SEMI-ANNUAL REPORT
IAI RETIREMENT FUNDS, INC.
IAI REGIONAL PORTFOLIO, IAI BALANCED PORTFOLIO,
IAI RESERVE PORTFOLIO
JUNE 30, 2000
[LOGO] IAI
MUTUAL FUNDS
<PAGE>
TABLE OF CONTENTS
IAI RETIREMENT FUNDS, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2000
Letter to Shareholders ..................................... 2
Portfolio Managers' Reviews
IAI Regional Portfolio ................................ 3
IAI Balanced Portfolio ................................ 4
IAI Reserve Portfolio ................................. 5
Schedules of Investments
IAI Regional Portfolio ................................ 6
IAI Balanced Portfolio ................................ 7
IAI Reserve Portfolio ................................. 9
Notes to Schedules of Investments ..........................10
Statements of Assets and Liabilities .......................11
Statements of Operations ...................................12
Statements of Changes in Net Assets
IAI Regional Portfolio ................................13
IAI Balanced Portfolio ................................14
IAI Reserve Portfolio .................................15
Financial Highlights
IAI Regional Portfolio ................................16
IAI Balanced Portfolio ................................17
IAI Reserve Portfolio .................................18
Notes to Financial Statements ..............................19
Distributor, Adviser, Custodian,
Legal Counsel, Independent Auditors,
Directors ..........................................Back Cover
[LOGO] IAI
MUTUAL FUNDS
IAI Mutual Funds
c/o Firstar Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin
53201-0701 USA
800.945.3863
<PAGE>
LETTER TO SHAREHOLDERS
IAI RETIREMENT FUNDS, INC.
ECONOMIC REVIEW AND OUTLOOK
Signs of a developing economic slowdown began to surface during the second
quarter. However, the length and depth of the slowdown are still open to debate.
In each of the last two years the economy paused in the second quarter, only to
reaccelerate in the last half of the year. It's still too early to tell if this
pattern will be repeated this year, but six interest rate increases by the Fed
in the last twelve months make a strong case for a longer lasting slowdown.
Nevertheless, the question remains: Is the Fed done?
The inflation outlook continues to be mixed. Certainly the trend of inflation
has been moving higher. Gasoline prices have received a lot of recent attention
and energy prices have been driving the consumer price index up. However, price
indices excluding energy costs are still relatively well behaved. Likewise,
commodity prices (excluding energy) and the price of gold are moving sideways,
giving no clear signal about the future trend. Although this inflation news is
better than what might be expected at this stage of the economic cycle, it is
important to remember that inflation is a lagging indicator. As such, the
inflation rate may continue to rise even as the economy cools. Thus, the threat
of rising inflation doesn't immediately go away. Instead, it presents a dilemma
for the Fed and a risk for investors.
Some of the most convincing evidence of a slowdown comes from the labor markets.
Private sector payroll gains slowed in the second quarter. The headline reports
probably overstated the weakness because the unemployment rate remained near its
30-year low while some anecdotal evidence continued to point toward upward wage
pressure from a tight labor market. Yet, a softer trend seems to be developing.
New job creation is the engine that drives consumer confidence, income growth
and spending. Consumer spending is the engine that drives the U.S. economy.
Thus, a softer labor market is consistent with a slower economy. But again the
dilemma: Can the Fed tighten to curb rising inflation if the labor markets look
soft-particularly in a presidential election year? Policy makers will see one
more month's employment data before their August meeting; that report will
likely help some Fed members make their decision.
Monetary policy during the last year has been extremely erratic. The Fed started
raising interest rates in June of last year, but chose to reverse its policy at
year-end in an attempt to forestall potential Y2K liquidity problems. Although
viewed as a temporary-but necessary-action, the amount of additional liquidity
provided by the Fed was overwhelming. By February, the Fed was aggressively
withdrawing the excess liquidity, pushing reserve growth into record negative
territory. These wide swings in policy probably explain the unprecedented market
volatility experienced during the last six months.
Clearly the Fed has increased short-term interest rates during the last year,
and the economy is beginning to feel the impact of this change. Yet, it's just
as clear that monetary policy is not "tight"-at least not in comparison to the
way credit availability was strangled by the Fed at times in the 1980s. The
current policy ambiguity-higher rates but adequate credit availability-is
consistent with the mixed data coming from the economy. The policy is also
consistent with the Fed's attempt to "fine tune" the economy onto a less
inflationary path without causing a recession.
The markets responded favorably in May to signs of a slowing economy. Investors
viewed the data as a strong signal that the Fed might be done raising interest
rates. This shift in sentiment sparked the rally. Yet investor sentiment is
probably ahead of economic reality. The Fed is likely to nudge rates higher at
the August meeting and then hope they have done enough to achieve a soft
landing.
2
<PAGE>
PORTFOLIO MANAGER'S REVIEW
IAI REGIONAL PORTFOLIO
IAI REGIONAL PORTFOLIO
FUND MANAGEMENT
JULIAN P. "BING" CARLIN, CFA
HOW HAS THE PORTFOLIO PERFORMED?
The IAI Regional Portfolio gained 4.54% for the six months ending June 30, 2000.
This compares favorably to the S&P 500's return of (0.42)% for the same period.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE PORTFOLIO'S
PERFORMANCE?
The main question on investors' minds seems to be whether or not the Federal
Reserve will be successful in its efforts to cause the economy to have a soft
landing and to avoid a recession. The Fed has raised rates a total of 175 basis
points over the last several quarters, and even though they declined to raise
rates in June, it is uncertain whether they will raise rates at least once more.
The increase in oil prices serves as an additional tax and the ripple effect is
just beginning to be felt. This puts more pressure on the soft landing theory.
Finally, the trade deficit (currently at an annual run rate of $350 billion)
will put pressure on the US dollar against the Yen and Euro.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE PORTFOLIO? WERE THERE ANY
DISAPPOINTMENTS?
The Portfolio's performance was helped by our stock selection in the technology
and financial sectors as our stocks outperformed those in the index. Within
technology, we believe companies participating in fiber optics will continue to
see robust growth as reflected by strong performance from ADC Telecommunications
and Corning Inc. Reliastar was our best performing name in financials as the
stock appreciated significantly on an announcement that they would be acquired
by Amsterdam-based ING. Pushing the Portfolio's return down were stocks within
the capital goods, communications services, and consumer cyclical sectors.
WERE THERE ANY SIGNIFICANT CHANGES?
We entered the second quarter of 2000 with under-weight positions in both the
technology and financial sectors due to our concerns over valuation (in
technology) and rising interest rates. This defensive posture benefited the
Portfolio as technology stocks within the S&P 500 lost 9% as a group and
financials posted almost a 3% decline for the quarter.
WHAT IS YOUR OUTLOOK FOR THE PORTFOLIO?
Another volatile quarter in the markets has caused the Dow Jones, S&P 500, and
NASDAQ to all be in negative territory for the first six months of this year.
While many companies continue to exceed earnings expectations, others disappoint
Wall Street and their stock prices are immediately affected. This environment of
punishing even minor disappointments is expected to continue.
With technology changing the way we live, we are in an exciting yet challenging
period. We continue to emphasize good stock selection with diversified positions
across all S&P sectors as well as a modest amount of cash.
VALUE OF $10,000 INVESTMENT+
[PLOT POINTS CHART]
IAI REGIONAL PORTFOLIO
(INCEPTION 1/31/94) S & P 500 INDEX *
------------------- -----------------
Jan-94 $ 10,000 $ 10,000
Feb-94 10,000 9,728
Mar-94 10,000 9,306
Apr-94 10,000 9,426
May-94 10,000 9,580
Jun-94 10,020 9,343
Jul-94 10,120 9,652
Aug-94 10,890 10,045
Sep-94 10,640 9,802
Oct-94 10,820 10,029
Nov-94 10,330 9,661
Dec-94 10,620 9,803
Jan-95 10,620 10,057
Feb-95 10,980 10,447
Mar-95 11,140 10,757
Apr-95 11,420 11,074
May-95 11,680 11,512
Jun-95 11,986 11,782
Jul-95 12,587 12,177
Aug-95 12,597 12,210
Sep-95 12,967 12,723
Oct-95 12,846 12,677
Nov-95 13,717 13,235
Dec-95 14,178 13,479
Jan-96 14,339 13,941
Feb-96 14,549 14,076
Mar-96 14,599 14,214
Apr-96 15,330 14,426
May-96 15,841 14,798
Jun-96 15,377 14,859
Jul-96 14,405 14,198
Aug-96 14,975 14,501
Sep-96 15,207 15,317
Oct-96 15,070 15,745
Nov-96 15,640 16,943
Dec-96 15,862 16,613
Jan-97 16,053 17,647
Feb-97 15,894 17,789
Mar-97 15,102 17,049
Apr-97 15,282 18,062
May-97 16,624 19,170
Jun-97 17,179 20,023
Jul-97 18,316 21,629
Aug-97 18,173 20,433
Sep-97 19,409 21,547
Oct-97 18,373 20,835
Nov-97 18,141 21,788
Dec-97 17,998 22,158
Jan-98 17,699 22,408
Feb-98 18,726 24,019
Mar-98 19,366 25,249
Apr-98 19,312 25,504
May-98 18,881 25,066
Jun-98 18,885 26,083
Jul-98 17,963 25,804
Aug-98 14,863 22,073
Sep-98 15,866 23,488
Oct-98 16,496 25,397
Nov-98 17,499 26,936
Dec-98 18,279 28,488
Jan-99 18,349 29,679
Feb-99 17,929 28,756
Mar-99 17,812 29,906
Apr-99 18,453 31,063
May-99 18,699 30,330
Jun-99 19,441 32,014
Jul-99 19,120 31,015
Aug-99 18,799 30,860
Sep-99 18,573 30,014
Oct-99 19,677 31,914
Nov-99 20,045 32,562
Dec-99 21,622 34,480
Jan-00 20,353 32,749
Feb-00 21,765 32,130
Mar-00 22,773 35,272
Apr-00 22,334 34,210
May-00 22,477 33,509
Jun-00 22,605 34,333
AVERAGE ANNUAL RETURNS+
THROUGH 6/30/00
Since Inception
Six Months** 1 Year 5 Years 1/31/94
--------------------------------------------------------------------------------
IAI REGIONAL PORTFOLIO 4.54% 16.28% 13.53% 13.55%
--------------------------------------------------------------------------------
S & P 500 Index (0.42)% 7.24% 23.80% 21.15%*
--------------------------------------------------------------------------------
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* SINCE 2/01/94
** NOT ANNUALIZED
3
<PAGE>
PORTFOLIO MANAGER'S REVIEW
IAI BALANCED PORTFOLIO
IAI BALANCED PORTFOLIO
FUND MANAGEMENT
LARRY R. HILL, CFA
JEFF MALET, CFA
HOW HAS THE PORTFOLIO PERFORMED?
The IAI Balanced Portfolio increased 2.06% for the six month period ending June
30, 2000. This compares to a return of (0.42%) for the S & P 500 stock index and
4.18% for the Lehman Government/CorporateBond Index.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE PORTFOLIO'S
PERFORMANCE?
The stock market went on a roller coaster ride in the first six months of the
year. Strong gains in the first quarter were erased by a dramatic sell-off in
April and May. Although June was a winning month for stocks, the gains were not
enough to offset the April-May period. The bond market followed a more stable
path, ending the period with a return slightly above the average coupon yield in
the market. The Portfolio's balanced use of both bonds and stocks helped to
produce positive results during the period.
WHICH HOLDINGS WERE PARTICULARLY SUCCESSFUL FOR THE PORTFOLIO? WERE THERE ANY
DISAPPOINTMENTS?
Consumer cyclical stocks were the largest detractors from fund performance, as
Gap, Lowe and Target lagged their peers. Technology is the largest sector
weighting in the Portfolio, and negative performance in this sector also
detracted from performance. Consumer staples and healthcare companies, including
Cardinal Health, PepsiCo, Clear Channel Communications and Pfizer posted strong
gains and boosted Portfolio performance. In the bond portfolio, the Portfolio
avoided corporate bonds, which generally lagged the Treasury market. The
Portfolio's weighting in long Treasury bonds boosted results, as this sector of
the bond market far outperformed all other sectors in the last six months.
WERE THEIR ANY SIGNIFICANT CHANGES?
The Portfolio established new positions in Comcast Corp, Eli Lilly and Applied
materials, eliminating positions in Weyerhaeuser, Electronic Arts and Citrix
Systems. In the bond portfolio, the Portfolio boosted its weighting in both long
Treasury issues and cash reserves. This better positioned the portfolio for an
inverted yield curve. The Portfolio benefited from these shifts.
WHAT IS YOUR OUTLOOK FOR THE PORTFOLIO?
Fed policy has been restrictive for the last year, and this is having its
desired effect of slowing economic growth to a more sustainable pace. The
downshift in the economy should allow the Fed to delay further rate moves in the
coming months. A slowing economy with the Fed on hold is already built into
stock and bond prices, so we don't expect to see a major change in market
direction. The presidential election adds a further reason for the market to
remain in a broad range. We will continue to manage a well diversified portfolio
of companies, emphasizing technology and selected healthcare stocks, areas we
feel will be promising in the months ahead. In bonds, we will continue to
emphasize Treasury and Agency issues along with a relatively neutral portfolio
duration. No change is expected in the current stock/bond mix.
VALUE OF $10,000 INVESTMENT+
[PLOT POINTS CHART]
IAI BALANCED PORTFOLIO LEHMAN GOVERNMENT/
(INCEPTION 2/3/94) S & P 500 INDEX* CORPORATE BOND INDEX*
------------------ ---------------- ---------------------
Feb-94 $ 10,000 $ 10,000 $ 10,000
Feb-94 10,000 9,728 9,782
Mar-94 10,000 9,306 9,543
Apr-94 10,000 9,426 9,464
May-94 10,000 9,580 9,447
Jun-94 9,900 9,343 9,425
Jul-94 10,160 9,652 9,613
Aug-94 10,370 10,045 9,617
Sep-94 10,290 9,802 9,471
Oct-94 10,360 10,029 9,461
Nov-94 10,100 9,661 9,444
Dec-94 10,220 9,803 9,506
Jan-95 10,380 10,057 9,689
Feb-95 10,600 10,447 9,913
Mar-95 10,800 10,757 9,980
Apr-95 10,740 11,074 10,119
May-95 11,020 11,512 10,543
Jun-95 11,282 11,782 10,627
Jul-95 11,503 12,177 10,586
Aug-95 11,605 12,210 10,722
Sep-95 11,725 12,723 10,831
Oct-95 11,644 12,677 10,990
Nov-95 11,947 13,235 11,171
Dec-95 11,877 13,479 11,335
Jan-96 12,079 13,941 11,406
Feb-96 12,039 14,076 11,164
Mar-96 12,009 14,214 11,070
Apr-96 12,140 14,426 10,994
May-96 12,280 14,798 10,976
Jun-96 12,282 14,859 11,122
Jul-96 12,015 14,198 11,148
Aug-96 12,035 14,501 11,121
Sep-96 12,436 15,317 11,318
Oct-96 12,620 15,745 11,583
Nov-96 13,144 16,943 11,796
Dec-96 13,041 16,613 11,664
Jan-97 13,349 17,647 11,678
Feb-97 13,277 17,789 11,703
Mar-97 12,897 17,049 11,564
Apr-97 13,255 18,062 11,733
May-97 13,881 19,170 11,842
Jun-97 14,267 20,023 11,984
Jul-97 14,990 21,629 12,351
Aug-97 14,607 20,433 12,212
Sep-97 15,021 21,547 12,404
Oct-97 14,852 20,835 12,603
Nov-97 15,064 21,788 12,670
Dec-97 15,203 22,158 12,803
Jan-98 15,288 22,408 12,983
Feb-98 15,809 24,019 12,957
Mar-98 16,214 25,249 12,997
Apr-98 16,321 25,504 13,062
May-98 16,097 25,066 13,202
Jun-98 16,356 26,083 13,337
Jul-98 16,039 25,804 13,347
Aug-98 15,176 22,073 13,608
Sep-98 15,613 23,488 13,997
Oct-98 16,345 25,397 13,897
Nov-98 16,565 26,936 13,981
Dec-98 17,045 28,488 14,014
Jan-99 16,728 29,679 14,114
Feb-99 16,520 28,756 13,778
Mar-99 16,586 29,906 13,847
Apr-99 17,275 31,063 13,881
May-99 17,121 30,330 13,738
Jun-99 17,496 32,014 13,696
Jul-99 17,253 31,015 13,658
Aug-99 16,985 30,860 13,647
Sep-99 16,661 30,014 13,769
Oct-99 16,836 31,914 13,805
Nov-99 17,184 32,562 13,797
Dec-99 17,660 34,480 13,713
Jan-00 17,371 32,749 13,709
Feb-00 17,440 32,130 13,880
Mar-00 18,450 35,272 14,080
Apr-00 17,812 34,210 14,011
May-00 17,511 33,509 13,998
Jun-00 18,026 34,333 14,284
AVERAGE ANNUAL RETURNS+
THROUGH 6/30/00
Since Inception
Six Months** 1 Year 5 Years 2/03/94
--------------------------------------------------------------------------------
IAI BALANCED PORTFOLIO 2.06% 3.01% 9.82% 9.63%
--------------------------------------------------------------------------------
S & P 500 Index (0.42)% 7.24% 23.80% 21.15%*
--------------------------------------------------------------------------------
Lehman Government/
Corporate Bond Index 4.18% 4.32% 6.10% 5.72%*
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* SINCE 2/01/94
** NOT ANNUALIZED
4
<PAGE>
PORTFOLIO MANAGER'S REVIEW
IAI RESERVE PORTFOLIO
IAI RESERVE PORTFOLIO
FUND MANAGEMENT
LARRY R. HILL, CFA
HOW HAS THE PORTFOLIO PERFORMED?
The IAI Retirement Reserve Portfolio earned a return of 3.22% in the six month
period ending June 30, 2000. This compares to a return of 2.98% for the Salomon
Brothers One Year Treasury Bill Index for the same period.
CAN YOU POINT TO ANY SPECIFIC MARKET FACTORS THAT INFLUENCED THE PORTFOLIO'S
PERFORMANCE?
The Federal Reserve raised short term interest rates on three separate occasions
in the first six months of 2000. As a result, short term yields, as measured by
three month Treasury rates, rose. The Fund's shorter maturity helped protect the
value of the principal and allowed the Fund to reinvest its cash flows at higher
yields.
In addition to higher short term rates, corporate bond credit spreads widened
during the period, causing corporate bonds to under perform comparable Treasury
issues. The Fund does not own any corporate bonds and was able to avoid this
under-performance.
WERE THERE ANY SIGNIFICANT CHANGES IN THE PORTFOLIO?
There were no significant changes in investment strategy during the six months
period ending June 30, 2000. The Fund is invested in short maturity Treasury and
Federal Agency securities along with a healthy level of cash reserves. This
relatively conservative posture is generally successful during periods of Fed
tightening, such as the first six months of the year.
WHAT IS YOUR OUTLOOK FOR THE PORTFOLIO?
U.S. economic growth showed signs of moderating in the second quarter,
particularly in the housing market which has softened in response to the Fed's
year-long campaign to raise interest rates. In a perfect world, the economy
would glide to a soft landing, inflationary pressures would subside and the Fed
would be done tightening. The bond market is priced for perfection, but a lot
can go wrong with this scenario. Thus, there seems to be little upside over the
next several months. Most likely, the market will remain in a range around
current levels. The Portfolio is well positioned for this market environment and
no major changes are anticipated.
VALUE OF $10,000 INVESTMENT+
[PLOT POINTS CHART]
IAI RESERVE PORTFOLIO SALOMON BROTHERS ONE
(INCEPTION 4/7/94) YEAR TREASURY BILL INDEX*
------------------ -------------------------
Apr-94 $ 10,000 $ 10,000
Apr-94 10,000 9,991
May-94 10,012 10,011
Jun-94 10,044 10,046
Jul-94 10,074 10,109
Aug-94 10,101 10,144
Sep-94 10,137 10,160
Oct-94 10,161 10,202
Nov-94 10,197 10,195
Dec-94 10,225 10,232
Jan-95 10,271 10,335
Feb-95 10,317 10,426
Mar-95 10,363 10,488
Apr-95 10,409 10,560
May-95 10,454 10,654
Jun-95 10,496 10,716
Jul-95 10,537 10,769
Aug-95 10,578 10,821
Sep-95 10,616 10,869
Oct-95 10,665 10,930
Nov-95 10,707 10,995
Dec-95 10,746 11,060
Jan-96 10,794 11,131
Feb-96 10,837 11,144
Mar-96 10,870 11,180
Apr-96 10,901 11,218
May-96 10,950 11,264
Jun-96 10,983 11,326
Jul-96 11,032 11,369
Aug-96 11,071 11,424
Sep-96 11,112 11,500
Oct-96 11,184 11,588
Nov-96 11,233 11,647
Dec-96 11,277 11,686
Jan-97 11,316 11,745
Feb-97 11,350 11,787
Mar-97 11,388 11,819
Apr-97 11,428 11,891
May-97 11,479 11,966
Jun-97 11,516 12,036
Jul-97 11,573 12,123
Aug-97 11,608 12,166
Sep-97 11,663 12,231
Oct-97 11,709 12,300
Nov-97 11,748 12,342
Dec-97 11,798 12,400
Jan-98 11,846 12,481
Feb-98 11,881 12,515
Mar-98 11,923 12,578
Apr-98 11,970 12,636
May-98 12,015 12,691
Jun-98 12,054 12,752
Jul-98 12,095 12,815
Aug-98 12,216 12,917
Sep-98 12,320 13,019
Oct-98 12,375 13,088
Nov-98 12,388 13,089
Dec-98 12,444 13,130
Jan-99 12,481 13,180
Feb-99 12,456 13,194
Mar-99 12,531 13,276
Apr-99 12,556 13,325
May-99 12,531 13,363
Jun-99 12,562 13,425
Jul-99 12,562 13,485
Aug-99 12,562 13,525
Sep-99 12,612 13,594
Oct-99 12,663 13,629
Nov-99 12,688 13,657
Dec-99 12,675 13,688
Jan-00 12,701 13,722
Feb-00 12,882 13,791
Mar-00 12,929 13,854
Apr-00 12,978 13,935
May-00 13,012 13,986
Jun-00 13,084 14,095
AVERAGE ANNUAL RETURNS+
THROUGH 6/30/00
Since Inception
Six Months** 1 Year 5 Years 4/07/94
--------------------------------------------------------------------------------
IAI RESERVE PORTFOLIO 3.22% 4.16% 4.50% 4.40%
--------------------------------------------------------------------------------
Salomon Brothers One Year
Treasury Index Bill 2.98% 4.99% 5.64% 5.65%*
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* SINCE 4/01/94
** NOT ANNUALIZED
5
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
IAI REGIONAL PORTFOLIO
JUNE 30, 2000
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 83.3%
Market
Quantity Value (a)
---------------------------------------------------------------------------
COMMERCIAL SERVICES - 2.1%
R.R. Donnelley & Sons 11,000 $ 248,188
---------------------------------------------------------------------------
CONSUMER NON-DURABLES - 4.6%
McDonald's 8,500 279,969
Wm. Wrigley Jr. 3,500 280,656
----------------
560,625
---------------------------------------------------------------------------
CONSUMER SERVICES - 1.6%
DeVry (b) 7,200 190,350
---------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY - 4.8%
Applied Materials (b) 1,900 172,188
Corning 1,500 404,812
----------------
577,000
---------------------------------------------------------------------------
ENERGY MINERALS - 7.0%
Diamond Offshore Drilling 7,600 266,950
Exxon Mobil 4,200 329,700
Transocean Sedco Forex 4,700 251,156
----------------
847,806
---------------------------------------------------------------------------
FINANCIAL - 8.1%
Biotech Holders Trust Depositary Receipts 1,700 302,600
Household International 5,200 216,125
MGIC Investment 4,500 204,750
US Bancorp 13,000 250,250
----------------
973,725
---------------------------------------------------------------------------
HEALTH TECHNOLOGY - 14.7%
Abbott Laboratories 7,000 311,938
Allergan 2,200 163,900
Baxter International 5,000 351,562
Medtronic 8,600 428,388
St. Jude Medical 6,500 298,188
Sybron International (b) 11,000 217,937
----------------
1,771,913
---------------------------------------------------------------------------
PROCESS INDUSTRIES - 3.9%
AptarGroup 8,800 237,600
Bemis Company 6,800 228,650
----------------
466,250
---------------------------------------------------------------------------
PRODUCER MANUFACTURING - 8.2%
Avery Dennison 4,000 268,500
Minnesota Mining & Manufacturing 4,500 371,250
Pentair 10,000 355,000
----------------
994,750
---------------------------------------------------------------------------
Market
Quantity Value (a)
---------------------------------------------------------------------------
RETAIL TRADE - 4.8%
Target 4,300 $ 249,400
Walgreen 10,300 331,531
-----------------
580,931
---------------------------------------------------------------------------
TECHNOLOGY SERVICES - 9.0%
America Online (b) 3,100 163,525
CDW Computer Centers (b) 2,200 137,500
DST Systems (b) 3,900 296,887
IntraNet Solutions (b) 12,700 487,362
-----------------
1,085,274
---------------------------------------------------------------------------
TELECOMMUNICATION TECHNOLOGY - 13.1%
ADC Telecommunications (b) 7,500 629,063
Commscope (b) 3,500 143,500
Motorola 8,100 235,406
Tekelec (b) 4,500 216,844
Telephone & Data Systems 3,600 360,900
-----------------
1,585,713
---------------------------------------------------------------------------
TRANSPORTATION - 1.4%
C.H. Robinson Worldwide 3,400 168,300
===========================================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $8,689,910) .................................... $ 10,050,825
===========================================================================
SHORT - TERM SECURITIES - 15.6%
Principal Market
Rate Amount/Shares Value (a)
---------------------------------------------------------------------------
DEMAND NOTES - 11.5% (d)
General Mills (CONSUMER NON-DURABLES)
6.28% $ 396,326 $ 396,326
Sara Lee (CONSUMER NON-DURABLES)
6.27% 490,987 490,987
Wisconsin Electric (UTILITIES)
6.31% 502,519 502,519
-----------------
1,389,832
---------------------------------------------------------------------------
INVESTMENT COMPANY - 4.1%
Firstar Institutional Money Market Fund
6.27% 493,591 493,591
===========================================================================
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES
(COST: $1,883,423) .................................... $ 1,883,423
===========================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $10,573,333) (e)................................ $ 11,934,248
===========================================================================
OTHER ASSETS AND LIABILITIES (NET) - 1.1%
....................................................... $ 137,436
===========================================================================
TOTAL NET ASSETS
....................................................... $ 12,071,684
===========================================================================
SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS ON PAGE 10
6
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
IAI BALANCED PORTFOLIO
JUNE 30, 2000
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
COMMON STOCKS - 58.3%
Market
Quantity Value (a)
---------------------------------------------------------------------------
COMMERCIAL SERVICES - 0.8%
Amdocs (b) 380 $ 29,165
---------------------------------------------------------------------------
CONSUMER NON-DURABLES - 1.8%
Colgate-Palmolive 340 20,358
PepsiCo 970 43,104
----------------
63,462
---------------------------------------------------------------------------
CONSUMER SERVICES - 2.4%
Clear Channel Communications (b) 475 35,625
Comcast-Special Class A (b) 575 23,288
Time Warner 340 25,840
----------------
84,753
---------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY - 12.6%
Analog Devices (b) 455 34,580
Applied Materials (b) 325 29,453
Cisco Systems (b) 935 59,431
EMC (b) 430 33,083
Flextronics International (b) 1,170 80,364
Intel 655 87,565
JDS Uniphase (b) 170 20,379
Palm (b) 675 22,528
Sun Microsystems (b) 415 37,739
Synopsys (b) 1,190 41,129
----------------
446,251
---------------------------------------------------------------------------
ENERGY MINERALS - 4.1%
Chevron 240 20,355
Exxon Mobil 685 53,772
Halliburton 735 34,683
Schlumberger 340 25,373
Texaco 190 10,118
----------------
144,301
---------------------------------------------------------------------------
FINANCIAL - 6.0%
American International Group 265 31,138
Bank of America 440 18,920
Charles Schwab 895 30,094
The Chase Manhattan 405 18,655
Citigroup 705 42,476
Federal home Loan Mortgage 615 24,907
Mellon Financial 635 23,138
Wells Fargo 620 24,025
----------------
213,353
---------------------------------------------------------------------------
HEALTH SERVICES - 1.8%
Cardinal Health 870 64,380
---------------------------------------------------------------------------
Market
Quantity Value (a)
---------------------------------------------------------------------------
HEALTH TECHNOLOGY - 6.9%
Baxter International 405 $ 28,477
Bristol-Myers Squibb 340 19,805
Eli Lilly 400 39,950
Medtronic 1,235 61,518
Pfizer 1,003 48,144
Schering Plough 930 46,965
---------------
244,859
---------------------------------------------------------------------------
PROCESS INDUSTRIES - 3.0%
General Electric 1,575 83,475
Praxair 625 23,398
---------------
106,873
---------------------------------------------------------------------------
PRODUCER MANUFACTURING - 2.2%
Tyco International, foreign 1,620 76,748
---------------------------------------------------------------------------
RETAIL TRADE - 5.0%
CVS 700 28,000
Dollar General 2,162 42,159
The Gap 865 27,031
Lowe's Companies 575 23,611
Target 475 27,550
Wal-Mart Stores 520 29,965
---------------
178,316
---------------------------------------------------------------------------
TECHNOLOGY SERVICES - 5.3%
America Online (b) 620 32,705
Global Crossing, foreign (b) 1,200 31,575
Microsoft (b) 945 75,600
Oracle (b) 565 47,495
---------------
187,375
---------------------------------------------------------------------------
TELECOMMUNICATION TECHNOLOGY - 3.8%
Lucent Technologies 955 56,584
Motorola 570 16,566
Nortel Networks 480 32,760
Worldcom (b) 635 29,131
---------------
135,041
---------------------------------------------------------------------------
UTILITIES - 2.6%
AT&T 667 21,094
Bell Atlantic 630 32,012
Enron 380 24,510
Sprint 300 15,300
---------------
92,916
===========================================================================
TOTAL INVESTMENTS IN COMMON STOCKS
(COST: $1,837,725) ...................................... $ 2,067,793
===========================================================================
SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS ON PAGE 10
7
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
IAI BALANCED PORTFOLIO
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT & GOVERNMENT AGENCY OBLIGATIONS - 40.0%
Principal Market
Rate Maturity Amount Value (a)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY NOTES - 18.2%
6.13 % 09/30/00 $ 25,000 $ 25,000
5.38 02/15/01 50,000 49,672
8.00 05/15/01 25,000 25,320
7.50 11/15/01 50,000 50,641
6.25 01/31/02 75,000 74,719
7.50 05/15/02 70,000 71,291
5.63 12/31/02 75,000 73,664
6.25 02/15/03 75,000 74,789
6.00 08/15/09 100,000 99,187
6.50 02/15/10 100,000 103,406
---------------
647,689
--------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY BONDS - 7.7%
7.50 11/15/16 35,000 39,419
8.88 02/15/19 95,000 122,016
5.25 02/15/29 125,000 110,899
---------------
272,334
--------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 14.1%
Fannie Mae 5.63 03/15/01 25,000 24,794
Fannie Mae 7.13 02/15/05 45,000 45,156
Fannie Mae 6.40 05/14/09 50,000 46,602
Fannie Mae 6.21 08/06/38 35,000 31,184
Federal Farm Credit Bank 5.57 03/23/01 110,000 109,035
Freddie Mac 6.25 10/15/02 50,000 49,283
Inter - American Development Bank 5.63 04/16/09 215,000 193,231
---------------
499,285
================================================================================================================================
TOTAL INVESTMENTS IN U.S. GOVERNMENT & GOVERNMENT AGENCY OBLIGATIONS
(COST: $1,448,082) .......................................................................................... $ 1,419,308
================================================================================================================================
<CAPTION>
SHORT TERM SECURITY - 1.0%
Market
Rate Shares Value (a)
--------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY
Firstar Institutional Money Market 6.27 % 36,082 $ 36,082
================================================================================================================================
TOTAL INVESTMENT IN SHORT-TERM SECURITY
(COST: $36,082)............................................................................................... $ 36,082
================================================================================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $3,321,889) (e) ...................................................................................... $ 3,523,183
================================================================================================================================
OTHER ASSETS AND LIABILITIES (NET) - 0.7%
.............................................................................................................. $ 24,776
================================================================================================================================
TOTAL NET ASSETS
.............................................................................................................. $ 3,547,959
================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS ON PAGE 10
8
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
IAI RESERVE PORTFOLIO
JUNE 30, 2000
(UNAUDITED)
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AGENCY OBLIGATIONS - 71.7%
Principal Market
Rate Maturity Amount Value (a)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS - 71.7%
Fannie Mae 5.63 03/15/01 $ 90,000 $ 89,259
Federal Farm Credit Bank 5.13 04/02/01 75,000 74,055
Federal Home Loan Bank 5.13 04/17/01 140,000 138,127
Freddie Mac 6.00 07/20/01 125,000 123,813
-------------
425,254
================================================================================================================================
TOTAL INVESTMENTS IN U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST: $429,633) .............................................................................................. $ 425,254
================================================================================================================================
<CAPTION>
SHORT-TERM SECURITIES - 22.4%
Principal Market
Rate Amount/Shares Value (a)
--------------------------------------------------------------------------------------------------------------------------------
DEMAND NOTES - 13.6% (d)
General Mills (CONSUMER NON-DURABLES) 6.28 % $ 26,925 $ 26,925
Sara Lee (CONSUMER NON-DURABLES) 6.27 26,901 26,901
Wisconsin Electric (UTILITIES) 6.31 26,911 26,911
-------------
80,737
--------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 8.8%
Firstar Institutional Money Market 6.27 26,912 26,912
Firstar US Government Money Market 5.74 25,474 25,474
-------------
52,386
================================================================================================================================
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES
(COST: $133,123)................................................................................................ $ 133,123
================================================================================================================================
TOTAL INVESTMENTS IN SECURITIES
(COST: $562,756) (e) ........................................................................................... $ 558,377
================================================================================================================================
OTHER ASSETS & LIABILITIES (NET) - 5.9%
................................................................................................................ $ 35,235
================================================================================================================================
TOTAL NET ASSETS
............................................................................................................... $ 593,612
================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS ON PAGE 10
9
<PAGE>
--------------------------------------------------------------------------------
NOTES TO SCHEDULES OF INVESTMENTS
--------------------------------------------------------------------------------
IAI RETIREMENT FUNDS, INC.
JUNE 30, 2000
(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 security.
(c)
This security pays no coupon interest and the principal amount is paid at
maturity. Interest rate shown represents yield-to-maturity at date of purchase.
(d)
Variable rate demand notes are considered short-term obligations and are payable
on demand. Interest rates change periodically on specified dates. The rates
listed are as of June 30, 2000.
(e)
At June 30, 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:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
IAI REGIONAL IAI BALANCED IAI RESERVE
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost for federal income tax purposes $ 10,573,333 $ 3,321,889 $ 562,756
=======================================================
Gross unrealized appreciation $ 1,772,810 $ 403,991 $ --
Gross unrealized depreciation (411,895) (202,697) (4,379)
-------------------------------------------------------
Net unrealized appreciation (depreciation) $ 1,360,915 $ 201,294 $ (4,379)
=======================================================
-----------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
--------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
IAI RETIREMENT FUNDS, INC.
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
IAI REGIONAL IAI BALANCED IAI RESERVE
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at market
(Cost: $10,573,333; $3,321,889; and $562,756, respectively) $ 11,934,248 $ 3,523,183 $ 558,377
Cash -- 8 29,144
Receivable for investment securities sold 146,214 -- --
Dividends and accrued interest receivable 9,803 25,508 7,946
Receivable from Advisers -- 2,615 2,862
--------------------------------------------------------
TOTAL ASSETS 12,090,265 3,551,314 598,329
--------------------------------------------------------
LIABILITIES
Bank overdraft 58 -- --
Payable to Advisers 7,223 -- --
Accrued other expenses 11,300 3,355 4,717
--------------------------------------------------------
TOTAL LIABILITIES 18,581 3,355 4,717
--------------------------------------------------------
NET ASSETS $ 12,071,684 $ 3,547,959 $ 593,612
========================================================
NET ASSETS REPRESENTED BY:
Paid in capital $ 9,800,990 $ 3,308,377 $ 599,943
Undistributed net investment income 31,680 37,411 442
Accumulated net realized gains (losses) on investments 878,099 877 (2,394)
Unrealized appreciation (depreciation) on investments 1,360,915 201,294 (4,379)
--------------------------------------------------------
NET ASSETS
$ 12,071,684 $ 3,547,959 $ 593,612
========================================================
Shares of common stock outstanding; authorized 10 billion
shares of $.01 par value stock 737,635 255,533 60,211
--------------------------------------------------------
NET ASSET VALUE PER SHARE OF OUTSTANDING CAPITAL STOCK $ 16.37 $ 13.88 $ 9.86
========================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 19
11
<PAGE>
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
IAI RETIREMENT FUNDS, INC.
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
IAI REGIONAL IAI BALANCED IAI RESERVE
PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Income:
Interest $ 45,736 $ 48,386 $ 17,058
Dividends 44,056 6,949 --
--------------------------------------------------------
TOTAL INCOME 89,792 55,335 17,058
--------------------------------------------------------
Expenses:
Investment advisory fees 41,099 11,689 1,383
Dividend-disbursing, administrative, and accounting fees 6,318 1,805 307
Custodian fees 2,730 2,148 1,274
Compensation of Directors 5,216 1,487 352
Professional fees 2,366 604 --
Printing and shareholder reporting -- 2 182
Other expenses 364 180 12
--------------------------------------------------------
TOTAL EXPENSES 58,093 17,915 3,510
Less fees reimbursed or waived by Advisers -- -- --
--------------------------------------------------------
NET EXPENSES 58,093 17,915 3,510
--------------------------------------------------------
NET INVESTMENT INCOME 31,699 37,420 13,548
--------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
Net realized gains (losses) on investments 878,568 4,533 (2,375)
Net change in unrealized appreciation or depreciation on
investment securities (356,751) 26,195 2,049
--------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS 521,817 30,728 (326)
--------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 553,516 $ 68,148 $ 13,222
========================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 19
12
<PAGE>
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
IAI RETIREMENT FUNDS, INC.
IAI REGIONAL PORTFOLIO
<TABLE>
<CAPTION>
Period ended
June 30, 2000 Year ended
(UNAUDITED) December 31, 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 31,699 $ 40,242
Net realized gains 878,568 1,750,580
Net change in unrealized appreciation (depreciation) (356,751) 386,266
-------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 553,516 2,177,088
-------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (40,338) (85,157)
Net realized gains (1,750,140) (156,639)
-------------------------------------
TOTAL DISTRIBUTIONS (1,790,478) (241,796)
-------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from sale of 26,254 and 26,934 shares 490,553 434,657
Net asset value of 107,795 and 15,188 shares issued
in reinvestment of distributions 1,790,477 241,796
Cost of 131,677 and 310,547 shares redeemed (2,377,484) (4,944,742)
-------------------------------------
DECREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (96,454) (4,268,289)
-------------------------------------
TOTAL DECREASE IN NET ASSETS (1,333,416) (2,332,997)
NET ASSETS AT BEGINNING OF PERIOD 13,405,100 15,738,097
-------------------------------------
NET ASSETS AT END OF PERIOD $ 12,071,684 $ 13,405,100
=====================================
Including undistributed net investment income of: $ 31,680 $ 40,319
=====================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 19
13
<PAGE>
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
IAI RETIREMENT FUNDS, INC.
IAI BALANCED PORTFOLIO
<TABLE>
<CAPTION>
Period ended
June 30, 2000 Year ended
(UNAUDITED) December 31, 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 37,420 $ 97,676
Net realized gains 4,533 276,158
Net change in unrealized appreciation (depreciation) 26,195 (233,992)
-------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 68,148 139,842
-------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (97,756) (81,592)
Net realized gains (278,072) (130,562)
-------------------------------------
TOTAL DISTRIBUTIONS (375,828) (212,154)
-------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from sale of 8,445 and 66,993 shares 127,752 1,017,054
Net asset value of 27,254 and 14,403 shares issued
in reinvestment of distributions 375,827 212,154
Cost of 30,375 and 56,153 shares redeemed (463,260) (850,999)
-------------------------------------
INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS 40,319 378,209
-------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (267,361) 305,897
NET ASSETS AT BEGINNING OF PERIOD 3,815,320 3,509,423
-------------------------------------
NET ASSETS AT END OF PERIOD $ 3,547,959 $ 3,815,320
=====================================
Including undistributed net investment income of: $ 37,411 $ 97,747
=====================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 19
14
<PAGE>
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
IAI RETIREMENT FUNDS, INC.
IAI RESERVE PORTFOLIO
<TABLE>
<CAPTION>
Period ended
June 30, 2000 Year ended
(UNAUDITED) December 31, 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 13,548 $ 29,606
Net realized gains (2,375) (19)
Net change in unrealized appreciation (depreciation) 2,049 (10,649)
-------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 13,222 18,938
-------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (21,403) (24,455)
Net realized gains -- (1,262)
-------------------------------------
TOTAL DISTRIBUTIONS (21,403) (25,717)
-------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from sale of 2,819 and 15,865 shares 27,949 280,059
Net asset value of 2,181 and 1,592 shares issued
in reinvestment of distributions 21,403 25,717
Cost of 9,065 and 9,295 shares redeemed (89,475) (291,357)
-------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (40,123) 14,419
-------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (48,304) 7,640
NET ASSETS AT BEGINNING OF PERIOD 641,916 634,276
-------------------------------------
NET ASSETS AT END OF PERIOD $ 593,612 $ 641,916
=====================================
Including undistributed net investment income of: $ 442 $ 8,297
=====================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 19
15
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
IAI RETIREMENT FUNDS, INC.
IAI REGIONAL PORTFOLIO
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>
Six months ended Years ended December 31,
June 30, 2000 ---------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 18.23 $ 15.68 $ 16.31 $ 15.02 $ 14.16 $ 10.62
------------------------------------------------------------------------
OPERATIONS
Net investment income 0.05 0.05*** 0.08 0.08 0.05 0.06
Net realized and unrealized gains 0.81 2.79 0.18 1.90 1.60 3.50
------------------------------------------------------------------------
TOTAL FROM OPERATIONS 0.86 2.84 0.26 1.98 1.65 3.56
------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.06) (0.10) (0.09) (0.07) (0.05) (0.02)
Net realized gains (2.66) (0.19) (0.80) (0.62) (0.74) --
------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (2.72) (0.29) (0.89) (0.69) (0.79) (0.02)
------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 16.37 $ 18.23 $ 15.68 $ 16.31 $ 15.02 $ 14.16
========================================================================
Total investment return* 4.54% 18.37% 1.56% 13.45% 11.88% 33.51%
Net assets at end of period (000's omitted) $12,072 $13,405 $15,738 $17,085 $11,831 $ 5,105
RATIOS:
Expenses to average daily net assets** 0.92%**** 0.88% 0.94% 0.90% 1.03% 1.37%
Net investment income to average daily net assets** 0.50%**** 0.29% 0.50% 0.65% 0.77% 1.12%
Portfolio turnover rate (excluding short-term securities 121.9% 123.4% 74.3% 62.1% 78.4% 156.0%
</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 PORTFOLIO'S ADVISER VOLUNTARILY WAIVED $6,737 IN EXPENSES FOR THE YEAR
ENDED DECEMBER 31, 1995. IF THE PORTFOLIO HAD BEEN CHARGED THESE EXPENSES,
THE RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN 1.64% AND
THE RATIO OF NET INVESTMENT INCOME TO AVERAGE DAILY NET ASSETS WOULD HAVE
BEEN 0.85%.
*** NET INVESTMENT INCOME PER SHARE REPRESENTS NET INVESTMENT INCOME DIVIDED BY
THE AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
**** ANNUALIZED.
16
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
IAI RETIREMENT FUNDS, INC.
IAI BALANCED PORTFOLIO
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>
Six months ended Years ended December 31,
June 30, 2000 ------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $15.25 $15.60 $14.29 $12.71 $11.78 $10.22
----------------------------------------------------------------------
OPERATIONS
Net investment income 0.16*** 0.41*** 0.31 0.27 0.22 0.09
Net realized and unrealized gains 0.10 0.16 1.40 1.81 0.92 1.56
----------------------------------------------------------------------
TOTAL FROM OPERATIONS 0.26 0.57 1.71 2.08 1.14 1.65
----------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.42) (0.35) (0.26) (0.24) (0.10) (0.09)
Net realized gains (1.21) (0.57) (0.14) (0.26) (0.11) --
----------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.63) (0.92) (0.40) (0.50) (0.21) (0.09)
----------------------------------------------------------------------
NET ASSET VALUE
End of period $13.88 $15.25 $15.60 $14.29 $12.71 $11.78
======================================================================
Total investment return* 2.06% 3.87% 12.11% 16.60% 9.80% 16.21%
Net assets at end of period (000's omitted) $3,548 $3,815 $3,509 $2,446 $1,534 $ 764
RATIOS:
Expenses to average daily net assets** 1.00%**** 0.97% 1.02% 1.25% 1.25% 1.70%
Net investment income to average daily net assets** 2.08%**** 2.70% 2.69% 2.63% 2.84% 2.34%
Portfolio turnover rate (excluding short-term securities) 41.2% 126.1% 40.9% 38.8% 67.4% 56.0%
</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 PORTFOLIO'S ADVISER VOLUNTARILY WAIVED $793, $10,627, $1,753, $8,031,
AND $13,428 IN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1999, 1998, 1997,
1996, AND 1995, RESPECTIVELY. IF THE PORTFOLIO HAD BEEN CHARGED THESE
EXPENSES, THE RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN
0.99%, 1.37%, 1.34%, 1.96%, AND 5.29%, RESPECTIVELY, AND THE RATIO OF NET
INVESTMENT INCOME (LOSS) TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN 2.68%,
2.34%, 2.54%, 2.13% AND (1.25%), RESPECTIVELY.
*** NET INVESTMENT INCOME PER SHARE REPRESENTS NET INVESTMENT INCOME DIVIDED BY
THE AVERAGE SHARES OUTSTANDING THROUGHOUT THE YEAR.
**** ANNUALIZED.
17
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
IAI RETIREMENT FUNDS, INC.
IAI RESERVE PORTFOLIO
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>
Six months ended Years ended December 31,
June 30, 2000 -----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 9.99 $10.08 $10.00 $10.03 $10.05 $10.03
--------------------------------------------------------------------
OPERATIONS
Net investment income 0.22 0.44 0.47 0.43 0.49 0.48
Net realized and unrealized gains (losses) (0.01) (0.16) 0.06 0.02 (0.01) 0.02
--------------------------------------------------------------------
TOTAL FROM OPERATIONS 0.21 0.28 0.53 0.45 0.48 0.50
--------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.34) (0.35) (0.45) (0.46) (0.50) (0.48)
Net realized gains -- (0.02) -- (0.02) -- --
--------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.34) (0.37) (0.45) (0.48) (0.50) (0.48)
--------------------------------------------------------------------
NET ASSET VALUE
End of period $ 9.86 $ 9.99 $10.08 $10.00 $10.03 $10.05
====================================================================
Total investment return* 3.22% 2.89% 5.46% 4.62% 4.93% 5.09%
Net assets at end of period (000's omitted) $ 594 $ 642 $ 634 $1,021 $ 528 $ 844
RATIOS:
Expenses to average daily net assets** 1.14%**** 1.01% 0.68% 0.85% 0.85% 1.03%
Net investment income to average daily net assets** 4.41%**** 4.32% 4.57% 4.57% 4.54% 4.84%
Portfolio turnover rate (excluding short-term securities) 0.0% 120.9% 129.0% 0.0% 185.3% 0.0%
</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 PORTFOLIO'S ADVISER VOLUNTARILY WAIVED $4,474, $7,960, $8,479, $9,034
AND $11,528 IN EXPENSES FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997,
1996, AND 1995, RESPECTIVELY. IF THE PORTFOLIO HAD BEEN CHARGED THESE
EXPENSES, THE RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN
1.66%, 1.69%, 2.25%, 1.81% AND 2.62%, RESPECTIVELY, AND THE RATIO OF NET
INVESTMENT INCOME TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN 3.66%, 3.56%,
3.17%, 3.58% AND 3.25%, RESPECTIVELY.
**** ANNUALIZED.
18
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
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IAI RETIREMENT FUNDS INC.
JUNE 30, 2000
(UNAUDITED)
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IAI Retirement Funds, Inc. is registered under the Investment Company Act of
1940 (as amended) as a diversified, open-end management investment company. IAI
Regional Portfolio (Regional Portfolio), IAI Balanced Portfolio (Balanced
Portfolio) and IAI Reserve Portfolio (Reserve Portfolio) are separate portfolios
of IAI Retirement Funds, Inc. Portfolio shares are not offered directly to the
public, but sold only to selected insurance companies' separate accounts in
connection with variable life insurance policies or variable annuity contracts.
The Regional Portfolio has a primary objective of long-term appreciation through
investments in equity securities. The Balanced Portfolio has a primary objective
of maximum total return through investment in stocks, bonds and short-term
instruments. The Reserve Portfolio has a primary objective of providing a high
level of current income consistent with the preservation of capital and
liquidity. This report covers only the Regional Portfolio, Balanced Portfolio
and Reserve Portfolio (the Portfolios).
Significant accounting policies followed by the Portfolios are summarized below:
SECURITY VALUATION
Portfolio securities are valued at the close of the New York Stock Exchange on
each trading day. Listed and unlisted securities for which such information is
regularly reported are valued at the last sale price of the day or, in the
absence of sales, at values based on the closing bid or the last sale price on
the prior trading day. Long-term and short-term "non-money market" debt
securities are valued by a portfolio pricing service. Securities which cannot be
valued by the portfolio pricing service are valued using dealer-supplied
valuations, or are valued under consistently applied procedures established by
the Board of Directors to determine fair value in good faith. Short-term "money
market type" debt securities having a remaining maturity of 60 days or less at
acquisition are valued at cost adjusted for amortization to maturity of any
premium or discount.
FEDERAL TAXES
Since it is each Portfolio's policy to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all taxable income to shareholders, no provision for income taxes is
required.
Net investment income and net realized gains may differ for financial statement
and tax purposes primarily because of the deferral of "wash sale" losses for tax
purposes. The character of distributions made during the year for net investment
income or net realized gains may also differ from its ultimate characterization
for tax purposes.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
The Portfolios 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, including level yield amortization of discount, is
accrued daily. 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 annually for Regional Portfolio and Balanced
Portfolio and monthly for Reserve Portfolio. Capital gains, if any, are
primarily distributed in June. 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.
19
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NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IAI RETIREMENT FUNDS INC.
JUNE 30, 2000
(UNAUDITED
[2] COMMITMENTS AND CONTINGENCIES
Regional Portfolio, Balanced Portfolio and Reserve Portfolio, 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
Portfolios. 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 Portfolios. During the six months ended June 30, 2000, the
Portfolios did not access the line of credit.
[3] FEES AND EXPENSES
Under the terms of an investment advisory agreement, Regional Portfolio,
Balanced Portfolio and Reserve Portfolio pay Investment Advisers, Inc.
(Advisers) an advisory fee based upon average daily net assets equal, on an
annual basis, to .65%, .65% and .45%, respectively.
Each Portfolio also pays an annual fee to Advisers for acting as the Portfolios'
dividend-disbursing, administrative, and accounting services agent. The fee is
based on an annual rate of .10% of average daily net assets for each Portfolio.
In addition to the advisory fees, the Portfolios are responsible for paying
their operating expenses, including costs incurred in the purchase and sale of
assets.
[4] INVESTMENT TRANSACTIONS
PURCHASES AND SALES OF SECURITIES
For the year ended June 30, 2000, purchases of securities and sales proceeds,
other than investments in short-term securities for the Portfolios, were as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
PURCHASES PURCHASES SALES SALES
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IAI REGIONAL PORTFOLIO $ -- $13,351,813 $ -- $15,492,848
IAI BALANCED PORTFOLIO $ 625,484 $ 967,072 $ 476,074 $ 925,235
IAI RESERVE PORTFOLIO $ -- -- $ 99,234 --
-------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
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
[LOGO] IAI
MUTUAL FUNDS
IAI Mutual Funds
c/o Firstar Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin
53201-0701 USA
800.945.3863
