SEMI-ANNUAL REPORT
IAI MONEY MARKET FUND
July 31, 2000
(unaudited)
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IAI
Mutual Funds
<PAGE>
TABLE OF CONTENTS
IAI Money Market Fund
July 31, 2000
(unaudited)
Letter to Shareholders.....................................................2
Fund Manager's Review......................................................3
Fund Portfolio.......................................................... 5
Notes to Fund Portfolio....................................................7
Statement of Assets and Liabilities........................................8
Statement of Operations....................................................9
Statements of Changes in Net Assets.......................................10
Financial Highlights......................................................11
Notes to Financial Statements.............................................12
Adviser, Custodian, Legal Counsel,............................Inside Back Cover
Independent Auditors, Directors
<PAGE>
LETTER TO SHAREHOLDERS
----------------------
IAI Money Market Fund
ECONOMIC OUTLOOK
A summary of economic outlook as provided by Larry Hill, IAI's Chief Fixed
Income Officer, is presented below.
GENERAL ECONOMY
Although economic growth seems to be slowing, it is still unclear whether this
is merely a pause or a more sustainable trend. Economic signals are mixed. The
housing market has cooled as a result of higher interest rates, yet consumer and
investment spending remain robust. In each of the last two years, the economy
paused in the second quarter, only to reaccelerate in the last half of the year.
This pattern could repeat itself in 2000, despite higher energy prices and six
rate increases by the Fed.
INFLATION
Inflation is still creeping higher, even when measured on a core basis
(excluding volatile food and energy prices). Labor productivity gains have been
a positive surprise, helping to reduce unit labor costs. Commodity (excluding
energy) and gold prices are relatively stable, providing some evidence that the
Fed's policy is working. Nevertheless, the rate of inflation should continue to
move modestly higher in the months ahead.
LABOR MARKET
Private sector payroll gains remained below trend in July. However, some
anecdotal evidence indicates that job gains have slowed because businesses can't
find enough qualified people to hire. If this thesis is correct, the
unemployment rate should gradually move lower in the coming months.
MONETARY POLICY
The Fed is now unlikely to raise rates at its upcoming meeting in August. Policy
makers are relying on their gradual approach to create a soft landing. As a
result, they are not likely to make any changes unless they believe the move is
justified by the data. Rising productivity, signs of a modest, but sustainable
slowdown, recent uncertainty in the labor market data and a relatively benign
inflation outlook are all reasons for the Fed to be patient. Current policy is
mildly restrictive, but not tight.
BOND MARKET OUTLOOK
Bond markets ended the month of July in positive territory, with many of the
sectors that have underperformed on a year-to-date basis staging a strong rally.
The U.S. economy showed further signs of a slowdown in some sectors,
particularly housing, which has softened in response to the Fed's year-long
campaign to raise interest rates.
In a perfect world, the Fed would achieve its widely anticipated soft landing,
with real growth slowing to a more sustainable and non-inflationary pace, while
corporate profits and productivity gains remain robust. Unfortunately, the
market is now priced for perfections, and any evidence contradicting this
scenario will not be well received by the market.
2
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI Money Market Fund
HOW HAS THE FUND PERFORMED?
The Fund earned a return of 2.81% during the six month period ended July 31,
2000. This compares favorably with the Lipper Money Market Fund Average Index
which gained 2.72% for the same period.
WERE THERE ANY SIGNIFICANT CHANGES?
There were no major changes in investment approach during the past six months.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE FUND'S
PERFORMANCE?
During the past six months, the Fed increased short-term interest rates, the
yield curve became inverted for maturities from two years to 30 years, and
credit quality spreads widened dramatically. The money market yield curve,
unlike the longer yield curve referenced above, remained relatively flat for
maturities from one week to three months. However, short-term yields rose in
response to Fed rate increases.
The Fund has maintained a relatively short maturity structure to benefit from
rising yields. Issues have been positioned to mature shortly after each
successive Fed meeting. This strategy has allowed the Fund to take advantage of
rising rates without sacrificing yield. The Fund has continued to invest
primarily in high quality commercial paper. This strategy allows the Fund to
maintain ample liquidity and flexibility.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Recent signs of an economic slowdown have helped reduce interest rates and
shrink credit spreads, leading to a rally in the bond market. We plan to
maintain the same high quality, shorter maturity strategy until it becomes clear
that the Fed is finished tightening.
3
<PAGE>
FUND MANAGER'S REVIEW
---------------------
IAI Money Market Fund
AVERAGE ANNUAL RETURNS*
Through 7/31/00
<TABLE>
<CAPTION>
Since Inception
6 Months*** 1 Year 5 Years 1/5/93
=========================================================================
<S> <C> <C> <C> <C>
IAI MONEY MARKET FUND 2.81% 5.41% 5.04% 4.60%
Lipper Money Market Instrument
Fund Average 2.72% 5.18% 4.86% 4.44%**
</TABLE>
* Past perfomance is not predictive of future performance.
** Since 1/1/93
*** Not Annualized
SECTORS
% of Portfolio as of 7/31/00
Commercial Paper 83%
U.S. Government & Government Agency 17%
EFFECTIVE MATURITY
% of Portfolio as of 7/31/00
0-1 months 79%
1-3 months 21%
Note to Fund Manager's Review
Performance data for the IAI Money Market Fund assumes reinvestment of all
dividends. The IAI Money Market Fund is managed to maintain a stable share
value of $1.00 and historically has always achieved this objective. But, unlike
bank deposits and CDs, money market funds are not guaranteed, and there can be
no assurance that a stable share value will be maintained.
Past performance is not a guarantee of future results. More complete information
about the Fund, including charges, and expenses, is available in the prospectus.
Please read the Fund's prospectus carefully before investing. All indices cited
are unmanaged, and are either trademarks, reigstered trademarks or copyrights of
their respective sponsoring companies.
4
<PAGE>
FUND PORTFOLIO
----------------
IAI Money Market Fund
July 31, 2000
(unaudited)
(percentage figures indicate percentage of total net assets)
<TABLE>
U.S. GOVERNMENT & GOVERNMENT AGENCY SECURITIES - 17.0%
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY DISCOUNT NOTES - 11.9%
Federal Home Loan Banks
Discount Note 6.40 % 09/05/00 $ 1,000,000 $ 993,778
Federal National Mortgage
Association Discount Note 6.39 08/09/00 1,000,000 998,580
--------
1,992,358
-------------------------------------------------------------------------------
U.S. TREASURY BILL - 5.1%
U.S. Treasury Bill 6.00 09/14/00 850,000 843,767
===============================================================================
TOTAL INVESTMENTS IN U.S. GOVERNMENT & GOVERNMENT AGENCY SECURITIES
(Cost: $2,836,125) $ 2,836,125
===============================================================================
COMMERCIAL PAPER - 82.9%
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUTOMOBILE FINANCING - 10.5%
Ford Motor Credit 6.47 % 08/23/00 $ 860,000 $ 856,599
General Motors Acceptance 6.64 08/15/00 895,000 892,755
---------
1,749,354
-------------------------------------------------------------------------------
CHEMICALS - 5.3%
Dupont (E.I.) De Nemours 6.46 08/17/00 890,000 887,445
-------------------------------------------------------------------------------
COSMETICS - 5.1%
Procter & Gamble 8.48 08/30/00 850,000 845,563
-------------------------------------------------------------------------------
DRUGS - 5.3%
Abbot Laboratories 6.44 08/01/00 880,000 880,000
-------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY - 5.2%
International Business
Machines 6.48 08/17/00 865,000 862,353
-------------------------------------------------------------------------------
FINANCIAL - 10.7%
Bell Atlantic Network
Funding 6.50 08/24/00 900,000 896,262
General Electric Capital 6.48 09/07/00 890,000 884,073
--------
1,780,335
-------------------------------------------------------------------------------
FOODS AND FOOD PROCESSING - 10.5%
Coca Cola 6.48 % 08/08/00 900,000 898,869
Sara Lee 6.48 08/28/00 850,000 845,869
-------
1,744,738
--------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Fund Portfolio
5
<PAGE>
FUND PORTFOLIO
-----------------
IAI Money Market Fund
July 31, 2000
(unaudited)
(percentage figures indicate percentage of total net assets)
<TABLE>
COMMERCIAL PAPER (Continued) 83.2%
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL FINANCING - 10.4%
Bellsouth Capital
Funding (b) 6.46 08/22/00 $890,000 $886,646
Unilever Capital (b) 6.44 09/08/00 860,000 854,154
----------
1,740,800
-------------------------------------------------------------------------------
PUBLISHING - 5.3%
Washington Post (b) 6.49 08/16/00 895,000 892,580
-------------------------------------------------------------------------------
UTILITIES - 14.6%
Duke Energy 6.48 08/11/00 860,000 858,452
Emerson Electric (b) 6.48 08/18/00 700,000 697,858
Wisconsin Electric Power 6.48 08/29/00 885,000 880,540
--------
2,436,850
==============================================================================
TOTAL INVESTMENTS IN COMMERCIAL PAPER (Cost: $13,820,018) $13,820,018
==============================================================================
TOTAL INVESTMENTS IN SECURITIES(Cost: $16,656,143) (c) $16,656,143
==============================================================================
OTHER ASSETS AND LIABILITIES (NET) - 0.1% $ 17,712
==============================================================================
TOTAL NET ASSETS $ 16,673,855
==============================================================================
</TABLE>
See accompanying Notes to Fund Portfolio
6
<PAGE>
NOTES TO FUND PORTFOLIO
--------------------
IAI Money Market Fund
July 31, 2000
(unaudited)
(a)
Market value of securities is determined as described in Note 1 to the financial
statements, under "Security Valuation."
(b)
Represents security sold within terms of a private placement memorandum exempt
from registration under Section 144A 4(2) of the securities Act of 1933. These
issues may only be sold to other qualified institutional buyers and are
considered liquid under quidelines established by the Board of Directors. The
market value of such securities was $3,331,238 ( 20.0% of net assets) at July
31, 2000.
(c)
At July 31, 2000, the cost of securities for federal income tax purposes and the
aggregate gross unrealized appreciation and depreciation based on that cost were
as follows:
Cost for federal tax purposes $16,656,143
===========
Gross unrealized appreciation $ --
Gross unrealized depreciation --
-----------
Net unrealized appreciation $ --
===========
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
------------------------
IAI Money Market Fund
July 31, 2000
(unaudited)
------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (Cost: $16,656,143) $ 16,656,143
Cash 24,801
Interest receivable 1,884
------------
Total assets 16,682,828
LIABILITIES
Accrued management fee 8,973
------------
Total liabilities 8,973
------------
Net assets $ 16,673,855
============
NET ASSETS REPRESENTED BY:
Paid in capital $ 16,673,855
Undistributed net investment income -
Accumulated net realized losses on investments -
------------
Net assets $ 16,673,855
Shares of capital stock outstanding (authorized 10 billion
shares, $0.01 par value) 16,707,897
------------
Net asset value, redemption and offering price
per share $ 1.00
============
See accompanying Notes to Financial Statements.
8
<PAGE>
STATEMENT OF OPERATIONS
-------------------
IAI Money Market Fund
Six Months Ended July 31, 2000
(unaudited)
-------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income:
Interest $ 606,820
--------
Total income 606,820
--------
Expenses (Note 3)
Management fees 59,368
Compensation of Directors 7,656
--------
Total expenses 67,024
--------
Less fees reimbursed by Advisers (7,656)
--------
Net expenses 59,368
--------
Net investment income $ 547,452
========
See accompanying Notes to Financial Statements.
9
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------
IAI Money Market Fund
<TABLE>
Six months ended Year ended
July 31, 2000 January 31, 2000
-------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 547,452 $ 1,202,775
--------- ------------
Net increase in net assets
resulting from operations 547,452 1,202,775
--------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (548,693) (1,214,077)
--------- -----------
Total distributions (548,693) (1,214,077)
CAPITAL SHARE TRANSACTIONS
Net proceeds from sale of
27,153,719 and 41,931,306 shares 27,153,719 41,931,306
Net asset value of 494,895 and
1,256,715 shares issued in
reinvestment of distributions 494,895 1,256,715
Cost of 31,586,210 and 57,994,230
shares redeemed (31,586,210) (57,994,230)
---------- -----------
Decrease in net assets from
capital share transactions (3,937,596) (14,806,209)
---------- -----------
Total decrease in net assets (3,938,837) (14,817,511)
Net assets at beginning of period 20,612,692 35,430,203
Net assets at end of period $ 16,673,855 $ 20,612,692
============ ============
including overdistributed net
investment income of: $ - $ -
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
------------------
IAI Money Market Fund
Per share data for a share of capital stock outstanding throughout each period
and selected information for each period indicated are as follows:
<TABLE>
Six months ended Years ended January 31,
July 31, 2000 -----------------------------------
(unaudited) 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
<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 0.03 0.05 0.05 0.05 0.05 0.05
-----------------------------------------------
DISTRIBUTIONS
Net investment income (0.03) (0.05) (0.05) (0.05) (0.05) (0.05)
-----------------------------------------------
NET ASSET VALUE
End of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===============================================
Total investment return* 2.81% 4.76% 4.96% 5.05% 4.89% 5.46%
Net assets at end of period
(000's omitted) $16,674 $20,613 $35,430 $22,507 $26,140 $27,395
RATIOS
Expenses to average daily
net assets** 0.60%*** 0.60% 0.60% 0.60% 0.56% 0.50%
Net investment income to
average daily net assets** 5.53%*** 4.56% 4.80% 4.93% 4.80% 5.34%
</TABLE>
* Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of all distributions at
net asset value.
** The Fund's adviser voluntarily waived $21,950 and $76,386 in expenses
for the years ended January 31, 1997 and 1996. If the Fund had been
charged for these expenses, the ratio of expenses to average daily net
assets would have been 0.63%, and 0.74% respectively, and the ratio of
net investment income to average daily net assets would have been 4.73%
and 5.10%, respectively.
***Annualized.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------
IAI Money Market Fund
July 31, 2000
(unaudited)
[ 1 ] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IAI Investment Funds VI, Inc. is registered under the Investment Company Act of
1940 (as amended) as a diversified, open-end management investment company. IAI
Money Market Fund (Money Market Fund) is a separate portfolio of IAI Investment
Funds VI, Inc. The Fund's objective is to provide shareholders with a high level
of current income consistent with the preservation of capital and liquidity.
This report covers only the Money Market Fund (the Fund).
Significant accounting policies followed by the Fund are summarized below:
SECURITY VALUATION
Pursuant to Rule 2a-7 of the Investment Company Act of 1940 (as amended), all
securities in the Fund are valued daily at amortized cost, which approximates
market value, in order to maintain a constant net asset value of $1 per share.
FEDERAL TAXES
Since it is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its shareholders, no provision for income taxes is
required. In order to avoid the payment of any federal excise taxes, the Fund is
required to distribute substantially all of its net investment income and net
realized gains on a calendar year basis.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
The Fund records security transactions on trade date, the date the securities
are purchased or sold. Interest income is accrued daily. Discounts and premiums
are accreted and amortized, respectively, to interest income over the lives of
the respective securities. Security gains and losses are determined on the basis
of identified cost, which is the same basis used for federal income tax
purposes.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income are declared daily and
paid on the first business day of the following month. Capital gains, if any,
are primarily distributed as of the end of the calendar year. Additional capital
gains distributions as needed to comply with federal tax regulations are
distributed during the year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------
IAI Money Market Fund
July 31, 2000
(unaudited)
[ 2 ] COMMITMENTS AND CONTINGENCIES
INSURANCE
For purposes of obtaining certain types of insurance coverage for the Fund and
its officers and directors, the Fund is a policyholder in an industry-sponsored
mutual insurance company (the Company). In connection with its obligation as a
policyholder, the Fund is committed to make future capital contributions, if
requested by the Company.
LINE OF CREDIT
The Fund, together with other funds advised by Advisers, have an available joint
line of credit of $25,000,000 with Firstar Bank, N.A. at the prime interest rate
less 2%. To the extent funds are drawn against the line, securities are
segregated by the Fund. No compensating balances are required under the line of
credit, however, a commitment fee of .10% per annum on the commitment amount of
the line is payable quarterly in arrears. Advisers has agreed to pay the
commitment fee on behalf of the Fund. There were no borrowings outstanding for
the Fund at July 31, 2000.
[ 3 ] FEES AND EXPENSES
Under terms of the Fund's Management Agreement, Investment Advisers, Inc.
(Advisers) is required to pay for all expenses of the Fund, except certain costs
(primarily those incurred in the purchase and sale of assets, taxes, interest
and extraordinary expenses), in return for the Fund paying an all inclusive
management fee (unified fee) to Advisers. This fee is equal to an annual rate of
0.60% declining to 0.50% of average daily net assets. The fee is paid monthly.
The Management Agreement further provides that Advisers will 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.
[ 4 ] PURCHASES AND SALES OF SECURITIES
For the six months ended July 31, 2000, purchases of securities and sales
proceeds for the Fund aggregated:
<TABLE>
U.S. Government Other
<S> <C> <C>
Purchases $42,618,088 $301,387,874
Sales $42,024,499 $306,481,476
</TABLE>
[ 5 ] SUBSEQUENT EVENT
On June 12, 2000, the Fund's board of directors recommended that the IAI Funds
be reorganized into comparable mutual funds advised by a subsidiary of Federate
Investors, Inc. (Federated Investors). On June 16, 2000, Investment Advisers,
Inc. (Advisers), the IAI Funds' investment adviser, announced they had entered
into an agreement with Federated Investors to sell the IAI Funds, including the
IAI Money Market Fund, to Federated Investors. The proposed acquisition was
approved by the IAI Funds' shareholders. The acquisition occurred on September
15, 2000.
13
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=========================================
INVESTMENT ADVISER
AND MANAGER
Investment Advisers, Inc.
P.O. Box 357
Minneapolis, MN 55440-0357 USA
800-945-3863
612-376-2600
CUSTODIAN
Firstar Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
LEGAL COUNSEL
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS
KPMG LLP
4200 Norwest Center
Minneapolis, MN 55402
DIRECTORS
Madeline Betsch
W. William Hodgson
George R. Long
J. Peter Thompson
Charles H. Withers
=========================================
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IAI
Mutual Funds
IAI Mutual Funds
c/o Firstar Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701
USA
800-945-3863
