[LIFEUSA FUNDS LOGO]
ANNUAL REPORT
DECEMBER 31, 1997
<PAGE>
TABLE OF CONTENTS
LIFEUSA FUNDS, INC.
ANNUAL REPORT
DECEMBER 31, 1997
President's Letter............................. 2
Portfolio Reviews
LifeUSA Aggressive Growth Portfolio......... 3
LifeUSA Growth Portfolio.................... 4
LifeUSA Global Portfolio.................... 5
LifeUSA Balanced Portfolio.................. 6
LifeUSA Current Income Portfolio............ 7
LifeUSA Principal Preservation Portfolio.... 8
Schedules of Investments
LifeUSA Aggressive Growth Portfolio......... 9
LifeUSA Growth Portfolio.................... 9
LifeUSA Global Portfolio.................... 9
LifeUSA Balanced Portfolio................. 10
LifeUSA Current Income Portfolio........... 10
LifeUSA Principal Preservation Portfolio... 10
Notes to Schedules of Investments............. 11
Statements of Assets and Liabilities.......... 12
Statements of Operations...................... 14
Statements of Changes in Net Assets........... 16
Financial Highlights
LifeUSA Aggressive Growth Portfolio........ 18
LifeUSA Growth Portfolio................... 18
LifeUSA Global Portfolio................... 18
LifeUSA Balanced Portfolio................. 19
LifeUSA Current Income Portfolio........... 19
LifeUSA Principal Preservation Portfolio... 19
Notes to Financial Statements................. 20
Independent Auditors' Report.................. 23
Federal Tax Information....................... 24
Distributor, Adviser, Legal Counsel,
Independent Auditors, Directors....... Back Cover
<PAGE>
PRESIDENT'S LETTER
LIFEUSA FUNDS, INC.
COLD MARKETS CAN TURN HOT IN NO TIME
In 1994, the U.S. and European stock markets were sluggish, Latin America was in
crisis and Asia was the "economic miracle." Today, Latin America is perceived as
the strongest emerging market while Asia finds itself struggling. Meanwhile, the
U.S. stock market has doubled in three years. And now, Europe seems to be in the
midst of its own miracle.
Thanks to advances in communications technology and falling trade barriers, we
live in a global economy where companies can do business anywhere in the world
and virtually no place on earth is unreachable by investors. Yet, as we've seen
these past few years, markets still move quite independently of each other.
Last fall, Asia's stock markets plummeted, threatening to take the rest of the
market down with them. In the United States, the Dow Jones Industrial Average,
which peaked at 8,259 on August 6, 1997, fell more than 1,000 points by late
October. But while Asia continued to descend, U.S. stocks staged an impressive
rally. By early December, the Dow had virtually regained all its lost ground.
True, U.S. stocks took another tumble in December and January as more bad news
came out of Asia and a scandal rocked the White House. But once again, the
market roared back by early February as investors were reminded just how good
the economy remained in the United States. The Asian debacle slowed projected
U.S. growth in 1998, which bodes well for keeping interest rates and inflation
low. The President submitted the first balanced federal budget in 30 years and
corporate profits, although growing slower than before, were stronger than
initially projected.
In Latin America, investors also feared that the "Asian contagion" would depress
other emerging markets. Although there was initial negative impact, Latin
American stock markets held up surprisingly well. A few years back, the region
had its own crisis, and it responded by reducing tariffs, clamping down on
credit, cutting budget deficits and accelerating its privatization programs. It
remains to be seen whether Asia is willing to take the same medicine to solve
its economic problems.
In Europe, companies are streamlining operations, focusing on shareholder value
and the upcoming transition to a single European currency beginning in 1999. In
order to qualify for the Euro, a country must have limited budget deficits, low
inflation and moderate interest rates--which also makes for excellent stock
markets. The countries making up the European Union will comprise an economy and
a bond market that is larger than that of the United States. Investor sentiment
is positive in Europe, and the stock markets there have been strong since early
1997.
So as we move deeper into 1998, we can see that there are clear differences in
markets throughout the world. But markets are constantly shifting. The best way
to make sure you participate in the strongest areas of the world is to be
diversified geographically--and be patient. Today's ice cold markets can turn
hot in no time.
Please read the Portfolio Managers' Reviews which follow this letter for a
detailed perspective on the Portfolios' performance and our strategy going
forward. We appreciate your continued trust and confidence in IAI. If there is
any way we can serve you better, please let us know by calling our toll-free
Investor Services Hotline at 1-800-945-3863.
Sincerely,
/s/ Noel P. Rahn
Noel P. Rahn
President
<PAGE>
PORTFOLIO REVIEW
LIFEUSA AGGRESSIVE GROWTH PORTFOLIO
LIFEUSA AGGRESSIVE GROWTH PORTFOLIO
HOW HAS THE PORTFOLIO PERFORMED?
The LifeUSA Aggressive Growth Portfolio has had a net asset value total return
of 18.00% since inception. The Russell 2500 Index has returned 21.01% over the
same time period. The best performing sectors included financial services,
consumer staples, and transportation while the worst performing sectors were
technology and health care. Additionally, the Portfolio's overweighting in small
cap growth stocks hurt performance due to small cap value stocks vastly
outperforming small growth stocks throughout 1997.
WHAT IS YOUR OUTLOOK FOR THE PORTFOLIO?
We are approaching 1998 cautiously, believing that the "Asian Flu" could be the
catalyst for weaker corporate profits in many sectors. However, we believe the
Portfolio consists of well-positioned companies with sustainable competitive
advantages in stable, growing markets. Thus, we are optimistic about the outlook
for strong relative performance regardless of the environment.
VALUE OF $10,000 INVESTMENT+
LIFEUSA AGGRESSIVE GROWTH
PORTFOLIO (POP)(Inception 2/03/97) RUSSELL 2500 INDEX*
-----------------------------------------------------------
2/03/97 $ 9,425 $ 10,000
3/31/97 8,699 9,405
6/30/97 10,329 10,826
9/30/97 11,724 12,380
12/31/97 11,121 12,101
TOTAL RETURNS+
THROUGH 12/31/97
Since Inception
2/03/97**
==============================================================================
LIFEUSA AGGRESSIVE GROWTH PORTFOLIO -
PUBLIC OFFERING PRICE 11.21%
- ------------------------------------------------------------------------------
LIFEUSA AGGRESSIVE GROWTH PORTFOLIO -
NET ASSET VALUE 18.00%
- ------------------------------------------------------------------------------
Russell 2500 Index 21.01%*
- ------------------------------------------------------------------------------
+ AS YOU COMPARE PERFORMANCE, PLEASE NOTE THAT THE LIFEUSA AGGRESSIVE GROWTH
PORTFOLIO'S--PUBLIC OFFERING PRICE (POP) PERFORMANCE REFLECTS THE MAXIMUM
5.75% SALES CHARGE. THE LIFEUSA AGGRESSIVE GROWTH PORTFOLIO'S--NET ASSET
VALUE (NAV) PERFORMANCE DOES NOT REFLECT ANY SUCH CHARGES NOR DOES THE
PERFORMANCE OF THE RUSSELL 2500 INDEX. PAST PERFORMANCE IS NOT PREDICTIVE OF
FUTURE PERFORMANCE.
* SINCE 2/01/97
** ANNUALIZED
<PAGE>
PORTFOLIO REVIEW
LIFEUSA GROWTH PORTFOLIO
LIFEUSA GROWTH PORTFOLIO
HOW HAS THE PORTFOLIO PERFORMED?
The LifeUSA Growth Portfolio has had a net asset value total return of 11.01%
since inception. The S&P 500 Index has returned 25.56% over the same time
period. From a sector standpoint, financials, health care, and communication
services were the most beneficial to performance. Additionally, the Portfolio's
allocation in midcap stocks hurt performance as midcap stocks underperformed
large stocks in 1997.
WHAT IS YOUR OUTLOOK FOR THE PORTFOLIO?
The year finished strong on both an absolute and relative basis. This is
especially encouraging given that the growth style was out of favor relative to
a value style during the last half of 1997. We believe this situation will
change in 1998, however, as the economy begins to slow and a premium is once
again paid for companies that can demonstrate consistent, above-average earnings
growth. The Portfolio is positioned to capitalize on such an environment.
VALUE OF $10,000 INVESTMENT+
LIFEUSA GROWTH PORTFOLIO
(POP)(Inception 2/03/97) S&P 500 INDEX*
--------------------------------------------------------
2/03/97 $ 9,425 $ 10,000
3/31/97 8,747 9,661
6/30/97 9,765 11,347
9/30/97 10,593 12,210
12/31/97 10,463 12,556
TOTAL RETURNS+
THROUGH 12/31/97
Since Inception
2/03/97**
==============================================================================
LIFEUSA GROWTH PORTFOLIO -
PUBLIC OFFERING PRICE 4.63%
- ------------------------------------------------------------------------------
LIFEUSA GROWTH PORTFOLIO -
NET ASSET VALUE 11.01%
- ------------------------------------------------------------------------------
S&P 500 Index 25.56%*
- ------------------------------------------------------------------------------
+ AS YOU COMPARE PERFORMANCE, PLEASE NOTE THAT THE LIFEUSA GROWTH
PORTFOLIO'S--PUBLIC OFFERING PRICE (POP) PERFORMANCE REFLECTS THE MAXIMUM
5.75% SALES CHARGE. THE LIFEUSA GROWTH PORTFOLIO'S--NET ASSET VALUE (NAV)
PERFORMANCE DOES NOT REFLECT ANY SUCH CHARGES NOR DOES THE PERFORMANCE OF THE
S&P 500 INDEX. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* SINCE 2/01/97
** ANNUALIZED
<PAGE>
PORTFOLIO REVIEW
LIFEUSA GLOBAL PORTFOLIO
LIFEUSA GLOBAL PORTFOLIO
HOW HAS THE PORTFOLIO PERFORMED?
The LifeUSA Global Portfolio has had a net asset value total return of 1.83%
since inception. The S&P 500 Index has returned 25.56%, and the EAFE Index has
returned 5.73% over the same time period. The Fund's overweighting of France and
underweighting of Japan and Malaysia, together with liquidity levels and
currency hedging, contributed positively to performance. Conversely, an
underweighting of Italy, Scandinavia and Switzerland and an overweighting of
Australasia, Singapore and Asian emerging markets detracted from performance.
WHAT IS YOUR OUTLOOK FOR THE PORTFOLIO?
We remain invested in Hong Kong, Singapore and Malaysia, all of which are at
attractive levels of valuation. Australia offers decent value at lower levels of
risk. In Japan, favored blue chips have risen well above fair value on our
measures, although many other stocks have fallen to attractive levels. We are
maintaining a strong presence in France and the UK, European markets which offer
superior value. Emerging markets offer select opportunities on a long-term
basis, with Latin American markets continuing to be favored over other regions.
Accordingly, we continue to believe that investors desiring diversification
should include an international component in their portfolio.
VALUE OF $10,000 INVESTMENT+
LIFEUSA GLOBAL PORTFOLIO
(POP)(Inception 2/03/97) S&P 500 INDEX* EAFE INDEX*
----------------------------------------------------------------
2/03/97 $ 9,425 $ 10,000 $ 10,000
3/31/97 9,397 9,661 10,205
6/30/97 10,377 11,347 11,538
9/30/97 10,377 12,210 11,464
12/31/97 9,597 12,556 10,573
TOTAL RETURNS+
THROUGH 12/31/97
Since Inception
2/03/97**
==============================================================================
LIFEUSA GLOBAL PORTFOLIO -
PUBLIC OFFERING PRICE (4.03%)
- ------------------------------------------------------------------------------
LIFEUSA GLOBAL PORTFOLIO -
NET ASSET VALUE 1.83%
- ------------------------------------------------------------------------------
S&P 500 Index 25.56%*
- ------------------------------------------------------------------------------
EAFE Index 5.73%*
- ------------------------------------------------------------------------------
+ AS YOU COMPARE PERFORMANCE, PLEASE NOTE THAT THE LIFEUSA GLOBAL
PORTFOLIO'S--PUBLIC OFFERING PRICE (POP) PERFORMANCE REFLECTS THE MAXIMUM
5.75% SALES CHARGE. THE LIFEUSA GLOBAL PORTFOLIO'S--NET ASSET VALUE (NAV)
PERFORMANCE DOES NOT REFLECT ANY SUCH CHARGES NOR DOES THE PERFORMANCE OF THE
S&P 500 OR EAFE INDICES. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE
PERFORMANCE.
* SINCE 2/01/97
** ANNUALIZED
<PAGE>
PORTFOLIO REVIEW
LIFEUSA BALANCED PORTFOLIO
LIFEUSA BALANCED PORTFOLIO
HOW HAS THE PORTFOLIO PERFORMED?
The LifeUSA Balanced Portfolio has had a net asset value total return of 8.30%
since inception. The S&P 500 Index has returned 25.56%, the Lehman Brothers
Aggregate Bond Index has returned 9.32%, and the EAFE Index has returned 5.73%
over the same time period. Our positions in the U.S. stock portion of the
Portfolio in consumer staples and select financials helped support the Portfolio
this past quarter, while performance was hurt by our positions in energy and
technology as well as our underweighting in utilities. Overall, the allocation
to longer duration fixed income instruments and the venture capital positions
helped us, while international equity exposure hurt us.
WHAT IS YOUR OUTLOOK FOR THE PORTFOLIO?
We continue to focus on companies with solid competitive advantages and
extremely high financial quality at attractive fundamental valuations. Companies
with these characteristics possess the strength and flexibility to weather
downturns in the economy and capital markets that should lead to strong relative
performance in weak markets and out-performance over a full market cycle.
VALUE OF $10,000 INVESTMENT+
LIFEUSA BALANCED PORTFOLIO LEHMAN BROS. AGGREGATE
(POP)(Inception 2/03/97) S&P 500 INDEX* BOND INDEX* EAFE INDEX*
---------------------------------------------------------------------------
2/03/97 $ 9,425 $ 10,000 $ 10,000 $ 10,000
3/31/97 9,237 9,661 9,914 10,205
6/30/97 9,972 11,347 10,278 11,538
9/30/97 10,452 12,210 10,619 11,464
12/31/97 10,207 12,556 10,932 10,573
TOTAL RETURNS+
THROUGH 12/31/97
Since Inception
2/03/97**
==============================================================================
LIFEUSA BALANCED PORTFOLIO -
PUBLIC OFFERING PRICE 2.07%
- ------------------------------------------------------------------------------
LIFEUSA BALANCED PORTFOLIO -
NET ASSET VALUE 8.30%
- ------------------------------------------------------------------------------
S&P 500 Index 25.56%*
- ------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index 9.32%*
- ------------------------------------------------------------------------------
EAFE Index 5.73%*
- ------------------------------------------------------------------------------
+ AS YOU COMPARE PERFORMANCE, PLEASE NOTE THAT THE LIFEUSA BALANCED
PORTFOLIO'S--PUBLIC OFFERING PRICE (POP) PERFORMANCE REFLECTS THE MAXIMUM
5.75% SALES CHARGE. THE LIFEUSA BALANCED PORTFOLIO'S--NET ASSET VALUE (NAV)
PERFORMANCE DOES NOT REFLECT ANY SUCH CHARGES NOR DOES THE PERFORMANCE OF THE
S&P 500, LEHMAN BROTHERS AGGREGATE BOND OR EAFE INDICES. PAST PERFORMANCE IS
NOT PREDICTIVE OF FUTURE PERFORMANCE.
* SINCE 2/01/97
** ANNUALIZED
<PAGE>
PORTFOLIO REVIEW
LIFEUSA CURRENT INCOME PORTFOLIO
LIFEUSA CURRENT INCOME PORTFOLIO
HOW HAS THE PORTFOLIO PERFORMED?
The LifeUSA Current Income Portfolio has had a net asset value total return of
7.90% since inception. The Lehman Brothers Aggregate Bond Index has returned
9.32% over the same time period. The interest rate sensitivity of the Portfolio
remained longer than the benchmark as U.S. interest rates declined due to the
turmoil in Southeast Asia. The exposure to mortgages remained above the
benchmark to take advantage of wider spreads. The corporate and international
exposures remained above the benchmark, but was reduced to only a modest
overweighting in the summer due to narrow spreads and increased credit risk
concerns.
WHAT IS YOUR OUTLOOK FOR THE PORTFOLIO?
Above-trend economic growth should persist, although expectations will be
dampened by financial market turbulence, particularly in Asia. As overseas
markets stabilize, cyclical inflationary pressures will re-emerge. Tight labor
market conditions will continue to be a concern for the market. Fed policy is
still focused on controlling inflation. Asian markets continue to be volatile
and recovery in those economics will be several quarters in the future. We
remain neutral to constructive on the bond market but are very conscious that
the next major move in rates is likely to be higher rather than lower. Given
today's lower yields and the probable direction of interest rates, a
double-digit return in 1998 is unlikely.
VALUE OF $10,000 INVESTMENT+
LIFEUSA CURRENT INCOME PORTFOLIO LEHMAN BROS. AGGREGATE
(POP)(Inception 2/03/97) BOND INDEX*
- ------------------------------------------------------------------------------
2/03/97 $ 9,425 $ 10,000
3/31/97 9,302 9,914
6/30/97 9,622 10,278
9/30/97 9,942 10,619
12/31/97 10,169 10,932
TOTAL RETURNS+
THROUGH 12/31/97
Since Inception
2/03/97**
- -------------------------------------------------------
LIFEUSA CURRENT INCOME PORTFOLIO -
PUBLIC OFFERING PRICE 1.69%
- -------------------------------------------------------
LIFEUSA CURRENT INCOME PORTFOLIO -
NET ASSET VALUE 7.90%
- -------------------------------------------------------
Lehman Brothers Aggregate Bond Index 9.32%*
- -------------------------------------------------------
+ AS YOU COMPARE PERFORMANCE, PLEASE NOTE THAT THE LIFEUSA CURRENT INCOME
PORTFOLIO'S--PUBLIC OFFERING PRICE (POP) PERFORMANCE REFLECTS THE MAXIMUM
5.75% SALES CHARGE. THE LIFEUSA CURRENT INCOME PORTFOLIO'S--NET ASSET VALUE
(NAV) PERFORMANCE DOES NOT REFLECT ANY SUCH CHARGES NOR DOES THE PERFORMANCE
OF THE LEHMAN BROTHERS AGGREGATE BOND INDEX. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE PERFORMANCE.
* SINCE 2/01/97
** ANNUALIZED
<PAGE>
PORTFOLIO REVIEW
LIFEUSA PRINCIPAL PRESERVATION PORTFOLIO
LIFEUSA PRINCIPAL PRESERVATION PORTFOLIO
HOW HAS THE PORTFOLIO PERFORMED?
The LifeUSA Principal Preservation Portfolio has had a total return of 4.13%
since inception. The Lipper Money Market Fund Average has returned 4.27% over
the same time period. While long-term interest rates experienced a significant
decline during the past year, short-term interest rates (maturities less than
six months) actually rose slightly.
WHAT IS YOUR OUTLOOK FOR THE PORTFOLIO?
Above-trend economic growth should persist, although expectations will be
dampened by financial market turbulence, particularly in Asia. As overseas
markets stabilize, cyclical inflationary pressures will re-emerge due to tight
labor market conditions. Short-term interest rates are directly related to
actions by the Federal Reserve. While the current structure of interest rates
suggests the possibility of a cut in rates by the Fed, we believe the Fed is
still focused on controlling domestic inflation. Thus, a rate cut is unlikely
unless Asian markets deteriorate further, eroding confidence in the global
financial system.
VALUE OF $10,000 INVESTMENT+
LIFEUSA PRINCIPAL PRESERVATION LIPPER MONEY MARKET
PORTFOLIO(Inception 2/03/97) FUND AVERAGE*
- ------------------------------------------------------------------------------
2/03/97 $ 10,000 $ 10,000
3/31/97 10,066 10,066
6/30/97 10,179 10,179
9/30/97 10,293 10,300
12/31/97 10,413 10,427
TOTAL RETURNS+
THROUGH 12/31/97
Since Inception
2/03/97**
- --------------------------------------------------------------
LIFEUSA PRINCIPAL PRESERVATION PORTFOLIO 4.13%
- --------------------------------------------------------------
Lipper Money Market Fund Average 4.27%*
- --------------------------------------------------------------
+ PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* SINCE 2/01/97
** ANNUALIZED
<PAGE>
================================================================================
S C H E D U L E S O F I N V E S T M E N T S
================================================================================
LIFEUSA FUNDS, INC.
DECEMBER 31, 1997
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
LIFEUSA AGGRESSIVE GROWTH PORTFOLIO
MUTUAL FUNDS - 100.1%
Quantity Value (a)
- --------------------------------------------------------------------------------
IAI Capital Appreciation Fund - 50.2% 5,708 $ 88,599
IAI Regional Fund - 19.7% 1,425 34,845
IAI Value Fund - 30.2% 4,361 53,248
------------
176,692
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST: $189,004) (b) ........................................... $ 176,692
================================================================================
OTHER ASSETS AND LIABILITIES - (0.1%)
............................................................... $ (196)
================================================================================
NET ASSETS
............................................................... $ 176,496
================================================================================
LIFEUSA GROWTH PORTFOLIO
MUTUAL FUNDS - 100.1%
Quantity Value (a)
- --------------------------------------------------------------------------------
IAI Growth and Income Fund - 34.8% 2,069 $ 36,548
IAI Growth Fund - 30.2% 2,957 31,707
IAI Midcap Growth Fund - 35.1% 2,467 36,932
------------
105,187
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST: $110,077) (b) ........................................... $ 105,187
================================================================================
OTHER ASSETS AND LIABILITIES - (0.1%)
............................................................... $ (108)
================================================================================
NET ASSETS
............................................................... $ 105,079
================================================================================
LIFEUSA GLOBAL PORTFOLIO
MUTUAL FUNDS - 100.1%
Quantity Value (a)
- --------------------------------------------------------------------------------
IAI Developing Countries Fund - 14.8% 1,473 $ 11,169
IAI Growth Fund - 40.4% 2,849 30,548
IAI International Fund - 39.8% 2,969 30,085
IAI Latin America Fund - 5.1% 380 3,886
------------
75,688
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST: $86,997) (b) ............................................ $ 75,688
================================================================================
OTHER ASSETS AND LIABILITIES - (0.1%)
............................................................... $ (93)
================================================================================
NET ASSETS
............................................................... $ 75,595
================================================================================
SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS ON PAGE 11
<PAGE>
================================================================================
S C H E D U L E S O F I N V E S T M E N T S
================================================================================
LIFEUSA FUNDS, INC.
DECEMBER 31, 1997
(PERCENTAGE FIGURES INDICATE PERCENTAGE OF TOTAL NET ASSETS)
LIFEUSA BALANCED PORTFOLIO
MUTUAL FUNDS - 100.1%
Quantity Value (a)
- --------------------------------------------------------------------------------
IAI Bond Fund - 22.2% 2,252 $ 21,534
IAI Capital Appreciation Fund - 4.0% 251 3,898
IAI Developing Countries Fund - 3.9% 501 3,804
IAI Government Fund - 20.1% 1,999 19,471
IAI Growth and Income Fund - 11.9% 655 11,572
IAI Growth Fund - 8.0% 728 7,806
IAI International Fund - 8.9% 853 8,648
IAI Latin America Fund - 3.1% 291 2,978
IAI Midcap Growth Fund - 5.0% 325 4,872
IAI Regional Fund - 5.9% 235 5,753
IAI Value Fund - 7.1% 560 6,849
-------------
97,185
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST: $102,255) (b) ............................................$ 97,185
================================================================================
OTHER ASSETS AND LIABILITIES - (0.1%)
................................................................$ (109)
================================================================================
NET ASSETS
................................................................$ 97,076
================================================================================
LIFEUSA CURRENT INCOME PORTFOLIO
MUTUAL FUNDS - 100.1%
Quantity Value (a)
- --------------------------------------------------------------------------------
IAI Bond Fund - 80.2% 2,418 $ 23,118
IAI Government Fund - 10.0% 295 2,874
IAI Reserve Fund - 9.9% 293 2,871
-------------
28,863
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST: $28,343) (b) .............................................$ 28,863
================================================================================
OTHER ASSETS AND LIABILITIES - (0.1%)
................................................................$ (36)
================================================================================
NET ASSETS
................................................................$ 28,827
================================================================================
LIFEUSA PRINCIPAL PRESERVATION PORTFOLIO
MUTUAL FUNDS - 99.0%
Quantity Value (a)
- --------------------------------------------------------------------------------
IAI Money Market Fund - 99.0% 27,795 $ 27,795
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST: $27,795) (b) .............................................$ 27,795
================================================================================
OTHER ASSETS AND LIABILITIES - 1.0%
................................................................$ 288
================================================================================
NET ASSETS
................................................................$ 28,083
================================================================================
SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS ON PAGE 11
<PAGE>
================================================================================
N O T E S T O S C H E D U L E S O F I N V E S T M E N T S
================================================================================
LIFEUSA FUNDS, INC.
DECEMBER 31, 1997
(a)
Value of securities is determined as described in Note 1 to the financial
statements, under "Security Valuation".
(b)
At December 31, 1997, the cost of securities for federal income tax purposes
and the aggregate gross unrealized appreciation and depreciation based on
that cost were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
LIFEUSA LIFEUSA LIFEUSA
AGGRESSIVE GROWTH GROWTH GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost for federal income tax purposes $ 189,004 $ 110,779 $ 87,075
===========================================
Gross unrealized appreciation $ -- $ -- $ --
Gross unrealized depreciation (12,312) (5,592) (11,387)
-------------------------------------------
Net unrealized appreciation (depreciation) $ (12,312) $ (5,592) $ (11,387)
===========================================
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
LIFEUSA LIFEUSA LIFEUSA PRINCIPAL
BALANCED CURRENT INCOME PRESERVATION
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------
Cost for federal income tax purposes $ 102,310 $ 28,343 $ 27,795
===========================================
Gross unrealized appreciation $ 647 $ 565 $ --
Gross unrealized depreciation (5,772) (45) --
-------------------------------------------
Net unrealized appreciation (depreciation) $ (5,125) $ 520 $ --
===========================================
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE>
================================================================================
S T A T E M E N T S O F A S S E T S A N D L I A B I L I T I E S
================================================================================
LIFEUSA FUNDS, INC.
DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIFEUSA LIFEUSA LIFEUSA
AGGRESSIVE GROWTH GROWTH GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value
(Cost: $189,004; $110,077; and $86,997, respectively) $ 176,692 $ 105,187 $ 75,688
Organization costs 5,337 5,337 5,337
Receivable from Sponsor 5,974 5,974 5,973
-----------------------------------
TOTAL ASSETS 188,003 116,498 86,998
-----------------------------------
LIABILITIES
Accrued distribution fee 197 109 93
Other accrued expenses 11,310 11,310 11,310
-----------------------------------
TOTAL LIABILITIES 11,507 11,419 11,403
-----------------------------------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $ 176,496 $ 105,079 $ 75,595
===================================
REPRESENTED BY:
Capital stock $ 152 $ 98 $ 78
Additional paid-in capital 168,101 103,666 80,158
Undistributed net investment income -- -- --
Accumulated net realized gains on investments 20,555 6,205 6,668
Unrealized appreciation or depreciation on investments (12,312) (4,890) (11,309)
-----------------------------------
TOTAL - REPRESENTING NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $ 176,496 $ 105,079 $ 75,595
===================================
Shares of common stock outstanding; authorized 10 billion shares
of $.01 par value stock of each Portfolio 15,181 9,832 7,836
-----------------------------------
NET ASSET VALUE PER SHARE OF OUTSTANDING CAPITAL STOCK $ 11.63 $ 10.69 $ 9.65
===================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 20
<PAGE>
================================================================================
S T A T E M E N T S O F A S S E T S A N D L I A B I L I T I E S
================================================================================
LIFEUSA FUNDS, INC.
DECEMBER 31, 1997
<TABLE>
LIFEUSA
LIFEUSA LIFEUSA PRINCIPAL
BALANCED CURRENT INCOME PRESERVATION
PORFOLIO PORFOLIO PORFOLIO
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value
(Cost: $102,255; $28,343; and $27,795, respectively) $ 97,185 $ 28,863 $ 27,795
Cash in bank on demand deposit -- -- 325
Organization costs 5,337 5,337 5,334
Receivable from Sponsor 5,972 5,973 6,008
-----------------------------------
TOTAL ASSETS 108,494 40,173 39,462
-----------------------------------
LIABILITIES
Accrued distribution fee 108 36 36
Other accrued expenses 11,310 11,310 11,343
-----------------------------------
TOTAL LIABILITIES 11,418 11,346 11,379
-----------------------------------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $ 97,076 $ 28,827 $ 28,083
===================================
REPRESENTED BY:
Capital stock $ 93 $ 29 $ 29
Additional paid-in capital 97,264 28,234 28,003
Undistributed net investment income -- 26 51
Accumulated net realized gains on investments 4,789 18 --
Unrealized appreciation or depreciation on investments (5,070) 520 --
-----------------------------------
TOTAL - REPRESENTING NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $ 97,076 $ 28,827 $ 28,083
===================================
Shares of common stock outstanding; authorized 10 billion shares
of $.01 par value stock of each Portfolio 9,321 2,894 2,914
-----------------------------------
NET ASSET VALUE PER SHARE OF OUTSTANDING CAPITAL STOCK $ 10.41 $ 9.96 $ 9.64
===================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 20
<PAGE>
================================================================================
S T A T E M E N T S O F O P E R A T I O N S
================================================================================
LIFEUSA FUNDS, INC.
PERIOD FROM FEBRUARY 3, 1997* TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIFEUSA LIFEUSA LIFEUSA
AGGRESSIVE GROWTH GROWTH GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Income:
Dividend distributions from Underlying Funds $ 152 $ 81 $ 952
-------------------------------
TOTAL INCOME 152 81 952
-------------------------------
Expenses:
Distribution fees 570 321 396
Legal fees 604 604 604
Amortization of organization costs 1,189 1,189 1,189
Registration fees 13,864 13,859 13,857
-------------------------------
TOTAL EXPENSES 16,227 15,973 16,046
Less fees reimbursed or waived by Sponsor or Distributor (15,847) (15,760) (15,783)
-------------------------------
NET EXPENSES 380 213 263
-------------------------------
NET INVESTMENT INCOME (LOSS) (228) (132) 689
-------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
Capital gain distributions from Underlying Funds 21,667 9,525 7,879
Net realized gains (losses) on investments 531 (394) 974
Net change in unrealized appreciation or depreciation on
investment securities (12,312) (4,890) (11,309)
-------------------------------
NET GAIN (LOSS) ON INVESTMENTS 9,886 4,241 (2,456)
-------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 9,658 $ 4,109 $ (1,767)
===============================
</TABLE>
*COMMENCEMENT OF OPERATIONS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 20
<PAGE>
================================================================================
S T A T E M E N T S O F O P E R A T I O N S
================================================================================
LIFEUSA FUNDS, INC.
PERIOD FROM FEBRUARY 3, 1997* TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIFEUSA
LIFEUSA LIFEUSA PRINCIPAL
BALANCED CURRENT INCOME PRESERVATION
PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Income:
Dividend distributions from Underlying Funds $ 1,770 $ 1,260 $ 1,090
--------------------------------
TOTAL INCOME 1,770 1,260 1,090
--------------------------------
Expenses:
Distribution fees 353 156 164
Legal fees 604 604 604
Amortization of organization costs 1,189 1,189 1,192
Registration fees 13,860 13,855 13,889
--------------------------------
TOTAL EXPENSES 16,006 15,804 15,849
Less fees reimbursed or waived by Sponsor or Distributor (15,770) (15,700) (15,739)
--------------------------------
NET EXPENSES 236 104 110
--------------------------------
NET INVESTMENT INCOME 1,534 1,156 980
--------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
Capital gain distributions from Underlying Funds 5,457 -- --
Net realized gains on investments 466 18 --
Net change in unrealized appreciation or depreciation on
investment securities (5,070) 520 --
--------------------------------
NET GAIN ON INVESTMENTS 853 538 --
--------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,387 $ 1,694 $ 980
================================
</TABLE>
*COMMENCEMENT OF OPERATIONS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 20
<PAGE>
================================================================================
S T A T E M E N T S O F C H A N G E S I N N E T A S S E T S
================================================================================
LIFEUSA FUNDS, INC.
PERIOD FROM FEBRUARY 3, 1997* TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIFEUSA LIFEUSA LIFEUSA
AGGRESSIVE GROWTH GROWTH GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ (228) $ (132) $ 689
Net realized gains 22,198 9,131 8,853
Net change in unrealized appreciation or depreciation (12,312) (4,890) (11,309)
----------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 9,658 4,109 (1,767)
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (854) (950) (1,771)
Net realized gains (1,643) (2,926) (2,185)
----------------------------------
TOTAL DISTRIBUTIONS (2,497) (3,876) (3,956)
----------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 3)
Net proceeds from shares sold 150,454 83,866 60,817
Net asset value of shares issued in
reinvestment of distributions 2,497 3,876 3,956
Cost of shares redeemed (1,950) (1,230) (1,788)
----------------------------------
INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS 151,001 86,512 62,985
----------------------------------
TOTAL INCREASE IN NET ASSETS 158,162 86,745 57,262
NET ASSETS AT BEGINNING OF PERIOD 18,334 18,334 18,333
----------------------------------
NET ASSETS AT END OF PERIOD $ 176,496 $ 105,079 $ 75,595
==================================
INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF: $ -- $ -- $ --
==================================
</TABLE>
*COMMENCEMENT OF OPERATIONS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 20
<PAGE>
================================================================================
S T A T E M E N T S O F C H A N G E S I N N E T A S S E T S
================================================================================
LIFEUSA FUNDS, INC.
PERIOD FROM FEBRUARY 3, 1997* TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIFEUSA
LIFEUSA LIFEUSA PRINCIPAL
BALANCED CURRENT INCOME PRESERVATION
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net investment income $ 1,534 $ 1,156 $ 980
Net realized gains 5,923 18 --
Net change in unrealized appreciation or depreciation (5,070) 520 --
-------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,387 1,694 980
-------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,616) (2,212) (2,014)
Net realized gains (1,134) -- --
-------------------------------
TOTAL DISTRIBUTIONS (3,750) (2,212) (2,014)
-------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 3)
Net proceeds from shares sold 76,856 8,800 11,470
Net asset value of shares issued in
reinvestment of distributions 3,750 2,212 2,014
Cost of shares redeemed (500) -- (2,700)
-------------------------------
INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS 80,106 11,012 10,784
-------------------------------
TOTAL INCREASE IN NET ASSETS 78,743 10,494 9,750
NET ASSETS AT BEGINNING OF PERIOD 18,333 18,333 18,333
-------------------------------
NET ASSETS AT END OF PERIOD $ 97,076 $ 28,827 $ 28,083
===============================
INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF: $ -- $ 26 $ 51
===============================
</TABLE>
*COMMENCEMENT OF OPERATIONS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 20
<PAGE>
================================================================================
F I N A N C I A L H I G H L I G H T S
================================================================================
LIFEUSA FUNDS, INC.
PERIOD FROM FEBRUARY 3, 1997**** TO DECEMBER 31, 1997
PER SHARE DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT
THE PERIOD AND SELECTED INFORMATION FOR THE PERIOD
INDICATED ARE AS FOLLOWS:
<TABLE>
<CAPTION>
LIFEUSA LIFEUSA LIFEUSA
AGGRESSIVE GROWTH GROWTH GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 10.00 $ 10.00 $ 10.00
-------------------------------------
OPERATIONS
Net investment income (loss) (0.01) (0.01) 0.10
Net realized and unrealized gains 1.81 1.11 0.08
-------------------------------------
TOTAL FROM OPERATIONS 1.80 1.10 0.18
-------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.06) (0.10) (0.24)
Net realized gains (0.11) (0.31) (0.29)
-------------------------------------
TOTAL DISTRIBUTIONS (0.17) (0.41) (0.53)
-------------------------------------
NET ASSET VALUE
End of period $ 11.63 $ 10.69 $ 9.65
=====================================
Total investment return* 18.00% 11.01% 1.83%
Net assets at end of period (000's omitted) $ 176 $ 105 $ 76
RATIOS:
Expenses to average daily net assets*** 0.50%** 0.50%** 0.50%**
Net investment income (loss) to average daily net assets*** (0.30%)** (0.31%)** 1.31%**
Porfolio turnover rate 4.5% 32.4% 28.7%
</TABLE>
* TOTAL INVESTMENT RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE OF A
SHARE DURING THE PERIOD AND ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AT
NET ASSET VALUE.
** ANNUALIZED
*** THE PORTFOLIOS' SPONSOR VOLUNTARILY WAIVED $15,847, $15,760 AND $15,783,
RESPECTIVELY, IN EXPENSES FOR THE PERIOD ENDED DECEMBER 31, 1997. IF THE
PORTFOLIOS HAD BEEN CHARGED THESE EXPENSES, THE RATIOS OF EXPENSES TO
AVERAGE DAILY NET ASSETS WOULD HAVE BEEN 21.36%, 37.30% AND 30.40%,
RESPECTIVELY, AND THE RATIOS OF NET INVESTMENT INCOME (LOSS) TO AVERAGE
DAILY NET ASSETS WOULD HAVE BEEN (21.16%), (37.11%) AND (28.59%),
RESPECTIVELY. THESE EXPENSES WILL BE VOLUNTARILY WAIVED THROUGH MAY 1,
1999. THE EXPENSE RATIOS EXCLUDE THE FEES AND EXPENSES OF THE UNDERLYING
FUNDS.
**** COMMENCEMENT OF OPERATIONS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 20
<PAGE>
================================================================================
F I N A N C I A L H I G H L I G H T S
================================================================================
LIFEUSA FUNDS, INC.
PERIOD FROM FEBRUARY 3, 1997**** TO DECEMBER 31, 1997
PER SHARE DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE
PERIOD AND SELECTED INFORMATION FOR THE PERIOD
INDICATED ARE AS FOLLOWS:
<TABLE>
<CAPTION>
LIFEUSA
LIFEUSA LIFEUSA PRINCIPAL
BALANCED CURRENT INCOME PRESERVATION
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 10.00 $10.00 $10.00
--------------------------------
OPERATIONS
Net investment income 0.18 0.46 0.41
Net realized and unrealized gains (losses) 0.65 0.33 --
--------------------------------
TOTAL FROM OPERATIONS 0.83 0.79 0.41
--------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.29) (0.83) (0.77)
Net realized gains (0.13) -- --
--------------------------------
TOTAL DISTRIBUTIONS (0.42) (0.83) (0.77)
--------------------------------
NET ASSET VALUE
End of period $ 10.41 $ 9.96 $ 9.64
================================
Total investment return* 8.30% 7.90% 4.13%
Net assets at end of period (000's omitted) $ 97 $ 29 $ 28
RATIOS:
Expenses to average daily net assets*** 0.50%** 0.50%** 0.50%**
Net investment income to average daily net assets*** 3.26%** 5.57%** 4.48%**
Porfolio turnover rate 21.9% 13.1% 11.0%
</TABLE>
* TOTAL INVESTMENT RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE OF A
SHARE DURING THE PERIOD AND ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AT
NET ASSET VALUE.
** ANNUALIZED
*** THE PORTFOLIOS' SPONSOR VOLUNTARILY WAIVED $15,770, $15,700 AND $15,739,
RESPECTIVELY, IN EXPENSES FOR THE PERIOD ENDED DECEMBER 31, 1997. IF THE
PORTFOLIOS HAD BEEN CHARGED THESE EXPENSES, THE RATIOS OF EXPENSES TO
AVERAGE DAILY NET ASSETS WOULD HAVE BEEN 33.99%, 76.20% AND 72.49%,
RESPECTIVELY, AND THE RATIOS OF NET INVESTMENT INCOME (LOSS) TO AVERAGE
DAILY NET ASSETS WOULD HAVE BEEN (30.23%), (70.13%) AND (67.51%),
RESPECTIVELY. THESE EXPENSES WILL BE VOLUNTARILY WAIVED THROUGH MAY 1,
1999. THE EXPENSE RATIOS EXCLUDE THE FEES AND EXPENSES OF THE UNDERLYING
FUNDS.
**** COMMENCEMENT OF OPERATIONS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ON PAGE 20
<PAGE>
===============================================================================
NOTES TO FINANCIAL STATEMENTS
===============================================================================
LIFEUSA FUNDS, INC.
DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LifeUSA Funds, Inc. (the Company) was incorporated on April 26, 1996, and is
registered under the Investment Company Act of 1940 (as amended) as an open-end
management investment company consisting of the following six separate
diversified investment portfolios: LifeUSA Aggressive Growth Portfolio
(Aggressive Growth Portfolio), LifeUSA Growth Portfolio (Growth Portfolio),
LifeUSA Global Portfolio (Global Portfolio), LifeUSA Balanced Portfolio
(Balanced Portfolio), LifeUSA Current Income Portfolio (Current Income
Portfolio) and LifeUSA Principal Preservation Portfolio (Principal Preservation
Portfolio) (collectively, the Portfolios). The sponsor and distributor of the
Portfolios is LifeUSA Securities, Inc. (the Sponsor or Distributor). Each of the
Portfolios was created as a separate portfolio represented by a separate class
of common stock of the Company and offer a means of investing in shares of
certain IAI Mutual Funds (the Underlying Funds) within certain predetermined
percentage ranges. The Company's articles of incorporation permit the Board of
Directors to create additional portfolios in the future and each Portfolio is
permitted to issue separate classes of stock. This report covers only the
Aggressive Growth Portfolio, Growth Portfolio, Global Portfolio, Balanced
Portfolio, Current Income Portfolio and Principal Preservation Portfolio,
currently the only Portfolios of the Company. Financial statements for the
Underlying Funds may be obtained by calling the toll-free Investor Services
Hotline at 1-800-945-3863.
Significant accounting policies followed by the Portfolios are summarized below:
PORTFOLIO VALUATION
The investments of the Portfolios consist of mutual funds that are valued daily
at their respective net asset values in accordance with the Investment Company
Act of 1940.
FEDERAL TAXES
Since it is each Portfolio's policy to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders, no provision for
income taxes is required. In order to avoid the payment of any federal excise
taxes, the Portfolios are required to distribute substantially all of their net
investment income and net realized gains on a calendar year basis.
Net investment income and net realized gains may differ for financial statement
and tax purposes primarily because of the deferral of "wash sale" losses for tax
purposes. The character of distributions made during the year for net investment
income or net realized gains may also differ from its ultimate characterization
for tax purposes.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been increased, resulting
in reclassification adjustments to additional paid-in capital as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
LIFEUSA AGGRESSIVE GROWTH LIFEUSA GROWTH LIFEUSA GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Undistributed net investment
income $ 1,082 $ 1,082 $ 1,082
Additional paid-in capital $ (1,082) $ (1,082) $ (1,082)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
LIFEUSA BALANCED LIFEUSA CURRENT LIFEUSA PRINCIPAL
PORTFOLIO INCOME PORTFOLIO PRESERVATION PORTFOLIO
- ----------------------------------------------------------------------------------------------
Undistributed net investment
income $ 1,082 $ 1,082 $ 1,085
Additional paid-in capital $ (1,082) $ (1,082) $ (1,085)
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
===============================================================================
NOTES TO FINANCIAL STATEMENTS
===============================================================================
LIFEUSA FUNDS, INC.
DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on the trade date. Realized gains and
losses from security transactions are reported on an identified-cost basis for
both financial statement and federal income tax purposes. Distributions to
shareholders from the Underlying Funds are recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date.
Distributions from net investment income are made semi-annually (monthly for the
LifeUSA Principal Preservation Portfolio). Capital gains, if any, are primarily
distributed at the end of the calendar year. Additional capital gains
distributions, as needed to comply with federal tax regulations, are distributed
during the year.
ORGANIZATION COSTS
Organization costs are being amortized over sixty months on a straight-line
basis. In the event the Sponsor redeems any or all of its shares representing
initial capital in the Portfolios prior to the date such costs are fully
amortized, it will bear such portion of the unamortized organization costs as
the number of shares redeemed bears to the initial purchase of shares.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual amounts could differ from those estimates.
(2) FEES AND EXPENSES
The Company has entered into an investment advisory and administrative services
agreement with Investment Advisers, Inc. (Advisers) who is also the adviser to
the Underlying Funds. Pursuant to the agreement, Advisers 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. Because the Underlying Funds pay Advisers a management fee,
no compensation is paid to Advisers under the agreement. 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. Until May 1, 1999, the Sponsor has voluntarily agreed to
reimburse the Portfolios for all other expenses.
The Portfolios have adopted a plan of distribution under Rule 12b-1 of the
Investment Company Act of 1940. Under such Plan, the Portfolios have entered
into an underwriting and distribution agreement with the Distributor. Under the
agreement, the Portfolios pay the Distributor a fee for the servicing of
shareholder accounts and the distribution of Portfolio shares. The fee is
computed monthly based on average daily net assets for each Portfolio at an
annual rate of 0.75% (0.50% payable as distribution fee and 0.25% as a
shareholder servicing fee). Until May 1, 1999, the Sponsor has voluntarily
agreed to waive that portion of the fee in excess of 0.50% of each Portfolio's
average daily net assets.
<PAGE>
===============================================================================
NOTES TO FINANCIAL STATEMENTS
===============================================================================
LIFEUSA FUNDS, INC.
DECEMBER 31, 1997
(3) CAPITAL STOCK
The Portfolios each have authorized 10 billion shares of $.01 par value stock.
Transactions in shares of capital stock during the period from February 3, 1997
to December 31, 1997 were as follows:
- --------------------------------------------------------------------------------
LIFEUSA LIFEUSA LIFEUSA
AGGRESSIVE GROWTH GROWTH GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------
SOLD 13,299 7,749 5,763
ISSUED FOR REINVESTED DISTRIBUTIONS 218 364 410
REDEEMED (169) (114) (170)
===========================================
INCREASE IN SHARES OUTSTANDING 13,348 7,999 6,003
-------------------------------------------
PERCENTAGE OF SHARES OUTSTANDING
OWNED BY SPONSOR 12.25% 19.37% 24.69%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIFEUSA
LIFEUSA LIFEUSA PRINCIPAL
BALANCED CURRENT INCOME PRESERVATION
PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------
SOLD 7,174 838 1,145
ISSUED FOR REINVESTED DISTRIBUTIONS 361 223 205
REDEEMED (47) -- (269)
=============================================
INCREASE IN SHARES OUTSTANDING 7,488 1,061 1,081
---------------------------------------------
PERCENTAGE OF SHARES OUTSTANDING
OWNED BY SPONSOR 20.46% 68.62% 67.95%
- --------------------------------------------------------------------------------
(4) PURCHASES AND SALES OF SECURITIES
For the period from February 3, 1997 to December 31, 1997, purchases and sales
proceeds of the Underlying Funds were as follows:
- ----------------------------------------------------------------------------
PURCHASES SALES
- ----------------------------------------------------------------------------
LIFEUSA AGGRESSIVE GROWTH PORTFOLIO $ 192,571 $ 4,098
LIFEUSA GROWTH PORTFOLIO $ 126,886 $ 16,415
LIFEUSA GLOBAL PORTFOLIO $ 103,509 $ 17,487
LIFEUSA BALANCED PORTFOLIO $ 113,793 $ 12,004
LIFEUSA CURRENT INCOME PORTFOLIO $ 31,337 $ 3,012
LIFEUSA PRINCIPAL PRESERVATION PORTFOLIO $ 30,538 $ 2,743
- ----------------------------------------------------------------------------
<PAGE>
================================================================================
I N D E P E N D E N T A U D I T O R S' R E P O R T
================================================================================
LIFEUSA FUNDS, INC.
The Board of Directors and Shareholders
LifeUSA Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of LifeUSA Aggressive Growth Portfolio, LifeUSA
Growth Portfolio, LifeUSA Global Portfolio, LifeUSA Balanced Portfolio, LifeUSA
Current Income Portfolio and LifeUSA Principal Preservation Portfolio
(portfolios within LifeUSA Funds, Inc.) as of December 31, 1997, and the related
statements of operations and changes in net assets and the financial highlights
for the period from February 3, 1997 (commencement of operations) to December
31, 1997. These financial statements and the financial highlights are the
responsibility of the portfolios' management. Our responsibility is to express
an opinion on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
LifeUSA Aggressive Growth Portfolio, LifeUSA Growth Portfolio, LifeUSA Global
Portfolio, LifeUSA Balanced Portfolio, LifeUSA Current Income Portfolio and
LifeUSA Principal Preservation Portfolio at December 31, 1997, and the results
of their operations, the changes in their net assets and their financial
highlights for the period stated in the first paragraph above, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 30, 1998
<PAGE>
================================================================================
F E D E R A L T A X I N F O R M A T I O N
================================================================================
LIFEUSA FUNDS, INC.
We are required by federal tax regulations to provide shareholders with certain
information regarding dividend distributions paid during our fiscal year. The
figures provided are for information purposes only and should not be used for
reporting to federal or state revenue agencies. You will receive all necessary
tax information on Form 1099-DIV, Dividends and Distributions, in January of
each year.
(A) includes distribution of short-term capital gains, if any, which are taxable
as ordinary income.
LIFEUSA AGGRESSIVE GROWTH PORTFOLIO
- -----------------------------------------------------------------------------
Payable Date Ordinary Income (A) Capital Gains
- -----------------------------------------------------------------------------
DECEMBER 1997 $ 0.1286 $ 0.0383
- -----------------------------------------------------------------------------
LIFEUSA GROWTH PORTFOLIO
- -----------------------------------------------------------------------------
Payable Date Ordinary Income (A) Capital Gains
- -----------------------------------------------------------------------------
DECEMBER 1997 $ 0.2274 $ 0.1820
- -----------------------------------------------------------------------------
LIFEUSA GLOBAL PORTFOLIO
- -----------------------------------------------------------------------------
Payable Date Ordinary Income (A) Capital Gains
- -----------------------------------------------------------------------------
DECEMBER 1997 $ 0.4816 $ 0.0512
- -----------------------------------------------------------------------------
LIFEUSA BALANCED PORTFOLIO
- -----------------------------------------------------------------------------
Payable Date Ordinary Income (A) Capital Gains
- -----------------------------------------------------------------------------
DECEMBER 1997 $ 0.3733 $ 0.0453
- -----------------------------------------------------------------------------
LIFEUSA CURRENT INCOME PORTFOLIO
- -----------------------------------------------------------------------------
Payable Date Ordinary Income (A)
- -----------------------------------------------------------------------------
DECEMBER 1997 $ 0.8280
- -----------------------------------------------------------------------------
LIFEUSA PRINCIPAL PRESERVATION PORTFOLIO
- -----------------------------------------------------------------------------
Payable Date Ordinary Income (A)
- -----------------------------------------------------------------------------
FEBRUARY 1997 $ 0.0317
MARCH 1997 0.0337
APRIL 1997 0.0368
MAY 1997 0.0388
JUNE 1997 0.0266
JULY 1997 0.0324
AUGUST 1997 0.0260
SEPTEMBER 1997 0.0433
OCTOBER 1997 0.0366
NOVEMBER 1997 0.0347
DECEMBER 1997 0.4252
=============================================================================
$ 0.7658
- -----------------------------------------------------------------------------
<PAGE>
==============================
DISTRIBUTOR
LifeUSA Securities, Inc.
INVESTMENT ADVISER
AND MANAGER
Investment Advisers, Inc.
P.O. Box 357
Minneapolis, MN 55402 USA
LEGAL COUNSEL
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
4200 Norwest Center
Minneapolis, MN 55402
DIRECTORS
Madeline Betsch
W. William Hodgson
George R. Long
J. Peter Thompson
Charles H. Withers
==============================
[LIFEUSA SECURITIES LOGO]
300 SOUTH HIGHWAY 169
MINNEAPOLIS, MINNESOTA 55426
888.446.5872 (PHONE)
612.513.7120 (FAX)
