<PAGE>
EQUITY FUNDS
SEMI-ANNUAL REPORT
IAI Emerging Growth Fund, IAI Growth Fund,
IAI Midcap Growth Fund
September 30, 1995
(unaudited)
[LOGO]
Mutual Funds
<PAGE>
[GLOBE ARTWORK]
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Table of Contents
-----------------
IAI Emerging Growth Fund, IAI Growth Fund, IAI Midcap Growth Fund
Semi-Annual Report
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
<S> <C>
Chairman's Letter.................................. 2
Fund Managers' Reviews
IAI Emerging Growth Fund.......................... 4
IAI Growth Fund................................... 6
IAI Midcap Growth Fund............................ 8
Fund Portfolios
IAI Emerging Growth Fund.......................... 10
IAI Growth Fund................................... 14
IAI Midcap Growth Fund............................ 16
Notes to Fund Portfolios........................... 18
Statements of Assets and Liabilities............... 22
Statements of Operations........................... 24
Statements of Changes in Net Assets................ 26
Financial Highlights
IAI Emerging Growth Fund.......................... 28
IAI Growth Fund................................... 29
IAI Midcap Growth Fund............................ 30
Notes to Financial Statements...................... 31
IAI Mutual Fund Family............................. 36
Distributor, Adviser, Custodian,
Legal Counsel, Independent Auditors,
Directors............................Inside Back Cover
</TABLE>
<PAGE>
Chairman's Letter
-----------------
IAI Emerging Growth Fund, IAI Growth Fund, IAI Midcap Growth Fund
A Great Time To Diversify
[PHOTO]
Noel P. Rahn,
Chairman
By just about any measure, the six months ending September 30, 1995 has been one
of the best periods in my memory for U.S. stocks and bonds. The economy has been
behaving just right: not too fast to bring back inflation, and not too slow to
bring on a recession. And American business is the most productive in the world.
It's a perfect recipe for continued success in the markets.
But just as the investment world was gloomy in 1994, let's not assume that
1995's performance is the norm, either. Stocks and bonds can be volatile. That's
particularly important to remember when prices are high. One of the most
important investment principles is diversification-not putting all your eggs in
one basket.
By investing in mutual funds, you have already taken a step towards
diversification. A typical mutual fund invests in dozens of securities, a much
more diversified portfolio than you can generally achieve on your own. But
another way to diversify is to broaden your investment horizon into areas that
haven't done quite as well. One example: international funds.
Developed and developing markets throughout the world have not matched the U.S.
economy during the past year. As a result, their securities have lagged our
markets. Since international markets largely move independently of the United
States, an investment overseas is considered an excellent way to diversify a
portfolio. This is particularly true when our markets are nearing all-time
highs.
If investing internationally is not for you, then there are other ways to
diversify your portfolio. If you've got mutual funds that invest in just one
type of investment objective, then you might want to consider broadening your
investment horizon. Of course, whether you focus on growth or income or a blend
of the two depends on your time horizon. If you're investing for a retirement
that's 30 years down the road, then you can afford to take more risk than if you
need the income from those investments right away.
Regardless of the time frame, the U.S. markets will continue to be impacted by
the performance of the economy, the outlook for inflation, and the level of
interest rates. Over the next six months, the presidential primary season will
also play a role. All of these events are truly unpredictable and uncontrollable
by the average investor. That makes investing a continuing challenge, and
another reason to stay diversified.
2
<PAGE>
Chairman's Letter
-----------------
IAI Emerging Growth Fund, IAI Growth Fund, IAI Midcap Growth Fund
Economic Outlook
Larry Hill, IAI's Chief Investment Officer, provides his economic outlook below,
as published recently in the Adviser.
For the remainder of 1995, the economy will grow at a rate of 2.5%. The next
move will probably be to accelerate and move to a modestly higher level next
year.
There is fundamental support for the equity market, although with the market up
as much as it is currently, caution is warranted. However, corporate earnings
and cash flow growth remain strong and provide solid underpinnings to equities.
If the strong earnings continue, higher valuations can be justified. Also, the
tremendous cash flow into equities has been a very strong supporting factor, and
as long as it continues, the general stock market will probably not decline more
than about 5% over the near term, although certain sectors such as technology
and possibly financial may drop more in an overall rotating correction.
In fixed-income markets, there has been a tremendous amount of buying of U.S.
government bonds by foreign central banks. That has supported the U.S. markets
and is one of the reasons interest rates declined and the bond market rallied
strongly this year. Currently, the economy is too weak to support the Fed
raising rates, and rates could move lower because there are enough signs of
weakness in the economy and lack of real price pressure.
Overall, the economic environment remains reasonably positive for financial
markets. It may not be a time to take significant new positions in stocks or
bonds at current levels, however, neither is it a time to raise cash. From a
valuation and asset allocation point of view, international markets currently
may have more room to appreciate than domestic markets.
Please read the Fund Managers' Reviews which follow this letter for a detailed
perspective on the Fund's performance and our strategy going forward. We
appreciate your continued trust and confidence in IAI. If there is any way we
can serve you better, please let us know by calling our toll-free Investor
Services Hotline at 1-800-945-3863.
Sincerely,
/s/Noel P. Rahn
Noel P. Rahn
Chairman
3
<PAGE>
Fund Manager's Review
---------------------
IAI Emerging Growth Fund
IAI Emerging Growth Fund
[PHOTO]
Rick D. Leggott, CFA
IAI Emerging Growth Fund Manager
"We focus
on high quality
emerging growth
stocks."
Top Five Sectors
% of Net Assets as of 9/30/95
Technology Services........18.1%
Retail Trade...............17.1%
Electronic Technology......14.0%
Health Services............11.3%
Consumer Services.......... 5.7%
Fund Objective
IAI Emerging Growth Fund's objective is long-term capital appreciation. The Fund
invests primarily in stocks of small and medium-sized companies, with typical
market capitalizations of $1 billion or less. These companies are at an early
stage of their life cycles. While large enough to be established, they are still
small enough to grow faster than the overall economy and the rate of inflation.
Fund Positioning for the Past Six Months
This has been an excellent year for the IAI Emerging Growth Fund. For the six
months ended September 30, 1995, the Fund's total return has been 30.45%. In
contrast, the Russell 2500, the benchmark to which we are typically compared,
was up 19.38% for the same period, while the S&P 500 was up 18.28%. To be sure,
much of our performance is due to factors such as lower interest rates, the
stronger U.S. dollar and a slowing economy, which makes the earnings of
successful growing companies stand out.
But our stock selection is the key reason for these strong results. We look for
companies that are growing revenues and earnings by at least 20% per year, that
are offering returns on equity of at least 15%, and have a low amount of debt on
the balance sheet. Secondly, we personally visit every company in which we
invest, in an effort to understand what these entrepreneurs are trying to build.
Indeed, our Minneapolis location means that we can get anywhere in the United
States in half a day. And third, we have the discipline to sell a stock quickly
when the company's performance doesn't meet our expectations. Finally,
diversification is essential. No one sector can comprise more than a third of
the portfolio. During much of the year, it would have been tempting to load up
the portfolio with technology stocks. Instead, the portfolio is broadly
diversified.
A few examples of stocks in the portfolio include Oxford Health Plans, a managed
care company based in New York that is taking significant market share from
traditional health insurers by reducing costs and passing those savings on to
employers and employees. Viking Office Products, which sells office supplies
through catalogs, is growing 20% per year in the United States, and is now
expanding into Europe. Ascend Communications is a fast growing provider of high
speed data communications software, focusing on mobile users and the Internet.
Outlook
As we approach 1996, we are optimistic that the economic backdrop for these
types of companies will remain favorable. Inflation and interest rates are
relatively low. And the overall profit growth of Corporate America has slowed
down, insuring that small companies whose growth is not dependent upon a strong
economy will remain at the forefront.
4
<PAGE>
Fund Manager's Review
---------------------
IAI Emerging Growth Fund
Value of $10,000 Investment+
<TABLE>
<CAPTION>
[GRAPH APPEARS HERE]
IAI Emerging Growth Fund Russell 2500 Index
Measurement Period (Inception 8/01/91) (Since 8/01/91)
- ------------------- ------------------------ ------------------
<S> <C> <C>
Measurement Pt-
08/01/91 $10,000 $10,000
03/31/92 $11,923 $11,248
03/31/93 $14,534 $13,127
03/31/94 $16,776 $14,281
03/31/95 $18,489 $15,519
09/30/95 $24,122 $18,526
</TABLE>
Average Annual Returns+
Through 9/30/95
<TABLE>
<CAPTION>
Since Inception
Six Months** 1 Year 8/5/91
=====================================================================
<S> <C> <C> <C>
IAI Emerging Growth Fund 30.45% 43.50% 23.60%
- ---------------------------------------------------------------------
Russell 2500 Index 19.38% 25.49% 16.30%*
- ---------------------------------------------------------------------
S&P 500 Index 18.28% 29.81% 13.22%*
</TABLE>
+ Past performance is not predictive of future performance
* Since 8/01/91
** Not annualized
Top Ten Holdings*
<TABLE>
<CAPTION>
% of Net Assets
-----------------
Issues Sector 9/30/95 3/31/95
------------------------------------------------------------------
<S> <C> <C> <C>
Oxford Health Plans Health Services 3.08 3.47
Staples Retail Trade 2.39 1.92
Viking Office Products Retail Trade 2.28 2.60
Steris Health Technology 1.95 1.44
Omnicare Health Services 1.95 1.84
Xilinx Electronic Technology 1.94 1.82
Linear Technology Electronic Technology 1.93 2.58
Ascend Communications Electronic Technology 1.91 1.17
Starbucks Consumer Non-Durables 1.81 1.75
PhyCor Health Services 1.71 1.35
==================================================================
Total 20.95% 19.94%
</TABLE>
* Excludes U.S. Treasury and Government obligations
Note to Chairman's Letter & Fund Manager's Review
Performance data for the IAI Emerging Growth Fund includes changes in share
price and reinvestment of dividends and capital gains. Past performance is not a
guarantee of future results. The Fund's investment return, yield and principal
may fluctuate so that, when redeemed, shares may be worth more or less than the
original cost. More complete information about the Fund, including charges and
expenses, is available in the prospectus. Please read the Fund's prospectus
carefully before investing. All indices cited are unmanaged, and are either
trademarks, registered trademarks or copyrights of their respective sponsoring
companies.
5
<PAGE>
Fund Managers' Review
---------------------
IAI Growth Fund
IAI Growth Fund
[PHOTO]
David A. McDonald
IAI Growth Fund
Co-Manager
[PHOTO]
John A. Twele, CFA
IAI Growth Fund
Co-Manager
Top Five Sectors
% of Net Assets as of 9/30/95
Electronic Technology.......20.6%
Retail Trade................17.2%
Health Services.............13.9%
Finance.....................10.4%
Consumer Services........... 9.2%
Fund Objective
IAI Growth Fund's primary objective is to earn capital appreciation over the
long term as a result of investing in stocks of established companies which
offer superior growth potential. Many of these high-growth companies provide
strong management, leading market positions, strong balance sheets, well-defined
strategies for future growth, and earnings increasing at above-average rates.
Fund Positioning for the Past Six Months
For the six months ended September 30, 1995, the IAI Growth Fund produced a
total return of 13.34%. In comparison, the total return for the S&P 500 Index
was 18.28% during the same period.
Driven by low inflation, falling interest rates and very strong corporate
profits, the U.S. stock market is in the midst of one of its best years ever.
And investors in the IAI Growth Fund have, for the most part, participated in
the market's sizzling performance. With major holdings in companies such as
Microsoft and Motorola, the portfolio captured 1995's net increase in technology
stocks. A position in Federal National Mortgage and other financial companies
captured the impressive performance of the financial services sector. In
addition, the portfolio benefited by selling cyclical companies such as Dow
Chemical and Georgia Pacific, which had doubled in price.
Other economically sensitive companies, such as Home Depot and Wal-Mart, remain
in the portfolio, and could be excellent performers in the short run,
particularly if the Federal Reserve Board lowers interest rates one more notch.
In addition, HMO stocks in the portfolio could also appreciate sharply if
Congress is able to resolve the Medicare funding issue.
Recently, the U.S. dollar has strengthened against major currencies, causing
some investors to be concerned about lower profits in dollar terms. True, many
of the companies in our portfolio have a substantial amount of foreign sales in
local currencies which now translate into fewer dollars. However, most of these
companies also manufacture products-and incur expenses abroad, largely
offsetting the adverse effects of currency changes.
Outlook
It is our expectation that 1996 S&P 500 earnings will grow about 9%, after
several years of double digit gains. In an environment where corporate profit
growth is moderate, we believe that investors will reward growth stocks that
stand out against the pack.
6
<PAGE>
Fund Managers' Review
---------------------
IAI Growth Fund
Value of $10,000 Investment+
<TABLE>
<CAPTION>
[GRAPH APPEARS HERE]
IAI Growth Fund S & P 500
Measurement Period (Inception 8/06/93) (Since 8/01/93)
- ------------------ ------------------- ---------------
<S> <C> <C>
Measurement Pt-
08/06/93 $10,000 $10,000
03/31/94 $9,700 $10,142
03/31/95 $10,990 $11,723
09/30/95 $12,455 $13,886
</TABLE>
Average Annual Returns+
Through 9/30/95
<TABLE>
<CAPTION>
Since Inception
Six Months** 1 Year 8/6/93
================================================================
<S> <C> <C> <C>
IAI Growth Fund......... 13.34% 21.40% 10.75%
- ----------------------------------------------------------------
S&P 500 Index........... 18.28% 29.81% 16.28%*
</TABLE>
+ Past performance is not predictive of future performance
* Since 8/01/93
** Not annualized
Top Ten Holdings*
<TABLE>
<CAPTION>
% of Net Assets
-----------------
Issues Sector 9/30/95 3/31/95
-------------------------------------------------------------------
<S> <C> <C> <C>
United HealthCare Health Services 5.07 3.54
Columbia/HCA Healthcare Health Services 5.07 4.89
Motorola Electronic Technology 4.40 3.53
Apple Computer Electronic Technology 4.16 --
Home Depot Retail Trade 3.71 4.43
Cisco Systems Electronic Technology 3.05 1.76
Nokia ADR Electronic Technology 3.02 2.00
General Re Finance 2.97 --
Wal-Mart Retail Trade 2.87 3.57
Intel Electronic Technology 2.81 2.69
===================================================================
Total 37.13% 26.41%
</TABLE>
* Excludes U.S. Treasury and Government obligations
Note to Chairman's Letter & Fund Managers' Review
Performance data for the IAI Growth Fund includes changes in share price and
reinvestment of dividends and capital gains. Past performance is not a guarantee
of future results. The Fund's investment return, yield and principal may
fluctuate so that, when redeemed, shares may be worth more or less than the
original cost. More complete information about the Fund, including charges and
expenses, is available in the prospectus. Please read the Fund's prospectus
carefully before investing. All indices cited are unmanaged, and are either
trademarks, registered trademarks or copyrights of their respective sponsoring
companies.
7
<PAGE>
Fund Manager's Review
---------------------
IAI Midcap Growth Fund
IAI Midcap Growth Fund
[PHOTO]
Suzanne Zak, CFA
IAI Midcap Growth
Fund Manager
"The IAI Midcap Growth Fund gained 26.35% over the year."
Top Five Sectors
% of Net Assets as of 9/30/95
Consumer Services 15.5%
Producer Manufacturing 11.2%
Commercial Services 10.1%
Retail Trade 9.5%
Consumer Durables 7.9%
Fund Objective
IAI Midcap Growth Fund seeks long-term capital appreciation by investing in
medium-sized companies with above average growth potential. The Fund typically
invests in companies with market capitalization between $500 million and $5
billion. These companies tend to be larger and better established, and hence
less volatile, than small emerging growth companies, while offering stronger
long-term growth potential than most large cap companies.
Fund Positioning for the Past Six Months
For the six months ended September 30, 1995, the IAI Midcap Growth Fund produced
total return of 12.59%. In comparison, the total return for the Callan Midcap
Index was 16.94% during the same period, while the S&P 400 Midcap Index returned
19.33%. The primary reasons for our moderate underperformance: technology and
financial services continued to lead the markets, and we are somewhat
underweighted in those groups.
Typically, financial service companies do not fit our growth parameters, and the
technology sector has appeared overpriced for many months. The recent initial
public offering of Netscape--a company that helps customers navigate the
Internet--was a clear sign that technology was overheated. In its first day of
trading, the company's market capitalization approached $3 billion-this for a
company with $16 million in revenues and no earnings. We continue to maintain
our discipline of investing in companies which should generate attractive
returns on a sustained basis, and refrain from chasing short-term phenomena.
Examples of this long-term strategy include such investments as Promus Hotels, a
company we recently added to the portfolio. After a long period of overbuilding
in the 1980s, the industry is now experiencing increasing room rates and
tightening occupancies. In addition, we recently purchased Heilig-Meyers, a
furniture retailer with more than 660 stores throughout the United States. This
segment of retailing is still very fragmented, and the company has demonstrated
its ability to grow through acquisitions. Another interesting midcap company is
Sensormatic Electronics, the nation's largest maker of security systems, and a
long-time holding of ours. Revenues grew 39% in the past quarter.
Outlook
The backdrop of modest economic growth and low inflation present us with an
ideal environment for midcap growth stocks. Despite the excesses in specific
segments of the stock market, we do not believe that there will be a broad based
correction of significant magnitude.
8
<PAGE>
Fund Manager's Review
---------------------
IAI Midcap Growth Fund
Value of $10,000 Investment+
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
IAI Midcap Growth Fund Callan Midcap Index
Measurement Period (Inception 4/10/92) (Since 4/01/92)
- ------------------ ---------------------- -------------------
<S> <C> <C>
Measurement Pt-
4/10/92 $10,000 $10,000
3/31/93 $11,909 $12,009
3/31/94 $13,862 $12,473
3/31/95 $16,305 $13,796
9/30/95 $18,356 $16,133
</TABLE>
<TABLE>
<CAPTION>
Average Annual Returns+
Through 9/30/95
Since Inception
Six Months** 1 Year 4/10/92
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IAI Midcap Growth Fund 12.59% 26.35% 19.11%
- ----------------------------------------------------------------------------------------------
Callan Midcap Index 16.94% 25.35% 14.64%*
- ----------------------------------------------------------------------------------------------
S&P 400 Midcap Index (unadjusted) 19.33% 25.77% 14.28%*
</TABLE>
+ Past performance is not predictive of future performance
* Since 4/01/92
** Not annualized
Top Ten Holdings*
<TABLE>
<CAPTION>
% of Net Assets
---------------------
Issues Sector 9/30/95 3/31/95
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Alco Standard Commercial Services 4.88 4.44
Danka Business Systems ADR Producer Manufacturing 4.82 3.18
Minerals Technologies Non-Energy Minerals 3.77 3.75
Harcourt General Retail Trade 3.38 3.55
HFS Consumer Services 3.31 2.91
Barnes & Noble Retail Trade 3.13 2.67
FIServ Technology Services 2.79 2.60
Petroleum Geo-Services ADR Industrial Services 2.68 2.10
Boston Chicken Consumer Services 2.64 --
Jones Apparel Group Consumer Non-Durables 2.62 2.30
=============================================================================
Total 34.02% 27.50%
</TABLE>
* Excludes U.S. Treasury and Government obligations
Note to Chairman's Letter & Fund Manager's Review
Performance data for the IAI Midcap Growth Fund includes changes in share price
and reinvestment of dividends and capital gains. Past performance is not a
guarantee of future results. The Fund's investment return, yield and principal
may fluctuate so that, when redeemed, shares may be worth more or less than the
original cost. More complete information about the Fund, including charges and
expenses, is available in the prospectus. Please read the Fund's prospectus
carefully before investing. All indices cited are unmanaged, and are either
trademarks, registered trademarks or copyrights of their respective sponsoring
companies.
9
<PAGE>
Fund Portfolio
--------------
IAI Emerging Growth Fund
September 30, 1995
(percentage figures indicate percentage of total net assets)
(unaudited)
Common Stocks -- 82.9%
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ------------------------------------------------------------
<S> <C> <C>
Commercial Services -- 2.8%
AccuStaff (b) 39,900 $ 1,466,325
Cambridge Technology Partners (b) 81,400 4,131,050
Catalina Marketing (b) 70,700 4,383,400
Desktop Data (b) 53,500 1,859,125
Edmark (b) 57,000 2,743,125
-----------
14,583,025
- ------------------------------------------------------------
Consumer Durables -- 0.3%
USA Detergents (b) 62,500 1,296,875
- ------------------------------------------------------------
Consumer Non-Durables -- 2.8%
Gymboree (b) 177,400 5,344,175
Starbucks (b) 247,000 9,355,125
-----------
14,699,300
- ------------------------------------------------------------
Consumer Services -- 5.7%
Apple South 249,900 5,685,225
Broderbund Software (b) 88,900 6,767,513
Loewen Group 112,100 4,624,125
Outback Steakhouse (b) 273,150 8,399,363
Papa John's International (b) 92,600 4,167,000
-----------
29,643,226
- ------------------------------------------------------------
Electronic Technology -- 14.0%
ADC Telecommunications (b) 159,200 7,243,600
Ascend Communications (b) 123,400 9,872,000
Avid Technology (b) 12,200 524,600
Cascade Communications (b) 148,000 7,289,000
Cyberoptics (b) 38,900 1,322,600
Linear Technology 241,000 10,001,500
Maxim Integrated Products (b) 1,900 140,600
Microchip Technology (b) 12,500 473,437
Network General (b) 60,500 2,495,625
Pairgain Technologies (b) 34,300 1,183,350
Pinnacle Systems (b) 128,500 3,951,375
Premisys Communications (b) 34,500 2,785,875
Spectrian (b) 26,300 897,487
Stratacom (b) 137,400 7,591,350
Tellabs (b) 158,700 6,685,237
Xilinx (b) 208,300 10,024,438
-----------
72,482,074
- ------------------------------------------------------------
Finance -- 3.0%
Credit Acceptance (b) 284,600 7,684,200
General Acceptance (b) 49,500 1,645,875
Mercury Finance 213,866 5,212,984
United Dental Care (b) 32,300 969,000
-----------
15,512,059
- ------------------------------------------------------------
Health Services -- 11.3%
American Oncology Resources (b) 50,000 2,150,000
Arrow International 61,500 2,659,875
Gulf South Medical Supply (b) 153,400 3,777,475
Healthsource (b) 168,700 8,118,688
Medaphis (b) 239,800 6,714,400
Omnicare 258,600 10,085,400
Oxford Health Plans (b) 219,100 15,939,525
PhyCor (b) 258,375 8,849,344
-----------
58,294,707
- ------------------------------------------------------------
Health Technology -- 4.9%
Idexx Laboratories (b) 174,300 6,492,675
Steris (b) 240,000 10,110,000
Ventritex (b) 68,800 1,479,200
Watson Pharmaceuticals (b) 176,200 7,224,200
-----------
25,306,075
- ------------------------------------------------------------
Producer Manufacturing -- 2.1%
Corporate Express (b) 324,650 7,913,344
Micrel (b) 102,100 2,858,800
-----------
10,772,144
- ------------------------------------------------------------
Retail Trade -- 17.1%
Baby Superstore (b) 116,900 5,275,112
Bed Bath & Beyond (b) 104,700 3,193,350
Boise Cascade Office Products (b) 115,500 3,205,125
Books-A-Million (b) 231,800 4,085,475
CDW Computer Centers (b) 13,200 702,900
Fastenal (b) 216,000 7,884,000
Hollywood Entertainment (b) 256,700 5,503,006
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
10
<PAGE>
Fund Portfolio
--------------
IAI Emerging Growth Fund
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ------------------------------------------------------------
<S> <C> <C>
The Men's Wearhouse (b) 119,700 $ 4,309,200
Micro Warehouse (b) 35,000 1,601,250
Movie Gallery (b) 139,600 5,967,900
Office Depot (b) 120,950 3,643,619
Petco Animal Supplies (b) 95,300 2,477,800
PetSmart (b) 260,250 8,783,437
Staples (b) 437,100 12,348,075
Sunglass Hut International (b) 122,200 6,110,000
Trend-Lines Class A (b) 128,000 1,696,000
Viking Office Products (b) 282,200 11,781,850
-----------
88,568,099
- ------------------------------------------------------------
Technology Services -- 18.1%
Alternative Resources (b) 201,400 6,444,800
America Online (b) 89,300 6,139,375
ArcSys (b) 30,500 1,258,125
Atria Software (b) 169,100 4,946,175
Baan (b) 83,100 3,739,500
CBT Group ADR (b) 104,700 4,999,425
EPIC Design Technology (b) 44,500 2,158,250
FTP Software (b) 90,300 2,505,825
Gartner Group Class A (b) 224,800 7,362,200
HPR (b) 74,800 1,739,100
Hyperion Software (b) 84,000 4,767,000
Inference Class A (b) 60,600 909,000
Inso (b) 158,600 5,114,850
Macromedia (b) 113,900 6,506,537
Mercury Interactive (b) 81,700 2,267,175
NetManage (b) 196,600 4,669,250
Parametric Technology (b) 128,400 7,896,600
Pure Software (b) 50,600 1,808,950
Security Dynamics
Technologies (b) 53,600 2,559,400
Spyglass (b) 12,800 585,600
Synopsys (b) 247,800 7,619,850
Wonderware (b) 197,600 7,681,700
-----------
93,678,687
- ------------------------------------------------------------
Utilities -- 0.8%
Mobile Telecommunication
Technologies (b) 133,000 $ 4,106,375
============================================================
Total Investments in Common Stocks
(Cost $264,621,359).............................$428,942,646
============================================================
</TABLE>
Other Securities -- 3.1%
<TABLE>
<CAPTION>
Market
Quantity (c) Value (a)
- ------------------------------------------------------------
<S> <C> <C>
Common Stock -- 0.7%
AccessLine Technologies
Class A (b) 41,666 $ 249,996
OncorMed Series A (b) 66,667 657,070
PACE Health Management
Systems (b) (d) 275,320 1,116,423
PriCellular Class B (b) 134,523 1,539,221
----------
3,562,710
- ------------------------------------------------------------
Non-Convertible Preferred Stock -- 1.8%
AccessLine Technologies
Series A (b) 71,420 571,360
Air Communications
Series A (b) (d) 1,000,000 1,250,000
Air Communications
Series B (b) (d) 300,000 375,000
Air Communications
Series B (b) (d) 875,001 --
CardioGenesis Series B (b) (d) 500,000 1,000,000
GalaGen Series B (b) (d) 230,769 1,125,000
GalaGen Series C (b) (d) 50,000 250,000
IMNET Systems Series II (b) 91,319 1,645,113
Indigo Medical Series B (b) (d) 181,818 173,255
Indigo Medical Series C (b) (d) 898,496 856,177
Intellon Series A (b) 200,000 350,000
Myelos Series A (b) (d) 500,000 500,000
OvaMed Series D (b) (d) 214,286 2,143
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
11
<PAGE>
Fund Portfolio
--------------
IAI Emerging Growth Fund
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Other Securities (Cont.)
Market
Quantity (c) Value (a)
- ---------------------------------------------------------------------
<S> <C> <C>
Seurat Analytical Systems
Series B (b) (d) 114,973 $ 229,946
Tut Systems Series D (b) (d) 467,092 537,157
Tut Systems Series E (b) (d) 217,391 250,000
Urologix Series B (b) 100,000 297,300
Urologix Series C (b) 59,613 131,150
-----------
9,543,601
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ownership Market
Percentage (c) Value (a)
- ------------------------------------------------------------------------
<S> <C> <C>
Limited Partnerships -- 0.4%
Alta Berkeley III (b) 1.75% $ 238,638
South Street Corporate Recovery Fund I (b) 0.61% 919,486
South Street Leveraged Corporate
Recovery Fund (b) 1.45% 306,129
Spectrum Equity Investors (b) 0.92% 331,439
Vanguard Associates IV (b) 1.36% 351,160
------------
2,146,852
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount (c) Value (a)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convertible Debentures -- 0.2%
GalaGen (b) (d) 6.50% 6/01/98 540,000 $ 540,000
OvaMed (b) (d) 40.00 10/31/95 167,000 167,023
Seurat Analytical Systems (b) (d) 9.25 12/31/95 125,000 125,000
--------------
832,023
Market
Quantity (c) Value (a)
- ----------------------------------------------------------------------------------------
Warrants -- 0.0%
AccessLine Technologies (b) 10,713 $ --
Air Communications (b) (d) 75,000 75
GalaGen (b) (d) 36,000 --
Intellon (b) 30,000 --
PACE Health Management Systems (b) (d) 21,820 --
--------------
75
========================================================================================
Total Investments in Other Securities
(Cost $12,129,112)........................................................$ 16,085,261
========================================================================================
Total Investments in Long-term Securities
(Cost $276,750,471).......................................................$445,027,907
========================================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
12
<PAGE>
Fund Portfolio
--------------
IAI Emerging Growth Fund
September 30, 1995
(unaudited)
Short-term Securities -- 12.4%
<TABLE>
<CAPTION>
Principal Market
Rate Maturity Amount Value (a)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bills -- 12.4%
5.40% 12/07/95 $37,000,000 $ 36,643,209
5.38 1/11/96 28,000,000 27,584,452
--------------
64,227,661
========================================================================================
Total Investments in Short-term Securities
(Cost $64,223,075)........................................................$ 64,227,661
========================================================================================
Put Options -- 0.1%
Market
Contracts Value (a)
- ----------------------------------------------------------------------------------------
Technology -- 0.1%
CBOE Technology Index, Strike Price $165, Expiration
Date 10/20/95 70,000 $ 516,250
========================================================================================
Total Investments in Put Options
(Cost $855,850)...........................................................$ 516,250
========================================================================================
Total Investments in Securities
(Cost $341,829,396) (e)...................................................$509,771,818
========================================================================================
Other Assets and Liabilities (net) -- 1.5%
........................................................................$ 7,732,781
========================================================================================
Total Net Assets
........................................................................$517,504,599
========================================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
13
<PAGE>
Fund Portfolio
--------------
IAI Growth Fund
September 30, 1995
(percentage figures indicate percentage of total net assets)
(unaudited)
<TABLE>
<CAPTION>
Common Stocks -- 94.9%
Market
Quantity Value (a)
- ------------------------------------------------------------------------
<S> <C> <C>
Consumer Durables -- 3.6%
Mattel 14,905 $ 437,834
Newell 11,800 292,050
------------
729,884
- ------------------------------------------------------------------------
Consumer Non-Durables -- 2.3%
UST 16,100 460,863
- ------------------------------------------------------------------------
Consumer Services -- 9.2%
CUC International (b) 15,750 549,281
McDonald's 10,100 386,325
Viacom Class B (b) 10,261 510,485
Wendy's International 20,200 426,725
------------
1,872,816
- ------------------------------------------------------------------------
Electronic Technology -- 17.6%
Advanced Micro Devices (b) 8,400 244,650
Apple Computer 22,700 845,575
Cisco Systems (b) 9,000 621,000
Intel 9,500 571,188
Motorola 11,700 893,588
Scientific Atlanta 24,900 420,187
------------
3,596,188
- ------------------------------------------------------------------------
Energy Minerals -- 3.2%
Anadarko Petroleum 7,050 333,994
Enron Oil & Gas 14,400 313,200
------------
647,194
- ------------------------------------------------------------------------
Finance -- 10.4%
Federal National Mortgage Association 4,300 445,050
Franklin Resources 4,700 270,837
General Re 4,000 604,000
NationsBank 5,200 349,700
Norwest 13,600 445,400
------------
2,114,987
- ------------------------------------------------------------------------
Health Services -- 13.9%
Cardinal Health 8,800 487,300
Columbia/HCA Healthcare 21,200 1,030,850
PacifiCare Health Systems Class B (b) 4,200 285,600
United HealthCare 21,100 1,031,262
------------
2,835,012
- ------------------------------------------------------------------------
Health Technology -- 4.9%
Bristol-Meyers Squibb 4,200 $ 306,075
Medtronic 6,400 344,000
Pfizer 6,400 341,600
------------
991,675
- ------------------------------------------------------------------------
Process Industries -- 3.4%
Great Lakes Chemical 5,800 392,225
Morton International 9,400 291,400
------------
683,625
- ------------------------------------------------------------------------
Retail Trade -- 17.2%
Best Buy (b) 17,300 454,125
Dollar General 11,100 326,062
Home Depot 18,900 753,638
Lowe's Companies 14,000 420,000
Pep Boys-Manny, Moe & Jack 14,200 385,175
Wal-Mart 23,500 584,563
Walgreen 20,200 565,600
------------
3,489,163
- ------------------------------------------------------------------------
Technology Services -- 4.5%
General Motors Class E 9,600 436,800
Microsoft (b) 3,200 289,600
Sybase (b) 5,900 189,537
------------
915,937
- ------------------------------------------------------------------------
Utilities -- 4.7%
Airtouch Communications (b) 18,300 560,438
Enron 11,900 398,650
------------
959,088
========================================================================
Total Investments in Common Stocks
(Cost: $16,491,327) $19,296,432
========================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
14
<PAGE>
Fund Portfolio
--------------
IAI Growth Fund
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Non-convertible Preferred Stocks -- 3.0%
Market
Quantity Value (a)
- ------------------------------------------------------------------------
<S> <C> <C>
Electronic Technology -- 3.0%
Nokia ADR 8,800 $ 613,800
========================================================================
Total Investments in Preferred Stocks
(Cost $276,496).............................................$ 613,800
========================================================================
Total Investments in Long-Term Securities
(Cost $16,767,823)..........................................$19,910,232
========================================================================
Total Investments in Securities
(Cost $16,767,823) (e)......................................$19,910,232
========================================================================
Other Assets and Liabilities (Net) -- 2.1%
..........................................................$ 419,348
========================================================================
Total Net Assets
..........................................................$20,329,580
========================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
15
<PAGE>
Fund Portfolio
--------------
IAI Midcap Growth Fund
September 30, 1995
(percentage figures indicate percentage of total net assets)
(unaudited)
<TABLE>
<CAPTION>
Common Stocks -- 94.1%
Market
Quantity Value (a)
- ------------------------------------------------------------
<S> <C> <C>
Commercial services -- 10.1%
Alco Standard 60,900 $ 5,161,275
Heritage Media Class A (b) 62,500 1,882,812
Sensormatic Electronics 88,250 2,029,750
Valassis Communications (b) 106,100 1,591,500
-----------
10,665,337
- ------------------------------------------------------------
Consumer Durables -- 7.9%
American Greetings 73,400 2,238,700
Cooper Tire and Rubber 84,300 2,044,275
Harley-Davidson 55,600 1,355,250
Lennar 71,850 1,562,737
Newell 48,800 1,207,800
-----------
8,408,762
- ------------------------------------------------------------
Consumer Non-Durables -- 6.4%
Jones Apparel Group (b) 77,800 2,771,625
Reebok International 59,600 2,048,750
Warnaco Class A 83,200 1,996,800
-----------
6,817,175
- ------------------------------------------------------------
Consumer Services -- 15.5%
Boston Chicken (b) 106,900 2,792,762
CUC International (b) 61,950 2,160,506
Houghton Mifflin 27,000 1,255,500
HFS (b) 66,800 3,498,650
Marriott International 60,500 2,261,187
Promus Hotel (b) 22,500 511,875
Scholastic (b) 37,600 2,359,400
Stewart Enterprises Class A 41,400 1,500,750
-----------
16,340,630
- ------------------------------------------------------------
Energy Minerals -- 2.0%
Andarko Petroleum 43,600 2,065,550
- ------------------------------------------------------------
Finance -- 5.4%
First USA 19,300 1,047,025
PMI 7,500 355,312
Progressive 49,500 2,215,125
TIG 78,900 2,120,437
-----------
5,737,899
- ------------------------------------------------------------
Health Technology -- 2.3%
R.P. Scherer (b) 35,100 $ 1,522,462
Sybron International -
Wisconsin (b) 23,900 961,975
-----------
2,484,437
- ------------------------------------------------------------
Industrial Services -- 4.8%
Camco International 92,400 2,263,800
Petroleum Geo-Services
ADR (b) 115,800 2,837,100
-----------
5,100,900
- ------------------------------------------------------------
Non-Energy Minerals -- 4.6%
Martin Marietta Materials 45,000 883,125
Minerals Technologies 106,100 3,992,012
-----------
4,875,137
- ------------------------------------------------------------
Process Industries -- 3.6%
Bemis 31,100 859,138
Schulman Class A 35,650 891,250
Unifi 86,000 2,107,000
-----------
3,857,388
- ------------------------------------------------------------
Producer Manufacturing -- 11.2%
Danka Business Systems ADR 141,700 5,101,200
TriMas 108,000 2,241,000
Tyco International 40,800 2,570,400
Wabash National 54,500 1,927,938
-----------
11,840,538
- ------------------------------------------------------------
Retail Trade -- 9.5%
Barnes & Noble (b) 86,500 3,308,625
Harcourt General 85,300 3,571,938
Heilig-Meyers 12,500 290,625
Michaels Stores (b) 44,600 724,750
Nordstrom 50,700 2,116,725
-----------
10,012,663
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
16
<PAGE>
Fund Portfolio
--------------
IAI Midcap Growth Fund
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Market
Quantity Value (a)
- ------------------------------------------------------------
<S> <C> <C>
Technology Services -- 5.5%
First Financial Management 9,100 888,388
FIserv (b) 102,400 2,956,800
GTECHHoldings (b) 26,200 789,275
Tech Data (b) 82,500 $ 1,165,313
5,799,776
- ------------------------------------------------------------
Transportation -- 0.6%
Kansas City Southern Industries 12,800 582,400
- ------------------------------------------------------------
Utilities -- 4.7%
Century Telephone Enterprises 79,500 2,414,813
LCI International (b) 65,900 2,586,575
5,001,388
</TABLE>
<TABLE>
============================================================
<S> <C>
Total Investments in Common Stocks
(Cost: $80,798,606)............................. $99,589,980
============================================================
</TABLE>
Other Securities -- 1.5%
<TABLE>
<CAPTION>
Market
Quantity (c) Value (a)
- ------------------------------------------------------------
<S> <C> <C>
Non-Convertible Preferred stock - 1.2%
GalaGen Series B (b) (d) 76,923 $ 375,000
GalaGen Series C (b) (d) 30,000 150,000
Tut Systems Series D (b) (d) 233,546 268,578
Urologix Series B (b) 100,000 297,300
Urologix Series C (b) 59,613 131,149
1,222,027
- ------------------------------------------------------------
<CAPTION>
Ownership Market
Percentage (c) Value (a)
- ------------------------------------------------------------
<S> <C> <C>
Limited Partnerships -- 0.3%
South Street Leveraged Corporate
Recovery Fund I (b) 0.97% $ 204,125
Spectrum Equity Investors (b) 0.46% 165,719
369,844
</TABLE>
<TABLE>
============================================================
<S> <C>
Total investments in Other Securities
(Cost $1,083,384) $ 1,591,871
============================================================
Total investments in Long-Term Securities
(Cost $81,881,990) $101,181,851
============================================================
</TABLE>
<TABLE>
<CAPTION>
Short-Term Securities -- 2.3%
Principal Market
Rate Maturity Amount Value (a)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bill -- 2.3%
5.37% 1/11/96 $2,500,000 $ 2,462,898
========================================================================================================
Total Investments in Short-term Securities
(Cost $2,463,096).......................................................................... $ 2,462,898
========================================================================================================
Total Investments in Securities
(Cost $84,345,086) (e)..................................................................... $103,644,749
========================================================================================================
Other Assets and Liabilities (Net) - 2.1%
......................................................................................... $ 2,168,383
========================================================================================================
Total Net Assets
......................................................................................... $105,813,132
========================================================================================================
</TABLE>
See accompanying Notes to Fund Portfolios on page 18
17
<PAGE>
Notes to Fund Portfolios
-----------------------------------------------------------------
IAI Emerging Growth Fund, IAI Growth Fund, IAI Midcap Growth Fund
September 30, 1995
(unaudited)
(a)
Market value of securities is determined as described in Note 1 to the financial
statements, under "Security Valuation."
(b)
Currently non-income producing securities.
(c)
Restricted securities represent ownership in a security which has not been
registered with the Securities and Exchange Commission under the Securities Act
of 1933. For each of the restricted security issues held at September 30, 1995,
there were no unrestricted securities of the same class as of either the date
the purchase price was agreed to or the date the Fund first obtained an
enforceable right to obtain the securities. Information concerning each
restricted security holding on September 30, 1995 is shown on pages 20-21.
(d)
Investments representing five percent or more of the outstanding voting
securities of the issuer, and is therefore an affiliate, as defined in the
Investment Company Act of 1940, at September 30, 1995. A summary of transactions
during the period with affiliated issuers of the Emerging Growth Fund follows:
<TABLE>
<CAPTION>
IAI Emerging Growth Fund Affiliated Issuers
- ----------------------------------------------------------------------------------------------
purchases sales realized Investment
---------------------------------------------------------------
issuer quantity cost quantity cost gain (loss) income
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Air Communications Series B
Convertible Note/1/ $137,500 $137,500 $175,000 $175,000 -- $3,025
Air Communications
Series B PFD 300,000 $375,000 -- -- -- --
Air Communications
Warrants 75,000 $ 75 -- -- -- --
GalaGen
Convertible Note $100,000 $100,000 -- -- -- --
GalaGen Warrants 3/24/00 8,333 -- -- -- -- --
GalaGen Warrants 7/9/00 6,667 -- -- -- -- --
Myelos Corporation
Series A PFD 500,000 $500,000 -- -- -- --
OvaMed Convertible Note $259,803 $260,677 $142,780 $142,988 -- --
PACE Health Management
Systems 45,000 $225,625 -- -- -- --
Seurat Analytical Systems
Series B PFD/2/ 64,973 $130,614 -- -- -- --
Seurat Analytical Systems
Convertible Note $125,000 $125,186 $125,000 $125,000 -- $4,948
</TABLE>
/1/ AirCom Holdings changed its name to Air Communications during the period.
/2/ During the six months ending September 30, 1995 a $125,000 Convertible Note
was converted into Series B Preferred Stock.
18
<PAGE>
Notes to Fund Portfolios
-----------------------------------------------------------------
IAI Emerging Growth Fund, IAI Growth Fund, IAI Midcap Growth Fund
September 30, 1995
(unaudited)
(e)
At September 30, 1995, the cost of securities for federal income tax purposes
and the aggregate gross unrealized appreciation and depreciation based on that
cost were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
IAI Emerging Growth Fund IAI Growth Fund IAI Midcap Growth Fund
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
=============================================================
Cost for federal tax purposes $341,519,639 $16,770,481 $84,731,480
Gross unrealized appreciation $170,902,739 $ 3,538,681 $20,779,991
Gross unrealized depreciation (2,650,560) (398,930) (1,866,722)
-------------------------------------------------------------
Net unrealized appreciation $168,252,179 $ 3,139,751 $18,913,269
=============================================================
</TABLE>
19
<PAGE>
Notes to Fund Portfolios
-------------------------
IAI Emerging Growth Fund
September 30, 1995
(unaudited)
Restricted Securities (IAI Emerging Growth Fund)
<TABLE>
<CAPTION>
Security Acquisition Date Cost
- --------------------------------------------------------------------------
<S> <C> <C>
AccessLine Technologies Class A 06/30/94 $ 209,009
AccessLine Technologies Series A PFD 06/03/94 499,940
AccessLine Technologies Warrants 06/03/94 --
Air Communications Series A PFD 11/15/94 63,474
Air Communications Series B PFD 07/05/95 375,000
Air Communications Series B PFD 11/24/93 400,000
04/25/94 168,751
Air Communications Warrants 07/05/95 75
Alta Berkeley III C.V. 03/31/93 48,668
04/27/93 50,317
08/25/94 50,487
09/21/94 50,508
06/20/95 53,837
CardioGenesis Series B PFD 06/09/94 1,000,201
GalaGen Series B PFD 02/26/93 750,000
GalaGen Series C PFD 11/29/93 250,000
GalaGen Warrants 12/05/94 --
GalaGen Warrants 04/13/95 --
GalaGen Warrants 07/07/95 --
GalaGen Convertible Note 6.50% 06/17/94 315,489
03/22/95 125,000
07/07/95 100,000
IMNET Systems Series II PFD 02/16/95 682,565
Indigo Medical Series B PFD 05/26/93 500,000
Indigo Medical Series C PFD 09/30/94 256,254
12/27/94 506,783
02/07/95 1,000
Intellon Series A PFD 03/24/94 200,163
Intellon Warrants 04/12/94 --
Myelos 07/05/95 500,000
OncorMed Series A 12/13/93 200,173
OvaMed Convertible Note 9.50% 07/14/95 167,897
OvaMed Series D PFD 05/27/94 375,000
PACE Health Management Systems 01/11/94 750,000
01/31/95 201,200
04/27/95 150,625
06/20/95 75,000
PACE Health Management Systems Warrants 03/30/95 --
PriCellular Class B 05/16/94 750,581
Seurat Analytical Series B PFD 04/29/94 100,000
</TABLE>
20
<PAGE>
Notes to Fund Portfolios
-------------------------------------------------
IAI Emerging Growth Fund & IAI Midcap Growth Fund
September 30, 1995
(unaudited)
Restricted Securities (IAI Emerging Growth Fund continued)
<TABLE>
<CAPTION>
Security Acquisition Date Cost
- ---------------------------------------------------------------------------------
<S> <C> <C>
07/05/95 $ 130,614
Seurat Analytical Systems Convertible Note 9.50% 07/05/95 125,186
South Street Corporate Recovery Fund I L.P. 12/30/92 110,000
02/17/93 150,000
South Street Leveraged Corporate Recovery Fund I L.P. 02/17/93 2,593
Spectrum Equity Investors L.P. 01/03/95 50,000
05/12/94 149,286
05/11/95 11,050
05/22/95 70,000
Tut Systems Series D PFD 02/17/94 400,293
04/08/94 20,384
Tut Systems Series E PFD 12/21/94 250,563
Urologix Series B PFD 08/14/92 200,000
Urologix Series C PFD 03/22/94 131,148
Vanguard Associates IV L.P. 08/10/92 50,000
02/11/93 50,000
08/12/93 50,000
11/01/93 50,000
04/19/94 50,000
09/19/94 50,000
01/17/95 50,000
07/17/95 50,000
Restricted Securities (IAI Midcap Growth Fund)
Security Acquisition Date Cost
- ---------------------------------------------------------------------------------
GalaGen Series B PFD 02/26/93 $250,000
GalaGen Series C PFD 11/29/93 150,000
South Street Leveraged Corporate Recovery Fund I L.P. 02/17/93 1,729
Spectrum Equity Investors L.P. 05/12/94 74,644
01/03/95 25,000
05/11/95 5,525
05/22/95 35,000
Tut Systems Series D PFD 02/17/94 200,147
04/08/94 10,192
Urologix Series B PFD 08/14/92 200,000
Urologix Series C PFD 03/22/94 131,147
</TABLE>
21
<PAGE>
Statements of Assets and Liabilities
------------------------------------
IAI Emerging Growth Fund, IAI Growth Fund, IAI Midcap Growth Fund
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
IAI Emerging Growth Fund
------------------------
<S> <C>
Assets
Investments in securities of unaffiliated issuers, at
market
(Cost: $333,770,608; $16,767,823; $83,734,747) $501,274,619
Investments in securities of affiliated issuers, at market
(Cost: $8,058,788; $0; $610,339) 8,497,199
------------------------
Total investments in securities (see Fund Portfolios) 509,771,818
Cash in bank on demand deposit 6,204,469
Dividends and accrued interest receivable --
Receivable for investment securities sold 5,703,022
Organization costs 5,727
Other 45,261
------------------------
Total assets 521,730,297
------------------------
Liabilities
Payable for investment securities purchased 3,728,266
Accrued investment advisory fee 296,736
Accrued distribution fee 103,042
Accrued dividend-disbursing, administrative, and
accounting fee 82,433
Other accrued expenses 15,221
------------------------
Total liabilities 4,225,698
------------------------
Net assets applicable to outstanding capital stock $517,504,599
========================
Represented by:
Capital stock $ 250,620
Additional paid-in capital 340,092,050
Distribution in excess of net investment income (1,299,028)
Accumulated net realized gain 10,518,535
Unrealized appreciation on investments 167,942,422
------------------------
Total -- representing net assets applicable to
outstanding capital stock $517,504,599
========================
Shares of capital stock outstanding; authorized 10
billion shares each of $.01 par value stock 25,062,048
------------------------
Net asset value per share of outstanding capital stock $ 20.65
========================
</TABLE>
22
<PAGE>
IAI Growth Fund IAI Midcap Growth Fund
--------------- ----------------------
$19,910,232 $102,851,171
-- 793,578
--------------- ----------------------
19,910,232 103,644,749
447,845 2,098,169
9,715 18,035
-- 143,693
14,346 5,384
-- 10,392
--------------- ----------------------
20,382,138 105,920,422
--------------- ----------------------
33,875 --
12,573 64,473
970 16,886
3,352 17,192
1,788 8,739
--------------- ----------------------
52,558 107,290
--------------- ----------------------
$20,329,580 $105,813,132
=============== ======================
$ 16,416 $ 64,155
15,583,317 84,122,799
(13,683) (172,907)
1,601,121 2,499,422
3,142,409 19,299,663
--------------- ----------------------
$20,329,580 $105,813,132
=============== ======================
1,641,639 6,415,482
--------------- ----------------------
$ 12.38 $ 16.49
=============== ======================
See accompanying Notes to Financial Statements on page 31
23
<PAGE>
Statements of Operations
-----------------------------------------------------------------
IAI Emerging Growth Fund, IAI Growth Fund, IAI Midcap Growth Fund
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
IAI Emerging Growth Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Net Investment Income
Income
Dividends $ 96,213
Interest (including $7,973, $0 and $0 from affiliated issuers) 1,337,913
--------------------------
Total income 1,434,126
--------------------------
Expenses
Investment advisory fees 1,489,222
Distribution fees 513,959
Dividend-disbursing, administrative, and accounting fees 411,167
Legal fees 5,470
Custodian fees 6,810
Amortization of organization costs 3,313
Compensation of Directors 4,575
Audit fees 12,384
Printing and shareholder reporting 45,800
Registration fees 29,560
Other expenses 7,805
--------------------------
Total expenses 2,530,065
Less fees reimbursed by Advisers or Distributor --
--------------------------
Net expenses 2,530,065
--------------------------
Net investment loss (1,095,939)
--------------------------
Net Realized and Unrealized Gains
Net realized gains on investment securities 12,921,403
Net change in unrealized appreciation or depreciation on
investment securities 101,739,598
--------------------------
Net gain on investments 114,661,001
--------------------------
Net increase in net assets resulting from operations $113,565,062
==========================
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
IAI Growth Fund IAI Midcap Growth Fund
- ---------------------------------------------------------------------------------------
<C> <C>
$ 103,626 $ 298,193
19,437 123,276
- ---------------------------------------------------------------------------------------
123,063 421,469
- ---------------------------------------------------------------------------------------
82,015 356,684
27,338 118,895
21,870 95,115
1,370 1,830
1,500 1,830
2,547 1,700
3,660 3,660
4,671 5,843
5,014 9,935
6,410 10,650
850 2,596
- ---------------------------------------------------------------------------------------
157,245 608,738
(20,555) (14,362)
- ---------------------------------------------------------------------------------------
136,690 594,376
- ---------------------------------------------------------------------------------------
(13,627) (172,907)
- ---------------------------------------------------------------------------------------
1,894,485 2,855,866
714,208 8,599,480
- ---------------------------------------------------------------------------------------
2,608,693 11,455,346
- ---------------------------------------------------------------------------------------
$2,595,066 $11,282,439
=======================================================================================
</TABLE>
See accompanying Notes to Financial Statements on page 31
25
<PAGE>
Statements of Changes in Net Assets
-----------------------------------------------------------------
IAI Emerging Growth Fund, IAI Growth Fund, IAI Midcap Growth Fund
<TABLE>
<CAPTION>
IAI Emerging Growth Fund
Six months ended Year ended
September 30, 1995 March 31, 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------
Operations (unaudited)
Net investment income (loss) $ (1,095,939) $ (1,507,054)
Net realized gains (losses) 12,921,403 (1,939,184)
Net change in unrealized appreciation or
depreciation 101,739,598 39,586,345
----------------------------------
Net increase in net assets resulting from
operations 113,565,062 36,140,107
----------------------------------
Distributions to Shareholders from:
Net investment income -- --
Net realized gains -- (11,827,295)
----------------------------------
Total distributions -- (11,827,295)
----------------------------------
Capital Share Transactions (Note 4)
Net proceeds from sale of shares 326,483,192 323,906,877
Net asset value of shares issued to shareholders
in reinvestment of distributions -- 11,763,429
Cost of shares redeemed (265,417,560) (242,619,237)
----------------------------------
Increase (decrease) in net assets from capital
share transactions 61,065,632 93,051,069
----------------------------------
Total increase (decrease) in net assets 174,630,694 117,363,881
Net assets at beginning of period 342,873,905 225,510,024
----------------------------------
Net assets at end of period $ 517,504,599 $ 342,873,905
==================================
</TABLE>
[including undistributed net investment income (loss) of
($1,299,028) and ($203,089) for Emerging Growth Fund,
($13,683) and $49,821 for Growth Fund,
($172,907) and $0 for Midcap Growth Fund]
26
<PAGE>
<TABLE>
<CAPTION>
IAI Growth Fund IAI Midcap Growth Fund
Six months ended Period from Six months ended Year ended
September 30, 1995 August 1, 1994 to March 31, 1995 September 30, 1995 March 31, 1995
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
$ (13,627) $ 96,348 $ (172,907) $ (238,803)
1,894,485 140,742 2,855,866 6,163,154
714,208 2,214,048 8,599,480 6,609,145
- ------------------------------------------------------------------------------------------------
2,595,066 2,451,138 11,282,439 12,533,496
- ------------------------------------------------------------------------------------------------
(49,877) (62,390) -- --
-- -- (4,184,512) (3,289,143)
- ------------------------------------------------------------------------------------------------
(49,877) (62,390) (4,184,512) (3,289,143)
- ------------------------------------------------------------------------------------------------
3,633,480 15,977,013 48,609,473 70,389,940
49,611 61,473 1,455 3,205,326
(12,692,463) (6,041,735) (37,971,170) (51,382,552)
- ------------------------------------------------------------------------------------------------
(9,009,372) 9,996,751 10,639,758 22,212,714
- ------------------------------------------------------------------------------------------------
(6,464,183) 12,385,499 17,737,685 31,457,067
26,793,763 14,408,264 88,075,447 56,618,380
- ------------------------------------------------------------------------------------------------
$ 20,329,580 $26,793,763 $105,813,132 $ 88,075,447
================================================================================================
</TABLE>
See accompanying Notes to Financial Statements on page 31
27
<PAGE>
Financial Highlights
------------------------
IAI Emerging Growth Fund
Per share data for a share of capital stock outstanding throughout each period
and selected information for each period indicated are as follows:
<TABLE>
<CAPTION>
Years ended March 31, Period from
Six months ended ---------------------------------- August 5, 1991***
September 30, 1995 1995 1994 1993 to March 31, 1992
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value (unaudited)
<S> <C> <C> <C> <C> <C>
Beginning of period $ 15.83 $ 15.20 $ 13.47 $ 11.91 $ 10.00
-------------------------------------------------------------------------------
Operations
Net investment income (loss) (.04) (.07) (.10) (.05) .01
Net realized and unrealized gains 4.86 1.42 2.18 2.37 1.91
-------------------------------------------------------------------------------
Total from operations 4.82 1.35 2.08 2.32 1.92
-------------------------------------------------------------------------------
Distributions to Shareholders From:
Net investment income -- -- -- -- (.01)
Net realized gains -- (.72) (.35) (.76) --
-------------------------------------------------------------------------------
Total distributions -- (.72) (.35) (.76) (.01)
Net Asset Value
End of period $ 20.65 $ 15.83 $ 15.20 $ 13.47 $ 11.91
===============================================================================
Total investment return* 30.45% 10.23% 15.43% 21.90% 19.23%
Net assets at end of period (000's omitted) $517,505 $342,874 $225,510 $131,514 $ 38,110
Ratios
Expenses to average net assets 1.23%** 1.25% 1.25% 1.25% 1.25%**
Net investment income (loss)
to average net assets (0.53%)** (0.54%) (0.77%) (0.72%) 0.14%**
Portfolio turnover rate (excluding
short-term securities) 31.9% 58.1% 76.3% 96.1% 126.6%
</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
*** Commencement of operations
28
<PAGE>
Financial Highlights
--------------------
IAI Growth Fund
Per share data for a share of capital stock outstanding throughout each period
and selected information for each period indicated are as follows:
<TABLE>
<CAPTION>
Period from Period from
Six months ended August 1, 1994 to August 6, 1993***
September 30, 1995 March 31, 1995 to July 31, 1994
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value (unaudited)
<S> <C> <C> <C>
Beginning of period $ 10.95 $ 9.87 $ 10.00
--------------------------------------------------------
Operations
Net investment income -- .04 .01
Net realized and unrealized gains (losses) 1.46 1.07 (.13)
--------------------------------------------------------
Total from operations 1.46 1.11 (.12)
--------------------------------------------------------
Distributions to
Shareholders From:
Net investment income (.03) (.03) (.01)
--------------------------------------------------------
Total distributions (.03) (.03) (.01)
--------------------------------------------------------
Net Asset Value
End of period $ 12.38 $ 10.95 $ 9.87
========================================================
Total investment return* 13.34% 11.24% (1.21%)
Net assets at end of period (000's omitted) $20,330 $26,794 $14,408
Ratios
Expenses to average net assets** 1.25% 1.25% 1.25%
Net investment income (loss) to average net assets** (.12%) 0.61% 0.16%
Portfolio turnover rate
(excluding short-term securities) 34.7% 68.7% 105.4%
</TABLE>
* Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
** Annualized
*** Commencement of operations
29
<PAGE>
Financial Highlights
----------------------
IAI Midcap Growth Fund
Per share data for a share of capital stock outstanding throughout each period
and selected information for each period indicated are as follows:
<TABLE>
<CAPTION>
Years ended March 31, Period from
Six months ended --------------------- April 10, 1992***
September 30, 1995 1995 1994 to March 31, 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value (unaudited)
Beginning of period $ 15.35 $ 13.67 $ 11.88 $ 10.00
-----------------------------------------------------------------
Operations
Net investment income (loss) (.03) (.04) (.04) .02
Net realized and unrealized gains 1.91 2.35 1.99 1.89
-----------------------------------------------------------------
Total from operations 1.88 2.31 1.95 1.91
-----------------------------------------------------------------
Distributions to Shareholders From:
Net investment income -- -- -- (.03)
Net realized gains (.74) (.63) (.16) --
-----------------------------------------------------------------
Total distributions (.74) (.63) (.16) (.03)
-----------------------------------------------------------------
Net Asset Value
End of period $ 16.49 $ 15.35 $ 13.67 $ 11.88
=================================================================
Total investment return* 12.59% 17.63% 16.40% 19.09%
Net assets at end of period (000's omitted) $105,813 $88,075 $56,618 $22,070
Ratios
Expenses to average net assets 1.25%** 1.25% 1.25% 1.25%**
Net investment income (loss)
to average net assets (.36%)** (0.33%) (0.45%) 0.24%**
Portfolio turnover rate
(excluding short-term securities) 15.3% 51.3% 49.7% 57.6%
</TABLE>
* Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value.
** Annualized
*** Commencement of operations
30
<PAGE>
Notes to Financial Statements
-----------------------------------------------------------------
IAI Emerging Growth Fund, IAI Growth Fund, IAI Midcap Growth Fund
September 30, 1995
(unaudited)
[1] Summary of Significant Accounting Policies
The IAI Mutual Funds are registered under the Investment Company Act of 1940 (as
amended) as diversified, open-end management investment companies, or series
thereof. The IAI Emerging Growth Fund (Emerging Growth Fund) and IAI Midcap
Growth Fund (Midcap Growth Fund) are separate portfolios of IAI Investment Fund
VI, Inc. and IAI Growth Fund (Growth Fund) is a separate portfolio of IAI
Investment Funds II. This report covers only the Emerging Growth Fund, Growth
Fund, and Midcap Growth Fund (the Funds).
Significant accounting policies followed by the Funds are summarized below:
Security Valuation
Investments in securities traded on national securities exchanges are valued at
the last reported sales price at the close of each business day. Securities
traded on the over-the-counter market are valued at the last reported sale price
or if no last sales price is available, the last reported bid price is used.
Restricted securities for which there is no public market are valued at fair
value in good faith as determined by the Board of Directors.
Short-term securities with a maturity of 60 days or less from the date of
purchase are valued at amortized cost. Short-term securities with a maturity
greater than 60 days from the date of purchase are marked-to-market on a daily
basis.
Futures and Options Contracts
In order to produce incremental earnings, protect gains, and facilitate buying
and selling of securities, the Funds may buy and sell futures contracts and
options. These investments involve risks caused by the possibility of an
imperfect correlation between movements in the value of the contract or option
and the price of the underlying securities and interest rates. Risks may also
arise if there is an illiquid secondary market for the instruments, or due to
the inability of counterparties to perform. Futures contracts are valued at the
settlement price of the exchange on which they are traded. Options traded on an
exchange are valued using the last sale price. Options traded over-the-counter
are valued using dealer-supplied valuations.
Upon entering into a futures contract, the Funds are required to deposit either
cash or securities, representing the initial margin, equal to a certain
percentage of the contract value. Subsequent changes in the value of the
contract or variation margin, are recorded as unrealized gains and losses. The
variation margin is paid or received in cash daily by the Funds. The Funds
realize a gain or loss when the contract is closed or expires.
31
<PAGE>
Notes to Financial Statements
-----------------------------------------------------------------
IAI Emerging Growth Fund, IAI Growth Fund, IAI Midcap Growth Fund
September 30, 1995
(unaudited)
Federal Taxes
Since it is each Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its shareholders, no provision for income taxes is
required. In order to avoid the payment of any federal excise taxes, each Fund
is required to distribute substantially all of its net investment income and net
realized gains on a calendar year basis.
Net investment income and net realized gains differ for financial statement and
tax purposes primarily because of recognition of limited partnership income and
the deferral of "wash sale" losses for tax purposes. The character of
distributions made during the year for net investment income or net realized
gains may also differ from its ultimate characterization for tax purposes.
For federal income tax purposes Emerging Growth Fund and Growth Fund have
capital loss carryovers of approximately $2,327,000 and $291,000, respectively,
at March 31, 1995 which, if not offset by subsequent capital gains, will expire
in 2002 and 2003. It is unlikely the Board of Directors will authorize a
distribution of any net realized gains until the available capital loss
carryover is offset or expires.
Security Transactions and Investment Income
The Funds record security transactions on trade date, the date the securities
are purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. The Funds amortize discount
purchased on long-term bonds using the level yield method of amortization.
Security gains and losses are determined on the basis of identified cost, which
is the same basis used for federal income tax purposes.
Distributions to Shareholders
Distributions to shareholders are recorded on the ex-date. Distributions from
net investment income are made semi-annually. Capital gains, if any, are
primarily distributed as of the end of the calendar year. Additional capital
gains distributions as needed to comply with federal tax regulations are
distributed during the year.
Organization Costs
Organization costs are being amortized over 60 months on a straight-line basis.
In the event Investment Advisers, Inc. (Advisers) redeems any or all of its
shares representing initial capital in the Funds prior to the date such costs
are fully amortized, it will bear such portion of the unamortized organization
cost of the Funds as the number of shares redeemed bears to the initial purchase
of shares.
32
<PAGE>
Notes to Financial Statements
-----------------------------------------------------------------
IAI Emerging Growth Fund, IAI Growth Fund, IAI Midcap Growth Fund
September 30, 1995
(unaudited)
[2] Commitments and Contingencies
For purposes of obtaining certain types of insurance coverage for the Funds and
its officers and directors, the Funds are policyholders in an industry-sponsored
mutual insurance company (the Company). In connection with their obligations as
policyholders, the Funds have made payments to the Company which have been
capitalized. Also, the Funds are committed to make future capital contributions,
if requested by the Company.
Emerging Growth Fund, Growth Fund, and Midcap Growth Fund have available lines
of credit of $15,000,000, $4,550,000 and $15,000,000, respectively, with a bank
at prime interest rates. To the extent funds are drawn against the line,
securities are held in a segregated account. No compensating balances or
commitment fees are required under the line of credit. There were no borrowings
outstanding at September 30, 1995 for the Funds.
At September 30, 1995, the Funds are committed to invest additional amounts in
certain limited partnership investments held, as follows:
<TABLE>
<CAPTION>
Limited Partnership Investment Commitments
- -------------------------------------------------------------------------------------------
IAI Emerging Growth Fund IAI Midcap Growth Fund
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Alta Berkeley III C.V. $ 198,000 $ --
Spectrum Equity Investors L.P. 719,000 359,000
Vanguard Associates IV L.P. 100,000 --
---------------------------------------------------
Total Commitments $1,017,000 $359,000
===================================================
</TABLE>
Default by a limited partner of payment of a properly requested capital
contribution, other than default due to a legal determination that such
contribution need not be made, would result in forfeiture of such limited
partner's interest in any future profits and loss in the partnership and removal
from the limited partnership.
The Funds' management intends to finance the aforementioned commitments with
available cash or with proceeds from the sale of temporary investments in short-
term securities. The Funds maintain a "segregated account" in an amount equal to
its aggregate unpaid commitments.
33
<PAGE>
Notes to Financial Statements
-----------------------------------------------------------------
IAI Emerging Growth Fund, IAI Growth Fund, IAI Midcap Growth Fund
September 30, 1995
(unaudited)
[3] Fees and Expenses
Under terms of an investment advisory agreement, Emerging Growth and Midcap
Growth Funds pay Investment Advisers, Inc. (Advisers) a monthly management fee
based on average month-end net assets value equal on an annual basis to .75% of
the first $200 million in net assets, .70% of the next $300 million in net
assets, .65% of net assets in excess of $500 million and Growth Fund pays
Advisers .75% of the first $100 million in net assets, 0.65% of the next $100
million in net assets, 0.55% of net assets in excess of $200 million for the
Growth Fund.
Each Fund also pays an annual fee to Advisers for acting as the Fund's dividend-
disbursing, administrative, and accounting services agent. The fee is computed
monthly on the average month-end net assets at an annual rate of .20%.
The Funds have adopted a plan of distribution with IAI Securities, Inc.
(Distributor), the Funds' distributor. Under the Plan, each Fund pays
Distributor a monthly fee to cover expenses incurred in the distribution and
promotion of Fund shares. The fee is equal to an annual rate of .25% of each
Fund's average month-end net assets.
In addition to the advisory, distribution, and the dividend-disbursing,
administrative, and accounting services fees, the Funds are responsible for
paying operating expenses, including costs incurred in the purchase and sale of
assets. Advisers and Distributor have agreed to reimburse the Funds to the
extent total expenses, excluding costs incurred in the purchase and sale of
assets, exceed, on an annual basis, 1.25% of each Fund's respective average
month-end net assets.
34
<PAGE>
Notes to Financial Statements
-----------------------------------------------------------------
IAI Emerging Growth Fund, IAI Growth Fund, IAI Midcap Growth Fund
September 30, 1995
(unaudited)
[4] Capital Stock
The Funds each have authorized 10 billion shares of $.01 par value stock.
Transactions in shares of capital stock during the periods indicated were as
follows:
<TABLE>
<CAPTION>
Emerging Growth Fund Growth Fund Midcap Growth Fund
- ----------------------------------------------------------------------------------------------------------------------
Six Months Year Six Months Period from Six Months Year
Ended Ended Ended 8/1/94 to Ended Ended
9/30/95 3/31/95 9/30/95 3/31/95 9/30/95 3/31/95
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sold 18,343,117 22,550,381 310,386 1,559,588 3,088,847 4,991,776
Issued for reinvested
distributions -- 949,429 4,333 6,062 88 236,681
Redeemed (14,935,230) (16,680,719) (1,120,769) (577,136) (2,409,683) (3,632,875)
--------------------------------------------------------------------------------------------
Increase in
shares outstanding 3,407,887 6,819,091 (806,050) 988,514 679,252 1,595,582
============================================================================================
</TABLE>
[5] Investment Transactions
Purchases and Sales of Securities
For the six months ended September 30, 1995, purchases of securities and sales
proceeds, other than investments in short-term securities, for the Funds were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------
Purchases Sales
- ------------------------------------------------------
<S> <C> <C>
IAI Emerging Growth Fund $125,983,714 $113,508,167
IAI Growth Fund $ 7,612,354 $ 17,360,713
IAI Midcap Growth Fund $ 20,898,537 $ 13,809,929
</TABLE>
Restricted Securities
Included in the Funds' portfolios of investments in securities at September 30,
1995 are issues which generally cannot be offered for sale to the public without
first being registered under the Securities Act of 1933 ("restricted
securities"). Each Fund limits investments in securities which are not readily
marketable to 15 percent of its total assets at the time of purchase. This
limitation does not include Rule 144A securities that have been determined to be
liquid based upon guidelines approved by the Fund's Board of Directors.
35
<PAGE>
IAI Mutual Fund Family
----------------------
To diversify your portfolio, please consider all of the
mutual funds in our fund family
<TABLE>
<CAPTION>
Secondary
IAI Fund Primary Objective Objective Portfolio Composition
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IAI Developing Capital Appreciation - Equity securities of companies in developing
Countries Fund countries
- ------------------------------------------------------------------------------------------------------------------------------------
IAI International Fund Capital Appreciation Income Equity securities of non-U.S. companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Emerging Growth Fund Capital Appreciation - Common stocks of small to medium-sized emerging
growth companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Midcap Growth Fund Capital Appreciation - Common stocks of medium-sized growth companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Regional Fund Capital Appreciation - Common stocks of Upper Midwest companies
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Growth Fund Capital Appreciation - Common stocks with potential for above-average
growth and appreciation
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Value Fund Capital Appreciation - Common stocks which are considered to be
undervalued
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Growth & Income Fund Capital Appreciation Income Common stocks with potential for long-term
appreciation, and common stocks that are expected
to produce income
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Balanced Fund Total Return Income Common stocks, investment grade bonds and
[Capital Appreciation short-term instruments
+ Income]
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Bond Fund Income Capital Preservation Investment grade bonds
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Minnesota Tax Free Fund Tax-free Income Capital Preservation Investment grade municipal bonds
(formerly IAI Tax Free Fund) [Exempt from Federal
and Minnesota State
Income Taxes]
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Government Fund Income Capital Preservation U.S. Government securities
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Reserve Fund Stability/Liquidity Income The portfolio has a maximum average maturity of 25
months, investing primarily in investment grade
bonds
- ------------------------------------------------------------------------------------------------------------------------------------
IAI Money Market Fund Stability/Liquidity Income The portfolio's average dollar-weighted maturity is
less than 90 days, investing in high quality, money
market securities
</TABLE>
36
<PAGE>
Distributor
IAI Securities, Inc.
Investment Adviser
and Manager
Investment Advisers, Inc.
P.O. Box 357
Minneapolis, MN 55440-0357 USA
800.945.3863
612.376.2700
Custodian
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, MN 55479
Legal Counsel
Dorsey & Whitney P.L.L.P.
220 South Sixth Street
Minneapolis, MN 55402
Independent Auditors
KPMG Peat Marwick LLP
4200 Norwest Center
Minneapolis, MN 55402
Directors
Madeline Betsch
W. William Hodgson
George R. Long
Noel P. Rahn
Richard E. Struthers
J. Peter Thompson
Charles H. Withers
<PAGE>
[LOGO]
Mutual Funds
3700 First Bank Place, P.O. Box 357, Minneapolis, Minnesota 55440-0357 USA fax
612.376.2737
800.945.3863
612.376.2700
