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LIFE & ANNUITY TRUST
PROSPECTUS
ASSET ALLOCATION FUND
GROWTH AND INCOME FUND
MONEY MARKET FUND
U.S. GOVERNMENT ALLOCATION FUND
MAY 1, 1995
AS SUPPLEMENTED ON JUNE 23, 1995 AND SEPTEMBER 1, 1995
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ASSET ALLOCATION FUND
GROWTH AND INCOME FUND
MONEY MARKET FUND
U.S. GOVERNMENT ALLOCATION FUND
Life & Annuity Trust is a professionally managed, open-end series
investment company. This Prospectus contains information about four of the
series of the Life & Annuity Trust -- the Asset Allocation Fund, the Growth and
Income Fund, the Money Market Fund and the U.S. Government Allocation Fund
(each, a "Fund" and collectively, the "Funds").
The Asset Allocation Fund, a diversified investment portfolio, seeks over
the long term a high level of total return, including net realized and
unrealized capital gains and net investment income, consistent with reasonable
risk. It seeks to achieve this objective by pursuing an "asset allocation"
strategy. Using that strategy, the Asset Allocation Fund allocates and
reallocates its investments among three asset classes -- common stocks, U.S.
Treasury bonds, and money market instruments.
The Growth and Income Fund, a diversified investment portfolio, seeks to
earn current income and achieve long-term capital appreciation. It seeks to
achieve this objective by investing primarily in common stocks and preferred
stocks and debt securities that are convertible into common stocks.
The Money Market Fund, a diversified investment portfolio, seeks to provide
investors with a high level of income, while preserving capital and liquidity,
by investing in high-quality, short-term instruments. SHARES OF THE MONEY MARKET
FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE IS NO
ASSURANCE THAT THE MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
The U.S. Government Allocation Fund, a diversified investment portfolio,
seeks over the long term a high level of total return, including net realized
and unrealized capital gains and net investment income, consistent with
reasonable risk. It seeks to achieve this objective by pursuing a strategy of
allocating and reallocating its investments among three classes of debt
securities -- long-term U.S. Treasury bonds, intermediate-term U.S. Treasury
notes, and short-term money market instruments -- at least 65% of which will be
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
The Funds are available exclusively as pooled funding vehicles for certain
participating life insurance companies (the "Participating Insurance Companies")
offering variable annuity contracts ("VA Contracts") and variable life insurance
policies ("VLI Policies").
The Funds are advised by Wells Fargo Bank, N.A. ("Wells Fargo Bank"). Wells
Fargo Nikko Investment Advisors ("WFNIA") serves as sub-adviser for the Asset
Allocation Fund and the U.S. Government Allocation Fund.
Please read this Prospectus, along with the prospectus for the VA Contract
or VLI Policy accompanying this Prospectus, before investing and retain it for
future reference. It sets forth concisely the information which a prospective
purchaser of a VA Contract or VLI Policy should know about the Funds before
making such a purchase. A Statement of Additional Information, dated May 1, 1995
("SAI") for the Funds has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference. The SAI is available free of charge by
writing Life & Annuity Trust at the address set forth in the Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, WELLS FARGO BANK OR ANY OF ITS AFFILIATES. SUCH
SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER TO THE FUNDS. STEPHENS INC. WHICH IS
NOT AFFILIATED WITH WELLS FARGO BANK, IS THE SPONSOR AND DISTRIBUTOR FOR THE
FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS DATED MAY 1, 1995
AS SUPPLEMENTED ON JUNE 23, 1995 AND SEPTEMBER 1, 1995
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Wells Fargo Bank also serves as the Funds' transfer and dividend disbursing
agent, and as custodian for the Growth and Income Fund and the Money Market
Fund. Wells Fargo Institutional Trust Company, N.A. serves as the custodian for
the Asset Allocation Fund and the U.S. Government Allocation Fund. Stephens Inc.
("Stephens") is the Funds' sponsor and administrator and serves as the
distributor of the Funds' shares.
TABLE OF CONTENTS
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PAGE
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Financial Highlights.................................................................. 1
Participating Insurance Companies..................................................... 2
Investment Objectives and Policies of the Funds....................................... 2
Investing in the Funds................................................................ 8
Dividends............................................................................. 9
The Funds, Management and Servicing Fees.............................................. 9
Taxes................................................................................. 12
Fund Expenses......................................................................... 13
General Information................................................................... 13
Prospectus Appendix -- Additional Investment Policies................................. A-1
</TABLE>
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FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in
the Funds' 1994 annual financial statements. The Funds' Annual Report, which
includes the Fund's financial statements and other financial information about
the Funds, is incorporated by reference into the SAI. These financial statements
were audited by KPMG Peat Marwick LLP, independent auditors, whose report dated
February 17, 1995 is also incorporated by reference into the SAI. This
information should be read in conjunction with the Funds' 1994 annual financial
statements and the notes thereto. The SAI has been incorporated by reference
into this Prospectus.
For a share outstanding for the period ended December 31, 1994:
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Growth
Asset and Money U.S. Government
Allocation Income Market Allocation
Fund* Fund** Fund*** Fund****
<S> <C> <C> <C> <C>
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Net asset value: Beginning of period $10.00 $10.00 $ 1.00 $ 10.00
Income from investment operations:
Net investment income 0.30 0.14 0.03 0.40
Net realized and unrealized gains (losses) on
investments (0.19) 0.30 0.00 (0.37)
------ ------ ------ -------
Total from investment operations 0.11 0.44 0.03 0.03
Less distributions:
Dividends from net investment income (0.30) (0.14) (0.03) (0.40)
Distributions from realized capital gains (0.10) 0.00 0.00 0.00
------ ------ ------ -------
Total from distributions (0.40) (0.14) (0.03) (0.40)
------ ------ ------ -------
Net asset value: End of period $ 9.71 $10.30 $ 1.00 $ 9.63
====== ====== ====== =======
Total return (not annualized) 1.13% 4.47% 2.71% 0.41%
Ratios/supplemental data:
Net assets, end of period (000) $7,464 $2,136 $1,492 $ 866
Number of shares outstanding, end of period
(000) 769 207 1,492 90
Ratios to average net assets (annualized)
Ratio of expenses to average net assets(1) 0.00% 0.00% 0.00% 0.00%
Ratio of net investment income to average net
assets(2) 6.30% 3.00% 4.63% 7.35%
Portfolio Turnover 0% 21% N/A 130%
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(1) Ratio of net expenses to average net assets
prior to waived fees and reimbursed expenses 2.24% 10.18% 11.43% 12.73%
(2) Ratio of net investment income (loss) to
average net assets prior to waived fees and
reimbursed expenses 4.06% (7.18)% (6.80)% (5.38)%
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* The Fund commenced operations on April 15, 1994.
** The Fund commenced operations on April 12, 1994.
*** The Fund commenced operations on May 19, 1994.
**** The Fund commenced operations on April 26, 1994.
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PARTICIPATING INSURANCE COMPANIES
The Funds are funding vehicles for VA Contracts and VLI Policies offered by
the separate accounts of Participating Insurance Companies. Life & Annuity Trust
currently does not foresee any disadvantages to the holders of VA Contracts and
VLI Policies arising from the fact that the interests of the holders of VA
Contracts and VLI Policies may differ. Nevertheless, Life & Annuity Trust's
Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response to such conflicts. The VA Contracts and VLI
Policies are described in the separate prospectuses issued by the Participating
Insurance Companies. Life & Annuity Trust assumes no responsibility for such
prospectuses. Individual holders of VA Contracts and VLI Policies are not the
"shareholders" of or "investors" in the Funds. Rather, the Participating
Insurance Companies and their separate accounts are the shareholders or
investors, although such companies will pass through voting rights to the
holders of VA Contracts and VLI Policies. For a discussion of the voting rights
of holders of VA Contracts and VLI Policies, please see the prospectuses of the
Participating Insurance Companies.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
ASSET ALLOCATION FUND
The Asset Allocation Fund's investment objective is to seek over the long
term a high level of total return, including net realized and unrealized capital
gains and net investment income, consistent with reasonable risk. The Fund seeks
to achieve its objective by pursuing an asset allocation strategy. This strategy
is based upon the premise that certain asset classes from time to time are
under- or over-valued relative to each other by the market, and that undervalued
asset classes represent relatively better long-term, risk-adjusted investment
opportunities. Timely, low-cost shifts among common stocks, U.S. Treasury bonds
and money market instruments (as determined by their perceived relative over- or
under-valuation) can, therefore, produce attractive investment returns. Using
this strategy, WFNIA, as the Fund's investment sub-adviser, regularly determines
the appropriate mix of asset classes and the Fund's portfolio is periodically
adjusted to achieve this mix. The Fund is not designed to profit from short-term
market changes.
In determining the appropriate mix, WFNIA uses an investment model
developed over the past 20 years, which is also used by WFNIA as a basis for
managing large employee benefit trust funds and other institutional accounts.
The Asset Allocation Model, which is proprietary to WFNIA, analyzes extensive
financial data from numerous sources and recommends a portfolio allocation among
common stocks, U.S. Treasury bonds and money market instruments. As further
described in the "Prospectus Appendix -- Additional Investment Policies," WFNIA
bases its investment decisions on the Asset Allocation Model's results. At any
given time, substantially all of the Fund's assets may be invested in a single
asset class and the relative allocation among the asset classes may shift
significantly from time to time.
The following description illustrates the types of investments in which the
Asset Allocation Fund's assets may be invested.
Stock Investments. In making its stock investments, the Fund invests
in substantially all of the common stocks which comprise the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500 Index")1 using, to the
extent feasible, the same weighting formula used by that index. The Fund
does not individually select common stocks on the basis of traditional
investment analysis.
---------------
1 Standard & Poor's Corporation ("S&P") does not sponsor the Fund nor is it
affiliated with the Fund, Stephens, Wells Fargo Bank or WFNIA. "S&P" and "S&P
500" are trademarks of Standard & Poor's Corporation.
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Bond Investments. The Fund purchases U.S. Treasury bonds with
maturities greater than 20 years. The bond portion of the Fund's portfolio
is managed to attain an average maturity of between 22 and 28 years for the
U.S. Treasury bonds held. This form of debt instrument has been selected by
WFNIA because of the relatively low transaction costs of buying and selling
U.S. Treasury bonds and because of the low default risk associated with
them.
Money Market Investments. The money market instrument portion of the
Fund's portfolio is invested in high-quality money market instruments,
including obligations of the U.S. Government, its agencies or
instrumentalities, obligations of domestic and foreign banks, short-term
corporate debt instruments and repurchase agreements.
Other Investments. The Fund also may enter into futures and options
contracts and options on futures contracts and make margin payments in
connection with such contracts, purchase securities with put rights in
order to maintain liquidity, purchase unrated instruments that are
determined by Wells Fargo Bank to be of investment quality comparable to
other rated instruments that the Fund is permitted to purchase, and may
purchase securities on a delayed delivery or when-issued basis. A more
complete description of the Asset Allocation Model, certain trading
policies relating to the implementation of the model's recommendations, and
the Fund's investments and investment activities is contained in the
"Prospectus Appendix -- Additional Investment Policies" and in the Funds'
SAI.
GROWTH AND INCOME FUND
The Growth and Income Fund seeks to earn current income and achieve
long-term capital appreciation. It seeks to achieve this objective by investing
primarily in common stocks and preferred stocks and debt securities that are
convertible into common stocks. Under normal market conditions, the Fund invests
at least 65% of its total assets in common stocks and securities which are
convertible into common stocks and at least 65% of its total assets in
income-producing securities. Up to 10% of the Fund's assets may be invested in
securities of foreign issuers.
Common Stocks. The Growth and Income Fund invests in common stocks of
issuers that exhibit a strong earnings growth trend and that are believed by
Wells Fargo Bank, as investment adviser, to have above-average prospects for
future earnings growth. The Fund maintains a portfolio of common stocks
diversified among industries and companies. The Fund may invest in common stocks
of large companies (i.e., those companies with more than $750 million in
capitalization) that Wells Fargo Bank believes offer the potential for long-term
earnings growth or above-average dividend yield. Emphasis may be placed on
common stocks which are trading at low price-to-earnings ratios, either relative
to the overall market or to the security's historic price-to-earnings
relationship, and on common stocks of issuers that have historically paid
above-average dividends. Some investments also may be made in common stocks of
medium and smaller sized companies (i.e., those companies with at least $250
million, but less than $750 million in capitalization) that appear to have the
potential to generate high levels of future revenue and earnings growth and
where the investment opportunity may not be fully reflected in the price of the
securities but that may involve greater risks than investments in larger
companies.
The Growth and Income Fund intends generally to invest less than 50% of its
assets in the securities of medium and smaller sized companies and the remainder
in securities of larger sized companies. However, the actual percentages may
vary according to changes in market conditions and the judgment of the Fund's
investment adviser of how best to achieve the Fund's investment objective.
Convertible Securities. The Growth and Income Fund may invest in
convertible securities that provide current income and are issued by companies
with the characteristics described above and that have a strong earnings and
credit record. The Fund may purchase convertible securities that are fixed-
income debt instruments or preferred stocks, which may be converted at a stated
price within a specified period of time into a certain quantity of the common
stock of the same issuer. Convertible securities, while usually subordinated to
similar nonconvertible securities, are senior to common
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stocks in an issuer's capital structure. Convertible securities offer
flexibility by providing the investor with a steady income stream (generally
yielding a lower amount than similar nonconvertible securities and a higher
amount than common stocks) as well as the opportunity to take advantage of
increases in the price of the issuer's common stock through the conversion
feature. Fluctuations in the convertible security's price tend to correlate with
changes in the market value of the common stock. At most, 5% of the Fund's net
assets will be invested in convertible debt securities that are either rated
below the four highest rating categories by one or more nationally recognized
statistical rating organizations ("NRSROs"), such as Moody's Investor Service,
Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") (which includes
securities also known as "junk bonds"), or unrated securities determined by
Wells Fargo Bank to be of comparable quality. Securities rated in the fourth
highest rating category (i.e., rated BBB by S&P or Baa by Moody's) are regarded
by S&P as having an adequate capacity to pay interest and repay principal, but
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make such repayments. Moody's considers such securities
as having speculative characteristics. For additional information relating to
investments in below investment-grade securities see "Additional Permitted
Investment Activities -- Unrated, Downgraded and Below Investment-Grade
Investments" in the Funds' SAI.
Other Investments. The Fund may retain cash or invest some of its assets in
high-quality money market instruments, consisting of U.S. Treasury bills, shares
of other mutual funds and repurchase agreements. The Fund also is permitted to
lend its portfolio securities.
The Fund also may purchase securities with put rights in order to maintain
liquidity, American Depository Receipts ("ADRs") and privately issued securities
which may be resold only in accordance with Rule 144A under the Securities Act
of 1933. A more complete description of the Fund's investments and investment
activities is contained in the "Prospectus Appendix -- Additional Investment
Policies" and in the Funds' SAI.
MONEY MARKET FUND
The Money Market Fund seeks to provide investors with a high level of
income, while preserving capital and liquidity, by investing in high-quality,
short-term securities. The Fund only invests its assets in U.S.
dollar-denominated, high-quality money market instruments, and may engage in
certain other investment activities as described in this Prospectus. Permitted
investments consist of obligations of the U.S. Government, its agencies or
instrumentalities (including government-sponsored enterprises), obligations of
domestic and foreign banks, commercial paper, and repurchase agreements and
other debt obligations such as municipal obligations, asset-backed securities
and securities issued by special purpose entities. The Fund also may invest in
unrated instruments determined by Wells Fargo Bank to be of comparable quality
to other rated instruments that the Fund is permitted to purchase and otherwise
purchased in accordance with Fund procedures. A more complete description of
these investments and investment activities is contained in the "Prospectus
Appendix -- Additional Investment Policies" and in the Funds' SAI.
U.S. GOVERNMENT ALLOCATION FUND
The U.S. Government Allocation Fund's investment objective is to seek over
the long term a high level of total return, including net realized and
unrealized capital gains and net investment income, consistent with reasonable
risk. The Fund seeks to achieve its objective by pursuing a strategy of
allocating and reallocating its investments among the following three classes of
debt instruments: long-term U.S. Treasury bonds, intermediate-term U.S. Treasury
notes, and short-term money market instruments. This strategy is based upon the
premise that those classes of debt securities from time to time are over- or
under-valued relative to each other by the market, and that under-valued asset
classes represent relatively better long-term investment opportunities. Timely,
low-cost shifts among such securities (as determined by their perceived relative
over- or under-valuation) can, therefore, produce attractive long-term
investment returns. Using this strategy, WFNIA regularly determines the
appropriate mix of asset classes, and the Fund's portfolio is periodically
adjusted to achieve this
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mix. Under normal market conditions, the Fund invests at least 65% of the value
of its total assets in U.S. Government obligations.
In determining the appropriate mix, WFNIA, as the Fund's investment
sub-adviser, uses an investment model, the U.S. Government Allocation Model,
which is also used by WFNIA as a basis for managing large employee benefit trust
funds and other institutional accounts. The model, which is proprietary to
WFNIA, analyzes risk, correlation and expected return data and recommends a
portfolio allocation among the three classes of debt instruments. As further
described in the "Prospectus Appendix -- Additional Investment Policies," WFNIA
bases its investment decisions on the model's results. At any given time,
substantially all of the Fund's assets may be invested in a single asset class,
and the relative allocation among the asset classes may shift significantly from
time to time. The Fund is not designed to profit from short-term market changes.
The following description illustrates the types of debt instruments in
which the U.S. Government Allocation Fund's assets may be invested.
Long-Term Investments. The Fund may purchase U.S. Treasury bonds with
remaining maturities of at least 20 years. Under normal market conditions, the
dollar-weighted average maturity of this portion of the Fund's portfolio is
expected to range between 22 and 28 years.
Intermediate-Term Investments. The Fund may purchase U.S. Treasury notes
and other U.S. Treasury securities with remaining maturities ranging from one to
20 years. Under normal market conditions, the dollar-weighted average maturity
of this portion of the Fund's portfolio is expected to range between three and
seven years.
Short-Term Investments. The Fund may purchase short-term money market
instruments with remaining maturities of one year or less. This portion of the
Fund's portfolio may be invested in the following types of short-term money
market instruments: U.S. Government obligations, commercial paper, bankers'
acceptances, certificates of deposit, fixed time deposits, and repurchase
agreements. U.S. dollar-denominated obligations of both domestic and foreign
banks may be included.
U.S. Government obligations have been selected by Wells Fargo Bank as the
Fund's principal investments because of their relatively low purchase and sale
transaction costs and because of the low default risk associated with them
(i.e., they are issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities).
Other Investments. The Fund also may enter into futures and options
contracts and options on futures contracts and make margin payments in
connection with such contracts, invest in unrated instruments determined by the
Fund's adviser to be of investment quality comparable to other rated instruments
that the Fund is permitted to purchase, and purchase securities on a delayed
delivery or when-issued basis. A more complete description of the model and the
Fund's investments and investment activities is contained in the "Prospectus
Appendix -- Additional Investment Policies" and in the Funds' SAI.
PERFORMANCE
Each Fund's performance may be advertised in terms of average annual total
return and cumulative total return. In addition, the performance for the U.S.
Government Allocation Fund and the Money Market Fund may be advertised in terms
of yield. These performance figures are based on historical results calculated
under uniform SEC formulas and are not intended to indicate future performance.
The actual return of a holder of a VA Contract or VLI Policy is also affected by
charges and fees imposed by the separate accounts of Participating Insurance
Companies. Any Fund advertising is accompanied by performance information of the
related insurance company separate accounts which fund the VA Contracts or VLI
Policies or by an explanation that Fund performance information does not reflect
separate account fees and charges.
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Each Fund's total return is based on the overall dollar or percentage
change in value of a hypothetical investment in the Fund and assumes that all
Fund dividends and capital gain distributions are reinvested.
The yield for the U.S. Government Allocation Fund and the Money Market Fund
is calculated by dividing each Fund's net investment income per share earned
during a specified period (30 days for the U.S. Government Allocation Fund and
seven days or 30 days for the Money Market Fund) by its net asset value per
share on the last day of such period and annualizing the result. Each Fund's
annual report contains additional performance information and is available upon
request without charge from the Funds' distributor.
POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUNDS
An investment in the Funds is not insured against loss of principal. When
prices of the securities that a Fund owns decline, so does the value of such
Fund's shares. Although the Money Market Fund seeks to maintain a stable net
asset value of $1.00 per share, there is no assurance that it will be able to do
so. Also, the Funds' shares are not insured or guaranteed. Therefore, investors
should be prepared to accept some risk, including possible loss of principal
with the money they invest in a Fund.
Because the Asset Allocation Fund and the U.S. Government Allocation Fund
(the "Allocation Funds") may shift their investment allocations significantly
from time to time, their performance may differ from funds which invest in one
asset class or from funds with a stable mix of assets. Further, shifts among
asset classes may result in relatively high portfolio turnover rates, which may,
in turn, result in increased brokerage and transaction costs. These costs may
not be offset by the improved performance expected from the asset allocation
strategies. A Fund's portfolio turnover rate is calculated by dividing the
lesser of purchases or sales of securities for the fiscal year by the monthly
average of the value of a Fund's securities (with obligations having less than
one year until maturity excluded).
The debt instruments in the portfolios of the Asset Allocation Fund, the
Growth and Income Fund, and the U.S. Government Allocation Fund (the "Non-Money
Market Funds") are subject to interest-rate risk (i.e., the risk that increases
in market interest rates may adversely affect the value of the intermediate- and
long-term debt securities in which a Fund invests and hence the value of an
investment in such Fund; the values of such securities generally change
inversely to changes in market interest rates). During those periods in which a
high percentage of the portfolio of a Fund is invested in long-term bonds, its
exposure to interest-rate risk is greater because the longer maturity of those
securities means their value generally is more sensitive to changes in market
interest rates than shorter-term debt securities.
The stock investments of the Asset Allocation Fund and the Growth and
Income Fund are subject to equity market risk (i.e., the possibility that common
stock prices will fluctuate or decline over short or even extended periods). The
U.S. stock market tends to be cyclical, with periods when stock prices generally
rise and periods when prices generally decline. The Growth and Income Fund's
investments in smaller sized companies present greater risks than investments in
larger sized companies with more established operating histories and financial
capacity.
Some of the permissible investments described throughout this Prospectus
are considered "derivative" securities because their value is derived, at least
in part, from the price of another security or a specified asset, index or rate.
The futures contracts and options on futures contracts that the Allocation Funds
may purchase are considered derivatives. The Allocation Funds may only purchase
or sell these contracts or options as substitutes for comparable market
positions in the underlying securities. Also, asset-backed securities issued or
guaranteed by U.S. Government agencies or instrumentalities and certain floating
and variable rate instruments can be considered derivatives. Some derivatives
may be more sensitive than direct securities to changes in interest rates or
sudden market moves. Some derivatives also may be susceptible to fluctuations in
yield or value due to their structure or contract terms.
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Wells Fargo Bank and WFNIA use a variety of internal risk management
procedures to ensure that derivatives use is consistent with a Fund's investment
objective, does not expose the Fund to undue risk and is closely monitored.
These procedures include providing periodic reports to the Board of Directors
concerning the use of derivatives. Also, cash maintained by each Fund for
short-term liquidity needs (e.g., to meet anticipated redemption requests) will,
as a general matter, only be invested in U.S. Treasury bills, shares of other
mutual funds and repurchase agreements.
The use of derivatives by the Funds also is subject to broadly applicable
investment policies. For example, the Funds may not invest more than a specified
percentage of their assets in "illiquid securities," including those derivatives
that do not have active secondary markets. Nor may a Fund use certain
derivatives without establishing adequate "cover" in compliance with SEC rules
limiting the use of leverage.
For more information on all of the Funds' investment activities, see
"Prospectus Appendix -- Investment Techniques."
Limiting Investment Risks. The Money Market Fund, under the Investment
Company Act of 1940 ("1940 Act"), must comply with certain investment criteria
designed to provide liquidity, reduce risk and allow the Fund to maintain a
stable net asset value of $1.00 per share. Of course, the Fund cannot guarantee
a $1.00 share price. The Fund's dollar-weighted average portfolio maturity must
not exceed 90 days. Any security that the Fund purchases must have a remaining
maturity of not more than 397 days (thirteen months). In addition, any security
that the Fund purchases must present minimal credit risks and be of high quality
(i.e., be rated in the top two rating categories by the required number of
nationally recognized statistical rating organizations or, if unrated,
determined to be of comparable quality to such rated securities). These
determinations are made by Wells Fargo Bank, as the Funds' investment adviser,
under guidelines adopted by Life & Annuity Trust's Board of Trustees.
The Money Market Fund seeks to reduce risk by investing its assets in
securities of various issuers. As such, the Money Market Fund is considered to
be diversified for purposes of the 1940 Act. In addition, the Money Market Fund,
since its inception, has emphasized safety of principal and high credit quality.
In particular, the internal investment policies of the Fund's investment
adviser, Wells Fargo Bank, have always prohibited the purchase for the Fund of
many types of floating rate derivative securities that are considered
potentially volatile. The following types of derivative securities are not
permitted investments for the Fund:
- capped floaters (on which interest is not paid when market rates move
above a certain level);
- leveraged floaters (whose interest rate reset provisions are based on a
formula that magnifies changes in interest rates);
- range floaters (which do not pay any interest if market interest rates
move outside of a specified range);
- dual index floaters (whose interest rate reset provisions are tied to
more than one index so that a change in the relationship between these
indices may result in the value of the instrument falling below face
value); and
- inverse floaters (which reset in the opposite direction of their index).
Additionally, the Money Market Fund may not invest in securities whose
interest rate reset provisions are tied to an index that materially lags
short-term interest rates, such as "COFI floaters." The Fund may only invest in
floating rate securities that bear interest at a rate that resets quarterly or
more frequently, and which resets based on changes in standard money market rate
indices such as U.S. Treasury bills, London Interbank Offered Rate, the prime
rate, published commercial paper rates or federal funds rates.
There can, of course, be no assurance that any mutual fund will achieve its
investment objective. Investors should be prepared to accept that risk, as well
as the risk that a Fund may under-perform
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(over the short- and/or long-term) one or more of the classes of securities in
which it invests. In addition, since the Life & Annuity Trust is a relatively
new investment company, the Funds have a limited operating history.
INVESTING IN THE FUNDS
NET ASSET VALUE
The value of each Fund's share is its "net asset value," or NAV. NAV is
computed by adding the value of a Fund's portfolio investments plus cash and
other assets, deducting liabilities and then dividing the result by the number
of shares outstanding. The Non-Money Market Funds' NAV is expected to fluctuate
daily. As noted above, the Money Market Fund seeks to maintain a constant $1.00
NAV share price, although there is no assurance that it will be able to do so.
The Non-Money Market Funds are open for business each day the New York
Stock Exchange ("NYSE") is open for trading ("NYSE Business Day"). Wells Fargo
Bank calculates each Non-Money Market Fund's NAV each NYSE Business Day as of
the close of regular trading on the NYSE (referred to hereafter as "the close of
the NYSE"), which is currently 1:00 p.m. (Pacific time).
The Money Market Fund is open for business on the same days Wells Fargo
Bank is open ("Bank Business Day"). Currently, the only Bank Business Day that
is not also an NYSE Business Day is Good Friday; the only NYSE Business Days
that are not also Bank Business Days are Martin Luther King, Jr. Day (observed),
Columbus Day (observed) and Veterans Day. Wells Fargo Bank calculates the Money
Market Fund's NAV as of 9:00 a.m. (Pacific time) each Bank Business Day.
Unless otherwise specified, the term Business Day in this Prospectus refers
to a Bank Business Day, with respect to the Money Market Fund, and an NYSE
Business Day, with respect to the other Funds.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost (unless the Board of Trustees determines that
amortized cost does not represent fair value), the Non-Money Market Funds' other
assets are valued at current market prices, or if such prices are not readily
available, at fair value as determined in good faith by Life & Annuity Trust's
Board of Trustees. Prices used for such valuations may be provided by
independent pricing services.
The Money Market Fund's portfolio investments are valued on the basis of
amortized cost. This valuation method involves valuing a portfolio instrument at
its cost at the time of purchase and thereafter assuming a constant amortization
or accretion to maturity of any premium or discount, without regard to the
effect of fluctuating interest rates on the market value of the instrument. By
using amortized cost valuation, which reasonably approximates market value, the
Money Market Fund seeks to maintain a constant NAV of $1.00 per share. The
Trust's Board of Trustees has determined that it is in the best interests of the
Fund and its shareholders to maintain a stable NAV and the Fund will continue to
use amortized cost valuation only as long as the Board of Trustees believes that
it fairly reflects market-based NAV.
PURCHASES AND REDEMPTIONS
The separate accounts of the Participating Insurance Companies place orders
to purchase and redeem shares of each Fund based on, among other things, the
amount of premium payments to be invested and the amount of surrender and
transfer requests (as defined in the prospectuses describing the VA Contracts
and VLI Policies issued by the Participating Insurance Companies) to be effected
on that day pursuant to VA Contracts and VLI policies.
Orders received by a Fund or a Fund's transfer agent are effected on each
Business Day. For orders received before the close of the NYSE, purchases and
redemptions of the shares of each Non-Money Market Fund are effected at the
respective net asset values per share determined as of the close of the NYSE on
that same day. Orders received after the close of the NYSE for shares of a Non-
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Money Market Fund are effected on the next Business Day. With respect to the
Money Market Fund, if orders are received by the Fund or the Fund's transfer
agent by 9:00 a.m. (Pacific time), the order is executed on the same day. Orders
received after 9:00 a.m. (Pacific time) for shares of the Money Market Fund
generally are executed on the next Business Day.
All orders for the purchase of shares are subject to acceptance or
rejection by Life & Annuity Trust. Payment for redemptions will be made by Life
& Annuity Trust's transfer agent on behalf of Life & Annuity Trust and the
relevant Funds within seven days after the request is received. Life & Annuity
Trust does not assess any fees, either when it sells or when it redeems its
shares. Surrender charges, mortality and expense risk fees and other charges may
be assessed by Participating Insurance Companies under the VA Contracts or VLI
Policies. These fees and charges are described in the Participating Insurance
Companies' prospectuses.
Should any conflict between VA Contract and VLI Policy holders arise which
would require that a substantial amount of net assets be withdrawn from a Fund
of Life & Annuity Trust, orderly portfolio management could be disrupted to the
potential detriment of the VA Contract and VLI Policy holders.
DIVIDENDS
Each Fund is treated separately in determining the amounts of dividends of
investment income and distributions of capital gains payable to its
shareholders. Dividends and distributions are automatically reinvested on the
payment date for each shareholder's account in additional shares of the Fund
that paid the dividend or distribution at net asset value or are paid in cash at
the election of the Participating Insurance Company.
The Asset Allocation Fund and the Growth and Income Fund declare and pay a
quarterly dividend, and the U.S. Government Allocation Fund declares and pays a
monthly dividend, of substantially all of their respective net investment
income. The Money Market Fund declares dividends daily and pays the dividends
monthly. The Funds generally distribute any capital gains once a year. Dividends
and distributions are invested in additional shares unless an election is made
on behalf of a separate account to receive dividends or distributions in cash.
Participating Insurance Companies will be informed about the amount and
character of dividends and distributions from the relevant Fund for federal
income tax purposes.
THE FUNDS, MANAGEMENT AND SERVICING FEES
Life & Annuity Trust was organized as a Delaware Business Trust on October
28, 1993. The Board of Trustees of Life & Annuity Trust supervises each Fund's
activities and monitors its contractual arrangements with various
service-providers.
Under normal circumstances, other than the shares issued to Stephens in
connection with Life & Annuity Trust's creation and initial capitalization, Life
& Annuity Trust offers shares of the Funds only to Participating Insurance
Companies, and only Participating Insurance Companies and their separate
accounts are considered shareholders of, or investors in, the Funds. Although
the Participating Insurance Companies and their separate accounts are the
shareholders or investors, such companies will pass through voting rights to
their VA Contract and VLI Policy holders. For a discussion of the voting rights
of VA Contract and VLI Policy holders, please refer to the Participating
Insurance Companies' prospectuses.
When matters are submitted for shareholder vote, shareholders of each Fund
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. A separate vote of a Fund is required on any matter
affecting the Fund on which shareholders are entitled to vote, such as approval
of a Fund's agreement with the Fund's investment adviser. Shareholders of one
Fund are not entitled to vote on a matter that does not affect that Fund but
that does require a separate vote of the other Funds. Normally no annual
meetings of shareholders will be held unless and until such time as
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<PAGE> 13
less than a majority of Trustees holding office have been elected by
shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office on the vote of shareholders holding at least two-thirds of Life &
Annuity Trust's outstanding shares at a meeting called for that purpose. The
Trustees are required to call such a meeting on the written request of
shareholders holding at least 10 percent of Life & Annuity Trust's outstanding
shares.
A more detailed description of the voting rights and attributes of the
shares is contained in the "Capital Stock" section of the SAI.
INVESTMENT ADVISER
Subject to the overall supervision of Life & Annuity Trust's Board of
Trustees, Wells Fargo Bank, pursuant to agreements with the Funds (the
"Investment Advisory Agreements"), provides investment guidance and policy
direction in connection with the management of the Funds' assets. As investment
adviser, Wells Fargo Bank furnishes the Board of Trustees with periodic reports
on the Funds' investment strategy and performance. Wells Fargo Bank also is the
Funds' transfer and dividend disbursing agent.
Wells Fargo Bank, one of the ten largest banks in the United States, was
founded in 1852 and is the oldest bank in the western United States. As of June
30, 1995, various divisions and affiliates of Wells Fargo Bank (including WFNIA)
provided investment advisory services for approximately $211 billion of assets
of individuals, trusts, estates and institutions. As of the same date, Wells
Fargo Bank managed or advised approximately $28 billion in assets of
individuals, trusts, estates and institutions. Wells Fargo Bank also serves as
the investment adviser to seven other registered, open-end, management
investment companies, each of which consists of several separately managed
investment portfolios. From time to time, each of the Funds, consistent with its
investment objectives, policies and restrictions, may invest in securities of
companies with which Wells Fargo Bank has a lending relationship. Wells Fargo
Bank, a wholly-owned subsidiary of Wells Fargo & Company, is located at 420
Montgomery Street, San Francisco, California 94163.
For its advisory services to the Non-Money Market Funds, Wells Fargo Bank
is entitled to a monthly advisory fee at the annual rate of 0.60% of each Fund's
average daily net assets. For its advisory services to the Money Market Fund,
Wells Fargo Bank is entitled to a monthly advisory fee at the annual rate of
0.45% of the Fund's average daily net assets. Out of its fee from the Asset
Allocation Fund and the U.S. Government Allocation Fund, Wells Fargo Bank pays
WFNIA for its sub-advisory services annual fees equal to 0.20% and 0.15% of the
average daily net assets of the Asset Allocation Fund and the U.S. Government
Allocation Fund, respectively. From time to time, Wells Fargo Bank may waive its
fees in whole or in part. Any such waiver will reduce a Fund's expenses and,
accordingly, have a favorable impact on a Fund's total return and yield. For the
year ended December 31, 1994, Wells Fargo Bank waived all advisory fees payable
to it under the respective Investment Advisory Agreements for the Asset
Allocation, Growth and Income, Money Market and U.S. Government Allocation
Funds.
Pursuant to sub-advisory agreements, Wells Fargo Bank has delegated certain
advisory responsibilities to WFNIA for the Asset Allocation Fund and the U.S.
Government Allocation Fund. Wells Fargo Bank has retained authority over the
management of each Fund and the investment and disposition of each Fund's
assets. Wells Fargo Bank may reject any investment recommendations or decisions
for a Fund if Wells Fargo Bank determines that rejecting such recommendations or
decisions is consistent with the best interests of the Fund. WFNIA is located at
45 Fremont Street, San Francisco, California 94105. WFNIA is a general
partnership owned 50% by a wholly-owned subsidiary of Wells Fargo Bank and 50%
by a subsidiary of The Nikko Securities Co., Ltd., a Japanese investment firm.
WFNIA also serves as investment adviser to other registered open-end management
investment companies. On June 21, 1995, Wells Fargo & Co. and The Nikko
Securities Co., Ltd. signed a definitive agreement to sell their joint venture
interest in WFNIA to Barclays PLC of the
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<PAGE> 14
U.K. The sale, which is subject to the approval of appropriate regulatory
authorities, is expected to close in the fourth quarter of 1995.
Barclays is the largest clearing bank in the U.K., with $259 billion in
total assets. Barclays has announced its intention to combine WFNIA with the
quantitative group of BZW Asset Management ("BZWAM"), its international asset
management arm. BZWAM is the largest quantitative fund manager in Europe, with
approximately $32 billion of quantitative funds under management, as of March
31, 1995. The BZW Division of Barclays, of which BZWAM forms a part, is the
investment banking arm of Barclays and offers a full range of investment
banking, capital markets and asset management services.
Under the 1940 Act, this proposed change of control of WFNIA would result
in an assignment and termination of the current Sub-Investment Advisory
Agreement between WFNIA, Wells Fargo Bank and the Funds. Subject to the approval
of Life & Annuity Trust's Board of Trustees, it is contemplated that a special
meeting of shareholders of the Funds will be convened to consider a new
Sub-Investment Advisory Agreement with WFNIA, which will become effective only
upon the change of control of WFNIA. It is not anticipated that the proposed
change of control will change the investment objective or overall investment
strategy of the Funds.
Robert W. Bissell has been responsible for the day-to-day management of the
portfolio of the Growth and Income Fund since its inception. Mr. Bissell joined
Wells Fargo Bank at the time of its merger with Crocker Bank and has been with
the combined organization for over 20 years. Prior to joining Wells Fargo Bank,
he was a vice president and investment counsel with M.H. Edie Investment
Counseling, where he managed institutional and high-net-worth portfolios. Mr.
Bissell holds a finance degree from the University of Virginia. He is a
chartered financial analyst and a member of the Los Angeles Society of Financial
Analysts.
Allen Wisniewski also has been responsible for the day-to-day management of
the portfolio of the Growth and Income Fund since its inception. Mr. Wisniewski
joined Wells Fargo Bank in April 1987 with the acquisition of Bank of America's
consumer trust services, where he was a portfolio manager. He received his B.A.
degree and M.B.A. degree in economics and finance from the University of
California at Los Angeles. He is responsible for managing approximately $500
million in assets for Wells Fargo Bank, including equity and balanced accounts
for high net worth individuals and pensions. He is a member of the Los Angeles
Society of Financial Analysts.
The portfolios of the Allocation Funds are managed based on the
recommendations of computer models, and no person is primarily responsible for
making recommendations or investment decisions.
Morrison & Foerster, counsel to Life & Annuity Trust and special counsel to
Wells Fargo Bank, has advised Life & Annuity Trust and Wells Fargo Bank that
Wells Fargo Bank may perform the services contemplated by the Investment
Advisory Agreements without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. Such counsel has pointed out, however,
that there are no controlling judicial or administrative interpretations or
decisions and that future judicial or administrative interpretations of, or
decisions relating to, present federal or state statutes, including the
Glass-Steagall Act, and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as future changes in such
statutes, regulations and judicial or administrative decisions or
interpretations could prevent Wells Fargo Bank from continuing to perform, in
whole or in part, such services. If Wells Fargo Bank were prohibited from
performing any such services, it is expected that the Trustees of Life & Annuity
Trust would recommend to the Funds' shareholders that they approve a new
advisory agreement with another entity or entities qualified to perform such
services.
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CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Institutional Trust Company, N.A. ("WFITC") serves as the
custodian for the Allocation Funds. WFITC, located at 45 Fremont Street, San
Francisco, California 94105, is a special purpose trust company that is owned
99.9% by WFNIA and 0.1% by Wells Fargo & Company.
Wells Fargo Bank serves as the custodian for the Money Market Fund and the
Growth and Income Fund. Wells Fargo Bank performs these services at its address
above.
Wells Fargo Bank serves as the Funds' transfer and dividend disbursing
agent. Wells Fargo Bank performs the transfer and dividend disbursing agency
activities at 525 Market Street, San Francisco, California 94105.
SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
Stephens is the Funds' sponsor and administrator and distributes the Funds'
shares. Stephens is a full service broker/dealer and investment advisory firm
located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment portfolios
for pension and profit sharing plans, individual investors, foundations,
insurance companies and university endowments.
Subject to the overall supervision of Life & Annuity Trust's Board of
Trustees, Stephens provides the Funds with administrative services, including
general supervision of each Fund's operation, coordination of the other services
provided to each Fund, compilation of information for reports to the SEC and the
state securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to Life & Annuity Trust's Trustees and officers.
Stephens also furnishes office space and certain facilities to conduct each
Fund's business, and compensates Life & Annuity Trust's Trustees, officers and
employees who are affiliated with Stephens. For these services, Stephens is
entitled to a monthly fee at the annual rate of 0.03% of each Fund's average
daily net assets. From time to time, Stephens may waive its fees from a Fund in
whole or in part. Any such waiver will reduce a Fund's expenses and,
accordingly, have a favorable impact on such Fund's yield and total return.
Stephens, as the principal underwriter of the Funds within the meaning of
the 1940 Act, has entered into a Distribution Agreement with Life & Annuity
Trust pursuant to which Stephens has the responsibility for distributing shares
of the Funds.
Stephens, as distributor of each Fund's shares, or the Participating
Insurance companies that offer VA Contracts and VLI Policies that are funded by
the Funds, bears all of the Funds' marketing expenses. These expenses include
the cost of printing prospectuses, statements of additional information and
other sales-related materials.
TAXES
Each Fund intends to qualify each year as a regulated investment company
under the Internal Revenue Code of 1986 (the "Code"). By complying with the
applicable provisions of the Code, the Funds will not be subject to federal
income taxes with respect to net investment income and net realized capital
gains distributed to its shareholders. Unless a shareholder is exempt from
taxation or entitled to tax deferral, dividends from the investment income
(including net short-term capital gains, if any) declared and paid by each Fund
will be treated as ordinary income by Participating Insurance Companies.
Distributions of net long-term capital gains paid are treated as such by
Participating Insurance Companies for federal income tax purposes. The Funds
intend to pay out all of their net investment income and net realized capital
gains (if any) for each year. Each year, the Funds will notify shareholders as
to the amount and tax status of all dividends and capital gains during the prior
year.
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Dividends and capital gain distributions (if any) declared in a calendar
year will be taxable in the year they are declared regardless of when they are
paid. Such distributions are taxable whether they are taken in cash or
reinvested in additional shares, regardless of how long the shareholder has held
the shares.
The Funds intend to comply with the diversification requirements of Section
817(h) of the Code. Such compliance means that the Participating Insurance
Companies, rather than the holders of VA Contracts and VLI Policies, should be
subject to tax on distributions received with respect to Fund shares.
The foregoing is a brief discussion of certain federal income tax
considerations. Federal income taxation of separate accounts of life insurance
companies, VA Contracts and VLI Policies is discussed in the prospectuses of the
Participating Insurance Companies. Please see the Statement of Additional
Information for further information regarding the tax implications of investment
in shares of the Funds. Prospective purchasers of a VA Contract or VLI Policy
with questions should also consult their tax advisors.
FUND EXPENSES
From time to time Wells Fargo Bank and Stephens may waive all or a portion
of the fees payable to them and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce a Fund's expenses and, therefore, increase
the amount of the Fund's distributions. Except for the expenses borne by Wells
Fargo Bank and Stephens, Life & Annuity Trust bears all costs of its operations,
including the compensation of its Trustees who are not affiliated with Stephens
or Wells Fargo Bank or any of their affiliates; advisory and administration
fees; interest charges; taxes; fees and expenses of its independent accountants,
legal counsel, transfer agent and dividend disbursing agent; expenses of
redeeming shares; expenses of preparing and printing prospectuses (except the
expense of printing and mailing prospectuses used for promotional purposes),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
NAV per share of a Fund; expenses of shareholders' meetings; expenses relating
to the issuance, registration and qualification of Fund shares; pricing
services, and any extraordinary expenses. Expenses attributable to a Fund are
charged against a Fund's assets. General expenses of Life & Annuity Trust are
allocated among all of the Funds of Life & Annuity Trust in a manner
proportionate to the net assets of each Fund, on a transactional basis, or on
such other basis as Life & Annuity Trust's Board of Trustees deems equitable.
GENERAL INFORMATION
The Funds' SAI and this prospectus omit certain information contained in
the Registration Statement that the Funds have filed with the SEC under the
Securities Act of 1993 and the 1940 Act, and reference is hereby made to the
Registration Statement and its exhibits and amendments for further information
about the Funds and the shares offered hereby. The Registration Statement and
its exhibits and amendments are available for public inspection at the SEC in
Washington, D.C.
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PROSPECTUS APPENDIX -- ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Asset Allocation Model
WFNIA compares the Asset Allocation Fund's investments daily to the
computer Asset Allocation Model's recommended asset allocation. Any recommended
reallocation is implemented in accordance with trading policies that have been
designed to take advantage of market opportunities and to reduce transaction
costs. Under current trading policies employed by WFNIA, recommended
reallocations may be implemented promptly upon receipt of recommendations or may
not be acted upon for as long as two or three months thereafter depending on
factors such as the percentage change from previous recommendations and the
consistency of recommended reallocations over a period of time. In addition, the
Asset Allocation Fund may invest the net proceeds from the sale of shares of the
Fund and may liquidate existing Fund investments to meet net redemption
requirements in a manner that best allows the Fund's existing asset allocation
to follow that recommended by the computer model. Notwithstanding any
recommendation of the computer model to the contrary, the Asset Allocation Fund
will generally maintain at least that portion of its assets in money market
instruments reasonably considered necessary to meet redemption requirements.
There is no requirement that the Fund maintain positions in any particular asset
class or classes.
Wells Fargo Bank and WFNIA manage other portfolios which also invest in
accordance with the Asset Allocation Model. The performance of each of those
other portfolios is likely to vary among themselves and from the performance of
the Fund. Such variation in performance is primarily due to differences in the
equilibrium asset mix assumption used for the various portfolios, timing
differences in the implementation of the model's recommendations for each
portfolio and differences in portfolio expenses and liquidity requirements.
There are 500 common stocks, including Wells Fargo & Company stock, which
make up the S&P 500 Index. S&P occasionally makes changes in the S&P 500 Index
based on its criteria for inclusion of stocks in the S&P 500 Index. The S&P 500
Index is market-capitalization-weighted so that each stock in the S&P 500 Index
represents its proportion of the total market value of all stocks in the S&P 500
Index.
In making its stock investments, the policy of the Asset Allocation Fund is
to invest its assets in substantially the same stocks, and in substantially the
same percentages, as the S&P 500 Index, including Wells Fargo & Company stock.
U.S. Government Allocation Model
WFNIA compares the U.S. Government Allocation Fund's investments daily to
the computer U.S. Government Allocation Model's recommended allocation. Any
recommended reallocation is implemented in accordance with trading policies that
have been designed to take advantage of market opportunities and to reduce
transaction costs. Under current trading policies employed by WFNIA, recommended
reallocations may be implemented promptly upon receipt of recommendations or may
not be acted upon for as long as two to three months thereafter depending on
factors such as the percentage change from previous recommendations and the
consistency of recommended reallocations over a period of time. In addition, the
U.S. Government Allocation Fund may invest the net proceeds from the sale of
shares of the Fund and may liquidate existing Fund investments to meet net
redemption requirements in a manner that best allows the Fund's existing asset
allocation to follow that recommended by the computer model. Notwithstanding any
recommendation of the computer model to the contrary, the Fund will generally
maintain at least that portion of its assets in money market instruments
reasonably considered necessary to meet redemption requirements. There is no
requirement that the Fund maintain positions in any particular asset class or
classes.
A key component of the model is a set of assumptions concerning expected
risk and return and investor attitudes toward risk, which are incorporated into
the allocation decision. The principal
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inputs of financial data to the U.S. Government Allocation Model currently are:
(i) yields on 90-day U.S. Treasury bills, 5-year U.S. Treasury notes, and
30-year U.S. Treasury bonds; (ii) the expected statistical standard deviation in
investment returns for each class of fixed-income security; and (iii) the
expected statistical correlation of investment return among the various classes
of fixed-income investments. Using this and other data, the model is run daily
to determine the recommended allocation.
WFNIA manages other portfolios which invest in accordance with a
substantially similar version of the U.S. Government Allocation Model. The
performance of each of those other portfolios is likely to vary among themselves
and from the performance of the Fund. Such variation in performance is primarily
due to timing differences in the implementation of the model's recommendations
for each portfolio, differences in expenses and liquidity requirements, and the
other portfolios' ability to invest more of their assets in investments that may
generate a higher yield, but are not issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Although WFNIA intends to use the model as a basis for its investment
recommendations with respect to the U.S. Government Allocation Fund, WFNIA may
change from time to time the criteria and methods it uses to implement the
model's recommendations if it believes such a change is desirable for the Fund.
Delayed Delivery Transactions
The Funds may purchase securities on a delayed delivery or when-issued
basis, with payment and delivery taking place at a future date. The market value
of securities purchased in this manner may change before the delivery date,
which could affect the market value of a Fund's portfolio assets. Ordinarily, a
Fund will not earn interest on securities until they are delivered. When delayed
delivery or when-issued purchase orders are outstanding, a Fund will segregate
cash, U.S. Government obligations of other high quality debt instruments to
cover its purchase obligations.
Floating and Variable Rate Instruments
Certain of the debt instruments that the Funds may purchase bear interest
at rates that are not fixed, but vary with, for example, changes in specified
market rates or indices or specified intervals. Certain of these instruments may
carry a demand feature that would permit the holder to tender them back to the
issuer at par value prior to maturity. The floating and variable rate
instruments that the Funds may purchase include certificates of participation in
such obligations purchased from banks. The Money Market Fund may invest in
floating and variable rate obligations even if they carry stated maturities in
excess of thirteen months, upon compliance with certain conditions of the SEC,
in which case such obligations will be treated in accordance with these
conditions as having maturities not exceeding thirteen months. Wells Fargo Bank,
as investment adviser, will monitor on an ongoing basis the ability of an issuer
of a demand instrument to pay principal and interest on demand. Events affecting
the ability of the issuer of a demand instrument to make payment when due may
occur between the date a Fund elects to demand payment and the date payment is
due. Such events may affect the ability of the issuer of the instrument to make
payment when due, thereby affecting a Fund's ability to obtain payment at par.
Demand instruments whose demand feature is not exercisable within seven days may
be treated as liquid, provided that an active secondary market exists.
Foreign Obligations
The Funds may invest up to 25% of their respective assets in high-quality,
short-term debt obligations of foreign branches of U.S. banks or U.S. branches
of foreign banks that are denominated in and pay interest in U.S. dollars.
Investments in foreign obligations involve certain considerations that are not
typically associated with investing in domestic obligations. There may be less
publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not subject to the same uniform accounting,
auditing and financial reporting standards or governmental
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supervision as domestic issuers. In addition, with respect to certain foreign
countries, interest may be withheld at the source under foreign income tax laws,
and there is a possibility of expropriation or confiscatory taxation, political
or social instability or diplomatic developments that could adversely affect
investments in, the liquidity of, and the ability to enforce contractual
obligations with respect to, securities of issuers located in those countries.
Letters of Credit
Certain of the debt obligations, certificates of participation, commercial
paper and other short-term obligations which the Money Market Fund is permitted
to purchase may be backed by an unconditional and irrevocable letter of credit
of a bank, savings and loan association or insurance company which assumes the
obligation for payment of principal and interest in the event of default by the
issuer. Letter of credit-backed investments must, in the opinion of Wells Fargo
Bank, be of investment quality comparable to other permitted investments of the
Money Market Fund.
Loans of Portfolio Securities
The Non-Money Market Funds may lend securities from their portfolios to
brokers, dealers and financial institutions (but not individuals) if cash, U.S.
Government obligations or other high-quality debt instruments equal to at least
100% of the current market value of the securities loan (including accrued
interest thereon) plus the interest payable to a Fund with respect to the loan
is maintained with the Fund. In determining whether to lend a security to a
particular broker, dealer or financial institution, a Fund's investment adviser
considers all relevant facts and circumstances, including the creditworthiness
of the broker, dealer or financial institution. Any loans of portfolio
securities will be fully collateralized based on values that are marked to
market daily. The Non-Money Market Funds will not enter into any portfolio
security lending arrangement having a duration of longer than one year. Any
securities that a Fund may receive as collateral do not become part of the
Fund's portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund, if permitted by law, will dispose of such collateral except
for such part thereof that is a security in which the Fund is permitted to
invest. During the time securities are on loan, the borrower will pay a Fund any
accrued income on those securities, and the Fund may invest the cash collateral
and earn additional income or receive an agreed-upon fee from a borrower that
has delivered cash-equivalent collateral. No Fund will lend securities having a
total value that exceeds one third of the current value of its total assets.
Loans of securities by a Fund will be subject to termination at the Fund's or
the borrower's option. The Non-Money Market Funds may pay reasonable
administrative and custodial fees in connection with a securities loan and may
pay a negotiated portion of the interest or fee earned with respect to the
collateral to the borrower or the placing broker. Borrowers and placing brokers
may not be affiliated, directly or indirectly, with Life & Annuity Trust, the
investment adviser, or the Distributor.
Money Market Instruments and Temporary Investments
In accordance with their investment policies, the Funds may invest varying
percentages of their assets in money market instruments. In addition, the Funds
may have temporary cash balances on account of new purchases, dividends,
interest and reserves for redemptions, and which the Funds may invest in the
following high-quality money market instruments: (i) obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, including
government-sponsored enterprises ("U.S. Government obligations") (discussed
below); (ii) negotiable certificates of deposit, bankers' acceptances and fixed
time deposits and other obligations of domestic banks (including foreign
branches) that have more than $1 billion in total assets at the time of
investment and are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the FDIC ("Bank
Instruments"); (iii) commercial paper rated at the date of purchase "P-1" by
Moody's or "A-1+" or "A-1" by S&P, or, if unrated, of comparable quality as
determined by Wells Fargo Bank, as investment adviser; (iv) commercial paper
unrated at the date of purchase but secured by a letter of credit from a U.S.
bank that meets the above criteria for
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investment; (v) certain floating and variable rate instruments; (vi) repurchase
agreements; and (vi) short-term, U.S. dollar-denominated obligations of foreign
banks (including U.S. branches) that, at the time of investment: (a) have more
than $10 billion, or the equivalent in other currencies, in total assets; (b)
are among the 75 largest foreign banks in the world as determined on the basis
of assets; (c) have branches or agencies in the United States; and (d) in the
opinion of Wells Fargo Bank, as investment adviser, are of comparable quality to
obligations of U.S. banks which may be purchased by a Fund.
Other Investment Companies
Each Fund may invest in shares of other open-end, management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act,
provided that any such purchase is limited to temporary investments in shares of
unaffiliated investment companies and each Fund's investment adviser waives its
advisory fees for that portion of the Fund's assets so invested, except when
such purchase is part of a plan of merger, consolidation, reorganization or
acquisition. Notwithstanding any other investment policy or limitation (whether
or not fundamental), as a matter of fundamental policy, each Fund may invest all
of its assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective, policies
and limitations as the Fund.
Repurchase Agreements
The Funds may enter into repurchase agreements wherein the seller of a
security to a Fund agrees to repurchase that security from such Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Funds may enter into repurchase agreements only with respect to
those debt instruments which are permissible investments for the Fund. All
repurchase agreements will be fully collateralized based on values that are
marked to market daily. The maturities of the underlying securities in a
repurchase agreement transaction may be greater than one year. However, the term
of repurchase agreements entered into on behalf of the Money Market Fund will
always be less than thirteen months. If the seller defaults and the value of the
underlying securities has declined, a Fund may incur a loss. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
a Fund's disposition of the security may be delayed or limited. The Funds only
will enter into repurchase agreements with registered broker/dealers and
commercial banks that meet guidelines established by Life & Annuity Trust's
Board of Trustees and are not affiliated with the Funds' investment adviser.
Short-Term Corporate Debt Instruments
The Funds may invest in commercial paper (including variable amount master
demand notes), which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
Such Funds also may invest in non-convertible corporate debt securities
(e.g., bonds and debentures) with no more than one year remaining to maturity at
the date of settlement. Such Funds will invest only in such corporate bonds and
debentures that are rated at the time of purchase at least "Aa" by Moody's or
"AA" by S&P.
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U.S. Government Obligations
The Funds may invest in the various types of short-term securities issued
by or guaranteed as to principal and interest by the U.S. Government and
supported by the full faith and credit of the U.S. Treasury. U.S. Treasury
obligations differ mainly in the length of their maturity. Treasury bills, the
most frequently issued marketable government securities, have a maturity of up
to one year and are issued on a discount basis. U.S. Government obligations also
include securities issued or guaranteed by federal agencies or
instrumentalities, including government-sponsored enterprises. Some obligations
of U.S. Government agencies or instrumentalities are supported by the full faith
and credit of the United States or U.S. Treasury guarantees; others, by the
right of the issuer or guarantor to borrow from the U.S. Treasury; still others,
by the discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, only by the credit of
the agency or instrumentality issuing the obligation. In the case of obligations
not backed by the full faith and credit of the United States, the investor must
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. In addition, U.S. Government obligations are subject to
fluctuations in market value due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government obligations are
subject to fluctuations in yield or the timing of receipt of payments due to
their structure or contract terms.
INVESTMENT TECHNIQUES
Futures Transactions
None of the Funds is a commodity pool. To the extent permitted by
applicable regulations, each Allocation Fund is permitted to use futures
contracts and options on futures contracts as substitutes for comparable market
positions in the underlying securities. These contracts and options may include
stock index and interest rate futures contracts and options thereon. The use of
futures contracts and options thereon as substitutes for comparable market
positions involves certain risks, including, for the reasons described below,
the risk of imperfect correlation between the value of the Allocation Fund's
futures or options position and the value of the underlying index or securities.
Each Allocation Fund's futures transactions must constitute permissible
transactions pursuant to regulations promulgated by the Commodity Futures
Trading Commission. In addition, an Allocation Fund may not engage in such
transactions if the sum of the amount of initial margin deposits and premiums
paid for unexpired futures contract options would exceed 5% of the liquidation
value of the Fund's assets, after taking into account unrealized profits and
unrealized losses on such contracts; provided, however, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount may
be excluded in calculating the 5%. Pursuant to regulations and/or published
positions of the SEC, an Allocation Fund may be required to segregate cash, U.S.
Government obligations or other high quality debt instruments in connection with
its futures transactions in an amount generally equal to the entire value of the
contract amount.
Initially, when purchasing or selling futures contracts an Allocation Fund
will be required to deposit with a custodian in the broker's name an amount of
cash or cash equivalents up to approximately 10% of the contract amount. This
amount is subject to change by the exchange or board of trade on which the
contract is traded and members of such exchange or board of trade may impose
their own higher requirements. This amount is known as "initial margin" and is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures position, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short
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positions in the futures contract more or less valuable, a process known as
"marking-to-market." At any time prior to the expiration of a futures contract,
the Allocation Fund may elect to close the position by taking an opposite
position, at the then-prevailing price, thereby terminating its existing
position in the contract.
Although each Allocation Fund intends to purchase or sell futures contracts
only if there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any particular
time. Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contract prices could move to the limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subjecting the relevant
Allocation Fund to substantial losses. If it is not possible, or the Allocation
Fund determines not, to close a futures position in anticipation of adverse
price movements, it may be required to make daily cash payments of variation
margin.
A futures contract obligates the seller to deliver (and the purchaser to
take), effectively, an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock or interest-rate index at
the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks or instruments
in the index occurs. With respect to indexes that are permitted investments,
each Allocation Fund intends to purchase and sell futures contracts on the index
for which it can obtain the best price with consideration also given to
liquidity.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. Upon
exercise of the option, the writer/seller is required to assume an offsetting
futures position (a short position if the option is a call and a long position
if the option is a put). Upon exercise of the option, the assumption of
offsetting futures positions by the writer/seller and holder/buyer of the option
will be accompanied by delivery of the accumulated cash balance in the writer's
futures margin account, which represents the amount by which the market price of
the futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the futures
contract.
INVESTMENT POLICIES
Each Fund's investment objective, as set forth in the "Investment
Objectives and Policies of the Funds" section, is fundamental; that is, it may
not be changed without approval by the vote of a majority of a Fund's
outstanding voting securities, as described under "Capital Stock" in the Funds'
SAI. In addition, any fundamental investment policy may not be changed without
such shareholder approval. If the Board of Trustees determines, however, that a
substantive change in a non-fundamental investment policy or strategy is in the
best interests of a Fund's shareholders, the Board may make such change without
shareholder approval and will disclose any such material changes in the affected
Fund's then-current prospectus.
As matters of fundamental policy, each Fund may: (i) not purchase
securities of any issuer (except U.S. Government obligations) if as a result,
with respect to 75% of a Fund's assets, more than 5% of the value of the Fund's
total assets would be invested in the securities of such issuer or the Fund
would own more than 10% of the outstanding voting securities of such issuer;
(ii) borrow from banks up to 20%, with respect to the Asset Allocation Fund and
the U.S. Government Allocation Fund, or 10%, with respect to the other Funds, of
the current value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 20%,
with respect to the Asset Allocation Fund and the U.S. Government Allocation
Fund, or 10% with respect
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to the other Funds, of the current value of its net assets (but investments may
not be purchased while any such outstanding borrowing in excess of 5% of its net
assets exists); (iii) not invest 25% or more of its assets (i.e., concentrate)
in any particular industry, except that: (a) each Fund may invest 25% or more of
its assets in U.S. Government obligations; (b) the Money Market Fund may
concentrate its assets in obligations of domestic banks (for purposes of this
restriction, domestic bank obligations do not include obligations of foreign
branches of U.S. banks and obligations of U.S. branches of foreign banks); and
(c) the Asset Allocation Fund is permitted to concentrate its assets in any
industry for the same period as does the S&P 500 Index, and the Asset Allocation
Fund's money market investments may be concentrated in the banking industry.
However, the Asset Allocation Fund's money market investments in the banking
industry will not represent 25% or more of its total assets unless the SEC staff
has confirmed that it does not object to the Fund reserving freedom of action to
concentrate investments in the banking industry. In addition, as a matter of
fundamental policy, the Money Market Fund may not make loans of portfolio
securities or assets, except that loans for purposes of this restriction will
not include the purchase of fixed time deposits, repurchase agreements,
commercial paper and other short-term obligations, and other types of debt
instruments commonly sold in a public or private offering; and the other Funds
may make such loans in accordance with their investment policies.
With respect to paragraph (i), it may be possible that the aggregate
ownership by Life & Annuity Trust would exceed 10% of the outstanding voting
securities of an issuer. With respect to paragraph (ii) above, each Fund
presently does not intend to put at risk more than 5% of its assets during the
coming year. With respect to loans of portfolio securities, the Asset Allocation
Fund presently does not intend to put at risk more than 5% of its assets during
the coming year.
As a matter of non-fundamental policy, each Fund except the Money Market
Fund may invest up to 15% of the current value of its net assets in securities
that are illiquid by virtue of the absence of a readily available market or
legal or contractual restrictions on resale and fixed time deposits that are
subject to withdrawal penalties and that have maturities of more than seven
days. The Money Market Fund may invest up to 10% of its net assets in illiquid
securities.
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