1933 Act Registration No. 033-40496
1940 Act Registration No. 811-5990
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1999
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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. _29_
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. _29_
(Check appropriate box or boxes)
IAI INVESTMENT FUNDS VI, INC.
(Exact Name of Registrant as Specified in Charter)
3700 U.S. 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)
Steven G. Lentz, Esq.
3700 U.S. Bank Place
P.O. Box 357
Minneapolis, Minnesota 55440
(Name and Address of Agent for Service)
COPY TO:
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
It is proposed that this filing will become effective (check appropriate box):
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on June 1, 1999 pursuant to paragraph (b) of Rule 485
_____ 75 days after filing pursuant to paragraph (a) of Rule 485
_____ on (specify date) pursuant to paragraph (a) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
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IAI MUTUAL FUNDS
IAI MONEY MARKET FUND
PROSPECTUS June 1, 1999
As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved the shares of this Fund, or determined if the
information in this prospectus is accurate or complete. Any statement to the
contrary is a criminal offense.
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TABLE OF CONTENTS
Page
----
Fund Summary..................................................................3
Objective................................................................3
Principal Investment Strategies..........................................3
Principal Risks..........................................................3
Fund Performance.........................................................4
Fees and Expenses........................................................5
Buying and Selling Shares.....................................................5
How to Buy Shares........................................................5
How to Sell Shares.......................................................8
Exchange Privilege......................................................10
Authorized Telephone Trading............................................11
Statements and Confirmations............................................11
Shareholder Reports.....................................................11
Dividends and Capital Gains Distributions....................................11
Taxes........................................................................12
Fund Management..............................................................12
More Information on the Fund.................................................12
Investment Strategies...................................................12
Year 2000 Issues........................................................13
Financial Highlights.........................................................14
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FUND SUMMARY
This section briefly describes the objective, principal investment
strategies and principal risks of IAI Money Market Fund. It also provides you
with information on how the Fund has performed and on Fund expenses. For further
information on the Fund, please read the section entitled "More Information on
the Fund - Investment Strategies."
OBJECTIVE
The Fund's objective is to provide shareholders with a high level of
current income consistent with the preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
IAI Money Market Fund is managed to provide a stable share price of
$1.00. The Fund invests in high quality, U.S. dollar-denominated, short-term
debt obligations including:
* securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities;
* bank obligations, including time deposits, certificates of
deposit, and bankers' acceptances;
* commercial paper;
* repurchase agreements; and
* other short-term corporate obligations, including those with
floating or variable rates of interest.
The Fund's adviser selects securities based on the relationships among
yields on various types and maturities of money market securities and the
adviser's interest rate outlook. For example, the adviser may focus on
commercial paper if it offers a yield advantage over other money market
instruments. In selecting commercial paper investments, the adviser may purchase
longer-maturity securities if interest rates are expected to fall. These
purchases would be made to try to preserve the Fund's income level, since longer
maturity investments typically have higher yields than those with shorter
maturities. Conversely, shorter maturities may be favored if interest rates are
expected to rise.
PRINCIPAL RISKS
The principal risks that could adversely affect the value of the Fund's
shares and the yield on your investment include:
* INTEREST RATE RISK. Although the fund attempts to maintain a
constant share price of $1.00, if interest rates rise sharply
in a short period of time, the value of your investment could
decline.
* INCOME RISK. The level of income you receive from the Fund
will vary with movements in short-term interest rates.
* CREDIT RISK. The Fund is subject to the risk that the issuers
of debt securities it holds will not make timely payments of
interest or principal on the securities, which could cause the
value of your investment to decline below $1.00 per share.
* MANAGER RISK. IAI manages the Fund according to the
traditional methods of "active" investment management, which
involves the buying and selling of securities based upon
economic, financial and market analysis and investment
judgment. Manager risk refers to the
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possibility that IAI may fail to execute the Fund's investment
strategy effectively. As a result, the Fund may fail to
achieve its stated objective.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00, it is possible to lose money by
investing in the Fund.
FUND PERFORMANCE
The bar chart and table below provide you with information on the
Fund's volatility and performance, and give you some indication of the risks of
investing in the Fund. The bar chart shows how the Fund's performance has varied
from year to year. The table illustrates the Fund's average annual returns over
different time periods. The Fund's past performance is not necessarily an
indication of how it will perform in the future.
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR*
[BAR CHART]
1994 3.74%
1995 5.40%
1996 4.89%
1997 5.04%
1998 5.05%
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* The Fund's total return for the period from January 1, 1999 through March 31,
1999 was 1.05%
Best Quarter: Quarter ended June 30, 1995 1.35%
Worst Quarter: Quarter ended March 31, 1993 0.67%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98
SINCE INCEPTION:
1 YEAR 5 YEARS (1/5/93)
5.05% 4.82% 4.49%
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FEES AND EXPENSES
As an investor, you pay certain fees and expenses if you buy and hold
shares of the Fund. Shareholder fees are fees you pay directly when buying or
selling shares. Annual fund operating expenses are deducted from Fund assets.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Exchange Fee *
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)(as a % of average net assets)
Management Fees 0.60%
Distribution and Service (12b-1) Fees None
Other Expenses None
Total Annual Fund Operating Expenses 0.60%
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* The Fund's transfer agent charges $5 for telephone exchanges.
EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that your investment
has a 5% return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 year $ 61
3 years $ 192
5 years $ 335
10 years $ 750
BUYING AND SELLING SHARES
HOW TO BUY SHARES
You may purchase Fund shares either directly through the Fund or
through certain securities dealers. These dealers have the responsibility to
promptly transmit orders and may charge a processing fee.
MINIMUM INVESTMENTS
The Fund is a member of the IAI Family of Funds, a family of mutual
funds advised by Investment Advisers, Inc. ("IAI"). The minimum initial
investment to establish an account with the IAI Family of Funds is $5,000 for a
retail account and $2,000 for an IRA account. In each case, your initial
investment may be allocated in any way you wish among the Fund and other funds
in the IAI Family of Funds, so long as no less than $1,000 is allocated to any
one fund. Once you have met the account minimum, subsequent purchases can be
made for as little as $100.
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DETERMINING YOUR PURCHASE PRICE
Your purchase price will be equal to the Fund's net asset value ("NAV")
per share next calculated after your order is placed in proper form. To make
sure that your order is in proper form, please follow the directions for
purchasing shares given below. No sales load or commission is charged when you
purchase shares. NAV is determined as of the close of regular trading on the New
York Stock Exchange each day the exchange is open.
The Fund's NAV per share is computed by adding up the value of the
Fund's investments, cash and other assets, subtracting its liabilities, and then
dividing the result by the number of shares outstanding. The securities held by
the Fund are valued on the basis of amortized cost. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization of any
discount or premium until the instrument's maturity, rather than looking at
actual changes in the market value of the instrument. The Fund's net asset value
is normally expected to be $1.00 per share.
INVESTING BY MAIL
To invest by mail, send a completed, signed application and a check
payable to "IAI Funds" to one of the following addresses:
Regular Mail Overnight Mail
- ------------ --------------
IAI Mutual Funds IAI Mutual Funds
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 E. Michigan St., Third Floor
Milwaukee, WI 53201-0701 Milwaukee, WI 53202
Third party checks will not be accepted for initial account
investments. After the Fund receives your completed purchase order, your account
will be credited with the number of full and fractional shares that can be
purchased at the next determined net asset value. A $20 fee will be imposed by
the Fund's transfer agent if any check you use for investment in an account does
not clear, and you will be responsible for any loss incurred by the Fund.
For assistance in completing the application, please contact IAI
Shareholder Services at 1-800-945-3863.
INVESTING BY WIRE
If you have an account with a commercial bank that is a member of the
Federal Reserve System, you may purchase shares by requesting your bank to wire
funds to:
Firstar Bank Milwaukee, N.A.
777 E. Wisconsin Ave.
Milwaukee, WI 55302
ABA Number: 075000022
Credit: Firstar Mutual Fund Services, LLC
Account #112-952-137
For further credit to IAI Mutual Funds
(Shareholder account #, shareholder name)
If you are purchasing by wire for a new account, you must do the following
before you wire funds:
* call IAI Shareholder Services at 1-800-945-3863 to advise them
of your investment;
* obtain instructions and an application form; and
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* complete the application and send it to:
IAI Mutual Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Your completed application must be received by the Fund before your wire is
sent.
Before initiating any subsequent wires, please call IAI Shareholder
Services and advise them of your name, account number and the name of the bank
transmitting the federal funds.
Wire orders will be accepted only on days when your bank, the Fund, the
Fund's transfer agent and Firstar Bank Milwaukee, N.A. are open for business. A
wired purchase will be considered made when the wired amount is received and the
purchase is accepted by the Fund. The Fund must receive payment before the close
of business for the purchase to be credited to your account on that day.
Otherwise, your purchase will be processed the next business day. The Fund may
reject your wire order if it does not contain the required information stated
above. If the Fund rejects your wire order, your money will be returned
promptly, less any costs incurred by the Fund or the Fund's transfer agent in
rejecting the order. You must pay any charges assessed by your bank for the wire
service. Any delays that may occur in wiring federal funds, including delays in
processing by the banks, are not the responsibility of the Fund or the Fund's
transfer agent.
MAKING ADDITIONAL INVESTMENTS
You can make additional investments to your existing account by mail,
by wire or by exchanging shares of another fund in the IAI Family of Funds for
Fund shares. You can also make additional investments to your existing account
directly from your bank account by utilizing the Automated Clearing House (ACH)
system. If you did not establish this option when you opened your account, call
IAI Shareholder Services at 1-800-945-3863.
RETIREMENT PLANS
The Fund offers Individual Retirement Accounts (IRAs) and Roth IRAs.
The Fund's transfer agent imposes a $12.50 annual maintenance fee per IRA or
Roth IRA with a $25 limit per social security number per year. However, no such
fee will be imposed until January 1, 2000. The Fund's transfer agent also
charges $15 for transfers to a successor trustee, $15 for distributions
(excluding distributions pursuant to a Systematic Cash Withdrawal Plan) to IRA
or Roth IRA participants and $15 to refund excess contributions. For further
information about such accounts, please call IAI 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. You are urged to consult
an attorney or tax adviser before establishing such a plan.
AUTOMATIC INVESTMENT PLAN
Following a minimum initial investment, you may arrange to make regular
investments of $100 or more each month through automatic deductions from your
checking or savings account. To participate in this program, simply complete the
Automatic Investment Plan portion of your application and return it to the Fund.
You can setup the Automatic Investment Plan if your financial institution is a
member of ACH. You will receive quarterly confirmations of all transactions and
dividends under the Plan. There is no fee for this service. However, if your ACH
transaction does not clear for lack of funds, you will be charged a $20 service
fee by the Fund's transfer agent.
If you wish to change or terminate your participation in the Automatic
Investment Plan you must provide the Fund with written notice. Your instructions
must be received by 10 days prior to the date the change or termination is to
take place.
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HOW TO SELL SHARES
You may redeem your shares on any day the New York Stock Exchange is
open. The exchange is closed on weekends, national holidays and Good Friday.
Your redemption price will be the net asset value of your shares next determined
after your redemption request is received in proper form by the Fund. To make
sure that your request is in proper form, please follow the directions for
selling shares given below.
BY MAIL
If you redeem by mail, your redemption price will be equal to the
Fund's net asset value per share next determined following receipt by the Fund
of your written redemption request in the form shown below (and a properly
endorsed stock certificate if one has been issued).
To redeem by mail, send a written request to the Fund at one of the
following addresses:
Regular Mail Overnight Mail
- ------------ --------------
IAI Mutual Funds IAI Mutual Funds
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 E Michigan St., Third Floor
Milwaukee, WI 53201-0701 Milwaukee, WI 53202
Your request should include the following information:
* name of the Fund,
* account number,
* dollar amount or number of shares to be redeemed,
* name on the account, and
* signatures of all registered account owners.
If you hold certificates for your shares, they must be included with your
request. They must be endorsed on the back with the signature of the person
whose name appears on the certificate and must be signature guaranteed.
Signatures on your written request must be guaranteed if:
* you would like the proceeds from the sale to be paid to
someone other than the shareholder of record, or
* you have changed your address over the telephone within the
last 15 calendar days.
A signature guarantee assures that a signature is genuine and protects
shareholders from unauthorized account transfers. Banks, savings and loan
associations, trust companies, credit unions, broker-dealers and member firms of
a national securities exchange may guarantee signatures. NOTARIZATION BY A
NOTARY PUBLIC IS NOT ACCEPTED.
If Fund shares are held of record in the name of a corporation,
partnership, trust or fiduciary, the Fund may require additional evidence of
authority prior to accepting a redemption request.
To redeem money from your IRA account, an IRA Distribution Form must be
completed and returned to IAI. To receive a copy of the form, please call IAI
Shareholder Services at 1-800-945-3863.
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BY PHONE
You may redeem shares by phone, subject to the following conditions:
* You must have completed the Telephone Options section of the
account application.
* Telephonic redemptions are limited to $50,000.
* Redemption proceeds must be made payable to the owner(s) of
record and delivered to the address of record.
* Telephone redemptions are not permitted for IRAs.
For assistance, please contact IAI Shareholder Services at 1-800-945-3863.
PAYMENT OF REDEMPTION PROCEEDS
BY WIRE. When you redeem by telephone, you may have the proceeds wired
to your bank account if you provided the required information at the time you
opened your account. Wire redemption requests will only be processed on days
your bank, the Fund, the Fund's transfer agent and Firstar Bank Milwaukee, N.A.
are open for business. If you choose to have your redemption proceeds wired to
your bank, please note the following:
* A minimum amount of $1,000 is required to wire redemption
proceeds.
* Proceeds will be wired on the next business day after your
redemption request.
* Your account will be charged a fee of $12 each time redemption
proceeds are wired to your bank. Your bank may also charge you
a fee for receiving a wire.
To add the ability to receive proceeds by wire to your account, or to
change existing bank account information, please submit a letter of instruction,
including your bank information and a signature guarantee, to:
IAI Mutual Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
BY ACH. When you redeem by telephone, you may have the proceeds sent to
your bank account by an Automatic Clearing House transfer if you provided the
required information at the time you opened your account. Proceeds sent by ACH
transfer should be credited the second day after the redemption. ACH is an
automated method of initializing payments from, and receiving payments in, your
financial institution account. The ACH system is supported by over 20,000 banks,
savings banks and credit unions. For assistance, please contact IAI Shareholder
Services at 1-800-945-3863.
BY CHECK. Normally the Fund will mail payment for shares redeemed on
the business day following the receipt of your redemption request, although
payment may be made as late as seven days after your request. However, the Fund
will not send redemption proceeds until checks (including certified checks,
cashiers checks or automatic investment credits) received in payment for shares
have cleared. This may take up to 15 days from the date of purchase.
INVOLUNTARY REDEMPTIONS
If your account balance falls below $500 as a result of selling or
exchanging shares, the Fund has the right to redeem your shares and send you the
proceeds. Before redeeming your account, the Fund will mail you a notice of its
intention to redeem, which will give you an opportunity to make an additional
investment. If you do not
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increase the value of your account to at least $500 within six months of the
date the notice was mailed, the Fund may redeem your account.
SYSTEMATIC CASH WITHDRAWAL PLAN
The Fund has a Systematic Cash Withdrawal Plan under which you may
automatically redeem a fixed dollar amount of Fund shares on either a monthly or
quarterly basis. Under the Systematic Cash Withdrawal Plan:
* Automatic redemptions must be for $100 or more.
* Shares will be redeemed at the net asset value determined on
the 15th of the applicable month (or the next business day).
* All income dividends and capital gains distributions must be
reinvested in Fund shares.
* Confirmations of all transactions and distributions will be
sent to you quarterly.
Plan application forms are available through the Fund. If you would like
assistance in completing the application, contact IAI Shareholder Services at
1-800-945-3863.
CHECK WRITING PRIVILEGE
You may sign up for check writing privileges by completing a Check
Writing application. With a Fund checking account, you may redeem shares simply
by writing a check for $500 or more. There is no charge for the use of such
checks; however, the Fund's transfer agent will impose a $20 fee for stopping
payment of such a check upon your request, or if the transfer agent cannot honor
such a check due to insufficient funds in the account or other valid reason.
Fund shares held in IRAs, Roth IRAs, SEP IRAs and Keogh Plans may not be
redeemed by check. Please call IAI Shareholder Services at 1-800-945-3863 for
more information.
EXCHANGE PRIVILEGE
You may exchange your Fund shares for shares of another fund in the IAI
Family of Funds if you satisfy that fund's purchase requirements. The Fund's
transfer agent charges $5 for telephone exchanges.
The Fund generally limits exchanges to four per calendar year. This
limit may be modified for certain retirement plan accounts and for those
participating in the Automatic Exchange Plan described below. The Fund may
change or cancel its exchange privilege at any time.
When you exchange your Fund shares for shares of another fund in the
IAI Family of Funds the exchange is considered a sale of your Fund shares for
federal income tax purposes.
You may exchange shares by notifying the Fund in writing or, if you
have authorized the Fund to accept telephone instructions, by telephone. See
"How to Sell Shares -- By Telephone."
AUTOMATIC EXCHANGE PLAN
You may arrange to make regular exchanges of $100 or more between any
of the funds in the IAI Family of Funds on a monthly basis. Please note the
following about automatic exchanges:
* If you wish to participate in the Plan, you must complete the
Automatic Exchange Plan portion of your IAI Mutual Fund
application.
* Exchanges will take place at the net asset value determined on
the fifth day of each month (or the next business day).
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* If you participate in the Automatic Exchange Plan you will
receive quarterly confirmations of all transactions and
dividends.
* You may not close an account through the Automatic Exchange
Plan.
AUTHORIZED TELEPHONE TRADING
As discussed above, you may exchange and redeem shares by telephone if
you have completed the Telephone Options section of the IAI Mutual Fund
application. Telephone redemptions are not permitted for IRAs.The Fund's
transfer agent charges $5 for telephone exchanges.
Address changes may also be made over the telephone. During the 15
calendar days following an address change by telephone, you may only redeem
shares in your account with a signature guaranteed letter of instruction.
The Fund and its agents will not be responsible for any losses that may
result from acting on telephone instructions that they reasonably believe to be
genuine. The Fund will follow reasonable procedures to confirm that instructions
received by telephone are genuine. These procedures include tape recording all
redemption and exchange requests.
STATEMENTS AND CONFIRMATIONS
Whenever you buy or sell shares of the Fund, IAI will send you a
confirmation statement showing how many shares you bought or sold and at what
price. You will also receive a cumulative account statement quarterly and a
transaction statement annually. Please review carefully all of the information
relating to transactions on your statements and confirmations to ensure that
your instructions were acted on properly. Please notify the Fund immediately in
writing if there is an error. If you do not provide the Fund with notice of an
error within 60 days of non-automatic transactions, or within 60 days of the
date of your consolidated quarterly statement in the case of automatic
transactions, you will be deemed to have ratified the transaction. The Fund's
transfer agent reserves the right to impose a charge of $5 on requests for
extraordinary or archival research relating to your account.
SHAREHOLDER REPORTS
Shareholder reports will be sent to you semi-annually. These reports
contain financial information about the Fund, including a list of investment
securities held. To reduce the volume of mail you receive, only one copy of Fund
reports may be mailed to your household (same surname and address). Please call
IAI Shareholder Services at 1-800-945-3863 if you wish to receive additional
shareholder reports.
DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS
Dividends from the fund's net investment income are declared daily and
paid on the last business day of each month. Because the Fund is managed to
maintain a constant share price, it is not expected to make any capital gains
distributions.
When you open an account, you should specify on your application how
you want to receive your distributions. The Fund offers two options:
* REINVESTMENT -- your income dividends are automatically
reinvested in additional shares of the Fund; or
* CASH -- your income dividends will be paid in cash.
If you elect to receive your dividends in cash, they can be sent to you by 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.
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If you do not select an option when you open your account, the Fund
will automatically reinvest all dividends in additional Fund shares.
The Fund also has a Directed Dividend service which allows you to
invest your dividends into another IAI Mutual Fund. Contact IAI Shareholder
Services at 1-800-945-3863 for details.
TAXES
Dividends you receive from the Fund generally will be taxable as
ordinary income, whether paid in cash or reinvested (unless your investment is
in an IRA or other tax advantaged account). However, because everyone's tax
situation is unique, be sure to consult with your tax adviser.
Information about the tax status of each year's dividends will be
mailed annually.
FUND MANAGEMENT
Investment Advisers, Inc. ("IAI") is the Fund's investment adviser.
IAI, which has been in the investment advisory business since 1947, 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. IAI is located at 601 Second Avenue South, Suite 3600, Minneapolis,
Minnesota 55402.
The Fund has entered into a Management Agreement with IAI under which
IAI provides the Fund with investment advisory services and is responsible for
managing the Fund's business affairs, subject to the authority of the Board of
Directors. IAI also is responsible under the Management Agreement for providing
or arranging for the provision of all required administrative, stock transfer,
redemption, dividend disbursing, accounting and shareholder services. The
Management Agreement requires IAI to pay all of the Fund's operating expenses,
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. The Fund pays IAI an annual fee
under the Management Agreement. During its most recent fiscal year, the Fund
paid IAI a management fee equal to 0.60% of the Fund's average daily net assets.
Because IAI is paying the Fund's operating expenses, this fee represents the
Fund's total expenses for the fiscal year.
MORE INFORMATION ON THE FUND
INVESTMENT STRATEGIES
The principal investment strategies of the Fund are described above
under "Fund Summary." These are the strategies that IAI believes are most likely
to be important in trying to achieve the Fund's objectives. Of course, there is
no guarantee that the Fund will achieve its objective. Although not considered
principal strategies, you should be aware that the Fund may also use strategies
and invest in securities that are not described in this prospectus, but that are
described in the statement of additional information.
The Fund complies with Securities and Exchange Commission regulations
that apply to money market funds. These regulations require that the Fund's
investments mature within 397 days from the date of purchase, and that the
average maturity of the Fund's investments (on a dollar-weighted basis) be 90
days or less. The Fund may invest in securities with variable or floating
interest rates and securities with demand features. The maturities of these
securities are determined according to regulations which allow the Fund to
consider some of these securities as having maturities shorter than their stated
maturity dates. All of the Fund's investments must be in U.S. dollar-denominated
high quality securities which have been determined by IAI to present minimal
credit risks.
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YEAR 2000 ISSUES
Like all financial service providers, the Fund's investment adviser,
transfer agent, administrator, and other third party service providers utilize
systems that may be affected by year 2000 transition issues and other date
related issues. These service providers of the Fund depend on the smooth
functioning of their computer systems. Many computer software systems in use
today cannot distinguish the year 2000 from the year 1900 because of the way
dates are encoded and calculated. That failure could have a negative impact on
handling securities trades, pricing and account services. IAI has been actively
working on necessary changes to its computer systems to deal with the year 2000
and expects that its systems will be adapted in time for that event, although
there cannot be assurance of success. Furthermore, the Fund's service providers
have advised the Fund that they have been actively working on necessary changes
to their computer systems to prepare for the year 2000. However, there can be no
assurance of success.
IAI is working with third parties to assess the adequacy of their
compliance efforts and is developing contingency plans intended to assure that
third-party noncompliance will not materially affect IAI's operations.
Companies, organizations, governmental entities and markets in which
the Fund invests will be affected by the Year 2000 issue, but at this time the
Fund cannot predict the degree of impact. To the extent the effect is negative,
the Fund's returns could be adversely affected.
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FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the Fund.
This information is intended to help you understand the Fund's financial
performance for the past five years. Some of this information reflects financial
results for a single Fund share outstanding for the entire period. The total
returns in the table represent the rate that you would have earned or lost on an
investment in the Fund, assuming you reinvested all of your dividends and
distributions. This information has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report, along with the Fund's financial statements,
is included in the Fund's annual report, which is available upon request.
MONEY MARKET FUND
<TABLE>
<CAPTION>
Years ended January 31, Period from
April 1,
1994 to Year ended
January 31, March 31,
-------------------------------------------------- ------------ ----------
1999 1998 1997 1996 1995(1) 1994
-------- -------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
OPERATIONS
Net investment income 0.05 0.05 0.05 0.05 0.03 0.03
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.05) (0.05) (0.05) (0.05) (0.03) (0.03)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE
End of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total investment return* 4.96% 5.05% 4.89% 5.46% 3.47% 2.88%
Net assets at end of period (000s omitted) $ 35,430 $ 22,507 $ 26,140 $ 27,395 $ 33,175 $ 29,788
RATIOS
Expenses to average daily net assets*** 0.60% 0.60% 0.56% 0.50% 0.50%** 0.45%
Net investment income to average daily
net assets*** 4.80% 4.93% 4.80% 5.34% 4.12%** 2.73%
</TABLE>
- -------------------
* Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of all distributions at
net asset value.
** Annualized.
*** The Fund's adviser voluntarily waived $21,950, $76,386, $81,895 and
$147,924 in expenses for the years ended January 31, 1997, 1996, the
period ended January 31, 1995 and the year ended March 31, 1994,
respectively. If the Fund had been charged for these expenses, the ratio
of expenses to average daily net assets would have been .63%, .74%, .88%
and .88%, respectively, and the ratio of net investment income to average
daily net assets would have been 4.73%, 5.10%, 3.74% and 2.30%,
respectively.
(1) Reflects fiscal year-end change from March 31 to January 31.
14
<PAGE>
FOR MORE INFORMATION ABOUT IAI MONEY MARKET FUND
The Fund's statement of additional information ("SAI") and annual and
semi-annual reports to shareholders include additional information about the
Fund. The SAI provides more details about the Fund and its policies. A current
SAI is on file with the Securities and Exchange Commission (SEC) and is
incorporated into this prospectus by reference (which means that it is legally
considered part of this prospectus). Additional information about the Fund's
investments is available in the Fund's annual and semiannual reports to
shareholders. You may obtain free copies of these materials by calling the Fund
toll free at 1-800-945-3863.
You may also obtain copies by visiting the SEC's Public Reference Room
in Washington, DC or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009.For more information, call
1/800-SEC-0330.
Information about the Fund is also available on the Internet. Text only
versions of fund documents can be viewed online or downloaded from the SEC's
Internet site at http://www.sec.gov.
SEC file number: 811-5990
<PAGE>
IAI MONEY MARKET FUND
A SERIES OF
IAI INVESTMENT FUNDS VI, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED JUNE 1, 1999
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS
STATEMENT OF ADDITIONAL INFORMATION RELATES TO A PROSPECTUS FOR IAI MONEY MARKET
FUND (THE "FUND") DATED JUNE 1, 1999, AND SHOULD BE READ IN CONJUNCTION
THEREWITH. THE FINANCIAL STATEMENTS INCLUDED AS PART OF THE FUND'S ANNUAL REPORT
TO SHAREHOLDERS FOR THE FISCAL PERIOD ENDED JANUARY 31, 1999 ARE INCORPORATED BY
REFERENCE INTO THIS STATEMENT OF ADDITIONAL INFORMATION. COPIES OF THE FUND'S
PROSPECTUS AND/OR ANNUAL REPORT ARE AVAILABLE, WITHOUT CHARGE, BY WRITING OR
CALLING THE FUND'S TRANSFER AGENT, FIRSTAR MUTUAL FUND SERVICES, LLC, P.O. BOX
701, MILWAUKEE, WISCONSIN 53201-0701 (TELEPHONE NUMBER 1-800-945-3863).
TABLE OF CONTENTS
Page
----
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS....................................2
INVESTMENT RESTRICTIONS.......................................................7
INVESTMENT PERFORMANCE........................................................9
MANAGEMENT...................................................................11
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT......................14
LEGAL COUNSEL................................................................14
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE...........................14
CAPITAL STOCK................................................................15
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..........................15
NET ASSET VALUE AND PUBLIC OFFERING PRICE....................................15
PURCHASES AND REDEMPTIONS OF SHARES..........................................16
TAX STATUS...................................................................16
LIMITATION OF DIRECTOR LIABILITY.............................................17
SHAREHOLDER MEETINGS.........................................................18
FINANCIAL STATEMENTS.........................................................18
<PAGE>
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
IAI Money Market Fund ("Money Market Fund" or the "Fund") is a
diversified series of an open-end, management investment company. The investment
objective and principal investment strategies of the Fund are discussed in the
Prospectus under "Fund Summary" and "More Information on Fund." The Fund's
investment objective may not be changed without shareholder approval.
Investors should understand that all investments are subject to various
risks. There can be no guarantee against loss resulting from an investment in
the Fund, and there can be no assurance that the Fund's investment strategies
will be successful, or that its investment objective will be attained. Certain
of the Fund's principal investment strategies are discussed in more detail
below. In addition, the Fund may also use strategies and invest in securities
that are not described in the Prospectus, but that are described below.
RULE 2a-7
The Fund is subject to the investment restrictions of Rule 2a-7 under
the Investment Company Act of 1940 (the "1940 Act") in addition to the other
policies and restrictions discussed herein and in the Prospectus. Rule 2a-7
requires that the Fund invest exclusively in securities that mature within 397
days from the date of purchase and that it maintain an average dollar weighted
maturity of not more than 90 days. Under Rule 2a-7, securities which are subject
to specified types of demand or put features may be deemed to mature at the next
demand or put date although they have a longer stated maturity. Rule 2a-7 also
requires that all investments by the Fund be limited to United States
dollar-denominated investments that (a) present "minimal credit risk" and (b)
are at the time of acquisition "Eligible Securities." Eligible Securities
include, among others, securities that are rated by two Nationally Recognized
Statistical Rating Organizations ("NRSROs") in one of the two highest categories
for short-term debt obligations, such as A-1 or A-2 by Standard & Poor's Rating
Services, a division of The McGraw-Hill Companies, Inc. ("Standard & Poor's"),
or Prime-1 or Prime-2 by Moody's Investors Service, Inc. ("Moody's"). It is the
responsibility of the Fund's investment adviser, Investment Advisers, Inc.
("IAI"), to determine that the Fund's investments present only "minimal credit
risks" and are Eligible Securities, pursuant to the oversight of, and written
guidelines and procedures established by, the Fund's Board of Directors.
Rule 2a-7 requires that the Fund may not invest more than 5% of its
total assets in the securities of a single issuer (measured at the time of
purchase); other than United States "Government Securities" (as defined in the
1940 Act), provided that the Fund may invest in First Tier Securities (as
defined in Rule 2a-7) in excess of that limitation for a period of up to three
business days after the purchase thereof, but the Fund may not make more than
one such investment at any time. Rule 2a-7 also requires that (1) 95% of the
assets of the fund be invested in Eligible Securities that are deemed First Tier
Securities, which include, among others, securities rated by two NRSROs in the
highest category (such as A-1 and P-1), (2) the Fund may not invest more than 5%
of its total assets in Second Tier Securities (i.e., Eligible Securities that
are not First Tier Securities) and (3) the Fund's investment in Second Tier
Securities of a single issuer may not exceed the greater of 1% of the Fund's
total assets or $1,000,000.
BANK OBLIGATIONS
The Fund may invest in commercial paper, certificates of deposit, bank
notes, time deposits and bankers' acceptances issued by domestic banks, foreign
branches of domestic banks, and domestic and foreign branches of foreign banks.
Certificates of deposit are certificates evidencing the obligation of a bank to
repay funds deposited with it for a specified period of time. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Time deposits are not transferable and
are therefore illiquid prior to their maturity. The Fund will not invest more
than 10% of its net assets in time deposits and other illiquid securities. See
"Investment Restrictions," below. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and of the drawer to
pay the face amount of the instrument upon maturity. Certificates of deposit,
bank notes, time deposits and bankers' acceptances issued by foreign banks and
by foreign branches of domestic banks will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation.
2
<PAGE>
U.S. GOVERNMENT SECURITIES
The Fund may invest in securities issued or guaranteed as to principal
or interest by the United States Government, or agencies or instrumentalities of
the United States Government. The types of securities in which the Fund may
invest include direct obligations of the United States Treasury, such as United
States Treasury bonds, notes and bills. In addition, the Fund may invest in
obligations issued by instrumentalities which have been established or sponsored
by the United States Government. Some obligations issued or guaranteed by
agencies or instrumentalities are fully guaranteed by the United States
Government. Others rely on the assets and credit of the instrumentality, along
with rights to borrow from the United States Treasury and may involve more risk.
EXTENDIBLE NOTES
The Fund may invest in extendible notes. An extendible note is a debt
arrangement under which the holder, at its option, may require the issuer to
repurchase the note for a predetermined fixed price at one or more times prior
to the ultimate maturity date of the note. Typically, an extendible note is
issued at an interest rate that can be adjusted at fixed times throughout its
term. At the same times as the interest rate is adjusted by the issuer, the
holder of the note is typically given the option to "put" the note back to the
issuer at a predetermined price (e.g., at 100% of the outstanding principal
amount plus unpaid accrued interest) if the extended interest rate is
undesirable to the holder. This option to put the note back to the issuer (i.e.,
to require the issuer to repurchase the note) provides the holder with an
optional maturity date that is shorter than the actual maturity date of the
note.
Extendible notes are typically issued with maturity dates in excess of
397 days from the date of issuance. However, if such extendible notes provide
for an optional maturity date of 397 days or less, then such notes are deemed by
the Fund to have been issued for the shorter optional maturity date.
Accordingly, investment in such extendible notes would not be in contravention
of the Rule 2a-7 requirement that a money market fund not invest in securities
having a maturity date in excess of 397 days from the date of acquisition.
An investment in an extendible note is liquid, and the note may be
resold to another investor prior to its optional maturity date at its market
value. The market value of an extendible note with a given optional maturity
date is determined and fluctuates in a similar manner as the market value of a
fixed maturity note with a maturity equivalent to the optional maturity of the
extendible note. Compared to fixed term notes of the same issuer, however,
extendible notes with equivalent optional maturities generally yield higher
returns without a material increase in risk to the Fund.
The creditworthiness of the issuers of extendible notes is monitored
and rated by independent rating organizations and investments by the Fund in
such extendible notes are restricted to notes with the same investment ratings
as are acceptable with respect to other forms of investment. The
creditworthiness of such issuers is also monitored by IAI.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS
The Fund may invest in loans and other direct debt instruments. Direct
debt instruments are interests in amounts owed by a corporate, governmental, or
other borrower to lenders or lending syndicates (loans and loan participations),
to suppliers of goods or services (trade claims or other receivable), or to
other parties. Direct debt instruments are subject to the Fund's policies
regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally recognized
rating service. If the Fund does not receive scheduled interest or principal
payments on such indebtedness, the Fund's share price and yield could be
adversely affected. Loans that are fully secured offer the Fund more protection
than an unsecured loan in the event of non-payment of scheduled interest or
principal. However, there is no assurance that the liquidation of collateral
from a secured loan would satisfy the borrower's obligation, or that the
collateral can be liquidated.
3
<PAGE>
Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional risks to
the Fund. For example, if a loan is foreclosed, the Fund could become part owner
of any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, the Fund could be held liable
as a co-lender. Direct debt instruments may also involve a risk of insolvency of
the lending bank or other intermediaries. Direct debt instruments that are not
in the form of securities may offer less legal protection to the Fund in the
event of fraud or misrepresentation. In the absence of definitive regulatory
guidance, the Fund relies on IAI's research in an attempt to avoid situations
where fraud or misrepresentation could adversely affect the Fund.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, the Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of the Fund were determined to be
subject to the claims of the agent's general creditors, the Fund might incur
certain costs and delays in rendering payment on the loan or loan participation
and could suffer a loss of principal or interest.
The Fund limits the amount of the assets that it will invest in any one
issuer or in issuers within the same industry. For purposes of these
limitations, the Fund generally will treat the borrower as the "issuer" of
indebtedness held by such Fund. In the case of loan participations where a bank
or other lending institution serves as financial intermediary between the Fund
and the borrower, if the participation does not shift to the Fund the direct
debtor/creditor relationship with the borrower, SEC interpretations require the
Fund, in appropriate circumstances, to treat both the lending bank or other
lending institution and the borrower as "issuers" for the purpose of determining
whether the Fund has invested more than 5% of its total assets in a single
issuer. Treating a financial intermediary as an issuer of indebtedness may
restrict the Fund's ability to invest in indebtedness related to a single
financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest in obligations issued or guaranteed by one or more
foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by IAI to be of comparable quality to the
other obligations in which the Fund may invest. Such securities also include
debt obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Examples include the International
Bank for Reconstruction and Development (the "World Bank"), the Asian
Development Bank and the InterAmerican Development Bank. The Fund may also
invest in commercial paper issued by foreign issuers and, as discussed above
under "Bank Obligations," in obligations of foreign banks and foreign branches
of domestic banks. The percentage of the Fund's assets invested in securities
issued by foreign governments and other foreign issuers will vary depending upon
the relative yields of such securities, the economic and financial markets of
the countries in which the investments are made, and the interest rate climate
of such countries.
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 companies in the United States. Also, foreign issuers
are not subject to uniform accounting and auditing and financial reporting
standards, practices and requirements comparable to those applicable to United
States companies. Furthermore, 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. There is generally less government
supervision and regulation of foreign bond markets, brokers and 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, 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.
4
<PAGE>
PARTICIPATION INTERESTS
The Fund may purchase from financial institutions participation
interests in loans and other securities in which the Fund may invest. A
participation interest gives the Fund an undivided interest in the security in
the proportion that the Fund's participation interest bears to the total
principal amount of the security. These instruments may have fixed, floating or
variable rates of interest, with remaining maturities of one year or less. For
certain participation interests, the Fund will have the right to demand payment,
on not more than seven days' notice, for all or any part of the Fund's
participation interest in the security, plus accrued interest. As to these
instruments, the Fund intends to exercise its right to demand payment only upon
a default under the terms of the security as needed to provide liquidity to meet
redemptions or to maintain or improve the quality of its investment portfolio.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities.
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. In the case of
a Rule 144A Security, such security is deemed to be liquid if:
(1) IAI reasonably expects to be able to resell the security
to a qualified institutional buyer, as defined in paragraph (a)(1) of
Rule 144A, who is aware of the Fund's reliance upon Rule 144A in
selling the security without registration, as required by paragraph
(d)(2) of Rule 144A;
(2) the Rule 144A Security is not (a) of the same class as
securities listed on any national securities exchange or quoted in
NASDAQ as determined under paragraph (d)(3)(i) of Rule 144A, or (b) a
security of a registered investment company (other than a closed-end
investment company); and
(3) the issuer (a) is a foreign government eligible to
register securities under Schedule B of the Securities Act of 1933, (b)
is a company that files periodic reports under the Securities Act of
1934 on Forms 8-K, 10-Q, 10-K or 20-F or provides information under
Rule 12g3-2(b) thereunder, or (c) has agreed in writing to provide the
holder and any prospective purchaser of the Rule 144A Security with
reasonably current financial information as required under paragraph
(d)(4)(i) of Rule 144A.
Other securities are deemed to be liquid if IAI determines that the
security can be disposed of within seven days in the ordinary course of business
at approximately the amount at which the Fund has valued the instrument for
purposes of calculating the Fund's net asset value. In making this
determination, IAI will consider such factors as may be relevant to the Fund's
ability to dispose of the security, including but not limited to, the following
factors (none of which, standing alone, would necessarily be determinative):
1. the frequency of trades and quotes for the security;
2. the number of dealers willing to purchase or sell the
security and the number of potential purchasers;
3. dealer undertakings to make a market in the security; and
4. the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of
transfer).
It is not possible to predict with assurance the maintenance of an institutional
trading market for such securities and the liquidity of the Fund's investments
could be impaired if trading declines.
5
<PAGE>
ZERO COUPON OBLIGATIONS
The Fund may invest in zero coupon obligations of the U.S. government
or its agencies, tax exempt issuers and corporate issuers. Zero coupon
obligations do not make interest payments; instead, they are sold at a deep
discount from their face value and are redeemed at face value when they mature.
Because zero coupon obligations do not pay current income, their prices can be
very volatile when interest rates change.
A broker-dealer creates a derivative zero by separating the interest
and principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the
Financing Corporation (FICO) can also be separated in this fashion. Original
issue zeroes are zero coupon securities originally issued by the U.S.
government, a government agency, or a corporation in zero coupon form.
VARIABLE OR FLOATING RATE INSTRUMENTS
The Fund may invest in variable or floating rate instruments. Such
instruments (including notes purchased directly from issuers) bear variable or
floating interest rates and carry rights that permit holders to demand payment
of the unpaid principal balance plus accrued interest from the issuers or
certain financial intermediaries. Floating rate securities have interest rates
that change whenever there is a change in a designated base rate while variable
rate instruments provide for a specified periodic adjustment in the interest
rate. These formulas are designed to result in a market value for the instrument
that approximates its par value.
ASSET-BACKED SECURITIES
The Fund may invest in types of asset-backed securities which represent
forms of consumer credit such as automobile and credit card receivables,
manufactured (mobile) home loans, home improvement loans and home equity loans.
Asset-backed securities are generally privately issued and pass through cash
flows to investors. Interest and principal payments depend upon payment of the
underlying loans by individuals, although the securities may be supported by
letters of credit or other credit enhancements. The value of asset-backed
securities may also depend on the creditworthiness of the servicing agent for
the loan pool, the originator of the loans, or the financial institution
providing the credit enhancement.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements relating to the securities
in which it may invest. A repurchase agreement, which is functionally equivalent
to a loan by the Fund, involves the purchase of securities by the Fund with the
condition that, after a stated period of time, the original seller will buy back
the securities at a predetermined price or yield. The Fund's custodian will have
custody of, and will hold in a segregated account, securities acquired by the
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 the 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, the 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, the 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, the Fund could suffer a
loss.
6
<PAGE>
LENDING PORTFOLIO SECURITIES
In order to generate additional income, the 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, the 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. The
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, the 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 the Fund an amount
equivalent to any dividends or interest paid on the securities and the 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 the Fund may be reduced by finders' fees paid to broker-dealers and related
expenses. Presently, the Fund does not intend to lend more than 5% of its net
assets to broker-dealers, banks, or other financial borrowers of securities.
WHEN ISSUED/DELAYED-DELIVERY TRANSACTIONS
The Fund may buy and sell securities on a delayed-delivery or
when-issued basis. These transactions involve a commitment by the Fund to
purchase or sell specific securities at a predetermined price or yield, with
payment and delivery taking place after the customary settlement period for that
type of security (and more than seven days in the future). Typically, no
interest accrues to the purchaser until the security is delivered.
When purchasing securities on a delayed-delivery basis, the Fund
assumes the rights and risks of ownership, including the risk of price and yield
fluctuations. Because the Fund is not required to pay for securities until the
delivery date, these risks are in addition to the risks associated with the
Fund's other investments. If the Fund remains substantially fully invested at a
time when delayed delivery purchases are outstanding, the delayed-delivery
purchases may result in a form of leverage. When delayed-delivery purchases are
outstanding, the Fund will set aside appropriate liquid assets in a segregated
custodial account to cover its purchase obligations, and these assets will be
marked to market daily. When the Fund has sold a security on a delayed-delivery
basis, the Fund does not participate in further gains or losses with respect to
the security. If the other party to a delayed-delivery transaction fails to
deliver or pay for the securities, the Fund could miss a favorable price or
yield opportunity, or could suffer a loss.
The Fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
BORROWING
The Fund may borrow from banks for temporary or emergency purposes.
Interest paid on borrowed funds will decrease the net earning of the Fund. If
the Fund makes additional investments while borrowings are outstanding, this may
be considered a form of leverage. The Fund currently has a line of credit with a
bank. To the extent funds are drawn against the line of credit, securities are
held in a segregated account. No compensating balances or commitment fees are
required under the line of credit.
INVESTMENT RESTRICTIONS
The Fund is subject to certain policies and restrictions which, along
with the Fund's investment objective, 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 the
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 the Fund are
present or represented by proxy. Limitations 1 through 8 below are deemed
fundamental limitations. The remaining
7
<PAGE>
limitations set forth below serve as operating policies of the Fund and may be
changed by the Board of Directors without shareholder approval.
The 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 1940 Act.
As currently defined in the 1940 Act, "diversified company" means a
management company which meets the following requirements: at least 75 per
centum 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 per centum of
the value of the total assets of such management company and not more than 10
per centum 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.
For purposes of applying this restriction, the Fund will not purchase
securities, as defined above, such that 25% or more of the value of the Fund's
total assets are 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 guaranteeing 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.
For purposes of applying this restriction, "commodities" shall be
deemed to include commodity contracts.
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.
8
<PAGE>
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.
For purposes of applying this restriction, the Fund will not sell
securities short except to the extent that it contemporaneously owns or has the
right to obtain, at no added cost, securities identical to those sold 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 10% 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.
16. Purchase investment securities while outstanding borrowings exceed
5% of the value of the Fund's total assets.
Any of the Fund's investment policies set forth in the Prospectus, or
any restriction set forth above under "Investment Restrictions" which involves a
maximum percentage of securities or assets (other than Restriction 4) 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.
INVESTMENT PERFORMANCE
Advertisements and other sales literature for the Fund may refer to its
yield and effective yield. Each such calculation assumes all distributions are
reinvested at net asset value on the appropriate reinvestment dates, and
includes all recurring fees, such as investment advisory and management fees,
charged as expenses to all shareholder accounts.
The Fund's current yield quotation is based on a seven-day period and
is computed by determining the net change in value, exclusive of capital
changes, of a hypothetical account having a balance of one share. This number is
then divided by the price per share at the beginning of the period ("base period
return"), and then the base period return is multiplied by (365/7).
The effective yield for Money Market Fund is computed by taking the
base period return as calculated above and calculating the effect of assumed
compounding.
The formula for the effective yield is as follows:
Effective yield = [(Base period return + 1)(365/7)]-1
9
<PAGE>
For the 7-day period ended January 31, 1999, Money Market Fund's
current yield was 4.47% and its effective yield was 4.57%.
In advertising and sales literature, the 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 the Fund. The comparison of the 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. The Fund may also note its mention in newspapers, magazines, or other
media from time to time. However, the Fund assumes no responsibility for the
accuracy of such data.
For example, (1) the 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 Financial Times (a London
based international financial newspaper)-Actuaries World Indices, including
Europe and sub indices comprising this Index (a wide range of comprehensive
measures of stock price performance for the major stock markets, as well as for
regional areas, broad economic sectors and industry groups); (iv) Morgan Stanley
Capital International Indices, including the EAFE Index; (v) Baring
International Investment Management Limited (an international securities
trading, research, and investment management firm), as a source for market
capitalization, GDP and GNP; (vi) the International Finance Corporation (an
affiliate of the World Bank established to encourage economic development in
less developed countries), World Bank, OECD (Organization for Economic
Co-Operation and Development) and IMF (International Monetary Fund) as a source
of economic statistics; and (ix) the performance of U.S. government and
corporate bonds, notes and bills. (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 the 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 the Fund or the general economic business,
investment, or financial environment in which the Fund operates; (4) the effect
of tax-deferred compounding on the 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 the
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 the Fund invests
may be compared to relevant indices or surveys (e.g., S&P Industry Surveys) in
order to evaluate the Fund's historical performance or current or potential
value with respect to the particular industry or sector.
10
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Under Minnesota law, the Fund's Board of Directors is generally
responsible for the overall operation and management of the Fund. The names,
addresses, positions and principal occupations of the directors and executive
officers of the Fund are given below.
<TABLE>
<CAPTION>
Name and Address Age Position Principal Occupation(s) During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Madeline Betsch 56 Director Currently retired; until April 1994, was Executive Vice
19 South 1st Street President, Director of Client Services, of CME-KHBB
Minneapolis, Minnesota 55401 Advertising since May 1985, and prior thereto was a Vice
President with Campbell-Mithun, Inc. (advertising agency)
since February 1977.
W. William Hodgson 74 Director Currently retired; served as information manager for the North
1698 Dodd Road Central Home Office of the Prudential Insurance Company of
Mendota Heights, Minnesota 55118 America from 1961 until 1984.
George R. Long 69 Director Chairman of Mayfield Corp. (financial consultants and
29 Las Brisas Way venture capitalists) since 1973.
Naples, Florida 33963
J. Peter Thompson 67 Director Grain farmer in southwestern Minnesota since 1974. Prior to
Route 1 that, Mr. Thompson was employed by Paine Webber, Jackson
Mountain Lake, Minnesota 56159 & Curtis, Incorporated, (a diversified financial services
concern), most recently as Senior Vice President and General
Partner.
Charles H. Withers 72 Director Currently retired; was Editor of the Rochester Post-Bulletin,
Rochester Post Bulletin Rochester, Minnesota from 1960 through March 31, 1980.
P.O. Box 6118
Rochester, Minnesota 55903
John A. Alexander 42 President Chief Operating Officer of IAI since 1998. Prior to that time,
601 Second Avenue South Mr. Alexander served in various senior management
P.O. Box 357 capacities of Lloyds Bank plc since 1984.
Minneapolis, Minnesota 55440
David Koehler 61 Vice Independent training and marketing consultant from 1993 to
601 Second Avenue South President current. Prior to that time, Mr. Koehler was a partner at IAI
P.O. Box 357 Venture Capital Group.
Minneapolis, Minnesota 55440
Paul H. Perseke 33 Treasurer Vice President of IAI. Prior to joining IAI in 1996, Mr.
601 Second Avenue South Perseke served as Vice President and Manager of Finance and
P.O. Box 357 Planning at Dain Rauscher Corporation from 1991 to 1996.
Minneapolis, Minnesota 55440
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Name and Address Age Position Principal Occupation(s) During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Michael J. Radmer 53 Secretary Partner since 1976 of Dorsey & Whitney LLP, a Minnesota
220 South Sixth Street based law firm which acts as General Counsel to the Fund.
Minneapolis, Minnesota 55402
</TABLE>
Each of the directors and executive officers of the Fund also serves in
the same capacity for each of the 14 other mutual funds for which IAI serves as
investment adviser (the "IAI Mutual Funds").
No compensation is paid by the Fund to any officers, other than Mr.
Koehler. 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. The Fund will pay its pro rata
share of these fees based on its net assets. Such unaffiliated directors also
are reimbursed for expenses incurred in connection with attending meetings.
Compensation from Aggregate Compensation from
Name of Person, Position Money Market Fund* the 15 IAI Mutual Funds**
- --------------------------------------------------------------------------------
Betsch, Madeline - Director $ 1,067 $ 37,200
Hodgson, W. William - Director $ 1,067 $ 37,200
Long, George R. - Director $ 1,119 $ 37,200
Thompson, J. Peter - Director $ 1,067 $ 37,200
Withers, Charles H. - Director $ 1,119 $ 37,200
Totals: $ 5,439 $ 186,000
- -----------------------------
* For the fiscal year ended January 31, 1999.
** For the calendar year ended December 31, 1998; excludes expenses incurred
in connection with attending meetings.
Effective February 1998, the directors have agreed that the position of
Board Chair shall rotate from director to director. The current Chairperson of
the Board is J. Peter Thompson.
The Fund's Board of Directors has approved a Code of Ethics. The Code
permits access persons to engage in personal securities transactions subject to
certain policies and procedures. Such procedures prohibit certain persons from
acquiring any securities in an initial public offering. In addition, securities
acquired through private placement must be pre-cleared. Procedures have been
adopted which would implement blackout periods for certain securities, 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. Each access person is 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 and changes,
identifying material violations and recommending any changes needed.
INVESTMENT ADVISER
Investment Advisers, Inc. ("IAI") serves as the investment adviser and
manager of the Fund. IAI's ultimate corporate parent is 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.
MANAGEMENT AGREEMENT. Effective April 1, 1996, pursuant to a Management
Agreement between the 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
12
<PAGE>
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; (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 reimburses the Fund for paying
qualifying third parties that provide such services. In return for these
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 $100 million 0.60%
For the next $150 million 0.55%
Above $250 million 0.50%
Under the Management Agreement, 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.
The following table contains relevant information concerning fees the
Fund paid under the Management Agreement for the indicated periods:
<TABLE>
<CAPTION>
Net Assets of Fund Management Fee
Period at End of Period Before Waiver IAI Waiver*
===========================================================================
<S> <C> <C> <C>
Period 2/1/98 to 1/31/99 $35,430,203 $200,061 $6,481
Period 2/1/97 to 1/31/98 $22,506,708 $176,847 $3,005
Period 4/1/96 to 1/31/97 $26,139,897 $141,194 $9,735
</TABLE>
- ----------------------------
* Resulting from IAI's reduction of its Management Fee in the amount
representing the Fund's pro rata payment of directors' fees and
expenses.
The Management Agreement will terminate automatically in the event of
its assignment. In addition, the Agreement is terminable at any time without
penalty by the Board of Directors of the Fund or by vote of a majority of the
Fund's outstanding voting securities on not more than 60 days' written notice to
IAI, and by IAI on 60 days' notice to the Fund. The 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 the Fund or by
vote of a majority of the Fund's 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.
13
<PAGE>
PRIOR AGREEMENT. Effective March 31, 1996, the Investment Advisory
Agreement between the Fund and IAI terminated and was replaced by the Management
Agreement described above.
Pursuant to the prior agreement, Money Market Fund had agreed to pay
IAI a monthly fee equivalent to an annual rate of .30% of its average daily net
assets.
For the period from February 1, 1996 through March 31, 1996, the Fund
paid $2,518 in advisory fees to IAI, and IAI waived $14,181 of advisory fees.
FUND ADMINISTRATION AND ACCOUNTING
Firstar Mutual Fund Service, LLC ("FMFS") provides administration and
accounting services to the Fund. Under a Fund Administration Servicing Agreement
between IAI and FMFS, FMFS provides to the Fund (i) general management services;
(ii) compliance services; (iii) financial reporting services; and (iv) tax
reporting services. Under a Fund Accounting Servicing Agreement between IAI and
FMFS, FMFS provides (i) portfolio accounting services; (ii) expense accrual and
payment services; (iii) Fund valuation and financial reporting services; (iv)
tax accounting services; and (v) compliance control services. Under each
agreement, IAI is responsible for paying all fees of FMFS. FMFS began providing
administration and accounting services to the Fund in April 1999.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The custodian for the Fund is Firstar Bank Milwaukee, N.A., P.O. Box
701, Milwaukee, Wisconsin 53201-0701.
Firstar Mutual Fund Services, LLC acts as the Fund's transfer agent and
dividend disbursing agent. Firstar Trust Company acts as the Fund's IRA
Custodian. Firstar is located at P.O. Box 701, Milwaukee Wisconsin 53201-0701.
LEGAL COUNSEL
Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota
55402, acts as General Counsel to the Fund.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Most of the 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 the Fund, IAI seeks the most favorable net price consistent with the best
execution. However, frequently IAI selects a dealer to effect a particular
transaction without contacting all dealers who might be able to effect such
transaction because of the volatility of the bond market and the desire of IAI
to accept a particular price for a security because the price offered by the
dealer meets its guidelines for profit, yield or both.
So long as IAI believes that it is obtaining the best net price
(including the spread or markup) consistent with the best execution, as
described above, it gives consideration in placing portfolio transactions to
dealers furnishing research, statistical information, or other services to IAI.
This allows IAI to supplement its own investment research activities and enables
IAI to obtain the views and information of individuals and research staffs of
many different securities firms prior to making investment decisions for a Fund.
To the extent portfolio transactions are effected with dealers who furnish
research services to it, IAI receives a benefit which is not capable of
evaluation in dollar amounts.
Consistent with the Rules of Fair Conduct 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, Advisers may consider sales of shares of the Fund as a
factor in the selection of broker-dealers to execute the Fund's securities
transactions.
14
<PAGE>
IAI believes that most research services obtained by it generally
benefit one or more of the investment companies or other accounts which it
manages. Research services obtained from transactions in fixed income securities
would primarily benefit the managed funds investing such fixed income securities
and managed accounts investing in fixed income securities.
CAPITAL STOCK
Money Market Fund, which was created on January 5, 1993, is a separate
portfolio of IAI Investment Funds VI, Inc., a registered investment company,
organized as a Minnesota corporation whose shares of common stock are currently
issued in five series (Series A, C, E, F and G). The investment portfolio
represented by Series F common shares is referred to as "IAI Money Market Fund."
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 F
common shares.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of May 7, 1999 no person was a record holder or, to the knowledge of
Money Market Fund, beneficial owner of more than 5% of the outstanding shares of
Money Market Fund, except as set forth in the following table:
================================================================================
Percent of Outstanding
Name and Address of Shareholder Number of Shares* Shares
================================================================================
The Christian Broadcasting Network 3,039,7847.890 9.50%
977 Centerville Turnpike
Virginia Beach, VA 23463
Patrick W. Rogers Marital Trust 2,348,697.550 7.34%
222 South 9th Street, Suite 3200
Minneapolis, MN 55402
- ---------------------------------
* All shares are owned both of record and beneficially.
In addition, as of May 7, 1999 Money Market Fund's officers and
directors as a group owned 3.22% of Money Market Fund's outstanding shares.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The net asset value per share of the Fund is determined once daily as
of the close of trading on the New York Stock Exchange 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 a Fund is not determined, on the following national holidays: New
Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
For the purpose of calculating Money Market Fund's net asset value per
share, securities are valued by the "amortized cost" method of valuation in
accordance with Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instruments and regardless of any
unrealized capital
15
<PAGE>
gains or losses. While this method provides certainty in valuation, it may
result in periods during which a security's value, as determined by amortized
cost, is higher or lower than the price the Fund would receive if it sold the
instrument.
The Board of Directors has established procedures reasonably designed,
taking into account current market conditions, to stabilize the net asset value
per share as computed for the purpose of sales and redemptions at $1.00. These
procedures include periodic review, as the Board deems appropriate and at such
intervals as are reasonable in light of current market conditions, of the
relationship between the amortized cost value per share and a net asset value
per share based upon available indications of market value. In such a review,
investments for which market quotations are readily available are valued at the
most recent bid price or quoted yield equivalent for such securities or for
securities of comparable maturity, quality and type as obtained from one or more
of the major market makers for the securities to be valued. Other investments
and assets are valued at fair value, as determined in good faith by the Board.
In the event of a deviation that may result in material dilution or
that is otherwise unfair to existing shareholders between Money Market Fund's
net asset value based upon available market quotations or market equivalents and
$1.00 per share based on amortized cost, the Board of Directors will promptly
consider what action, if any, should be taken. Such action may include redeeming
shares in kind, selling instruments prior to maturity to realize capital gains
or losses or to shorten average maturity, withholding dividends, paying
distributions from capital or capital gains, or utilizing a net asset value per
share based upon available market quotations.
On January 31, 1999, the net asset value and public offering price per
share of Money Market Fund was calculated as follows:
Net Assets ($35,430,203)
NAV = ------------------------------- = $1.00
Shares Outstanding (35,451,702)
PURCHASES AND REDEMPTIONS OF SHARES
The Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders, and such brokers are authorized to designate
other intermediaries to accept purchase and redemption orders on the Fund's
behalf. The Fund will be deemed to have received a purchase or redemption order
when an authorized broker or, if applicable, a broker's authorized designee,
accepts the order. In such circumstances, customer orders will be priced at the
Fund's NAV next computed after they are accepted by an authorized broker or the
broker's authorized designee.
PURCHASES AND REDEMPTIONS IN KIND
In extraordinary circumstances, Fund shares may be purchased in
exchange for securities which are permissible investments of the 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. Also in extraordinary circumstances, if a shareholder so desires, and
IAI so agrees, Fund shares may be redeemed in exchange for securities held by
the 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 Fund qualified during its last taxable year, and intends to qualify
during its current taxable year, as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If
the Fund so qualifies, it will not be subject to federal income tax on income
that it distributes to shareholders.
It is expected that none of the distributions of the Funds' net
investment income will qualify for the dividends received deduction available to
corporations under the Code.
Ordinarily, distributions and redemption proceeds earned by Fund
shareholders are not subject to withholding of federal income tax. However, the
Fund is required to withhold 31% of a shareholder's distributions and redemption
16
<PAGE>
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.
Under the Code, the 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,
the 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.
The foregoing is a general and abbreviated summary of the Code and
Treasury regulations in effect as of the date of the Fund's Prospectus and this
Statement of Additional Information. The foregoing relates solely to 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, the 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
VI, 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 1940 Act (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).
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 recessionary 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 1940 Act and the rules and regulations
adopted under such Act.
17
<PAGE>
SHAREHOLDER MEETINGS
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 the Fund may demand a regular meeting of shareholders by
written notice of demand given to the Chief Executive Officer or the Chief
Financial Officer of the 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 the Fund. An annual meeting will be held on
the removal of a director or directors of the Fund if requested in writing by
holders of not less than 10% of the outstanding shares of IAI Investment Funds
VI, Inc.
FINANCIAL STATEMENTS
The audited financial statements as of January 31, 1999, as set forth
in the Fund's 1999 Annual Report to shareholders, are incorporated herein by
reference. Such Annual Report may be obtained by shareholders on request from
the Fund at no charge. The audited financial statements are provided in reliance
on the report of KPMG Peat Marwick LLP, 4200 Norwest Center, Minneapolis, MN
55402, independent auditors of the Fund, and given on the authority of such firm
as experts in accounting and auditing.
18
<PAGE>
PART C
IAI Money Market Fund
a series of
IAI Investment Funds VI, Inc.
OTHER INFORMATION
Item 23. Exhibits
THE FUNDS ARE FILING OR INCORPORATING BY REFERENCE THE FOLLOWING
EXHIBITS:
(a).1 Amended and Restated Articles of Incorporation dated 7/23/93 (1)
(a).2 Certificate of Designation of Series F dated 11/12/92 (1)
(b) Bylaws as amended 5/24/99 *
(c) Instruments Defining Rights of Security Holders - not applicable
(d) Management Agreement dated 4/1/96 *
(e) Shareholder Service Agreement (2)
(f) Bonus or Profit Sharing Contracts - not applicable
(g) Form of Custodian Servicing Agreement dated 3/1/99 *
(h).1 Form of Fund Accounting Servicing Agreement dated 3/1/99 *
(h).2 Form of Fund Administration Servicing Agreement *
(h).3 Form of Fulfillment Servicing Agreement dated 4/26/99 *
(h).4 Form of Transfer Agent Servicing Agreement dated 4/26/99 *
(i) Opinion of Dorsey & Whitney dated 5/27/99 *
(j) Consent of KPMG Peat Marwick LLP *
(k) Omitted Financial Statements - not applicable
(l) Initial Capital Agreements - not applicable
(m) Rule 12b-1 Plan - not applicable
(n) Financial Data Schedule - not applicable
(o) Rule 18f-3 Plan - not applicable
- ----------------------
(1) Incorporated by reference to Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A filed with the
Commission on July 25, 1996.
(2) Incorporated by reference to Post-Effective Amendment No. 27 to the
Registrant's Registration Statement on Form N-1A filed with the
Commission on July 23, 1998.
* Filed herewith.
Item 24. Persons Controlled by or Under Common Control with the Fund
THE FOLLOWING IS A LIST OF ALL PERSONS DIRECTLY OR INDIRECTLY CONTROLLED
BY OR UNDER COMMON CONTROL WITH THE FUND:
See the section of the Prospectus entitled "Fund Management" and the
section of the Statement of Additional Information entitled "Management" filed
as part of this Registration Statement.
Item 25. Indemnification
STATE THE GENERAL EFFECT OF ANY CONTRACT, ARRANGEMENTS OR STATUTE UNDER
WHICH ANY DIRECTOR, OFFICER, UNDERWRITER OR AFFILIATED PERSON OF THE FUND IS
INSURED OR INDEMNIFIED AGAINST
1
<PAGE>
ANY LIABILITY INCURRED IN THEIR OFFICIAL CAPACITY, OTHER THAN INSURANCE PROVIDED
BY ANY DIRECTOR, OFFICER, AFFILIATED PERSON, OR UNDERWRITER FOR THEIR OWN
PROTECTION.
Incorporated by reference to Post-Effective Amendment #24 to
Registrant's Registration Statement on Form N-1A filed on May 30, 1997.
Item 26. Business and Other Connections of the Investment Adviser
DESCRIBE ANY OTHER BUSINESS, PROFESSION, VOCATION OR EMPLOYMENT OF A
SUBSTANTIAL NATURE THAT EACH INVESTMENT ADVISER, AND EACH DIRECTOR, OFFICER OR
PARTNER OF THE ADVISER, IS OR HAS BEEN ENGAGED WITHIN THE LAST TWO FISCAL YEARS
FOR HIS OR HER OWN ACCOUNT OR IN THE CAPACITY OF DIRECTOR, OFFICER, EMPLOYEE,
PARTNER OR TRUSTEE.
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 following senior officers and directors of IAI are not listed in the
Statement of Additional Information:
<TABLE>
<CAPTION>
Other Business/Employment
Name Position with Adviser During Past Two Years
- ---- --------------------- ---------------------
<S> <C> <C>
Iain D. Cheyne Chairman/Director None
E. Keith Wirtz President/Director Managing Director/Chief Investment
Officer-Equities, TradeStreet
Investment Associates, Charlotte,
NC 1996 - 1999.
Stephen C. Coleman Senior Vice President None
Larry Ray Hill Executive Vice President None
Kevin McKendry Director None
Peter Phillips Director None
John Caravello Director Senior Vice President, Lloyds
Bank, New York, NY since 1980.
</TABLE>
Certain of the officers and directors of IAI also serve as officers and
directors of IAI International Ltd. The address of IAI International is 10 Fleet
Place, London, EC4M 7RH, England. Both IAI and IAI International's ultimate
corporate parent is Lloyds TSB Group plc, a publicly-held financial services
organization based in London, England. The senior officers and directors of IAI
International are John A. Alexander, Deputy Chief Investment Officer and Iain D.
Cheyne, 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 address of
IAI Trust Company is 3600 U.S. Bank Place, Minneapolis, Minnesota 55402. John A.
Alexander is the President and a Director of IAI Trust Company.
2
<PAGE>
Item 27. Principal Underwriters
(a) STATE THE NAME OF EACH INVESTMENT COMPANY (OTHER THAN THE FUND) FOR
WHICH EACH PRINCIPAL UNDERWRITER CURRENTLY DISTRIBUTING THE FUND'S SECURITIES
ALSO ACTS AS A PRINCIPAL UNDERWRITER, DEPOSITOR, OR INVESTMENT ADVISER.
Not applicable.
(b) PROVIDE THE INFORMATION REQUIRED BY THE FOLLOWING TABLE FOR EACH
DIRECTOR, OFFICER, OR PARTNER OF EACH PRINCIPAL UNDERWRITER NAMED IN RESPONSE TO
ITEM 20.
Not applicable.
(c) PROVIDE THE INFORMATION REQUIRED BY THE FOLLOWING TABLE FOR ALL
COMMISSIONS AND OTHER COMPENSATION RECEIVED, DIRECTLY OR INDIRECTLY, FROM THE
FUND DURING THE LAST FISCAL YEAR BY EACH PRINCIPAL UNDERWRITER WHO IS NOT AN
AFFILIATED PERSON OF THE FUND OR ANY AFFILIATED PERSON OF AN AFFILIATED PERSON.
Not applicable.
Item 28. Location of Accounts and Records
STATE THE NAME AND ADDRESS OF EACH PERSON MAINTAINING PHYSICAL
POSSESSION OF EACH ACCOUNT, BOOK, OR OTHER DOCUMENT REQUIRED TO BE MAINTAINED BY
SECTION 31(a) AND THE RULES UNDER THAT SECTION.
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's investment portfolios are maintained by IAI. IAI also acts as
Registrant's transfer agent and dividend disbursing agent, at 601 Second Avenue
South, P.O. Bos 357, Minneapolis, Minnesota 55402.
Item 29. Management Services
PROVIDE A SUMMARY OF THE SUBSTANTIVE PROVISIONS OF ANY
MANAGEMENT-RELATED SERVICE CONTRACT NOT DISCUSSED IN PART A OR B, DISCLOSING THE
PARTIES TO THE CONTRACT AND THE TOTAL AMOUNT PAID AND BY WHOM FOR THE FUND FOR
THE LAST THREE FISCAL YEARS.
Not applicable.
Item 30. Undertakings
(a) IN INITIAL REGISTRATION STATEMENTS FILED UNDER THE SECURITIES ACT,
PROVIDE AN UNDERTAKING TO FILE AN AMENDMENT TO THE REGISTRATION
STATEMENT WITH CERTIFIED FINANCIAL STATEMENTS SHOWING THE INITIAL
CAPITAL RECEIVED BEFORE ACCEPTING SUBSCRIPTIONS FROM MORE THAN 25
PERSONS IF THE FUND INTENDS TO RAISE ITS INITIAL CAPITAL UNDER SECTION
14(A)(3).
Not applicable.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement on Form N-1A
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this 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 27th day of May 1999.
IAI INVESTMENT FUNDS VI, INC.
(Registrant)
By /s/ John A. Alexander
------------------------------
John A. Alexander, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
/s/ John a. Alexander President (principal May 27, 1999
- ------------------------ executive officer)
John A. Alexander
/s/ Paul H. Perseke Treasurer (principal financial May 27, 1999
- ------------------------ and accounting officer)
Paul H. Perseke
Madeline Betsch * Director
W. William Hodgson * Director
George R. Long * Director
J. Peter Thompson * Director
Charles H. Withers * Director
*By /s/ William C. Joas May 27, 1999
-----------------------------------
William C. Joas, Attorney-in-Fact
* Registrant's directors executing Powers of Attorney dated August 18, 1993,
filed with the Commission on June 28, 1994.
EXHIBIT (b)
As amended May 24, 1999
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 C
Common Shares shall be "IAI Midcap Growth 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.
<PAGE>
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.
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 1940 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.
-2-
<PAGE>
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.
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.
-3-
<PAGE>
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 the 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.
-4-
<PAGE>
(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
(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 hold 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
-5-
<PAGE>
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 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.
-6-
<PAGE>
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.
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.
-7-
<PAGE>
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
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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 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
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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.
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
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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 share 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 share 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 its
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.
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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.
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 way 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.
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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.
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 (d)
MANAGEMENT AGREEMENT
This Agreement is made and entered into as of April 1, 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 Money Market Fund, the portfolio represented by the Company's Series F
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
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 the 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;
(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
<PAGE>
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).
(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
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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 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
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<PAGE>
(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 "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.
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<PAGE>
(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.
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
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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 /s/ Richard E. Struthers
------------------------------------
Richard E. Struthers, President
INVESTMENT ADVISERS, INC.
By /s/ Noel P. Rahn
------------------------------------
Noel P. Rahn, Chief Executive Officer
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EXHIBIT A
IAI MONEY MARKET FUND
FEE AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
First $100 Million 0.60 %
$100 - $250 Million 0.55 %
Over $250 Million 0.50 %
A-1
EXHIBIT (g)
FORM OF
CUSTODIAN SERVICING AGREEMENT
THIS AGREEMENT is entered into effective as of March 1, 1999, by and
between each of IAI Investment Funds I, Inc., IAI Investment Funds II, Inc., IAI
Investment Funds III, Inc., IAI Investment Funds IV, Inc., IAI Investment Funds
VI, Inc., IAI Investment Funds VII, Inc., IAI Investment Funds VIII, Inc., and
IAI Retirement Funds, Inc., (each hereinafter referred to as a "Company") and
Firstar Bank Milwaukee, N.A., a corporation organized under the laws of the
State of Wisconsin (hereinafter referred to as the "Custodian").
WHEREAS, each Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, each Company is authorized to create separate series, each
with its own separate investment portfolio (each hereinafter referred to as a
"Fund"); and
WHEREAS, each Company desires that the securities and cash of each of
its Funds listed on Exhibit A attached hereto, as may be amended from time to
time, shall be hereafter held and administered by Custodian pursuant to the
terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
each Company and Custodian agree as follows:
1. DEFINITIONS
A. The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
B. The words "officers' certificate" shall mean a request or direction
or certification in writing signed in the name of each Company by any two of the
President, a Vice President, the Secretary and the Treasurer of each Company, or
any other persons duly authorized to sign by the Board of Directors. "Officers'
certificate" may also include communications effected directly between
electronic-mechanical or electronic devices provided that each Company and
Custodian are satisfied that the procedures for such communications afford
adequate safeguards for each Fund's assets.
C. The word "Board" shall mean Board of Directors of each Company.
2. NAMES, TITLES, AND SIGNATURES OF COMPANY OFFICERS
An officer of each Company will certify to Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of each
Company, together with any changes which may occur from time to time.
<PAGE>
3. RECEIPT AND DISBURSEMENT OF MONEY
A. Custodian shall open and maintain a separate account or accounts in
the name of each Fund, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement. Custodian shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of each Company. Custodian shall make payments of cash to, or for
the account of, each Company from such cash only:
(a) for the purchase of securities for the portfolio of the Fund upon
the delivery of such securities to Custodian, registered in the name of each
Company or of the nominee of Custodian referred to in Section 7 or in proper
form for transfer;
(b) for the purchase or redemption of shares of the common stock of a
Fund upon delivery thereof to Custodian, or upon proper instructions from each
Company;
(c) for the payment of interest, dividends, taxes, investment adviser's
fees or operating expenses (including, without limitation thereto, fees for
legal, accounting, auditing and custodian services and expenses for printing and
postage);
(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund held by or to be
delivered to Custodian; or
(e) for other proper corporate purposes certified by resolution of the
Board of Directors of each Company.
Before making any such payment, Custodian shall receive (and may rely
upon) an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate 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
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary, the Treasurer or other authorized signer of each
Company issues appropriate oral or facsimile instructions to Custodian and an
appropriate officers' certificate is received by Custodian within two business
days thereafter.
B. Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by Custodian for the
account of each Fund.
C. Custodian shall, upon receipt of proper instructions, make federal
funds available to each Company as of specified times agreed upon from time to
time by each Company and Custodian in the amount of checks received in payment
for shares of the Fund which are deposited into the Fund's account.
D. If so directed by each Company, Custodian will invest any and all
available cash in overnight cash-equivalent investments as specified by the
investment manager.
E. 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
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instructions from a 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
Custodian in advance of receipt of the securities purchased in the absence of
specific written instructions from a Company to so pay in advance, Custodian
shall be absolutely liable to a Company (for the account of the applicable Fund)
for such securities to the same extent as if the securities had been received by
Custodian.
4. SEGREGATED ACCOUNTS
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account(s) for and on behalf of each Fund, into which
account(s) may be transferred cash and/or securities.
5. TRANSFER, EXCHANGE, REDELIVERY, ETC. OF SECURITIES
A. Custodian shall have sole power to release or deliver any securities
of each Company held by it pursuant to this Agreement. Custodian agrees to
transfer, exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Fund upon
receipt by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone or
other securities and cash whether pursuant to any plan of merger, consolidation,
reorganization, recapitalization or readjustment, or otherwise;
(e) upon conversion of such securities pursuant to their terms into
other securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of the
Fund upon delivery thereof to Custodian; or
(i) for other proper corporate purposes.
B. As to any deliveries made by Custodian pursuant to items (a), (b),
(d), (e), (f), and (g) of this Paragraph 5, securities or cash receivable in
exchange therefor shall be deliverable to Custodian.
C. Before making any such transfer, exchange or delivery, Custodian
shall receive (and may rely upon) an officers' certificate requesting such
transfer, exchange or delivery, and stating that it is for a purpose permitted
under the terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this
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Paragraph 5 and also, in respect of item (i), upon receipt of an officers'
certificate 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, provided, however, that an officers' certificate need
not precede any such transfer, exchange or delivery of a money market
instrument, or any other security with same or next-day settlement, if the
President, a Vice President, the Secretary, the Treasurer or other authorized
person of each Company issues appropriate oral or facsimile instructions to
Custodian and an appropriate officers' certificate is received by Custodian
within two business days thereafter.
6. CUSTODIAN'S ACTS WITHOUT INSTRUCTIONS
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of each Fund, which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Fund; (b) collect interest and cash dividends received, with notice to
each Company, for the account of the Fund; (c) hold for the account of the Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; (d) execute, as agent on behalf of each
Company, all necessary ownership certificates required by the Internal Revenue
Code of 1986, as amended (the "Code") or the Income Tax Regulations (the
"Regulations") of the United States Treasury Department (the "Treasury
Department") or under the laws of any state now or hereafter in effect,
inserting each Company's name on such certificates as the owner of the
securities covered thereby, to the extent it may lawfully do so; and (e) 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 each Company.
7. REGISTRATION OF SECURITIES
A. Except as otherwise directed by an officers' certificate, Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of Custodian as defined in the Internal Revenue Code and
any Regulations of the Treasury Department issued thereunder or in any provision
of any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. All securities held by Custodian hereunder shall be at all
times identifiable in its records held in an account or accounts of Custodian
containing only the assets of the particular Fund.
B. Each Company shall from time to time furnish to Custodian
appropriate instruments to enable Custodian to hold or deliver in proper form
for transfer, or to register in the name of its registered nominee, any
securities which it may hold for the account of each Company and which may from
time to time be registered in the name of each Company.
8. VOTING AND OTHER ACTION
A. Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of a Fund, except in accordance
with the instructions contained in an officers' certificate. Custodian shall
deliver, or cause to be executed and delivered, to each Company all notices,
proxies and proxy soliciting materials with respect to such securities, such
proxies to be executed by the registered holder of such securities (if
registered otherwise than in the name of each Company), but without indicating
the manner in which such proxies are to be voted. Upon request by a Company,
Custodian shall furnish to a Company any and all written materials
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which establish the holding/ownership, amount held/owned, and period of
holding/ownership of the securities in question.
B. Custodian shall transmit promptly to each 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 a Fund and the maturity of futures
contracts purchased or sold by a Company) received by Custodian from issuers of
the securities being held for each Fund. With respect to tender or exchange
offers, Custodian shall transmit promptly to a Company all written information
received by 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 respect to any tender offer, exchange
offer or any other similar transaction, the Company shall notify the Custodian
at least one business day prior to the date on which the Custodian is to take
such action.
9. TRANSFER TAX AND OTHER DISBURSEMENTS
A. Each Company shall pay or reimburse Custodian from time to time for
any transfer taxes payable upon transfers of securities made hereunder, and for
all other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
B. Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exempt transfers and/or deliveries of any such securities.
10. CONCERNING CUSTODIAN
A. Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto. Notwithstanding anything to
the contrary, amounts owed by each Company to the Custodian shall be paid by
Investment Advisers, Inc.
B. Custodian shall not be liable for any action taken in good faith and
without negligence, willful misconduct, or breach of this Agreement upon any
certificate herein described or certified copy of any resolution of the Board,
and may rely on the genuineness of any such document which it may in good faith
believe to have been validly executed.
C. Each Company agrees to indemnify and hold harmless Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable counsel fees) incurred or assessed against it or by its
nominee in connection with the performance of this Agreement, except such as may
arise from its or its nominee's own bad faith, negligent action, negligent
failure to act, willful misconduct or breach of this Agreement. In the event of
any advance of cash for any purpose made by Custodian resulting from orders or
instructions of each Company, any property at any time held for the account of
each Company shall be security therefor.
D. Custodian agrees to indemnify and hold harmless each Company from
all charges, expenses, assessments, and claims/liabilities (including reasonable
counsel fees) incurred or assessed
5
<PAGE>
against it in connection with the performance of this Agreement, except such as
may arise from each Company's own bad faith, negligent action, negligent failure
to act, willful misconduct or breach of this Agreement.
E. Custodian is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the governing documents Company Instrument
of each Company and agrees that obligations assumed by each Company pursuant to
this Agreement shall be limited in all cases to each Company and its assets, and
if the liability relates to one or more series, the obligations hereunder shall
be limited to the respective assets of such series. Custodian further agrees
that it shall not seek satisfaction of any such obligation from any Fund
shareholder or individual director or officer.
11. SUBCUSTODIANS
A. Custodian is hereby authorized to engage another bank or trust
company as a subcustodian for all or any part of each Fund's assets, so long as
any such bank or trust company is itself qualified under the 1940 Act and the
rules and regulations thereunder and provided further that, if the Custodian
utilizes the services of a subcustodian, the Custodian shall remain fully liable
and responsible for any losses caused to each Company by the subcustodian as
fully as if the Custodian was directly responsible for any such losses under the
terms of this Agreement.
B. Notwithstanding anything contained herein, if a Company requires the
Custodian to engage specific subcustodians for the safekeeping and/or clearing
of assets, each such Company agrees to indemnify and hold harmless Custodian
from all claims, expenses and liabilities incurred or assessed against it in
connection with the use of such subcustodian in regard to a Company's assets,
except as may arise from Custodian's own bad faith, negligent action, negligent
failure to act, willful misconduct or breach of this Agreement.
12. REPORTS BY CUSTODIAN
Custodian shall furnish each Company periodically as agreed upon with a
statement summarizing all transactions and entries for the account of Company.
Custodian shall furnish to each Company, at the end of every month, a list of
the portfolio securities for each Fund showing the aggregate cost of each issue.
The books and records of Custodian pertaining to its actions under this
Agreement shall be open to inspection and audit at reasonable times by officers
of, and by auditors employed by, each Company as well as by the U.S. Securities
and Exchange Commission.
13. TERMINATION OR ASSIGNMENT
A. This Agreement may be terminated by each Company, or by Custodian,
on ninety (90) days notice, given in writing and mailed or delivered as follows:
Firstar Bank Milwaukee, N.A.
c/o Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
6
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or to the Companies at:
IAI Mutual Funds
Attn: Director, Fund Administration
601 Second Avenue South, Suite 3700
Minneapolis, MN 55402
as the case may be. Upon any termination of this Agreement, pending appointment
of a successor to Custodian or a vote of the shareholders of the Fund to
dissolve or to function without a custodian of its cash, securities and other
property, Custodian shall not deliver cash, securities or other property of a
Fund to each Company, but may deliver them to a bank or trust company of its own
selection that meets the requirements of the 1940 Act as a custodian for each
Company to be held under terms similar to those of this Agreement, provided,
however, that Custodian shall not be required to make any such delivery or
payment until full payment shall have been made by each Company of all
liabilities constituting a charge on or against the properties then held by
Custodian or on or against Custodian, and until full payment shall have been
made to Custodian of all its fees, compensation, costs and expenses, subject to
the provisions of Section 10 of this Agreement.
B. This Agreement may not be assigned by Custodian without the consent
of each Company, authorized or approved by a resolution of its Board of
Directors.
14. DEPOSITS OF SECURITIES IN SECURITIES DEPOSITORIES
No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Directors of each Company approves by resolution
the use of such central securities clearing agency or securities depository.
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) 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
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of 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) 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
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the records of Custodian to reflect such payment and transfer
for the account of the Fund. 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
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 Custodian and
be provided to each Company at its request. Upon request,
Custodian shall furnish a 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 a Company copies
of daily transaction sheets reflecting each day's transactions
in the Securities System for the account of each Fund.
4) Custodian shall provide each Company with any report obtained
by Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
5) Custodian shall have received the initial or annual
certificate, as the case may be, required by Paragraph 14
hereof;
6) Anything to the contrary in this Agreement notwithstanding,
Custodian shall be liable to each 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 Custodian or any such agent or employee to enforce
effectively such rights as it may have against the Securities
System; at the election of a Company, it shall be entitled to
be subrogated to the rights of Custodian with respect to any
claim against the Securities System or any other person which
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.
15. RECORDS
Custodian shall keep records relating to its services to be performed
hereunder, in the form and manner, and for such period, as it may deem advisable
and is agreeable to each Company but not inconsistent with the rules and
regulations of appropriate government authorities, in particular Section 31 of
the 1940 Act and the rules thereunder. Custodian agrees that all such records
prepared or maintained by the Custodian relating to the services performed by
Custodian hereunder are the property of each Company and will be preserved,
maintained, and made available in accordance with such section and rules of the
1940 Act and will be promptly surrendered to each Company on and in accordance
with its request. Such records shall also be made available for review by the
U.S. Securities and Exchange Commission.
16. GOVERNING LAW
This Agreement shall be governed by Wisconsin law. However, nothing
herein shall be construed in a manner inconsistent with the 1940 Act or any rule
or regulation promulgated by the Securities and Exchange Commission thereunder.
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<PAGE>
17. PROPRIETARY AND CONFIDENTIAL INFORMATION
The Custodian agrees on behalf of itself and its directors, officers,
and employees to treat confidentially and as proprietary information of each
Company all records and other information relative to each Company and prior,
present, or potential shareholders of each Company (and clients of said
shareholders), and not to use such records and information for any purpose other
than the performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by each Company, which approval
shall not be unreasonably withheld and may not be withheld where the Custodian
may be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities, or
when so requested by each Company.
18. NO AGENCY RELATIONSHIP
Nothing herein contained shall be deemed to authorize or empower the
Custodian to act as agent for the other party to this Agreement, or to conduct
business in the name of, or for the account of the other party to this
Agreement.
19. NO JOINT OBLIGATIONS
From the standpoint of convenience, a single document has been entered
into by all of the Companies set forth above and on the signature page. However,
it is not intended thereby that the obligations of any one Company or Fund will
be the obligation of any other Company or Fund.
20. OPINION OF A COMPANY'S INDEPENDENT ACCOUNTANT
Custodian shall take all reasonable action, as each Company may from
time to time request, to obtain from year to year favorable opinions from each
Company's independent accountants with respect to its activities hereunder in
connection with the preparation of each Company's Form N-1A and Form N-SAR or
other reports to the U.S. Securities and Exchange Commission and with respect to
any other requirements of such Commission.
21. REPORTS TO EACH COMPANY BY INDEPENDENT PUBLIC ACCOUNTANTS
Custodian shall provide to each Company, at such times as each 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
services provided by Custodian under this Agreement; such reports shall be of
sufficient scope, and in sufficient detail, as may be reasonably required by
each 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.
22. REPRESENTATIONS AND WARRANTIES OF CUSTODIAN
A. Custodian represents and warrants to the Companies that the computer
software, computer firmware, computer hardware (whether general or special
purpose) and other similar related items of automated, computerized and/or
software systems that are owned or licensed by Custodian and will be utilized by
Custodian or its agents in connection with the provision of services described
in this Agreement are "Year 2000 Compliant" (as
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<PAGE>
defined below). As used in this Section 20 of this Agreement, the term "Year
2000 Compliant" shall mean the ability of the relevant system to provide all of
the following functions:
(1) Process date information before, during and after January 1, 2000,
including but not limited to accepting date specific input data, providing date
specific output data, and performing calculations on dates or portions of dates;
(2) Function accurately and without interruption or malfunction before,
during and after January 1, 2000, without any change in operations associated
with the advent of the new millennium and assuming no other defects, bugs,
viruses or other problems unrelated to Year 2000 compliance issues which disrupt
functionality;
(3) Respond to two-digit, year-date input in a way that resolves the
ambiguity as to century and in a disclosed, defined and predetermined manner;
and
(4) Store and provide output data of date specific information in ways
that are unambiguous as to century.
The parties recognize and acknowledge that this representation and warranty was
a significant inducement for the Companies to enter into this Agreement.
B. Custodian represents and warrants that it satisfies all rules and
requirements under the 1940 Act for the purpose of providing the services set
forth in this Agreement.
C. To the extent Custodian make changes relating to its services,
systems, programs, rules, operating schedules and equipment, it represents and
warrants that any such changes will not adversely affect the services provided
to a Fund under this Agreement. Custodian will provide each Company at least 90
days' prior written notice of any such material changes.
D. In the event of a mechanical breakdown or failure of communication
or power supplies beyond its control, Custodian shall take all reasonable steps
to minimize service interruptions for any period that such interruption
continues beyond Custodian's control. Custodian will restore any lost or damaged
data and correct any errors resulting from such a breakdown at the expense of
Custodian. Custodian agrees that it shall, at all times, have reasonable
contingency plans with appropriate parties, making reasonable provision for
emergency use of systems needed to perform services under this Agreement.
Custodian shall provide each Company with copies of such contingencies plans and
any changes thereto. Representatives of each Company shall be entitled to
inspect Custodian's premises and operating capabilities at any time during
regular business hours of Custodian, upon reasonable notice to Custodian.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer or one or more counterparts as of the day
and year first written above.
FIRSTAR BANK MILWAUKEE, N.A.
IAI INVESTMENT FUNDS I, INC
IAI INVESTMENT FUNDS II, INC By:_____________________________________
IAI INVESTMENT FUNDS III, INC
IAI INVESTMENT FUNDS IV, INC
IAI INVESTMENT FUNDS VI, INC Attest:_________________________________
IAI INVESTMENT FUNDS VII, INC
IAI INVESTMENT FUNDS VIII, INC
IAI RETIREMENT FUNDS, INC
By:_____________________________________
Attest:_________________________________
INVESTMENT ADVISERS, INC.- WITH RESPECT TO PARAGRAPH 10.A. ONLY
By:_____________________________________
Attest:_________________________________
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EXHIBIT A- LIST OF IAI MUTUAL FUNDS AND FEE SCHEDULE
Name of Fund Effective Date
IAI INVESTMENT FUNDS I, INC.
IAI Bond Fund March 1, 1999
IAI Institutional Bond Fund March 1, 1999
IAI INVESTMENT FUNDS II, INC.
IAI Growth Fund April 1, 1999
IAI INVESTMENT FUNDS III, INC.
IAI International Fund April __, 1999
IAI INVESTMENT FUNDS IV, INC.
IAI Regional Fund April 1, 1999
IAI INVESTMENT FUNDS VI, INC.
IAI Emerging Growth Fund April 1, 1999
IAI Midcap Growth Fund April 1, 1999
IAI Balanced Fund April __, 1999
IAI Money Market Fund March 1, 1999
IAI Capital Appreciation Fund April 1, 1999
IAI INVESTMENT FUNDS VII, INC.
IAI Growth & Income Fund April 1, 1999
IAI INVESTMENT FUNDS VIII, INC.
IAI Value Fund April 1, 1999
IAI RETIREMENT FUNDS, INC.
IAI Regional Portfolio March 1, 1999
IAI Reserve Portfolio March 1, 1999
IAI Balanced Portfolio March 1, 1999
Annual fee based upon market value
1 basis points per year
Minimum annual fee per fund - $3,000
Investment transactions (purchase, sale, exchange, tender, redemption, maturity,
receipt, delivery):
$ 6.00 per book entry security (depository or Federal Reserve
system)
$25.00 per definitive security (physical)
$25.00 per mutual fund trade
$75.00 per Euroclear
$ 8.00 per principal reduction on pass-through certificates
$ 6.00 per short sale/liability transaction
$35.00 per option/futures contract
$15.00 per variation margin
$15.00 per Fed wire deposit or withdrawal
Variable Amount Demand Notes: Used as a short-term investment, variable amount
notes offer safety and prevailing high interest rates. Our charge, which is 1/4
of 1%, is deducted from the variable amount note income at the time it is
credited to your account.
Plus out-of-pocket expenses, and extraordinary expenses based upon complexity
Fees and out-of-pocket expenses are billed to the fund monthly, based upon
market value at the beginning of the month.
12
EXHIBIT (h).1
FORM OF
FUND ACCOUNTING SERVICING AGREEMENT
THIS AGREEMENT is entered into effective as of March 1, 1999, by and
between Investment Advisers, Inc., a corporation organized under the laws of the
State of Delaware (hereinafter referred to as "IAI") and Firstar Mutual Fund
Services, LLC, a corporation organized under the laws of the State of Wisconsin
(hereinafter referred to as "FMFS").
WHEREAS, IAI provides accounting and related services to various
open-end registered investment companies (the "IAI Mutual Funds") for which IAI
also serves as investment adviser under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the IAI Mutual Funds are authorized to create separate series,
each with its own separate investment portfolio (each a "Fund");
WHEREAS, FMFS is in the business of providing, among other things,
mutual fund accounting services to investment companies; and
WHEREAS, IAI desires to retain FMFS to provide accounting and related
services to each Fund listed on Exhibit A attached hereto, as it may be amended
from time to time.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
IAI and FMFS agree as follows:
1. APPOINTMENT OF FUND ACCOUNTANT
IAI hereby appoints FMFS as Fund Accountant of each Fund on the terms
and conditions set forth in this Agreement, and FMFS hereby accepts such
appointment and agrees to perform the services and duties set forth in this
Agreement in consideration of the compensation provided for herein.
2. DUTIES AND RESPONSIBILITIES OF FMFS
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date+1
(trade date for the last day of a fiscal year if required by Fund auditors)
basis using security trade information communicated from the investment manager.
(2) For each valuation date, obtain prices from a
pricing source approved by the Board of Directors of each Fund and apply those
prices to the portfolio positions. For those securities where market quotations
are not readily available, the Board of Directors of each Fund shall approve, in
good faith, the method for determining the fair value for such securities. All
such pricing and fair value determinations shall be made
<PAGE>
consistent with pricing procedures as adopted by the Board of Directors and as
amended from time to time.
(3) Identify interest and dividend accrual balances
as of each valuation date and calculate gross earnings on investments for the
accounting period.
(4) Determine gain/loss on security sales and
identify them as, short-term or long-term; account for periodic distributions of
gains or losses to shareholders and maintain undistributed gain or loss balances
as of each valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense
accrual amounts as directed by each Fund as to methodology, rate or dollar
amount.
(2) Record payments for Fund expenses upon receipt of
written authorization from each Fund.
(3) Account for Fund expenditures and maintain
expense accrual balances at the level of accounting detail, as agreed upon by
FMFS and each Fund.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for Fund share purchases, sales,
exchanges, transfers, dividend reinvestments, and other Fund share activity as
reported by the transfer agent on a timely basis.
(2) Apply equalization accounting as directed by each
Fund.
(3) Determine net investment income (earnings) for
each Fund as of each valuation date. Account for periodic distributions of
earnings to shareholders and maintain undistributed net investment income
balances as of each valuation date.
(4) Maintain a general ledger and other accounts,
books, and financial records for each Fund in the form as agreed upon.
(5) Determine the net asset value of each Fund
according to the accounting policies and procedures set forth in each Fund's
Prospectus and Statement of Additional Information.
(6) Calculate per share net asset value, per share
net earnings, and other per share amounts reflective of Fund operations at such
time as required by the nature and characteristics of each Fund.
2
<PAGE>
(7) Communicate, at an agreed upon time, the per
share price for each valuation date to parties as agreed upon from time to time.
(8) Prepare monthly reports, which document the
adequacy of accounting detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the investment
portfolio of each Fund to support the tax reporting required for IRS-defined
regulated investment companies.
(2) Maintain tax lot detail for the investment
portfolio.
(3) Calculate taxable gain/loss on security sales
using the tax lot relief method designated by each Fund.
(4) Provide the necessary financial information to
support the taxable components of income and capital gains distributions to the
transfer agent to support tax reporting to the shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and
support financial statement preparation by making each Fund's accounting records
available to IAI, the Securities and Exchange Commission, and the outside
auditors.
(2) Maintain accounting records according to the 1940
Act and regulations provided thereunder
F. FMFS will perform the following accounting functions
on a daily basis:
(1) Reconcile cash and investment balances of each
Fund with the Custodian, and provide IAI with the beginning cash balance
available for investment purposes;
(2) Update the cash availability throughout the day
as required by IAI;
(3) Transmit or mail a copy of the portfolio
valuation to IAI;
(4) Review the impact of current day's activity on a
per share basis, review changes in market value of securities, and review yields
for reasonableness.
G. In addition, FMFS will:
3
<PAGE>
(1) Prepare monthly security transactions listings;
(2) Supply various Fund, registered investment
company and class statistical data as requested on an ongoing basis.
3. PRICING OF SECURITIES
A. For each valuation date, obtain prices from a pricing source
selected by FMFS but approved by a Fund's Board of Directors and apply those
prices to the portfolio positions of a Fund. For those securities where market
quotations are not readily available, the Fund's Board of Directors shall
approve, in good faith, the method for determining the fair value for such
securities. All such pricing and fair value determinations shall be made
consistent with pricing procedures as adopted by the Board of Directors and as
amended from time to time.
B. If a Fund desires to provide a price, which varies from the pricing
source, the Fund shall promptly notify and supply FMFS with the valuation of any
such security on each valuation date. All pricing changes made by a Fund will be
in writing and must specifically identify the securities to be changed by CUSIP,
name of security, new price or rate to be applied, and, if applicable, the time
period for which the new price(s) is/are effective.
C. Notwithstanding anything to the contrary in Section 7 below, as more
fully provided in this paragraph C, FMFS shall reimburse each Fund and its
shareholders for losses due to NAV Differences (as defined below) arising out of
or relating to the FMFS's refusal or failure to comply with the terms of this
Agreement or from its bad faith, negligence or willful misconduct in the
performance of its duties under this Agreement. FMFS shall reimburse each
applicable Fund for any net losses to the Fund during each NAV Error Period (as
defined below) resulting from an NAV Difference that is at least $.010 per Fund
share but that, as a percentage of Recalculated NAV (as defined below) of such
Fund, is less than 1/2 of 1%. FMFS shall reimburse the Fund and each Fund
shareholder for any net losses experienced by the Fund or any Fund shareholder,
as applicable, during each NAV Error Period resulting from an NAV Difference
that is at least $.010 per Fund share and that, as a percentage of Recalculated
NAV of such Fund, is at least 1/2 of 1%; provided, however, that FMFS shall not
be responsible for reimbursing any Fund shareholder experiencing a loss during
any such NAV Error Period of less than $25. NAV Differences and any liability of
FMFS therefrom are to be calculated each time a Fund's net asset value per share
is calculated. For purposes of calculating FMFS's liability hereunder, gains
shall offset losses within each NAV Error Period; however, net gains shall not
be carried back or forward to offset losses in prior or future NAV Error
Periods. For purposes of this paragraph C:
(i) "NAV Error Period" means any business day or series of two
or more consecutive business days during which an NAV Difference exists.
(ii) "NAV Difference" means the difference between the
Recalculated NAV and the net asset value per share at which a given purchase or
redemption is effected, divided by the Recalculated NAV with respect to such
purchase or redemption.
4
<PAGE>
(iii) "Recalculated NAV" means the net asset value per share
at which a shareholder purchase or redemption should have been effected.
4. CHANGES IN ACCOUNTING PROCEDURES
Any resolution passed by the Board of Directors of a Fund that affects
accounting practices and procedures under this Agreement shall be effective upon
written receipt and acceptance by the FMFS.
5. CHANGES IN EQUIPMENT, SYSTEMS, SERVICE, ETC.
FMFS reserves the right to make changes from time to time, as it deems
advisable, relating to its services, systems, programs, rules, operating
schedules and equipment, so long as such changes do not adversely affect the
service provided to a Fund under this Agreement. FMFS will provide IAI at least
90 days' prior written notice of any such material changes.
6. COMPENSATION
FMFS shall be compensated for providing the services set forth in this Agreement
in accordance with the Fee Schedule attached hereto as Exhibit A and as mutually
agreed upon and amended from time to time. IAI agrees to pay all fees and
reimbursable expenses within ten (10) business days following the receipt of the
billing notice.
7. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
A. FMFS shall exercise reasonable care in the performance of its duties
under this Agreement. FMFS shall not be liable for any error of judgment or
mistake of law or for any loss suffered by a Fund in connection with matters to
which this Agreement relates, including losses resulting from mechanical
breakdowns or the failure of communication or power supplies beyond FMFS's
control, except for such an error, mistake or loss arising out of or relating to
FMFS's refusal or failure to comply with the terms of this Agreement or from bad
faith, negligence, or willful misconduct on its part in the performance of its
duties under this Agreement.
Notwithstanding any other provision of this Agreement (other than
Section 3 above), if FMFS has exercised reasonable care in the performance of
its duties under this Agreement, IAI shall indemnify and hold harmless FMFS from
and against any and all claims, demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which FMFS may sustain or incur or which
may be asserted against FMFS by any person arising out of any action taken or
omitted to be taken by it in performing the services hereunder (i) in accordance
with the foregoing standards, or (ii) in reliance upon any written or oral
instruction provided to FMFS by any duly authorized officer of the Fund or IAI,
such duly authorized officer to be included in a list of authorized officers
furnished to FMFS. This indemnification and hold harmless obligation shall not
extend to any and all claims, demands, losses, expenses, and liabilities arising
out of or relating to FMFS's refusal or failure to comply with the terms of this
5
<PAGE>
Agreement or from bad faith, negligence or from willful misconduct on its part
in performance of its duties under this Agreement.
FMFS shall indemnify and hold the Company harmless from and against any
and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which the Company may sustain or incur or which may be asserted
against the Company by any person arising out of any action taken or omitted to
be taken by FMFS as a result of FMFS's refusal or failure to comply with the
terms of this Agreement, its bad faith, negligence, or willful misconduct.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, FMFS shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond FMFS's control. FMFS will restore any lost or damaged data and correct
any errors resulting from such a breakdown at the expense of FMFS. FMFS agrees
that it shall, at all times, have reasonable contingency plans with appropriate
parties, making reasonable provision for emergency use of electrical data
processing equipment. Representatives of IAI shall be entitled to inspect FMFS's
premises and operating capabilities at any time during regular business hours of
FMFS, upon reasonable notice to FMFS.
Regardless of the above, FMFS reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the indemnitor may be
asked to indemnify or hold the indemnitee harmless, the indemnitor shall be
fully and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the indemnitee will use all
reasonable care to notify the indemnitor promptly concerning any situation which
presents or appears likely to present the probability of a claim for
indemnification. The indemnitor shall have the option to defend the indemnitee
against any claim, which may be the subject of this indemnification. In the
event that the indemnitor so elects, it will so notify the indemnitee and
thereupon the indemnitor shall take over complete defense of the claim, and the
indemnitee shall in such situation initiate no further legal or other expenses
for which it shall seek indemnification under this section. Indemnitee shall in
no case confess any claim or make any compromise in any case in which the
indemnitor will be asked to indemnify the indemnitee except with the
indemnitor's prior written consent.
8. NO AGENCY RELATIONSHIP
Nothing herein contained shall be deemed to authorize or empower FMFS to act as
agent for the other party to this Agreement, or to conduct business in the name
of, or for the account of the other party to this Agreement.
9. RECORDS
6
<PAGE>
FMFS shall keep records relating to the services to be performed hereunder, in
the form and manner, and for such period as it may deem advisable and is
agreeable to IAI but not inconsistent with the rules and regulations of
appropriate government authorities, in particular, Section 31 of the 1940 Act,
and the rules thereunder. FMFS agrees that all such records prepared or
maintained by FMFS relating to the services to be performed by FMFS hereunder
are the property of each Fund and will be preserved, maintained, and made
available in accordance with such section and rules of the 1940 Act and will be
promptly surrendered to IAI or each Fund on and in accordance with any such
request.
10. DATA NECESSARY TO PERFORM SERVICES
Each Fund or its agent, which may be IAI or FMFS, shall furnish to FMFS the data
necessary to perform the services described herein at such times and in such
form as mutually agreed upon. If FMFS is also acting in another capacity for a
Fund, nothing herein shall be deemed to relieve FMFS of any of its obligations
in such capacity.
11. NOTIFICATION OF ERROR
IAI or a Fund will notify FMFS of any balancing or control error caused by FMFS
the later of: within three (3) business days after receipt of any reports
rendered by FMFS to the Fund; within three (3) business days after discovery of
any error or omission not covered in the balancing or control procedure, or
within three (3) business days of receiving notice from any shareholder.
12. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and employees to
treat confidentially and as proprietary information of IAI and the IAI Mutual
Funds all records and other information relative to IAI and the IAI Mutual Funds
and prior, present, or potential shareholders of the IAI Mutual Funds (and
clients of said shareholders), and not to use such records and information for
any purpose other than the performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing by IAI,
which approval shall not be unreasonably withheld and may not be withheld where
FMFS may be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the IAI.
13. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and, unless sooner
terminated as provided herein, shall continue automatically in effect for
successive annual periods. This Agreement may be terminated by either party upon
giving sixty (60) days prior written notice to the other party or such shorter
period as is mutually agreed upon by the parties. However, this Agreement may be
replaced or modified by a subsequent agreement between the parties. If the IAI
Mutual Funds terminate their agreements with IAI pursuant to which IAI has
retained Firstar under this Agreement, such termination shall also serve to
terminate Firstar.
7
<PAGE>
14. NOTICES
Notices of any kind to be given by either party to the other party shall be in
writing and shall be duly given if mailed or delivered as follows: Notice to
FMFS shall be sent to:
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
and notice to IAI shall be mailed to:
Investment Advisers, Inc.
Attn: Chief Legal Officer
P.O. Box 357
Minneapolis, MN 55440-0357
15. DUTIES IN THE EVENT OF TERMINATION
In the event that in connection with termination, a successor to any of FMFS's
duties or responsibilities hereunder is designated by IAI by written notice to
FMFS, FMFS will promptly, upon such termination and at the expense of IAI
transfer to such successor all relevant books, records, correspondence and other
data established or maintained by FMFS under this Agreement in a form reasonably
acceptable to IAI (if such form differs from the form in which FMFS has
maintained the same, IAI shall pay any expenses associated with transferring the
same to such form), and will cooperate in the transfer of such duties and
responsibilities, including provision for assistance from FMFS's personnel in
the establishment of books, records and other data by such successor.
16. GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State of
Wisconsin. However, nothing herein shall be construed in a manner inconsistent
with the 1940 Act or any rule or regulation promulgated by the SEC thereunder.
17. YEAR 2000 COMPLIANCE
FMFS represents and warrants to IAI that the computer software, computer
firmware, computer hardware (whether general or special purpose) and other
similar related items of automated, computerized and/or software systems that
are owned or licensed by FMFS and will be utilized by FMFS or its agents in
connection with the provision of services described in this Agreement are "Year
2000 Compliant" (as defined below). As used in this Section 17 of this
Agreement, the term "Year 2000 Compliant" shall mean the ability of the relevant
system to provide all of the following functions:
8
<PAGE>
(1) Process date information before, during and after January 1, 2000,
including but not limited to accepting date specific input data, providing date
specific output data, and performing calculations on dates or portions of dates;
(2) Function accurately and without interruption or malfunction before,
during and after January 1, 2000, without any change in operations associated
with the advent of the new millennium and assuming no other defects, bugs,
viruses or other problems unrelated to Year 2000 compliance issues which disrupt
functionality;
(3) Respond to two-digit, year-date input in a way that resolves the
ambiguity as to century and in a disclosed, defined and predetermined manner;
and
(4) Store and provide output data of date specific information in ways
that are unambiguous as to century.
Both parties recognize and acknowledge that this representation and warranty was
a significant inducement for IAI to enter into this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by a duly authorized officer on one or more counterparts as of the day and year
first written above.
Investment Advisers, Inc. FIRSTAR MUTUAL FUND SERVICES LLC
By:__________________________________ By:____________________________________
Attest:______________________________ Attest:________________________________
9
<PAGE>
EXHIBIT A - LIST OF IAI MUTUAL FUNDS AND FEE SCHEDULE
Name of Fund Effective Date
------------ --------------
IAI INVESTMENT FUNDS I, INC.
IAI Bond Fund March 1, 1999
IAI Institutional Bond Fund March 1, 1999
IAI INVESTMENT FUNDS II, INC.
IAI Growth Fund April 1, 1999
IAI INVESTMENT FUNDS III, INC.
IAI International Fund March 15, 1999
IAI INVESTMENT FUNDS IV, INC.
IAI Regional Fund April 1, 1999
IAI INVESTMENT FUNDS VI, INC.
IAI Emerging Growth Fund April 1, 1999
IAI Midcap Growth Fund April 1, 1999
IAI Balanced Fund April 1, 1999
IAI Money Market Fund March 1, 1999
IAI Capital Appreciation Fund April 1, 1999
IAI INVESTMENT FUNDS VII, INC.
IAI Growth & Income Fund April 1, 1999
IAI INVESTMENT FUNDS VIII, INC.
IAI Value Fund April 1, 1999
IAI RETIREMENT FUNDS, INC.
IAI Regional Portfolio March 1, 1999
IAI Reserve Portfolio March 1, 1999
IAI Balanced Portfolio March 1, 1999
IAI shall be responsible for the following fees and expenses, which shall be
billed on a monthly basis.
Annual fee based upon total IAI Mutual Funds assets:
5 basis points on the first $500 million
3 basis points on the next $500 million
2 basis points on the next $500 million
1 basis point on the balance
The minimum annual fee shall be $22,000 per Fund, which in aggregate for the IAI
Mutual Funds is $330,000.
Out-of-pocket expenses, including pricing service:
Domestic and Canadian Equities $.15
Options $.15
Corp/Gov/Agency Bonds $.50
CMO's $.80
International Equities and Bonds $.50
Municipal Bonds $.80
Money Market Instruments $.80
10
EXHIBIT (h).2
FORM OF
FUND ADMINISTRATION SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this __________, 1999, by
and between Investment Advisers, Inc., a corporation organized under the laws of
the State of Delaware (hereinafter referred to as "IAI") and Firstar Mutual Fund
Services, LLC, a corporation organized under the laws of the State of Wisconsin
(hereinafter referred to as "FMFS"). WHEREAS, IAI is a registered investment
adviser under the Investment Advisers Act of 1940, as amended, and serves as the
investment manager of open-end investment management companies (the "IAI Mutual
Funds") registered under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the IAI Mutual Funds are authorized to create separate series,
each with its own separate investment portfolio (each a "Fund");
WHEREAS, FMFS is in the business of providing, among other things,
mutual fund administration services to investment companies; and
WHEREAS, IAI desires to retain FMFS to provide mutual fund
administration services to the Funds listed on Exhibit A attached hereto, as it
may be amended from time to time.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
IAI and FMFS agree as follows:
1. APPOINTMENT OF ADMINISTRATOR
IAI hereby appoints FMFS as Administrator of the IAI Mutual Funds on
the terms and conditions set forth in this Agreement, and FMFS hereby
accepts such appointment and agrees to perform the services and duties
set forth in this Agreement in consideration of the compensation
provided for herein.
2. DUTIES AND RESPONSIBILITIES OF FMFS
A. General Fund Management
1. Act as liaison among all Fund service providers
2. Supply:
a. Corporate secretarial services
b. Office facilities (which may be in FMFS's or its
affiliate's own offices)
c. Non-investment-related statistical and research data
as needed
3. Coordinate board communication by:
<PAGE>
a. Establish meeting agendas
b. Preparing board reports based on financial and
administrative data
c. Evaluating independent auditor
d. Securing and monitoring fidelity bond and director
and officer liability coverage, and making the
necessary SEC filings relating thereto
e. Preparing minutes of meetings of the board and
shareholders
f. Recommend dividend declarations to the Board, prepare
and distribute to appropriate parties' notices
announcing declaration of dividends and other
distributions to shareholders
g. Provide personnel to serve as officers of the IAI
Mutual Funds if so elected by the Board and attend
Board meetings to present materials for Board review
h. Prepare expenses and director fee analysis for annual
approval
4. Audits
a. Prepare appropriate schedules and assist independent
auditors
b. Provide information to SEC and facilitate audit
process
c. Provide office facilities
5. Assist in overall operations of the Fund
6. Pay Fund expenses upon written authorization from the IAI
Mutual Funds
7. Monitor arrangements under shareholder services or similar
plan
8. Complete and return Fund survey information
B. Compliance
1. Regulatory Compliance
a. Monitor compliance with 1940 Act requirements,
including:
1) Asset diversification tests
2) Total return and SEC yield calculations
3) Maintenance of books and records under Rule
31a-3
4) Code of Ethics for the disinterested
Directors of the Fund
b. Monitor Fund's compliance with the policies and
investment limitations of the Fund as set forth in
its Prospectus and Statement of Additional
Information
c. Maintain awareness of applicable regulatory and
operational service issues and recommend dispositions
2. Blue Sky Compliance
<PAGE>
a. Prepare and file with the appropriate state
securities authorities any and all required
compliance filings relating to the registration of
the securities of the Fund so as to enable the Fund
to make a continuous offering of its shares in all
states
b. Monitor status and maintain registrations in each
state
c. Provide information regarding material developments
in state securities regulation
3. SEC Registration and Reporting
a. Assist Fund counsel in updating Prospectus and
Statement of Additional Information and in preparing
proxy statements and Rule 24f-2 notices
b. Prepare annual and semiannual reports, Form N-SAR
filings and Rule 24f-2 notices
c. Coordinate the printing, filing and mailing of
publicly disseminated Prospectuses and reports
d. File fidelity bond under Rule 17g-1
e. File shareholder reports under Rule 30b2-1
f. Monitor sales of each Fund's shares and ensure that
such shares are properly registered with the SEC and
the appropriate state authorities
g. File Rule 24f-2 notices, Form N-SAR, Form N30-d
4. IRS Compliance
a. Monitor status as a regulated investment company
under Subchapter M, including without limitation,
review of the following:
1) Asset diversification requirements,
including variable annuity testing
2) Qualifying income requirements
3) Distribution requirements
b. Calculate required distributions (including excise
tax distributions)
C. Financial Reporting
1. Provide financial data required by Fund's Prospectus and
Statement of Additional Information;
2. Prepare financial reports for officers, shareholders, tax
authorities, performance reporting companies, the board, the
SEC, and independent auditors;
3. Supervise the Funds' Custodian and Accountants in the
maintenance of the general ledger and in the preparation of
the Funds' financial statements, including oversight of
expense accruals and payments, of the determination of net
asset
<PAGE>
value of each Fund's net assets and of each Fund's shares, and
of the declaration and payment of dividends and other
distributions to shareholders;
4. Compute the yield, total return and expense ratio of each
class of each Fund, and each Fund's portfolio turnover rate;
and
5. Monitor the expense accruals and notify IAI of any proposed
adjustments.
6. Prepare monthly financial statements, which will include
without limitation the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses
7. Prepare quarterly broker security transaction summaries.
D. Tax Reporting
1. Prepare and file on a timely basis appropriate federal and
state tax returns including, without limitation, Forms
1120/8613 with any necessary schedules
2. Prepare state income breakdowns where relevant
3. File Form 1099 Miscellaneous for payments to directors and
other service providers
4. Monitor wash losses
5. Calculate eligible dividend income for corporate shareholders
6. Calculate federal obligation interest
E. Perform such other tasks as routinely performed by IAI prior to the
effective date of this Agreement consistent with the intent of both
parties that FMFS is assuming all responsibilities previously exercised
by IAI in connection with the services generally described herein.
3. COMPENSATION
FMFS shall be compensated for providing the services set forth in this Agreement
in accordance with the Fee Schedule attached hereto as Exhibit A and as mutually
agreed upon and amended from time to time. IAI agrees to pay all fees and
reimbursable expenses within ten (10) business days following the receipt of the
billing notice.
4. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
A. FMFS shall exercise reasonable care in the performance of its duties
under this Agreement. FMFS shall not be liable for any error of
judgment or mistake of law or for any loss suffered by a Fund in
connection with matters to which this Agreement relates, including
losses resulting from mechanical breakdowns or the failure of
communication
<PAGE>
or power supplies beyond FMFS's control, except for such an error,
mistake or loss arising out of or relating to FMFS's refusal or failure
to comply with the terms of this Agreement or from bad faith,
negligence, or willful misconduct on its part in the performance of its
duties under this Agreement.
Notwithstanding any other provision of this Agreement (other than
Section 3 above), if FMFS has exercised reasonable care in the
performance of its duties under this Agreement, IAI shall indemnify and
hold harmless FMFS from and against any and all claims, demands,
losses, expenses, and liabilities (whether with or without basis in
fact or law) of any and every nature (including reasonable attorneys'
fees) which FMFS may sustain or incur or which may be asserted against
FMFS by any person arising out of any action taken or omitted to be
taken by it in performing the services hereunder (i) in accordance with
the foregoing standards, or (ii) in reliance upon any written or oral
instruction provided to FMFS by any duly authorized officer of the Fund
or IAI, such duly authorized officer to be included in a list of
authorized officers furnished to FMFS. This indemnification and hold
harmless obligation shall not extend to any and all claims, demands,
losses, expenses, and liabilities arising out of or relating to FMFS's
refusal or failure to comply with the terms of this Agreement or from
bad faith, negligence or from willful misconduct on its part in
performance of its duties under this Agreement.
FMFS shall indemnify and hold IAI harmless from and against any and all
claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including
reasonable attorneys' fees) which the IAI may sustain or incur or which
may be asserted against IAI by any person arising out of any action
taken or omitted to be taken by FMFS as a result of FMFS"s refusal or
failure to comply with the terms of this Agreement, its bad faith,
negligence, or willful misconduct.
Regardless of the above, FMFS reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this section
shall apply, it is understood that if in any case the indemnitor may be
asked to indemnify or hold the indemnitee harmless, the indemnitor
shall be fully and promptly advised of all pertinent facts concerning
the situation in question, and it is further understood that the
indemnitee will use all reasonable care to notify the indemnitor
promptly concerning any situation which presents or appears likely to
present the probability of a claim for indemnification. The indemnitor
shall have the option to defend the indemnitee against any claim, which
may be the subject of this indemnification. In the event that the
indemnitor so elects, it will so notify the indemnitee and thereupon
the indemnitor shall take over complete defense of the claim, and the
indemnitee shall in such situation initiate no further legal or other
expenses for which it shall seek indemnification under this section.
The indemnitee shall in no case confess any claim or make any
compromise in any case in which the indemnitor will be asked to
indemnify the indemnitee except with the indemnitor's prior written
consent.
<PAGE>
5. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and employees to
treat confidentially and as proprietary information of the IAI Mutual Funds, all
records and other information relative to the IAI Mutual Funds and prior,
present, or potential shareholders of the IAI Mutual Funds (and clients of said
shareholders), and not to use such records and information for any purpose other
than the performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the IAI Mutual Funds, which
approval shall not be unreasonably withheld and may not be withheld where FMFS
may be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities, or
when so requested by the IAI Mutual Funds.
6. DATA NECESSARY TO PERFORM SERVICES
Each Fund or its agent, which may be FMFS, shall furnish to FMFS the data
necessary to perform the services described herein at times and in such form as
mutually agreed upon if FMFS is also acting in another capacity for a Fund,
nothing herein shall be deemed to relieve FMFS of any of its obligations in such
capacity.
7. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and, unless sooner
terminated as provided herein, shall continue subject to Board approval in
effect for successive annual periods. The Agreement may be terminated by either
party upon giving sixty (60) days prior written notice to the other party or
such shorter period as is mutually agreed upon by the parties. However, this
Agreement may be amended by mutual written consent of the parties. If the IAI
Mutual Funds terminate their agreements with IAI pursuant to which IAI has
retained FMFS under this Agreement, such termination shall also serve to
terminate FMFS.
8. NOTICES
Notices of any kind to be given by either party to the other party shall be in
writing and shall be duly given if mailed or delivered as follows: Notice to
FMFS shall be sent to:
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
and notice to IAI shall be sent to:
IAI Mutual Funds
Director of Fund Administration
601 Second Avenue South, Suite 3700
Minneapolis, MN 55402
<PAGE>
9. NO AGENCY RELATIONSHIP
Nothing herein contained shall be deemed to authorize or empower FMFS to act as
agent for the other party to this Agreement, or to conduct business in the name
of, or for the account of the other party to this Agreement.
10. DUTIES IN THE EVENT OF TERMINATION
In the event that, in connection with termination, a successor to any of FMFS's
duties or responsibilities hereunder is designated by IAI by written notice to
FMFS, FMFS will promptly, upon such termination and at the expense of IAI,
transfer to such successor all relevant books, records, correspondence, and
other data established or maintained by FMFS under this Agreement in a form
reasonably acceptable to IAI (if such form differs from the form in which FMFS
has maintained, IAI shall pay any expenses associated with transferring the data
to such form), and will cooperate in the transfer of such duties and
responsibilities, including provision for assistance from FMFS's personnel in
the establishment of books, records, and other data by such successor.
11. GOVERNING LAW
This Agreement shall be construed and the provisions thereof interpreted under
and in accordance with the laws of the State of Wisconsin. However, nothing
herein shall be construed in a manner inconsistent with the 1940 Act or any rule
or regulation promulgated by the Securities and Exchange Commission thereunder.
12. RECORDS
FMFS shall keep records relating to the services to be performed hereunder, in
the form and manner as it may deem advisable. To the extent required by Section
31 of the 1940 Act, and the rules thereunder, FMFS agrees that all such records
prepared or maintained by FMFS relating to the services to be performed by FMFS
hereunder are the property of a Fund and will be preserved, maintained and made
available in accordance with such section and rules and will be surrendered to a
Fund on and in accordance with its request. Such records shall also be made
available for review by the U.S. Securities and Exchange Commission.
13. FURTHER REPRESENTATIONS AND WARRANTIES OF FMFS
A. FMFS represents and warrants to IAI that the computer software,
computer firmware, computer hardware (whether general or special
purpose) and other similar related items of automated, computerized
and/or software systems that are owned or licensed by FMFS and will be
utilized by FMFS or its agents in connection with the provision of
services described in this Agreement are "Year 2000 Compliant" (as
defined below). As used in this Section 15 of this Agreement, the term
"Year 2000 Compliant" shall mean the ability of the relevant system to
provide all of the following functions:
<PAGE>
(1) Process date information before, during and after January 1, 2000,
including but not limited to accepting date specific input data,
providing date specific output data, and performing calculations on
dates or portions of dates;
(2) Function accurately and without interruption or malfunction before,
during and after January 1, 2000, without any change in operations
associated with the advent of the new millennium and assuming no other
defects, bugs, viruses or other problems unrelated to Year 2000
compliance issues which disrupt functionality;
(3) Respond to two-digit, year-date input in a way that resolves the
ambiguity as to century and in a disclosed, defined and predetermined
manner; and
(4) Store and provide output data of date specific information in ways
that are unambiguous as to century.
The parties recognize and acknowledge that this representation
and warranty was a significant inducement for IAI to enter into this
Agreement.
B. FMFS represents and warrants that it satisfies all rules and
requirements under the 1940 Act for the purpose of providing the
services set forth in this Agreement.
C. To the extent FMFS make changes relating to its services, systems,
programs, rules, operating schedules and equipment, it represents and
warrants that any such changes will not adversely affect the services
provided to a Fund under this Agreement. FMFS will provide IAI at least
90 days' prior written notice of any such material changes.
D. In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, FMFS shall take all reasonable steps
to minimize service interruptions for any period that such interruption
continues beyond FMFS's control. FMFS will restore any lost or damaged
data and correct any errors resulting from such a breakdown at the
expense of FMFS. FMFS agrees that it shall, at all times, have
reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of systems needed to perform
services under this Agreement. FMFS shall provide IAI with copies of
such contingencies plans and any changes thereto. Representatives of
IAI shall be entitled to inspect FMFS's premises and operating
capabilities at any time during regular business hours of FMFS, upon
reasonable notice to FMFS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer or one or more counterparts as of the day
and year first written above.
<PAGE>
INVESTMENT ADVISERS, INC. FIRSTAR MUTUAL FUND SERVICES, LLC
By:__________________________________ By:____________________________________
Attest:______________________________ Attest:________________________________
<PAGE>
EXHIBIT A
Name of Fund Effective Date
------------ --------------
IAI INVESTMENT FUNDS I, INC.
IAI Bond Fund April 26, 1999
IAI Institutional Bond Fund April 26, 1999
IAI INVESTMENT FUNDS II, INC.
IAI Growth Fund April 26, 1999
IAI INVESTMENT FUNDS III, INC.
IAI International Fund April 26, 1999
IAI INVESTMENT FUNDS IV, INC.
IAI Regional Fund April 26, 1999
IAI INVESTMENT FUNDS VI, INC.
IAI Emerging Growth Fund April 26, 1999
IAI Midcap Growth Fund April 26, 1999
IAI Balanced Fund April 26, 1999
IAI Money Market Fund April 26, 1999
IAI Capital Appreciation Fund April 26, 1999
IAI INVESTMENT FUNDS VII, INC.
IAI Growth & Income Fund April 26, 1999
IAI INVESTMENT FUNDS VIII, INC.
IAI Value Fund April 26, 1999
IAI RETIREMENT FUNDS, INC.
IAI Regional Portfolio April 26, 1999
IAI Reserve Portfolio April 26, 1999
IAI Balanced Portfolio April 26, 1999
Annual fee based upon fund group assets:
7 basis points on the first $500 million
6 basis points on the next $500 million
4 basis points on the balance
Subject to a minimum annual fee of $25,000 per fund, in aggregate for the fund
group.
Extraordinary services quoted separately.
Plus out-of-pocket expense reimbursements, including but not limited to:
Postage
Programming
Stationery
Proxies
Retention of records
Special reports
Federal and state regulatory filing fees
Certain insurance premiums
Expenses from board of Directors meetings
Auditing and legal expenses
Fees and out-of-pocket expense reimbursements are billed to IAI monthly
EXHIBIT (h).3
FORM OF
FULFILLMENT SERVICING AGREEMENT
THIS AGREEMENT is entered into as of April 26, 1999, by and between
Investment Advisers, Inc., a Delaware corporation (hereinafter referred to as
"IAI") and Firstar Mutual Fund Services, LLC, a corporation organized under the
laws of the State of Wisconsin (hereinafter referred to as "FMFS").
WHEREAS, IAI is a registered investment adviser under the Investment
Advisers Act of 1940, as amended;
WHEREAS, IAI serves as investment adviser to various registered
investment IAI under the Investment Company Act of 1940, as amended, (the "IAI
Mutual Funds");
WHEREAS, the IAI Mutual Funds are authorized to create separate series,
each with its own investment portfolio (each a "Fund");
WHEREAS, FMFS provides fulfillment services to mutual funds;
WHEREAS, IAI desires to retain FMFS to provide fulfillment services for
the Funds listed on Exhibit A attached hereto, as may be amended from time to
time.
NOW, THEREFORE, the parties agree as follows:
1. DUTIES AND RESPONSIBILITIES OF FMFS
1. Answer all prospective shareholder calls concerning the Fund.
2. Send all available Fund material requested by the prospect
within 24 hours from time of call.
3. Receive and update all Fund fulfillment literature so that the
most current information is sent and quoted.
4. Provide 24 hour answering service to record prospect calls
made after hours (7 p.m. to 8 a.m. CT).
5. Maintain and store Fund fulfillment inventory.
6. Send periodic fulfillment reports to IAI as agreed upon
between the parties.
2. DUTIES AND RESPONSIBILITIES OF IAI
1. Provide Fund fulfillment literature updates to FMFS as
necessary.
2. File with the NASD, SEC and State Regulatory Agencies, as
appropriate, all fulfillment literature that the Fund requests
FMFS send to prospective shareholders.
<PAGE>
3. Supply FMFS with sufficient inventory of fulfillment materials
as requested from time to time by FMFS.
4. Provide FMFS with any sundry information about the Fund in
order to answer prospect questions.
3. INDEMNIFICATION
IAI agrees to indemnify FMFS from any liability arising out of the distribution
of fulfillment literatureAgencies but not to the extent that such liability
arises out of or is in any way related to FMFS's own bad faith, negligence,
willful misconduct or breach of this Agreement. FMFS agrees to indemnify IAI
from any liability arising from the improper use of fulfillment literature
during the performance of duties and responsibilities identified in this
agreement.
4. COMPENSATION
IAI agrees to compensate FMFS for the services performed under this Agreement in
accordance with the attached Exhibit A. All invoices shall be paid within ten
days of receipt.
5. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and employees to
treat confidentially and as proprietary information of IAI all records and other
information relative to the Fund and prior, present, or potential shareholders
of the Fund (and clients of said shareholders), and not to use such records and
information for any purpose other than the performance of its responsibilities
and duties hereunder, except after prior notification to and approval in writing
by IAI which approval shall not be unreasonably withheld and may not be withheld
where FMFS may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by IAI.
6. TERMINATION
This Agreement may be terminated by either party upon 30 days' written notice.
7. NO AGENCY RELATIONSHIP
Nothing herein contained shall be deemed to authorize or empower FMFS to act as
agent for the other party to this Agreement, or to conduct business in the name
of, or for the account of the other party to this Agreement.
8. DATA NECESSARY TO PERFORM SERVICES
IAI or its agent, which may be FMFS, shall furnish to FMFS the data necessary to
perform the services described herein at such times and in such form as mutually
agreed upon. If FMFS is also acting in another capacity for the Fund, nothing
herein shall be deemed to relieve FMFS of any of its obligations in such
capacity.
<PAGE>
9. NOTIFICATION OF ERROR
IAI will notify FMFS of any error caused by FMFS the later of: within three (3)
business days after receipt of any reports rendered by FMFS to IAI; within three
(3) business days after discovery of any error or omission not covered in the
balancing or control procedure, or within three (3) business days of receiving
notice from any shareholder.
10. REPRESENTATIONS AND WARRANTIES OF FMFS
A. FMFS represents and warrants to the IAI that the computer software,
computer firmware, computer hardware (whether general or special purpose) and
other similar related items of automated, computerized and/or software systems
that are owned or licensed by FMFS and will be utilized by FMFS or its agents in
connection with the provision of services described in this Agreement are "Year
2000 Compliant" (as defined below). As used in this Section 10 of this
Agreement, the term "Year 2000 Compliant" shall mean the ability of the relevant
system to provide all of the following functions:
(1) Process date information before, during and after January 1, 2000,
including but not limited to accepting date specific input data, providing date
specific output data, and performing calculations on dates or portions of dates;
(2) Function accurately and without interruption or malfunction before,
during and after January 1, 2000, without any change in operations associated
with the advent of the new millennium and assuming no other defects, bugs,
viruses or other problems unrelated to Year 2000 compliance issues which disrupt
functionality;
(3) Respond to two-digit, year-date input in a way that resolves the
ambiguity as to century and in a disclosed, defined and predetermined manner;
and
(4) Store and provide output data of date specific information in ways
that are unambiguous as to century.
The parties recognize and acknowledge that this representation and warranty was
a significant inducement for IAI to enter into this Agreement.
B. To the extent FMFS make changes relating to its services, systems,
programs, rules, operating schedules and equipment, it represents and warrants
that any such changes will not adversely affect the services provided under this
Agreement. FMFS will provide IAI at least 90 days' prior written notice of any
such material changes.
C. In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, FMFS shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond FMFS's control. FMFS will restore any lost or damaged data and correct
any errors resulting from such a breakdown at the expense of FMFS. FMFS agrees
that it shall, at all times, have reasonable contingency plans with appropriate
parties,
<PAGE>
making reasonable provision for emergency use of systems needed to perform
services under this Agreement. FMFS shall provide IAI with copies of such
contingencies plans and any changes thereto. Representatives of IAI shall be
entitled to inspect FMFS's premises and operating capabilities at any time
during regular business hours of FMFS, upon reasonable notice to FMFS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer or one or more counterparts as of the day
and year first written above.
INVESTMENT ADVISERS, INC. FIRSTAR MUTUAL FUND SERVICES, LLC
By:__________________________________ By:____________________________________
Attest:______________________________ Attest:________________________________
<PAGE>
EXHIBIT A- LIST OF IAI MUTUAL FUNDS AND FEE SCHEDULE
Name of Fund Effective Date
------------ --------------
IAI INVESTMENT FUNDS I, INC.
IAI Bond Fund April 26, 1999
IAI Institutional Bond Fund April 26, 1999
IAI INVESTMENT FUNDS II, INC.
IAI Growth Fund April 26, 1999
IAI INVESTMENT FUNDS III, INC.
IAI International Fund April 26, 1999
IAI INVESTMENT FUNDS IV, INC.
IAI Regional Fund April 26, 1999
IAI INVESTMENT FUNDS VI, INC.
IAI Emerging Growth Fund April 26, 1999
IAI Midcap Growth Fund April 26, 1999
IAI Balanced Fund April 26, 1999
IAI Money Market Fund April 26, 1999
IAI Capital Appreciation Fund April 26, 1999
IAI INVESTMENT FUNDS VII, INC.
IAI Growth & Income Fund April 26, 1999
IAI INVESTMENT FUNDS VIII, INC.
IAI Value Fund April 26, 1999
IAI RETIREMENT FUNDS, INC.
IAI Regional Portfolio N/A
IAI Reserve Portfolio N/A
IAI Balanced Portfolio N/A
Base Service $100 per month
Customer Service
State registration compliance edits
Literature database
Record prospect request and profile
Prospect servicing 8:00 am to 7:00 pm CT
Recording and transcription of requests received off-hours
Periodic reporting of leads to client
Service Fee: $.99 / minute
Assembly and Distribution of Literature Requests
Generate customized prospect letters
Assembly and insertion of literature items
Inventory tracking
Inventory storage, reporting
Periodic reporting of leads by state, items requested, market source
Service Fee: $.45 / lead - insertion of up to 4 items/lead
$.15 / additional inserts
Fees and out-of-pocket expenses are billed to IAI monthly
EXHIBIT (h).4
FORM OF
TRANSFER AGENT SERVICING AGREEMENT
THIS AGREEMENT is entered into as April 26, 1999, by and between
Investment Advisers, Inc., a Delaware corporation (hereinafter referred to as
"IAI") and Firstar Mutual Fund Services, LLC, a corporation organized under the
laws of the State of Wisconsin (hereinafter referred to as the "FMFS").
WHEREAS, IAI is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and serves as the transfer agent for certain
open-end investment management companies (the "IAI Mutual Funds") registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the IAI Mutual Funds are authorized to create separate series,
each with its own separate investment portfolio (each a "Fund");
WHEREAS, FMFS is in the business of providing, among other things,
transfer agent and dividend disbursing agent services to investment companies;
and
WHEREAS, IAI desires to retain FMFS to provide transfer agent services
to each of the Funds listed on Exhibit A attached hereto, as it may be amended
from time to time.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
IAI and FMFS agree as follows:
1. APPOINTMENT OF TRANSFER AGENT
IAI hereby appoints FMFS as transfer agent of IAI on the terms and
conditions set forth in this Agreement, and FMFS hereby accepts such appointment
and agrees to perform the services and duties set forth in this Agreement in
consideration of the compensation provided for herein.
2. DUTIES AND RESPONSIBILITIES OF FMFS
FMFS shall perform all of the customary services of a transfer agent
and dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to:
A. Receive orders for the purchase of shares;
B. Process purchase orders with prompt delivery, where
appropriate, of payment and supporting documentation to IAI's
FMFS, and issue the appropriate number of uncertificated
shares with such uncertificated shares being held in the
appropriate shareholder account;
<PAGE>
C. Arrange for issuance of shares obtained through transfers of
funds from Shareholders' accounts at financial institutions
and arrange for the exchange of shares for shares of other
eligible investment companies, when permitted by a Fund's
prospectus.
D. Process redemption requests received in good order and, where
relevant, deliver appropriate documentation to IAI's FMFS;
E. Pay monies upon receipt from IAI's FMFS, where relevant, in
accordance with the instructions of redeeming shareholders;
F. Process transfers of shares in accordance with the
shareholder's instructions;
G. Process exchanges between funds and/or classes of shares of
funds.
H. Prepare and transmit payments for dividends and distributions
declared by IAI with respect to a Fund, after deducting any
amount required to be withheld by any applicable laws, rules
and regulations and in accordance with shareholder
instructions;
I. Make changes to shareholder records, including, but not
limited to, address changes in plans (i.e., systematic
withdrawal, automatic investment, dividend reinvestment,
etc.);
J. Record the issuance of shares of a Fund and maintain, pur
suant to Rule 17ad- 10(e) promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), a
record of the total number of shares of a Fund which are
authorized, issued and outstanding;
K. Prepare shareholder meeting lists and, if applicable, mail,
receive and tabulate proxies;
L. Mail shareholder reports and prospectuses to current
shareholders;
M. Prepare and file U.S. Treasury Department Forms 1099 and other
appropriate information returns required with respect to
dividends and distributions for all shareholders;
N. Provide shareholder account information upon request and
prepare and mail confirmations and statements of account to
shareholders for all purchases, redemption's and other
confirmable transactions as agreed upon with a Fund;
O. Mail requests for shareholders' certifications under penalties
of perjury and pay on a timely basis to the appropriate
Federal authorities any taxes to be withheld on
<PAGE>
dividends and distributions paid by a Fund, all as required by
applicable Federal tax laws and regulations;
P. Provide a Blue Sky System, which will enable a Fund to monitor
the total number of shares of the Fund sold in each state. In
addition, IAI or its agent, including FMFS, shall identify to
FMFS in writing those transactions and assets to be treated as
exempt from the Blue Sky reporting for each state. The
responsibility of FMFS for a Fund's Blue Sky state
registration status is solely limited to the initial
compliance by a Fund and the reporting of such transactions to
a Fund or its agent;
Q. Answer correspondence from shareholders, securities brokers
and others relating to FMFS's duties hereunder and such other
correspondence as may from time to time be mutually agreed
upon between FMFS and IAI.
R. Perform such other tasks as routinely performed by IAI prior
to the effective date of this Agreement consistent with the
intent of both parties that FMFS is assuming all
responsibilities previously exercised by IAI in connection
with the services generally described herein.
3. COMPENSATION
FMFS shall be compensated for providing the services set forth in this
Agreement in accordance with the Fee Schedule attached hereto as Exhibit A and
as mutually agreed upon and amended from time to time. IAI agrees to pay all
fees and reimbursable expenses within ten (10) business days following the
receipt of the billing notice.
4. REPRESENTATIONS OF FMFS
FMFS represents and warrants to IAI that:
A. It is a corporation duly organized, existing and in good
standing under the laws of Wisconsin;
B. It is a registered transfer agent under the Exchange Act;
C. It is duly qualified to carry on its business in the State of
Wisconsin;
D. It is empowered under applicable laws and by its charter and
bylaws to enter into and perform this Agreement;
E. All requisite corporate proceedings have been taken to
authorize it to enter and perform this Agreement;
<PAGE>
F. It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement; and
G. It will comply with all applicable requirements of the
Securities Act of 1933, as amended, and the Exchange Act, the
1940 Act, and any laws, rules, and regulations of governmental
authorities having jurisdiction.
5. REPRESENTATIONS OF IAI
IAI represents and warrants to FMFS that:
A. Each Fund is an open-end investment company under the 1940
Act;
B. Each Fund is organized, existing, and in good standing under
the laws of Minnesota;
C. IAI is empowered under applicable laws and contracts to enter
into and perform this Agreement;
E. Each Fund will comply with all applicable requirements of the
Securities Act, the Exchange Act, the 1940 Act, and any laws,
rules and regulations of governmental authorities having
jurisdiction; and
F. A registration statement under the Securities Act will be made
effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be
made, with respect to all shares of a Fund being offered for
sale.
6. COVENANTS OF IAI AND FMFS
FMFS shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the 1940 Act, and the rules thereunder, FMFS agrees
that all such records prepared or maintained by FMFS relating to the services to
be performed by FMFS hereunder are the property of a Fund and will be preserved,
maintained and made available in accordance with such section and rules and will
be surrendered to a Fund on and in accordance with its request. Such records
shall also be made available for review by the U.S. Securities and Exchange
Commission.
7. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
A. FMFS shall exercise reasonable care in the performance of its duties
under this Agreement. FMFS shall not be liable for any error of judgment or
mistake of law or for any loss suffered by a Fund in connection with matters to
which this Agreement relates, including losses resulting from mechanical
breakdowns or the failure of communication or power supplies beyond FMFS"s
control, except for such an error, mistake or loss arising out of or relating to
FMFS's refusal or failure to comply with the terms of this Agreement or from bad
faith, negligence, or willful misconduct on its part in the performance of its
duties under this Agreement.
<PAGE>
Notwithstanding any other provision of this Agreement (other than
Section 3 above), if FMFS has exercised reasonable care in the performance of
its duties under this Agreement, IAI shall indemnify and hold harmless FMFS from
and against any and all claims, demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which FMFS may sustain or incur or which
may be asserted against FMFS by any person arising out of any action taken or
omitted to be taken by it in performing the services hereunder (i) in accordance
with the foregoing standards, or (ii) in reliance upon any written or oral
instruction provided to FMFS by any duly authorized officer of the Fund or IAI,
such duly authorized officer to be included in a list of authorized officers
furnished to FMFS. This indemnification and hold harmless obligation shall not
extend to any and all claims, demands, losses, expenses, and liabilities arising
out of or relating to FMFS's refusal or failure to comply with the terms of this
Agreement or from bad faith, negligence or from willful misconduct on its part
in performance of its duties under this Agreement.
FMFS shall indemnify and hold the Company harmless from and against any
and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which the Company may sustain or incur or which may be asserted
against the Company by any person arising out of any action taken or omitted to
be taken by FMFS as a result of FMFS"s refusal or failure to comply with the
terms of this Agreement, its bad faith, negligence, or willful misconduct.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, FMFS shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond FMFS"s control. FMFS will restore any lost or damaged data and correct
any errors resulting from such a breakdown at the expense of FMFS. FMFS agrees
that it shall, at all times, have reasonable contingency plans with appropriate
parties, making reasonable provision for emergency use of electrical data
processing equipment. Representatives of IAI shall be entitled to inspect FMFS"s
premises and operating capabilities at any time during regular business hours of
FMFS, upon reasonable notice to FMFS.
Regardless of the above, FMFS reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the indemnitor may be
asked to indemnify or hold the indemnitee harmless, the indemnitor shall be
fully and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the indemnitee will use all
reasonable care to notify the indemnitor promptly concerning any situation which
presents or appears likely to present the probability of a claim for
indemnification. The indemnitor shall have the option to defend the indemnitee
against any claim, which may be the subject of this indemnification. In the
event that the indemnitor so elects, it will so notify the indemnitee and
thereupon the indemnitor shall take over complete defense of the claim, and the
indemnitee shall in such situation initiate no further legal or other expenses
for which it shall seek indemnification under this section. Indemnitee shall in
no
<PAGE>
case confess any claim or make any compromise in any case in which the
indemnitor will be a sked to indemnify the indemnitee except with the
indemnitor's prior written consent.
8. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and
employees to treat confidentially and as proprietary information of IAI all
records and other information relative to IAI and prior, present, or potential
shareholders (and clients of said shareholders) and not to use such records and
information for any purpose other than the performance of its responsibilities
and duties hereunder, except after prior notification to and approval in writing
by IAI, which approval shall not be unreasonably withheld and may not be
withheld where FMFS may be exposed to civil or criminal contempt proceedings for
failure to comply after being requested to divulge such information by duly
constituted authorities, or when so requested by IAI.
9. DATA NECESSARY TO PERFORM SERVICES
Each Fund or its agent, which may be IAI or FMFS, shall furnish to FMFS
the data necessary to perform the services described herein at such times and in
such form as mutually agreed upon. If FMFS is also acting in another capacity
for a Fund, nothing herein shall be deemed to relieve FMFS of any of its
obligations in such capacity.
10. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and, unless
sooner terminated as provided herein, shall continue automatically in effect for
successive annual periods. The Agreement may be terminated by either party upon
giving sixty (60) days prior written notice to the other party or such shorter
period as is mutually agreed upon by the parties. However, this Agreement may be
amended by mutual written consent of the parties. If the IAI Mutual Funds
terminate their agreements with IAI pursuant to which IAI has retained FMFS
under this Agreement, such termination shall also serve to terminate FMFS.
11. NOTIFICATION OF ERROR
A. IAI or a Fund will notify FMFS of any balancing or control error
caused by FMFS the later of: within three (3) business days after receipt of any
reports rendered by FMFS to the Fund; within three (3) business days after
discovery of any error or omission not covered in the balancing or control
procedure, or within three (3) business days of receiving notice from any
shareholder.
B. FMFS will notify IAI of any balancing, control or other error caused
by FMFS within one (1) business day of FMFS discovering the error.
C. Notwithstanding anything to the contrary in Section 7 above, as more
fully provided in this paragraph C, FMFS shall reimburse each Fund and its
shareholders for losses due to NAV Differences (as defined below) arising out of
or relating to the FMFS's refusal or failure to comply with the terms of this
Agreement or from its bad faith, negligence or willful misconduct in the
<PAGE>
performance of its duties under this Agreement. FMFS shall reimburse each
applicable Fund for any net losses to the Fund during each NAV Error Period (as
defined below) resulting from an NAV Difference that is at least $.010 per Fund
share but that, as a percentage of Recalculated NAV (as defined below) of such
Fund, is less than 1/2 of 1%. FMFS shall reimburse the Fund and each Fund
shareholder for any net losses experienced by the Fund or any Fund shareholder,
as applicable, during each NAV Error Period resulting from an NAV Difference
that is at least $.010 per Fund share and that, as a percentage of Recalculated
NAV of such Fund, is at least 1/2 of 1%; provided, however, that FMFS shall not
be responsible for reimbursing any Fund shareholder experiencing a loss during
any such NAV Error Period of less than $25. NAV Differences and any liability of
FMFS therefrom are to be calculated each time a Fund's net asset value per share
is calculated. For purposes of calculating FMFS's liability hereunder, gains
shall offset losses within each NAV Error Period; however, net gains shall not
be carried back or forward to offset losses in prior or future NAV Error
Periods. For purposes of this paragraph C:
(i) "NAV Error Period" means any business day or series of two
or more consecutive business days during which an NAV Difference exists.
(ii) "NAV Difference" means the difference between the
Recalculated NAV and the net asset value per share at which a given purchase or
redemption is effected, divided by the Recalculated NAV with respect to such
purchase or redemption.
(iii) "Recalculated NAV" means the net asset value per share
at which a shareholder purchase or redemption should have been effected.
12. NOTICES
Notices of any kind to be given by either party to the other party
shall be in writing and shall be duly given if mailed or delivered as follows:
Notice to FMFS shall be sent to:
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
and notice to IAI shall be sent to:
IAI Mutual Funds
Attn: Director, Fund Administration
601 Second Avenue South, Suite 3700
Minneapolis, MN 55402
13. DUTIES IN THE EVENT OF TERMINATION
In the event that, in connection with termination, a successor to any
of FMFS's duties or responsibilities hereunder is designated by IAI by written
notice to FMFS, FMFS will promptly, upon such termination and at the expense of
IAI, transfer to such successor all relevant books, records, correspondence, and
other data established or maintained by FMFS under this
<PAGE>
Agreement in a form reasonably acceptable to IAI (if such form differs from the
form in which FMFS has maintained, IAI shall pay any expenses associated with
transferring the data to such form), and will cooperate in the transfer of such
duties and responsibilities, including provision for assistance from FMFS's
personnel in the establishment of books, records, and other data by such
successor.
14. GOVERNING LAW
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of Wisconsin.
However, nothing herein shall be construed in a manner inconsistent with the
1940 Act or any rule or regulation promulgated by the Securities and Exchange
Commission thereunder.
15. FURTHER REPRESENTATIONS AND WARRANTIES OF FMFS
A. FMFS represents and warrants to IAI that the computer software,
computer firmware, computer hardware (whether general or special purpose) and
other similar related items of automated, computerized and/or software systems
that are owned or licensed by FMFS and will be utilized by FMFS or its agents in
connection with the provision of services described in this Agreement are "Year
2000 Compliant" (as defined below). As used in this Section 15 of this
Agreement, the term "Year 2000 Compliant" shall mean the ability of the relevant
system to provide all of the following functions:
(1) Process date information before, during and after January 1, 2000,
including but not limited to accepting date specific input data, providing date
specific output data, and performing calculations on dates or portions of dates;
(2) Function accurately and without interruption or malfunction before,
during and after January 1, 2000, without any change in operations associated
with the advent of the new millennium and assuming no other defects, bugs,
viruses or other problems unrelated to Year 2000 compliance issues which disrupt
functionality;
(3) Respond to two-digit, year-date input in a way that resolves the
ambiguity as to century and in a disclosed, defined and predetermined manner;
and
(4) Store and provide output data of date specific information in ways
that are unambiguous as to century.
The parties recognize and acknowledge that this representation and warranty was
a significant inducement for IAI to enter into this Agreement.
B. FMFS represents and warrants that it satisfies all rules and
requirements under the 1940 Act for the purpose of providing the services set
forth in this Agreement.
C. To the extent FMFS make changes relating to its services, systems,
programs, rules, operating schedules and equipment, it represents and warrants
that any such changes will not
<PAGE>
adversely affect the services provided to a Fund under this Agreement. FMFS will
provide IAI at least 90 days' prior written notice of any such material changes.
D. In the event of a mechanical breakdown or failure of communication
or power supplies beyond its control, FMFS shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond FMFS's control. FMFS will restore any lost or damaged data and correct
any errors resulting from such a breakdown at the expense of FMFS. FMFS agrees
that it shall, at all times, have reasonable contingency plans with appropriate
parties, making reasonable provision for emergency use of systems needed to
perform services under this Agreement. FMFS shall provide IAI with copies of
such contingencies plans and any changes thereto. Representatives of IAI shall
be entitled to inspect FMFS's premises and operating capabilities at any time
during regular business hours of FMFS, upon reasonable notice to FMFS.
16. STOCK CERTIFICATES
If at any time a Fund issues stock certificates, the following
provisions will apply:
(i) In the case of the loss or destruction of any certificate
representing shares, no new certificate shall be issued in
lieu thereof, unless there shall first have been furnished an
appropriate bond of indemnity issued by the surety company
approved by FMFS.
(ii) Upon receipt of signed stock certificates, which shall be in
proper form for transfer, and upon cancellation or destruction
thereof, FMFS shall countersign, register and issue new
certificates for the same number of shares and shall deliver
them pursuant to instructions received from the transferor,
the rules and regulations of the SEC, and the laws of the
state of Minnesota relating to the transfer of shares of
beneficial interest.
(iii) Upon receipt of the stock certificates, which shall be in
proper form for transfer, together with the shareholder's
instructions to hold such stock certificates for safekeeping,
FMFS shall reduce such shares to uncertificated status, while
retaining the appropriate registration in the name of the
shareholder upon the transfer books.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer or one or more counterparts as of the day
and year first written above.
INVESTMENT ADVISERS, INC. FIRSTAR MUTUAL FUND SERVICES, LLC
By:__________________________________ By:____________________________________
Attest:______________________________ Attest:________________________________
<PAGE>
EXHIBIT A - LIST OF IAI MUTUAL FUNDS AND FEE SCHEDULE
Name of Fund Effective Date
------------ --------------
IAI INVESTMENT FUNDS I, INC.
IAI Bond Fund April 26, 1999
IAI Institutional Bond Fund April 26, 1999
IAI INVESTMENT FUNDS II, INC.
IAI Growth Fund April 26, 1999
IAI INVESTMENT FUNDS III, INC.
IAI International Fund April 26, 1999
IAI INVESTMENT FUNDS IV, INC.
IAI Regional Fund April 26, 1999
IAI INVESTMENT FUNDS VI, INC.
IAI Emerging Growth Fund April 26, 1999
IAI Midcap Growth Fund April 26, 1999
IAI Balanced Fund April 26, 1999
IAI Money Market Fund April 26, 1999
IAI Capital Appreciation Fund April 26, 1999
IAI INVESTMENT FUNDS VII, INC.
IAI Growth & Income Fund April 26, 1999
IAI INVESTMENT FUNDS VIII, INC.
IAI Value Fund April 26, 1999
IAI RETIREMENT FUNDS, INC.
IAI Regional Portfolio April 26, 1999
IAI Reserve Portfolio April 26, 1999
IAI Balanced Portfolio April 26, 1999
Annual Fee
$14.00 per shareholder account - no-load fund
Minimum annual fees of $25,000 for the first fund, $10,000 for each
additional fund or class
Minimum annual fees of $5,000 per annuity fund
Extraordinary services quoted separately.
Plus Out-of-Pocket Expenses, including but not limited to:
<TABLE>
<S> <C>
Telephone - toll free lines Proxies
Postage Retention of records
Programming - enhancements Microfilm/fiche of records
Programming for select data requests - $150.00/hr Special reports
Stationery/envelopes ACH fees
Mailing NSCC charges
Programming to add funds/classes - $150.00 per hr Insurance
Check books Services to locate lost shareholders
File transfers - $160.00 per month and $.01 per record
</TABLE>
ACH Shareholder Services
$125.00 per month per fund group
$ .50 per account setup and/or change
$ .50 per ACH item
$3.50 per correction, reversal, return item
<PAGE>
Qualified Plan Fees (Billed to Investors)*
<TABLE>
<S> <C>
Annual maintenance fee per account $12.50 / acct. (Cap at $25.00 per SSN)
Education IRA $ 5.00 / acct. (Cap at $25.00 / per SSN)
Transfer to successor trustee $15.00 / trans.
Distribution to participant $15.00 / trans. (Exclusive of SWP)
Refund of excess contribution $15.00 / trans.
</TABLE>
*No maintenance fees will be charged to accounts in 1999. Firstar will charge
$1.00 per qualified plan account per month in 1999 on the transfer agent
invoices. Prior to June 1, 1999 all other qualified plan fees will be paid by
IAI. After that all other qualified plan fees apply immediately. IRA maintenance
fees will be charged to accounts in the year 2000.
Additional Shareholder Fees (Billed to Investors)
<TABLE>
<S> <C>
Any outgoing wire transfer $12.00 / wire
Telephone Exchange $ 5.00 / exchange transaction
Return check fee $20.00 / item
Stop payment $20.00 / stop
(Liquidation, dividend, draft check)
Research fee $ 5.00 / item
(For requested items of the second calendar year [or previous] to the
request) (Cap at $25.00)
</TABLE>
NSCC Interfaces
<TABLE>
<S> <C>
Setup
Fund/SERV, Networking ACATS, Exchanges $5,000 setup (one time)
Commissions $5,000 setup (one time)
Processing
Fund/SERV $ 50.00 / month
Networking $ 250.00 / month
CPU Access $ 40.00 / month
Fund/SERV Transactions $ .35 / trade
Networking - per item $ .025 / monthly dividend fund
Networking - per item $ .015 / non-mo. dividend fund
First Data $ .10 / next-day Fund/SERV trade
First Data $ .15 / same-day Fund?SERV trade
</TABLE>
NSCC Implementation
8 to 10 weeks lead time
DAZL (Direct Access Zip Link - Electronic mail interface to financial advisor
network)
<TABLE>
<S> <C>
Setup $5,000 / fund group
Monthly Usage $1,000 / month
Transmission $ .015 / price record
$ .025 / other record
Enhancement $ 125 / hour
</TABLE>
Fees and out-of-pocket expenses are billed to IAI monthly.
EXHIBIT (i)
[DORSEY & WHITNEY LETTERHEAD]
IAI Investment Fund VI, Inc.
3700 U.S. Bank Place
P.O. Box 357
Minneapolis, Minnesota 55440
Ladies and Gentlemen:
We have acted as counsel to IAI Investment Funds VI, Inc., a Minnesota
corporation (the "Fund"), in connection with a Registration Statement on Form
N-1A (File No. 033-40496) (the "Registration Statement") relating to the sale by
the Fund of an indefinite number of shares of the Fund's Series F common stock,
each with a par value of $.01 per share (the "Shares").
We have examined such documents and have reviewed such questions of law
as we have considered necessary and appropriate for the purposes of our opinions
set forth below. In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Fund, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Fund and of public officials. We have also
assumed that the Shares will be issued and sold as described in the Registration
Statement.
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized by all requisite corporate action and, upon issuance, delivery
and payment therefore as described in the Registration Statement, will be
validly issued, fully paid and nonassessable.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the caption
"Legal Counsel" in the Statement of Additional Information constituting part of
the Registration Statement.
Dated: May 27, 1999
Very truly yours,
/s/ DORSEY & WHITNEY LLP
EXHIBIT (j)
Independent Auditors' Consent
The Board of Directors
IAI Investment Funds VI, Inc.:
We consent to the use of our report incorporated herein by reference and to the
reference to our Firm under the heading "FINANCIAL HIGHLIGHTS" in Part A of the
Registration Statement.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 28, 1999
