a majority of the whole Board of Directors, with or without cause.
Such removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy shall be filled for
the unexpired term by the Board of Directors.
Section 4.05. Chairman of the Board. The Chairman of the Board, if one
is elected, shall preside at all meetings of the shareholders and directors and
shall have such other duties as may be prescribed, from time to time, by the
Board of Directors.
Section 4.06. President. The President shall have general active
management of the business of the corporation. In the absence of the Chairman of
the Board, he shall preside at all meetings of the shareholders and directors.
He shall be the chief executive officer of the corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect.
He shall be ex officio a member of all standing committees. He may execute and
deliver, in the name of the corporation, any deeds, mortgages, bonds, contracts
or other instruments pertaining to the business of the corporation and, in
general, shall perform all duties usually incident to the office of President.
He shall have such other duties as may, from time to time, be prescribed by the
Board of Directors.
Section 4.07. Vice President. Each Vice President shall have such
powers and shall perform such duties as may be specified in the Bylaws or
prescribed by the Board of Directors or by the President. In the event of
absence or disability of the President, Vice Presidents shall succeed to his
power and duties in the order designated by the Board of Directors.
Section 4.08. Secretary. The Secretary shall be secretary of, and shall
attend all, meetings of the shareholders and Board of Directors and shall
record all proceedings of such meetings in the minute book of the corporation.
He shall give proper notice of meetings of shareholders and directors. He shall
keep the seal of the corporation and shall affix the same to any instrument
requiring it and may, when necessary, attest the seal by his signature. He
shall perform such other duties as may, from time to time, be prescribed by the
Board of Directors or by the President.
Section 4.09. Treasurer. The Treasurer shall keep accurate accounts of
all moneys of the corporation received or disbursed. He shall deposit all
moneys, drafts and checks in the name of, and to the credit of, the corporation
in such banks and depositories as a majority of the whole Board of Directors
shall, from time to time, designate. He shall have power to endorse, for
deposit, all notes, checks and drafts received by the corporation. He shall
disburse the funds of the corporation, as ordered by the Board of Directors,
making proper vouchers therefor. He shall render to the President and the
directors, whenever required, an account of all his transactions as Treasurer
and of the financial condition of the corporation, and shall perform such other
duties as may, from time to time, be prescribed by the Board of Directors or by
the President.
Section 4.10. Assistant Secretaries. At the request of the Secretary, or
in his absence or disability, any Assistant Secretary shall have power to
perform all the duties of the Secretary and, when so acting, shall have all the
powers of, and be subject to all restrictions upon, the Secretary. The Assistant
Secretaries shall
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perform such other duties as from time to time may be assigned to them by the
Board of Directors or the President.
Section 4.11. Assistant Treasurer. At the request of the Treasurer, or in
his absence or disability, any Assistant Treasurer shall have power to perform
all the duties of the Treasurer, and when so acting, shall have all the powers
of, and be subject to all the restrictions upon, the Treasurer. The Assistant
Treasurers shall perform such other duties as from time to time may be assigned
to them by the Board of Directors or the President.
Section 4.12. Compensation. The officers of this corporation shall
receive such compensation for their services as may be determined, from time to
time, by resolution of the Board of Directors.
Section 4.13. Surety Bonds. The Board of Directors may require any
officer or agent of the corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940 and the
rules and regulations of the Securities and Exchange Commission) to the
corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his duties
to the corporation, including responsibility for negligence and for the
accounting of any of the corporation's property, funds or securities that may
come into his hands. In any such case, a new bond of like character shall be
given at least every six years, so that the date of the new bond shall not be
more than six years subsequent to the date of the bond immediately preceding.
ARTICLE V
SHARES AND THEIR TRANSFER AND REDEMPTION
Section 5.01. Certificates for Shares.
(a) The corporation may have certificated or uncertificated shares, or
both, as designated by resolution of the Board of Directors. Every owner of
certificated shares of the corporation shall be entitled to a certificate, to be
in such form as shall be prescribed by the Board of Directors, certifying the
number of shares of the corporation owned by him. Within a reasonable time
after the issuance or transfer of uncertificated shares, the corporation shall
send to the new shareholder the information required to be stated on
certificates. Certificated shares shall be numbered in the order in which they
shall be issued and shall be signed, in the name of the corporation, by the
President or a Vice President and by the Treasurer, or by such officers as the
Board of Directors may designate. Such signatures may be facsimile if
authorized by the Board of Directors. Every certificate surrendered to the
corporation for exchange or transfer shall be canceled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so canceled, except in cases provided
for in Section 5.08.
(b) In case any officer, transfer agent or registrar who shall have
signed any such certificate, or whose facsimile signature has been placed
thereon, shall cease to be such an officer (because of death, resignation or
otherwise) before such certificate is issued, such certificate may be issued and
delivered by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 5.02. Issuance of Shares. The Board of Directors is authorized to
cause to be issued shares of the corporation up to the full amount authorized
by the Articles of Incorporation in such series and classes thereof and in such
amounts as may be determined by the Board of Directors and as may be permitted
by law. No shares shall be allotted except in consideration of cash or of an
amount transferred from surplus to stated capital upon a share dividend. At the
time of such allotment of shares, the Board of Directors making such allotments
shall state, by resolution, their determination of the fair value to the
corporation in monetary terms of any consideration other than cash for which
shares are adopted. The amount of consideration to be received in cash, or
otherwise, shall not be less than the par value of the shares so allotted. No
shares of stock issued by the corporation shall be issued, sold, or exchanged by
or on behalf of the corporation for any amount less than the net asset value per
share of the shares outstanding as determined pursuant to Article XI hereunder.
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Section 5.03. Redemption of Shares. Upon the demand of any shareholder
this corporation shall redeem any share of stock issued by it held and owned by
such shareholder at the net asset value thereof as determined pursuant to
Article XI hereunder. The Board of Directors may suspend the right of redemption
or postpone the date of payment during any period when: (a) trading on the New
York Stock Exchange is restricted or such Exchange is closed for other than
weekends or holidays; (b) the Securities and Exchange Commission has by order
permitted such suspension; or (c) an emergency as defined by rules of the
Securities and Exchange Commission exists, making disposal of portfolio
securities or valuation of net assets of the corporation not reasonably
practicable.
If the value of a shareholder's investments in the corporation becomes
less than $500 (or such other amount as may be determined from time to time by
the Board of Directors) as a result of a redemption or transfer of shares, the
corporation's officers are authorized, in their discretion, on behalf of the
corporation, to redeem such shareholder's entire interest and remit such amount,
provided that such a redemption will only be effected by the corporation
following (a) the mailing by the corporation to such shareholder of a "notice of
intention to redeem," and (b) the passage of such time period as may be
determined by the Board of Directors, during which time the shareholder will
have the opportunity to make an additional investment in the corporation to
increase the value of such shareholder's account to at least such minimum
amount.
Section 5.04. Transfer of Shares. Transfer of shares on the books of the
corporation may be authorized only by the shareholder named in the certificate,
or the shareholder's legal representative, or the shareholder's duly authorized
attorney-in-fact, and upon surrender of the certificate or the certificates for
such shares or a duly executed assignment covering shares held in unissued form.
The corporation may treat, as the absolute owner of shares of the corporation,
the person or persons in whose name shares are registered on the books of the
corporation.
Section 5.05. Registered Shareholders. The corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and accordingly shall not be bound to recognize any equitable or
other claim to or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by the laws of Minnesota.
Section 5.06. Transfer Agents and Registrars. The Board of Directors
may from time to time appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
Section 5.07. Transfer Regulations. The shares of stock of the
corporation may be freely transferred, and the Board of Directors may from time
to time adopt rules and regulations with reference to the method of transfer of
the shares of stock of the corporation.
Section 5.08. Lost, Stolen, Destroyed, and Mutilated Certificates. The
holder of any stock of the corporation shall immediately notify the
corporation of any loss, theft destruction or mutilation of any certificate
therefor, and the Board of Directors may, in its discretion, cause to be issued
to him a new certificate or certificate of stock upon the surrender of the
mutilated certificate or in case of loss, theft or destruction of the
certificate, upon satisfactory proof of such loss, theft or destruction, after
the owner of the lost, stolen or destroyed certificate, or his legal
representatives, gives to the corporation and to such registrar or transfer
agent as may be authorized or required to countersign such new certificate or
certificates a bond, in such sum as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be made
against them or any of them on account of or in connection with the alleged
loss, theft, or destruction of any such certificate.
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ARTICLE VI
DIVIDENDS, SURPLUS, ETC.
Section 6.01. The corporation's net investment income will be determined,
and its dividends shall be declared and made payable at such time(s) as the
Board of Directors shall determine; dividends shall be payable to shareholders
of record as of the date of declaration.
It shall be the policy of the corporation to qualify for and elect the
tax treatment applicable to regulated investment companies under the Internal
Revenue Code, so that the corporation will not be subjected to Federal income
tax on such part of its income or capital gains as it distributes to
shareholders.
ARTICLE VII
BOOKS AND RECORDS, AUDIT, FISCAL YEAR
Section 7.01. Books and Records. The Board of Directors of the
corporation shall cause to be kept such books and records, at such places, as
may be required by law.
Section 7.02. Audit, Accountant.
(a) The Board of Directors shall cause the records and books of
account of the corporation to be audited at least once in each fiscal year and
at such other times as it may deem necessary or appropriate.
(b) The corporation shall employ an independent certified public
accountant or firm of independent certified public accountants as its Accountant
to examine the accounts of the corporation and to sign and certify financial
statements filed by the corporation. The Accountant's certificates and reports
shall be addressed both to the Board of Directors and to the shareholders.
(c) A majority of the members of the Board of Directors shall select
the Accountant at any meeting held before the first regular meeting of
shareholders, and thereafter shall select the Accountant annually at a meeting
held within thirty (30) days before or after the beginning of the fiscal year of
the corporation. Such selection shall be submitted for ratification or rejection
at the next succeeding regular shareholders' meeting. If such meeting shall
reject such selection, the Accountant shall be selected by majority vote, either
at the meeting at which the rejection occurred or at a subsequent meeting of
shareholders called for such purpose.
(d) Any vacancy occurring between regular meetings, due to the death,
resignation or otherwise of the Accountant, may be filled by the Board of
Directors.
Section 7.03. Fiscal Year. The fiscal year of the corporation shall be
determined by the Board of Directors.
ARTICLE VIII
INSPECTION OF BOOKS
Section 8.01. Every shareholder of the corporation and every holder of a
voting trust certificate shall have a right to examine, in person or by agent or
attorney, at any reasonable time or times, for any proper purpose, and at the
place or places where usually kept, the share register, books of account and
records of the proceedings of the shareholders and directors and to make
extracts therefrom.
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ARTICLE IX
LOANS TO OFFICERS, DIRECTORS, SHAREHOLDERS
Section 9.01. The corporation shall not lend any of its assets to any
officer or director of the corporation, nor shall it lend any of its assets to
shareholders upon the security of its shares. If any such loan be made, the
officers and directors who make such loan, or assent thereto, shall be jointly
and severally liable for repayment or return thereof.
ARTICLE X
VOTING OF STOCK HELD
Section 10.01. Unless otherwise provided by resolution of the Board of
Directors, the President, any Vice President, the Secretary or the Treasurer,
may from time to time appoint an attorney or attorneys or agent or agents of the
corporation, in the name and on behalf of the corporation, to cast the votes
which the corporation may be entitled to cast as a stockholder or otherwise in
any other corporation or association, any of whose stock or securities may be
held by the corporation, at meetings of the holders of the stock or other
securities of any such other corporation or association, or to consent in
writing to any action by any such other corporation or association, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed on behalf
of the corporation and under its corporate seal, or otherwise, such written
proxies, consents, waivers, or other instruments as it may deem necessary or
proper in the circumstances; or any of such officers may themselves attend any
meeting of the holders of stock or other securities of any such corporation or
association and thereat vote or exercise any or all other powers of the
corporation as the holder of such stock or other securities of such other
corporation or association, or consent in writing to any action by any such
other corporation or association.
ARTICLE XI
VALUATION OF NET ASSET VALUE
Section 11.01. The net asset value per share of each series of stock
issued by the portfolios of the corporation shall be determined in good faith by
or under supervision of the officers of the corporation as authorized by the
Board of Directors as often and on such days and at such time(s) as the Board of
Directors shall determine.
ARTICLE XII
CUSTODY OF ASSETS
Section 12.01. All securities and cash owned by this corporation shall, as
hereinafter provided, be held by or deposited with a bank or trust company
having (according to its last published report) not less than two million
dollars ($2,000,000) aggregate capital, surplus and undivided profits (the
"Custodian").
This corporation shall enter into a written contract with the Custodian
regarding the powers, duties and compensation of the Custodian with respect to
the cash and securities of this corporation held by the Custodian. Said contract
and all amendments thereto shall be approved by the Board of Directors of this
corporation. In the event of the Custodian's resignation or termination, the
corporation shall use its best efforts promptly to obtain a successor Custodian
and shall require that the cash and securities owned by this corporation held by
the Custodian be delivered directly to such successor Custodian.
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ARTICLE XIII
AMENDMENTS
Section 13.01. These Bylaws may be amended or altered by a vote of the
majority of the whole Board of Directors at any meeting provided that notice
of such proposed amendment shall have been given in the notice given the
directors of such meeting. Such authority in the Board of Directors is subject
to the power of the shareholders to change or repeal such Bylaws by a majority
vote of the shareholders present or represented at any regular or special
meeting of shareholders called for such purpose. The Board of Directors shall
not make or alter any Bylaws fixing their qualifications, classifications, term
of office, or number, except that the Board of Directors may make or alter any
Bylaws to increase their number.
ARTICLE XIV
MISCELLANEOUS
Section 14.01. Interpretation. When the context in which words are used
in these Bylaws indicates that such is the intent, singular words will include
the plural and vice verse, and masculine words will include the feminine and
neuter genders and vice versa.
Section 14.02. Article and Section Titles. The titles of Sections and
Articles in these Bylaws are for descriptive purpose only and will not control
or alter the meaning of any of these Bylaws as set forth in the text.
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EXHIBIT 5
MANAGEMENT AGREEMENT
This Agreement is made and entered into as of _____________ , 1996 by
and between Investment Advisers, Inc., a Delaware corporation ("IAI"), and IAI
Investment Funds VI, Inc., a Minnesota corporation (the "Company"), on behalf of
IAI Capital Appreciation Fund, the portfolio represented by the Company's Series
G Common Shares (the "Fund").
1. ENGAGEMENT OF IAI; SERVICES.
(a) Investment Advisory Services. The Company hereby engages IAI
on behalf of the Fund, and IAI hereby agrees, pursuant to the terms and
conditions hereinafter set forth, to furnish the Fund continuously with
investment planning, to provide investment advice with regard to the Fund's
portfolio, to prepare and make available to the Fund necessary research and
statistical data in connection therewith, to supervise the acquisition and
disposition of specific securities by the Fund and to perform such other
services as are reasonably incidental to the foregoing duties as investment
adviser for, and to manage the investment of the assets of, the Fund. IAI
covenants and agrees that, in effecting acquisitions and dispositions of
specific investments on behalf of the Fund, IAI shall at all times be governed
by the Fund's investment objectives, restrictions and policies as delineated and
limited by the disclosures contained in the various documents filed with the
Securities and Exchange Commission on behalf of the Fund, as such documents may
from time to time be amended or supplemented. IAI shall report to the Company's
Board of Directors regularly at such times and in such detail as the Board may
from time to time determine appropriate, in order to permit the Board to
determine the adherence of IAI to the Fund's investment objectives, policies and
limitations.
(b) Dividend Disbursing, Accounting, Administrative and Transfer
Agency Services. The Company on behalf of the Fund hereby engages IAI, and IAI
hereby agrees, to provide to the Fund with all dividend disbursing, accounting,
administrative and transfer agency services required by the Fund, including,
without limitation, the following services:
(1) The calculation of net asset value per share at such times
and in such manner as specified in the Fund's current Prospectus and
Statement of Additional Information and at such other times upon which
the parties hereto may from time to time agree. The pricing services
or other sources from which daily price quotations on portfolio
securities are to be obtained for purposes of calculating the Fund's
daily net asset value shall be paid for by IAI and approved by the
Company;
(2) Upon the receipt of funds for the purchase of Fund shares or
the receipt of redemption requests with respect to Fund shares
outstanding, the calculation of the number of shares to be purchased or
redeemed, respectively;
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(3) Upon the Fund's distribution of dividends, (i) the
calculation of the amount of such dividends to be received per Fund
share, (ii) the calculation of the number of additional Fund shares to
be received by each Fund shareholder, other than any shareholder who
has elected to receive such dividends in cash, and (iii) the mailing
of payments with respect to such dividends to shareholders who have
elected to receive such dividends in cash;
(4) The provision of transfer agency services as described
below:
(i) IAI shall make original issues of shares of the Fund
in accordance with the Fund's current Prospectus and Statement of
Additional Information and with instructions from the Company;
(ii) Prior to the daily determination of net asset value
of the Fund, IAI shall process all purchase orders received since
the last determination of the Fund's net asset value;
(iii) Transfers of shares shall be registered;
(iv) IAI will maintain stock registry records in the usual
form in which it will note the issuance, transfer and redemption
of Fund shares, and is also authorized to maintain an account in
which it will record the Fund shares and fractions issued and
outstanding from time to time for which issuance of Fund share
certificates is deferred; and
(v) IAI will, in addition to the aforementioned duties and
functions, perform the usual duties and functions of a stock
transfer agent for a registered investment company;
(5) The creation and maintenance of such records relating to the
business of the Fund as the Company may from time to time reasonably
request;
(6) The preparation of tax forms, reports, notices, proxy
statements, proxies and other Fund shareholder communications, and the
mailing thereof to Fund shareholders; and
(7) The provision of such other dividend disbursing, accounting,
administrative, accounting and transfer agency services upon which the
parties hereto may from time to time agree.
(8) The Fund hereby authorizes IAI to contract with qualified
entities for the provision of any of the services to be performed
pursuant to this Section 1(b).
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(c) Shareholder Services. The Company on behalf of the Fund hereby
engages, and IAI hereby agrees, to provide the Fund with all services to
shareholders not otherwise the subject of Section 1(b) above. These shareholder
services may include personal services provided to shareholders, such as
answering shareholder inquiries regarding a Fund and providing reports and other
information and services related to the maintenance of shareholder accounts.
The Fund hereby also authorizes IAI to contract with qualifying broker-dealers,
financial institutions and other such entities for the provision of such
services to Fund shareholders.
(d) Filings, Office Facilities, Equipment and Personnel. IAI shall,
at its own expense, file all documents with all relevant regulatory agencies and
governmental authorities on the Company's behalf, furnish the Company and the
Fund with all office facilities, equipment and personnel necessary to discharge
its responsibilities and duties hereunder. IAI shall arrange, if requested by
the Company, for officers or employees of IAI to serve without compensation from
the Company as directors, officers, or employees of the Company if duly elected
to such positions by the shareholders or directors of the Company.
(e) Other Services. IAI shall, at its own expense, provide or
arrange for the provision of all services required by the Company on behalf of
the Fund not otherwise addressed in this Agreement.
(f) Books and Records. IAI hereby acknowledges that all records
pertaining to the services rendered hereunder are the sole and exclusive
property of the Company, and in the event that a transfer of any of the services
currently rendered hereunder to someone other than IAI should ever occur, IAI
will promptly, and at its own cost, take all steps necessary to segregate such
records and deliver them to the Company.
(g) No Separate Charges to Shareholders. IAI hereby covenants and
agrees that it will make no separate charge to any Fund shareholder or his
individual account for any services rendered to said shareholder, the Fund or
the Company unless such charge for special services is specifically approved by
the Board including a majority of the directors who are not "interested persons"
(as such term is defined in the Investment Company Act of 1940, as amended,
which act, as amended and together with all rules and regulations promulgated
thereunder, is hereinafter referred to as the "1940 Act") of IAI. No special
charge will be levied retroactively or without appropriate notice to affected
shareholders.
(h) Limitation of Liability. IAI, in carrying out and performing
the terms and conditions of this Agreement, shall incur no liability for its
status hereunder or for any actions taken or omitted in good faith and without
negligence. Without limitation of the foregoing:
(1) IAI may rely upon, and shall not be liable to any person or
party for any actions taken or omitted to be taken in good faith in
reliance upon, the advice of the Company, or of counsel, who may be
counsel for the Company or counsel for IAI, and
3
<PAGE>
upon statements of accountants, brokers and other persons believed by
IAI in good faith to be expert in the matters upon which they are
consulted; and
(2) IAI may rely upon, and shall not be liable to any person or
party for any actions taken or omitted to be taken in good faith in
reliance upon, any signature, instruction, request, letter of
transmittal, certificate, opinion of counsel, statement, instrument,
report, notice, consent, order or other paper or document that IAI in
good faith believes to be genuine and to have been signed, presented
or authorized by the purchaser, Company or other proper party or
parties.
2. COMPENSATION FOR SERVICES; ALLOCATION OF EXPENSES
(a) In payment for the services to be provided or arranged by IAI
hereunder, the Company (on behalf of the Fund) shall pay to IAI a fee based on
the Fund's average daily net assets (as determined in accordance with the
Company's Bylaws and with the Fund's Prospectus and Statement of Additional
Information, as the same may from time to time be amended or supplemented) as
set forth in Exhibit A attached hereto. This fee shall be paid to IAI on a
monthly basis not later than the tenth business day of the month following the
month in which the services were rendered and shall be prorated for any fraction
of a month at the commencement or termination of this Agreement.
(b) Except for brokerage commissions and other expenditures in
connection with the purchase and sale of portfolio securities, interest expense
and, subject to the specific approval of a majority of the directors of the
Company who are not "interested persons" (as defined in the 1940 Act) of IAI or
the Company, taxes and extraordinary expenses, IAI shall bear all of the Fund's
expenses; provided however, that IAI will either pay the fees and the ordinary
and reasonable expenses of the Fund's disinterested directors or reduce the fee
due under this Agreement by an equivalent amount paid by the Fund to such
directors.
3. FREEDOM TO DEAL WITH THIRD PARTIES.
IAI shall be free to render services to others similar to those
rendered under this Agreement or of a different nature except as such services
may conflict with the services to be rendered or the duties to be assumed
hereunder.
4. EFFECTIVE DATE, DURATION, AMENDMENT AND TERMINATION OF AGREEMENT.
(a) Unless sooner terminated as hereinafter provided, this Agreement
shall continue in effect for a period more than two years from the date of its
execution but only as long as such continuance is specifically approved at least
annually by (i) the Board of Directors of the Company or by the vote of a
majority of the outstanding voting securities of the Fund, and (ii) by the vote
of a majority of the directors of the Company who are not parties to this
Agreement or
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<PAGE>
"interested persons" (as defined in the 1940 Act) of IAI or of the Company cast
in person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Directors of the Company or by the vote
of a majority of the outstanding voting securities of the Fund, or by IAI, upon
60 days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
"assignment" (as defined in the Investment Company Act of 1940, as amended).
(d) No amendment to this Agreement shall be effective until approved
by the vote of: (i) a majority of the directors of the Company who are not
parties to this Agreement or "interested persons" (as defined in the 1940 Act)
of IAI or of the Company cast in person at a meeting called for the purpose of
voting on such approval; and (ii) a majority of the outstanding voting
securities of the Fund.
(e) Wherever referred to in this Agreement, the vote or approval of
the holders of a majority of the outstanding voting securities or shares of the
Fund shall mean the lesser of (i) the vote of 67% or more of the voting
securities of the Fund present at a regular or special meeting of shareholders
duly called, if more than 50% of the Fund's outstanding voting securities are
present or represented by proxy, or (ii) the vote of more than 50% of the
outstanding voting securities of the Fund.
(f) To the extent the provisions of this Section 4 are based on
legislative or regulatory requirements in effect at the time of this Agreement's
initial approval by the Fund's Board of Directors and/or shareholders and any
such legislative or regulatory requirements change, the relevant provision of
this Section 4 will be deemed to have been so amended without further action by
the Fund's Board of Directors or its shareholders.
5. NOTICES.
Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate in writing for receipt of such notice.
6. REPRESENTATION.
IAI hereby represents that it will maintain registrations with and/or
approvals by all relevant governmental authorities necessary for the provision
of services pursuant to this Agreement.
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7. INTERPRETATION; GOVERNING LAW.
This Agreement shall be subject to and interpreted in accordance with
all applicable provisions of law including, but not limited to, the 1940 Act. To
the extent that the provisions herein contained conflict with any such
applicable provisions of law, the latter shall control. The laws of the State of
Minnesota shall otherwise govern the construction, validity and effect of this
Agreement.
IN WITNESS WHEREOF, the Company and IAI have caused this Agreement to
be executed by their duly authorized officers as of the day and year first above
written.
IAI INVESTMENT FUNDS VI, INC.
By_________________________________
Richard E. Struthers, President
INVESTMENT ADVISERS, INC.
By_________________________________
Noel P. Rahn, Chief Executive Officer
6
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EXHIBIT A
<TABLE>
<CAPTION>
Annual Advisory Fee
Portfolio Effective Date (as % of average daily net assets)
--------- -------------- ----------------------------------
<S> <C> <C>
Series G -- IAI Capital For the first $250,000,000 ... 1.40%
Appreciation Fund
For the next $250,000,000 ... 1.35%
Above $500,000,000 ... 1.30%
</TABLE>
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EXHIBIT 6G
DEALER SALES AGREEMENT
----------------------
Ladies and Gentlemen:
We invite you to join a selling group for the distribution of shares of those
mutual funds available to the public for which we serve as the investment
adviser (the "Funds"). Upon execution of this Agreement, you agree to
participate in the distribution of the Funds to the public subject to the terms
set forth herein.
1. In all sales of the Funds to the public, you shall act as dealer of your
own account and shall not be authorized to act as agent for the Funds, for any
other dealer, or for us.
2. All orders will be accepted only at the price, in the amount and subject to
the terms set forth in the then current Prospectuses and Statements of
Additional Information of the Funds. The procedure relating to the handling of
orders shall be subject to instructions which we shall forward to you from time
to time. Certificates representing shares of the Funds will not be issued.
3. You agree to provide distribution and marketing services in the marketing
of shares of the Funds and services to your customers who are Fund shareholders.
Such shareholder services may include personal services provided to
shareholders, such as answering shareholder inquiries regarding a Fund and
providing reports and other information, and services related to the maintenance
of shareholder accounts. For all services, we will pay you a fee, as
established by us from time to time. Such fee will be based upon the following
percentages of the average month-end or daily net assets of each Fund
represented by shares of the Fund owned, during the quarter for which payment is
being made, by customers for which you maintain a servicing relationship as
evidenced by their execution of such agreements as we may from time to time
require. We specifically reserve the right to discontinue paying fees with
respect to those assets for which such customer authorizations which we may
require are not provided.
<PAGE>
Fund Annual Fee*
------------------------- -----------
Reserve Fund 0
Money Market Fund 0
Minnesota Tax Free Fund .10%
Bond Fund .15%
Government Fund .15%
Growth and Income Fund .25%
Regional Fund .25%
Value Fund .25%
Developing Countries Fund .25%
International Fund .25%
Midcap Growth Fund .25%
Balanced Fund .25%
Growth Fund .25%
Emerging Growth Fund .25%
Capital Appreciation Fund .25%
______________________________
* as a % of average daily net assets or average month-end net assets as set
forth in a Fund's then-current prospectus.
Such fee will be paid on a quarterly basis and, subject to the last
sentence of this section 3, will be paid so long as the accounts of your clients
remain in the Funds and this Agreement and such other agreements as we may
require have not been terminated. Upon such termination, any such obligation to
pay such fee shall cease. You agree to furnish us or the Funds with such
information as may be reasonably requested with respect to such fees paid to you
pursuant to this Agreement.
4. If any Fund shares sold under the terms of this Agreement are repurchased
by the Funds or are tendered for redemption within seven business days after
confirmation of the original purchase, it is agreed that you shall forfeit the
right to receive the fees hereunder with respect to such shares.
5. No person is authorized to make any representations concerning the Funds
except those contained in the then current Prospectuses and in such printed
information as may be furnished for use as information supplemental to the
Prospectuses. Additional copies of the Prospectuses and any printed information
supplementing the Prospectuses will be supplied in reasonable quantities upon
request.
6. You acknowledge and agree that the Funds reserve the right, in their sole
discretion and without notice, to suspend sales or withdraw the offering of
shares of the Funds.
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7. This Agreement may be terminated by either party at any time upon seven
days' notice to the other party with or without cause. We reserve the right to
amend this Agreement at any time upon written notice.
8. You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. and agree that termination or suspension
of such membership shall automatically terminate this Agreement. You further
agree that you will immediately advise us of any such termination or suspension.
You also represent that you are authorized under relevant federal and state laws
and regulations to receive the fees payable hereunder and that you will
immediately advise us of any termination or suspension of such authorization.
9. You agree to indemnify and hold harmless the Funds and us from and against
any and all claims, liability, expense (including attorneys' fees) or loss in
the event that you, or any of your employees or agents, should violate any law,
rule or regulation or any provisions of this Agreement, including, without
limitation, any representations, verbal or otherwise, of any untrue or alleged
untrue statements of a material fact relating to the offer and sale of the
Funds. In the event we determine to refund any amounts paid by any investor by
reason of any such violation on your part, you shall return to us any fees
previously paid by us to you in connection with the transaction for which the
refund is made.
10. All communications to us should be sent to us at 3700 First Bank Place,
P.O. Box 357, Minneapolis, MN 55440. Any notice to you shall be duly given if
mailed or telegraphed to you at the address specified by you below. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Minnesota.
The undersigned hereby accepts
the offer set forth herein:
DEALER INVESTMENT ADVISERS, INC.
By_____________________________ By______________________________
Its____________________________ Its_____________________________
Address________________________ Date of Acceptance_______, 19___
________________________
________________________
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EXHIBIT 6K
SHAREHOLDER SERVICE AGREEMENT
Ladies and Gentlemen:
We invite you to enter into an agreement with us for the servicing of
shareholders of, and the maintenance of shareholder accounts for those mutual
funds available to the public for which Investment Advisers, Inc., our
affiliate, serves as the investment adviser (the "Funds") and the shares of
which are offered to the public at net asset value, as described in the Funds'
Prospectuses. Subject to your acceptance of this Agreement, the terms and
conditions of this Agreement shall be as follows:
1. You shall provide shareholder services for certain shareholders of the
Funds who purchase shares of the Funds as a result of their relationship to
you. Such shareholder services may include personal services provided to
shareholders, such as answering shareholder inquiries regarding a Fund and
providing reports and other information, and services related to the
maintenance of shareholder accounts, to the extent you are permitted by
applicable statue, rule or regulation to provide such information or
services.
2. If shares of the Funds are to be purchased or held by you on behalf of your
clients:
(i) Such shares will be registered in your name or in the name of your
nominee. The client will be the beneficial owner of the shares of the
Funds purchased and held by you in accordance with the client's
instructions and the client may exercise all rights of a shareholder
of the Funds. You agree to transmit to the Funds' transfer agent
(Investment Advisers, Inc.), in a timely manner, all purchase orders
and redemption requests of your clients and to forward to each client
all proxy statements, periodic shareholder reports and other
communications received from the Funds by you on behalf of your
clients. The Funds have agreed to pay all reasonable out-of-pocket
expenses actually incurred by you in connection with the transfer by
you of such proxy statements and reports to your clients.
(ii) You agree to transfer to the Funds' transfer agent, on the date such
purchase orders are effective, federal funds in an amount equal to the
amount of all purchase orders placed by you on behalf of your clients
and accepted by the Funds. In the event that the Funds fail to
receive such federal funds on such date (other than through fault of
the Funds or their transfer agent), you shall indemnify the Funds
against any expense (including overdraft charges) incurred by the
Funds as a result of their failure to receive such federal funds.
<PAGE>
(iii) You agree to make available to the Funds, upon the Funds' request,
such information relating to your clients who are beneficial owners
of shares of the Funds and their transactions in shares of the Funds,
as may be required by applicable laws and regulations or as may be
reasonably requested by the Funds.
(iv) You agree to transfer record ownership of a client's shares of the
Funds to the client promptly upon the request of a client. In
addition, record ownership will be promptly transferred to the client
in the event that the person or entity ceases to be your client.
3. You shall provide to us copies of the lists of members of your organization
and identify to us any publications and other facilities of your
organization for the placement of advertisements or promotional materials
and for sending information regarding the Funds to enable us to solicit for
sale and to sell shares to your members.
4. Neither you nor any of your employees or agents are authorized to make any
representation concerning the shares of the Funds except those contained in
the then current Prospectuses of the Funds, copies of which will be
supplied to you; and you shall have no authority to act as agent for the
Funds or for us. You agree to indemnify and hold harmless the Funds, us,
and Investment Advisers, Inc. from and against any and all claims,
liability, expense (including attorneys' fees) and loss in the event that
you, or any of your employees or agents, should violate any law, rule, or
regulation, or any provisions of this Agreement and, in the event we
determine to refund any amounts paid by any investor by reason of any such
violation on your part, you shall return to us any fees previously paid by
us to you in connection with the transaction for which the refund is made.
5. In consideration for the services described herein, you shall be entitled
to receive from us such fees as established by us from time to time as set
forth on Exhibit A. Such fee will be based upon assets of each Fund
represented by shares of the Fund owned, during the quarter for which
payment is being made, by shareholders for which you maintain a servicing
relationship as evidenced by their execution of such agreements as we may
from time to time require. We specifically reserve the right to
discontinue paying fees with respect to those assets for which such
customer authorization which we may require is not provided.
Such fee will be paid on a quarterly basis and, subject to the last
sentence of this section, will be paid so long as the accounts for your
clients and this Agreement and such other agreements as we may require have
not been terminated. Upon such termination any such obligation to pay such
fee shall cease. You agree to furnish us and the Funds with any such
information as may be reasonably requested with respect to such fees paid
to you pursuant to this Agreement.
<PAGE>
6. You acknowledge and agree that the Funds reserve the right, in their sole
discretion and without notice, to suspend the sale of shares or withdraw
the sale of shares of the Funds.
7. This Agreement may be terminated by either party at any time upon seven
days notice to the other party with or without cause. We reserve the right
to amend this Agreement at any time upon written notice.
8. All communications to us should be sent to us at 3700 First Bank Place,
P.O. Box 357, Minneapolis, MN 55440. Any notice to you shall be duly given
if mailed or telegraphed to you at the address specified by you below.
This Agreement shall be governed by and construed under the laws of the
State of Minnesota.
The undersigned hereby accepts IAI Securities, Inc.
the offer set forth herein
______________________________ By ___________________________
Firm
By____________________________ Its __________________________
Its __________________________ Date of Acceptance____________
Address_______________________
_______________________
_______________________
<PAGE>
EXHIBIT 8B
CUSTODIAN CONTRACT
between
IAI Capital Appreciation Fund
IAI INVESTMENT FUNDS VI, INC.
and
NORWEST BANK MINNESOTA, N.A.
<PAGE>
CUSTODIAN CONTRACT
------------------
This AGREEMENT made as of November 14, 1995 by and between The IAI Capital
Appreciation Fund Series of IAI Investment Funds VI, Inc., a Minnesota
corporation having its principal office and place of business at 3700 First Bank
Place, Minneapolis, Minnesota, (the "Company"), and Norwest Bank Minnesota,
N.A., a National Banking Association having its principal office and place of
business at Sixth and Marquette, Minnesota, MN 55479 (the "Custodian").
WHEREAS, the Company is a mutual fund whose shares are currently offered in
the following series (which, together with each future series of the Company
that adopts this contract are hereafter referred to individually as a "Fund" and
collectively as the "Funds") as set forth in Exhibit D.
WHEREAS, the Company desires to appoint the Bank as the custodian for each
Fund, and the Bank desires to accept such appointment;
WITNESSETH, that in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It.
The Company hereby employs the Custodian as the custodian of the assets of
each Fund, including securities the Company desires to be held in places within
the United States ("domestic securities") and securities the Company desires to
be held outside of the United States ("foreign securities"). The Company agrees
to deliver to the Custodian all securities and cash owned by each Fund, and all
payments of income, payments of principal or capital distributions received by
the Fund with respect to all securities owned by the Fund from time to time, and
the cash consideration received by the Fund for such new or treasury shares of
capital stock ("Shares") of the Fund as may be issued or sold from time to time.
The Custodian shall not be responsible for any property of a Fund held or
received by the Fund and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 6),
the Custodian shall from time to time employ one or more sub-custodians, but
only in accordance with any necessary approvals by the Board of Directors of the
Company, and provided that the appointment by the Custodian of any sub-
custodians shall not relieve the Custodian of any of its responsibilities or
liabilities hereunder.
2. Duties of the Custodian with Respect to Fund Property held by the Custodian
in the United States.
2.1 Holding Securities.
The Custodian shall hold and physically segregate for the account of each
of the Funds all non-cash property, including all securities owned by the Funds,
other than (a) securities which are maintained pursuant to Section 2.12 in a
clearing agency which acts as a securities depository or in a Federal Reserve
Bank, as Custodian may select, and to permit such deposited Assets to be
registered in the name of Custodian or Custodian's agent or nominee on the
records of such Federal reserve Bank or such registered clearing agency or the
nominee of either, and to employ and use securities depositories, clearing
agencies, clearance systems, sub-custodians or agents located outside the United
States in connection with transactions involving foreign securities,
collectively referred to herein as a "Securities System".
2.2 Delivery of Securities.
The Custodian shall release and deliver securities owned by the Company for
the account of a Fund held by the Custodian or in a Securities System account of
the Custodian only upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the following
cases:
1) Upon sale of such securities for the account of a Fund and receipt of
payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Company on
behalf of a Fund;
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3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other similar
offers for portfolio securities of a Fund;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Company for the account of a Fund or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of any
agent appointed pursuant to Section 2.11 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of a Fund, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan or merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts of temporary securities for
definitive securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Company on behalf of a Fund, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian and the
Company, which may be in the form of cash or obligations issued by the
United States government, its agencies or instrumentalities, except
that in connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the Custodian will
not be held liable or responsible for the delivery of securities owned
by a Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Company on behalf of a Fund requiring a pledge of assets by the
Company on behalf of such Fund, but only against receipt of amounts
borrowed;
12) For delivery in accordance with the provisions of any agreement among
the Company on behalf of a Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the "Exchange
Act") and a member of the National Association of Securities Dealers,
Inc. ("NASD"), relating to the compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Company;
13) For delivery in accordance with the provisions of any agreement among
the Company on behalf of a Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar organization or
organizations, regarding account deposits in connection with
transactions by the Company on behalf of a Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the applicable Fund, for delivery to such Transfer Agent
or to the holders of shares in connection with distributions in kind,
as may be described from time to time in the Fund's currently
effective prospectus and statement of additional information
("prospectus"), in satisfaction of requests by holders of Shares for
repurchase or redemptions; and
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15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Board of Directors of the Company signed by an officer of the
Company and certified by the Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities.
Domestic securities held by the Custodian (other than bearer securities)
shall be registered in the name of the Company for the account of the applicable
Fund(s) or in the name of any nominee of the Company or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Company's, unless
the Company has authorized in writing the appointment of a nominee to be used in
common with other registered investment companies having the same investment
adviser as the applicable Fund(s), or in the name of nominee name of any agent
appointed pursuant to Section 2.11 or in the name or nominee name of any sub-
custodian appointed pursuant to Article 1. All securities accepted by the
Custodian on behalf of the Company under the terms of this Contract shall be in
"street name" or other good delivery form.
2.4 Bank Accounts.
The Custodian shall open and maintain a separate bank account or accounts
in the name of each Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of each applicable Fund, other than cash maintained by the
applicable Fund in a bank account established and used in accordance with Rule
17f-3 under the Investment Company Act of 1940. Cash held by the Custodian for
each Fund may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as it may
in its discretion deem necessary or desirable; provided, however, that every
such bank or trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust company and the
cash to be deposited with each such bank or trust company shall be approved by
vote of a majority of the Board of Directors of the Company. Such cash shall be
deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Payments for Shares.
The Custodian shall receive from the distributor for each Fund Shares or
from the Transfer Agent of each Fund and deposit into the Fund account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Funds.
2.6 Availability of Federal Funds.
Upon mutual agreement between the Company and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions, make federal funds available to
the Funds as of specified times agreed upon from time to time by the Company and
the Custodian in the amount of checks received in payment for Shares of the
Funds which are deposited into the Funds' accounts.
2.7 Collection of Income.
The Custodian shall, or shall cause its agent or sub-custodian to, collect
on a timely basis all income and other payments with respect to registered
securities held hereunder to which each Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall collect on a timely
basis all income and other payments with respect to bearer securities if, on the
date of payment by the issuer, such securities are held by the Custodian or its
agent or sub-custodian and shall credit such income, as collected, to the
applicable Fund's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder. Unless the Custodian is
the lending agent in connection with securities loaned by the Fund, income due
each Fund on securities loaned pursuant to the provisions of Section 2.2 (10)
shall be the responsibility of the Company. The Custodian will have no duty or
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responsibility in connection therewith, other than to provide the Company with
such information or data as may be necessary to assist the Company in arranging
for the timely delivery to the Custodian of the income to which each Fund is
properly entitled.
2.8 Payment of Company Monies.
Upon receipt of Proper Instructions, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies of
each Fund in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts or
options on futures contracts for the account of each Fund but only (a)
against the delivery of such securities or evidence of title to such
options, futures contracts or options on futures contracts, to the
Custodian (or any bank, banking firm or trust company doing business in
the United States or abroad which is qualified under the Investment
Company Act of 1940 to act as a custodian and has been designated by
the Custodian as its agent for this purpose) registered in the name of
the Company for the account of a Fund or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in Section 2.12
hereof or (c) in the case of the repurchase agreements entered into
between the Company and the Custodian, or another bank, or a broker-
dealer which is a member of NASD, (i) against delivery of the
securities either in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such securities or
(ii) against delivery of the receipt evidencing purchase by the Company
for the account of a Fund of securities owned by the Custodian along
with written evidence of the agreement by the Custodian to repurchase
such securities from a Fund;
2) In connection with conversion, exchange or surrender of securities
owned by a Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by a Fund as set
forth in Section 2.10 hereof;
4) For the payment of any expense or liability incurred by a Fund,
including but not limited to the following payments for the account of
such Fund: interest, taxes, management, accounting, transfer agent and
legal fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends declared pursuant to the governing
documents of the Company and the applicable Fund;
6) For payment of the amount of dividends received in respect of
securities sold short; or
7) For any other proper purpose, but only upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the Board of
Directors of the Company signed by an officer of the Company and
certified by its Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities Purchased.
The Custodian shall not make payment for the purchase of domestic
securities for the account of a Fund in advance of receipt of the securities
purchased in the absence of specific written instructions from the Company to so
pay in advance. In any and every case where payment for purchase of domestic
securities for the account of a Fund is made by the Custodian in advance of
receipt of the securities purchased in the absence of specific written
instructions from the Company to so pay in advance, the Custodian shall be
absolutely liable to the Company (for the account of the Fund) for such
securities to the same extent as if the securities had been received by the
Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of a Fund.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation or Bylaws and any applicable votes
of the Board of Directors of the Company, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the
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redeeming shareholders. In connection with the redemption or repurchase of
Shares of a Fund, the Custodian shall honor checks drawn on the Custodian by a
holder of Shares, which checks have been furnished by the Company to the holder
of Shares, when presented to the Custodian in accordance with such procedures
and controls as are mutually agreed upon from time to time between the Company
and the Custodian.
2.11 Appointment of Agents.
The Custodian may at any time or times in its discretion appoint (and may
at any time remove) any other bank or trust company which is itself qualified
under the Investment Company Act of 1940 to act as a custodian, as its agent to
carry out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of any of its responsibilities or liabilities
hereunder.
2.12 Deposit of Fund Assets in Securities Systems.
The Custodian may deposit and/or maintain domestic securities owned by any
Fund in a clearing agency registered with the Securities and Exchange commission
under Section 17A of the Exchange Act, which acts as a securities depository, or
in a Federal Reserve Bank, as Custodian may select, and to permit such deposited
Assets to be registered in the name of Custodian or Custodian's agent or nominee
on the records of such Federal reserve Bank or such registered clearing agency
or the nominee of either (collectively referred to herein as "Securities
System") in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of a Fund in a Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall not
include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic securities of a
Fund which are maintained in a Securities System shall identify by
book-entry those securities belonging to such Fund;
3) The Custodian shall pay for domestic securities purchased for the
account of a Fund upon (i) the simultaneous receipt of advice from the
Securities System that such securities have been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account of the
Fund. The Custodian shall transfer domestic securities sold for the
account of a Fund upon (i) the simultaneous receipt of advice from the
Securities System that payment for such securities has been transferred
to the Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the
Fund. Copies of all advises from the Securities System of transfers of
securities for the account of a Fund shall identify the Fund, be
maintained for the Fund by the Custodian and be provided to the Company
at its request. Upon request, the Custodian shall furnish the Company
confirmation of each transfer to or from the account of a Fund in the
form of a written advice or notice and shall furnish to the Company
copies of daily transaction sheets reflecting each day's transactions
in the Securities System for the account of each Fund.
4) The Custodian shall provide the Company with any report obtained by the
Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited
in the Securities System;
5) The Custodian shall have received the initial or annual certificate, as
the case may be, required by Article 16 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Company (for the account of each Fund)
for any loss or damage to the applicable Fund(s) resulting from use of
the Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of its or
their employees or from failure of the Custodian or any such agent or
employee to enforce effectively such rights as it may have against the
Securities System; at the election of the Company, it shall be entitled
to be subrogated to the rights of the Custodian with respect to any
claim against the Securities System or any other person which the
Custodian may have as a consequence of any such loss or damage if and
to the extent that the applicable Funds have not been made whole for
any such loss or damage.
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2.13 Segregated Account.
The Custodian shall upon receipt of Proper Instructions establish and
maintain a segregated account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to Section 2.12
hereof, (i) in accordance with the provisions of any agreement among the
Company, the Custodian and a broker-dealer registered under the Exchange Act and
a member of NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract market), or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Company for the account of
any Fund, (ii) for the purpose of segregating cash or government securities in
connection with options purchased, sold or written by the Company for the
account of any Fund or commodity futures contracts or options thereon purchased
or sold by the Company for the account of any Fund, (iii) for the purpose of
compliance by the Company with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate purposes,
but only, in the case of the clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board of Directors of the
Company signed by an officer of the Company and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.14 Ownership Certificates for Tax Purposes.
The Custodian shall execute ownership and other certificates and affidavits
for all federal and state tax purposes in connection with receipt of income or
other payments with respect to domestic securities of each Fund held by it and
in connection with transfers of securities.
3. Duties of the Custodian with Respect to Fund Property Held Outside of the
United States.
3.1 Appointment of Foreign Sub-Custodians.
The Custodian is authorized and instructed, either directly or indirectly
(through one or more sub-custodian U.S. banks), to employed as sub-custodians
for any Fund's securities and other assets maintained outside of the United
States the foreign banking institutions, foreign securities depositories and
foreign clearing agencies designated in the Funds current Statement of
Additional Information; provided, however, that, notwithstanding the list of
institutions of such information set forth in the Statement of Additional
Information, the Custodian (including any of its agents and subcustodians) is
authorized to directly or indirectly employ or retain any sub-custodian,
depository or clearing agency only if said employed or retained institution
qualifies as either (a) an "eligible foreign custodian", as defined in Rule
17f-5 under the Investment Company Act of 1940, or (b) a "bank", as defined in
Section 2(a)(5) of the Investment Company Act of 1940, that in turn qualifies as
an eligible domestic custodian under Section 17(f) of the Investment Company Act
of 1940; and provided further that the Custodian shall be liable to the Company
for any loss of any Fund assets custodied with any institution directly or
indirectly employed or retained by the Custodian (or any of its agents or sub-
custodians) that does not meet the qualifications of either clause (a) of (b) of
the preceding provision.
Upon receipt of Proper Instructions, together with a certified resolution
of the Company's Board of Directors, the Custodian and the Company may agree to
amend Schedule A hereto from time to time to designate additional or alternative
foreign banking institutions, foreign securities depositories and foreign
clearing agencies to act as sub-custodians. Each foreign banking institution
shall be authorized to deposit securities in foreign securities depositories and
foreign clearing agencies authorized pursuant to Rule 17f-5 under the Investment
Company Act of 1940. Upon receipt of Proper Instructions from the Company the
Custodian shall promptly cease the employment of any one or more of such sub-
custodians for maintaining custody of the assets of the applicable Fund(s).
3.2 Assets to be Held.
The Custodian shall limit the securities and other assets maintained in the
custody of the foreign sub-custodian to: (a) "foreign securities", as defined
in paragraph (c) (1) of Rule 17f-5 under the Investment
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Company Act of 1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Company may determine to be reasonably necessary to effect the
foreign securities transactions of the applicable Fund(s).
3.3 Segregation of Securities.
The Custodian shall identify on its books as belonging to the Company for
the account of one or more of the Fund(s), the foreign securities of each such
Fund held by each foreign sub-custodian. Each agreement pursuant to which the
Custodian or its duly appointed U.S. sub-custodian employs a foreign banking
institution shall require that such institution establish a custody account for
the Custodian (or its U.S. sub-custodian, as the case may be) on behalf of its
customers and physically segregate in that account securities and other assets
of the Custodian's customers, and, in the event that such institution deposits a
Fund's securities in a foreign securities depository, the sub-custodian shall
identify on its books as belonging to the Custodian (or its U.S. sub-custodian,
as the case may be), as agent for the Custodian's customers, the securities so
deposited (all collectively referred to as the "Account").
3.4 Agreement with Foreign Banking Institution.
Each agreement with a foreign banking institution shall provide that: (a)
each Fund's assets will not be subject to any right, charge, security interest,
lien or claim or any kind in favor of the foreign banking institution or its
creditors, except a claim of payment for their safe custody or administration;
(b) beneficial ownership for each Fund's assets will be freely transferable
without the payment of money or value other than for custody or administration,
which may include payment of stamp duties or government taxes; (c) adequate
records will be maintained identifying the assets as belonging to the customers
of Custodian; (d) officers of or auditors employed by, or other representatives
of the Custodian, including independent public accountants for each Fund, will
be given access to the books and records of the foreign banking institution
relating to its actions given under its agreement with the Custodian or shall be
given confirmation of the contents of such books and records; and (e) assets of
each Fund held by the foreign sub-custodian will be subject only to the
instructions of the Company, the Custodian or their agents.
3.5 Access of Independent Accountants of the Company.
Upon request of the Company, the Custodian will use its best efforts to
arrange for the independent accountants of the Company to be afforded access to
the books and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the performance of
such foreign banking institutions under its agreement with the Custodian (or its
U.S. sub-custodian, as the case may be).
3.6 Reports by Custodian.
The Custodian will supply to the Company from time to time, as mutually
agreed upon, statements in respect of the securities and other assets of each
Fund held by foreign sub-custodians, including but not limited to an
identification of entities having possession of each applicable Fund's
securities and other assets and advices or notifications of any transfers of
securities to or from each custodial account maintained by a foreign sub-
custodian for the Custodian on behalf of each applicable Fund indicating, as to
securities acquired for the Fund, the identity of the entity having physical
possession of such securities.
3.7 Foreign Securities Transactions.
1) Upon receipt of Proper Instruction, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall make or cause its foreign sub-custodian to transfer, exchange or
deliver foreign securities owned by the Company for the account of a
Fund, but except to the extent explicitly provided herein only in any
of the cases specified in Section 2.2.
2) Upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out or cause its foreign sub-custodian to pay out monies of a
Fund, but except to the extent explicitly provided herein only in any
of the cases specified in Section 2.8.
3) Settlement and payment for securities received for the account of a
Fund and delivery of securities maintained for the account of a Fund
may, upon receipt of Proper Instructions, be effected in accordance
with the customary or established securities trading or securities
processing practices
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and procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or
dealer.
4) With respect to any transaction involving foreign securities, the
Custodian or any sub-custodian in its discretion may case a Fund's
account to be credited on either the contractual settlement date or the
actual settlement date with the proceeds of any sale or exchange of
foreign securities from the account of the applicable Fund and to be
debited on either the contractual settlement date or the actual
settlement date for the cost of foreign securities purchased or
acquired for such Fund according to Custodian's then current internal
policies and procedures pertaining to securities settlement, which
policies and procedures may change from time to time. Custodian shall
advise the Company of any changes to such policies and procedures. The
Custodian may reverse any such credit or debit made on the contractual
settlement date if the transaction with respect to which such credit or
debit was made fails to settle within a reasonable period, determined
by Custodian in its reasonable discretion, after the contractual
settlement date except that if any foreign securities delivered
pursuant to this section are returned by the recipient thereof, the
Custodian may cause any such credits and debits to be reversed at any
time.
5) Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as
set forth in Section 2.3 of this Contract and the Fund agrees to hold
any such nominee harmless from any liability as a holder of record of
such securities.
6) Until the Custodian receives written instructions to the contrary the
Custodian shall, or shall cause the sub-custodian to collect all
interest and dividends paid on securities held in each applicable
Fund's account, unless such payment is in default. Unless otherwise
instructed, the Custodian shall convert interest, dividends and
principal received with respect to securities in a Fund's account into
United States dollars, and the Custodian shall perform foreign exchange
contracts for the conversion of United States dollars to foreign
currencies for the settlement of trades whenever it is practicable to
do so through customary banking channels. Customary banking channels
may vary based upon industry practice in each jurisdiction, and shall
include the banking facilities of the Custodian's affiliates, in
accordance with such affiliate's then prevailing internal policy on
funds repatriation. All risk and expense incident to such foreign
collection and conversions is the responsibility of each applicable
Fund's account, and Custodian shall have no responsibility for
fluctuation in exchange rates affecting collections or conversions.
3.8 Foreign Securities Lending.
Notwithstanding any other provisions contained in this Contract, the
Custodian and any sub-custodian shall deliver and receive securities loaned or
returned in connection with securities lending transactions only upon and in
accordance with Proper Instructions; provided, if the Custodian is not the
lending agent in connection with such securities lending, then neither the
Custodian or any sub-custodian shall undertake, or otherwise be responsible for,
(i) marking to market values for such loaned securities.
(ii) collection of dividends, interest or other disbursements or
distributions made with respect to such loaned securities
(iii) receipt of corporate action notices, communications, proxies or
instruments with respect to such loaned securities, and
(iv) custody, safekeeping, valuation or any other actions or services with
respect to any collateral securing any such securities lending
transactions.
In the event that the Custodian is the applicable Fund's lending agent in
connection with a specific securities loan, the Custodian shall undertake to
perform all of the above duties with regard to such loan, except that the
Company shall not receive, nor be enabled to vote, proxies in connection with
such loaned security.
3.9 Liability of Foreign Sub-Custodians.
Each agreement pursuant to which the Custodian (or its U.S. sub-custodian
bank, as applicable) employs a foreign banking institution as a foreign sub-
custodian shall require the institution to exercise
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reasonable care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and Custodian's customers from and against any loss,
damage, cost, expense, liability or claim arising out of such sub-custodian's
negligence, fraud, bad faith, willful misconduct or reckless disregard of its
duties. At the election of the Company, it shall be entitled to be subrogated
to the right of the Custodian with respect to any claims against the Custodian's
U.S. sub-custodian bank (if any) or a foreign banking institution as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that the Company has not been made whole for any such loss,
damage, cost, expense, liability or claim.
3.10 Monitoring Responsibilities.
The Custodian shall furnish annually to the Company information concerning
the foreign sub-custodians employed by the Custodian (or its U.S. sub-custodian
bank, as applicable). Such information shall be similar in kind and scope to
that furnished to the Company in connection with the initial approval of this
Contract (and any contracts with U.S. and foreign sub-custodians entered into
pursuant hereto). In addition, the Custodian will promptly inform the Company
in the event that the Custodian learns of a material adverse change in the
financial condition of a foreign sub-custodian or is notified by the Custodian's
U.S. sub-custodian bank (if any) or a foreign banking institution employed as
foreign sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (United States dollars or
the equivalent thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted United
States accounting principles).
3.11 Branches of United States Banks.
Except as otherwise set forth in this Contract, the provisions hereof shall
not apply where the custody of any Fund's assets maintained in a foreign branch
of a banking institution which is a "bank" as defined by Section 2(a) (5) of the
Investment Company Act of 1940 which meets the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a sub-
custodian shall be governed by Article 1 of this Contract.
3.12 Expropriation Insurance.
The Custodian represents that it does not intend to obtain any insurance
for the benefit of the Company or any Fund which protects against the imposition
of exchange control restrictions or the transfer from any foreign jurisdiction
of the proceeds of sale of any securities or against confiscation, expropriation
or nationalization of any securities or the assets of the issuer of such
securities is organized or in which securities are held for safekeeping either
by Custodian or any sub custodians in such country. The Custodian represents
that its understanding of the position of the Staff of the Securities and
Exchange Commission is that any investment company investing in securities of
foreign issuers has the responsibility for reviewing the possibility of the
imposition of exchange control restrictions which would affect the liquidity of
such investment company's assets and the possibility of exposure to political
risk, including the appropriateness of insuring against such risk.
4. Proxies.
The Custodian shall, with respect to the securities held hereunder, cause
to be promptly executed by the registered holder of such securities, if the
securities are registered otherwise than in the name of the Company or a nominee
of the Company, all proxies, without indication of the manner in which such
proxies are to be voted, and shall promptly deliver to the Company such proxies,
all proxy soliciting materials and all notices relating to such securities.
5. Communications Relating to Fund Portfolio Securities.
The Custodian shall transmit promptly to the Company all written
information (including, without limitation, dependency of calls and maturities
of securities and expirations of rights in connection therewith and notices of
exercise of call and put options written by the Fund and the maturity of futures
contracts purchased or sold by the Company) received by the Custodian from
issuers of the securities being held for each Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Company all
written information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Company desires to take action with
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respect to any tender offer, exchange offer or any other similar transaction,
the Company shall notify the Custodian at least three business days prior to the
date on which the Custodian is to take such action.
6. Proper Instructions.
Proper Instructions as used in this Contract means a writing signed or
initialed by one or more person or persons as the Board of Directors of the
Company shall have from time to time authorized. Each such writing shall set
forth the specific transaction or type of transaction involved, including a
specific statement of the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the Custodian reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Company shall cause
all oral instructions to be confirmed in writing. Upon receipt of a certificate
of the Secretary or an Assistant Secretary as to the authorization by the Board
of Directors of the Company accompanied by a detailed description of procedures
approved by the Board of Directors, Proper Instructions may include
communications effected directly between election-mechanical or electronic
devices provided that the Board of Directors and the Custodian are satisfied
that such procedures afford adequate safeguards for each Fund's assets.
7. Actions Permitted Without Express Authority.
The Custodian may in its discretion, without express authority from the
Company:
1) Make payments to itself or others for minor expenses of handling
securities provided that all such payments shall be accounted for to
the Company;
2) Surrender securities in temporary form for securities in definitive
form;
3) Endorse for collection, in the names of the applicable Fund, checks,
drafts and other negotiable instruments; and
4) In general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of the Company except as otherwise
directed by the Board of Directors of the Company.
8. Evidence of Authority.
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument of paper believed by it to be
genuine and to have been properly executed by or on behalf of the Company. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Company as conclusive evidence (a) of the authority of any
person to act in accordance with such vote or (b) or any determination or of any
action duly made or taken by the Board of Directors as described in such vote,
and such vote may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
9. Class Actions. The Custodian shall transmit promptly to the Company all
notices or other communications received by it in connection with any class
action lawsuit relating to securities currently or previously held for one or
more of the Funds. Upon being directed by the Company to do so, the Custodian
shall furnish to the Company any and all written materials which establish the
holding/ownership, amount held/owned, and period of holding/ownership of the
securities in question.
10. Records.
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Company and each Fund under the Investment Company Act of
1940, with particular attention to Section 31 thereof and Rule 31a-1 and 31a-2
thereunder. The Custodian shall also maintain records as directed by the
Company in connection with applicable federal and state tax laws and any other
law or administrative rules or procedures which may be applicable to the Company
and the Funds. With respect to securities and cash deposited with a Securities
System, a sub-custodian or an agent of the Custodian, the Custodian shall
identify on its books all such securities and cash as belonging to the Company
for the account of the applicable Fund(s). All such records shall be the
property of the Company and shall at all times during the regular business hours
of the Custodian be open for inspection by duly authority officers, employees or
agents of the Company. Such records shall be made available to the Company for
review by employees and agents of the Securities and Exchange Commission. The
Custodian shall
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furnish to the Company, and its agents as directed by the Company, as of the
close of business on the last day of each month a statement showing all
transactions and entries for the account of the Company during that month, and
all holdings as of month-end.
All records so maintained in connection with the performance of its duties
under this Agreement shall remain the property of the Company and, in the event
of termination of this Agreement, shall be delivered to the Company. Subsequent
to such delivery, and surviving the termination of this Agreement, the Company
shall provide the Custodian access to examine and photocopy such records as the
Custodian, in its discretion, deems necessary, for so long as such records are
retained by the Company.
11. Opinion of Company's Independent Accountant.
The Custodian shall take all reasonable action, as the Company may from
time to time request, to obtain from year to year favorable opinions from the
Company's independent accountants with respect to its activities hereunder in
connection with the preparation of the Company's Form N-1A and Form N-SAR or
other reports to the Securities and Exchange Commission and with respect to any
other requirements of such Commission.
12. Reports to Company by Independent Public Accountants.
The Custodian shall provide the Company, at such times as the Company may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports shall be of
sufficient scope, and in sufficient detail, as may reasonably be required by the
Company to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
13. Compensation of Custodian.
For performance by the Custodian pursuant to this Agreement, the Company,
out of the assets of each applicable Fund, agrees to pay the Custodian annual
asset fees and supplemental charges as set out in Exhibit B. Fees and
supplemental charges may be changed from time to time subject to mutual written
agreement between the Company and the Custodian.
14. Responsibility of Custodian.
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties. The Custodian shall
be held to the exercise of reasonable care in carrying out the provisions of
this Contract, but shall be kept indemnified by and shall be without liability
to the Company or any Fund for any action taken or omitted by it in good faith
and without negligence. It shall be entitled to rely on and may act upon advice
of counsel of, or reasonably acceptable to, the Company on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice. Notwithstanding the foregoing, the responsibility of the
Custodian with respect to redemptions effected by check shall be in accordance
with a separate Agreement entered into between the Custodian and the Company.
If the Company requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the reasonable opinion of the Custodian, result in the Custodian or its nominee
assigned to the Company being liable for the payment of money or incurring
liability of some other form, the Company, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the Custodian in an
amount and form reasonably satisfactory to it.
If the Company requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of a Fund shall be
security therefor and should the Company fail to repay the Custodian promptly
with
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respect to any Fund, the Custodian shall be entitled to utilize available
cash and to dispose of assets to the extent necessary to obtain reimbursement.
The Custodian shall not be liable for any loss or damage to the Company or
any Fund resulting from participation in a securities depository unless such
loss or damage arises by reason of any negligence, misfeasance, or willful
misconduct of officers or employees of the Custodian, or from its failure to
enforce effectively such rights as it may have against any securities depository
or from use of a sub-custodian or agent. Anything in this Contract to the
contrary notwithstanding, the Custodian shall exercise, in the performance of
its obligations undertaken or reasonably assumed with respect to this Agreement,
reasonable care, for which the Custodian shall be responsible to the same extent
as if it were performing such duties directly. The Custodian shall be
responsible for the securities and cash held by or deposited with any sub-
custodian or agent to the same extent as if such securities and cash were
directly held by or deposited with the Custodian. The Custodian hereby agrees
that it shall indemnify and hold the Company and each applicable Fund harmless
from and against any loss which shall occur as a result of the failure of a
foreign sub-custodian holding the securities and cash to provide a level of
safeguards for maintaining any Fund's securities and cash not materially
different from that provided by a United States custodian holding such
securities and cash in the United States.
The Custodian agrees to indemnify and hold the Company and each of the
Funds harmless for any and all loss, liability and expense, including reasonable
legal fees and expenses, arising out of the Custodian's own negligence or
willful misconduct or that of its officers, agents, sub-custodians or employees
in the performance of the Custodian's duties and obligations under this
Contract.
15. Effective Period, Termination and Amendment.
The Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than sixty (60) days
after the date of such delivery or mailing; provided, however, that the
Custodian shall not act under Section 2.12 hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors of the Company has approved the initial use of a particular
Securities System and the receipt of an annual certificate of the Secretary or
an Assistant Secretary that the Board of Directors has reviewed the use by each
Fund of such Securities System, as required in each case by Rule 17f-4 under the
Investment Company Act of 1940, provided further, however, that the Company
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of its Articles of Incorporation,
and further provided, that the Company may at any time by action of its Board of
Directors, with respect to any Fund (i) substitute another bank or trust company
for the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Company on behalf of each Fund shall
pay to the Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for its costs, expenses
and disbursements.
16. Successor Custodian.
If a successor custodian shall be appointed by the Board of Directors of
the Company, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer to an account of the successor custodian each of the Fund's securities
held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Company, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940, of
its own selection, having an aggregate capital, surplus, and undivided profits,
as shown by its last published report, of not less than $100,000,000, all
securities,
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funds and other properties held by the Custodian and all instruments
held by the Custodian relative thereto and all other property held by it under
this Contract and to transfer to an account of such successor custodian all of
each Fund's securities held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under and pursuant to this
Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Company to procure the certified copy of the vote referred to or
of the Board of Directors to appoint a successor custodian, the Custodian shall
be entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
17. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and the
Company may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation or Bylaws of the Company. No interpretive or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Contract.
18. Minnesota Law to Apply.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the State of Minnesota.
19. Prior Contracts.
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Company and the Custodian relating to the custody of each
Fund's assets. This Contract shall not be assignable by any party hereto;
provided however, that any entity into which the Company or the Custodian, as
the case may be, may be merged or converted or with which it may be
consolidated, or any entity succeeding to all or substantially all of the
business of the Company or the custody business of the Custodian, shall succeed
to the respective rights and shall assume the respective duties of the Company
or the Custodian, as the case may be, hereunder.
20. General.
Nothing expressed or mentioned in or to be implied from any provision of
this Contract is intended to, or shall be construed to give any person or
corporation other than the parties hereto, any legal or equitable right, remedy
or claim under or in respect to this Contract, or any covenant, condition and
provision herein contained, this Contract and all of the covenants, conditions
and provisions hereof being intended to be and being the sole and exclusive
benefit of the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized officers as of the day
and year first above written.
IAI Capital Appreciation Fund, which is a separate series of
IAI Investment Funds VI, Inc. Norwest Bank Minnesota, N.A.
/s/ Richard E. Shuthers /s/ Theresa G. Burke
By_________________________________ By____________________________________
ATTEST ATTEST
/s/ Will Jern /s/ Susan J. Skonnord
By_________________________________ By_____________________________________
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[Letterhead of KPMG Peat Marwick LLP]
Independent Auditors' Consent
-----------------------------
The Board of Directors
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 consent to the use of our reports incorporated herein by reference and to the
references to our Firm under the headings "FINANCIAL HIGHLIGHTS" and "COUNSEL
AND AUDITORS" in Part A of the Registration Statement.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 29, 1996
