As filed with the Securities and Exchange Commission on October 16, 1996
1933 Act Registration No. 33-
1940 Act Registration No. 811-
SECURITIES AND EXCHANGE COMMISSION
- ------------------------------------------------------------------------------
Washington, DC 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
___
Pre-Effective Amendment No. ___
Post-Effective Amendment No. ___
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
___
Amendment No. ___
LIFEUSA FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
3700 First Bank Place, P.O. Box 357
Minneapolis, Minnesota 55440
(Address of Principal Executive Offices)(Zip Code)
(612) 376-2700
(Registrant's Telephone Number, including Area Code)
Christopher J. Smith Copy to:
Investment Advisers, Inc. Michael J. Radmer, Esq.
3700 First Bank Place Dorsey & Whitney
P.O. Box 357 220 South Sixth Street
Minneapolis, Minnesota 55440 Minneapolis, Minnesota 55402
(Name and Address of Agent for Service)
Approximate date of proposed public offering:
As soon as practicable after the effective date of this
Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
----------------------------------------------------------------
Title of Proposed Proposed
Securities Amount Maximum Maximum Amount of
Being Being Offering Price Aggregate Registration
Registered Registered Par Unit Offering Price Fee
- ------------------------------------------------------------------------------
Common Stock
$.01 par value * * * $500
- -------------------------------------------------------------------------------
*Pursuant to Regulation 270.24f-2 under the Investment Company Act of 1940,
Registrant hereby elects to register an indefinite number of shares of its
Common Stock.
The Registrant hereby amends this Registration Statement under the
Securities Act of 1933 on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with the provisions of Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.
<PAGE>
LIFEUSA FUNDS, INC.
FORM N-1A
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number Caption Prospectus Caption
- ----------- ------- ------------------------------
<S> <C> <C>
1 Cover Page Cover Page of Prospectus
2 Synopsis Fund Expense Information
3 Condensed Financial Information Investment Performance
4 General Description of Registrant Investment Objectives and Policies,
Description of Common Stock; Additional Information
5 Management of the Fund Fund Expense Information; Management; Additional Information;
Custodian, Transfer Agent and Dividend Disburing Agent
5A Management's Discussion of Fund Not Applicable
Performance
6 Capital Stock and Other Securities Dividends, Distributions and Tax Status; Description of
Common Stock; Additional Information
7 Purchase of Securities Being Offered Computation of Net Asset Value and Pricing; Purchase of
Shares; Systematic Investment Plan; Group Systematic Investment
Plan; Group Purchases; Automatix Investment Plan; Exchange Privilege;
Retirement Plans; Authorized Telephone Trading
8 Redemption or Repurchase Redemption of Shares; Systematic Cash Withdrawal Plan;
Exchange Privilege; Authorized Telephone Trading
9 Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item Number Caption Statement of Additional Information Caption
- ----------- ------- -------------------------------------------
<S> <C> <C>
10 Cover Page Cover Page of Statement of Additional Information
11 Table of Contents Table of Contents
12 General Information and History Management
13 Investment Objectives and Policies Investment Objectives and Policies; Investment Restrictions
14 Management of the Fund Management
15 Control Persons and Principal Holders
of Securities Management; Capital Stock
16 Investment Advisory and Other Services Management; Prior Agreements; Custodian; Counsel and Auditors;
Transfer Agent and Dividend Disbursing Agent
17 Brokerage Allocation Portfolio Transactions and Allocation of Brokerage
18 Capital Stock and Other Securities Capital Stock
19 Purchase, Redemption and Pricing of
Securities Being Offered Net Asset Value and Public Offering Price
20 Tax Status Tax Status
21 Underwriters Plan of Distribution
22 Calculation of Performance Data Investment Performance
23 Financial Statements Financial Statements
</TABLE>
Prospectus Dated January 1, 1997
LIFEUSA FUNDS, INC.
3700 First Bank Place
P.O. Box _____
Minneapolis, Minnesota 55440
Telephone 1-612-___ - _______
1-800-___ - _______
LifeUSA Funds, Inc. (the "Fund") is an open-end management investment company
consisting of the following six separate diversified investment portfolios (each
a "Portfolio" and, together, the "Portfolios"): LifeUSA Aggressive Growth
Portfolio, LifeUSA Growth Portfolio, LifeUSA Global Portfolio, LifeUSA Balanced
Portfolio, LifeUSA Current Income Portfolio and LifeUSA Principal Preservation
Portfolio. Each Portfolio offers investors a convenient means of investing in
shares of certain mutual funds (the "Underlying Funds") within certain
predetermined percentage ranges.
This Prospectus sets forth concisely the information which a prospective
investor should know about the Portfolios before investing and it should be
retained for future reference. A "Statement of Additional Information" dated
January 1, 1997, which provides a further discussion of certain areas in this
Prospectus and other matters which may be of interest to some investors, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy, call or write the Fund at the address or
telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
FUND EXPENSE INFORMATION..................................................3
INVESTMENT OBJECTIVES AND POLICIES........................................4
PRINCIPAL PORTFOLIO RISK FACTORS..........................................7
DESCRIPTION OF UNDERLYING FUNDS...........................................9
MANAGEMENT................................................................15
DISTRIBUTION OF FUND SHARES...............................................15
COMPUTATION OF NET ASSET VALUE AND PRICING................................16
PURCHASE OF SHARES........................................................16
SYSTEMATIC INVESTMENT PLAN................................................18
GROUP SYSTEMATIC INVESTMENT PLAN..........................................18
GROUP PURCHASES...........................................................19
AUTOMATIC INVESTMENT PLAN.................................................19
REDEMPTION OF SHARES......................................................19
EXCHANGE PRIVILEGE........................................................22
AUTHORIZED TELEPHONE TRADING..............................................22
SYSTEMATIC CASH WITHDRAWAL PLAN...........................................23
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS...................................23
INVESTMENT PERFORMANCE....................................................24
RETIREMENT PLANS..........................................................25
DESCRIPTION OF COMMON STOCK...............................................25
COUNSEL AND AUDITORS......................................................26
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT...................26
ADDITIONAL INFORMATION....................................................26
APPENDIX..................................................................A-1
</TABLE>
-2-
<PAGE>
PORTFOLIO EXPENSE INFORMATION
<TABLE>
<CAPTION>
Aggressive Current Principal
Shareholder Transaction Expenses Growth Growth Global Balanced Income Preservation
- ---------------------------------------- ------------- ---------- --------- ------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed
on Purchases 5.75% 5.75% 5.75% 5.75% 5.75% None
Sales Load Imposed
on Reinvested Dividends None None None None None None
Redemption Fees None None None None None None
Exchange Fees None None None None None None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of Aggressive Current Principal
average daily net assets) Growth Growth Global Balanced Income Preservation
- ---------------------------------------- ------------- ---------- --------- ------------ ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Management Fee None None None None None None
Rule 12b-1 Fee* 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses** 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Total Fund Operating Expenses*** 0.65% 0.65% 0.65% 0.65% 0.65% 0.65%
- ----------------------------------------
</TABLE>
* After fee waiver
** After expense reimbursement
*** After 12b-1 fee waiver and expense reimbursement
LifeUSA Securities, Inc., the Portfolios' principal underwriter, has
voluntarily agreed to waive the Rule 12b-1 Fee in excess of .50% of each
Portfolio's average daily net assets until May 1, 1998. Absent such voluntarily
waiver, each Portfolio would pay .75% of its average daily net assets as the
Rule 12b-1 Fee. The figures for Other Expenses set forth in the table above are
based on estimated amounts for the current fiscal year. Absent the Adviser's
voluntary reimbursement of Other Expenses in excess of 0.15%, each Portfolio
would pay 0.32% of its average daily net assets as Other Expenses. Absent the
Rule 12b-1 Fee waiver and the reimbursement of Other Expenses, each Portfolio's
Total Fund Operating Expenses, as a percentage of average daily net assets,
would be 0.82%.
Besides the Total Fund Operating Expenses set forth above, each Portfolio
will also indirectly pay its pro rata share of the fees and expenses incurred by
the Underlying Funds. The investment returns of each Portfolio, therefore, will
be net of the expenses of the Underlying Funds in which it invests. The
following chart shows the expense ratio (as of September 30, 1996 and including
net of voluntary fee waivers) of each of the Underlying Funds in which the
Portfolios may invest.
<TABLE>
<CAPTION>
Underlying Fund Expense Ratio
----------------------------------- ------------------------
<S> <C>
IAI Bond Fund 1.10%
IAI Capital Appreciation Fund* 1.25%
IAI Developing Countries Fund 2.00%
IAI Government Fund 1.10%
IAI Growth Fund 1.25%
IAI Growth and Income Fund 1.25%
IAI International Fund 1.65%
IAI Latin America Fund* 2.00%
IAI Midcap Growth Fund 1.25%
IAI Money Market Fund .60%
IAI Regional Fund 1.21%
IAI Reserve Fund .85%
IAI Value Fund 1.25%
</TABLE>
-3-
<PAGE>
__________________________________
* Absent voluntary fee waivers, the expense ratios of IAI Capital
Appreciation Fund would be 1.40% and IAI Latin America Fund would
be 3.00%.
Based on a weighted average of the expense ratios of the Underlying Funds
in which each Portfolio is expected to invest at the commencement of investment
operations, the approximate expense ratio for each Portfolio is expected to be
as follows: LifeUSA Aggressive Growth Portfolio 1.88%, LifeUSA Growth Portfolio
1.90%, LifeUSA Global Portfolio 2.38%, LifeUSA Balanced Portfolio 2.37%, LifeUSA
Current Income Portfolio 1.40% and LifeUSA Principal Preservation Portfolio
1.25%.
Example:
Based upon the levels of total Portfolio operating expenses listed
above as well as the pro rata share of the expenses of the Underlying Funds
(also as listed above), you would pay the following expenses on a $1,000
investment, assuming a five percent annual return and redemption at the end of
each period:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
LifeUSA Aggressive Growth Portfolio 19 59
LifeUSA Growth Portfolio 19 60
LifeUSA Global Portfolio 24 74
LifeUSA Balanced Portfolio 24 74
LifeUSA Current Income Portfolio 14 44
LifeUSA Principal Preservation Portfolio 13 40
</TABLE>
The purpose of the above table is to assist you in understanding the
various costs and expenses that an investor in a Portfolio will bear directly or
indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Long term investors may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the National Association of Sales
Dealers, Inc. rules regarding investment companies.
FUND DIRECTORS
Madeline Betsch Richard E. Struthers
W. William Hodgson J. Peter Thompson
George R. Long Charles H. Withers
Noel P. Rahn
INVESTMENT OBJECTIVES AND POLICIES
The Fund is an open-end diversified investment company that currently
offers six managed investment portfolios. Each Portfolio seeks to achieve its
investment objective by investing within specified ranges among mutual funds as
set forth below (the "Underlying Funds"). By investing in Underlying Funds, the
Portfolios (except Principal Preservation Portfolio) seek to maintain different
allocations between mutual funds depending on a Portfolio's investment objective
and strategy. Allocating investments between mutual funds permits each such
Portfolio to attempt to optimize performance consistent with its investment
objective. Each Portfolio's investment objective may not be changed without
shareholder approval. There can be no assurance that a Portfolio's investment
objective will be achieved.
-4-
<PAGE>
The investment ranges are based on the degree to which the Underlying Funds
selected are expected in combination to be appropriate for a Portfolio's
particular investment objective and strategy. If, as a result of appreciation or
depreciation, the percentage of a Portfolio's assets invested in an Underlying
Fund exceeds or is less than the applicable percentage limitations set forth
above, the Adviser will consider, in its discretion, whether to re-allocate the
assets of a Portfolio to comply with the limitations. The specific Underlying
Funds in which each Portfolio may invest and the investment ranges applicable to
each Underlying Fund may be changed from time to time by the Fund's Board of
Directors without the approval of a Portfolio's shareholders, provided that this
Prospectus is appropriately supplemented or amended.
LIFEUSA AGGRESSIVE GROWTH PORTFOLIO
The Aggressive Growth Portfolio seeks to provide long-term capital
appreciation by investing in mutual funds that emphasize small to medium-sized
domestic companies. In general, the Aggressive Growth Portfolio should offer
investors the potential for a high level of capital growth, while subjecting
investors to a medium to high level of principal risk. The Aggressive Growth
Portfolio currently intends to invest in the following Underlying Funds within
the percentage ranges set forth below:
<TABLE>
<CAPTION>
Investment Range
(Percent of the Aggressive
Underlying Funds Growth Portfolio's Assets)
---------------- --------------------------
<S> <C>
IAI Capital Appreciation Fund 10 - 80%
IAI Value Fund 10 - 80%
IAI Regional Fund 10 - 80%
</TABLE>
LIFEUSA GLOBAL PORTFOLIO
The Global Portfolio seeks to provide long-term capital appreciation by
investing primarily in mutual funds that emphasize the securities of companies
not located in the United States. The Global Portfolio will also invest in a
mutual fund that emphasizes large domestic companies. In general, the Global
Portfolio should offer investors the potential for a high level of capital
growth while subjecting investors to a high level of principal risk. The Global
Portfolio currently intends to invest in the following Underlying Funds within
the percentage ranges set forth below:
<TABLE>
<CAPTION>
Investment Range
(Percent of the
Underlying Funds Global Portfolio's Assets)
---------------- -------------------------
<S> <C>
IAI International Fund 10 - 70%
IAI Developing Countries Fund 10 - 70%
IAI Latin America Fund 10 - 70%
IAI Growth Fund 10 - 50%
</TABLE>
--5-
<PAGE>
LIFEUSA GROWTH PORTFOLIO
The Growth Portfolio seeks to provide long-term capital appreciation by
investing in mutual funds that emphasize the securities of medium-sized to large
domestic companies. In general, the Growth Portfolio should offer investors the
potential for a low level of income and the potential for a high level of
capital growth, while subjecting investors to a medium to high level of
principal risk. The Growth Portfolio currently intends to invest in the
following Underlying Funds within the percentage ranges set forth below:
<TABLE>
<CAPTION>
Investment Range
(Percent of the
Underlying Funds Growth Portfolio's Assets)
---------------- ------------------------
<S> <C>
IAI Growth Fund 20 - 60%
IAI Growth and Income Fund 20 - 60%
IAI Midcap Growth Fund 20 - 60%
</TABLE>
LIFEUSA BALANCED PORTFOLIO
The Balanced Portfolio seeks to provide long-term capital appreciation
with some level of current income by investing in both equity and fixed income
mutual funds. In general, the Balanced Portfolio should offer investors the
potential for a medium level of income and the potential for a medium level of
capital growth, while subjecting investors to a medium level of principal risk.
The Balanced Portfolio currently intends to invest in the following Underlying
Funds within the percentage ranges set forth below.
<TABLE>
<CAPTION>
Investment Range
(Percent of the
Underlying Funds Balanced Portfolio's Assets)
---------------- ----------------------------
<S> <C>
IAI Bond Fund 0 - 60%
IAI Government Fund 0 - 30%
IAI Reserve Fund 0 - 40%
IAI Capital Appreciation Fund 0 - 30%
IAI Developing Countries Fund 0 - 20%
IAI Growth Fund 0 - 60%
IAI Growth and Income Fund 0 - 40%
IAI International Fund 0 - 30%
IAI Latin America Fund 0 - 20%
IAI Midcap Growth Fund 0 - 30%
IAI Regional Fund 0 - 30%
IAI Value Fund 0 - 30%
</TABLE>
-6-
<PAGE>
LIFEUSA CURRENT INCOME PORTFOLIO
The Current Income Portfolio seeks to provide current income by
investing in mutual funds that emphasize fixed income securities. In general,
the Current Income Portfolio should offer investors the potential for a medium
to high level of income, while subjecting investors to a medium level of
principal risk. The Current Income Portfolio currently intends to invest in the
following Underlying Funds within the percentage ranges set forth below:
<TABLE>
<CAPTION>
Investment Range
(Percent of the Current
Underlying Funds Income Portfolio's Assets)
---------------- --------------------------
<S> <C>
IAI Bond Fund 10 - 80%
IAI Government Fund 10 - 80%
IAI Reserve Fund 10 - 80%
IAI Money Market Fund 0 - 30%
</TABLE>
LIFEUSA PRINCIPAL PRESERVATION PORTFOLIO
The Principal Preservation Portfolio seeks to provide liquidity and
preservation of capital by investing 100% of its assets in the IAI Money Market
Fund. In general, the Principal Preservation Portfolio should offer investors
the potential for a low level of income while subjecting investors to a low
level of principal risk.
GENERAL
In unusual market conditions, when the Adviser believes a temporary
defensive position is warranted, each of LifeUSA Aggressive Growth, LifeUSA
Growth, LifeUSA Global, LifeUSA Balanced and LifeUSA Current Income Portfolios
may invest without limitation in IAI Money Market Fund. If a Portfolio maintains
a temporary defensive position, investment income may increase and may
constitute a large portion of a Portfolio's return.
Please see the Prospectus section "Principal Portfolio Risk Factors"
for a discussion of the risks associated directly with investing in the
Portfolios. For information about the investment objectives of each of the
Underlying Funds and the investment techniques and risks associated with each of
them, please see the Prospectus section "Underlying Funds" and the Appendix to
the Prospectus, as well as the Statement of Additional Information section
"Investment Objectives and Policies".
PRINCIPAL PORTFOLIO RISK FACTORS
STOCK MARKET RISK
Stock market risk is the possibility that stock prices in general will
decline over short or even extended periods. The stock market tends to be
cyclical, with periods when stock prices generally rise and periods when stock
prices generally decline. Also, investments in foreign stock markets can be as
volatile, if not more volatile, than investments in U.S. markets.
To illustrate the volatility of stock prices, the following table sets
forth the extremes for U.S. stock market returns as well as the average return
for the period from 1926 to 1995, as measured by the Standard & Poor's 500
Composite Stock Price Index:
-7-
<PAGE>
Average Annual U.S. Stock Market Returns (1926-1995)
Over Various Time Horizons (%)
----------------------------------------------------
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years 20 Years
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best + 53.9 + 23.9 + 20.1 + 16.9
Worst - 43.3 - 12.5 - 0.9 + 3.1
Average + 12.5 + 10.3 + 10.7 + 10.7
</TABLE>
Average return may not be useful for forecasting future returns in any
particular period, as stock returns are quite volatile from year to year and
interim losses are inevitable. For example, after the "bear market" of
1973-1974, it took four years for many investors to recover their losses
(assuming dividends were reinvested).
BOND MARKET RISK
The bond market is typically less risky than the stock market, although
there have been times when some bonds were just as risky as stocks. For example,
bond prices fell 48% from December 1976 to September 1981. The risk of bonds
declining in value, however, may be offset in whole or in part by the high level
of income that bonds provide. Bond prices are linked to prevailing interest
rates in the economy. The price volatility of a bond depends on its maturity;
the longer the maturity of a bond, the greater its sensitivity to interest
rates. In general, when interest rates rise, the prices of bonds fall;
conversely, when interest rates fall, bond prices generally rise. From time to
time, the stock and bond markets may fluctuate independently of one another. In
other words, a decline in the stock market may in certain instances be offset by
a rise in the bond market, or vice versa.
FOREIGN SECURITIES' RISK
For U.S. investors, the returns of foreign investments are influenced
by not only the returns on foreign common stocks themselves, but also by
currency risk -- i.e., changes in the value of the currencies in which the
stocks are denominated. In a period when the U.S. dollar generally rises against
foreign currencies, the returns on foreign securities for a U.S. investor may be
diminished. By contrast, in a period when the U.S. dollar generally declines,
the returns on foreign securities may be enhanced.
Other risks and considerations of international investing include the
following: differences in accounting, auditing and financial reporting
standards; generally higher commission rates on foreign portfolio transactions;
the smaller trading volumes and generally lower liquidity of foreign stock
markets, which may result in greater price volatility; foreign withholding taxes
payable on a Portfolio's foreign securities, which may reduce dividend income
payable to shareholders; the possibility of expropriation or confiscatory
taxation; adverse changes in investment or exchange control regulations;
difficulty in obtaining a judgment from a foreign court; political instability
which could affect U.S. investment in foreign countries; and potential
restrictions on the flow of international capital.
CONCENTRATION RISK
The Portfolios are concentrated in the Underlying Funds, so investors
should be aware that each Portfolio's performance is directly related to the
investment performance of the Underlying Funds in which it invests and each
Portfolio's allocation among the Funds. First, changes in the net asset values
of the Underlying Funds affect each Portfolio's net asset value. Second, over
the long-term, each Portfolio's ability to meet its investment objective depends
on the Underlying Funds meeting their investment objectives.
-8-
<PAGE>
MANAGER RISK
The Adviser manages each Portfolio according to the traditional methods
of "active" investment management, which involve the buying and selling of
securities based upon economic, financial and market analysis and investment
judgment. Manager risk refers to the possibility that the Adviser may fail to
execute each Portfolio's investment strategy effectively. As a result, each
Portfolio may fail to achieve its stated objective.
AFFILIATED PERSON RISK
The Adviser, the investment adviser and manager of the Fund, and the
directors and officers of the Fund presently serve as investment adviser and
manager, directors and officers, respectively, of the Underlying Funds.
Therefore, conflicts may arise as these persons fulfill their fiduciary
responsibilities to the Fund and the Underlying Funds.
PORTFOLIO TURNOVER
The portfolio turnover rate is not expected to exceed 25% annually. A
portfolio turnover rate of 25% for a Portfolio would occur if one quarter of a
Portfolio's investments were sold within a year. The Adviser will purchase or
sell securities: (i) to accommodate purchases and sales of Portfolio shares; and
(ii) to maintain or modify the allocation of the Portfolios' assets between the
Underlying Funds in which the Portfolios invest within the percentage limits
described under "Investment Objectives and Policies."
INVESTMENT RESTRICTIONS
Each Portfolio is subject to certain other investment policies and
restrictions described in the Statement of Additional Information, some of which
are fundamental and may not be changed without the approval of the shareholders
of a Portfolio. As a fundamental policy, each Portfolio will not invest 25% or
more of its assets in any one industry, except for investment companies which
are members of the IAI Mutual Funds. Also as a fundamental policy, each
Portfolio may borrow only for temporary or emergency purposes in an amount not
exceeding one-third of its total assets. Please refer to the Statement of
Additional Information for a further discussion of each Portfolio's investment
restrictions.
Please see the Appendix to the Prospectus for information concerning
the principal risk factors of the Underlying Funds.
DESCRIPTION OF UNDERLYING FUNDS
The following is a concise description of the investment objectives and
techniques of each of the Underlying Funds in which the Portfolios may invest.
There can be no assurance that the investment objectives of the Underlying Funds
will be met. Additional information regarding the investment techniques for the
Underlying Funds and the risks associated with investing in the Underlying Funds
is located in the Appendix to this Prospectus, in the Statement of Additional
Information and in the prospectus of each of the Underlying Funds. No offer is
made in this Prospectus of any of the Underlying Funds.
-9-
<PAGE>
IAI BOND FUND
Bond Fund's investment objective is to provide a high level of current
income consistent with preservation of capital. Bond Fund pursues its objective
by investing primarily in a diversified portfolio of investment grade bonds and
other debt securities of similar quality. Investment grade securities are those
securities rated within the four highest grades assigned by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"). Other debt
securities in which Bond Fund may invest include, but are not limited to,
securities of, or guaranteed by, the United States Government, its agencies or
instrumentalities, bank certificates of deposit, bankers' acceptances, debt
securities of foreign issuers, and commercial paper rated at least Prime-2 by
Moody's or A-2 by S&P or otherwise issued by companies having an outstanding
unsecured debt issue currently rated A or better by Moody's or S&P. Under normal
market conditions, at least 65% of Bond Fund's total assets will be invested in
debt obligations and government securities with maturities at the time of
acquisition of one year or more. Although Bond Fund generally will not make
direct purchases of common stock, Bond Fund may purchase preferred stock and
convertible securities. Bond Fund will limit its investments in such securities
to a maximum of 10% of its net assets.
IAI CAPITAL APPRECIATION FUND
The investment objective of Capital Appreciation Fund is long-term
capital appreciation. Capital Appreciation Fund will pursue its objective by
investing primarily in equity securities of U.S. companies that IAI believes
have above-average prospects for growth. In general, Capital Appreciation Fund
will concentrate on companies that have superior performance records, solid
market positions, strong balance sheets and a management team capable of
sustaining growth. Although IAI expects Capital Appreciation Fund will invest
primarily in the common stocks of smaller emerging and mid-sized companies,
generally companies that have a market capitalization less than $5 billion, it
may invest in the securities of companies of any size that offer strong earnings
growth potential. In addition to common stocks, Capital Appreciation Fund may
also invest in securities convertible into common stocks, nonconvertible
preferred stocks and nonconvertible debt securities when IAI believes that these
securities offer opportunities for capital appreciation. Current income will not
be a substantial factor in the selection of securities.
IAI DEVELOPING COUNTRIES FUND
The investment objective of Developing Countries Fund is to provide
long-term capital appreciation. Developing Countries Fund seeks to achieve its
objective by investing primarily in equity securities of companies domiciled or
otherwise having substantial operations in developing countries. Under normal
conditions, at least 65% of Developing Countries Fund's total assets will be
invested in securities of companies domiciled or otherwise having substantial
operations in developing countries. Developing countries include those generally
considered to be developing or emerging by the World Bank or the International
Finance Corporation, as well as countries that are classified by the United
Nations or otherwise regarded by their authorities as developing. Developing
Countries Fund may also invest in securities of companies that derive 50% or
more of their total revenue from either goods or services produced in developing
countries or sales made in such developing countries and companies that maintain
50% or more of their assets in developing countries. Determinations as to
eligibility will be based on publicly available information and inquiries made
to the companies. Developing Countries Fund will not necessarily seek to
diversify investments on a geographic basis or on the basis of the level of
economic development of any particular country. Developing Countries Fund
focuses on equity securities, however, it may also invest in other types of
instruments including debt securities. Developing Cpuntries Fund has established
no minimum rating criteria for the debt securities in which it may invest, and
such securities may not be rated at all for creditworthiness.
-10-
<PAGE>
IAI GOVERNMENT FUND
The investment objectives of Government Fund are to provide
shareholders with a high level of current income and with preservation of
capital. In seeking to achieve its objectives, Government Fund will invest its
assets primarily in securities issued, guaranteed or collateralized by the
United States Government, its agencies or instrumentalities whether or not
backed by the "full faith and credit" pledge of the United States Government and
in repurchase agreements pertaining to such securities. Under normal market
conditions, Government Fund will invest at least 65% of its total assets in
securities issued, guaranteed or collateralized by the United States Government,
its agencies or instrumentalities (excluding, for purposes of calculating this
minimum, CMOs as described below, which are secured by obligations of the U.S.
Government, its agencies or instrumentalities but are issued by private
issuers). The mortgage-related securities in which Government Fund may invest
include pass-through securities. In addition, Government Fund may invest up to
35% of its assets in securities of private issuers that are collateralized by
pools of mortgages issued or guaranteed by the United States Government, its
agencies or instrumentalities, called collateralized mortgage obligations
("CMOs").
IAI GROWTH FUND
The investment objective of Growth Fund is long-term capital
appreciation. Growth Fund pursues its objective by investing primarily in equity
securities of established companies that are expected to increase earnings at an
above average rate. In general, Growth Fund concentrates on companies that have
strong management, leading market positions, strong balance sheets, and a well
defined strategy for future growth. In selecting investments for Growth Fund,
IAI utilizes several valuation techniques to determine which stocks offer the
best combination of intrinsic value and earnings growth potential. The goal is
to have an acceptable balance of risk and reward in the portfolio. Under normal
circumstances, at least 65% of Growth Fund's assets will be invested in
growth-type securities. Growth Fund may also invest in government securities,
investment-grade corporate bonds and debentures, high-grade commercial paper,
preferred stocks, certificates of deposit or other securities of U.S. and
foreign issuers when IAI perceives an opportunity for capital growth from such
securities or so that Growth Fund may receive a return on its idle cash. Growth
Fund currently intends to limit its investments in debt securities to securities
of U.S. companies, the U.S. Government and foreign governments and governmental
entities.
IAI GROWTH AND INCOME FUND
The primary investment objective of Growth and Income Fund is capital
appreciation, with income being its secondary objective. Growth and Income Fund
pursues its objectives by investing primarily in equity securities which offer
the potential for capital appreciation and secondarily by investing in
income-producing equity securities. Growth and Income Fund invests primarily in
common stocks and may invest in securities convertible into common stocks,
nonconvertible preferred stocks and nonconvertible debt securities. In selecting
investments, Growth and Income Fund considers a number of factors, such as
product development and demand, operating ratios, utilization of earnings for
expansion, management abilities, analyses of intrinsic values, market action and
overall economic and political conditions. Dividend income is a consideration
secondary to Growth and Income Fund's primary objective of capital appreciation.
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IAI INTERNATIONAL FUND
The primary investment objective of International Fund is capital
appreciation with current income (principally from dividends) being a secondary
objective. International Fund pursues its objectives by investing, under normal
circumstances, at least 95% of the value of its net assets in equity and
equity-related securities of non-United States issuers. International Fund
invests primarily in equity securities which have the potential for
above-average capital appreciation. Equity securities in which International
Fund will invest include, but are not limited to, common stocks, securities
convertible into common stock, preferred stock, partnership interests and other
equity participations. When the anticipated total return from debt securities
significantly exceeds the anticipated total return from foreign equity
securities, or for temporary defensive purposes, up to 50% of International
Fund's portfolio may be comprised of cash, cash equivalents, bonds and other
debt securities of both United States and foreign issuers. Under normal
circumstances, however, International Fund currently intends to invest a
significant portion of its assets in countries that generally are representative
of the market capitalization of the securities of the countries comprising the
Morgan Stanley Capital International Europe, Australia, Far East ("EAFE") Index,
an unmanaged index of foreign common stocks. International Fund may also invest
in developing countries, which investments involve exposure to economic
structures that are generally less diverse and mature than in the United States,
and to political systems which may be less stable. International Fund will limit
its investments in developing countries not included in the EAFE Index to not
more than 15% of its total assets.
IAI LATIN AMERICA FUND
The investment objective of Latin America Fund is long-term capital
appreciation. Latin America Fund seeks to achieve its objective by investing
primarily in the securities of Latin American issuers. Such objective may not be
changed without shareholder approval. There can be no assurance that Latin
America Fund will achieve its investment objective. Under normal conditions, at
least 65% of the Fund's total assets will be invested in securities of Latin
American issuers and at least 50% of Latin America Fund's total assets will be
invested in Latin American equity securities. For purposes of this Prospectus,
Latin America is defined as Argentina, Belize, Brazil, Bolivia, Chile, Colombia,
Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua,
Paraguay, Peru, Panama, Uruguay and Venezuela. Latin America Fund defines
securities of Latin American issuers as follows: (a) securities of companies
organized under the laws of a Latin American country or for which the principal
trading market is located in Latin America; (b) securities that are issued or
guaranteed by the government of a Latin America country, its agencies or
instrumentalities, political subdivisions, or the country's central bank; (c)
securities of a company, wherever organized, where at least 50% of the company's
gross revenue or profit in any one of the two most recent fiscal years
represents (directly or indirectly through subsidiaries) assets or activities
located in Latin America; or (e) securities of Latin American issuers, as
previously defined, in the form of depositary shares. Determinations as to
eligibility will be based on publicly available information and inquiries made
to the companies. Latin America Fund intends to allocate investments among at
least four countries at all times and does not expect to concentrate investments
in any particular industry. Latin America Fund's equity investments consist of
common stock, preferred stock (either convertible or non-convertible), sponsored
or unsponsored depository receipts (including American Depository Receipts,
American Depository Shares and Global Depository Shares) and warrants. These may
be restricted securities and may also be purchased through rights. Securities
may be listed on the securities exchanges, traded over-the-counter, or have no
organized market. Although Latin America Fund focuses on equity securities, it
may also invest in debt securities.
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IAI MIDCAP GROWTH FUND
The investment objective of Midcap Growth Fund is long-term capital
appreciation. Midcap Growth Fund will pursue its objective by investing in
equity securities of medium-sized U.S. companies that IAI believes have
above-average prospects for growth. Midcap Growth Fund will invest at least 65%
of the value of its total assets in medium-sized companies that have a market
capitalization between $500 million and $5 billion. Under normal market
conditions, the weighted average capitalization of Midcap Growth Fund's
investment portfolio will range from $1 billion to $3 billion. In general,
Midcap Growth Fund concentrates on companies that have superior performance
records, solid market positions, strong balance sheets and a management team
capable of sustaining growth. Investments in such companies are generally
considered to be less volatile than less capitalized emerging companies.
However, such companies may not generate the dividend income of larger, more
capitalized companies. Dividend income, if any, is a consideration incidental to
Midcap Growth Fund's objective of capital appreciation. Midcap Growth Fund
invests primarily in common stocks. However, it may invest in securities
convertible into common stocks, nonconvertible preferred stocks and
nonconvertible debt securities when IAI believes that these securities offer
opportunities for capital appreciation. Current income will not be a substantial
factor in the selection of securities.
IAI MONEY MARKET FUND
Money Market Fund's investment objective is to provide shareholders with a
high level of current income consistent with the preservation of capital and
liquidity. Money Market Fund is designed for investors who seek maximum
stability of principal. Money Market Fund's investment objective may not be
changed without shareholder approval. There can be no assurance that Money
Market Fund will achieve its investment objective. Money Market Fund is subject
to the investment restrictions of Rule 2a-7 under the Investment Company Act of
1940 in addition to its other policies and restrictions discussed below. Rule
2a-7 requires that Money Market Fund invest exclusively in securities that
mature within 397 days and that it maintain an average dollar weighted maturity
of not more than 90 days. Rule 2a-7 also requires that all investments by Money
Market Fund be limited to United States dollar-denominated investments that: (1)
present "minimal credit risks," and (2) are at the time of acquisition "Eligible
Securities." Eligible Securities include, among others, securities that are
rated by two Nationally Recognized Statistical Rating Organizations ("NRSROs")
in one of the two highest categories for short-term debt obligations, such as
A-1 or A-2 by Standard & Poor's Corporation ("S&P") or P-1 or P-2 by Moody's
Investors Service, Inc. ("Moody's"). It is the responsibility of IAI to
determine that Money Market Fund's investments present only "minimal credit
risks" and are Eligible Securities. Money Market Fund's Board of Directors has
established written guidelines and procedures for IAI and oversees IAI's
determination that Money Markets Fund's portfolio securities present only
"minimal credit risks" and are Eligible Securities. Rule 2a-7 also requires that
(1) 95% of the assets of Money Market Fund be invested in Eligible Securities
that are deemed First Tier Securities, which include, among others, securities
rated by two NRSROs in the highest category (such as A-1 and P-1), (2) Money
Market Fund may not invest more than 5% of its total assets in Second Tier
Securities (i.e., Eligible Securities that are not First Tier Securities) and
(3)Money Market Fund's investment in Second Tier Securities of a single issuer
may not exceed the greater of 1% of Money Market Fund's total assets or
$1,000,000.
In pursuing its investment objective, Money Market Fund's assets will be
invested in short-term money market obligations, including securities issued, or
guaranteed by, the United States Government, its agencies or instrumentalities;
bank obligations, including time deposits, certificates of deposit, and bankers'
acceptances issued by domestic banks or their foreign branches or by foreign
banks; domestic and foreign commercial paper; repurchase agreements; U.S.
dollar-denominated obligations issued or guaranteed by one or more foreign
governments, or any of their political subdivisions, agencies or
instrumentalities, including obligations of supranational entities; and other
short-term corporate obligations, including those with floating or variable
rates of interest. Money Market Fund may also invest in loan participation
interests and other participation interests in securities in which Money Market
Fund may invest, subject to Money Market Fund's quality and diversification
requirements.
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Money Market Fund's investments are subject to price variations resulting
from rising or falling interest rates and are subject to the ability of the
issuers of such investments to make payments at maturity. However, because Money
Market Fund will invest only in securities that present minimal credit risks and
are highly liquid, fluctuations in principal are expected to be minimal. Money
Market Fund may also hold cash, which may not earn interest, to facilitate
stabilizing its net asset value per share and for liquidity purposes.
IAI REGIONAL FUND
The investment objective of Regional Fund is capital appreciation.
Regional Fund does not expect to provide significant current income to
investors. Regional Fund pursues its objective by investing at least 80% of its
equity investments in companies which have their headquarters in Minnesota,
Wisconsin, Iowa, Illinois, Nebraska, Montana, North Dakota or South Dakota (the
"Eight State Region"). Regional Fund invests primarily in common stocks but may
also invest in securities convertible into common stocks, nonconvertible
preferred stocks, and nonconvertible debt securities. In selecting investments
for Regional Fund, IAI considers a number of factors, such as product
development and demand, operating ratios, utilization of earnings for expansion,
management abilities, analyses of intrinsic values, market action and overall
economic and political conditions. Along with investments in nationally
recognized companies, Regional Fund invests in companies which are not as well
known because they are newer or have a small capitalization, but which offer the
potential for capital appreciation.
IAI RESERVE FUND
Reserve Fund's investment objectives are to provide its shareholders with
high levels of capital stability and liquidity and, to the extent consistent
with these primary objectives, a high level of current income. Reserve Fund
pursues its objectives primarily through investment in a diversified portfolio
of investment grade bonds and other debt securities of similar quality. Reserve
Fund will maintain a dollar weighted average maturity of its investment
portfolio of twenty-five (25) months or less. Other debt securities in which
Reserve Fund may invest include securities of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities, corporate debt obligations, debt
securities of foreign issuers, mortgage-related securities, commercial paper
rated at least Prime-2 by Moody's or A-2 by S&P or otherwise issued by companies
having an outstanding unsecured debt issue currently rated A or better by
Moody's or S&P, bank certificates of deposit and other short-term instruments
and repurchase agreements relating to such securities.
IAI VALUE FUND
The investment objective of Value Fund is long-term capital
appreciation. Value Fund does not expect to provide significant current income
to investors. Value Fund pursues its objective primarily by investing in
securities believed by management to be undervalued and which are considered to
offer unusual opportunities for capital growth. The following are typical, but
not exclusive, examples of investments that are considered for Value Fund (1)
equity securities of companies which have been unpopular for some time but
where, in the opinion of IAI, recent developments suggest the possibility of
improved operating results; (2) equity securities of companies which have
experienced recent market popularity but which, in the opinion of IAI, have
temporarily fallen out of favor for reasons that are considered non-recurring or
short-term; and (3) equity securities of companies which appear undervalued in
relation to popular securities of other companies in the same industry. Although
there is no formula as to the percentage of assets that may be invested in any
one type of security, Value Fund generally is primarily invested in common
stocks. Value Fund may also acquire preferred stocks, fixed income securities,
and securities convertible into or which carry warrants to purchase common
stocks, or other equity interests.
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MANAGEMENT
Each of the Portfolios was created on November 7, 1996, as a separate
portfolio represented by a separate class of common stock of LifeUSA Funds,
Inc., a Minnesota company incorporated on April 26, 1996. Under Minnesota law,
the Fund's Board of Directors is generally responsible for the overall operation
and management of the Portfolios. Investment Advisers, Inc. (the "Adviser")
serves as the investment adviser and manager of the Portfolios. The Adviser
manages in excess of $16 billion for other investment companies, pension and
profit sharing plans, portfolios of foundations, religious, educational and
charitable institutions, trusts, municipalities and individuals. The Adviser's
ultimate corporate parent is Lloyds TSB Group plc, a publicly-held financial
services organization headquartered in London, England. Lloyds TSB Group plc is
one of the largest personal and corporate financial services groups in the
United Kingdom, and is engaged in a wide range of activities including
commercial and retail banking. The Adviser's address is that of the Fund.
Pursuant to an Investment Advisory and Administrative Services
Agreement with the Fund (the "Agreement"), the Adviser provides the Portfolios
with investment advisory services and is responsible for the overall management
of the Portfolios' business affairs subject to the authority of the Board of
Directors. The Agreement also provides that each Portfolio shall pay the fees
and expenses of outside legal counsel, independent public accountants, and
custodians, as well as certain expenses incurred in connection with the
registration of Portfolio shares for sale to the public, interest and, in
certain circumstances, taxes and extraordinary expenses. Because the Underlying
Funds pay the Adviser a management fee, no compensation is paid the Adviser
under the Agreement. The Adviser may, at its option, reimburse Portfolio
expenses from time to time. Any such reimbursement is voluntary and may be
discontinued at any time. The Adviser also may absorb or reimburse Portfolio
expenses from time to time, in its discretion, while retaining the ability to be
reimbursed by a Portfolio for such amounts before the Portfolio's fiscal year
end. This practice would have the effect of lowering a Portfolio's overall
expense ratio and of increasing yield to the investors, or the converse, at the
time such amounts are absorbed or reimbursed, as the case may be. The Adviser
shall not be liable for any loss suffered by a Portfolio in the absence of
willful misfeasance, bad faith or negligence in the performance of its duties
and obligations.
Day-to-day investment decisions for each Portfolio are the
responsibility of the Adviser's asset allocation committee.
DISTRIBUTION OF FUND SHARES
Each Portfolio has adopted a written plan of distribution (the "Plan") in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") pursuant to which it pays a fee as described below. Under the
Plan, each Portfolio has entered into a Distribution and Shareholder Services
Agreement with LifeUSA Securities, Inc. ("LSI"), pursuant to which a Portfolio
will pay LSI a fee for servicing Portfolio shareholder accounts and for
distributing Portfolio shares (the "Rule 12b-1 Fee"). Subject to the expense
limitations described above, each Portfolio has agreed to pay LSI a Rule 12b-1
Fee at an annual rate of .75% of a Portfolio's average daily net assets. LSI has
voluntarily agreed to waive its fee in excess of .50% of a Portfolio's average
daily net assets through May 1, 1998. LSI is a wholly-owned subsidiary of
LifeUSA Holding, Inc., and is affiliated with LifeUSA Insurance Company, which
is licensed to issue life insurance and annuity business in all states except
New York and is represented by over 130 marketing organizations nationwide.
LSI's address is Suite 95, 300 South Highway 169, Minneapolis, Minnesota
55426-1191.
Although LSI is the principal underwriter of Portfolio shares, LSI may
enter into agreements with investment dealers that are members of the NASD and
certain other financial services firms ("Authorized Dealers"). To become an
Authorized Dealer, a dealer or financial services firm must enter into a sales
agreement with LSI.
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<PAGE>
The Rule 12b-1 Fee may be used by each Portfolio to compensate LSI for
the provision of certain services to Portfolio shareholders and Authorized
Dealers. The services provided may include services provided to shareholders and
Authorized Dealers, such as answering inquiries regarding a Portfolio and
providing reports and other information, and services related to the maintenance
of Portfolio accounts. LSI may use the Rule 12b-1 Fee to make payments to
Authorized Dealers that provide such services.
The Rule 12b-1 Fee may also be used by LSI for the purposes of
financing any activity which is primarily intended to result in the sale of
shares of a Portfolio. The expenses of such activities include, by way of
example but not by way of limitation, costs of prospectuses, Statements of
Additional Information, annual reports, semiannual reports, quarterly reports
and monthly letters to prospective shareholders, expenses associated with the
preparation and distribution of sales literature and advertising of any type,
compensation and benefits paid to and expenses incurred by personnel, including
supervisory personnel, involved in direct mail and advertising activities and
activities relating to the direct marketing of Portfolio shares to the public,
and compensation to Authorized Dealers for selling Portfolio shares.
COMPUTATION OF NET ASSET VALUE AND PRICING
Each Portfolio is open for business each day the New York Stock
Exchange ("NYSE") is open. The Adviser normally calculates a Portfolio's net
asset value ("NAV") as of the close of business of the NYSE, normally 3 p.m.
Central time. A Portfolio's NAV is the value of a single share. The NAV is
computed by adding up the value of a Portfolio's investments, cash, and other
assets, subtracting its liabilities, and then dividing the result by the number
of shares outstanding. This determination is made by appraising each Portfolio's
investments (i.e., the Underlying Funds) at the price of each such investment
determined at the close of the NYSE.
PURCHASE OF SHARES
GENERAL
The minimum initial investment to establish an account is $2,500. Once the
account minimum has been met, subsequent Portfolio purchases can be made for
$100. Such initial investment may be allocated between Portfolios as desired, as
long as a minimum of $1,000 is allocated to any one Portfolio. Additional
purchase programs are described in the sections "System Investment Plan", "Group
Systematic Investment Plan" and "Group Purchases" below.
You may purchase shares of each Portfolio through LSI or any Authorized
Dealer at the public offering price which is the NAV of such shares next
determined after receipt of an order plus, for all Portfolios other than
Principal Preservation Portfolio, a sales charge that varies depending on the
size of your purchase. Purchase orders received by LSI or an Authorized Dealer
by the close of trading on the NYSE will be effected at that day's NAV, provided
that such order is transmitted to the Portfolios' transfer agent by 3:00 p.m.
Central time that same day. Each Portfolio receives the NAV. The sales charge is
allocated between LSI and any applicable Authorized Dealer as set forth below.
<TABLE>
<CAPTION>
Sales Charge as % Portion of Offering
Sales Charge as % of of Net Amount Price Retained by
Amount of Purchase Offering Price Invested Dealer
- ------------------ -------------- -------- ------
<S> <C> <C> <C>
Less than $100,000 5.75% 6.10% 5.25%
$100,000 but less than $250,000 4.25% 4.44% 3.75%
$250,000 but less than $500,000 3.00% 3.09% 2.50%
$500,000 but less than $1,000,000 2.25% 2.30% 2.00%
$1,000,000 and over 1.00% 1.01% 1.00%
</TABLE>
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<PAGE>
To purchase shares, forward the completed application and a check
payable to "LifeUSA Funds" to the Portfolios. Third party checks will not be
accepted for initial account investments. Upon receipt, your account will be
credited with the number of full and fractional shares which can be purchased at
the NAV next determined after receipt of the purchase order by a Portfolio, less
any applicable sales charge. Alternatively, you may purchase Portfolio shares by
bank wire. Information on purchases by wire is set forth below.
Purchases of shares are subject to acceptance or rejection by a
Portfolio on the same day the purchase order is received and are not binding
until so accepted. Except as required by law, it is the policy of the Portfolios
and LSI to keep confidential information contained in the application and
regarding the account of an investor or potential investor in a Portfolio. Share
certificates are not issued for a Portfolio.
Directors and officers of LifeUSA Securities, Inc. or any of its affiliated
companies, their full-time and part-time employees, sales representatives and
retirees, and the spouses, siblings, direct ancestors or direct descendants of
such persons may purchase shares of the Portfolios at the NAV without the
imposition of a sales charge. These persons must give written assurance that
they have bought for investment purposes, and that the securities will not be
resold except through redemption or repurchase by, or on behalf of, the
respective Portfolio. These persons are not required to pay a sales charge
because of the reduced sales effort involved in their purchases.
All correspondence or inquiries relating to purchase of shares or
completing the account application should be directed to LifeUSA Funds
Shareholder Services at the address or phone number listed under "Additional
Information".
BANK WIRE PURCHASES
Shares may be purchased by having your bank wire federal funds (funds
of the Federal Reserve System) to the Portfolios' bank.
Wire orders will be accepted only on days your bank, the transfer agent,
the Portfolios and Norwest Bank Minnesota are open for business. The payment
must be received by the Portfolios before the close of business to be credited
to your account that day. Otherwise, it will be processed the next business day.
The wire purchase will not be considered made until the wired amount is received
and the purchase is accepted by the Portfolios. If the wire order does not
contain the information stated below, the Portfolios may reject it. Any delays
that may occur in wiring federal funds, including delays in processing by the
banks, are not the responsibility of the Portfolios or the transfer agent.
You must pay any charge assessed by your bank for the wire service. If
a wire order is rejected, all money received by the Portfolios, less any costs
incurred by the Portfolios or the transfer agent in rejecting it, will be
returned promptly.
If the wire order is for a new account, you should call LifeUSA Shareholder
Services at the phone number listed under "Additional Information" to advise
them of the investment and to obtain an account number and instructions. The
wire should be sent to: Norwest Bank Minnesota, Routing Number 091000019,
Minneapolis, Minnesota, Attn: IAI Mutual Funds Account Number 6355002264. It
should state the following:
"Credit LifeUSA Funds Account # ____ for future credit to personal
account # ___ (your account number) for _______ (your name) and
_____________ (Portfolio name)."
A completed application must be sent to the Portfolios and received by
the Portfolios before the wire is sent. Your application must be received and
accepted by the Portfolios before exchange or redemption instructions can be
accepted with respect to your new account.
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<PAGE>
If the wire order is for an addition to an existing account, the wire
must include the information required above for new accounts. As soon as the
wire is sent, you should call LifeUSA Shareholder Services, as described above,
and advise them of your name, your account number and the name of the bank
transmitting the federal funds.
SYSTEMATIC INVESTMENT PLAN
Each Portfolio provides a convenient, voluntary method of purchasing
shares through a Systematic Investment Plan.
The principal purposes of the Systematic Investment Plan are to
encourage thrift by enabling you to make regular purchases in amounts less than
normally required and to employ the principle of dollar cost averaging,
described below.
By acquiring Portfolio shares on a regular basis pursuant to a Systematic
Investment Plan, or investing regularly on any other systematic plan, the
investor takes advantage of the principle of dollar cost averaging. Under dollar
cost averaging, if a constant amount is invested at regular intervals at varying
price levels, the average cost of all the shares will be lower than the average
of the price levels. This is because the same fixed number of dollars buys more
shares when price levels are low and fewer shares when price levels are high. It
is essential that the investor consider his or her financial ability to continue
this investment program during times of market decline as well as market rise.
The principle of dollar cost averaging will not protect against loss in a
declining market, as a loss will result if the Systematic Investment Plan is
discontinued when the market value is less than cost and Portfolio shares are
redeemed.
A Systematic Investment Plan may be opened with an initial investment of
$500 and by indicating your intention to invest $100 or more monthly effective
as of the 4th and/or the 18th day of each month (or the next business day),for
at least one year. You will receive a confirmation showing the number of shares
purchased, purchase price, and subsequent new balance of shares accumulated. A
Systematic Investment Plan may be used to purchase shares in only one Portfolio
until the normal account and Portfolio minimums have been reached.
An investor has no obligation to invest regularly or to continue the
Systematic Investment Plan, which may be terminated by the investor at any time
without penalty. Under the Systematic Investment Plan, any distributions of
income and realized income and realized capital gains will be reinvested in
additional shares at the NAV unless a shareholder instructs a Portfolio in
writing to pay them in cash. Each Portfolio reserves the right to increase or
decrease the amount required to open and continue a Systematic Investment Plan,
and to terminate any Systematic Investment Plan after one year if the value of
the amount invested is less than $500.
GROUP SYSTEMATIC INVESTMENT PLAN
This Plan provides employers and employees with a convenient means for
purchasing Portfolio shares under various types of employee benefit and thrift
plans, including payroll withholding and bonus incentive plans. The Plan may be
started with an initial cash investment of $100 per participant for a group
consisting of five or more participants. The shares purchased by each
participant under the Plan will be held in a separate account in which all
dividends and capital gains will be reinvested in additional shares at the NAV.
To keep an account open, subsequent payments totaling $50 per month must be made
into each participant's account. If the group is reduced to less than the
minimum number of participants, a minimum monthly payment of $100 will be
required. The Plan may be terminated by the Portfolios or the shareholders at
any time upon reasonable notice. For more information, please contact LifeUSA
Funds Shareholder Services at the address or phone number listed under
"Additional Information".
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GROUP PURCHASES
An individual who is a member of a qualified group may also purchase
Portfolio shares at a reduced sales charge applicable to the group as a whole.
Such reduced sales charge is calculated by taking into account not only the
dollar amount of the Portfolio shares being purchased by the individual group
member, but also the aggregate dollar value of Portfolio shares previously
purchased and currently held by other members of the group. A "qualified group"
is one which (i) has been in existence for more than six months; (ii) has a
purpose other than acquiring Portfolio shares at a discount; (iii) satisfies
uniform criteria which enable LSI to realize economies of scale in distributing
such shares. A qualified group must have more than ten members, must be
available to arrange for group meetings with representatives of LSI or
Authorized Dealers, must agree to include sales and other materials related to
the Portfolios in its publications and mailings to members at reduced or no cost
to LSI, and must seek, upon request, to arrange for payroll deduction or other
bulk transmission of investments to the Portfolios. For more information, please
contact LifeUSA Funds Shareholder Services at the address or phone number listed
under "Additional Information".
AUTOMATIC INVESTMENT PLAN
Existing shareholders may arrange to make regular investments of $100
or more per Portfolio on a monthly or twice a month basis, effective as of the
4th and/or the 18th day of each month (or the next business day), through
automatic deductions from their checking or savings accounts. Such investors
may, of course, terminate their participation in the Automatic Investment Plans
at any time upon written notice to a Portfolio. Any changes or instructions to
terminate existing Automatic Investment Plan must be received at least 30 days
before the date on which the change or termination is to take place. Investors
interested in participating in the Automatic Investment Plan should complete the
Automatic Investment Plan portion of the account application.
REDEMPTION OF SHARES
GENERAL
You may redeem your Portfolio shares through your Authorized Dealer, by
mail or by telephone. All redemptions are made at the NAV next determined after
a redemption request has been received in good order. Requests for redemptions
must be received by 3:00 p.m. Central time to be processed at the NAV for that
day. Any redemption request in good order that is received after 3:00 p.m.
Central time will be processed at the price determined on the following business
day. If the transfer agent is requested to redeem shares for which a Portfolio
has not yet received good payment, the Portfolio may delay payment of redemption
proceeds until it has assured itself that good payment has been collected for
the purchase of the shares. In the case of purchases by check, it can take up to
10 business days to confirm that the check has cleared and good payment has been
received. Redemption proceeds will not be delayed when shares have been paid for
by wire or when the investor's account holds a sufficient number of shares for
which funds already have been collected.
Payment for shares redeemed will ordinarily be made within seven days after
a redemption has been executed. Under unusual circumstances, a Portfolio may
suspend redemptions or postpone payment to the extent permitted by Federal
securities laws. The proceeds of the redemption may be more or less than the
purchase price of your shares, depending upon, among other factors, the market
value of the Portfolio's securities at the time of the redemption. If the
redemption is for over $50,000, or the proceeds are to be paid or mailed to an
address other than the address of record, or an address change has occurred in
the last 15 days, it must be requested in writing with a signature guarantee, as
described below.
If you are not certain of the requirements for a redemption, please
contact LifeUSA Shareholder Services at the address or phone number listed under
"Additional Information".
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THROUGH YOUR AUTHORIZED DEALER
The Authorized Dealer is responsible for promptly transmitting
redemption orders. Redemptions requested by dealers will be made at the NAV
determined at the close of regular trading (3:00 p.m. Central time) on the day
that a redemption request is received in good order by the transfer agent.
BY MAIL
Requests for redemption in writing are considered to be in "proper or
good order" if they contain the following:
- A letter of instruction, including the account registration, fund
number, the account number and the dollar amount or number of
shares to be redeemed.
- Signatures of all registered owners whose names appear on the
account.
- Any required signature guarantees.
- Other supporting legal documentation, if required (in the
case of estates, trusts, guardianships, corporations,
unincorporated associations, retirement plan trustees or others
acting in representative capacities).
The dollar amount or number of shares indicated for redemption must not
exceed the available shares or NAV of your account at the next-determined
prices. If your request exceeds these limits, then the trade will be rejected in
its entirety.
Mail your request to LifeUSA Shareholder Services at the address listed
in the section "Additional Information".
BY TELEPHONE
Investors other than IRA accounts may redeem up to $50,000 per day over the
telephone by contacting LifeUSA Shareholder Services at the number listed in the
section "Additional Information". In times of unusual economic or market
changes, the telephone redemption privilege may be difficult to implement. If
you are unable to execute your transaction by telephone, you may want to
consider placing the order in writing and sending it by mail or overnight
courier.
Checks will be made payable to the current account registration and sent to
the address of record. If there has been a change of address in the last 15
days, please use the instructions for redemption requests by mail described
above. A signature guarantee will be required.
Although telephone redemptions may be a convenient feature, you should
realize that you may be giving up a measure of security that you may otherwise
have if you terminated the privilege and redeemed your shares in writing. See
the section "Authorized Telephone Transactions" for more information.
RECEIVING YOUR PROCEEDS BY FEDERAL FUNDS WIRE
For shareholders who established this feature at the time they opened their
account, telephone instructions will be accepted for redemption of amounts up to
$50,000 ($1,000 minimum) and proceeds will be wired on the next business day to
a predesignated bank account. Wire redemption requests will only be processed on
days your bank, the transfer agent, the Portfolios and Norwest Bank Minnesota
are open for business.
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In order to add this feature to an existing account or to change
existing bank account information, please submit a letter of instructions
including your bank information to LifeUSA Shareholder Services at the address
listed in the section "Additional Information". The letter must be signed by all
registered owners, and their signatures must be guaranteed.
Your account will be charged a fee of $10 each time redemption proceeds are
wired to your bank. Your bank may also charge you a fee for receiving a Federal
Funds wire.
Neither the transfer agent nor any of the Portfolios can be responsible
for the efficiency of the Federal Funds wire system or the shareholder's bank.
OTHER IMPORTANT REDEMPTION INFORMATION
Redemption instructions must be signed by the person(s) in whose name the
shares are registered. For your protection, and to prevent fraudulent
redemptions, a signature guarantee must accompany the following requests:
- Redemption requests over $50,000.
- Requests for redemption proceeds to be sent to someone other
than the registerd shareholder.
- Requests for redemption proceeds to be sent to an address
other than the address of record.
- Registration transfer requests.
- Requests for redemption proceeds to be wired to your bank
account (if this option was not selected on your original
application, or if you are changing the bank wire information).
A signature guarantee may be obtained only from an eligible guarantor
institution as defined in Rule 17Ad-15 of the Securities Exchange Act of 1934,
as amended. An eligible guarantor institution includes banks, brokers, dealers,
municipal securities dealers, government securities dealers, government
securities brokers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations. The
signature guarantee must not be qualified in any way. Notarizations from notary
publics are not the same as signature guarantees, and are not accepted.
Circumstances other than those described above may require a signature
guarantee. If the shares are held of record in the name of a corporation,
partnership, trust or fiduciary, a Portfolio may require additional evidence of
authority prior to accepting a request for redemption. Please contact LifeUSA
Shareholder Services at the address or phone number listed under "Additional
Information" for more information.
A Portfolio shareholder who redeems a Portfolio account has a one-time
privilege to reinstate such account by purchasing Portfolio shares at the NAV
without the imposition of a sales charge up to the dollar amount redeemed. The
reinstatement privilege may be exercised by a written request along with a check
for the amount to be reinstated to the transfer agent within 30 days after the
date the request for the redemption was accepted by the transfer agent or LSI.
The reinstatement will be made at the NAV per share next determined after the
notice of reinstatement is received and cannot exceed the amount of the
redemption proceeds. Alternatively, the reinstatement privilege may be exercised
through the shareholder's Authorized Dealer within 30 days after the date the
redemption request was accepted by the transfer agent or LSI.
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Following a redemption or transfer request, if the value of a
shareholder's interest in a Portfolio falls below $500, such Portfolio reserves
the right to redeem such shareholder's entire interest and remit such amount.
Such a redemption will only be effected following: (a) a redemption or transfer
by a shareholder which causes the value of such shareholder's interest in such
Portfolio to fall below $500; (b) the mailing by such Portfolio to such
shareholder of a notice of intention to redeem; and (c) the passage of at least
six months from the date of such mailing, during which time the investor will
have the opportunity to make an additional investment in such Portfolio to
increase the value of such investor's account to at least $500. Each Portfolio
reserves the right to impose a service charge of $15 per year for Portfolio
accounts that fall below the $500 level.
EXCHANGE PRIVILEGE
The Exchange Privilege enables shareholders to purchase, in exchange for
shares of a Portfolio, shares of another Portfolio. Such Portfolio will have a
different investment objective from the original Portfolio, and a shareholder
should read the appropriate Prospectus disclosure before making such an
exchange. Shareholders may exchange shares of a Portfolio for shares of another
Portfolio distributed by LSI provided that the Portfolio whose shares will be
acquired is duly registered in the state of the shareholder's residence and the
shareholder otherwise satisfies the Portfolio's purchase requirements. Principal
Preservation shares purchased directly by an investor and exchanged for shares
of another Portfolio will be subject to a sales charge differential, which is
the percentage rate of the sales charge of the Portfolio shares being acquired.
Principal Preservation Portfolio shares obtained through automatic reinvestment
of dividends and capital gains distributions will not be charged a sales charge
differential when exchanged into another Portfolio.
Because excessive trading can hurt Portfolio performance and shareholders,
there is a limit of four exchanges out of each Portfolio per calendar year per
account. Accounts under common ownership or control, including accounts with the
same taxpayer identification number, will be counted together for purposes of
the four exchange limit. Each Portfolio reserves the right to temporarily or
permanently terminate the Exchange Privilege of any investor who exceeds this
limit. The limit may be modified for certain retirement plan accounts, as
required by the applicable plan document and/or relevant Department of Labor
regulations. Each Portfolio also reserves the right to refuse or limit exchange
purchases by any investor if, in the Adviser's judgment, such Portfolio would be
unable to invest the money effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected.
Portfolio shareholders wishing to exercise the Exchange Privilege
should notify the Portfolios in writing or, provided such shareholders have
authorized a Portfolio to accept telephone instructions, by telephone. At the
time of the exchange, if the net asset value of the shares redeemed in
connection with the exchange is greater than the investor's cost, a taxable
capital gain will be realized. A capital loss will be realized if at the time of
the exchange the net asset value of the shares redeemed in the exchange is less
than the investor's cost. Although the Portfolios do not currently charge a fee
for use of the Exchange Privilege, they reserve the right to do so in the
future. Each Portfolio reserves the right to terminate or modify the Exchange
Privilege in the future.
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AUTHORIZED TELEPHONE TRADING
Investors can transact account exchanges and redemptions via the
telephone by completing the Authorized Telephone Trading section of the account
application. Investors requesting telephone trading privileges will be provided
with a personal identification number ("PIN") that must accompany any
instructions by phone. Shares will be redeemed or exchanged at the next
determined net asset value. All proceeds must be made payable to the owner(s) of
record and delivered to the address of record.
In order to confirm that telephone instructions for redemptions and
exchanges are genuine, the Portfolios have established reasonable procedures,
including the requirement that a personal identification number accompany
telephone instructions. If a Portfolio or the transfer agent fails to follow
these procedures, such Portfolio may be liable for losses due to unauthorized or
fraudulent instructions. To the extent these reasonable procedures are followed,
none of the Portfolios, their transfer agent, or any affiliated broker/dealer
will be liable for any loss, injury, damage, or expense for acting upon
telephone instructions believed to be genuine, and will otherwise not be
responsible for the authenticity of any telephone instructions, and,
accordingly, the investor bears the risk of loss resulting from telephone
instructions. All telephone redemptions and exchange requests will be tape
recorded. Telephone redemptions are not permitted for IRA accounts. For
redemptions from these accounts, please contact LifeUSA Shareholder Services at
the address or phone number listed under "Additional Information".
If you provide your PIN to another, please be advised that such person
will be able to transact in your account and you will have given up a measure of
security that you may otherwise have by keeping your PIN private.
SYSTEMATIC CASH WITHDRAWAL PLAN
Each Portfolio has available a Systematic Cash Withdrawal Plan for any
investor desiring to follow a program of systematically withdrawing a fixed
amount of money from an investment in shares of a Portfolio. An investment of
$10,000 is required to establish the plan. Payments under the plan will be
monthly or quarterly in amounts of $100 or more. Shares will be sold with the
closing price on the 15th of the applicable month (or the next business day). To
provide funds for payment, such Portfolio will redeem as many full and
fractional shares as necessary at the redemption price, which is net asset
value.
Payments under this plan, unless pursuant to a retirement plan, should
not be considered income. Withdrawal payments may exceed dividends and
distributions and, to this extent, there will be a reduction in the investor's
equity. An investor should also understand that this plan cannot insure profit,
nor does it protect against any loss in a declining market. Careful
consideration should be given to the amount withdrawn each month. Excessive
withdrawals could lead to a serious depletion of capital, especially during
periods of declining market values.
For more information or to obtain a Plan application, please contact
LifeUSA Funds Shareholder Services at the address or phone number listed under
"Additional Information".
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
The policy of all Portfolios other than Principal Preservation
Portfolio is to pay dividends from net investment income semiannually and to
make distributions of realized capital gains, if any, annually. Principal
Preservation Portfolio will declare daily and pay monthly dividends from net
investment income and will distribute annually net realized capital gains, if
any. However, provisions in the Internal Revenue Code of 1986, as amended (the
"Code"), may result in additional net investment income and capital gains
distributions by a Portfolio. When you open an account, you should specify on
your application how you want to receive your distributions. The Portfolios
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offer three options: Full Reinvestment--your dividend and capital gain
distributions will be automatically reinvested in additional shares of the
Portfolio; Capital Gains Reinvestment--your capital gain distributions will be
automatically reinvested, but your income dividend distributions will be paid in
cash; and Cash--your income dividends and capital gain distributions will be
paid in cash. Distributions taken in cash can be sent via check or transferred
directly to your account at any bank, savings and loan or credit union that is a
member of the Automated Clearing House (ACH) network. Unless directed otherwise
by the shareholder, each Portfolio will automatically reinvest all such
distributions into full and fractional shares at net asset value, without the
imposition of a sales charge.
Each Portfolio intends to qualify for tax purposes as a regulated
investment company under Subchapter M of the Internal Revenue Code during the
current taxable year. If so qualified, each Portfolio will not be subject to
federal income tax on income that it distributes to its shareholders.
Distributions are subject to federal income tax, and may also be
subject to state or local taxes. If you live outside the United States, your
distributions could also be taxed by the country in which you reside. Your
distributions are taxable when they are paid, whether you take them in cash or
reinvest them in additional shares.
For federal income tax purposes, each Portfolio's income and short-term
capital gain distributions are taxed as dividends; long-term capital gain
distributions designated as capital gain dividends are taxed as long-term
capital gains regardless of the length of time the shareholder has held the
shares. Annually, the Adviser will send you and the IRS a statement showing the
amount of each taxable distribution you received in the previous year.
Upon redemption of shares of a Portfolio, the shareholder will
generally recognize a capital gain or loss equal to the difference between the
amount realized on the redemption and the shareholder's adjusted basis in such
shares. Such gain or loss will be long-term if the shares have been held for
more than one year. Under the Code, the deductibility of capital losses is
subject to certain limitations.
Whenever you sell shares of a Portfolio, the Adviser will send you a
confirmation statement showing how many shares you sold and at what price. You
will also receive an account statement quarterly and a consolidated transaction
statement annually. However, it is up to you or your tax preparer to determine
whether this sale resulted in a capital gain and, if so, the amount of tax to be
paid. Be sure to keep your account statements; the information they contain will
be essential in calculating the amount of your capital gains.
The foregoing relates to federal income taxation as in effect as of the
date of this Prospectus. For a more detailed discussion of the federal income
tax consequences of investing in shares of a Portfolio, see "Tax Status" in the
Statement of Additional Information.
INVESTMENT PERFORMANCE
From time to time the Portfolios may advertise performance data
including monthly, quarterly, yearly or cumulative total return, average annual
total return and yield figures. All such figures are based on historical
earnings and performance and are not intended to be indicative of future
performance. The investment return on and principal value of an investment in
the Portfolios will fluctuate, so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
Total return is the change in value of an investment in a Portfolio
over a given period, assuming reinvestment of any dividends and capital gains. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period.
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Yield refers to the income generated by an investment in a Portfolio
over a given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. Because this
differs from other accounting methods, the quoted yield may not equal the income
actually paid to shareholders.
For additional information regarding the calculation of such total
return and yield figures, see "Investment Performance" in the Statement of
Additional Information. Further information about the performance of the
Portfolios will be contained in the Portfolios' annual report to shareholders
which, when available, may be obtained without charge from the Portfolios.
Comparative performance information may be used from time to time in
advertising or marketing a Portfolio's shares, including data on the performance
of other mutual funds, indexes or averages of other mutual funds, indexes of
related financial assets or data, and other competing investment and deposit
products available from or through other financial institutions. The composition
of these indexes, averages or products differs from that of a Portfolio. The
comparison of a Portfolio to an alternative investment should be made with
consideration of differences in features and expected performance. A Portfolio
may also note its mention in newspapers, magazines, or other media from time to
time. A Portfolio assumes no responsibility for the accuracy of such data. For
additional information on the types of indexes, averages and periodicals that
might be utilized by a Portfolio in advertising and sales literature, see the
section "Investment Performance" in the Statement of Additional Information.
RETIREMENT PLANS
Shares of the Portfolios may be an appropriate investment medium for an
Individual Retirement Account ("IRA"). Persons desiring information about
establishing an IRA should contact LifeUSA Shareholder Services at the address
or phone number listed under "Additional Information". The minimum initial
investment to establish an IRA account is $2,000, as long as at least $1,000 is
allocated to any one Portfolio. All retirement plans involve a long-term
commitment of assets and are subject to various legal requirements and
restrictions. The legal and tax implications may vary according to the
circumstances of the individual investor. Therefore, you are urged to consult
with an attorney or tax advisor prior to the establishment of such a plan.
DESCRIPTION OF COMMON STOCK
All shares of each Portfolio have equal rights as to redemption,
dividends and liquidation, and will be fully paid and nonassessable when issued
and will have no preemptive or conversion rights.
The shares of each Portfolio have noncumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they choose to do so. On some
issues, such as the election of directors, all shares of each corporation vote
together as one series. On an issue affecting only a particular series, such as
voting on the advisory agreement, only the approval of the series is required to
make the agreement effective with respect to such series.
Annual or periodically scheduled regular meetings of shareholders will
not be held except as required by law. Minnesota corporation law does not
require an annual meeting; instead, it provides for the Board of Directors to
convene shareholder meetings when it deems appropriate. In addition, if a
regular meeting of shareholders has not been held during the immediately
preceding fifteen months, shareholders holding three percent or more of the
voting shares of a Portfolio may demand a regular meeting of shareholders of
such Portfolio by written notice of demand given to the chief executive officer
or the chief financial officer of such Portfolio. Within thirty days after
receipt of the demand by one of those officers, the Board of Directors shall
cause a regular meeting of shareholders to be called and held no later than
ninety days after receipt of the demand, all at the expense of such Portfolio.
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An annual meeting will be held on the removal of a director or directors of such
Portfolio if requested in writing by holders of not less than 10% of the
outstanding shares of such Portfolio.
The shares of each Portfolio are transferable by delivery to such
Portfolio of transfer instructions. Transfer instructions should be delivered to
LifeUSA Shareholder Services at the address listed under "Additional
Information". Each Portfolio is not bound to recognize any transfer until it is
recorded on the stock transfer books maintained by such Portfolio.
COUNSEL AND AUDITORS
The firm of Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis,
MN 55402, provides legal counsel for the Portfolios. KPMG Peat Marwick LLP, 4200
Norwest Center, Minneapolis, MN 55402, serves as independent auditors for the
Portfolios.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The Custodian for each Portfolio is Norwest Bank Minnesota, N.A.,
Norwest Center, Sixth and Marquette, Minneapolis, Minnesota 55479. The Adviser
acts as each Portfolio's transfer agent and dividend disbursing agent, at P.O.
Box ___ , Minneapolis, MN _____ .
ADDITIONAL INFORMATION
LifeUSA Funds Shareholder Services is available to respond to shareholder
inquiries Monday through Friday from 8:00 a.m. to 5:00 p.m. central time. Its
phone number is _________ . To contact LifeUSA Shareholder Services by mail,
please write "LifeUSA Shareholder Services, P.O. Box ___ , Minneapolis, MN _____
." Overnight deliveries should be addressed to "LifeUSA Shareholder Services,
3700 First Bank Place, 601 Second Avenue South, Minneapolis, MN 55402".
Each Portfolio will send to its shareholders a six-month unaudited and
an annual audited financial report, each of which includes a list of investment
securities held. To reduce the volume of mail you receive, only one copy of most
Portfolio reports, such as the Portfolio's Annual Report, may be mailed to your
household (same surname, same address). Please contact LifeUSA Shareholder
Services if you wish to receive additional shareholder reports.
In the opinion of the staff of the Securities and Exchange Commission,
the use of this combined prospectus may possibly subject all Portfolios to a
certain amount of liability for any losses arising out of any statement or
omission in this Prospectus regarding a particular Portfolio. In the opinion of
the Portfolios' management, however, the risk of such liability is not
materially increased by use of a combined prospectus.
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APPENDIX
PORTFOLIO SECURITIES AND OTHER INVESTMENT TECHNIQUES
OF UNDERLYING FUNDS
REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements relating to the
securities in which it may invest. In a repurchase agreement, a Fund buys a
security at one price and simultaneously agrees to sell it back at a higher
price. Delays or losses could result if the other party to the agreement
defaults or becomes bankrupt.
BORROWING
Each Fund may borrow from banks (or through reverse repurchase
agreements) for temporary or emergency purposes. If a Fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is paid
off. If a Fund makes additional investments while borrowings are outstanding,
this may be considered a form of leverage.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in securities that are
considered illiquid because of the absence of a readily available market or due
to legal or contractual restrictions (except Developing Countries and Money
Market Funds, each of which may invest up to 10% of its net assets in such
securities). However, certain restricted securities that are not registered for
sale to the general public but that can be resold to institutional investors may
be considered liquid pursuant to guidelines adopted by the Board of Directors.
The institutional trading market is relatively new, and the liquidity of the
Fund's investments could be impaired if trading does not develop or declines.
FOREIGN SECURITIES
Each Fund may invest in securities of foreign issuers in accordance
with its investment objective and policies. In considering whether to purchase
securities of foreign issuers, the Adviser will consider the political and
economic conditions in a country, the prospect for changes in the value of its
currency and the liquidity of the investment in that country's securities
markets. Each of Growth and Income, Emerging Growth, Midcap Growth, Regional and
Value Funds currently intends to limit its investment in foreign securities
denominated in foreign currency and not publicly traded in the United States to
no more than 10% of the value of its total assets. Each of Capital Appreciation
Fund and Growth Fund intends to limit its investment in such securities to no
more than 15% of the value of its total assets.
Government Fund may also invest in non-U.S. Government bonds and other
fixed income securities including fixed income securities issued by corporations
and foreign entities, whether dollar-denominated or not, securities issued or
guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities, and obligations of supranational
entities, that are rated within the four highest grades by Moody's or S&P or are
determined by the Adviser to be of comparable quality. For a description of
Moody's and S&P ratings, see Appendix A to the Statement of Additional
Information.
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Bond Fund may invest in securities issued by foreign issuers, whether
dollar-denominated or not, including securities issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies or
instrumentalities, including obligations of supranational entities, that are
determined by the Adviser to be of comparable quality to the other obligations
in which Bond Fund may invest. Bond Fund currently intends to invest no more
than 25% of the value of its total assets in non-dollar denominated securities
of foreign issuers.
VENTURE CAPITAL
Each equity fund may invest in venture capital limited partnerships and
venture capital funds which, in turn, invest principally in securities of early
stage, developing companies. Investments in venture capital limited partnerships
and venture capital funds present a number of risks not found in investing in
established enterprises including the facts that such a partnership's or fund's
portfolio will be composed almost entirely of early-stage companies which may
lack depth of management and sufficient resources, which may be marketing a new
product for which there is no established market, and which may be subject to
intense competition from larger companies. Any investment in a venture capital
limited partnership or venture capital fund will lack liquidity, will be
difficult to value, and a Fund will not be entitled to participate in the
management of the partnership or fund. If for any reason the services of the
general partners of a venture capital limited partnership were to become
unavailable, such limited partnership could be adversely affected.
In addition to investing in venture capital limited partnerships and
venture capital funds, a Fund may directly invest in early-stage, developing
companies. The risks associated with investing in these securities are
substantially similar to the risks set forth above. A Fund will typically
purchase equity securities in these early-stage, developing companies; however
from time to time, a Fund may purchase non-investment grade debt securities in
the form of convertible notes. Capital Appreciation Fund currently intends to
limit its investments in securities described in this section to no more than 5%
of its net assets.
LEVERAGED BUYOUTS
Each domestic equity fund may invest in leveraged buyout limited
partnerships and funds which, in turn, invest in leveraged buyout transactions
("LBOs"). An LBO, generally, is an acquisition of an existing business by a
newly formed corporation financed largely with debt assumed by such newly formed
corporation to be later repaid with funds generated from the acquired company.
Since most LBOs are by nature highly leveraged (typically with debt to equity
ratios of approximately 9 to 1), equity investments in LBOs may appreciate
substantially in value given only modest growth in the earnings or cash flow of
the acquired business. Investments in LBO partnerships and funds, however,
present a number of risks. Investments in LBO limited partnerships and funds
will normally lack liquidity and may be subject to intense competition from
other LBO limited partnerships and funds. Additionally, if the cash flow of the
acquired company is insufficient to service the debt assumed in the LBO, the LBO
limited partnership or fund could lose all or part of its investment in such
acquired company.
ADJUSTING INVESTMENT EXPOSURE
Each Fund, other than IAI Money Market Fund, can use various techniques to
increase or decrease its exposure to changing security prices, interest rates,
currency exchange rates, commodity prices, or other factors that affect security
values. These techniques include buying and selling options and futures
contracts, entering into currency exchange contracts or swap agreements,
purchasing indexed securities, and selling securities short. Because some Fund
assets may be invested in restricted securities and thus may not be associated
with short-term movement in the financial markets, that portion of a Fund's
assets may not be able to participate in market movements. Each Fund may invest
in futures contracts in amounts corresponding to its investments in such
restricted securities in order to participate fully in market movements.
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TEMPORARY DEFENSIVE POSITIONS
In unusual market conditions, when the Adviser believes a temporary
defensive position is warranted, each Fund may invest without limitation in
investment-grade fixed income securities, that is, securities rated within the
four highest grades assigned by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, or money market securities (including repurchase
agreements). Money market securities will only be purchased if they have been
given one of the two top ratings by a major ratings service or, if unrated, are
of comparable quality as determined by the Adviser. Midcap Growth and Capital
Appreciation Funds, for temporary defensive purposes, may also invest without
limitation in common stocks of larger, more established companies. If a Fund
maintains a temporary defensive position, investment income may increase and may
constitute a large portion of a Fund's return.
DEPOSITARY RECEIPTS
In addition to investing in such securities directly, International,
Developing Countries and Latin America Funds may invest in the securities of
foreign issuers in the form of sponsored and unsponsored American Depositary
Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts
(GDRs) or other securities convertible into securities of foreign issuers.
Generally, such securities evidence ownership of and may be converted into
securities issued by a foreign corporation. The issuers of unsponsored
depository receipts are not obligated to disclose material information in the
United States, and therefore, there may not be a correlation between such
information and the market value of such securities.
FOREIGN INDEX LINKED INSTRUMENTS
International, Developing Countries and Latin America Funds may invest
in instruments issued by the U.S. or a foreign government or by private issuers
that return principal and/or pay interest to investors in amounts which are
linked to the level of a particular foreign index ("Foreign Index Linked
Instruments"). Foreign Index Linked Instruments may offer higher yields than
comparable securities linked to purely domestic indexes but also may be more
volatile. Foreign Index Linked Instruments are relatively recent innovations for
which the market has not yet been fully developed and, accordingly, they
typically are less liquid than comparable securities linked to purely domestic
indexes. In addition, the value of Foreign Index Linked Instruments will be
affected by fluctuations in foreign exchange rates or in foreign interest rates.
Foreign currency gains and losses with respect to Foreign Index Linked
Instruments may affect the amount and timing of income recognized by such Fund.
BRADY BONDS
International, Developing Countries and Latin America Funds may invest
in Brady Bonds and other sovereign debt securities of countries that have
restructured or are in the process of restructuring sovereign debt pursuant to
the Brady Plan. Brady Bonds are debt securities issued under the framework of
the Brady Plan, a mechanism for debtor nations to restructure their outstanding
external indebtedness. Brady Bonds have been issued only recently and,
accordingly, do not have a long payment history.
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ZERO COUPON SECURITIES
Each Fund may invest in zero coupon securities. Such securities are
debt obligations which do not entitle the holder to periodic interest payments
prior to maturity and are issued and traded at a discount from their face
amounts. The discount varies depending on the time remaining until maturity,
prevailing interest rates, liquidity of the security and the perceived credit
quality of the issuer. Zero coupon securities can be sold prior to their due
date in the secondary market at the then-prevailing market value which depends
primarily on the time remaining to maturity, prevailing levels of interest rates
and the perceived credit quality of the issuer. The market prices of zero coupon
securities are more volatile than the market prices of securities of comparable
quality and similar maturity that pay interest periodically and may respond to a
greater degree to fluctuations in interest rates than do such non-zero coupon
securities.
CLOSED-END INVESTMENT COMPANIES
A number of countries have authorized the formation of closed-end
investment companies to facilitate indirect foreign investment in their capital
markets. International, Developing Countries and Latin America Funds may invest
up to 10% of its total assets in securities of closed-end investment companies.
Shares of certain closed-end investment companies may at times be acquired only
at market prices representing premiums to their net asset values. In the event
that shares acquired at a premium subsequently decline in price relative to
their net asset value or the value of portfolio investments held by such
closed-end companies declines, a Fund and its shareholders may experience a
loss. If a Fund acquires shares of closed-end investment companies, Fund
shareholders would bear both their proportionate share of expenses in such Fund
(including management and advisory fees) and, indirectly, the expenses of such
closed-end companies.
WHEN-ISSUED/DELAYED DELIVERY TRANSACTIONS
The Funds may purchase portfolio securities on a when-issued or
delayed-delivery basis. When-issued and delayed-delivery transactions are
trading practices wherein payment for and delivery of the securities take place
at a future date. The market value of a security could change during this
period, which could affect the market value of the Fund's assets.
BELOW INVESTMENT GRADE SECURITIES
Latin America, Developing Countries, Bond and Reserve Funds may also
invest in below investment grade securities. Such securities are commonly
referred to as junk bonds. Each of Bond and Reserve Funds currently intends to
limit such investments to 15% and 10%, respectively, of its total assets and not
to invest in junk bonds rated lower than B by Moody's or S&P. Latin America and
Developing Countries Funds do not currently intend to invest more than 5% of
their net assets in junk bonds. Securities rated in the medium to lower rating
of categories of nationally recognized statistical rating organizations and
unrated securities of comparable quality are predominately speculative with
respect to the capacity to pay interest and repay principal in accordance with
the terms of the security and generally involve a greater volatility of price
than securities in higher rating categories. See Appendix A to and "Investment
Objectives and Policies" in the Statement of Additional Information for
additional information regarding ratings of debt securities.
A-5
<PAGE>
FOREIGN CURRENCY TRANSACTIONS
The value of the assets of a Fund as measured in United States dollars
or a foreign currency or currencies may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
each Fund may incur costs in connection with conversions between various
currencies. Each Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
directly between currency traders (usually large commercial banks) and their
customers.
Each Fund may enter into foreign currency transactions for hedging
purposes only and may not speculate on the fluctuations of foreign currency
exchange rates. Each Fund may hedge against adverse changes in foreign currency
exchange rates between the trade and settlement dates with respect to foreign
securities it is purchasing or during the holding period with respect to foreign
securities in its portfolio. With respect to foreign securities in its
portfolio, each Fund may hedge a maximum of 50% of the value of its investment
portfolio by establishing the value of such securities in U.S. dollars.
Additionally, each Fund may hedge a maximum of 25% of the value of its
investment portfolio by establishing the value of such securities in another
foreign currency or currencies which IAI believes to be more stable than the
currencies in which such securities are denominated.
When a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to establish the cost
or proceeds in U.S. dollars or another foreign currency. By entering into a
forward contract in such currency for the purchase or sale of the amount of
foreign currency involved in an underlying security investment, the Fund is able
to protect itself against a possible loss between trade and settlement dates of
a transaction or during the period of an investment in a foreign security
resulting from an adverse change in the relationship between such two
currencies. However, this tends to limit potential gains which might result from
a positive change in such currency relationships. A Fund may also hedge its
foreign currency exchange rate risk by engaging in currency financial futures
and options and forward foreign currency transactions.
When the Adviser believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar or another
foreign currency, it may enter into a forward contract to sell an amount of
foreign currency approximating the value of some or all of a Fund's portfolio
securities denominated in such foreign currency. The forecasting of short-term
currency market movement is difficult and the successful execution of a
short-term hedging strategy is uncertain.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for a Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If a Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between the Fund's entering into a forward contract for the
sale of foreign currency and the date it enters into an offsetting contract for
the purchase of the foreign currency, the Fund would realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of the
A-6
<PAGE>
currency it has agreed to purchase. Should forward prices increase, the Fund
would suffer a loss to the extent the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell. Although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, they also tend to limit any potential gain which might result
should the value of such currency increase. A Fund will have to convert its
holdings of foreign currencies into U.S. dollars from time to time. Although
foreign exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies.
RISKS ASSOCIATED WITH UNDERLYING FUNDS
INTEREST RATE RISK
The fixed income funds are subject to interest rate risk. Interest rate
risk is the potential for a decline in bond prices due to rising interest rates.
In general, bond prices vary inversely with interest rates. When interest rates
rise, bond prices generally fall. Conversely, when interest rates fall, bond
prices generally rise. The change in price depends on several factors, including
the bond's maturity date. In general, bonds with longer maturities are more
sensitive to changes in interest rates than bonds with shorter maturities. In
managing these Funds, the Adviser will adjust the duration of the investment
portfolio in response to economic and market conditions. Duration is generally
considered a better measure of interest rate risk than is maturity. Duration is
a measure of the expected change in value of a fixed income security (or
portfolio) for a given change in interest rates. For example, if interest rates
rise by one percent, the market value of a security (or portfolio) having a
duration of two generally will fall by approximately two percent. In some
situations, the standard duration calculation does not properly reflect the
interest rate risk of a security. In such situations, the Adviser will use more
sophisticated analytical techniques, such as modeling principal and interest
payments based upon historical experience or expected volatility, to arrive at
an effective duration that incorporates the additional variables into the
determination of interest rate risk. These techniques may involve estimates of
future economic parameters which may vary from actual future outcomes. These
principals of interest rate risk also apply to U.S. Treasury and U.S. Government
agency securities. As with other bond investments, U.S. Government securities
will rise and fall in value as interest rates change. A security backed by the
U.S. Treasury or the full faith and credit of the United States is guaranteed
only as to the timely payment of interest and principal when held to maturity.
The current market prices for such securities are not guaranteed and will
fluctuate.
CREDIT RISK
The fixed income funds are also subject to credit risk. Credit risk,
also known as default risk, is the possibility that a bond issuer will fail to
make timely payments of interest or principal to a Fund. The credit risk of a
Fund depends on the quality of its investments. Reflecting their higher risks,
lower-quality bonds generally offer higher yields (all other factors being
equal).
CALL RISK
The fixed income funds are also subject to call risk. Call risk is the
possibility that corporate bonds held by a Fund will be repaid prior to
maturity. Call provisions, common in many corporate bonds held by a Fund, allow
bond issuers to redeem bonds prior to maturity (at a specified price). When
interest rates are falling, bond issuers often exercise these call provisions,
paying off bonds that carry high stated interest rates and often issuing new
bonds at lower rates. For a Fund, the result would be that bonds with high
interest rates are "called" and must be replaced with lower-yielding
instruments. In these circumstances, the income of a Fund would decline.
A-7
<PAGE>
RISKS OF LOWER-RATED DEBT SECURITIES
Latin America, Developing Countries, Bond and Reserve Funds may invest in
debt securities commonly known as "junk" bonds. Such securities are subject to
higher risks and greater market fluctuations than are lower-yielding,
higher-rated securities. The price of junk bonds has been found to be less
sensitive to changes in prevailing interest rates than higher-rated investments,
but is likely to be more sensitive to adverse economic changes or individual
corporate developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial stress
which would adversely affect their ability to service their principal and
interest payment obligations, to meet their projected business goals or to
obtain additional financing. If the issuers of a fixed-income security owned by
a Fund were to default, a Fund might incur additional expenses to seek recovery.
The risk of loss due to default by issuers of junk bonds is significantly
greater than that associated with higher-rated securities because such
securities generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness. In addition, periods of economic uncertainty and
change can be expected to result in an increased volatility of market prices of
junk bonds and a concomitant volatility in the net asset value of a share of a
Fund.
The secondary market for junk bonds is less liquid than the markets for
higher quality securities and, as such, may have an adverse effect on the market
prices of certain securities. The limited liquidity of the market may also
adversely affect the ability of a Fund to arrive at a fair value for certain
junk bonds at certain times and could make it difficult for a Fund to sell
certain securities. For a description of Moody's and S&P ratings, see Appendix A
to the Statement of Additional Information.
GENERAL FOREIGN INVESTMENT RISK FACTORS
Investments in foreign securities involve risks that are different in
some respects from investments in securities of U.S. issuers, such as the risk
of fluctuations in the value of the currencies in which they are denominated,
the risk of adverse political and economic developments and, with respect to
certain countries, the possibility of expropriation, nationalization or
confiscatory taxation or limitations on the removal of funds or other assets of
a Fund. Securities of some foreign companies are less liquid and more volatile
than securities of comparable domestic companies. There also may be less
publicly available information about foreign issuers than domestic issuers, and
foreign issuers generally are not subject to the uniform accounting, auditing
and financial reporting standards, practices and requirements applicable to
domestic issuers. Because a Fund can invest in securities denominated or quoted
in currencies other than the U.S. dollar, changes in foreign currency exchange
rates may affect the value of securities in the portfolio. Foreign currency
exchange rates are determined by forces of supply and demand in the foreign
exchange markets and other economic and financial conditions affecting the world
economy. A decline in the value of any particular currency against the U.S.
dollar will cause a decline in the U.S. dollar value of a Fund's holdings of
securities denominated in such currency and, therefore, will cause an overall
decline in a Fund's net asset value and net investment income and capital gains,
if any, to be distributed in U.S. dollars to shareholders by a Fund. Delays may
be encountered in settling securities transactions in certain foreign markets,
and the Fund will incur costs in converting foreign currencies into U.S dollars.
Custody charges are generally higher for foreign securities.
FOREIGN INVESTMENT RISK FACTORS:
DEVELOPING COUNTRIES FUND AND LATIN AMERICA FUND
Developing Countries Fund and Latin America Fund are designed for
aggressive investors interested in the investment opportunities offered in
developing countries. To the extent that International Fund invests in
developing countries, the Fund may be subject to additional risk. While the
Adviser believes that investing in developing countries presents the possibility
for significant growth over the long-term, it also entails significant risks.
Many investments in developing countries can be considered speculative, and the
price of securities and value of currencies can be much more volatile than in
the more developed markets. This difference reflects the greater uncertainties
of investing in less established markets and economies.
A-8
<PAGE>
Investing in foreign securities typically involves additional risks
than investing in securities of U.S. issuers. These risks are often heightened
for investments in developing countries and include, but are not limited to, the
risk of fluctuations in the value of the currencies in which they are
denominated, including the devaluation of the currencies of such countries
relative to the U.S. dollar, the risk of adverse political and economic
developments and the possibility of expropriation, nationalization or
confiscatory taxation or limitations on the removal of funds or other assets of
the Funds. Additionally, the economies of many developing countries continue to
experience significant problems, including high inflation rates, high interest
rates, large external debt and continuing trade deficits and are characterized
by extreme poverty, high unemployment and a significant dependence on limited
industries. Because the Funds will invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates may affect the value of securities in the portfolio. Foreign currency
exchange rates are determined by forces of supply and demand in the foreign
exchange markets and other economic and financial conditions affecting the world
economy. A decline in the value of any particular currency against the U.S.
dollar will cause a decline in the U.S. dollar value of a Fund's holdings of
securities denominated in such currency and, therefore, will cause an overall
decline in a Fund's net asset value and net investment income and capital gains,
if any, to be distributed in U.S. dollars to shareholders by such Fund. In many
developing countries, there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the United States. In addition, there also may be less publicly
available information about foreign issuers than domestic issuers, and foreign
issuers generally are not subject to the uniform accounting, auditing and
financial reporting standards, practices and requirements applicable to domestic
issuers. The foreign securities markets of many of the countries in which the
Funds may invest may also be smaller, less liquid and subject to greater price
volatility than those in the United States. As an open-end investment company,
each Fund is limited in the extent to which it may invest in illiquid
securities. Further, the Funds may encounter difficulties or be unable to pursue
legal remedies and obtain judgments in foreign courts. These factors could make
foreign investments, especially those in developing countries, more volatile.
Brokerage commissions, custodial services, and other costs relating to
investment in foreign countries and developing markets are generally more
expensive than in the United States. Such markets have different clearance and
settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability of
a Fund to make intended security purchases due to settlement problems could
cause such Fund to miss attractive investment opportunities. Inability to
dispose of a portfolio security due to settlement problems could result either
in losses to a Fund due to subsequent declines in value of the portfolio
security or, if a Fund has entered into a contract to sell the security, could
result in possible liability to the purchaser.
Several countries restrict, to varying degrees, foreign investments in
their securities markets. Government and private restrictions take a variety of
forms, including (a) limitations on the amount of funds that may be introduced
into or repatriated from the country (including limitations on repatriation of
investment income and capital gains); (b) prohibitions or substantial
restrictions on foreign investment in certain industries or market sectors, such
as defense, energy and transportation; (c) restrictions (whether contained in
the charter of an individual company or mandated by the government) on the
percentage of securities of a single issuer which may be owned by a foreign
investor; (d) limitations on the types of securities which a foreign investor
may purchase; and (e) restrictions on a foreign investor's right to invest in
companies whose securities are not publicly traded. In some circumstances, these
restrictions may limit or preclude investment in certain countries or may
increase the cost of investing in securities of particular companies.
A-9
<PAGE>
A Fund's interest and dividend income from foreign issuers may be subject
to non-U.S. withholding taxes. A Fund also may be subject to taxes on trading
profits or on transfers of securities in some countries. The imposition of these
taxes will increase the cost to a Fund of investing in any country imposing such
taxes. For U.S. tax purposes, U.S. shareholders may be entitled to a credit or
deduction to the extent of any foreign income taxes paid by such Fund. See
"Dividends, Distributions and Tax Status."
Each Fund may purchase sovereign debt instruments issued or guaranteed by
foreign governments or their agencies. Sovereign debt may be in the form of
conventional securities or other types of debt instruments such as loans or loan
participations. The sovereign debt in which a Fund may invest may involve a high
degree of risk, including the risk of default. Governmental entities responsible
for repayment of the debt may be unable or unwilling to repay principal and
interest when due, and may require renegotiations or rescheduling of debt
payments. In addition, prospects for repayment of principal and interest may
depend on political as well as economic factors. A Fund may have limited
recourse in the event of default on a sovereign debt instrument.
Many of the currencies of developing countries have experienced steady
devaluations relative to the U.S. dollar, and major devaluations have
historically occurred in certain countries. Devaluations in the currencies in
which a Fund's portfolio securities are denominated may have a detrimental
impact on such Fund. Some developing countries also may have managed currencies
which are not free floating against the U.S. dollar. In addition, there is a
risk that certain developing countries may restrict the free conversion of their
currencies into other currencies. Further, the currencies of certain developing
countries may not be internally traded.
Many developing countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing countries.
The governments of many developing countries have exercised and continue to
exercise a significant influence over many aspects of the private sector.
Government actions concerning the economy could have a significant effect on
market conditions and prices and/or yields of securities in which a Fund
invests.
In some countries, the securities of banks or other financial institutions
are among the most actively traded securities. Each Fund is restricted in its
ability to invest in securities of an issuer which, in its most recent year,
derived more than 15% of its revenues from "securities related activities," as
defined by the rules under the Investment Company Act of 1940.
RISKS OF TRANSACTIONS IN DERIVATIVES
The Adviser may use futures, options, swap and currency exchange
agreements as well as short sales to adjust the risk and return characteristics
of a Fund's portfolio of investments. If the Adviser judges market conditions
incorrectly or employs a strategy that does not correlate well with a Fund's
investments, use of these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. Use of these
techniques may increase the volatility of a Fund and may involve a small
investment of cash relative to the magnitude of risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction is
unable to perform as promised. Moreover, a liquid secondary market for any
futures or options contract may not be available when a futures or options
position is sought to be closed. Please refer to the Statement of Additional
Information which further describes these risks.
A-10
<PAGE>
PREPAYMENT RISKS
Government Fund is subject to prepayment risk. Prepayment risk is the
possibility that, as interest rates fall, homeowners are more likely to
refinance their home mortgages. When home mortgages are refinanced, the
principal on GNMA certificates held by the Fund is "prepaid" earlier than
expected. Government Fund must then reinvest the unanticipated principal in new
GNMA certificates, just at a time when interest rates on new mortgage
investments are falling.
Prepayment risk has two important effects on Government Fund:
- When interest rates fall and additional mortgage prepayments must
be reinvested at lower interest rates, the income of Government
Fund will be reduced.
- When interest rates fall, prices on GNMA securities will not rise
as much as comparable Treasury bonds, as bond market investors
anticipate an increase in mortgage prepayments and a likely
decline in income.
SPECIAL RISK FACTORS ASSOCIATED WITH INVESTING IN SMALL COMPANIES
Investing in small companies involves greater risk than is customarily
associated with investments in larger, more established companies due to the
greater business risks of small size, limited markets and financial resources,
narrow product lines and the frequent lack of depth of management. The
securities of small companies are often traded over-the-counter and may not be
traded in volumes typical on a national securities exchange. Consequently, the
securities of small companies may have limited market stability and may be
subject to more abrupt or erratic market movements than securities of larger,
more established growth companies or the market averages in general. Therefore,
shares of Capital Appreciation Fund are subject to greater fluctuation in value
than shares of a conservative equity fund or of a growth fund which invests
entirely in more established growth stocks. Capital Appreciation Fund will
attempt to reduce the volatility of its share price by diversifying its
investments among many companies and different industries.
SPECIAL RISK FACTORS ASSOCIATED WITH INVESTING IN REGIONAL FUND
The objective of capital appreciation along with the policy of concentrating
equity investments in the Eight State Region means that the assets of Regional
Fund will generally be subject to greater risk than may be involved in investing
in securities which do not have appreciation potential or which have more
geographic diversity. For example, Regional Fund's net asset value could be
adversely affected by economic, political, or other developments having an
unfavorable impact upon the Eight State Region; moreover, because of geographic
limitation, Regional Fund may be less diversified by industry and company than
other funds with a similar investment objective and no such geographic
limitation.
SPECIAL RISK FACTORS ASSOCIATED WITH INVESTING IN VALUE FUND
In selecting securities judged to be undervalued, the Adviser will be exercising
opinions and judgments which may be contrary to those of the majority of
investors. In certain instances, such opinions and judgments will involve the
risks of either:
(a) a correct judgment by the majority, in which case losses
may be incurred or profits may be limited; or
A-11
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(b) a long delay before majority recognition of the accuracy of
the Adviser's judgment, in which case capital invested by Value Fund
in an individual security or group of securities may be
nonproductive for an extended period. Generally, it is expected
that if a Value Fund investment is "nonproductive" for more than
two to three years, it will be sold.
In many instances, the selection of undervalued securities for purchase
by Value Fund may involve limited risk of capital loss because such lack of
investor recognition is already reflected in the price of the securities at the
time of purchase.
It is anticipated that some of the portfolio securities of Value Fund
may not be widely traded, and that Value Fund's position in such securities may
be substantial in relation to the market for the securities. Accordingly, it
would under certain circumstances be difficult for Value Fund to dispose of such
portfolio securities at prevailing market prices in order to meet redemptions.
Value Fund may, when management deems it appropriate, maintain a reserve in
liquid assets which it considers adequate to meet anticipated redemptions.
A-12
<PAGE>
LIFEUSA FUNDS, INC.
Statement of Additional Information
dated January 1, 1997
LifeUSA Aggressive Growth Portfolio LifeUSA Balanced Portfolio
LifeUSA Growth Portfolio LifeUSA Current Income Portfolio
LifeUSA Global Portfolio LifeUSA Principal Preservation Portfolio
This Statement of Additional Information relates to the funds named above
(the "Portfolios"), each of which is a series of LifeUSA Funds, Inc. (the
"Fund"). This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Portfolios' current Prospectus dated
January 1, 1997. This Statement of Additional Information is incorporated into
the Portfolios' Prospectus by reference. To obtain copies of the Prospectus,
write or call the Portfolios at ______________________, telephone:___________.
Please retain this Statement of Additional Information for future reference.
TABLE OF CONTENTS
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<TABLE>
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Page
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<S> <C>
INVESTMENT OBJECTIVES AND POLICIES......................................2
INVESTMENT RESTRICTIONS.................................................18
PORTFOLIO TURNOVER......................................................22
INVESTMENT PERFORMANCE..................................................22
MANAGEMENT..............................................................25
PLAN OF DISTRIBUTION....................................................31
CUSTODIAN; COUNSEL; ACCOUNTANTS.........................................32
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE......................33
CAPITAL STOCK...........................................................34
NET ASSET VALUE AND PUBLIC OFFERING PRICE...............................34
TAX STATUS..............................................................35
LIMITATION OF DIRECTOR LIABILITY........................................36
FINANCIAL STATEMENTS....................................................36
APPENDIX A - RATINGS OF DEBT SECURITIES.................................A-1
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus discusses the investment objectives of LifeUSA Aggressive
Growth Portfolio, LifeUSA Growth Portfolio, LifeUSA Balanced Portfolio, LifeUSA
Current Income Portfolio, LifeUSA Principal Preservation Portfolio and LifeUSA
Global Portfolio (a "Portfolio" or the "Portfolios" as appropriate)and each of
the IAI Mutual Funds (the "Underlying Funds") in which the Portfolios may
invest, as well as the policies Investment Advisers, Inc. (the "Adviser")
employs to achieve those objectives. This section contains supplemental
information concerning the types of securities and other instruments in which
the Underlying Funds may invest, the investment policies and portfolio
strategies the Underlying Funds may utilize and certain risks attendant to such
investments, policies and strategies. There can be no assurance that the
respective investment objectives of the Portfolios or the Underlying Funds will
be achieved.
REPURCHASE AGREEMENTS
Each Underlying Fund may invest in repurchase agreements relating to
the securities in which it may invest. A repurchase agreement involves the
purchase of securities with the condition that, after a stated period of time,
the original seller will buy back the securities at a predetermined price or
yield. An Underlying Fund's custodian will have custody of, and will hold in a
segregated account, securities acquired by such Underlying Fund under a
repurchase agreement or other securities as collateral. In the case of a
security registered on a book entry system, the book entry will be maintained in
an Underlying Fund's name or that of its custodian. Repurchase agreements
involve certain risks not associated with direct investments in securities. For
example, if the seller of the agreement defaults on its obligation to repurchase
the underlying securities at a time when the value of the securities has
declined, an Underlying Fund may incur a loss upon disposition of such
securities. In the event that bankruptcy proceedings are commenced with respect
to the seller of the agreement, an Underlying Fund's ability to dispose of the
collateral to recover its investment may be restricted or delayed. While
collateral will at all times be maintained in an amount equal to the repurchase
price under the agreement (including accrued interest due thereunder), to the
extent proceeds from the sale of collateral were less than the repurchase price,
an Underlying Fund could suffer a loss.
REVERSE REPURCHASE AGREEMENTS
Each Underlying Fund may invest in reverse repurchase agreements. In a
reverse repurchase agreement, an Underlying Fund sells a portfolio instrument to
another party, such as a bank or broker-dealer, in return for cash and agrees to
repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, an Underlying Fund will maintain
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. An Underlying Fund will enter into reverse
repurchase agreements only with parties whose creditworthiness has been found
satisfactory by the Adviser, the Underlying Fund's investment adviser and
manager. As a result, such transactions may increase fluctuations in the market
value of an Underlying Fund's assets and may be viewed as a form of leverage.
Presently, the Underlying Funds do not intend to invest more than 5% of its net
assets in reverse repurchase agreements.
SECURITIES OF FOREIGN ISSUERS
Investing in foreign securities may result in greater risk than that
incurred by investing in domestic securities. There is generally less publicly
available information about foreign issuers comparable to reports and ratings
that are published about companies in the United States. Also, foreign issuers
are not subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to United
States companies.
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<PAGE>
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Similarly,
volume and liquidity in most foreign bond markets is less than in the United
States and at times volatility of price can be greater than in the United
States. Commissions on foreign stock exchanges are generally higher than
commissions on United States exchanges, although the Underlying Fund will
endeavor to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
foreign stock exchanges, brokers and listed companies than in the United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of an
Underlying Fund, political or social instability, or diplomatic developments
which could affect United States investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the United
States' economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The Adviser is not aware at this time of the existence of any investment or
exchange control regulations which might substantially impair the operations of
an Underlying Fund as described in the Prospectus and this Statement of
Additional Information. It should be noted, however, that this situation could
change at any time.
The dividends and interest payable on certain of an Underlying Fund's
foreign portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to an Underlying
Fund's shareholders. The expense ratio of an Underlying Fund should not be
materially affected by such Underlying Fund's investment in such foreign
securities.
ILLIQUID SECURITIES
Each Underlying Fund may also invest up to 15% (10% for IAI Money Market
Fund and IAI Developing Countries Fund) of its net assets in securities that are
considered illiquid because of the absence of a readily available market or due
to legal or contractual restrictions. However, certain restricted securities
that are not registered for sale to the general public that can be resold to
institutional investors may be considered liquid pursuant to guidelines adopted
by the Board of Directors. It is not possible to predict with assurance the
maintenance of an institutional trading market for such securities and the
liquidity of an Underlying Fund's investments could be impaired if trading
declines.
EXTENDIBLE NOTES
Government Fund is permitted to invest in extendible notes in
accordance with its investment objectives and policies. An extendible note is a
debt arrangement under which the holder, at its option, may require the issuer
to repurchase the note for a predetermined fixed price at one or more times
prior to the ultimate maturity date of the note. Typically, an extendible note
is issued at an interest rate that can be adjusted at fixed times throughout its
term. At the same times as the interest rat e is adjusted by the issuer, the
holder of the note is typically given the option to "put" the note back to the
issuer at a predetermined price (e.g., at 100% of the outstanding principal
amount plus unpaid accrued interest) if the extended interest rate is
undesirable to the holder. This option to put the note back to the issuer (i.e.,
to require the issuer to repurchase the note) provides the holder with an
optional maturity date that is shorter than the actual maturity date of the
note.
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Extendible notes may be issued with maturity dates in excess of seven years
from the date of issuance. However, if such extendible notes provide for an
optional maturity date of seven years or less, then such notes are deemed by
Government Fund to have been issued for the shorter optional maturity date.
Accordingly, investment in such extendible notes would not be in contravention
of the fundamental investment policy not to invest in securities having a
maturity date in excess of seven years from the date of acquisition. Investment
in extendible notes is not expected to have a material impact on the effective
portfolio maturity of Government Fund.
An investment in an extendible note is liquid, and the note may be
resold to another investor prior to its optional maturity date at its market
value. The market value of an extendible note with a given optional maturity
date is determined and fluctuates in a similar manner as the market value of a
fixed maturity note with a maturity equivalent to the optional maturity of the
extendible note. Compared to fixed term notes of the same issuer, however,
extendible notes with equivalent optional maturities generally yield higher
returns without a material increase in risk to Government Fund.
The creditworthiness of the issuers of extendible notes is monitored
and rated by Moody's and by S&P. The creditworthiness of such issuers is also
monitored by the Adviser. Government Fund does not have a current intention of
investing in the coming year more than 5% of its net assets in extendible notes.
VARIABLE OR FLOATING RATE INSTRUMENTS
Each Underlying Fund may invest in variable or floating rate
instruments. Such instruments (including notes purchased directly from issuers)
bear variable or floating interest rates and carry rights that permit holders to
demand payment of the unpaid principal balance plus accrued interest from the
issuers or certain financial intermediaries. Floating rate securities have
interest rates that change whenever there is a change in a designated base rate
while variable rate instruments provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value for
the instrument that approximates its par value.
DELAYED-DELIVERY TRANSACTIONS
Each fixed income Underlying Fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a commitment
by an Underlying Fund to purchase or sell specific securities at a predetermined
price or yield, with payment and delivery taking place after the customary
settlement period for that type of security (and more than seven days in the
future). Typically, no interest accrues to the purchaser until the security is
delivered. Each Underlying Fund may receive fees for entering into
delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, each Underlying
Fund assumes the rights and risks of ownership, including the risk of price and
yield fluctuations. Because an Underlying Fund is not required to pay for
securities until the delivery date, these risks are in addition to the risks
associated with such Underlying Fund's other investments. If an Underlying Fund
remains substantially fully invested at a time when delayed delivery purchases
are outstanding, the delayed-delivery purchases may result in a form of
leverage. When delayed-delivery purchases are outstanding, an Underlying Fund
will set aside appropriate liquid assets in a segregated custodial account to
cover its purchase obligations. When an Underlying Fund has sold a security on a
delayed-delivery basis, such Underlying Fund does not participate in further
gains or losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities, an
Underlying Fund could miss a favorable price or yield opportunity, or could
suffer a loss.
Each Underlying Fund may renegotiate delayed-delivery transactions
after they are entered into, and may sell underlying securities before they are
delivered, which may result in capital gains or losses.
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DOLLAR ROLLS
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, a fixed income Underlying Fund may enter into "dollar
rolls" in which such Underlying Fund sells securities for delivery in the
current month and simultaneously contracts with the same counterparty to
repurchase similar (same type, coupon and maturity) but not identical securities
on a specified future date. An Underlying Fund gives up the right to receive
principal and interest paid on the securities sold. However, an Underlying Fund
would benefit to the extent of any difference between the price received for the
securities sold and lower forward price for the securities purchased plus any
fee income received. Unless such benefits exceed the income and capital
appreciation that would have been realized on the securities sold as part of the
dollar roll, the use of this technique will diminish the investment performance
of an Underlying Fund compared with what such performance would have been
without the use of dollar rolls. Each Underlying Fund will hold and maintain in
a segregated account until the settlement date cash, government securities, or
liquid high-grade debt securities in an amount equal to the value of the
when-issued or forward commitment securities. The benefits derived from the use
of dollar rolls may depend, among other things, upon the Adviser's ability to
predict interest rates correctly. There is no assurance that dollar rolls can be
successfully employed. In addition, the use of dollar rolls by an Underlying
Fund while remaining substantially fully invested increases the amount of an
Underlying Fund's assets that are subject to market risk to an amount that is
greater than such Underlying Fund's net asset value, which could result in
increased volatility of the price of such Underlying Fund's shares.
MORTGAGE-BACKED SECURITIES
Each Underlying Fund may purchase mortgage-backed securities issued by
government and non-government entities such as banks, mortgage lenders, or other
financial institutions. A mortgage-backed security may be an obligation of the
issuer backed by a mortgage or pool of mortgages or a direct interest in an
underlying pool of mortgages. Some mortgage-backed securities, such as
collateralized mortgage obligations or CMOs, make payments of both principal and
interest at a variety of intervals; others make semiannual interest payments at
a predetermined rate and repay principal at maturity (like a typical bond).
Mortgage-backed securities are based on different types of mortgages including
those on commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and an
Underlying Fund may invest in them if the Adviser determines they are consistent
with such Underlying Fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment, which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these securities
and may lower their total returns.
STRIPPED MORTGAGE-BACKED SECURITIES
Government and Bond Funds may invest in stripped mortgage-backed
securities. Such securities are created when a U.S. government agency or a
financial institution separates the interest and principal components of a
mortgage-backed security and sells them as individual securities. The holder of
the "principal-only" security (PO) receives the principal payments made by the
underlying mortgage-backed security, while the holder of the "interest-only"
security (IO) receives interest payments from the same underlying security. The
prices of stripped mortgage-backed securities may be particularly affected by
changes in interest rates. As interest rates fall, prepayment rates tend to
increase, which tends to reduce prices of IOs and increase prices of POs. Rising
interest rates can have the opposite effect.
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ASSET-BACKED SECURITIES
Government and Bond Funds may invest in asset-backed securities.
Asset-backed securities represent interests in pools of consumer loans
(generally unrelated to mortgage loans) and most often are structured as
pass-through securities. Interest and principal payments alternately depend upon
payment of the underlying loans by individuals, although the securities may be
supported by letters of credit or other credit enhancements. The value of
asset-backed securities may also depend on the creditworthiness of the servicing
agent for the loan pool, the originator of the loans, or the financial
institution providing the credit enhancement.
ZERO COUPON BONDS
Each Underlying Fund may invest in zero coupon bonds. Zero coupon bonds
do not make interest payments; instead, they are sold at a deep discount from
their face value and are redeemed at face value when they mature. Because zero
coupon bonds do not pay current income, their prices can be very volatile when
interest rates change. In calculating its dividends, an Underlying Fund takes
into account as income a portion of the difference between a zero coupon bond's
purchase price and its face value.
A broker-dealer creates a derivative zero by separating the interest
and principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the
Financing Corporation (FICO) can also be separated in this fashion. Original
issue zeroes are zero coupon securities originally issued by the U.S.
government, a government agency, or a corporation in zero coupon form.
LOWER-RATED DEBT SECURITIES
Issuers of high yield securities may be highly leveraged and may not
have available to them more traditional methods of financing. Therefore, the
risks associated with acquiring the securities of such issuers generally are
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, issuers of
high yield securities may be more likely to experience financial stress,
especially if such issuers are highly leveraged. During such periods, such
issuers may not have sufficient revenues to meet their interest payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific issuer developments or the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of high yield securities because such securities may be
unsecured and may be subordinated to other creditors of the issuer.
High yield securities frequently have call or redemption features which
would permit an issuer to repurchase the security from an Underlying Fund. If a
call were exercised by the issuer during a period of declining interest rates,
an Underlying Fund likely would have to replace such called security with a
lower yielding security, thus decreasing the net investment income to an
Underlying Fund and dividends to shareholders.
An Underlying Fund may have difficulty disposing of certain high yield
securities because there may be a thin trading market for such securities. The
secondary trading market for high yield securities is generally not as liquid as
the secondary market for higher rated securities. Reduced secondary market
liquidity may have an adverse impact on market price and an Underlying Fund's
ability to dispose of particular issues when necessary to meet such Underlying
Fund's liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer.
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Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. Factors adversely affecting
the market value of high yield securities are likely to adversely affect an
Underlying Fund's net asset value. In addition, an Underlying Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
on a portfolio holding or participate in the restructuring of the obligation.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS
Bond and Government Funds may invest in loans and other direct debt
instruments. Direct debt instruments are interests in amounts owed by a
corporate, governmental, or other borrower to lenders or lending syndicates
(loans and loan participations), to suppliers of goods or services (trade claims
or other receivable), or to other parties. Direct debt instruments are subject
to an Underlying Fund's policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally recognized
rating service. If an Underlying Fund does not receive scheduled interest or
principal payments on such indebtedness, an Underlying Fund's share price and
yield could be adversely affected. Loans that are fully secured offer an
Underlying Fund more protection than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no assurance
that the liquidation of collateral from a secured loan would satisfy the
borrower's obligation, or that the collateral can be liquidated. Indebtedness of
borrowers whose creditworthiness is poor involves substantially greater risks,
and may be highly speculative. Borrowers that are in bankruptcy or restructuring
may never pay off their indebtedness, or may pay only a small fraction of the
amount owed. Direct indebtedness of developing countries will also involve a
risk that the governmental entities responsible for the repayment of the debt
may be unable, or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional risks to
an Underlying Fund. For example, if a loan is foreclosed, an Underlying Fund
could become part owner of any collateral, and would bear the costs and
liabilities associated with owning and disposing of the collateral. In addition,
it is conceivable that under emerging legal theories of lender liability, an
Underlying Fund could be held liable as a co-lender. Direct debt instruments may
also involve a risk of insolvency of the lending bank or other intermediaries.
Direct debt instruments that are not in the form of securities may offer less
legal protection to the Underlying Fund in the event of fraud or
misrepresentation. In the absence of definitive regulatory guidance, an
Underlying Fund relies on the Adviser's research in an attempt to avoid
situations where fraud or misrepresentation could adversely affect such
Underlying Fund.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, an Underlying Fund has direct recourse against the borrower, it
may have to rely on the agent to apply appropriate credit remedies against a
borrower. If assets held by the agent for the benefit of an Underlying Fund were
determined to be subject to the claims of the agent's general creditors, such
Underlying Fund might incur certain costs and delays in rendering payment on the
loan or loan participation and could suffer a loss of principal or interest.
Bond and Government Funds limit the amount of the assets that they
invest in any one issuer or in issuers within the same industry. For purposes of
these limitations, an Underlying Fund generally will treat the borrower as the
"issuer" of indebtedness held by such Underlying Fund. In the case of loan
participations where a bank or other lending institution serves as financial
intermediary between an Underlying Fund and the borrower, if the participation
does not shift to such Underlying Fund the direct debtor/creditor relationship
with the borrower, SEC interpretations require such Underlying Fund, in
appropriate circumstances, to treat both the lending bank or other lending
institution and the borrower as "issuers" for the purpose of determining whether
such Underlying Fund has invested more than 5% of its total assets in a single
issuer. Treating the financial intermediary as an issuer of indebtedness may
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restrict an Underlying Fund's ability to invest in indebtedness related to a
single financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each Underlying Fund may lend
portfolio securities to broker-dealers, banks or other financial borrowers of
securities. As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. However, an Underlying Fund will only enter into
loan arrangements with broker-dealers, banks or other institutions which the
Adviser has determined are creditworthy under guidelines established by the
Underlying Fund's Board of Directors. Each Underlying Fund may also experience a
loss if, upon the failure of a borrower to return loaned securities, the
collateral is not sufficient in value or liquidity to cover the value of such
loaned securities (including accrued interest thereon). However, an Underlying
Fund will receive collateral in the form of cash, United States Government
securities, certificates of deposit or other high-grade, short-term obligations
or interest-bearing cash equivalents equal to at least 102% of the value of the
securities loaned. The value of the collateral and of the securities loaned will
be marked to market on a daily basis. During the time portfolio securities are
on loan, the borrower pays an Underlying Fund an amount equivalent to any
dividends or interest paid on the securities and an Underlying Fund may invest
the cash collateral and earn additional income or may receive an agreed upon
amount of interest income from the borrower. However, the amounts received by an
Underlying Fund may be reduced by finders' fees paid to broker-dealers and
related expenses. Presently, the Underlying Funds do not intend to lend more
than 5% of its net assets to broker-dealers, banks, or other financial borrowers
of securities.
SWAP AGREEMENTS
Swap agreements can be individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors. Depending on their structure, swap agreements may increase or decrease
an Underlying Fund's exposure to long- or short-term interest rates (in the U.S.
or abroad), foreign currency values, mortgage securities, corporate borrowing
rates, or other factors such as security prices or inflation rates. Swap
agreements can take many different forms and are known by a variety of names. An
Underlying Fund is not limited to any particular form of swap agreement if the
Adviser determines it is consistent with such Underlying Fund's investment
objective and policies.
Swap agreements will tend to shift an Underlying Fund's investment
exposure from one type of investment to another. For example, if an Underlying
Fund agrees to exchange payments in dollars for payments in foreign currency,
the swap agreement would tend to decrease an Underlying Fund's exposure to U.S.
interest rates and increase its exposure to foreign currency and interest rates.
Depending on how they are used, swap agreements may increase or decrease the
overall volatility of an Underlying Fund's investments and its share price.
The most significant factor in the performance of swap agreements is
the change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from an Underlying Fund. If a swap
agreement calls for payments by an Underlying Fund, such Underlying Fund must be
prepared to make such payments when due. In addition, if the counterparty's
creditworthiness declines, the value of a swap agreement would be likely to
decline, potentially resulting in losses. An Underlying Fund expects to be able
to eliminate its exposure under swap agreements either by assignment or other
disposition, or by entering into an offsetting swap agreement with the same
party or a similar creditworthy party.
Each Underlying Fund will maintain appropriate liquid assets in a
segregated custodial account to cover its current obligations under swap
agreements. If an Underlying Fund enters into a swap agreement on a net basis,
it will segregate assets with a daily value at least equal to the excess, if
any, of an Underlying Fund's accrued obligations under the swap agreement over
the accrued amount such Underlying Fund is entitled to receive under the
agreement. If an Underlying Fund enters into a swap agreement on other than a
net basis, it will segregate assets with a value equal to the full amount of
such Underlying Fund's accrued obligation under the agreement.
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INDEXED SECURITIES
Each Underlying Fund, other than IAI Money Market Fund, may purchase
securities whose prices are indexed to the prices of other securities,
securities indexes, currencies, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price of
gold, resulting in a security whose price tends to rise and fall together with
gold prices. Currency-indexed securities typically are short to
intermediate-term debt securities whose maturity values or interest rates are
determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies. The Adviser will use its judgment in determining whether
indexed securities should be treated as short-term instruments, bonds, stocks,
or as a separate asset class for purposes of an Underlying Fund's investment
policies, depending on the individual characteristics of the securities. Indexed
securities may be more volatile than the underlying instruments. Presently, each
of the Underlying Funds do not intend to invest more than 5% of its net assets
in Indexed Securities.
ECONOMIES OF JAPAN, THE UNITED KINGDOM AND GERMANY
International Fund may from time to time concentrate more than 25% of
its total assets in the economies of Japan, the United Kingdom and Germany. This
section includes a general discussion of the economy of Germany. The economies
of Japan and the United Kingdom are further described in the Prospectus.
Germany is a federated republic with a population of approximately 80
million and a democratic parliamentary form of government. The German economy is
organized primarily on the basis of private sector ownership, with the state
exerting major influence through ownership in certain sectors, including
transportation, communication and energy. Unification of West Germany with the
formerly communist controlled East Germany took place in 1990.
Industrial activity makes the largest contribution to the German gross
national product. Although only 5% of German businesses are large-scale
enterprises, such large-scale businesses account for over half of industrial
production and employ over half the industrial labor force. Trading volume,
therefore, tends to concentrate on relatively few companies with both large
capitalizations and broad stock ownership. Historically the German economy has
been strongly export oriented. Privatization of formerly state owned enterprise
in what was once East Germany is in progress, but will make little difference to
the predominance of large scale businesses in overall industrial activity and
the stock market.
German equity securities trade predominantly on the country's eight
independent local stock exchanges, the Frankfurt exchange accounting for 70% of
turnover. Subject to the provisions of pertinent securities law, mainly the
Stock Exchange Law of 1896, as amended, the council, management and other
executive organs of the stock exchanges constitute self-administering and
self-regulatory bodies. The "Working Group of German Stock Exchanges"
headquartered in Frankfurt, of which all eight stock exchanges are members,
addresses all policy and administrative questions of national and international
character.
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Prices for active stocks, including those for larger companies are
quoted continuously during stock exchange hours. Less actively traded stocks are
quoted only once a day. Equity shares are normally fully-paid and
non-assessable.
Orders for stock executed for large customers on the stock exchanges
are negotiable. A federal stock exchange turnover tax, ranging up to 0.25%, is
levied on all securities transactions other than those between banks acting as
principal. Nonresidents such as the Underlying Fund are charged half these
rates.
German equity securities are denominated in Deutchemarks. Deutchemarks
are fully convertible and transferable into all currencies, without
administrative or legal restrictions, for both nonresidents and residents of
Germany. Since 1974, the Deutchemark has traded on a floating exchange rate
basis against all currencies.
NO RATING CRITERIA FOR DEBT SECURITIES -
DEVELOPING COUNTRIES FUND AND LATIN AMERICA FUND
Developing Countries Fund and Latin America Fund have established no
rating criteria for the debt securities in which it may invest. Therefore, the
Underlying Funds may invest in debt securities either (a) which are rated in one
of the top four rating categories by a nationally recognized rating organization
or which possess similar credit characteristics ("investment grade securities")
or (b) which are rated below the top four rating categories or which possess
similar credit characteristics ("high yield securities"). Ratings are one of
several factors utilized in performing a credit analysis of issuers.
Issuers of high yield securities may be highly leveraged and may not
have available to them more traditional methods of financing. Therefore, the
risks associated with acquiring the securities of such issuers generally are
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, issuers of
high yield securities may be more likely to experience financial stress,
especially if such issuers are highly leveraged. During such periods, such
issuers may not have sufficient revenues to meet their interest payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific issuer developments or the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of high yield securities because such securities may be
unsecured and may be subordinated to other creditors of the issuer.
High yield securities frequently have call or redemption features which
would permit an issuer to repurchase the security from the Underlying Fund. If a
call were exercised by the issuer during a period of declining interest rates,
the Underlying Fund likely would have to replace such called security with a
lower yielding security, thus decreasing the net investment income to the
Underlying Fund and dividends to shareholders.
Developing Countries Fund and Latin American Fund may have difficulty
disposing of certain high yield securities because there may be a thin trading
market for such securities. The secondary trading market for high yield
securities is generally not as liquid as the secondary market for higher rated
securities. Reduced secondary market liquidity may have an adverse impact on
market price and an Underlying Fund's ability to dispose of particular issues
when necessary to meet an Underlying Fund's liquidity needs or in response to a
specific economic event such as a deterioration in the creditworthiness of the
issuer.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. Factors adversely affecting
the market value of high yield securities are likely to adversely affect
Developing Countries Fund's net asset value. In addition, the Underlying Fund
may incur additional expenses to the extent it is required to seek recovery upon
a default on a portfolio holding or participate in the restructuring of the
obligation.
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ADDITIONAL RISK CONSIDERATIONS ASSOCIATED WITH FOREIGN INVESTING
Investors should consider carefully the substantial risks involved with
respect to investing in securities of companies and governments of foreign
nations, which are in addition to the usual risks inherent in domestic
investments. Such risks are heightened with respect to investments in developing
countries. There may be less publicly available information about foreign
companies comparable to the reports and ratings published about companies in the
United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing practices
and requirements may not be comparable to those applicable to United States
companies. Foreign markets typically have substantially less volume than the New
York Stock Exchange and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Commission
rates in foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the United States.
Investments in developing countries may be subject to potentially
higher risks than investments in developed countries. These risks include (i)
less social, political and economic stability; (ii) the small current size of
the markets for such securities and the currently low or nonexistent volume of
trading, which may result in a lack of liquidity and in greater price
volatility; (iii) certain national policies which may restrict the Underlying
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (vi) the limited
development and recent emergence, in certain countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in certain countries may be slowed or reversed
by unanticipated political or social events in such countries.
Despite the recent dissolution of the Soviet Union, the Communist Party
may continue to exercise a significant role in certain (particularly Eastern
European) countries. To the extent of the Communist Party's influence,
investments in such countries will involve risks of nationalization,
expropriation and confiscatory taxation. The communist governments of a number
of such countries expropriated large amounts of private property in the past, in
many cases without adequate compensation, and there can be no assurance that
such expropriation will not occur in the future. In the event of such
expropriation, an Underlying Fund could lose a substantial portion of any
investments it has made in the affected countries. Further, no accounting
standards exist in many developing countries. Finally, even though certain
currencies may be convertible into U.S. dollars, the conversion rates may be
artificial to the actual market values and may be adverse to Underlying Fund
shareholders.
Certain countries, which do not have market economies, are
characterized by an absence of developed legal structures governing private and
foreign investments and private property. Certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
of foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals.
Authoritarian governments in certain countries may require that a
governmental or quasi-governmental authority to act as custodian of an
Underlying Fund's assets invested in such country. To the extent such
governmental or quasi-governmental authorities do not satisfy the requirements
of the 1940 Act to act as foreign custodians of the Underlying Fund's cash and
securities, an Underlying Fund's investment in such countries may be limited or
may be required to be effected through intermediaries. The risk of loss through
governmental confiscation may be increased in such countries.
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An Underlying Fund endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread on currency exchange (to
cover service charges) may be incurred, particularly when an Underlying Fund
changes investments from one country to another or when proceeds from the sale
of shares in U.S. dollars are used for the purchase of securities in foreign
countries. Also, some countries may adopt policies which would prevent an
Underlying Fund from transferring cash out of the country, withhold portions of
interest and dividends at the source, or impose other taxes, with respect to an
Underlying Fund's investments in securities of issuers of that country. Although
an Underlying Fund invests only in foreign nations which it considers as having
relatively stable and friendly governments, there is the possibility of
expropriation, nationalization, confiscatory or other taxation, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), default in foreign government securities, political or social
instability or diplomatic developments that could affect investments in
securities of issuers in those nations.
An Underlying Fund may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. Through an Underlying Fund's flexible policy,
management endeavors to avoid unfavorable consequences and to take advantage of
favorable developments in particular nations where from time to time it places
an Underlying Fund's investments.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses. However, in the absence of willful misfeasance, bad faith or gross
negligence on the part of the investment manager, any losses resulting from the
holding of an Underlying Fund's portfolio securities in foreign countries and/or
with securities depositories will be at the risk of the shareholders.
An Underlying Fund's ability to reduce or eliminate its futures and
related options positions will depend upon the liquidity of the secondary
markets for such futures and options. Each Underlying Fund intends to purchase
or sell futures and related options only on exchanges or boards of trade where
there appears to be an active secondary market, but there is no assurance that a
liquid secondary market will exist for any particular contract or at any
particular time. Use of stock index futures and related options for hedging may
involve risks because of imperfect correlation between movements in the prices
of the futures or related options and movements in the prices of the securities
being hedged. Successful use of futures and related options by an Underlying
Fund for hedging purposes also depends upon the investment manager's ability to
predict correctly movements in the direction of the market, as to which no
assurance can be given.
SPECIAL CONSIDERATIONS AFFECTING LATIN AMERICA
Latin America is a region rich in natural resources such as oil,
copper, tin, silver, iron ore, forestry, fishing, livestock, and agriculture.
The region has a large population (over 300 million) representing a large
domestic market. The region has been transitional over the last five years from
the stagnant 1980s which were characterized by poor economic policies, higher
international interest rates, and limited access to new foreign capital.
High inflation and low economic growth have given way to stable
manageable inflation rates and higher economic growth. Changes in political
leadership, the implementation of market-oriented economic policies, such as
privatization, trade reform and monetary reform have been among the recent steps
taken to modernize the Latin American economies and to regenerate growth in the
region. Various trade agreements have also been formed within the region such as
the Andean Pact, Mercosur and NAFTA. The largest of these is NAFTA, which was
implemented on January 1, 1994.
Latin American equity markets can be extremely volatile and in the past
have shown little correlation with the U.S. market. Currencies are typically
weak, but most are now relatively free floating, and it is not unusual for the
currencies to undergo wide fluctuations in value over short periods of time due
to changes in the market.
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Mexico's economy has been transformed significantly over the last 6-7
years. In the past few years, the government has sold the telephone company, the
major steel companies, the banks and many others. The major state ownership
remaining is in the oil sector and the electricity sector. The U.S. is Mexico's
major trading partner, accounting for two-thirds of its exports and imports. The
government in consultation with international economic agencies, is implementing
programs to stabilize the economy and foster growth. For example, Mexico, the
U.S. and Canada implemented the North American Free Trade Agreement. This
cooperation is expected to lead to increased trade and reduced barriers.
In the early 1980s, Mexico experienced a foreign debt crisis. By 1987,
foreign debt had reached prohibitive levels, accounting for 90 to 95 percent of
GDP. By the end of 1994, a large current account deficit, fueled in part by
expansionary policy, and the burden of its large national debt forced the
Mexican government to devalue the peso, triggering a severe crisis of
confidence. Both the crisis and measures taken to stabilize the economy since,
have led to severely reduced domestic demand, which has been only partially
offset by positive trade-related activity.
Brazil entered the 1990s with declining real growth, runaway inflation,
an unserviceable foreign debt of $122 billion, and a lack of policy direction.
Over the past two years, Brazil was able to stabilize its domestic economy
through a process of balancing the government budget, the privatization of state
enterprises, deregulation and reduction of red tape and introducing greater
competition in the domestic business environment. Inflation has been reduced to
about 3% a month from 50% a month since mid-1994. A major long-run strength is
Brazil's natural resources. Iron ore, bauxite, tin, gold, and forestry products
make up some of Brazil's basic natural resource base, which includes some of the
largest mineral reserves in the world. In terms of population, Brazil is the
sixth-largest in the world with about 155 million people and represents a huge
domestic market.
Chile, like Brazil, is endowed with considerable mineral resources, in
particular copper. Economic reform has been ongoing in Chile for at least 15
years, but political democracy has only recently returned to Chile.
Privatization of the public sector beginning in the early 1980s has bolstered
the equity market. A well organized pension system has created a long-term
domestic investor base.
Argentina is strong in wheat production and other foodstuffs and
livestock ranching. A well-educated and skilled population boasts one of the
highest literacy rates in the region. The country has been ravaged by decades of
extremely high inflation and political instability. Thanks to structural
reforms, the revitalized Argentine economy has been among the top three fastest
growing economies in the world over the last three years. The newly created
Argentine economic institutions have integrated the country with the rest of the
world, leaving the state to concentrate on its essential functions.
Privatization is ongoing and should reduce the amount of external debt
outstanding. The markets for labor, capital and goods and services has been
deregulated. Nearly all non-tariff barriers and export taxes have been
eliminated, the tariff structure simplified and tariffs sharply reduced.
Venezuela has substantial oil reserves. External debt is being
re-negotiated, and the government is implementing economic reform in order to
reduce the size of the public sector. Internal gasoline prices, which are
one-third those of international prices, are being increased in order to reduce
subsidies. Plans for privatization and exchange and interest rate liberalization
are examples of recently introduced reforms.
FOREIGN CURRENCY TRANSACTIONS
Each Underlying Fund, other than IAI Money Market Fund whose foreign
currency holdings must be denominated in U.S. dollars, may hold foreign currency
deposits from time to time and may convert dollars and foreign currencies in the
foreign exchange markets. Currency conversion involves dealer spreads and other
costs, although commissions usually are not charged. Currencies may be exchanged
on a spot (i.e., cash) basis, or by entering into forward contracts to purchase
or sell foreign currencies at a future date and price. Forward contracts
generally are traded in an interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. The parties to a
forward contract may agree to offset or terminate the contract before its
maturity, or may hold the contract to maturity and complete the contemplated
currency exchange.
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Such Underlying Funds may use currency forward contracts to manage
currency risks and to facilitate transactions in foreign securities. The
following discussion summarizes the principal currency management strategies
involving forward contracts that could be used by the Underlying Funds.
In connection with purchases and sales of securities denominated in
foreign currencies, an Underlying Fund may enter into currency forward contracts
to fix a definite price for the purchase or sale in advance of the trade's
settlement date. This technique is sometimes referred to as a "settlement hedge"
or "transaction hedge." the Adviser expects to enter into settlement hedges in
the normal course of managing an Underlying Fund's foreign investments. An
Underlying Fund could also enter into forward contracts to purchase or sell a
foreign currency in anticipation of future purchases or sales of securities
denominated in foreign currency, even if the specific investments have not yet
been selected by the Adviser.
Each Underlying Fund may also use forward contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
For example, if an Underlying Fund owned securities denominated in pounds
sterling, it could enter into a forward contract to sell pounds sterling in
return for U.S. dollars to hedge against possible declines in the pound's value.
Such a hedge, sometimes referred to as a "position hedge," would tend to offset
both positive and negative currency fluctuations but would not offset changes in
security values caused by other factors. An Underlying Fund could also hedge the
position by selling another currency expected to perform similarly to the pound
sterling -- for example, by entering into a forward contract to sell
Deutschemarks or European Currency Units in return for U.S. dollars. This type
of hedge, sometimes referred to as a "proxy hedge," could offer advantages in
terms of cost, yield, or efficiency, but generally would not hedge currency
exposure as effectively as a simple hedge into U.S. dollars. Proxy hedges may
result in losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.
Under certain conditions, SEC guidelines require mutual funds to set
aside appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, each Underlying Fund
will segregate assets to cover currency forward contracts, if any, whose purpose
is essentially speculative. Each Underlying Fund will not segregate assets to
cover forward contracts entered into for hedging purposes, including settlement
hedges, position hedges, and proxy hedges.
Successful use of forward currency contracts will depend on the
Adviser's skill in analyzing and predicting currency values. Forward contracts
may substantially change an Underlying Fund's investment exposure to changes in
currency exchange rates, and could result in losses to an Underlying Fund if
currencies do not perform as the Adviser anticipates. For example, if a
currency's value rose at a time when the Adviser had hedged an Underlying Fund
by selling that currency in exchange for dollars, such Underlying Fund would be
unable to participate in the currency's appreciation. If the Adviser hedges
currency exposure through proxy hedges, an Underlying Fund could realize
currency losses from the hedge and the security position at the same time if the
two currencies do not move in tandem. Similarly, if the Adviser increases an
Underlying Fund's exposure to a foreign currency, and that currency's value
declines, such Underlying Fund will realize a loss. There is no assurance that
the Adviser's use of forward currency contracts will be advantageous to an
Underlying Fund or that it will hedge at an appropriate time. The policies
described in this section are non-fundamental policies of the Underlying Funds.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS
Each Underlying Fund, other than IAI Money Market Fund has filed a notice
of eligibility for exclusion from the definition of the term "commodity pool
operator" with the Commodity Futures Trading Commission (CFTC) and the National
Futures Association, which regulate trading in the futures markets, before
engaging in any purchases or sales of futures contracts or options on futures
contracts. Each Underlying Fund intends to comply with Section 4.5 of the
regulations under the Commodity Exchange Act, which limits the extent to which
an Underlying Fund can commit assets to initial margin deposits and option
premiums.
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The above limitation on an Underlying Fund's investments in futures
contracts and options, and such Underlying Fund's policies regarding futures
contracts and options discussed elsewhere in this Statement of Additional
Information may be changed as regulatory agencies permit. With respect to
positions in commodity futures or commodity option contracts which do not come
within the meaning and intent of bona fide hedging in the CFTC rules, the
aggregate initial margin and premiums required to establish such positions will
not exceed five percent of the liquidation value of the qualifying entity's
portfolio, after taking into account unrealized profits and unrealized losses on
any such contracts it has entered into; and, provided further, that in the case
of an option that is in-the-money, the in-the-money amount may be excluded in
computing such 5 percent.
FUTURES CONTRACTS
When an Underlying Fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When an
Underlying Fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and sale
will take place is fixed when an Underlying Fund enters into the contract. Some
currently available futures contracts are based on specific securities, such as
U.S. Treasury bonds or notes, and some are based on indexes of securities
prices, such as the Standard & Poor's 500 Composite Stock Price Index (S&P 500).
Futures can be held until their delivery dates, or can be closed out before then
if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore, purchasing
futures contracts will tend to increase an Underlying Fund's exposure to
positive and negative price fluctuations in the underlying instrument, much as
if it had purchased the underlying instrument directly. When an Underlying Fund
sells a futures contract, by contrast, the value of its futures position will
tend to move in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price changes,
much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS
The purchaser or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is held until
the delivery date. However, both the purchaser and seller are required to
deposit "initial margin" with a futures broker, known as a futures commission
merchant (FCM), when the contract is entered into. Initial margin deposits are
typically equal to a percentage of the contract's value. If the value of either
party's position declines, that party will be required to make additional
"variation margin" payments to settle the change in value on a daily basis. The
party that has a gain may be entitled to receive all or a portion of this
amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of an Underlying Fund's investment
limitations. In the event of the bankruptcy of an FCM that holds margin on
behalf of an Underlying Fund, such Underlying Fund may be entitled to return of
margin owed to it only in proportion to the amount received by the FMC's other
customers, potentially resulting in losses to such Underlying Fund.
PURCHASING PUT AND CALL OPTIONS
By purchasing a put option, an Underlying Fund obtains the right (but
not the obligation) to sell the option's underlying instrument at a fixed strike
price. In return for this right, an Underlying Fund pays the current market
price for the option (known as the option premium). Options have various types
of underlying instruments, including specific securities, indexes of securities
prices, and futures contracts. An Underlying Fund may terminate its position in
a put option it has purchased by allowing it to expire or by exercising the
option. If the option is allowed to expire, an Underlying Fund will lose the
entire premium it paid. If an Underlying Fund exercises the option, it completes
the sale of the underlying instrument at the strike price. An Underlying Fund
may also terminate a put option position by closing it out in the secondary
market at its current price, if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs).
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The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to suffer
a loss if security prices do not rise sufficiently to offset the cost of the
option.
WRITING PUT AND CALL OPTIONS
When an Underlying Fund writes a put option, it takes the opposite side
of the transaction from the option's purchaser. In return for receipt of the
premium, such Underlying Fund assumes the obligation to pay the strike price for
the option's underlying instrument if the other party to the option chooses to
exercise it. When writing an option on a futures contract an Underlying Fund
would be required to make margin payments to an FCM as described above for
futures contracts. An Underlying Fund may seek to terminate its position in a
put option it writes before exercise by closing out the option in the secondary
market at its current price. If the secondary market is not liquid for a put
option an Underlying Fund has written, however, such Underlying Fund must
continue to be prepared to pay the strike price while the option is outstanding,
regardless of price changes, and must continue to set aside assets to cover its
position. If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received.
If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer a
loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.
Writing a call option obligates an Underlying Fund to sell or deliver
the option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options are similar
to those of writing put options, except that writing calls generally is a
profitable strategy if prices remain the same or fall. Through receipt of the
option premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
COMBINED POSITIONS
An Underlying Fund may purchase and write options in combination with
each other, or in combination with futures or forward contracts, to adjust the
risk and return characteristics of the overall position. For example, an
Underlying Fund may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES
Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match an Underlying Fund's current or anticipated investments exactly.
An Underlying Fund may invest in options and futures contracts based on
securities with different issuers, maturities, or other characteristics from the
securities in which it typically invests, which involves a risk that the options
or futures position will not track the performance of such Underlying Fund's
other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match an Underlying
Fund's investments well. Options and futures prices are affected by such factors
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as current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. An Underlying Fund may purchase or sell
options and futures contracts with a greater or lesser value than the securities
it wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in an Underlying Fund's
options or futures positions are poorly correlated with its other investments,
the positions may fail to produce anticipated gains or result in losses that are
not offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS
There is no assurance a liquid secondary market will exist for any
particular options or futures contract at any particular time. Options may have
relatively low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges may
establish daily price fluctuation limits for options and futures contracts, and
may halt trading if a contract's price moves upward or downward more than the
limit in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for an Underlying
Fund to enter into new positions or close out existing positions. If the
secondary market for a contract is not liquid because of price fluctuation
limits or otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require an Underlying Fund to continue to hold
a position until delivery or expiration regardless of changes in its value. As a
result, an Underlying Fund's access to other assets held to cover its options or
futures positions could also be impaired.
OTC OPTIONS
Unlike exchange-traded options, which are standardized with respect to
the underlying instrument, expiration date, contract size, and strike price, the
terms of over-the-counter options (options not traded on exchanges) generally
are established through negotiation with the other party to the option contract.
While this type of arrangement allows an Underlying Fund greater flexibility to
tailor an option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing organization
of the exchanges where they are traded.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES
Currency futures contracts are similar to forward currency exchange
contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date. Most
currency futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency, which
generally is purchased or delivered in exchange for U.S. dollars, or may be a
futures contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the right
to sell the underlying currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indexes, as discussed above. An
Underlying Fund may purchase and sell currency futures and may purchase and
write currency options to increase or decrease its exposure to different foreign
currencies. An Underlying Fund may also purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with exchange
rates, but may not reflect other factors that affect the value of an Underlying
Fund's investments. A currency hedge, for example, should protect a
yen-denominated security from a decline in the yen, but will not protect an
Underlying Fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of an Underlying Fund's
foreign-denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency options
and futures to the value of an Underlying Fund's investments exactly over time.
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ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS
Each Underlying Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to coverage of options and
futures strategies by mutual funds, and if the guidelines so require will set
aside appropriate liquid assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures or option strategy is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a large
percentage of an Underlying Fund's assets could impede portfolio management or
an Underlying Fund's ability to meet redemption requests or other current
obligations.
INVESTMENT RESTRICTIONS
LIFEUSA FUNDS, INC.
As indicated in the Prospectus, each Portfolio is subject to certain
policies and restrictions which are "fundamental" and may not be changed without
shareholder approval. Shareholder approval consists of the approval of the
lesser of (i) more than 50% of the outstanding voting securities of a Portfolio,
or (ii) 67% or more of the voting securities present at a meeting if the holders
of more than 50% of the outstanding voting securities of a Portfolio are present
or represented by proxy. Limitations 1 through 8 below are deemed fundamental
limitations. The remaining limitations set forth below serve as operating
policies of each Portfolio and may be changed by the Board of Directors without
shareholder approval.
Each Portfolio may not:
1. Purchase the securities of any issuer if such purchase would cause the
Portfolio to fail to meet the requirements of a "diversified company" as defined
under the Investment Company Act of 1940, as amended (the "1940 Act").
As currently defined in the 1940 Act, "diversified company" means a
management company which meets the following requirements: at least 75% of the
value of its total assets is represented by cash and cash items (including
receivables), Government securities, securities of other investment companies,
and other securities for the purposes of this calculation limited in respect of
any one issuer to an amount not greater in value than 5% of the value of the
total assets of such management company and not more than 10% of the outstanding
voting securities of such issuer.
2. Purchase the securities of any issuer (other than "Government
securities" as defined under the 1940 Act and the Underlying Funds) if, as a
result, more than 25% of the value of the Portfolio's total assets would be
invested in the securities of companies whose principal business activities are
in the same industry.
For purposes of applying this restriction, a Portfolio will not purchase
securities, as defined above, such that 25% or more of the value of the
Portfolio's total assets are invested in the securities of companies whose
principal business activities are in the same industry.
3. Issue any senior securities, except as permitted by the 1940 Act or the
Rules and Regulations of the Securities and Exchange Commission.
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4. Borrow money, except from banks for temporary or emergency purposes
provided that such borrowings may not exceed 33-1/3% of the value of the
Portfolio's net assets (including the amount borrowed). Any borrowings that come
to exceed this amount will be reduced within three days (not including Sundays
and holidays) to the extent necessary to comply with the 33-1/3% limitation.
This limitation shall not prohibit the Portfolio from engaging in reverse
repurchase agreements, making deposits of assets to margin or guarantee
positions in futures, options, swaps or forward contracts, or segregating assets
in connection with such agreements or contracts.
To the extent the Portfolio engages in reverse repurchase agreements,
because such transactions are considered borrowing, reverse repurchase
agreements are included in the 33-1/3% limitation.
5. Act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities the
Portfolio may be deemed to be an underwriter under applicable laws.
6. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments. This restriction shall not prevent the
Portfolio from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business.
7. Purchase or sell commodities other than foreign currencies unless
acquired as a result of ownership of securities. This limitation shall not
prevent the Portfolio from purchasing or selling options, futures, swaps and
forward contracts or from investing in securities or other instruments backed by
commodities.
8. Make loans to other persons except to the extent not inconsistent with
the 1940 Act or the Rules and Regulations of the Securities and Exchange
Commission. This limitation does not apply to purchases of commercial paper,
debt securities or repurchase agreements, or to the lending of portfolio
securities.
9. Purchase securities on margin, except that the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases or sales
of securities and provided that margin payments in connection with transactions
in options, futures, swaps and forward contracts shall not be deemed to
constitute purchasing securities on margin.
10. Sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, and
provided that transactions in options, swaps and forward futures contracts are
not deemed to constitute selling securities short.
For purposes of applying this restriction, a Portfolio will not sell
securities short except to the extent that it contemporaneously owns or has the
right to obtain, at no added cost, securities identical to those sold short.
11. Mortgage, pledge or hypothecate its assets except to the extent
necessary to secure permitted borrowings. This limitation does not apply to
reverse repurchase agreements or in the case of assets deposited to margin or
guarantee positions in futures, options, swaps or forward contracts or placed in
a segregated account in connection with such contracts.
12. Participate on a joint or a joint and several basis in any securities
trading account.
13. Invest more than 15% of its net assets in illiquid investments.
14. Invest directly in interests (including partnership interests) in oil,
gas or other mineral exploration or development leases or programs, except the
Portfolio may purchase or sell securities issued by corporations engaging in
oil, gas or other mineral exploration or development business.
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Any of a Portfolio's investment policies set forth under "Investment
Objective and Policies" in the Prospectus, or any restriction set forth above
under "Investment Restrictions" which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities or
utilization of assets and results therefrom. With respect to Restriction 13, a
Portfolio is under a continuing obligation to ensure that it does not violate
the maximum percentage either by acquisition or by virtue of a decrease in the
value of the Portfolio's liquid assets.
Because of their investment objectives and policies, the Portfolios will
each concentrate more than 25% of their assets in the mutual fund industry. In
accordance with the Portfolios' investment programs set forth in the Prospectus,
each of the Portfolios may invest more than 25% of its assets in certain
Underlying Funds. However, each of the Underlying Funds in which each Fund will
invest will not concentrate more than 25% of its total assets in any one
industry.
UNDERLYING FUNDS
Each Underlying Fund is subject to certain policies and restrictions
which are "fundamental" and may not be changed without shareholder approval.
Shareholder approval consists of the approval of the lesser of (i) more than 50%
of the outstanding voting securities of an Underlying Fund, or (ii) 67% or more
of the voting securities present at a meeting if the holders of more than 50% of
the outstanding voting securities of an Underlying Fund are present or
represented by proxy. Limitations 1 through 8 below are deemed fundamental
limitations. The remaining limitations set forth below serve as operating
policies of each Fund and may be changed by the Board of Directors without
shareholder approval.
Each Underlying Fund may not:
1. Purchase the securities of any issuer if such purchase would cause the
Underlying Fund to fail to meet the requirements of a "diversified company" as
defined under the Investment Company Act of 1940, as amended (the "1940 Act").
As currently defined in the 1940 Act, "diversified company" means a
management company which meets the following requirements: at least 75% of the
value of its total assets is represented by cash and cash items (including
receivables), Government securities, securities of other investment companies
and other securities for the purposes of this calculation limited in respect of
any one issuer to an amount not greater in value than 5% of the value of the
total assets of such management company and not more than 10% of the outstanding
voting securities of such issuer.
2. Purchase the securities of any issuer (other than "Government
securities" as defined under the 1940 Act) if, as a result, more than 25% of the
value of the Underlying Fund's total assets would be invested in the securities
of companies whose principal business activities are in the same industry.
3. Issue any senior securities, except as permitted by the 1940 Act or the
Rules and Regulations of the Securities and Exchange Commission.
4. Borrow money, except from banks for temporary or emergency purposes
provided that such borrowings may not exceed 33-1/3% of the value of the
Underlying Fund's net assets (including the amount borrowed). Any borrowings
that come to exceed this amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with the 33-1/3%
limitation. This limitation shall not prohibit the Underlying Fund from engaging
in reverse repurchase agreements, making deposits of assets to margin or
guarantee positions in futures, options, swaps or forward contracts, or
segregating assets in connection with such agreements or contracts.
To the extent the Underlying Fund engages in reverse repurchase agreements,
because such transactions are considered borrowing, reverse repurchase
agreements are included in the 33-1/3% limitation.
-20-
<PAGE>
5. Act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities the
Underlying Fund may be deemed to be an underwriter under applicable laws.
6. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments. This restriction shall not prevent the
Underlying Fund from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business.
7. Purchase or sell commodities other than foreign currencies unless
acquired as a result of ownership of securities. This limitation shall not
prevent the Underlying Fund from purchasing or selling options, futures, swaps
and forward contracts or from investing in securities or other instruments
backed by commodities.
8. Make loans to other persons except to the extent not inconsistent with
the 1940 Act or the Rules and Regulations of the Securities and Exchange
Commission. This limitation does not apply to purchases of commercial paper,
debt securities or repurchase agreements, or to the lending of portfolio
securities.
9. Purchase securities on margin, except that the Underlying Fund may
obtain such short-term credits as may be necessary for the clearance of
purchases or sales of securities and provided that margin payments in connection
with transactions in options, futures, swaps and forward contracts shall not be
deemed to constitute purchasing securities on margin.
10. Sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, and
provided that transactions in options, swaps and forward futures contracts are
not deemed to constitute selling securities short.
11. Except as part of a merger, consolidation, acquisition, or
reorganization, invest more than 5% of the value of its total assets in the
securities of any one investment company or more than 10% of the value of its
total assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting securities of
any one investment company.
12. Mortgage, pledge or hypothecate its assets except to the extent
necessary to secure permitted borrowings. This limitation does not apply to
reverse repurchase agreements or in the case of assets deposited to margin or
guarantee positions in futures, options, swaps or forward contracts or placed in
a segregated account in connection with such contracts.
13. Participate on a joint or a joint and several basis in any securities
trading account.
14. Invest more than 15% of its net assets in illiquid investments (10% for
IAI Developing Countries Fund and IAI Money Market Fund).
15. Invest directly in interests (including partnership interests) in oil,
gas or other mineral exploration or development leases or programs, except the
Underlying Fund may purchase or sell securities issued by corporations engaging
in oil, gas or other mineral exploration or development business.
Any of an Underlying Fund's investment policies set forth under "Investment
Objectives and Policies" in the Prospectus, or any restriction set forth above
under "Investment Restrictions" which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities or
utilization of assets and results therefrom. With respect to Restriction 14, an
Underlying Fund is under a continuing obligation to ensure that it does not
violate the maximum percentage either by acquisition or by virtue of a decrease
in the value of the Underlying Fund's liquid assets.
-21-
<PAGE>
PORTFOLIO TURNOVER
Each Portfolio's turnover rate is not expected to exceed 25% annually.
A Portfolio may purchase or sell securities to: (a) accommodate purchases and
sales of its shares, (b) change the percentages of its assets invested in each
of the Underlying Funds in response to market conditions, and (c) maintain or
modify the allocation of its assets between equity and fixed income funds and
among the Underlying Funds within the percentage limits described in the
Prospectus.
The turnover rates of the Underlying Funds have ranged from 39.2% to 284.1%
during their most recent fiscal years. There can be no assurance that the
turnover rates of these Underlying Funds will remain within this range during
subsequent fiscal years. High turnover rates may result in higher expenses being
incurred by the Underlying Funds.
INVESTMENT PERFORMANCE
Advertisements and other sales literature for each Portfolio may refer
to monthly, quarterly, yearly, cumulative and average annual total return. Each
such calculation assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged as expenses to all shareholder accounts. Each of
monthly, quarterly and yearly total return is computed in the same manner as
cumulative total return, as set forth below.
Cumulative total return is computed by finding the cumulative rate of
return over the period indicated in the advertisement that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
CTR = (ERV-P) 100
-------
P
Where: CTR = Cumulative total return;
ERV = ending redeemable value at the end
of the period of a hypothetical
$1,000 payment made at the
beginning of such period; and
P = initial payment of $1,000
Average annual total return is computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment
of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end
of the period of a hypothetical
$1,000 payment made at the
beginning of such period.
-22-
<PAGE>
A Portfolio may quote yield figures from time to time. The "yield" is
computed by dividing the net investment income per share earned during a 30-day
period (using the average number of shares entitled to receive dividends) by the
net asset value per share on the last day of the period. The yield formula
provides for semiannual compounding which assumes that net investment income is
earned and reinvested at a constant rate and annualized at the end of a
six-month period.
The yield formula is as follows:
YIELD = 2[(a-b + 1)6 -1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the net asset value of the Portfolio.
In advertising and sales literature, each Portfolio may compare its
performance with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data, and other competing
investment and deposit products available from or through other financial
institutions. The composition of these indices, averages or products differs
from that of a Portfolio. The comparison of a Portfolio to an alternative
investment should be made with consideration of differences in features and
expected performance.
The indexes and averages noted below will be obtained from the
indicated sources or reporting services, which the Portfolios believe to be
generally accurate. Each Portfolio may also note its mention in newspapers,
magazines, or other media from time to time. However, such Portfolio assumes no
responsibility for the accuracy of such data.
For example, (1) a Portfolio's performance or P/E ratio may be compared to
any one or a combination of the following: (i) the Standard & Poor's 500 Stock
Index and Dow Jones Industrial Average so that you may compare the Portfolio's
results with those of a group of unmanaged securities widely regarded by
investors as representative of the U.S. stock market in general; (ii) Standard
and Poor's 500 Composite Stock Price Index, a well diversified list of 500
companies representing the U.S. Stock Market; (iii) Wilshire 5000 Equity Index,
which consists of more than 6,000 common equity securities, covering all stocks
in the U.S. for which daily pricing is available; (iii) Wilshire 4500 Equity
Index, which consists of all stocks in the Wilshire 5000 except for the 500
stocks in the Standard and Poor's 500 Index; (iv) Morgan Stanley Capital
International EAFE Index, an arithmetic, market value-weighted average of the
performance of over 900 securities listed on the stock exchanges of countries in
Europe, Australia and the Far East; (v) MSCI EMF Index, an arithmetic, market
value-weighted average of the performance of securities listed on the stock
exchanges of twenty-two developing countries; (vi) MSCI EAFE + Select EMF Index
- - an arithmetic, market value-weighted average of the performance of securities
listed on the stock markets of Europe, Australia, the Far East and fourteen
developing countries; (vii) Goldman Sachs 100 Convertible Bond Index, which
currently includes 71 bonds and 29 preferreds. The original list of names was
generated by screening for convertible issues of $100 million of greater in
market capitalization. The index is priced monthly; (viii) Salomon Brothers GNMA
Index, which includes pools of mortgages originated by private lenders and
guaranteed by the mortgage pools of the Government National Mortgage
Association; (ix) Salomon Brothers High-Grade Corporate Bond Index, which
consists of publicly issued, non-convertible corporate bonds rated Aa or Aaa. It
is a value-weighted, total return index, including approximately 800 issues with
maturities of 12 years or greater; (x) Lehman Long-Term Treasury Bond, which is
composed of all bonds covered by the Shearson Lehman Hutton Treasury Bond Index
with maturities of 10 years or greater; (xi) Merrill Lynch Corporate and
Government Bond, which consists of over 4,000 U.S. Treasury, Agency and
investment grade corporate bonds; (xii) Lehman Corporate (Baa) Bond Index, which
consists of all publicly offered, fixed-rate, nonconvertible domestic corporate
bonds rated Baa by Moody's, with a maturity longer than 1 year and with more
than $25 million outstanding . This index includes over 1,000 issues; (xiii)
Bond Buyer Municipal Index (20 year) Bond, a yield index on current coupon
-23-
<PAGE>
high-grade general obligation municipal bonds; (xiv) Standard & Poor's
Preferred Index, a yield index based upon the average yield of four high-grade,
non-callable preferred stock issues; (xv) NASDAQ Industrial Index, which is
composed of more than 3,000 industrial issues. It is a value-weighted index
calculated on price change only and does not include income; (xvi) Composite
Index, which consists of 70% Standard & Poor's 500 Index and 30% NASDAQ
Industrial Index; (xvii) Composite Index, which consists of 65% Standard &
Poor's 500 Index and 35% Lehman Long-Term Corporate AA or Better Bond Index;
(xviii) Composite Index, which consists of 65% Lehman Long-Term Corporate AA or
Better Bond Index and a 35% weighting in a blended equity composite (75%
Standard & Poor's/BARRA Value Index and 25% Standard & Poor's Utilities Index.);
(xix) Lehman Long-Term Corporate AA or Better Bond Index - consists of all
publicly issued, fixed rate, nonconvertible investment grade, dollar
denominated, SEC-registered corporate debt rated AA or AAA; (xx) Lehman Brothers
Aggregate Bond Index - which is a market weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated BBB or better. The index has a market value of over
$4 trillion; (xxi) Lehman Brothers Mutual Fund Short (1-5) Government/Corporate
Index, a market weighted index that contains individually priced U.S. Treasury,
agency and corporate investment grade bonds rated BBB or better, with maturities
between 1 and 5 years. The index has a market value of over $1.3 trillion;
(xxii) Lehman Brothers Mutual Fund Intermediate (5-10) Government/Corporate
Index, a market weighted index that contains individually priced U.S. Treasury,
agency, and corporate securities rated BBB or better, with maturities between 5
and 10 years. The index has a market value of over $600 billion; (xxiii) Lehman
Brothers Mutual Fund Long (10+) Government/Corporate Index, a market weighted
index that contains individually priced U.S. Treasury, agency and corporate
securities rated BBB or better, with maturities greater than 10 years. The index
has a market value of over $900 billion; (xxiv) Russell 2000 Stock Index, which
consists of the smallest 2,000 stocks within the Russell 3000; a widely-used
benchmark for small capitalization common stocks; (xxv) Ibbotson Associates
Yearbook, which consists of various mutual fund performance data; (xxvi) Lipper
Balanced Fund Average, an industry benchmark of average balanced funds with
similar investment objectives and policies, as measured by Lipper Analytical
Services, Inc.; (xxvii) Lipper Non-Government Money Market Average, an industry
benchmark of average non-government money market funds with similar investment
objectives and policies, as measured by Lipper Analytical Services, Inc.;
(xxviii) Lipper Government Money Market Fund Average, an industry benchmark of
average government money market funds with similar investment objectives and
policies, as measured by Lipper Analytical Services, Inc.; (xxix) Lipper Small
Company Growth Fund Average, which is the average performance of small company
growth funds as defined by Lipper Analytical Services, Inc. Lipper defines a
small company growth fund as a fund that by prospectus or portfolio practice,
limits its investments to companies on the basis of the size of the company;
(xxx) Russell 3000 Index, which consists of approximately 3,000 of the largest
stocks of U.S. domiciled companies commonly traded on the New York and American
Stock Exchanges or the NASDAQ over-the-counter market, accounting for over 90%
of the market value of publicly traded stocks in the U.S; (xxxi) other groups of
mutual funds, including the IAI Funds, tracked by: (A) Lipper Analytical
Services, Inc., a widely used independent research firm which ranks mutual funds
by overall performance, investment objectives, and assets; (B) Morningstar,
Inc., another widely used independent research firm which rates mutual funds; or
(C) other financial or business publications, which may include, but are not
limited to, Business Week, Money Magazine, Forbes and Barron's, which provide
similar information; (2) the Consumer Price Index (measure for inflation) may be
used to assess the real rate of return from an investment in a Portfolio; (3)
other U.S. or foreign government statistics such as GNP, and net import and
export figures derived from governmental publications, e.g., The Survey of
Current Business, may be used to illustrate investment attributes of a Portfolio
or the general economic business, investment, or financial environment in which
such Portfolio operates; (4) the effect of tax-deferred compounding on a
Portfolio's investment returns, or on returns in general, may be illustrated by
graphs, charts, etc. where such graphs or charts would compare, at various
points in time, the return from an investment in such Portfolio (or returns in
general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the return on a taxable
basis; and (5) the sectors or industries in which a Portfolio invests may be
compared to relevant indices or surveys (e.g., S&P Industry Surveys) in order to
evaluate a Portfolio's historical performance or current or potential value with
respect to the particular industry or sector.
-24-
<PAGE>
MANAGEMENT
The names, addresses, positions and principal occupations of the directors and
executive officers of the Portfolios are given below.
<TABLE>
<CAPTION>
Name and Address Age Position Principal Occupation(s) During Past 5 Years
- ---------------- --- -------- -------------------------------------------
<S> <C> <C> <C>
Noel P. Rahn* 57 Chairman of the Noel P. Rahn has been Chief Executive Officer
3700 First Bank Place Board and a Director of the Adviser since 1974. Mr.
P.O. Box 357 Rahn is also Chairman of the IAI Mutual Funds.
Minneapolis, Minnesota 55440
Richard E. Struthers* 44 President, Director Richard E. Struthers is Executive Vice
3700 First Bank Place President and a Director of the Adviser and
P.O. Box 357 has served the Adviser in many capacities
Minneapolis, Minnesota 55440 since 1979. Mr. Struthers is also President
and a Director of the IAI Mutual Funds.
Madeline Betsch 54 Director Madeline Betsch, until April 1994, was
19 South 1st Street Executive Vice President, Director of Client
Minneapolis, Minnesota 55401 Services, of CME-KHBB Advertising since May
1985, and prior thereto was a Vice President
with Campbell-Mithun, Inc. (advertising
agency) since February 1977. Ms. Betsch is
currently retired. Ms. Betsch is also a
Director of the IAI Mutual Funds.
W. William Hodgson 72 Director W. William Hodgson served as information
1698 Dodd Road manager for the North Central Home Office of
Mendota Heights, Minnesota 55118 the Prudential Insurance Company of America
from 1961 until 1984; he is currently
retired. Mr. Hodgson is also a Director of
the IAI Mutual Funds.
George R. Long 66 Director George R. Long serves as Director of Pacific
29 Las Brisas Way Industries and has been Chairman of Mayfield
Naples, Florida 33963 International (financial consultants and
venture capitalists) since 1973. Mr. Long is
also a Director of the IAI Mutual Funds.
J. Peter Thompson 65 Director J. Peter Thompson has been a grain farmer in
Route 1 southwestern Minnesota since 1974. Prior to
Mountain Lake, Minnesota 56159 that, Mr. Thompson was employed by Paine
Webber, Jackson & Curtis, Incorporated, (a
diversified financial services concern), most
recently as Senior Vice President and General
Partner. Mr. Thompson is also a Director of
the IAI Mutual Funds.
Charles H. Withers 69 Director Charles H. Withers was Editor of the Rochester
Rochester Post Bulletin Post-Bulletin, Rochester, Minnesota from 1960
P.O. Box 6118 through March 31, 1980; he is currently
Rochester, Minnesota 55903 retired. Mr. Withers is also a Director of
the IAI Mutual Funds.
-26-
<PAGE>
Archie C. Black, III 34 Treasurer Archie C. Black is a Senior Vice President and
3700 First Bank Place Chief Financial Officer of the Adviser and has
P.O. Box 357 served the Adviser in several capacities since
Minneapolis, Minnesota 55440 1987. Mr. Black is also Treasurer of the IAI
Mutual Funds.
William C. Joas 34 Secretary William C. Joas is a Vice President of the
3700 First Bank Place Adviser and has served as an attorney for the
P.O. Box 357 Adviser since 1990. Mr. Joas is also
Minneapolis, Minnesota 55440 Secretary of the IAI Mutual Funds.
Susan J. Haedt 34 Vice President, Susan J. Haedt is a Vice President of the
3700 First Bank Place Director of Mutual Adviser and Director of Fund Operations .
P.O. Box 357 Fund Operations Prior to joining the Adviser in 1992, Ms.
Minneapolis, Minnesota 55440 Haedt served as a Senior Manager at KPMG Peat
Marwick LLP, (an international tax, accounting
and consulting firm). Ms. Haedt is also Vice
President, Director of Operations of the IAI
Mutual Funds.
</TABLE>
* Directors of the Portfolios who are interested persons (as that term is
defined by the Investment Company Act of 1940) of the Portfolios.
Each Portfolio has agreed to reduced initial subscription requirements
for employees and directors of the Portfolio or the Adviser, their spouses,
children and grandchildren. With respect to such persons, the minimum initial
investment in one or more of the IAI Family of Funds is $500; provided that the
minimum amount that can be allocated to any one of the Portfolios is $250.
Subsequent subscriptions are limited to a minimum of $100 for each of the
Portfolios.
No compensation is paid by a Portfolio to any of its officers.
Directors who are not affiliated with the Adviser receive from the LifeUSA Funds
and IAI Mutual Funds a $15,000 annual retainer, $2,500 for each Board meeting
attended, $3,600 for each Audit Committee meeting attended (as applicable) and
$1,800 for each Securities Valuation Committee meeting attended (as applicable).
Each Portfolio will pay, on a quarterly basis, its pro rata share of these fees
based on its net assets. Such unaffiliated directors also are reimbursed by the
Portfolios for expenses incurred in connection with attending meetings.
<TABLE>
<CAPTION>
Aggregate Compensation
Aggregate Compensation from the
from each Portfolio* 19 IAI Mutual Funds and
Name of Person, Position 6 LifeUSA Portfolios*
------------------------ --------------------- ------------------------
<S> <C> <C>
Betsch, Madeline - Director $0 $32,200
Hodgson, W. William - Director $0 $32,200
Long, George R. - Director $0 $32,200
Thompson, J. Peter - Director $0 $32,200
Withers, Charles H. - Director $0 $32,200
</TABLE>
-26-
<PAGE>
------------------------------------
* For the calendar year ended December 31, 1996; excludes expenses
incurred in connection with attending meetings.
The Board of Directors for each of the Portfolios has approved a Code
of Ethics. The Code permits access persons to engage in personal securities
transactions subject to certain policies and procedures. Such procedures
prohibit the acquiring of any securities in an initial public offering. In
addition, all securities acquired through private placement must be pre-cleared.
Procedures have been adopted which implement blackout periods for certain
securities transactions, as well as a ban on short-term trading profits.
Additional policies prohibit the receipt of gifts in certain instances.
Procedures have been implemented to monitor employee trading. Access persons of
the Adviser are required to certify annually that they have read and understood
the Code of Ethics. An annual report is provided to the Portfolios' Board of
Directors summarizing existing procedures, identifying material violations and
recommending any changes needed.
Investment Advisers, Inc., the Portfolios' investment adviser, is an
affiliate of the Hill Samuel Group ("Hill Samuel"). Hill Samuel is an
international merchant banking and financial services firm headquartered in
London, England. Hill Samuel owns controlling interests in over seventy
insurance, merchant banking, financial services and shipping services
subsidiaries located in Western Europe, Asia, the United States, Australia, New
Zealand and Great Britain. The principal offices of Hill Samuel are located at
100 Wood Street, London EC2 P2AJ.
Hill Samuel is owned by Lloyds TSB Group plc ("Lloyds TSB"), a
publicly-held financial services organization headquartered in London, England.
Lloyds TSB is one of the largest personal and corporate financial services
groups in the United Kingdom, engaged in a wide range of activities including
commercial and retail banking. The principal offices of Lloyds TSB are located
at St. George's House, 6 - 8 Eastcheap, London, EC3M 1LL.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN THE ADVISER AND LIFEUSA FUNDS, INC.
Effective November 6, 1996, the Portfolios entered into an Investment
Advisory and Administrative Services Agreement with the Adviser. Pursuant to the
Investment Advisory and Administrative Services Agreement, the Adviser has
agreed to provide each Portfolio with investment advice, statistical and
research facilities, and certain equipment and services, including, but not
limited to, office space and necessary office facilities, equipment, and the
services of required personnel and, in connection therewith, the Adviser has the
sole authority and responsibility to make and execute investment decisions for a
Portfolio within the framework of such Portfolio's investment policies, subject
to review by the directors of the Portfolio. In addition, the Adviser has agreed
to provide or arrange for the provision of required administrative, stock
transfer, redemption, dividend disbursing, accounting, and certain shareholder
services including, without limitation, the following: (1) the maintenance of a
Portfolio's accounts, books and records; (2) the calculations of the daily net
asset value in accordance with an Portfolio's current Prospectus and Statement
of Additional Information; (3) daily and periodic reports; (4) all information
necessary to complete tax returns, questionnaires and other reports requested by
a Portfolio; (5) the maintenance of stock registry records; (6) the processing
of requested account registration changes, stock certificate issuances and
redemption requests; (7) the administration of payments and dividends and
distributions declared by an Underlying Fund; (8) answering shareholder
questions; and (9) providing reports and other information.
Because the Adviser receives a management fee from the Underlying Funds as
discussed below, the Portfolios pay no compensation to the Adviser under the
Invesment Advisory and Administrative Services Agreement. Each Portfolio is
responsible for its own expenses that are not expressly assumed by the Adviser
or any other organization with which the Portfolios may enter into an agreement
for the performance of services. Each Portfolio is liable for such non-recurring
expenses as may arise, including litigation to which a Portfolio may be a party,
and it may have an obligation to indemnify its directors and officers with
respect to such litigation.
-27-
<PAGE>
MANAGEMENT AGREEMENT BETWEEN THE ADVISER AND UNDERLYING FUNDS
Effective April 1, 1996 (February 1, 1996 for Capital Appreciation Fund and
November 6, 1996 for Latin America Fund), each Underlying Fund entered into a
written agreement with the Adviser (the "Management Agreement"). Pursuant to the
Management Agreement between each Underlying Fund and the Adviser, the Adviser
has agreed to provide each Underlying Fund with investment advice, statistical
and research facilities, and certain equipment and services, including, but not
limited to, office space and necessary office facilities, equipment, and the
services of required personnel and, in connection therewith, the Adviser has the
sole authority and responsibility to make and execute investment decisions for
an Underlying Fund within the framework of such Underlying Fund's investment
policies, subject to review by the directors of the Underlying Funds. In
addition, the Adviser has agreed to provide or arrange for the provision of all
required administrative, stock transfer, redemption, dividend disbursing,
accounting, and shareholder services including, without limitation, the
following: (1) the maintenance of an Underlying Fund's accounts, books and
records; (2) the calculations of the daily net asset value in accordance with an
Underlying Fund's current Prospectus and Statement of Additional Information;
(3) daily and periodic reports; (4) all information necessary to complete tax
returns, questionnaires and other reports requested by an Underlying Fund; (5)
the maintenance of stock registry records; (6) the processing of requested
account registration changes, stock certificate issuances and redemption
requests; (7) the administration of payments and dividends and distributions
declared by an Underlying Fund; (8) answering shareholder questions; (9)
providing reports and other information; and (10) other services designed to
maintain shareholder accounts. The Adviser may also pay qualifying
broker-dealers, financial institutions and other entities that provide such
services. In return for such services, each Underlying Fund has agreed to pay
the Adviser an annual fee as a percentage of such Underlying Fund's average
daily net assets as set forth below, with the exception of Reserve Fund which
has agreed to pay an annual fee at the rate of .85%.
<TABLE>
<CAPTION>
Midcap Growth,
Capital Appreciation Value and Regional Bond and Government Money
Daily Net Assets Fund Funds Funds Market Fund
- ---------------- -------------------- ------------------ ------------------- -----------
<S> <C> <C> <C> <C>
For the first $250 million 1.40% 1.25% 1.10% 0.60%
For the next $250 million 1.35% 1.20% 1.05% 0.55%
Above $500 million 1.30% 1.10% 1.00% 0.50%
</TABLE>
<TABLE>
<CAPTION>
Growth
Developing and
Countries Fund International Growth and Income Funds Latin America
Daily Net Assets Fund Fund
- ----------------- -------------- ------------- ----------------------- -------------
<S> <C> <C> <C> <C>
For the first $100 million 2.00% 1.70% 1.25% 3.00%
For the next $100 - $250 million 1.95% 1.45% 1.15% 2.95%
For the next $250 - $500 million 1.75% 1.30% 1.10% 2.75%
Above $500 million 1.65% 1.30% 1.00% 2.65%
</TABLE>
Under the Management Agreements, except for brokerage commissions and other
expenditures in connection with the purchase and sale of portfolio securities,
interest expense, and, subject to the specific approval of a majority of the
disinterested directors of an Underlying Fund, taxes and extraordinary expenses,
the Adviser has agreed to pay all of an Underlying Fund's other costs and
expenses, including, for example, costs incurred in the purchase and sale of
assets, taxes, charges of the custodian of an Underlying Fund's assets, costs of
reports and proxy material sent to Underlying Fund shareholders, fees paid for
independent accounting and legal services, costs of printing Prospectuses for
Underlying Fund shareholders and registering an Underlying the Adviser Fund's
shares, postage, insurance premiums, and costs of attending investment
conferences. The Management Agreement further provides that the Adviser will
either reimburse an Underlying Fund for the fees and expenses it pays to
directors who are not "interested persons" of such Underlying Fund or reduce its
fee by an equivalent amount. The Adviser is not liable for any loss suffered by
an Underlying Fund in the absence of willful misfeasance, bad faith or
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<PAGE>
negligence in the performance of its duties and obligations. Some of the
Underlying Funds currently waive a portion of their fee, as directed in the
Portfolios' prospectus.
SUBADVISORY AGREEMENTS FOR INTERNATIONAL FUND, DEVELOPING COUNTRIES FUND
AND LATIN AMERICA FUND
Under the Subadvisory Agreements between IAI International Ltd. and the
Adviser, the Adviser has delegated to IAI International Ltd. the sole authority
and responsibility to make and execute investment decisions for International,
Developing Countries and Latin America Funds within the framework of such Funds'
investment policies, subject to review by the Adviser and the Funds' directors.
Under the Subadvisory Agreements, the Adviser has agreed to pay IAI
International Ltd. an annual fee as a percentage of a Fund's average daily net
assets as set forth below:
IAI LATIN AMERICA FUND
<TABLE>
<CAPTION>
Fee IAI International
Daily Net Assets Receives Annually
---------------- --------------------
<S> <C>
For the first $100 million .675%
For the next $100 - $250 million .65%
For the next $250 - $500 million .625%
Above $500 million .60%
</TABLE>
With respect to Latin America Fund, until March 1, 1998, IAI
International has voluntarily agreed to waive its fee in excess of .625% of the
Fund's average daily net assets.
IAI DEVELOPING COUNTRIES FUND
<TABLE>
<CAPTION>
Fee IAI International
Daily Net Assets Receives Annually
---------------- --------------------
<S> <C>
For the first $200 million 1/2 of 1.25%
For the next $200 million 1/2 of 1.10%
Above $400 million 1/2 of 1.00%
</TABLE>
IAI INTERNATIONAL FUND
<TABLE>
<CAPTION>
Fee IAI International
Daily Net Assets Receives Annually
---------------- ----------------------
<S> <C>
For the first $100 million 1/2 of 1.00%
For the next $100 million 1/2 of .85%
For the next $100 million 1/2 of .75%
Above $300 million 1/2 of .70%
</TABLE>
DURATION OF AGREEMENTS
Each Investment Advisory and Administrative Services, Management and
Subadvisory Agreement will terminate automatically in the event of its
assignment. In addition, each Agreement is terminable at any time without
penalty by the Board of Directors of an Underlying Fund or by vote of a majority
of an Underlying Fund's outstanding voting securities on not more than 60 days'
written notice to the Adviser, and by the Adviser on 60 days' notice to an
Underlying Fund. Each Agreement shall continue in effect from year to year only
so long as such continuance is specifically approved at least annually by either
the Board of Directors of an Underlying Fund or by vote of a majority of the
outstanding voting securities, provided that in either event such continuance is
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<PAGE>
also approved by the vote of a majority of directors who are not parties to the
Agreement or interested persons of such parties cast in person at a meeting
called for the purpose of voting on such approval.
PORTFOLIO MANAGERS FOR THE UNDERLYING FUNDS
Each Underlying Fund is managed by a team of investment professionals which
is responsible for making the day-to-day investment decisions for such
Underlying Fund. The teams managing the Underlying Funds are as follows:
Martin Calihan has responsibility for making the day-to-day management
decisions for Capital Appreciation Fund. Mr. Calihan is a Vice President and has
served as an equity analyst for the Adviser since 1992. Before joining IAI, Mr.
Calihan was an equity analyst with Morgan Stanley and Company from 1991 to 1992,
and with State Street Research Management from 1990 to 1991. Mr. Calihan has
managed Capital Appreciation Fund since its inception.
Suzanne Zak and David McDonald have responsibility for the management of
Growth Fund. Ms. Zak is a Senior Vice President and has served as an equity
portfolio manager since joining IAI in 1992. Before joining IAI, Ms. Zak had
been a Managing Director of J & W Seligman from 1985 to 1992. Mr. McDonald has
managed Growth Fund since September 1994, when he joined IAI as a Vice President
and equity portfolio manager. Before joining IAI, Mr. McDonald was a Managing
Director of Wessels Arnold & Henderson from 1989 to 1994 and an Associate
Portfolio Manager with IDS Financial Services from 1986 to 1989.
Donald Hoelting has responsibility for the management of Growth and Income
Fund. Mr. Hoelting is a Vice President of IAI and has served as an equity
portfolio manager of IAI since joining IAI in April 1996. Prior to joining IAI,
Mr. Hoelting was Chief Investment Officer and Portfolio Manager for Jefferson
National Bank and Trust from 1989 to 1996.
Suzanne Zak has responsibility for the management of Midcap Growth Fund.
Ms. Zak has managed Midcap Growth Fund since its inception.
Mark Hoonsbeen has responsibility for the management of Regional Fund. Mr.
Hoonsbeen is a Vice President and has managed Regional Fund since he joined IAI
in 1994. Before joining IAI, Mr. Hoonsbeen served as an equity portfolio manager
for The St. Paul Companies Inc. from 1986 to 1994.
Douglas Platt and Donald Hoelting have responsibility for the management of
Value Fund. Mr. Platt has managed Value Fund since 1991. Mr. Platt is a Senior
Vice President and has served as a portfolio manager of IAI since 1967. Mr.
Hoelting has managed the Fund since August 1996. Mr. Hoelting is a Vice
President for IAI and has served as an equity portfolio manager of IAI since
joining IAI in April 1996.
R. David Spreng has been responsible for Underlying Fund investments in
restricted securities, including equity and limited partnership interests in
privately-held companies and investment partnerships, since 1993. Mr. Spreng is
a Senior Vice President and has served IAI in several capacities since 1989.
Larry Hill, Scott Bettin and Livingston Douglas have responsibility for the
management of Bond Fund. Mr. Hill is IAI's Chief Fixed Income Officer and a
member of its Board of Directors. Mr. Hill has managed Bond Fund since joining
IAI in 1984. Mr. Bettin is a Senior Vice President of IAI and has managed Bond
Fund since joining IAI as a fixed income portfolio manager in 1987. Mr. Douglas
is a Vice President of IAI and has managed Bond Fund since joining IAI as a
fixed income portfolio manager in 1993. Prior to joining IAI, Mr. Douglas served
as a fixed income portfolio manager for Mackey-Shields Financial Corporation.
Scott Bettin and Stephen Coleman have responsibility for the management of
Government Fund. Mr. Bettin has managed Government Fund since its inception. Mr.
Coleman is a Senior Vice President of IAI and has served as a fixed income
portfolio manager since joining IAI in 1991. Mr. Coleman commenced managing
Government Fund in January 1995.
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<PAGE>
Roy Gillson, Nigel Hart and Sookyong Kwak have responsibility for the
management of Developing Countries Fund. Mr. Gillson is IAI International's
Chief Investment Officer and a member of its Board of Directors. Mr. Gillson
joined IAI International in 1983 and has managed Developing Countries Fund since
its inception in February 1995. Mr. Hart is a Fund Manager and has managed
Developing Countries Fund since June 1996. Mr. Hart joined IAI International in
1991 as an equity investment analyst. Prior thereto, he served as an equity
investment analyst with Commercial Union Asset Management since 1989. Ms. Kwak
is a Senior Fund Manager with IAI International and has managed the Fund since
June 1996. Ms. Kwak joined IAI International in 1995. From 1989 to 1990, she
served as a research analyst with Neuberger & Berman, and from 1990 to 1992 she
was employed by Brown Brothers Harriman in a similar capacity. In 1992, Ms. Kwak
joined the International Finance Corporation, a private sector of the World
Bank, where she served as a research analyst until 1995.
Nigel Hart has responsibility for the management of Latin America Fund. Mr.
Hart is a Fund Manager with IAI International and has managed the Fund since
inception. Mr. Hart joined IAI International in 1991 as an equity investment
analyst.
Mr. Gillson has responsibility for the management of the International Fund
and has managed the Fund
since 1990.
The day-to-day management of Money Market Fund is the responsibility of an
investment committee.
Tim Palmer and Livingston Douglas have responsibility for the management of
Reserve Fund. Mr. Palmer is a Senior Vice President and has served as portfolio
manager of IAI since 1990 and as a manager of Reserve Fund since 1991. Prior to
joining IAI, Mr. Palmer was employed by the First Bank Systems Capital Markets
Group. Mr. Douglas is a Vice President of IAI and has co-managed Reserve Fund
since joining IAI as a fixed income portfolio manager in 1993. Prior to joining
IAI, Mr. Douglas served as a fixed income portfolio manager for Mackey-Shields
Financial Corporation since 1987.
PLAN OF DISTRIBUTION
Each Portfolio has adopted a Plan of Distribution relating to the
payment of certain expenses pursuant to Rule 12b-1 under the 1940 Act ("Rule
12b-1 Fees"). The Plans were last approved by the Board of Directors at a
meeting on November 6, 1996.
Rule 12b-1(b) provides that any payments made by a fund in connection
with the distribution of its shares may only be made pursuant to a written plan
describing all material aspects of the proposed financing of distribution and
also requires that all agreements with any person relating to implementation of
the plan must be in writing. In addition, Rule 12b-1(b)(1) requires that such
plan be approved by a vote of at least a majority of the fund's outstanding
shares, and Rule 12b-1(b)(2) requires that such plan, together with any related
agreements, be approved by a vote of the board of directors of the company and
the directors of the company who are not interested persons of the company and
have no direct or indirect financial interest in the operation of the plan or in
any agreements related to the plan, cast in person at a meeting called for the
purpose of voting on such plan or agreements. Rule 12b-1(b)(3) requires that the
plan or agreement provide, in substance: (1) that it shall continue in effect
for a period of more than one year from the date of its execution or adoption
only so long as such continuance is specifically approved at least annually in
the manner described in paragraph (b)(2) of Rule 12b-1; (2) that any person
authorized to direct the disposition of monies paid or payable by a fund
pursuant to its plan or any related agreement shall provide to a fund's board of
directors, and the directors shall review, at least quarterly, a written report
of the amount so expended and the purposes for which such expenditures were
made; and (3) in the case of a plan, that it may be terminated at any time by
vote of a majority of the members of the board of directors of a fund who are
not interested persons of the fund and have no direct or indirect financial
interest in the operation of the plan or in any agreements related to the plan
or by vote of a majority of the outstanding voting securities of a fund.
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<PAGE>
Rule 12b-1(b)(4) requires that such plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1. Rule 12b-1(c) provides that a fund
may rely upon Rule 12b-1(1) only if selection and nomination of its
disinterested directors are committed to the discretion of such disinterested
directors. Rule 12b-1(e) provides that a fund may implement or continue a plan
pursuant to Rule 12b-1(b) only if the directors who vote to approve such
implementation or continuation conclude, in the exercise of reasonable business
judgment and in light of their fiduciary duties under state law, and under
Section 36(a) and (b) of the 1940 Act, that there is a reasonable likelihood
that the plan will benefit the fund and its shareholders. At the meeting of the
Board of Directors on November 6, 1996, the directors so concluded with respect
to each Portfolio's Plan of Distribution.
As authorized by the Plan of Distribution, the Fund has retained LifeUSA
Securities, Inc. ("LSI") to distribute Portfolio shares on a continuous basis as
principal underwriter. Each Portfolio has entered into a Distribution and
Shareholder Services Agreement with LSI pursuant to which each Portfolio will
pay LSI an annual fee of 0.75% of such Portfolio's average daily net assets for
the servicing of shareholder accounts and the distribution of Portfolio shares.
Until May 1, 1998, LSI has voluntarily agreed to waive this fee in excess of
0.50% of a Portfolio's average daily net assets. The 12b-1 Fee payable by a
Portfolio to LSI may be used by LSI to pay advertising and promotional expenses
including, without limitation, costs of printing and providing Prospectuses,
Statements of Additional Information, annual reports and semiannual reports to
prospective shareholders, expenses of preparing and providing sales literature
advertising of any type, and compensation and benefits paid to and expenses
incurred by personnel, including supervisory personnel, involved in direct mail
and advertising activities and activities relating to the direct marketing of
shares of the Portfolio to the public and compensation Authorized Dealers who
have entered into sales agreements with LSI for their sale of Portfolio shares.
The Rule 12b-1 Fee may also be used to compensate LSI for the provision of
certain services to Portfolio shareholders and Authorized Dealers. Such services
may include answering shareholder questions, providing reports and other
information and other services designed to maintain shareholder accounts. LSI
may use the Rule 12b-1 Fee to make payments to Authorized Dealers that provide
such shareholder services.
CUSTODIAN, COUNSEL, AND ACCOUNTANTS
The custodian for the Portfolios is Norwest Bank Minnesota, N.A. (the
"Custodian"), Norwest Center, Sixth and Marquette, Minneapolis, MN 55479. The
Custodian takes no part in determining the investment policies of the Portfolios
or in deciding which securities are purchased or sold by the Portfolios. All of
the instruments representing the investments of the Portfolios and all cash is
held by the Custodian. The Custodian delivers securities against payment upon
sale and pays for securities against delivery upon purchase. The Custodian also
remits Portfolio assets in payment of Portfolio expenses, pursuant to
instructions of the Portfolios' officers or resolutions of the Board of
Directors. The Custodian also serves as custodian of the Underlying Funds'
assets.
Dorsey & Whitney LLP, 200 South Sixth Street, Minneapolis, MN 55402, is
independent legal counsel for the Portfolios. Dorsey & Whitney LLP also serves
as independent legal counsel for the Underlying Funds.
KPMG Peat Marwick LLP, 90 South Seventh Street, Minneapolis, MN 55402, acts
as the Portfolios' independent auditors. KPMG Peat Marwick LLP also acts as the
Underlying Funds' independent auditors.
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<PAGE>
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Most of each Underlying Fund's portfolio transactions are effected with
dealers without the payment of brokerage commissions but at a net price which
usually includes a spread or markup. In effecting such portfolio transactions on
behalf of an Underlying Fund, the Adviser seeks the most favorable net price
consistent with the best execution.
Generally, however, an Underlying Fund must deal with brokers. The
Adviser selects and (where applicable) negotiates commissions with the brokers
who execute the transactions for such Underlying Fund. The primary criteria for
the selection of a broker is the ability of the broker, in the opinion of the
Adviser, to secure prompt execution of the transactions on favorable terms,
including the reasonableness of the commission and considering the state of the
market at the time. In selecting a broker, the Adviser may consider whether such
broker provides brokerage and research services (as defined in the Securities
Exchange Act of 1934). The Adviser may direct Underlying Fund transactions to
brokers who furnish research services to the Adviser. Such research services
include advice, both directly and in writing, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities, as well as
analyses and reports concerning issues, industries, securities, economic factors
and trends, portfolio strategy, and the performance of accounts. By allocating
brokerage business in order to obtain research services for the Adviser, an
Underlying Fund enables the Adviser to supplement its own investment research
activities and allows the Adviser to obtain the views and information of
individuals and research staffs of many different securities research firms
prior to making investment decisions for an Underlying Fund. To the extent such
commissions are directed to brokers who furnish research services to the
Adviser, the Adviser receives a benefit, not capable of evaluation in dollar
amounts, without providing any direct monetary benefit to an Underlying Fund
from these commissions. Generally an Underlying Fund pays higher than the lowest
commission rates available.
The Adviser believes that most research services obtained by it
generally benefit one or more of the investment companies or other accounts
which it manages. Normally research services obtained through commissions paid
by the managed fund investing in common stocks and managed accounts investing in
common stocks would primarily benefit the Underlying Fund and accounts.
There is no formula for the allocation by the Adviser of each
Underlying Fund's brokerage business to any broker-dealers for brokerage and
research services. However, the Adviser will authorize an Underlying Fund to pay
an amount of commission for effecting a securities transaction in excess of the
amount of commission another broker would have charged only if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker viewed in terms of either that particular transaction or the Adviser's
overall responsibilities with respect to the accounts as to which it exercises
investment discretion.
Although investment decisions for an Underlying Fund are made
independently from other accounts as to which the Adviser gives investment
advice, it may occasionally develop that the same security is suitable for more
than one account. If and when more than one account simultaneously purchase or
sell the same security, the transactions will be averaged as to price and
allocated as to amount in accordance with arrangements equitable to each
Underlying Fund and such accounts. The simultaneous purchase or sale of the same
securities by an Underlying Fund and other accounts may have detrimental effects
on an Underlying Fund, as they may affect the price paid or received by an
Underlying Fund or the size of the position obtainable by an Underlying Fund.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to the policies set forth in the
preceding paragraphs and such other policies as the Board of Directors of the
Underlying Fund may determine, the Adviser may consider sales of shares of an
Underlying Fund as a factor in the selection of broker-dealers to execute the
Underlying Fund's securities transactions.
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<PAGE>
CAPITAL STOCK
As of _________ , the directors and officers of LifeUSA Funds, Inc. as a
group owned less than one percent of each Portfolio's outstanding shares. As of
that date, the Portfolios were aware that the following persons owned of record
five percent or more of the outstanding shares of each class of stock of the
Portfolios.
<TABLE>
<CAPTION>
Percentage of Shares Owned
--------------------------
<S> <C>
LIFEUSA AGGRESSIVE GROWTH PORTFOLIO 100%
Life USA Securities, Inc.
300 South Highway 169
Minneapolis, MN 55426
LIFEUSA GROWTH PORTFOLIO 100%
LifeUSA Securities, Inc.
300 South Highway 169
Minneapolis, MN 55426
LIFEUSA GLOBAL PORTFOLIO 100%
LifeUSA Securities, Inc.
300 South Highway 169
Minneapolis, MN 55426
LIFEUSA BALANCED PORTFOLIO 100%
LifeUSA Securities, Inc.
300 South Highway 169
Minneapolis, MN 55426
LIFEUSA CURRENT INCOME PORTFOLIO 100%
LifeUSA Securities, Inc.
300 South Highway 169
Minneapolis, MN 55426
LIFEUSA PRINCIPAL PRESERVATION PORTFOLIO 100%
LifeUSA Securities, Inc.
300 South Highway 169
Minneapolis, MN 55426
</TABLE>
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The portfolio securities in which each Portfolio invests fluctuate in
value, and hence, for each Portfolio, the net asset value per share also
fluctuates.
The net asset value per share of a Portfolio is determined once daily
normally as of the close of trading on the New York Stock Exchange, normally
3:00 p.m. Central time, on each business day on which the New York Stock
Exchange is open for trading, and may be determined on additional days as
required by the Rules of the Securities and Exchange Commission. The New York
Stock Exchange is closed, and the net asset value per share of a Portfolio is
not determined, on the following national holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
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<PAGE>
TAX STATUS
The tax status of the Portfolios and the distributions of the
Portfolios are summarized in the Prospectus under "Dividends, Distributions and
Tax Status." Each Portfolio intends to fulfill the requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), as a regulated
investment company. If so qualified, each Portfolio will not be liable for
federal income taxes to the extent it distributes its taxable income to its
shareholders.
To qualify under Subchapter M for tax treatment as a regulated
investment company, each Portfolio must, among other things: (1) derive at least
90% of its gross income from dividends, interest, and certain other types of
payments related to its investment in stock or securities; (2) distribute to its
shareholders at least 90% of its investment company taxable income (as that term
is defined in the Code determined without regard to the deduction for dividends
paid) and 90% of its net tax-exempt income; (3) derive less than 30% of its
annual gross income from the sale or other disposition of stock, securities,
options, futures, or forward contracts held for less than three months; and (4)
diversify its holdings so that, at the end of each fiscal quarter of the
Portfolio, (a) at least 50% of the market value of the Portfolio's assets is
represented by cash, cash items, U.S. Government securities and securities of
other regulated investment companies, and other securities, with these other
securities limited, with respect to any one issuer, to an amount no greater than
5% of the Portfolio's total assets and no greater than 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the market value
of the Portfolio's total assets is invested in the securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies).
Each Portfolio is subject to a nondeductible excise tax equal to 4% of
the excess, if any, of the amount required to be distributed for each calendar
year over the amount actually distributed. For this purpose, any amount on which
the Portfolio is subject to corporate-level income tax is considered to have
been distributed. In order to avoid the imposition of this excise tax, each
Portfolio must declare and pay dividends representing 98% of its net investment
income for that calendar year and 98% of its capital gains (both long-term and
short-term) for the twelve-month period ending December 31 of the calendar year.
Any loss on the sale or exchange of shares of a Portfolio generally
will be disallowed to the extent that a shareholder acquires or contracts to
acquire shares of the same Portfolio within 30 days before or after such sale or
exchange. Furthermore, if Portfolio shares with respect to which a long-term
capital gain distribution has been made are held for less than six months, any
loss on the sale or exchange of such shares will be treated as a long-term
capital loss to the extent of such long-term capital gain distribution.
For federal tax purposes, if a shareholder exchanges shares of a
Portfolio for shares of any other Portfolio pursuant to the exchange privilege
(see "Exchange Privilege" in the Prospectus), such exchange will be considered a
taxable sale of the shares being exchanged.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December, made payable to
shareholders of record in such a month and actually paid in January of the
following year are treated as paid and are thereby taxable to shareholders as of
December 31.
Pursuant to the Code, distributions of net investment income by a
Portfolio to a shareholder who, as to the United States, is a nonresident alien
individual, nonresident alien fiduciary of a trust or estate, foreign
corporation, or foreign partnership (a "foreign shareholder") will be subject to
U.S. withholding tax (at a rate of 30% or lower treaty rate). Withholding will
not apply if a dividend paid by a Portfolio to a foreign shareholder is
"effectively connected" with a U.S. trade or business of such shareholder, in
which case the reporting and withholding requirements applicable to U.S.
citizens or domestic corporations will apply. Distributions of net long-term
capital gains are not subject to tax withholding but, in the case of a foreign
shareholder who is a nonresident alien individual, such distributions ordinarily
will be subject to U.S. income tax at a rate of 30% if the individual is
physically present in the U.S. for more than 182 days during the taxable year.
Each Portfolio will report annually to its shareholders the amount of any
withholding.
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<PAGE>
The foregoing relates only to federal income taxation and is a general
summary of the federal tax law in effect as of the date of this Statement of
Additional Information.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each Portfolio's Board of Directors owes certain
fiduciary duties to the Portfolio and to its shareholders. Minnesota law
provides that a director "shall discharge the duties of the position of director
in good faith, in a manner the director reasonably believes to be in the best
interest of the corporation, and with the care an ordinarily prudent person in a
like position would exercise under similar circumstances." Fiduciary duties of a
director of a Minnesota corporation include, therefore, both a duty of "loyalty"
(to act in good faith and act in a manner reasonably believed to be in the best
interests of the corporation) and a duty of "care" (to act with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances). Minnesota law authorizes corporations to eliminate or limit the
personal liability of a director to the corporation or its shareholders for
monetary damages for breach of the fiduciary duty of "care." Minnesota law does
not, however, permit a corporation to eliminate or limit the liability of a
director (i) for any breach of the director's duty of "loyalty" to the
corporation or its shareholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) for
authorizing a dividend, stock repurchase or redemption or other distribution in
violation of Minnesota law or for violation of certain provisions of Minnesota
securities laws, or (iv) for any transaction from which the director derived an
improper personal benefit. The Articles of Incorporation of LifeUSA Funds, Inc.
limit the liability of directors to the fullest extent permitted by Minnesota
statutes, except to the extent that such liability cannot be limited as provided
in the Investment Company Act of 1940 (which Act prohibits any provisions which
purport to limit the liability of directors arising from such directors' willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of their role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" of the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers.) Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the Investment Company Act of 1940 and the rules
and regulations adopted under such Act.
FINANCIAL STATEMENTS
The Fund undertakes to file a Pre-Effective Amendment to its
Registration Statement before the date of the Fund's effectiveness for the
purpose of providing an audited balance sheet. Such audited balance sheet will
be included in this Statement of Additional Information at that time.
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<PAGE>
APPENDIX A - RATINGS OF DEBT SECURITIES
A rating of a rating service represents that service's opinion as to
the credit quality of the rated security. However, such ratings are general and
cannot be considered absolute standards of quality or guarantees as to the
creditworthiness of an issuer. A rating is not a recommendation to purchase,
sell or hold a security, because it does not take into account market value or
suitability for a particular investor. Markets values of debt securities may
change as a result of a variety of factors unrelated to credit quality,
including changes in market interest rates.
When a security has been rated by more than one service, the ratings
may not coincide, and each rating should be evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such information, or for other reasons. In general, the Underlying Funds are not
required to dispose of a security if its rating declines after it is purchased,
although they may consider doing so.
RATINGS BY MOODY'S
- -------------------
CORPORATE BONDS
Aaa. Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A. Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa. Bonds rated Baa are considered medium grade obligations; i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds rated B generally lack characteristics of the desirable
investment. Assurances of interest and principal payment or maintenance of other
terms of the contract over any long period of time may be small.
Caa. Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca. Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
A-1
<PAGE>
C. Bonds rated C are the lowest-rated class of bonds and issued so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Conditional Ratings. The designation "Con." followed by a rating indicates
bonds for which the security depends upon the completion of some act or the
fulfillment of some condition. These are bonds secured by (a) earnings of
projects under construction, (b) earnings or projects unseasoned in operating
experience, (c) rentals which begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. Parenthetical rating
denotes probable credit stature upon completion of construction or elimination
of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A
classifications of its corporate bond rating system. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category. With respect to
municipal securities, those bonds in the Aa, A, Baa, Ba, and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols Aa1, A1, Baa1, Ba1, and B1.
COMMERCIAL PAPER
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime - 1 Superior ability for repayment of senior short-term debt
obligations
Prime - 2 Strong ability for repayment of senior short-term debt
obligations
Prime - 3 Acceptable ability for repayment of senior short-term debt
obligations
If an issuer represents to Moody's that its Commercial Paper obligations
are supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
RATINGS BY S&P
- --------------
CORPORATE BONDS
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
A-2
<PAGE>
BBB. Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB. Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B. Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB-rating.
CCC. Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC. Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C. The rating C typically applied to debt subordinated to senior debt which
assigned an actual or implied CCC-debt rating. The C rating may be used to cover
a situation where a bankruptcy petition has been filed but debt service payments
are continued.
C1. The rating C1 is reserved for income bonds on which no interest is
being paid.
D. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. The D rating will be used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
In order to provide more detailed indications of credit quality, S&P's bond
letter ratings described above (except for the AAA category) may be modified by
the addition of a plus or a minus sign to show relative standing within the
rating category.
COMMERCIAL PAPER
A. This highest rating category indicates the greatest capacity for timely
payment. Issues in this category are further defined with the designations 1, 2,
and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
A-2. Capacity for timely payments on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designed A-1.
A-3. Issues carrying this designation have adequate capacity for timely
repayment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
A-3
<PAGE>
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements (1)
(b) Exhibits
(1) Articles of Incorporation
(1A) Certificate of Designation
(2) Bylaws
(5) Management Agreement (1)
(6A) Distribution and Shareholder Services Agreement (1)
(6B) Dealer Sales Agreement (1)
(6C) Shareholder Services Agreement (1)
(8) Custodian Agreement (1)
(10) Opinion and Consent of Counsel (1)
(11) Consent of Independent Auditors (1)
(13) Letter of Investment Intent (1)
(15) Plan of Distribution (1)
- ---------------------------------
(1) To be filed by Pre-Effective Amendment to Registrant's Registration
Statement prior to the effective date of the Fund.
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant.
See the sections of the Prospectus entitled "Management" and
"Description of Common Stock" and the section of the Statement of Additional
Information entitled "Management," filed as part of this Registration Statement.
Item 26. Number of Holders Securities.
- --------------------------------------
<TABLE>
<CAPTION>
Number of Record Holders
Portfolio Title of Class as of January __ , 1997
- --------- -------------- -------------------------
<S> <C> <C>
LifeUSA Funds, Inc. Common Stock (Series A)
Common Stock (Series B)
Common Stock (Series C)
Common Stock (Series D)
Common Stock (Series E)
Common Stock (Series F)
</TABLE>
Item 27. Indemnification.
- -------------------------
Article 7(d) of the Registrant's Articles of Incorporation provide that the
Registrant shall indemnify such persons for such expenses and liabilities, in
such manner, under such circumstances, and to the full extent permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended;
provided, however, that no such indemnification may be made if it would be in
violation of Section 17(h) of the Investment Company Act of 1940, as now enacted
or hereinafter amended, and any rules, regulations, or releases promulgated
thereunder.
Section 302A.521 of the Minnesota Statutes provides:
Subdivision 1. Definitions. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" includes a domestic or foreign corporation that was the
predecessor of the corporation referred to in this section in a merger or other
transaction in which the predecessor's existence ceased upon consummation of the
transaction.
(c) "Official capacity means (1) with respect to a director, the position
of director in a corporation, (2) with respect to a person other than a
director, the elective or appointive office or position held by an officer,
member of a committee of the board, or the employment relationship undertaken by
an employee of the corporation, and (3) with respect to a director, officer or
employee of the corporation who, while a director, officer, or employee of the
corporation, is or was serving at the request of the corporation or whose duties
in that position involve or involved service as a director, officer, partner,
trustee, employee, or agent of another organization or employee benefit plan,
the position of that person as a director, officer, partner, trustee, employee,
or agent, as the case may be, of the other organization or employee benefit
plan.
(d) "Proceeding" means a threatened, pending, or completed civil, criminal,
administrative, arbitration, or investigative proceeding, including a proceeding
by or in the right of the corporation.
(e) "Special legal counsel" means counsel who has not represented the
corporation or a related organization, or a director, officer, member of a
committee of the board, or employee, whose indemnification is in issue.
SUBD. 2. INDEMNIFICATION MANDATORY; STANDARD. (a) Subject to the provisions
of subdivision 4, a corporation shall indemnify a person made or threatened to
be made a party to a proceeding by reason of the former or present official
capacity of the person against judgments, penalties, fines, including, without
limitation, excise taxes assessed against the person with respect to an employee
benefit plan, settlements, and reasonable expenses, including attorneys' fees
and disbursements, incurred by the person in connection with the proceeding, if,
with respect to the acts or omissions of the person complained of in the
proceeding, the person:
(1) Has not been indemnified by another organization or employee benefit
plan for the same judgments, penalties, fines, including, without limitation,
excise taxes assessed against the person with respect to an employee benefit
plan, settlements, and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection with the proceeding with
respect to the same acts or omissions;
(2) Acted in good faith;
(3) Received no improper personal benefit and section 302A.255, if
applicable, has been satisfied;
(4) In the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful; and
III-2
<PAGE>
(5) In the case of acts or omissions occurring in the official capacity
described in subdivision 1, paragraph (c), clause (1) or (2), reasonably
believed that the conduct was in the best interests of the corporation, or in
the case of acts or omissions occurring in the official capacity described in
subdivision 1, paragraph (c), clause (3), reasonably believed that the conduct
was not opposed to the best interests of the corporation. If the person's acts
or omissions complained of in the proceeding relate to conduct as a director,
officer, trustee, employee, or agent of an employee benefit plan, the conduct is
not considered to be opposed to the best interests of the corporation if the
person reasonably believed that the conduct was in the best interests of the
participants or beneficiaries of the employee benefit plan.
(b) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent does not, of
itself, establish that the person did not meet the criteria set forth in this
subdivision.
SUBD. 3. ADVANCES. Subject to the provisions of subdivision 4, if a person
is made or threatened to be made a party to a proceeding, the person is
entitled, upon wrItten request to the corporation, to payment or reimbursement
by the corporation of reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in advance of the final disposition of the
proceeding, (a) upon receipt by the corporation of a written affirmation by the
person of a good faith belief that the criteria for indemnification set forth in
subdivision 2 have been satisfied and a written undertaking by the person to
repay all amounts so paid or reimbursed by the corporation, if it is ultimately
determined that the criteria for indemnification have not been satisfied, and
(b) after a determination that the facts then known to those making the
determination would not preclude indemnification under this section. The written
undertaking required by clause (a) is an unlimited general obligation of the
person making it, but need not be secured and shall be accepted without
reference to financial ability to make the repayment.
SUBD. 4. PROHIBITION OR LIMIT ON INDEMNIFICATION OR ADVANCES. The articles
or bylaws either may prohibit indemnification or advances of expenses otherwise
required by this section or may impose conditions on indemnification or advances
of expenses in addition to the conditions contained in subdivisions 2 and 3
including, without limitation, monetary limits on indemnification or advances of
expenses, if the conditions apply equally to all persons or to all persons
within a given class. A prohibition or limit on indemnification or advances may
not apply to or affect the right of a person to indemnification or advances of
expenses with respect to any acts or omissions of the person occurring prior to
the effective date of a provision in the articles or the date of adoption of a
provision in the bylaws establishing the prohibition or limit on indemnification
or advances.
SUBD. 5. REIMBURSEMENT TO WITNESSES. This section does not require, or
limit the ability of, a corporation to reimburse expenses, including attorneys'
fees and disbursements, incurred by a person in connection with an appearance as
a witness in a proceeding at a time when the person has not been made or
threatened to be made a party to a proceeding.
SUBD. 6. DETERMINATION OF ELIGIBILITY. (a) All determinations whether
indemnification of a person is required because the criteria set forth in
subdivision 2 have been satisfied and whether a person is entitled to payment or
reimbursement of expenses in advance of the final disposition of a proceeding as
provided in subdivision 3 shall be made:
(1) By the board by a majority of a quorum, if the directors who are at the
time parties to the proceeding are not counted for determining either a majority
or the presence of a quorum;
(2) If a quorum under clause (1) cannot be obtained, by a majority of a
committee of the board, consisting solely of two or more directors not at the
time parties to the proceeding, duly designated to act in the manner by a
majority of the full board including directors who are parties;
III-3
<PAGE>
(3) If a determination is not made under clause (1) or (2), by special
legal counsel, selected either by a majority of the board or a committee by vote
pursuant to clause (1) or (2) or, if the requisite quorum of the full board
cannot be obtained and the committee cannot be established, by a majority of the
full board including directors who are parties;
(4) If a determination is not made under clauses (1) to (3), by the
shareholders, but the shares held by parties to the proceeding must not be
counted in determining the presence of a quorum and are not considered to be
present and entitled to vote on the determination; or
(5) If an adverse determination is made under clauses (1) to (4) or under
paragraph (b), or if no determination is made under clauses (1) to (4) or under
paragraph (b) within 60 days after (i) the later to occur of the termination of
a proceeding or a written request for indemnification to the corporation or (ii)
a written request for an advance of expenses, as the case may be, by a court in
this state, which may be the same court in which the proceeding involving the
person's liability took place, upon application of the person and any notice the
court requires. The person seeking indemnification or payment or reimbursement
of expenses pursuant to this clause has the burden of establishing that the
person is entitled to indemnification or payment or reimbursement of expenses.
(b) With respect to a person who is not, and was not at the time of the
acts or omissions complained of in the proceedings, a director, officer, or
person possessing, directly or indirectly, the power to direct or cause the
direction of the management or policies of the corporation, the determination
whether indemnification of this person is required because the criteria set
forth in subdivision 2 have been satisfied and whether this person is entitled
to payment or reimbursement of expenses in advance of the final disposition of a
proceeding as provided in subdivision 3 may be made by an annually appointed
committee of the board, having at least one member who is a director. The
committee shall report at least annually to the board concerning its actions.
SUBD. 7. INSURANCE. A corporation may purchase and maintain insurance on
behalf of a person in that person's official capacity against any liability
asserted against and incurred by the person in or arising from that capacity,
whether or not the corporation would have been required to indemnify the person
against the liability under the provisions of this section.
SUBD. 8. DISCLOSURE. A corporation that indemnifies or advances expenses to
a person in accordance with this section in connection with a proceeding by or
on behalf of the corporation shall report to the shareholders in writing the
amount of the indemnification or advance and to whom and on whose behalf it was
paid not later than the next meeting of shareholders.
SUBD. 9. Indemnification of other persons. Nothing in this section shall be
construed to limit the power of the corporation to indemnify other persons by
contract or otherwise.
The Registrant undertakes that:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
of paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
III-4
<PAGE>
In addition to the foregoing, Registrant has obtained Errors and Omissions
and Director and Officer Insurance. In obtaining such insurance, the directors
have determined that coverage should be obtained for certain individuals
associated with the Registrant. The Board of Directors for the Registrant review
no less frequently than annually the determination that such coverage be
maintained.
Item 28. Business and Other Connections of Investment Adviser.
- --------------------------------------------------------------
Information on the business of Investment Advisers, Inc. ("IAI") is
described in the Prospectus section "Management" and in Part B of this
Registration Statement in the section "Management."
The senior officers and directors of IAI and their titles are as follows:
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
Jeffrey R. Applebaum Senior Vice President
Scott Allen Bettin Senior Vice President
Archie Campbell Black, III Senior Vice President/Treasurer
Iain D. Cheyne Director
Stephen C. Coleman Senior Vice President
Larry Ray Hill Executive Vice President
Richard A. Holway Senior Vice President
Irving Philip Knelman Executive Vice President/Director
Rick D. Leggott Senior Vice President
Kevin McKendry Director
Timothy A. Palmer Senior Vice President
Peter Phillips Director
Douglas Rugh Platt Senior Vice President
Noel Paul Rahn Chief Executive Officer/Director
James S. Sorenson Senior Vice President
R. David Spreng Senior Vice President
Christopher John Smith Senior Vice President/Secretary
Richard Edward Struthers Executive Vice President
Suzanne F. Zak Senior Vice President
</TABLE>
All of such persons have been affiliated with IAI for more than two
years except Messrs. Cheyne, McKendry and Phillips. Prior to being appointed to
the Board in 1996, Mr. Cheyne was and remains General Manager of Corporate
Banking of Lloyds Bank plc, St. George's House, 6-8 Eastcheap, London, England
EC3M 1LL since 1972. Prior to being appointed to the Board in 1996, Mr. McKendry
was and remains Bank Counsel to Lloyds Bank Plc, P.O. Box 2008, One Seaport
Plaza, 199 Water Street, New York, NY 10038, since 1979. Prior to being
appointed to the Board in 1996, Mr. Phillips was and remains Executive Vice
President and General Manager of Lloyds Bank Plc, P.O. Box 2008, One Seaport
Plaza, 199 Water Street, New York, NY 10038, since 1993.
Certain directors and officers of IAI are directors and/or officers of
the Registrant, as described in the section of the Statement of Additional
Information entitled "Management," filed as a part of this Registration
Statement.
The address of the officers and directors of IAI is that of IAI, which is
3700 First Bank Place, P. O. Box 357, Minneapolis, Minnesota 55440.
Certain of the officers and directors of IAI also serve as officers and
directors of IAI International Ltd. Both IAI and IAI International are
wholly-owned subsidiaries of Hill Samuel Group BV, a London-based merchant
banking and financial services firm which, in turn, is owned by Lloyds TSB Group
plc, a publicly-held financial services organization based in London, England.
The senior officers and directors of IAI International and their titles are as
follows:
III-5
<PAGE>
<TABLE>
<CAPTION>
Name Title
- ---- -----
<S> <C>
Noel Paul Rahn Chairman of the Board of Directors
Roy C. GilThomas S. Smith Supervisor of Trust Serviceslson Chief Investment Officer/Director
Iain D. Cheyne Director
Irving Philip Knelman Director
Hilary Fane Deputy Chief Investment Officer/Director
Feidhlim O'Broin Associate Director
</TABLE>
Certain of the officers and directors of IAI also serve as officers and
directors of IAI Trust Company, a wholly-owned subsidiary of IAI. The principal
officers and directors of IAI Trust Company and their titles are as follows:
<TABLE>
<CAPTION>
Name Title
- ---- -----
<S> <C>
Richard E. Struthers Chairman of the Board
Archie C. Black Director/President/Treasurer
Christopher J. Smith Director/Vice President
Susan J. Haedt Director/Vice President
Steven G. Lentz Director/Secretary
Thomas S. Smith Supervisor of Trust Services
</TABLE>
Item 29. Principal Underwriters
- -------- ----------------------
(a) None
(b) LifeUSA Securities, Inc. is the Portfolios' principal
underwriter. Its officers and directors are as follows:
<TABLE>
<CAPTION>
Name and Principal Positions and Officers Positions and Officers
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C>
Robert MacDonald Director None
300 South Highway 169
Minneapolis, MN 55426
Mark Zesbaugh President, CEO, CFO, None
300 South Highway 169 Secretary, Treasurer
Minneapolis, MN 55426
Margery Hughes Director None
300 South Highway 169
Minneapolis, MN 55426
Philip Rosenbaum Financial Operations Officer None
300 South Highway 169
Minneapolis, MN 55426
Bardea Huppert Senior Vice President, COO None
300 South Highway 169
Minneapolis, MN 55426
</TABLE>
III-6
<PAGE>
(c) None
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
The Custodian for Registrant is Norwest Bank Minnesota, N.A., Norwest
Center, Sixth & Marquette, Minneapolis, Minnesota 55479. The Custodian maintains
records of all cash transactions of Registrant. All other books and records of
Registrant, including books and records of Registrant's investment portfolios,
are maintained by IAI. IAI also acts as Registrant's transfer agent and dividend
disbursing agent, at 3700 First Bank Place, Minneapolis, Minnesota 55402.
Item 31. Management Services.
- -----------------------------
Not applicable.
Item 32. Undertakings.
- ----------------------
(a) Not applicable.
(b) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the effective date of the Registrant's 1933 Act Registration Statement.
(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered a copy of its latest annual report to shareholders, upon request
and without charge.
III-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, and State of Minnesota on the 15th day
of October, 1996.
LifeUSA FUNDS, INC.
(Registrant)
By /s/Richard E. Struthers
Richard E. Struthers, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
/s/ Richard E. Struthers President (principal October 15, 1996
Richard E. Struthers executive officer) & Director
/s/ Archie C. Black, III Treasurer (principal October 15, 1996
Archie C. Black III financial and accounting
officer)
/s/ Noel P. Rahn Director October 15, 1996
Noel P. Rahn
Madeline Betsch (1) Director
William C. Hodgson (1) Director
George R. Long (1) Director
Peter J. Thompson (1) Director
Charles H. Withers Director
/s/ William C. Joas October 15, 1996
Attorney in Fact
(1) Registrant's directors executing Powers of Attorney dated October 14, 1996.
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description Sequential Page No.
- ----------- ------------------- -------------------
<S> <C> <C>
1 Articles of Incorporation
1A Certificate of Designation
2 Bylaws
</TABLE>
ARTICLES OF INCORPORATION
OF
LIFEUSA FUNDS, INC.
For the purpose of forming a corporation pursuant to the provision of
Minnesota Statutes, Chapter 302A, the following Articles of Incorporation are
adopted:
1. The name of this corporation is LifeUSA Funds, Inc.
2. This corporation shall have general business purposes and shall have
unlimited power to engage in and do any lawful act concerning any and all lawful
businesses for which corporations may be organized under the Minnesota Statutes,
Chapter 302A. Without limiting the generality of the foregoing, this corporation
shall have specific power:
(a) To conduct, operate and carry on the business of a so-called "open-end"
management investment company pursuant to applicable state and federal
regulatory statutes, and exercise all the powers necessary and appropriate to
the conduct of such operations.
(b) To purchase, subscribe for, invest in or otherwise acquire, and to own,
hold, pledge, mortgage, hypothecate, sell, possess, transfer or otherwise
dispose of, or turn to account or realize upon, and generally deal in, all forms
of securities of every kind, nature, character, type and form, and other
financial instruments which may not be deemed to be securities, including but
not limited to futures contracts and options thereon. Such securities and other
financial instruments may include but are not limited to shares (including,
without limitation, shares of other investment companies), stocks, bonds,
debentures, notes, scrip, participation certificates, rights to subscribe,
warrants, options, certificates of deposit, bankers' acceptances, repurchase
agreements, commercial paper, chooses in action, evidences of indebtedness,
certificates of indebtedness and certificates of interest of any and every kind
and nature whatsoever, secured and unsecured, issued or to be issued, by any
corporation, company, partnership (limited or general), association, trust,
entity or person, public or private, whether organized under the laws of the
United States, or any state, commonwealth, territory or possession thereof, or
organized under the laws of any foreign country, or any state, province,
territory or possession thereof, or issued or to be issued by the United States
government or any agency or instrumentality thereof or by a foreign government
or any agency or instrumentality thereof, financial futures contracts (including
securities index and interest rate futures contracts) and options thereon,
forward foreign currency contracts and options thereon, and obligations of
supernational agencies (e.g., the World Bank).
(c) In the above provisions of this Article 2, purposes shall also be
construed as powers and powers shall also be construed as purposes, and the
enumeration of specific purposes or powers shall not be construed to limit other
statements of purposes or to limit purposes or powers which the corporation may
otherwise have under applicable law, all of the same being separate and
cumulative, and all of the same may be carried on, promoted and pursued,
transacted or exercised in any place whatsoever.
<PAGE>
3. This corporation shall have perpetual existence.
4. The location and post office address of the registered office in
Minnesota is 3700 First Bank Place, P.O. Box 357, Minneapolis, Minnesota 55440.
5. The total authorized number of shares of this corporation is 10 trillion
(10,000,000,000,000) all of which shall be common shares of the par value of
$.01 each. The corporation may issue and sell any of its shares in fractional
denominations to the same extent as its whole shares, and shares and fractional
denominations shall have, in proportion to the relative fractions represented
thereby, all the rights of whole shares, including, without limitation, the
right to vote, the right to receive dividends and distributions, and the right
to participate upon liquidation of the corporation.
(a) Of said common shares 10 billion (10,000,000,000) shares may be issued
in the series of common shares hereby designated Series A Common Shares, 10
billion (10,000,000,000) shares may be issued in the series of common shares
hereby designated Series B Common Shares, 10 billion (10,000,000,000) shares may
be issued in the series of common shares hereby designated Series C Common
Shares, and 10 billion (10,000,000,000) shares may be issued in the series of
common shares hereby designated Series D Common Shares. The balance of
9,960,000,000,000 shares may be issued in such series with such designations,
preferences and relative, participating, optional or other special rights, or
qualifications, limitations or restrictions thereof, as shall be stated or
expressed in a resolution or resolutions providing for the issue of any series
of common shares as may be adopted from time to time by the Board of Directors
of this corporation pursuant to the authority hereby vested in said Board of
Directors. The Series A, B, C, and D Common Shares evidence, and each other
series of common shares which the Board of Directors may establish, as provided
herein, may evidence, if the Board of Directors shall so determine by
resolution, an interest in a separate and distinct portion of the corporation's
assets, which shall take the form of a separate portfolio of investment
securities, cash and other assets. Authority to establish such separate
portfolios is hereby vested in the Board of Directors of this corporation and by
Minnesota Statutes, Section 302A.401, Subd. 3, or any successor provision, and
such separate portfolios may be established by the Board of Directors without
the authorization or approval of the holders of any series of shares of this
corporation. Such investment portfolios in which shares of the series represent
interests are also hereinafter referred to as "series".
(b) The shares of each series may be classified by the Board of Directors
in one or more classes with such relative rights and preferences as shall be
stated or expressed in a resolution or resolutions providing for the issue of
any such class or classes as may be adopted from time to time by the Board of
Directors of the corporation pursuant to the authority hereby vested in the
Board of Directors and by Minnesota Statutes, Section 302A.401, Subd. 3, or any
successor provision. The shares of each class within a series may be subject to
such charges and expenses (including by way of example, but not by way of
limitation, front-end and deferred sales charges, expenses under Rule 12b-1
plans, administrative plans, service plans, or other plans or arrangements,
however designated) adopted from time to time by the Board of Directors in
accordance, to the extent applicable, with the Investment Company Act of 1940,
as amended (together with the rules and regulations promulgated thereunder, the
"1940 Act"), which charges and expenses may differ from those applicable to
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another class within such series, and all of the charges and expenses to which a
class is subject shall be borne by such a class and shall be appropriately
reflected (in the manner determined by the Board of Directors in the resolution
or resolutions providing for the issue of such class) in determining the net
asset value and the amounts payable with respect to dividends and distributions
on and redemptions or liquidations of, such class. Subject to compliance with
the requirements of the 1940 Act, the Board of Directors shall have the
authority to provide the shares of any class shall be convertible
(automatically, optionally or otherwise) into shares of one or more other
classes in accordance with such requirements and procedures as may be
established by the Board of Directors.
6. The shareholders of each series of common shares (or class thereof) of
this corporation:
(a) shall not have the right to cumulate votes for the election of
directors; and
(b) shall have no preemptive right to subscribe to any issue of shares of
any series (or class thereof) of this corporation now or hereafter created,
designed or classified.
7. A description of the relative rights and preferences of all series of
shares (and classes thereof) is as follows, unless otherwise set forth in one or
more amendments to these Articles of Incorporation or in the resolution
providing for the issue of such series (and classes thereof):
(a) On any matter submitted to a vote of shareholders of this corporation,
all common shares of this corporation then issued and outstanding and entitled
to vote, irrespective of series or class, shall be voted in the aggregate and
not by series or class, except: (i) when otherwise required by Minnesota
Statutes, Chapter 302A, in which case shares will be voted by individual series
or class, as applicable; (ii) when otherwise required by the 1940 Act, as
amended, or the rules adopted thereunder, in which case shares shall be voted by
the individual series or class, as applicable; and (iii) when the matter does
not affect the interests of a particular series or class thereof, in which case
only shareholders of the series or class thereof affected shall be entitled to
vote thereon and shall vote by individual series or class, as applicable.
(b) All consideration received by the corporation for the issue or sale of
shares of any series, together with all assets, income, earnings, profits and
proceeds derived therefrom (including all proceeds derived from the sale,
exchange or liquidation thereof and, if applicable, any assets derived from any
reinvestment of such proceeds in whatever form the same may be) shall become
part of the assets of the portfolio to which the shares of that series relate,
for all purposes, subject only to the rights of creditors, and shall be so
treated upon the books of account of this corporation. Such assets, income,
earnings, profits and proceeds (including any proceeds derived from the sale,
exchange or liquidation thereof and, if applicable, any assets derived from any
reinvestment of such proceeds in whatever form the same may be) are herein
referred to as "assets belonging to" a series of the common shares of this
corporation.
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(c) Assets of this corporation not belonging to any particular series are
referred to herein as "General Assets". General Assets shall be allocated to
each series in proportion to the respective net assets belonging to such series.
The determination of the Board of Directors shall be conclusive as to the amount
of assets, as to the characterization of assets as those belonging to a series
or as General Assets, and as to the allocation of General Assets.
(d) The assets belonging to a particular series of common shares shall be
charged with the liabilities specifically on behalf of such series of common
shares ("Special Liabilities"). Where changes or expenses are imposed on a class
basis, as contemplated by Article 5(b), resulting liabilities shall be allocated
to the applicable class or classes. Such assets shall also be charged with a
share of the general liabilities of this corporation ("General Liabilities") in
proportion to the respective net assets belonging to such series of common
shares. The determination of the Board of Directors shall be conclusive as to
the amount of liabilities, including accrued expenses and reserves, as to the
characterization of any liability as a Special Liability or General Liability,
and as to the allocation of General Liabilities among series.
(e) The Board of Directors may, to the extent permitted by Minnesota
Statutes, Chapter 302A or any successor thereto, declare and pay dividends or
distributions in shares or cash on any or all series (or classes thereof) of
common shares, the amount of such dividends and the payment thereof being wholly
in the discretion of the Board of Directors.
(f) In the event of the liquidation or dissolution of this corporation,
holders of the shares of any series shall have priority over the holders of any
other series with respect to, and shall be entitled to receive, out of the
assets of this corporation available for distribution to holders of shares, the
assets belonging to such series of common shares and the General Assets
allocated to such series of common shares, and the assets so distributable to
the holders of the shares of any series shall be distributed among such holders
in proportion to the number of shares of such series held by them and recorded
on the books of this corporation, except that, in the case of a series with more
than one class of shares, such distributions shall be adjusted to appropriately
reflect any charges and expenses borne by each individual class.
(g) With the approval of a majority of the shareholders of each series of
common shares from which assets are to be transferred present in person or by
proxy at a meeting called for the following purpose (provided that at least 10%
of the issued and outstanding shares of each such series is present at such
meeting in person or by proxy), the Board of Directors may transfer the assets
of any series to any other series. Upon such transfer, the corporation shall
issue common shares representing interests in the series to which the assets
were transferred in exchange for all common shares representing interests in the
series from which the assets were transferred. Such shares shall be exchanged at
their respective net asset values.
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8. The following additional provisions, when consistent with law, are
hereby established for the management of the business, for the conduct of the
affairs of the corporation, and for the purpose of describing certain specific
powers of the corporation and of its directors and shareholders.
(a) In furtherance and not in limitation of the powers conferred by statute
and pursuant to these Articles of Incorporation, the Board of Directors is
expressly authorized to do the following:
(1) to make, adopt, alter, amend and repeal Bylaws of the corporation
unless reserved to the shareholders by the Bylaws or by the laws of the State of
Minnesota, subject to the power of the shareholders to change or repeal such
Bylaws;
(2) to distribute, in its discretion, for any fiscal year (in the year or
in the next fiscal year) as ordinary dividends and as capital gains
distribution, respectively, amounts sufficient to enable the corporation (and
each series thereof) to qualify under the Internal Revenue Code as a regulated
investment company to avoid any liability for federal income tax in respect of
such year. Any distribution or dividend paid to shareholders from any capital
source shall be accompanied by a written statement showing the source or sources
of such payment;
(3) to authorize, subject to such vote, consent, or approval of
shareholders and other conditions, if any, as may be required by any applicable
statute, rule or regulation, the execution and performance by the corporation of
any agreement or agreements with any person, corporation, association, company,
trust, partnership (limited or general) or other organization whereby, subject
to the supervision and control of the Board of Directors, any such other person,
corporation, association, company, trust, partnership (limited or general), or
other organization shall render managerial, investment advisory, distribution,
transfer agent, accounting and/or other services to the corporation (including,
if deemed advisable, the management or supervision of the investment portfolios
of the corporation) upon such terms and conditions as may be provided in such
agreement or agreements;
(4) to authorize any agreement of the character described in subparagraph 3
of this paragraph (a) with any person, corporation, association, company, trust,
partnership (limited or general) or other organization, although one or more of
the members of the Board of Directors or officers of the corporation may be the
other party to any such agreement or an officer, director, employee,
shareholder, or member of such other party, and no such agreement shall be
invalidated or rendered voidable by reason of the existence of any such
relationship;
(5) to allot and authorize the issuance of the authorized but unissued
shares of any series, or class thereof, of this corporation;
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(6) to accept or reject subscriptions for shares of any series, or class
thereof, made after incorporation;
(7) to fix the terms, conditions and provisions of and authorize the
issuance of options to purchase or subscribe for shares of any series, or class
thereof, including the option price or prices at which shares may be purchased
or subscribed for;
(8) to take any action which might be taken at a meeting of the Board of
Directors, or any duly constituted committee thereof, without a meeting pursuant
to a writing signed by that number of directors or committee members that would
be required to take the same action at a meeting of the Board of Directors or
committee thereof at which all directors or committee members were present;
provided, however, that, if such action also requires shareholder approval, such
writing must be signed by all of the directors or committee members entitled to
vote on such matter;
(9) to determine what constitutes net income, total assets and the net
asset value of the shares of each series (or class thereof) of the corporation.
Any such determination made in good faith shall be and conclusive, and shall be
binding upon the corporation, and all holders (past, present and future) of
shares of each series and class thereof; and
(10) without shareholder action, to select and from time to time to change,
the names of the series and classes of shares designated in or pursuant to
Article 5.
(b) Except as provided in the next sentence of this paragraph (b), shares
of any series, or class thereof, hereafter issued which are redeemed, exchanged,
or otherwise acquired by the corporation shall return to the status of
authorized and unissued shares of such series or class. Upon the redemption,
exchange, or other acquisition by the corporation of all outstanding shares of
any series (or class thereof), hereafter issued, such shares shall return to the
status of authorized and unissued shares without designation as to series (if no
shares of the series remain outstanding) or with the same designation as to
series, but no designation as to class within such series (if shares of such
series remain outstanding, but no shares of such class thereof remain
outstanding), and all provisions of these articles of incorporation relating to
such series, or class thereof (including, without limitation, any statement
establishing or fixing the rights and preferences of such series, or class
thereof), shall cease to be of further effect and shall cease to be a part of
these articles. Upon the occurrence of such events, the Board of Directors of
the corporation shall have the power, pursuant to Minnesota Statutes Sections
302A.133 or 302A.135 Subd. 5, as applicable, or or any successor provision and
without shareholder action, to cause a statement of cancellation or restated
articles of incorporation of the corporation to be prepared and filed with the
Secretary of State of the State of Minnesota which reflect such removal from
these articles of all such provisions relating to such series, or class thereof.
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(c) The determination as to any of the following matters made by or
pursuant to the direction of the Board of Directors consistent with these
Articles of Incorporation and in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of duties, shall be final and conclusive
and shall be binding upon the corporation and every holder of shares of its
capital stock: namely, the amount of the assets, obligations, liabilities and
expenses of each series (or class thereof) of the corporation; the amount of the
net income of each series (or class thereof) of the corporation from dividends
and interest for any period and the amount of assets at any time legally
available for the payment of dividends in each series (or class thereof); the
amount of paid-in surplus, other surplus, annual or other net profits, or net
assets in excess of capital, undivided profits, or excess of profits over losses
on sales of securities of each series (or class thereof); the amount, purpose,
time of creation, increase or decrease, alteration or cancellation of any
reserves or charges and the propriety thereof (whether or not any obligation or
liability for which such reserves or charges shall have been created shall have
been paid or discharged); the market value, or any sale, bid or asked price to
be applied in determining the market value, of any security owned or held by or
in each series of the corporation; the fair value of any other asset owned by or
in each series of the corporation; the number of shares of each series of the
corporation issued or assumable; any matter relating to the acquisition, holding
and disposition of securities and other assets by each portfolio of the
corporation; and any question as to whether any transaction constitutes a
purchase of securities on margin, a short sale of securities, or an underwriting
of the sale of, or participation in any underwriting or selling group in
connection with, the public distribution of any securities.
(d) The Board of Directors or the shareholders of the corporation may
adopt, amend, affirm or reject investment policies and restrictions upon
investment or the use of assets of each series of the corporation and may
designate some such policies as fundamental and not subject to change other than
by a vote of a majority of the outstanding voting securities, as such phrase is
defined in the 1940 Act, of the affected series of the corporation.
9. The corporation shall indemnify such persons for such expenses and
liabilities, in such manner, under such circumstances, and to the full extent
permitted by Section 302A.521 of the Minnesota Statutes, as now enacted or
hereafter amended, provided, however, that no such indemnification may be made
if it would be in violation of Section 17(h) of the 1940 Act, as now enacted or
hereafter amended.
10. To the fullest extent permitted by the Minnesota Business
Corporation Act as the same exists or may hereafter be amended (except as
prohibited by the 1940 Act, as the same exists or may hereafter be amended), a
director of this corporation shall not be liable to this corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director.
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11. The names and post office addresses of the first directors, who
shall serve until the first regular meeting of shareholders or until their
successors are elected and qualified, are:
Madeline Betsch 19 South 1st Street
Apt. B2501
Minneapolis, MN 55401
W. William Hodgson 1658 Dodd Road
Mendota Heights, MN 55118
George R. Long 29 Las Brisas
Naples, FL 33963
Noel P. Rahn 3700 First Bank Place
P.O. Box 357
Minneapolis, MN 55440
J. Peter Thompson Rural Route 1
Mountain Lake, MN 56159
Richard E. Struthers 3700 First Bank Place
P.O. Box 357
Minneapolis, MN 55440
Charles H. Withers Rochester Post Bulletin
P.O. Box 6118
Rochester, MN 55903
12. The names and post office address of the incorporator, who is a natural
person of full age, is:
Steven G. Lentz 3700 First Bank Place
P.O. Box 357
Minneapolis, MN 55440
IN WITNESS WHEREOF, the undersigned sole incorporator has executed these
Articles of Incorporation on April 23, 1996.
/s/ Steven G. Lentz
Steven G. Lentz
CERTIFICATE OF DESIGNATION
OF SERIES OF COMMON SHARES
The undersigned, Secretary of LifeUSA Funds, Inc., a Minnesota corporation
(the "Corporation"), hereby certifies that the following is a true, complete and
correct copy of resolutions duly adopted by a majority of the directors of the
Board of Directors through a written action taken without a meeting in
accordance with Minnesota Statues, Section 302A.239.
DESIGNATION OF SERIES E AND F COMMON SHARES
WHEREAS, LifeUSA Funds, Inc. (the "Corporation") has authorized
10,000,000,000,000 shares of common stock, $.01 par value per share, of which
10,000,000,000 are designated Series A Common Shares, 10,000,000,000 shares are
designated Series B Common Shares, 10,000,000,000 shares are designated Series C
Common Shares, and 10,000,000,000 shares are designated Series D Common Shares,
as set forth in the Articles of Incorporation of the Corporation; and
WHEREAS, said Articles of Incorporation set forth that the balance of the
authorized but unissued shares of common stock may be issued in such series with
such designations, preferences and relative, participating, optional or other
special rights, or qualifications, limitations or restrictions thereof, as shall
be stated or expressed in a resolution or resolutions providing for the issue of
any series of common shares as may be adopted from time to time by the Board of
Directors of the Corporation.
NOW, THEREFORE, BE IT RESOLVED, that 10,000,000,000 of the remaining
authorized but unissued common shares of the Corporation be, and they hereby
are, designated as Series E Common Shares, and 10,000,000,000 of the remaining
authorized but uniussed common shares of the Corporation be, and they hereby
are, designated as Series F Common Shares, and said Series E and F Common Shares
each shall represent interests in a separate and distinct portion of the
Corporation's assets which shall take the form of a separate portfolio of
investment securities, cash and other assets.
FURTHER RESOLVED, that Articles 6, 7 and 8 of the Articles of Incorporation
of the Corporation setting forth the preferences and relative, participating,
optional or other special rights, and qualifications, limitations and
restrictions thereof, of and among each series of common shares be, and they
hereby are, adopted as the preferences and relative, participating, optional and
other rights, and the qualifications, limitations and restrictions thereof, of
and among the Series E and F Common Shares designated hereby and in relation to
the Series A, B, C and D Common Shares of the Corporation designated prior
hereto.
BE IT FURTHER RESOLVED, that the officers of the Corporation are hereby
authorized and directed to the file with the office of the Secretary of
Minnesota, a Certificate of Designation setting forth the relative rights and
preferences of the Series E and F Common Shares, as required by Subd. 3(b) of
Section 401 of the Minnesota Business Corporation Act.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Designation on behalf of LifeUSA Funds, Inc. this 15th day of October, 1996.
/s/William C. Joas, Secretary
BYLAWS
OF
LIFEUSA FUNDS, INC.
ARTICLE I
OFFICES
Section 1.01. Name. The name of the corporation is LifeUSA Funds, Inc. The
name of the series represented by Series A Common Shares shall be "LifeUSA
Aggressive Growth Portfolio." The name of the series represented by Series B
Common Shares shall be "LifeUSA Growth Portfolio." The name of the series
represented by Series C Common Shares shall be "LifeUSA Global Portfolio." The
name of the series represented by Series D Common Shares shall be "LifeUSA
Balanced Portfolio." The name of the series represented by Series E Common
Shares shall be "LifeUSA Current Income Portfolio." The name of the series
represented by Series F Common Shares shall be "LifeUSA Principal Preservation
Portfolio."
Section 1.02. Registered Office. The registered office of the corporation
in Minnesota shall be that set forth in the Articles of Incorporation or in the
most recent amendment of the Articles of Incorporation or resolution of the
directors filed with the Secretary of State of Minnesota changing the registered
office.
Section 1.03. Other Offices. The corporation may have such other offices
and places of businesses, within or without the State of Minnesota, as the
directors shall, from time to time, determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. Place and Time of Meetings. Except as provided otherwise by
Minnesota Statutes Chapter 302A, meetings of the shareholders may be held at any
place, within or without the State of Minnesota, designated by the directors
and, in the absence of such designation, shall be held at the registered office
of the corporation in the State of Minnesota. The directors shall designate the
time of day for each meeting and, in the absence of such designation, every
meeting of shareholders shall be held at ten o'clock a.m.
Section 2.02. Regular Meetings. Annual meetings of shareholders are not
required by these Bylaws. Regular meetings shall be held only with such
frequency and at such times and places as provided in and required by law.
Section 2.03. Special Meetings. Special meetings of the shareholders may be
held at any time and for any purpose and may be called by the Chairman of the
Board, the President, or two or more directors, or by one or more shareholders
holding ten percent (10%) or more of the shares entitled to vote on the matters
to be presented to the meeting, except that a special meeting for the purpose of
considering any action directly or indirectly to facilitate or effect a business
combination, including any action to change or otherwise affect the composition
of the Board of Directors for that purpose, must be called by 25% of the voting
power of all shares entitled to vote.
Section 2.04. Quorum; Adjourned Meetings. The holders of ten percent (10%)
of the shares outstanding and entitled to vote at the meeting shall constitute a
quorum for the transaction of business at any regular or special shareholders'
meeting. In case a quorum shall not be present at a meeting, those present in
person or by proxy shall adjourn the meeting to such day as they shall, by
majority vote, agree upon without further notice other than by announcement at
the meeting at which such adjournment is taken. If a quorum is present, a
meeting may be adjourned from time to time without notice other than
announcement at the meeting. At adjourned meetings at which a quorum is present,
any business may be transacted which might have been transacted at the meeting
as originally noticed. If a quorum is present, the shareholders may continue to
transact business until adjournment notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
<PAGE>
Section 2.05. Voting. At each meeting of the shareholders, every
shareholder shall have the right to vote in person or by proxy. Each
shareholder, unless the Articles of Incorporation or applicable laws provide
otherwise, shall have one vote for each share having voting power registered in
his name on the books of the corporation. Upon the demand of any shareholder,
the vote upon any question before the meeting shall be by written ballot. Except
as otherwise specifically provided by these Bylaws or as required by provisions
of the Investment Company Act of l940 or other applicable laws, all questions
shall be decided by a majority vote of the number of shares entitled to vote and
represented at the meeting at the time of the vote. If the matter(s) to be
presented at a regular or special meeting relates only to an individual series
or class thereof of the corporation, then only the shareholders of the series or
class thereof are entitled to vote on such matter(s).
Section 2.06. Voting Proxies. The right to vote by proxy shall exist only
if the instrument authorizing such proxy to act shall have been executed in
writing by the shareholder himself or by his attorney thereunto duly authorized
in writing or by electronic means as provided by Minnesota Statutes Section
302A.449, Subd.1, or any successor provision. No proxy shall be voted after
eleven (11) months from its date unless it provides for a longer period.
Section 2.07. Closing of Books. The Board of Directors may fix a time, not
exceeding sixty (60) days preceding the date of any meeting of shareholders, as
a record date for the determination of the shareholders entitled to notice of,
and to vote at, such meeting, notwithstanding any transfer of shares on the
books of the corporation after any record date so fixed. If the Board of
Directors fails to fix a record date for determination of the shareholders
entitled to notice of, and to vote at, any meeting of shareholders, the record
date shall be the thirtieth (30th) day preceding the date of such meeting.
Section 2.08. Notice of Meetings. The Secretary or an Assistant Secretary
shall mail to each shareholder shown by the books of the corporation to be a
holder of record of shares entitled to vote at such meeting, at his address as
shown by the books of the corporation, a notice setting out the time and date
and place of each regular meeting and each special meeting, which notice shall
be mailed at least ten (10) days prior thereto; except that notice of a meeting
at which an agreement of merger or consolidation is to be considered shall be
mailed to all shareholders of record, whether entitled to vote or not, at least
two (2) weeks prior thereto; and except that notice of a meeting at which a
proposal to dispose of all, or substantially all, of the property and assets of
the corporation is to be considered shall be mailed to all shareholders of
record, whether entitled to vote or not, at least ten (10) days prior thereto;
and except that notice of a meeting at which a proposal to dissolve the
corporation or to amend the Articles of Incorporation is to be considered shall
be mailed to all shareholders of record, whether entitled to vote or not, at
least ten (10) days prior thereto. Every notice of any special meeting shall
state the purpose or purposes for which the meeting has been called, pursuant to
Section 2.03, and the business transacted at all special meetings shall be
confined to the purpose stated in the call.
Section 2.09. Waiver of Notice. Notice of any regular or special meeting
may be waived either before, at or after such meeting orally or in writing
signed by each shareholder or representative thereof entitled to vote the shares
so represented. A shareholder, by his attendance at any meeting of shareholders,
shall be deemed to have waived notice of such meeting, except where the
shareholder objects at the beginning of the meeting to the transaction of
business because the meeting is not lawfully called or convened, or objects
before a vote on an item of business because the item may not lawfully be
considered at that meeting and does not participate in the consideration of the
item at that meeting.
Section 2.10. Written Action. Any action which might be taken at a meeting
of the shareholders may be taken without a meeting if done in writing and signed
by a majority of the shareholders entitled to vote on that action. If the action
to be taken relates to an individual series or class thereof of the corporation,
then only shareholders of the series or class thereof are entitled to vote on
such action.
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ARTICLE III
DIRECTORS
Section 3.01. Number Qualifications and Term of Office. Until the first
meeting of shareholders, or until the directors increase their number by
resolution, the number of directors shall be the number named in the Articles of
Incorporation. Thereafter, the number of directors shall be established by
resolution of the shareholders (subject to the authority of the Board of
Directors to increase the number of directors as permitted by law). In the
absence of such resolution, the number of directors shall be the number last
fixed by the shareholders, the Board of Directors or the Articles of
Incorporation. Directors may but need not be shareholders. Each of the directors
shall hold office until the regular meeting of shareholders next held after his
election and until his successor shall have been elected and shall qualify, or
until he shall resign, or shall have been removed as hereinafter provided.
Section 3.02. Election of Directors. Except as otherwise provided in
Section 3.12 and 3.13 hereof the directors shall be elected at all regular
shareholders' meeting. Directors may be elected at a special shareholders'
meeting, provided that the notice of such meeting shall contain mention of such
purpose. At each shareholders' meeting for the election of directors, the
directors shall be elected by a plurality of the votes validly cast at such
election. The shareholders of each series or class thereof of stock of the
corporation shall be entitled to vote for directors and shall have equal voting
power.
Section 3.03. General Powers.
(a) The property, affairs and business of the corporation shall be managed
by the Board of Directors, which may exercise all the powers of the corporation
except those powers vested solely in the shareholders of the corporation by
statute, the Articles of Incorporation or these Bylaws, as amended.
(b) All acts done by any meeting of the directors or by any person acting
as a director, so long as his successor shall not have been duly elected or
appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the corporation.
Section 3.04. Power to Declare Dividends.
(a) The Board of Directors, from time to time as it may deem advisable, may
declare and pay dividends in cash or other property of the corporation, out of
any source available for dividends, to the shareholders of each series (or class
thereof) of stock of the corporation according to their respective rights and
interests in the investment portfolio of the corporation issuing such series (or
class thereof) of stock.
(b) The Board of Directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than
(i) each investment portfolio's accumulated and accrued undistributed net
income (determined in accordance with generally accepted accounting practice and
the rules and regulations of the Securities and Exchange Commission then in
effect) and not including profits or losses realized upon the sale of securities
or other properties; or
(ii) each investment portfolio's net income so determined for the current
or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such
payment and the basis of calculation, and shall be in such form as the
Commission may prescribe.
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(c) Notwithstanding the above provisions of this Section 3.04, the Board of
Directors may at any time declare and distribute pro rata among the shareholders
of each series (or class thereof) of stock a "stock dividend" out of each
portfolio's authorized but unissued shares of stock, including any shares
previously purchased by a portfolio of the corporation.
Section 3.05. Annual Meeting. The Board of Directors shall meet annually at
the registered office of the corporation, or at such other place within or
without the State of Minnesota as may be designated by the Board of Directors,
for the purpose of electing the officers of the corporation and for the
transaction of such other business as shall come before the meeting.
Section 3.06. Board Meetings. Meetings of the Board of Directors shall be
held from time to time at such time and place within or without the State of
Minnesota as may be fixed by resolution adopted by a majority of the whole Board
of Directors.
Section 3.07. Meeting; Notice. A director may call a meeting by giving five
(5) days' notice to all directors of the date, time, and place of the meeting;
provided that if the date, time and place of a board meeting have been announced
at a previous meeting of the board, no notice is required.
Section 3.08. Waiver of Notice. Notice of any meeting of the Board of
Directors may be waived either before, at, or after such meeting orally or in
writing signed by such director. A director, by his attendance and participation
in the action taken at any meeting of the Board of Directors, shall be deemed to
have waived notice of such meeting.
Section 3.09. Quorum. A majority of the directors then holding office shall
constitute a quorum for the transaction of business at such meeting; provided,
however, notwithstanding the above, if the Board of Directors is taking action
pursuant to the Investment Company Act of 1940, as now enacted or hereafter
amended, a majority of the directors who are not "interested persons" (as
defined by the Investment Company Act of 1940, as now enacted or hereafter
amended) of the corporation shall constitute a quorum for taking such action.
Section 3.10. Advance Consent or Opposition. A director may give advance
written consent or opposition to a proposal to be acted on at a meeting of the
Board of Directors. If such director is not present at the meeting, consent or
opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered in
the minutes or other record of action at the meeting, if the proposal acted on
at the meeting is substantially the same or has substantially the same effect as
the proposal to which the director has consented or objected.
Section 3.11. Conference Communications. Directors may participate in any
meeting of the Board of Directors, or of any duly constituted committee thereof,
by means of a conference telephone conversation or other comparable
communication technique whereby all persons participating in the meeting can
hear and communicate to each other. For the purposes of establishing a quorum
and taking any action at the meeting, such directors participating pursuant to
this Section 3.11 shall be deemed present in person at the meeting, and the
place of the meeting shall be the place or origination of the conference
telephone conversation or other comparable communication technique.
Section 3.12. Vacancies; Newly Created Directorships. Vacancies in the
Board of Directors of the corporation occurring by reason of death, resignation,
removal or disqualification shall be filled for the unexpired term by a majority
of the remaining directors of the Board although less than a quorum; newly
created directorships resulting from an increase in the authorized number of
directors by action of the Board of Directors as permitted by Section 3.01 may
be filled by a two-thirds (2/3) vote of the directors serving at the time of
such increase; and each person so elected shall be a director until his
successor is elected by the shareholders, who may make such election at their
next regular meeting or at any meeting duly called for that purpose; provided,
however, that no vacancy can be filled as provided above if prohibited by the
provisions of the Investment Company Act of 1940.
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Section 3.13. Removal. The entire Board of Directors or any
individual director may be removed from office, with or without cause, by a vote
of the shareholders holding a majority of the shares entitled to vote at an
election of directors. In the event that the entire Board or any one or more
directors be so removed, new directors shall be elected at the same meeting, or
the remaining directors may, to the extent vacancies are not filled at such
meeting, fill any vacancy or vacancies created by such removal. A director named
by the Board of Directors to fill a vacancy may be removed from office at any
time, with or without cause, by the affirmative vote of the remaining directors
if the shareholders have not elected directors in the interim between the time
of the appointment to fill such vacancy and the time of removal.
Section 3.14. Committees. A resolution approved by the affirmative vote of
a majority of the Board of Directors may establish committees having the
authority of the board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the Board of
Directors.
A majority of the members of the committee present at a meeting is a quorum
for the transaction of business, unless a larger or smaller proportion or number
is provided in a resolution approved by the affirmative vote of a majority of
the directors present.
Section 3.15. Written Action. Any action which might be taken at a meeting
of the Board of Directors, or any duly constituted committee thereof, may be
taken without a meeting if done in writing and signed by a majority of the
directors or committee members.
Section 3.16. Compensation. Directors who are not salaried officers of this
corporation or affiliated with its investment adviser shall receive such fixed
sum per meeting attended or such fixed annual sum as shall be determined, from
time to time, by resolution of the Board of Directors. All directors may receive
their expenses, if any, of attendance at meetings of the Board of Directors or
any committee thereof. Nothing herein contained shall be construed to preclude
any director from serving this corporation in any other capacity and receiving
proper compensation therefor.
Section 3.17. Resignation. A director may resign by giving written notice
to the corporation, and the resignation is effective without acceptance when
given, unless a later effective time is specified in the notice.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the corporation shall consist of a
Chairman of the Board (if one is elected by the Board), the President, a
Treasurer and a Secretary, and, if desired by the Board, one or more Vice
Presidents, Assistant Secretaries, and Assistant Treasurers, and such other
officers and agents as may, from time to time, be elected by the Board of
Directors. Any number of offices may be held by the same person.
Section 4.02. Election, Term of Office and Qualifications. The Board of
Directors shall elect, from within or without their number, the President, the
Secretary, the Treasurer and such other officers as may be deemed advisable. The
President and all other officers who may be directors shall continue to hold
office until the election and qualification of their successors, notwithstanding
an earlier termination of their directorship.
Section 4.03. Resignation. Any officer may resign his office at any time by
delivering a written resignation to the Board of Directors, the President, the
Secretary, or any Assistant Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
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Section 4.04. Removal and Vacancies. Any officer may be removed from his
office by a majority of the whole Board of Directors, with or without cause.
Such removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy shall be filled for
the unexpired term by the Board of Directors.
Section 4.05. Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside at all meetings of the shareholders and directors and
shall have such other duties as may be prescribed, from time to time, by the
Board of Directors.
Section 4.06. President. The President shall have general active management
of the business of the corporation. In the absence of the Chairman of the Board,
he shall preside at all meetings of the shareholders and directors. He shall be
the chief executive officer of the corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. He shall be ex
officio a member of all standing committees. He may execute and deliver, in the
name of the corporation, any deeds, mortgages, bonds, contracts or other
instruments pertaining to the business of the corporation and, in general, shall
perform all duties usually incident to the office of President. He shall have
such other duties as may, from time to time, be prescribed by the Board of
Directors.
Section 4.07. Vice President. Each Vice President shall have such powers
and shall perform such duties as may be specified in the Bylaws or prescribed by
the Board of Directors or by the President. In the event of absence or
disability of the President, Vice Presidents shall succeed to his power and
duties in the order designated by the Board of Directors.
Section 4.08. Secretary. The Secretary shall be secretary of, and shall
attend all, meetings of the shareholders and Board of Directors and shall record
all proceedings of such meetings in the minute book of the corporation. He shall
give proper notice of meetings of shareholders and directors. He shall keep the
seal of the corporation, if any, and shall affix the same to any instrument
requiring it and may, when necessary, attest the seal by his signature. He shall
perform such other duties as may, from time to time, be prescribed by the Board
of Directors or by the President.
Section 4.09. Treasurer. The Treasurer shall keep accurate accounts of all
moneys of the corporation received or disbursed. He shall deposit all moneys,
drafts and checks in the name of, and to the credit of, the corporation in such
banks and depositories as a majority of the whole Board of Directors shall, from
time to time, designate. He shall have power to endorse, for deposit, all notes,
checks and drafts received by the corporation. He shall disburse the funds of
the corporation, as ordered by the Board of Directors, making proper vouchers
therefor. He shall render to the President and the directors, whenever required,
an account of all his transactions as Treasurer and of the financial condition
of the corporation, and shall perform such other duties as may, from time to
time, be prescribed by the Board of Directors or by the President.
Section 4.10. Assistant Secretaries. At the request of the Secretary, or in
his absence or disability, any Assistant Secretary shall have power to perform
all the duties of the Secretary and, when so acting, shall have all the powers
of, and be subject to all restrictions upon, the Secretary. The Assistant
Secretaries shall perform such other duties as from time to time may be assigned
to them by the Board of Directors or the President.
Section 4.11. Assistant Treasurer. At the request of the Treasurer, or in
his absence or disability, any Assistant Treasurer shall have power to perform
all the duties of the Treasurer, and when so acting, shall have all the powers
of, and be subject to all the restrictions upon, the Treasurer. The Assistant
Treasurers shall perform such other duties as from time to time may be assigned
to them by the Board of Directors or the President.
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Section 4.12. Compensation. The officers of this corporation shall receive
such compensation for their services as may be determined, from time to time, by
resolution of the Board of Directors.
Section 4.13. Surety Bonds. The Board of Directors may require any officer
or agent of the corporation to execute a bond (including, without limitation,
any bond required by the Investment Company Act of 1940 and the rules and
regulations of the Securities and Exchange Commission) to the corporation in
such sum and with such surety or sureties as the Board of Directors may
determine, conditioned upon the faithful performance of his duties to the
corporation, including responsibility for negligence and for the accounting of
any of the corporation's property, funds or securities that may come into his
hands. In any such case, a new bond of like character shall be given at least
every six years, so that the date of the new bond shall not be more than six
years subsequent to the date of the bond immediately preceding.
ARTICLE V
SHARES AND THEIR TRANSFER AND REDEMPTION
Section 5.01. Certificates for Shares.
(a) The corporation may have certificated or uncertificated shares, or
both, as designated by resolution of the Board of Directors. Every owner of
certificated shares of the corporation shall be entitled to a certificate, to be
in such form as shall be prescribed by the Board of Directors, certifying the
number of shares of the corporation owned by him. Within a reasonable time after
the issuance or transfer of uncertificated shares, the corporation shall send to
the new shareholder the information required to be stated on certificates.
Certificated shares shall be numbered in the order in which they shall be issued
and shall be signed, in the name of the corporation, by the President or a Vice
President and by the Treasurer, or by such officers as the Board of Directors
may designate. Such signatures may be facsimile if authorized by the Board of
Directors. Every certificate surrendered to the corporation for exchange or
transfer shall be canceled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so canceled, except in cases provided for in Section 5.08
(b) In case any officer, transfer agent or registrar who shall have signed
any such certificate, or whose facsimile signature has been placed thereon,
shall cease to be such an officer (because of death, resignation or otherwise)
before such certificate is issued, such certificate may be issued and delivered
by the corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
Section 5.02. Issuance of Shares. The Board of Directors is authorized to
cause to be issued shares of the corporation up to the full amount authorized by
the Articles of Incorporation in such series and classes thereof and in such
amounts as may be determined by the Board of Directors and as may be permitted
by law. The amount of consideration to be received in cash, or otherwise, shall
not be less than the par value of the shares so allotted. No shares of stock
issued by the corporation shall be issued, sold, or exchanged by or on behalf of
the corporation for any amount less than the net asset value per share of the
shares outstanding as determined pursuant to Article XI hereunder.
Section 5.03. Redemption of Shares. Upon the demand of any shareholder this
corporation shall redeem any share of stock issued by it held and owned by such
shareholder at the net asset value thereof as determined pursuant to Article XI
hereunder. The Board of Directors may suspend the right of redemption or
postpone the date of payment during any period when: (a) trading on the New York
Stock Exchange is restricted or such Exchange is closed for other than weekends
or holidays; (b) the Securities and Exchange Commission has by order permitted
such suspension; or (c) an emergency as defined by rules of the Securities and
Exchange Commission exists, making disposal of portfolio securities or valuation
of net assets of the corporation not reasonably practicable.
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If the value of a shareholder's investments in the corporation becomes less
than $500 (or such other amount as may be determined from time to time by the
Board of Directors) as a result of a redemption or transfer of shares, the
corporation's officers are authorized, in their discretion, on behalf of the
corporation, to redeem such shareholder's entire interest and remit such amount,
provided that such a redemption will only be effected by the corporation
following (a) the mailing by the corporation to such shareholder of a "notice of
intention to redeem," and (b) the passage of such time period as may be
determined by the Board of Directors, during which time the shareholder will
have the opportunity to make an additional investment in the corporation to
increase the value of such shareholder's account to at least such minimum
amount.
Section 5.04. Transfer of Shares. Transfer of shares on the books of the
corporation may be authorized only by the shareholder named in the certificate,
or the shareholder's legal representative, or the shareholder's duly authorized
attorney-in-fact, and upon surrender of the certificate or the certificates for
such shares or a duly executed assignment covering shares held in unissued form.
The corporation may treat, as the absolute owner of shares of the corporation,
the person or persons in whose name shares are registered on the books of the
corporation.
Section 5.05. Registered Shareholders. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise expressly
provided by the laws of Minnesota.
Section 5.06 Transfer Agents and Registrars. The Board of Directors may
from time to time appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
Section 5.07. Transfer Regulations. The shares of stock of the corporation
may be freely transferred, and the Board of Directors may from time to time
adopt rules and regulations with reference to the method of transfer of the
shares of stock of the corporation.
Section 5.08. Lost, Stolen, Destroyed, and Mutilated Certificates. The
holder of any stock of the corporation shall immediately notify the corporation
of any loss, theft destruction or mutilation of any certificate therefor, and
the Board of Directors may, in its discretion, cause to be issued to him a new
certificate or certificate of stock upon the surrender of the mutilated
certificate or in case of loss, theft or destruction of the certificate, upon
satisfactory proof of such loss, theft or destruction, after the owner of the
lost, stolen or destroyed certificate, or his legal representatives, gives to
the corporation and to such registrar or transfer agent as may be authorized or
required to countersign such new certificate or certificates a bond, in such sum
as they may direct, and with such surety or sureties, as they may direct, as
indemnity against any claim that may be made against them or any of them on
account of or in connection with the alleged loss, theft, or destruction of any
such certificate.
ARTICLE VI
DIVIDENDS, SURPLUS, ETC.
Section 6.01. The corporation's net investment income will be determined,
and its dividends shall be declared and made payable at such time(s) as the
Board of Directors shall determine; dividends shall be payable to shareholders
of record as of the date of declaration.
It shall be the policy of the corporation to qualify for and elect the tax
treatment applicable to regulated investment companies under the Internal
Revenue Code, so that the corporation will not be subjected to Federal income
tax on such part of its income or capital gains as it distributes to
shareholders.
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ARTICLE VII
BOOKS AND RECORDS, AUDIT, FISCAL YEAR
Section 7.01. Books and Records. The Board of Directors of the corporation
shall cause to be kept such books and records, at such places, as may be
required by law.
Section 7.02. Audit, Accountant.
(a) The Board of Directors shall cause the records and books of account of
the corporation to be audited at least once in each fiscal year and at such
other times as it may deem necessary or appropriate.
(b) The corporation shall employ an independent certified public accountant
or firm of independent certified public accountants as its Accountant to examine
the accounts of the corporation and to sign and certify financial statements
filed by the corporation. The Accountant's certificates and reports shall be
addressed both to the Board of Directors and to the shareholders.
(c) A majority of the members of the Board of Directors shall select the
Accountant at any meeting held before the first regular meeting of shareholders,
and thereafter shall select the Accountant annually at a meeting held within
thirty (30) days before or after the beginning of the fiscal year of the
corporation. Such selection shall be submitted for ratification or rejection at
the next succeeding regular shareholders' meeting. If such meeting shall reject
such selection, the Accountant shall be selected by majority vote, either at the
meeting at which the rejection occurred or at a subsequent meeting of
shareholders called for such purpose.
(d) Any vacancy occurring between regular meetings, due to the death,
resignation or otherwise of the Accountant, may be filled by the Board of
Directors.
Section 7.03. Fiscal Year. The fiscal year of the corporation shall be
determined by the Board of Directors.
ARTICLE VIII
INSPECTION OF BOOKS
Section 8.01. Every shareholder of the corporation and every holder of a
voting trust certificate shall have a right to examine, in person or by agent or
attorney, at any reasonable time or times, for any proper purpose, and at the
place or places where usually kept, the share register, books of account and
records of the proceedings of the shareholders and directors and to make
extracts therefrom.
ARTICLE IX
LOANS TO OFFICERS, DIRECTORS, SHAREHOLDERS
Section 9.01. The corporation shall not lend any of its assets to any
officer or director of the corporation, nor shall it lend any of its assets to
shareholders upon the security of its shares. If any such loan be made, the
officers and directors who make such loan, or assent thereto, shall be jointly
and severally liable for repayment or return thereof.
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ARTICLE X
VOTING OF STOCK HELD
Section 10.01. Unless otherwise provided by resolution of the Board of
Directors, the President, any Vice President, the Secretary or the Treasurer,
may from time to time appoint an attorney or attorneys or agent or agents of the
corporation, in the name and on behalf of the corporation, to cast the votes
which the corporation may be entitled to cast as a stockholder or otherwise in
any other corporation or association, any of whose stock or securities may be
held by the corporation, at meetings of the holders of the stock or other
securities of any such other corporation or association, or to consent in
writing to any action by any such other corporation or association, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed on behalf
of the corporation and under its corporate seal, or otherwise, such written
proxies, consents, waivers, or other instruments as it may deem necessary or
proper in the circumstances; or any of such officers may themselves attend any
meeting of the holders of stock or other securities of any such corporation or
association and thereat vote or exercise any or all other powers of the
corporation as the holder of such stock or other securities of such other
corporation or association, or consent in writing to any action by any such
other corporation or association.
ARTICLE XI
VALUATION OF NET ASSET VALUE
Section 11.01. The net asset value per share of each series and class of
stock issued by the portfolios of the corporation shall be determined in good
faith by or under supervision of the officers of the corporation as authorized
by the Board of Directors as often and on such days and at such time(s) as the
Board of Directors shall determine.
ARTICLE XII
CUSTODY OF ASSETS
Section 12.01. All securities and cash owned by this corporation shall, as
hereinafter provided, be held by or deposited with a bank or trust company
having (according to its last published report) not less than two million
dollars ($2,000,000) aggregate capital, surplus and undivided profits (the
"Custodian").
This corporation shall enter into a written contract with the Custodian
regarding the powers, duties and compensation of the Custodian with respect to
the cash and securities of this corporation held by the Custodian. Said contract
and all amendments thereto shall be approved by the Board of Directors of this
corporation. In the event of the Custodian's resignation or termination, the
corporation shall use its best efforts promptly to obtain a successor Custodian
and shall require that the cash and securities owned by this corporation held by
the Custodian be delivered directly to such successor Custodian.
ARTICLE XIII
AMENDMENTS
Section 13.01. These Bylaws may be amended or altered by a vote of the
majority of the whole Board of Directors at any meeting provided that notice of
such proposed amendment shall have been given in the notice given the directors
of such meeting. Such authority in the Board of Directors is subject to the
power of the shareholders to change or repeal such Bylaws by a majority vote of
the shareholders present or represented at any regular or special meeting of
shareholders called for such purpose. The Board of Directors shall not make or
alter any Bylaws fixing their qualifications, classifications, term of office,
or number, except that the Board of Directors may make or alter any Bylaws to
increase their number.
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ARTICLE XIV
MISCELLANEOUS
Section 14.01. Interpretation. When the context in which words are used in
these Bylaws indicates that such is the intent, singular words will include the
plural and vice verse, and masculine words will include the feminine and neuter
genders and vice versa.
Section 14.02. Article and Section Titles. The titles of Sections and
Articles in these Bylaws are for descriptive purpose only and will not control
or alter the meaning of any of these Bylaws as set forth in the text.
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